Editor's Note: James J. Cramer is the keynote speaker at the Financial Technology Expo, held today at the Javits Center in New York City. We're running the full text of that speech. The first installment ran this morning. Be sure to check out Part 3 later today.
First, a little personal history. When I started my hedge fund in 1987, I tried to place my offices as close to the library of
as possible. How else would I be able to get all of the information I needed, promptly, to make investment decisions? I had many edges over the individual. I got the institutional call. At the time, that meant that I would be able to buy stocks in the morning and then spend the rest of the day trading out of them as the call got passed on from the institutional sharpies to the slower, less aggressive individuals.
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I could research news and figure out its impact before the next day's paper would come out, so I would be able to anticipate the public's reaction and profit when they took action on the news that I had found out the day before.
I could have access to an expensive, $1,500-a-month news feed that basically scooped the hard-copy newspapers that the public would invest with the next day. These wires were well beyond the reach of the individuals who might be interested in buying or selling stocks.
I could go to roadshows and find out the real skinny on companies, perhaps even get one-on-ones so I would have a real idea of what was happening, instead of the watered-down, filled-with-risks document that the public would have to rely on. Often, that means the difference between discovering a company that has great future prospects vs. one with a checkered or nonexistent history, which is what the prospectus provides.
And I could get discounts, huge discounts over the public. I remember when I first switched from the sell to the buy side. I was working with my girlfriend, who later became my wife, who at the time was a trader at
. I had just done my first bit of institutional trading after working with wealthy individuals as a broker.
I had taken down 50,000 shares of
. An easy trade. "Can of corn," in the baseball vernacular. She picked up the phone and said, "Put a nickel on it." I stared at her in amazement. "You can't tell them what commission to charge you," I said. "That's an insult to them. They tell you!" Oh boy, did I have a lot to learn.
She explained to me about how we were an institution and we got the good rates, that the bad rates were left for those sucker individuals. "We tell them what to charge," she said. "We're institutions."
It's always the best of times for institutions. Now, let's look at the picture.
, which charges me $1,500 a month for a newsfeed, now gives me the same feed for free on
. There's a make-it-up-in-volume strategy that I don't understand. Don't like the benign, official line from
? You can read an opinionated one for a few bucks from
that comes out all day.
The library at Goldman? An anachronism. Give me a personal computer, a phone line, a good search engine-- you can keep that library. You can turn that place into a bowling alley.
The early institutional call? Heck, I get that from the most important analyst on Wall Street,
. Not only do I get it from her simultaneously with the rest of the world, but I even get told what it will do to the stock. Talk about losing my edge of quantifying my information. She makes the whole morning call, a once-revered institution, a sideshow. If she doesn't mention it, it won't even move a stock! She's impact, not the bulge-bracket firms!
The commissions? Tell me about it. Everybody now talks like my wife. They are all putting a nickel on it. Worse, they take the information from the guy who would charge them a lot of money and they use it away from that firm, at the cheapest guy, who also happens to be the guy offering the best execution. They love doing that. They all feel giddy about their liberation.
And the roadshows? Ah, the sainted capital-allocation system, the last big profit center out there, how has that changed? Nada. Not one bit. In fact, let's walk through a mythical company, a dot-com start-up that wants to come public and see how it works. This is where the big changes are going to occur. This is where my crystal ball is most clear!
Check back later for the next installment.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Goldman Sachs, Yahoo! and TheStreet.com. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may 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