In his 40 years as a broker at Wedbush Morgan Securities, Earl Feldhorn was only once seriously disenchanted with his job. He was frustrated by the unreasonable valuations of highflying Internet companies in the '90s and what he saw as “abnormal” investor expectations.
“It was very difficult to make sense of the market then, and we took a lot of abuse for not following the fads,” says Feldhorn, who is 63. “Sure, I questioned whether everyone else was right and I was wrong. But I always felt sure that decent balance sheets and actual revenue were the real long-term measures of a stock.”
That philosophy has served him well in his four decades at the Los Angeles firm. Feldhorn says while he and his partner of 20 years, Timary Koller, lost a few clients when they refused to buy the hot stocks of the moment, most stayed with them. “Some of my clients have been with me as long as I've been here, and now I work with their children and even their children's children,” says Feldhorn.
Feldhorn's own introduction to the business was a family affair. When he was 23, his father's outdoor furniture business failed when a partner defrauded him. Feldhorn senior, Julius, who survived two concentration camps before immigrating to the U.S., refused to let a business reversal hold him down. Father and son joined Wedbush after interviewing with several firms. “We liked it because it was small and we wanted a firm we could grow with and get equity in,” says Feldhorn. “We also were impressed with Ed Webush,” founder and, at 70, still CEO. Wedbush had five employees then. Now it has more than 600.
The Feldhorns never regretted their decision (Julius retired from Wedbush at 80, two years before his death 10 years ago), although Earl says that in the beginning he had trouble recruiting clients or even talking to prospects. “I recall him as being very shy and quiet, which was in contrast to his father, who was outspoken and gregarious,” says Wedbush. Earl's big break came when a mutual fund company gave him leads in a neighborhood of modest homes.
Feldhorn remembers ringing bell after bell without much luck until a tall, giant of a man answered the door. It turned out the man was a former pro football player who worked for the city. His wife was a nurse. The couple placed a small order with Feldhorn. Pleased with the results, they recommended him to 50 friends. “That gave me confidence,” Feldhorn says. He also inherited clients from his father, and Ed Wedbush passed along others.
Feldhorn figured out his own ways to find clients. He noticed, for example, that other brokers picked up clients by giving investment talks to different groups. So he started speaking at synagogues, churches, Rotary Clubs, Lion's Clubs and other organizations. In 10 years, he gave 300 speeches. “If I didn't get business right away, I got it eventually,” he says.
He also donated time and money to his favorite charities. Today, he is chairman of the Epilepsy Foundation of Los Angeles, secretary of the Frostig Center, a school for children with learning disabilities, and actively involved in the Guardians, a Jewish old-age home. “He doesn't just put money into these things, but time,” says Koller. “He believes in them.”
Feldhorn and Koller, 43, have 1,500 clients with more than $250 million in assets under management. Most clients are between 50 and 70 years old, with investments ranging from a few thousand dollars in an IRA to $15 million. At one time, the partners had 3,000 clients, but over time they cut their book by half so they weren't spread too thin.
Clients appreciate the attention. Andre Iseli, though a broker himself, has invested with Feldhorn over the past 20 years because he trusts Feldhorn's honest approach. “Anyone who has a caring attitude toward a client will do immeasurably better than someone who only cares about money,” he says.
Feldhorn's strategy was simple. He picked blue chip stocks and hung onto them. “I never went with fads,” he says. And that philosophy served him and his clients well through such market-churning catastrophes as the assassination of President Kennedy, the Vietnam War, the 1970s oil embargo, the Gulf War and the Internet bubble.
But investing is much more of a challenge now, he says. Brokers must be sophisticated. “It's a different business every year,” he says, citing the explosion in stock ownership.
So he tries to add value by doing his own research. He reads annual reports back to front because he says the more important information, such as the balance sheet and the list of directors, which he feels reflects the company's potential, are toward the end of the report. “As you move forward, it becomes less important,” Feldhorn says.
Some of his good calls: He recommended pharmaceutical stocks after then-First Lady Hillary Clinton unveiled her health care reform proposal in the early '90s. He reckoned that whether or not the proposal became law, the focus on health care would add value to pharmaceutical stocks. “Turned out to be a bonanza for our clients,” he says.
Another time, he flew out to Phoenix in the late 1990s to talk with PetsMart executives about cost-cutting efforts. Impressed with what they had to say, he started buying shares in 1999 at $4 a share. In early September, the stock was trading at $18.
Telecoms, however, tripped him up. “Today, you would never recommend, say, AT&T for widows and orphans, like we did back then,” he says. “There aren't any perpetual blue chips.”
Times have indeed changed, but Feldhorn never looks back.
“I hope to be here when I'm 100,” says Feldhorn, a lifelong athlete who still plays on the firm's basketball team. “I can understand why Michael Jordan wanted to come back as a basketball player. It's fun to be a manager or a coach, but it's greater fun to be a player.”