After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
At the end of last week’s column, I ended it with a quote that we used on the trading floor, for when someone was long and wrong.
The quote was: “With research you gain knowledge. Without it you gain experience.” And writing it took me back down memory lane to reflect on those days on the trading floor.
Other quotes that used to stand out were ones like “why rob a bank when you can own shares in one?’ or the old ‘sell in May and go away’.
The first one relates to when banks were (just) High Street banks and paid out good dividends from their very strong cash flow. The other one was when everyone with money went away on cruises or were at Wimbledon, etc.
You could literally hear a pin drop on the floor on some days in May, it was that quiet.
It’s a bit like how the French all go on holiday at the same time then wonder why, after sitting in a five-hour traffic jam to get home, they find they have been burgled.
If they had done their research, they would have gained the knowledge that French burglars have different holiday dates.
‘Grandes Vacances’ is the term the French use for their yearly migration south, so between July and August, we used to avoid any holidays in the Med.
So the French got madness (experience), while we Brits got a actual R&R (knowledge)!
Those earlier quotes above were ‘pre-mobile phones’ and from a time when the only computer you would use was kept at your firm’s office.
Black screen with glowing green words and a printer with green and white vertical stripes. Oh the memories.
Telex machines were used for communications between ourselves and our overseas brokers, who supplied us with closing prices and transactional buy and sell reportings overnight.
In our firm in 1980, these telex machines were operated by, well, a ‘telex machine operator’. They would have a big book which contained numerical codes for various firms and businesses around the world.
If they couldn’t find a firm, they would send a telex to someone at telex HQ and get a telex back with the correct number.
At this time, any instructions to buy and sell were legal contracts, as were our reporting of trades, so it was important that the operator was accurate.
In those days, a buy or sell transaction was called a ‘bargain’, and a ‘bargain number’ was the reference we would use to refer to a trade. This would appear on a client’s contract.
Contracts were real paper ones, with the client getting the top copy in the post and various copies of said contracts were used to settle trades.
Settlement of trades would all take place at the end of a settlement period, which was between two or three weeks and always on a Friday, unless there was a Bank holiday involved.
If you were lucky, you could run a trade for three weeks without having to pay for it, as their settlement was stretched out by a week to accommodate public holidays.
Sell the rumour, buy the new motor
I bought my first real car, a 3-litre Ford Granada Ghia, after Sun Royalty Units went on a spectacular run in one of those longer than usual three-week settlement periods.
They were ‘special units’ (I had done my research, so I had the knowledge) and every 100 units you owned could legally be cancelled and exchanged for one barrel of their oil, when their drilling hit a reserve and they later became a producer.
The timing of this trade was exquisite, as they were drilling for oil and results were due to be released within that three-week settlement period.
The terms and conditions on how these units were able to be legally switched was written on the back of each certificate.
As I had some tucked away for a rainy day, I was now set big time. Just ahead of their drilling results, I would show the back of my certificate to others on the floor, so they could understand my punt.
I was only a ‘blue button’ at the time, so I was not allowed to physically buy them myself. I had to get others to do it for me.
As word got around and as more interest came in, they ran from 20p to £5 over that three-week period, though I was out after they hit £2.50, which was about a week and a half into that settlement period, so I never needed to stump up any money.
Sun Oil never ever did actually find oil. Ha! But every year or so they would be drilling for oil somewhere and they would always have a run whilst drilling was on.
Hence another quote “buy the rumour, sell the fact” which summed up these babies very well and why it is such a good one to remember in these speccy ones.
It is always more exciting whilst a company is in its exploration phase but not so much when they turn into a producer.
Core Lithium holders found that out this week, when the company took everyone by surprise and raised A$100m at a 26% discount to their last trading price.
On November 14, 2022 – less than a year ago – Core hit an all time high of $1.87, having run up from 5c in November 2020. Now, just as they turn that ‘want to become a bigger producer’ corner, they are raising $100m at 40c.
They now have over 2.1bn shares on issue and the company is valuing itself at 40c/share.
If I were a holder, I would be a bit pissed that they didn’t borrow the money rather than print more devaluating paper, but I’m not, so I really don’t care (though I am a bit jealous of those juicy fees, I’ll admit that much).
Anyway, such is life and I’m not even shocked anymore. Even with everyone having all the technology in the world at their fingertips, nothing has really ever changed from the day a share certificate was very first bought and sold, in the 1600s.
Just remember, shares will always go up and down and those with knowledge, be it inside or sweat of brow, will always win.
Though, why the French all still go on holiday at the same time of the year… now that still surprises me!
The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at thesecretbroker@stockhead.com.au.
Feel free to contact him with your best stock tips and ideas.