When I first broke into the hedge fund business, I used to do a ton of business with
. I still do, in fact, as that's where I used to work and I think the place is terrific.
But then my wife joined me to run the trading desk. She explained to me that you have to reward people from other firms regularly if you want to be covered well both on
trading and research.
I explained to her that only Goldman Sachs saw my "run" each day, so what was the difference? She told me that there was such a thing as honor in the business and that it was dishonorable not to do trades with people who are doing a good job covering you.
I told her that when I was on the sell side I had people who made me give them the research for years without much payoff at all. In fact, I had a couple of accounts that did virtually nothing with me but insisted on the call.
Those accounts, my wife said, were dishonorable losers. There is a code of conduct out there which says you have to pay to play. You can't just suck up all of the research and the flow and then not pay for it. Word would get out that you were a dishonorable guy, and people would not want to work hard to cover you.
That conversation seems downright quaint right now in the face of the advances in technology. In fact, I would have to believe that the honchos at
and Goldman and everywhere else are wondering what happened to honor. What happened to the notion that you can't just take research and trade away from it?
But there is a problem with honor. All my commissions are the same price. You lose much of your edge with high commissions. To many of our readers, it costs too much to have honor these days.
(If I had to wax rhapsodic about this, it's kind of like our own
, where the technology has overridden the aristocracy, a la World War I, and taken the whole noblesse system with it!)
debate over the proprietary nature of the
"Ten Uncommon Values" list, which will be posted on
after it's given out, revolves around the notion of honor, too. Lehman is being very realistic that people will take its list and go away, but it is also offering a unit trust and a structured product that indeed can't be done "away" in order to capture more of the list's value.
Me? Honor is not something that can be compromised. Too inculcated by now, thank heavens. But I have the luxury of one tier of commissions. That's why whenever I am asked, I always tell old-line firms that you have to offer an option to make it so that people aren't suckers for being honorable. You have to offer that dot-com option.
Without it, I can understand how the honor of doing the right thing may be trumped by the technology-led world of bargain commissions.
I am busily printing out
Part 1 and
Part 2 of
latest column to figure out how to make some money in some new tech names. Can't believe how juicy this two-parter was! ... Looks like the drug stocks have been waiting for this
announcement. When I was on
a couple of months ago, I asked
Morgan Stanley Dean Witter's
Peter Canelo when we could buy the drug stocks. He said there would be an exquisite buying opportunity at the end of the second quarter where you could get long these once we see the Medicare plan. Looks like he is going to be right -- AGAIN!
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. 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