“Marty, you should start by leasing a seat,” Hayes said to me one day. “That way, you can conserve your capital until you’re sure you’re going to make it.”
“That’s bullshit, Hayes,” I said. “I already know I’m going to make it. I’m buying a fuckin’ seat.”
Seats were bought and sold through the Exchange, which took a nice commission (or “transfer fee” as they liked to call it), on a bid-and-asked basis. There was always a seat available for the right price. The price in the summer of ’79 was $85,000 bid, $95,000 asked. That meant that I could get a seat for around $90,000, plus a transfer fee of $2,500, but first I had to become registered as a broker-dealer with the National Association of Securities Dealers and pass an evening course given by the Amex on how to trade options. By the end of June, I’d made my $100,000 grubstake; I was ready to go.
I couldn’t wait to quit E. F. Hutton. For almost a year, I’d had my job on cruise control, telling Beverly to hold all calls, going into my office, shutting the door, turning on my Bunker Ramo, and trading. I’d been executing three, four, five, a half dozen trades a day.
Having my own Bunker Ramo had been critical. I was the only securities analyst at Hutton to have his own quote machine. The Bunker Ramo was part of the deal that I’d negotiated in June of 1977 when I’d moved to Hutton. On my first couple of jobs, there was only one quote machine for the whole research department, and it was out in the hall. I was always going over to look at the machine, but the powers that be, the bosses, would see me standing out there and wonder what I was doing. I learned early in the game that on Wall Street, the easiest way to receive a pay increase is to change jobs. Wall Street’s principle was to pay you as little as they could, but keep you. When somebody wanted you, they were willing to pay you more because that was the only reason you’d leave. By the time I started getting courted by Dan Murphy, head of the Institutional Research Department at Hutton, I realized that as part of my deal I should ask Dan for a quote machine in my office. That way I could watch the market without anybody knowing what I was doing.
I figured the best time to tell Dan Murphy that I was leaving was the first thing on a Monday morning, early in the day, early in the week. I chose Monday, July 9. My natural inclination was to walk in, tell Dan that I was quitting, and walk out. That was how you did things on Wall Street. But Audrey counseled me to take a different tack.
“Buzzy, be honest with Dan, tell him just what you’re going to do. Let him know that you’re not going to another firm, and that you’re going out on your own to become a trader. He’ll respect that. Better to leave on a good note in case you have to come back.”
So, when I went in to see Dan Murphy, I said, “Dan, I appreciate all that you’ve done for me at Hutton, but I’ve decided I want to change my career. I’ve been a securities analyst for nine and a half years, I just got married last year, I want to have a family, I don’t want to travel anymore; this is not the way I want to live my life. This is my chance to go out on my own. I’ve always wanted to be an entrepreneur, to be my own boss. I’m going to be a trader.”
Dan got up and shut his door. I was in a very strategic position because two other analysts had just left to go with other firms. “Okay,” Dan said, “but you’ve gotta do me one favor. Keep this a secret between you and me because I need some time to hire some more analysts. And if I announce you’re leaving, it’ll look like the ship’s sinking.”
I told Dan that I would, and I even went on a couple of sales calls for him. We had a trip scheduled to Philadelphia, six calls to six different institutions, one at 9:00, one at 10:30, luncheon at noon, a 2:00, a 3:30, a 4:30, then catch the Metroliner back to New York. I hated it, but Dan said, “Please do it for me, play it through.” When it came time to leave, what was remarkable, unheard-of, was that I left on such good terms that Dan let me keep an office at Hutton for the next six months. On Wall Street, usually when you tell your boss you’re leaving, they immediately seal your files, check your briefcase, give you a rectal exam, and escort you to the door. But because I was making a vertical leap, going out on my own, I left like a hero.
My plan had worked. I’d developed a methodology that fit my style, I’d made Zoellner my mentor, I’d made $100,000 trading, I’d bought a seat on the Amex, I’d quit Hutton, I’d BECOME A TRADER. On Monday morning, August 13, 1979, I stopped outside the entrance to the American Stock Exchange, took a deep breath, pulled out my badge, and walked through the door that said “Members Only.” It was time for me to become a star.
The Grubstake
I fancy myself as a renaissance man. I like to go back to different times and figure out what I’d have been if I’d been born then. If I’d been a young man in the nineteenth century, I would have been a forty-niner. I would have pulled together a grubstake and headed west to California looking for gold.
When I went out on my own in 1979, I mined for stocks and bonds and options and futures. I needed $100,000 for my grubstake. Psychologically, I wasn’t ready to go out on my own until I knew that I had made six figures. It should have been more, but I was eager to get going, and that was the absolute minimum amount I figured I had to have before I could make my break. If you’re going to trade for a living, you have to give yourself a year. Start with enough money to cover your living expenses, plus enough more so you can trade at a level where you’ve proven you can make money consistently.
If you keep your “day job,” you don’t need the reserve for expenses, but you still have to have enough capital to give yourself a chance to succeed and trade at a level that’s comfortable for you. The simplest way to control your trading activity is to open a separate brokerage account that’s used for trading, and trading only. Don’t put any more into the account than you’re willing to lose. I can’t tell you how much; that’s a highly individual decision, but whatever it is, stick to it. And if you lose it, be prepared to walk away.
Before you can go out on your own, you have to master your ego and realize that being profitable is more important than being right. YOU HAVE TO PROVE YOUR ABILITIES AND TEST YOUR METHODS BY ACTUALLY TRADING, AND MAKING REAL MONEY, BEFORE YOU DEPEND ON TRADING FOR YOUR LIVELIHOOD. That meant that I had to make my grubstake trading. If I could make $100,000 trading, it would show me that I’d developed a methodology that gave me a good chance of succeeding. I didn’t feel that it was right to borrow my grubstake. Gamblers Anonymous is full of people who borrowed their grubstakes. True, I borrowed $50,000 from my in-laws, but that was just backup and I was determined never to use it, and I didn’t. For me, that $50,000 was like Dumbo’s feather. I needed that security in order to fly, but I knew that if I ever had to use it, it would have meant that I’d failed. And I was determined not to fail, not this time.
Making $100,000 is one thing, saving it is quite another. Audrey and I sacrificed and saved so that when it came time for me to go out on my own, I knew the importance of money management. Making your grubstake takes enormous self-discipline, and if you’ve earned it and saved it, you’re less likely to blow it. Because we make and lose thousands of dollars every day, big-time traders often give the appearance of treating money with an “easy come, easy go” attitude. That’s not right. Just because we don’t do the mashed potatoes over our wins or whine about our losses doesn’t mean that we take them casually.
One of the most interesting points that Jack D. Schwager makes in his book Market Wizards is that almost every trader he interviewed talked about how they’d failed before they’d finally become a consistent winner. Your grubstake has to be large enough to give you the time to be successful and large enough so that no one trade can take you out. When I started on the Amex, I lost 10 percent of my working capital in the first few hours, but my grubstake was large enough, and my “puke point” low enough, so that I didn’t stop myself out before the market had a chance to turn in my favor. Plus, I was a singles hitter, I wasn’t going for the home run. My trading style was to take a lot of small profits rather than go
for one big one, so my grubstake didn’t have to be as large as that of someone who was swinging for the fences.
Like the forty-niners who headed west to claim their fame and fortune, the traders who have the best chance of striking it rich are the ones who have earned their grubstakes.
3
Paradise Island
I was sweating bullets. I looked up at the wall to check my position. This was it, I had to cover; if I couldn’t, I’d lose everything. All my hard work would have been for naught. I’d be tapioca. Everyone was crowded around, yelling. “Come on, Schwartz, it’s now or never.” “Yeah, come on, Buzzy, make your play. Pull the trigger.” “This is it, Schwartz. Don’t choke!” “Make the move, you chicken. Chicken!” “Cluck, cluck, cluck!”
I couldn’t wait any longer. I toed the line and looked at Yogi’s squatty, swarthy Italian face, kissed his oversized, bulbous nose, flipped my wrist, and sent him flying. The crowd hushed as Yogi curved to the right, then to the left, skipped once off the sidewalk, and came to rest leaning against the wall on top of Pee Wee Reese. I pumped my fists in the air. I’d done it, I’d covered. All the cards were mine.
Flipping for baseball cards was my introduction to gambling. I’d get up on a Saturday morning, pull my little red Radio Flyer out of the garage, and go around the neighborhood collecting soda bottles; 2 cents for twelve-ouncers, 5 cents for thirty-twos. By noon, I’d have 40 or 50 cents rattling around in my wagon, and that was big money back in 1953. I’d wheel the bottles down to Artie’s corner grocery store next to the Davis Street Elementary School and trade them in for packs of Topps Baseball Cards.
Each pack cost a nickel and contained five baseball cards. I’d rip open a pack, give away the gum. None of the guys ever ate the gum. It tasted like wallpaper paste and was as tough as shoe leather. Only real little kids were dumb enough to eat it. Then I’d blow the fine pink residue off of the cards, shuffle through each of them, figuring out who I already had, praying for a Mantle or a Rizzuto, hoping against hope that I didn’t wind up with more losers from the Pittsburgh Pirates or the Washington Senators (Washington: “first in war, first in peace, and last in the American League”). Finally we’d go outside where we’d flip cards against the wall and see who was the best.
There’s a moral here.
To be a winner, you have to be willing to toe the line and pull the trigger.
By the time I was ten, eleven, twelve, I was big enough to get jobs shoveling snow. A Montreal Express would come howling down from Canada, school would be canceled, and I’d grab my shovel and head out. I’d dig all morning, a dollar for a sidewalk, $2.50 for a driveway. It was tough work, and often, just when I thought I was done, a snowplow would come steaming by and fill everything back in. I’d keep shoveling and by noon I’d have six or eight bucks tucked away in my pocket, and that was big money back in 1957. Then I’d head over to Eddie Cohen’s basement to play cards. We had a game called “setback,” a six-card game, high, low, jack, and game, with an occasional smudge. Sometimes I’d clear as much as $10 or $12 in an afternoon, which sure beat shoveling snow.
By the time I was fifteen, we’d graduated from setback to poker. On Saturday mornings I’d caddy for Pappy, my maternal grandfather. While Pappy wasn’t much of a golfer, he was a great tipper. He’d slip me a sawbuck, and that was big money back in 1960. Then I’d head over to Eddie’s basement, where I’d meet up with the old gang from Davis Street Elementary and some new guys from Hillhouse High. One of the new guys was Donny K., whose father owned a big soda distributorship in West Haven. I liked playing with Donny, because he always had lots of money. His father drove a Cadillac and belonged to the Woodbridge Country Club, but Donny wasn’t too bright. He never quite grasped the concept that you never split a pair to go for an inside straight. I took a lot of pleasure out of beating Donny, because I always had a chip on my shoulder when I went up against somebody who had more money than I did.
My parents didn’t seem too concerned with my gambling, probably because I won a lot, but when Pappy found out what I was doing with his money, he went nuts. He started complaining to my mother, “Hilde, how can you let him play cards and gamble like this? He’s got the fever. He’s going to ruin.”
I had the fever, but I wasn’t going to ruin. I was going to Aqueduct. Once I got my driver’s license, I’d cruise on down to the Big A with $50 in my pocket and try to come home with a hundred or more. Lots of times, I did. As with cards, I discovered that I had a way with the ponies. And I was all business. I wasn’t there to eat, or drink, or socialize. I was there to make money. I’d study the racing forms, research the trainers, chart the jockeys, get to know the track conditions. I’d look at pedigrees and most recent race results, hoping to spot trends. I’d go through the speed ratings in the Daily Racing Form for each horse and try to determine which horse was in the best shape to go that particular distance on that particular day. I’d calculate the projected time for each horse and plan my bets accordingly. Finally, I’d scrutinize the tote board, look for imbalances and discrepancies, identify opportunities, wait until the very last minute, and then play the odds.
I loved Aqueduct. It was clean and green, and the horses were beautiful, and nobody cared that my father had a lousy job, or that I was Jewish, or that we didn’t have enough money to get into the Woodbridge Country Club. If you wanted to get into the clubhouse at Aqueduct, you just paid a couple of extra bucks.
Moral:
Preparation pays. It’s essential to know more than the other players in the game.
At Amherst, one of my favorite pastimes was going to the track. I went alone; even though Lord Jeffrey is usually depicted on horseback, in 1963 not too many sons of Amherst played the ponies. On Fridays after soccer practice, I’d walk down to the station next to the Lord Jeffrey Amherst Bookstore, get on a Peter Pan bus, and head up to the little track in Hinsdale, New Hampshire. As the bus cruised past beautiful New England farms, I’d look out the window at the fall foliage and think to myself how nice it would be to be somebody, to have a farm with bright orange maples, rustic red barns, pristine white fences, and rolling green pastures, with my own stable of horses grazing contentedly. When I came back late at night I’d sit in the back of the bus, fondling my money and feeling like a winner.
Dare to dream. It’s not where you are, it’s where you’re going that counts.
Or, as Pappy Snyder used to sing,
“If you don’t have a dream, how you gonna make a dream come true?”
In the summer of 1967, my parents gave me $1,000 for my trip to Europe, just like they’d given my brother when he’d graduated from Syracuse five years earlier. Off I went with Larry Lincoln, my ex-roommate from Amherst, and his brother Steve. I was gone from the middle of June to the end of August, a total of eleven weeks. My parents figured that that would give me plenty of time to soak up some Continental culture before I started Columbia Business School in the fall.
While Larry and Steve toured the museums and cathedrals, I’d be touring the casinos. They were very Old World with ornate baroque buildings, vaulted ceilings, crystal chandeliers, velvet drapes, and everyone dressed in coats and ties. My favorite, by far, was the casino in Divone, France. When we were staying in Geneva, I took the big-ass Mercedes that Larry and Steve’s father bought for us to bring back to the U.S. and drove over the Swiss border to Divone.
I remember crossing the border, showing my passport and car registration, and having the guard ask me, “Monsieur, puis je demander qu’est-ce que vous avez que faire en France?”
“Le gambling,” I replied.
“Ah, le jeu. Bonne chance, Monsieur.”
“Merci, mon gendarme.” I did not have a great command of the French language.
I remember seeing the lights and pulling up in front of the casino in the big-ass Mercedes. I felt like Bond, James Bond in Casino Royale. Like Bond, I played complicated progression systems at roulette. I’d wait for a pattern of four or five blacks, or four or five in a r
ow, or four or five reds or odds or evens. I’d stand at the table and chart the results on cards. I didn’t care that the roulette wheel was supposed to be completely random, that the odds were the same on every spin. I had to have a system. I’m not comfortable making decisions about money unless I can fit them into some kind of order. And who knew, on some night some wheel might have a bias.
After I’d been in Europe ten days, I’d made more money than I’d spent. That really excited me. My hope was to make enough money from gambling so that when I got home I could repay my parents the $1,000 they’d given me. I thought that would be terrific.
I stayed ahead all the time we were in Europe, but when we got to London, the last leg of our trip, I was so eager to play that I didn’t give myself a chance to rest. The one thing you have to do when you’re gambling is give yourself plenty of time to rest. It’s like running a race, if you’re not in shape, you’re going to lose, but the first thing I did after we landed at Gatwick was to head for the first club I could find.
It was early evening, around eight or nine o’clock, when I found one, and the place was almost deserted. I didn’t know this at the time, but the clubs in London didn’t come alive until much later. I wanted to play craps, but I like to bet against the shooter, and no one else was playing. I decided that I’d throw the dice and bet against myself. I have a firm rule that I never let the shooter beat me more than twice in a row; if that happens, I stop betting and wait for the next shooter. But here, the next shooter was me. I must have been unconscious. I made seven straight passes while betting against myself. “By Jove,” exclaimed the croupier, “I don’t believe I’ve ever seen anything quite like it.”
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