by Brady Dahl
account while pulling out at least $1K per month for expenses. I think that’s one of the reasons people fail. Even if you’re lucky enough to be profitable from the beginning, you end up just treading water every green month until you actually have a red month and you blow up.
So what advice do you have for people who aren’t in your situation, people who already have bills to pay?
As soon as people decide they want to trade they just jump in immediately, but I think they should wait until they’ve built up somewhat of a bankroll. If that means working another year and saving up money first, then so be it. And that time doesn’t have to be wasted, either. You can still watch the market, study video lessons, or develop strategies, but bottom line is you want to put yourself in a situation where you’re set up to succeed before you start.
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The Steadfast
”You can’t squeeze me.”
Tom O’Reilly is a 49-year-old trader from Las Vegas, NV who once worked as a broker at a bucket shop Jordan Belfort, the Wolf of Wall Street, had worked at.
He grew up on Long Island in New York and was raised by a father who worked for the New York Transit Authority and a mother who drove one of its city buses. Despite not having much, his parents gave him everything they could, even mortgaging their house at one point to fund his trading account.
He’s well-known in the trading community for being an excellent trader with absolute conviction in the trades he makes. He doesn’t publicize his trades often, but when he does, it’s easy to see why he’s made tens of millions of dollars in the market.
Were you interested in the market as a child?
I never studied it, but I was a little interested. I would check the newspaper for quotes and track certain stocks, but I’m not even sure why I did that. The financial market just interested me. In hindsight, I wish I would have gone to business school, but I was a political
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science major in college with the intention of going to law school and becoming a lawyer.
And yet you’re not a lawyer…
Well, somewhere along the lines I decided law school wasn’t for me and a friend of mine happened to have started working on Wall Street.
He cold called for a broker at Lehman Brothers and would tell me about all the guys in the office, how they were making so much money, driving Ferraris, and everything else. So when I graduated college, I decided to go in that direction. I didn’t know anything about the business, so I went and got licensed at this crappy penny stock brokerage firm. Actually, Jordan Belfort, the Wolf of Wall Street, worked there in his early days, before he started his own firm. That was before I was there, but I met him later on. So you know what kind of place it w’as, just penny stocks and hell.
How many years were you a broker?
From about 1988 until 1996. I moved back and forth between New York and Los Angeles from one firm to another, but I was never really successful as a broker. I liked the trading aspect, but I didn’t like the sales part of it. I was retail sales, cold calling and getting hung up on, trying to sell people shit they didn’t want.
That has to be demoralizing…
Yeah. I hated it. And I had years where I probably made $20K. I think my best year in 1994 I made $75K.
Were you trading your own money yet?
I didn’t have any money, so I wasn’t trading. Plus I almost never made money for my clients. I had no clue what I was doing, even after seven years. I wanted to get out of the business, but I didn’t know what else I could do.
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How did you make the jump to trading for yourself ?
Wen, I was learning a few things by being in the business. I had been doing a lot of new issues and secondary offerings for my clients. I was partners with a syndicate manager, so I would get allocations to give to clients who would then flip them. So I kind of learned the syndicate business, which is just flipping IPOs. In 1996, I met Nick, a guy who was way too smart to be cold calling for a broker friend of mine but that’s what he was doing. I had no money and about $30K in credit card debt, but his dad had a little bit of money, so I pitched him the idea of putting the money up to fund an account together where we would flip new issues. I promised to teach him how along the way.
And we did that for a couple years.
How did it go?
Well, you have to open up all these accounts at all these different brokerage firms, and we only started with about $100K so we had to transfer money around, buy and sell, and move the money. . it’s kind of a headache. But we were soon making around $20K a month off of that hundred grand. Then Nick’s dad got into some trouble selling cigarettes in Canada, so he had to pull their money out because they didn’t know if the government was going to seize accounts or what, but this was right when the market was really starting to take off. I had paid off debts and bought a few things, so I only had about $6K in free cash, but I needed $50K to reopen the account we were using. It was a DVP account, which is basically a prime brokerage, where I opened trading accounts with different brokerages but the money sat in a bank and that bank acted as a clearing firm and back office for me.
And what’s the advantage of doing that?
When you’re flipping new issues, you didn’t want them to know you were selling the shares. I could buy shares at Bear Steams and sell them at Lehman Brothers. Plus they gave me 20 to 1 leverage.
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Wow. So how did you reopen the account?
I pitched a buddy of mine to lend me the money, but he turned me down. Then I pitched my parents. My mom said there was no chance, because they didn’t have that kind of money. But my dad and I share a similar risk-taking personality. He used to bet the horses every day when I was a kid. So he eventually got my mom to cave in and they mortgaged the house, lending me $40K. So now I had $46K and the bank let me open the account with it. I told my parents I’d pay them back within a year. A month later I had turned that $46K into around $200K and had already paid them back. Within six months I had grown the account to a million bucks. The market was getting crazy.
Were you trading much at this point or still focused on IPOs?
Before Nick pulled out, we had already started trading a little bit more, probably making just as much trading as we were flipping IPOs. But the new issues market just kept getting better, and soon I had about four guys working for me doing the new issues. They would open accounts and talk to brokers and all that stuff and we would split the profits. But the trading I was doing myself.
What were you trading? Were you already shorting trash companies like you do now?
Well, going back a bit, when I was a broker at these crappy firms there was a guy named John Fiero. He would short all these trash stocks that individual brokerage firms were trying to manipulate higher and hold up. Pump and dumps. He would bear raid the stock, and he actually put a few of the firms out of business. Some of them didn’t have a lot of capital and they’d be holding large positions or most of the float of some stock when he would get wind of it and start shorting. He would just keep shorting and shorting, and these firms were undercapitalized so it didn’t take a whole lot before they would go under capital requirements and have to shut down. And they still had inventory so they’d be hitting the bid on all their stocks on the way out. After he made a ton of money he stopped trading for years—sort of like he
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went into hiding. Makes sense when you look back since the mafia was behind a lot of the firms involved in that sort of activity. But I was very intrigued with shorting after that. Like you see on The Wolf of Wall Street, once the broker who brought these companies public had sold all their shares, there was no support for the stock. Nobody else had any interest at all in owning these worthless companies, so the stock would just crater.
You must have traded pretty aggressively to make a million bucks within six months…
/> Yeah, actually I got too aggressive too quickly. I almost blew up right away. I got short Amazon when it was in its early days. I don’t remember how many shares I ended up with or at what price, but I had made a lot of money very quickly because stocks were moving 3, 5, 10 points in a day so I was overly aggressive. And I didn’t yet know how to contain that aggression. So when Amazon went against me, I just shorted more and more until I was down $3 million with only $1
million in the account.
Yikes. How did your brokers allow that?
Well, it’s complicated but things were a bit different back then. I made the bank aware of my trades by writing them down, putting together a log, and then faxing it to the bank at the end of every day. Then they would clear the trades. So I just stopped sending the faxes when I got buried in Amazon. They had no idea how much I was down. Plus settlement took seven days back then, instead of the more recent T+3.
Now they see your trades the same day electronically. Plus this bank wasn’t very organized anyway. Besides, the brokerage firms would have been on the hook for the money. The bank would have just claimed they didn’t know the trades. I really don’t know what would have happened to me. The day I was down $3 million I crawled into bed with my girlfriend at the time, almost in tears, and said I didn’t know what was going to happen because I couldn’t pay that money.
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So what happened?
That same day I’m in bed a rumor comes out that the government is going to start taxing sales on the Internet. Amazon tanked. I wound up making like $300K on the trade.
Intraday?
The same day I was down $3 million on it. The rumor came out late in the day, and I covered the entire position right before close.
And that was the first year you started trading your own account?
Yeah, that was within the first six months. I don’t even know if I would have been sued or gone to jail or what. I would have been done trading, that’s for sure. And you know what happened after hours that day? Amazon announced a 4-for-l stock split or something like that and the stock was up a ridiculous amount the next day, like 30 or 50
points. So I had about an hour to get out that day. Someone was looking over my shoulder.
Incredible. How do you continue trading sanely after something like that?
I just promised to never make the same mistake again. And I never have for the most part. I’m still aggressive, but I don’t risk more than I can afford to lose, and I don’t build size positions on bigger cap names like that. I realized it was better to short the stocks I do now, smaller caps under a billion dollars. In fact, I keep it to under $600 million or so now. But I just continued trading. One year after I started I had $3
million in the account. I bought a house for cash, a car, and whatever else, but it just started rolling from there. IPOs were going well, too.
You continued to flip IPOs because why fix what*s not broken?
Yeah, plus now I had these other guys doing it for me, so I didn’t have to do that much. All I basically did was give some of my trading
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volume to the brokerages that my guys were opening up, in order to get allocated shares of the IPOs. And that market was just crazy then.
I had one that priced at $20 and opened north of $200. Every day it was wild. The guys I had working for me were making one to two million dollars each per year and I split that with them.
Do you still have guys working for you?
I just have one guy trading new issues now who has been with me since 1999. That market isn’t nearly what it was back then because it’s just hard to get allocated stock now. And when you get it, you get a thousand shares. But he’s good at it, and I trust him, so I keep it going.
But I trade alone.
You interact with trading friends on a daily basis though, right?
Yeah, I have a group of guys I talk to all the time who trade similarly. I belong to the chat room at Investors Underground where all kinds of traders bounce ideas off one another and you can kind of see what’s moving in the market.
What's your daily routine when trading?
Usually I get up around 5:30 a.m. Pacific. If I’m in a big trade overnight that requires me to get up earlier, I will, but if I think it’s going to be a slow day and I don’t have positions on, I may sleep until market open. I do no preparation. I don’t run scanners or anything like that. If I see something moving today and maybe setting up, I’ll make a mental note to look at that stock tomorrow, but I pretty much wake up every day and wing it. And I know that’s hard to understand, but I’ve been doing it so long it kind of comes naturally.
You don’t do things like backtesting, etc…
My history is a backtest. I trade from gut, intuition, and experience.
Seeing something in a stock that I saw in another stock years ago. I wake up and see what the guys in chat are talking about. Although I’ll
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do research during the trading day at sec.gov, going through 10-Qs and stuff like that. And if I’m stuck in something or have a big position, I’ll do more research at night, but it’s rare. Anything I’m trading with small size is pretty much all gut. I trade until market close at 1 o'clock and then leave and go to lunch.
What do you do with the rest of your day?
I have a couple restaurants in Florida and a new one here in Vegas, so I spend time there. Or the kids have soccer… I don't really have to do much. I do come back to the market to see if anything has really moved after hours. And I’ll look through TheFlyOnTheWall to check for any interesting news, but I don’t like to trade earnings usually.
Do you ever wait around after hours to short these small caps if they get overextended?
Yeah, I have started positions in after hours. It’s not typical, but I definitely have because you get exaggerated moves with less liquidity.
What’s your desk setup?
I have the messiest desk you’ve ever seen because I’m the most unorganized person you’ve ever met. I have four big monitors—don’t know what size—but three on one computer, one on another. I have two TVs on my wall that play CNBC, unless there’s a game or something I want to watch—then I’ll put that on with no volume.
And what’s on the monitors? What platform do you use?
I trade with the Sterling platform, which is at Centerpoint Securities, but I don’t really chart. I’m not a technical trader. Although I do look at them. I have the 1-min chart and the daily chart connected to my order entry. I understand them a bit, but it’s not a factor in whether or not I decided to trade something or not. I do more position trading than scalping. I’ve gotten more into it lately, but I can’t really read a chart. If I have a question about something I’ll ask Nate, (laughs)
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What other tools do you have up?
I have the chat room, Tweetdeck for Twitter, Interactive Brokers, and a RealTick Pro platform that I don’t actually trade on, but it’s what I’ve been using forever. It’s what I’m comfortable with for quotes and deciphering whats going on in the market, so I keep using it. I also have TheFlyOnTheWall up for news and AOL open because I’m old and still use it for email. It freezes my computer all the time and drives me crazy, but it s a habit. I also have Neovest up to trade through J.P.
Morgan, because I still do syndicate with them. I give them like $10K a month in business so I can still get IPOs through them.
How many accounts do you keep in order to flip IPOs?
Probably 20 accounts. But I only use three accounts on a regular basis for trading. Of those three I use whoever has shares to borrow. I go to Interactive Brokers first because I know if I get a borrow there, it’s real. If they don’t have it, I go to Wedbush, but then the borrow is only good for T+3 days. That took me a while to learn in the beginning. I used to curse them, because it was frustrating having the borrow* taken away from me, but I learned to manage around it.
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br /> (laughs) Most of the time I’m done with a trade in under three days anyway. At times it’s weeks or months, but that’s more rare.
You don’t use technicals to pick your trades, so what are you looking for?
If a stock has moved from $2 or $3 per share and now everyone is starting to look at it, I’ll start to look at it. I’ll check Yahoo! Finance to see how many shares are in the float, how many shares outstanding, how much cash they have, what type of business they re in, and where they’re at within their industry.
Peer comparisons?
Yeah, just in my mind, though. For instance, I’ve traded a ticker, CPST, a few times over the last 15 years. They’re a clean energy
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company, the turbine business or something, and supposedly they had a better product than GE, but I know it s not. Plus they only had $2
million in the bank. Yet they were going to compete with GE? I don’t even need to know that much or do that much research. I just instinctively know they have no chance in this business. With that said, though, I don’t like to trade them if they have a low float.
Tough to trade large positions?
It’s where you take big losses and get blown up. The float is so small, it gets crowded with shorts, and then it doesn’t take much news and it rockets up. So I typically don’t short or build a position in anything with less than 20 million shares in the float. I’ve relaxed that rule just a little bit because things don’t move like they did in the old days, but if something has 10 million in the float I’ll stay really small. Although I can still make mistakes from time to time. End of last year I shorted a biotech company and wound up building a big position. Initially I got in for a scalp trade so I didn’t really research the company much. Plus it was trading heavy, not thin like a low float stock usually does. But by the time I looked into it and realized it had a low float, it was too late. I took a $750K loss on something I wouldn’t have even been in with size had I just researched it first.