Can you make money from a standing start in the stock market? Can you do it at home? Can you make as much money as I do now that the Internet gets you what I have when I have it?
I think you can invest better than I can. I don't think you can trade better than I can. In fact, I think I can out-trade you on most stocks, given that I get a call from every brokerage house and you don't. To explain this, though, I will use the kind of standing-start trading my wife used to do when she worked with me. I will use my wife as an example because she taught me so well that I know exactly what her thought processes were. I saw her in action for seven years and I know you couldn't do what she did at work and at home. It would be too hard and you would screw up too often.
Join the discussion onTSC Message Boards. As our readership has tripled in the past few months, a little background may help. First, why read me to begin with? OK, one of the reasons is my variegated experience. I started out as a trader from phone booths, graduated to trading every day from law school and landed at
Goldman Sachs, where I got the classical training you need to survive as a broker.
I worked with wealthy individuals. After a while I helped train new brokers. I had great numbers at Goldman, but I wanted so much to have my own shop that I gave up a tremendous job to set up my own firm. (The only other job I'd probably ever want would be as Mark Haines' permanent co-host -- I can dream, can't I?)
So I left with another Goldman guy who was also a terrific broker and we set up a hedge fund. It didn't work out -- some would say we went to war -- and he left me to return to the sell side. I stayed on at
Cramer Partners.
This breakup occurred in 1987. Yes, right before the crash. It was a trying time, one of the many trying times in my career and, frankly, trying times come with the territory when you're doing something bold and different. (It would have been much easier to stay at Goldman with its terrific infrastructure and great support systems, not to mention brilliant people in every division.)
But I had an edge. A big edge. When I left Goldman Sachs,
Michael Steinhardt, who at the time was running the best hedge fund in the world, allowed me to shack up at his place to get my fund going. He reviewed my portfolio once a week. He gave me some money to run. And he urged me to learn from the trading desk, which, at the time, was the best trading desk in the world.
Seated between two titans of the business, John Lattanzio, who was head of the desk at the time and a Goldman emigre, and Elizabeth Larsen, who later went on to run Soros' trading desk, was a very sure-of-herself young woman who seemed to know just what to do about everything.
My assistant at the time lived and dreamed to set me up with people. I had been having a hard time at home, where someone had barricaded herself in my apartment and I was living on the floor of my lawyer's place. (Okay, it wasn't all done in fair weather.) Sometimes trying to extricate yourself from these romances can be tougher than they tell you up front.
Of course, that vacuum at "home" gave my assistant the edge to foment an interchange between me and that confident woman on the desk. When the trading woman went by one later afternoon, my assistant stopped her and introduced her to me. As these things go, it was pretty funny. The trading woman had just had all of her wisdom teeth removed that afternoon and her mouth was stuffed with cotton.
She tried to talk; I remember thinking "Hmmm, pretty impressive," or some other snide, awful thought. But I was smitten and pursued. And she, of course, was mortified.
On our first date, when one Karen Backfisch could talk and introduce herself, we went across the street to the Mexican side of the restaurant Rio Grande, which at the time was rocking with people similarly inclined. I remember walking across Third Avenue with her, not having a thought in my head about what to talk about, then smack midway across the street blurting out: "Well, Karen, what do you think of Compaq?"
The fact that she didn't tell me to get lost, or tell me that I was a geek or a crazy man, that she told me it was "good for a trade to the long side, but no more," I guess pretty much sealed everything. And, unlike so many dopes in our business, she didn't call it Compact, with a "t" at the end, either. (Only much later did I found out that she called all her girlfriends that night and told them what a loser I was for asking her about
Compaq (CPQ Quote) on our first date.)
Finding myself all alone at my hedge fund months later, I knew that if I didn't get some help soon, I would have to go back to the sell side. While I had been reluctant to mix my business with my social life, I knew that I could work with Karen, and before we ever got married she ran our trading desk. We never got a chance to be Cramer-Backfisch partners because we were married soon after and she gleefully adopted my name, even though Backfisch was pretty darned distinctive.
It was there, on our two-person trading desk, that I learned that what Karen did wasn't alchemy. She had been taught a method of making money from a standing start with as little risk as possible, and she was ready to impart that method to me.
You see, she hadn't always been a trader. She'd come in as a secretary to a portfolio manager; she was a kid who had just left home in Elmont, Long Island, and taken an apartment in the big bad city, in Brooklyn Heights. When her portfolio manager, after one month, exited Steinhardt, she found herself in a dilemma. If she lost the job, she was moving back home with her folks.
So she begged to stay on and Steinhardt said, OK, she could land on the trading desk and if she could make money she could stay, but if she lost money she would have to leave. And she could take on no risk. My wife became a daytrader by force. She wasn't allowed to hold positions overnight.
So what she did was take a call from every single broker on the Street. She organized the notes of the other people on the trading desk. She tried to keep score of who could move stocks, who had impact, who could get something going. She noted that when two firms recommended something, the stocks tended to go up. She tried to figure out which analysts were worth how many points and which firms could keep stocks up. She befriended people on trading desks and kept score of analysts with clout.
And she made trades only when she felt she had the equivalent of a lock. So let's say two firms recommended
Haliburton (HAL Quote) or
Schlumberger (SLB Quote) and oil was ticking up. She would check every firm in the business to see if anybody had the oils or the oil services to buy. If she could buy one of these stocks unchanged or up slightly, she would do so, confident that by the time the call made the rounds, she could make a buck or two. Because she knew who had buyers, she always felt she could exit with only a small loss if the trade didn't work -- remember she wasn't allowed to take things home. This was how she made her twenties and thirties, which I understood from the first date to mean "$20,000 and $30,000" for her firm. And later for ours.
She would get even bigger if there were an anomaly or an analyst edge. For example, on that first date my future wife said, "Grubman's a money-maker, you gotta do what Grubman says." At the time, Jack Grubman, the now most famous analyst in the world, was someone, like me, from the provinces, a fellow Philadelphian trying to make a name in the business. Invariably, any time Grubman recommended something, Karen got long it and made money.
After a couple of years at the game, my wife got permission to take positions home. I remember her carrying down a 7 million share position of
AT&T(T Quote) because at the time Grubman loved the name. She held it from 27 to 33, which was the most money I'd ever seen anyone make. But once she joined me she went back to her earlier game. It's that game, with all of the wires and merchandise and feel I think you can't do at home, that I think she could always beat you at. That's the edge the pros have. They can make that point easier than you can.
In an era where one point doesn't mean a thing -- check
VerticalNet (VERT Quote) on Friday if you don't believe me -- my wife's game now seems quaint. It's made much harder by the fact that
CNBC now broadcasts all of the big upgrades and downgrades and outfits like
TSC take the institutional edge and give it to the individual.
However, as a money generator, when you're starting out at a small base (we were running $5 million), $20,000 a day from a standing start means some awfully powerful performance. Most of the skills my wife imparted to me can still make you money; not the kind of huge money I now need to make to beat the averages, but still a consistent, fabulous income.
So, if you think you can trade from home and beat people like my wife who are hard at work every day trying to translate calls into profitable action, all I say is, good luck.
