In 20+ years of life on Wall Street, ConvergEx's Nick Colas has had four mentors who helped him make sense of the business. Some were very hands-on, and others taught more by example. In an intriguing note, Nick explains the four key lessons he learned from them. The single most useful lesson, especially for a brokerage analyst: “Message plus repetition equal franchise.” Other sayings that have stuck with Nick are “If you want and answer, you need to ask a question” and “do things the way you want to do them.” While simple to say, behind those simple aphorisms sit much richer messages.
Via ConvergEx's Nick Colas,
Stuff My Mentors Have Told Me
The culture of Wall Street, for all its gloss of mathematical sophistication and notions of high finance, has more in common with a primitive tribe than a supposedly more advanced civilization. The common characteristic is a strict adherence to an oral tradition. You can read every book dedicated to investing and still be clueless about how to actually make money in the market. There is no Wiki entry for how to trade stocks or bonds or commodities that will make you consistently profitable. And forget trying to figure out how to be a productive investment banker by downloading a bunch of books on your Kindle.
Life in and around the Street comes down to storytelling: how to tell your own and interpret the narratives others impart to you. For all the commentary that “It’s a young person’s game” the truth is that the grey muzzles tend to have a leg up on the pups. As one veteran analyst told me when I started in the business, “Old age and treachery beats youth and exuberance every time”. Granted, you have to be open to learning even after the AARP starts sending you junk mail. But at least you should be past the rookie mistakes by that point.
I have had four people I consider mentors in the business since I started working summers in a mutual fund mailroom in 1984. One was a salesperson, two were sell-side analysts, and one still manages money. My involvement with them declines as my career progressed, but there’s no way I would be writing these pieces on a daily basis without the lessons learned at their side.
Mentoring has, of course, become institutionalized on Wall Street in the last two decades. Large companies assign senior people to incoming young employees in the hopes that the “Firm of tomorrow” learns from the “firm of today”. It’s all little bit like those mass weddings the Reverend Sun Myung Moon used perform in sports stadiums. Total strangers can connect and create a relationship, to be sure. But it usually works better when individuals find each other, connect at some level, and build a personal connection.
The following are a few lessons I learned from people who took an interest in my career and progress, not because they were mandated to help, but because they wanted to push me along.
Lesson #1– “If you want an answer, you need to ask a question.” When I worked in midtown Manhattan before heading off to business school, my mentor/boss had an office facing the construction site for a new hotel. Every Monday we’d notice that the crane used to lift materials to the top floor had mysteriously risen by 20-30 feet to accommodate the every-growing building. We pondered how this happened. I had one theory, my boss another, and other co-workers chimed in with varying hypotheses. This was long before the Internet, mind you. There was no way to Google or Youtube an answer.
On my birthday, my boss said she was taking me out for lunch, but first we had a stop to make. We walked up to the building site, where she had arranged the foreman to explain how the crane went up every Saturday morning. It had something to do with hydraulic jacks, extra trusses and the need for a calm, not too windy day. Mystery solved, and lesson that all you need to find an answer is to ask the right person.
Lesson #2– “Do things the way you want to do them.” My first contact with Wall Street research was a long-time and highly successful Consumer Products analyst at a summer intern stint during business school. She had been on the first Institutional Investor list of top analysts and held her position for +15 years. Everyone from senior traders to investment bankers to the firm’s top clients held her in high regard. And, fortunately, she took enough of an interest in me that she was remarkably candid about everything.
As I watched her work, I realized that she didn’t use a computer for anything. Granted, this was in 1990, and Wang word processors with 8 inch floppy disks were cutting edge technology. To write a note, she would sit down with a legal sized yellow pad and start with a summary and then long hand her entire report. For an earnings model, she would tape a column of paper to her last printed report and work every line of the financial statements by hand.
I asked her once why she didn’t use a computer for any of this. “It is much faster,” I explained. She pointed to the wall in her office that displayed the plaques you used to get when you made the II “Top analysts” list. She wasn’t about to change anything in her workflow just for the sake of change. Her method worked for her, and she continued to rank highly versus her competition until she retired many years later.
Lesson #3– “Message plus repetition equals franchise.” The single most influential person in my career was a Machinery sector analyst who helped me when I got to my first senior analyst position after grad school. He, like my summer time boss/mentor, has been an II ranked analyst ever since the 1970s. He was way ahead of his time, hosting events for industry experts and doing global demand surveys long before such things became Wall Street’s stock in trade.
His edge wasn’t just doing the fundamental work to add value; he was a master of packaging and repackaging his investment viewpoints. If he did a 100-page report on John Deere, he would find 10 different reasons to call clients and appear on the firm’s morning call to highlight different themes from the same King James Bible sized tome he had produced.
“Even if you have good ideas,” he told me, “no-one has time to remember how smart you are.” If you want to build a name on Wall Street, you have to repeat, repeat, repeat. That stuck with me, and it is the central reason the ConvergEx note comes to you every day, +200 days a year.
Lesson #4– “There is always a reason. Someone knows it. Make sure it is you.” The last person that heavily influenced my view of Wall Street and investing runs a large hedge fund. I was with him when it was much smaller, so I got to watch and learn and (occasionally) pick up a bit of wisdom.
Unless you’ve worked at a trading-oriented hedge fund, it is hard to understand just how different this approach to allocating capital is from other popular paradigms. Anything that is based on simple math – P/E ratios, economic data of any sort, etc. – is deemed to be “Already in the stock” and essentially worthless. You need to know it, but it isn’t any part of an investment case. Instead, you need to have your own separate channels of information that develop a different view of the investment than the mainstream. And, of course, it needs to be legal.
When a stock is up 5% in a down market on no discernable news, most investors will shrug and say something clever like “Must be more buyers than sellers.” That will get you fired at many hedge funds. Your job is to know. The hedgie’s mantra, rightly or wrongly, is that there is always a reason for an anomalous move in a security. If you don’t know it, go find it. Or your boss will fire you and hire the guy/gal who does.
That’s a harsh message on which to end this note, but it feels oddly appropriate. Good mentors act as guides to the business, but the journey isn’t easy for anyone. The best they can do is point out a few hazards and perhaps a shortcut or two. The rest is up to you.