On Barton Biggs

On Barton Biggs In a great book, “Wall Street People”, I came across a piece on the late Barton Biggs by Julia Rohrer. “The missive seemed to lack the dash and wit that usually characterize the weekly commentaries written by Barton Biggs, Morgan Stanley & Co.’s managing director and chief investment strategist. But it still packed a wallop. Stressing his firm's view that investing is becoming an increasingly global profession, Biggs disclosed that Morgan Stanley intends to establish a separate foreign research department, to be at least partly in place by the end of the year. Not only that, he wrote, the firm will have investment strategy and research units in such key markets as Tokyo, London and Australia. But the big news came in the fourth paragraph: Biggs, the engineer of Morgan Stanley's original research building (Institutional Investor, June 1974), will be heading the international effort himself. He’ll be focusing on “asset allocation, international events and the relative attractiveness of the world's markets,” he wrote. And though Byron Wien, formerly a partner at Century Capital Associates, will take over his strategy role for the U.S., Biggs added, “I am going to attempt to be a global investment strategist.” Behind a reserved, seemingly even-tempered manner-he has been described as looking as if he stepped out of a John Cheever novel-Biggs is a highly motivated, keenly disciplined, competitive individual, with a distinct style and way of doing things. Speculation about his ability to be successful as a global strategist leans heavily in his favor. And a good part of the reason is that since going to Wall Street in 1961 as an analyst for E. F. Hutton & Co., Biggs has had a most impressive success record. He came to his role of portfolio strategist relatively late in life, however, because his early ambition was to be a writer. And after graduating from Yale in 1955 (with a degree in English) and spending three years as a lieutenant in the Marine Corps, he became a $25-a-week copy boy for the “Washington Star. He left the Star to teach ninth-grade English and devote more time to writing. But “after 100 rejection letters,” he says, “I realized 1 had miscalculated.” Biggs then entered business school at the University of Virginia and pursued a career more in line with family tradition. (His father, the late William Biggs, was chief investment officer at Bank of New York and would have been considered a front-runner for the secretary of Treasury spot had Hubert Humphrey won the 1968 presidential election. Biggs's brother, Jeremy, is an executive vice president at Fiduciary Trust Co.) He was No.1 in his class the first year and was promptly recruited by E. F. Hutton. Biggs finished up his MBA at New York University and became the personal assistant to then-chairman Sylvan Coleman. www.capitalideasonline.com Page - 1 On Barton Biggs At Hutton he also ran a paper portfolio for A. W. Jones & Co., the hedge fund-where he met Jones's partner, Richard Radcliffe. And in 1965 Biggs and Radcliffe joined forces to start Wall Street's third hedge fund, Fairfield Partners. After raising an initial $10 million from a diverse group of investors, including Laurence Tisch, chairman of Loews, Fairfield had nearly $50 million under management by 1970. Fairfield also began running an international fund, which was marketed by Morgan Stanley. The connection eventually led to Biggs being asked-in 1973, at the age of 40-to become the first partner to join Morgan Stanley from the outside. His franchise was to build an institutional research department, and just 14 months after Biggs joined the firm, Morgan Stanley ranked seventh on the 1974 All-American Research Team. According to Richard Fisher, Morgan Stanley's chief executive officer, there's no doubt where the credit belongs. “He built the department entirely on his own,” Fisher says. Biggs contends that running a research department isn't so hard. “Basically,” he explains, “you're dealing with very smart, creative people. Our style is to give them a fair amount of discretion. We let all of them say what they want so long as it is noted that it is their opinion and not the firm's.” As a result, analysts often disagree in print with Biggs, who over the years has written the lead commentary in Morgan Stanley's weekly research publication. This willingness to tolerate differences of opinion stems from Biggs's belief that “group think” is of little value. Nor are committee judgments, “when the members' striving for unanimity overrides their motivation to realistically appraise alternative(s),” as he wrote in one of his commentaries last year, quoting Yale psychologist Irving Janis. At the same time, his laissez-faire management style may also stem from the fact that “he really does not like to manage,” as an associate puts it. “He is really quite shy.” He is so reserved, reports Dennis Sherva, head of equity research at Morgan Stanley, who has worked with Biggs for eight years, that “I have never seen him get angry.” Biggs's reserve is probably one reason-his duties as chairman of Morgan Stanley Asset Management being another-he is less active than other Wall Street portfolio strategists in “pressing the flesh” and getting out to visit clients. In addition, he shuns small talk and playing the role of toastmaster. For example, on a two-week trip to Australia, during which he and a number of institutional investors were wined and dined by Australian finance VIPs, “not once did Biggs ever give a toast,” recalls one member of the group. Even at the most elaborate, small dinners, this source continues, Biggs seemed reluctant to show enthusiasm for a host's www.capitalideasonline.com Page - 2 On Barton Biggs hospitality. That may seem unusual for a man considered by many to be Wall Street's best writer, for his wit, intellect and productivity. But he does some of his most important work in private. Almost every Sunday over the past 12 years, Biggs has gone into his den at home to write an investment or research commentary for publication the next day. Underlying his impressive longer-term record have been some astute market calls. In 1980, for example, when other Wall Street pundits were talking about an “embedded” inflation rate of about 7 or 8 percent, Biggs's knowledge of supply-side economics and his interpretation of the impact of supply-side politics, among other things, led him to draw a scenario for disinflation. He advised clients to get out of oils within two weeks of a 10- year peak in oil stocks. “It was one of the best calls I have ever seen,” says research chief Sherva. More recently, in the spring of 1983, when technology stocks were still being touted, Biggs wisely cautioned his clients on that group. It is Biggs's belief that by far the biggest part of performance depends on the big asset allocation decisions; as a result, he has emphasized those decisions over individual stock selection in his strategy pieces on the U.S. market. For his global product, he will also be supplying broad asset allocation guidelines among industries as well as broad stock/cash/bond ratio-type assessments; the only difference is that he will be looking at securities and countries around the world. In fact, Biggs maintains that being a global strategist “won't be that different” from what he's been doing all along. As he explains it: “You want to have a knowledge base, and you want to talk to people and follow events, read the Financial Times and so on. Then all of a sudden things begin to fall into place. Then you get the feeling a particular market is attractive, and you have the knowledge base, the analysts and the specialists who can tell you what in that market is the right thing to do.” www.capitalideasonline.com Page - 3.

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