Posts filed under “Analysts”

Tight Employers: Frugal or Counter-Productive?

Have a quick look at yesterday’s post: Wedbush: Cheap as a Fox.

There was a robust discussion in comments — and the general take that resonated with me was summed up thusly: Being judicious about expenses is one thing, but being ultra cheap can be counter-productive and myopic when you figure in the opportunity costs.

The truth of that statement made me recall an incident from earlier in my career, where I worked in the research department of a Sell Side firm. I was employed for a perfectly fine shop with a few billion under management and about 1,000 employees. The CEO was a nice guy, but a cheap sunuvabitch. He was formerly of Bear Stearns (from decades prior), where he must have caught that cheapness bug.

It manifested itself in all manners of counter-productive ways. There were lots of little monetary annoyances, and it affected their recruitment and retention of talent. Bonuses were insultingly punk — that’s why I ultimately left. Mind you, this was during a relative boom period, and not during a recession or crisis.

But here’s what I recall most about where being notoriously cheap hurt them: Like many Wall Street firms, they had an override system in place for recruiting. I brought in a new department — a sharp group of distressed asset buyers. They were wildly profitable for many years (though they did get hurt in the 2008 collapse).

Getting paid on it was always a headache — constantly a day late and a dollar short. “They aren’t profitible yet, the start up costs are big” was the common cry. All the other excuses were similarly annoying, but when senior execs were taking home millions, it was utterly unacceptable. I asked around the more senior guys, and the most common answer was SOP: Standard Operating Procedure.

The cheapness was almost a running gag — but it had a pernicious impact. When employees sense that the firm is not a two way street, that “favors” only run one way, it leaves an impression. The takeaway message was don’t bother recruiting, ’cause you won’t get paid on it.

Mind you, all of this was early in my ramp up in the media. Soon after this event occurred, I was getting lots of inquiries from many people who were either seeing me on Kudlow or hearing me on Bloomberg radio or reading quotes in the WSJ. Big institutional sales traders and RIA/Brokers — nice books, lots of AUM, large trailing 12s. (That’s street speak for big producers).

Whenever I got one of these inquiries, I could not have been nicer. I was nothing if not honest to a fault with the inquiries:

Hey these are really nice guys but truth be told, they are super cheap motherfuckers. Terrific guys to have a beer with, but tight-assed as all shit. Money isn’t everything, and if you want a great home with nice guys, this is a great place. But I would be lying if I did not tell you the bonuses suck. I am happy to introduce you to them, but you can do much better comp-wise elsewhere. Do you know Joe XXXX at XXX ?

I kept a running total of how many of them I simply sent elsewhere. Following the lack of payment on the departmental recruitment, I tracked about $25M in gross annual revenues that had reached out to me. We would never have signed all of them, but even a fraction of that was a lot of revenue. I got no money for steering this cash flow to other firms that paid nice bonuses. I’m sure the new hire and his boss must have thought ‘I was swell,’ but that was not my motivation. I was going to be damned if I was going to generate one excess dollar in revenue for the owners and not get compensated for it.

The crap bonus during our biggest year ever was the last straw. Truth be told, that was the beginning of the end — and I couldn’t bring new guys in if in my mind I knew had a foot out the door. I left the first day in January, and never looked back.

This one comment summed it up:

“Being in the tech industry, I am of the view that the “cheap as a fox” approach to running a company is ultimately inferior to providing your workers with the proper tools and resources they need to perform at a high level. I’ve found that people/companies who have a cheap approach towards infrastructure/operating expenses also tend to be cheap when it comes to acquiring the best people, which in technology (and I suspect in other fields), is ultimately a losing game.”

Its hard to find fault in that analysis.

But I wonder: How many employees behave similarly? How much money is management leaving on the table because of how cheap they are with their employees? Not just new talent, but new ideas, costs savings, innovations, new business lines? I am an unusually vindictive prick, or is that pretty normal human response?

I wonder how many start ups have been formed because people said “Up yours” to their former employers?


UPDATE  November 20, 2010 4:52pm

Postscript: One of the people who traded with this division as a counter-party emails me:

Hey B

Do you recall the conversation we had at Bobby Vans about XXXXXX and his group back in 2006? You laid out for me why they were going to blow up — too much leverage, too much RMBS exposure too much structured junk. You scared me out of some of my positions, and for a few months, I cursed you for it (then I had the best P&L on the desk for a year).

I asked you if you were going to warn XXXXX about the group’s exposure, and I recall your exact words: “I never got paid one dollar on this group or any of their transactions, so my ex-firm and I have no fiduciary relationship about this. That is lawyer speak for ‘They can go fuck themselves.’ ”

I still trade with them occasionally. In case you don’t know, the group left the firm some time ago, after racking up 100s of millions in losses. I would wager they gave back the past decade’s profits and then some.

It cost them a whole lot more than mere missed commissions and assets. It definitely left a mark.


Heh heh — that quote does sound like me

A little Karma goes a long way  . . .

Category: Analysts, Corporate Management, Wages & Income

Home Equity as a Percentage of Household Net Worth

> I frequently find myself disagreeing with Tobias Levkovich of Citigroup. That’s not surprising, given his firm and their investment posture. Where I really part ways is on anything housing related. Levkovich was part of the mainstream herd of strategists who, as the markets topped in October 2007, made the erroneous forecast that Housing would…Read More

Category: Analysts, Real Estate, Really, really bad calls

Regulation AB: Downgrading the Ratings Agencies

We know the major ratings agencies suck. We know their business model was payola. We know they sold ratings for cash, committed fraud on structured product investors. We know they hid significant modeling errors, and then hid these problems from the public and regulators. Might their free ride be coming to an end? The SEC…Read More

Category: Analysts, Bailouts, Credit, Legal, Really, really bad calls

Are Wall Street Analysts Contrary Indicators?

‘Boy these companies look pretty good, earnings are OK, they have plenty of cash. What if there’s a double dip?’ ‘I’m no macroeconomist, but . . .’ > Here is an intriguing possibility, one that should make any investor holding 80% cash a tad nervous: The Buy/Sell/Hold crowd of analysts are excessively cautious: “For the…Read More

Category: Analysts, Contrary Indicators, Corporate Management, Earnings


I hate it when two people I know and like do battle. This week, it is Mike Shedlock of MISH’s global economic analysis squaring up against my friend and work neighbor, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI). Mish ripped ECRI in an unsparing critique this morning: ECRI Weekly Leading Indicators at Negative…Read More

Category: Analysts, Cycles, Economy

Who Steered You Wrong About the GS Case?

Amongst the regular complaints I have about the financial media is the lack of accountability of alleged experts. The bad stock picks, the terrible market calls, the unsupported opinions, all blithely made and forgotten. Yet the same experts are trotted out week after week to give more money losing advice. The silver lining to this…Read More

Category: Analysts, Financial Press, Legal, Regulation

Corporate Cash: Top 20 Firms = $635 Billion

I mentioned earlier that corporate cash has been piling up since 1982. The number that is being bandied about (via the Fed) is that the 500 largest non-financial firms have $1.8 trillions dollars in cash. I wasn’t sure how the Fed came up with their number, and I wanted to look at the data in…Read More

Category: Analysts, Federal Reserve, Valuation

James Montier Resource Page

Tim du Toit is the editor and founder of Eurosharelab. He has more than 20 year of institutional and personal investing experience in emerging and developed markets. Tim is based in Hamburg, Germany. More of his articles can be found at Eurosharelab (

Republished here with permission.


I met James Montier at a value investment seminar in Italy in 2007 where he presented. We had long discussions later the day and into the evening on value investing and investment strategy.

James was kind enough to put me on his distribution list and I really looked forward to each of his articles as they always taught me something.

Unfortunately James decreased his writings since taking a position with the asset manager GMO in 2010.

I decided to put this resource page together so Eurosharelab visitors can also benefit from James’s investment wisdom.

James Montier’s Amazon Page shows all the books he has authored as well as the following short biography:

James Montier is a member of GMO’s asset allocation team.

Prior to that, he was the co-Head of Global Strategy at Société Générale and has been the top-rated strategist in the annual Thomson Extel survey for most of the last decade.

Montier is the author of four market-leading books:

• The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits)

Behavioral Finance: Insights into Irrational Minds and Markets

Behavioral Investing: A Practitioners Guide to Applying Behavioral Finance

Value Investing: Tools and Techniques for Intelligent Investment

He is a Visiting Fellow at the University of Durham and a Fellow of the Royal Society of Arts.


In this May 2010 article called I Want to Break Free, or, Strategic Asset Allocation does not equal Static Asset Allocation James Montier talks about in the beginning investing was a simpler and happier.

The essence of investment was to seek out value; to buy what was cheap with a margin of safety. Investors could move up and down the capital structure (from bonds to equities) as they saw fit. If nothing fit the criteria for investing, then cash was the default option.

But that changed with the rise of modern portfolio theory and, not coincidentally, the rise of “professional investment managers” and consultants.

In March 2010 Miguel Barbosa in his Simolean Sense blog interviewed James Montier about his book Value Investing: Tools & Techniques For Intelligent Investing.

In the second part of the interview Miguel talks to James about his other book The Little Book of Behavioral Investing – How Not To Be Your Own Worst Enemy.

In this February 2010 article, the first since joining GMO, James Montier asks Was It All Just A Bad Dream? Or, Ten Lessons Not Learnt from the financial crisis.


In November 2009 article titled Only White Swans on the Road to Revulsion James Montier makes the argument that that the housing bubble and the crisis following its collapse was not an unforeseen event but rather the result of over optimism and the illusion of control, two classic human behavioural mistakes.

This article is the text of a speech called Six Impossible Things Before Breakfast, or how EMH has damaged our industry which James Montier delivered at the at the August 2009 CFA UK conference on “What ever happened to EMH”. Dedicated to Peter Bernstein (EMH = Efficient Market Hypothesis)

Here is the video recording of the above mentioned speech by James Montier: Six Impossible Things Before Breakfast. The video is 42 minutes long, but well worth watching.

The financial times in this 24 June 2009 article EMH, AMH: Edwards and Montier ride again motions James Montier leaving Societe Generale to join US investment manager Grantham Mayo Van Otterloo & Co, just after he and Albert Edwards won the Thomson Extel European analysts award in May 2009 as the top global strategy team.

In this 2 June 2009 research paper Forever blowing bubbles: moral hazard and melt-up James Montier explored the bubble phenomenon and what happens in the future after a bubble pops. He explores the possibility that all the government rescue packages initiated in 2008 have the possibility to again inflate a substantial bubble.

In this 24 June 2009 Financial Times article called Insight: Efficient markets theory is dead. James Montier explains why the efficient markets theory is dead but still lives because of academic inertia.

In June 2009 James Montier’s published this list of his Favorite Investment Books as well as a Summer reading list of more recent titles.

In May 2009 shortly after the market started its recovery from its March 9 2009 lows James Montier in this article titled Sucker’s rally or the birth of a bull? asks if this is a suckers rally and if so what investors could do to protect themselves. He also gives a few short ideas from his shorting screen.

In this 27 January 2009 article Clear and present danger: the trinity of risk, James Montier writes about the three primary and interrelated sources of investment risk; Valuation risk, business or earnings risk and balance sheet or financial risk.

Read More

Category: Analysts, Contrary Indicators, Investing, Valuation

Wall Street Still (Always) Too Bullish

Barron’s Alan Abelson points us to a rather intriguing — and sadly, none too surprising — data point: “Week in, week out, Bloomberg taps Street analysts for their prognostications of where they expect the S&P 500 to wind up the year. Despite the turmoil in the markets, those stalwarts—13 of them—have steadfastly held to their…Read More

Category: Analysts, Investing

Goldman on FIFA World Cup

> Be sure to check out the Goldman research piece on World Cup Soccer World Cup and Economics 2010 It is a surprisingly fun approach to economic research . . . >

Category: Analysts