Richard Jenrette, who was born six months before the Great Crash of 1929, realized that the stock market was undergoing a seismic shift when he and two Harvard Business School classmates, William Donaldson and Dan Lufkin, founded a boutique investment bank in the late 1950s catering to a new type of institutional investor.
Part of their strategy in dealing with this change was fairly simple: Commissions were fixed, so it made sense to target institutions that could buy a million shares rather than going after individuals interested in buying just a handful. What they also noticed was that investors were testing the stock market waters by purchasing the companies they knew and were still allocating 70 percent of their portfolios to bonds.
Their firm, Donaldson, Lufkin & Jenrette, began putting out research reports touting the advantages of branching out from the old blue chips and into promising growth stocks. Our reports were fairly long, says Jenrette. If you were going to buy stock in one of these small companies, you needed to know a lot more about it than, say, GM, where you could get in and out quickly.
What originated as a shrewd sales tool the comprehensive equity research report virtually transformed a bunch of back-office number-crunchers into what would within a decade become one of the most powerful and influential groups on Wall Street: equity analysts. Institutional Investor would begin ranking the top analysts in 1972 with its now-famous All-America Research Team, but Jenrette maintains....