This is a guest post by The Financial Canadian. 

I recently completed a 4-month job stint at a Bay Street bank in Toronto.

I consider myself extremely fortunate to have had this opportunity. After living in rural New Brunswick for my life to date, this move was full of changes – both personally and professionally.

Bay Street is a really mysterious place for those who haven’t experienced it. I’m happy to report that it’s a wonderful place.

Nelson and I have been in discussions for some time now about a guest post, and we thought it would be cool to write about lessons learned on Bay Street.

One lesson I’m writing about today is about the culture of Bay Street (a pleasant surprise!), and the others are about investing in general.


Lessons Learned on Bay Street

Lesson #1 – It’s not like the Wolf of Wall Street

The world of banking gets a bad rap from many people. And perhaps rightly so – after the financial crisis of 2008 resulted in millions of people defaulting on their mortgages and losing their homes, it’s not surprising that people are salty about it.

Banking also has a reputation for being tough on it’s employees, getting them to work insane hours. The media portrays bankers as individuals prone to substance abuse, who never spend time with their families and are workaholics by nature.

I’m happy to dispel these myths.

First of all, at the firm I worked at I can genuinely say that the employees worked for the best interests of their customers. Other than perhaps your doctor, there are few business relationships that require as much trust as those that are financial in nature. The employees on Bay Street take this responsibility seriously..

With regard to the work-life balance, this too was much better than the media portrays it. The hours were very normal for an office job. I was scheduled 8:30-5 every day, and though I often left a bit later, it was never extreme nor enforced. The office was generally empty by 6:00. Sure, there were evenings where I stayed until 8 or 9 at night, but they were rare, and often unnecessary – the work could have waited until the next day, but I was so caught up in it that I lost track of time. One of the side effects of loving your job.

I worked with a group of great people, and our environment was nothing like what is portrayed in the media. The work environment was excellent, and I felt supported and encouraged in my growth. Friends at other firms reported the same. So my first lesson – Bay Street is not the dog-eat-dog world that you see in the movies.

Lesson #2: The Butterfly Effect Is Real

but·ter·fly ef·fect
  1. the phenomenon whereby a minute localized change in a complex system can have large effects elsewhere.

In layman’s terms, the butterfly effect is the theory that a single event, no matter how small, has the potential to change the world around it forever.  This applies to the world of investing too – the intelligent investor will make use of all the details, no matter how small, before committing any money to an investment opportunity.

One of the biggest things that changed about my investing over this summer was my attention to detail. Instead of making investment decisions based on an article from the Motley Fool or CNBC, I learned to really dig into the financial statements of a company. I no longer invest in companies whose business I don’t understand.

When I look back at the way I used to invest, it seems very near-sighted. It’s amazing to me how little I considered the facts before I would make an investment.

For example, if I was considering an investment in TD Bank, the old Financial Canadian might have said:

  • “They are one of the biggest companies in Canada, so they must be doing something right.”
  • “Canadian banks are known to be profitable and low-risk investments.”

Now, my approach is much more granular, and I consider objective facts, like:

  • TD has demonstrated excellent EPS growth in recent years.
  • Their expansion into the US leaves plenty of room for further growth in a new market.
  • The potential for an interest rate hike from the Federal Reserve will increase TD’s Net Interest Margin in their US operations, boosting the bottom line
  • Their exposure to oil & gas loans is lower than the rest of the Big 5 Banks, reducing credit risk in the current oil downturn.

See the difference? By accounting for all details while making investment decisions, we can simultaneously reduce risk and increase return.


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Lesson #3: Building a Network Is Key

This summer I had the pleasure of working with a tremendous group of investment professionals who were experts at their trade. I consider many of them to be among the smartest people I know.

As smart as they are, none of them know everything. But through their craft and through their personal endeavours, they have all spent years building a network of people they can rely on.

This network is extremely valuable.If a well-connected person ever stumbles upon a question that they don’t know the answer to, they will know someone that does.

So how do you build a network?

Well first of all, being genuinely nice is a great way to start. As well, don’t be shy! Reaching out to people cold (whether it’s through email, LinkedIn, or what have you) is a great way to meet new people and I’ve personally made great connections this way.

After seeing the importance of networking first-hand this summer, I wrote a full post about successful networking tips. Give it a read!

Lesson #4: Investing is About Numbers

This blog is quantitative by it’s very nature. Investing itself is also very quantitive, at least when it’s done properly.

This might seem very obvious, but this summer took it to another level for me.

This summer I learned all about valuation metrics, Microsoft Excel, Discounted Cash Flow models, and all kinds of other applications of mathematics and statistics to the world of investing. Since business is communicated through financial statements, and financial statements are composed of numbers, then it only seems natural that quant skills are important.

Equally as important as being able to calculate these numbers is the ability to interpret them. Investing is just as much an art as it is a science, and this summer I made great progress in developing the “gut instinct” that is necessary in a successful investor.

Concluding Remarks

Having the opportunity to work a stint on Bay Street was one of the best things that’s ever happened to me.

I’ve learned so much about investing, living in the big city, and all sorts of other things.

One day I hope to make it back.

Readers, did any of this surprise you about Bay Street? Let me know in the comments section!

Tell everyone, yo!