'This Mistake Will End Your Career' — the Advice That Almost Doomed Me…
By Sallie Krawcheck
This article originally appear on Linkedin.
“Sallie, you’re about to make a mistake that will end your career before it has even started."
Adopting a fatherly tone, a senior executive at American General dropped this bombshell on me. This was the same guy who had wholeheartedly welcomed me to the equity research industry a few months earlier, noting that we both had family roots in Charleston, S.C.
I had just sent him a draft of the very first equity research report I had ever written, for fact checking. I was a new life insurance associate (not even an analyst, a more junior associate) at Sanford Bernstein. For my first piece of research, I had dug into American General’s growing subprime lending business. While the world at large saw massive growth, by pulling apart the credit ratios, I believed I saw a swiftly deteriorating credit picture, masked by that growth. (No, this wasn’t 2007; it was 1994.) The title of the report: “Whoa Nelly.”
The American General executive told me that my analysis was unconventional at best… and wrong… and well off of the consensus view of analysts who had been in the business for years and years. Why, he asked, would I be so foolish as to publish it?
It reminded me of advice I had received from a successful analyst at one of the big Wall Street firms, as I considered embarking on my new career. She had told me to be careful of making bearish calls, citing the following:
This analyst went on to tell me that Wall Street was the only industry in the world in which one could become wealthy by simply being mediocre and essentially hiding in the pack. One would be a fool to stand out as a bear.The above table meant that if you made a bullish call on a company’s stock and you were right, all was good. You were a hero. Bullish and wrong, oh well. Most investors were long the stock, so you were wrong together; it can happen to anyone. Bearish and right, the most you got was grudging respect, since nobody much likes a party pooper (see Meredith Whitney and her bearish bank calls); make a bearish call and you’re wrong, and you may be done (see Meredith Whitney and her bearish muni calls).
So, as I heard this company executive out, I was sweating out of every pore in my body. Even pores I didn’t know that I had.
I can’t really articulate why, but I published that negative research, without changing a single word. It wasn’t really that I was so sure the research was right; after all, I was brand new to the industry. But I do remember reminding myself that American General wasn’t my client, nor was the guy with the fatherly advice and the connection to my hometown. Instead my clients were the masses of faceless investors out there, most of whom I would never meet. And my job was to give them the best advice I could … even if it was advice they might not want to hear.
As it turned out, my research was right. Not more than six weeks later, the company reported earnings results that showed clear credit deterioration. In fact, as often happens when things go wrong, the deterioration was even worse than I had forecasted. The company muddled through and later sold itself to AIG (yes, that AIG).
With this insight, as I moved into a leadership position, our strategy at Bernstein evolved to one that fully focused on the investing client and that eradicated conflicts of interest. While most Wall Street research departments worked for both investing and corporate clients – whose interests were, by definition, in conflict – we pulled out of the investment banking business and solely focused on doing the best job we could for investing clients. This was a losing business strategy for years… up until the corrosive impact of these conflicts was revealed during the research scandals of the early 2000s.
My lesson from my “mistake”? Staying in the pack might have been the safe play, but it wasn’t the right play.
Sallie Krawcheck is the Chair of Ellevate Network and Ellevate Asset Management. Ellevate Network (formerly 85 Broads) is a professional woman’s network, operating across industries and around the world. Both businesses are committed to the full economic and financial engagement of women.
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Sallie Krawcheck’s professional mission is to help women reach their financial and professional goals (or, put more bluntly, to get more money into the hands of women), thus enabling them to live better lives and unleashing a positive ripple effect for our families, our communities and our economy. To that end, Krawcheck is the Chair of the Ellevate Network, a 135K-strong global professional women’s network; she is also the CEO and co-founder of Ellevest, a... Continue Reading
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