A A few years A stranger came to me at a conference earlier. I was introduced as an equity salesperson with over 30 years of experience. “Success or failure?” He asked helplessly. I laughed. When I started stockbroking, anyone over the age of 50 carried the winds of defeat. If they did not earn enough money to retire early, they would be treated as losers. Okay, I’m still here and I’m not alone. There is a lot more gray hair on the sales desk these days.
This is not the only change. Trading income is low due to control and new technology. The way sales-like analysts and salespeople are paid has changed. But the biggest difference is my conversation and who I am talking to. Twenty years ago, I rarely spoke to the fast-money crowd. Now most of my day is taken with them. The share price is set at the margin. And the marginal buyer and seller is a hedge-fund manager.
Hedge funds are behind much of the recent market drama. The minutes of the Federal Reserve’s rate-setting meeting last week were a trigger. The immediate prospect of tighter monetary policy has prompted hedge funds to sell expensive “growth” shares, especially of technology companies, whose profits are expected to be long-lasting in the future. Those remote earnings must now be discounted at a higher rate. Hence the fall of tech shares. At the same time, many funds have bought cheap “price” stocks.
I am an expert in a sector that is seeing sales pressure. But most of my hedge-fund clients trade at a more grainy level. They want to bet on the most resilient stocks in my patch and those that will crash against them. What matters to such “long-short” traders is that their longs do better than their shorts. Their investment horizons are days and not weeks, months and years. There are lots of hedge funds trading lots of stocks. That’s why below the surface, so much noise in the stock market.
Clients want to talk to me. I know better about my art. I have a good team of analysts behind me who communicate regularly with the company. And I talk to a lot of other investors. Everyone has the same hard data — stock prices, financial statements, consensus forecasts for earnings, and the firm’s “guidance” around those numbers. But hedge funds are trying to predict short-term change. They come to me for soft data.
I was asked all kinds of questions. How confident the firm’s finance director is X. Feeling about making numbers? How stable are stock investors-are they committed holders or will they throw it in the bad news? Is anyone thinking of buying burnt stock? And? Will be firm X. To be open to firm acquisitions And Or is it still digesting its latest purchase? No one asks for an assessment anymore. When I hear a hedge-fund manager say that a stock is cheap or a favorite, the alarm goes off. He usually tries to “reverse-break” me, that is, influence the market by swinging me
The buy-side would reward us with hefty commissions. Now the biggest brokers allow clients to use their system to trade directly on the stock exchange at a very low cost. Regulators insist that the buy-side pays directly for our advice. These clients agree to pay a certain amount each year. My performance is measured by “interactions”: the phone calls I make, the meetings I arrange, and the requests I respond to. Hedge funds are especially hungry for information. So they pay well.
The buy-side was once a gentle place. Before the passive investment puts pressure on fees and performance, a Dolt Fund can make money in management. If you drink Dalt regularly, he will give you some commission. I still talk to clients whose investment horizon is five years not five days. But the conversations are more serious. Alcoholic lunches have been controlled away. However, there is no time for them. Sales-like business is an indicator of cultural change. The old-school version was a red-faced browser called Fat Mat or Cardiac Cave. The new model is a triathlete.
Improved health can explain why there are more near-sexgenarians like me in the neighborhood. Although it is basically a homogenous effect. The city grew rapidly in the 1990s. Anyone who reads “Liar’s Poker” thought they would be rich in sales. But the mystery of broking listed stocks is lost. Finance graduates now choose jobs in private equity or hedge funds. My generation is stuck around. Success or failure? I survived a few rounds of cuts. I have a job that I enjoy. I’m still pretty well paid. I think it’s a success, isn’t it?
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Read more about financial markets from our columnist Buttonwood:
Why Gold has lost some of its investment appeal (January 8)
Why capital will be scarce in 2020s (January 1)
Why Dollar Rise Will Not Last (December 11)
This article was published in the print edition of the section “Finance and Economics” under the headline “Sexgenarians and the City”.