I don’t want to go to prison, tho. And, I don’t want to study the law to avoid going to prison. I want to know what to study to know what he knew to do the things that he did. Of course, I wouldn’t want to do anything illegal, but I suspect that there are many that say that what he did wasn’t illegal, although the courts believe otherwise.
My question, tho, how can I become an expert in junk bonds, etc… all that?
Thanks,
hh
Surely your life would be a dead loss if you were the current Mike Milliken let alone becoming the next Mike Milliken.
First off all, Milken was in the right place at the right time, and you aren’t. At the time, there was little competition in the junk bond market (now known as “high yield bonds”). Today, every investment bank has a desk for that. Also, part of what fueled that bubble was the fact there were so many mergers and leveredged buy-outs at the time. Those are far less common today. So back in the 80s, Milken had a virtual lock on the market – that situation is probably impossible to get today.
But suppose you want to be the next Milken in some other speciality where there’s less competition? Like maybe emerging market bonds, maybe? In that case, all you have to do is get a job at an investment bank, work really hard to become the head of that desk that specializes in that area, and then use your salesmanship to attract hundreds of clients. That’s all. 
There’s no trick to it.
The key isn’t “study hard and read lots of books about junk bonds” – Milken was smart and knowledgable, but no more so than hundreds of other people on Wall Street. He was just in the right place at the right time, and was able to use his salesmanship skills to establish a client base. That’s all.
But if your question is just “how do I learn about the business of junk bonds” – well, that’s easy. Just get a job as an analyst at an investment bank. This will involve two years of consistently 60 hour weeks doing spreadsheets (maybe once or twice a year there will be a crisis that requires 80-90 hours) but the money is decent, and after the two year training program, the money quickly ramps up to become significantly better than decent (and plus the hours will actually get better since you’ll then have your own junior analysts to delegate to).
Wall Street is based on a star system -- within your first three months, people will mentally pigeon-hole you into either "That guy has a future! Let's give a slightly more interesting assignment" or "he's an OK worker, nothing special, let's just keep him doing grunt work for the rest of his career." Make sure you're assigned in the right bucket. If you're mentally assigned into the wrong bucket, then the only way out of it is to switch to a different firm. So make sure your first three months are screw-up-free.
After 2 years, you will know 90% of the business. It’s not complicated, really – there’s some math involved, but it’s quite basic (usually not even calculus) and anyway it’s all built-in to Excel now. You’ll learn the process – what happens when a client decides to issue bonds, how the underwriting process works, how your firm’s computer systems work, how to estimate the proper value of the bonds and how to hedge your exposure to interest rates, etc.
After this two year point, you choose one of several options – either go back to business school, leave to a different firm as a junior trader, or if you’re lucky, one of the senior traders at your own firm will offer to take you under his wing. Spend a year learning from him, and you’ll be invited to accompany him on a few client sales meetings. Be observant for a year or two, and voila, you’ll then know pretty much everything about the business that Michael Milken knew. You are now as much of a junk bond expert as anyone can claim to be. Congratulations! At this point of your career (just four years out of college without even an MBA), you will be making somewhere between 200k - 500k a year, depending.
But of course, Milken at his peak was earning much more than that – up to 500 million a year (in 1980s money!). That wasn’t due to his junk bond knowledge. You know now everything about junk bonds that he knew, but his advantage was that he had the phone number of every important person in the business world on speed dial. He was known to be a major player. And once he’d established that reputation, it became a self-fullfilling prophecy because everybody knew they had to talk to him, which mean his contact list got even bigger, which fed the cycle even more. Salesmanship.
I’ve been working on wall street for ten years and I could definitely coach you to the point where you have all of Milken’s business knowledge. I could make you a junk bond expert in just 2-4 years. But as for the next leap – turning that knowledge into a corporate titan? Well, sorry, I couldn’t help you there. That’s the REAL secret.
Am I the only one who thought “Dig a basement in a day with a steam shovel”?
Yup. I don’t get the joke…
It’s a famous children’s book called Mike Mulligan and his Steam Shovel, written in the 1930’s, about a guy named Mike Mulligan who digs a basement with a steam shovel in a single day. Chronos was playing on the similarity between the name Mike Mulligan and the OP’s spelling of Michael Milken’s name.
Whoa! Thank you for the wealth of information, doubled! That certainly sounds like a fascinating career! Question: It seems like a minimum of effort for that kind of bucks. 60-90 intense hours for 2-4 years??? for 2-500K? Sign me up!
I’m very grateful that you took the time to answer my question in such detail.
Thank you,
hh
I wondered that too. Given the possibility of making so much money with just a bachelor’s degree, I would think tons of people would try to get in on this career path. So what do you have to do to get hired in the first place?
Uh, not exactly.
Milken didn’t prosper because of his roledex. Prior to him (and Drexel Burnham Lambert) there was no junk bond market. It’s seems remarkably obvious now that there is a profitable business to be had for financing smaller companies, or companies whose credit is less than “corporate grade” (BB or lower iirc…), but it wasn’t then.
Milken almost single handedly invented the high yield bond market (junk bonds). Along the way he financed the growth of many companies that previously would never have found financing. Many well known names found financing through Milken/Drexel. It wasn’t long before these junk bonds were used to finance hostile takeovers.
The junk bond market is Milken’s creation. That’s why he got so rich.
Yes, I agree. See my first post about how Milken was in the right place at the right time and the OP will not be able to replicate that success. My second post was just “if you want to learn about junk bonds anyway, here’s what you do”.
My bad. Didn’t see your first post.
In my opinion, doubled is over-emphasizing Milken’s luck at being in the right place at the right time. Milken acted on an insight. It probably wasn’t his original insight, but he put some money behind the idea that a portfolio of non-investment-grade bonds would yield greater returns than a portfolio of investment-grade bonds even after allowances for losses from defaults. Only after consistently making money for Drexel based on this insight was he able to create a market for new high-yield debt, which is when he really started making money.
So, handsomeharry, what you need to do is find an idea for an unexploited investment strategy and then find someone to give you some capital with which to try it out. Then you need to make a lot of money using the strategy and the capital, then think of and implement a way to expand the market you are exploiting beyond what anyone else in your field ever envisioned. Nothing to it.
This is also my next question.
thanks,
hh
Well, I’m not quite sure what the hiring process is like now, post-2008. (obviously, 2008 was a VERY significant year in wall street history, and it’s not yet clear what the “new normal” will be in terms of hiring, pay, etc. Most banks haven’t been doing much hiring this year and it’s not yet clear when/if that will come back to pre-2008 levels). But traditionally, all the wall street firms recruit a bunch of analysts straight out of college. Obviously it helps to go to some place like Harvard or MIT, but it’s not required – pretty much any top 20 school was traditionally worth a visit from most of the banks on career recruitment day.
Theoretically, they’re looking to hire “smart people from any background”; in practice, 90% of hires majored in economics or computer science. (Math and physics are popular feeders too, but usually not at the undergraduate level – most of those guys usually get an advanced degree first).
The interview process is a bit heavier towards high GPAs than a lot of other companies would be. It also skews fairly heavily towards “how well do you present yourself” rather than “do you know the answers to my questions”.
It’s actually relatively easy to get an interview (not necc a job, but at least an interview) as a graduating undergrad or MBA. But it’s much much rarer for career changers to break in to the field.
So, what exactly did he do that was illegal? I read the Wiki article on Milliken but didn’t grasp exactly what crime he committed. I get the impression that there was controversy on whether it actually was or should have been criminal.