In October the market went supernova. On Wednesday, October 6, the Dow Jones rocketed 37.07 points, the second greatest one-day rise in history. Everyone on the Amex was going crazy, making fortunes. You couldn’t see the floor for the buy-sell tickets. I was blowing their socks off with my option trades, but when everybody else was dancing the mashed potatoes on their way to the bar, I sprinted for the elevator to get back up to the Telerate. “Audrey! What’s happening to the physicals? How’re the December S&Ps?” By now Audrey was calling Debbie for the quotes.
“Buzzy, the S&Ps moved up to 126.45. The physicals have been rising.” So was I. We watched the cash bonds go up steadily over the next half hour. My indicator was up 11/32 at 3:30. Up 12/32 at 3:45. This was going to be awesome. I had to take a pee, but I couldn’t leave. Up 110/32 at 4:00!
“Debbie! Buy a hundred and fifty December S&Ps at the market! No, the hell with it. Buy two hundred. Call me right back! Get me these babies and we’re all goin’ to Vegas!” I hung up. “Audrey, if this works, we’re at a whole new level.”
The next morning the S&Ps opened at 128.70. I had two hundred contracts at an average price of 126.53. 200 contracts × 500 × a gain of 2.17 = $217,000. Holy shit. This was a whole new level.
All through October, I smacked the S&Ps when they went up and I smacked them when they went down. On October twenty-second, on rumors that the Fed was not going to lower the discount rate before the election, the physicals plummeted in after-hours trading, the S&Ps opened down 1.85, I was short 150 contracts, covered at the opening, and in one minute made $138,750. By the end of the month, I was up $1.4 million. My legs were sore from jumping up and down, my voice was shot from screaming at Debbie on the phone, and Audrey’s ribs were tender from being hugged. In February, when we’d crawled out on a limb and dumped $400,000 into the beach house, our net worth was $1.2 million. Now, in one month, I’d more than doubled that, I’d made more in a month than I’d made in my entire lifetime. I can’t begin to describe that feeling. Every day, for twenty straight days, we’d get in the Eldorado to drive home from work and we’d be, on average, another $70,000 richer. It would have taken me a whole year to make $70,000 if I were still a securities analyst.
All of a sudden, I was a thirty-seven-year-old multimillionaire with seemingly unlimited earning potential. Why? Because I’d been able to find a new game that fit my personality and then see something that made it all mine. I was one of the first to realize that there was a direct correlation between the cash bonds and the S&P futures. That’s because I was one of the few people who played stocks, bonds, and currencies. Most traders were specialists who played one but not the others. They had no way of finding an indicator that was a crossover. I was one of the first S&P traders to recognize the extra benefit of using a Telerate to trade S&Ps. And thanks to my trusty Telerate, I was living every gambler’s dream. I knew what was going to happen before it happened.
Luck? You bet it was luck, but it was also intellectual because I worked so hard at it. I’d put in the time and figured out something that nobody else could see, and now I felt better than Joseph. I had the ability to take care of my entire family and provide them with financial security for the rest of their lives.
And the fame thereof was heard in Pharaoh’s house, saying, Joseph’s brethren are come: and it pleased Pharaoh well, and his servants.
And Pharaoh said unto Joseph, “Say unto thy brethren, This do ye, lade your asses and go, get you unto the land of Canaan.
And take your father and your households, and come unto me, and I will give you the good of the land of Egypt, and ye shall eat the fat of the land forever.
—Genesis 45:16-18
Switch Hitting
I made up my mind, but I made it up both ways.
—Casey Stengel
After a couple of months on the floor, I was trading some Digital Equipment options with Frannie Santangelo and complaining about how I was always having to run around looking for quotes. Down on the floor, I could never get the information I wanted when I wanted it. The specialists who were paying the rent on the quote machines decided what symbols they wanted up on the screens. Chickie had Mesa Petroleum on his screen, and Joey had Texaco on his, and Frannie had Digital Equipment, but nobody had all the information I needed in one place.
“Marty, I’ve got an office upstairs with a Quotron,” Frannie said. “Feel free to use it. Make yourself right at home.” Frannie stayed downstairs during the day running his book, but Frannie was a big-time operator and he kept his clerk and a couple of guys, Jerry Muldoon and Leon D’Agostino, upstairs. Jerry and Leon traded some of Frannie’s capital and got to keep a piece of the action. When Frannie decided that I was a winner, he figured that it would be good to get me upstairs. He figured that while he was working me for s’teenths on the floor, Jerry and Leon could be working me for ideas and information upstairs.
I was flattered. During lunch, while a lot of the boys went out for a quick pop, I’d grab a sandwich and go up to the office. I’d post my charts and prepare myself mentally for the afternoon. I had all the information I needed right in front of me on the Quotron and a direct line to the floor. When I wanted to make a trade, I’d call Fat Mike and Fat Mike would execute my order.
Jerry Muldoon and Leon D’Agostino saw that I was making all this money and they befriended me. I knew that Frannie’d told them to look over my shoulder, but the rent was free, they weren’t bad guys, and that was fine with me. I’d call down to Fat Mike with a trade and Jerry and Leon would go running for their phones. What did I care? Having them come in behind me just bolstered my own positions.
After Mesa options, I started trading ASA, the South African gold stock. With inflation out of control, the gold stocks were jumping all over the place, which was great for a market timer like me.
One day, I called Fat Mike and told him to buy me fifty ASA May options, and Jerry and Leon were listening. I never asked them what they were doing, and never really knew whether they were following me into a position or not. After Fat Mike called back to say that the trade was set, I decided to go down to the floor to see what was going on. While I was on the floor saying hello to Hayes, Donnie Gee, Frannie, and Fat Mike, I was keeping an eye on the tape, and I didn’t like what I saw. “This is wrong,” I said to myself. “I’ve gotta change my position.” I liquidated my longs and went the other way. Once I’d switched from long to short, I headed back upstairs. When I got there, Jerry was glued to the Quotron. He had a worried look on his face. “Geez Marty,” he said, “the market doesn’t look so good.”
I glanced at the machine. “I know. That’s why I’m short.”
“Short! When did you go short? You were long just a little while ago!”
“Yeah, but when I got to the floor I didn’t like the looks of things, so I switched my position.”
Jerry’s chubby pink Celtic face turned red, and then crimson. “You son of a bitch,” he bellowed, jumping out of his chair. Jerry played in a softball league and he kept a bat by his desk. He grabbed it and started coming after me. “I’m gonna kill ya.” His Irish dander was up.
“Jerry, calm down!”
“How the fuck could you change your position?” He was still coming after me, swinging the bat wildly around his head.
“I just did what I had to do,” I said ducking behind a chair. “I’m trying to take care of my family and the last time I looked, we didn’t have an Irish branch. You know, the lost tribe got lost in Israel, not Ireland.”
That calmed him down, and after he put the bat back, I said, “Look, Jerry, one of the reasons I’ve been able to make some money is that I’m a switch hitter. It’s like in baseball, if they bring in a righty, I’m batting lefty. If I see the market going lefty, I’m switchin’.”
When you’re a market timer, you have to be equally good at going short and going long, and when the markdet changes sides, you can’t hold your position and hope it turns around. If you’re not a natural like Mickey Mantl
e, you’ve got to be a student of the game like Rod Carew. Practice, practice, practice.
This tip is not directed at the amateur or hobby investor, but to the aspiring professional. Most average investors are long stocks, and that’s all they should be. They shouldn’t be going short, and they don’t need to know how to do it. Going short’s a game for the pros.
7
Never Short a Republican
It was Election Day 1982, and Audrey and I were sitting at our desks waiting for the market to open. We’d just voted and I was feeling guilty. In my heart, I was a liberal Democrat, and in my heart, I’d always be a liberal Democrat. That’s how my parents had raised me, with a picture of Franklin Delano Roosevelt hanging on the wall of our house in New Haven. But now that I was starting to make big money, I was starting to forget my roots. I’d just voted Republican.
Living in New York City meant that I was giving 57 percent of every dollar I made to the government in income taxes. To me, governments had become gluttons who just couldn’t seem to get enough of my money, and for what? The streets were full of potholes, the subways were covered with graffiti, somebody was always getting mugged, city workers were always going on strike. I wouldn’t have minded paying the taxes if I thought that they were doing some good, but when I saw how my tax money was being wasted and mismanaged, I’d decided to vote with my wallet, not with my heart. God, I was even sounding like a Republican, but that’s what happens when you start making big money, and thanks to the S&P 500 futures, I was making big money.
I’d been profitable every month since I started trading the S&Ps except for June, when I’d gone back to my fifteenth reunion at Amherst and I’d come back with a big head. College reunions are a great barometer for how well you’re doing. At your tenth, you start to get a feel for who’s going to make it big time. Doctors have picked their specialties and are starting to practice, lawyers have chosen their areas of expertise and are bucking for partner, academics have gotten their Ph.D.s and their assistant professorships and are being considered for tenure, businessmen have done their rotations through marketing and production and are angling for their own divisions, financiers have built up clienteles and are beginning to get a piece of the action. By your fifteenth, a few guys are becoming stars. They’ve discovered a new cure, won a big case, published a seminal work, captured a major vice presidency, or pulled off an incredible deal. By your twentieth, it’s going to be clear who’s got the momentum to go all the way, and by your twenty-fifth, it’ll pretty much be over. You’ll either be sitting at the president’s house sipping sherry and writing out a big check to the alumni fund, or you’ll be huddled in the back of the reunion tent, still drinking beer, still networking, still hoping for a break.
I was becoming a star. I was especially pleased with how far I’d come in the last five years. At my tenth reunion, nobody got the feel that I was going anywhere, let alone big time. I was working for Hutton, had no money, was living in my little rent-controlled studio apartment, and was too scared to ask Audrey to marry me. At my fifteenth, I was working for myself, was a millionaire, was living in a posh East Side apartment, had a beach house in the Hamptons, and was happily married.
At our first class meeting in the fall of 1963, Eugene S. Wilson, dean of admissions, had told us: “Most of you have been in the top ten percent of your high school class, but as you look around this room, basic mathematics will suggest that half of you, a full fifty percent, will be in the bottom half of the Class of ’67.” From that moment on, I was determined to be in the top ten percent of my class, and at my fifteenth reunion, I felt that I’d finally made it. And I wanted my classmates to know it. I’d strutted around the campus in my alligator shoes with Audrey on one arm and my big Rolex on the other, making it easy for everyone to see that I was going big time. Of course, when I got home, I promptly lost $35,000 in June.
But in July and August, trading out at the beach, I’d regained my equilibrium and made $333,000. Then in September, I discovered the correlation between the cash bonds and the S&P and made $160,000, and in October, thanks to my trusty Telerate, I’d made $1.4 million. That was unbelievable. Nobody I knew could match this performance. In October of 1982, I was the fastest gun on the Amex, bar none.
By this time, Audrey and I had a couple of desks on the ninth floor of 74 Trinity Place in space that Bear Stearns, my clearing firm, was giving me. I was supposed to have my own office, but at the last moment, Bear Stearns had given the office they’d promised to me away to some specialist who they thought was going to generate more business for them. But, what else is new. Once again, I’d gotten crowded out of the club.
Audrey and I were stuck in a little alcove. It was not a great setup. Behind us, there was a bullpen where a bunch of small-time traders with accounts at Bear Stearns sat, smoking cigars. Like all traders, they were always yelling and swearing. “Look, asshole, get me the fuckin’ quote.” “I don’t need any of your shit, just sell it.” “Fuckin’ A, I just hit a home run.” “I just got screwed out of a five lot on the OEX calls. Those bastards never fill my orders quick enough.” “Fuck. Doublefuck. Chickie just bungholed me on some Mesa options. He took ’em ahead of me.” It was pretty rough. I was allergic to the smoke, and it was hard on Audrey, being one of the few women on the floor, but we couldn’t beat the price and we were making a shitload of money.
My desk and Audrey’s were set in an L at a ninety-degree angle so we could sit shoulder to shoulder. We were a team, a perfectly balanced team. I understood the market, and Audrey understood me. She understood my psyche. I’d mutter at my Quotron, I’d check my moving averages, I’d talk on the phone to Zoellner, or I’d check in with Debbie for a quote, and Audrey would be doing her work, listening, observing, getting a feel for how I felt. Audrey was the real prophet because she could tell from my scribbles, and my body language, from what I was saying and what I was doing, how serious I was. She knew what I really wanted to do.
I’d be sitting there looking at my screens, checking my moving averages, and say something like, “The market looks good. The S&P’s hit an inflection point, it’s in the buy range,” and Audrey would say, “Buzzy, if you like it, get it.” Or we’d be glued to the physicals on the Telerate at 4:10, and Audrey would be murmuring in my ear, “Buzzy, you like it. Go for it. Go for it.” And I would, and the S&Ps would open up a point and a half the next morning, and we’d make another shitload of money in one minute. Having Audrey sitting there, reinforcing my feelings, gave me just the edge I needed.
We weren’t expecting Election Day to be a very busy trading day. The market closed for presidential elections but stayed open for midterm congressional elections. Still, bank closings and uncertainty about the outcome of the voting had led most of Wall Street to believe that on this day, the market would bide its time. Plus, the Street didn’t really know if it wanted a Republican victory. This midterm was the first public referendum on Reaganomics and this election, more than most, was focused on the administration’s handling of the economy.
The Republicans had captured both the White House and the Senate in 1980, and the question for this election was whether Reagan, the great communicator, had been able to sell his trickle-down supply-side economic theories to the voters. Democrats had been pointing to the 10.1 percent unemployment rate, highest since the Great Depression, and claiming that the administration, once the election was over, was prepared to cut Social Security benefits. Republicans, on the other hand, had been pleading for more time to make their programs work. According to the Wall Street Journal, Republicans were urging the voters to “Stay the course,” while Democrats were responding, “Stay the curse.” The polls were predicting more of the same, that the Republicans would hold on to the Senate, but that the Democrats would pick up some seats in the House. That scenario made sense to me and I didn’t expect anything dramatic to happen in the markets.
Somewhat to my surprise, stocks jumped off to an early gain that morning and built on it for most of
the day before settling back to a comfortable 16.38 advance on the Dow. Trading volume climbed to 104,770,000 shares, way up from Monday’s 73,530,000, and that was heavy, especially for an Election Day. As predicted, the exit polls indicated that voters were staying the course by letting the Republicans retain control of the Senate and the Democrats control of the House, and apparently, buyers were finding reasons for optimism no matter which party prevailed.
I’d gone long in the morning and then started selling short toward the end of the day because when the market rose suddenly, sometimes I’d go get short toward the end of the day and catch a late sell-off. The Dow was up more than 30 percent since August and had just broken the thousand-point level for the first time since 1973. The S&Ps had opened at 137.70, gone as high as 140.90 and then settled back to close at 138.85 for a respectable gain of 1.40 points on the day. All of my indicators had said that the market was overbought, and they were right. I’d caught the market going up and coming down and we’d had a good day. The quotes on my Telerate for the after-hours trading of the cash bonds were just like the election, inconclusive, so I didn’t bother to put on an overnight position.
“Buzzy, I need a new coat,” Audrey said as we were packing up to go home. This didn’t surprise me. She’d just been talking on the phone with her mother, Sally Polokoff, and like all good mothers, Sally Polokoff was forever thinking of things that Audrey needed. “I’m going to take tomorrow off and go shopping with my mother. She knows a furrier down in the garment district that’ll give us a good deal on a mink.”
So now Audrey was getting a mink. How Republican. But that was all right. If Audrey wanted a mink, she should have one. She’d earned it, plus, we’d just learned that she was pregnant again and what better way to keep both my babies warm during the cold New York winter than by having them swaddled in mink.
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