Working At Goldman Sachs

I was really hoping OP would shed some light on what Investment Banking actually is. ipeefreely, feel free to comment/correct/criticize what I say here but I'm going to try to describe what Investment Banks do. In basic economics, you learn that there are Savings and Investments. Savings can be thought of all the money you make minus your consumption. Of course this comes in many forms, anything from your parent's stock portfolio, your grandparents retirement fund, your local fire department's pension fund. The name "savings" is pretty explanatory-it is the money you are saving. Investments are opportunities to create something that will generate wealth. A basic function of this might be a friend who buys a bicycle to deliver newspapers. The bicycle is an investment. It produces wealth. Now if you think of it in the Supply and Demand model, Savings is the "Supply" of money and Investments is the "demand" for money. You parent's 401k retirement fund is a supply of money that can be used and is being offered for us, and your friend (if he can't afford the bike himself) has a need (demand) for money to buy that bicycle. As you can imagine, there is a large body of supply and demand for money out there. Google's IPO is an example of a demand for money, or an investment opportunity. Google needed money to build an office building and buy desks and computers to create more wealth (im making this up, for all i know they just built more nap capsules and volleyball courts). Stocks, bonds, loans, are all examples of investment opportunities. Savings comes in many forms too, but I think i already gave some examples. Now what does this have to do with Investment Banks? The world would be fantastic if any of us with some savings could make optimal investment decisions. For example, if you have ten dollars left after spending the rest of your paycheck, and wanted to invest it, it would be nice if you knew exactly where to invest that ten dollars. but the chances are, you don't know if boeing or airbus is a better company, let alone compared to other investment opportunities such as a US or Greek government bond, real estate in Hong Kong, the Yen, or Copper. And taking the time to research every single opportunity in the world is not going to be cost effective because the time you spend is not going to be worth the return on your 10 dollars (let alone humanly possible). but what if you and your friend combined your respective 10 dollars, so now you have 20 dollars to invest, and half the companies to research. So following this logic, if all your friends combine your money, you now have a large enough pool that the research that goes into making this investment is going to be worth the time. (side note: quick math. if you spend 100 hours to find a great investment opportunity that gives a guaranteed 1000% return, your ten dollars would give you a 100$ return, giving you a 1$/hr pay. if you did the same amount of research but instead with all your friends' money, and now have a pool of 1000$, then your return is 10,000$, and your hourly pay is $100/hr. side side note: for those econ/finance people out there, yes i am ignoring decreasing marginal returns on investment) so it makes sense to aggregate savings into large funds. and since the returns are really high and there is a lot at stake, it might even make sense to have one of your friends who is really good at this to quit his day job and do this exclusively. everyone else can chip in a little from the fantastic returns and pay that friend. now you have your friend who is in charge of a large fund. lots of companies want him to choose their company because his investment decision will decide whether their company can invest and grow or not. these companies obviously want to show that investing in their company is going to be valuable. but how do they show this? how can you convince your parents that buying you a bike is a good investment because by delivering newspapers you will be able to pay back their loan? you might show that the bike will cost 100$, and you make 1$ for every delivery you make. you know from experience that these bikes last about 500 deliveries before wearing out and need about 100$ over the lifetime in terms of repairs. so you are looking to make $500 with a cost of $200. Say 500 deliveries takes about a year to make. you decide that you will split the profits 50/50 with your parents. so they are getting 150$ for the 100 investment they make. a 50% return. your parents are convinced. now how do you do this with a fortune 500 company? how do you calculate the cost and revenue? this is where the investment banks come in. Companies hire investment banks to do the analysis that I just did so they can present themselves to the large pool of savings that are out there. you notice that the investment bank isn't actually deciding whether to invest or not in the company. rather, they are representing the company to funds. oh and what do you do as an analyst for 110hrs at Goldman Sach's Invesment Bank? you make sure the left margin on all the powerpoint slides is the perfect distance because a company just paid big bucks for Goldman to make that pretty powerpoint to show to those investors out there that have trillions of savings ready to be invested. This took me half an hour to write. i hope it helps.

This is really good. If I had to generalize (cause I'm lazy). Investment banks can (and do) do two things (1) help companies raise money by developing investment rounds (think IPOs) for investors (2) advise companies on mergers and acquisitions (when 2 companies become one) Their job wrt these two things is two fold essentially. (1) figure out how much this company is worth and how much people are willing to pay for share. This part is valuation. (2) help execute by consolidating lawyers, bringing together investors, and doing all that process stuff. Now I think the biggest misconception out there is that investment banks actually do this. The big guys (i.e., Goldman) got smart somewhere down the line and realized "hey we understand finance better than anyone, we have awesome lawyers to structure complex products, and we have access to CEOs and senior leadership across the board. so why don't we use that knowledge to invest our money". And so "prop trading" grew... huge. Big investment shops have access to information that you and I just don't. For example, I can't just raise some money and sit down with the CEO of an oil services company and do on-site due diligence before I buy them. Look at Goldman's 10-k (annual report). 3/4 of profit comes from prop trading and there's barely a note about what they actually invested in. Goldman isn't necessarily corrupt here - and it's dangerous to just assume that Goldman is simply evil (although people who work there might be greedy, sure) cause it misses the point that there is an inherent problem in the system. The problem is the corporate sytem in america is outdated tax payers are responsible for the downside risk of corporate investment. If Goldman goes bankrupt (and them being too big to fail is another problem altogether) they can only lose when they put in. furthermore, management can't lost anyting but a bonus. Essentially the world over is subsidizing banks to make high-risk investments. Oh yah, and analysts make models etc, but the reality is that these models are just made as evidence for a decision that was already more or less made :p