Input Assumptions are the Key to Valuation: Kevin Zhao '09 Master's in Finance

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What type of professional experience have you had so far?

I am a manager at Equity Methods, LLC, a professional services firm that specializes in the advisory, valuation, accounting, and tax services of equity-linked instruments.

What surprised you about valuation modeling in practice?

I really had no idea how important input assumptions (e.g., volatility, discount rate) are to the valuation outcome. In college and graduate school, we spent an outsized amount of time on valuation models and how to build them, but overlooked input assumptions or took them for granted. In practice, developing the most accurate input assumptions are at least as important as building the right models. There is a model for almost any and every derivatives instrument out there. There may be multiple types of proprietary models for one instrument, but they are largely similar. The real edge is in input assumptions.

Why did you choose to work for Equity Methods? 

I get to wear multiple hats. On the client service side, helping clients solve their problems and being appreciated by them gives me a tremendous amount of satisfaction. Often times, a client will ask you a question that is seemingly related to my technical expertise, but neither I nor anyone in my firm have encountered it before. Situations like this require me to really innovate and be a creative problem-solver -- I love it.

I also get to speak and exhibit at industry conferences, and write and publish thought-leading articles to build and enhance my firm’s reputation and brand recognition in the industry. I make sales pitches to prospective clients and travel to meet clients onsite. I do contracting and management, both people management and project management. With these many opportunities, I don’t get bored.

What was the hardest thing about transitioning into full-time employment after the Master's in Finance program?

As a universal rule, transitioning is always challenging. For me, the hardest thing is learning the importance of attention to detail and how I am constantly judged by the quality of my work, and learn the skills and habits to do quality work. In college, we are probably judged mainly by producing the correct numbers or on the substance of an essay, more or less. At a workplace, all that still matters, and more – grammar, consistent font size, spacing in a report, well-organized support document, etc. – every single detail matters.

What has your professional experience taught you? 

Technical skills (e.g., the know-how about valuation science) are the foundation of your career, but it has limits. Knowing how to work with and serve fellow human beings (e.g., your colleagues at work, your clients, industry friends) will propel your career to the next level and you can’t do it without that skill.

Top image courtesy Pixabay.