High impact equity research calls are the key to success at any financial institution on Wall Street. Here is a Long-term example. Each year I would launch a major theme piece indicating the key issues and growth drivers that would impact my sector over the course of the next few years. Once I have launched the report, I would spend the rest of the year talking about issues that confirm or deny my thesis. One of my central themes since 1992 was the huge growth potential in CDMA technology for use in cellular networks. More importantly, and Qualcomm would be the major beneficiary. As mentioned previously, an equity research analyst is a trusted advisor to institutional investors. Qualcomm was a controversial research call for more than a decade so it gave me plenty of opportunities to provide high impact research to investors who believed in the story as well as those who do not.
Equity research analysts have to make plenty of “maintenance research” calls such as commenting on news events and earnings releases as they unfold. Those cannot be avoided and is just part of the job. It’s an even larger responsibility at a bulge bracket firms where institutional investors actually do care when you say “the numbers were in-line with my projections and there are no changes to my estimates.” So if you believe those words after an earnings release or an analyst presentation by the company, etc, you have to let your clients know. I never minded maintenance calls because it was another opportunity to connect with your clients.
The way to a successful long-term career, in my opinion, is to make high pact equity research calls based on major themes. Big theme calls take a long period of time to unfold and you have endless opportunities to connect with your clients, especially if it is a controversial story. As mentioned above, I was a big believer in the growth potential of CDMA technology and Qualcomm, in particular. Irwin Jacobs, the Founder, was one of the biggest visionaries of our time. He was a great leader, who led by example showing integrity and hard work. He had faith in his ideas and indicated to everyone what the possibilities were. He inspired people with the need to twist any arms.
I was one of the people inspired by Irwin to believe in the potential for CDMA outside of the defense industry and that it would revolutionize cellular communications. It was controversial because European countries had adopted a different set of standards called GSM. In fact, the US had already adopted IS-54 as its new standard for digital cellular communications. GSM and TDMA used a similar air interface called TDMA. Despite these headwinds, Irwin inspired many that CDMA was the right path to solving the industry’s capacity problems.
While Irwin inspired me, the best technology is not always the big economic winner so I followed Ronald Reagan’s words. “Trust but Verify!” I spent countless hours talking to everyone possible in the wireless industry, including mobile operators, business partners, competitors and suppliers. I spoke to investors who believed in the stock as well as those who were short the stock. Over time, I formed a subjective view of where expectations were. Most analysts and investors at the time believed it was an all or nothing proposition. However, my research indicated the “worst case scenario” was a blend of different networks so the downside potential in Qualcomm was still above the general expectations on the street.
After my initial recommendation in 1992, Qualcomm remained a central player in each of our annual theme pieces. There was so much information to assimilate every year from trade shows, government standards bodies, competitors, mobile operators, and government officials. Someone had to make sense of the interconnected web of information. Investors needed to know what it meant to not only Qualcomm, but also all the other stocks in their portfolio whether it is telephone companies, handset manufacturers, telecom infrastructure suppliers and semiconductor stocks. More importantly, you needed to assimilate this cacophony of technological and regulatory mumbo jumbo into something the buy-side analysts and portfolio managers could relate to.
For example, one of the early criticisms of CDMA and Qualcomm was there were no commercial networks to evaluate. As far as many investors were concerned, it was either too risky or does not work. This was true even after Hutchison Telephone launched the first network in Hong Kong. One day I was talking to a hedge fund manager by the name of John Gruber of Gruber and Mcbaine Capital Management. He essentially told me that no one is going to believe the story until the can experience the network for themselves. I light bulb went off in my head.
I had to find a way to prove to investors the technology worked but I could not very well drag everyone to Hong Kong. So I thought of the next best thing. I was going to host a conference call with investors using a CDMA phone while I drive around Hong Kong and Kowloon. It was going to be HUGE!
Within a few of weeks of my conversation with John, I was on a plane bound for Asia. That’s the beauty of an unlimited expense account combined with an international client base. I had to visit clients in Tokyo, Singapore and Hong Kong on a regular basis anyway. I simply called the Asian desk and asked them if they wanted me to visit with clients. The next step was to arrange the conference call. I had let all my clients know in advance I was going to do this. There was a lot of buzz from investors and industry participants from both sides of the debate.
Jack Scanlon who headed Motorola’s infrastructure group called me and asked what my plans were. I told him I was going to borrow a phone from someone and jump in a taxi. Jack’s fear was more about my personal safety. My plans made him nervous so he put me in touch with his local people in Hong Kong and also arranged for me to have lunch with the General Manager of Hutcheson Telephone. By the time I held the conference call, I had two CDMA phones plus extra batteries to use. Motorola also supplied a car and a driver to take me around as I spoke to hundreds of investors and industry people for almost two hours. It was a huge hit.
I continued to host special events like that whenever possible. The best ones were group meetings I would arrange for investors during trade shows. It did not matter where the show was, I would always make sure I gave investors and company executives an opportunity to meet and greet outside the trade show floor. If you want to provide high impact research long-term, find a controversial theme, take a side you believe and educate investors as each milestone is either met or missed. Just be sure to test your thesis constantly with each new input. That’s the beauty of equity research on Wall Street. There are no specific deadlines. The information flow is never-ending and you are tested in real time. If at some point you no longer believe your thesis, change your mind fast and be sure to let everyone know why?