Still Lovin' John Lattanzio By James J. Cramer
2/8/01 10:56 AM ET
Always strive to cut your losses. Don't try to turn a bad trade into an investment. If you buy a stock for fundamental reasons and the fundamentals change, sell. Never use borrowed money to attempt to turn a mediocre investment into a winner.
So I am sitting there, in the car, reading my morning Journal, reading that opening quote, without looking at the headline because it is "above the fold" and I am thinking, "Holy cow, did someone interview my wife, The Trading Goddess, for this piece?" And then it hits me. "Warnaco Bet Unravels for Trader." Yep, it is all about our buddy, the man who officially introduced me to my wife, John Lattanzio, the head trader at what was once the great Steinhardt Partners.
The story, of course, is a cautionary one, about how John broke all of the rules in Warnaco(WAC:NYSE). The story goes on to talk about how "Lattanz" hooked others on Warnaco, which has been a huge doggy-o of a stock, and that everybody has giant losses on it. First, as everybody in the real biz knows, that's not true. Oh sure, John showed me Warnaco. I showed him Cisco (CSCO:Nasdaq) (during the hey-day, thank heavens). But you buy a stock because you like it, not because Lattanz, Steinhardt or Cramer, tells you to -- if you are a professional. We all know that stocks aren't vacuum cleaners. You can't take them back. You put a name on your sheets, it is your fault.
That's not the point of the piece, though. The point of the piece is discipline. Which is why it is ironic that, of all the great lines mentioned in this excellent Heard on The Street article, they left out the most important one, the one that I still have on my desktop from the Steinhardt days: "Discipline Is More Important Than Conviction." Oh, you can barely read my wife's scrawl these days, as it is more than a decade old. But I know it with my heart, and this Warnaco story is all about conviction trumping discipline.
This article, of course, is a sad one, because nobody taught this doctrine better and more intensely than John Lattanzio. He taught it daily, drilling it into my wife's head for the four years she sat next to him, and drilling it into mine every day of my first years running money, when he used to beat the heck out of me for getting it wrong. When I first started this cyber-site, I wrote a piece praising John, but we had about five readers then, so it is worth repeating now.
In my first year of running money, I put in a clause saying that if we dropped 10%, investors could have their money back if they wanted. Hedge funds were just in their formative years then, and a clause like that wasn't unusual. Sure enough, we dropped 9% our first month, because we were stuck in the foods and drugs during a vicious month-long rotation (yes they used to last that long) into the deep cyclicals (the economy was massively overheating).
I was despondent, almost suicidal. I was screaming and breaking phones and hitting walls -- OK, OK, I still am, what can I say? -- and Lattanz heard the commotion, and he came into my office. He didn't like my suit, which was a Sills model, and told me to switch to Brioni. I told him I couldn't afford Brioni with my losses. He sat me down and proceeded to call me a long list of names, some in Italian, that mostly revolved around me being a knuckleheaded Harvard joker -- no, a balding loser from Goldman Sachs (where, of course, he was also from). After he realized I wasn't going to cry, he looked me in the eye and told me that I was going to sell everything that day, go to the beach or fishing or something, and I was going to come back and come back strong once my head was clear.
I did just what he said. I didn't have another really down quarter until 1998, 11 years later. I listened and I listened good. I know that I am now out of the trading game, but the disciplinary rules Lattanz taught me will protect you in investing, too. They have to be a little less rigid by design, because you aren't buying for a flip. Yet, I still think they will stand you very, very well.
Lattanz got dinged on this Warnaco bet. The debt load always scared me, and I told him that, and I didn't like the fact that Linda Wachner was running two companies at once. Hey, I got lucky. It was cheap enough, and I could have gotten hooked if I wasn't so scared of debt. And I know the press isn't in the habit of saying how great someone is when they are talking about what a bath someone is taking. But Lattanz is the real deal. Take his Warnaco lesson to heart, but if you are a pro on Wall Street you only know one Lattanz, the guy who is always putting the arm on you for children's causes, the guy who got my wife and I involved in St. Jude's, the terrific children's hospital in Memphis. The guy who was proud when Karen and I co-chaired the Wall Street St. Jude's division this year.
I know the takeaway from the Journal story is that he steered people into a bum stock. But the real takeaway is he steered many hundreds of people on Wall Street right -- both with his rigid rules that kept them in the game and with his devotion to charity, which is all, other than his family, that he really cares about. I love the guy. |
