Pain and Pleasure

Investment banking is a pretty peculiar business.

Consider this: JP Morgan, the biggest investment bank in the world, has just shy of 10% market share.

The other two powerhouses, Goldman and Morgan Stanley, are at 9% and 7% respectively.  In fact, Bank of America is the only other bank that manages a 5%+ market share globally.

Everyone else – and that’s a massively long list of large and small institutions – comes in well below 5%.

Global Investment Banking Market Share (By Revenue)

Source: Statista

Now, there are many different ways to slice and dice the data.

You can look at it by region, by product (M&A vs IPO vs high yield), by deal count, by deal size, by sector, and so forth.

In fact, torturing the data to come up with the most favourable “league table” representation is pretty much a rite of passage for any investment banking junior.

But once you ignore the outliers, like Goldman’s exceptional strength in M&A where it routinely captures 20%+ market share, the numbers simply don’t lie.

Even the best bankers at the best institutions will struggle to capture more than 10% of the “market”, whichever way you define it.

Let that sink in for the moment – and then consider the situation from the perspective of a “loss rate”.

Essentially, what the numbers imply is that out of ten deals you pitch for, you will get a lead role on one.  That is, if you are the best.  Imagine working at a place like UBS – a banking behemoth by all objective measures, yet with just 2% market share!

On all the other deals, you will hear a big fat “NO” or get a consolation prize of sorts, usually in the form of a last-minute advisory credit (with little to no revenues) or a junior position on an IPO with tiny economics.

Now, this is somewhat offset by the fact that you don’t tend to pitch for ALL the business out there.  Then again, show me a banker that declines an opportunity to pitch and I will show you a unicorn.

What makes things even worse is that it’s not like you just wake up and go to a pitch one day.

No, you plan for it.  You commit resources and run a campaign, canvassing shareholders and management teams alike.  You might even put your bank’s balance sheet to work, deploying that expensive capital.

Then, when the invitation to pitch comes, you work days, nights, and weekends, crushing your junior team (and yourself) along the way.

In other words, you give it your best shot.  And nine out of ten times, you lose.

Rising To The Top

When I was a junior banker, I would feel gutted every time we lost a pitch.  There’s the heartbreak of having done all the work for naught and the embarrassment of being told you weren’t good enough.

What I did notice, however, is that the senior bankers I’ve worked with didn’t seem unnecessarily miffed when they lost.

Sure, some losses hurt them more than others, and there’s always the exercise of internal positioning after a lost pitch (hint: it’s always someone else’s fault).

But every senior banker I’ve worked with had an uncanny ability to move on almost instantly.  On to the next meeting, the next campaign, the next pitch.

As a bright-eyed junior, I felt fortunate to be working with such a resilient group of people.  Until one day I realized that it wasn’t an accident.

And that the ONLY way you make it in banking is if you are happy to hear that big fat “NO” at least nine times out of ten.

The delineation between those who “make it” and those who don’t starts to evidence itself around the VP level.

Some VPs are itching to get involved in client coverage.  To pick up the phone and call on potential clients.  To go to meetings and present some of the materials.

To lose over and over again until their team ultimately wins a mandate.

Most others don’t.  Some of the best analysts and associates I’ve seen were happy to work 100+ hour weeks for years on end, churning out models and presentations.

But they could never get comfortable with the idea of being rejected over and over again.

Over And Over

Before you start feeling sorry for bankers, let’s consider the lives of the true masters of the universe – private equity professionals.

Breaking into PE is one of the toughest slogs there is.  Junior bankers and consultants go through multiple grueling interview processes to nail that elusive slot with a blue-chip shop.

Some get through, but most others don’t.  And for those that made the cut, it’s just the beginning.

Just like bankers, they spend their days chasing after deals. Except that… good deals are hard to come by.

Inevitably, anytime a good business is up for sale, there’s a long line-up of people trying to get their hands on it.  In the process, they bid up the price until returns start looking mediocre (or worse).

To make matters worse, you actually have to spend money to try and win some deals.  Bankers only collect a fee when a deal is inked.  Consultants and lawyers – not so much.

On multiple occasions, you may spend $500k+ on due diligence and legal advice, only to walk away empty-handed.  Time, after time, after time.

And that’s before you consider the stresses of going through investment committees, managing your assets through thick and thin of market cycles, selling them at the end of your holding period, negotiating carry for yourself, and even fundraising (always fun asking investors for money!)

But… some people are comfortable with all that discomfort.  And the ones who do it long enough, get the outsized rewards.

It’s a story that plays out from profession to profession, from industry to industry.

Show me a person who achieved any meaningful success, and I’ll show you a person who gets rejected more times in a single year than most other people do in their entire lives.

The Big Illusion

There’s a massive temptation, not least in the personal finance circles, to make everything look easy.

Save and invest.  Rinse and repeat.  Keep going for a long time.

Now, I have no doubt that you can live the “easy” life and do well, eventually.

But make no mistake – the biggest payoffs come from operating outside of your comfort zone.  And the more discomfort you are able to tolerate, the more successful you will be.

No, it’s not because of the intrinsic satisfaction of pushing yourself beyond some imaginary limit, rewarding as that may be.

Instead, it’s simply because that’s an area where so few people dare to go.

No one likes to be turned down when asking for a meaningful pay raise.

Which is why, in a company with 1,000 employees, only a handful will ever muster up the courage to have that conversation with their manager.  To actually fight for the compensation they deserve.

They are the ones who will get that pay increase, while everyone else takes the “easy” path of 3% annual raises, which aren’t really raises in today’s inflationary environment.

No one likes to go through the discomfort of changing jobs every few years, negotiating promotions along the way.

But guess who ends up rising up the career ladder the fastest, achieving financial independence years, if not decades ahead of schedule?

There’s absolutely nothing wrong with cutting your spending to the point where it hurts.  But to do that for years on end JUST because you want to avoid an uncomfortable conversation with your boss is pure madness.

It’s totally fine to take the “easy” road in life.

Except that over the long run, it’s not really easy – and all those things you want lie just outside your comfort zone.

As always, thank you for reading.