The Game: How the World of Finance Really Works - part 1: equity sales

In the first of four extracts from his bestselling book about the City and beyond, Alex Buchanan introduces equity sales

Picture the scene. It's six o'clock in the morning. You've already been up for an hour and are now sitting slumped on the train surrounded by the flotsam and jetsam of humanity. Everything is still, lifeless even. The strip lights flicker and then cough their fluorescent glow over puffy eyes, sagging skin and double chins.

Sounds awful, doesn't it? Welcome to the world of high finance.

In a Nutshell

Stockbrokers (or "equity salesmen" or "brokers") sell investment advice to professional investors "fund managers" or "clients") in return for commission. While servicing the client will involve certain ancillary duties, the commission that you generate is the yardstick by which you are judged. In essence, your job is to tell investors which shares to buy or sell and get them to trade these shares through your firm in return for commission.

The Early Bird Catches the Worm

Most stockbrokers arrive at the office anywhere between 6am and 7.30am GMT. This is an uncivilised hour at the best of times, but one that is particularly grim on a bleak morning in February. Those who live far from the office can expect to hear the alarm go off as early as 4am.

Now that's not funny, is it?

Sadly you don't have much of a choice. European stock markets open at 8am and brokers, traders, analysts and fund managers must all arrive early enough to prepare for the day ahead.

Exactly what time you arrive will depend on your own ambitions or on the guidelines set by your firm, but it invariably follows that the more ambitious you are or the more aggressive your firm is then the earlier you will arrive. How you get to work is up to you - some take the underground or bus, others drive scooters and a handful take taxis (but these tend to be either the crème de la crème or the habitually late). Some use the journey to read the Financial Times or Wall Street Journal or will catch up on sleep. You'll soon get used to the early mornings - everyone has to - but most nights you'll be tucked up in bed long before others in less exacting jobs have even considered leaving the pub.

In the larger broking firms the trading (dealing) floor is the size of a football pitch and holds hundreds of people. Brokers, traders and a vast array of support staff sit crammed together like hens in a battery farm, floundering in a sea of screens, telephones and (misplaced) egotism.

Back to School

Many brokers don't have time for breakfast at home and so eat at their desks. An amusing game is to look up from your cereal bowl and see which of your colleagues is late for work. Salesmen who turn up late (this might mean arriving at 6.01am) will try to slip into their seats unnoticed, but more often than not will run the traditional gauntlet of disapproval from their more punctual colleagues. A late arrival will cause lips to be pursed and heads to be shaken. It's true - people really are this childish. In some firms those who arrive after the appointed hour are forced to buy lunch for the entire team (although not at a venue of the laggard's choice).

In terms of pettiness the average trading floor is no different from the average classroom. Substitute the teacher for the Head of Equities/Sales and the pupils for the brokers/traders and it's a close-run thing. It's all about denigrating the weak and sucking up to the person in authority.

As in all other City jobs, a hangover is not an excuse to be late for, or skive off from, a day's work on the trading floor. Honour demands that you arrive on time no matter how little sleep you've had or how much you've drunk the night before. You'll soon get used to sitting slumped at your desk and wishing the world would end. Look around the room on a Friday morning and see how many others are in a similar predicament.

Morning Glory

Most firms hold a meeting at around 7-7.30am GMT. This is the time when research analysts update the salesmen on any relevant stories (companies tend to make statements first thing in the morning) or on new research published on their stocks that day. In the larger firms you will stay at your desk while the analysts speak to the dealing floor over a microphone, while in the smaller houses salesmen and analysts are herded into the same room. You must then note down what the analysts say.

Some brokers will write down nothing at all. These individuals think either a) that they know it all already, or b) that the firm's analysts are useless and so should be ignored or c) that there's no point writing anything down because they stopped caring years ago. Don't be under any illusions - indifference, feigned or otherwise, is all part of the act. Watch as they lean back in their chairs, roll their eyes and yawn ever so conspicuously.

The financial world is full of people with God complexes. It's easy to spot a self-styled big hitter - most follow the same behavioural code. They suck up to their superiors, disparage or flatter their rivals (some enemies are best kept closer than friends) and ignore the rest of the world altogether, behaving as a king might in front of his courtiers. If a young broker comes to their attention it's because he's either very good or very bad at his job.

What you note down is up to you - it depends on what you think your different clients will want to hear. Much of what the analysts say might seem unremarkable or even irrelevant, but brokers can afford to put up their feet and put down their pens only when sure of their status.

Here's an abbreviated example of the sort of thing an analyst might say:

"This morning we have Q2 numbers from Martin and Wellbourne. Revenue was in line with expectations but EBIT was 5 per cent short of consensus forecasts as discounting took its toll on the gross margin. EPS was 8 per cent light thanks to the higher tax charge. Going forward the company expects the positive trend in like-for-like sales growth to be maintained. Early indications are that Q3 like-for-likes have been in the region of 2 per cent. We maintain our full-year forecasts and our outperform recommendation, believing that on 7x EV/EBITDA the stock looks good value versus the peer group."

And here's another:

"You'll find on your desks a report we published last night on Automobiles de France. We maintain our in-line recommendation. Despite our conviction that the sector [industry group] has turned something of a corner, we feel this has been fully discounted by the market. Susan and I will be laying out our arguments in greater detail at midday today."

In the City there's much to learn in terms of jargon, and any new recruits are soon whisked off to the nearest classroom and indoctrinated in the lingua franca of the financial world.

When the morning meeting comes to an end most salesmen will pick up the phone and begin to call their clients (indeed, some might be making calls well before the meeting has even finished). Only the very successful or the very disillusioned will get up from their desks at this stage, the former to stand and flex their muscles in true Master of the Universe style and the latter to wander off to the lavatories where they'll sit in contemplative gloom.

In this industry success does not always correlate with intelligence nor disillusion with a lack of it. Ultimately it all comes down to what extent different people care about money or status, or both. Individuals with idealistic sensibilities will quite readily abandon these for the sake of acquiring a larger house or climbing another rung on the promotional ladder. We'll return to this theme time and time again, but in the City if you don't care then you'll struggle to succeed.

What You Say and Do

Most mornings will be spent contacting your clients either by telephone, email or Bloomberg and telling them what you think they might want to hear.

In theory brokers phone clients in order to give them investment advice. In return they will expect to receive "orders". An order is when an investor buys or sells a stock through his broker's firm. Commission is earned by charging the investor a tiny percentage of the value of the order. Orders can range anywhere from the tiny ($5,000) to the gigantic ($30m+) - it all depends on how much money the client has and how much he trusts you or your firm.

Trading stock is a not simple process. It is, in fact, a political minefield. Never mind the actual mechanics of the buying or selling, in most firms more than one salesman speaks to the same fund management house, and so it is often unclear which salesman generated the order. The picture becomes further blurred when one takes into account the armies of analysts and traders who have their own contacts with the institution in question. In this industry there are many snouts in the trough - apportioning credit where it is due is never straightforward. Learning how to grab the credit (especially when you don't deserve it) is the canny broker's greatest trick.

In reality brokers will look for any number of excuses to phone their clients - for appearances' sake they must be seen to be on the phone as often as possible. Investors tend to encourage this frequency of contact, not necessarily because they set any store by brokers' opinions but because they regard them as indispensable shoulders to cry on in times of trouble.

In this job the most important maxim is "know your client". The good broker wears many different hats - he is psychologist, detective, agony aunt, nursemaid, administrator, entertainer, information filter and investment adviser all rolled into one. It matters not so much what you say (some investors will have forgotten a conversation as soon as they put down the telephone) as how you say it. If your tone is compelling and your manner is sympathetic then you soon become a drug they cannot do without. This world, like so many others, is all about trust. Convince a client you have his best interests at heart and you're up and running. The City's penchant for "relationship building" is what keeps so many cocktail waiters, restaurant owners and wine merchants in business.

**The Game: How the World of Finance Really Works****(E&T Books, £9.99) was published in summer 2013.

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