PART ONE OF SEVEN - THE EARLY INTRODUCTION OF PRODUCT DEVELOPMENT AT SANFORD BERNSTEIN AS DELIVERED BY SHEPARD OSHEROW, PRESIDENT

When I was elected President of Sanford Bernstein and Company, after the disastrous management of the accounts under Bernstein's leadership, I had to start from scratch. There was no understanding of the firm or its product by the salesforce. There were no systematic rules of investing. You might say that speculation was the rule of the day and diversification standards hardly existed. The following is part one of a speech that I made to our employees in an attempt to step forth into a professional investment methodology. There are five parts to this speech.

PART ONE
The first step in the development of most industrial companies is the definition of that which it is going to do – a simple step, perhaps, but one which the securities industry has rarely taken. Think about this: We cannot control the price of what we sell; we cannot determine its distribution, nor for the most part can we even be free from a competitor offering, not only a similar product, but the exact thing that we are selling. Yet, for years the brokerage industry has prospered without a discernible product, which has insatiable advantages to the people who purchase it. Our key is our ability to position assets to meet a detailed, refined set of agreed-to objectives to a list of customers.

Wall Street has primarily been merchandising business. In the 1920’s (prior to the crash), a book was written titled, “Where are the Customer Yachts”. That title had implications then and meaning up to 1974. Very few investment concerns can point proudly to the product which delivered the customers a yacht; at the extreme, but very few can even point proudly as to how they achieved the goals of the investors who have come to Wall Street with need. As a matter of fact, very few investment mediums can point to any long-term success as it relates to the individual investor as a group. Most mediums for investments do not even attempt nor have they bothered to publish their record. One of the subjects that has come up is what is the product of Sanford C. Bernstein & Co.? Over the last 18 months or so, I have asked many of you individually what you thought the product of Bernstein was. Some of the time it was because I was trying to find out if you knew what it was, but most of the time I was trying to get as much information as I could in order to see the development of the product too place along the lines that would be professional and beneficial to every one of us.

I have been in Wall Street since 1955, since 1960 full time. The world will not allow us to look back; there will be other people developing improved money managing products; the format that we basically have here, as hard as it is to believe, the discretionary format, is still unique. The original idea which we will discuss in a short while is exceptional in its concept because of a number of reasons. But just to give you one, which might concern each of your livelihoods, even with the failures that we have had, the basic format is not only potentially unique in its framework of profitability so that if we can combine the necessary talent and have the necessary discipline, we have a framework that can make us proud. The basic framework is unique in its ability to be able to manage thousands of clients for their individual needs. Very few firms have been able to put together that capability, and generally the number of accounts and the types of accounts that can be managed are very few. Now we have another business: we have institutional business. The institutional business as you all have read – and I would like to suggest that each of you re-read for understanding and so that your total participation and feeling towards the firm maintains a very high level, the Policy and Procedure Manual, which in itself took a great deal of work – seems like very little. But just the putting together of it was an extremely hard task. You should all read it and understand it and feel that you are a part of this and that it is basically the business that we are in. We are additionally in the institutional business; for all its merits, for all its time and potential, it is a separate business from the management of individual accounts, and I repeat this meeting is to discuss the product as it relates to the management of individual accounts.