Using common sense instead of looking for a sign on Wall Street might leave you with a fuller cup
The old adage on Wall Street is to not get too emotional… “Don’t get married to a stock,” is how it’s often said. I never had that problem. I never got angry when a stock went against me, nor did I get too excited when one went up. People around me saw this as a kind of cool-handed detachment, but I really didn’t have control over it. Much later in life, I was diagnosed with a low-grade depression called dysthymia,* which I apparently had for a very long time. It gave me clarity during my trading years, so if I was in a bad trade, I’d bail.
The chronic, but not disabling, form of depression of which Turney says, “It gave me clarity during my trading years.”
According to the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders, one of the diagnostic criteria is “Individuals may note the prominent presence of low interest and self-criticism.”
Well, we all know how important “low interest” is to stock market performance. And no wise and thoughtful trader is harmed by the “prominence” of self-criticism.
So… while we certainly don’t wish that we suffered from dysthymia, we do see how it could be useful on Wall Street!
– The Editors
There’s a big difference between a trade and an investment. It’s like the difference between a one-night stand and a committed relationship. But regardless, the truth of the matter is that we’re all just renting stocks. There is no happily ever after, because eventually a newer, younger, and prettier company enters our lives, and we forget about and move on from the previous relationship. So no matter what – do not ever propose to one of your trading ideas. There’s no such thing as true love on Wall Street.
“Stocks don’t lie, people do,” is another common phrase you can hear across trading desks on Wall Street. And it’s true. When a stock is telling you something with its price action, you should pay attention. Of course, there are fluctuations and times when things get mispriced, but more often than not, the stock is telling you the truth. And people… well, that’s a different story.
In the high-finance world there’s a dichotomy. And it’s based on two basic premises: First, everyone is a liar until proven otherwise… the other, a quote from Ernest Hemingway, “The best way to find out if you can trust somebody is to trust them.” And it’s not easy to balance the two. If you trust everyone on Wall Street, you won’t be successful. And if you trust no one on Wall Street, you won’t be successful. The trick is figuring out who – and what – to believe.
So early in trading/business relationships, I’d play it really loose, almost baiting the other person to take advantage of me. And if they ripped me off for $10,000-$20,000, I’d thank them and never look back. It probably saved me millions down the road.
Sometimes all the research in the world isn’t as good as a gut feeling. Professional card-counting blackjack players would disagree… They’d never rely on their guts to make a wager. To them, it’s 100% about statistics and discipline. The exact amount of what and when to bet is based on the card count. And in that case, they’re right. But on Wall Street, sometimes you need to read the tea leaves.
The easiest million dollars I ever made was on ImClone Systems, the same company that helped take down Martha Stewart and Sam Waksal. It was 2001 and the stock price was in a free fall due to the FDA’s rejection of drug Erbitux on December 28. The press finally reported the story near the end of the trading day. The stock was trading around $15 (Martha sold at $58) when I got a phone call from one of my brokers: “I’ve got $200k of IMCL to buy.” Then I got another call from a different broker with the same exact flow. A few seconds later, two other brokers called me indicating they had large buyers of IMCL. Within the same minute, a few more firms called to tell me they had six-figure buyers of the stock.
So by the 10th call from UBS, I knew what he was going to say before I even picked up the phone, “Hey Turney, we’ve got $200k shares of IMCL for sale.”
“OK, thanks,” I said, and hung up.
Then I said to myself, “Did he just say for sale?”
I quickly called back and confirmed that, in fact he did say for sale.
“I BUY,” I screamed.
With so many larger buyers on the street, it only took minutes for the stock to be up a quick $5 and that’s when I sold my shares. It’s usually not that easy, and it seems more like common sense than reading tea leaves.
But I believe the market is designed to make the greatest number of people look stupid. So it makes sense to read people just like you read charts, especially when a large part of the finance community is looking at or wanting the same thing – like the bottom in the market. There’s an emotional see-saw within trading that’s sometimes easy to spot.
Reading people works best over a long period of time… You get to know someone better the more dates you go on. It’s like how the historic behavior and emotional reactions lead me to understand how a stock might trade in the future. When I sit next to someone or speak with someone every day, I assess their normal behavior as a baseline. I use this method to determine what the stock or market normally does, too. And when I begin to see a pattern, I’m in business.
Apathy and capitulation are huge signals for an opportunity to trade stocks. You can recognize that a stock usually moves when a particular trader gives up. The next time you see it, it’s time to strike because he or she isn’t positioned for the move. I also used to keep track of how well a trader or analyst performed. If they had a bad feel for the market, I always wanted to hear what they had to say – so I could go the other way. People who are always wrong are gold.
Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where its founder and several Galleon employees were found guilty of insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol, and power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess.