In the 2 1/2 years that I have been writing for TheStreet.com, I have never had such a glowing response for a piece as I did for this Badlands article. So I usurped the plebiscite and picked this article for a rewrite. I wrote it on the fly, and I am glad to have a chance to redo the article in a way that everyone should understand it.
Join me in a trip to the Badlands, the strange after-hours market in stocks, the last great trading frontier. I was there tonight, alone, armed only with an Instinet machine, intent on trading
after the conference call was over.
(Because of the odd hours I keep and the intensity with which I play the game, I trade from the minute I get to the office to the minute I get home. Before we had children, I traded from home, too, but the desire to have at least the appearance -- if not the reality -- of a real life outside work, led to me to limit my trading to the office.) (When brokers come in, I trade with brokers. But before they come in, I trade customer-to-customer via Instinet, which is a computer that links buyers and sellers. It is available to institutions, but I am sure that if you do enough commish, you can have a box, too. It is anonymous, so you don't know whom you are buying or selling from. You can trade in any size you would like. It is un-refereed, which is one of the reasons I call it the Badlands.) (But the main reason I call it that is because people do things they don't do person-to-person. They try to get stocks to dance to their own tune. Sometimes that dancing is a little like the dancing that
do in Shane. It ends badly. There are lots of people who keep telling me that trading will become 24 hours. All I can say is I have heard that for years, and I await it. Until then, you will find me on Instinet if you want to trade with me.)
I liked what I heard. Oh, it wasn't only the guidance and the firm tone of management, or the buzzwords and the letter-perfect execution. What I liked about it -- and what I would despise about it if I were short -- were the effusive congratulations offered by each analyst before questioning the company. That's a security blanket that makes you want to take stock with gusto.
(Talk about controversial. When the question-and-answer period began, each analyst started with a sycophantic comment congratulating management. I am not into this. I think that it is unbusinesslike. But that's just me. It is a part of the analyst community culture. Some of these clacks can't help being adulatory. Nonetheless, it does create a rosy glow over a call, and it emboldens me to be more aggressive because if everyone says congratulations, it is unlikely you will catch that scourge of all trading: the downgrade!)
Except that's not the Instinet game. After-hours trading is an art form, one that exists at a level that rivals the most rigorous poker games for their bluffing and outrageous bidding. Your confidence in your hand must be supreme, and your judgment of your nameless and faceless opponents, both on the buy side and the sell side, must be perfect.
(After hours is when you can make an impact on trading even if you are not
. The market is thin, but everybody is looking at it. For example, my trading that was written up here was duly noted in The Wall Street Journal and on CNBC. The closing price was literally dictated by me and one or two other traders. (This impact is somewhat ridiculous. Because I chose to come home late for dinner, Yahoo! gets marked at 212? Or because someone is short Yahoo! and wants it to look heavy, it gets marked at 207 because I am not vigilant or because I decided to get home on time? Not far-fetched. In the meantime, the media follow this stuff like a hawk, and a cowed analyst community might simply speak negatively about a stock because it is trading down in aftermarket trading. Talk about a shot heard 'round the world!)
For those of you who have never traded after hours, Instinet is a customer-to-customer market in which you can advertise where you want to buy and where you want to sell, just like in Web trading. Tonight, as the Yahoo! conference call drew near its conclusion, I wanted to buy 2,500 shares.
(Why didn't I just pick up the phone and call
and say, "Please sell me 2,500 shares of Yahoo!"? 'Cause nobody would be there. This was at 6:15. They could turn these places into bowling alleys after work -- that's how few people are hanging around there after work. All over the Street, it is the same. Nobody's home.)
On the screen was someone who wanted to sell 1,000 shares at 214 and someone who wanted to buy 1,000 shares at 210. That's a pretty typical market for after hours, wide enough to drive a Peterbilt through, yet so thin as to be impossible to get anything "real" done.
(This is trader talk. Traders speak of markets as being too wide to work in. The spread is a nightmare. In Instinet it is almost always a nightmare.)
As much as I trade after hours, I find myself constantly on the defensive, and rarely as confident as I would like to be, and I regard myself as being fairly good at the game.
(I lack confidence because I don't know what others think of the call; I only know what I think. Maybe I missed something. Maybe I was biased. It is like going to see a movie but not wanting to say what you thought about it until you heard what others thought. Typically, after a conference call, my partner, Jeff Berkowitz, and I will give each other our takes. Then we will speak to others. We want to be sure we are not walking into a buzz saw. This trading took place in a vacuum; we did not know what others thought. We were going on our own instincts that this was a darn good call. Of course, the stock went down the next day, so you could argue that everything we did was wrong, but let's wait for that judgment.)
My goal: to get 2,500 shares in as cheaply as possible.
(This is not as obvious as it seems. If I am long a ton of Yahoo!, maybe I want to walk the stock up through aggressive buying so that reporters would say that Yahoo! traded up in after hours. I don't do that stuff. First, I am not a big trader. Second, I don't think that it is right. But people do it all the time. They are not trying to buy stock as cheaply as possible.)
First, we type in a 211 bid for 1,000 shares. We wait a minute and nothing happens. But someone offers 1,000 shares at 212. Here's the first decision. Do I take it, knowing that the call is going well, or do I wait to see if the seller hits me?
(Most of the time when you are trading Instinet, it is like playing Ms. Pac-Man. You are trying to avoid being eaten.)
Before telling you what I did, picture this. There are maybe 25 people looking at this trading. If I take it, that will be a sign, an aggressive sign, that someone is betting this stock is going to go higher. If I wait, and I get hit, that might be a signal that someone believes the stock is going lower.
(This, again, is the distinction between trading for advantage and trying to drive home a positive point. Or, in the case of a seller, it is possible that someone wants to get the best price. But it is also possible that someone wants to make the stock look heavy, or embarrass or panic the sellers.)
Now, add another dimension, the short sale. You can short after hours without waiting for a higher stock price (a plus tick, as it is known). So, it is possible to be hit by a short-seller and have that short-seller create an impression that this stock is going lower in after-hours trading.
(In regular, policed hours, you can't offer a stock below the last sale, in order to foment a bear raid. No such rules apply on the over-the-counter market in Instinet.)
I chose to pounce and take the thousand at 212. Immediately, right at that very moment, the seller offers 2,500 shares at 212. (Or at least I think it is the same seller, as you can't tell.)
(This is the most debilitating moment in trading, when you "fail" to lift a stock after you have bought it. You immediately sense that you have hit the wall. If the seller had offered it "up a quarter" then at least we would have a sense that there could be lift. But the 212 seller had no intention of letting this stock lift. None whatsoever.)
Ooooh, I think to myself. A gamesman. The guy wants to make the stock look heavy. That's a master ploy, meant to both frustrate the buyer and establish the market as one that doesn't lift. Very demoralizing for the buyers. Great for the shorts.
(I respect my opponents. They know how to put the old kibosh on a stock. Making a stock "look heavy" is very easy in Instinet, which is why I always take the CNBC "Instinet" picture with a bucket of Halite.)
I bid 211.5 for a thousand.
Whack. I'm hit.
(Trader talk again. Hit means to sell; take means to buy. You are bidding, you get hit or whacked, you have bought. You are selling, you get taken, you have sold. That's the way we speak.)
Now the pattern has been established. There are sellers, they want out. I am cannon fodder, I think to myself. Maybe I am wrong. Maybe the call's not that good. Second-guessing. Maybe a downgrade coming?
deal not closing in time? Dot-com run over? (Told you you had to have confidence to play this game.)
(With stocks, you never know how many things can go wrong, and with the Net, you always fear that the whole shooting match is going to end at any moment. Was this the moment?)
I bid 210 for a thousand. For three minutes, nothing happens. So I get more bold. I move up to 211 for 1,000. Nothing. Nobody whacks me. I am like the mouse jumping out for the cheese, and the cat/seller seems to be asleep. Next I take the 212 offering for 1,000 shares. Now I have bought more than I want, but that's OK, because I like the stock. I feel like the cheese is mine. Gorgonzola.
(This is the guts of Instinet trading. Moving up, moving back. Trying to take without getting hit. Trying to establish turf. Trying to be aggressive without being too aggressive.)
Next thing I know, someone comes in and takes the stock that is still being offered at 214. Then another buyer sweeps the stock, taking everything at 215, 216 and 217, all the way to 218.
(This sweeper was a big bluff artist. He took the stock all the way up. He moved it big. But there was very little stock on the way up, so the statement, which looked important, turned out to be trivial. When the buyer got up to 218, he disappeared like he had never been in the box to begin with. Where I am from, this buyer has a name. He is called a moron.)
I'm in like Flynn, I figure. Ready to rock. Holy cow, I am up 6 points in three minutes. Even for the Net, that's something.
(I am not really up 6 points. One reader asked me why I wasn't out there offering. If I wanted to trade Yahoo!, I guess that would have been fine. But I wanted to own Yahoo! So I didn't.)
And then what happens? Guy comes back, offers 2,500 at 212. Told you this was the Badlands. I am cursing the guy because he's the master. He knows how to make a buyer feel like a moron. He's good. He's very good. He has wrecked whatever good feelings may have been caused by that stunning sweep.
(This was a tour de force move. It was brilliant. It could have been countered by the 218 buyer right then and there, but either that guy didn't have any firepower left, or perhaps, he just didn't belong in the game. If I had done the 218 gig, which I wouldn't have because it was totally artless, I would have taken the guy at 212 and then swept the stock back up to 215 and planted a firm 215 bid to make the 212 guy feel like a chump. Macho Comacho.)
I bid 210 for a thousand. If he hits me, then I know the Badlands are going to bleed red.
(This is more my style, meek up high, firm down low. Heck, I have three of a kind. The 218 guy, he must have thought he had a full boat and then saw that he only had two pair. Get him some optics.)
And then I wait. Nobody hits me. And he waits. Nobody takes him. Two minutes. Three minutes. Five minutes -- this is a lifetime in the after-hours business. An eternity.
(This is like that scene in High Noon where you are waiting with Lee Van Cleef for the train to come in. Takes forever.)
Ten minutes later, that's still the market, 212 last.
The number of people viewing the screen has gone down. The number of people who want to play rapidly diminishes. It's 6:15 p.m.
Time to go home. My time in the Badlands is over. Looks like the stock's going out about where I bought it. Until tomorrow, when the authorities re-emerge and the rules change and all of this trading won't mean a thing.
(Oops. Look who is the moron! Me. The stock gets slammed down the next day, and I am wiping off the whites, the yolks and even some tomatoes and onions from my face. They have thrown the whole omelet at me! Oh well. The beauty of writing for TheStreet.com is that it is a daily object lesson in humility.)
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo!, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at