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Perrin Long

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For those interested in buying brokerage firm stocks, one of Wall Street's oldest pros recommends that investors take a long-term view -- a really long-term view. In other words, don't expect instant gratification. This long-term view takes in nearly a decade of possibilities.

That's Perrin Long's view. Long figures investors in brokerage stocks should be ready to weather the downside. "You have to be prepared to see these stocks decline 30% to 40% in value," he says. And that's especially true now, he adds, with stock prices "at levels that none of us have ever seen before."

Long should know. He's covered the brokerage industry for three decades, becoming the dean of brokerage analysts. In fact, Long invented brokerage industry coverage, writing a report in 1976 on

Merrill Lynch

(MER:NYSE) that his boss at first refused to publish, saying Long couldn't write about a competing firm. That incident also offered Long a flavor for the friction he would face while attempting to research an industry that employs you.

Today, Long, 68, works from his home in Darien, Conn., where he still closely follows the industry, selling his expertise to several brokerage firms. Some say his influence has waned. Merrill Lynch, for instance, notes that Long no longer publishes reports on the company or participates in its quarterly conference calls with analysts. And his former associate at

Lipper Analytical Services

never responded to repeated requests for an interview.

But the financial press still flocks to Long. He was quoted at least 31 times last year in publications ranging from

Business Week

to

The Wall Street Journal

.

Long started in the business in 1956 at Boston-based investment bank

H.C. Wainwright

as an assistant margin clerk, using adding machines to determine the day-end statements for margin clients. He soon broke into the research ranks, visiting companies up and down the Atlantic coast and then writing research reports for the Wainwright sales force.

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His tenure with Wainwright lasted until 1971, when he joined

E.F. Hutton

, where he climbed up to assistant director of institutional equity research. But when Hutton started cutting people in 1975, Long was a casualty.

In 1976, he joined a research boutique called

Faulkner Dawkins & Sullivan

. There, on a whim, Long wrote the Merrill Lynch research report. His boss gave in only after Long pressed him, even offering to pay for the printing. The firm ordered 2,000 copies. Four months later, it had to print 10,000 copies more, and Long figured he'd hit on something.

But after Faulkner Dawkins was acquired, "there was no place for yours truly," Long says. So in 1977 he set up his own company to focus solely on brokerage stocks and struck a consulting agreement with Lipper Analytical.

It was there that he made his reputation, in part, by knowing not only the big brokerage houses and investment banks but also the lesser-known firms such as

Interstate/Johnson Lane

(IJL:NYSE) in Charlotte, N.C. He made it a point to make at least 100 brokerage firm visits a year.

Long had a stint with

First of Michigan Capital

, even leaving Wall Street coverage in 1991 to head the firm's research department. But a management change there in 1994 sent him back to New York to cover brokerage firms. And last February he finished a one-year contract with

Brown Brothers Harriman

.

The pipe-smoking Long has a reputation for pulling few punches. For instance, he angered some brokerage companies by basing his valuations on their results excluding net interest earned, which can be a big number for some companies. Net interest income can mask problems in day-to-day operations, he notes.

Yet at the same time, Long admits that he has played the same game with which some analysts are familiar, holding back information to guarantee a steady supply of information. Once a brokerage house CEO asked him not to publish a report, saying it might damage ongoing merger talks. Long agreed on the condition that the CEO, who would hold a lower position in the merged company, help him out in the future. "I expect to come to you and be able to find out anything you know," Long says he told him. The CEO agreed and held up his end of the bargain, Long says.

So what stocks does Long like today?

Merrill Lynch is one favorite. The financial services giant features strong investment banking services and the biggest retail brokerage network. In addition, it has the foundation to become truly global, unlike most other firms in the business, Long says.

Another is

Alex. Brown

(AB:NYSE). Long likes it because of its strong investment banking operations. That recommendation has prompted some to ask why he would pick Alex. Brown over

Morgan Stanley

(MS:NYSE), which is a much bigger investment banking player. Long says Alex. Brown's smaller size gives it more room to grow.

And Long likes

Charles Schwab Corp.

(SCH:NYSE), citing the discount broker's technological prowess. He also predicts that Schwab will buy a major mutual fund company at some point.

But remember, in the Long view, these are long-term buys.

By Erle Norton

enorton@thestreet.com