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Authors: Dan Reingold
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stock price to fall by around the same amount.
At Morgan Stanley at this time, there were only three ratings: Buy, Sell, and Hold. Buys were stocks we thought would rise more than 20 percent over the next year, Sells should fall more than 20 percent, and Holds stood in between, expected to rise or fall somewhere between 0 percent and 20 percent during the same time period. I didn’t see much upside for the majority of the Bells, so Hold was the appropriate rating. In the eyes of investors, I learned, this was considered a negative call, a group of stocks not worth investing in. That’s because the objective of a professional money manager is to do better than, or outperform, the broad stock-market indices such as the S&P 500 Index or the NASDAQ. So a stock that wouldn’t make that happen was not a stock most professionals wanted to own.
Though I didn’t realize it for a while, my opinion was pretty much the opposite of the one presented by Jack Grubman, who, five months earlier, in December 1989, had written a bullish report strongly recommending the Baby Bells. He argued that they would benefit from a string of high-tech new features and services, particularly video services. It was the beginning of an intense rivalry that would last more than a decade.
N OW THE REAL FUN was about to begin. The report went to Morgan Stanley’s legal compliance team for review, to make sure that I wasn’t disclosing—knowingly or not—any nonpublic information that our bankers, or anyone at the firm, might have become privy to. For example, if I had unwittingly discussed a potential merger that was already in process, all references to it would be omitted from the report. Even worse, the entire report might be scrapped if the lawyers did not want anyone, me included, to get the slightest hint of the pending, confidential deal. Fortunately, “Max Headroom” cleared those hurdles, and now it was time for my debut. I would present my report at Morgan Stanley’s institutional sales meeting on the afternoon of May 9, 1990, and officially take over coverage of what was called the “wireline” telecom sector from Ed.
All of Morgan Stanley’s top salespeople would attend the meeting, some by phone, most in person. Since Morgan Stanley didn’t yet have a retail brokerage arm that sold stocks directly to regular folks, these salespeople called primarily on big institutional investors and extremely wealthy individuals. They would listen to my presentation, and then, assuming they bought my argument, take it out to the Street. If the Street paid attention, we’d see these stocks fall, since I was presenting a pretty unenthusiastic opinion. Was I actually going to move the stock market?
Two days before the report was published, I was told to give the banker who covered the Baby Bells a copy of the report as a courtesy. I didn’t know what to expect, especially considering the fact that my opinions were not going to endear me to the Baby Bells—or to Bob Murray, the banker. But Bob couldn’t have been more professional. He read the report, and put it back on my chair the next day. His only comment? “BellSouth is one word, not two.” No interference, no “helpful” suggestions, no nothing. That was the way I first experienced life as a research analyst at an investment bank.
Since my report was now 70 pages long, and I doubted the salespeople would read the whole thing (or any of it), I wrote and distributed a two-page crib sheet outlining my argument. That afternoon, I waited nervously as other, more experienced analysts made their presentations, describing softness in demand for deodorant and an uptick in orders for personal computers. Finally, they turned the microphone over to me, and for 10 or 12 minutes, I did my best to convince Morgan Stanley’s salespeople that my analysis of the Baby Bells was worth passing on to their buy-side clients.
I knew this material inside and out. But, as I started to speak to Morgan
At Morgan Stanley at this time, there were only three ratings: Buy, Sell, and Hold. Buys were stocks we thought would rise more than 20 percent over the next year, Sells should fall more than 20 percent, and Holds stood in between, expected to rise or fall somewhere between 0 percent and 20 percent during the same time period. I didn’t see much upside for the majority of the Bells, so Hold was the appropriate rating. In the eyes of investors, I learned, this was considered a negative call, a group of stocks not worth investing in. That’s because the objective of a professional money manager is to do better than, or outperform, the broad stock-market indices such as the S&P 500 Index or the NASDAQ. So a stock that wouldn’t make that happen was not a stock most professionals wanted to own.
Though I didn’t realize it for a while, my opinion was pretty much the opposite of the one presented by Jack Grubman, who, five months earlier, in December 1989, had written a bullish report strongly recommending the Baby Bells. He argued that they would benefit from a string of high-tech new features and services, particularly video services. It was the beginning of an intense rivalry that would last more than a decade.
N OW THE REAL FUN was about to begin. The report went to Morgan Stanley’s legal compliance team for review, to make sure that I wasn’t disclosing—knowingly or not—any nonpublic information that our bankers, or anyone at the firm, might have become privy to. For example, if I had unwittingly discussed a potential merger that was already in process, all references to it would be omitted from the report. Even worse, the entire report might be scrapped if the lawyers did not want anyone, me included, to get the slightest hint of the pending, confidential deal. Fortunately, “Max Headroom” cleared those hurdles, and now it was time for my debut. I would present my report at Morgan Stanley’s institutional sales meeting on the afternoon of May 9, 1990, and officially take over coverage of what was called the “wireline” telecom sector from Ed.
All of Morgan Stanley’s top salespeople would attend the meeting, some by phone, most in person. Since Morgan Stanley didn’t yet have a retail brokerage arm that sold stocks directly to regular folks, these salespeople called primarily on big institutional investors and extremely wealthy individuals. They would listen to my presentation, and then, assuming they bought my argument, take it out to the Street. If the Street paid attention, we’d see these stocks fall, since I was presenting a pretty unenthusiastic opinion. Was I actually going to move the stock market?
Two days before the report was published, I was told to give the banker who covered the Baby Bells a copy of the report as a courtesy. I didn’t know what to expect, especially considering the fact that my opinions were not going to endear me to the Baby Bells—or to Bob Murray, the banker. But Bob couldn’t have been more professional. He read the report, and put it back on my chair the next day. His only comment? “BellSouth is one word, not two.” No interference, no “helpful” suggestions, no nothing. That was the way I first experienced life as a research analyst at an investment bank.
Since my report was now 70 pages long, and I doubted the salespeople would read the whole thing (or any of it), I wrote and distributed a two-page crib sheet outlining my argument. That afternoon, I waited nervously as other, more experienced analysts made their presentations, describing softness in demand for deodorant and an uptick in orders for personal computers. Finally, they turned the microphone over to me, and for 10 or 12 minutes, I did my best to convince Morgan Stanley’s salespeople that my analysis of the Baby Bells was worth passing on to their buy-side clients.
I knew this material inside and out. But, as I started to speak to Morgan
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