And so, as readers of my Twitter account might be aware, I’ve had a life event recently. As of today (I’m posting this from the WiFi at Geneva airport) and for the next year, I am doing less of the stockbroking, and more of the travelling round the world with my family.
It is often traditional for articles by downshifting investment bankers to do a big deal about how they have got tired of the iniquity of the industry, want to seek meaning in their lives and so on. Don’t go looking for that here. I’m not at all bitter about the industry (probably because I wasn’t sacked), and if I had thought it was an intrinsically immoral or destructive business I was in, I wouldn’t have done it for sixteen years. We bought and sold shares – if you wanted some shares we’d sell you some, and if you had some shares you didn’t want any more we’d make you an offer for them.
My job was what is called a “sell side equity analyst”. Which is to say, “a writer of a very specialist news service, covering somewhere between three and twelve companies, provided by a stock brokerage firm for the benefit of its clients”. Every day I used to be responsible for knowing anything that was going on in the world which might be relevant to the advisability or otherwise of an investment in banking sector stocks, and then either write it down for distribution to our full list of clients, or call up a couple of dozen of the most important ones if I knew they’d be specifically interested in it. Once a quarter, clients would file a “broker review”detailing how useful they had found our brokerage firm and if they had liked my research that quarter they would say so.
It was also my job to make sure that my own firm’s trading desk was as well-informed as we possibly manage, because as a brokerage firm, we provided firm quotes for clients to deal against. If you’ve just agreed a price for a block of shares, and then some negative news comes out before you’ve had a chance to move them on, you can lose a lot of money. And one reason why a client might be looking for a firm price om a block of shares is that he or she has a strong suspicion that something nasty might be about to happen to them. So it was always in the interests of my employers to ensure that we were better informed than the clients – basically an impossible task since there were dozens of them and some of them were bloody sharp cookies, but we tried.
That’s the nature of the business of being an analyst – protect your market-maker as much as you can, and try to produce material that will reflect well on your firm’s reputation as good people to deal with. From dot com bubble to high-frequency and beyond, it really didn’t change all that much as long as it was there. Lots of people thought that we didn’t add any value – an opinion to which they were entitled, although personally if I had been regulating the industry I’d have made more of an effort to find out what I was talking about. While I was there, average commission levels fell from 0.2% to around 0.008%, so I don’t think people can really claim to have been ripped off too badly by the agency brokers at least. From day one to day 5500, people constantly foretold the end of equity research – it was going to be done in by quant funds, index trackers, buy-side hiring their own analysts, hedge funds poaching all the talent, the Global Settlement regulations on capital markets business and finally by high frequency trading (ie, quant funds, again). But equity research is still here, although many of the people who forecast its demise are no longer. In the final analysis, I always took comfort from the fact that my own part of the industry, along with M&A advisory, had the distinction of being the only part where anyone had ever set up a new business using their own money – there are no boutique CDO traders, no startup derivatives structurers and no offices with two men and a dog originating subprime securitisations. But there are loads of small research firms and stockbrokers, and I was happy to work at a few of the best.
Some of my recommendations were great and some were awful, but on average I don’t think I can have been too bad because people kept giving me jobs and bonuses. Towards the end of my career, I was part of a research organisation that was voted best in Europe in two years’ industry surveys and that’s pretty much the level where I topped out; sports fans would probably recognise me as a John Toshack figure – a solid contributor to some great teams, the kind of guy who would always be promoted to Director (because of good specialist knowledge) but never to Managing Director (too weird, too disorganised). I’m happy with the results.
But it’s not such a great job that you’d keep doing it if you didn’t have to – none of them are, hence the name “job”. So I’ve taken my various bonuses, plus the profits from the London housing market and so on, and used them to move on to a new big adventure. Watch this space, but as far as investment banking is concerned, I am imagining a tinny loudspeaker ringing out above the screaming crowds with a calm voice saying “Davies has left the building”.