Page 552 - How to Make Money in Stocks Trilogy

Institutional Portfolio Ideas 419

until the time was right. The right time came when the market was making
new lows, which caught investors by surprise. Our only reason for placing the
ad was to document in print what our position was at that point, so institu-
tional investors could have no question about it later. We were also one of the
few firms to tell its accounts they should avoid or sell tech stocks and raise
cash in March, April, and September 2000.
It is at these extremely difficult market turning points an institutional
firm can be of most value. At such times, many people are either petrified
with fear or carried away with excessive fundamental information.

Institutional Investors Are Human

If you don’t think fear and emotion can ride high among professional
investors after a prolonged decline, think again. I remember meeting with
the top three or four money managers of one important bank at the bottom
of the 1974 market. They were as shell-shocked, demoralized, and confused
as anyone could possibly be. (The ordinary stock at that time was down
75%.) About the same time, I recall visiting another top manager. He too
was thoroughly worn out and, judging from the peculiar color of his face,
suffering from market sickness. Yet another top fund manager in Boston
looked as if he’d been run over by a train. (Of course, all of this is preferable
to 1929, when some people jumped out of office buildings in response to
the devastating market collapse.)
I also recall a high-tech seminar in 1983 in San Francisco, attended by
2,000 highly educated analysts and portfolio managers. Everyone was there,
and everyone was ebullient and self-confident. That marked the exact top
for high-tech stocks.
I also remember a presentation we gave to a bank in another large city. All
its analysts were brought in and sat around an impressive table in the board-
room, but not one analyst or portfolio manager asked any questions during
or after the presentation. It was the strangest situation I’ve ever been in.
Needless to say, this institution consistently performed in the lower quar-
tiles compared to its more alert and venturesome competitors. It’s impor-
tant to communicate and be open to new ideas.
Years ago, one medium-sized bank for which we did consulting work
insisted we give them recommendations only from among the stocks it car-
ried on its limited approved list. After consulting with the bank’s managers
each month for three months and telling them there was nothing on their
approved list that met our qualifications, we had to honorably part company.
A few months later, we learned key officials in that trust department had
been relieved of their jobs as a result of their laggard performance.

419