I looked at the research piece lying open on my desk. Debbie had happened to pick the exact point in the article where I had finally lost track of Dr Feuchtwanger’s argument. I had wrestled with it for an hour and a half the previous night before giving up. Although the article had no direct relevance to what we were doing, I was eager to learn as much about the bond markets as I could. There is a limit to how much you can pick up about bond-trading from reading, but I wanted to reach that limit. However complicated or arcane the article, I would plough through it in my attempt to catch up with the combined knowledge of all those traders and fund managers out there.
Debbie soon returned, bearing two plastic cups of gritty black liquid. She handed me one and sat at her desk, the television-review section of the Financial Times spread out in front of her. During the day, she would get through the FT, The Times and the Mail.
One of our lines flashed. It was Cash.
‘Boy, you guys at De Jong are getting real lucky,’ he started. ‘Yesterday I bring you the sweetest of trades. Today I get you out of a hole.’
‘And what hole is that?’ I asked, slightly worried. I didn’t realise we were in a hole. I ran through our various holdings in my mind, trying to think of what Cash could mean.
‘I’ve got a bid for your Gypsums,’ Cash said, a note of triumph in his voice. ‘I will bid 80 for all your bonds.’
‘Hold on,’ I said. At first I wasn’t sure what he meant. Then, riffling through the papers on my desk, I dug out one of our client portfolios. There amongst a group of odd lot holdings was ‘Gypsum Company of America 9% 1995’. The purchase date was three years before, and the purchase price was 96.
Covering the mouthpiece with my hand, I leaned back, and shouted, ‘Hey, Jeff!’
Jeff looked up from his computer, slightly annoyed at being disturbed in his analysis. ‘Yes?’ he replied.
‘Do you know anything about half a million dollars of Gypsum of Americas? It looks like we bought them three years ago.’
Jeff frowned for a moment. ‘Yes, I think I know what you mean. Not one of Hamilton’s best positions. I think he bought them close to par. Then the company got into trouble, and they were last seen trading in the sixties.’
‘I’ve got a bid here at 80,’ I said.
‘Then take it.’
I thought for a moment. If Cash was suddenly bidding 80 for a bond which had been trading at a price of 60, there must be something he knew that I didn’t.
‘Is there anything I should know about Gypsum?’ I asked Cash.
‘No, nothing I’m aware of. Hey, Hamilton was bellyaching at me all last year to come up with a good bid on this position. Well, I’ve finally got one. He’ll be pleased when he hears.’
This was the old tactic that salesmen used on junior portfolio managers when their bosses were away. Tell the junior what the boss would do in a similar situation, and make him think there is more risk in not doing a particular trade than in doing it. I had fallen for this once or twice in my first couple of months. Hamilton had given me a lecture about how I should always trust my own judgement, and never believe what others might say his views were.
‘Hmm,’ I said. ‘I am going to need some time to think about this. I’ll call you back.’
‘Well, get back to me by this evening. The bid may not be there tomorrow,’ Cash said.
‘OK. I’ll talk to you this afternoon,’ I said, and hung up.
I needed to find out more about the Gypsum Company of America. I left my desk, and went through a door at the back of the trading room to the library.
‘Library’ was probably too grand a name for the small, windowless room. There were hardly any books. The walls were stacked high with files, and there was a computer in the middle of the room, which was linked to a host of different information databases. Alison, the part-time librarian, was out, but I knew my way round most of the sources of information. Within twenty minutes I had extracted the prospectus for the Gypsum bond we held and reports from stockbrokers on the company. I also printed off the accounts for the last five years and press reports over the last year from the computer.
I carried the armfuls of paper back to my desk.
Debbie looked up from her Times. ‘It’s not that cold in here. No need to start a bonfire.’
‘I just want to see if there is anything going on with this company,’ I said.
‘Typical Paul,’ Debbie said. ‘Anyone else would just have read the latest Valueline, and then sold the bonds.’
I smiled. Debbie was probably right. But then, as she well knew, I wouldn’t be satisfied until I had analysed the accounts going back five years, and read all the press and analytical comment on the company I could find.
I spent the next three hours going over the material, stopping only for quarter of an hour to get a sandwich from the small shop over the road.
As I read, I began to build up a picture of a company which had started off mediocre and over the last two years had become a basket case. It wasn’t all the company’s fault. Its main product, wallboard, had been in less demand as housing construction had declined sharply. However, the company had not been helped by the actions of its chairman and 30 per cent owner, Nat Morrison. He had borrowed heavily to build factories which were now operating at half capacity. He had also fired a succession of chief operating officers over ‘policy’ differences. As the company’s earnings had turned to losses, the prices of Gypsum’s shares and bonds had fallen sharply. The market thought there was a strong likelihood the company would not survive.
The company had received a number of overtures from large conglomerates, looking to buy its modern factories cheaply in preparation for the upturn in the economy which must eventually occur. But Nat Morrison would not give up his chairmanship. And no buyer in his right mind would want the company with Nat Morrison in charge. But, since his support was crucial for any takeover to succeed, none could occur, and the company’s position continued to deteriorate.
Then, going through the press reports, I came across a headline dated about a month ago: ‘Wallboard King dies in Helicopter Crash’. ‘Wallboard King’ was perhaps a flattering term for Nat Morrison, but it did mean him. He had died in his helicopter whilst visiting one of his factories. I read the reports of the next few days closely. Not surprisingly, the share price had risen 10 per cent on the news. He had apparently left his money in a trust. His son, a successful Chicago lawyer with absolutely no interest in wallboard, was the trustee together with a local bank president.
I stood up from my cluttered desk, and wandered over to the window. I stared at the silver line of the Thames cutting its way through the tall black and grey buildings of the City, past the more sedate St Paul’s Cathedral and Houses of Parliament and on towards the squat lump of Battersea Power Station. Why was Cash bidding so high for the bonds? Who was the ultimate buyer? And why?
With the old man Morrison gone, a takeover would be a possibility, especially since a lawyer and a banker would be more likely to see the financial sense in the sale of the family firm. I supposed that if Gypsum were taken over by a sounder company, then the bonds would move up in price. But a takeover was far from certain, and the company could easily go bankrupt in the meantime. If a speculator wanted to gamble on a takeover, it would make more sense for him to buy the stock, which could easily double. In comparison, however strong the acquiring company was, the bonds would always be redeemed at 100, which was just a 25 per cent profit on the price of 80 which Cash was bidding.
So who would want Gypsum bonds? Perhaps the company was buying back its own bonds cheaply? No, Gypsum didn’t have the cash.
I watched a barge push its way under Blackfriars Bridge.
Of course! There was only one logical buyer! Someone was about to take over Gypsum. But before they made their intentions known to the market, they would gather as many Gypsum bonds at a discount as they could. There were $100 million Gypsum bonds outstanding. If they could buy them at an average price of
80, then that 25 per cent profit when the bonds were redeemed would be worth $20 million, a significant sum. The more I thought about it, the more I was sure that this was the most logical explanation. To work!
I strode back to my desk. I called David Barratt. ‘Harrison Brothers,’ I heard him say.
‘David, have you heard of an issue for the Gypsum Company of America?’ I began.
David had an excellent memory, and knew the details of most of the bonds still in existence.
‘I certainly have,’ he said. ‘The 9 per cents of 1995. Last I saw, they were trading at 65, but that was six months ago.’
‘I wonder if you could get hold of five million dollars for me?’ I asked.
‘It’s going to be difficult,’ David said. ‘The issue hardly ever trades. I’ll see what I can do.’
I put the phone down. Debbie, as usual, had heard it all. ‘I thought you were supposed to be selling these bonds not buying them. Hamilton will have a fit when he finds out.’
I explained what I had discovered about Gypsum, and the conclusions I had drawn. ‘If I’m right, and the bonds are being bought by someone who is about to take over the company, then they are going to trade right up to par. If I can buy any at 80, that’s 20 points profit.’
Debbie listened carefully. ‘Sounds like a great idea to me. I still think Hamilton will have a fit.’
I winced. She might be right. Technically I was not authorised to increase De Jong’s exposure to any company that did not have the top credit ratings of AAA or AA, without Hamilton’s permission. But I knew what I was doing made sense.
The phone flashed. It was Cash. ‘Have you made up your mind on the Gypsums yet?’
‘Not yet. Give me another half an hour.’
‘OK. But my bid isn’t going to be around for ever. Half an hour is all you have got.’ Cash rang off. He was just a little tenser than usual. There had been none of the usual banter.
It was twenty-five minutes before David came back. ‘There’s something going on. There is an 80 bid in the street for these things, God knows why. Do you know what’s happening, Paul?’
‘I don’t know, but I can guess,’ I said.
‘Well?’
‘Sorry, David, I can’t say. Did you find any bonds?’
‘Only two million. We can offer them at 82.’
Harrison Brothers was probably taking at least a point out of the price, but now wasn’t the time to quibble. ‘I’ll take them,’ I said.
‘You buy two million Gypsum of America nines of ninety-five at 82,’ David said. ‘Thanks for the trade.’
‘Thank you,’ I said. ‘If you come across any more, let me know.’
‘I will,’ said David. ‘But I think it unlikely. We had to scour Switzerland for these two. Someone has cleared up all the available bonds. Everyone we spoke to had sold in the last day or two.’
Still, at least I had amassed $2 million. That should make a tidy profit. I remembered my promise to call Cash back.
‘Well?’ he asked.
‘I’m sorry, Cash. Thanks for the bid, but I think I would rather keep them.’
‘Hey, Paul buddy. Think this through. Hamilton’s going to be awful sore with you when he hears you didn’t hit my bid.’
And when he finds out I bought two million more, I thought.
‘Sorry, Cash, but we can’t help you.’
There was silence for a moment. Then Cash’s voice came back on the phone, disappointed, but friendly. ‘That’s your decision. Just remember the trouble I went to to help you out of a bad position. Speak to you later.’
As I put the phone down, I marvelled at Cash’s ability to make you feel guilty, even when he was trying to rip you off.
‘Did you get any?’ Debbie asked.
‘Only two million,’ I said.
‘That’s not bad. You should make some decent money out of that.’ She sat back in her chair. ‘It’s a shame we can’t buy any of the bonds ourselves,’ she said. ‘It looks like easy money.’
‘Of course you can,’ I said. ‘All you need to do is take a couple of million out of your building society account.’
‘We could try and buy a smaller amount. An odd lot,’ she said.
‘Would that be ethical?’
‘I don’t know.’
‘Well, you ought to know, you are the compliance officer after all,’ I said. Every fund management company appointed a compliance officer to ensure that insider trading and conflicts of interest were avoided. With her legal background, Debbie had become ours.
‘I suppose I am.’ She paused. ‘Thinking about it, it would almost certainly be a conflict of interest.’
‘Shame. It’s not a bad idea,’ I said.
‘Of course we could buy the stock,’ Debbie said. ‘That should move up sharpish if the company is taken over.’
‘Why not?’ I said, ‘Seems like a great idea to me.’ I had ten thousand pounds in the building society. It seemed to me that Gypsum shares would be a good place to put half of it. ‘But how the hell do you buy American shares?’
Debbie and I mulled over this problem for a minute or two. Then Debbie laughed, ‘This is ridiculous! We’ve got ten lines all plugged in to the biggest stockbrokers in the world. One of them should know!’
‘Of course!’ I said. ‘I’ll ring Cash. He’s bound to know all about that sort of thing.’
I got through to Cash. ‘Changed your mind about the Gypsums?’ he asked.
‘No, I haven’t,’ I said. ‘But I wonder if you could do me a favour?’
‘Sure,’ said Cash, perhaps a little less enthusiastically than usual.
‘How can I buy some stock on the New York Stock Exchange?’
‘Oh, that’s easy. I can get an account opened for you here. All you have to do is call Miriam Wall in our private client department. Just give me five minutes and I’ll warn her you are coming through.’
Ten minutes later Debbie and I were proud owners of a thousand shares each of Gypsum of America stock bought at a price of $7 per share.
3
Tap. Tap. Tap.
I was in full stride now. My feet were making the lightest of sounds as they touched the pathways of Kensington Gardens. I focused on the Round Pond in the distance, pleased to see that it seemed to remain stationary. When I ran, the world glided by. No movement up or down. My body just moved horizontally forward, driven by the regular strides of my legs. Any jogging, any rolling, meant a loss of energy. And a loss of energy meant a loss of speed.
I enjoyed the discipline of running. Not just the willpower required to force yourself to keep going when your body told you to stop. But the discipline of ensuring that every muscle in your body was moving as it should, when it should.
The commentators had raved about my running style. But I was not a natural. I had learned it through years of single-minded concentration. And through Frank.
I had first come across Frank when I was running at Cambridge. He coached middle-distance running at a club in North London. Occasionally he would come up to Cambridge to coach some of us. More often, I would travel down on Sundays to learn from him.
I certainly had some natural talent. I had enjoyed cross-country running even as an eleven-year-old. I would voluntarily run for miles over the moors at home in Yorkshire, something my friends found very difficult to understand. As I had passed puberty, I had filled out. My leg muscles had grown in size and strength and I had picked up the speed you need to be a good middle-distance runner. At Cambridge, I had thrown myself into athletics and had achieved a blue in my first year.
But it was Frank who had really taught me how to run. Not just in the body, but also in the mind. I had the necessary determination; he knew how to channel it. We worked long and hard at my technique. During speed training, he exhorted me to put 100 per cent into each leg, when my body told me to go 90 per cent. And he taught me how to race, how to ration not just my physical energy but my mental energy as well.
And it worked.
It was hard and slow, but every year I ran just that little bit faster. A year after I left Cambridge, I ran for Britain for the first time. The next season I just missed selection for the Olympics. Over the next six years, my speed and consistency improved just enough to win me a place.
That year Frank and I put everything we could into getting me to the peak of my mental and physical fitness. The bank was very understanding, my job became at best part-time.
The heats went well. I managed to run them hard enough to qualify for the final whilst still leaving a lot in reserve.
On the day of the final, I felt as ready as I ever could be. I was fit. I was determined. There were four other runners who had done times faster than me, but I was going to beat them all. My plan was simple. I would start the race fast and lead from the front. There were two or three faster finishers than me. I had to make sure they were beaten by the last hundred metres.
I followed my plan, but for the first six hundred metres most of the field kept up with me. Whenever I drew away, the others would catch up. Then, with two hundred metres to go I lengthened my stride slightly and began slowly to pull away from the others. For a hundred and fifty metres I was running five yards ahead of the best runners in the world. The crowd in the huge Olympic stadium cheered me on – I was convinced they were just cheering me alone. It was the best fifteen seconds of my life.
Then, fifty metres from the line, two green shirts barged past me as a Kenyan and an Irishman battled for the line. I told my legs to move faster, stride longer, but they didn’t obey. Suddenly the crowd were cheering for the two backs a yard or two ahead of me, not for me. It was as though I were slowly moving backwards.
I made it over the line in third place and won a bronze medal.
For several months afterwards, I basked in the attention I received. From the media, from people at work, people I met in business, even from people in the street. But despite the euphoria, I could not hide a simple fact from myself. I had lost. I had put everything into that race, a year of my life had been devoted to that one-and-a-half-minute period. And I had lost.
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