If you want to get a job on Wall Street, it’s time to leave your trade desk dreams behind. The future of the financial sector rests not with traders but with technologists, at least according to Tom Sosnoff, the co-founder of thinkorswim and the CEO of tastytrade, Inc.
“The market for financial technologists and financial mathematics right now is off the charts,” Sosnoff told us. “All you have to do is walk in the door and get hired. The market for traders is zero.”
Sosnoff said that if you can code and build financial technology, or if you have master’s degree in financial statistics and understand modeling, “You can walk in anywhere you want.”
“If you think you’re gonna get a job as a trader on some trade desk, there’s no chance,” he warned. “There’s a desperate need for coders and there’s not that much of a need for traders.”
When asked how long this hiring cycle would last, Sosnoff said that as investing becomes more sophisticated (sophisticated in the sense that it will be much less of a sales process and much more of a logic process), “then that chain will [go on forever]; nothing ever reverses.”
“So if over the next 10 years the primary focus is individual investors starting to learn about statistics and probabilities — just like poker or gambling or anything else — as that becomes more prevalent among individual investors, then the whole game of sales people goes out the window and the whole model changes, and I think that’s a positive thing,” said Sosnoff.
“If you look at interest rates maybe being as low as they’re ever going to get, and you think about the upside of higher interest rates to this industry, the prospects of the financial/banking/brokerage space is incredibly bullish. In fact, the free upside call embedded in raising interest rates that this sector provides seems very intriguing to me.”
Wall Street Layoffs Explained:
Sosnoff dismissed the idea that Wall Street had yet to recover from the financial crisis that hit in 2008. “When you say it hasn’t recovered 100%, it actually has recovered 100%,” he said. “We’re 100% higher… The market has basically doubled since March of 2009. It doesn’t seem that way from everything you read, but the financial markets are back to where they were prior.”
That being the case, why are there so many layoffs?
“That could be completely mismanagement on the side of those institutions,” Sosnoff explained. “The industry has never been stronger from a profitability side. If you’re looking at it layoff-wise, industries get way too fat, and then they get too thin. They’re cyclical. Just because there’s layoffs doesn’t mean the industry has suffered. It means the game has changed.”
Undoubtedly, banks and brokerage firms have had to change their model a little bit. And in the process of changing their model, jobs are sometimes lost, Sosnoff said.
“For the most part you’re talking about much more efficient markets, and you’re talking about a much different approach to investing,” he said. “Firms don’t trade as much as they used to, and individuals manage their money more than they used to, so that combination of factors means less stockbrokers [and] better technology. There’s not the same need for people. The investment banking business isn’t the same as it was five or ten years ago.”
Sosnoff said that if you’re looking at the current market cap on financial stocks, they seem to be trading on the low end of the range. “So those who sell fear look at this industry and say, ‘the economic crisis has hurt these firms.’ I would argue that it’s far more interest rate-related, and when interest rates are zero, firms can’t make money. Hence the opportunity!”
“Remember that the banking business and brokerage business is an asset-gathering game,” Sosnoff added. “They make most of their profits on the spread between what they pay out and what they can get on money that they’re holding. And when that spread is zero, you can’t afford to pay people. So it’s not nearly as much a function of anything else other than interest rates.”
Stocks Vs. Startups:
Where is the future of the investment community headed? For Sosnoff, it’s all about startups.
“People like me like to invest in really smart (young or old), innovative, creative people,” said Sosnoff. “And you don’t get that at the senior level of traditional public companies right now. You get managers. And none of us like to invest in managers. We all want to invest in creativity and innovation.”
That said, Sosnoff admits that he doesn’t know if there’s another Steve Jobs out there. “Who knows?” he concluded. “But who cares? If you’re going to ‘trade,’ then you trade with the market. If you’re going to invest, you buy startups.”
This article originally appeared on StreetID.
No positions in stocks mentioned.