J A N U A R Y 1 9 7 2
A Nice Clean Profit
"If all Blanche thinks about is recycling bottles, it's all right with me," said one of the members of my women's investment club.
In a year of violent contrasts in our stock markets, the average investor has not been a factor in the move of the Dow Jones averages from 844 to 950 and back down again. The average investor has been buried in the rubble of his over-the-counter disasters for two years; he has been depressed by every news item for two and a half years; he has been worried about his own business or job for almost three years.
But my investment club struggles on, spurred by new horizons. The ladies were invited to the summer beach house of the president -- a violently contemporary mixture of glass, redwood, and a "local stone of the vicinity." As the president said, "We, my husband, Al, and I, appreciate reflecting the area in which we live in a sculptured environment. A1 and I preserve the character of the land."
They had a new wrinkle in purchasing stocks, buying only those companies that do not pollute. "Resolved," they declared, "that we shall not own a share in any company that fouls the earth, the air, or the water."
"If we mix up making money with our emotions we may as well fold up our tents," said one of the practical members, swishing a shrimp through a big bowl of cocktail sauce. "Not one company, Ecological-this, Environmental- that, has ever made a dime. They all have huge deficits, and the only thing positive I can say about them is that a swifty public relations man thought up the companies' names."
"My God, Shirley. How can you be so cynical when our world is deteriorating? These shrimp, for God's sake," the president said, "in ten years we won't even be able to enjoy these shrimp."
The maid brought in the turkey tetrazzini.
"Come on," said Shirley the dissenter, "half of your husbands do nothing but make money from pollution. Chemical businesses, scrap metal, paper mills, dyes for fabrics spilling into the rivers. And if nobody bought stock in polluting companies, those shares would go to zero. Is that what you want? Clean atmosphere but no dough?"
I looked out at the ocean, wondering if the club would dissolve.
One of the members jumped to her feet. "Resolved," she said. "We shall not care about our husbands where the environment is concerned."
"Second the motion ..."
"All in favor ...?"
Despite Shirley, the motion was carried, and the president turned to me. Brutus, she said, "find us a company that is involved in antipollution techniques and will double in a year. And girls, there's a choice for dessert, lemon sherbet or chocolate eclairs."
"How about a little of both?" two women asked at the same time.
In our office, the phones stared back at the brokers who were staring at them. "Nobody cares anymore," said our Irish registered rep, Jim Curran. "I feel like Stella Dallas. The world is passing me by."
All of my salesmen are huddled together for conversation and comfort like Conestoga wagons in a circle, afraid of Comanche raids. We have lost seven of our nineteen producers in the last year, despite the fact that there had been a remarkable recovery in prices and operating efficiency on Wall Street.
"We are the hard core on the barricades," said Curran, still chipper because the Catholic Church pension fund he handles has been buying and selling, selling and buying, as if there were no problems.
"Look at it this way," he was told. "If we survived the lions, the Council of Trent, the Diet of Worms, and the Pill, we're certainly not bothered by a little monetary crisis."
"That makes sense," said Curran. "May the wind always be at your back."
Through most of the summer and fall, the market drifted lower, and a most unusual split in attitudes seemed to be developing. All the institutions I talked with -- pension funds, mutual funds, insurance companies, trust departments -- were buyers of stock. They were bullish about 1972. "We expect profits to grow at the rate of 10 percent this year and 10 percent next. We are cautiously aggressive."
I told this to my private customers. "What do they care?" a manufacturer answered me. "It's very easy to spend other people's money. They don't see that the current business picture is like fish, or guests for the weekend. After three days they both begin to stink. Things are still so bad that even the liars are complaining."
And through most of the summer and fall, at social events no one talked about the stock market. At dinner parties, cocktails, at beaches or lakes, on golf courses or tennis courts or at football games, there was an absence of the gossip that fuels bull markets; there was a disappearance of tips.
"When the bull is down," brooded Jim Curran, "the butchers are many."
The Powers of Faith
With the Nixon economic policies making everyone hungry for answers, and the trading levels on the stock exchange approaching last year's dog days, I was ready for any relief from the boredom. It was provided by a woman in a size eighteen turquoise pants suit who took to my office like a henna-rinsed rhino.
"My name is Faith," she announced, "and I have the answer to your commission problems."
I had the time to listen to anyone, so I waved my watchdog secretaries away from my door and held a chair for Faith.
"I am out of breath with depression," she told me. "We're going to have a jagged market for the rest of the year, a sawtooth action. Nineteen- seventy-one is the year of the wild pig who breeds with the tiger, and it bodes ill for stock markets in the future."
"How may I be of service, Madame?"
She reached into the folds of her giant turquoise blouse, and I instinctively grabbed for my letter opener. You never know in my business.
"These are recent, clear-front photos of prominent business executives," Faith said, passing over three pages of pictures. "I have the God-given ability to choose the most effective people in any organization from such photos. Third sight, it's called."
"And what do you want from us?"
"A fee, naturally. I expect to be paid if I can double the production of this office."
"If you can double the production of this office," I told her, "you take my desk; I'll take your turquoise pants suit."
"You must be a Leo; you have a sunshiny face. I'll give you a free sample. You are too trusting; you help people much too often. That fellow over there" (she pointed to the resident partner) "looks nervous, lacks the ability to make a decision. Obviously should never be in a position of responsibility."
"Faith'" I said. "So far, so good."
She reached into the ample folds of her bosom again and produced six pages of closely handwritten manuscript. "Read only the first paragraph," she said.
Her manuscript smelled of Je Reviens. Her bosom must have smelled of Je Reviens. "Like the ancient maharajas," Faith's first paragraph read, "I am blessed with the blessed ability to read men's minds and faces." I looked up, and she was reading my Wall Street Journal. "I called every senior partner on the Exchange on April twenty-ninth to signal this current decline. Phone any of them and ask. But as soon as I get that elated feeling ... I buy ..."
"That's enough for a feel of the gist," she said, snatching the pages back and returning them to their turquoise filing cabinet. "Are you a subscriber?" she said. "Based on the sample?"
"I have to clear everything through the main office," I stalled. "Why don't you come back in a week?"
"Hesitation will cost you." She began to back away.
"Well, then, you better skip us," I told her. "But why don't you run a coupon ad in the Sunday Times's financial section? You know the kind, 'Five stocks under 10 for a double in six months. Just mail $35.'"
Faith shook herself once to straighten out the wrinkles in her slacks and pointed at me. "You're kind," she said. "I shall give you a further sample: the key to the stock market in 1972 is that it's the year of the rat who mates with the ox. Love is the secret."
"That sounds like a match made in heaven."
"There is no charge for what I've just told you." Faith waddled out, making sure no papers slipped out of her bodice, and I was glad that there were people who still believed in a quick buck ... the American Dream.
Large Philip and His Hot Hand
President Nixon's announcement of a wage-price freeze on August fifteenth confused everyone so much that a rare condition developed, one that occurs few times in anyone's stock market experience: panic on the upside; a mass rush to buy. The public came back in for three days, got stuck, and retreated into the same uncertainty that has plagued investors for almost three years. To celebrate the historic day when the big board traded almost 32 million shares and went up almost 33 points, I attended the theater and saw 1776, the wonderfully patriotic musical. popular in a time when everything seems to be coming in Red, White, and Blue except honest sentiment.
Only one thing ruined my evening. I ran into Large Philip, one of the legendary Big Producers of the city. A Big Producer in the brokerage business is one who generates tremendous commissions. They are usually recognized as such, starting at $100,000 gross commissions a year, with the most famous reputed to do between $300,000 and $600,000 a year.
Customers and other brokers talked about Large Philip's commissions the way gossip columnists used to talk about Sinatra's conquests. "Large Philip did $400,000 gross last year," people would say, or, "Large Philip spends most of his time in Europe; he has half the banks in Switzerland as accounts and a quarter of Getty's brokerage business."
Philip's detractors would say, "You can take everything that Philip says and cut it into thirds. Then divide that in two and you may be close to the truth."
Large Philip was a stockbroker who handled only discretionary accounts. Any customer suggesting a stock of his own choosing would be banished by Philip to another brokerage firm.
When Philip came into the business, he had, as a base, the accounts of his father and the friends of his father's, wealthy manufacturers who traded heavily. One of the friends was a Canadian who had had advance word on the mineral find in Timmins, Ontario, made by Texas Gulf Sulphur. Philip bought thousands of shares of Texas Gulf Sulphur, starting in the mid-twenties, and kept buying thousands more all the way up to $60 a share. The stock went to 106, then split, and Large Philip began feeding out the thousands of shares he had bought. Legends grow quickly on Wall Street, and Large Philip became a god.
After the Texas Gulf Sulphur deal, money came in to Large Philip by the sackful. He began to take limits on the size of his accounts: nothing under $100,000. Accounts placed at trust departments of banks under irrevocable agreements paid legal fees to get the agreements nullified and the money transferred to Large Philip. He put his accounts into thousands of shares at a clip, selling them out if the stocks didn't go up immediately, and going into new situations. If a customer offered his own ideas or even suggested a possible move, Philip would interrupt him. "My secretary handles all discussions," he would say. "I'm going to put you on hold; she'll be with you in a minute, as soon as she handles a cross of 10,000 Butler Aviation."
Being a Big Producer is like being a money machine, and everyone who becomes a money machine believes it can go on forever. Large Philip gave a party for all his customers and friends at the peak of his production, when he was doing close to $450,000 a year. Invitations were hand-delivered by a part-timer for "Arthur Treacher Calling" dressed as a liveried footman. Each invitation was accompanied by a red rose for the lady. "There are some who would call this nouveau riche," Large Philip said, "but I call it class. And if you don't like it, you can transfer your account."
But, like a Shakespearean hero, Large Philip was shot down by the belief in his own destiny. Every time he sold a stock for anyone, he would launch full tilt into a new situation, holding no money back, buying thousands of shares. It is dangerous for a stockbroker to concentrate on one or two stocks, loading all of his customers into them. If something goes wrong, it becomes impossible to get everyone out whole, and you wind up buried under heaps of abuse from clients and heaps of broken dreams from the remains of your business. Feeling he was blessed with the magic touch and a hot hand, Large Philip began to buy an aerospace conglomerate in the sixties for all of his accounts. Sometime later, he finally got the last customer out at 18%.
Getting panicky, he acted on a tip he received on an oil and gas developer that was rapidly getting into real estate and the entertainment business. Philip liked oil and gas, and begged his people to bear with him, double up on this one, and recoup. He started buying it heavily between 19 and 22, and a client who was a talent agent on the West Coast called him. "I forgive you for the aerospace stock," the agent said. "What the hell, you're not infallible, although you might have gotten out sooner. And you know I like entertainment stocks, so thanks for thinking about me. But this one you just bought, forget it. They're producing the worst crud ever cranked out here; they've got to go broke."
"Entertainment business?" screamed Philip, not knowing about that division. "They're not in the entertainment business. They're in gas and oil. What are you talking about?"
"Look, Phil, baby," said the agent (they still speak that way out in Southern California), "I'm telling you they're in movies up to here, and you'd better sell my stock and send me a check."
Large Philip had gotten so large and desperate to make a comeback that he just took tips without checking them and cranked the money into stocks without the slightest clue about what the companies really did. The oil, gas, and entertainment stock was suspended from trading by the SEC, and that meant that all Large Philip's clients could start chanting the prayers for the dead.
The pack turned on Large Philip, calling him every name in the book and backing up the names with lawsuits. Luckily for him, Large Philip is dumb, and immune to a certain extent, because he is back operating in a different city and feeling no compunction about calling old customers to solicit business.
Forced to say hello in the lobby at 1776, Large Philip asked me how business was. I gave him the standard stockbroker answer of the year: "It's been an unbelievable last twenty-four months, hasn't it?" -- which tells him nothing.
He slapped me on the back. "Well, I don't know about you," he said, "but I had both sides of a cross of 15,000 Ford today. Separates the men from the boys."
I carefully cut what he said into thirds, divided it in half, and watched him swagger away. People in the lobby parted to let him pass, and shrank away as if the Red Death were walking among them. They had had enough oil and gas.
This disappearance of the Big Producer in our industry has been another characteristic of the current Wall Street revolution. We are losing our characters along with our character.
Taking Losses Like a Man
"You gotta spend money to make it," Willie Henshaw used to say. Willie Henshaw was in his middle twenties when I knew him, and making $60,000 a year as a registered representative. He was called, affectionately, See-You- Socially Willie Henshaw, because every time he finished making a sales call at night, in someone's home, he'd leave and say, "Good-bye, folks, see you socially." Willie was a bachelor and spent 25 percent more each year than he made. But he had expensive tastes: his suits were made by Dunhill, his ties by Meledandri, his shoes by Gucci. Willie's gimmick was romancing the institutions, where the big blocks were. "I'd trade a hundred retail customers, with their bitching and moaning about 'Where is my last Woolworth dividend check' for one institution. Why break your back for the nickel-and- dime stuff? More dough falls out of my pockets than half the brokers in your office make in a year with all their old ladies and their dumb businessmen who don't know their butt from first base."
Willie was arrogant, and despised the journeyman stockbroker who made his hard living from the general retail customer. He spent $50 a day on long-distance phone calls to institutions in Los Angeles, Detroit, and Chicago. And to company presidents in stocks he invested in. He'd think nothing of calling the chairman of the board of a company and telling him, "Look, I'm about to control the proxies on 100,000 shares of your company. What do you say we have a lunch and talk turkey? You want to meet me in New York? Lutèce? Twenty-One? Or I'll come to your shop."
"Who is this again?" the chairman would say, not sure he had heard what he had heard.
"Last chance for lunch, or you hear from me in a different way!"
"Why don't you drop out to my office. Say, Thursday?"
Then Willie would see the company, drop names and $200 or $300 in presents for the chairman's secretary, brandy for the chairman, dinner, and his own plane tickets. He'd come back to his office, pick up a phone, and call eight or nine mutual funds. "Just had dinner with Chairman X of XYZ in Houston" (or Miami, or Louisville). "Here's what you can expect in the next year. Buy the story, and you owe me $500 net a month for twelve months. More stories will cost you so much a month, and exclusives, with no other fund knowing, will cost more." Two or three institutions were regular buyers of Willie's services.
The few retail accounts Willie handled were all on a discretionary basis; Big Producers cannot afford the time it takes to call clients on the phone and explain reasons for buying a particular stock. But every one of his retail customers received a gift subscription to Barron's for Christmas. Mutual fund people he talked to received poinsettia plants that would make Good King Wenceslas blush with envy. But nothing to Willie Henshaw was measured in beauty, or size, or shape -- only in terms of cost. He would go to any lengths to accumulate and spend more money than anyone he knew. And if he couldn't accumulate, it would be enough that everyone he saw thought he had accumulated.
Despite the gift subscriptions to Barron's, the more business Willie did with institutions the more he alienated his retail customers. Gradually they all pulled their accounts and moved to other brokerage firms.
"It's enough to think someone is an idiot, Willie," I told him. "But it's something else to let them know what you think. Especially when those people are richer than you, and in a position to do you damage someday."
"Why should I be a hypocrite?" Willie said. "They're not rich because they're smart; they're rich because they married it, or inherited it." He smoothed his hair down, and flipped a piece of lint from the flared bottom of a pant leg. "Who needs that aggravation? I can get more action with a block from a fund than twenty retail clients could generate. And without all the heartache they give you over a lousy thousand-buck loss on a sour trade. Nobody knows how to take losses like a man."
So Willie Henshaw concentrated on two institutions and was banging away, $3000 to $5000 gross a week in 1968 and into the first half of '69. Then portfolio managers switched in one fund, and Willie was down to one account.
"You've got to spend money to make money," Willie stubbornly insisted, and tried to lunch with the chief honchos of his last account twice a week. But the romance had left the restaurants along with the patrons; the gossip of the Street, at bars and over clams casino, was replaced by the horror stories of cutbacks and the brown paper bags. No one wanted to play Willie's game anymore, and when he'd go to the Regency to escape, he'd breakfast alone.
His mutual-fund account was loaded with New Issues that had gone bad and over- the-counter junk they could not unload. They still liked Willie and wanted to give him business, but there was no business to give. "Anything we give out has got to be reciprocity," they told him. "We have to reward people who sell our funds."
"Do you think I'm going to peddle mutual funds? You've got to be out of your mind," Willie told them. Like the Ant and the Grasshopper, Willie Henshaw had not planned for winter, and he could not knock on the doors of the people he had called fools.
"They're still fools," Willie told me one day when I saw him recently. He was advertising for a roommate to share the expenses of his apartment, and trading his own account in commodity futures. "They'll always be fools, and not my kind of people. When Willie goes down," he mimicked a French accent, "he goes down in flames."
"Rat-a-tat tat. Rat-a-tat tat ..."
Nothing has changed in a year's time. Neuroses and indifference characterize this market where everyone seems to have time on his hands. Over a year ago President Nixon said, "If I had any money I'd be buying stocks right now." Recently he said, "I wouldn't be selling my investment in the American economy."
But in the first half of 1971, the value of securities stolen in this country has been close to $500 million, and consumer debt is more than $125 billion. A lot of talk won't make the monsters go away.
I went to the dentist last week, a periodontal surgeon, who told me: "You know, it's an interesting thing. People are putting off reconstruction in their mouths because of the price of gold."
"That so?" I mumbled, my mouth full of cotton wadding.
"And my most difficult patients for a long time now have been engineers, real estate people, and stockbrokers. They've been clenching their teeth unconsciously, grinding them down. The bone structure around the teeth is being lost."
"Hear any good tips lately, Doc?" I mumbled.
"You better rinse," he said. "That bone structure doesn't look good at all."
Copyright © 1972 by Brutus. All rights reserved.
The Atlantic Monthly; January, 1972; Another Unbelievable Year in the Stock Market; Volume 229, No. 1; pages 81-85.