Tips from Goldman Sachs on Prospecting for Leads

As I mentioned in a previous post, I am reading William Cohan’s book on Goldman Sachs and I stumbled across the story of Josh Birnbaum, one of the quants on the mortgage desk who set up the “Big Short" and eventually got hauled before Congress for his troubles. Though far from an exemplary figure, keep in mind that even the protagonists of picaresque can teach us something. Birnbaum had traded stocks since childhood and by the time he got into business school he was obviously willing to kill to get an internship in Wall Street. Devoid of contacts, he resorted to creativity:

Was the ‘Big Short’ Moral?

I am reading Bill Cohan’s book on Goldman Sachs (yes, despite the ridiculous title—Money and Power: How Goldman Sachs Came to Rule the World—and the gaudy cover art in which some silly gilded “Moneybags” font sits astride a slightly flattened and cowering satellite image of the Earth). Sorry to report the book is really quite bad, but then I should have known, because Cohan’s previous book about Bear Stearns was really mediocre. It was very obviously rushed out to capitalize on the morbid fascination with the financial crisis (“disaster porn,” perhaps as something to read for “disaster tourists” a la Michael Lewis). Every paragraph of the Bear book was the same: a short introductory sentence followed by six or seven lines of unedited interview transcripts. You can just imagine Cohan and his assistants running around with scissors and glue to make that monstrosity.

O’Neill’s BRICs: The Biggest Research Report of the Decade (And I Translated It)

This title sounds a lot like Spike Milligan’s war memoirs, Adolf Hitler: My Part in his Downfall. But I’m going to run with it. Ask anyone in the financial industry what the biggest research report of the past decade was and 9 out of 10 will say that it was Jim O’Neill’s report on the BRIC countries. Unless you’ve been living under a rock for the past eight or so years, you know that the acronym stands for Brazil, Russia, India and China. Minted by Jim O’Neill, the snappy acronym and its dissemination catapulted the author to the head honcho position at Goldman Sachs Asset Management and even participating in a group of investors that bid for Manchester United last year.

Since originally seeing the light of day, "Building Better Global Economic BRICs" has led to an entirely new way of conceptualizing investment in emerging markets by focusing on those formerly pre-industrialized countries that not only possess booming economies but also the population, territory and natural resources to determine the geopolitical future. It launched a thousand investment funds. It gave new life to the emerging market “story” in the gloomy wake of September 11 and the post-Internet bubble recession. It is on the lips of every analyst who discusses geopolitics and global macroeconomics. Its influence went so far as to prompt Brazil, Russia, India and China to organize BRIC summits as a multilateral forum to discuss issues of mutual interest. Nowadays, of course, we hear a constant drumbeat about China gobbling up half the world, and all of this seems ho-hum, but to argue back in 2001 that the G-7 was rapidly being eclipsed and that emerging nations would have to be included was pretty far-sighted, to say the least.   

Not too shabby for a little old .pdf. When it issued forth from the pen of O’Neill’s team (and got the OK from the editing and compliance departments), it made its way to my desk to (and that of my other two colleagues) to be revealed unto the Spanish-speaking audience that gobbled up GS research (in drastically abridged form for easier digestion in a daily bulletin). I’d love to claim that I immediately recognized its importance and future potential for initiating a paradigm shift. Sadly, I was probably trying to not doze off at my desk after trudging through a rainy London morning to the old Daily Express building on Fleet Street at an ungodly hour... (Brrrr!) And then I probably began to puzzle over another #%$#* acronym invented by some analyst who is too clever by half. So, did I recognize its greatness? Alas… no. But, in my defense, neither did O’Neill himself, apparently: “The impact really started to grow two years later, when we did our first piece looking at what the world could look like by 2050, which picked up on the theme of my earlier paper” (this second BRIC paper is available here).

Beyond the hype, it is a pretty brilliant example of investment research. First of all, it has the advantage of boiling down a hugely complex landscape and condensing it into a neat formula that fits in your front pocket. The term “emerging markets” (another brilliant example of financial rebranding in its own right) refers to a veritable conceptual maze that includes everything from Argentina to Malaysia to Ivory Coast. Even if you have an above-average acquaintance with world affairs, that is difficult to whittle down into a simple investment thesis. O’Neill’s BRIC formulation happily filters out a lot of noise and brings a cacophony of geopolitical diversity to four easily remembered guideposts that can serve as a stand-in for entire continents: the Carioca nation for South America, Russia for emerging Europe, India for Asia, and China… well, for China. Moreover, all of this is wrapped in a snappy acronym: global “bricks” to build the future (get it?). Of course, the thesis is assailable from many fronts, both in terms of inclusion/exclusion (should it include South Africa, Korea, Vietnam, Mexico?) and in terms of prescience (what if China falters, etc.?). But its efficiency as a conceptual vehicle for investment strategy (often the poor cousin of other research endeavors because it does not immediately generate bucks) is undeniable. It is a veritable 21^st century meme.

And I was “present at the creation” (albeit somewhat deprived of sleep).

Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in Spain. To contact him, visit his website and write to the address listed there. Feel free to join his LinkedIn network or to follow him on Twitter.