Commodities Corp had been the brainchild of Helmut Weymar. In 1969, at the age of thirty, Helmut was an MIT computer jock who’d become the manager of commodity economics at Nabisco. Helmut was one of the first to realize that commodity trading was particularly susceptible to analysis using information generated by computers. Until then, most commodity trading had been done by the old-boy networks that controlled the London Metal Exchange (precious metals), the Chicago Board of Trade (grains), and the Chicago Mercantile Exchange (meats and livestock). Most of these guys traded on instinct, not theory. They’d look at things like weather, politics, and economic conditions and then shoot from the hip. They had no way of analyzing the myriad of forces that affected commodity prices and that’s why commodities markets were so volatile and difficult to predict.
Helmut Weymar felt that he could use computer modeling to give his traders an edge. His plan was to recruit the most gifted traders he could find, put them in an environment where they’d have all the latest technological support, give them a grubstake, and turn them loose, but rather than turn to the old-boy network, he sought out the new breed of trader, the ones who were on the cutting edge of technology. His plan worked, and by 1988, Commodities Corp was one of the largest traders of commodities in the world.
On April 26, 1988, I drove down to Princeton with Dan Kornstein, my lawyer, to have lunch with Bob Easton, Elaine Crocker, who was in charge of Commodities Corp’s kennel of traders, and a couple of other well-dressed, well-mannered Commodities Corp potentates. I could tell right away that these characters weren’t players. They were too smooth to be players. They were salesmen, the ones who lured traders like me into Commodities Corp.
They escorted Dan and me into one of their fancy private dining rooms where we were treated to a gourmet lunch of cold cucumber soup, lobster salad, a raspberry torte, and chocolate truffles, all prepared by Commodities Corp’s own in-house chef. Commodities Corp was a long way from the floor of the American Stock Exchange where lunch was a corned beef sandwich served from the pocket of my blue smock.
As Dan and I ate lunch, Easton and his sales force took turns telling us what a great place Commodities Corp was and how well it treated its traders. All I wanted to know was how much money they were going to give me and how much I got to keep, so after my third truffle, I said, “Okay, what’s the deal?”
“As one of our new traders,” Easton said, “we’ll give you two hundred and fifty thousand dollars in margin and you keep thirty percent of your profits.”
I laughed out loud. “Two hundred and fifty thousand dollars,” I said. “Cut the crap. I’m making five to six million dollars a year now trading my own account. I’ll tell you what, I’ll give you two hundred and fifty thousand dollars and you can trade it for me.”
“Marty, Marty, please,” Easton said, straightening his Brooks Brothers tie, “Michael Marcus, Bruce Kovner, even Paul Tudor Jones all started small. That’s the way we like to do it.”
“Good for them,” I said. I stood up, took off my jacket, and draped it over the back of my chair. “I’m going to the john to wash my hands and when I come back, I hope you guys will have thought this over and be able to make me a better proposal.”
As I walked out of the room, Dan gave me a look that said, “Marty, what are you doing? You’re going to blow this deal,” but I was a trader and I knew I was right. These guys needed me more than I needed them, and sure enough, when I came back they upped the ante. Commodities Corp was willing to let me manage $10 million of their capital pursuant to certain margin limitations, and I still got to keep 30 percent of my profits.
Before I left, they wanted me to meet with Helmut Weymar, the chairman and founder of Commodities Corp. Helmut and I hit it off immediately. Helmut was a trader. I showed him my methodology, how I did my charts by hand, how I did moving averages, how I had to massage the numbers and see how they felt. Helmut liked that. “Computers are a great tool,” he said, “but you’ve still got to get your hands dirty with data.”
It took Dan a couple of months to work out all the details of my contract, and by mid-June I started trading for Commodities Corp, but right away, it didn’t feel right. Having that much money forced me to change my style and my time horizon for holding positions. If I was wrong for myself, I’d get right out and take my loss, but with a position of hundreds of contracts, there was a tendency to wait and give the position more time to work itself out. Unfortunately, if I was wrong, the losses would be hundreds of thousands of dollars, or even millions. Then I’d have to start over and make that money back just to get even. Plus, I didn’t like the scrutiny. When I lost my own money, I just sucked it up and moved on. When I lost Commodities Corp’s money, I felt like the whole world was watching.
I did some small trades for Commodities Corp, ones that fit my style, but by July, I had pretty much quit trading their account. Then one afternoon, I got a call from Helmut. He was at the Denver Airport. He was on his way to the Aspen Institute to get his brain cells recharged and I must have been the last item on his to-do list. “Hey, Marty,” he said, “how come you’re not trading for us?”
“I tried working with your money, but it requires a different style, a longer time horizon, and I don’t feel comfortable with that. I’m more short-term oriented.”
“Hell, trade for us the way you trade for yourself,” he’d said. “That’s why we hired you.” Helmut then gave me a big pep talk about how much they wanted me and how they thought I was the best and how we could make a lot of money by working together.
“Okay,” I’d said, “I’ll give it another try.”
Helmut’s speech was all I needed. Over the next two months, I made $700,000 for the Commodities Corp account. That made me one of their rising stars, so by the time of Commodities Corp’s Semi-Annual Trader’s Dinner, I was feeling like a top dog.
Thwop, thwop, thwop. Kovner stopped in the middle of a sentence about how “in the prevailing phase of the business cycle, interest rate theory predicted that the nearby contract should trade at a higher price than the next contract,” and said, “What’s that?”
The whole room moved toward the big glass windows of Commodities Corp’s ultramodern building. A helicopter was settling onto the lawn, its lights blinking in the twilight. “It’s Jones,” someone said with reverence. Paul Tudor Jones had arrived. I had to admit, Paul Tudor Jones was a class act. Not only was he a great trader, he was a real showman, a smooth, good-looking southerner who was always running three steps ahead of the pack. Tudor Jones had started trading cotton back in 1980 and had made millions, but at the time of Commodities Corp’s Semi-Annual Trader’s Dinner, he was best known for the way he’d doubled his money in the crash of ’87. Tudor liked fooling with mathematical models that he called analogs and he had a chart pattern in October of 1987 that showed the market was reenacting 1929. Consequently, he was way short on October 19, and when the market crashed, he sold more into the hole to smash it even further. I was never sold on Tudor Jones’s modeling, especially since we didn’t have a Depression and the economy turned out to be fine, but Tudor Jones’s models made a fortune for him, so they worked for him.
When Tudor Jones entered the reception area, it was like Robert Redford had come into the room. Everybody gathered around. He was every bit as polished as Bob Easton and every bit as smart as Helmut Weymar. Of course, he wasn’t staying for dinner. He was choppering down to his three-thousand-acre retreat on the Chesapeake Bay and had just dropped in to pay his regards. Tudor Jones didn’t have to sniff anybody. He could buy the whole hydrant.
At precisely 7:30, as Tudor Jones’s chopper thumped into the night, Easton invited us into the Commodities Corp dining room. I didn’t want to sit next to some dweeb, so I grabbed Louis Bacon. Louis shared an office with Harry Denny over at Shearson, but at the time he wasn’t a big hitter. If I’d been smart, I would’ve hired Louis right then and let him manage some of my money, but Louis was a southern boy, like Paul Tudor Jones, and I didn’
t understand these southern guys. Despite Tudor Jones’s success, I still thought that because they talked slow, they thought slow. Little did I know that over the next five years, Louis would eclipse me nine times to Sunday. If I had hired him then, he would have made me millions.
Easton was tapping his glass. “Helmut and I would like to welcome you to Commodities Corp’s Semi-Annual Trader’s Dinner,” he announced. “Thanks to all your good work, we’ve had another fantastic year.” Easton went on to tell us what a great team we were, how we were dominating the markets, how we were world leaders in forecasting market trends through the use of computerized technical trading systems. “You are the best and the biggest traders in the world,” he concluded. “By my calculations, fifty percent of the pooled commodities money in the country is managed by people in this room.” That was impressive. I wondered if any other industry could put 50 percent of the players in one room.
Easton sat down and we were treated to another gourmet meal: eggs stuffed with caviar, oysters in garlic butter, venison steaks, herb potatoes Maxim, butternut squash timbales, and chocolate tarragon. Tuxedo-clad attendants kept our glasses filled with fine French wines. When the chocolate tarragon arrived, Easton got up and clinked his glass. “It’s a Commodities Corp tradition at these dinners,” he said, “that everyone has a chance to speak and to tell us what they think is happening in their particular markets.” With that, he started going around the tables asking people what they thought about different commodities: currencies; grains; cocoa; sugar; pork bellies; cattle; gold, silver, and copper; Eurodollars, T-bills, and T-bonds; and stock index futures. It went on and on. Commodities Corp traded 135 different commodities and it looked like we were going to hear about all of them.
Eventually, they got to oil futures and I thought that this discussion would be pretty interesting because the price of oil had been plummeting. It was trading at $12.50 a barrel, the lowest it had ever been since the formation of OPEC, and nobody seemed to know why. There was speculation that the CIA might be putting pressure on the Saudis to flood the market in order to help our balance of payments, or maybe just to needle the Russians, or the Iranians, or the Iraqis, or all of them; who knew?
To talk about oil, Easton called on some porky cowboy from Texas. To me, the guy looked like Billy Tex Bunghole. He was wearing boots and a spangly silk shirt that was open halfway down the front. A big gold chain hung around his neck and attached to it was a gold medallion that dangled on his furry chest. His porky face was beet red and he was sweating. “Seems lak to me,” he drawled, “over the nex six months, the prass of West Texas crewed is headin’ down anotha six dollars a barrel. Ah mean to tell you boys, those wells are pumpin’ lak a two-dollar hooker on a Sahdy naht. We’ve got awl comin out our ass. In six months, we ain gonna be able to give it away.”
“Thank you, Tex,” Bob said. “Now let’s hear what’s happening in the European market.” He called on a dapper little Frenchman. This guy was thin and effete, and wearing a tailored blue serge suit, custom-made shirt, and Hermès tie. “In zee next five years,” Pierre Le Flit crooned, “zee supply of oil will far outstrip zee demand in l’Europe.”
When Pierre finished, Helmut Weymar caught me by surprise. “We’re fortunate to have Marty Schwartz with us tonight,” he said. “Marty’s a new trader with Commodities Corp, one who’s doing very well for us. Marty, what do you think about what you just heard?”
I puffed out my chest a little. I didn’t trade crude oil much, but I decided that this would be a good chance for me to shake things up a bit. I was the new dog at the hydrant and it was time to lift my leg. “Helmut,” I said, “I appreciate your asking me down here tonight, but I’m something of a heretic. I don’t know what the supply and demand of oil’s going to be in Europe in the next five years and I don’t know what the price of West Texas crude’s going to be in six months and, frankly, I don’t care. I’m a mark-to-market trader, all I want to know is what the price is going to be tomorrow, and I’ve got to tell you, when I posted my charts, checked my stochastics, and calculated my ratios just before I left the office today, oil was above my moving averages. As far as I’m concerned, oil’s in a positive mode.”
The Commodities Corp’s Semi-Annual Trader’s Dinner wasn’t over until after eleven, and by the time I got home, I was too tired to go over my charts. The next day, I was paying for it. I was constantly on the wrong side of the market; I was tired and way out of sync. At midmorning, the phone rang. It was Harry Denny from Shearson. “Marty,” he said, “have you seen the price of oil? It’s going crazy.” I punched oil up on my screens. The Dec 88’s were at $13 a barrel and climbing. Tick, $13.10. Tick, $13.15.
“Fuckin’ unbelievable,” I said. “We talked about oil at the Commodities Corp dinner last night. I said it was going up, but I was just yanking their chains.”
I forgot about oil and went back to my own trades. I was down a bundle on S&P futures. The next day, Harry called me again. “Marty,” he said, “you watching oil? Sheik Yamani must have ordered OPEC to turn off the spigots or something. It’s heading straight up.” I punched oil up on my screens again. Tick, $14.30. Tick, $14.35.
When oil hit $15 the following day, it finally dawned on me what was happening. It wasn’t Sheik Yamani who’d driven the price up 20 percent in three days. It was Sheik Schwartz, the kid from New Haven, who’d done it. What I should have realized was that if 50 percent of the pooled commodities money in the country was sitting in the same room at the same time, a lot of it was in oil, and most of it was short. When Sheik Schwartz said that his charts showed oil was in a positive mode, it was like yelling “fire” in a crowded room. Now these guys were frantically trying to cover their positions. I felt like kicking myself. What had the smooth-talking Paul Tudor Jones, the politically astute Bruce Kovner, and the Evian-clutching Michael Marcus done with this information? I was sure that it hadn’t taken them three days to figure it out. They probably had lifted their legs and gone long and strong on oil, and made millions. That’s what a top dog would’ve done. That’s what I should’ve done. Woof, woof.
How I Read the Wall Street Journal
Published since 1889 by Dow Jones & Company, the Wall Street Journal is the standard-bearer for financial publications. Anyone playing the market has to follow the Journal every day.
I’m a scanner, not a reader. As a kid, I used to get up on Sunday morning and beat my brother, Gerry, to the New York Times sports section. I’d look at it for twenty minutes and then give it to Gerry, and he’d quiz me on things like scores, batting averages, who were the probable starting pitchers that day, and he could never stump me. If you’re going to be a successful trader, that’s how you have to read the Journal. There’s so much information, you have to train your mind to scan it.
I usually go through the Journal right after I’ve reconciled all of my accounts in the morning, just before the bonds start trading at 8:20. The first thing I do is run through to the second column on the front page, “What’s News,” Evelyn Woods style. I keep a steno pad and a pen next to me and I make a note of anything interesting.
Everything is written down and filed for future reference. In the marines, a good, responsible officer keeps copious records.
Then I glance over at the far right-hand column for the lead story. I was the sports editor of my high school and college newspapers and I instinctively check out all of the lead stories, but I read very few articles. I don’t have the time. What I’m trying to get from the front page is a general feel for the markets.
Next I go to section C, “Money & Investing.” That’s where the data is. I look at “Abreast of the Market,” a summary of the prior day’s events in the stock market as reported through the eyes of various brokers, analysts, money managers, and other Wall Street professionals. I check to see if any of the seventy or so stocks I’m following are mentioned and, if so, what other people have to say about them. Then I go to “Heard on the Street,” which typically profiles an industry,
a company, or an individual, and often contains some juicy tidbits. Hopefully this is some of the same stuff I’ve gotten two or three days earlier from Inside Skinny, my main source for rumors.
After verifying that Skinny still has his ear to the Street, I check the index and flip to the “Listed Options Quotations” to get a feel for the put-call ratios. I want to see what the ratios were on the previous day because that gives me a running indicator. When the put-call ratio runs close to 100 percent for two or three days, that’s a buy indicator. When it’s below 50 percent, the optimism is too great and I start thinking sell. I write the ratios down on my steno pad. Everything is written.
One other indicator in section C that I like to look at is the “NYSE Highs/Lows.” This table lists all of the stocks that hit new twelve-month highs or lows on the previous day. When I was at Edwards and Hanly in 1974, John Brooks, a technician there, taught me a very simple but interesting indicator. The new highs and lows are always listed alphabetically in four columns in the same size print. John told me, “Marty, whenever you can lay a ruler on the new highs or the new lows and they exceed twelve inches, prepare yourself to become a contrarian and go the other way.” In 1974, when the lows exceeded twelve inches on several days, it was one of the greatest buying opportunities of the century. In October 1987, just before Black Monday, the new highs exceeded twelve inches several times. What a great time to sell. This is a trick that I’ve never seen written or heard talked about anywhere and it very seldom happens, but when it does, pull out your ruler.
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