• How to Invest with Dan Parisi

    How to Invest with Dan Parisi

    Today on the podcast we have Dan Parisi. Dan Parisi is an investment banker with a top firm on Wall Street and one of my good friends. He is extremely driven and gifted at what he does. Today, he shares with us one of my favorite stories on how he was able to beat out a talented pool of Ivy League candidates to land his dream job on Wall Street. He breaks down simply how to invest in the stock market.

    Listen To The Episode Here:

    How to Invest with Dan Parisi

     

    Please welcome, Dan Parisi. Dan, where are you from?

    I am from Howell, New Jersey. I grew up there. I was an attendee at Howell High School.

    What were you interested in as a kid? I know you played soccer.

    I guess anything all the kids do; sports, soccer, baseball. It was pretty evident early in life that I was not going to be a pro in any of those. had to use other skill sets to plan on my future. As a kid, I was pretty nifty with my hands. I’ve built a lot of models growing up, things like that. I always thought maybe architecture, engineering would have been my route. Clearly, that’s changed pretty significantly.

    I remember for as long as when we started hanging out towards high school, end of high school, you’ve always been pretty motivated to do finance.

    Math was always my favorite subject in school. Maybe not my favorite, but I guess I was the best at it. Coming into college, I went to University of Scranton. I was actually pre-med.

    I did not know that. That’s interesting.

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    How to Invest: I think the obvious answer for me was look into the business school. That’s what I did.

    Growing up when you do good in school, at least in my family, I was only really the second person that actually graduated from college. It was just like, “You’re doing well in school, stay in school as long as you can.” Staying in school as long as you can meant either being a doctor or a lawyer. Being a doctor coming out of high school, I was like, “Fine, I’ll give it a shot.” My first year at Scranton, they have a pretty good pre-med program there so that’s what I got into. I just realized there was something that really wasn’t for me. The only stuff that I actually liked in terms of my course load were the physics and chemistry classes, which were more math-based sciences rather than your bios and other things. I think the obvious answer for me was look into the business school. That’s what I did. It was pretty quick shift. I think it just became evident to me that that’s what I wanted to do.

    You started the business school your second year in college?

    Exactly. Second year of college, I did Finance and Accounting, double major. Then I got into a program, it was like an accelerated MBA program where you basically stay an extra year, so fifth year and get that MBA in one year.

    In college, were you doing internships every summer with anybody?

    At least in the finance world, there are a million different jobs. I knew pretty quickly that I wanted to go into the investment banking world and the investment side of things. I think it’s definitely more difficult to branch into that set of the market because there are such a small number of jobs available.

    Everybody’s looking to do it too.

    The competitive landscape is unbelievable. The big banks, they only recruit at top-tier schools, Ivy League schools, or they call them second-tier schools. They’re looking for the best of the best, the smartest and the brightest. Rightfully so because they have that luxury to pick from the crops. I knew that coming from a school where I was, I would have to try and do different things and focus on internships and just try to pad the resume. I did a few internships. I was at a small broker dealer for a summer unpaid in the city. I worked Monday to Wednesdays.

    Basically, what we were doing was just cold-calling people to invest money with us. I didn’t even have a computer. I would go in at 9 AM. I would have a stack of cards on my desk and a phone and that was it. From 9 to 1, all I would do was just call these leads. I wasn’t licensed, I didn’t pitch stock. I couldn’t do any of that. All I could do is just call, tell them about the company and then hand them over to a rep and they will try and sell them stock. That’s a dying business.

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    How to Invest: That was a very valuable internship for me not because it got me comfortable talking on the phone.

    Think about it, I was probably nineteen years old, you’re sitting there and you’re just calling rich doctors and lawyers in the US. It’s uncomfortable because you’re in these cubes and there are guys all around you. You’re talking and pitching. Obviously, I sucked in the beginning. To be honest, that was a very valuable internship for me not because I knew I definitely didn’t want to do that ever again, but it got me comfortable talking on the phone given there are people around you. Obviously, when you’re working on a trading floor-type environment, people are yelling, it’s loud, you have to be focused. That taught me that I think. That was one of my internships.

    I interned at an accounting firm another summer. Then ultimately, what I ended up doing was I did get an internship at one of the big banks where I work now. Clearly, there are tons of different jobs you could get across investment banking. What I was doing was it was more of a support-type role. I’m not going to get into the boring details, but they call it back office versus front office. Front office is a job everyone wants. You’re facing clients, you’re helping bring in revenues, you’re doing the things that you ultimately learned in college. Whereas back office, you’re supporting those businesses, you’re doing more administrative type tasks. For me, taking that internship, I knew it wasn’t going to be long-term.

    You started from the ground up?

    It’s just to get a foot in the door.

    That’s awesome because a lot of people don’t want to do that. They just want to jump magically to the top-tier of the company. You got to put in the hours and start somewhere.

    That’s exactly right. I have friends now who are unhappy with their jobs and I’m talking through different opportunities that they could do. Even there they’re not willing to listen. “You’ve got to do this for a year and then you can work your way into this.” They want to get to point B before stopping at point A.

    It’s like, “Dan, just get me a job of what you’re doing right now.” People don’t see all the hours you put in to do that. I remember you were working very hard.

    What I was doing was, you get your foot in the door. I went to the internship program, this is the back office internship program so a lot less glamorous than what the Ivy League kids interns did. There were 23 interns that summer. Three of us got job offers. I was luckily one of those three. Then I got a job, again back office type stuff. It was easier work but it was the kind of thing where I wanted to make the push to try and transfer in the front office. It wasn’t an easy task. They have all this talent already that they’re interviewing, especially from the junior level. I think it was going to be harder for me. What I did was I just networked and I got myself in front of as many people as possible.

    Dan, before you get into that, this is one of my favorite parts of your story. I’m curious of how you got the job you’re in today because you didn’t have the Ivy League education, which was probably most of the people you were going up against, and you got the job over all those kids. How did you do that?

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    How to Invest: I think the hardest part especially for me was just getting a seat at the table. Just give me a shot.

    I think the hardest part especially for me was just getting a seat at the table. Just give me a shot to sit down with some guys and talk through what I know. I felt like when I’m in a room with someone, they could just at least give me that chance. Coming out of college, coming out of where I went to school, I didn’t even get an interview for these types of jobs. I couldn’t even get a seat at a table. When I came in, obviously, the biggest focus was to absolutely kill it in what I was currently doing; get great recommendation with the current bosses, have good reviews. I did that for a year. While doing that, I went out and I just networked. I said to that guy who was in this job that I’m interested in, I shoot him a chat, “We work at the same company. I understand I’m a young, ambitious guy. Let’s grab a coffee. Let’s do this.” I was going to get my face, I get my name out there. Some of these guys said, “Dan’s pretty sharp. Why don’t we bring him in?” I feel like anything in life is just a combination of luck and preparation.

    Absolutely, that’s what luck is: opportunity and preparation.

    For me, I have been networking with this one specific desk within the investment bank that I really want to work for. Luckily for me, someone had left, there was an opening. I had been talking pretty often to one of the kids on the desk, one of the more mid-level guys on the desk. He knew I was looking to make a jump and he threw my resume in there. He said, “This kid works here already. I know we’re interviewing all these other people, but why don’t we bring him in?” I went through an internal transfer, you would think it would be easier, but I probably interviewed with thirteen different people.

    Hour interviews too, right? This wasn’t quick.

    Some are shorter, some are like half an hour, but they’re grilling me. I say the luck in terms of the opening, but the preparation because during my time, doing what I was doing, I wasn’t learning anything that they’re actually doing. I had to go out on my own and do my own research and stay up on what the markets were doing and specifically what their segment of the market was doing, just so I could sound intelligent and sound like I’m keeping my ear to the ground, I’m following what’s going on. I guess luckily, it just worked out. I’ve been on the same team now for three years.

    What do you do now?

    I work in a group. It’s called Equity Capital Market. Ultimately, investment banking is more or less, we’re helping companies, large corporations and small and medium-sized corporations. Our clients are corporate companies. We’re helping them ultimately raise money. We advise on different things. You hear like M&A is a common term, Mergers and Acquisitions. Part of what the investment bank does is if just say you’re running company A and you want to buy company B. You need an investment bank to come in and help you with that to sift through the financial statements, to give you advice on how much to pay, what’s the current value of that company. You don’t want to pay $100 million when the company is worth $80 million. That’s part of what we do.

    My team specifically is we help companies just raise money through equity markets. You could raise money, you could go out and issue bonds. There are all kinds of derivative insurance. We focus more on the equity stuff where you hear of an IPO, an initial public offering, the stock first going public. That’s exactly what my team does.

    Dan, today I just wanted you to break down investing for beginners, people that are new to the stock market, what they should be looking for, how much money to start with, all that stuff. How do you start out? Someone finally got money now, they want to go to the stock market, what would you say would be the first step?

    I think a lot of people are intimidated when really investing in stocks is definitely not rocket science. I think that the best thing to do at least starting out, would be to, I know it’s not necessarily the most interesting thing, but flip on CNBC or just to read the cover of the Wall Street Journal. You don’t even have to buy the journal, you just go on their website or go to Google Finance or go to MarketWatch.com. There are so many outlets. First, just go out and just see what’s going on. A lot of it is general news on companies and you could just read stuff. It is very, very interesting because it all ties into what’s going on in the macro landscape, just what’s going on in the broader economy. Obviously, there are a lot of geopolitical issues out there that affect the stocks.

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    How to Invest: Starting out, it’s very easy to get access to buying stocks.

    I would say, starting out, it’s very easy to get access to buying stocks. You could in fifteen minutes go to an E*TRADE or a Scottrade or a TD Ameritrade. Open up an account and deposit money. People are always like, “What’s the right amount?” For easy math sakes, you start with $5,000. You deposit $5,000 into that account. Now, you have cash in your account, you could go out. I think those sites charge maybe $7 or $8 per trade, which actually isn’t too bad. Then you’re going to go out and you want to build some portfolio. I think the biggest mistake people make investing in stocks is they’ll go out, they’ll see something on TV like, “This market is going to go up, this or that will go up.” They’ll put the entire $5,000 into that one stock. Then they either get burnt, sometimes they get lucky. All of a sudden, people think they’re a stock guru. When you do something like that where you just see what someone else is saying like, “That sounds good,” and you don’t do any of your own due diligence, your own background checks, your own research, that’s the easiest way to lose your money. You work hard for the money you want to obviously grow your capital. That’s the whole point of investing in stocks.

    I’m sure you always hear, “Diversify your portfolio.” You want to buy a few different stocks across a few different sectors, across different risk or reward metrics. You want to just spread your money out because if one area of your portfolio is tanking then maybe another area is going up enough where it evens everything out. I think in terms of going out and actually buying stocks, there’s no right answers. If I exactly knew what exactly to look at in every stock and I was continually growing my money up, up and up, then I would be off running a hedge fund somewhere. No one has all of the answers.

    I think the best way to start is you look at the broader market and you can be like, “Wow.” Everything seems to be going to Cloud computing. There’s not as much stuff on actual physical servers. I really think that that’s the way of the future. You always got to think long-term. People invest and look in at the stock price every single day. That’s a lose-lose game. You’re not going to win by doing that. You want to buy something, have a long-term view. You obviously want to check in on it because if something’s happening to the stock that you need to quickly sell or something that you weren’t expecting, but you’re not in it for day trading. I just don’t think that’s the way to win out there. You want to do what’s best long-term.

    Going back to the Cloud example, you found somewhere in the broader market across all the sectors that you really want to invest some of your money in. Then from there, you got to go and you look, “There are 20 or 30 Cloud services stocks that are currently out there that I can invest in.” Maybe you look and you read up on what they do and you just Google. There are so many easy sources out there, Google Finance, Yahoo Finance. You don’t really have to look deep into the numbers. No one individually is going to go out and do valuation modeling and trying to come up with a price target. You’re not going to do that, but you want to have an idea of broadly what you’re investing in.

    Maybe you look at what the revenue growth is and you see, “This company keeps growing their revenue. I read this one article and it looks like they’re making more acquisitions and that they’re continuing to grow. I like this company, let me invest.” It’s honestly as simple as that. I think again, diversification is important. I think especially guys who are investing in our age, they call them blue chip companies, but those are just large corporations that they’re not going to trade up 5%-10% a day but they’re not going to trade down. They can, but it’s very rare.

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    How to Invest: The alternative is, that $1,000 is sitting in your savings account earning zero.

    The stock price isn’t going to move around a lot, they’re going to get paid a nice dividend, maybe 5%, 6%, 7%, but your money is safe there. People are like, “5%, 6%, 7%. If I were to put $1,000 into that company, you’re talking I’m going to make $70 in a year.” It doesn’t sound that attractive. You make $70 a year almost guaranteed from the dividend, because those large companies usually deliver on their dividend; not always but usually. Also there’s the potential for the stock to go up. The stock goes up 5% and all of a sudden, you’re making a few hundred dollars on your investment. The alternative is, that $1,000 is sitting in your savings account earning zero. $120 today obviously is a lot better than zero. That’s a portion of your portfolio to keep your money safe.

    Then maybe of that $5,000 that you were investing, you take $1,000, $1,500 of it and you spread it across two or three riskier stocks. Riskier stocks are smaller, higher growth companies, but they’re earlier in their business life cycle. They’re in early stages. It could be a biotech company that’s pre-revenue that’s still developing a drug. Biotech is the sector where the stock either triples or goes to zero. If they don’t get that approval then the drug and the company’s worthless. It could be an early stage tech company that’s growing their business. Those are riskier companies that can go up 5%-10%. They can triple in price over the course of twelve months or they could go to zero in the course of twelve months.

    I think people of our age where we’re not retiring tomorrow, but if we’re retiring tomorrow, that’s all about capital preservation. You put money, you collect in big dividends, very safe and you get ready to retire and that’s it. Whereas now, we could probably take some risk. That’s when you need to measure the risk or reward. Then I think maybe a portion of your portfolio goes into those riskier assets.

    Dan, when you’re looking in a new company to invest in, what are you looking for? Is it more personal interest or is it like, “I’m interested in this company. I want to see how they do,” or is it, “This could do something,” or a little bit of both?

    When looking at a company, I think one of the misconceptions out there is just that a company is not valued based off of what it’s done. It’s valued based off what the market expects it to do. Especially investing my own money, obviously I want to follow companies that I’m interested in as well. It just makes things more fun. When looking at a company, obviously you can only judge future expectations by looking at historical results. You look at a company and you say, “They’ve been growing revenues X percent over the last few years. Their earnings growth is good. They’re cutting costs.” Those are simple financials that I would look at. I wouldn’t expect any individual investor necessarily to dive that deep.

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    How to Invest: You look at just broader opportunities, especially on the consumer side, if you see a product that you like.

    I think it goes back down to what I was saying in terms of the top-down approach. You look at just broader opportunities, especially on the consumer side, if you see a product that you like. When Apple was first starting out with the iPhone, you buy an iPhone, “Wow, this is a great product. I could go out and buy Apple stock.” If you did it when the iPhone first came out, you’ve made probably twenty fold on your money. You made twenty times what you invested. That’s the kind of thing where it could be as simple as that.

    You’re probably not going to be more inclined to invest in a super complex sector or business structure that you just can’t understand. It’s the kind of thing where you look and you try and figure out where you think a stock could potentially outperform. If you really like a product and it’s the kind of thing where you’re like, “Wow, this thing’s really going to grow. This stock is only $5 today. I think if everyone likes the product as much as me or whatever, maybe the stock could double or triple.” You need to understand what the company does, which isn’t hard. You go to a Wikipedia page, go to a company website, you see what they do. Again, it’s really what it all comes down to, is what the broader landscape is in terms of where the economy is heading. Then from there, you pick pockets of the market that you actually think might outperform.

    You did touch on this already, but I guess a lot of the mistakes you see people make in the beginning is they’re not doing their research, they’re not diversifying, anything else?

    I think just putting all your eggs in one basket is a huge risk. There’s no need to take that much risk. Granted, if you have $100,000 in the bank and then you just invest $5,000 and put it in one stock, then fine. If $5,000 is a meaningful amount of money to you, which to a lot of people obviously it is, then I think you need to spread it out. I think what’s helpful for people starting out is you’re investing now and you’re going to be watching the stock. Obviously, everyone makes mistakes. It’s not a big deal. It can be clearly if you lose a lot of money, but it’s the kind of thing where you start out your investing and now you have financial interest and you’re going to be taking interest. Then maybe when you’re home eating dinner, you’re flipping on CNBC and you’re watching Jim Cramer’s Mad Money, he’s talking about different companies. You’re like, “Wow. I’m invested in real estate right now. I own this commercial real estate company. Jim’s talking about this commercial then maybe I’ll switch it.” You get into it. I think once you just do it and you just pick a few companies that you like, you’re forced to be interested in it.

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    How to Invest: Some people get really, really into it because it is interesting because you’re making bets on companies.

    Some people get really, really into it because it is interesting because you’re making bets on companies. There are a lot more educated bets. That’s what you’re doing. That’s the thing, you don’t have to get into it. If your portfolio is doing well, you leave your money where it is and you check up on it here and there. It’s the kind of thing where once you start investing, in today’s day and age there are millions of sites: CNBC, Bloomberg, Fox Business. There are so many things on TV that you could watch. I think they do a pretty good job of not diving too deep into technical terms, sometimes they do. But it’s just an area that could easily be learned.

    How do you feel about financial advisors? Obviously, if you have a lot of money and you’re investing a lot of money, you might want to consult with somebody. Do you think it’s absolutely necessary in the beginning to let somebody else do all your advising in the stock market? How do you feel about that?

    All big banks have financial advisors. Clearly, if you’re investing a ton of money, it will be important because those guys don’t just pick stocks for you. They’re going to pick separate portfolios for you to invest in and they’re going to pick different things. I think that just starting off, if you want to take an interest and take the initiative on your own and actually learn what you’re doing, because it’s going to help you out in the future. If you have just the general knowledge right now, you can’t blame them because if you’re doing it, you’re not going to really know what’s going on.

    This will force a younger investor to just have a general understanding, which is why I would think in the beginning maybe not necessarily. I can never advise to not use a financial advisor versus using one because financial advisors add their own value in many different ways. I think if you were looking to invest $2,000, $3,000, $4,000 and you had an idea already of what stocks you wanted to buy, you can easily just go and open an E*TRADE account and do it yourself. If you really have no idea and you want the advice, then go out, talk to a financial advisor. He’s going to charge you a fee, which will be more expensive than you just going out and buying the stocks and selling the stocks yourself, but that’s another way to learn as well. There are financial advisors all over the place.

    Have you come across any really good books that were pretty eye-opening? Or even just good people on YouTube that you’re like, “I’ve learned a lot from this person or book, this is very beneficial.”

    The books that I would be reading, at least that I’ve read in college and coming up, are more just finance-related in a sense that they would tell stories of things. I’ve read a book called Rigged, which is about a guy who worked at the New York Mercantile Exchange, which is just an exchange that would buy and sell oils features and he moved it to Dubai. That was a cool book. I’ve read Liar’s Poker, which is Michael Lewis’ book. He also wrote The Big Short, which I read. Those are all the types of books that I think are really interesting finance books because the stories are so absurd and incredible. In terms of investing, I honestly think the Investing For Dummies 101 books are really good.

    They dive into the details. I think in terms of the guys that I watched, Jim Cramer is a household name. He’s incredibly good. He knows every company, he brings CEOs on his show, they talk about their business. I think he’s super interesting. Just because Jim Cramer says, “Buy a stock,” I don’t think that’s a reason to buy, but it’s just a good way to learn about how he thinks and how he looks at companies. It’s different for me because this is my career so obviously I’m interested in this stuff. It’s harder to get people more engaged and actually keeping up with all of the different market information out there and reading the Wall Street Journal or going to CNBC or MarketWatch and other good news outlet. Obviously, Bloomberg is the best. It’s easy for me. I think just for people who are just looking to get an understanding of how it works, those Investing For Dummies books will just break it down.

    You ever read the book, The Richest Man in Babylon?

    I have not.

    It’s a good one. I feel like a lot of people, they’re like, “I don’t have any extra money to put in the market.” Pretty much what this book says is, “Don’t spend more than 70% of your money and always pay yourself first.” I feel like a lot of people are like, “What do you mean? I’m always paying myself. Every check that I get, I’m paying myself.” No, you have to take some of that money, it could be as little as 10% and put it into a savings account and don’t touch it. That’s truly paying yourself. You just putting into your bank account does not mean you’re paying yourself.

    That’s more like personal finance and that’s a totally different conversation. I forgot what the numbers are but you see what millennials are actually saving and they’re not. It’s the kind of thing where we’re going more into a market where social security is unclear. For example, me, I’m not going to have a pension. My retirement is going to be based off of what I’m saving and what I’m putting away, what I’m throwing into a 401K, what I’m throwing into an IRA. It’s important. Like you said, now where maybe you can afford to save a lot, not many people at our age can. But even if you are, if you’re throwing 10% of your paycheck into a savings account, even if it’s not a lot of money, it really does add up.

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    How to Invest: If you want a little bit more and grow that money even more, it’s like your money is working for you.

    It all ties into the whole investing thing because you want to save your money. Then once you build up enough capital to go out and maybe try and grow that money, then maybe you take a portion of your savings account, you invest in some stocks, take a portion of your savings account, put it into some safer bonds or some treasuries or just something that’s going to help grow that money. Although it’s sitting in the savings account, it’s not really making anything. It’s just going to sit there and that’s what it is worth. That’s fine because you’re not touching it and it’s still there and it’s better than nothing. But if you want a little bit more and then maybe grow that money even more, it’s like your money is working for you.

    Maybe that’s even a completely different episode. Maybe I can bring you back on and we could talk about personal finance and all that stuff. This was an awesome little preview on how to invest. I really appreciate your knowledge on the subject, Dan. I really appreciate that.

    Thanks for having me on, Kev.

    I think you touched on everything. That was right to the point, what to do, what not to do. I think a lot of people are going to gain some good information out of this. Dan, thank you so much. We’ll definitely get you back on here. I’ll see you soon.

     

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