The Buy Side (19 page)

As I walk out of the bathroom, I can feel my heart beat from the hit of coke. The huge room seems to have shrunk, and everyone is looking at me. I start desperately searching for Randy and James. When I finally find them, I beg them to leave with me. When we get out to the street, I feel exactly the way I look: like an escaped con. We leave Gus behind. The last I see of him, he’s pitching some hedge fund guys from Connecticut. We head over to the Wetbar.

Inside, the place is packed. Lily sees me and breaks into a beautiful smile and then blows me a kiss. After she takes care of her customers, she makes her way down to me. “Hey,” she says, her eyes gleaming. “What’s with the orange jumpsuit?”

“It felt right,” I say.

“You look cute,” she says.

For the rest of the night, I have most of Lily’s attention. I think about the coke in my pocket a couple of times, but I don’t want her to see me higher than I already am. I stay only for a couple of drinks, then I grab her hand and let her know I’m going to leave; I need to get some sleep, I say. She smiles sadly but says okay. She asks me to wait one second. She runs to the other end of the bar and grabs something behind the cash register. She hurries back and hands me a crumpled-up napkin and makes me promise not to open it until I get home. “Of course,” I say as I stuff it into my pants pocket.

When I get home, I reach into my pocket and feel the present from Gus. It’s still practically full. Then I open up the napkin from Lily. It’s a Hershey’s Kiss. I strip down to my boxer briefs and place the bag of cocaine and the chocolate kiss from Lily in my sock drawer. I ball the jumpsuit up and toss it into the hamper and crawl into bed.

BEFORE I
fall asleep I realize I need to tell Lily something. I go see her the next night. The doorman at Wetbar recognizes me immediately. I’ve been coming here at least once a week with various sales traders who want to meet for a drink. Usually I don’t say a word about Lily to them and just wait to see their reaction when she comes up and plants a big kiss on me. But this night I’m here by myself.

When I see her from a distance, my breath catches in my throat. I’m standing in the middle of a crowded bar, but the only thing I can see is her. She doesn’t see me. She’s working hard pouring drinks, taking orders, and hitting the cash register. I turn around and head for the exit. I came to break up with her. My relationship with Lily never broke the surface; it was cocktails, laughs, and some sex. I just don’t see how it’ll work. I can’t see myself slowing down or her moving faster. She’s got a son. Actually, all of these excuses are garbage. I’m not in love. I don’t know what love is, but I assume I will when it
happens. This is not it. Maybe it’s the trader in me that knows to pull the trigger. I hear it all the time: Don’t get married to a stock. Don’t be emotional. If I’m in a bad trade, I bail. But I realize breaking up with someone while they’re at work is not the right thing to do. I’ll call her tomorrow or maybe the day after.

IN LATE
February 2003, I have flu-like symptoms: a fever, lethargy, gastrointestinal issues, a cough, and a sore throat. It can mean one of two things. Either I have SARS or I’m hungover. The fact that I went to Café Noir and drank a lot of tequila and then stopped by the White House makes me think it’s the latter. But who knows, because everyone is afraid of the SARS virus. People are talking about a pandemic, and the Asian markets have been in a free fall. Just last week, an American businessman traveling from China developed the symptoms. The plane was diverted and he was taken to a hospital. He died there along with the doctor who treated him. Now the World Health Organization has issued a global alert. This is serious. There are traders on the floor of the Hong Kong exchange wearing surgical masks.

They say for every action there is a reaction, but on Wall Street it might be more fitting to say for every tragedy there’s a trade. And right now the SARS virus has the attention of the healthcare investment
universe. Just about every day, research tells us of a new, tiny biotech company that either is working on a vaccine for the flu or has uncovered a new strain, which could be good for healthcare stocks, though very bad for the human race. These days, our morning meetings are almost entirely focused on the topic of SARS and the moneymaking opportunities it provides. And these opportunities are not just confined to drug makers and medical supply companies. The virus has the potential to seriously affect the airlines, tourism, restaurants, air filter companies, quarantine centers. You can cast the net as wide as you want.

At the morning meeting I’m sitting at the conference table pinching my nose with a tissue. I’ve already made three trips to the waste-paper basket with balled-up snotty ones. As I grab a fresh Kleenex, a curious thought comes to me. Maybe I’m not a capitalist. I have to look around to see if the trading gods are about to strike me down with a bolt of lightning. No? Okay, I’m good. But what am I doing with my life? Our country is about to go to war in Iraq and you can still smell the fumes from the pit at Ground Zero, and I’m sitting here trying to figure ways to make money off of SARS.

It’s not the first time I’ve questioned my career. Back when I was trading for Galleon, we were short a ton of stock in a company that had a phase-three cancer drug we thought wouldn’t get approval from the FDA. I remember feeling sick to my stomach at the idea of rooting against a drug that could possibly let cancer patients live longer. I drank myself into a stupor that night. At some point, maybe halfway through the bottle of Patrón, it came to me. This had nothing to do with the cancer patients. It was purely an investment decision. Like Hyman Roth once said on the roof of a Cuban hotel: “This is the business we’ve chosen.” We weren’t rooting against the drug. We just didn’t think it would get approved. It’s business, that’s all.

The thought of Hyman Roth snaps me back to my senses just before I suggest a group hug or a candle-lighting ceremony to the analysts and traders. I remind myself of my plan for 2003. I want to make a bonus of a million dollars. That’s my goal. And it looks like the market is about to cooperate.

After an end-of-the-year rally in 2002, stocks dipped in January and February. But despite SARS, there are signs of a bull market on the horizon. Over the past two months, the market held the lows of 2002, which is a bullish indication. And then there’s what’s happening in Iraq. The old adage goes “Buy on the cannons, sell on the trumpets.”

Going to war is good for the stock market. But to take advantage of the brightening financial situation, I need to make some adjustments. I need to change the way I trade.

For the most part, traders at hedge funds can be divided into two categories. Either you’re an execution trader or a proprietary trader. Though I’ve prop traded a bit before, first at Galleon, then at Argus, the majority of these trades were small: fives and tens. For most of this time I’ve been an execution trader. An execution guy’s primary job is to not fuck anything up. You follow instructions from analysts and portfolio managers as literally as you can. I remember one of Melinda’s first trades on the desk. Krishen walked by and told her to buy ten Amgen. So she called up Morgan Stanley and bought ten AMGN, just like she was told. It wasn’t until the next day, when Krishen asked where the ten thousand shares of AMGN were, that she realized “ten” was shorthand. A billion-dollar fund would never buy only ten little shares of anything.

There’s nothing wrong with being an execution trader. It’s safe. But by this time in my trading life I’m like an eighteen-year-old with his Camaro. I want to start taking bigger bets on my own and making more money for Argus. Because, at the end of every day, or year, as a
prop trader I can go to Krishen and say, “This is what I made.” Being a prop trader is the best way to quantify your worth. It’s the best way to make a million-dollar bonus.

Of course, this doesn’t come without risk, and each day your worth is documented on paper in red or black ink. But the freedom of it is exhilarating. As a prop trader, I’m given capital by Argus to initiate my own trades; there are no analysts or portfolio managers telling me what to do. I buy, sell, short, and cover. It’s all up to me.

I start modestly by buying 25,000, then 50,000 shares at a time. Then one day I get an idea. Every trade has to be printed so it can scroll across the ticker, or “hit the tape,” as we say. We get the same information as the ticker on our “times and sales” quote screen, but faster. Whether it’s on the ticker or on our computer, though, when a trade hits the tape, everybody on Wall Street can see it.

So I punch the UBS light and tell my sales trader to buy 69,000 shares of BBH, the same buy I gave to Brad. The BBH is an exchange-traded fund made up of eighteen different biotechnology companies. It’s a basket of stocks. For me it’s a bet. I think the whole group is going up. And I come up with the number 69 as a way of embedding the trade in the juvenile minds of my fellow traders. Later I sell the 69,000 shares with Goldman. The next time I do it I use two different brokers, but always in blocks of 69,000 shares. In less than a week, I’ve used every broker I deal with several times, so they all know that when they see the 69,000 shares of BBH hit the tape, it’s me.

Now, except for a couple of immature giggles (mine included), my mark wouldn’t mean much if I didn’t work for one of the largest healthcare funds on the Street, which I do, and for a portfolio manager whose performance at Galleon is legendary, which Krishen’s is. We’re considered smart money. So when my 69,000 shares are printed
in the BBH market, it not only draws attention, but makes the sell side begin to wonder if Argus knows something. And the last thing anybody on the sell side wants is to be in the dark. My phone starts ringing with sell siders telling me they could have done better on my last print, saying they can be more competitive. With each order I give out, my pricing gets tighter. Give me a chance, they plead. The dogs begin to howl for my business.

Though using 69 is an original idea and as far as I know unique, smart traders have been finding ways to separate themselves from the crowd for years. Wall Street isn’t like slots in Vegas, where you are playing against the house. This is poker, with winners and losers sitting at the same table. Picture two hedge fund traders, one from Hedge Fund A and the other from Hedge Fund B. Both have identical educational backgrounds, identical resources, and identical ability to process the same information. But that doesn’t mean they’ll make the same amount on the same idea. It’s the art of making money. It’s a skill.

I don’t have the same educational background as many of the people I trade with and against. I don’t have the advantages other traders have or have been given. So I have to find my own edge. I take what I’ve learned in my first eighteen months at Argus, the ability to read people and nuances, add my alliances with the other members of the Healthcare Mafia and the courage of a teenage Camaro driver, and then stamp all of it with the number 69. And guess what? I start to get really good at what I do. Soon I’ll be sitting at the poker table with everyone’s money.

Sometime later, I’m at another morning meeting. Though I’m physically feeling much better, I’m about to fade out from all the biotech research babble when I hear Vivek say something about hospitals
using temporary staffing companies instead of hiring nurses full-time. He says he’s noticing a new trend. I sit up in my seat. This is a shift. A change. This could be a big deal.

Krishen, Vivek, and I work together to quickly identify which companies stand to benefit most from this new trend. We find three major players and a couple of secondary players, all big healthcare staffing firms. But none of these stocks are liquid. There’s a saying on the Street that some stocks “trade by appointment,” which means that the stock is difficult to buy or sell because the average daily volume is tiny, usually less than 100,000 shares. A large buy order would drive the stock up dramatically and send up rockets and flares to all our competitors. Establishing a position in companies like these, at least in the size of the portfolio we envision, has to be done gently and over time, of which we don’t have all that much. In three weeks these companies are due to report earnings. Undoubtedly the report, held on a conference call with potential investors, will include a discussion of this new trend. Once it happens, the proverbial cat will be out of the bag.