Not sure about taking the GMAT? Not sure about Business School?
It’s still worth it to take the GMAT exam – according to our guest author today.
Aspiring career professionals often look to business school to change careers for a better job/pay, or to climb the corporate ladder. But to get to business school, the first step is to schedule a date and take the GMAT exam. But what if you’re not sure about going to business school? Does it still make sense to take the GMAT?
Today, we’ll hear that the answer to that question, after some expert trading risk analysis, is an emphatic “yes”. Our guest author is Mikey, a 25 year old derivatives trader at an investment bank, with 4+ years of work experience. He likens the GMAT exam to a very “cheap” option on his future career – in trading terms, a low risk premium paid ($250 exam fee) for a potentially large reward (the MBA experience, degree, and opportunity for career progression). For any trader, this could very well be the trade of a life time.
The Case for taking the GMAT Exam: Finance Professional
This is NOT an article about the case for business school — that in my view is an entirely separate consideration. This is strictly about my thought process in deciding whether or not one should take the GMAT exam.
I believe that one can think of the GMAT exam as a long-term call option on one’s career — and ultimately on one’s life — whose main costs are sweat equity and the examination fee ($250). I believe that the prudent thing to do is to maximize these sort of “limited downside but potentially life-altering upside” options, especially in this kind of uncertain job market environment and when one is young.
Introducing the Financial Call Option
In the financial services industry, an option is a type of product that costs the buyer an upfront fee and provides him/her with a payoff that is linked to the performance of a pre-specified underlying entity. A call option rises in value when the underlying entity increases in value; a put option rises in value when the underlying entity decreases in value.
When one considers options, one weighs the “costs” versus the potential “payoffs”.
An interesting aspect of the options world is the potentially asymmetric payoff profiles that may arise: a call option costs a fixed, pre-determined amount…
..BUT the payoff is theoretically UNLIMITED as the underlying entity can continue to rise infinitely in value.
But let’s be real, the infinite payoff scenario is highly unlikely to occur. Instead, one should weigh (based on probability) the various potential payoff scenarios and net that against the cost of the option to come up with an expected value for the option.
GMAT As Career Call Option
How does a “call option” relate to the GMAT exam and your career?
The underlying entity is your career.
The option premium is the cost of the exam ($250) and the time required to study for the exam.
The potential upside is infinite.
The downside is limited to the cost of the option.
In my view, the GMAT exam is an extremely low-cost option that can potentially have positive career and life altering impacts.
Should I Buy A Career Call Option?
Ask yourself this question: Is there a small chance that you may consider going to business school in the next 1 – 5 years?
If your answer is yes, then I would argue that as a trade, the risk vs. reward / cost vs. benefit profile seem to be skewed in favor of taking the exam.
If you answer no, I would still argue that it may make sense to strongly consider taking the GMAT as a sort of “tail-risk” hedge, given how relatively low-cost this option is to acquire.
Think about it this way: Options can be used both as a speculative instrument (betting that the value of an underlying asset will go up or down), but also as an insurance or hedging instrument (protecting against the downside of an existing investment). Applied to the GMAT, there are three scenarios here:
- If you already know that you are going to apply to business school in hopes of a better career, then it is obvious that you need to take the GMAT exam in order to apply.
- If there is a small chance that you may want to apply to business school sometime in the future, then it makes sense to take the GMAT exam as a sort of cheap insurance policy.
- If there is no foreseeable plan of business school on the horizon, it still makes sense to take the GMAT exam as a sort of tail-risk disaster hedge option that becomes valuable if you find yourself in the situation of “no job, no job prospects” and “only business school as the next best logical step”.
As a trader risk-managing a book, I always think of the worst-case scenarios: What happens if the world blows up? How can I protect the downside of my book?
Protect Your Career Now – Not When You’re In Trouble
Oftentimes, it is exactly when the world is in a pleasant state that these “disaster options” that increase in value in stressed times are cheapest to purchase — everyone thinks all is good in the world and so the market puts little value on these kinds of disaster payoff options.
But as we have seen, tail risks seem to occur more frequently than expected in today’s world.
The WORST thing I could do is manage my trading book assuming the world will always be in a pleasant state. When the world blows up, then I would have to scramble to purchase these “disaster payoff options” when everyone else wants to buy them too.
But by this time, it may be too late: either I may have suffered such great losses on my original position that I am out of a job
these options are so expensive that it does not make sense to purchase them at such rich levels.
Similarly, it MAY be the case that the best time to take the GMAT is NOT when you are out of a job and scrambling to figure out if you have enough time to apply for business school, BUT RATHER when things are seemingly going well and business school is but an afterthought.“The best time to take the GMAT is NOT when you are out of a job…but rather when things are seemingly going well…”
Life Can Change Quickly
Life can change quickly. Things may be perfect for you now, but as anyone in his or her 20s and older has seen (and perhaps even experienced first-hand), the world in general (and whole industries in particular) can experience systemic changes in a matter of months.
It has been remarkable to me to see that the financial services industry that I have worked in for half a decade has changed so dramatically. We have lived through the collapse of once seemingly indestructible investment banks; we have seen the stock market lose half of its value; we have experienced one of the worst economic and job environments in a generation.
I have seen colleagues get “let go” from jobs that they previously have devoted their lives to; I have seen close friends unable to find work after graduation; I have and still continue to experience significant job uncertainty.“I have seen colleagues get “let go” from jobs that they previously devoted their entire lives to.”
–Mikey- Derivatives trader, Bulge Bracket IBank
Be Prepared For Your Future Career
The recovery process is slow. Companies are slow to rehire. There may come a point at which you and I find ourselves with no job and no other immediate job prospects. It is at this point that we have no other options and may need to consider business school.
Having already taken the GMAT puts us in a significantly more favorable position to pursue this option.About the author:
The author is a derivatives trader at a bulge bracket investment bank in New York. He has worked in the financial services industry for five years. In his spare time, he likes to ride and write about his folding bicycle: www.bromptonyc.com.
From 570 to 620 to 710 – Congrats, Raghu!From 570 to 620 to 710 – Congrats, Raghu!From 570 to 620 to 710 – Congrats, Raghu!
Raghu took the GMAT 4 times. After 3 attempts, he was stuck at 620.
Throughout this entire process, we were in discussion with Raghu for some 50+ email exchanges since March. It wasn’t until end of August that Raghu took the GMAT Pill.
Then in October, he scored a 710!
Here’s the proof:
Do you see that amazing improvement? The verbal score was a V25 (36th %ile). His verbal improvement alone was 11 pts from V25 to V36 (79% ile). That’s a jump from the 36th percentile to the 79th percentile in the rankings!
Now, when was the last time you saw something like that?
Here are screenshots of some of the emails:
He first started off with a 570
He prepped again for a 2nd attempt
He came up with a 620 – which is a decent improvement, but he was expecting more
So he took the GMAT a 3rd time, this time getting a 620 again
He was considering some prep options
We usually don’t give opinions on other providers, but since he seemed confused by the many options out there, here’s what we wrote back:
He decided to follow the Stanford guy ;]
He scores 710!! Ecstatic, he wrote us this email late past midnight in India.
As you can see above, we told him a story about how another student was in similar shoes. He took Knewton, but then changed his mind and took GMAT Pill. His testimonial is on our homepage. That was the story we told him.
Well, now, HIS story / testimonial is on our homepage.
Congratulations to Raghu on this huge improvement!
How it began?
So how did all of this begin?
Reagan and I exchanged some 70+ messages by email and in the first email, Reagan explained his situation to me.
Here’s what he wrote:
Initial Email to ZekeHello Zeke
my name is Reagan, i found out about the GmatPill through a friend’s recommendation. I am in the final year of my undergraduate degree.
I am an Economics and Finance major at the London School of Economics( External Study)
I took the GMAT in Oct 2011 and got a 670. It was quite disappointing because i was only 30 points away from being accepted onto an Msc in Finance and Economics at the LSE. I plan to redo GMAT with the help of GmatPill this year. I have a few questions.
- First of all, am i eligible for the refund policy? (i have read the FAQ and i but it is a little confusing given that i have not taken any SAT before.)
- I hope to improve my score to 750 which is at least above 99th percentile for both the sections so that i can apply to both Cambridge and Oxford. How much time do i really need if the last time i touched GMAT was about 8 months ago?
Thank you for taking your time to answer my questions and i am looking forward to receiving your reply.
So I replied to Reagan.
And the very first thing Reagan said in his next response was:“you speed of reply is awesome!”
Yes – we tend to hear that a lot.
Reagan signed up for our course shortly afterwards.
Studying the GMAT
Reagan put in the effort to make his improvement. Obviously, he was already somewhat familiar with the exam as he took it before. His previous GMAT score of 670 was on the lower end of top business schools and he was not satisfied. To make the jump from 670 over 700 is a significant jump that thousands of students hope to make every year – but not everyone makes it through.
Reagan is a great example of someone who made it through with dedication on his part and guidance from GMAT Pill.
Upgrade to Critical Reasoning
As Reagan was going through the GMAT Pill course – he very much liked the sentence correction part. He does say in his review that he was left a little hanging after going through Critical Reasoning.
Well, as it turns out, we were actually in the middle of working on upgrades for critical reasoning. I assured Reagan that we would work fast to push out a release of the Critical Reasoning Pill upgrade as soon as we can. And we did.
That’s why in the email screenshot – Reagan talks about the upgrades we did to CR. He credits the support and upgrades for boosting his confidence and score.
The end result was a solid 730 from a previous 670 – a 60 point increase!!
Recommendations for Quant Upgrade
One feedback item we received from Reagan was to make upgrades to the Quant section.
Since Reagan’s test, we’ve provided some upgrades for the Quant section and more are to come. We’ve released video explanations for official guide questions in problem solving from #209 to #230, for example.
If you want to track your performance on these OG questions, you can do so on our Practice Pill Platform for GMAT Problem Solving Questions. Here, you can attempt questions, click the NEXT button, and the system will automatically track your responses and mark which ones are right or wrong so you can revisit questions later.
Also in the pipeline are the Power Pill lesson tutorials. These lessons include dedicated tutorials on:
1) Poker Probability
2) Rolling Dice
3) Rate Questions
What does this mean?
Basically, we take a math question, and we show all kinds of variations on that same question and show you how to answer those questions. In poker, how many different ways can you select 5 cards out of a deck of 52 cards. Given that there are 4 suits (hearts, diamonds, clubs, and spades) – what is the probability of selecting 2 clubs and 2 diamonds? What is the probability of getting 1 pair? What is the probability of getting 2 pairs? What about straights, flushes, and full houses? What about the royal flush?
These are all variations off the same basic poker probability game and we address them all.
We believe that fully understanding a concept involves covering multiple variations so that you’ll be ready no matter what the GMAT throws at you on exam day.
Other GMAT Students
You can read more about students we work with at GMAT Pill including this McKinsey analyst who struggled with GMAT for 2 years- until he took the GMAT Pill, a non-native English speaker who got off the waitlist AND a $50,000 MBA scholarship, …and many others.
GMAT Pill has released video explanations for Official Guide 13th edition Problem Solving Questions #209-#203 onto the Practice Pill Platform.
OG13 Tracker: What You Can Do
With this online OG tracker you can:
1) Record your answers to OG questions
2) See stats on what answers other people chose and how many of them get that question right
3) Revisit questions you got wrong
4) VIew FREE GMAT Pill Video Explanations
5) Ask Questions
6) View videos on-the-go through the GMAT Pill HD iPad app
These video explanations show Zeke Lee explaining the question in real time. Math numbers and symbols are drawn directly on the screen with Zeke’s handwriting so you get a personalized feel for his approach to these math questions.
Many of these questions involve combinations, permutations, and possibilities. Word problems, algebra, geometry, number properties, and mixture questions are all part of the bunch.
These videos have also been added to the GMAT Pill HD iPad app as free videos. So any user can download the app and view the videos.
Of course, any user can also create a free guest account on the Practice Pill Platform to record answers and track his or her progress with Official Guide questions.
The entire question is only partially shown. You should follow along with your OG13 book.
Updated SC Video Flashcards + GMAT Pill HD iPad v1.2 update!Updated SC Video Flashcards + GMAT Pill HD iPad v1.2 update!Updated SC Video Flashcards + GMAT Pill HD iPad v1.2 update!
We’ve updated our SC Video flashcards with fresh new content.
Each of the 40 video flashcards showcases a short sentence that asks you to identify the error. Some sentences have one error, some have multiple errors. Some even have no errors.
These are short exercises that you can print out or just lad on your computer screen.
Yes, these videos are also preloaded into our “GMAT Pill HD” iPad app in the sentence correction section. So members with a login can access these sentence correction video flashcards both on iPad device and on regular laptop/desktops.
In other news, the GMAT Pill iPad app has gotten yet another update to make it easier to download videos and view them letter. The settings button is more clearly displayed at the center of the screen so you can toggle between LIVE mode and DOWNLOAD mode more easily.
LIVE mode essentially when you have internet connection. Any videos you attempt to load will load from the server.
DOWNLOAD mode is the localized mode. If you click a video, the app will attempt to load off the downloaded version stored on your device. These videos are accessible without an internet connection.
Of course, you will need to download sections or individual videos onto your device in order for them to be available in DOWNLOAD mode.
You’ll also see an opportunity to post your questions and comments below each video. In the screenshot shown below, for example, you can see comments that others have posted on the Practice Pill and you can also see GMAT Pill responses.