An Investment Banker’s Portfolio

It’s just not as cut and dry as some think… passive/active, advisor/no advisor.

Years ago, I interviewed with a securities brokerage, on the investment banking side. I met with one of the managing partners and we were essentially blue-skying about whether I would be a fit for that world. (I’m not, by the way.) One thing was apparent to me during the interview: this guy was on a different planet in terms of brain power. I felt intimidated because I knew nothing about his industry at the time. After the formal part of the interview, he asked me if I could give him my thoughts on his personal portfolio.

Was the interview still going on? Was this a test? Surely this guy had the creme de la creme of managers managing his money (their offices were all over his Bay Street office tower), or perhaps he had his own trading terminal set up beside his desk to manage his own portfolio…

Nope. It was seven figures stuck in a globally allocated basket of index hugging, active mutual funds charging close to 3% per year. It must have been a test.

Nope. It was his actual portfolio. I was dumb-founded.

Then I realized that while he clearly had the brain power to be able to figure things out if given the right reading material, he had neither the time, nor the inclination to do so. He was not an expert in portfolio management, he was an expert in investment banking – within the financial services, these are completely different things. His advisor was an old school buddy, and he just delegated everything to “his advisor”.

This may be an extreme example, but it was a story I thought was worth sharing. There are a  few ideas to discuss that can be plucked from this anecdote, but if anyone wants to kick start it in the comments, be my guest.

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 16 comments
  • Howie


  • larry macdonald

    1. Often, people who achieve great things throw all their time and energy into it, leaving little left over for the other parts of their lives including their portfolios. From what I have seen, for example, doctors are not particularly good investors.
    2. There are some obvious themes here, which I’m sure others will comment on. One not so obvious perhaps is diversification: from the 3% MERs, it looks like he is heavily exposed to equities. So both his portfolio and job are correlated to stocks — not too good.

  • Fred

    About a lifetime ago (almost 20 years) I worked for a custodial bank and worked with a NYC hedge fund manager who ran a book of about 300M (many billions now I believe). He ran what was probably a 200/100 strategy shorting treasuries of various durations to buy MBS in every shape and size and layered all sorts of repos/swaptions etc on top of the strategy.

    I am told his entire personal portfolio was in 90 day t-bills.

  • Michael James

    I could understand if this guy decided to shun risk and was 100% in GICs. I don’t recommend this, but I can understand it. In game theory terms, this guy was using a dominated strategy. This means that there is another strategy that always beats the dominated strategy. That other strategy is to buy cheaper index funds. This issue is cut and dry — when assets are identical, buy the cheaper ones. The issue of how much risk to take on is less clear. The only remaining way for this guy’s choice to make sense is if he had so much money that it was worth it to give huge chunks of it to his buddy to help out the buddy.

  • Dan Hallett

    A couple of possible explanations…

    1. Investment bankers are privy to a lot of information that they cannot legally act upon. It may be too risky to direct one’s own investments in such a situation. And it may well be a requirement, from compliance, to delegate the portfolio management to an objective third party. From the sound of it, this IB could have made a better choice but delegation was either a requirement or just a safer choice.

    2. To a point raised by Larry and Fred, should an IB or any advisor diversify away from factors influencing your income or leverage further into it? The choice is a personal one but the conservative choice is investing in assets that are imperfectly positively correlated with factors influencing your primary source of income. This is quite valid and understanding an investment professional’s choice may not be obvious, also, without the context provided by the full details of his/her net worth.

    I also once interviewed an IG fund manager who told me that personal portfolio decisions were delegated to an IG advisor who also provided this fund manager with financial planning advice.

  • Robert

    I feel people should invest in what they know. As a stock broker, I know stocks. I earn my income from the performance of stocks I recommend, and my investments are in stocks I recommend. From the perspective of diversification, it may not make sense. However, Andrew Carnegie said: put all your eggs in one basket and watch that basket!

    It’s also wise to remember that investment performance is only important in relation to the savings rate. If the investment banker is saving $200,000 per year, and has a portfolio of $1,000,000, the difference between a 5% and a 6% return ($10,000) is going to mean very little in context of his savings.

  • Dave

    Your anecdote certainly rings a bell after a recent get-together with a close relative. This individual is not only internationally renowned in his field but has a medical specialty plus a doctorate in an area of applied mathematics. He is not dumb, needless to say, but has as much knowledge and interest in investing as the average 9-5er, as a result of which he is completely tied up in mutual funds and dependent on an advisor. The strange part about it is that if you ever engage him in a discussion of an aspect of investing or current topic in the area his intellectual abilities shine through. For him it is a matter of time despite my many urgings that if he doesn’t take an interest in his investments he is leaving his future to a person with whom he has minimal contact and who apparently has few original thoughts on the subject. His ace in the hole – so he believes – is that he loves his work and is in a position to continue working long beyond the usual retirement age. No one can predict the future, however, and if you aren’t actively managing your money it can disappear overnight as many lottery winners have found.

  • Financial Cents


    However, that said, I agree with Larry – many who achieve greatness leave little effort for themselves. That’s why I’ve heard that many lawyers, physicians and other professionals are not great money managers. They make a great deal of money so they don’t have to be that good at managing either.

    Thanks for sharing Preet. I like hearing these stories, because it doesn’t make lil’ DIY guy like me feel so bad about making some mistakes in my financial journey.

  • Mark Wolfinger

    Did you have the nerve to tell him how stupid he was? He did ask.

  • jesse

    It may be he had things set up to be bone simple because it makes his estate easy to manage. If he dies or is disabled, there isn’t much that needs to be done to keep it on track. He is paying someone he trusts unconditionally (I assume) to ensure his family’s nest egg is well taken care of.

    He also probably spends a ton on lifestyle to boot. Maybe the last thing he wants to do when he gets home is think about his measly 7 figure portfolio. Better to enjoy the money he just earned.

    The previous comment about how much $ he earns per year is valid too. On a total return basis, best to spend time maximizing income, not being distracted by one’s own portfolio during working hours.

  • Understanding Investment Banking

    I’ve been reading your post for the last half an hour, and it all has been really informative and well written.and i also impressed the way you briefly tells us about how one can make investment banking.


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