A good reason to try competitive financial modelling (and a bad one)

Forget about the competition for a minute.

If you know the basics of financial modelling and you want to get good (or maybe even great), the key is deliberate practice - not just how many hours you’ve logged cranking a spreadsheet, but attempting a specific task, getting feedback on what you got right or wrong, and then iterating.

It's very hard to get that from a course - they're fine for getting introduced to a new idea, but they won't give you the reps. And it's also quite hard to get on the job, because while senior people will provide a lot of sense checks, and (hopefully) someone will thoroughly check your model at least once on a big project, you'll never be in a situation where a more experienced modeller builds the exact same model you just did so you can check if you got every calculation right, or built the structure as elegantly as you might have.

I've been telling people for years that the case studies from ModelOff were the best way to hone their technical modelling skills. They're almost the definition of deliberate practice - short cases, usually on a very specific aspect of financial modelling, with the assumptions laid out clearly enough that there is an exact right answer, and a few questions to make sure that you got it. Some of them even came with worked solutions, which is very helpful if you're stuck. Doing those cases (and re-doing the ones I stuffed up) was a huge part of how I learned to be a passable financial modeller.

The Financial Modelling World Cup, as the heir apparent to ModelOff, takes this a step further in a couple of ways. First, with monthly rounds, there are a LOT more cases. At the current rate, FMWC will have put out about as many cases by the end of next year as ModelOff did over the 8 years it ran. And second, competitors get a worked solution to every one, which means you can always figure out where you went wrong, compare to see if your formulas were as elegant or your structure was as logical, etc.

I'm not affiliated with FMWC beyond being a competitor, but for an aspiring financial modeller I think it might be the best value way to improve as a modeller that's out there (as I'm writing this, entry for all 12 rounds for 2021 is on sale for $99, but even at the full price of $15 per round, it's hard to beat).

Of course, being able to take a very clear set of assumptions that someone else produced and accurately turn them into a model isn't the most important part of building models that add value in the real world (compared to, say, knowing what should be modelled, knowing what sensible assumptions might look like, or knowing how to interpret the output of the model and turn it into useful actions for a business). But you need to walk before you can run, and being able to build an accurate and reliable model is a foundational skill for any aspiring analyst. What's more, if you can build your model by 7pm instead of 2am because you've honed your craft, it gives you a lot more time and a much clearer head to take a step back and think about the bigger picture things like whether the answers it's giving make sense, or what advice you'd give based on it.

The bad reason

The bad reason to enter a competition like the FMWC is to prove that you’re the best modeller in the world. (By the way, I know all the past winners, and I don't think any of them think that way...)

That’s partly because it’s misconceived. Winning ModelOff or the FMWC no more makes you the best financial modeller in the world than having a PhD in military history makes you a general - you obviously know a thing or two about the theory, but you might not have any idea what it looks like in the real world.

The bigger problem with focusing on being the best or proving you're the best is that it encourages exactly the 'wrong' kind of people to take part - the ones who will benefit least from it - while people who are still learning and have no chance of winning or placing can be discouraged. Multiple people told me over the years that they were thinking about entering ModelOff at some point, but didn't think they were ready - but for me, the whole point is that entering helps you to get ready.

I think this shows up particularly in the really awful track record both tournaments have on gender diversity, both among the full set of competitors and among the finalists in particular. Research shows that men are more competitive, and more likely to rate their abilities higher than women (on average, not every individual, obviously...), which means both that focusing on competing and being the best is more likely to attract men, and that men are more likely to consider themselves good enough to have a shot at making the finals, winning a prize, or whatever (even at the same actual skill level).

If, like me, you see the biggest thing these competitions have to offer as being a great way to develop technical skills through deliberate practice, this means that the gender gap is a doubly big problem: first, the fact that women are so heavily underrepresented gives a totally misleading impression that men are better financial modellers, and creates a cycle where women see an all-male group of finalists and assume the competition is not for them (I don't have the data, but I'd bet female participation in ModelOff went up for at least a while after Hilary Smart won); but second, fewer women participating means fewer women getting the skill development that taking part confers, which contributes to comparably-skilled women having fewer opportunities than their male peers.

Gender equity in the finance profession is a big and complex problem (and beyond the scope of this discussion, as my professors used to say), but one small step in the right direction would be to talk much less about these events as competitions, and talk much more about them as training opportunities.

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As an aside, I was going to add that if $99 is financially prohibitive to you, the old ModelOff questions are still available for free - but then when I went to check the link, I realized they're not there any more. Hopefully Kenny and team will find some way to make those available again soon!