Inspired by the "Why YOU Aren't Getting Offers" repost for #TBT.
I just participated in a series of interviews and I was sincerely disappointed. I was asked to cover the technical portion and no one could walk me through a DCF well. While I am going to talk to the people who referred these candidates (and also make note of the quality of their referrals), it occurred to me that often candidates don't realize or get clear feedback on why they didn't move on in the process (interviewer has no upside, potential legal nightmare, against policy etc.). Yes, there are always "better candidates", but there are some very common (and highly fixable) problems I see way too frequently. Perhaps that's the frustrating part, because I feel like these are things that are very easy to prepare for.
It's not just about getting it right, but presenting it well.
Let's use an example of DCF because it is standard / plain vanilla / middle of the fairway. You will get this question for sure at some point. You should know this cold. It should be polished. There is no "but what if I sound too canned" debate. I have never heard anyone sound "too canned" on something like this (or anything for that matter). I HAVE dinged people for just regurgitating when it is clear they don't really understand what's happening.
I think the worst part is that people think they know it really well and when you ask them to walk through it, they fall apart completely. And often it's not necessarily because they don't understand the concept, but they are weak at presenting it.
General Guidelines for Interviewing
1. IBD is very much about having the right answer. You have to be crisp in your terminology. You can't "get the idea" you need to tell me exactly.
2. If you are doing a memory dump to prove you know the material, stop. The whole interview should be a back-and-forth conversation. I may or may not want to probe deeper. Let the interviewer lead. I don't want to hear CAPM in your first go (more on this and pacing later). If you just keep going, I'll let you dig your own grave. I'm not incentivized to save you. I'm looking for reasons to disqualify you and reduce the list of names I need to weed through. We will always have more candidates / interviewees than spaces.
3. If you throw a number out there (terminal growth should be between 2 to 4%, "I would forecast out seven years") you better be ready to defend why you do it.
DCF Example
Q: "Walk me through a DCF"
A: There are three steps to a DCF
1. Forecast free cash flows in the near-term, until the business becomes "stable" / predictable
2. Determine terminal value to capture value of the business as an ongoing concern beyond forecast period
3. Discount these cash flows to present value
That's it. 15 to 20 seconds. Let the interviewer probe for more.
In the first pass, I don't want to hear:
- The formula for FCF
- Multiples / perpetuity growth method for terminal value
- WACC
- CAPM
These are things that the interviewer can take the lead and dig deeper if they ask. I want to see some professional maturity in that you can structure your thoughts and answer my question succinctly in a manner that shows me you are confident and have a strong command for the materials.
The worst is when the candidate takes the lead and gets something wrong. Then I have to interrupt and get them to clarify. It's usually downhill from there.
I want you to make my job as an interviewer harder. I want to have an energetic debate about the top 10 candidates we interviewed rather than immediately disqualify 5 because they were terrible at the outset.