How to get rich in finance

Topic: the principle ways of making money working in the finance industry (as opposed to going it alone as a trader)

Conclusion: the career choices of broker/trader, analyst, portfolio manager, managing director, and partner/owner all have their merits and drawbacks. As do going from one to the other. I’ve done them all, albeit with no real plan, and was handsomely rewarded for it.

This article investigates how to best pursue material riches in high finance.


Early 2010, I attended a gala in London to accept Futuris’ award The European Hedge Fund Of The Decade. I was the managing director, one of three senior partners, and portfolio manager for Futuris, a billion dollar hedge fund. We had won prestigious awards before but this really was the biggest one.

In short, I was very well off. Not only that, I came from nothing, with no network, no pedigree, no friends, parents, acquaintances etc. in the business. In addition I had no previous experience of finance. All I had was grit.

I first worked myself up the ranks on the sell-side as an analyst, and then switched to the buy-side to manage other people’s money, first as an analyst and subequently as a portfolio manager.

I started my career as a lowly broker’s assistant in the spring of 1994 after four years of studies at SSE (Stockholm School of Economics). Two years later I eventually found the time to hand in my econometric thesis (“Does the stock market overreact in its valuation of Swedish pulp and paper stocks?“) and thus got my masters degree (majoring in finance).

By 1996, after a couple of years since my humble beginnings in the industry, I was responsible for researching and recommending IT stocks at Sweden’s largest bank. Only four years later I was poached by the newly incepted IT focused hedge fund Futuris, to become their in-house Software and IT services analyst.

During the beginning of my career, I sometimes thought about the optimal way through the finance industry. One idea I had was to jump back and forth between the buy-side and sell-side every 2-3 years. A few years on the sell-side would make me known among all the important clients and make them want to hire me. And after a while on the buy-side I could leverage my knowledge about the inner workings of clients, as well as my personal contancts, to get more business as a research analyst or key client responsible on the buy side.

For every switch I would negotiate better pay packages, either for staying an extra year on whatever side I was already on, or for bringing my superior knowledge and contacts over to the other side.

In addition, I thought about doing something similar within the sell-side, switching between being an anayst and a broker/research sales.

As sales, I would have time to read research from all different industries and sectors, and be able to both learn more, as well as cherry pick the absolute best ideas for my clients. Then I could come back even stronger as a highly specialized single industry analyst, armed with a more diverse set of convincing assessment and valuation methods. The switches would be made opportunistically, when my employer or some other firm was looking for unorthodox solutions, rather than actively pursuing switching sides.

I had no real plan but for executing whatever orders I got as well as I could. In many ways I performed similarly to how I imagine a first generation artificial general intelligent agent would. I just powered myopically ahead with no regard to my personal health or professional suboptimization issues. I received my goal specifications and I tried to reach them with whatever legal means I had at my disposal, or could get my hands on.

If I had been asked to optimize the number of paper clips I would have melted the world.

However, whatever ideas I originally had about optimizing my knowledge, skills, professional network, compensation packages etc. were lost within my first few months as an underpaid, underslept, overworked premature ruin of a boy man, 22 years of age.

Here’s the strategic do-over of an optimal finance career, for your benefit:


Broker, sales, trader

Your main responsibility as a broker is to get clients to spend money (commission) on your firm.

You can achieve that goal by supplying them with good investment ideas, backed by fundamental and technical research, as well as gossip and assessments of which analyst is currently enjoying a good streak.

Another proven strategy is to essentially be a travel guide for clients visiting companies, conferences, restaurants, bars, clubs and strip joints.

A happy client understands that all firms are basically equally good, and could thus just as well allocate his spending to the firm that supplies good enough investment advice but excellent conscierge services. All this is very entertainingly documented in the book City Boy by Geraint Anderson, with whom I share my birth year, analyst background, as well as author aspirations, not to mention entering the finance industry without any knowledge of it. He’s also the one I turned to for advice, for deciding when to retire.

There are different tiers within the brokers, sales and traders guild. Some simply take orders and execute them by a click of the mouse, via a (Bloomberg) chat, or a phone call. Others are proprietary traders who get to play around with company money, with the objective of either making a profit or boosting the firm’s apparent market share (at a specified maximum loss). Yes, they get paid to lose money.

Yet others are the bridge between analysts and clients, they are the wheels of the broker firm, where the rubber meets the road.

Analysts identify and present ten good reasons for buying a stock on early morning meetings. Sales representatives (called “brokers”, “research sales”, “key account managers” etc.) try to remember three of the most important arguments, and hope that the clients they call latch on to one or two of these, and promptly place an order, which in turn lands the broker firm a commission. The best brokers receive year end bonuses based on how much such business they catalyze.

To land a position as research sales, to start accumulating large annual bonuses, you need to understand both people and numbers, not to mention work at a large and important firm to which clients automatically allocate most of their business. Jumping back and forth between roles as respectively a broker and an analyst is one effective route that I recommend.

There’s a snag though. The last few years new directives have been put in place which significantly limit the amount of commission clients can pay for brokerage and research services.

Not only that, there are good reasons to believe the brokerage industry is close to a peak and ready for a pullback. Combining these two developments make for a long and winding road for any broker or analyst, except a very select few.

Beginnning in 2019, 2020, I would strongly advice against a career as any kind of broker, if making money is your objective rather than having fun. That includes proprietary traders, whose positions are likely to be all but cut altogether going forward, due to the balance sheet cost of risk.

Analysts

Analysts on the sell-side work side by side with brokers. They read reports, visit companies, talk to industry experts, create enormous DCF excel models, and write research reports with recommendations to buy or sell a stock. If they are highly ranked* and well-known they get booked by clients (asset managers) and get to present their ideas.

* A high ranking can be attained in many different ways, but being right more than most is not a reliable way on its own. Being sociable is much more important.

Some clients take this process seriously: they listen, ask questions, make notes, compare the work with their own research and financial models, make a few adjustments and sometimes invest accordingly.

Others just go through the motions to get a free lunch, dinner, drinks or show.

A good analyst is in demand from as diverse places as corporate merger & acquisition departments, sell-side research firms (brokerage houses), and not least asset managers, i.e., the clients, the “buy-side” as an in-house resource and speaking partner.

A good analyst finds and creates new information, is innovative with numbers and charts, and gets ranked in annual surveys of public companies, their own broker departments, and most importantly asset managers (the clients). Being noticed by important clients is doubly useful – first in bonus discussions, second to get hired by them.

A good analyst can easily jump between roles on the buy-side, sell-side, corporate side, and possibly even as his own one-man research and investment firm. Not too rarely, good analysts start their own hedge funds, or simply manage their own money. It doesn’t always end well though – it’s a whole different game making buy and sell calls for others, compared to having your own money on the line.

A good analyst should most often stay a good analyst, in the care of as prestigious as possible a sell-side or buy-side firm, rather than go it alone. However, a good sell-side analyst can quite easily make the transition to becoming a good buy-side analyst or an excellent sell-side research sales, and back again, given a quantum of people skills.

Continuing down the list of being employed in the finance industry, both brokers and analysts can make for good managers (unfortunately, often bad ones too).

As a manager you get a higher than average compensation, but still much lower than than the top brokers and analysts. Your reward is less client interaction, less work, shorter days, but being screamed at by the spoiled boy-men brats you’re trying to manage. Bonus times are the worst. That’s when they all will try to intimidate you into submission, also known as getting paid more than they’re worth.

Some of your opponents (coworkers) are straight out of Compton hooligans, while other wave their pedigree around. Some cry about their families or new yacht, others scream and pound the table.

You’ll go home feeling like shit, like you messed up, like you’re being unfair, regretting and second-guessing your decisions and promises, fearing the best will leave and the worst will sue. Any stint as a manager will soon make you want to go back to working 16-hour shifts in the corp department, revising and improving power point slides for shifty IPOs, rather than suffering another round of bonus war (negotiations).

Sadly, just two years as a manager is enough to make you lose your edge as an analyst just as much as your will to live.

Portfolio manager

Congratulations, you’ve made it. Somehow you’ve proved your worth in the industry well enough to be trusted to manage other people’s money. Given it’s enough of it (at least 100m$ per manager), and the fee structure has a variable component, you’re set to make some serious money.

You shouldn’t even have to work too hard for it.

Actually, you shouldn’t work hard, period. As a portfolio manager you should strive for making few strategic decisions, while staying as rested and prepared as possible in between.

Make sure others do as much of your work as possible. Your task is to be calm and composed, taking stop-losses where needed, boosting positions where the risk reward calls for it, and communicate to clients what you’re doing, why, and how it’s going. you should not work long hours, micro manage positions or personnel

This is where you want to be, if you’re content being employed.

The way to becoming a PM is via being a good and respected analyst, or an excellent and well connected research sales.

They’re sheep!

The really great news is that as a PM, there’s a very good chance you could become a partner/owner of a fund or a hedge fund. But the ins and outs of that, including the reward anatomy, is a story for another day.

Next up: How a hedge fund works; revenues, costs, profits, total after tax compensation, and more.

The Future Skills Program

The most important thing in life is your health. Health starts with sleeping well. Actually, without it you’ll die (Why We Sleep, Matthew Walker).

Sleep, like food, is one of very few things evolution just can’t get rid of. Despite the huge downsides to lying unconscious and defenseless in nature among predators and parasites, humans on average do it one third of their lives.

The Health And Financial Freedom loop

In order to control your time enough to sleep the way you’re intended to, you need financial freedom, lest there will always be a boss or a client making demands on your time when optimally you’d be sleeping or playing.

Further, attaining economic independence through a specialist, entrepreneurial, leadership or investment career in a world of accelerating technological development means you need as agile a mind as possible.

Enter sleep and play:

Research done during mainly the last two decades (c.f. the amazing books “The Real Happy Pill” and “Why We Sleep”) increasingly show the importance of regular exercise and sleeping well for strenghtening our cognitive capabilities (coping with stress, anxiety and depression, increasing your focus, memory, creativity, and happiness; and combating and postponing dementia). Proper nutrition, not least for promoting a healthy and diverse microbiome, is also an important part of shaping a future proof and capable mind-body machine.

So you can see how you need sleep and exercise to boost your financial standing; and economic independence to optimize your sleeping habits and general health.

Creating the Future Skills Program

Since I left the finance industry (I was a portfolio manager at a very successful hedge fund for 15 years: Futuris – The European Hedge Fund Of The Decade), I’ve spent a considerable amount of time thinking about what made Futuris not just great, but the greatest money manager in Europe for a full decade.

From the Future Skills Program (Finance Module)

Over the last year, I’ve finally come around to distilling my investment insights into a series of videos, with accompanying detailed course notes and exercises.

Three decades of investing lessons and best practices distilled

In the Future Skills Program, I explain the investment methodology and practices I’ve honed during the last 30 years.

They include what I’ve picked up from business school (M.Sc. in Finance at SSE 1990-1994), as a financial analyst specializing in IT and investment companies (1994-2000), as a portfolio manager (2000-2015) with focus on software, services and finance, and finally as a private equity investor 2015-2019.

From the Future Skills Program (Finance Module)

A robust health, sound decision management practices and career planning are as integral to designing a good life as investing prowess. Therefore, I and my partners have put together a complete Future Skills Program, including chapters about networking and career advice, value investing and personal development. I’m in charge of the Advanced Career (6) and Finance videos (16).

Please note that I’ve hesitated to participate in creating this course. All the topics discussed are complex matters without simple answers. The course details what you need to work on and in what direction to focus your energy, but you’re still the one having to put in the dedication and work.

We can only show you the door, but it is you who have to walk through it.

If you’re ready to take real responsibility for your life, career, risk management and finances, check out the course program in detail here:


Take a real break — not just a pause

The biggest risk is being invested at all times

When I was a hedge fund manager, we took two full breaks of a month each. We sold all our positions and just sat on the cash. During the hiatus we honed our pitches for our old and potantially new positions, as well as our arguments for why some of the other managers’ positions shouldn’t be let back in. Then we re-invested from scratch with fresh minds.

This process cost a few tens of a per cent per break in terms of spreads and commission, and possibly theoretically half a per cent in lost returns. Let’s say we left a full per cent of returns on the table per year due to the roundabout. However, I dare say we gained much more in perspective and fresh analysis.

Okay, I’ll come clean. We actually only discussed implenting hard breaks like outlined above, but never had the guts to do it. I still think we should have, but I think two things stopped us:

  1. convention – what would clients say, in particular if prices moved favorably for the portfolio we just sold
  2. fear – we were afraid we would either become lazy and just use the breaks for leisure, or that we would be afraid to put on our positions again, in particular the best ones if they had become more expensive

No matter, breaks are a part of the human condition. We aren’t designed for going full throttle all the time. There’s a reason we sleep.

However, “take a break” does not mean being passive, it means shaking things up, doing other things rather than nothing. At the gym, supersetting could be a break from old habits. Personally, travel is a way of taking a break from my ususal surroundings — just note that it probably shouldn’t mean lying on the beach or by the pool all week. See something new, talk to a stranger, try new food, read a book instead of computer screens.

Take stock

What’s your current situation? Perhaps you trade the stock market all day, go to the gym three times a week and hit the bar 1-2 times a week. Perhaps a good non-fiction book would be the perfect break for you, i.e.,  a slow, long focus activity as opposed to all the adrenaline you usually get.

I’ll tell you a trick that keeps surprising me: Take a walk.

No matter how you’re feeling or what you’re doing, if you just get outside and start walking round the block, you’ll suddenly feel much much better. I know this, and I practice it a lot (thankfully I have a dog, so I get out at least 3 times a day). Nevertheless, I’m often struck by how clear and relieved I feel after just 20 seconds outside.

Sometimes, I might be procrastinating over buying groceries, posting the mail, running an errand, or just going downtown to buy new underwear. Somehow I think it’s a hassle, until I just do it, and realize (again!) how everyting becomes brighter and easier as soon as my feet hit the sidewalk. It definitely beats watching TV in the sofa (even if that feels more tempting right before). Even vacuuming the apartment is refreshing once I muster the strength to just start the damn thing :D

Alright, walks are good, you get it. But the real message here is to take breaks, to go against your habits, to stop the homeostasis. The message is to take active breaks where you do something different, rather than taking a break to do nothing.

  • Do you read a lot? Then write!
  • Do you write a lot? The talk!
  • Do you run a lot? Then lift heavy things!
  • Do you have a lot of indoor sitting meetings? Then take walking meetings outside!

I’m a bit of a loner, so my breaks often entail meeting people. I can’t say it charges me, quite the opposite in the short term. But I appreciate my normal activities all the more, and I gain perspective from it.

When it comes to investing, these days I definitely take complete breaks from considering public companies’ financials. That way, I can start over completely fresh from psychological anchoring points. What I do during my breaks from stocks? I read books I didn’t think I would, and I try new podcasts or podcast episodes that I’m not sure I’ll like (my habit is to only listen to topics and people I’m pretty sure I’ll enjoy and learn useful things from).

In particular regarding investing on the stock market, the most important rule there is is “never rush“. Investing is a game of several decades. In that perspective a month here or there is completely inconsequential, whereas the gained insight can prove invulauable.

When did you last take a constructive break? And from what to what?

Here is a tip: plan a strategic getaway, where you alone, or you and your life partner, or you and your business partner travel to a quiet location. Leave all electronics behind and spend, e.g., 2-6 full days planning your life from a several months to several years perspective. Try to take everything into account: personal development, financial goals, realtionships, health etc.

If that isn’t a REAL, ACTIVE BREAK, I don’t know what is. As a bonus, you’ll get to practice mindfulness, deep work, and loosen social media’s addictive grip on you.


If you like my writing you really should check out my podcast Future Skills, which discusses habits, tools and role models that keep you relevant in a future of accelerating technological and societal change.

The show has three kinds of episodes: 1) short, one-idea regular episodes, 2) longer format interviews with authors, researchers, investors etc., 3) medium-length expert episodes and a specific theme.

Check it out, and please leave a rating or review on iTunes to help others find the show.