segunda-feira, 21 de abril de 2008

Mean Street: ‘You Cannot Beat the Market. Nobody Can.’

Mean Street: ‘You Cannot Beat the Market. Nobody Can.’

Wall Street is an unusually difficult place to understand. A society unto itself; it has its own history, language, rules, subcultures, behaviors and collective psychology. Even if you are a creature of Wall Street, it isn’t always easy to make sense of it.

meanstreetJesse Livermore, the greatest speculator in the history of Wall Street, was definitive: “You cannot beat the market. Nobody can.” He blew his brains out in the cloakroom of the Sherry Netherland in November of 1940.

The idea for this column on Wall Street arose from a similar, but far less extreme impulse. I have been wrestling with Wall Street for more than 20 years and have been alternatively enriched and enraged in the process. My affair with the Street began one summer in the 1980s. I took the $1,000 earned working in a warehouse and bought 50 shares of Xicor Inc. on a tip from Dan Dorfman in New York magazine. For a week, I marched around the warehouse proudly grasping my broker statement. For the next 15 years, I watched the value of my shares steadily decline to a quarter of their original value.

My professional career on Wall Street started in 1986 when I joined Goldman Sachs as financial analyst in its M&A department. My first assignment was to model an extraordinarily complex European conglomerate on a series of Lotus spreadsheets. The company’s finances were so convoluted it turned out to be a technically impossible task. I realized this only after fruitlessly working on the model for four straight months. A year and a half later, I was exhausted and convinced of only one thing: I would never return to Wall Street.

That lasted until I spent one year at McKinsey & Co.

In 1992, I returned to Goldman, where my career, despite fits and starts, prospered. I advised on some of the largest M&A and equity deals in history: Vodafone’s acquisition of AirTouch, the creation of Verizon Wireless, the IPO of NTT DoCoMo. The latter deal, the largest IPO in history, took a couple of years to pull off. The constant travel to Tokyo nearly ended my marriage.

By 1999 I was promoted to Managing Director. In early 2000, I did what any self-respecting investment banker did at the time: I left to run an internet company for one of my clients.

I won’t bore you with details of my time as a CEO. Suffice it to say that by 2002 I was back on Wall Street, this time at UBS. It was building up its investment bank, and I was there to run its technology group. In 2005, I was invited onto the board of the investment bank. Soon after, I had a falling out with my boss. By 2006 I was, in Wall Street parlance, “spending more time with my family.”

By now, you see the pattern of my wanderings. Highs and lows. Ups and downs. Booms and busts. Just like Wall Street.

For the past couple of years, I have been investing my own money and trading stocks at a small downtown New York brokerage. I haven’t had to fly to Bangalore for the weekends as I used to, so I have indeed been spending time with my wife and two children. Let me tell you, it beats the redeye.

When I was approached by the editors of this paper to write this column, my initial inclination was to pass. I was having too much fun losing money in short squeezes of stocks that I “knew” couldn’t go higher.

Then I became intrigued with the idea of doing for readers what I had been doing for clients: Trying to explain how and why things happen on Wall Street. If I am looking at a deal: What is the CEO thinking? Which shareholders or Board members actually matter? Why are the advisers giving the advice they’re giving?

If I am looking at a poorly performing stock: Why is an institutional investor dumping their shares? Why is a hedge fund acquiring them? Who might put the company into play? If I am looking at Wall Street itself: How does a bank go out of business? What will happen to bankers’ bonuses? Why does the culture of an institution on Wall Street matter? If I am able to explain all this well, you soon will understand why Wall Street is Mean Street.

You won’t be charged millions of dollars for my advice either.

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