The Buy Side

by Turney Duff

  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 bette
r, 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.

  Each day I buy as much as I can. I don’t want to show the pair of aces I have in the hole, so I call a few of the bigger bulge bracket firms to see what’s going on with the stock. I don’t tell them if I’m a buyer or seller. I just want to get a feel for the market. I buy in small increments on the machine, Instinet, so as not to move the stock too much. I also try to find a natural seller, so we can just cross stock without drawing attention. But I don’t have any luck.

  It takes me close to two weeks to secure our full position, about three or four hundred thousand shares for each stock. Then I call two of my fellow Healthcare Mafia members and tell them to meet me at a place called Mexican Radio after work. They know what this means: I have information they’ll want to hear. I’m not just being a nice guy. I know if I help them, and make them look good in front of their bosses, they’ll owe me. I also want them to create buy interest in the stocks when the time is right.

  When I walk into Mexican Radio, they’re sitting at the bar. Roger works at a billion-dollar macro fund that trades a lot of healthcare, and Trevor is at a multibillion-dollar healthcare fund. The protocol for our Mafia meetings is to never start with business. We spend the first half hour drinking margaritas and discussing the usual bullshit: What’s new? How’s work? Any new chicks? That kind of stuff. Once the warm-up is out of the way, I tell them about the staffing call we have, which companies are involved, and how much we think the stocks will rise. We suck down a few more Shortwaves, the signature margarita at the Radio, smoke a few cigarettes, and then head home for the night.

  Over the next two days, the stocks continue to rise; my allies have clearly convinced their portfolio managers to buy. I then let the story out to a few more hedge fund traders I know. Now the stocks are really starting to move. By then, we’ve already made a significant amount of money. So much so, the prudent move might be to get out. But Vivek tells us the stocks still look cheap and should go higher. We wait.

  By the time the staffing companies release the news about the new trend, the stocks are up over 10 percent on the day, a huge move in the premarket. The short interest (the outstanding shares that are shorted) is high, as a lot of hedge funds had a negative view on the sector before this morning’s news. I wait for the opening bell as the stocks continue to climb, now up nearly 15 percent. It’s time for me to go to work.

  I call five brokers on the Street: Goldman, Morgan, Merrill, Citi, and Credit Suisse–First Boston. Though I want to sell, I don’t want the Street to know that yet. So I tell the big five that I have a large buy I need to make in the staffing sector. I act like I’m losing money, tripping over my words. It’s a hand I can’t overplay. I’m not dealing with idiots (well, maybe one or two of them are). But I’ve seen plenty of traders in this situation for real—I’ve been there myself. I know how to make it sound believable. They tell me they have to call me back. I know as soon as they hang up the phone they’ll be screaming that they have a large buyer for all staffing company stocks across their trading floor. Then all of their coworkers will start to make outgoing calls with the same information. Meanwhile, I’m at my desk getting my sell tickets ready. Each return call I get is about the same: “Sorry, nothing for sale.” And by now, the sell side firms have told most of their accounts that they have a large buyer of my stocks. The entire mood has changed. The smart money is buying, and everybody wants in. Perception becomes reality. I do run the risk that someone might find a seller and I’ll get a call offering me a shitload of stock, but I’ll deal with that if it happens. It doesn’t.

  By the end of the day the stocks are up nearly 30 percent. I give Gus a call to sell some of our positions, not only to throw Turbo a few poker chips, but because I want to use someone who wasn’t involved at all. The longer I keep my identity as a seller from the Street the better the stocks will continue to perform. But I can only keep it secret for so long, and over the next two days I sell off the remainder of the stocks until we’re flat. In the end, Argus is nearly seven million dollars richer. Not bad for three weeks’ work.

  In the office, most of the credit goes to Vivek, for coming up with the idea in the first place. That’s fine with me. I’m not looking for applause. I’m looking toward bonus time, and my million-dollar goal. That night I’m at the Radio again with Roger and Trevor. “Nice trade, my man,” says Trevor. I nod and order a Patrón Silver on the rocks with three limes. “Any new chicks?” I ask. There’s nothing more about the staffing deal to say. We all know what we made, and what is owed. After a few laughs and another round, Roger asks for the check. I watch them walk out the door and then I order another Patrón. On the bar, my cell buzzes. I look at the text. It’s from Randy. “Come over,” it says.

  BY THE spring of 2003, Argus Partners assets under management exceed the one-billion-dollar mark and we continue to grow. It’s as if we’re printing money. We’re up, so we press. As we make more money, our bets get bigger. Galleon healthcare is a distant memory. When the Street thinks about healthcare, they think about Argus. When the Street thinks about trading healthcare, they think of me.

  You really don’t see it coming, the change. It’s not like you get a memo or a tap on the shoulder from your boss telling you you’re relevant now. No, you just wake up and your entire world is different. You’re on every guest list, the tab is always picked up, and you’re invited everywhere by your new “best” friends. I’m not saying it isn’t exciting—it is. I sat on the fifty-yard line at last year’s Super Bowl, one of the greatest ever played. The Patriots, a two-touchdown underdog, beat the Rams in overtime on Adam Vinatieri’s field goal; I had even better seats at the double-overtime championship game the Miami Hurricanes and Ohio State Buckeyes played in Tempe; I went to the Sundance Film Festival. There, I stayed in a seven-bedroom chalet on the ski mountain. I’ve taken helicopters to the Hamptons, and private jets to Vegas.

  Although things are great, I feel like something is missing. I wonder what Lily is doing. The main reason I don’t ever get serious with women is because I hate the breakup. Anything after a few dates requires “the talk,” and I hate the talk. When I called her, we didn’t make plans to meet again. We just said good night. The phone calls back and forth started to become further and further apart, with no plans being made. One day the calls just stopped coming and she faded to the background. I’m not sure if I left her in my wake or she left me in hers. I guess it doesn’t really matter. I think I miss my old life. Because of business dinners and spending too much time with Randy and James at the White House, I rarely spend time with my roommates anymore. Before I started working on the buy side, Jason and I were always out together. We had a schedule: on Wednesdays it was Gentleman Jacks on the Upper West Side, Thursdays we went to Dakota on the Upper East Side, and Friday and Saturday we’d bar hop and always end up at Red Rock West. We also had our own bar
routines. Sometimes we’d start with the invisible double Dutch move. We’d clear a circle and get two guys to pretend to be turning the ropes as we jumped. Or we’d do our Annie bit. We’d get on our hands and knees, pretend to scrub the floors, and sing “It’s a Hard Knock Life.” We were a team, like Bert and Ernie, Butch and Sundance, or Laverne and Shirley. We’d been performing together for so long, we no longer had to rehearse our lines. It all came naturally. I might be talking with a girl and Jason would interrupt and say, “Oh, Turney, I forgot to tell you, your agent called this afternoon.” Then he’d just walk away. From there, I could tell any lie I wanted. I could be an actor, an artist, or a writer. But rarely a Wall Street trader.

  But one day I get a phone call from a guy named Drew and I see an opportunity to bring Jason back into my social life. Drew acts like he knows me, but I’ve never met him. He explains he’s the head of trading at Susquehanna, a Philadelphia-based firm that recently made a push into sales and trading, the customer facilitation business. Drew invites me to South Beach for the weekend with a bunch of their guys from Philly and some of their clients from New York. He tells me they’re renting a jet, a BBJ 737. The BBJ doesn’t really mean anything to me—it sounds like part of a personal ad on Craigslist—but the 737 tells me it’s big, real big. I say I’ll go, and I’m just about to hang up when a thought comes to me. Would it be okay to bring a new hire on the trip? I ask. When I tell my roommate Jason we’re going to South Beach on a private jet, we’re staying in a sweet hotel, and everything’s paid for, he screams like a schoolgirl. There’s just one catch, I say. “You gotta pretend you’re my trading assistant.”