Why You Don’t Need To Be a Prodigy To Succeed in Finance
It’s easy to look at the finance industry from the outside – investment banks, hedge funds, private equity firms, and the like – and see people with shiny degrees from prestigious universities everywhere you look. You might imagine that you need to be a prodigy, or at the very least to have an Ivy League degree.
Not only is that far from the truth, but there are also plenty of situations where conventional intelligence, or ‘book smarts’, isn’t as well correlated with success as you might think. It might even work against you in some cases.
Limited Range of Sources
To be sure, the basic level of intelligence required to succeed in the finance industry is fairly high. So much information comes at you so rapidly, from so many sources, and with such varying levels of priority, that the cognitive processing power and attention to detail required to assimilate it all and produce timely, error-free work is significant. It’s not surprising, then, that elite universities feature prominently in firms’ recruiting strategies: they are certainly well populated with bright people, after all.
But as a practical matter, there aren’t enough candidates at this handful of ‘top’ schools alone who are both qualified and interested in a finance career to meet the aggregate hiring demand of the industry, even if employers actually wanted to hire from such a limited range of sources.
This, combined with employers’ pursuit of both academic and demographic diversity in their hiring, leads them to hire from scores of different places, not just the usual suspects. And who says the most prestigious universities have a monopoly on exceptional students anyway? They don’t, clearly.
Evolving Need of Skills
So you certainly don’t need to have an Ivy League degree for a career in finance. While a decent level of book smarts is necessary to enter the industry, it may not be what drives your ultimate success, depending on the role you end up in. Put differently, it doesn’t always follow that your most academically accomplished colleague will be the most successful in the long term.
For example, investment banking (i.e., advising companies on mergers and acquisitions, capital raising, etc.) is a role that evolves considerably as you become more senior. As a result, the skills needed to stand out change as well.
Junior bankers analyze financial statements, develop pitchbooks, create valuation models, and support transaction processes. These ‘hands-on-keyboard’, analytical tasks are where ‘book smarts’ are most valuable. Senior bankers, by contrast, are much more focused on building client relationships and thinking commercially.
It’s not their job to build models and create pitchbooks; their job is to provide advice to clients and win business for their firm, and that emphasizes a very different set of skills. You can have all the conventional intellect and impressive degrees in the world, but if you can’t develop those relationships and become a trusted advisor to clients, your long-term success in investment banking will be limited.
Need for a Differentiated View of the Market
The value of conventional intelligence has some interesting variation on the ‘buy side’ too, especially in the hedge fund industry. Funds running quantitative or systematic strategies probably place the greatest emphasis on traditional academic talent, especially in mathematical disciplines; the work is inherently academic in nature, after all. However, in funds running fundamental strategies (where investment ideas are based on bottom-up analysis of a company, its financials, its management team, and the market it operates in), there’s more nuance.
I was once party to a conversation between an experienced fundamental analyst and a prominent senior investor. The topic was talent and how to identify it. The analyst asserted that intelligence was overrated in the investment industry. The senior investor leaned forward in his chair: “That’s an interesting statement. What makes you say that?” he asked.
”Because some of the smartest people I’ve known have also been the ones I’ve seen lose the largest amounts of money,” replied the analyst.
”Well, I agree with you,” said the investor. “I’ve hired people to work for me in the past who were probably some of the smartest people in the world. It turned out they couldn’t make me a nickel. But they were very smart.” Commerciality and a so-called ‘nose for money’ – more so than pure academic accomplishments – were probably the most prized traits this investor looked for when considering candidates for the firm.
Sometimes, especially in discretionary investing (where investment decisions are made by humans), one of the dangers of being too smart is being too sure that your opinion is the correct one. Having a differentiated view of the market can be a way to make a lot of money; being too convinced that you’re right and the market is wrong can be a recipe for the opposite.
Success in finance and investing is a product of many factors and capabilities. Being a prodigy isn’t one of them.
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Jonathan Jones has spent over 20 years heading recruiting functions at some of the world’s top finance and investment firms, including Goldman Sachs, BlackRock, Point72, and D.E. Shaw.
