Want a Wall Street Job? Start Preparing Now

If you're a college or business school student or if you're thinking about a career change, what can you do to prepare to enter the highly competitive world of finance?

I've mentored students from my college and business school, and I've been on both sides of the interview table about 1,000 times over the last 17 years. I've distilled that experience into a handful of factors that separate success from failure, which I'll present today along with some practical advice and resources for the aspiring financier.

Artists Need Not Apply

The primary function of finance is to facilitate the workings of the economy, to be the grease that oils the wheels of progress. Finance is suitable for people whose primary objective is to make a decent (although not necessarily outrageous) income and don't mind working 60 to 100 hours a week on sometimes numbingly dull work. People who have an aptitude for math, computer programming and games such as bridge, backgammon and poker do very well.

Finance is not suitable for people who are creative in the traditional sense (e.g., artists) or interested in the "caring" professions (teachers, doctors). In fact, when I used to do interviews for Morgan Stanley, we were specifically instructed to weed out those personality types. Furthermore, people who want to produce tangible products (software, automobiles) will also find Wall Street frustrating.

Sell Side vs. Buy Side

Firms are oriented either to the sell side or the buy side. Sell-side firms are what people traditionally think of when looking for Wall Street jobs. These firms underwrite securities and advise on mergers and acquisitions through their corporate finance divisions. Their sales and trading divisions make secondary markets in a variety of securities, including stocks, bonds, currencies, swaps, commodities and derivatives. Analysts in research divisions make both macro (overall investment strategy) and micro (company-specific) recommendations. There are entry-level jobs in all three areas, often straight out of company training programs.

Homework Understand the differences between these classifications. Be able to list the top five firms in each category

Commercial bank

Investment bank

Insurance company

Investment management company

Stock brokerage

Commodity/futures brokerage

Discount broker

Full-service broker

Hedge fund

Venture capital firm

Major firms include Goldman Sachs, Morgan Stanley Dean Witter, Citigroup/Salomon Smith Barney, Bear Stearns, Merrill Lynch, Chase/J.P. Morgan and Bank of America. Regulatory changes and mergers are rapidly eroding the division between commercial banks, like Citibank, and investment banks, like Merrill Lynch.

Buy-side firms generally manage portfolios on behalf of clients. They include insurance companies like Aetna, investment management firms like Wellington Management, mutual fund companies like Fidelity and hedge funds like Moore Capital.

Sell-side firms tend to be household names; buy-side firms tend to be less well known. Sell-side firms have higher salaries and higher turnover (i.e., more firings). Both buy- and sell-side firms have analysts (people who study investments) and traders (people who actually buy and sell the securities). Buy-side firms have portfolio managers, who make broad investment decisions. Sell-side firms have proprietary traders, who invest the firm's own capital.

There are also boutique firms (the Quantum Fund, Wasserstein & Perella, the Blackstone Group) that are highly focused on one activity, such as mergers and acquisitions or proprietary trading. Entry-level jobs in these houses are rare.

More Homework Understand the differences between:

Corporate finance

Underwriting

Mergers and acquisitions

Leveraged buyouts/restructuring

Sales and trading

Banking

Investment management

Sell-side firms tend to hire hyperactive people; buy-side firms are more laid-back. This reflects the fact that the sell-side firms take bigger risks and turn capital over faster. Buy-side firms are investing for a generation out in pension plans and the like.

Making the Cut

Getting a job on Wall Street is a very arduous process. Hundreds of people compete for each trading or corporate finance job, going through multiple screens and interviews along the way. Each screen and interview is designed to weed out prospects. Many years ago, when I was an associate at Morgan Stanley, we used candidates' SAT scores to cut 10,000 college student resumes down to 500. Four-year-old SATs were not relevant to anything Morgan Stanley was doing with new hires, but we needed some way to get a handle on the onslaught of applications.

Keep in mind that each resume receives a review averaging 18 seconds. So whatever talents you have, make sure they'll be seen at even the most cursory glance.

Educational Experience

People with degrees in mathematics and hard sciences have an edge. I have not seen any particular advantage to people with business, accounting or economics degrees -- these people tend to have specialized too early. I was a dual history/mathematics major, which turned out to be an excellent education, even though all my work since 1983 has been in using computers to implement investment strategies. Everything I know about computers or investment products I learned on the job. It was my analytical skills and ability to communicate these skills enthusiastically during the interview process that got me the job in the first place.

An MBA or law degree is required about 90% of the time if you want to advance beyond the level of senior associate in corporate finance. A higher degree is required about 50% of the time in sales and trading. These degrees are less certifications of ability than they are screens to limit the number of people seeking higher positions. On the buy side, having an advanced degree is a requirement nearly 100% of the time.

Look carefully into getting a CFA (chartered financial analyst) designation. This is a very challenging three-year series of exams. Just saying you're studying for CFA Level 1 is very impressive in a job interview. If you are enrolled in a first-year MBA program, I recommend taking the first level next June. (Level 1 covers first-year accounting, economics and finance.) More information is available at the Association for Investment Management and Research Web site.

Experience

Any job demonstrating independent thinking, creativity, entrepreneurship or risk-taking will help. I once hired a candidate who started out as a party DJ, and by senior year had bought a bunch of equipment that he leased to other DJs in the area, thus multiplying his income. Frankly, I thought he would be bored working for an investment bank, but he was keen on the job. Three summers working as a lifeguard is not going to have much impact, by comparison. Involvement in varsity sports, especially if the candidate was a team captain or a recognized important player, always makes a big impression. Most other extracurricular activities, like the student government or the campus newspaper, are of marginal value if the other criteria are not satisfied.

Finding Out About Companies

During my job search in college, on-campus presentations by companies were the most useful in learning generalities. In this era, it would be inexcusable not to visit a company's Web site to review career information, company history and so on. Obviously, there are vast volumes of information specific to these companies available over the Internet. Alumni contacts can be the most useful, but also the hardest to set up. (I prefer phone dates to meeting face to face -- they're easier to schedule.)

Start Early

Anything you can do to demonstrate you've thought long and hard about Wall Street early on is going to give you an edge.

You should start no later than fall of your junior year of college or fall of the first year of business school to develop contacts for a summer internship that will hopefully set you up for a job after graduation.

Get in the habit of skimming, in descending order of importance, The Economist, Barron's, Forbes, The Wall Street Journal, Investor's Business Daily and Institutional Investor. There are a host of trade magazines worth reading, but most are very expensive to subscribe to (some will be available in a business school library). Watch CNBC for an hour a day, listening particularly for the language of Wall Street. Why does this matter? Often interviewers will test you by throwing out buzzwords. If they perceive you have no idea what they're talking about, the interview usually goes against you.

Take one macro- and one microeconomics course somewhere in your college career. Also take writing, public speaking and computer science and accounting courses, and math, at least through multivariate calculus. Wall Street firms want to be assured that you won't be stumped by a little math.

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David Edwards is a portfolio manager and president of Heron Capital Management, a New York management firm. At the time of publication, his firm was long Intel, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Edwards appreciates your feedback at [e-mail]. TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.