If You Go to Wall Street, Hold Your Nose

Wall Street research is terrible...

And here at Altimetry, we aren't the only ones who feel that way.

As Benjamin Graham, the father of value investing, once said, "People on Wall Street learn nothing and forget everything."

Here's another on-point remark from billionaire hedge-fund manager David Tepper: "I'd rather work at McDonald's than on the sell side."

And just one more that hits home from investing legend Warren Buffett... "Hold your nose and go to Wall Street." (Ostensibly, because it stinks there.)

These remarks didn't come from recent Reddit posts supporting the GameStop (GME) trading frenzy... or from a CNBC interview about how traders using popular app Robinhood have been flooding the markets.

They came directly from some of the greatest investors of all time.

The fact is, people do what they're paid to do. Great investors know that Wall Street analysts aren't actually paid to pick stocks. They're paid to help their firms generate investment banking transactions from corporate clients.

So, for unbiased, reliable research, investors need to look elsewhere. This is especially important in volatile years like 2020 and 2021.

This is the subject of an upcoming presentation I'm doing next week for Northeastern University's Student Value Fund ('SVF')...

Slated for 7 p.m. Eastern time on Wednesday, March 17, it's called: "The Fall of Wall Street: Finding High Alpha in the K-Shaped Recovery."

As an Altimetry Daily Authority reader, you're invited to attend this free presentation. If you're interested, feel free to register here and we'll send you a Zoom link for it.

The SVF is a small investment fund that undergraduate Northeastern finance students manage on behalf of the university. This fund has been running for as long as I've been lecturing at and recruiting new hires from Northeastern. In fact, Altimetry Director of Research Rob Spivey is one of the founding members of the fund.

The students aren't pushed to be traders. They're guided and given the opportunity to invest with the same discipline as the greatest investors of the world.

And that means they're taught (at least by yours truly) to never follow the stock recommendations of Wall Street analysts.

When Buffett said, 'Hold your nose and go to Wall Street,' he was responding to a group of business students...

These young folks wanted to know more about making money in the investment banking industry.

Buffett was highlighting that the culture on Wall Street isn't always the greatest. He was also admitting that a lot of money can be made in those sell-side banking jobs.

I can speak to all that from experience. After working in accounting and then consulting, I crossed over to Wall Street and the sell side when I worked at Credit Suisse.

I literally sat in the office next to analyst Dan Reingold, who wrote Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market. We even shared the same administrative assistant.

Dan's book on the ins and outs of Wall Street highlights some of the issues at the time. Dan had what was called a "sports contract" – he was making $10 million a year for three years at Credit Suisse... And he wasn't paid to make stock picks.

As he writes in the book, the real reason for that big paycheck wasn't because of his stock picks. It was because whatever Wall Street firm he was writing for, the big telecom companies would come to for deals, since they liked him... The telecom companies' investment banking business would come with him.

Dan understood he was only worth the money for Credit Suisse if he played ball and gave favorable ratings to the firms that the investment bankers were trying to get to walk in the door. If they made money, so would he.

A big reason why I left Wall Street 12 years ago and why I started Altimetry with Rob is because Wall Street research still does nothing for investors when it comes to picking stocks. And we knew we could only actually help investors outside of Wall Street.

I'll speak to all these issues – and also about my current outlook for the market – during my free presentation next Wednesday... so I hope you can find the time to join. Again, it's as easy as registering here and showing up on St. Patrick's Day at 7 p.m.

I won't even mind if you have a Guinness while you're enjoying the event.

Regards,

Joel Litman
March 12, 2021