Is nepotism still rife in the City?
On 8 August 1996 a dissolute hippy who had spent most of the previous two years selling trinkets in Goa ceremoniously removed his five earrings, shaved off his bum-fluff goatee and had his preposterous ponytail shorn off. The next day I cruised into the offices of ABN Amro in a six quid Oxfam suit and started my City career.
There was only one explanation for this implausible scenario – my fund manager brother Huw had ‘persuaded’ his salesman at ABN Amro to procure me an internship. The vast trade in British Gas shares that greeted my arrival left Huw’s broker in no doubt he’d made the correct decision.
My initial guilt about partaking in the hideous nepotism that so blights our country’s meritocratic aspirations was soon assuaged by the realisation that perhaps a third of my colleagues had got their foot in the door via a family contact.
These days, jokers like me wouldn’t get a look in as the curse of professionalism and qualifications becomes ever more prevalent. However, it undoubtedly still holds true that when two equally appropriate candidates apply for a City job, having uncle Monty on the board tends to swing it.
Does the City attract arrogant types or do they become arrogant?
During my career I often had the dubious pleasure of buttering up buy-side clients who had just commenced their City careers. The problem was that I wasn’t the only slimy weasel trying to buy their loyalty with foie gras and ludicrous bar bills. This indiscriminate waterfall of sycophancy would be enough to turn Mother Theresa into Pol Pot’s twisted sister but can you imagine what it does to an impressionable 21-year-old who’d probably been bullied at school? I saw vaguely decent (sometimes even humble) humans transmogrify into smug pricks within six months.
Likewise, we brokers, desperate to be taken seriously, had little choice but to continually present an air of impregnable self-belief. Indeed, a pre-requisite for our bold stock recommendations was a firm conviction that we knew better than the market, i.e. all those other muppets out there. Since actions become habits which, in turn, become character, is it any surprise that many colleagues on the sell-side began to resemble Simon Cowell after a four-day coke bender?
Be careful – high finance is like a schlocky zombie film where your co-workers can turn into monsters after just one bite.
Can you actually value a share?
Whenever I asked my trader why a share price was going up – he would shout out ‘more buyers than sellers, boss’ (this term not being a sign of deference but rather a semi-ironic diss). And that remains the smartest explanation I’ve ever heard.
We analysts might sit around squeezing blackheads and composing spreadsheets till the proverbials come home but, in reality, most of our ‘valuations’ are little more than educated finger-in-the-air stuff. For example, a DCF valuation could be increased by 20% by upping the assumed long-term growth forecast by 1% or reducing its WACC by 1%. Likewise, PE ratios and yields are actually just meaningless numbers to be highlighted only when they support your case. Hence, whenever share prices moved dramatically, thus rendering our precisely calculated price targets irrelevant, we would impose an arbitrary modification such as a ‘conglomerate discount’ or ‘takeover premium’ to get the answer we wanted. Pointless box-ticking nonsense.
Valuation is like the driving theory test – you need to be seen to understand it but it won’t actually help you when you hit 120mph on the A465.
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