The Important Matter of the Series 7 Examination

After I left the firm of the wooden leads, my goal was to find a firm who’d sponsor me for the series 7 exam. The name of the firm was unimportant, just as long as I could buy and sell stocks. By that time, I’d been trading stocks–successfully– for many years, as I came into some money from an annuity that was set aside for me when I was only 4 years old. It’s not what you think. The money was won in a civil suit against a bar owner–  because my father was killed in cold blood by the establishment’s  bar tender.

My Mother set up the annuity so that it would be released to me when I was 18. My share was very little, but I used it to invest in the market. I’d been interested in stocks since I was 10 years old and had made small investments, with zero success, throughout the years. When I was a teenager, my best friend and I would play stock market, paper trading off of the events of the trading session with paper and pencil. By the time I was 18, I knew almost every stock symbol by heart and had a fair understanding of what made stocks move. I was ready to play. The first thing I did with my share was buy AMER, the ticker symbol of the original America Online. I did so, against the advice of all of NYC’s pension fund managers working for the NYC Comptrollers office, during my summer internship.

The top boss at the time warned me that MSFT would take over the space and that AMER was “nothing more than a fad.” As an aside, Jay Z’s mother worked in that office too, as a NYC municipal bond trader. I was the only one in the office who knew her son, since I was an avid fan in the arts of “underground rap music”– at that moment in time.

Needless to say, I was right about AMER; but it took a very long time to materialize. By 2000, my $6,000 investment ballooned to $250k. That’s how early I was to AMER.

Back to the subject at hand. I took at job at a firm, located at 17 State street in NYC, overlooking the water. It was a beautiful building, with a magnificent view. I really loved the office space. My new boss was not a big broker, but big enough to hire myself and two of my friends from “the wooden lead firm.”

We were the only one’s working at that place. All of the big brokers were holed up in offices and the pikers in the boardroom had little desire to do anything but get by.

As promised, I was sponsored to take my series 7 and given two weeks of “paid vacation” to study and hopefully pass it. I remember the evening before my exam like it was yesterday. My broker called me up and said “stop studying. This is it. Go drink a glass of wine, relax and do your best.” The next day I passed the exam and was given the privilege to recommend and sell securities to the public.

Aside from pitching new accounts for my broker, I had transferred my brokerage account to his rep, since I was not able to manage accounts yet. After I passed the series 7, I was obligated to this fine chap to open up 25 new accounts for him before I was given the right to manage my own business. It’s a right of passage thing and I believed it was a worthwhile experience.

I made 12 successful trades in a row and it shocked my broker. The bastard was making me pay $100 commissions per trade, so I was pretty much working for free. My gains became so prolific, the bigger brokers at the firm started to copy my trades. I was flattered and excited to contribute; but I was also bitter as hell because I wanted to get out from under his tutelage. As much as I liked him, I felt he was my inferior, in both money management skills and salesmanship. He had little to offer me, with exception to a $350 per week salary. It was a stretch for him. He liked the idea of having myself and two others work for him, as he too dreamed of getting big and starting his own firm. But his gross commissions couldn’t support the staff, no matter how many new accounts I opened for him, which was 8 in month 1.

He shared an office with two brokers, one legendary amongst the people who knew him. They were very big producers and my broker was obsessed with learning from them. Instead of working, he’d sit in the office with a pen and pad, listening to every word the other two brokers uttered when talking to accounts–jotting everything he heard down so that he could share it with me later. One day I walked in and he had a nervous breakdown. With tears streaming down his face, he was saying to himself “I can’t do this anymore. I am running out of money.” Everyone just looked at him with pity; but I knew it was time to make arrangements to leave.

While in my second month pitching new accounts there, I met a truly amazing talent. But it was wasted and I lost faith in him rather quickly.

I had made up my mind. It was time to leave the firm and find a place that would permit me to manage my own accounts. I wanted to fulfill my end of the bargain, however, and open up 25 accounts promised to my broker. I looked at it as a learning experience. If I could open up 10 accounts, I could open up 100. I worked frantically, from 8am until midnight, almost every single night. I didn’t have any cold callers to feed me qualified leads, so I did it myself in the daytime and pitched accounts at night. My wife hated me, since I was never home to see her and our newborn. We nearly split up a dozen times, but held it together because we’re both traditional minded people.

One day my broker asked me to hang up the phone and to see him in his office. I was pissed off by this because I was in the middle of pitching a new account. When I got to his office, he was asking his office mates what they wanted from Starbucks, then proceeded to relay this dreadful message to me. Without a seconds delay, my response was “go f*ck yourself.” I told him “I don’t waste time fetching coffee for anyone. If you want coffee, you’re gonna have to get it yourself.”

Words cannot express how mad and slighted I felt at the time. I felt under-appreciated and humiliated. These traits were likely picked up from my pistol packing grandfather, who was  known to pistol whip the other old men in the sitting area for looking at him funny.

After that day, I resigned and continued my journey at another firm and was fired from that fine establishment, which turned out to be the best thing that ever happened to me (part 2, part 3)

The story continues, as I am not dead just yet.

In a brokerage firm there is a hierarchy.  There is the boss, partners, senior brokers, junior brokers, account openers and the lowly cold callers. The cold callers work for the account openers, who work for the senior brokers. The junior brokers, generally speaking, are new and without coin. Therefore, they are pikers and cannot afford to staff up.

When I was a cold caller, I got paid $190 per week, working for the biggest broker at the firm, who employed an army of 6 account openers, a dedicated secretary, and about 10 cold callers. Typically, account openers were paid the princely sum of $400-500 per week. It was a machine. The cold callers got around 5-10 leads per day, which was then passed onto the account openers, who’d open 1 out of every 10 leads. After the account was opened, the senior broker would “second trade” the new account and try to raise big money. In the event the new account was a dead end, he’d send the account to junior broker to work, splitting the commissions 50/50.

In the brokerage business, time is money and senior brokers don’t have time to waste on clients who are small or unwillingly to gamble recklessly with his life savings.

This firm that I worked for was the Godfather of high sales tactic mentoring for young aspiring brokers out of college. It was a place that can never be duplicated, because it was the thing of legend.

The firm was situated so that every broker, big and small, was in the boardroom. There were no corners or cubicles. It was like a giant airplane hanger with men smiling and dialing, pitching people so that they could meet their monthly lease payments. There was about 100 brokers, 50-75 account openers and another 100 cold callers, all in one giant room. Only management had offices–but they were rarely in them– since they’d prefer to police the floor for brokers violating rules, such as looking at charts or not dialing for a period longer than 1 minute. EVERYONE was pitching, non-stop, from morning to night.

You had one job to do at this firm and that was to sell. We were told, ad nauseum “we’re not fund managers here. We are here to sell stock. That’s it.”

Morning meetings started at 8 am sharp. If you were a broker and walked in late, while one of the partners was giving a speech (always by way of microphone, at a podium), you were fined $1,000. If you were a lowly cold caller or account opener, more often than not, you were fired for such an offense. I recall getting off the train at 7:58, knowing that I wouldn’t make it in on time and resolving such a crisis by hopping back on the train and calling in sick. It’s also worth noting that this firm practiced Darwinism with regards to the amount of chairs/desks available in the cold caller pits. There was always 5-10 less chairs/desks available than actual employees. Those who didn’t have a chair were tardier than the others– and was sent home without pay.

If you were still on the phone as the meeting began, your phone call was put on the speaker system for everyone to hear. Everything you said was critiqued by just about everyone, especially the bosses. The top partner, who gave the morning and evening meetings, would often walk over to the person who was pitching and feed him lines. If that didn’t work, sometimes he’d take the phone from him and convince the guy on the other end of the phone to buy stock. Like I said, it was surreal.

After the meetings, it was time to get to work. Being a lowly, unlicensed cold caller, I was not permitted to solicit stocks. My job was to call as many people as I could, from leads provided to me by my senior broker, and qualify them. Some brokers are more lenient than others in this regard. But my broker insisted that a qualified lead meant the gent had to have 500k+ in the market, did business with more than one firm, and was receptive to doing business over the phone. You had to find out at least one stock that he owned and what firms he did business with. It was imperative that this information be credible, else the account opener would look stupid and lose the initiative when making a sales call.

Generally speaking, an account opener would call a “new lead” after literature was mailed out and introduce himself by saying “you spoke to an associate of mine and you said you owned 5,000 shares of GE with Piper Jaffrey, is that still the case?” Now if the information wasn’t accurate and the “lead” said “no I don’t know what you’re talking about”– the account opener would have to re-qualify that lead, which pretty much meant the sale was dead.

Cold callers were under intense pressure to get leads. During lunch, senior brokers would visit our confines to “skill mill.” Essentially, he’d teach us how to talk to people with money and test us by randomly picking on one of us to pitch him. You had to get up in front of 100+ cold callers and qualify the senior broker, who, more often than not, was completely irrational–just to make life hard for whoever was pitching him. We did this three times per day, morning, lunch and after the close.

If you didn’t get 5-10 leads per day, you were not going to earn the right to study for your series 7 and start making the real money. And, you’d probably get fired. Most cold callers were miscreants of the first order, totally devoid of honor and integrity. They’d simply make up stuff, write it on an index card, and hand it in. They hoped to guess right, putting popular stocks like Lucent and Microsoft on the lead, but it backfired very, very often.

If your lead was bad, it was called “wood.” If you gave your account opener a wood lead, he’d walk over to you, rip it up and throw it in your face. If you did it again, you were fired.

I made it a point to never lie about the leads that I got. I took pride in my leads and worked until midnight, if need be, to get 10 leads per day. No one worked longer hours than me because no one was as hungry as me, living in a basement apartment in Brooklyn with my wife and new born son. My family didn’t have money, since my Grandfather decided it was a good idea to burn his furniture stores down, as some sort of idiotic insurance racket. Shortly thereafter, he lost his vision and was unable to work. Karma can bite hard sometimes.

So I had no choice but to bank coin, else I’d end up being a loser and that was not part of my gameplan.

After nine months of working at this stock broker pressure cooker, I was granted the right to study for my series 7. It was a major accomplishment. I had to pitch the CEO of the firm for such a privilege.  Things were going well and I knew it was only a matter of time before I too would be making 200k per month. I knew how to sell and that was all that mattered, at least that’s what I thought at the time.

Then one day a junior rep, who looked like a leprechaun, walked over to my cold caller desk, ripped up a lead and threw it in my face. He said “stop writing wood” and walked away. Back then I had a very bad temper, being that I felt the world was always working against me. So I got up, walked over to my senior broker, who I respected immensely, and quit. He called me that evening in an attempt to get me back, but I was gone. I couldn’t go back to that place after being insulted–a small pet peeve of mine picked up by my Italian Grandfather who fancied arson to get ahead in life.

By the end of that week, I had a new gig at a much smaller firm, working for a much smaller broker, who once tried to order me to get him coffee. That didn’t work out well for him.

To be continued.

Fly

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It appears my cold spell has been snapped like a frozen pretzel, evidenced by recent positions in the black. I’m in GS under $140 and booked double digit returns in SNE. I am +5% in HMC to the good, in size. Although it pulled back, I’m still up +2 on my massive VHC position.

Right out the gates, I am up on all of my new starters: ELLI, FBHS and USG.

Big time laggard, JRCC, shot higher today, melting the waxed faces of all of the coal bears with celebratory tones. And more, I had my stiff arm going today, tossing enemies into a maelstrom of horror. Lack of etiquette and deportment will not be tolerated here. Go play with your ballsacks over at Stocktwits and leave me alone.

And now to my point. I found my core thesis. It took awhile, listening to 60 hours of conference calls (thank you earningscast.com and your beautiful app) and reading endless research notes. I will divest from VHC, JRCC and NAV, in favor of a big bet on US housing. This is where I am most comfortable placing capital. I fade your pessimism and raise your obtuse behavior with a zap! from my Orbital Space Cannon (OSC).

This weekend, “The Fly” intends to drink, but nothing too excessive. I practice discretion and do not dwell in the cellars of degeneracy like the reading class on this site–gluttons feeding off genetically modified foodstuffs, grizzle, sweet coffee, and highly sugared energy sodas.

I started a position in USG.

New homes sales are expected to eclipse 1 million in 2013, that’s a 25% increase from 2012 for you home-gamers out there. You can play games with restaurant and retails stocks, trying to time the superfluities of the often fickle American housewife. But if you’re a man, the only way to play the US economy is through housing.

It was the root cause of all of the pain and suffering and will be the savior. The Fed is intent on inflating home prices. Nationally, home values surged by 5% in 2012. I am expecting more of the same, AND MORE, in 2013.

I’ve talked about this thesis trade for years–but it’s coming down the home stretch now. The profits are about to get serious, moving out from “dead cat bounce” to boom.

Prices for materials are soaring and the price increases will go straight to the bottom line, pushing growth rates way up, making an argument for “multiple expansion.”

I bought FBHS today, a major play on kitchen cabinets and Moen brand plumbing materials. Another kitchen cabinet play is MAS.

If you’re into wallboard, look no further than USG. Price increases were implemented on 1/1/12. If they stick, the stock is going “full wallboard” to the upside. It’s worth noting, Pershing Square is the largest shareholder of FBHS and Berkshire Hathaway own 15% of USG.

The pure plays are the builders. I prefer BZH, PHM, SPF and HOV.

Other material plays that will go higher in a housing boom are FAST, VMC, EXP, CX, TXI, LPX, GVA, JHX, PATK, MTX.

Roofing: BECN, OC
Paint: VAL, SHW, CE, FUL
Furnishing: ETH, PIR, BBBY, WSM, RH, NWL
HVAC: GNRC, LXU, FIX, IR, LDL, SPW, SJI, NTK, RBC
Doors: GFF
Carpets: MHK
Mortgage software: ELLI
Contractor Review Site: ANGI
Landscaping: POOL
Faux Wood Decks: TREX
Real Estate Sites: Z,TRLA
Appliances: WHR, SWK
Electric: AYI, HUB-b
Windows: NX, PGTI
LED Lighting: CREE
Flooring: AWI, TILE, LL

NOTE: I took profits in SNE.

I started a position in $FBHS.

Disclaimer: If you buy FBHS because of this post, the FBI will raid your home due to a twitter comment that you made when drunk. And, you may lose money.

Early on in 2013 the theme is to buy the biggest nerds the world has ever seen and sell short the cool kids. As AAPL declines, nerd stocks like NOK and RIMM soar. This must mean something, perhaps detrimental–but I haven’t figured it out yet.

I ran a screen looking for stocks that have grossly underperformed over the past two years that are +10% this year. Here are some names of interest.

RIMM +25%
AMD +11%
TRQ +12%
IRE +40%
HPQ +19%
MRVL +19%
CTCM +16%
BBY +22%
ALU +21%
ODP +29%
YOKU +19%
NOK +14%
SNE +13%

I can go on and on. I gots nerds for days.

Eventually this nerd stuff ends and the cool kids throw them down flights of stairs, snatch their lunch money, and give them wedgies.

Here are some underperforming “cool kids.”

MLNX -13%
IACI -11%
LULU -11%
FDO -9%
FIRE -8%
ASNA -9%
GME -6%
AAPL -6%
ANN -6%
CSTR -6%

This is not exactly a huge outlier. January tends to be a buy the dip month, following the tax loss selling of December. Ultimately fundamentals win and the nerds get stuffed back in their lockers. Only a select few get to put the suspenders down and join the football team, lift dumb-bells in the hallways, whilst talking to hot chicks wearing cheerleader costumes.

They’re either getting bought out for an absurd premium or the stock is going to get crushed. I am talking about MNST, an old time favorite of mine.

Front page of Yahoo, right now–punks.

Most of you jelly bellies have never went “all in” on an energy drinking binge bonanza, like Le Fly–circa 2006. It’s going to murder a whole lot of idiot teenagers.

20,000 visits to the ER pal.

You’d have to be a raving lunatic to buy the stock now. The fact of the matter is, Americans are getting keen to unhealthy diets and have moved towards better lifestyles. You can tell by the share prices of HAIN, WFM and UNFI. Another name to own for the long term is BNNY. All of the unhealthy crap like MCD, YUM and BKW, in their present form, are long term shorts.

In other news, here are the top performing ETFs over the past two weeks. Ex out WETF, as it’s not an ETF and is being moved.

After enduring a few days of taking punches to the scrotum in VHC, I caught a respite. Gains for the day stand at 1.6%, putting me +3% for the year.

Here are my current holdings, listed inside of The PPT

The yen isn’t going down, it’s being destroyed. Pay attention to Japanese equities, for they are by far the most attractive macro story in the world right now. Their new leader, Abe, is hellbent on creating inflation. Think of “The Bearded Clam” times 100. That’s Japan. They are the quantitative canary in the coal mine.

Patiently, I await the judgement of Leonard Davis, presiding over the VHC v AAPL trial. After this event is concluded, VHC will prepare to wipe the floor with CSCOs attorneys, who, by the way, assisted AAPL in this trial and LOST.

Wins ahead gentlemen. Enjoy the ride.