It was a summer day as my new friend and I walked towards Quincy market to have lunch. He was considerable older than me and very definitely a Boston Braham. I had met him 15 minutes earlier. As we headed toward the market, it seemed as though every other passerby would acknowledged his presence with at least a nod. We were in Boston’s financial district and this man was very well known. He, and two of his former Harvard classmates, had managed what had become one of the largest mutual fund companies in the country. And no, it wasn’t Fidelity Investments. But it was as big.

A friend had introduced us. But before we ever got near Quincy Market, he asked me a question the impact of which made me stop walking. I felt my brain “freeze.” The question was, “Who do you think is your best analyst?” It was hard to answer because the purpose of research had shifted in both of our lifetimes. I had experienced the tail end of what he had known most of his life. To use a phrase: We were living in an era where “the goal posts had been moved.” That summer day, research benefited the investment banks. Previously, it had benefited the individual customer.

I had no way of knowing how aware he was of the change. The earlier research period had put the customer first. It wasn’t based on altruism, but it functioned in the belief – perhaps naively – that the firm would be rewarded with additional commission business, if the ideas worked out. Stock analysts were generalists. Two such analysts had a major positive impact in my life. One was “Pete” Lawson, the first portfolio manager of Fidelity’s Magellan fund. Pete had “given” me Digital Equipment. DEC, as it was called, became a “monster” stock. Chuck Klein, at Lehman Brothers, gave me Toys R Us. 

Today an analyst covers one industry. In the past an analyst’s mandate was to find stocks that could go up. It didn’t matter what business a company was in. The approach was customer centric. There was a belief, if you made money for the customer, the customer would be eager to give you more commission business to hear your next potential money making idea. The time was right. Interest rates were rising and stock correlation was low. Combine that with no conflict of interest between the investment firm and the customer. Both parties had a shared mutual interest ... to make money.

Of course, that was what Wall Street was about. But the research business took a turn in 1957. That year three (yes, ironic) other Harvard classmates, Dick Jenrette, William Donaldson and Dan Lufkin, created a firm that became known as DLJ. (In full disclosure, I once worked for DLJ). At that time, commissions were fixed, so it made more sense to target, large institutional firms such as banks, mutual funds and investment counseling firms. Unlike individuals, institutional investors could buy and sell millions of shares. Thus DLJ became the first firm to deal exclusively with institutions.

The firm enjoyed – with fixed commissions – a 50% profit margin! However, that was not where the real money was on Wall Street. Ever since John Pierpont Morgan had purchased Carnegie Steel in 1901 for $480 million and melded it into U.S. Steel, the real money in the investment business had always been in the advisory and underwriting business. The latter business earned a standard seven percent fee. Even with fixed commissions it dwarfed the stock transaction business in profitability. That was, and still is, the reality. So when we got to the restaurant, I finally had my answer. “It’s Denney Leibowitz. At the moment, he has the hottest industry. Cell phones.”