Some folks just aren’t cut out for running money. They’re too candid.
Ask the five-decade Wall Street analyst Dick Bove why he lasted less than a year as a money manager for Hilton Capital Management, and the answer is pretty simple. He just couldn’t, in good conscience, raise money for a bank-stock fund at a time when investors should instead be getting out.
“You can’t tell people I think bank stocks are going down in price and then ask them for money to invest in bank stocks,” Bove said this week in a phone interview.
Now approaching 80, Bove recently quit Hilton and last week joined the New York-based brokerage firm Odeon Capital, where he’s already resumed doing what he’s done for nearly his entire career: researching the prospects of big lenders like JPMorgan Chase & Co. (JPM) , Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS) , and then publishing reports on his views, often needling the CEOs for their misguided strategies and incompetent management.
But because banks are ultimately just ships floating on the sea of the economy, as Bove sees it, a key part of the analyst’s job is simply to forecast the conditions ahead and then translate those to a view on future earnings and stock performance.
And with many economic prognosticators now fretting over a possible recession in 2020 or sooner, after one of the longest expansions in U.S. history, banks could see a drop in loan growth amid swelling defaults and asset markdowns. The Wall Street firms could face extreme volatility in stock, bond, commodity and foreign-exchange markets, leading to steep trading losses. There’s also typically a raft of investigations that follow any market meltdown, leading to damaging regulatory sanctions and a slew of lawsuits from aggrieved customers and investors.
None of that would be good for bank stocks. Or investors in bank stocks.
Hilton Capital, an affiliate of family-owned Rafferty Holdings LLC, recruited Bove in early 2018 to help manage its Financials Opportunity Strategy, which targets stocks of smaller banks that are trying to super-charge growth by buying other lenders and ramping up loans.
At the time, Bove complained that not only were most big banks heading in the wrong direction, but that he was exhausted from having his investment opinions constantly overwhelmed by those from a herd of rival analysts he considered gullible and too focused on short-term gains.
Never one to mince words, here’s how he put it then: “There’s a chance to make a lot more money for myself, and for other people, and to do it in a much more congenial environment where you’re not arguing over all this arcane bullshit all the time.”
The brief career detour reminded the white-bearded gadfly how much he liked his old gig as an oft-publishing stock researcher, including regular print-journalism interviews and public appearances on CNBC, where he freely spoke his mind. That’s one reason so many bank executives, investor-relations chiefs and public-relations staffers have, for years, privately badmouthed him as a blowhard.
“I’m back doing what I’ve been doing for my whole career,” Bove said in the phone interview from his home office in Lutz, Florida.
Neither Rafferty’s chairman, Lawrence Rafferty, nor the CEO, Michael Rafferty, responded to requests for comment.
There’s a deeper lesson to be found in Bove’s brief flirtation with the money-management industry: That one’s penchant for investment truth doesn’t necessarily change depending on where one works.
Financial journalists and Wall Street pros often defer to the judgment of money managers, collectively known in industry jargon as the “buyside.” (Brokerage firms sell investments, while investors buy them.)
As the thinking goes, analysts at brokerage firms — “the sellside” — peddle stock recommendations (Buy! Now sell!) merely as a way of inducing investors to place more frequent trades, generating a steady stream of commissions to pay the bills and cover fat bonuses. Money managers, on the other hand, put dollars at risk; that means they have to be sharper, with more conviction, and be brutally honest with themselves when an investment isn’t working out.
But the reality is much more nuanced. Money managers have conflicts of interest, too. Some of the thorniest issues arise when a specific industry or asset class falls out of favor. Imagine the angst of an emerging-market stock-fund manager at a time when emerging-market stocks are in a bear market.
Many money managers have a hard time just sitting in cash, even when they should. It’s even harder convincing investors to put money into a specialized investment fund that, at least in the near term, is likely to return little more than the interest rate on a savings account.
That was Bove’s problem. He just couldn’t do it, he says. In the end, the analyst’s hard-wired instinct to recommend “sell” was too strong to overcome.
“I was recommending they reduce the size of the bank portfolio dramatically,” Bove said.
Old habits are hard to break.