Interview With a Wall Street Insider
One of the most personally valuable things I ever learned about Wall Street in my days as a financial journalist can be boiled down to “There’s always a bull market somewhere, someplace.”
Yeah, I know. It’s the biggest cliché in the world. It also happens to be true. The hard part is spotting them.
Here’s one example: The 1970s were a time of economic malaise for America. Yet the shares of one largely unknown retailer, Wal-Mart, tripled between its IPO in 1972 and the end of the decade.
Here’s another: The stock market cratered in 1929 and didn’t make another all-time high until 1954. Yet shares of IBM just kept going up. Gross profits rose 3,500% to almost $700 million during the same period.
(And to think that IBM — then known as International Business Machines — was actually in the Dow Jones Industrial Average from 1932 to 1939, then kicked out until 1979, when it replaced Chrysler!)
It just shows you that committees — like the folks who pick the components of the DJIA — can’t spot big opportunities either.
But what if we could hook you up with someone who can spot the biggest opportunities? We think we found our guy…
His name is Paul , and I’m very pleased to announce he’s joining our staff of expert editors here at The Sovereign Society.
Paul is a Wall Street rogue … the rare “insider” who voluntarily stepped off the financial greedmill. He “retired himself” at the age of 40 because he could see where the ride was taking him and didn’t like the scenery.
Main Street’s Gain, Wall Street’s Loss
Don’t get me wrong — after getting to know him the last few months, I’ve never met someone with more enthusiasm for the pursuit of investing. It’s all the other stuff that goes with managing billions in “OPM” (other people’s money) that convinced Paul it was time to walk away from the game.
But what a game it was! Paul has been an in-the-ring player for every bull and bear market — and every financial crisis along the way — since 1988. He first joined Wall Street as an analyst, later graduating to money manager at prominent firms such as Royal Bank of Scotland and Bankers Trust, then racking up outsized returns in the hedge fund world for the likes of the Templeton Foundation and the Kinetics International Fund.
In the interview below, you’ll hear from Paul in his own words about his life’s path to this moment. Be sure to read tomorrow’s Sovereign Investor Daily, because he’ll also discuss the specifics of his investment philosophy and where he looks for the biggest opportunities in stocks each week.
JL: Paul, first why don’t you tell us a little about yourself?
Paul: I’m what I’ll call an “investment savant.” Since the time I was a little boy, attending boarding school in India, investing and the financial markets were my life’s dream. I came to the United States when I was 18 to attend college. Afterward, I got started making my dream a reality.
I’ve done every single thing I set out to do in finance … portfolio manager, trader and analyst. But these days, I have two goals. The first is to use all my experience, all my knowledge and the incredible amount of work I still do to help Main Street investors get rich investing in the financial markets. It’s as simple as that.
Regular investors can’t typically get access or help from someone of my experience and background. But I feel a deep obligation and connection to the people who read my reports. Wall Street preys on people who don’t understand money and investing. As a result, they’re sold garbage. Then people lose their investment stake, and along with it, the chance to get rich.
In short, I want to help our readers by giving them a fair shake.
My second goal is to introduce the fascinating world of investing to more people, especially if they’re only earning just enough money and wonder if they should put more cash into stocks. That’s especially true for younger people; the sooner they learn how to be successful investors, the sooner they can use those results to get the most out of life.
JL: What’s it like being an analyst and money manager for the likes of RBS, Sears, a Swiss bank and others?
Paul: The truth is, investing big money comes with big pressure.
When you’re putting half a billion dollars to work at a time, you live in stress each day. Clients call to question your decisions whenever your picks go down. Consultants call to give you grief. Your colleagues give you the cold shoulder.
You have to have strong convictions and unshakable faith to ride out the tough days. So, you have to love the work. You have to want to wake up every morning at 5:30 in the morning and read every single piece of news affecting your investments.
Your greatest intellectual challenge when you’re managing billions of dollars is figuring out, one — why your investment thesis might be wrong — and two — as you find new information, does that affect the argument for owning a stock?
When you’re right, and your portfolio is going up in value, you’re treated like a hero. And when it doesn’t, you’re treated like a zero. You have to keep yourself balanced and not take these things too much to heart.
JL: What’s the biggest thing you’ve learned as a Wall Street insider and hedge fund guy?
Paul: The biggest thing you learn as an insider is that Wall Street itself is driven by fees, not investment success. For anything you do on Wall Street, there are middlemen — thousands and thousands of them — who want a small cut of the action. This is how Wall Street makes its money.
Do you remember the scene from The Wolf of Wall Street, where the senior broker tells Leonardo DiCaprio’s character that the key to success is to get clients to trade? And why? Because that’s what generates brokers’ commissions!
Wall Street is a giant fee-generating machine. When you put your money in, they take their cut out. The only part of Wall Street that is driven by investment performance is the hedge fund business. But the rest of Wall Street is just a giant leach set up to bleed you by extracting fees from your account.
JL: So how do you make money in a crazy market like the one we have now?
Paul: You can make money in any market. The key is to keep things simple by keeping a couple of main ideas in mind.
First, categorize any investments you already own. Is it a stock or investment you are going to buy if it goes down? On Wall Street we called this “BTD” — buying-on-the-dips. Or is it an “STR” — a sell-the-rallies stock you are going to sell as it heads up? Once you force yourself to look at your investments in this way, you’ll feel in control — because you now have a plan of what to do as markets swing around in one direction or another.
JL: It often seems as if the markets are rigged. That’s a common refrain I hear from many people. They’ve given up ever making money from buying an individual stock, much less an index fund. What do you say to people who hold that very understandable view?
Paul: Well, the markets are rigged in a kind of way. The insiders — the people in the inner circle — have access to knowledge and expertise that you can’t ever hope to have. So with those advantages, yes, they really do rig the odds in their favor.
But remember I’ve worked at that level too. So by reading the reports I’ll be writing for The Sovereign Society, you can rig the odds in your favor and you give yourself a much better chance to win. I’ll add that the odds of having a sizable profit are still way better in the markets than they are in any casino, horse track or lottery.
[Note from JL: Make sure to read the rest of Paul’s interview in tomorrow’s Sovereign Investor Daily; he’ll discuss the opportunities to be had in identifying disruptive technologies, the new trends and innovations that create those “bull markets somewhere.”]
Editorial Director, The Sovereign Society