I REMEMBER THE DAY LIKE IT WAS YESTERDAY.
It was late Fall, 1994. Orange County had just defaulted on its bonds, and for almost two months, the markets were getting crushed seemingly each and every single day (an often forgotten pause in the long bull market of the 1990's). I had been working on Wall Street for a little over two years.
The old timers at the firm used to laugh at how "easy I had it," because the market had been going up ever since I started. Out of respect, I would listen to their tales of woe about some of the nasty bear markets they had survived. But in the back of my mind I used to think, "What do these guys know, anyway?" (That was back when I had all the answers.)
The reason I'll never forget that particular Fall day is because I had a lunch meeting in New Jersey with a new client of mine whom I had never met before. But this wasn't just your "average" client. This particular client owned a very large private business and was on the Forbes 400 list.
In addition, he had a well-deserved reputation as a very savvy stock market investor. His reputation was such that, the day before the meeting, the boys in the office were referring to him as "Mr. Gekko," just to get a rise out of me. Admittedly, I was nervous.
Adding to my overall anxiety was the fact that, two months earlier, he had purchased a very large block of a stock -- on my recommendation -- that had dropped 20 percent in the wake of the Orange County crisis.
And while I still believed wholeheartedly in the company, it's never a good sign when the first stock you recommend to a client drops 20 percent in one month. Yes, I had it in my mind that he was going to spend the entire lunch sounding me out about the "dog" stock I’d recommended. Fair enough -- sometimes you’ve got to eat your own cooking, even if you don't like the taste.
On the day of the meeting, I got my brand new black 5-Series BMW hand-washed and cleaned. I wanted to make sure it went with the brand new $2,000 suit I had picked up at Barney's just for the occasion.
(At least when "Mr. Gekko" pulled up in his limo, he'd appreciate somebody with a similar sense of class.)
So there I was, at quarter till noon, standing in the parking lot next to my shiny new car, in my brand new suit, waiting for my client’s limo to pull up. As I was waiting, I kept wondering if I should open the limo door for him. Nah, better let his driver do that. I don't want to look too eager. Better keep a strong poker face.
About ten minutes and three cigarettes later, a beat-up blue 1984 Chrysler LeBaron pulled into the parking lot of the restaurant. I remember wondering to myself how old the driver must have been, because I could barely see his head over the steering wheel. As the LeBaron slowly struggled to make its way in my direction, the little old man driving it suddenly -- and quite unexpectedly -- smiled at me.
I was dumbfounded. But as I stood there like a turkey, the LeBaron pulled into the empty spot next to me. And suddenly -- as if out of thin air -- the little old man was standing right in front of me with his hand out.
"Hi. Are you Dylan?" he asked. "Um...yes...yes, I am" I replied. "I'm Mr. K. It's nice to finally meet you," he answered as he began to walk slowly toward the restaurant. I was stunned. This was the tycoon who struck fear in the hearts of businessmen?
I know the stupid look on my face followed us to our table, because when we sat down, Mr. K asked me if everything was OK. I responded in the only way a rookie could respond -- I asked him if the car he pulled up in was really his. "Yes," he said matter-of-factly, as if the concept of owning a nice car was something that had never occurred to him.
We spent most of lunch talking and getting to know each other on a personal level. It wasn't until our coffee was being served that he asked me what I thought about the declining stock market, and whether I thought he should be buying more stocks.
I hesitated. The truth was that I was nervous about the market. It was going down almost every single day. And every analyst and newscaster I heard was predicting that the Orange County default was going to have effects in the bond markets so devastating that credit was going to dry up and the stock market would certainly collapse.
He must have seen the fear in my face, because he never let me answer. What he said to me that day in New Jersey was the best advice I ever received from ANYBODY regarding a declining stock market.
Here are some excerpts:
1. EXPERIENCED INVESTORS USE FEAR TO THEIR ADVANTAGE. Only in markets where people are scared can you buy stocks cheap.
2. I own a private company. If I wanted to buy out my biggest competitor, I would want to pay as little as I could. Investing in stocks is the same thing. Why would I be upset if I could buy them cheaper? Shouldn't I be happy?
3. You should enjoy declining markets. Declining stock prices... nervous investors... predictions of impending doom. It's during times like these that you have to keep your head.
4. SCARED MARKETS ARE THE ONLY KIND OF MARKETS THAT CAN MAKE SAVVY INVESTORS VERY RICH.
5. The creeping anxiety most investors feel in a bad market is like a human’s internal "flight or fight" signal. But if you keep your emotions in check, it could make you a lot of money. Most people don't know how to interpret the signal correctly.
I tend to think of Mr. K whenever the bear market rears its ugly head, because I know that he would be happily tap dancing to work as he waited for the right time to buy the right stock.
You see, men like Mr. K made their fortunes by buying companies on the cheap and holding them. And Mr. K knew that the best time to buy stocks cheapest was when the market was declining and everybody else was running scared.
Sure, sometimes it's hard to see stocks you own trade lower every day. But if you own companies with strong balance sheets and smart management, a decline in prices is an opportunity to buy more.
Yup, to investors like Mr. K, scared markets are almost like money in the bank. You just have to be patient, load your guns, and wait for the breaking point.
We're getting closer by the day, folks.
It was late Fall, 1994. Orange County had just defaulted on its bonds, and for almost two months, the markets were getting crushed seemingly each and every single day (an often forgotten pause in the long bull market of the 1990's). I had been working on Wall Street for a little over two years.
The old timers at the firm used to laugh at how "easy I had it," because the market had been going up ever since I started. Out of respect, I would listen to their tales of woe about some of the nasty bear markets they had survived. But in the back of my mind I used to think, "What do these guys know, anyway?" (That was back when I had all the answers.)
The reason I'll never forget that particular Fall day is because I had a lunch meeting in New Jersey with a new client of mine whom I had never met before. But this wasn't just your "average" client. This particular client owned a very large private business and was on the Forbes 400 list.
In addition, he had a well-deserved reputation as a very savvy stock market investor. His reputation was such that, the day before the meeting, the boys in the office were referring to him as "Mr. Gekko," just to get a rise out of me. Admittedly, I was nervous.
Adding to my overall anxiety was the fact that, two months earlier, he had purchased a very large block of a stock -- on my recommendation -- that had dropped 20 percent in the wake of the Orange County crisis.
And while I still believed wholeheartedly in the company, it's never a good sign when the first stock you recommend to a client drops 20 percent in one month. Yes, I had it in my mind that he was going to spend the entire lunch sounding me out about the "dog" stock I’d recommended. Fair enough -- sometimes you’ve got to eat your own cooking, even if you don't like the taste.
On the day of the meeting, I got my brand new black 5-Series BMW hand-washed and cleaned. I wanted to make sure it went with the brand new $2,000 suit I had picked up at Barney's just for the occasion.
(At least when "Mr. Gekko" pulled up in his limo, he'd appreciate somebody with a similar sense of class.)
So there I was, at quarter till noon, standing in the parking lot next to my shiny new car, in my brand new suit, waiting for my client’s limo to pull up. As I was waiting, I kept wondering if I should open the limo door for him. Nah, better let his driver do that. I don't want to look too eager. Better keep a strong poker face.
About ten minutes and three cigarettes later, a beat-up blue 1984 Chrysler LeBaron pulled into the parking lot of the restaurant. I remember wondering to myself how old the driver must have been, because I could barely see his head over the steering wheel. As the LeBaron slowly struggled to make its way in my direction, the little old man driving it suddenly -- and quite unexpectedly -- smiled at me.
I was dumbfounded. But as I stood there like a turkey, the LeBaron pulled into the empty spot next to me. And suddenly -- as if out of thin air -- the little old man was standing right in front of me with his hand out.
"Hi. Are you Dylan?" he asked. "Um...yes...yes, I am" I replied. "I'm Mr. K. It's nice to finally meet you," he answered as he began to walk slowly toward the restaurant. I was stunned. This was the tycoon who struck fear in the hearts of businessmen?
I know the stupid look on my face followed us to our table, because when we sat down, Mr. K asked me if everything was OK. I responded in the only way a rookie could respond -- I asked him if the car he pulled up in was really his. "Yes," he said matter-of-factly, as if the concept of owning a nice car was something that had never occurred to him.
We spent most of lunch talking and getting to know each other on a personal level. It wasn't until our coffee was being served that he asked me what I thought about the declining stock market, and whether I thought he should be buying more stocks.
I hesitated. The truth was that I was nervous about the market. It was going down almost every single day. And every analyst and newscaster I heard was predicting that the Orange County default was going to have effects in the bond markets so devastating that credit was going to dry up and the stock market would certainly collapse.
He must have seen the fear in my face, because he never let me answer. What he said to me that day in New Jersey was the best advice I ever received from ANYBODY regarding a declining stock market.
Here are some excerpts:
1. EXPERIENCED INVESTORS USE FEAR TO THEIR ADVANTAGE. Only in markets where people are scared can you buy stocks cheap.
2. I own a private company. If I wanted to buy out my biggest competitor, I would want to pay as little as I could. Investing in stocks is the same thing. Why would I be upset if I could buy them cheaper? Shouldn't I be happy?
3. You should enjoy declining markets. Declining stock prices... nervous investors... predictions of impending doom. It's during times like these that you have to keep your head.
4. SCARED MARKETS ARE THE ONLY KIND OF MARKETS THAT CAN MAKE SAVVY INVESTORS VERY RICH.
5. The creeping anxiety most investors feel in a bad market is like a human’s internal "flight or fight" signal. But if you keep your emotions in check, it could make you a lot of money. Most people don't know how to interpret the signal correctly.
I tend to think of Mr. K whenever the bear market rears its ugly head, because I know that he would be happily tap dancing to work as he waited for the right time to buy the right stock.
You see, men like Mr. K made their fortunes by buying companies on the cheap and holding them. And Mr. K knew that the best time to buy stocks cheapest was when the market was declining and everybody else was running scared.
Sure, sometimes it's hard to see stocks you own trade lower every day. But if you own companies with strong balance sheets and smart management, a decline in prices is an opportunity to buy more.
Yup, to investors like Mr. K, scared markets are almost like money in the bank. You just have to be patient, load your guns, and wait for the breaking point.
We're getting closer by the day, folks.
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