Well I just don’t get it,’ moaned Jerry as he took another swig of his beer. ‘One day we’re told that we should ferret around for every little snippet of information we can lay our hands on, the next we have a lecture on the dangers of portfolio managers being privy to inside information. I mean how the heck are we supposed to strike the right balance?’
We were in a bar off Wall Street and Jerry had just finished another ‘hard day’ in his induction program for a leading US institution. He was finding it all a bit tough going. Just a few months back he’d thought that a hard day encompassed getting up around 10:00, sauntering down to a few lectures and then discussing the finer points of life over a cafe latte with a few friends. Now his morning commute started at 7:00 and he was expected to concentrate all day. Realization had also set in that this was just the training period. Worse was probably yet to come.
Fearing a certain lack of commitment, Jerry’s father, an old college friend of my own, had asked me to step in with some avuncular advice and help get his son back on track. ‘Seeing as you’re sort of in the same industry…’
Hence the drink. Hence the problem. I sipped my bourbon, adjusted position and prepared to deliver my wise words to the young trainee.
But Jerry was off again.
‘Get this,’ he continued, fired up by the beer. ‘The market regulation guy told us yesterday that companies are legally bound to release any price sensitive information to the whole market at the same time. Now that’s fair enough. But how then, as a portfolio manager, are you supposed to steal a march on the competition?’
I felt it was time for my second wise nod of the day before I sagely handed down my advice. ‘You’re right in some ways – it is a fine line,’ I intoned. ‘It’s a bit like walking a tightrope. When you first start, you may slip off but there’ll be others around to catch you, dust you off and send you on your way again. Soon you’ll be confidently striding across to the other side and the issue won’t concern you.’
I felt like I was taking the lead in The Waltons.
Jerry eyed me somewhat warily. He’d always thought that his Dad’s friends were a bit weird and I was merely confirming the stereotype. Still, I pressed on hoping that I could rescue the situation.
‘You see, Jerry, it all comes with experience. And gaining that experience should be fun. Someday you’ll be sitting in a one-on-one meeting with a recently listed company and their management team will start divulging information you know you just shouldn’t be hearing. Maybe you’ll log it, maybe you won’t. But then it’ll be you holding up your hand and advising them to either stop going down that track or to put out a release. You certainly don’t want to be in a position where you can’t trade.’
Oh yes, the old ‘I’ve been here before’ magic was working. Jerry was nodding along with me this time.
‘Yeah, I guess you’re right, I’ll just have to stick with it and slowly get my head round it,’ he said, looking into his nearly empty bottle in that ‘I haven’t yet received my first pay check and you’re Dad’s friend’ kind of way. I got the message.
Strangely enough, once our drinks had arrived, Jerry didn’t seem to be so easily convinced by my arguments. ‘But how can it all be down to years of experience?’ he asked. ‘I’ve seen the guys in charge of analysis and portfolio management. Most of them are just a bit older than me. And I bet most of them are far more interested in improving their performance and compensation than abiding by a few rules which are never really likely to catch them out.’
I sipped my bourbon once more and relaxed back into my chair. I could happily report back to Jerry’s father that everything was just fine. Jerry would fit in perfectly well on Wall Street.
