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Stuff My Co-Workers Have Said
Draw a Wall Street paycheck long enough and you will work with an amazing spectrum of personalities. Today’s note from Nic Colas (of ConvergEx) is an homage to his past coworkers in the form of some offbeat comments that have stuck in his memory over the past 25 years on the Street (and will ring true to anyone who has spent more than a day on a trading floor). On the psychology of money management: “Last year we made $360 million and lost $330 million." On the importance of language in positioning an investment story: "The company’s revenues aren’t unpredictable; they are just chunky.” And our favorite, from long ago: "Who cares if most money managers underperform. They all seem to have big houses and pretty wives." No, not all these quotes are exactly "Politically correct", but they all represent some useful truths about investing and capital markets.
Via Nic Colas Of ConvergEx,
Over the years I have worked at six firms on Wall Street, doing everything from mail-room duty to mutual fund phone rep to stock analyst and portfolio manager. What sticks in my mind about each assignment is not so much the work involved as the people I have met along the way. To put a little structure around this topic, consider the following thought. If there is a movie genre that most closely replicates life on the Street, I would argue that it is the prison flick. There are set personality types in both, such as the bully, the snitch, and the “Guy just trying to do his time.” In my experience, you learn more from your co-workers (or cellmates, if you prefer) about life on the inside than any other source of information. So today I offer up a few of the most memorable pieces of wisdom given to me over the years.
“Last year we made $360 million in profits, and lost $330 million.”
At one hedge fund where I was employed about a decade ago, there was an annual ritual in “The Room” which involved standing up in front of your co-workers and discussing what you had made in your portfolio the prior year and what you were promising to generate in the following period. The most volatile team of traders – a two man operation with regular multi-million dollar intraday swings in profits – led off the discussion. They broke down their gain in the prior year of $30 million into their winning days and their losing days: $360 million versus $330 million. It was as neat a description of the emotional rollercoaster of investing as I have ever heard. On winning days, you feel like a champ. On losing ones, not so much.
“Who cares if most money managers underperform. They all seem to have big houses and pretty wives.”
One of my business school classmates, an especially well-grounded fellow from the right side of the tracks in Memphis, came up with this gem. This was over two decades ago, so the sentiment is a touch sexist, to be sure. But it does point to one subtle but critical fact: investors just want to make a decent return. If a portfolio manager mildly underperforms in a rising market, he or she is unlikely to lose a lot of assets. Such was the case for active managers of equity portfolios from the 1980s to the early 2000s, for example. And such is the still the rule for fixed income managers. The bottom line is that investors ultimately care about real returns as much as relative ones. Deliver decent real returns and most people will not ask if it was the market or your prowess.
“The company’s revenues aren’t unpredictable; they are just chunky.”
With all the focus on what makes for a successful initial public offering lately, I remembered some of the lessons I learned helping out on equity capital market transactions as a sell-side analyst in the 1990s. For every hour spent actually pitching an issuer to use your firm for their IPO or secondary offering, about 20 hours of time go into creating the “Pitchbook.” Every word is scrutinized for its ability to put the issuing company in its most positive light. Even the “Investment Concerns” section has to be rah-rah positive. So when one highly experienced capital markets officer reviewed a pitchbook with the word “Unpredictable” listed as “Potential Investor Concern #1” he quickly replaced it with “Chunky.” When I asked him why, his explanation was, “Chunky, Nicky…. Like peanut butter. Everyone like peanut butter. No one likes anything unpredictable.”
“I am not saying ball bearings can cure cancer. I am saying ‘What if’ they could.”
On the same topic of selling IPOs and secondaries, one bit of the process that gets short shrift is the role of the equity salesperson. It is they who call their money management clients with the pitch, tailoring the given company’s story so that it appeals to as many potential buyers as possible. Valuation is always a struggle – not just in high flying social networking IPOS. Portfolio managers always want the stock cheaper. Good salespeople become adept at finding as many potential levers of earnings growth to counter the objections of the potential buyer of the stock. One especially talented salesman explained his rap with this only-slightly exaggerated example:
“Say we are doing a ball bearing company IPO. Boring. These things go in heavy duty equipment around the world. There are only three global players, and they still cut each other’s throats on price. And the cycle is rolling over. I need a new hook. What else can ball bearings potentially do? Hey – valuations in med device companies are sky-high. How about that pitch? I am not saying ball bearings can cure cancer (or anything). I am saying “What if” they could. That’s not in the valuation of the stock. You get all that cancer-cure upside for free if you buy this ball bearing company IPO.”
“He bought the first hundred poorly.”
Back to the hedge fund gig for the last two quotes. We used to get Excel spreadsheet printouts of every trader’s pad (their portfolio) left on our chairs in the evening. These lists included the positions of the owner/founder of the firm, one of the most talented (and now wealthiest) traders on Wall Street. One day I noticed that he was long 1 million shares of a large telecomm company. Now, this was during the tech bubble of the late 1990s and this stock was going nowhere fast. Why would a highly skilled hedge fund manager be long 1 million shares of a stock that doesn’t move? I asked this question out loud, and the trader next to me mumbled, “He bought the first hundred poorly.”
Lesson #1 in trading is to never, ever double down. Buy something stupidly, and the right answer is to ditch it. Never add. Our boss had gotten to a level where he could break that rule. The position turned positive the next day, and he sold. But it was very much a case study in “Don’t try this at home, kids.”
“I will make it all back.”
Every trading room has its flamboyant tough guy. Ours traded cyclical stocks, and he was famous for having been “Put on the beach” early in his career for losing too much money in one week. He took the leave, got his head straight, and returned a stronger trader for it. But one day after I had arrived, he got caught out overnight and the pre-open reports had him down $1 million on a $20 million portfolio. Our founder walked into the room, took one look at the sheets, and said to the tough guy – “Hey! Are you down $1 million? Do you want to go back on the beach?!” Much razzing ensued, which infuriated the tough guy trader. He responded, “I am going to make it all back. Every penny. Today. And then you will apologize to me.” OK – his language was much, much cruder. But you get the idea.
No one did a stitch of work that day. We all watched the tough guy trader’s pad, tick by tick. At 4:01pm he was up something like $50,000 versus the initial $1 million losing start to the day. Huge standing ovation from the room for his performance. Even the founder joined in.
The lesson here was a visible display of the old adage that “If you think you can do something, or if you think you can’t, you are probably right.” The point is he tried, he believed, and he succeeded. And of all the lessons in this brief note, I try to keep that one the closest.
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"Facebook is going to make my year!"
"I once bought back a short position before even placing the original order" --- An Algo
"i'd rather have a bottle in front of me, than a frontal lobotomy" - G. marx
real life is really fucked up. not a disney cartoon folks.
I'd say after people start earning around $200k/year, people act indifferent, careless, even immoral. start thinking they are God.
then later God comes out and puts them in their place.
The law of Karma my dear friend. Your single heartbeat is not spared of it. The problem is, they make the lives of good folks around difficult, like quoted in pulp fiction from the holy book..."the path of the righteous...."..but its just a game in the end really..so chill...
Reality is their illusion
Their fiction is the reality.
Try doing that, and then gauge your sense of things. US$200k per annum is ok but not altering.
200k?
I'd say it's the first million. Some people don't even survive after that, they completely self destruct
200k per yr in manhattan allows u to rent an avg 1 bdrm apt at best ($4k per month)...if u have a family, u r living at the level of someone making $35k per yr in the rest of the country. even $1 mill per yr is not much if u have a family in manhattan. $200k per month is the 1st level sweet spot where life seems to change for the better (or worse in a lot of cases)!
then later God comes out and puts them in their place.
History is so full of events like this, it amazes me that we never seem to get it. God is about to take the US down a notch or two, He has done this before. God will not stand by while mocked.
The story of man.
sschu
"I'd say after people start earning around $200k/year, people act indifferent, careless, even immoral. start thinking they are God."
My personal experience has been that many wealthy people are relatively compassionate and want to help people who are disadvantaged and/or are in difficult circumstances, whether or not of their own making. And anything less a million per year doesn't even begin to reek imo.
"In Investment Banking (I'm in IT), when you join a new firm, you are issued two pieces of equipment:
Either:
A saddle and a bit
or
Riding chaps and a whip.
If it's the saddle, you must wear it smiling; if it's the whip, you must wield it frequently while grining."
Always stuck with me... so after the first week I'd check with my friend and ask him: "Whip or saddle?"
"I love my cigar very much, but I take it out every once in a while" - G. Marx
EPIC fail. "Some losses are beyond the ability to be repaid." Even JP Morgan had a Special Purpose Vehicle...the greatest lesson of all. "Know who the guy on the television works for" would be my advice. Trust me when i tell you..."it ain't for you the viewer" and "no, it ain't for Proctor and Gamble so they can sell more toilet paper."
I once knew a money manager with a really ugly wife. However, all 3 of his girlfriends were gorgeous.
That's probably whose money he was managing.
as were her pool boys, tennis / golf pro instructors, no doubt.
it's all about rank with those peeps, *nods*
so cute to see so many up votes on the subject tho' - herd's in line.
It's an investment in the long term.
"Buy silver and gold, lose them in a drunken boating accident (along with any guns)."
"BTFD"
"Fade any and all GS recommendations"
"Bad news is easier to take if cartoon bears deliver the message in a Stephen Hawking voice."
These are the things your co-workers would have said if your co-workers all posted on ZH.
Add CNBC to your parental controls......then flush the remote.
just kill your cable...it's cheaper and more thorough.
if yer going for a list of copy/paste posts that hit virtually every thread, don't forget,
some version of "bend over, taking it up the a$$"
and much use of "bitches"
and the occasional "nice titties, dude! <3!!"
keepin' it classy, like middle skool home room, brah.
http://hartzman.blogspot.com/2012/06/could-it-be-possible-for-small-city.html
FINRA, SEC, DOL, CFPB, FTC, FRB, and PCAOB Wells Fargo Whistleblower Complainthttp://hartzman.blogspot.com/2012/06/finra-sec-dol-cfpb-ftc-frb-and-pcaob.html
When the tough-guy trader was asked "You got change for a twenty?" He answered "Twenties *are* change, bro!"
We're exactly where we should be.
I worked in the Street from 1968 till 2002 and am presently an active money manager, analyst and consultant "off Street". The above article may be entertaining anecdote but it's pure BS.
I worked in the Street from 1967 till 2003, and I think the article is dead on.
i've never worked on "the Street" and i think they're all a bunch of lying, swindling cunts
i was born in 67 and still kickinin in 2012 and would love to boot fuck a wall street prick
Don't own a pair of boots? What's stoping you sport?
maybe he needs a p, same as you.
damn spellingz nazis... three down votes for missing my pee.
numbnuts 42
the avatar should be a clue..........what's stopping me, geography
but if you're willing to swing by i'll lace em up
I watch and ponder financial media think "this ain't just the tip of the iceberg...THIS IS THE ICEBERG!"
I don't watch nor ponder the financial media and think "This ain't a canoe up shit creek without a paddle...THIS IS THE TITANIC!"
In my experience, the more old-school they are, the better the lines.
- Know where you can find sympathy? Try the dictionary, between sh*t and syphilis.
- You need to relax. Here's a fifty, you've got 30 mins to go to Zeedijk and back.
Ah, the current traders will look back wistfully and tell stories of supercomputers and algos...
Ha!
Same as the Einstein quote?
"What will WW IV be fought with? Sticks and stones"
"What will the next generation of traders but using for toolset? pad & pencil"
Weapons of mass financial destruction.
Awesome post.
If you liked it at 50 you'll love it at 25.
Just dont push that panic button!
ot. . .anyone else experiencing "processing" problems with BofA today? The "helpful tip" suggests I probably shouldn't presume to spend the nearly-deposited money it's struggling to process into my account.
Standard direct payroll deposit, twice a month, over a decade, never a hitch, til today.
First of all..... Get your money out of BAC. What are you thinking?
Secondly , more to your point, there was a lot of strange Internet activity today. I've hear reports of issues w / banks, service providers, and twitter was hacked too. A very odd day.
i saw the twitter up/down here on zH also
i had a strange brew over on nadler's site this morning
i'm bringing up kitco checkin the HUI and looking for the TSX damage and i clicked on chuckButler's article; he publishes with agora, also and is with everBank, which i have seen advertised here
the new tab: 'web is down' ; i've not seen that before and i'm not sure i saw that today; i did it twice, and closed the tabs; i do hope i have that wrong but as i closed the second tab i thought: web is down? wtf?
on nadler's site this morning
On purpose?
You've been a ZH member for 44 weeks and you still have an account at BAC?
Third grade is proving to be the toughest four years of his life ... to date....
>Standard direct payroll deposit, twice a month, over a decade, never a hitch, til today.
Could be even worse! One could read that as: "He's been working at BAC for 10 years" ;)
you're kidding, right?
just trolling to see what you catch?
I recall "Don't think, just sell"
Fuck Wall St.
Who are you addressing by your suggestion?
Oh, to be a tick on the ass of some trader...
or a leech on the ass of some tick?
Well, whatever.
The stories I could tell!
It's building a base
It's set to take off like a coiled spring.
I know it's down, but the fundementals of the company are sound.
Who likes a company that does ball bearings? Boring.
"The firm made money, I (the trader) made money. Hey two out of three aint bad "
"It's not money until you sell it."
Escalator up, elevator down.
i consider success to be akin to insanity...defined by others
Nic Colas. Is he related to Mike Hunt and Ben Dover?
Have you read the book, The Yellow Stream, by I.P. Freely?
Hear about that Chinese cowboy in Arizona? There was a book about him: Nut on a Barbwire, the True Story of Wan Hung Lo.
i have conversations like these at casinos
same exact words in some of these cases
hedgies, traders. sell-siders, managers, and closers?
gamblers unan-i-mouse!
you should see my co-workers heckling me for staying out of the stock market and just stacking. meanwhile, the take out monster loans on homes after being at a job for two years. hopefully, they won't be laughing last.
"I will make it all back"
Classic Casino language.
DCA.......all the way down.
Short stocks, but go long on livestocks.
the very fact that someone can "make back" a million dollars by sitting in an office for a single business day, not producing any real wealth whatsoever, illustrates just how badly the fundamental meaning of our monetary system has been perverted
one day sitting in an office with no net wealth created valued at more than a year's labor for 25 farmers, miners, and factory workers (note: 5AM bad math corrected... still it's egregious)
think about it, it's astonishing that this farce is allowed to continue as long as it has, these people have destroyed the meaning of money itself
how many iPad and iPhone makers?
Value is subjective. It seems you would dictate value, if you had such authority.
I prefer snake oil salesmen over dictators.
Perfect systems are hard to come by.
On the contrary it is the dictation of value by our present monetary authorities that I am protesting... this is not a natural state of affairs, this is the end result of epic monetary abuse.
The relative valuation here over the median is ~6250:1. That is not natural in any way shape or form.
Do you have friends? "Friends? No, I just know people who are not my enemies yet"
To wit this 50+ year old exchange to the best of my memory:
Bullwinkle The Moose: Who are you?
I am Cerulian Blue, Art Critic.
BTM: Kinda odd name. What do your friends call you?
(pause)
CB: What friends? I'm an art critic.
BTM: Hey, Rocky, watch me pull a rabbit out of my hat.
RJS: But that trick never works.
Thanks for sharing Nic. I love these war stories.
The easy part of trading on Wall Street is the lie - The hard part is remembering which lie went where?
if they end up no good at keeping their lies in order they get sloughed off to work at DoJ instead