Big Shop vs Small Shop

Imagine you just graduated from a competitive MBA program. Against all odds, you’ve snagged two banking (trader) offers despite the skepticism of every single career counselor at your school.  Which of these two options has more upside?

Big:  The Big Bank is a bulge bracket. It’s done fairly well despite the recession.  The position is not exactly an associate position, but it’s close enough—same pay, same benefits, different title. The trading position doesn’t cover the hottest product.  The bank’s pitch to you is “why wouldn’t you come here?”   Your future colleagues seem sharp and they have decent academic pedigree.  You would be one out of thousands upon thousands of employees. However, the firm’s revenues exceed the GDP of several countries combined.

Small: Think small, like 200 employees instead of 20,000 employees. While the firm’s traders and salespeople may seem sharp, you get the sense they would be eaten alive at a bulge bracket.  The firm does a few hundred million in revenue a year, profit margins aren’t all that. It pays well, since you eat what you kill and there aren’t that many hunters around.  You are unsure if your function in this shop is as interesting as the function at the bulge bracket, though it seems broader and perhaps offers greater options down the road (i.e. You wouldn’t get pigeonholed). The rising star of the small shop thinks the world of you and has earmarked you for a major management position down the road.  There is no brand name, but limitless opportunities as the big fish in a small pond.

Question: If you were seriously in this position, which of the two firms would you go with?

Why I care: A good friend was in this position, waffled back and forth until he finally decided to go with the small shop. He hasn’t been there long, but he’s seen enough to feel as though he’s made the biggest mistake of his life.  I think it’s too soon to tell, but would love to know what other people think.


May 21, 2010, 11:25
Filed under: Market Trends, Politics, Social Trends

I’m angry at BP. Very angry.

“Finders Keeper” Kindergarden rule costs Apple billions; Steve Job cries in the corner.

Steve Jobs needs to get a grip of himself.   According to this article, Jobs pressured and then gave Gizmoto the cold shoulder after they posted pictures of the new iPhone.  Hasn’t Jobs ever heard of the age-old playground rule:  “finders keepers, losers weepers?”

It turns out some sore losers in California lobbied for a law that requires the finders of lost goods valued over $100 to turn the items over to the police.  The man who found the iPhone at the bar didn’t exactly do this, and now he’s in trouble. Okay, I get it, he broke a law that no one has ever heard of…but,What’s the big fuss about?

Apple says this snafu has cost it millions of dollars since consumers won’t buy the old iPhone now that they know a new one is coming.  WHO didn’t know that a new iPhone was coming out in June?  I went to an AT&T store before the scandal because I needed to replace my phone. When I asked the store manager point blank “are you guys getting a new iPhone,” he answered “we know we have to reserve tons of shelf space for a new unnamed product…the last 4 times that’s happened, it’s for a new iPhone.”  I am no sleuth, so I’m sure others figured out Apple planned on launching a new iPhone this summer too.

Moreover, the news may have delayed some people from making an iPhone purchase. Sure. But what does it matter if the sales figures will contribute to the same fiscal year? Won’t the delayed purchases just push up the sales of the new iPhone?

Apple also claims that the press-leak may give its competitors an upper hand. Really?  Competitors can reverse engineer the current iPhones out in the market, yet they haven’t really created a compelling substitution option. Why would that change all of a sudden?

Fourth: come on. This is fantastic press. Stop complaining.

Goldman—Market Maker or Sleazy Salesman?

This is a quote from the front page of today’s  New York Times:

“Our investigation has found that investment banks such as Goldman Sachs were not market makers helping clients,” Mr. Levin said. “They were self-interested promoters of risky and complicated financial schemes that were a major part of the 2008 crisis.” Wall Street firms, Mr. Levin said, were “all too often betting against the financial instruments that they sold, and profiting at the expense of their clients.”

I originated CMBS at a bulge bracket bank. In October of 2007, my team along with the head of credit for all of fixed income new damn well that Goldman had shorted its mortgage portfolio. “Brilliant,” I said.  “Unbelievable. It’s like they had a motherfucking crystal ball,” said the head of credit.

This bulge bracket bank knew that Goldman shorted its portfolio and could have mimicked the strategy if they had wanted to. Sure, the shorts were more expensive in October than when Goldman bought them a few months prior, but in Wall Street you can buy anything you want so long as you have the appetite for it. This bank clearly lacked the appetite.

As for the quote, that vilifies Goldman for shorting products it hawked to investors.  I’ve already wrote about this before, but the traders that make and sell securities are legally prohibited from talking to the traders that take positions for the bank.  This would have insider scandal written all over it if the two teams could talk and note that those are words that no one has used yet.

Goldman was a market maker. Now, perhaps HR should reassess the incentives these traders get.  Perhaps pegging bonus’ to a % of sales leads to reckless behavior.  Instead, Goldman should tie compensation to sales and credit losses.  Just an idea.

Sleazy salesman or market maker…you know what I think


I posted the following (paraphrased) on my Facebook:  

Don’t know where I land re: Goldman. On the one hand, Goldman is a market maker and has always sold securities that some investors hold while others short. On the other hand, Goldman shorted its own mortgage portfolio in 2007 yet willingly sold securities to investors knowing they were on the wrong side of the bet. I think it comes down to whether investors could have known that Goldman shorted the CDOs it sold. If this was public information, then you can’t blame investors for running towards a fire that others were clearly fleeing from.

Since then, I’ve talked to my buddy at Goldman and confirmed that the prop desk that takes positions on for Goldman is legally prohibited from sharing notes with the desk that designs and sells the securities. That makes a lot of sense since Chinese Walls are the only way to prevent insider trading.  Interestingly, even though it’s true that Goldman’s short position against the Abacus securities were relatively insignificant relative to the firm’s larger positions, the bet did jump to CEO Lloyd Blankfien’s attention.   I imagine that the trader ordering the short was was called into Lloyd’s office:  

Lloyd: Why the fuck are you taking a $3B position against the mortgage industry

Trader: Sir, all of my research and experience tells me that shit is about to go down

Lloyd: Then why are all of our competitors still buying mortgage securities

Trader: Because they have inferior information.  I’m willing to best the soul of my first born child on this one

Lloyd:  Alright. Go ahead and short our mortgage portfolio, but, if you’re wrong it’s your ass that’s on the line

I am 100% positive that Goldman’s CEO knew the firm was shorting securities that another desk was going out and selling. However, that in itself is neither illegal nor wrong. His job is NOT to share arbitrage opportunities with investors at large.  His job is to ensure that there is a marketplace for securities and that’s exactly what he’s done. I personally absolve Goldman for shorting the mortgage industry although I would never vouch for something that I myself am trying to get rid of.

On the other hand, if its true that the creators of the Abacus security knew that it was comprised of XYZ collateral but told investors that it was comprised of ABC collateral—well, that’s plain old fraud.

Warren Buffett
March 2, 2010, 11:25
Filed under: Market Trends, MBA

It is no secret that I love Warren Buffett. He just published his latest letter to Berkshire’s shareholders, and as always, it is an amazing piece of factual yet entertaining finance writing.  I will comment on it as soon as I get the chance.  sigh.

June 4, 2009, 11:25
Filed under: Gender Fights, Market Trends, MBA

As the president of a school organization, I had to go to one of those school-wide diveristy meetings. Basically, my school wants to put its force behind diversity iniatives and make a whole big thing about it next quarter. If this group defines and executes its diversity strategy the way every other organization I’ve ever been a part of executes it…then the diversity efforts will fail.

If you put a flyer out that says “Diversity is important, join our Diversity Initiative Club” then you’re going to get a very small number of atendees. They will be a diverse group of people, but their lack of scale prevents them from having much impact.

Really, diversity is more about persective than it is about skin color or ethnicity. Diversity is all of the following:

  • Being the low-income kid in an expensive private school
  • Being a staunch Republican
  • or staunch Democrat
  • Being the only white girl in a Hispanic school
  • Having gay parents
  • Being adopted
  • Being black, going to a historically black college,  then working in a company that lacks diversity
  • Working at a nonprofit to save the whales
  • Being a prep-school, Ivy-League trained I-Banker
  • Having overcome substance abuse

All of these things create diverse perspective. All of these people are likely to draw very different conclusions when considering the same topic.

Firms, private/public/non-profit, all benefit from having a staff that is diverse in its breadth of perspectives.  Going to a top MBA school and glimpsing into these different perspectives adds to your own and broadens your thoughts.

Diversity iniatives, when properly defined, add value to absolutely everyone within an organization becuase absolutely everyone can contribute.

Those are my thoughts, which I have shared/will continue to share with the powers that be.