Finance is often seen as a mathematical game, and there’s good reason for that. Take a look at the CFA curriculum or Finance 101, and you’ll see a lot of mathematical concepts. At its core, the time value of money (TVM) concept is very mathy, expressed as FV = PV(1+i/n)^nt.
Now, if you know nothing about math, this looks intimidating. But if you’ve studied high school algebra, you can quickly realize it isn’t; as soon as you’ve learned the values of the variables PV, i, n, and t, it becomes a very simple matter of some basic arithmetic to get the solution. Want to know PV? Some algebraic changes will get you there—just solve for PV and you’ll get PV = FV / (1+r/n)^nt.
Some financial math is harder, and in the world of quantitative finance where a lot of experimental methods using statistics and machine learning is involved, the math can get extremely esoteric. But that is a tiny sliver of the financial world, and in 99% of the industry the math doesn’t get much harder than basic algebra for 99% of the time. While it is true that extremely complex math is at the core of some of the multibillionaire success stories out there, such as the founders of Renaissance Technologies (the largest and most successful quant hedge fund in history), there is more AUM in funds that do not rely on these complex mathematical concepts. And that’s not even taking into account the other arms of finance, such as M&A, sales and trading, and equity research—lucrative fields where the math remains pretty close to high school algebra level.
Instead of math, consider two other skills that are always valued on Wall Street. One is communication skills. The ability to speak eloquently and to explain complex concepts in easy-to-understand language is extremely valuable; these are the skills that put front office people in their jobs and help funds attract money from investors looking for someone they can trust. But remember that communication is a two-way street; not only do you need to be good at expressing things to people, you need to be good at analyzing what other people are telling you. That “gut feeling” you hear about when people know someone is being dishonest, or hiding the truth, or obfuscating? It doesn’t literally come from the gut—it comes from a deep understanding of how human beings communicate.
In addition to being a good communicator, a good financier is also a good thinker. There’s a good reason why finance attracts a lot of lawyers and ex-liberal arts majors. People who are trained to think critically, understand complex problems, and find creative solutions are the ones who, for instance, can find new ways to structure complex derivatives that please buyers and sellers. Understanding all of the contingencies of such a complex agreement is crucial to designing the stress tests and risk/reward profiles that make these products work and not blow up in anyone’s face; it wasn’t really a lack of mathematical accumen that caused so many to lose so much money in the subprime mortgage crisis of the late 2000s, but rather it was a lack of deep analysis into the details of those derivatives by traders, investors, speculators, and credit agencies who rubber stamped the process along the way and relied on mathematics alone to protect them from a downside. That reliance proved to fail in the end.
Why do these two skills matter for potential financiers? There are really three over-arching reasons why.
First, finance is ultimately a business about trust and relationships. Both are developed by combining good communication skills (to develop relationships) and good analytical skills (to deliver good results and thus build trust over time). The most complicated mathematical model is useless if you can’t explain how it will make investors money.
Second, these skills will help you understand who the good and bad guys are in the market. Everywhere in all markets there are people who are acting in good faith and bad faith, and math alone will not suss the latter out. Additionally, these two skills can help you identify those who are acting in good faith but, for whatever reason, are unlikely to succeed.
Finally, these skills can fundamentally change the shape of markets themselves. Math relies on historical data to be correct, whereas communication and analysis are tools that people use to shape the future. If you have a complex analysis that uncovers something no one else has realized and you communicate it well, you can change the way people think about investing and the markets, encouraging a massive change in behavior that results in significant wealth for those best positioned in the market. A great example of that is john C. Bogle, the late founder of Vanguard and pioneer of the index investing movement that now attractions trillions of dollars in AUM. His investment philosophy is heralded as a common sense approach to the market that relies on simple math. Bogle’s analytical mind and ability to communicate to investors turned his firm into one of the largest and most successful financial firms in human history.
