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Bankers of the world, unite!

From a research note circulated in November 2002 by Morgan Stanley to its North American clients.

At the risk of encouraging the ghost of Joe Hill to come back and haunt us, we suspect investors should avoid heavily unionized industries today more than usual. From a long-term perspective, unionized areas have not been market-leading industries, and today heavily unionized industries stand directly in whatever the opposite of the sweet spot is. Consistent with our "buy the 800-pound gorillas" theme, nonunionized companies competing in heavily unionized arenas probably stand to accrue large relative gains.

What does history suggest about investing in heavily unionized industries? Avoid them. While the recent carnage in stock prices and brouhaha over excessive options issuance has kept investor focus squarely on the incredible shrinking tech sector, folks may be looking in the rearview mirror when it comes to where risks lie today. Yesterday's options problems in technology may be a lesser evil than tomorrow's pension and health-care funding requirements in rust-belt industries. In all kinds of respects we are living in a brave new world, but a decidedly old-world phenomenon—unions—may weigh on some new-world issues in the year ahead.

Look for the union label . . . and run the other way.

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SEE ALSO: Investments; Records and correspondence; Trade-unions

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