Dr. Edward Yardeni's move in September to join a boutique Ohio equity investment management firm with about $8 billion under management might seem out of step with a resume that screams Wall Street. Prior to stepping into the newly created position of chief investment strategist at Akron-based Oak Associates, he served as chief investment strategist and managing director of Prudential Equity Group. His career spans nearly three decades, including stints as chief investment strategist for Deutsche Bank and as chief economist for C.J. Lawrence, Prudential Securities and E.F. Hutton. A Yale graduate, Yardeni also taught at Columbia University's Graduate School of Business, and was an economist with the Federal Reserve Bank of New York.
The resume of his new boss, 61-year-old Oak Associates founder James Oelschlager, has a more local flavor. After working as a drug company attorney for a year, he shifted to the investment side with his appointment as assistant treasurer. In 1969, he joined Firestone Tire to help manage its pension fund. During his tenure there, he was diagnosed with multiple sclerosis at age 32.
In 1985, some ten years after that diagnosis and 16 years after he began working at Firestone, he left with four other Firestone investment managers to start Oak Associates. He founded the firm's flagship fund, White Oak Growth Stock, in 1992. The large-company growth stocks the firm favors, particularly those in the technology sector, flourished as the decade drew to a close. By the market peak in early 2000, Oak Associates had nearly $30 billion under management in mutual fund, pension and endowment assets.
The spicy fare that built the firm's fortunes was not always on Oelschlager's menu. In the 1980s, he concentrated on stocks of oil, paper, and chemical companies, which do well when commodity prices rise. But by the early 1990s, he sensed a fundamental shift in investor sentiment when inflation cooled, and computer use began heating up. Gradually, he built a firm that focused squarely on large technology companies that would benefit from the trend. Yardeni's widely publicized "new paradigm" theory, which predicted that the economy was in the early stages of a technological revolution that would dramatically enhance productivity, influenced his shift in thinking.
By that time, Oelschlager had been following Yardeni's trend forecasts and research for quite a while. The two first met in 1979 through an introduction by an E.F. Hutton bond salesman, and according to Yardeni, "We hit it off right away." They continued to keep in touch professionally over the years.
Yardeni, 55, says that Oelschlager's invitation to join the firm came at a time when he was ready for a change. "I've been on the sell side for my entire career and I could have continued on that path," he says. "I went to the buy side because I wanted to reinvigorate myself without reinventing myself." For now, he plans to maintain his home in Long Island, where he lives with his wife and five children, who range in age from 3 to 22. He will split his time commuting to the firm's Akron office and traveling on business.
As for his new role at Oak Associates, Yardeni says he will focus on "working with the investment policy committee on strategic overview." Oelshlager, whose firm takes a top-down approach to investing, says that hiring one of Wall Street's top guns goes beyond having a marquee name attached to his firm. "The most important thing is getting the sector right," he says. "If you pick the best stock in a lousy sector, you aren't going to do well. We hired Dr. Yardeni to help us pick the best sectors to be in, and the best stocks within those sectors."
Decisive Predictions
If Oelschlager is looking for someone to contribute fresh, decisive insights, Yardeni is certainly that person. As many of his peers issued fuzzy economic forecasts ("...if interest rates rise, the rate of inflation will increase...") and wrote arcane, waffling predictions, Yardeni has long stood out as someone who is not afraid to highlight what he sees as emerging trends and to state his case clearly. Unlike many savants, he's not afraid to be wrong. "My claim to fame," he says unequivocally, "is finding long-term investment themes."
Many of his forecasts have been right on the money. As an economist with E.F. Hutton in the early 1980s, he argued that the Reagan economic policies would break the stubborn back of inflation. He urged investors to get out of inflation hedges, such as gold and energy stocks, and into stocks in the consumer and financial sectors. As the decade progressed, he predicted that baby boomers entering their peak earning and saving years would help keep inflation down and drive a long-term bull market. In the early 1990s, he became what one publication called the "godfather of the economic New Paradigm School" by predicting the technology revolution and the bull market of the 1990s.
Some insights have been less prescient. In 2002, he admits, he underestimated the impact that corporate governance scandals would have on the stock market. His most high-profile clunker: a prediction in the late 1990s that computer complications from Y2K would spawn a global recession. During that time, he became Wall Street's expert on the millennium bug. But as the year 2000 came and went uneventfully, the warning fell flat. Still, Yardeni says he acted as "sort of a Paul Revere of Y2K," and that his early warning cries prompted companies to upgrade their systems and avert a crisis.