Posts filed under “Analysts”
Time for an important lesson with someone else picking up the tuition costs:
It is the Meredith Whitney story, and it is instructive to those of us who work in finance and occasionally engage the media. Any of you who might think an outrageous call is the way to achieve lasting fame and fortune on Wall Street, Ms. Whitney’s story might be an instructive tale of warning.
After a good (but far from unique) downgrade on Citigroup in 2007, Ms. Whitney found herself thrust into the spotlight. The former Oppenheimer analyst launched the Meredith Whitney Advisory Group two years later, with a full staff and 30 top tier blue chip clients. Less than 5 years later, she has lost half her client base, is down to 1 full time employee, and won’t comment to Greg Zuckerman of the WSJ in a story that is about her.
I don’t want to pile on — at this point, it would just be cruel — but it might be instructive to see where things went amiss. Anytime we have an opportunity to learn from someone elses mistakes, it is incumbent upon us to do so.
What can we learn from Ms. Whitney story? I see five lessons that I would take from her unfortunate experiences:
1. Leveraging a call into a new business is challenging: History is replete with examples of one hit wonders who never turned out any thing beyond that pop song. There are too many to list here in music (Wikipedia arranges them by decade).
In finance, some of the names who made a great call, but then failed to follow that are well known. The poster child is Elaine Garzarelli who improbably called the 1987 crash*, only to never repeat that feat or anything like it. Others might put Nouriel Roubini in that camp, but he has created a firm that seems to operational, and regardless seems to have a career otherwise. And who was that copycat analyst who forecast QCOM running to $2000? He tried to take a page from Henry Blodget’s playbook of calling Amazon to $400 — and failed.
2. Media buzz is not a business model: Regardless, these outrageous calls (right or wrong) are not what the VCs would describe as “a sustainable business model.” It generates some buzz, some attention, some media headlines. But the attention span of the American public (and therefor the media) is notoriously short. It’s like a drug with a fast developing tolerance. If you want to stay in the spotlight, you have to take bigger and bigger doses, which in media terms translates into more and more outrageousness. That increases the odds that you will eventually blow up spectacularly.
3. Stick to what you do best: Whitney was a bank analyst, and she (somehow) believed that qualified her to discuss municipal bond finances. Her December 19 2010 call on 60 Minutes — predicting “hundreds of billions of dollars” of municipal defaults within 12 months — failed to pan out. Instead, defaults fell. Bt she rocked the muni bond market, caused headlines for months — even as the prediction was falling flat on its face. She was apparently operating outside of her comfort zone, in a huge market she had little expertise in.
The response was not swift but it was savage: Professionals questioned her analysis as well as her motives. (In our ThinkTank, David Kotok repeatedly called her out on her sloppy, sensationalistic non-analyses). Well established muni bond players were deeply offended by her blase disruption of a serious market. She failed to consider that Munis pay for things like roads, and bridges and hospitals and schools.
Perhaps a corrollary lesson is “Be wary who you piss off .”
4. Make sure your firm is filled with happy workers: Some of her former staff’s comments in the WSJ article are catty. They complain about her work habits; They note she often is “working” from Bermuda where she owns a home on a resort. These sorts of reveals usually come from an angry and underpaid staff.
The people who work for you are the ones who make you look good. If you don’t treat the right, don’t be surprised if they respond in kind (karma is a bitch).
5. Add value to your clients: But the bottom line is her $100,000 annual fee simply did not pay for itself. Not only is that on the high end — more than double what shops like Ned Davis Research charges — it did not seem to create much in the way of actionable or value added work product.
Pricey, seemingly useless research is not what the Street needs more of . . .
Developing a sustainable, scalable finance model that adds value to clients should be job one for all new finance start ups.
Clients Come, Go at Research House
WSJ, July 7, 2013
How Meredith Whitney Deals with Haters (TRB)
* I am aware that there is a contingency who believe that even that call is suspect.
Internal e-mails implicate credit rating agencies in the 2008 financial crisis.
Money Boo Boo
Monday June 24, 2013 (04:33)
Jason Jones teaches regulation-loving Canadian bankers the advantages of harmless free-market fun.
Money Boo Boo – The Canadian Banking System
Monday June 24, 2013 (05:49)
Source: SSRN, Motley Fool News flash: Analysts exist to generate investment banking business and trading commissions; they are not here to assist you in making stock buys or sells. That is the conclusion of a recent study, but let’s be blunt: If you have been paying attention, you probably already knew this. At this…Read More
Last week, I mentioned Merrill Lynch’s Market Analysis Technical Handbook. I was somewhat smitten by the wire house attempt to explain the basics of technicals to a broader layperson audience. Several BP readers at Mother Merrill (as she used to be known) directed my attention to another annual release: US Quantitative Primer 2013. It is…Read More
My wife happened to mention hearing a financial guru on the radio a little while back. I am always interested in knowing what financial gurus are saying (and thinking maybe it was Ritholtz or Rosenberg or Levkovich or someone else I personally know). I asked her who it was.
“Dave Ramsey,” she said.
“Dave who?” was my reply.
So I asked around – colleagues, friends in the business, etc. etc. Couldn’t get a bid. I turned to The Google and in short order realized that Dave Ramsey is the male version of Suze Orman. He seems to be a self-promoter with little actual experience or knowledge of financial markets or economics. But what really struck me was the condescending, patronizing tone he directs toward his callers. This a site refers to him as a “Christian financial guru,” yet he doesn’t seem to preach in very Christ-like manner.
I could write a thesis about all that’s wrong with this ilk. But rather than take the 30,000 feet view (that’s BR’s province), let’s get granular:
Once again, investors are reacting to the uncertainty in the stock market by investing in gold. Since the third quarter of 2010, the price of gold has jumped 40%, peaking at just over $1,900 an ounce. The “experts” are touting gold as the only “safe” investment in a volatile market.
So is now the time to buy gold?
Think about it: Why would you buy something at its all-time high?
Before we move on to the idiocy of the final sentence, let’s consider another aspect of what’s going on here.
Later in that same post:
Gold Stash is a quality company that will gladly buy any of your unused gold and silver. They do business the right way, going above and beyond. Dave wouldn’t endorse them if they did any less. With Gold Stash, you can take advantage of the high gold prices in a safe and responsible way.
So, not only is Mr. Ramsey advising against gold under nearly all circumstances, he’s recommending selling it to a company he “endorses,” who coinicentally happens to be an advertiser?
Oct. 13, 2009: “He never has, and he never will [advise buying gold]. Companies like GoldStash.com offer an outlet for you to make some money on your unwanted or unneeded jewelry. Dave will only endorse companies that he trusts, and Gold Stash is reputable, honest and absolutely trustworthy.” Gold price then: About $1,050/oz.).
Who is Gold Stash? Hmm. Well, there’s a tab that allows us to see who “Dave Recommends.” There’s Gold Stash. Funny thing is that at the bottom of that drop down is a link for us to “View all Advertisers.”
Gold Stash is an advertiser of his, and Dave wholeheartedly endorses them (and only them, apparently) and, coincidentally, is always – 100 percent of the time – bearish gold. Dave is so concerned about your financial well-being that he’s going to let those suckers at Gold Stash take the hit on your soon-to-be-worthless gold. What a guy.
Former Chairman of the FDIC Sheila Bair talks about President Barack Obama’s nomination of Jack Lew to Secreatery of the Treasury. She speaks on Bloomberg Television’s “Bloomberg Surveillance.”
Bair: “I Would Like to See Justice Done on Ratings”
Bair Says Ratings Companies Need Regulatory Changes
Banks Still Have Too Much Leverage, Bair Says
Is Wells Fargo Still the White Knight of Banking?
Source: Bloomberg, Jan. 11 2013
“In the last quarter of last year, especially with the change in tax rate coming, I think Investors got exasperated. There were a number of investors that this was their largest holding, And it destroyed their record for last year. There were ramifications for what the board did.”
-Lawrence Haverty, Gamco Investors on Apple’s $137 billion dollar cash hoard
That absurd quote above was heard this morning on Bloomberg with Tom Keene interviewing Haverty. The display of
investing acumen cognitive dissonance is rather ironic.
As a longstanding Apple guy (think Mac Classic in 1989) and someone who was pushing the stock post iPod at $15 (pre-split), I cannot help but be astounded at the current crop of Apple shareholders. Wall Street has always misunderstood Apple but its now getting ridiculous.
Recall that during the run up from a near bankruptcy to the largest company on earth, creatively destroying all competitors in its path, the value guys all touted the cash as a reason the company was cheap. Ex-Cash, its a 9 P/E we heard.
Now, they insist the cash must be returned to its rightful owners — them.
If you want to know why Apple is holding onto all that money (aside from obvious tax considerations), just look at Dell. It is a cautionary tale than any technology company can miss the next shifting tech trend and quickly become irrelevant. Bang, you are the next Maytag. Even Microsoft’s history offers a foreboding look at using special dividends as a salve to investors concerned only with their quarterly P&L (and personal compensation via 2 & 20 fee structures).
David Einhorn is a great investor (and a nice guy), but he joined the Apple party somewhat late, and suffered a setback last year with the rest of shareholders once the law of big numbers set in. He is now suing the company because they have too much cash.
My takeaway is that Graham & Dodd value investors are terrible at buying technology companies (They don’t know how to manage positions)
Now we have guys like Lawrence Haverty the Gamco portfolio manager, who is the source of the quote above. Boo hoo for the investors who feasted on the way up, but — WTF?!? – saw a performance setback because after a 10,000% move, Apple now gave back 30%?
The cognitive dissonance comes from not admitting their error — hanging around too long — and instead blaming the board.
My criticism of the critics is not Monday morning quarterbacking — recall that we took some Apple off the table last year ($625-650) and advised clients to do the same. And we further took that warning public back in October and November of 2012. Those who overstayed their welcomes have only themselves to blame. (Aren’t hedge funds supposed to be, well, “hedged?”)
What should Apple do? For legal reasons, they should hear what these activist shareholder are suggesting, giving them a thorough hearing out, with all attendant chin stroking and “Hmmm, interesting” — prior to ignoring them.
Apple has a long-term strategic plan which for obvious competitive reasons is top secret. Sorry, activist investors, but we cannot share them with you because it would give an advantage to competitors like Samsung and Google and Amazon and Facebook. But rest assured, we have a plan.
However, Apple can tell investors that their strategies may or may not include the following:
-Funding a separate R&D division (like Xerox Parc) to keep fostering “outside the box” innovations;
-Creating a subscription based unlimited streaming music business;
-Make a series of strategic acquisitions (such as Pandora or Twitter);
-Funding a long term Venture Capital division to foster more innovations for the Apple ecosystem
-Supersecret plan X! Its so secret, it would risk of billions of dollars in business, so excuse us if we cannot tell you.
Technology is a fast moving sector of the economy, where trends shift quickly and alliances change overnight. Having a cash hoard gives Apple maximum flexibility to deal with this for their future.
Sorry if after 30 years, changing the dynamic in no less than 6 industries, creating the biggest technology firm in the world and briefly, the biggest company of any sort on the planet, we had a bad couple of quarters. That was inevitable.
It was obvious that Apple had to eventually run into the law of large numbers. Perhaps less obvious was the law of activist fund managers: No matter how much money a company makes for investors, they all eventually want more . . .
A quick reminder of the extent of corruption at the ratings agencies: They were well aware of the fraud that was going on, they just elected to ignore it. Recall this 2010 NYT article: “In 2004, well before the risks embedded in Wall Street’s bets on subprime mortgages became widely known, employees at Standard &…Read More