Memoirs of a Minyan: War Stories
The purpose of the journey is the journey itself.
Chapter 4: War Stories
If I were to pick a word that characterized 1992, it would be survival.
I didn’t scale the learning curve as quickly as I would have liked but I had a seat and that had to mean something.
At Morgan Stanley (MS), we were measured by four criteria—personal performance, department performance, division performance and overall firm performance. If any of those elements were sub-par, it would invariably trickle down.
With the recession of 1989-1991 fading in the rear-view, the mood on our desk was optimistic. The place was a printing press and our department had a monster year.
I made considerable progress, forged professional inroads and networked with customers. By the time holiday season arrived, I had pep in my step as I walked into the back office.
Jack was again waiting for me. He had a pained look on his face.
"You know," he began, "Wall Street isn’t for everyone. You’re a good kid and people like you but this may not be the business for you." He paused, choosing his words carefully. "You need to think—really think—if this is something you want to pursue. If it is, you’ve got to show us something and it has to be soon."
I tried to mask my disappointment while at the same time, appear stoic.
"I’m not going to let you down." I said, never losing eye contact. "This is where I belong. I’m not going to let you down—I’m not going to let myself down." I paused expecting Jack to say something, but he didn’t. I again spoke, this time with more emotion.
"I give you my word."
He nodded to me and gestured towards the door, confirming what I already knew. For the second straight year, my total annualized compensation at one of the world’s most successful trading operations was a grand total of $28,000.
Settling Down and Settling In
If 1991 was the year of the salad and 1992 was a wake-up, 1993 was the year I found my rhythm. In addition to taking reports and relaying markets, I traded orders given to our desk by the sales force on behalf of our clients.
The process was simple—if a customer wanted to buy or sell something, I executed the order with the counter-party and relayed the "fill" to the sales person who, in turn, gave a report to the client. That was called agency business.
If the marketplace didn’t provide liquidity at the right price, Morgan Stanley would step in and take the other side of the trade. That was called customer facilitation.
Our derivative portfolio was comprised of the aggregate positions managed as a function of customer facilitation. The risk-profile was broken down into several "books" and separated by industry. Jack traded the industrials, drugs and airlines. Tommy and Mark Neuberger traded technology. Various other traders, about ten in total, covered other sectors.
Two groups that weren’t covered on the desk were financials and biotechnology. We didn’t have positions in those names and I fielded the order flow and executed them on an agency basis.
One afternoon, several months into 1993, the floor "fell down" on an order, which is to say, they didn’t stand up to the market originally communicated and reflected to the customer. I alerted Tommy and he told me to "put the customer up."
I told my broker on the floor to take the other side of the trade and listened as he slapped it on the tape. Once I got the report, our salesman told the customer he was done.
Tommy told me to watch the position, which effectively meant that I had my first—albeit meager—trading position at Morgan Stanley. When I traded out of it for a profit, he gave me the green light to facilitate another order. That, too, was traded for a profit.
It wasn’t a lot of risk—50 and 100 lot orders which, given options have a multiplier of 100, equated to 5,000 or 10,000 shares of stock—but I traded them with discipline. As the year progressed, the cumulative profits I generated for the firm grew in kind.
When 1993 came to a close, I again sat with Jack in the back room. This time he had a smile on his face as he told me my total compensation rose to $75,000.
At 24 years old, it was more money than I knew what to do with.
Changes in Latitude, Changes in Attitude
While there was much to learn, I secured my spot on the desk. I didn’t produce the numbers other traders were but I consistently contributed to the bottom line.
Slaino was my big brother, Jack my father figure and Tommy took me under his wing. The rest of the department warmed up and seemingly enjoyed the occasional stories I shared on Monday mornings.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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