The conclusion to “Remembering the good times:” Buy-Side Trading

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Ian Winer
The conclusion to “Remembering the good times” Buy Side Trading


It would not be fair for me to depart my trip down memory lane without a visit to the one other position I held while on Wall Street: The “Buy-Side.” Back in 2004 when I was offered a seat at a hedge fund, I leapt at the opportunity to be on the other side of the phone. I knew the streets were paved with gold and who doesn’t like being a master of the universe? 15 years and a helluva lot of mileage later, I wonder if things would have been different if I had been really good at managing money? Spoiler Alert: I wasn’t. So let’s continue.

One week before I left the sell-side, I should have heeded an ominous sign. I was working on the sell-side as a trader at the new Banc of America post Montgomery acquisition. I had an important dinner (or at least that is what the sales trader said) with an asset manager and its entire trading desk. We were at one of the numerous Italian restaurants in Manhattan that play “Con Te Partiro” and “My Way” on a loop. This establishment was slightly different because it was clear one of the buy-side traders knew the owner quite well (some type of quid pro quo relationship). We were escorted to a “private room” which, in the parlance of Wall Street dinners, means 3 tablecloths, a sliding door that’s opens and closes at least 40 times during the meal, lots of breadsticks and a tiny menu in cursive to make it feel really special. The night began in standard fashion. The Buy Side traders gave an update on their business. They told us their commissions were flat, but we were tracking up 10% so that was great news. We told them about Banc of America’s new “story,” how we love block trades and how we provide great “color” to the street. Dinner ensued. One of the men at this buy-side firm, while eating lamb chops like chicken wings, says: “You guys ever seen this show ‘American Idol? ‘ It’s f-ing great. They bring these people out to sing for some judges and make fun of them.” It was a customer dinner, so even though I had no idea what he was talking about, I sat quietly and nodded in acknowledgement. About 15 minutes later, the same restaurant owner wheels an old CRT TV into the private room. He plugged it in. We watched “American Idol” at the dinner. The Buy-Side.

My friend Turney Duff, another Galleon alumnus literally wrote the book on the Buy-Side. I encourage you to read it. For the sake of this note, I will include PM’s and traders under the same buy-side banner. After all, they both were clear that they could do the other’s job better. The traders thought the PMs chased every rally and sold every sell-off. The PMs thought the traders couldn’t execute and were better off VWAPing everything.

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My memories of the Buy-Side can be divided into 4 distinct eras.

1) My first recollection was when I was 15 and saw “Wall Street.” I remember the heavyset trader “Ollie” and Gordon Gekko’s description of him: “Doesn’t look like it but the best trader on the street.”

Fast forward 10 years…

2) The second era is what I call “Pre Reg FD:” This was like the 1st season of West World where you lived in a paradise of little to no consequences, no matter what you did. The Buy-side literally had the press releases of the earnings call, before the earnings call. And it was totally legal. Those days the sell side firms were like the “Hosts:” Unable to shoot back, helpless against the emotional swings of the guests (hedge funds, mutual funds) and if they did get shot, would be lucky to be put back into commission in the park. The smart sell-side traders would tell the client they were “restricted” in the stock and could not commit capital. That was really the only escape. It was a glorious time.

From that epoch; an example of a conversation I heard more than once from Buy-Siders in pre-open trading.

Said: “Stock ABC is bid for 1k shares in Instinet. Can I sell you 100k there? You can work a million on a scale higher.”

Meant: There is negative news in the stock, that bid is mine, and selling that scale is about as likely as any of the people in sports jackets coming off the Staten Island Ferry and drinking buckets of Coronas at Moran’s are actually traders.

3) The third era for me was the time period from Reg FD to the end of Galleon: Now the analogy was more like the story of Tombstone. There were some rules now, but Johnny Ringo and the rest of the Cowboy gang ruled the roost and could pretty much do as they pleased. That is until of course Wyatt Earp showed up. Wyatt Earp in this case was Preet Brahara. Paul Giamatti plays him on Billions…I wonder if Preet considers that an uptick or downtick.

I worked at Galleon from the end of 2006 to the spring of 2009. (6 months before implosion). The true craziness I experienced at Galleon happened in small doses. The alumni of “The Good Ship” largely are great people; many are still close friends. The Galleon stories are endless. I will share one that for me summed up the entire experience.

Imagine 20 portfolio managers all using a lot of leverage. Now imagine the firm had a great idea to be long stock XYZ. Galleon might be long 10 million shares of XYZ between multiple portfolio managers. In fact only one PM in the entire firm was short a small amount of XYZ. Safe to say the firm had a vested interest in the stock going higher. One day, the stock starts getting hit pretty hard. Nobody knows why. After some investigating and lot of red in the firm p/l in that stock it turned out the one PM in a cubicle, who was short an odd lot, posted a negative article on a financial website about XYZ, which of course hit the beloved “Street Account” which of course caused a sell-off.

But what an account for Wall Street!!! At its height Galleon could have been paying the street $500 million in commission / year.

The day Galleon closed its doors it killed more people than smallpox.

4) Post Galleon — current day

It is a lot harder to make money! Index funds gather a greater share of investment dollars every day. Robo-Advisors replace the stockbrokers. Factor Models make every move more violent. Internalizing Flow has hurt liquidity and made it next to impossible to buy or sell a position of any size.. Active managers, especially hedge funds have largely underperformed over the last decade. Small hedge funds can’t afford to run their business given numerous regulations and large hedge funds have become either leveraged long funds or asset gatherers.

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Certain phrases bounce around in my head to this day from both sides of the phone.

When I was on the Sell-Side there were certain requests from the Buy-Side that were like fingernails on a chalkboard.

“You want to go over your last TCA? Slippage has worsened.”

“You are out in XYZ 56 and 3/8 for 100k . 2.86mm to you at 56.” At this point, A small hedge fund (almost always from the “middle markets” desk ) hears a big trade going on in XYZ at 56 — The fund calls the trading desk and says “I care at 56 if you trade something.” What they actually mean is “if it goes down maybe I will buy 10k shares and you can stop me against your position. If it goes up I will take em all.”

“Based on resource consumption, we are ahead of budget with you so it will be a little while before we trade again.”

There is a flip side to that coin.

When I was on the buy-side there were plenty of legitimate reasons the Sell-side could drive one insane:

After giving out an order, I might call the direct line of a sell-side desk and listen to it ring off the hook. The sales trader eventually picks up my call while screaming at the position trader. Then I would hear dial tone. Nothing good followed.

Someone on the sell-side would “IM” me to buy XYZ. A month later XYZ was up 15% and the same sell-sider sends me another IM: “I hope you bought the stock when I pitched it.” If the idea didn’t work, the follow up IM happened on the first of Neveruary. I did love the sell-siders with swagger. They were like Larry Bird. They could go 0–12 in the first half and come out firing in the second half.

Someone shopping my own flow back into me (and on occasion making up a number, and once in a while telling me that “smart money” was buying it.) I appreciated the compliment, but if they thought I was “smart money” then I would hate to meet “dumb money.”

The “we might be upgrading this soon” IM that meant I had to go talk to compliance and likely would now be restricted in the stock.

“I thought I told you there were 3 buyers outside of you.”

Of course there was the “pay me” call, which inevitably happened when the market was getting killed.

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95% of the buy side traders I worked with were great people, who were under the gun all the time. They actively tried to help sell side traders through protecting them at their current seats or by placing them somewhere else. They did not want to hurt anyone.

The Buy-Side traders are the customers. We had a coffee or a drink or a dinner or played golf and actually got to know each other. Phones were slammed. Occasionally a plasma monitor was cracked. Lines were “pulled.” That being said, almost every screw up was water under the bridge in short order. It is easy to forget all this now with Bloomberg Chat Rooms, auto VMs, TCA, MiFiD2, Zoom Conferences, and “GotoMeeting” account reviews. Avenues are created constantly to speed up our communication, often at the cost of the depth of the relationship. Every day now, It is amazing what I learn when I pick up the phone. It is amazing what I learn when I ask people “Why?” or “How come?” I left this business nearly 16 months ago and I still talk to many Buy-Side traders, who continue to be good friends and I hope always will be.

Alas, I return to the theme of the other two notes I wrote: Life is more complete when we are connected to each other. I left this business because the philosophy of “Ubiquitous Relativity” (The eponymous book is available on AMZN and BKS!!!) took such a hold of me that I wanted to spend more time carrying the message of pausing on judgment to connect on a deeper level.

This is what the members of “Occupy Wall Street” and politicians who bash this industry do not understand. I have heard terms like “fat cats” or “the 1%” to describe us. We are all unique, but we are also people just like everyone else. Some of us live in the multiverse known as “Trading.” Some of us used to live there. Some of us will live there in the future. Stranger things have happened! We are no better and no worse than any other person, with any other purpose, in any other industry. Most of us are simply doing the best we can for our families and loved ones. We just happen to do it on a street that lies between a river and a graveyard.



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