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Chairman, President, and Chief Investment Officer, Awad Asset Management
I loved the stock market from the time I was a teenager. For three summers in high school and during one summer in business school, I worked in Wall Street research departments. In June 1969, I was graduating from Harvard Business School. In the spring I started looking for jobs and I ended up with two offers from money management firms. One was from a glamorous hot mutual fund in Fort Lauderdale-it was the number one fund in the country in 1968 and was growing rapidly by buying small-cap growth companies and flying around in a corporate jet. The other offer was from an old-line investment counsel-mutual fund company in New York. My dad, who was a longtime stock market investor, told me, "Don't trust anybody who is glamorous and flashy and claims to have a secret formula for making money." Reluctantly, I decided to take the lower-paying offer with the lower-key New York firm. A few years later, the Florida company was out of business, as were many of the companies in which it owned stock. At the same time, I had developed a rewarding career at the firm in New York. Thanks, Dad!
When I reported to work, I was assigned to be the assistantto the fund manager of a small-cap fund-my job was to do research. I was young and eager. My eyes were always out for a good stock idea to give my boss. Florida land development stocks were hot in those days, as the state was in many ways lightly developed. One day, I heard of a company selling at $10 a share. That was cheap, so I went over to see the president. He was smooth, dressed in suspenders, and smoking a cigar. He told me they were going to report $4 per share in annual earnings later that week. I went back to the office excited about finding a stock selling at 2.5 times earnings. The next day, that president called to tell me there was a big block of stock available for sale! I ran into my boss's office and told him about the earnings and the block of stock. He said, "If it sounds too good to be true, it isn't true." He turned me down. A few days later, the company reported a loss-not $4 in earnings-and the stock went way down. Thanks, Boss!
The late 1960s and very early 1970s were heady days on Wall Street. Commissions were high and brokers, with a lot of money at their disposal, entertained fund managers lavishly with parties, games, and trips. In 1970, I was fortunate enough to be named a portfolio manager. I was young, ambitious, eager, and hardworking. The head of the company advised me to look out for my reputation-"always keep your nose clean," he told me. Little did I know how much I would have to draw on that advice! I was single so I was frequently propositioned by female brokers-one even showed up at my apartment on a Saturday. But the big test came at a lunch. I was analyzing a company and the treasurer invited me to lunch. At the time, I was making about $27,000 per year. Halfway through the lunch, the treasurer told me that he wanted to sell several million dollars of the stock personally but if he put it on the market it would depress the price. He offered me $50,000 in cash if I would buy the stock for the mutual fund that I managed. I couldn't breathe! I started to sweat! I didn't say anything. I just got up and left. A few years later I read in The Wall Street Journal that he went to jail. Thank God I kept my nose clean!
I joined Neuberger in May 1972 and by early 1973 we were in one of the worst bear markets in history. It was a terrible time for America. Vietnam, inflation, high interest rates, gas shortages, price control-it was awful. People my age had never been in a bear market. On most days, the stocks went down and clients complained. It was depressing and lasted for two solid years. During this time, it was easy to lose confidence in yourself and in America. One day, I was sitting in the trading room. Roy Neuberger saw I was upset. He turned to me and said, "Young man, always have greed when others have fear and have fear when others have greed." He was telling me to get rid of my emotions and buy stocks because stocks were cheap. The market was down to five times earnings-anyone who bought stocks then made good money. I remembered those words many years later during the Internet/technology bubble in 1999 and 2000. Everyone had greed so I got some fear in me and avoided those stocks, which saved the clients of Awad Asset Management a lot of money.
Another important piece of advice is to always keep the relationship with the client. At one point in 1980, I decided to try to start a money management firm-I was tired of working for others. There was an institutional research firm that had no money management. The plan was that I would start the money management firm as a subsidiary and control it. I told a friend what I was going to do and he said if I was going to do all the work I should make sure that it was I who kept the relationship with the clients in case anything ever happened to the parent research firm. Over the years, I built a respectable small-cap asset management group. There were good and bad times but we did fine. At the same time, the fortunes of the parent company gradually eroded and I lost confidence in the abilities and ethics of the senior management. I could not turn fifty years old working in this situation so I decided to start Awad Asset Management, which I did in 1992. Most of the clients came with me so the firm was a success. Making that move and truly starting my own firm was the single best thing I have done in my almost forty years in this business!
Excerpted from The Best Investment Advice I Ever Received by Liz Claman Copyright © 2006 by Liz Claman. Excerpted by permission.
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