Pit Bull

by Martin Schwartz

  In mid-September, I had my first big annual review with a major investor. In addition to Sabrina Partners L.P. and Sabrina Offshore Fund Ltd., I was managing $5 million for Hausmann Overseas N.V., which was registered in the Netherlands Antilles. I’d taken on this private account because Hausmann didn’t want to be part of the pool. They wanted to run their trades through Neuberger & Berman. Everybody wanted a piece of the action, but for $5 million, that was all right by me. They could run their trades through the Dutch Masters for all I cared.

  Hausmann’s twelve directors would rent a suite at the Mayfair Regent Hotel on the southwest corner of 65th and Park, and they’d have their money managers come there to be grilled. My apartment was just up the street, so all I had to do was walk a short distance and I was there. I puffed out my chest, marched into the suite, and said, “Gentlemen, I’m doing a great job for you. I’m down eight percentage points on Upjohn and I’m still up twelve percent net for the year. I took a shot and if it comes through, I’ll be up thirty to forty percent for the year. The only thing that’s happened is that it hasn’t happened.”

  The directors of Hausmann didn’t want to hear about Upjohn. They started comparing my returns with those of Jones, Kovner, Bacon, and all the other futures stars. “Look,” I said to them, “it’s not a futures fund. As I told you when you came in, preserving capital is my top priority. I’m only putting twenty-five percent of your money in futures. If I’d put all your funds into futures, I could have leveraged it fifteen times and made you one hundred percent, or lost it all and gone to jail.” No sale. They kept comparing me to the futures funds because I was charging futures fees. And so it went all through October. After the market closed, I’d lie down on my couch at 750 Lexington Avenue and wait for my foreign investors to arrive. We’d sit down around my green Carrara marble table in Audrey’s Amelio Ungas designer leather chairs. I’d tell them what a super job I was doing and they’d tell me how much better Jones, and Kovner, and Bacon, and everybody else were doing. It was really discouraging.

  The alarm on my night table buzzed. It was seven o’clock. I got up, splashed some water on my face, brushed off my Armani suit, buffed my Bally alligator shoes, straightened my Missoni tie, and headed for Lutèce.

  Audrey joined me in the elevator and we headed out to get a cab. “Buzzy, your mother called. She wants to know when we’re coming for Thanksgiving.”

  “Whaddya talking about? We can’t go to Florida over Thanksgiving. I’ve got a business to run.”

  “Well, what about the holidays? Instead of going skiing, I guess now we’ll have to go to Florida.”

  “Skiing? Who’s going skiing?”

  “Buzzy, we always take a vacation over the holidays.”

  “Not this year. Look, Audrey, I can’t be taking vacations and going to Florida. I gotta get these results up, or I’m gonna start losing investors.”

  The dinner at Lutèce was being hosted by Willie the Web, a Swiss middleman who matched wealthy European investors with hot money managers. Willie had sent me some big clients and asked for a seat on the board of directors of Sabrina Offshore Fund Ltd. I didn’t know what the board members did other than collect fees and submit expenses, but I acquiesced, because Willie controlled a lot of offshore money. I’d met Willie through my buddy Neil Weisman, but Neil hadn’t been invited to Willie’s dinner this year. Neil’s fund was all in equities and Neil wasn’t doing as well as he had the first three years when he averaged more than 75 percent per year. Willie liked his managers hot and Willie thought I was hot. That’s why I was looking forward to the dinner. After a tough month of dancing with my investors, I was ready to sniff around with the top dogs for a night.

  Willie had reserved one of the private rooms upstairs at Lutèce. When I walked in, I could see that the lineup included some of the fastest-rising stars on the Street. Julian Robertson was talking with Stanley Druckenmiller. Julian was a quiet, unassuming southerner who had left Kidder, Peabody in 1981 when he was forty-seven and started a fund with only $8 million. Now he was managing a billion. Stanley Druckenmiller was George Soros’s right-hand man. They were joined by Leon Levy, who was representing Oddysey Partners.

  Willie bustled over to greet me. “Martay, Martay, zo good to zee you. Here, come wiz me and meet zee client.” The name of the client meant nothing to me. In Sabrina Offshore Fund Ltd., the clients were just numbers on bank accounts in Bermuda, the Bahamas, Guernsey, the Isle of Man, Switzerland, the Cayman Islands, and every other tax-free haven known to man. As we walked over to the other side of the room, Willie explained that the client had started a very innovative business and was making gazillions. “Martay, tell him der fund iss doing ferry vell. Ferry vell, indeed,” Willie murmured.

  When it came time to sit down, I was placed next to Fiona Biggs Druckenmiller. I was the new guy on the block so I didn’t know these people, but during dinner, I learned that Fiona, in addition to being married to Stanley Druckenmiller, was the niece of Barton Biggs, the chief strategist for Morgan Stanley. She and Stanley had met when they were both working for Dreyfus, and it was obvious from our conversation that Fiona knew how to run with the top dogs.

  The dinner at Lutèce was better than Commodities Corp’s Semi-Annual Trader’s Dinner, or even the Sheik’s party at King Charles I’s country estate. There, I was one of many, here I was one of a few. All through the evening I kept telling myself, “This is where I belong. This is where I want to be. This is why I’m managing other people’s money.” But the whole time, a nagging little voice kept whispering in my other ear, “Martay, next year you vill be eating at McDonald’s wiz Neil unless you fini ze year très bien.”

  I didn’t get back to the apartment until well after midnight. I was dead tired, but I couldn’t get to sleep. My mind was racing. I knew that if I was going to keep running with the top dogs, I was going to have to make some big changes. Julian Robertson, Stanley Druckenmiller, Leon Levy, Jones, Kovner, Bacon, Soros—these were the top dogs; I could trade with any or all of them, and my funds could be as big or bigger than theirs. I had to get some numbers, I needed results.

  The next morning, I told my trading assistant, Allison Brown, “I want you to sell twenty-five thousand shares of Upjohn every day from now until it’s all gone. I want to be completely out by the end of the year.” I couldn’t post the kind of returns my investors expected with this $40 million gorilla hanging on my back. By easing the stock out at twenty-five thousand shares a day, I figured I wouldn’t drive the price down, plus, if the gnomes from Switzerland ever got their act together, I still might have a piece of the action. Inside Skinny kept telling me, “It’s gonna happen, Motty. Stick with it. I know it’s taken a little longer, because these things always take a little longer.”

  Next, I sat down and drafted my November 1 letter to my investors. If they wanted a futures fund, I’d give them a futures fund. In my letter, I said:

  In planning for 1991, I’ve decided to make a number of changes in Sabrina. The first and most important will be a change in the investment mix to 50% futures and 50% equities from the previous 25%-75% distribution during 1990. There are several reasons for this—namely we have made all of our profits this year in futures; $10.2 million on a capital base of $16.5 million or a return of 61.8%. The second reason for the change is the feedback from a number of clients who desire greater volatility from their investment and are willing to accept the concomitant risk.

  The second important change is that due to the fast changing economic background, investors will be allowed to make a mid-year withdrawal subject to a 1% accounting fee.

  The third change will be the introduction of a “knockout” formula whereby the fund would automatically terminate if losses are sustained equal to 35% of beginning of the year capital.

  With a plan in place for liquidating the position in Upjohn and altering the investment mix of the funds, I was ready to immerse myself totally in trading for the next two months.

  Sorry, Dad, You’re
Fired

  Neil Weisman is one of my best friends. I met Neil back in the spring of ’72 when I went to work for the Great Pyramid. Neil was a broker for the Pyramid who liked to collect a lot of information. He was always trying to peek through the Chinese wall, and since I was a new guy covering a hot industry, he made a point of becoming my friend.

  Getting to know Neil was about the only good thing that happened to me at the Pyramid. When I was in the unemployment line and nobody would give me a job on the Street, Neil called Gerry Farber, a former analyst at the Pyramid who was the head of research at Edwards and Hanly. Neil told Gerry that I had gotten screwed and that he should hire me. Thanks to Neil, Gerry did hire me and that’s how I met Bob Zoellner. It was Neil who plucked me from the depths of despair and got me back in the game.

  In the fall of ’86, I had a chance to repay the favor. Neil was a great trader and had always wanted to set up his own fund, but he needed a push, so I said to him, “Look, Neil, here’s all of my pension money and some of Audrey’s. Go manage it.”

  That was about $750,000. With this base, Neil was able to raise another $12 million, which was enough to start his fund. He was so happy that he decided to take the first week of 1987 off. He went on vacation to some remote island in the Caribbean and was out of touch for the first five trading days of the year. During that time, the market went ripshit and Neil missed the entire move. When we went to dinner in mid-February, Neil’s fund was up 9 percent while the market was up 20 percent, so I said to him, “Neil, why the hell did you go on vacation during the first week of the year? You missed the whole rally. I can’t believe I gave you my money. If I could take it back right now, I would.” That was what I said to Neil, my good friend who’d plucked me from the depths of despair and who’d just started to manage his own fund.

  Neil might have said, “Screw you, Marty. I don’t need this. Take your money and get out.” But he didn’t, because he knew the rules. Successful businesspeople, whether they’re traders, investors, entrepreneurs, whatever, CANNOT LET FRIENDSHIPS OR FAMILY RELATIONSHIPS GET IN THE WAY OF MAKING SOUND DECISIONS ABOUT MONEY. What Neil did say was, “Marty, you can beat me up as bad as you want, because nobody can be tougher on me than me.” Neil went out and posted a 75 percent return for the year. Over the next three years, he quadrupled my money, and by 1994, his fund had grown to $500 million. I still have money with him, but we both know if I see a better return somewhere else, it’s bye-bye, Neil. Nothing personal. That’s just the way the game’s played.

  15

  Down the Tubes

  I figured that if I could post a really strong November, I’d be able to keep most of my investors. By 3:30 P.M. on Friday, November 2, I couldn’t stand up anymore. That week, I’d seen Albert Backward, Bernard Le Buffoon, Helmut Scheisskopf, and Pierre Tete du Merde, some of my best-heeled clients, and some of my most vocal critics. Now, I was bushed. When I was trading on my own, I’d never go out during the week, and the dinner at Lutèce on Monday night, along with all the other meetings I’d had in October, had worn me out. I’d been trading S&P futures all day and had made more than $100,000 for the week, but given the pressure I was under, this was not nearly enough. That morning, I’d gotten a fax from Georges Grenouilles in Geneva. All it said was,

  Note to redeem on our behalf all shares in Sabrina Offshore Fund Limited, S.V.P. Merci and Rgds.

  A couple of my investors had told me in October that they were going to redeem their shares, but both of them had other reasons why they needed their money. This was the first investor who was getting out because he was dissatisfied with my performance.

  I lay down on my couch. I could barely get up to watch the market close. All I wanted to do was go to sleep, but Mike Schmeiss, an old friend, was coming over. Mike was thinking of starting his own fund and was looking for advice. When he arrived at 5:30, I told him how I’d gone about raising the money and showed him my figures for the year, and when he was getting ready to leave I said, “OPM’s the only way to go if you want to make the really big money, but there’s a trade-off. Everybody’s looking over your shoulder and nobody’s ever satisfied. They’re always calling and asking, ‘How’s my money doing?’ and it doesn’t make any difference what you tell them. They always want more.”

  On Saturday I didn’t get up until eleven. Audrey had taken the kids to the Annual Horace Mann Nursery School Book Fair and I was going to join them at noon, but I had no zip. I felt like I was coming down with a cold. I knew I had to fight through it, because I couldn’t afford to be sick. I had too much to do. I had to post my charts, calculate my ratios, and set up my strategies for Monday.

  By the time I got to the book fair, the temperature had climbed to a balmy seventy-five degrees and I was soaked in sweat. As I walked into the school, I felt dizzy, my head hurt, I could hardly put one foot in front of the other. The fair was packed with teachers and families, there was no air-conditioning, and armies of little kids were running around screaming, yelling, pushing, and shoving. I didn’t know if I could make it up the stairs. Over the years, my weight had crept up to 208, twenty-three pounds above my lean and mean Marine Corps days, and now I was feeling every pound.

  Audrey and I spent the rest of the day running errands, and that night we went to the 68th Street Playhouse to see the movie Reversal of Fortune. The theater was stifling. A sign in the lobby apologized that the air-conditioning had been turned off for the year. As we waited for the movie to start, I was drenched with perspiration. Maybe I should have seen the movie’s title as a precursor of things to come, but I was too sick to pick up any innuendos. Audrey wanted to take me home, but I wouldn’t hear of it. “Forget it,” I said. “We’ve already paid for the tickets. I’ll fight through it. I’m tough. I’m a marine.”

  Sunday, I lay on the couch studying my charts trying to get ready for Monday. I felt like hell. After October, I should have taken a vacation, but I didn’t have the time, not if I wanted to keep my investors. I was sure that if I spent the day on the couch, I’d snap back, but I didn’t.

  Monday, November 5, I woke up with a sore throat and I hurt all over. “Screw this marine crap,” I told Audrey. “Call Hochman. I gotta see a doctor.” I got a ten o’clock appointment with our family physician, Dr. Raymond Hochman. He told me that I had a strep infection, gave me a prescription for antibiotics, and ordered me to bed. I took the antibiotics, but I couldn’t rest. I had to run Sabrina, I had to have a big month. I was too tired to trade, though, so I lay in bed and watched the Financial News Network.

  Tuesday the sixth was another day of lying in bed watching FNN. I tried a few trades, but they didn’t work and I lost $30,000. About 5:30 P.M., the pain in my back and chest became unbearable. For the first time in my life, I had this crazy premonition of death. Audrey called Hochman, but it was after five and he was gone for the day. His service got me a 6:30 appointment with Dr. Singh, the physician on call. I struggled out of bed, got dressed, and stumbled into a cab.

  Singh didn’t show up until 7:15. When he finally saw me, my temperature was 102, my EKG showed an irregularity, and he told me I’d better check into the hospital. Ironically, as the Sphinx and I had predicted eighteen years earlier, thanks to Medicare and Medicaid everyone with a hangnail was hanging out at the emergency room, and even though I was paying millions of dollars in taxes and lived eight blocks away, there was no room for me in New York Hospital. I was shunted off to the emergency room, which did nothing to lift my spirits. The place was packed and the staff was ignoring everyone who wasn’t shot, stabbed, OD’d, or psychopathic.

  Singh was supposed to be coming right behind us, but again he didn’t show. At 9:15, Audrey called his office. His answering service said he’d been delayed, but not to worry, that he was on his way. He wasn’t. By 10:00, I was too pissed to be scared. “Let’s get the hell out of here,” I told Audrey. “I hate this freakin’ city.” I made it through the night by sleeping upright at the kitchen table with four pillows propped under my arms.
I looked like a praying mantis, but that was the only way I could keep the pressure off my lungs.

  On Wednesday, I wasn’t any better, and after reading two incoming faxes, I felt even worse. One was from Albert Backward in London, the other from Pierre Tete du Merde in Paris. The first was abrupt:

  Please accept this fax as notice to redeem my holdings in Sabrina Offshore Fund, Ltd., as of January 1, 1991.

  The second began more cheerily:

  Good morning. We wish to sell 1,029.855 shares Sabrina Offshore. Please advise by return fax or telex what we have to do. Bonjour. P.T.d.M.

  The rats were abandoning my ship. What I felt like saying was, “Good morning to you, take your 1,029.855 shares and shove ’em up your old wazoo, that’s what you have to do,” but I didn’t have the energy.

  Later that morning we went to see Hochman again. The bad news was that the strep had progressed to pneumonia and I had fluid in both lungs. The good news was that Hochman had pulled some strings and gotten me a private room in the hospital. We arrived at 1:00 P.M., but it took three more hours to get me admitted. Thanks to Blue Cross, Medicare, and Medicaid, hospitals could require their own set of admissions tests and get paid for them, so I needed a whole new set of EKGs, blood tests, and X rays. By this time my fever was up to 103.3 degrees. I was really sick, but there I was, lying alongside a roomful of nose jobs, tummy tucks, and fanny lifts, waiting my turn for the tests. It was absolutely absurd.

  Finally I was able to get into my private room, and Audrey hired round-the-clock private nurses. They cost $780 a day, but by this time, I didn’t care. I knew I needed somebody in my corner, somebody who’d be fighting only for me. Normally that would have been Audrey, but Audrey couldn’t be with me all of the time. She had to stay home with the kids.