01 Apr 2000
Highly Recommended: Leah Modiglianiby Julia HannaTopics:
On the 41st floor of the Morgan Stanley Dean Witter offices in Times Square, Leah Modigliani (MBA '95) stops at the receptionist's desk. Every window showcases a panoramic view of Manhattan skyscrapers and the Hudson River beyond. It's a scene often associated with success, with literally "making it to the top." But this key financial strategist ("When She Talks, Stocks Move" a New York Times headline recently proclaimed) has other things on her mind.
"Do you think you could get me the recipe for that spicy tomato cocktail they serve in the dining room?" Modigliani asks the receptionist. She is hosting a brunch this weekend, and the drink would make her menu complete. From junior high on, she explains, she had to prepare dinner one night a week. "My mother taught me how to cook, and I enjoy it. But I have to say I haven't had a lot of time for it recently."
As comanager with Byron R. Wien (MBA '56) of Morgan Stanley Dean Witter's model portfolio and its list of the top-ten stocks recommended for purchase, Modigliani begins her day at 7:30 a.m. when she meets with other financial analysts and doesn't let up until most people are washing their dinner dishes. "I listen to what the analysts say, because I want to keep track of the stocks they like and get ideas to put on our list," says Modigliani, poised, relaxed, and making it all sound quite simple. But when she announces a new addition every week or so to the top-ten or "fresh money" buy list, thousands of brokers and investors take notice, often increasing a company's market capitalization by millions of dollars. The pressure is intense, to say the least, but it's clear that Modigliani loves her job. "Every day the market is different, so it never gets routine."
Modigliani's current position at Morgan Stanley Dean Witter was created especially for her. "I asked Byron what I was going to be doing, and he said, 'You're going to do everything that I do, as fast as you're ready to do it, or maybe a little bit faster.' He keeps me right on the edge," she notes. "It's always a challenge, but he's been extremely supportive of me."
The importance of mentorship was impressed upon Modigliani at an early age. "I've always been around people who care about ideas. Everyone is a teacher in my family, except for me." That includes her grandfather, Franco Modigliani, a Nobel Prizewinning economist and MIT professor emeritus with whom she collaborated on a formula for measuring stock risk. "We started going back and forth with ideas over the dinner table one night, then I tried to put them down on paper, and we went back and forth with that." The result became known as Modigliani-Modigliani, or M-squared.
Given the ever-expanding growth of the market and the siren song of get-rich-overnight IPOs, the need for a precise formula to measure stock risk against performance is more pressing than ever. "If I tell you that a technology fund has a higher return than a utility fund, I haven't told you much about performance, because we know technology is higher risk, and we'd expect it to have a higher return," Modigliani explains. "But we might want to know how the portfolios performed after adjusting for the differences in risk. That's what our measure helps people do in a very easy way. It's close to what people do already in modern portfolio theory."
Modigliani doesn't attribute the market's rise entirely to technology stocks. "Technology is a big part of it -- technology-related stocks are now about 30 percent of the S&P 500 -- but there are other stocks that are trading at much higher price earnings multiples than they used to. I don't think we should expect the next ten years to be as good as the last ten years. I get worried when I see those people who are quite sure it's going to be even better."
Modigliani (a distant cousin of the Italian painter and sculptor), who grew up in Ann Arbor, Michigan, and graduated from Oberlin College, initially wasn't sure she'd like living in Manhattan. Now she is perfectly at home in the West Village with her husband (and former HBS sectionmate) Nicholas McGrane, a specialist in private equity at Deutsche Bank. "I love that when I leave the office, I'm in a really different world," she says, adding that she enjoys theater and seeing friends who work outside the finance world. For the moment she can't imagine living anywhere else -- or doing anything else. "I had no idea when I took this job that I would love it so much," Modigliani declares. "I think I've found what I like to do."