Three Person Brokerage
Originally Published 2-14-2008
Much fuss is currently being made about the ups and downs of the US economy. All those who want to buy whatever shares you might have and be willing to part with, think things are going to get worse – cause they want to pay less than you are asking. All those who want to sell you shares of whatever they would like to be rid of, think things are improving, cause they want you to agree to pay them more. On wall street they call these crowds the bears and bulls. The bears are always saying things are getting worse – as they buy bargains. The bulls are eternally optimistic as they sell you the last share of their most recent lost cause.
To be successful at this, first you need to figure out what you are. If you are eternally positive, and you can sell anything to anyone, then you are a bull, no mater your gender. You will be in charge of selling stock. You need to find yourself a buddy who is an eternal pessimist. Lets upgrade your friend Larry from a pessimist to a realist. Larry will be in charge of buying stock at some percentage lower than it’s actual value. At this point you realize you have difficulties with being eternally positive, that perhaps you like doing analysis. So you need to find a second partner who is more of a bull. Lets downgrade your friend Sally from just plain flaky to eternally positive. Sally will be in charge of selling stock at more than it’s actual value to the “Larrys” from those other firms. Just make sure Sally does not spend too much time with Larry. As the analyst and leader of your firm you spend lots of time looking at trading graphs. You notice that housing stocks are trending up. You have a boat load of housing stock Larry bought some months ago at a serious bargain. Somehow, Larry made a construction executive a 25 percent low offer on a huge block of stock, and the guy took it. Over several months Larry has used this trade to justify progressively lower offers for this particular stock, and has now accumulated a huge position. As an analyst, you know money needs to be made to pay Larry and Sally, not mentioning yourself. You sense that construction is beginning to trend up, so you call Larry in. You tell Larry to trend his offers for construction to the topside of his highest position, but keep transactions small – very small, and sparse. You call up Sally and tell her we have a huge position in construction, to scout out a few premium buyers. Tell her she needs to look for consolidations. Larry makes a few small buys, each successively higher in construction, until he is paying twenty five percent higher than his highest offer a few months ago.
Your journalist friend calls about doing lunch. You meet her at a nearby cafeteria. She notes you are approaching a documented position in a particular construction company. You ask her if she has heard any consolidation rumors. She says, I’ll tell you what I know, if you tell me what you know. To which you reply, my buddy Larry could use a couple consolidations. She replies, that she keeps hearing rumors, but nothing really firm yet. You know Sally has helped start some of those rumors by looking for consolidations. While you are doing lunch with Wendy, Sally calls and lets you know she has a decent offer for a block of construction shares. You tell Sally to hold off, you think there is going to be consolidation, and whoever the consolidator is will need her shares. Wendy is listening intently, but is not obvious. Sally asks if she should counter offer. You, tell her to wait until you have a better idea of what the tender is going to be. As Wendy heads for the ladies room, you text Larry to make a couple small buys, trending well above Sally’s decent offer. With Wendy out of earshot, you call Larry, telling him the floor on his position just moved to Sally’s decent offer. As Wendy returns, you tell Larry he might want to pickup any construction bargains left. Ignoring Wendy, you call Sally, telling her to counter on a small lot, 25 points above the offer. Turning to Wendy, you wonder who the players in this consolidation are. She responds that she has heard Sally’s buyer might be looking to make significant acquisitions. You pay for lunch, apologizing to Wendy for not having any juicy gossip. You head back to the office. Wendy goes away to write an article about positive outcomes in the construction sector.
On the way back to the office, Sally calls to confirm the counter was accepted. You tell her to trend up, block by block, in 25 point steps until the price is stable. A couple days later she calls to say the price appears to be stable 250 points above your position. You tell her to eliminate her position. You call Larry and tell him to get out of construction. A couple days later Sally calls to confirm that your construction position is eliminated. You call Wendy and schedule lunch.