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Top 10 Wall Street Rookie Mistakes

Tyler Durden's picture




 

Via ConvergEx's Nick Colas,

Summary: We occasionally dedicate these notes to passing on some of oral traditions of Wall Street to the next generation of traders, analysts, and other young professionals in the business. Today’s version: rookie mistakes you should try hard to avoid.  We took our own experiences, along with some from other senior managers at Convergex, and assembled a Top 10 list of the unforced errors of youth and inexperience.  Yes, we were there once too. 

The most important lessons: be 100% mentally present, communicate efficiently, look at the whole financial model (not just the income statement), and remember that everyone has an agenda.

Above all: figure out what you do better than most people and develop those skills as much as you can.  Don’t show the world what you can’t do; show us what you CAN do.

*  *  *

My first job on Wall Street was in the back office of a mutual fund company during summer break from college in 1984, and by all rights it should have lasted all of 2 weeks.  Shortly after starting, I found myself in an office – I didn’t know whose – doing data entry on the only PC the firm owned.  Yes, this was a long time ago.  A middle aged man walked in and said, “I need to use that computer”.  My response: “OK – I will be done in about 10 minutes”.  He looked puzzled, but he left.

The next morning, I walked into my boss’s cubicle, and there was the same guy.  He pointed at me and said, “That’s the kid that kicked me out of my own office!”  Turns out he was the CFO of the whole place.  Instead of firing me on the spot, he just laughed.  It turned out that he appreciated my diligence and desire to finish the task at hand.  Which is fortunate, because every job I have had on Wall Street since – and getting into a decent business school – all came from that first summer job.

It was a rookie mistake, of course, not to know that I was in the CFO’s office using his computer.  Ask anybody in this business and you’ll hear similar stories of unforced errors that could have led them into a different line of work before they ever really got started.  I asked a few senior people at Convergex about their own rookie fumbles, and everyone has similar stories.  You don’t know what you don’t know…

In the spirit of helping our younger readers avoid a few of these pitfalls, and perhaps reminding all of us that this business has its own peculiarities, today’s note is a list of 10 rookie mistakes.  I have separated them into basic job classifications – traders and analysts – because over the course of my career I have had the chance to make those beginner’s screw ups in both areas of the business.  Do as I say, not as I have done.  There is a lot of cross over in terms of lessons learned, however, and plenty for those readers who work in other areas of financial firms.

And now, the list…

Working on a Trading Desk

1)    Be 100% mentally present.  Trading can seem like the old adage about warfare – long periods of boredom punctuated by short bursts of intense activity.  You can’t let down your energy level during those quiet times, however, because you never know when the mortars will start to land. Yes, this holds true for any job, but everyone can see you on a trading desk.  And believe me – they are watching.

 

2)    You will be constantly tested.  I have worked on some of the liveliest (think of an environment akin to the exercise yard at Attica Correctional Facility) as well as restrained desks on the Street, and they all have one thing in common.  Older traders are constantly testing younger recruits.  There’s the ego test – “Get me a coffee”.  And the honesty test – asking some arcane question to see if you will make up an answer rather than just say “I don’t know, but I will find out”.  No interaction is just a harmless exchange.  In the real world, everything is on the test.

 

3)    Details matter.  I have long used a quick test to assess how well a given salesperson or trader really knows their accounts: do they know the name of the receptionist at their client firms?  If they do (extra points for the person at the desk actually knowing my guy/gal’s name too) then chances are excellent that we were going to have a good meeting.  It is a little thing, but it shows how many times they are actually in the client’s offices.  And the worst rookie mistake in this regard: not knowing that a client has moved and showing up at the wrong address.  Yes, I have seen that happen. More than once.

 

4)    Practice communicating efficiently.  Nothing screams “Rookie” like a long answer to a simple question. Blank stares are also a big tip off.  So practice answering questions in a methodical manner. Learn to read the person asking the question. Some people can listen attentively for several minutes, other for just a few seconds. Know your audience.

Fundamental Equity Analysis

5)    Do the whole financial model, not just next quarter’s earnings.  While I classify this as a rookie mistake, it’s a pretty widespread problem.  Analyzing the balance sheet and cash flow statements force you to consider all the important questions that drive stock prices.  Where is the company investing?  Is it doing so with internally generated cash?  Will incremental Capital Expenditures translate into accelerating earnings?  You will miss all that if you only focus on this quarter’s earnings.  Rookie test question: “How much cash does the company have on the balance sheet?”

 

6)    Everything is about percentage change.  This is a tough one, but really important.  Growth and contraction matter more than any other single topic, but you have to measure against a baseline.  Simple, yes.  And, unfortunately, simple to forget.  Easy example: “How many days can a company’s stock price decline by 5%?”  If you said “20”, you’ve made a classic rookie mistake.  The answer is infinity.

 

7)    It’s all about units, price, mix, and costs.  Financial analysis is, ultimately, the numerical framework around which you form an investment thesis. Don’t just assume revenue growth will run at the same average percentage rate as recent history. Do the work. Break it out into units, price and product mix.  Understand the costs inherent in the business, and tie them to revenues.  Everything has to fit together and make sense.  Easy litmus test question: “Walk me through the market share assumptions you use for all the companies in a given industry.”  The rookie’s assumptions will always equal much more than 100%.

Macro Analytics

8)    Learn your history.  Back in the early 1990s, a seasoned Wall Street analyst told me “Old age and experience beats youth and exuberance every time.”  His logic: he had been around for several economic cycles so he knew how things worked better than I did.  At the time, he might have been right.  With the Internet, however, anyone with a modicum of motivation can analyze thousands of historical data series.  This isn’t a total substitute for experience, but it will save you from the rookie mistake of not knowing basic information like where the S&P 500 peaked in 2007 or how oil traded during the 1979 Iranian revolution.  

 

9)    Everyone has an agenda.  For whatever reason, most macroeconomic/market analysts have a distinct political agenda.  This colors their commentary to such a degree that reading their work is akin to stretching out in a minefield for a nap.  So read everything and make up your own mind. Left, right, center, anarchist… You can’t finish a jigsaw puzzle until you have all the pieces.

Final Lessons

10) Make it your own.  Wall Street jobs run the gamut from computer programmers to traders to analysts to financial staff to general management.  You have to decide where you fit within that broad spectrum.  And while I have focused here on avoiding mistakes, it is just as important to understand where your abilities allow you to excel.  After I wrote my first research report, back in 1991, my mentor commented “You are going to make your living on your writing.  Anything else you do probably won’t be as good as that.”  OK, so maybe he could have stopped after the first statement. But he was right.
 
11) Bonus point: have a career plan.  Malcolm X said it well: “If you don’t stand for something you will fall for anything”. Have some idea about where you want to take your career. You know the drill: talk to others, develop a network, get some mentors who want to help.  After all, you can only call them “Rookie mistakes” when you are actually a rookie.  After a few years, they are just mistakes.

*  *  *

 

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Fri, 01/30/2015 - 12:25 | 5725566 no more banksters
no more banksters's picture

Another one: too much cocaine

Fri, 01/30/2015 - 12:25 | 5725571 Clueless Economist
Clueless Economist's picture

I had a horrible nightmare last night. An ISIS sleeper cell had kidnapped Greenspan, Bernancke, and Yellen and had them kneeling in the California desert wearing orange jumpsuits. They demanded the US raise interest rates or they would decapitate one each day.

Thank God it was not real. Imagine the three architecs of American prosperity and exceptionalism being beheaded by savages.

Fri, 01/30/2015 - 12:33 | 5725626 NotApplicable
NotApplicable's picture

0) Stay the fuck away from Wall Street!

Fri, 01/30/2015 - 13:17 | 5725901 max2205
max2205's picture

Get on the do not call list 

Fri, 01/30/2015 - 13:24 | 5725942 casey13
casey13's picture

Don't invest in a rigged market.

Fri, 01/30/2015 - 13:40 | 5726038 The9thDoctor
The9thDoctor's picture

Don't invest in a rigged market.

The paytriots that bought gold at $1800 and silver at $40 learned that the hard way, lol.

Fri, 01/30/2015 - 15:30 | 5726594 xiongmaojinbi
xiongmaojinbi's picture

Oh wow no shit sherlock, anyone who has ever only bought an asset at its peak with the expectation it would appreciate even more right away did.

Fri, 01/30/2015 - 16:31 | 5726857 Theosebes Goodfellow
Theosebes Goodfellow's picture

Aren't you calling the game in the second inning, 9th?

Fri, 01/30/2015 - 13:33 | 5726006 fascismlover
fascismlover's picture

THis article belongs here about as much as reality belongs there.  Go away...we don't like you...get it?  What is yahoo finance closed today?

Fri, 01/30/2015 - 13:39 | 5726028 DetectiveStern
DetectiveStern's picture

Omerta 

 

Snitches get nail gunned.

Fri, 01/30/2015 - 12:28 | 5725592 maskone909
maskone909's picture

you beat me to it. 

a fresh 8ball so your office pals can hit the slopes

 

Fri, 01/30/2015 - 15:02 | 5726462 Kobe Beef
Kobe Beef's picture

das raycist

Fri, 01/30/2015 - 12:25 | 5725573 waterwitch
waterwitch's picture

They left out one: "Don't forget to read ZH daily."

Fri, 01/30/2015 - 13:28 | 5725970 Karlus
Karlus's picture

>>They left out one: "Don't forget to read ZH daily."

 

Thats bad for ingesting the company line....last thing you want to be is in a Squid meeting and blurt out something not in the company songbook...

Fri, 01/30/2015 - 12:26 | 5725576 venturen
venturen's picture

what about the part of selling your soul?

Fri, 01/30/2015 - 12:39 | 5725660 DeadFred
DeadFred's picture

Assumed. He is talking about traders after all. 

Fri, 01/30/2015 - 15:33 | 5726602 whirlybird rules
whirlybird rules's picture

you don't think salespeople sell their souls?  I guess you think salespeople have no souls! ;)  No offense to either side.  I did both.

Fri, 01/30/2015 - 12:38 | 5725661 deeply indebted
deeply indebted's picture

That's a given. If you're on Wall Street, you've already done that.

Fri, 01/30/2015 - 12:26 | 5725577 kowalli
kowalli's picture

top1 - wall street

Fri, 01/30/2015 - 12:28 | 5725583 Rainman
Rainman's picture

12) Diligently practice boning muppets up the arse.

Fri, 01/30/2015 - 12:29 | 5725584 Dr. Engali
Dr. Engali's picture

Rubbish! I have news for you Nick. There will be no next generation of traders..... This is it pal. 

Fri, 01/30/2015 - 12:29 | 5725586 Chuck Knoblauch
Chuck Knoblauch's picture

All markets are rigged. If you want to win, you have to be an insider, or be protected by an insider.

 

Fri, 01/30/2015 - 13:28 | 5725982 Karlus
Karlus's picture

>>you have to be an insider, or be protected by an insider.

 

Wisdom. If you dont have a daddy, or you are not the daddy then you are the punk

Fri, 01/30/2015 - 16:39 | 5726876 Theosebes Goodfellow
Theosebes Goodfellow's picture

~"All markets are rigged. If you want to win, you have to be an insider, or be protected by an insider."~

This will only be true until the US dollar dies, (crashes). After that, it will be a whole new game. Position yourself accordingly. And I can prove it. What's the motto in the upper right hand corner of this web page?

"On a long enough timeline, the survival rate for everyone drops to zero."

That includes the USD, rigged markets, you and sadly, me. Though I'm fairly certain that the USD will perish first. It'll be right behind the CHF.

Fri, 01/30/2015 - 12:28 | 5725587 SheepDog-One
SheepDog-One's picture

Top Wall St tip- Always know where the free money is, and where the funnel spout is stuck into.

Fri, 01/30/2015 - 12:29 | 5725605 rccalhoun
rccalhoun's picture

trade?  lol

Fri, 01/30/2015 - 12:33 | 5725620 deeply indebted
deeply indebted's picture

Reality: Pray for more QE and lower interest rates, and BUY. When neither of these seem likely, SELL!

Fri, 01/30/2015 - 12:33 | 5725622 mayhem_korner
mayhem_korner's picture

 

 

Read twice.  Still looking for something insightful.  Feel robbed of 15 minutes.

Fri, 01/30/2015 - 12:32 | 5725624 Eyeroller
Eyeroller's picture

Soothing Verbal Easing by any Fed member = BTFD

Good News = BTFD

Bad News = "It could have been much worse" = Good news = BTFD

Fri, 01/30/2015 - 12:32 | 5725625 Chuck Knoblauch
Chuck Knoblauch's picture

Max Keiser said the best time to have been a trader was from 1982 to 1987, then it was over.

Fri, 01/30/2015 - 12:37 | 5725657 NotApplicable
NotApplicable's picture

Yeah, but who cares what that lying tool-bag has to say?

He is so disingenuous that I now wonder if his "buy silver, bust JPM" was just a sucker's bet for sad saps (reminiscent of Palin's public destruction of the Tea Party's credibility). I wonder how many people he helped "Corzine" with MFG?

Fri, 01/30/2015 - 13:47 | 5726076 The9thDoctor
The9thDoctor's picture

When someone has a campaign to BUY something and sheep line up to buy it, that is a very good indicator for business-minded person to SELL to those buying.

After a decade-long bull run in metals, it was so funny that shoeshine boys and muppets are saying Buy, buy, buy silver at $40, silver is going to the moon.  $150, $500, even $1,500 silver were bogus predictions being peddled.  No, it was the time to get out.

Fri, 01/30/2015 - 15:18 | 5726529 SickDollar
SickDollar's picture

While Max knows quite a bit about quite a bit, he is primarily an entertainer who knows a thing or two about economics. Not the other way around. He's NOT up to date on much any more, except in a few narrow fields. Economics isn't REALLY his game. It's TV.
You think you're asked to play Bridge - but he's playing Go Fish (and like the joker he is, he never told ya).
His public (and private) image as a know-it-ALL depends ENTIRELY on his sweeping generalizations. A dilettante viewer buys into this and laughs along with him. You're supposed to think: "This dude is smart AND funny". And you grow to love his histrionics. Because THAT is what he is a real expert at.
This said, it's not infrequent that his guests disagree with him and even "set him straight". And, to his credit, as long as they do it in a way which doesn't undermine his Joker-in-the-pack image, Max actually tends to be quite gracious about being set straight.
It's about IMAGE - and entertainment - for him. So, there is no point appealing to SUBSTANCE.
On substance - you already won, and he knows it.
The only battle left, if you decide you want to have a laugh, is to "out-jovial" and "out-laugh" him. He's a like capricious king of his castle who can't stand dissent, no matter what. But he loves pranks and respects pranksters more than geniuses.
He is INCAPABLE of winning such a specialist argument in ANY other way, except by staying in character. And by now, it's also become a matter of face for him and it's not about either Mises or Menger.

Fri, 01/30/2015 - 12:34 | 5725639 Archetype
Archetype's picture

1) Short Gold

 

2) Short Silver

 

3) Short VIX

 

4) BTFD

 

5) BTFD

 

6) BTFD

 

7) BTFD

 

8) BTFATH

 

9) BTFATH

 

10) BTFATH

 

11) Bonus Point: Do whatever the almighty Cramer say is the smart thing to do!

Fri, 01/30/2015 - 12:35 | 5725640 Dr. Engali
Dr. Engali's picture

Ben Aflac (spelled that way on purpose , so leave me alone) is going to be a terrible fucking Batman.

Fri, 01/30/2015 - 12:55 | 5725783 lasvegaspersona
lasvegaspersona's picture

not if he loses 40 pounds

Fri, 01/30/2015 - 13:07 | 5725847 Dr. Engali
Dr. Engali's picture

He's annoying as hell.

Fri, 01/30/2015 - 13:35 | 5726014 Karlus
Karlus's picture

I dont do Ben Affleck movies. I also usually dont do Matt Damon movies either, but Interstellah snuck him in and fooled me.

I do watch Matthew Mcconaughey (bongos and all) and occasionally Tom Cruise (so I am diverse)

Fri, 01/30/2015 - 12:57 | 5725798 Chuck Knoblauch
Chuck Knoblauch's picture

It would be funny if he did Batman in that bad Boston accent of his! LOL!

Fri, 01/30/2015 - 12:38 | 5725653 denverdolomte
denverdolomte's picture

PFFFFT I shortened your list to 1

1.) Don't get caught. 

Fri, 01/30/2015 - 12:38 | 5725664 insanelysane
insanelysane's picture

I drill #9 into my kid's brains every day.  Everyone has an agenda.

Fri, 01/30/2015 - 12:39 | 5725669 FrankieGoesToHo...
FrankieGoesToHollywood's picture

12) The house always wins.  So matter how down in the dumps you are, remember your boss will be getting a bonus.

Fri, 01/30/2015 - 12:39 | 5725670 farmboy
farmboy's picture

Brokers have no brains but attitudes of nobel prize winners. Thank god for electronic trading

Fri, 01/30/2015 - 12:42 | 5725686 Consuelo
Consuelo's picture

#11:

Learn how to pack a concealable parachute so that when you take flying lessons from the 35th floor, you can minimize trauma and be ready to hit 'r again the next day.

 

 

Fri, 01/30/2015 - 12:44 | 5725691 FrankieGoesToHo...
FrankieGoesToHollywood's picture

The nail gun wil have kille dyou long before hitting the ground.

Fri, 01/30/2015 - 16:19 | 5726806 Major Malfunction
Major Malfunction's picture

Hmmm, I dunno. Ever try to hit a target moving (falling) at 120 miles-an-hour .. with a nail gun? No easy task, I tell you.

Fri, 01/30/2015 - 12:43 | 5725687 Spungo
Spungo's picture

11) Doing cocaine then betting it all on call options.

Fri, 01/30/2015 - 13:36 | 5726025 Karlus
Karlus's picture

Guilty

Fri, 01/30/2015 - 12:42 | 5725688 buzzsaw99
buzzsaw99's picture

i suggest soap on a rope if you work for stevie cohen

Fri, 01/30/2015 - 12:44 | 5725690 Spungo
Spungo's picture

12) Throwing a brick through the 80th floor window then jumping out with a parachute looks badass, but it tends to scare the clients. 

Fri, 01/30/2015 - 12:45 | 5725696 Latitude25
Latitude25's picture

For your first training class you will be selling vacuum cleaners.

Fri, 01/30/2015 - 13:42 | 5726047 Reference Variable
Reference Variable's picture

LOL - I actually got that pitch once. The guy said take 15 minutes and if you come back in the room be ready to be a millionaire. I went home.

Fri, 01/30/2015 - 12:45 | 5725700 Spungo
Spungo's picture

13) Don't use a loaded gun as a paper weight. It scares the clients and your coworkers.

Fri, 01/30/2015 - 14:33 | 5726016 Urban Redneck
Urban Redneck's picture

The guy who got me my first bank job used to wear a six gun to board meetings (and everywhere else).  You can imagine what my first boss at that bank wanted to do to me when he found out he had no choice but to hire to me.  And then my "job security" left the board after a merger a few weeks later (which incidentally explained why the CFO brushed off my concerns about the absence of certain trademark protections and competition/brand risk that had been footnoted in a previous annual report)...

Either you have what it takes, or you don't.  

That's why it's called a meat grinder.

No simple list is going to make up for a deficit of real prerequisites.

Fri, 01/30/2015 - 12:45 | 5725709 PrDtR
PrDtR's picture

Is anyone having problems w/ all these pop up ads?  It's driving me away from the site Tyler!!! 

Fri, 01/30/2015 - 12:55 | 5725744 deeply indebted
deeply indebted's picture

And you paid how much to be educated here? Right... Get a pop up ad blocker, or jog on - I'm sure Tyler couldn't care less either way.

Fri, 01/30/2015 - 20:47 | 5727633 Daddio7
Daddio7's picture

At the top  of your browser (at least on a PC) tools-add ons - search for flash block, then ad block. If you have a 12 year old handy, ask about Noscript.

Fri, 01/30/2015 - 12:51 | 5725740 pragmatic hobo
pragmatic hobo's picture

what's a fundamental equity analysis?

Fri, 01/30/2015 - 14:09 | 5726182 N2OJoe
N2OJoe's picture

It's a silly thing that used to help predict price movements in the old normal.

Fri, 01/30/2015 - 13:05 | 5725836 Fun Facts
Fun Facts's picture

mistake #1

assuming you are anything other than a small cog in a gigantic legalized criminal enterprise.

now get back on the phones and sell some stawks to people who still have some money to lose.

Fri, 01/30/2015 - 13:14 | 5725893 IronShield
IronShield's picture

THE most important rule:

XXX)  Never get high on your own supply.

Fri, 01/30/2015 - 13:20 | 5725926 mattgallis
mattgallis's picture

Buy low, sell high.

 

Fri, 01/30/2015 - 14:08 | 5726192 N2OJoe
N2OJoe's picture

Buy blow, gamble high?

Fri, 01/30/2015 - 13:42 | 5726052 nopat
nopat's picture

Top 10?  There's 11 on the list.  Learn how to fucking count - and that should be #1 on the list.  With a bullet.

 

Christ this place is sliding in to the ocean...

Fri, 01/30/2015 - 14:14 | 5726228 bbq on whitehou...
bbq on whitehouse lawn's picture

This would be good advice if it was 1972, now they have robots to do it and you are needed so the company can pretend its a people business.

Fri, 01/30/2015 - 15:11 | 5726503 SickDollar
SickDollar's picture

your number one mistake is joining that world in the first place

Fri, 01/30/2015 - 15:51 | 5726682 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

Rule #1 is 'kill or be killed' so remember to destroy Wall Street on your last day of work.

Fri, 01/30/2015 - 17:04 | 5727004 Hmmmmm
Hmmmmm's picture

I wonder how many "fat fingers" are just an FU to the man

Fri, 01/30/2015 - 17:36 | 5727163 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

Good observation, Hmmmmm. Freud did always state that 'there are no accidents', and from what I have analysed in life I must agree with that basic assertion. Fat fingers are definitely a direct attack on the man IMO.

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