To Thine Own Self Be True
I have a friend named Mark Cook. Mark’s a farmer out in Ohio, but he’s also a very good trader and he’s developed some interesting methodologies that he sells through a fax service. One day I picked up the phone, dialed Mark’s number, and just as I’d done with Terry Laundry, said, “Hey, Mark, this is Marty Schwartz, how ya doing?” I love talking to other good traders because I’m very willing to share information. I don’t mind giving as much as I get, and now Mark sends me his faxes and we trade market strategies.
On January 23, 1997, I received a Mark Cook Special Fax entitled “What Makes a Successful Trader?” People are always asking me what it takes to become a great trader, so I was interested in seeing what Mark had to say.
First, according to Mark, to be a successful trader you have to have a complete commitment to trading and do it full-time. Trading must be addressed as a profession, because if you do not treat it as such, those who do will separate you from your money very quickly. Mark Cook watches the market all day long, from the opening bell to the closing bell, and keeps a diary that sometimes has more than forty entries a day. If he doesn’t do this, his profits suffer. “There is no shortcut in trading, the market will quickly find out if you are lazy.”
Second, he says, fit your trading habits to your personality. If you are an emotional person, admit that you are emotional and structure your trading habits to make your emotions a positive influence, not a negative one. If you are greedy, or if you are fearful, that will affect your decision making, and if you don’t recognize your dominant emotion, your decisions will be wrong. Mark tends to be fearful, and whenever he is most fearful, recognizing that emotion helps him decide to go long and buy. “Whenever my fears become overwhelming, my discipline tells me to buy, and discipline must win out, or you are doomed to failure.”
Third, says Mark, planning is the objective part of trading. Start with the worst-case scenario and work from there. You will never be more objective than before you execute a trade. Once you are in a trade, emotions take over, so your plan must be in place beforehand. Know when you are wrong and admit it. “Get out, retreat, and live to fight another day; these are cowardly approaches, but they will keep you from the trader’s obituary.” I think that Mark’s analysis is as good as anybody’s.
Another question that I’m always asked is if trading is something that comes naturally or is it something that can be learned. The answer is, both. By nature, I’m quick with numbers, very competitive, and love to gamble. Then Amherst taught me how to work hard, Columbia taught me business, and the Marine Corps trained me how to react under fire. A great trader is like a great athlete. You have to have natural skills, but you have to train yourself how to use them.
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Lots 204 and 207
On May 8, 1985, Audrey gave birth to our son, a handsome six-pound-eleven-ounce little mensch. Then in November, Audrey was diagnosed with breast cancer. This setback, like the one we suffered when we’d lost our first baby in December of 1981, reaffirmed my feeling that it was crazy not to taste the fruits as soon as we could pick them.
The following spring and summer, Audrey decided to completely renovate the apartment. She moved walls, put in a new kitchen, redid the bathrooms, had all the windows treated, and repainted everything. Money was pouring out, but that was all right. I was still the Champion Trader, I was still making it faster than she could spend it. In fact, I was getting ready to spend some more.
Once you get far enough up the tree, there’s no shortage of expensive hobbies you can undertake. Ted Turner had his ten-meter America’s Cup yachts, George Steinbrenner his Yankees, Wayne Newton his Arabian stallions, and Prince Charles his mistress. But I wasn’t interested in yachts, sports franchises, stallions, and with Audrey around, the market was my mistress. If I was going to sink a lot of money into a hobby, I wanted it to be art.
As a kid, my mother would take me on the train to New York, and we’d spend the whole day visiting the Museum of Modern Art, the Metropolitan, the Guggenheim, and the Whitney. I would have much preferred to have been playing cards in Eddie Cohen’s basement, but the seed was planted. My mother would buy prints of the great paintings by Monet, Manet, Degas, and Cezanne and hang them on the walls of our house in New Haven, so seeing fine art on the walls of my house was something I was used to, even if it wasn’t the real thing. Now that I had plenty of money, I wanted the real thing.
Once the apartment was done, Audrey and I went to see Al Fresco and Cliff Palette at the Fresco-Palette Gallery on the Upper East Side. Al had been in my class at Columbia Business School. He and Cliff were cousins who had taken over the gallery from their fathers. Their grandmother was related to the early American Impressionist John H. Twachtman and had married a Du Pont. So it was no mystery how Al and Cliff had the genes and the green necessary to operate a gallery on the Upper East Side.
When I started making decent money back in the early eighties, Audrey and I began spending Saturday afternoons scouting out galleries. Fresco-Palette became a frequent stop and, while we liked their art, back then it was still out of our reach. Now it wasn’t.
In October 1986, we paid Fresco-Palette $100,000 for Ernest Lawson’s Winter Reflections (oil on canvas, 1915), which was pretty pricey for a Lawson, and $400,000 for Robert Vonnoh’s Jardin de paysanne (Peasant Garden, oil on canvasboard, 1890). In one afternoon, I’d dropped half a million bucks on two paintings. For my $500,000, Al threw in a book, American Impressionism by William Gerdts (Amherst ’49), a professor of art history at the City University of New York Graduate School and University Center.
I liked the Impressionists because, here again, the seed already had been planted. In 1984, Audrey and I had taken our first trip together to Europe, and while we were in Paris, we hired a driver and had him take us out to see Monet’s home and gardens in Giverny. It was early May, and like the American painters who flocked to the provincial villages of Pont-Aven, Grez-sur-Loing, Concarneau, and Giverny in the late nineteenth and early twentieth centuries, Audrey and I were drawn to the special light and beauty of the French countryside. However, when we got back to New York and started looking for something to buy, I realized that it would be foolish for us to try to collect the best paintings by the top French Impressionists. How was I going to afford a top-of-the-line Manet, Renoir, Degas, or Monet? If I was going to buy French, I’d have to go second line.
On the other hand, American Impressionists like Theodore Robinson, Frederick Frieseke, Winslow Homer, Mary Cassatt, and Robert Vonnoh, who had studied under the great French masters, were well within my budget, and after visiting more galleries and studying Gerdts I came to the conclusion that painters, like everybody else, had good and bad days. A Mary Cassatt on a good day was, at least to my eye, as beautiful, or even more beautiful, than a Degas on a bad day. Plus, because the Americans lacked the snob appeal of the French, a top-of-the-line American painting sold for about one-third the price of a second-line French one. Like options back in my early days on the American Exchange or S&P 500 futures in the early eighties, the American Impressionists fit my style and personality. They were priced right, they had upside potential, they were an emerging market, and I understood them. If I was going to play with art, the American Impressionists were going to be my game.
As I spent more time at the Fresco-Palette Gallery, I began to see that Al and Cliff had a market philosophy a lot like my own. For their inventory, they’d buy only the best paintings by the best artists at the best prices. That gave them the best liquidity, because there were always wealthy people around who wanted to buy only the best. When I was trading, I’d stick with the biggest blue-chip companies because they were the ones that gave me the most liquidity. If I bought fifty thousand shares of IBM, Xerox, or Du Pont, and an hour later I changed my mind, I could bang them right out at little risk because there was always a market. That’s what Fresco-Palette had, a lot of blue chips that it could bang right out. My problem was that the ga
lleries were banging them out at retail and my Jewish heritage told me to buy wholesale.
The advantage of buying art through a dealer was that you knew what you were getting. The dealer had done all the work so you were sure that you were buying the best of the best. The disadvantage was that you were paying top dollar. Dealers had to make a living, and unless you were new to the game and didn’t know what you wanted, or you were looking for a particular piece, who could afford dealer prices? I knew what I wanted, American Impressionists, and I wasn’t looking for any particular piece. I was just looking for the best paintings by the best artists at the best prices, and that meant that I’d have to go where the dealers went: I’d have to go to the auctions.
Christie’s at 59th and Park and Sotheby’s at 72nd and York were the two main auction houses for American art. Audrey and I got their past catalogs and started studying. We compared the quality of the artists, paintings, and prices that each house sold, and it seemed to us that when it came to American Impressionists, over the years Sotheby’s had the better selection. Sotheby’s held its auctions for American Impressionists twice a year, once in early December and once in late May, and we decided that we’d make our debut at Sotheby’s December 4, 1986, auction.
Like a good marine, I wanted to be prepared before I went into battle. This was new terrain and I didn’t feel comfortable going up against art’s most elite troops all by myself, so three weeks before the auction, I went to see Al and Cliff.
“Look,” I said, “Audrey and I want to build an American Impressionist collection, but we can’t keep paying retail. We want to go to the Sotheby auction, but to do that, we’re gonna need your advice. Here’s what I figure: if you could show us the ropes, we could pick up some paintings that you like, and then if somebody came along sometime in the future looking for a particular piece, you’d know where it was, and you know I’m a trader, so we could make a deal. That way, you can put your money into other stuff and down the road still make some nice commissions.”
This argument must have made some sense to Al and Cliff. They told me that they’d give us any information they had on any paintings that we liked and that we could sit with them at the auction. They even offered to do our bidding. As I got up to leave, Al reached under his desk and pulled out a brand-new advance copy of the Sotheby catalog for the December 4, 1986, auction. “Here,” he said, handing me the catalog. “Start studying.”
I felt like the professor had just given me the final exam. I went right home and sat down with Audrey. “We’re gonna go to the auction with Fresco and Palette. They want us to go through the catalog and pick out all the paintings we like. Then they’ll help us decide which ones we should bid on.”
Audrey and I spent the next two weeks poring over the catalog, studying all of the American Impressionists, trying to find the best paintings by the best artists at what we thought would be the best prices. Trying to find a good painting was a lot like looking for a good stock. The December 1986 Sotheby’s catalog contained 349 items, including sculptures, and about fifty of those were paintings by American Impressionists. As with stocks, we were able to eliminate most of them right away. With stocks, we didn’t like the earnings, we didn’t like the product, we didn’t like the market share, or we didn’t like the management; with paintings, we didn’t like the price, we didn’t like the composition or the color, we didn’t like the provenance, or we didn’t like the artist.
In a week we had the field narrowed down to five paintings: lot 176, Childe Hassam’s Road to the Sea (oil on canvas, 1895, $150,000-200,000); lot 190, Theodore Robinson’s Summer Hillside, Giverny (oil on canvas, circa 1889, $450,000-550,000); lot 196, William Merritt Chase’s Shinnecock Landscape (oil on canvas, circa 1895, $150,000-200,000); lot 204, Maurice Brazil Prendergast’s The Garden (watercolor on paper, undated, $140,000-180,000); lot 207, Frederick Frieseke’s On the River (oil on canvas, circa 1909-10, $250,000-350,000). It was time to go see Al and Cliff.
The auction was on Thursday, December 4. I dropped by Fresco-Palette after the market closed on Friday, November 28. As expected, Al and Cliff knew everything about every one of the paintings Audrey and I had chosen. “You’ve got a good eye,” Al said, “but you can’t go by the catalog. You have to see them firsthand.”
All the pieces were on exhibit from Sunday, November 30, until Wednesday, December 3. The Garden was the only piece we were interested in that wasn’t being shown at Sotheby’s. It was part of a Prendergast exhibit that was being shown at the Coe-Kerr Gallery on East 82nd Street. Audrey and I went there on Saturday. It sparkled. It looked much better in real life than it did in the catalog. We definitely wanted to bid on this piece and we started to get excited with the prospect that in a week, this very painting might be hanging on our wall.
All of Sotheby’s exhibitions were open to the public, except for the one on Monday night. Monday night viewings were “by appointment only,” which meant that Monday was when Sotheby’s had their private cocktail party for its big hitters. That was the exhibition I wanted to go to, because that’s where I could sniff noses with the top dogs of the New York art world, but Audrey and I weren’t on Sotheby’s Rolodex at the time, so we weren’t invited. We weren’t members of the club. We were scheduled to meet Al and Cliff to look at the other four paintings at the final exhibition on Wednesday afternoon, but at the last minute our sitter called in sick and Audrey had to stay home.
I didn’t know what to expect as I walked into Sotheby’s headquarters on York Avenue. I knew it wasn’t going to be like walking into Aqueduct or Caesar’s Palace. I pictured people strolling around soberly and speaking in whispers as if they were in a museum. But it wasn’t like that at all. Walking into the main viewing room of Sotheby’s was like walking into the 1948 Republican convention. Stuffy-looking Ivy League Wasps and Wasp wannabes were going around gladhanding each other, working the room, trying to make everybody think they knew something. “This is unquestionably one of Redfield’s finest works.” “Here is a fine example of Paxton’s binocular vision method of painting.” “Yes, notice how unifying the focus and relegating outlying areas to a less distinct representation makes the work so much more credible.” “Look at the energy and intensity of Young Girl with Dog.” “It’s remarkable how Robinson transcends the ordinary. Look at the condensed treatment of space, how it’s suffused with soft filtered light, and the wispy brushwork.” What bullshit. But it was good bullshit, certainly nothing worse than I heard every day on the Street.
Al and Cliff’s hands were in perpetual motion. This was their market and they knew everybody in it. They kept introducing me to the crowd, but I wasn’t there to socialize. I was there to study the paintings and measure the people, the way I’d studied the horses at Aqueduct and measured the specialists on the Amex. I looked at each of the paintings we’d identified and listened to the people who were talking about them, trying to chart what they were saying, to fit them into some kind of system.
When I got home, Audrey and I sat down and went over our notes one more time. We were preparing for the market the next day, finalizing our strategy, checking our inflection points, and setting our entry and exit price levels. I wanted my Marine Corps general orders clear in my head. I wanted to be ready when the shit hit the fan, because trading is all about having your mind disciplined ahead of time. Specifically, my objective was to establish a maximum bid for each painting, plus one. If my maximum bid was $200,000 and the bid went to $210,000, I’d give it one more shot at $220,000. Auctions play on the bidder’s emotions so the idea was not to go crazy, to set a firm quitting point and to stick to it. Just before we went to bed, we took our catalog, which by now was dog-eared and covered with notes, and carefully folded back the corners of the pages for our three paintings: lots 176, 204, and 207.
The auction at Sotheby’s is divided into two sessions. The morning session covered lots 1-150 and started at 10:15. The afternoon session covered lots 151-349 and started at 2:00. The lots were arranged chro
nologically, so the American Impressionists were part of the second session, but I wanted to use the morning session to reconnoiter the terrain. Walking into 1334 York Avenue that Thursday morning and seeing the guard reminded me of walking into 86 Trinity Place seven and a half years before. We hung our coats in the cloakroom, went into the lounge, found the Fresco-Palette boys, and followed discreetly as they walked upstairs to the main auction hall.
We entered a room about the size of a small off-Broadway theater and claimed four seats in the front row. Al put me on Cliff’s left because Cliff did the bidding. Al sat on my left, and Audrey sat on Al’s left. Directly in front of us was a table where a half dozen tweedy young men and women sat manning a bank of phones. “Those are for the phone bids. People call in from all over the world,” Al told me. Above and a little to the left of the young tweedies was a computerized electronic currency conversion board that listed the conversion rates for all the currencies in which a buyer could bid: dollars, pounds, French francs, Swiss francs, yen, and deutsche marks. Directly in front of us on a raised dais was a large spindle with the display box. It was lit by bright floodlights and had curtains on either side. “That’s where they show the pieces,” said Al. “It’s divided into three sections like a big lazy Susan. While one piece is being auctioned, behind the curtains they’re taking off the item that just sold and mounting the next one.” To the right of the display box was a pulpit. It was vacant now, but obviously that’s where the auctioneer stood.
Boxes with tinted glass ran along both sides and the back of the hall above the floor. I assumed that these were occupied by really big hitters. The crowd was milling around and chatting, but everyone immediately settled down when at precisely 10:15, John Marion, the chief auctioneer, ascended the pulpit. The only people who remained standing were Sotheby’s spotters, strategically stationed against the walls.
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