Business & Economy
This story originally appeared on Sunday, Feb. 11, 1968.
A interview with longtime investment manager Fayez Sarofim.
Fayez Sarofim runs what he calls a think-factory at his First City National Bank Building offices.
All he provides to the 230 clients who pay for his advice on what to do with some $750 million in investments is “judgment and knowledge,” Sarofim says.
Sarofim’s firm is little known outside investment circles despite a clientele that extends across the United States and into other countries.
Trusts, pension plans, profit sharing plans, endowment funds, charitable foundations, insurance companies and trust departments of banks make up the clientele which accounts for about 70 percent of those $750 million he advises. The balance is comprised of individuals.
An investment counseling service such as Sarofim runs traditionally has had an Eastern location. But “no one geographical area has the monopoly on brain power,” Sarofim says.
By being separated from Wall Street, Sarofim feels he is not influenced by day-today rumors and isn’t as apt to get involved with each peak and valley of the stock market.
And being overly concerned about a particular stock market occurrence does not follow Sarofim’s investment philosophy.
This philosophy is, in part, a confidence in the outlook for the United States economy and a belief that its diversity and capacity for growth are often underestimated.
“Frequently overlooked are tremendous advances that have been made in technology, research and education, resources not reflected in the Gross National Product,” he says.
Sarofim emphasizes stocks and convertible securities, for his clients rather than fixed-income securities such as bonds.
“In our opinion, the difference in degree of risk and marketability between a high quality common stock and high quality bond may be more academic than real,” he says.
“As a result, with no ceiling on a stock’s appreciation potential and with a historic average annual growth rate of 6 percent or better in dividend income, we place our investment emphasis on equity ownership.”
Shouldn’t Be Nervous
If a client is nervous about where his funds are placed, it’s the wrong investment for him even though it might be doing the job otherwise, Sarofim says.
In line with that feeling, Sarofim says he does not take on clients who don’t agree with his emphasis on securities which grow in value rather than on investments bought solely for their present yield.
About 90 percent of Sarofim’s investment portfolios are made up of 100 different securities. He says a stock good for one client is good for all. What might vary is the percent of a particular issue in a portfolio depending on the client’s individual circumstances.
Sarofim says he has a close and confidential relationship with his clients.
All Participate
Sarofim’s organizational concept is to have all principals participate in all functions, be familiar with all accounts and be involved in both research and portfolio management.
This approach is a little broader than the one used by many investment counseling firms where members will frequently specialize in a particular industry or group of securities, Sarofim says his approach permits the staff member to be completely flexible.
Besides, Sarofim says breakdown of stocks by industry groups is a misnomer. Because of changes within the companies which supposedly make up industry groups, he is considering eliminating industry grouping when listing stocks in a portfolio.
Sarofim says he tries to keep his staff as small as possible. The entire firm including Sarofim, his associates and secretarial help, numbers about 18.
Sarofim, who received a masters degree from the Harvard Graduate School of Business Administration, readily admits he prefers employees who are alumni of that school.
But he likes for employees to have worked in industry between college and joining his firm.
“Everyone who leaves school is disappointed with his first job,” Sarofim says, expecting too much from it. He would rather have a person get their disappointment somewhere else.
Born in Cairo
Sarofim was born in Cairo, Egypt, in 1928. In 1946, he came to the United States to attend the University of California. He graduated with a degree in food technology.
After Harvard, Sarofim came to Houston and joined Anderson, Clayton & Co., remaining there until 1958 when he formed his own firm.
He is a member of the New York Society of Security Analysts. He has served on the boards of St. Joseph Hospital, University of St. Thomas, Houston Museum of Fine Arts, Houston Symphony Society, the Alley Theatre and as a Rice University Associate.
Sarofim became a naturalized citizen in 1961. He and his wife have one young son, Christopher.