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Home  > Article

Investment Banking, A Great Place to Start

By Drew Davis

There is no better industry in which to gain an understanding of finance than investment banking.

Regardless of the industry in which you find yourself after college, even the non-profit sector, finance will be an important part.? Learning the importance of money and how to manage it is an invaluable skill that you will always need, and that you can always learn more about.?

It is worth noting that investment banking does not constitute the entire finance industry.? However, at the end of the day, almost all finance relates back to investment banks.? Hedge funds and private equity firms, the other "largest" players in finance, do a lot of the same things as investment banks but on a much smaller scale.? Additionally, the number of opportunities in investment banking is much greater than the number of opportunities available in hedge funds and private equity combined.? As such, if you're looking for a good way to brush up your resume before getting into private equity or hedge funds, investment banking is a great place to start.

Investment banking is an incredibly competitive and work-intensive industry.? However, there are few industries in which you can learn so much in such a short amount of time.? Similarly, a great deal of the models that you will learn and implement as an analyst, the standard first-year position, will be applicable to your finances for the rest of your life.??

The purpose of investment banks is to raise money for corporations or the government by selling securities.? Securities are fungible items that have a given financial value.? They are separated into two categories: debt securities, such as bonds and bank notes, and equity securities, such as stocks.

The transactions involving these securities are divided into two categories: the sell side and the buy side.? The sell side involves trading securities for cash or other securities and promoting securities through research.? The buy side involves pension funds, mutual funds, and hedge funds.?? These funds are all tools of the bank through which it can invest your money.? The profits from the decisions of the bank, with the exception of a commission to the bank, are the clients' to keep.? Depending on the financial knowledge of the client, they may also choose to just use the research and conduct their own investments.

On a corporate level, investment banks also oversee the merger and acquisition of different companies.? This specific division, not surprisingly, is called mergers and acquisitions.? Determining the potential value for a merger or acquisition involves risk assessment, which literally means predicting the future values of the respective companies and analyzing if it is worth conducting the transaction.? On a smaller level, this is the same research process that you will go through to inform an individual if an investment in a debt or equity security is a logical decision.?????







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