New York – Mark Boyar has been in the research game for forty years, and finds that today’s environment looks remarkably similar to 1975, when he first started his eponymous research boutique. Like the 1970’s, these are uncertain times, both for the markets and for research firms. Yet Boyar remains sanguine about the prospects for stocks, and stock-pickers.
The market had dropped 32% in the seven months from January to July 1974, and was down nearly 50% from October 1972. On top of this, Wall Street was facing ‘May Day’, the end of fixed commissions in May 1975. Commissions which were as high as 50 cents per share (!) would become negotiable. Firms were downsizing in anticipation, cutting analysts and in some cases getting out of research altogether.
Boyar, compelled by what he saw as attractive valuations for stocks, went the opposite direction. Against the advice of industry veterans, who called him crazy or worse, he left the small securities firm where he was working to start up Mark Boyar & Company in January 1975. Like boutique start-ups today, he didn’t need many clients to break even.
His first big break came from his call on Hilton, which was languishing at $10-11, one quarter of its price at the go-go peak in 1969. Boyar figured the intrinsic value at $40 and not long after his call, Hilton sold equity shares in some of its real estate properties to Prudential Insurance at valuations significantly higher than the stock was trading. The stock doubled, and Boyar was up and running.
After May Day, commission rates halved, but research boutiques could still make a living. Although down 50%, commissions were still astronomical by today’s standards, as high a 20 cents a share. Nevertheless, the long, slow decline in commissions ultimately changed the landscape dramatically. Prestigious firms like Faulkner Dawkins, Harris Upham, and William Witter that had prided themselves on their research combined with larger firms to get economies of scale.
Boyar’s advice to research providers today is identical to his survival strategy in the 70’s. Boyar has thrived by staying small and differentiated. Differentiation is critical, according to Boyar, because now, like then, there is a lot of undifferentiated research. Boyar not only differentiated his content but his pricing. Unlike most firms, he charged a minimum fee of $12,000 ($47,500 in today’s dollars). He figured he only needed fifteen to twenty clients to make it work. And he kept his costs low.
Today, although commissions are far lower than even the post-May Day commission rates, the rise of hedge funds has continued to make research a viable business for him. Hedge funds generate the volume of trades to be able to pay for research, and they value differentiated research.
The markets also look similar to ‘stagflation’ markets during his start-up. The indices went nowhere until 1982, but below the surface there were great stock buys. It was a stock-picker’s market, and he thinks we are in for more of the same. Like in 1975, Boyar looks at the uncertainty and confusion in today’s markets, and sees opportunity.