3 Wall Street Stocks That Should Be Occupying Your Portfolio

Oct. 17, 2011 2:47 AM ETJPM, GS, KKR1 Comment
John Tobey, CFA profile picture
John Tobey, CFA

With their stocks well off their highs and significantly lagging the markets, Wall Street companies have gotten a bad rap. Add in congressional-regulatory disagreements plus “Occupy Wall Street” protests and many question the wisdom of owning any of these firms.

From a contrarian standpoint, this is a good environment to consider buying the good stocks that were tossed out with the bad. Among the “good” are three Wall Street firms that I believe are the best in their respective fields and could provide superior returns in the future: JPMorgan Chase (JPM), KKR [also known as Kohlberg Kravis Roberts] (KKR) and, yes, Goldman Sachs (GS).

Note: The latest Barron's cover article is "Why Banks Are A Buy," and says, "Banks and other financial companies are in much better shape than their unloved shares suggest."

In determining the “best” among Wall Street firms, accounting analysis alone won’t do. Short-term effects, such as the third quarter’s low IPO activity, can buffet the revenues and earnings. And we will likely see a highly active quarter in the near future with dazzling numbers. Neither quarter is a proper measure of a firm’s success.

The key determinant of a “good” Wall Street firm is leadership.

Rather than numbers, I believe the best way to rank firms is by judging leadership. In Wall Street, leadership is composed of three parts:

  • Top management and staffing – In an industry as fast moving, volatile and competitive as Wall Street, it takes wise and skillful management to succeed. But management cannot do it alone. Success also requires highly capable employees, many operating independently (or nearly so). Management’s job is to guide the machine, being willing to pursue different courses as opportunities present themselves.

  • Reputation and cachet – Trust and proof of success are requirements to succeed in Wall Street. “Low cost provider” is

This article was written by

John Tobey, CFA profile picture
I am the founder and editor of Investment Directions. My career has been managing and consulting to multi-billion dollar funds. Using the widely accepted “multi-manager” approach, I have worked with top investment managers throughout the country, gaining a high level of expertise. My career has spanned many market environments, and I have hands-on experience searching out opportunities and avoiding risks in all of them. I now devote my time to Investment Directions, with the goal of helping investors further their understanding and improve their investing skills. I am currently serving on: The AAUW Investment Advisers Committee and The City of Vista Investment Advisory Committee.

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