Buy the Book: Alan “Ace” Greenberg became CEO of Bear Stearns in 1978. His witty, humorous memos, covering two decades, set the tone, maintained morale, and repeated his simple business philosophy backed by common sense.
The Notes
- Alan “Ace” Greenberg assumed the role of CEO of Bear Stearns after Cy Lewis died in 1978. The memos span from 1978 to 1991.
- He repeated these fundamental axioms most:
- Control expenses.
- Customer service.
- Watch for scams, con artists, and theft in and outside of the company.
- Avoid overconfidence, stay humble.
- 1987 Market Crash, Oct. 19th memo:
- “It is amazing how history keeps repeating itself. The market in stocks and bonds has taken a precipitous drop, but I am far from depressed. Why? Because once again we are seeing and we will be seeing great opportunities in all areas, particularly in personnel. I can assure you we are pursuing every lead at this very moment.”
- Customer Service:
- “Now is the time not to hide from clients. It takes real courage to make calls when you know the reception might be hostile. But there are times when we must face the music. It will pay off when the market turns, and I promise you the market will turn. I hope sooner rather than later.”
- “We are in a person-to-person business. It would be much warmer if the sender of a note signed it with his name and telephone number along with some sweet words, such as “I love you” or “I need more business to feed my family.””
- Much of the customer service reminders revolved around proper phone etiquette, promptly returning calls, and customer confidentiality. It was all about making a great first impression.
- “Clients are not interested in our past triumphs (that is why 90% of our competition has disappeared over the past 20 years). Clients want service, ideas and tender loving care.”
- “I believe there is a direct correlation between telephone etiquette and earnings.”
- Behavior:
- “It is up to all of us to fight our unrelenting enemies—complacency, overconfidence and conceit.”
- “After a month like the one we just experienced, I think we should be on our guard against the negatives that go along with great success. I am speaking of complacency, sloppiness, relaxing on expenses, cockiness and just getting careless in general.”
- “I am well aware that humans will always make errors. My irritation comes from the fact that these errors are not caught immediately. In many cases, this is because the producer is too lazy to look at his run the following day; too lazy to look at the registered representative copies of the confirms and too lazy to check the monthly statements.”
- “The firm has always been very understanding when errors are made. We will not be understanding if the error is not caught because of subsequent stupidity and laziness.”
- “I have said for years that complacency is our greatest enemy. Is this the first symptom of our decadence? If it is, I know how to cure this form of sloppiness.”
- “Honest men may differ, but when the difference becomes animosity, you can have problems. I am not going to let personal conflicts have any effect on the net income of our golden goose.”
- “We must continue to be alert, aggressive and never complacent. And last, but maybe most important, the partners of this firm must continue to work together and learn to overlook petty differences. We are all expendable.”
- “Things are too good!! It is at a time like this that we must be particularly careful, wary, smart, suspicious and, in general, thankful that we are alive. Those of us who have been around for a while know what I mean.”
- “When conditions are this ideal, we are usually being set up for a major unpleasantry. This time around let us try to leave nothing on the table. Times will change, and it will be nice to have plenty of fat on our bones.”
- “The bad news is we are doing so well that I am sure, subconsciously, we are becoming complacent. It is the job of the Executive Committee to once again stress the fundamentals.”
- “We must be careful, suspicious and always respect our in-house administrators and compliance people. It is impossible to make enough on a trade or a deal to justify subsequent litigation due to carelessness or greed.”
- “Those areas that are coining money will have a tendency to get overconfident and a little loose and/or forgetful of the fundamentals that built this place.”
- “The only things that can stop our truly fabulous future are arrogance, ego and conceit. Bigger and more promising companies than Bear Stearns have been reduced to rubble by those easily acquired diseases.”
- “Our job is to look out for arrogance and stomp on it every time we see its ugly head rearing up.”
- “Our goal still remains—a high return on equity with integrity.”
- Expenses:
- Greenberg prioritized cost-cutting and reducing waste, especially when things were going well.
- Reusing paper clips, rubber bands, and envelopes were humorous recurring themes. He made similar points about sharing copiers, fax machines, printers, turning off lights, and using mileage points for business travel.
- Avoiding bureaucracy — extra layers of management — was a cost-cutting priority.
- Costly errors were a recurring theme: not canceling orders, incorrect orders, and not closing incorrect orders quickly.
- “This place is not going to smell like a bureaucracy—bureaucracies don’t set records.”
- 3 months before the 1987 Crash, Greenberg sent a memo on all the areas to review for excess spending: unproductive employees, employees performing similar functions, unused news/quote services, and other unnecessary spending.
- “The developments at Bear Stearns certainly seem to be positive and as a result we will, of course, intensify our surveillance of all positions and expenses. You know how I feel about the dangers of overconfidence.”
- “We should not lose sight of fundamentals, such as cutting expenses and being ever alert to the fact that if we are not careful, there are some people who would like to steal the whole place out from under us.”
- “The tendency is to cut expenses when things are tough and how stupid that line of reasoning is. When things are good, you should be even more careful of expenses because it is ridiculous to leave anything on the table when you hold a royal flush.”
- “When mortals go through a prosperous period, it seems to be human nature for expenses to balloon.”
- “When you are a private enterprise, savings on expenses go to the bottom line. When you are owned by the public, savings still go to the bottom line, but they are in turn magnified by the multiple the stock carries.”
- “The rest of our industry cuts expenses when business is bad. We try to cut expenses all the time, but particularly when business is great.”
- “Burning money affects our bottom line, and your Executive Committee is judged mainly by one statistic, the bottom line.”
- “The only statistic I care about is return on equity. After many sessions with some of our business school graduates (yes, we do have some), I think they have helped me understand the secret to improving our R.O.E. It seems that if we increase revenues and cut expenses, return on equity goes up and that is what makes me happy.”
- “A sharp downturn could be painful if we are not lean and mean.”
- “Since business is booming we will once again emphasize cost control. Remember that great poker players leave nothing on the table when they hold good hands.”
- “It will probably surprise you that I think burning money is stupid, and in addition, it is a direct hit to our bottom line. Some expenses are tough to cut but saving on electricity is easy, although it does require a little muscular coordination. Some non-athletes may have trouble making contact with a light switch while walking, but it can be done by almost anyone if you concentrate.”
- “Cutting expenses is the surest way to increase our earnings. If we all cooperate, maybe this concern for our profits will get our P/E multiple to seven.”
- “When a consulting group sponsors a symposium that discusses mundane subjects like how to stop money from flying out the front door or how to get associates to cut expenses and return telephone calls, then I will be one of the first to sign up.”
- Fraud/Scams
- Employees were rewarded with bonuses for pointing out any fellow employee who might be scamming the company.
- “We must watch for unusual behavior by the people we work with. What is unusual behavior? Something subtle like somebody who drives a Rolls-Royce on a salary that can barely support roller skates.”
- “Because of the tremendous activity in all phases of our business, every con man is or will be heading for the securities industry. Stay alert!”
- “We will not employ people who hide or bury trades, even if the delay is twenty-four hours. During the past year, we have had to terminate several people for this infraction.”
- “We will not employ people who ever disclose our or our clients’ trading activity with anybody who is not authorized to have such information. Disclosing this to unauthorized people, who work either inside or outside Bear Stearns, will lead to immediate dismissal.”
- ” Consistent with our goal of trying to help everybody at Bear Stearns to become richer, we will give five percent on the spot to any person in the trading areas who alerts us to a potential negative mismark. If the mismark shows a loss of one million dollars, the cooperating person will get $50,000 immediately.”
- Hiring:
- “Our first desire is to promote from within. If somebody with an MBA degree applies for a job, we will certainly not hold it against them, but we are really looking for people with PSD* degrees. They built this firm and there are plenty around because our competition seems to be restricting themselves to MBA’s.”
- PSDs = poor, smart, and a deep desire to become rich.
- “Our experience has been that the best time to hire productive people is when conditions are difficult. Some areas of Wall Street are having problems and that means opportunity is once again knocking at our door. Let us all be alert and continue to build!”
- Hiring while the rest of Wall Street was firing people was one way Ace followed his axiom on avoid the herd mentality.
- Competition:
- “We do not knock the pricing or the structure of the offerings of our competitors. I am well aware that other firms have not been so considerate toward us, but that has no bearing on how we conduct ourselves. Our record of late will probably create some jealousy, so it is more important than ever that we conduct ourselves in a manner beyond reproach.”
- “We have constantly stressed that people at Bear Stearns do not denigrate our competition. Your Executive Committee wants to reemphasize that position. If you cannot say something nice about somebody, do not say it!”
- Luck:
- “Some of the things that have happened to us have been due to our own efforts, but equally, some of our good fortune of late has been due to luck. I have been around long enough to know that the shoe usually falls on your head when you least expect it.”
- Bull Markets:
- “This period of euphoria will not last forever (neither I or any other human can accurately predict the end).”
- “Humans tend to get sloppy when making money is easy.”
- “Bear Stearns will not get caught up in the hysterical optimism and the people at Bear Stearns will not get careless or conceited.”
- “We are in a period now that will cause the stupid to get careless and overconfident, and the results are totally predictable—financial catastrophe.”
- “Do not confuse luck with brains. We must, as a firm and I hope individually, make the most of this euphoric period but give very little back when the curtain falls. I can promise you one thing—this picnic will not last.”
- Bear Markets:
- “The bear market will end and it can end quickly.”
- “A bell will not ring to prepare you for the good times. Remember how great the world looked three months ago? The market can reverse its present course just as dramatically.”
- Haimchinkel Malintz Anaynikal’s (Dean of Business Philosophers) Wisdom:
- “Thou will do well in commerce as long as thou does not believe thine own odor is perfume.”
- “When the going gets tough, the tough start selling.” re: when the market goes south
- “The time to stop stupidity and be tough on costs is when times are good.”
- “The strength of the strongest chain is determined by its weakest schmuck.”
- “Make decisions based on common sense and avoid the herd mentality.”
- “Control expenses with unrelenting vigil, because if you turn your back for a second they will grow like weeds.”
- “Help all departments to grow, because this year’s starlet can be next year’s dog.”
- “The amount of dissension rises geometrically with the more issues you have to philosophize over.”
- Simple Rules:
- Stick to thine own business.
- Watch thy shop.
- Limit thy losses.
- Watch thy expenses like a hawk.
- Stay humble, humble, humble.
- When dealing with a new account, know thy customer and know they customer’s money is up.
- Itzhak Nanook Pumpernickanaylian’s Wisdom:
- “The business you are in is just plain difficult at this time. When you entered the industry, you were warned that it was cyclical but bull markets tend to cloud realism. You are now in a period that separates the men from the boys.”
- “You meet the same people on the way down that you met on the way up.”
