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Mike Wilson

Morgan Stanley’s Mike Wilson Recalls His Best Investment—His First

The often-bearish US equity strategist talks about his career year, and why he likes steering clear of the herd.

(Bloomberg Markets) -- You could say that 2022 was Mike Wilson’s year. The 33-year Morgan Stanley veteran predicted the biggest drop in the S&P 500 among his peers, even before the war broke out in Ukraine and when almost every rival US equity strategist was expecting the opposite. But Wilson, who’s also the New York-based company’s chief investment officer, hasn’t been right every year since he became chief US equity strategist in 2017. He spoke with Bloomberg Markets in late October about his career, the cost of being wrong and the importance of taking personal risk. Days later he was early among strategists to forecast a policy pivot by the US Federal Reserve. “If you’re always part of consensus, then it’s really hard to stand out, and it’s also hard to make a lot of money,” says Wilson, 55. “So for whatever reason, we end up in that kind of lonely place, you know, table for one.”

SONALI BASAK: I figured we’d start at the beginning. How did you end up on Wall Street?

MIKE WILSON: My mom was a financial adviser, single-parent family. I learned a lot from her when I was younger. She said, “Pick a stock, you’ll get into it.” I was 13 years old. What do you think I picked in 1980? Nike. Which turned out to be an insane investment. And I can say to this day, I haven’t had an investment that was that good, percentagewise. So, you know, I was hooked, right? Went to college and then got into the business and never looked back.

SB: Did you start as a stock picker?

MW: Nope. I got into the business as an investment banker, which was not that exciting. There’s no market action. For me it was always about the markets. I spent four years in investment banking, and then went back to business school and came back in sales and trading—and spent pretty much 10 to 15 years doing sales and trading. A lot of different roles. I traded, I did sales, content creation, and then that morphed into being the CIO for wealth, which is a big jump. And then I had to learn fixed income, learn all the asset allocation, and then the last five years I’ve been US equity strategist. So, yeah, it’s been a very diverse career. Which is why I’ve stayed in one place, because I’ve been able to do basically 10 different jobs over 30 years.

SB: You got the CIO role in 2012. You said it was a big jump. How did you even make the jump?

MW: You figure it out, you know? I was always self-sufficient, because my mom was always like, “Figure it out.” And I would say Morgan Stanley is kind of a place where they give you a lot of rope, and you figure it out.

SB: You picked your first stock at 13 years old. Did you keep trading? Did that add anything to how you view the markets now?

MW: Well, I’m probably less of a trader because of that. I do believe in kind of setting the course and then letting it play out. But that experience has nothing to do with how I think about markets today. Because today I’m thinking about fixed income, currencies, international markets. That’s what the CIO role forced me to do—think more macro.

SB : You’ve said that wearing this dual hat, CIO and strategy, as well as having oversight of so much that goes into the wealth management distribution, makes you think differently than a lot of your rivals. How?

MW: I’m basically on the buy side and the sell side. I think most of my competitors on the sell side don’t actually run money. We are running money, we’re allocating to different asset classes, so I think it forces me to be more disciplined around risk-reward [decisions]. As a fiduciary you have to consider not just is there upside or downside, but what’s the probability? I think that gives us more credibility with some clients, because they respect that we’re in the game with them.

SB: It was really in 2017 when you made that big pivot in terms of seeing the bull market potentially eroding. Some years that was correct, some years that fell short. How did you stick with that longer-term macro view even though it took years to play out?

MW: We’ve flip-flopped a bunch in the last five years. One of the things that we take a lot of pride in is we don’t get one way for too long. We get nabbed sometimes as being permabears, even though in ’17 we were viewed as the most bullish on Wall Street. For whatever reason we end up being on one end of the spectrum or at the other, the most bullish or the most bearish. We tend to go to the place where people aren’t, because that’s where the fat pitch is, right? Doesn’t always work—sometimes we’re wrong—but we tend to go to the place where people aren’t.

SB : What’s the cost of being wrong?

MW : Well, in the case of my buy-side job, you lose money. And in the sell-side role, you lose clients’ money, which is also not great. There’s always a cost of being wrong, but I think there’s a cost to always playing it safe, right? As a strategist to buy-side clients, it’s hard to add value if you’re just saying what everybody else is saying. Your clients want you to make them think, even if you’re wrong. They want you to force them to think about what they’re missing, potentially. I don’t think the cost of being wrong in the sell side is as great as it is on the buy side.

SB : How would you rate yourself in terms of how often you’ve been right or wrong?

MW : I would say, like anybody, we get plenty of stuff wrong. So that’s a B, B-plus, because we’re never going to get everything right. No one’s an A-plus. I would say, though, in our process, in our drive to get to the right answer, we’re pretty tenacious, pretty exhaustive. I think that’s why we do well with a lot of clients. They appreciate the process and the thoroughness. There, I give us an A. And then I think where I maybe get a C or C-plus is sometimes we’re so ingrained in our work, and doing all this stuff, that we’re not responding to the specific requests coming out. But it’s a battle every day.

SB : You tend to be a contrarian. What makes you like that?

MW : It’s a very uncomfortable position to be in, you know. It’s not natural, as a human being, to say I want to sit over there in the corner, by myself, and maybe I can become popular again. I think it’s just the way I grew up, being self-sufficient. I kind of kid around. I say, “Table for one,” because when you have a table for one, you have to think for yourself.

SB : When you talk to colleagues and people you might be training, how do you teach them?

MW : I take a lot of time trying to mentor people, my own team and other younger people. And the way I express it to them is, “Don’t be afraid to take personal risk.” I say the same thing to my sons: “If you’re not taking personal risk, you’re not going to have any personal growth.” I think social media, and this constant contact with everybody all the time, restricts people a little bit from being willing to put themselves out because everything’s so public. You can’t really operate without everybody kind of knowing what you’re doing.

SB : How often do your clients challenge you?

MW : Oh, it’s 24/7. But I love that, too. That’s part of the fun of the job. You put yourself out there, and then you get a response. Sunday night is when I put my note out. Sundays are writing days, because you can’t write during the week, and you clear your head. Sometimes it’s two hours, sometimes it’s six hours, whatever it is to get that note out. And then you wait to see what the reaction is. It’s kind of an exhilarating time, particularly when you’re changing a view. If it’s the same view, and you’re just adding evidence to your ongoing view, it’s a little different than when you actually pivot.

SB : What was the most alarming response?

MW : Most people are pretty pleasant. I mean, on Twitter the responses aren’t so great, but I don’t spend a lot of time there. But clients are totally respectful because we’re working together. And so those responses are usually, “Do you have any more data around that?” What’s startling to me is when somebody says, “That particular chart is totally wrong.” Like, oh my God, we screwed it up. That’s what bothers me, because then we did something wrong, which doesn’t happen very often. But that’s when I get most nervous, because then our process is broken down.

SB : What’s been the most interesting debate?

MW : Our worst year in the last five was 2019. We had been correctly bearish in ’18—the market really crapped out. And then the Fed pivoted in January of ’19. And the whole first half of ’19 we remained somewhat bearish, and the market went straight in our face. Those conversations were a bit more difficult, because there was somewhat of a tactical rally based on Fed pivoting. I probably got a little too dogmatic, and hopefully we’ve learned from that to some degree. But those kinds of debates are hard, where they’re more technical in nature. I’ve learned from the past that these technical things can happen and you shouldn’t just dig in on the fundamentals.

SB : What are you seeing that you think others are not? What do you look at?

MW : We deeply believe in patterns, both fundamental and technical. A lot of our calls in the last five years have been predicated on a view that this period is like other periods. Right now we think it’s similar to the ’40s, that this is sort of a demand-pull inflation and a cost-push inflation. And that really stems from our belief that cycle patterns repeat themselves. So we’re market historians. When I see something in the market, I can say it looks like 1998, it looks like 1976 or looks like the 1940s.

SB : Are there certain data or indicators you look at that are more unique to you?

MW : When we’re successful it’s because we’re able to contextualize the same data that other people were looking at, slice it differently. We look at the rate of change, second derivative of everything. People will say, “The jobs number’s good.” I’m like, “Yeah, but it’s decelerating.” You need to understand markets are always about the rate of change, the second derivative.

SB : How big is the team now? And how do you split up the work?

MW : We have a great team, five of us. We all have different skills. We have one woman who’s a pure quant. We have another person who unfortunately had to work with me for 10 years straight, so we’re similar, but he challenges me a lot of times. And we have another woman who’s terrific, always talking to analysts within the department, looking for relationships in other parts of the department that maybe we’re not seeing. And then we have another junior person who just came on board who’s a data hound. I would say our personalities are all different, too, so it’s a very diverse group in terms of our mindsets. It’s a total democracy. Anybody can challenge me, and I obviously can challenge them. We’re going to get challenged when we publish it anyway. You might as well have that debate before you publish.

SB : If your team were here and could describe you in one personality trait, what would that be?

MW : I think they would say that I’m very interactive. You know, I’m always engaging with the debate—with them, with myself, with the data, with clients. And it’s very collegial. I think they would say that I’m kind of relentlessly in pursuit of the answer.

As soon as the market starts to deviate from what we think it should be doing, we immediately say, “OK, what are we missing?”

The equity risk premium this year, that’s one thing we’ve gotten really wrong. We have the multiple totally right. But the mix on that has been wrong. I’ve been racking my brain for the last two months: Why is the equity risk premium so low? The market is never wrong, you’re wrong. We’ve got to figure out why we’re wrong.

SB : You came into 2022, before the war started, with the lowest estimate for the S&P 500 index. Why, and what was the reaction?

MW : We had actually taken that position even before yearend. Our year-ahead outlook, November of last year, was basically around this whole “ fire and ice” narrative. Which is that inflation was not going away—that’s the fire—and the Fed and central banks are going to have to tighten policy in an economy that was already slowing. So that’s very unusual. Usually the Fed and central banks don’t tighten in an economy that’s already slowing. This combination is pretty toxic.

SB : Was that the biggest call you’ve had?

MW : It was the most visible. As a sell-sider you want to have a tag. “Fire and ice” was beautiful because people understand it. I’d say this has been probably our biggest, most successful call.

SB : Do you feel as if you’ve won?

MW : For today. I mean, you know, there’s tomorrow.

Basak covers finance for Bloomberg News, TV and Radio in New York.

--With assistance from Lu Wang and Jess Menton.

To contact the author of this story:
Sonali Basak in New York at [email protected]

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