Book Review: Confessions of A Stockbroker by Andrew Lanyi

Ian Cassel Blog, Book Reviews 6 Comments

Andrew A. Lanyi (1925-2009) grew up in Hungary, escaped from a Nazi labor camp during WWII, became a Hungarian stage director, and later fled Hungary with his wife when the Russians attacked in 1956. He didn’t have a job, money, or speak any English when he landed in New York City, but thirty years later Lanyi would be considered one of the best stockbrokers of his generation.

andrew lanyi

Andrew Lanyi

In 1958, Lanyi got his start on Wall Street peddling mutual funds. He quickly excelled because “1.) I put in substantially more time than anyone else, 2.) I listened to the advice everyone gave me and then considered whether doing exactly the opposite might be more beneficial. Very often it was.” He bounced around with a few different firms. By the late 1970’s, Lanyi grew tired of Wall Street Research “most Wall Street research shoots for mediocrity and never quite makes it.” He wanted to find tomorrows blue chips today, and developed a disciplined research and investment strategy.

Lanyi would become a very successful broker and set up his own division at Ladenburg Thalmann, and later with Oppenheimer & Co. He and his team of 28 analysts and salesman would do deep research into micro-smallcap securities. He preferred companies that traded on the OTC because they were undiscovered. They would meet with management, and do hours of scuttlebutt research talking to a prospective company’s customers, suppliers, and printers (printers = those that produced the packaging or marketing materials for the product/service that was sold). If the company passed due diligence Lanyi and his brokers would hit the phones getting his clients into these undiscovered companies and in most cases buying 10-30% of a company’s float.

How Did He Select Stocks?

  1. Find companies whose sales increased more than 15% and earnings by more than 30% over the previous years quarter.
  2. Prefer companies that totally dominate their industry, niche, or geographic areas. Looking for monopolies or near monopolies.
  3. Find companies that even during recessions can increase their sales and earnings every year.
  4. The stocks should not be known by Wall Street.
  5. Ever-growing repeat orders. Recurring business.
  6. Does the company have or lend itself to, a cookie cutter approach? Scalability.

When applying the six criteria he would remain flexible, “We do not want our criteria to turn into a straitjacket”, but he also noted an overwhelming majority of exceptions did not work out well. Lanyi believed that his criteria and diligence was more rigorous than 99% of brokerage firms, and it led to exceptional results. Lanyi and his team went on to find many great companies early including: Automatic Data Processing (ADP), H&R Block (HRB), and many others that went on to be acquired since the publication of this book (1992).

In the book you will learn more about Lanyi’s research methods, buying and selling philosophies, and his life story. My favorite section of the book is where Lanyi publishes interviews he did with a series of founders before their stocks were known by Wall Street. These interviews include Henry Taub founder of Automatic Data Processing (ADP), Henry Bloch co-founder of H&R Block (HRB), Joel Gordon founder of Surgical Care Affiliates (Acquired by HealthSouth in 1995 for $1.2 billion), and others.

Below is a snippet of the interview with Dr. Robert Becker, founder of Healthcare Compare Corp.  At the age of 65, Dr. Becker sold everything he owned to start Healthcare Compare Corp. 20 years later the company would be sold to Coventry for $1.8 billion.

Lanyi mentored many professionals that went on to lead other companies in the financial industry. One employee that worked in the mailroom said of Lanyi, “He said he would be my ambition whether I liked it or not.” Andrew Lanyi died in 2009 at the age of 84. You will enjoy his story and can buy it [HERE].

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Comments 6

  1. I’ve been on the internet this morning trying to figure out if Andrew Lanyi was the guy who thirty years ago wrote a column in the NY Times or WSJ or maybe Forbes offering analysis on obscure growth stocks selling at high P/E ratios with a column title that implied both a surface foolishness and a deep down, well-earned wisdom. The column was accompanied by a sketch of him, a line drawing, with a scraggly beard, rather than a photograph. If anyone knows, please let me know.

    Anyway, I really like the criteria as outlined in Ian’s review. They suggest a high degree of flexibility as far as what industry or segment a company is in, as opposed to “I only invest in companies I understand.” I’m of the view that it is really hard to understand companies, regardless of what industry they are in, including slow growing industries, and regardless of how simple they appear on the surface.

    As far as exchanging security for insecurity, I’m starting a new business now at the age of 59 and while on the surface it may appear insecure, the first steps of the journey feel deeply secure — the emotional vibe is one of deep inner harmony. Of course, I may be deluding myself. That’s always possible.

  2. Excuse me, see the drawing now right beside the title. That is him. Thirty years ago, as a young analyst, I marveled at the courage of his columns and always read them with interest. The stocks did well overall but there were some 90% losers, as well as stocks up 300-400% in a year. Very volatile, and the analysis didn’t explore negatives at all. Everything he wrote about he thought was going to the moon. Unabashed conviction, despite any recent failures. I really admired his conviction and bravery.

    He was an interesting guy, very different from the average polished, well-dressed analyst with an expensive haircut.

    1. Post
      Author

      He definitely had his share of losers, but we all do. If you have a big mouth like he did on the way up, people are going to remember the ones that don’t work out. The important thing to note is he did this as a broker, not as a fund manager which is why I found it so interesting. A “broker” formalizing an independent research team devoted to finding great companies early was highly unique. Unfortunately it likely couldn’t be duplicated today here in the US with the all out assault by regulators on brokers recommending low priced stocks. That aside, I found what he looks for as well as his research techniques similar to my own.

      1. I agree. He probably had a lot more losers than you do, but also a lot more stocks than you do. I’d bet that you know a whole lot more about the stocks you own than he did. But his style worked for him and for many of his investors. He didn’t care at all about any concept of value, as far as I could tell. Perhaps given the reality of being a broker, or being a highly successful broker, he was always on the lookout for a great story.

        I hope I didn’t give the impression that I didn’t respect his research or try to learn from it. He had more imagination and courage than just about anyone I knew at the time with the possible exception of Chanos.

        Many at Landenburg Thalmann were flamboyant, and great storytellers. I knew a broker there who was 80 years old and had a 25 year old girlfriend whom I knew a little. And good investor. I can’t remember the specifics, but the guy I knew, who knew Lanyi, told me that he generated huge commissions — much of which was hidden in market making spreads.

        There is a style of going through life of not caring, at least on the surface, about failure, just about success. I’ve known some very successful people who have had a lot of big failures, but amnesia about them. They seem to remember in great detail their successes. It is almost a personality type. If they have a strong enough character and inner momentum to keep faith in their approach and in their own ability, ultimately many seem to achieve great overall success.

        The interesting thing about Lanyi, as your review points out, is that there was a real philosophy behind what he did. It had a compelling logic and he was ultimately very successful.

  3. Ian- glad you enjoyed it, and read your review. I firmly believed that this book was memorable enough that if you would have read it – you’d have remembered it. Its my personal favorite with regard to finding companies early and the tongue and cheek nature in which it is written. This is why I ventured to bet that if it wasn’t your favorite book on finding companies early (the club theme) when you were done, it would definitely be in your top 3 🙂

  4. Hi Ian. This looks like a very interesting book so thanks for the review. One thing I never get about scuttlebutt is just how do you contact suppliers or customers if they are like large enterprise. So if a microcap company sells a software to HP, I don’t think people at HP will talk to you if you just call them and say youre an investor and want to get their opinion on one of the products they are using. What do you usually do in a situation like this?

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