Pit Bull

by Martin Schwartz

  In those days, the markets were different. There tended to be a more even distribution of bull and bear phases. It wasn’t like the bull run we’ve been experiencing since 1982. What John told me was that during bear phases, there was a tendency for the markets to try to rally early in the day and early in the week, but to sell off later in the day and later in the week. The reason, John said, was because if a day trader is losing money and the market weakens, he wants to close out his position before the end of the session and start again the next day with a clean slate. And, as the week goes on, a slightly longer-term trader often wants to close out his losing position before the weekend. That way, he doesn’t have to carry a debit balance on his margin account for two days when the market is closed and he has no chance of getting any price movement. But in a bull market, said John, a trader is absorbed with making money and is driven by greed rather than fear, so rather than bail out, he’ll ride the bull overnight or over the weekend.

  What John was saying made sense to me. Knowing this tendency for traders to buy early in the day and early in the week and to sell late in the day and late in the week in a bear market helped me use a down-trending tape to make money many times.

  How did I know that John’s take on the market was any better than that of the other old boys who sat around Robb & Robb bullshitting each other? At first, I didn’t. You never do. There’s a lot of bullshit flying around any brokerage firm. You just have to keep an open mind, be a good listener, respect experience, keep trying, and keep testing. This tip worked for me. Thanks, John.

  17

  The Best Trade

  On January 26, 1991, ten days after Desert Storm, I was lying on the hospital bed in my guest room with a temperature of 101. I was suffering my third relapse from viral pericarditis. Once more I’d pushed myself too hard; I was sure that the virus was going to recapture me and send me back to the hospital. Esther Frederiksen, my private nurse, was giving me alcohol baths, and Dr. Christodoulou had upped my Prednisone to 40 milligrams a day. All that walking in the cold with Rob LeVine had been wiped out by Desert Storm.

  The treatments worked, and the fever broke, but I was weak, I was totally dependent on Prednisone, and I was scared. Every time I tried to trade like my old self, my temperature would start to climb and I was sure I’d be heading back to the hospital. I wasn’t getting any better, and I was afraid I never would. I kept having mood swings, and Dr. Hochman was trying to get me off the drugs, and I was trying to trade, but I never knew which feelings were real and which were chemically induced. I was tired, grouchy, and more impossible to live with than ever. I don’t know how Audrey and the kids put up with me.

  Hochman recommended that I start seeing a stress management consultant. He said that I had to find somebody who could teach me how to relax. I went to see Dr. Bernard Landis. The first thing Landis did was hook me up to a monitor to check my breathing pattern. He wanted to see how many breaths I took in one minute. He told me to start counting back from 600 by subtracting 13: 587, 574, 561, 548, 535, 522…I kept counting backward as fast as I could until Landis finally stopped me at 67. He said that he’d never seen anybody go so far back in one minute.

  “Whaddya mean?” I protested. “You cut me short. You didn’t give me the full minute. I could’ve done it. Let me try again.”

  “Marty. I don’t care about the counting. I was just trying to gauge your breathing pattern when you were concentrating. Most people take twelve breaths a minute when they’re concentrating. But you were taking twenty.”

  “Yeah, so what, I wanted to win the contest. I still think I can do it. Come on, let’s go again.”

  That was the start of a long relationship with Dr. Landis. All that winter and the following spring, he kept working on me, teaching me different techniques to get me to relax and get healthy. It took until June to wean me completely away from the Prednisone, and Landis recommended that I take a vacation as a reward. Audrey and I decided to go back to Aspen for two weeks. We hadn’t been there since two years earlier, when I decided to start Sabrina Partners L.P.

  It was supposed to be a peaceful, stress-free rest in the crisp, cool mountain air two thousand miles away from New York and the markets. Once again, we rented a three-bedroom condominium at the base of Snowmass. But once again, I couldn’t stop trading. I’d brought my laptop computer and a fax machine with me and I was making trades from phone booths all over Aspen. I couldn’t take a vacation, I still had my funds to run.

  But as I thought about it, it became obvious to me that regaining my health was the most important thing I had to do. And if running the funds meant this would hurt my peace of mind, I decided that they had to go.

  Part of me already knew that. I thought back to the summer of 1989 and my meeting with Porky from the Bronx, right after my first trip to Aspen and my decision to start Sabrina Partners L.P.

  I’d been waiting an hour outside his office, and I wasn’t very happy about it. I wanted to get back to my trading. But when you’re starting your own fund, one of the things you have to do is call other members of the club to see if they can get you introductions to big hitters with money to invest.

  A few days earlier, I’d called A. N. Alyzer, the head of research for the firm that was going to clear trades for Sabrina Partners L.P., and Sabrina Offshore Fund Ltd. A.N. had committed some of his own money to my funds, so I figured that he’d be a good reference. “Sure, Marty,” Alyzer told me, “I’m good friends with Porky, and Porky’s always looking for hot traders that can make him money. I’ll give him a call and set up an appointment for you.” Now I was sitting outside Porky’s office cooling my heels.

  I knew all about Porky. Everyone on the Street knew all about Porky. He was a real top dog, a big swinging dick. His fund ran several billion dollars, and Porky took great pleasure at pissing on everyone else’s hydrant. I’d never met him before, but I didn’t like him. He had a reputation for being gruff and abrasive and he thought that he was a great practical joker. He liked to brag about how he would tweak brokers. Brokers were always calling Porky looking for business, so what he’d do was call them back when there were just a few minutes left before the market closed and say, “Okay, you want some of my business, buy me five hundred thousand shares of Urmigblmsblurg.” Then he’d hang up.

  The broker, having missed the name of the stock, would immediately call back, but Porky would tell his secretary to say that he was in the can and couldn’t be disturbed. The broker would be going crazy, screaming at his secretary to look up every stock starting with “Urm” or “Erm,” and pleading with Porky’s secretary. “Honey, please! Just stick your head in the can and ask him the name of the stock!” At the average commission, that would be 6 cents a share, or $30,000, and the broker would get to keep 20 percent, so he was looking at missing out on a $6,000 paycheck. What the hell was the name of that stock? The market would close and the broker would be devastated. Not only had he lost a big commission, he’d blown his only chance to do a deal with Porky. Porky loved it. Some joke, huh?

  I got up and started pacing around. Finally, the receptionist told me to go on in. Walking into Porky’s office was like walking into the showroom at Circuit City. The place was packed with screens, Telerates, Quotrons, faxes, phones, copiers, and a dozen other gizmos. Porky had three times as many gadgets as I had. A nervous young assistant was standing on the Oriental carpet being dressed down for some infraction. Porky himself was wallowing around in a custom leather swivel armchair with a back about nine feet high. The chair was set behind a ponderous mahogany desk that was as big as a lunch counter and had just as much food spread on it. Bagels, bialys, knishes, Krispy Kremes, and half-consumed celery sodas were scattered among PCs, cell phones, and piles of paper.

  Porky’s bowling ball head jutted straight out of his shoulders. If he had a neck, it was well hidden under his Jabba the Hutt jowls. His florid, moonlike face looked bloated with blintzes and lots of sour cream. “Rumph,” he said to me, waving a fat hair
y hand in the direction of a distant couch. I sat down while Porky continued to dress down the young assistant. “I don’t give a shit about your sources on the Street! You have to do your own thinking!” I was sure that in his own mind, Porky thought that he was doing the kid a great service by training him how to think, but it was obvious he was enjoying it, a lot. Porky was a carnivore. Like Jabba, he had to have a certain amount of meat each day, and today was this poor guy’s turn to be devoured. I was embarrassed to watch it.

  This harangue went on for another twenty minutes before Porky spit out what was left of his assistant and turned to me. “Hggrlgnh. So Schwartz, whaddaya want?” he said.

  I told him that I had an incredible track record, that I was setting up a fund, that I’d sent him the documents regarding the offering, that I wanted to know if I could manage some of his money.

  “Whaddaya charge?”

  “Four and twenty,” I said. Porky’s face turned even redder and his eyeballs started to pop even further out of his head.

  “Rrrrrrrrrgh! Four and twenty!” he growled, rising in his chair. “That’s more than I charge! How dare you charge more than me? I only charge one and twenty, and I’m the best. Who the hell do you think you are? Get out of here! Grrgghhh!” He rummaged around his desk until he found a blintz and shoved it into his mouth. The sour cream trickled down his chins.

  I was dumbstruck. How could he act this way? The appointment had been set up by a mutual friend, he’d kept me waiting for over an hour, and now he was throwing me out after less than a minute. If he didn’t like my fees, all he had to say was “I’m sorry” or “Let me think about it.” I wasn’t one of his flunkies. They were paid to be kicked around. I wanted to jump over his lunch counter and pound his arrogant fat head into his rude nonexistent neck, but I restrained myself. If I popped Porky, he’d undoubtedly sue me, and I was just starting a new business. I didn’t need any problems with Porky.

  I got up and left, but as I rode down in the elevator, I kept getting hotter and hotter. When I got back to my office, I was steaming. I had to trade, but I couldn’t concentrate because I couldn’t get Porky out of my mind. I just sat there thinking to myself, “How can I get this rude arrogant fat fuck back?”

  The phone rang. It was Tommy Collins, my clerk on the Merc. Collins had been a going away present from Debbie Horn. Right after the October 22, 1987, trade where we climbed on for a free ride while the boys in the pit took George Soros to the cleaners, Debbie had decided that she’d had enough. That trade had sent her over the edge. She’d finally come to the conclusion that there had to be an easier way to make a living than listening to me rant and rave all day.

  When she told me that she was leaving she recommended that I hire Collins as my clerk. “Marty, you’ll like this guy. He’s big, he’s strong, he’s smart, and most important, he’s tough. He’ll get in there and fight for you.” Debbie had been right. I still ranted and raved about getting screwed all the time, but I knew that Collins was in there doing his best, fighting for me.

  “Tommy,” I said, “you ever run into this fat fuck, Porky from the Bronx?”

  “Porky, yeah, I’ve talked to him a couple of times and he always says to me, ‘Listen, Collins, you ever come across something that can make me some money, gimme a call. Ya know something, give itta me, ya know, first and I’ll make it worth ya while.’”

  “Tommy, here’s what I want you to do,” I said. “I want you to call Porky just before the market closes and tell him that you’ve got something real hot for him, and then when he asks you what it is, you say ‘Marty Schwartz says, Urmigblmsblurg’ and then hang up.”

  “Say what?”

  “Urmigblmsblurg. Don’t worry, Porky will know. And he’s gonna call you right back, and he’s gonna be bullshit.”

  So at 3:59, Tommy called Porky’s office. He said that Mr. Porky had told him to call if he ever had anything that could make Mr. Porky some money. Porky hopped right on the line.

  “Yeah, Collins, ya got something good for me?”

  “Yeah, Marty Schwartz says ya oughtta go get some Urmigblmsblurg.” And Collins hung up.

  Sure enough, Porky called him right back. “Collins, you fuckin’ jerk, whose phone lines you using? I’m gonna get you! I’m gonna get you thrown out of there. Whose phone lines? I’m very important. You can’t do this to me. I’m gonna get you! I’m gonna get you good! Rgghpfrgh!” The veins in his forehead were exploding through the phone. The receiver was melting in his sweaty palm. Porky had lost his sense of humor.

  Jamming Porky’s mind, if even only for a minute, made me feel so good that right then and there, I decided that my goal was to make my fund bigger than Porky’s. I was going to beat him, I was going to beat them all. I was gonna be the top dog, even if it killed me.

  Now it almost had killed me.

  I finally admitted to myself that managing other people’s money was not for me. I didn’t like reporting to anybody or having people looking over my shoulder, comparing my results to everyone else’s. I was a market timer, a scalper. I liked to jump in and jump out, and that was tough to do when you were managing big money. And what about my freedom? That’s why I’d gone out on my own in the first place.

  But as I hopped into my Jeep Wrangler, put the canvas top down, and drove past the Aspen airport, the other part of me was reminded of what I’d be giving up. I’d never have one of those Cessnas, Lears, or Gulfstreams that were sitting on the tarmac. I’d never be part of the jet set; I wouldn’t be running with the top dogs.

  I needed to go to the bookstore at the Little Nell Hotel to get a copy of Market Wizards for the tennis pro at the Snowmass Club. He had patiently been hitting hundreds of balls to me while I tried to regain my stamina. He was interested in the market and I thought that he’d enjoy reading Market Wizards, especially since I was in it.

  I picked up a book and got in line behind a well-coiffed woman in her sixties. Out of the blue, she turned and said, “So you want to be a Market Wizard?”

  I didn’t know what to say. I just stared at the woman. She was immaculately dressed, and somebody in her family must have come over on the Mayflower. She was probably in her mid-sixties and looked like she had been collecting dividends and clipping coupons for as long as I’d been alive. She was comfortable, relaxed, serene, and healthy, obviously without a worry in the world. Suddenly it all became clear. I didn’t want to be a Market Wizard. I wanted to be like her.

  “No, ma’am,” I said, “I’m already a Market Wizard. And believe me, it ain’t what it’s cracked up to be.” At that moment I resigned myself to the fact that I was not going to beat Porky at the money management game. Aspen was where I’d decided to open the funds and Aspen was where I’d decided to close them down. In my heart, and in my mind, I knew that I’d just made a good trade.

  SABRINA PARTNERS L.P.

  750 Lexington Avenue

  New York, N.Y. 10022

  31 July 1991

  Dear Partners:

  I’m writing this letter to notify you that I’ve decided to liquidate the partnership as of the end of July 1991. I’m returning your starting capital for 1991 now and the remainder will follow after the audit is completed.

  My doctors have advised me that the best way to fully recover from the life-threatening illness that I experienced last November requires that I be in a less stressful environment and that I need time to relax and enjoy life. The pressure of managing an aggressive pool of money full time does not afford me the necessary tranquillity I need to fully regain my health. My recuperation has taken longer than I ever expected and I don’t want to have any setbacks. I just last month completed seven months on Prednisone and I don’t want to go back on it if I can possibly avoid it.

  The past eight months have been the most difficult of my life. And in order to be most fair to myself and my family I intend to take a sabbatical from trading and enjoy some of the simpler things in life that I have neglected for too long in the pursuit of fame and fort
une. I want to thank all of you for your confidence and support you have shown in me and for that I am grateful.

  During the month of June we lost 1.36%, reducing our gain for the year to 9.39%. In July we are down slightly. We will do our utmost to get the audit completed quickly and get your final payment out to you.

  Sincerely,

  Martin Schwartz

  General Partner

  In August 1991, I was back at the beach house in the Hamptons under my towel, trading for myself, and it felt good. Landis had convinced me to take up golf and Audrey and I had joined a golf club out there. Golf was not a game that I would have taken up on my own. It required too much practice to be good and too much time to play. A round of golf shoots a whole day. But that’s what Landis advised, for me to shoot a whole day.

  We’d only been in the club for a little while when Audrey set up a match with a banker and his wife. Now that I was going to take it easy, she wanted to expand our social circle. We were set to tee off at 10:30 A.M., but just before we left the house, I saw that the S&Ps had broken through one of my channels. I knew that the market was overbought so I called Tommy Collins and sold fifty contracts short. I tucked my Metriplex and my little cellular phone into the ball pocket of my bag and off we went to the country club.

  We were whacking the balls around and talking about nothing important with the banker and his wife, supposedly having a good time, but all I could think about was my fifty contracts and how I was going to cover them when the market turned. At every tee, I’d stick my head into my bag pretending to be looking for a new ball and punch up a quote on my Metriplex. On the sixth tee it happened. The market turned. I had to call Collins and cover my fifty contracts, and I had to do it right away. I couldn’t wait until we took a break at the ninth hole. By then, it would be too late. But I couldn’t let anybody see me. Conducting business on the course would be rude, and I wasn’t supposed to be trading.