Early Daze: Part IIBy Derek On March 30, 2012 Under Post
The Singaporean fund manager at the end of the line was more than a little surprised to hear from me. I didn’t know anything about broking or what to say to a real client so I introduced myself and once he determined I was calling him from Taiwan, he became very excited and spoke very fast.
“Ok. Ok. Here is what you do. You are the first person to call me, ever, from Taiwan. Please call me every day. Bye.”
With that missive I had my first client! Well, we still had to open an account with him and get him to trade but I was now a “salesman.” My new exalted status required me to move my desk out of research and into “sales” – about ten feet away. My daily routine didn’t change very much, however.
Johnny took me under his wing and taught me the ins and outs of the local stock market. He told me research was a waste of time. Most of the local investors felt the same way. Stocks were traded on rumor and speculation. There was no investment, just pure speculation. The Chinese love to gamble but in Taiwan, as in China, gambling is outlawed. In the US, many American Indian reservations have banned alcohol as a corrosive and societal destroying force that their culture isn’t equipped to handle. Chinese people, in general, are not big drinkers but boy howdy, do they love a punt. There is no horseracing permitted in Taiwan. There was talk of putting in a dog racing circuit but that too, was voted down at the last minute. This was all good news for the stock market – the only fast game in town.
Learning the Ropes
Stocks were bought and stocks were sold by investors many times during the same day. This intraday trading could account for up to, and sometimes over, half of daily turnover. A “long” holding period might be a week, maybe two. Everything was traded on rumors and what was printed in the local press. The journalists were hardly unbiased too as they stood to make a lot of money depending on which rumor they started or which one they promoted. In this environment, it was no surprise that equity research was seen as superfluous. There was very little, if any, fundamental “investing” going on. But speculation? Oh yeah, we had lots of that. In 1988 the Taiwan equity index was at 2,000. One year later it hit 10,000, before topping out at 12,000 the following year. You can’t do that with fundamental research.
Johnny Tsai, short and stocky and from the wrong side of the tracks, explained it to me in Chinese over a greasy lunch box one day in the office.
“Do you know ‘chou ma?’ Very important, ‘chou ma,’” as he crammed more oily pork into his mouth.
“Script. Paper. Who is holding the stock, how much is out there and what is the size of the free float?”
He paused, swallowed and said slowly in English, “A stock will never PIERCE resistance,” he said jamming a stubby index finger upward, “if there is too much chou ma.” “PIERCE,” I was to learn, was Johnny’s favorite English word.
“You need to only buy stocks with a small float and restricted chou ma.”
As I was digesting lunch and the basics of supply and demand, Johnny continued with another huge mouthful of rice.
Watch the Bin Zhong
“And the bin zhong. You gotta know what the bin zhong are doing.” He wiped his nose with his sleeve.
“Yes. The bin zhong are the money. They give it, or lend it for a day or two, or up to a week, to the big hands.”
“And the “big hands” are the guys punting the market in size?”
“Right.” He smiled, pleased with my progress, wiping his mouth with the back of his hand.
We had several private rooms just off the trading floor that were equipped with a phone and several screens. I had seen these. During market hours the “big hands” would play here, giving orders to our hungry brokers sitting by banks of phones and screens just outside on the trading floor. In front of the small army of expectant brokers, and there must have been about 50 or 60 of these, was the retail pit. The retailers were just that, mom and pop investors. They would amble in every day and sit in the hard plastic orange chairs set up in front of the hundred or so television screens showing how all the stocks were trading live time. Just walking by that wall of flickering old style color television screens I could feel my skin burn from the radiation.
Often I would see grandmothers sitting in the pit watching the stocks and babysitting a grand kid or two. Sometimes they would even be chopping vegetables on the little writing desk attached to their chair, always keeping one wrinkled eye on the screens. You could tell it was a bull market by the number of retailers on the floor of any local brokerage. When things were hot and the market was going up, there could be a hundred or more random punters there, faces glued to the screens, shouting to each other, commenting on news, passing rumors back and forth. When someone decided to buy or sell a stock they would just walk ten feet across the carpeted floor to the bank of brokers with the phones and place an order at the counter.
The Unspoken Fear
With gambling illegal and the market the only game in town, the government made sure the stock market was only open in the mornings. Otherwise, the unspoken fear was, the entire country would stop working. This catastrophic result would mean no more trading companies and no more factories belching smoke and farting out plastic flip flops by the billions.
At the time there was one stock account open for every five people on the island. Statistically, that meant in every family there was one market player. A lot of trading was done through nominee accounts to avoid taxes. The big hands weren’t using their own named accounts to trade but would “borrow” someone else’s and usually they had many different ones to swiftly cover their tracks.
Sharks and Chum
You could say it was a “rigged market,” with the big hands, the “sharks” and the retailers, the “chum.” But the market did provide liquidity to growing companies and was a social release in a society where outside of working six days a week, there was very little else to do. Basically, it was all highly entertaining.
The big boss of our little world was Daniel Chan. He was Chinese whose family was originally from Vietnam. Sophisticated , over educated and fluent in about seven languages, Daniel lived in Hong Kong but spent the weekdays in Taipei running Yung Kao. Daniel had had a long and prosperous career already in finance working for foreign outfits in Hong Kong when he decided to break open the Taiwan brokerage scene. Yung Kao was majority owned by Hong Kong money but Daniel had a small stake and was there to transform the inward looking, local retail brokerage into an international institutional one. He was a master of randomness and engaged in passionate debate on whatever subject popped into his over active mind. The Taiwanese were in awe of him; tall, well-spoken in Mandarin, Cantonese and English with old school manners and always impeccably dressed, Daniel was a Chinese Ricardo Montalban and he definitely cut a figure amongst the locals who weren’t really sure if he was Chinese like them, or not. Daniel himself was somewhat ambivalent about this too, I was to learn later on.
The Gates of Hell
Daniel’s number two was his hatchet man, or hatchet woman. Sybil Tsai was a potent local distillation of pure evil. Every interaction with her drew blood with the other party the loser. While Daniel enjoyed being the “good cop,” Sybil relished being the “bad” one. She was a menacing Kafkaesque figure with long straggly witch’s hair and walked with a limp, dragging her bum leg behind her. Most likely a victim of childhood polio, she took advantage of any sympathy an unsuspecting victim might have. Hard, cruel and calculating, Sybil quickly became number two after engineering the demise of Daniel’s second in command right after I joined. When Daniel wasn’t around Sybil called the shots but like a tamed bloodthirsty Cerberus guarding the gates of hell, she was craven and obsequious always in her master’s presence.
Our day would begin early with the team of research analysts flipping through the local Chinese newspapers. In fact, that was pretty much their entire day. They occasionally wrote “’reports” on companies; two to three pagers pulled from “knowledge” printed in the daily rags. I once asked one of them why they didn’t need to actually visit a company they were writing about, “It’s all here in the newspaper, anyway,” was the patient response to my inquisitive ignorance.
Our morning meeting began at 7:00 AM. There were about seven to eight analysts in the Research Department. “International Sales” was Johnny and me, but the local brokers dominated and were a group of about 50-60 people. All of us would gather in the retail pit and sit in those hard plastic orange chairs while Daniel often stood up and gave a talk on one subject or another. His musings could be about stocks but he could just as easily ramble on about table manners. One of the senior local brokers then would give us a long and tedious lesson in Taiwanese accented Mandarin on technical analysis and the meeting would be over in 45 minutes or so. Brokers and research went back to their desks, reading the papers and slurping breakfast noodles out of clear plastic bags bought on the street, belching garlic fumes with satisfaction until the market opened at 9:00 AM.
I quickly saw that to learn what was moving the market I needed to read the local newspapers. I already read and spoke Mandarin after a fashion having lived and studied in Taiwan before, but all the economic and professional terms peculiar to the trade were brand new to me. My Mandarin was about to get a whole lot better as I began to realize I didn’t even know what financial terms meant in English, let alone their equivalents in Chinese.
Our Head of Research
After Johnny, my new best friend was our head of research, Gerry Hsieh. Gerry was Taiwanese but spoke English fluently and had actually worked on Wall Street for a stint at Drexler, before they went bust. He understood the lingo, was a real analyst and knew how far we as a firm needed to go. Gerry was a retiring personality but he had this unique hair affectation and liked perms. In Asia, the only men with afro-perms are gangsters; it is part of their tough guy look. Slightly built, Gerry was a gentle soul and far from that ilk. He probably had just watched too much 1970s television while in the US, I surmised. I spent an hour with Gerry and his perm every morning, crafting the English “Daily” which was a compilation of local news chatter that we faxed out to overseas clients. Our conversations usually went like this:
“Ok, Derek. You can’t say ‘sales are up a lot.’ You always have to give numbers and use words like ‘increase.’”
“How about, ‘Sales have increased 15%?”
“Better. But over what time period?”
“The last nine months or so?”
“Then say it. ‘Sales have in…” (The phone rings. It is his wife who calls him every day, usually in the morning. She is a towering personality and wears the pants in the family. Gerry is afraid of her. He forgets about me. His knuckles turn white as he grips the phone).
Pause. I can hear her loud and strident voice on the phone castigating him again like a puppy for some transgression. What did he do now, poop on the carpet?
“Yes, honey. I….yes……yes…..Ok but…..yes……Sorry…..yes…..”
Pretty much every morning it was the same pattern. I felt sorry for Gerry. He was a good guy but buffeted between the menacing evil of Sybil at work and his intolerant unsympathetic wife at home, Gerry never really had a good day.
Meeting with the Boss
I went back to my desk to leave Gerry to his domestic torment. My phone rang, “Ah, Derek,” boomed a deep voice in accent less English. It was Daniel, the boss. “Can you, ah, come to my office, please?”
As I walked across the trading floor and opened the door to Daniel’s cavernous office, I wondered why he wanted to see me.
“Derek, yes. Sit down.”
I sat down in the chair in front of his big, cluttered desk. “Good morning, Daniel. What’s up?”
He stared at me for a while. “Is it ‘fluorescent’ or ‘florescent’?”
“Is if f-l-u-o-r-e-s-c-e-n-t or f-l-o-r-e-s-c-e-n-t? Many people spell it “florescent” and yet others spell it “fluorescent.”
“Yes. Uh, isn’t it flores…”
“No, no, it isn’t. It is fluorescent. With a “U.”
He continued on about spelling and how important it is while I was thinking I should be working. But Daniel was the boss and I sat there for twenty minutes or so. This was also to become part of my daily routine I learned. My nails looked interesting. I stared at them.
Back at my desk I was reading some of the research. I walked over to Olivier, our steel analyst. Olivier was average height and wore thick glasses but he had an interesting face. Olivier looked, to me at any rate, just like one of the terracotta warriors from Xian. His Chinese face was ancient. Olivier, however, was young. And he was super goofy. He never combed his hair and like most Taiwanese, went to bed after taking a shower in the evening with his head wet. He would have made the cover of “Bed Head Magazine,” if there had been such a thing His cheap clothes came from the night market and his voice was always cracking as it soared to a high pitch when he spoke. The product of an ancient lineage perhaps, of battles on the plains of central China won and lost, Olivier himself, however, was as meek as milquetoast.
“Good morning, Derek,” he smiled.
“Hi, Olivier. I wanted to ask you, are steel prices going up or down? I just read your note and I am confused.”
“I mean, where are steel prices going from here?”
“Up or down?”
“I don’t know.”
He smiled again and went back to reading his paper. Baffled, I returned to my seat and thought about something else.
Dinner with the Boys
One day, after the morning meeting, Johnny came over to me.
“We have dinner tonight. With my friends, ok?”
“Sure, Johnny. Where?”
“I know a good place. 6:29 tonight.”
“How about 6:30?”
“Ha, ha, ha,” he smirked. “Taiwanese men never say 6:30. You know 6:30?”
“Uh, isn’t it between six o’clock and seven o’clock?”
“No! Look at the hands of the clock. Both pointing down. Limp. Taiwanese men, never limp!” He thumped his chest.
OK, I get it. Thereafter, when we met for dinner, the running joke between us was “6:29, ok?”
Johnny’s friends were like him, older and all had jobs trading the market in one form or another. These were local Taiwanese guys that had gone to school together. We spoke Mandarin only, for my benefit, as when I wasn’t there they talked to each other in Taiwanese, a radically different dialect which I didn’t understand. They were very kind to me and from them I learned many things about Taiwan, the culture and how the market really operated.
We always met at the same restaurant which was a tiny seafood place by an outdoor fruit market with f-l-u-o-r-e-s-c-e-n-t lights and linoleum floors. The glass doors were always open with kids and dogs coming and going. Diners sat on cheap round metal stools at the cheap round metal folding tables. It was like most small family restaurants in Taiwan at that time. The menu was always the same: Chinese style fish with vegetables, noodles and rice dishes. It was very cheap too. This was good. We drank copious amounts of the local Taiwan Beer. This was bad.
Taiwan Beer is always bad. At that time, the beer market was just opening up to imports but Taiwan Beer (or “TB,” as I called it) was the only thing most shops and eateries carried. It came in large brown bottles with a green and white label. This stuff was so toxic; you got your hangover while you were drinking it. And the locals liked to serve it warm too, just for that extra formaldehyde flavor. If you wanted your TB cold, ice cubes of questionable quality were dumped in your glass by hand. When I had been a student in Taiwan a few years earlier, it was the ONLY beer available. I remember one advertising campaign the government had tried with the proud boast, “Taiwan Beer. Every bottle tastes different!’ Memorable, yes, and accurate, too.
“You should buy ‘TaiBen.’ Taiwan Styrene Monomer. You must buy TaiBen,” Johnny whispered to us earnestly, while wolfing down a plate of noodles at terrific speed.
“I am buying it now. I will buy more.” Then in English he said slowly with great emphasis, “It will PIERCE $10.”
The other guys around the table were not impressed: a specialty petrochemical play that nobody was talking of ramping. Ramping a stock meant the big hands were in it and pushing it higher. You want to ride one of those stories. ‘TaiBen’ didn’t have a story, they said.
Johnny loved his charts and insisted more loudly now, “It will PIERCE,” jamming his thick index finger upward, “resistance at $10. Tell all your clients to buy it now!”
“Johnny,” one of the guys said raising his glass to change the subject, “Lim jyu!”
“Lim jyu!” we all shouted and drained our glasses. “Lim jyu” was Taiwanese for “Cheers” and if you were “lim jyu-ed” you had to respond in kind. We went through a lot of beer that way. In fact, it is one of the few Taiwanese words I still remember, probably due to all the practice.