Luck and the Wall Street Career

The choice of investment banking as a career may have as much to do with circumstance as a love of the business, and MBAs who graduate during a bear market may never even get their shot at Wall Street, according to research by a Stanford University professor.

"It always struck me that being in the right place at the right time was important in career paths," says Paul Oyer, an associate professor of economics at the Stanford Graduate School of Business. Oyer has studied the career choices and salaries of the school's graduates from classes spanning a 35-year period.

Oyer says random factors play a large role in determining the kinds of jobs MBAs take on graduation. Specifically, the proportion of graduating MBAs who get hired into the investment banking world depends on how well the stock market is performing that year. For example, 26 percent of Stanford MBAs who graduated two years before the stock market crash of 1987 became investment bankers, compared to just 17 percent two years after the crash.

Such trends have real financial consequences. Based on salary information provided through the self-reported survey, Oyer calculated the present value of lifetime income for an MBA who went into investment banking to be $2 million to $6 million higher than for one who went into a non-banking career. "Thus the classes of 1988 and 1989 could expect significantly lower lifetime income due to the timing of their graduation than the classes of 1985 and 1986," he says.

Oyer says MBAs who go into investment banking - in which he includes money managers and venture capitalists - tend to stay in the business over the long term. For example, five to 10 percent of the people in investment banking leave the field in the first few years after receiving their MBA, but attrition slows significantly after the fifth year. He also found that MBAs don't hop in and out of investment banking in search of the perfect job. "It's pretty sticky," he says. "Once you're there, you tend to stay. Once you've started down another path, you're not likely to move to a Wall Street firm."

Graduating MBAs are correct in perceiving that their graduation year's general economic landscape will have profound long-term implications on their careers, Oyer says. "Every year our students get very anxious about the state of the job market. I always thought we - because I was the same way when I was finishing school - were being silly," says Oyer. "But as it turns out, we had pretty good reasons to be worried about the state of the job market, as it would affect a lot of us for a long time to come."