If only we could turn back the clock...
Thanks to the Internet (and SI) small investors are on an (almost) equal footing with the Big Boys!
interactive.wsj.com
March 23, 1999
If Only We Could
Turn Back the Clock
By Andy Kessler, a partner in Velocity Capital Management LLC, based in Palo Alto, Calif.
Thorough, patient, methodical analysis is a key to success, I was always taught. But who has time anymore? The Internet can disseminate breaking news around the world in milliseconds, and your phone rings almost simultaneously with a "What should we do?" The luxury of days to study an issue is long gone. Even instant analysis is too slow. To succeed, you'll have to cheat time, almost work on negative time, anticipating rather than analyzing or reacting to sudden events.
It's 1993, I'm a technology analyst at Morgan Stanley and I'm on my way to lunch. "Intel on the tape," I hear. Here we go again. The phone instantly is ringing. "Dickey on 40," my secretary yells. Oh no, the head of sales smells blood. Think fast. AMD's new chip doesn't cut it; Cyrix is late; no way will Intel miss the quarter.
"Kiniry on 40." That's the trader. I pick up. "Kurlak's whacking numbers, says pricing stinks, Intel will glitch, stock's down $6." Then my secretary again: "London on 42, Miller from SF on . . ." I sprint to the trading floor, think up three bullet points on the way, hit the floor, am crushed by a dozen salesman and traders and a few friends laughing. I grab the microphone, blast my bullets, ending with "Back up the truck, Mabel, and load up on this stock!"
I make my way to the over-the-counter trading desk, Intel's stock is now down only $2. I hear a lot of chatter as my call goes out to investors and trading desks around the world. Intel is now down an eighth, now it's up a buck. Crisis avoided. Elapsed time: three minutes, 15 seconds. Time for lunch.
On Wall Street, in the six years since this scene, instant analysis has become the norm. It didn't use to be. First the ticker tape and then phones and then quote machines connected traders and investors with information, rumors and lies, but the pace was glacial. News would come out, and analysts would have a day, or at least hours, to figure out what was happening and communicate their assessment to clients.
Cheating time for fun and profit has a long history. Consider the legend of Nathan Rothschild shorting the French market upon hearing almost a week ahead of time that Napoleon was defeated at Waterloo. Reuters got its start in 1849 transmitting stock prices by carrier pigeon between Aachen and Brussels until the telegraph provided faster transmission. Even Hollywood, in the 1983 movie "Trading Places," had Eddie Murphy stealing crop reports to get positioned right in orange juice futures.
By the mid-'80's, fax machines were common, as was Federal Express, but still the pace was slow. I found that if I could cheat time, I could be the first to get information to clients, who then might remember my spin and analysis. By the time everyone else called them, it would be old news.
I used to tackle the FedEx guy when he arrived on my floor, so as to get a package of monthly industry order numbers. Eventually I started hanging around the FedEx office in midtown Manhattan at 9:30 a.m. and asking nicely if I could pick up my package myself. I scooped the street by an hour before everyone caught on and started using CompuServe to release the numbers the night before.
The next trick to cheat time was to chew up others' time. Before conference calls, companies would talk to analysts on a first-come, first-serve basis. On the appointed day, I would sit by my Quotron waiting to see Intel's earnings release on the tape, speed-dial to be the first call in, then chat for a good 45 minutes, knowing full well that others were stewing waiting for their calls to be returned. Meanwhile, I'd pass a handwritten note for someone to read over the open mike to salesmen and brokers. We had the first call indeed. Alas, conference calls and detailed faxes ended that game within a few years.
Round-the-clock trading means that instant news any time of the day and night is here to stay. I've had the strangest stuff blasted at me: jury verdicts, competitive product announcements, plant explosions, earthquakes, price cuts in Japan, other analysts making stuff up. I never knew what was going to hit, but I needed a great response no matter what. More than once I awoke to my wife saying, "There's a Yamamoto on the phone. Who the hell is he?"
E-mail has your competitors getting news the same time you do, so the only way to have a lead is by creating "negative time"--doing my homework in advance and anticipating news. Speed kills, unless you are prepared and understand all the possible scenarios. If you work hard enough, you can know tomorrow's headlines today, or at least not be surprised by anything and be positioned to react.
Is the culture of instant analysis unique to Wall Street analysts or hedge-fund investors? I doubt it. The knowledge economy insists on speed. As technology and communication speed up the flow of information in every business, instant analysis becomes critical. Just figuring how to cope is an interesting exercise. Figuring out how to excel will separate the winners from the losers.
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