As 1995 drew to a close, James Knauf was looking to lose money.
No easy job, that, not when booming stocks and rallying bonds had socked profits into every corner of Fleet Investment Advisors Inc.’s portfolio.
Knauf was up against the capital-gains dilemma that hits hardest in years like 1995, years when the profits keep rolling and a loss or two would come in handy.
Three weeks before 1996, Knauf was not counting on Congress to zap the capital-gains tax. That might come next year, he thinks, but at the end of 1995, finding losses to cushion the tax hit on his clients was his job.
It is, he says, part of a job that still fascinates him after almost 30 years. Or longer, if you count back to his childhood.
Uncles chalked quotes on the boards at the old George D.B. Bonbright Co. in Rochester, and subscribed to investor information services.
Knauf read himself to sleep with that investor data on visits to his grandmother. At home, it was the stock market pages, not the funnies, that he needed to see.
A serious investor before he was old enough to trade in his own name, Knauf ran his paper route money through his father’s brokerage account.
“I was fascinated with the idea that, with a lot of reading and a little bit of capital, I could make money,” Knauf recalls.
Those not entranced by the mystique of the market can understand Knauf’s other reasons for shouldering the fiduciary burdens of a career in investing:
“There is very little manual labor involved. And it’s inside work–I have this nice office, protected from the elements. This is OK.”
Spoken like the oldest of 11 children who still butts heads with an electrician brother over the question of whether real men work indoors or out.
Knauf’s father, a district manager with Prudential Insurance Co., was the youngest of seven. Most of the 11 Knauf siblings still live in Rochester. At family gathering time, the head count tops 100.
Wife Colleen gave birth to four daughters in less than five years, and brought son Michael to the marriage from an earlier union. Michael is now grown and on his own, while daughters Sarah, 19, and Katharine, 18, are both at Ithaca College. Leah, 16, is a high school junior, and Mary Grace, 14, is an eighth-grader.
They, Knauf says, may be the reason he has earned a reputation for giving women an equal shot at the top in a male-dominated industry.
“It’s pure self-interest. I have four daughters. I want a world in which they can do well and eventually support me.”
As regional president of Fleet Investment Advisors, Knauf manages the New York group and travels frequently across the state. Most nights, though, he is home by at least 9, and counts himself a lucky man in what has become a frenzied profession.
Managing Fleet Investment Advisors’ six-office stretch of New York branches is, he says, “a welcome break from pure investing.” Buying low and selling high has not changed, but what Knauf calls “the performance derby” sets a mean pace.
“There is a lot of pressure, a lot of stress,” Knauf says. “If you’re competitive, you can never have enough information. Computers put the whole world at my desk, but I spend hours a day just absorbing information.”
The only people likely to beat Knauf to the data are, he says, some of his clients.
Later in the afternoon–when the Florida sun is too hot for golf–his phone rings, and Knauf knows that one of the retirees he advises is on the line with an update about the latest jiggle on Wall Street.
“Investing as an avocation is attractive to a lot of smart people. Some of my clients are more cognizant at times of developments than I am,” Knauf says.
All he absorbs from clients, computers, CNN and elsewhere boils down in his job as a member of Fleet Investment Advisors’ policy committee, the group that “sets the guardrails” for the subsidiary’s investing.
“There are benchmarking and tracking systems everywhere, but investing is more than just juggling the numbers– always has been,” Knauf says.
To a man who spent three years in the seminary “until I discovered girls and cars,” making money is not an end in itself.
“We work to make people’s retirement comfortable and to help them to give their children a start in life,” Knauf says. “I like to think there is some redeeming social value in investing.”
Fleet Investment dodges analysts’ attempts to pigeonhole it as either a value or a growth house.
“What we do is GARP–Growth at the Right Price. It’s not just value, and it’s not just growth,” Knauf explains. “We have a foot in both camps. What we look for is a rising earnings stream at a reasonable price.”
Unions and non-profit corporations, as well as individuals, count on Knauf, so he operates within a complicated structure of protective regulations, as well as in a market gone gaga for ratings and indexes and performance measures.
“We claim a track record of consistent quality investing,” Knauf says. “But we’re still too exciting for some people (and) not exciting enough for others.”
He admits to having played some very aggressive games with his own money. There was a venture into corn futures, for example.
“If you can keep your eye on the whole corn market–including the weather in Russia–you could make a fortune,” he recalls. “I made a lot of money. Then I had to give it all back. So I don’t do that anymore.”
Fun while it lasted, Knauf’s personal experience with futures illustrates what he calls the difference between trading and investing.
“We are investors, not traders. Most of our work is in setting goals and sticking to them until the objective is reached.”
So the bulls are running amok this year. Last year was the “worst year I’ve ever seen for the bond market.” But it will take more than Wall Street jitters to push a Fleet Investment portfolio off course, Knauf says.
“A lot of people are making money in this business right now,” he says. “But a lot of people in this business haven’t lived through tough times.”
Not that he sees tough times ahead. In fact, Knauf sees some interesting times ahead, especially locally.
“In 1968 and ’69 Rochester was awash in little stock issues. Some of those turned into great little companies. The entrepreneurial juices were flowing,” Knauf remembers.
“I think it’s starting again, and I think it’s time. Overall, things have been on an upswing for a while, and the venture energy is building.”
Backing ventures, though, is not in Knauf’s line. Building portfolios and bringing along the next generation of investors is.
In judging financial talent, he says, he is after something no index or rating service can provide.
“I look for a love of the business. A voracious reader who is curious about how the world works and how to analyze it,” Knauf says. “Number-crunching skills are not enough. I want people who can talk to the new widow and to the pension-fund consultant with equal ease.”
Fleet Investment is attached to one of the biggest movers and shakers in the merging and acquiring banking industry. Just last week, parent Fleet Financial Group Inc. agreed to buy the U.S. retail and commercial banking operations of NatWest Group.
By May of next year, the $3.6 billion deal will bring NatWest’s assets under the roof of Fleet Bank of New York N.A., and solidify the Fleet Group’s status as one of the 10 largest financial-services entities in the country.
Fleet reached that size only about a year ago, via a merger with Shawmut National Corp. And Knauf knew Fleet when–from back in 1987 when it bought Norstar Bancorp.
Yet Knauf claims stability has always governed his career course.
At 51, he has at least one family of clients moving into its fourth generation. It is one of the many portfolios that have been with him from day one, at Security Trust Co.
“There were no cubicles, just a bunch of us sitting in the middle of a large office floor. If we needed research information, we sent a message down the street to the computing center and got an answer in only a few days. Antiquated as it sounds, it was state of the art.”
But by the early 1970s, the market was cranking up to a faster and faster pace.
Joseph Marsh Sr., now chief of Marsh Capital Management Inc., worked with Knauf at Security in the ’70s.
“It was an exciting time to be getting a real start in the business,” Marsh says. “The activity level was picking up and so was the volatility level. But Jim was absolutely one of the gentlemen of the business even then.”
In August 1983, Knauf was tapped by Security to start an investment advisory company at Norstar a few months before Security and Norstar merged.
“Security liked our track record, our clients, our style, and anointed us to be the leading investor group for the whole corporation.”
Knauf ran it until Norstar merged with Fleet and says the investing group remained essentially intact even after that big deal in a year of big bank deals.
“Fleet had virtually no investment overlap in New York state, although there was some in Maine,” Knauf says.
Ask Knauf what he would be doing if he were not doing what he is doing, and he does not miss a beat.
He has lots of things he would like to do: volunteer more time in the community, travel, study history, play at photography and painting.
Usually, Italy is where his fantasies about future free time lead him.
But recently, Knauf read about archaeological studies in biblical lands that he thinks may require his personal, very inquisitive attention at some point.
“First it’s no Santa Claus. Then it’s no Easter Bunny. I can live with that,” Knauf says. “But no Moses? What else is true and not true?”
Investing in a fascination with numbers
As 1995 drew to a close, James Knauf was looking to lose money.