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Product Details
| ISBN-13: | 9780307779175 |
|---|---|
| Publisher: | Random House Publishing Group |
| Publication date: | 03/30/2011 |
| Sold by: | Random House |
| Format: | eBook |
| Pages: | 240 |
| File size: | 3 MB |
Read an Excerpt
PART ONE
THE GAME
I always liked this business and I do not believe a man can succeed unless he loves his work. However, I am not prepared to give you any formula for success in Wall Street, as I believe every man must work out his own course. Of this I am certain—that no man can succeed who is not a worker and who does not value his integrity above all things.
—Arthur Salomon
a founder of Salomon Brothers
written in 1914
You only dream the thing that happened here this afternoon.
—Damon Runyon
CHAPTER 1
TAKING STOCK OF THE MONEY BUSINESS
“Your world should know no boundaries.”
“Minds over money.”
“Rock solid. Market wise.”
Do these phrases refer to the men and women of Wall Street? They could, you know. That they are instead slogans for three of the largest firms—Merrill Lynch, Shearson/ Lehman Brothers, and Prudential-Bache—only underscores the point: that it’s ambitious, focused, savvy people who run the financial machine without which other industries couldn’t operate. A startling thought? You bet it is. Imagine that your job helps keep industry moving, thereby creating additional jobs and strengthening the economy. That it flows with the dollar and the United States’ position in the world marketplace. That it’s smack in the center of the universe. Because that’s where Wall Street is. It’s not simply a geographical point, a narrow street in lower Manhattan, but the heart that keeps the world economy alive, the brain that keeps it thinking and learning and growing.
You might as well know this right now—for the most part, the men and women of Wall Street are not the money-grubbing automatons so often portrayed in movies and bestselling fiction. They are real flesh-and-blood people with tremendous drive and energy, willing to give whatever it takes to plug into the powerful, high-stakes money game. They do what they do not only for the considerable financial rewards, but because they love the challenge. Again and again when talking with the high-powered you hear them say, “I eat and sleep this job. I love it. If I didn’t, I couldn’t possibly keep up the pace.”
Investment bankers, brokers, traders, arbitrageurs, analysts, venture capitalists—could you be one of them? Why not. Read on and meet some of the players. Find out where the playing fields are, what it takes to get a tryout, and how you can join the team.
WHERE IS WALL STREET?
Physically, Wall Street is a narrow avenue, sun-blocked by office towers, near the southern tip of Manhattan. Not surprisingly, there once was an actual wall, but it’s long gone. Today, Wall Street is surrounded by other narrow streets with such names as Broad, Nassau, William, and Pearl, and it functions not as a city boundary but as the hot seat of the financial world.
Yet Wall Street, as it is generally spoken of, is far more than office buildings on a few streets. Wall Street really is a euphemism for the entire U.S. financial marketplace.
You can work on Wall Street and have your office in midtown Manhattan along tony Park Avenue, as does First Boston. Or you can sit on the southernmost tip of Manhattan, looking out to the Statue of Liberty in New York Harbor, as do employees of Salomon Brothers. Or you can watch the boats go by from the newest addition to New York’s financial skyline: the World Financial Center, fourteen acres of offices, shops, and plazas built on landfill along the Hudson River, where the likes of Merrill Lynch, American Express, Daiwa Securities, Oppenheimer & Co., and Dow Jones & Co. have settled.
But Wall Street doesn’t even restrict itself to Manhattan. Wall Street is Los Angeles, where Drexel Burnham Lambert has its junk bond financing department. It’s Chicago, the pulse point of options, futures, and commodities trading. It’s London and Tokyo and Paris and Mexico City.
Get the picture? Wall Street is not geography; it’s an industry and a state of mind. It’s the world. You can be a broker in St. Louis or an international banker in Singapore. You’re still on Wall Street.
We can thank technology in large part for the expansion of Wall Street. Enormous amounts of information are amassed, digested, and exploited day by day, minute by minute, second by second as Telerate, Quotron, and Reuters screens flash in market centers around the world. It takes less time to find out what’s happening halfway around the world than it does to walk from one room to another. Walter Wriston, former chairman of Citicorp, put it this way: “Mankind now has a completely integrated international financial and informational marketplace capable of moving money and ideas to any place on this earth in minutes.” Wriston further noted that “the information standard has replaced the gold standard as the basis of world finance. The iron laws of the gold standard and later the gold exchange standard have been replaced by new laws which are just as inflexible.… It’s also something that has made control impossible. Kings and princes can no longer hide what they’re doing.” Maybe. But kings and princes have never before been able to do so much.
WALL STREET AS IT’S NEVER BEEN BEFORE
There was a time, during Wall Street’s White Shoe Era, when the financial game was a polite one, built on tradition. Investment banks stayed on one side, commercial banks stayed on the other. Brokerage houses played in their own area. In recent years, however, territorial definitions have blurred. While each institution used to have a specialized role, the lifting of numerous federal regulations has allowed the same services to become available from a variety of sources. Furthermore, new financial instruments seem to be invented every day. There’s such an array of freshly boxed financial packages that it sets the mind spinning. Mortgage-backed securities, junk bonds, interest-rate swaps—the list goes on. Just as you think, “That’s it. There’s nothing new,” another whiz kid comes up with something else to attract investors. Far more than merely a numbers cruncher, today’s Wall Street professional is frequently wildy creative.
Partially as a result of all the crossover of business that deregulation has brought, and partially because it’s become the way of the world, financial professionals have become specialists; the old jack-of-all-trades banker is a rare breed. With so much crossover, jobs are no longer defined so much by whom you work for as by what you do. An analyst covering the auto industry may be employed by an investment bank, or by a commercial bank, or directly by an automobile manufacturer. That person is still an analyst, and his or her area of expertise remains the same. Only the institution and what it will do with the information the analyst provides may be different.
Buy Side-Sell Side
There are two sides to the financial business: the buy side and the sell side. If you work for one of the Wall Street institutions—a brokerage house, a mutual fund company, a money management firm—you’re on the sell side. If you work for an insurance company or some place that’s not a financial institution, such as a corporation or a university, then you’re on the buy side. When you think about it, the definitions make perfect sense. What’s Wall Street’s job? To sell its products and services. Who’s buying? Insurance companies are investing their capital. Pension funds of corporations are investing that money. Schools and universities are investing what they have. Corporations have myriad needs—cash management, investment, mergers and acquisitions, underwriting, etc. All of these institutions have large amounts of capital, and they make up the bulk of Wall Street’s business. They are the buyers, buying what Wall Street has to offer.
Now think back to that analyst job discussed above. If you’re an analyst for a brokerage house, then you work on the sell side of the business. If you’re employed as an analyst for a pension fund that invests, then you’re on the buy side.
This book concentrates solely on the sell side of the business. But keep in mind that for many of the positions discussed you could just as well be working on the buy side. Knowing this multiplies your employment options.
Two Big Acts
There are two acts of Congress that you’ll want to know about because they changed the nature of Wall Street. The first is the Glass-Steagall Act of 1933, and the second is the “May Day” deregulation of fixed commissions which took effect on May 1, 1975.
The Glass-Steagall Act established a wall between commercial banks and investment banks/brokerage houses; a wall which, despite crossover in many other areas of the business, remains. The Glass-Steagall Act came into existence during the Depression and mainly prohibits commercial banks from underwriting, a function that in this country remains with investment banks. This is not so outside of the U.S., however, which is one reason why American firms, like pioneers, have rushed to claim a piece of foreign turf.
A big change, and a welcome one for investors and consumers, was the 1975 deregulation of commissions, which dropped fixed commissions on transactions and instead allowed them to become negotiable. This set a whirl of competition in motion as firms began vying for clients. It also heralded the discount broker, a no-frills invention described in chapter 4.