Finance Recruiting Step 4: Technical Skills
By Michael Jimney, Financial Leadership Program (FLP) Correspondent
Technical skills have a special place in every finance student’s head. They are the core skills you develop once you land your dream job; yet, at the same time, students live in fear of having these skills tested in an interview. The perceived difficulty associated with technical skills can dissuade students from various positions because they do not feel prepared to have their skills evaluated. Thus, the purpose of this post is to demystify technical skills and to point you in the right direction when developing these skills.
Many students misuse the term “technical skills.” Students tend to think of technical skills as a catch-all for any skill that involves numbers, formulas, or math. When preparing for interviews last year, I read the largest technical skills guide I could find. My strategy was to understand everything in the guide and then I would be ready for anything. The mistake I made, along with many others, was presuming that technical skills meant the same thing across positions. When evaluating which industries to initially target for an internship (see Step 1 HERE), one of the goals is to identify what an analyst, for example, does on a daily basis. You can also get the scoop by asking a professional good questions about his or her role (see Step 2 HERE). Now is the time to convert that knowledge from “Can I see myself doing this?” to “What do I need to know if I want to do this?” Each position has a different set of technical skills required, so it is important to identify what they are. For an investment banker, this includes understanding concepts related to valuation, financial statements, and the deal process. For a trader, technical skills are more about understanding the markets, macroeconomics, and tools like Bloomberg. Diving into a huge textbook of everything finance can be time consuming, confusing, and intimidating. When you are trying to decide which skills to develop, be specific and clear about which role you are targeting.
Another thing to realize is that technical skills do not necessarily have to be quantitative. Math and logic problems tend to be feared because they can be “tested” in an interview. However, many of the skills you would not consider technical are actually very relevant. I have found a few core skills that are a must for any job in finance, and none of them are based in mathematics. They are:
- Following the News/Markets
- Reading and Summarization
- Written and Verbal Communication
- Attention to Detail
If you only do one thing to prepare for a technical interview, I recommend following the news and markets. Doing so is the best way for students to learn about finance, end of story. As I listed in Step 1 (HERE), there are many periodicals and news sites which are great resources. By reading the news every morning, you will have a greater grasp of industry trends, the economic situation in the US and abroad, current deals, investing ideas, and topics to use when asking insightful questions.
Related to keeping up-to-date with the news is your ability to read. Any analyst role you work in will require you to read a large amount of material. Thus, keep an eye on how much you are actually retaining. The more efficiently you can translate words into information which you can use or explain to others, the better you will be at your job. Breaking down documents or news into a few key points is what separates a mediocre analyst from a great one. For example, investment banking analysts are responsible for reviewing 10Ks. If you cannot articulate why you are using certain numbers in your model or why a company made a certain decision, in either an email or conversation, no one will trust that you have done a good job.
Attention to detail is another prerequisite for any position in finance. Because you will be dealing with money, everything you do needs to be precise and accurate. Especially if you are in a client-facing role, a mistake in the details can have a negative effect on both your analysis and your reputation.
Finally, a more obscure but still technical skill is problem-solving. This is your ability to break down a problem and identify the best way to resolve it. This has nothing to do with how groundbreaking your solutions are, but how you actually identify what the problem is. During your internship you will constantly be faced with tasks or materials that are completely new to you. Your ability to problem solve will determine how you tackle these unknown challenges, almost like solving a puzzle.
While the above skills are required for any position, there are specific skills required for each role in finance. For a position like trading or asset management, a lot of emphasis is put on understanding the market. This includes giving a stock pitch and having a view of where the macro-economy is going. Understanding how to analyze a security is also important, including using fundamental analysis (price to earnings, and other key ratios) or doing bond math. Being able to do math quickly is also a must, so prepare to be able to do multiplication and division in your head. I especially recommend knowing how to convert 1/8 into decimal form.
Equity research will require one to have some market understanding and security analysis, but it will also put a lot of emphasis on written communication skills. This makes sense considering the main responsibility of the research analyst is to write a detailed report of their stock analysis. Market risk positions also revolve around understanding the market but can be far more math-heavy. Being able to speak about VaR, statistics, and probability is important.
Looking at the skills required for a position in investment banking or credit risk, you will find a very different set of requirements. An understanding of accounting, specifically how to read financial statements, is an absolute must. Knowing various valuation techniques is also important, so make sure you can build a DCF from scratch and understand what the inputs, including WACC, terminal value, and free cash flows, actually mean. The different parts of the capital structure are also important to learn so you can accurately identify a how a company is funded. The fork in the road is which communication skills are emphasized. Credit risk analysts are required to submit reports of their findings, which means writing skills (while qualitative) are a technical skill. Investment Bankers require more of a blend. Verbal communication is important for interacting with clients, but written communication is just as important to produce the stacks of pitch books required from an analyst.
As you speak to professionals, you will gain a better idea of which skills are required for a particular group. Once you identify which skills to focus on, it is helpful to use time-based objectives to ensure you are making progress. Set up a series of checkpoints with specific goals you expect to reach by certain dates. For example, I may have a goal to finish a book by December 1st and build my own VaR model by January 1st. Please also note that you do not want to cram for an interview. Yes, I understand it works for class, but interviewing is a different game. Immediately following a test, your mind will purge the facts and definitions you crammed in. When interviewing, you must presume there is always a second or even third round. If you have Super Day a week after that first round interview, are you going to re-cram all that information? What happens when you have an interview pop up with only 24 hours’ notice? Memorized answers are too easy to forget and will be obvious to anyone interviewing you. Committing to memory your walkthrough of a DCF will quickly break down if you miss a step, lose your place, or are asked to explain a specific part in more detail. However, by actually taking the time to build a DCF, you will understand the steps through experience. It will take time, but learning what each piece of information actually means gives it more permanence in your mind. An interviewer’s job is to differentiate knowledge and problem-solving from memorization.
I am sure some of you are disappointed I did not just post a list of skills you must have for each position. The truth is each job is unique in the skills required to be successful. Many finance professionals will say “it isn’t rocket science.” The reason for that is because factors beyond technical skills are also important to be successful on the job. For example, the firm’s culture, its size, and the structure of the internship program will impact one’s ability to land that full-time job. As a student, an intern, and even a first-year analyst, it is expected that you will be on a steep learning curve. You don’t need to learn everything now. Instead, estimate which are important skills to cultivate now but know this will be an ongoing process. Once on the job, put yourself in your team members’ shoes and think about what skills they have developed. Then, just as you did to prepare for interviews, create a new list of skills you want to target and set up your calendar goals.
The term “technical skills” can be scary if you think about it as an oral exam. I prefer to think of them as tools in your toolbox, which you will need to demonstrate you know how to properly wield. You cannot memorize how to swing a hammer; you must do it until you get it right. Stay tuned! I will discuss a few strategies to meet professionals in Step 5: Networking.