Wall Street: Accent on Youth

“I had observed that a lot of guys who were idiots made millions of dollars. With my background and the confidence that I wasn’t an idiot, I figured that I could do as well and get rich.”

That philosophy prompted 26-year-old Lawrence Rosenthal to set up shop as a Manhattan investment banker. Six years later, at a ripe old 32, Rosenthal is a multimillionaire, and his L. M. Rosenthal & Co. has become a phenomenon in the clubby world of investment banking that is dominated by venerable firms led by partners who are often well into their 70s. The average age of Rosenthal’s six top executives is 31, and the firm’s floor trader at the New York Stock Exchange is a mere 25.

Slow Start. Compared with such elite leaders of investment banking as First Boston Corp. and Morgan Stanley, which often manage the sale of $2 billion worth of securities a year, Rosenthal’s operation is still small. It took him almost a year to line up his first customer, and two more after that to find the third. Since 1965, when he brought out a $3,200,000 stock issue as head of a syndicate of 20 dealers, the pace has quickened. Altogether, Rosenthal has underwritten $20.6 million worth of new corporate stock and bond issues and by year’s end expects to add another $18.7 million to that total.

This week the company spread out into the fastest growing segment of the investment field by filing for Securities and Exchange Commission registration of a $5,000,000 open-end mutual fund, the L. M. Rosenthal Fund. Having bought seats on the American and Boston stock exchanges as well as on the Big Board earlier this year, the company has also moved into stock trading, research and investment advice for large (accounts over $100,000) clients. In the over-the-counter market, it regularly deals in the shares of some 400 companies.

Shrewd Tricks. Brooklyn-reared Rosenthal showed his talent for making money soon after he graduated from the University of Pennsylvania’s Wharton School of Business (’56) and landed a $4,000-a-year job at the prestigious investment-banking house of Lehman Bros. In four years of shrewd stock trading (“I used every trick”), he managed to turn his own $2,500 nest egg into nearly $1,000,000. Then he launched out as an underwriter on his own.

Well-established corporations understandably shun fledgling investment houses, so Rosenthal concentrated on spotting small, high-technology firms with good growth prospects. For example, Manhattan’s Computer Applications Inc., which deals in computer “software,” was grossing $3,800,000 annually when Rosenthal underwrote its $348,000 stock issue in 1962; last year the company took in $17.6 million. Usually, new investment-banking firms promise only to exert their “best efforts” to find buyers for stock offerings, but Rosenthal from the start refused to hedge his risk. In underwriting, he agrees to buy the whole issue and takes his chances on reselling it at a profit. In return, Rosenthal insists on a sizable block of stock in the company and a seat on its board of directors. “We were cocky,” he admits, “but a piece of the action is the only way you get rich.” For a good many Rosenthal clients, stock prices have soared along with their sales. One result: Rosenthal’s personal fortune grew by $2,000,000 last year—mostly on paper—though his company’s pre-tax profits hit only $400,000.

Young investment bankers are vulnerable to any major break in the stock market, and the 1962 plunge extinguished several small firms. Having survived that time of crisis, Rosenthal today turns down more underwriting deals than he undertakes. “Quality is the name of the game,” he insists. “We want to be sure that we are here ten years from now.”