GUEST COMMENT: The next crash will be in the MBA job market
The next big market crash won't be in sovereign debt or credit default swaps. It will be in the post-MBA job market.
The recession has given many people working in finance an excuse to take the plunge and apply for an MBA. The first wave is just graduating into a tough job market, and there are few prospects of improvement over the next few years as the financial sector continues to restructure (read: shrink).
Further waves will follow as they pass through their two year course, even as their predecessors struggle to get hired.
Qualifying statements
MBA's are not all bad. They are a great way to switch careers (especially if you feel you're stuck in a dead-end situation e.g. trying to move from a back office to a front office role).
You will finish your course with a much improved network. This can be attractive if, like me, you studied at an undergraduate school with an excellent reputation but a poor alumni network. I'm told that studying for an MBA is also a great deal of fun.
However, even if you are accepted to a good school (and it's a seller's market), the curricula are often far too diverse to teach you much about real financial analysis. The focus is on marketing, strategy and other soft topics.
This is great if you want to get a job with Nestlé, but I have MBA friends who can barely read a balance sheet, let alone understand a credit or calculate a cashflow. You'll have to go out of your way to gain these skills.
MBAs are not respected in banking
Even if you get a job as an M&A associate, where the requirements for hard financial analysis are not as key as, say, PowerPoint skills, you can expect to be greeted with scepticism by the analysts beneath you and the VP's and directors above you.
The widely held view is that MBA hires into corporate finance arrive big on management speak and ego, and small on practical skills. During my analyst years I taught many an MBA hire to model a DCF or balance a balance sheet.
MBAs are not worth the while
The risk/reward analysis is not great either. The opportunity cost is not just the foregone income of 2 years away from work, or the cost of school fees and living over that period. The lost experience is arguably more valuable.
Even when bonuses aren't great, there's premium on those who've worked thru the downturn. In an investment role that's even more key - you've been party to some great trading opportunities and you've seen some once in a lifetime market moves.
Even after 5 years, MBA pay is not expected to shoot the lights out. I haven't done one. And nor do I ever intend to.
