Top of the Class

#7 College Tips - How to Prepare for a Career in Finance and Investing

March 17, 2021 Season 2 Episode 7
Top of the Class
#7 College Tips - How to Prepare for a Career in Finance and Investing
Show Notes Transcript

When you ask Jamie Beaton to be a guest on the show, it's not so much a podcast as a mini crash course!

In this episode, Jamie reflects on his time working for Weiss Asset Management and Tiger Management and his deep love of all things investing and finance to give insights into the career path and the extracurriculars that matter while in high school.

Crimson CEO, Harvard graduate, Stanford MBA and Rhodes Scholar, Jamie Beaton, gives a fast-paced crash course into life in finance, the careers to consider, companies to aim for and why getting into a top university can make all the difference. Click here to check out Jamie's intensive online stock investing course.

Podcast Host  00:00

Hello and welcome to college tips. In today's episode, Crimson Education CEO and podcast co host Jamie Beaton gives a must listen Crash Course to students aiming for investing and finance careers. He shares his favorite resources and extracurriculars for high schoolers, a breakdown of the career pathways, and what to expect in your first few years working in finance. Let's chat with Jamie Beaton. Hey, Jamie, welcome to college tips. It's awesome to have you on the show. And I don't think we need too much of an introduction because people already know a lot about you as the CEO of Crimson Education and co host of the top of the class podcast. But in terms of your finance background, I think we could give some information about that. So can you tell listeners a little bit about your background in finance and investing, which I know is extensive.

Jamie Beaton  01:06

Definitely. So I guess this all began in high school when I picked up AS economics when I was about 17. Up until that point, I never thought about economics investing in these areas. But I really fell in love with the subject because I'd love math for many years. And when I picked up economics, I realized that actually, at the intersection of economics and math, there are all of these quite exciting finance business topics. There's a real career you can have working as an investor working on Wall Street, etc. So that was kind of the initial piece in high school. And then I headed it off to Harvard, where I did applied math and economics, which basically is a major that a lot of aspiring wall street kids take the Applied Math economics generally, as you know, it's a more mathematically rigorous economics major at Harvard. And, you know, it's very, it's very popular for those who want to do things, they can read some banking. So basically, when I got to Harvard, my mission was very much beginning to finance. So my first summer I worked for a hedge fund called Weiss Asset Management, which is a leading hedge fund in Boston that does quantitative trading, so using various algorithms to trade the market. And that was really fantastic experience. And then from there, I got involved in a number of student clubs at Harvard, most notably Black Diamond capital, which basically is a investing club with students and restaurant money into the fund. And it's flipped. And based on those two books on investing experience in as a as a fund as a team, you make investment decision. And it's a really practical way to kind of build finance experience, it's quite realistic. And then from there, I have a fantastic opportunity to begin working at Tiger management, which is really one of the world's best hedge funds. And really one of the hedge funds that sort of started the hedge fund industry under the leadership of Julian Robertson. So I worked for a tiger for several years while I was at Harvard, over the summers during term time. And that was really the bulk of my finance experience. And so we traveled around the US meeting company CEOs to research stocks, to learning how to do short selling, financial modeling, and all the various parts that it required to be a good financial analyst. Following that, of course, I've been born in Crimson for many years. But as I did my MBA at Stanford, I did take a lot of extra finance classes. And it's an area that I've really kept up to speed on, because if they're really relevant trends to our students, and also, you know, to our investment decisions at Crimson as well. So that's a bit of background on sort of my history of finance, so to speak.

Podcast Host  03:23

As I said, it was extensive, and it proves to be extensive. But you know, the fact that you're only in your mid 20s, still. Now, in my view, like it seems that finance and consulting and these kind of like, I guess, buzzwords have been thrown around a lot more in high school Nowadays, people are like, Oh, I want to be a consultant. And I want to be someone who works on Wall Street. What are the differences or similarities that those career paths might have? Because I hear them throwing around almost an equal portions?

Jamie Beaton  03:50

Yeah, well, so these things are quite different. So let's start with consultant. So we will say consulting, they often managed to consultant and this often means working at firms like McKinsey, Bain or Boston Consulting Group, that's really the top here, followed by firms like Oliver Wyman firms like PwC, your EY etc., which offer some kind of consulting services. But generally speaking, the job of the management consultant is that a big company will usually hire you to advise on an important strategic project. So let's say you're Google, and you want to figure out how to get into the social media space. And you might hire McKinsey to look at different options for things to buy or potential opportunities and businesses you could create. These projects typically involve teams of about four analysts per project. But you can of course, high multiple teams if you want. And generally speaking, the clients will be paying upwards of half a million a week for these teams to work on their their cases. And as a result, they expect very high caliber people to be assigned to the case into the hiring model of firms like McKinsey, Bain and BCG has a darkly been to hire the most academic students from various top universities and their particular to hire from Many of the Ivy League schools, Harvard was known for a while as McHarvard because McKinsey hired so people from that school. So basically, management consulting is really versatile. Because as a 23, 24 year old, you get to work on a different pace every six to eight weeks, you learn about many different industries and get really thorough training and experience because many people that join consulting, don't actually have any previous business experience for him to the company has had to really develop detailed training programs. And so it's one of the most effective ways to rapidly appeal your business understanding strategic thinking ability to dive in different industries, that management consulting, kind of solving real world business problems, and making recommendations with large companies but what they should do with their resources. The second part of the question is, what is Wall Street? What does that actually mean? So Wall Street, although it is a street in New York broadly refers to the finance sector and all of the firm's you can work at, you know, in this associated area, and that includes a wide variety. So it's everything from working behind the scenes on a risk desk, figuring out whether a portfolio of stocks is risky, or you know, what kind of return profile it has, all the way to the more glamorous jobs where you're investing and actually making investment decisions where you look at the market, look at different companies figure out what you should buy, see what a good prices, then try and enter these trades with a view to make a profit. Now, the most popular way to enter finance is as an investment banker, and that usually involves working for a firm like Goldman Sachs, Morgan Stanley, you know, other firms like this, um, Citibank, Credit Suisse are all examples. As an investment banker, you typically are doing a couple of jobs the first you're trying to help companies IPO or less than a public market. The second is that you are involved in the buying and selling of companies. Let's say you have a company and the company wants to buy another company, they'll hire an investment bank has typically facilitate that transaction. In many ways you could think about a real estate agent, but definitely with a lot more perhaps math and finance skills and bigger transaction sizes. Now the other kind of way you can enter the investment banks as a sales and trading analyst, and minimus job, you may help clients execute trades, let's say you've got a big company and they want to do a foreign exchange trade, you might help them execute that trade. You also occasionally will be trading on the bank's own balance sheet and making investment decisions. But that's getting increasingly real with some of the new reforms. But overall, your end of the year the investment industry is either a investment banker or a sales and trading analyst. And then for a select few people. And you can skip that that's called the sell side where you're typically selling services or selling stocks, etc. to what's known as the buy side and the buy side is the more high paying area, we are actually making investment decisions. And typically there are three areas of note. One is hedge fund analysts or investment analysts. The next is private equity analysts, and the third is venture capitalists. So just quickly a hedge fund analyst is investing stocks and publicly traded stock. So investing money in publicly traded stocks like stock exchange's, venture capitalists are investing in private companies usually early stage, you know, looking for much higher return but with a much greater chance of failure. And then finally, there's private equity analysts, your job is to buy quite mature but private companies that are usually grown at slower growth rates, they're trying to cut costs, make them more efficient than sell them, usually 6-10 years. So that's kind of the summary of the finance side of the house. So that overall differently some of the most exciting career pathways for many of our young ambitious firms and students around the world. 

Podcast Host  08:32

Yeah, well, thank you for that awesome explanation. I think I've actually learned quite a few things from that, which is awesome. I'm interested in the more investment finance side. So we'll stick with that today. I think a lot of students who do a lot of extracurriculars at school, learning what they want to do after high school and university and career path from those extracurriculars. But I think in terms of like investing, or finance, there's not a huge amount of extracurriculars that schools will typically put on, for students interested in this pathway. You know, we've seen a couple of fantastic students on the top of the class like Aryaansh and Koki, who have done really amazing things in high school, or like, I guess, outside of high school in their own time to kind of learn about this finance industry and do what is really cool extracurricular. But what's your thoughts on how students can learn about finance learn about investing whilst they're in school?

Jamie Beaton  09:24

Okay, it's a really good question. So the first thing that I would say is, first of all, if you want to be one of the students, as I said, at Harvard, where you can break into by side as a hedge fund analyst in your, you know, early 20s, rather than typically the path of going for years into investment bank, and then looking to make that transition, you have to start learning that content earlier. And one of the big focus areas of our school you know, comes in global Academy comes before philosophy is to equip students to compete much earlier on in their careers. So your question is very timely, because many high school students and can get onto this early, so the first thing the student should do Learn a level economics a level psychology a level math or equivalent AP qualifications like AP microeconomics, AP macroeconomics, AP, basic calculus, AP psychology. The reason why is math, economics and in psychology are three of the critical areas of knowledge you need to be a successful investor in the market. And there's not really much point, you know, doing a lot of extracurriculars if you're weak in those areas. So first of all want to take a deep dive there, you can also add some accounting, which is actually it's kind like the language of Finance. It's the language of how a company is doing. And having accounting knowledge helps you evaluate stocks and other investment opportunities. So you definitely want to get familiar with the accounting statements as well, if you can, you can learn that through various online courses. For example, we have a learn stock investing online course you can take which we can put in the link. Or you can also look at things like Coursera is Wharton, a financial modeling course, which a number of my ambitions from the students take out a recommendation as far as the other extracurriculars. And once you've kind of achieved that core area of knowledge, you want to move to kind of like some reading activities. So for example, Seth Klarman, a famous billionaire hedge fund investor in Boston, has a book called margin of safety. And you can get the PDF online. That's one of the you know, stronger interactions to find it. Now a professor at Harvard Mahir Desai has a book called, I think the wisdom of finance, which is a guide to, you know, principles of finance written in a way that's quite understandable. That's really, really good read as well. And so you know, that's kind of the reading content. And when you apply for schools, like say, you know, Columbia, you have to state what books you read recently. So that kind of coverage is important. Now, as far as the hard extracurriculars. Things like the Tiger Global Case Competition, which is the world's largest High School case, competition from business analysis is a really good one to do. And there's also areas like stock investing competitions, where you get to pitch stocks, and they're growing in popularity around the world, you can also run your own your school community, the next thing is you can create a financial investment club at your school. Or you can, for example, join the Crimson Global Academy out online high school and participate in our investing club, you can also do things like, for example, going to invest in conferences, what, generally speaking don't have an age limit. And you can find them in local areas, you can get internships at local funds, or global funds. We also help those as well through both internships that can be remote or in person, we have seen some interns recently PwC, for example, to get some finance experience. And then finally, you can look at things like research so you can get involved with economics professors, pop them in different ways, with local online support programs. And that's a very popular way to build that kind of experience. Well, one of our Crimson students, Lucas Lee, who got into Harvard and Princeton with us, and is now working on Wall Street, you know, we spent a lot of time with them kind of walking them through some of the relevant behavioral finance economic research before he applied to schools like Harvard and Princeton. And without an interest at finance, there are a couple of different things you can think about. There's also some related skills such as debating, because when you pitch stocks outside of fun, you've got to be able to convincingly articulate your argument, look at the you know, weaknesses and then argument. And so, you know, activities, like debating really builds up a lot of those core skills as well, which is why top hedge funds like Bridgewater love debaters as an example, there are a couple of quick examples that I'd give you.

Podcast Host  13:17

Yeah, well, that's a fantastic thing for students to work on, I think if they were probably hopefully taking down a lot of notes, or you can obviously check the transcript as well, because we'll have this full transcript there. But I'm interested in like his students investing in things like Bitcoin ripple, like a couple of stocks Is that a good part of the learning process for students to actually put either a bit of their own money forward, or perhaps their parents could mind them a few bucks to actually put money into the market is that worth doing when you're 16, 17?

Jamie Beaton  13:46

So generally speaking, I'm pretty negative on people investing in Bitcoin, as like or associated cryptocurrencies, as the for end the market. The reason for this is that generally most stocks or stock indexes like the s&p 500, which is the 500 biggest companies in America, they historically have less volatility, they've got a high what's called a Sharpe ratio, or the ratio of return over risk. And basically, to analyze a stock, you've got to understand how the company operates, you know, how demand may change for its products, other kind of factors, like competition. So it's quite an intellectual exercise that you can, you know, really study and understand and, you know, build some good skills behind when you're analyzing Bitcoin and other currencies. It's basically pure gambling to be honest around where the price is going to go, because there's no fundamental value attached to Bitcoin or any of these other currencies. And up until recently, they've had very limited actual real world use. So you can't, for example, go buy a coffee with a Bitcoin, with very few exceptions. And so generally speaking, it's really speculative. And typically what happens is when the bitcoin price rises a lot, there's lots of media articles covering people that have done very well and that makes people pile into the asset and they want to drop so people lose money. Some of the recent GameStop pusteria splits kind Like speculative, her chasing activity is really quite antithetical to you know what strong investing principles usually are. And they don't really teach you much about the market. So overall, I'm not a big fan of staying with those assets. So it's much better to, for example, go and read things like Warren Buffett's investing letters and look at some restaurant companies like Coke and understand how you might value a business like that. That's gonna be more useful set of skills in general than if you you know, sort of speculatively, trade, cryptocurrencies.

Podcast Host  15:28

Yeah. Okay. That's good advice. I think for students who are aiming for a career in finance, investing, etc. It's probably a little bit hard to know exactly what they're getting themselves in for in terms of like the hours the workload some of the things that they might be doing day to day, is there any tips based on your experiences, in terms of like what students should actually expect from that career path? I think a lot of students are looking at that career path, perhaps because they say dollar signs, right. And I think a couple of those dollar signs might end up in their pockets. But I know it's not a walk in the park. But what are some of your experiences both the good and the bad?

Jamie Beaton  16:00

So I would definitely say that if you want to earn a lot of money as young person in the world today, the two most consistent paths to do it would probably be working as a private equity hedge fund analyst in a Wall Street firm, or working for a big technology company like Facebook, Google, where they do pay really competitive salaries. For both of them on the money side, a lot of outcomes and students now they've gone through careers, and we've gotten them into Ivy League and other great schools, they've gone on to work for Goldman Sachs, other top firms, and they usually start on salaries of about 110,000 USD, up to about 140,000 USD, depending on you know, which firm they're working at. Now, these salaries tend to rapidly grow over time. So salaries and finance as you go up the totem pole do grow quite significantly. So it is true that you can make a lot of money in these places. And part of the reason for that is that there's a lot of capital in the world that has to be invested somewhere because many things like countries, pension funds need to get returned. And so it requires lots of people to go put in all the effort to then invest all of this capital in general. And while there is a growing trend of what's called passive investing, where you just invest in broad indexes, you don't choose individual stocks. Most major and you know, sources of capital, like countries, pension funds, want to invest in some active strategies, which means thirdly is where people are making active investment decision. So overall, that create big demand many, many investment analysts and you know, that's kind of how that piece works. Now, as far as the hours, basically, if you work as a buy side investor, I investing someone's capital, the markets open from usually 9am, to sort of 5pm or so roughly, you know, in the New York timezone, St. And so those are the key hours that you want to be awake for usually, you know, working, but then of course, you might come in early. So at tiger, you started about 7am. And then, you know, would often stop at about, you know, 6.30-7, but we could, you know, could go longer if you want to father Day is a relatively common, so about a 60 hour 50 to 70 Hour Work Week is not as pretty standard, I think, on the investing side. But you're also really learning a ton. And so it's usually really fun for people doing this, the part that's really quite taxing, I would say, as the investment banks on the sell side, where you traditionally are putting in, you know, literally 100 hour plus work weeks. And it's not uncommon for interns to have to work 14, 16 consecutive days, and leave the office at 2am and have to be back at 8am, many, many days in a row. So in eastern banking, particularly in the junior rungs is really a bit of an insurance game. And there's huge attrition rates where very few investment bankers stick around for many years, many didn't leave to, you know, more favorable working environments. But these places are able to get away with it, because they do have really good extra opportunities when you work for them. And they pay well and they've got a great brand. But the hours are really brutal. And there's sort of no shying away from that. So if you're up for that, you know, by all means, but it's very hard to find a proof the investment bank, especially if you're in those Junior years, and there's many, many people willing to kind of compete and put in those hours to sort of land the jobs. That would be kind of a dynamic to them over in tech, it's you know, much more chill working hours, usually 50 hours a week is pretty standard 40 hours a week. So that's kind of how it works.

Podcast Host  19:12

Yeah. Okay, good to hear. Now, one other question that I have is how realistic is it for students outside of the US so outside of the Ivy's outside of like your top 20 universities in the US outside of like your Oxbridge, LSAT, etc, to land those top jobs at like you goldman sachs and you know, Tiger management's, etc. Is it likely for a student to say from Australia, who studies commerce to end up as an intern for Goldman Sachs? Or is that like not the case at all really?

Jamie Beaton  19:41

I mean, the short answer is it's borderline impossible, which is kind of sad, but the way the numbers work is basically when recruiting from say New Zealand um, you know, Goldman Sachs will take two or three people across the country for, you know, their team, and then in Australia, you know, the same thing is true across many of the top schools, they have a bit more recruiting aside, because there are large operations in Australia, but you do need to really have a GPA that's literally, you know, almost perfect within your university and be, you know, really prominent on campus having landed great internships. So this is not the kind of path where you can go down if you sort of cruise through a commerce degree. And then you decide, okay, I want to get this and paint me shot. The people that make them this career track, I sort of gunning for it from the age of often 17 onwards in a pretty intensive way. So the best way to boost jobs and getting into this field is through getting into a top USA UK college programs at Wharton Business School, a very popular place for many outcomes and alumni, we've trained lfcs, accounting, finance, Cambridge, economics, many of these schools, but you really want to focus fire in high school and getting into these places, if that's really important career pathway for you. And it's worth knowing that like in finance is serious momentum around the brands you work for. So for example, if you leave college and you work for Credit Suisse, and which is sort of lower rank than, say, Goldman Sachs, it's very hard if you ever been switched into like a Goldman Sachs firm later on, and it sort of permanently puts you on a certain trajectory. So the financial industry is very competitive. And they do rely heavily on the signaling power, so to speak of the person's undergraduate school, you can kind of make up for this a little bit with masters and MBA programs, and then recruit from those programs. So that's a way to sort of second chances, so to speak. But you know, again, you're going to need to have some strong undergraduate grades, landers, business school program. So overall, that's what I would say for that, you know, really the top tier of jobs. However, there are many ways to work in finance. And if you want to just work for like a big four accounting firm, they take a huge proportion of people, so you don't need to necessarily push yourself particularly hard. In University, many people from New Zealand and Australia, for example, Singapore, etc, are able to successfully work for Big Four accounting firms. But if you don't want to push into that sort of upper level of Wall Street, the competition is very fierce, because the rewards are also very high as well. So that's kind of how the cookie crumbles.

Podcast Host  21:56

Yeah, yeah. Well, final advice for students who are considering this pathway, perhaps not yet convinced that it's the pathway for them and want to get convinced that it's the pathway for them, you know, they want to look for that, I guess, certainty in their career path, but uncertain as yet as to if finance and investing is for them? What kind of advice would you give for those kinds of students?

Jamie Beaton  22:19

The most important thing is you want to maximize your options. So you want to go ahead and take things like your a liberal math, you know, your AP, you know, BC calculus, for example, we were a little further maths, things like that, again, basically put you in a position where you can actually compete for these options, you want to think about what universities you're aiming for, because you're it's really a stack, if you get into these top us UK schools, that's really important to understand that no, kind of going into this. And, you know, I guess you probably want to understand where you want to be potentially working in the future as well, which might guide which University you'd go to to, the final thing I'd say is that like a lot of the content required for finance, you know, you can learn it, probably from the age of like, 16 onwards, honestly. And I've seen many really sharp students really front load that knowledge. So don't feel like you just need to kind of passively wait to get to university to that learning that from them in a great position to help you kind of build those core skills. So overall, it's a very doable career track, but you just need to really commit to it early and go hard. And then you you know, I see almost everyone that takes super seriously can land the job, but it's not the kind of thing you can just decide to do when you're 21. And you know, give it a crack. So you've got to be kind of on that steady path for many years. And you can always switch out a bit later on. So you're not committing to life and finance, but a couple years is a very popular place to start up your career and have a lot of value later on. So overall finance definitely a fantastic career trickery, but you got to start on early is the key message. I want people to think about this podcast today.

Podcast Host  23:42

Yeah, I think that's completely correct. I remember one of the students were interviewed for the tiger global case comp one of the winners. He was like, through this experience, I know that I want to do business finance, investing, that kind of thing. And it wasn't until it had that really in depth intensive experience that he was like, Yes, this is what I want to do. So I think for students who are out there seeking out those opportunities, I think the TGCC or Tiger Global Case Comp will be happening again later in the year. So watch out for that and students if you would like the opportunity to work with someone like Jamie on your application to top universities in the US or indeed the UK, make sure to check out the show notes for a link to a free one hour consultation with an academic advisor in your area. Jamie, thank you so much for your time for your insights for your wisdom on all things finance and investing and I look forward to sharing the episode far and wide.

Jamie Beaton  24:33

Thanks, Alex. Have a good one.

Podcast Host  24:35

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