Investment Interviews: The Book Advantage

There are a variety of books available to help you prepare for investment firm interviews. These books offer a range of advice, from how to craft the perfect answer to tough interview questions to how to showcase your passion and unique story. Some books provide a step-by-step guide to the investment banking interview process, including common technical and behavioural questions, while others offer insights from successful investors and money managers. It's important to note that some books may be more suitable for those with prior knowledge or experience in the field, while others cater to beginners. Additionally, some books include additional resources, such as online courses or companion websites.

Interview questions and answers

Investment banking interviews can be split into two types: qualitative “soft” questions and quantitative “technical” questions. Here are some examples of questions you may be asked during your interview, along with some tips on how to answer them.

Qualitative “Soft” Questions

These questions are designed to assess your fit for the role and your compatibility with the company.

• Tell me about yourself. This is your opportunity to give the interviewer a brief overview of your background, experiences, and qualifications. Focus on highlighting skills and achievements relevant to the position you're applying for.
• Why do you want to work in investment banking? Be honest about your reasons for wanting to work in this industry. Talk about your passion for finance, your interest in the company, and any relevant experiences that have led you to pursue a career in investment banking.
• Tell me about a time when you showed leadership. When answering behavioural questions like this, use the STAR method: Situation, Task, Action, Result. Briefly describe the situation, explain the task or problem at hand, detail the actions you took, and finally, highlight the positive outcome that resulted from your actions.

Quantitative “Technical” Questions

These questions will test your knowledge of basic accounting and valuation, as well as your problem-solving skills.

• Walk me through the financial statements. You'll need to have a solid understanding of financial statements, including the balance sheet, income statement, and cash flow statement. Be prepared to explain how these statements are linked and how they provide insight into a company's financial health.
• What is the cash flow statement, and how does it compare to the income statement? This question assesses your understanding of basic accounting concepts. The cash flow statement reports a company's sources and uses of cash over a specific period, while the income statement summarises a company's financial activities, showing revenue and expense information.
• Company A has $100 in assets, while Company B has $200 in assets. Which company should have a higher value? Company B should have a higher value based on the given information. However, it's important to remember that a higher asset value doesn't always equate to higher profitability or better financial health.
• How do you calculate Free Cash Flow (FCF)? FCF is calculated by subtracting a company's operating expenses, taxes, and capital expenditures from its operating cash flow. It represents the cash a company generates after accounting for cash outflows to support operations and maintain capital assets.

Additional Tips:

• Know your resume inside out. Be prepared to elaborate on any experiences, projects, or skills listed on your resume. Interviewers may ask you to provide specific examples or explain technical details related to your previous work.
• Practice, practice, practice. Familiarise yourself with common interview questions and practice your responses. The more comfortable you are with the material, the more confident you'll be during the interview.
• Stay up-to-date with industry knowledge. Investment banking is a dynamic field, and interviewers may ask questions related to current market trends, recent deals, or notable news in the industry.
• Prepare some thoughtful questions to ask the interviewer. This demonstrates your interest in the company and the role. It also shows that you've researched the company and have a genuine curiosity about their work.

Remember, interviewers are not only assessing your technical skills but also your communication skills, critical thinking abilities, and problem-solving strategies. Stay calm, be confident, and provide clear and concise answers.

Accounting knowledge

Accounting is the recording of financial transactions pertaining to a business. It is an essential skill for investors and investment bankers to understand and evaluate businesses and their success in the market.

Books for Beginners

For those new to the world of accounting, the following books are recommended:

• Accounting Made Simple – Accounting Explained in 100 Pages or Less by Mike Piper: This book provides a straightforward introduction to accounting concepts, covering the basics of various topics, such as the accounting equation, financial statement preparation, and interpretation of financial ratios.
• Accounting All-in-One For Dummies by Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, and Jill Gilbert Welytok: The well-known "For Dummies" series offers a basic understanding of accounting practices for anyone who handles money. It covers how to balance the books and manage finances to keep a business afloat.
• Warren Buffett Accounting Book: Reading Financial Statements for Value Investing by Stig Brodersen and Preston Pysh: Recommended by Warren Buffett himself, this book is a concise guide to analysing financial statements for investing professionals. It focuses on fundamental analysis and pure accounting research.
• Bookkeeping All–In–One For Dummies: Understanding how figures are put together is crucial. This book covers the principles of double-entry bookkeeping, debits and credits, and ledger balancing, providing a foundation for your knowledge of accounting.
• Accounting for Non-Accountants by Wayne Label: This book offers straightforward explanations of important accounting concepts from a business owner's perspective, helping you understand how accounting transactions work.

Intermediate and Advanced Books

Once you have a grasp of the basics, you can move on to these books:

• Barron’s Accounting Handbook: This reference guide delves into the nuances of IFRS and US GAAP, building on your knowledge of simple accounting concepts.
• Managerial Accounting: This book emphasises the importance of learning accounting from a business owner's perspective before diving into number crunching as an investor. It uses real examples and industry-specific case studies to lay a strong foundation.
• Financial Shenanigans by Howard Schilit and Jeremy Perler: This book is an eye-opener, revealing the limitations and approximations of accounting and how management can confuse or trick investors. It takes your knowledge to another level and helps you make more informed investing decisions.
• Accounting for Value: This book introduces the concept of valuation, guiding you through the complexities of valuing a business and helping you avoid common pitfalls.
• Annual Reports and Business Newspapers: Reading annual reports and business newspapers is essential to putting your theoretical knowledge into practice. By analysing different businesses and staying informed about economic trends, you will develop a competitive advantage in the market.
• Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports by Thomas R. Ittelson: This introductory book provides a quick and easy guide to understanding financial statements, including the balance sheet, profit and loss statement, and cash flow statement. It is a valuable resource for start-up businesses looking to master financial reporting and accuracy.
• The Tax and Legal Playbook: Game-Changing Solutions to Your Small Business Questions by Mark J. Kohler: This book takes a lighthearted approach to accounting and tax issues, providing a much-needed break from the seriousness of the subject. It covers tax write-offs and offers guidance on avoiding tax fraud and evasion.
• Visual Finance: The One Page Visual Model to Understand Financial Statements and Make Better Business Decisions by Georgi Tsvetanov: This book is a must-have for understanding finance. It introduces a simple tool that can be learned in a couple of hours and easily applied to real-life business situations.

Qualitative and quantitative questions

Investment banking interviews are divided into two types of questions: qualitative "soft" questions and quantitative "technical" questions. Qualitative questions seek to establish a candidate's fit for the role and their suitability for working in a team. These questions are designed to assess a candidate's passion for investment banking, their hobbies, their preferred work environment, and their past experiences.

• "Walk me through your resume."
• "Why investment banking?"
• "Tell me about a time when you showed leadership."
• "What are your hobbies?"
• "Describe the work environment you thrive in."

On the other hand, quantitative questions focus on technical knowledge and skills. These questions cover a range of topics, including accounting, mergers and acquisitions (M&A), initial public offerings (IPOs), corporate finance, and valuation. Candidates are expected to have a strong understanding of financial statements, valuation methods, and financial concepts such as enterprise value, equity value, and weighted average cost of capital (WACC).

• "Tell me about financial statements and why they are important."
• "What is enterprise value versus equity value?"
• "How do you value a company?"
• "What is the formula for enterprise value?"
• "What are the main components of WACC and how do you calculate it?"

Investment approaches

Value Investing

This strategy involves buying stocks that are considered to be trading below their intrinsic value. The idea is to find stocks that are undervalued by the market and have the potential to increase in price as their value is recognised. This approach often involves a lot of research and analysis to identify these stocks.

Contrarian Investing

This strategy goes against the grain and involves investing in out-of-favour stocks or industries. These investors look for opportunities where the market's perception of a stock is disconnected from its actual value. It requires a certain level of independence and patience as it may involve going against popular trends.

Growth Investing

Growth investors focus on companies with strong earnings growth potential. They look for companies with sustainable competitive advantages and strong management teams that can drive long-term growth. This approach often involves analysing financial statements and assessing a company's ability to increase its revenues and profits over time.

Quantitative Investing (Quant)

This strategy uses mathematical models and data analysis to identify investment opportunities. These investors rely heavily on numerical data, ratios, and statistical techniques to screen for potential investments. While they may also consider qualitative factors, the primary focus is on quantitative models and rigorous analysis.

Armchair Buffetology

Named after Warren Buffett, this approach follows the standard strategies attributed to him, such as investing in companies with strong competitive advantages, favourable long-term prospects, and competent management teams. This strategy often involves a long-term focus and a willingness to hold investments for extended periods.

Distressed Investing

Distressed investors seek out companies in financial distress or facing bankruptcy. They aim to identify undervalued assets or turnaround opportunities by investing in companies facing significant challenges. This approach requires a thorough understanding of a company's financial position and the ability to assess its potential for recovery.

Interview preparation

Books

There are several books available to help you prepare for interviews at investment firms. Here are some options:

• "The Red Book: 1000 Investment Banking Interview Questions" by Wall Street Prep: This book contains 1000 interview questions and answers, as well as strategies and in-depth technical training. It covers financial statements, accrual concepts, corporate finance theory, mergers and acquisitions, and more.
• "The Technical Interview Guide to Investment Banking" by Paul Pignataro: This book provides an expert synopsis of major points in core finance topics, helps you plan responses to common technical and analysis questions, and gives insight into what interviewers are looking for.
• "Investment Banking Interview Questions and Answers Prep Guide (200 Q&As)" by Chris J. Brodie: This guide contains 200 questions and answers, offering a realistic approach to pursuing a career in investment banking. It also provides tips and strategies for crafting a strong resume and performing well in interviews.
• "Value Investing With the Masters: Revealing Interviews With 20 Market-Beating Managers Who Have Stood the Test of Time" by Kirk Kazanjian: This book features interviews with top mutual fund managers who have successfully outperformed their peers. It offers insights into their investment approaches, strategies, and techniques.

Interview Types and Questions

Investment banking interviews typically consist of two types of questions: qualitative "soft" questions and quantitative "technical" questions.

Qualitative questions aim to assess your fit for the company and the team, as investment banking involves a lot of group work. Examples of such questions include:

• Walk me through your resume.
• Why investment banking?
• How comfortable do you feel working with numbers?
• Tell me about a time when you showed leadership.

Technical questions focus on testing your baseline knowledge, often in accounting and valuation. Some examples of technical questions include:

• Walk me through the financial statements.
• How are the financial statements linked together?
• What is the cash flow statement, and how does it compare to the income statement?
• Explain discounted cash flow analysis (DCF) and intrinsic valuation vs. relative valuation.

Additional Tips

• Be prepared for brainteasers or challenging questions designed to assess your problem-solving skills and ability to think on the spot.
• Ensure you have a strong understanding of accounting, as it is a fundamental aspect of investment banking. Even if you haven't studied accounting formally, you may be asked questions that require basic accounting knowledge.
• Practice your responses to common interview questions, especially those related to your resume and work experience.
• Research the company and the role thoroughly, and be prepared to discuss why you are interested in working for the specific firm and how you align with their values.
• Prepare questions to ask the interviewer about the company, the role, and their experience. This demonstrates your interest and engagement in the interview process.

Frequently asked questions