Given how important investment banking is to how Americans save and invest, it’s critical to understand what investment bankers do and the role they play. Traditional banks are easy to understand. They take in deposits from consumers and businesses, and then lend out the money to companies or consumers. But the duties of investment banks are quite different. Instead of taking deposits, investment banks sell securities. The proceeds from selling these securities, in some cases, then go to finance usually massive projects that might be too risky for traditional banks. Projects investment banks take on often fall into one of several categories, including the following: Given how desired shares of hot IPOs are, it’s not surprising that investment bankers hold them very closely. Investment bankers’ role in the IPO process remains one of their most high-profile functions. The investment bankers are in charge of helping the company promote itself to prospective investors and determine how much to sell the shares for. Even though Benjamin Graham first published The Intelligent Investor in 1949, this book remains applicable to modern finance professionals and everyday investors. This is especially true for investment banking, where complex concepts and trends continuously evolve. So to succeed in this highly lucrative but competitive industry, you must learn from the best thinkers.

But in many ways, the idea of an IPO is a bit of a misnomer, because they’re not entirely public. Investment bankers typically follow a process that can make it difficult for regular investors to get a piece of an IPO. Another part of the front office is the part of the business involved in conducting research on companies. The front office often employs sell-side analysts, whose job it is to closely monitor companies and industries and produce reports used by large investors trying to decide whether to buy or sell particular securities. Investment bankers are involved in the very onset of a company going public, and they’re the keys to making the deal happen. When investment bankers assume the role of selling securities, especially in an IPO, they’re often called the underwriters. The relationship between leverages buyout funds, hedge funds, and corporate and institutional clients But don’t get too discouraged. Armed with your knowledge of how investment banking works, you can find a way to get into the IPO process. Here are some tips:But despite the huge possible risks of buying companies, it’s still attractive for a variety of reasons, including the following: This comprehensive book on investment banking by industry practitioners Joshua Rosenbaum and Joshua Pearl excels at breaking down complex technical concepts into accessible lessons. That is why it’s been called a teaching manual for aspiring investment bankers. Charles D. Ellis chronicles the fascinating rise of Goldman Sachs by telling the personal stories of the people behind the firm that has gone through a tumultuous history in its 140-year existence. If you are a beginner new to investment banking and looking to break into the industry, you must be well-versed in basic finance concepts since interview questions will test your financial knowledge. This includes knowing how to build a discounted cash flow (DCF) model, create a comparable company analysis, conduct due diligence, value a company, etc. By understanding the main technical concepts in these books, you will be better positioned to succeed as an analyst or associate. Chocolate factories need milk, sugar, and cocoa to produce their delicious products. But the raw materials used by many investment banking firms is the information contained on the financial statements. These documents released by companies provide investment bankers with much of the information they need to start analyzing companies and looking for investment banking opportunities.

When it comes to the top skills that serious investment bankers must hone, the discounted cash flow analysis is certainly high on the list. The discounted cash flow is a culmination of many of the tools beginning investment bankers have to create in-depth and comprehensive models of what companies are worth. In many ways, the use of debt, in a process called leverage, can be much like dynamite. When used prudently, leverage can be a creative force that gives companies the power to grow and create wealth faster than they would have otherwise. But at the same time, leverage can be abused and lead to great destruction of wealth, jobs, and enterprise. The graveyard of companies is littered with examples of businesses that lit the leverage bomb and didn’t know how to harness the power. After the tumultuous changes in the investment banking business following the financial crisis of 2007 through 2009, the entire landscape changed. Following the banking crisis, investment banks needed capital. Some of the most storied investment banks, unable to raise money, merged with other banks or became commercial banks themselves. Suddenly, the financial system was comprised of behemoth banks that have the deposit-taking abilities of banks but also engage in investment banking. The result is the formation of several mega-institutions that many people fear are too big to fail, including the ones shown in Table 1-1. TABLE 1-1 Among the Last Banks Standing Investment management: Here’s where Goldman serves the role of helping its clients put their money to work. Goldman offers financial advice to institutions through mutual funds, accounts it manages on behalf of clients, wealth management services, and financial counseling. Goldman serves some very wealthy individuals and families in this part of its business. Investment banking: This part of Goldman is the one most interesting to readers of this book. Here, Goldman guides companies embarking on M&A, provides assistance in bringing companies public, and conducts financial restructurings.On the other hand, investment banks, at least until the financial crisis of 2007 (see the appendix), were free to take bigger chances with other people’s money. Investment banks could be more creative in inventing new financial tools, which sometimes don’t work out so well. The idea is that clients of investment banks are more sophisticated and know the risks better than the average person with a bank account. As you can imagine, although investment banking plays an important role in funding economic progress, there’s also lots of money to be made. Investment bankers can’t afford those fancy suits if they’re not getting paid. Wildly successful initial public offerings leave investors talking and fantasizing for years. Investors who got into Microsoft or Google at the IPO prices have made a bundle. Written in the straightforward and approachable tone the For Dummies series is known for the world over, authors Matthew Krantz and Robert Johnson have created an indispensable resource for students and professionals new to investment banking. Given the great role investment banking plays in the financial system, it has taken on a larger-than-life mystique with the masses. Many people suspect that investment banks are pulling the strings of the economy, but they may not know enough to realize exactly what investment banks do.