1988 - First Order
1988 - First Order
After the aperitif and appetizers, the main dishes began to arrive.
While the taste was one thing, I was particularly impressed by the considerate timing of the service, which did not disturb my train of thought.
'M&A, LBO. They're definitely the themes supporting the current stock prices.'
In 1987, stock markets around the world plummeted simultaneously.
The event known as Black Monday.
An unavoidable event in financial history, yet it somehow didn't spiral into a Great Depression.
Even though the shock was greater than the Oil Shock.
Even though the decline was much steeper than the crash of 1929 and the Great Depression era, it was contained.
Whether it was because the new Federal Reserve Chairman, Alan Greenspan, handled it well, or because the fundamentals were different from back then, I don't know.
And limited to U.S. stocks, it was clear that the bizarrely intense M&A frenzy and junk bond mania were greatly helping to support current stock prices.
'What if I buy shares in companies that will undergo M&A this year in advance?'
The thought that came to me the moment I saw the information about Sterling Drug.
I can't even imagine how high the return rate would be.
The problem is I can't remember the specific stocks.
Tap. Tap.
I tapped the table with my finger, straining to recall.
'......Barbarians at the Gate.'
A book that is inevitably mentioned at least once in the history of LBO.
I had also read it with great interest.
There was much to learn from it.
The era was definitely this year.
'So, what was that company's name?'
I vaguely remember it was a company that made something famous.
Whether it was cigarettes or snacks, they were things you'd recognize just by hearing the name.
'Lucky Strike, Marlboro, Camel.'
I took a cigarette from my pocket and checked the manufacturer.
American Tobacco Company.
Not the name I was looking for.
Lucky Strike is out.
Then Marlboro?
I know that one without even checking.
Philip Morris.
'Come to think of it, did they acquire Kraft around this time?'
During this period, tobacco companies all tended to acquire food companies.
Although they all split up and restructured around the early-mid 2010s.
I also had quite a headache during that process.
'As expected.'
It seems my hunch wasn't wrong.
A stock chart and a red dot suddenly appearing.
───────────
[Kraft M&A]
───────────
'So Philip Morris acquiring Kraft is correct. Thinking about when Kraft Heinz will be formed makes my stomach churn again. That old man Buffett... I trusted him...'
It feels like solving a puzzle or playing Twenty Questions.
Since information worth a whopping 80,000 coins is unfolding, I even feel a subtle sense of accomplishment.
But that's not the memory I was trying to recall.
Barbarians at the Gate was definitely about a different company.
'The company that makes Camel.'
If it's not Lucky Strike or Marlboro, then the only one left is Camel.
Of course, there aren't just one or two cigarette brands, but in terms of companies, those three are correct.
"Excuse me, sir."
"......?"
"If it's alright with you, would you like to change the main course to sea bass?"
"I don't mind, but..."
"The beef you ordered is available, but the chef suggested I ask if you'd prefer a change. He thought a softer fish might be more comfortable for you to eat than red meat."
"Let's do that. Please convey my thanks."
"Understood."
"Ah! By the way, do you happen to know which company makes Camel?"
"Are you referring to the cigarettes?"
"Yes."
At my words, the server took out a handkerchief.
And from his pocket emerged a pack of cigarettes wrapped in the handkerchief.
It seems he smokes Camel.
"Reynolds Tobacco, then."
"Hmm. I don't think so."
I shook my head.
That's not the name.
Was my hunch wrong?
"Perhaps you're asking for the name of the publicly traded company? The holding company would be Nabisco."
"......Ah!"
Manhattan, as expected!
Who would have thought a mere server would know the holding company of a tobacco firm.
"Thank you. I couldn't remember that name. It was Nabisco."
"I'm glad to have been of help. Your food will be out shortly."
The server bowed politely and went out.
I remembered.
RJR Nabisco.
The tobacco company that makes Camel, and simultaneously, the food company that makes Oreo.
The biggest event of the junk bond era, a company forever remembered by Barbarians at the Gate.
'As expected.'
I smiled, looking at the red dot floating before my eyes.
January 4, 1988, 8:30 AM.
I entered Merrill Lynch.
It's not a bank I personally prefer, but at the moment, I have no other choice.
Other IBs (Investment Banks) hardly handle retail business.
An individual probably wouldn't even be allowed into the inner lobby.
The only Tier 1 bank where a small-fry retail investor can place trades is Merrill Lynch.
Otherwise, you'd have to use Tier 2 or 3 IBs, middle brokers, or securities firms.
"Business hours... haven't started yet. Welcome."
A rather beautiful blonde woman, who had been about to wave her hand dismissively, hurriedly smiled and greeted me.
The morning routine at an IB starts with meetings and phone calls.
Calling assigned clients before the market opens is the routine.
Receiving clients in the lobby comes after that.
The trader who saw me was also busy on the phone.
So, she reflexively tried to refuse but then quickly sized up my attire and accepted.
"Senior, I'll..."
"No. I'll handle it. You make some calls to my clients."
So this is how Wall Street is?
If you're just well-dressed, you're halfway in.
Although the probability of getting shot increases in Harlem.
More interestingly, the trader is also handling banker duties.
Fascinating.
Was retail like this during this period?
Usually, the banker who handles clients and the trader who does market-making are separate.
"How may I help you?"
"I'd like to open a new account and purchase some products."
I said, handing over my ID.
"......?"
She tilted her head upon seeing the driver's license.
She must have thought I was a foreigner.
Still, opening an account itself isn't difficult.
Given the times, no complicated process is required.
"What is your annual salary and occupation?"
"Unemployed. None."
"......Pardon?"
"Just as you heard."
The woman blinked repeatedly while making eye contact with me.
Not forgetting to subtly scan my entire person, trying to assess my financial situation.
"Uh-. Unemployed. Yes. I see. You must have graduated high school the year before last."
"Yes."
"Then you likely have almost no net worth."
"Not yet."
"......Hmm."
I didn't lie.
All I have is stolen goods, which I can't put on paper, and since I plan to grow it by trading, it's correct that I have nothing yet.
If the trader later misinterprets it as me saying I'll inherit it, that's not my fault.
"What is your investment objective? Do you prefer safe income or aggressive profit-taking?"
"I think swing trading will be my main strategy."
"I see."
She nodded subtly, smiling imperceptibly.
Whether bankers or traders, they prefer clients with high transaction frequency over those who buy and hold long-term.
It's only natural.
The more frequent the trades, the more commission they earn.
"Then, what will be your initial funding amount?"
"Let's go with around $4,500."
For now, the plan is to add $3,000 to the money already in the account to make it $4,500.
"Will you not be using a CMA? That's available from $20,000."
Cash Management Account.
The reason Merrill Lynch attracts individual clients differently from other IBs.
It's their main product for individuals to manage repo and MMF through the bank.
From an individual's perspective, it's like a sort of secured account for credit cards and checkbooks?
"Just $4,500 for now. I'll have to open a CMA anew next month or something."
"Next month."
"Yes. I do need a credit card and checkbook."
At my answer, she began fiddling with her nose, pondering something.
"May I ask where you plan to invest the $4,500?"
"I want to buy call options."
"......Pardon? Not stocks?"
Individuals trading derivatives are extremely rare.
Most people don't even know what futures or options are.
Above all, in this era, unless you're in the field or in business school, you'd never even hear the term 'derivative product.'
Just knowing derivatives exist puts you in the top 0.1% of investors.
"Call options. Deep OTM ones."
"......."
She pressed her lips tightly together, staring holes into the documents.
"What stock?"
This time, I didn't answer.
I just shrugged my shoulders.
No way I'd share such high-level information.
"If it's not a CMA account, options trading is not possible."
"Aren't single-stock options Tier 2 risk?"
"That's correct, but the bank's internal regulations are different."
I didn't know that.
When I came as a fund, they opened it right away.
It seems funds and individuals are viewed differently in terms of options trading risk.
In a way, it's understandable.
"Twenty thousand dollars..."
Tap. Tap.
I tapped the table, lost in thought.
First, additional cash injection is absolutely impossible.
In a situation where even $5,000 could make an account suspicious if I'm unlucky, let alone $20,000.
Moreover, cash deposits over $10,000 per month are immediately reportable.
Wouldn't it take less than a week for the IRS to check that?
'Should I give up on options and just go with stocks?'
The return rate with just stocks would be quite decent.
Over 30% would be guaranteed.
A 30% return in one month.
That's a sufficiently excellent return, but...
"How about this?"
As my pondering seemed to drag on, the woman slid a single document forward, speaking.
Bowing her head as if to tempt, revealing her collarbone.
It's probably not a honey trap.
The instinctive move of a Wall Street hyena.
Following male instinct, my gaze passed over her collarbone and chest, looking down at the document.
[Margin Agreement]
A margin trading agreement.
In other words, a leverage application.
"Normally it would be impossible, but if you agree to a margin agreement and promise to deposit $20,000 next month, I'll use my authority to issue it as a CMA account for you."
In this specific case, it could be seen as a loan application.
"Hoh-."
As expected, Wall Street bastards are different from the get-go.
It means using the $4,500 as collateral to fill it up to $20,000 with a loan, and if a loss occurs, they'll hedge by receiving the deposit.
On what basis are they lending $15,500?
The calculation that just the clothes I'm wearing are worth at least 20% of that price, so recovery is sufficiently possible.
Therefore, as long as there are grounds to proceed with seizure, the loss can be controlled to the time value and lawyer fees.
After the bank meticulously takes out the loan interest, spread, and commissions, of course.
'She's a ruthless one.'
She designed this hedge structure in such a short time?
At this point, isn't it closer to alchemy?
"I like that."
That's why I like it.
"Let's contract right away."
Correct! Alchemist!
Increasing the seed money to $20,000 is actually better!
I never imagined the day would come when I'd buy option premiums with leverage.
"And the stock?"
"Sterling Drug call options. February expiration, 10 delta."
"......Delta, 10?"
No need to overthink it.
You can think of it as ordering at a price where 'the bank thinks there's a 10% probability of no loss occurring.'
Conversely, it means a price with a 90% probability of loss.
Anyway, in this era, beta and gamma vary slightly from bank to bank.
Because they can't accurately grasp interest rates and IV (Implied Volatility) in real-time.
An era where each makes their own matrix table and taps on calculators.
So, let's just cut the complicated talk and say I placed a massive order for pieces of scrap paper.
"Uh, no, seriously? I'm sorry to say this, but are you sure you understand delta correctly?"
At a price so absurd it would make a trader flabbergasted.
"Yes. Deep OTM. I'm not sure exactly, but the strike price would be around 20% or so, right?"
"You really want to order that?"
Her mouth hung open in astonishment.
But she won't refuse the order.
After all, from the bank's perspective, they don't lose even if I do.
"Of course. And I'm quite confident there's a high probability I'll make a profit."
Sodak-nim will turn those pieces of scrap paper into gold nuggets.
I smiled brightly and handed over the $4,500 check.