Dan is out on assignment today, but earlier this week he sat down with Mark Putrino, a man with nearly two decades experience in the institutional investment management industry as a professional securities trader.
Mark has spent more than 15 years as a head trader at three different institutional hedge funds and money management groups.
Dan and Mark have an enlightening discussion about the current state of the market and Mark’s history with Mario Gabelli and Steven A. Cohen, two of the best money managers of all time. Mark even walks Dan through some incredible buying opportunities that he sees today and what cultivates a winning mindset while trading.
Listen to all this and more on this week’s new episode.
Analyst at Stansberry Research
Mark has nearly two decades of experience in the institutional investment management industry as a professional securities trader. Before joining Stansberry, he spent more than 15 years as the Head Trader at three different institutional hedge fund and money management groups.
His experience also includes trading directly for two of the best money managers in the history of the industry, Mario Gabelli and Steven A. Cohen.
Mark is a member of the Market Technicians Association and has held the Chartered Market's Technician Certification (CMT) since 2002. He earned a Master's Degree in Finance at New York University, and a Bachelors in Economics at the University of Connecticut.
NOTES & LINKS
1:12 – This week, Dan has a conversation with Mark Putrino, who has spent over 15 years as head trader at three different institutional hedge funds and money management groups. Mark opens up by telling Dan about his time working under Steven A. Cohen.
8:30 – Mark shares some incredible stories of working under Steve…”[He’d fly off the handle] a couple times a day?” … “Yeah 4, 5 times a day, probably”
11:34 – Mark sums up the #1 lesson he learned working under Steve Cohen… “The lesson, like I said, is risk management… There were various traders and various portfolio managers using various styles, but what kept them all successful was the risk management.”
14:47 – “Who’s buying at the top? When you get people that usually don’t buy stocks, like shoeshine boys, or uber drivers, or waiters… when they’re buying stocks there’s no one left after them, so the market runs out of buyers and that’s why it goes down.”
19:41 – Mark shares some controversial insight into institutional trading, “… that’s where the relationships come into play.”
25:52 – After Mark reveals some what goes on behind the scenes of big institutional traders, Dan asks “How much of this relationship [building] that you do as a professional trader, is responsible for how much return?”
31:07 – What’s the difference between value investors and traders? Mark shares his trader mindset on a trade that Dan says, “scares the hell out of me!”
32:59 – Mark doesn’t hold back when Dan brings up the Financial Crisis of 2009 “In my not so humble opinion, I think you can blame that crisis on one person, and that’s Alan Greenspan…”
37:17 – Mark shares some buying opportunities that he is looking at right now.
43:25 – “In my opinion, the most important rule of investing is how you sell is more important that what you buy…”
Intro: Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour.
Tune in each Thursday, on iTunes, Google Play, and everywhere you find podcasts, for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive, at investorhour.com. Here's your host, Dan Ferris.
Male: Hello, and welcome to another episode of the Stansberry Investor Hour. Your host, Dan Ferris, is on assignment today, but earlier this week, he sat down with Mark Putrino. Mark has nearly two decades of experience in the institutional investment management industry, as a professional securities trader. He has spent more than 15 years as a head trader at three different institutional hedge-fund and money management groups. Dan and Mark had a great discussion about Mark's history with Mario Gabelli and Steven A. Cohen, two of the best money managers in the history of the industry, the current state of the market, and where Mark sees some potential buying opportunities. Dan will return, next week, with his rants, Mailbag, and more. For now, enjoy Dan and Mark from this week.
Dan Ferris: Today's guest is Mark Putrino. Mark has nearly two decades of experience in the institutional investment management industry, as a professional securities trader. Before joining Stansberry he spent more than 15 years as the head trader at three different institutional hedge-fund and money management groups. His experience also includes trading directly for two of the best money managers in the history of the industry, Mario Gabelli and Steven A. Cohen. Mark is a member of the Market Technicians Association, and has held the Chartered Market Technician certification since 2002. He earned a master's degree in finance at New York University, and a bachelor's in economics at the University of Connecticut.
Mark Putrino, welcome to the program.
Mark Putrino: Thank you, Dan. Thanks for having me.
Dan Ferris: And I invite everybody to try to say "chartered market technician certification" 10 times, real fast.
Mark Putrino: [Laughs]
Dan Ferris: I'm curious, I know nothing about that. What is involved with that, with getting a Chartered Market Technician certification?
Mark Putrino: Well, it's similar to the CFA, which is the Chartered Financial Analyst, so it's based along that. I believe it still takes three years – I took it a long time ago – but the idea is that you study and you become an expert in all the various technical indicators around a market, as opposed to studying company-specific things like the things you look at like free cash flow or balance sheets. So, it's really, I would say it's becoming a – it's studying the market, as opposed to individual companies and economics. So, when I was at SAC, that's where I really developed my interest in reading charts, because there seemed to be a lot of that going on there.
Dan Ferris: OK, well, since you brought it up, there's no way we can't talk about working for Stevie Cohen, I mean, [laughs] that had to be, like, the experience of a lifetime, no?
Mark Putrino: Yeah, it certainly was. Back when I was there, he wasn't the household name that he is now, but it was a great opportunity to learn, and it was a very tough environment... it's not a place for thin-skinned people. And I had an opportunity to leave there and take a position as the head of trading at a different hedge fund which was much smaller, which, at the time, managed about $2 or $3 billion. So, I worked for Stevie for the better part of a year. The most important thing I learned that people ask, is, "What's the secret?" And people tend to think that these great money managers have these, like, secret systems that they've divined, that are always correct, and this, that, or the other thing, but that's actually really not true. The common denominator of the various systems that work is the risk management.
And I know people don't like to talk about that, but that is very important. It's kind of what you're seeing going on now with the whole herd and the whole day trading thing and _____ way that we've spoken about before, because for some reason people think that trading is an easy way to make a living. And, you know, guess what, it is, [laughs] when the market's up 50% in six months. But these great traders or investment managers, the Gabellis, the Cohens, you know, all these other guys, they go through multiple market cycles, and they make money when the markets are going down, as well. So, I don't know if it's going to be tomorrow – I highly doubt it'll be tomorrow, but could be tomorrow, could be six months, could be a year, but I think it's inevitable that we're going to see some kind of washout.
And a lot of these day traders that are, as you say, trading at home in their pajamas in their parents' basements, are going to get wiped out. Because it's easy for a day trader to say, "Oh, gee, you know, I bought XLK. It's up 30%. I am great. That's better than hedge-fund managers do." Well, hedge-fund managers have to listen to their clients, and in March when things were blowing up, you could be a hedge-fund manager and you could say to your client, "Hey, this is time to buy. We should load the boat... we should leverage up." The client might say, "You're wrong. The world's coming to an end. I want my money. Give it to me now," and that forces the hedge-fund manager to sell, even if they don't want to, OK?
So, you don't really have that in the day trading arena. And don't get me wrong, I mean, I hope everyone makes money, but I just think that the stock market, you know, it just doesn't work that way. [Laughs] There's a buyer and seller on every trade, and one of them is right and one of them is wrong.
Dan Ferris: Absolutely. So, maybe I'm too easily starstruck, but I can't help asking more about Steve Cohen, like, what was it like on a daily basis? Like, you had a screen in front of you with his face on it, right?
Mark Putrino: Yeah, well, he would come in – ah, you know, we'd all get there pretty early, maybe 7:00 in the morning or so – and Stevie would come in around 7:30. And my job was to do over-the-counter execution trading, and I had a couple people that I did it with. And then, around the trading room, which I would say is probably a little bit smaller than the floor is at Stansberry, where I go, where the newswire is and where the analysts are, picture maybe half of that size, like, just half of it with the stairway there separating it. And, you know, there were different groups, like, for instance, there was the guys that traded auto stocks and that's all they did, they traded auto stocks. There were guys that traded commodities, there were guys that traded currencies.
And Steve oversaw them all. And Steve would be up there at his post, with about 30 screens around him – you know, he's a brilliant, brilliant guy, obviously – and he would just look at the markets, and he would – you know, he'd be joking around, talking about what movies he saw over the weekend, or whatever. And then he would say, "Oh, all right, let's buy 2 million shares of Microsoft, here, 2 million shares of Intel." And then, it would be my job, knowing that I was the over-the-counter trader, to get that order, and I would speak into the microphone and say, "OK, Steve, you know, got the order," whatever. And then, I would go out into the market and try to buy the stocks.
So, basically, Steve is over – at least back then – overseeing all these different groups of traders, and I was not trading proprietarily, you know, I was trading just for Steve. A lot of the groups, they're trading the firm's capital, right, like, say, the auto guys, they might have some of the firm's capital, and if they see a really good idea in the auto stocks, they might go and tell Steve, "Oh, you know, I think you should short Ford, or blah blah blah blah blah." But basically, he's got himself surrounded with the best of the best of Wall Street, and he just pays them enough that, you know, they go there. And if they're successful, you know, he's successful, and if they're not successful, then they've got to find a new home.
So, it's not that he's just a great trader – he came up with this great business model, too. Well, I don't know if he came up with it, but he's the first one I know about it, where, you know, say you pick 10 stocks and two of them don't work out, so you get rid of them. And two of them work great, so you add more money to them. It's like what he would do, he would have, you know, 10 different funds within his fund, and the funds that are doing really well, they get more money. And the funds that aren't doing well, they either make money or they [laughs] go work somewhere else. So, that's kind of the story with that. I would say Steve is a really cool guy off the desk, he loves to play golf, he loves going to concerts.
But on the desk, you know, he's under a lot of stress, and a couple times a day he would just fly off the handle and lose it and go and yell and scream. And leave the desk, and then come back 10 minutes later, it would be like nothing ever happened. And then, you know, we would go back to normal for another two hours or so, and then kind of the same thing would happen. But, you know, leaving there –
Dan Ferris: A couple times a day?
Mark Putrino: Yeah, you know, four or five times a day, probably.
Dan Ferris: [Laughs] Whoa.
Mark Putrino: [Laughs] But, you know, look, I don't know what to say, other than, the guy was under a lot of stress, and he's not just managing money for himself, he's managing money for other people. But when I left there, you know, I had realized that it was a great experience, and it was still, even though Steve wasn't a household name, it was still a – you know, he was huge. At the time, I believe, next to Fidelity, SAC was the New York Stock Exchange's second-biggest client. But no one knew who they were. I remember going to an interview at one of the investment banks, and the guy says to me, "Well, if you come to work here, you won't be working for some no-name hedge fund in Connecticut," so, that's literally what the guy said to me. But, you know, after I left there, Steve just decided to take it to the next level, and, you know, I mean, here's a guy who could retire, probably, in 1990.
So, my takeaway is, you know, great experience, I learned a lot, probably learned more there than in any other period of the same amount of time in my experience. And, you know, Steve's a great money manager, he's one of the legends, it's like – I guess it's analogous to, you know, you're a guitar player and you're taking guitar lessons from, say Eric Clapton or something like that. You know, it was a chance to learn from the best and I, you know – it was a rough environment and it was tough, and like I said, when I had a chance to become a head trader, as opposed to a trader, I made my decision to leave. Because, you know, I was doing a lot more and it was a lot more responsibility, and, frankly, it was more money.
So then, I became a head trader of a couple different firms that had a variety of strategies. The one that I left SAC to go to – which is now out of business, because the partner, unfortunately, has passed away – you know, they traded everything, small-cap growth, small-cap value, microcap, currencies, some futures trading. So it was really the whole gamut, and it was my job to oversee that, and I had about six or seven people working underneath me. You know, and certain trades are easy, right? If you want to buy 100,000 shares of Apple, anyone could do that: You just type that into a machine, "Buy 100,000 Apple," and you press a button.
You want to buy 100,000 shares of a stock that trades 20,000 shares on a given day, and there's only 3,000 shares on the take... that requires skill. And that requires relationships where you can go out to the market and play the hide-and-go-seek game, right? Because if there's someone else on the other side that's looking to sell it, they want to find you and you want to find them. But you can't go out there and advertise it, because if it's illiquid, people will get in front of you. So that's kind of the old-school relationship game.
Dan Ferris: OK, so, Mark, if – you said you learned more from Cohen than from any other place that you worked. If you could just kind of briefly distill, you know, if it's possible to briefly distill maybe, you know, one big lesson, or one or two salient points that came across over your time there, what – what did you learn?
Mark Putrino: Sure. The lesson, like I said, is risk management. And there were various traders, there, and various portfolio managers using various styles, but what kept them all successful was the risk management. That's getting rid of your losers before they hurt you too much, and also, holding on to your winners and not getting rid of them too soon. And this all goes back to the fact that we are animals and we've evolved, and people are subject to the herd mentality. For example, if you're in a restaurant and, say, you're a Baltimore Ravens fan, and someone else comes into the restaurant and they're wearing a Baltimore Ravens jersey, a lot of people that are sports fans would feel some kind of natural affinity to that person, without ever even knowing who they are.
You know, the same thing could go for fashion, you know, why do people wear ties, so forth and so on. So that herd mentality is the same thing that makes people lose money when they're trading. The last time we spoke, I said if you're getting entertainment from your trading or in your investment, you're doing it wrong. It shouldn't be fun, you know, it should be like you're doing your taxes. I mean, you know, it's not fun, [laughs] but if you do them right, you can save yourself a lot of money. And, you know, it's the same thing with the herd mentality and the day traders now, you know, once you buy a stock and you're a day trader, now you're a member of that pack, of that herd, and you listen to what those people tell you.
And, you know, you might not even realize it, but you're being influenced. And this all goes back to evolution, right? Like 20,000 years ago, if you're walking down a trail and a saber tooth tiger comes out to get you, you would get afraid, and that would cause an adrenaline rush. And you'd get short of breath and your vision would focus and your heart rate would go up. Well, that's fine when you're either fleeing or fighting a saber-toothed tiger, but when you bought a stock and you're looking at a big loss, and you're thinking, "Gee, should I just bail out of this or hold on to it?" Or you bought a stock and you're looking at a large gain, and you say, "Should I take my profit or, you know, do I hold on to it?" those same emotions come into play.
And the reason why most investors fail is because they let their emotions control what they do, and they are – they don't listen to reason, anymore. And the famous story which everyone on Wall Street knows, which is mostly attributed to Joe Kennedy, but I've heard it attributed to lots of other people, and it probably is true in lots of other situations, is, you know, Joe Kennedy's on his way to work, and he's obviously the father of the Kennedy family, and he was a big Wall Street operator before he became the first head of the SEC. But he was on his way to work, and he was getting his shoes shined, then the shoeshine boy said, "Oh, these are the stocks that I think you should buy." And he went to the office and he sold all his stocks, and then the market crashed, and then the rest is history.
So, the lesson is not that shoeshine boys, you know, don't give good advice – well, I guess it is [laughs], I guess that is kind of the lesson.
Dan Ferris: [Laughs] Yeah.
Mark Putrino: The lesson is that there is this food chain on Wall Street, OK, like, who was buying in March? The brilliant people. Who was buying in April? The really smart people. Who was buying in May? Well, the somewhat smart people. Who's buying at the top? When you get people that don't usually buy stocks, like, shoeshine boys or Uber drivers or, you know, or waiters, when they're buying stocks, there is no one left after them. So, the market runs out of buyers, and that's why it goes down. So, that's the story of, you know, the legend of the shoeshine boy and Joe Kennedy, and it makes perfect sense, if you think about it logically.
Dan Ferris: Right, so, from Steve Cohen, you learned how never to be a shoeshine boy, I guess. [Laughter] Tell me, Mark, how did you, like, at what age did you start to get interested in, you know, trading and finance, or markets, or even just economics? Like, how early in life, what was the first time you remember getting interested in this?
Mark Putrino: I would say I was probably in fifth or sixth grade, and I grew up poor in a very wealthy town. I grew up in Greenwich, and, you know, my family is blue-collar background, and so forth. So, I used to just see all these mansions, and just wonder, like, "What do all these people do to make all this money?" And somehow, I, you know, migrated towards economics and Wall Street, and I got my bachelor's in economics, and then I went to NYU to study finance and trading. And while I was there, I had the fortune of meeting Mario Gabelli, and I guess I impressed him, because he offered me a job trading. So, I joined him even before I had finished business school.
And, you know, I mean, that was another great experience, as well, as was working for Cohen. It was very different, because the Mario Gabelli model is – he was doing everything on his trading desk. I was working on this broker dealer desk, but he was doing arbitrage, and his mutual funds, and money management, so it was almost like a little microcosm of Wall Street was going on when I was there. And I had the chance to go over to SAC, and at the time, a lot of traders were migrating over to the buy side, because the money was just better. And that's kind of what happened with me. But I was very lucky that Mario, you know, put me in that spot, because believe me, it wasn't easy to go from knowing nothing to all of a sudden you're a market maker in stocks, and you've got a lot of crazy stuff going on.
But, so that's the story. So then I left SAC, and, you know, I was the head trader of a couple different hedge funds, and the same thing happens, you know, these guys do great and they raise all this money, and then, whatever they were doing doesn't work anymore and they blow up. [Laughs] And, you know, I've been through it a few times. And I know a lot of people that are listening don't really understand the difference between a trader and a portfolio manager, but a portfolio manager decides what is going to be in the portfolio. The trader goes – say the portfolio manager decides, "I want to own XYZ," the trader then goes out into the market and figures out the best way to buy XYZ.
So, you could be the greatest trader in the world, but if the portfolio managers you work for are buying the wrong stocks, you know, the firm is going to go out of business. And it's happened with a lot of hedge funds, and it's a common thing, you know, these guys raise a lot of money, you know, they walk away with fees, and then, you know, some of them just don't care how the performance is, after that. Not suggesting that anyone I worked for [laughs], you know, thought that, but –
Dan Ferris: I'm just curious about something, the way you just describe a trader, like, if that was all that anybody ever told me, it doesn't sound like they're making a lot of huge important decisions. You know, if somebody says, "Well, this is what's going to be in the portfolio, and it's your job to just go out and buy it," I think most people listen to that and think, "Well, gosh, I can do that. That's easy. I can buy and sell things. You know, why is that a job?"
Mark Putrino: Well, let's go back to the example of buying the 100,000 shares of a stock that trades 30,000 shares on an average day. To develop those relationships where people will show you their hand, I mean, that takes years, because these – you know, if you're a money manager, you have to trade through a broker, OK? And the broker has to trust you, and you have to trust the broker, to have a good relationship, and that takes years to establish. Because, for example, say I wanted to buy this 100,000 shares. I can call one of these guys up who is a broker, and say, "Hey, look, I've got to buy 100,000 shares of this stock. Do you have anything going on?" and they could say, "No," and hang up.
And if I have a good relationship with them, they're going to keep that under their hat and not tell anyone. If I don't have a good relationship with them, they might say, "Hey, you guys, this firm's out as a buyer of XYZ. Maybe we should go out and buy some stock ahead of it, because I think they're going to take it up," right? So that's where the relationships come into play.
Dan Ferris: I'm going to stop you right there, just for one reason, because where I'm headed with this is, like, what you're describing is so completely different. Like, if you go to Amazon and just type "trading books" or something, and if you talk to – you know, if you read the market wizards' books, and, you know, if you, like, study trading or whatever, no one ever tells you what you're telling me, right? I mean, nobody says, "It's all about the relationships," they say it's about, you know, letting winners run and cutting losers.
Mark Putrino: If I write a book, will you buy it?
Dan Ferris: There you go, yeah. [Laughter]
Mark Putrino: No, it is about relationships. It's also about the self-discipline of never making a mistake, OK? You come into work at 7:00 in the morning, you could be in a bad mood, you know, maybe your dog, like, my dog snores and kept you up all night, or you're in a fight with your spouse, or you're not feeling well. And you get all these trades thrown at you, and guess what, if you got an order to buy 100,000 shares of Apple and you press an extra zero and you buy a million shares of Apple and it goes against you $1 before you realize it, you're looking at a $900,000 error. You could've just put the firm out of business.
So, part of being a trader is having all the mechanical and operational safeguards in place. It's a process, you know, it's not a one-off. You come in that one day and your head's not clear, you know, you make a mistake and you could put a lot of people out of work. And it does happen. And that was probably the hardest thing about being a trader is just showing up every day and having to have that clear head. I guess it's kind of similar to being a pilot, you know, it's, like, a lot of times you're bored, but when you're taking off and you're landing, you'd better pay attention. [Laughs] Because if not, you know, you could have some bad consequences. And it's, like, the same thing with trading, you know, sometimes, like a day like today, I would imagine, you know, the market's very slow, not too much is going on.
And these are the places where people get lackadaisical and they make errors. And even going back to the financial crisis, I think as a result of all this, they passed the law that if you're on the sell side, meaning, a broker dealer, or someone who gets paid to execute a trade, versus the buy side, which has to pay a commission to execute the trade, like, you legally have to take two weeks off, every year. That way, they can make sure, you know, you're not cooking the books, or you didn't have an error you're trying to hide or cover it up and get out of. I mean, remember Nick Leeson from Barings Bank? You know, this goes back a ways, but when your compliance officer is also the head of trading – or I should say that the other way – when your head of trading is also the compliance officer, you're kind of [laughs] – you're setting yourself up for problems.
But, you know, going back to the trading, now, you know, now, here's another way we can look at this. Now, let's say I want to buy a stock, and I've got to buy a million shares, and it only trades 200,000 shares on a day. And this guy calls me up and he's the seller, or a girl calls me up, "Hey, I'm a big seller of this. You don't anything?" Now, it's the poker game. It's not chess, because the rules are different, every day. Do I open up my hand and say, "Oh, yeah, yeah, I'm a big buyer"? Or do I say, "Oh, we're not doing anything. Sorry," and then call a different broker and say, "Hey, these guys are a big seller, so there's a seller around, so really be careful, you know, don't pay up. Wait for the seller to come for you and back off"?
So, as a trader, you can use the sell side's information to profit, because they're giving you what is essentially, you know, information that could move the market. So, the broker could, you know, screw you, and you could turn around and do bad things to the broker that, you know – like, you might say, "Hey, this broker is a big seller of XYZ," or a buyer of XYZ, right? But if you go around and tell the whole street that, you're going to have problems, so, you know, that goes back to the relationship game. Now, I'm sitting here, I'm a buyer, I've got to buy a lot of stock, I know there's a big seller around. Do I go to that seller and consummate the trader immediately? Or do I feel him out and wait, thinking, "Gee, maybe if he'll break price and go down a half a point by tomorrow, and I could buy it tomorrow at a better price"?
So, people think trading, institutional trading, is chess, but chess, the rules are always the same, OK, the knight always moves the same way, the bishop always moves the same way. In this type of institutional trading, it's like poker, because what works today might not work tomorrow, and vice versa. You know, do I bluff, do I show my hand, do I lie, do I try to go somewhere else? So, it really does become a relationship game, and if you're a trader at a hedge fund, there's probably – meh, you know, you probably have 10 to 15 brokers that you really, really trust, or even less than that, you know, maybe five or 10. And then you got all kinds of brokers that you don't really know but you have to do business with them anyway because maybe they put out some research on a company you like. Or they got the portfolio managers into a conference.
So, those are the ones you throw the easy trades to, you know, the trade you can't add value on. If I, say, buy 100,000 shares of Apple at the market, I could go to any firm on Wall Street, I'm going to get the exact same price, like, there's no value added, there. But going back to our example of buying a big block of illiquid stock, that's when the game starts to get played.
Dan Ferris: OK, so, here's my next question, then, Mark. We're describing, like, this enormous difference, it sounds to me like it's enormous, between, you know, a professional institutional trader and, you know, not just the pajama-clad day trader crowd that, you know, has sprung up since COVID-19 but, then, any retail trader, right, then, just anybody. What I want to know is, like, in the end, what's the difference in, like, you know, blowups and returns? Like, how much of this relationship thing that you do, as a professional trader, is responsible for, you know, like, how much return? You know what I'm saying?
Mark Putrino: Yeah, sure. There's been a lot of studies and there are a lot of consultants that look at that, and, you know, in the microcap and small-cap world, annually, I've seen estimates that trading could be anywhere from 50 to 200 basis points of return. So, think about buying [crosstalk] –
Dan Ferris: Annually, annually.
Mark Putrino: Yeah, annualized. So, you know, the difference between having a good trader and not, you know, the good trader, the firm might be up 12%. The not-so-good trader, they might be up 10%. Think about buying a $10 stock. You know, if you buy it at $10 and you just sell it at $11, that's a nice return. Well, now, say you buy it at $10.30 and you sell it at $10.70, you know, that's what a good trader could do is make that kind of a difference, and if you add that up every day, you know, over the years, it definitely adds up.
Dan Ferris: OK, Mark, so here's what I want to do next. It sounds like we've bene operating at this level of, you know, you described, like, the trader who's executing the trades, and he's got the relationships, and that's good for, you know, 50 to 200 basis points a year, or whatever. But, you know, like I said, when you read, you know, like, the market wizards' books or something, those sound like the people who are all in Steve Cohen's shoes, and they're making the bigger decision. And you've certainly operated at that level. So, tell me about that, like – maybe we should make it even specific. Maybe we should just talk about particular markets that you like now, and maybe we can work in, you know, like, how to do that or whatever.
But I want to just make the listener aware of the difference between what we've already described as an institutional trader working for a portfolio manager. And then, now, let's talk about what it's like to be in, you know, like, the market wizard or the head trader's shoes. What is that like? Because you've done that, right?
Mark Putrino: Well, basically what it comes down to is the size of the firm, and the more assets a firm manages, the more traders they need, because there's just going to be a lot more things going on. So, if you're the head of trading, it's your job to oversee all the junior traders and regular traders, to make sure, mostly, that they're not doing anything wrong, on a good day. But that they're, you know, doing stuff right. But a lot of this stuff is probably not stuff that Stansberry listeners will want to hear, because a lot of it's, like, operational and details and all that stuff. But, you know, I guess what I wanted to stress is the difference between, you know, when you hear these people say, "Oh, you know, I'm a day trader. I made better returns than Citadel did last year," or SAC did, last year, or whoever.
These people really don't understand what is really going on in the institutional world, OK? Because guess what, if it was so easy, everyone would do it. And for every seller, there's a buyer, you know, for everyone that sold their stock in March, there was someone that bought it. And eventually, the market's going to go down, and, you know, when it goes down, those people who are selling it at the top are going to be the really smart ones, OK? And we haven't seen that, yet. But it just really irks me, as a professional, when I hear these, you know, day traders talk about how easy it is. It's like saying, "Oh, well, gee, you know, if I went to the basketball court for two hours a day, I could go play in the NBA," you know?
You know, or this is a good analogy, if you're a golfer, you know, it's, like, "Oh, well, I reached the green in regulations, so I'm a great golfer." Never mind the fact that it took me six puts, you know, to get the ball in the hole [laughs], I still think I'm good, because it felt good when I hit that drive.
Dan Ferris: OK, you know, that's fair, and you certainly – [laughs] you certainly will never hear anybody at Stansberry saying, you know, "This is just so easy, you don't even need us," right? I mean, [laughs] that's certainly nothing you'll hear from me. I mean, I guess, to a certain extent – to a certain extent, we do try to get to the point where we can say, "All you have to do is buy XYZ, and hang on to it for a certain amount of time or in a certain, you know, risk parameter, or whatever," but, you know, the point – we also fill you in on everything getting up to that point, which is always a lot more difficult and a lot more in depth. So, maybe, let's talk about specifics, let's get specific to, like, the current moment that we're in.
And, you know, you send around a lot of great e-mails, internally, and, you know, just noticing things when you're looking at markets. And you did – I noticed you did send an e-mail about lumber, and lumber is still, like – I mean, it's, like – it's straight up. Like, when you see that kind of action, does it scare the hell out of you the way it does me? [Laughs]
Mark Putrino: I guess not. I mean, when I see something like that, I start thinking of it as, "Oh, there's going to be a trade, here, because this thing is going to go down." I don't trade lumber, but if I see an extreme move like that – I guess that's the difference between a value guy and a trader is, you, it scares, me, it's, like, "Gee, well, it's going to refer to the mean, so there's opportunity, there." But that came from – I was talking to my neighbor – I live in Connecticut, and he's a homebuilder, and he was saying you can't get plywood. To get plywood to build decks, it takes months. So, me being the trader that I am, I came inside and I looked at lumber prices, and that's when I sent that e-mail around to you guys.
In terms of how it's going to affect housebuilding and homebuilding and all of that, that's – I just, I don't know enough about it, I don't have that expertise. I just, as a trader, I'm just conditioned to see overbought parabolic trading – it's got to revert to the mean, at some point.
Dan Ferris: So, I expect to get that e-mail the day it tops out. [Laughs]
Mark Putrino: OK. [Laughs] There's been a lot of talk about inflation, recently, and it's pretty interesting. I'm not ready to say I see inflation yet, but copper is trading right above the $3 level, which has been an important level for it. Obviously, gold and silver have been taking a break, but they're in big, you know, massive bull markets. So, I suppose at some point we're going to see some inflation popping up, and then, we'll see what Mr. Powell has to say about that, because seems like something's going to give, sooner or later.
Dan Ferris: So, let's talk about Mr. Powell. As a trader, was that just an offhand comment? Or is the Fed something that you kind of actively keep an eye on?
Mark Putrino: Well, I actively keep an eye on it. And I think if you go back to the financial crisis of 2008 or 2009, in my not-so-humble opinion, I think you can blame that crisis on one person, and that's Alan Greenspan. I think he got so into being called "the Maestro," and so into being on television and being a celebrity, they kept rates artificially low for too long. And that caused the search for yield, and that caused all these products and all these derivatives that were supposedly giving yield were, you know, springing up. And, you know, you had this dichotomy where you had one asset paying a higher rate of return than another asset, but yet, they said it wasn't risky, which is not – or it has less risk, which goes against everything that we've seen in, you know, financial theory, right?
You get a – the higher the risk, the more the return. So, what worries me, now, is we're seeing these rates being held artificially low – at least, I think they're artificially low. I don't know, I mean, if it was just the free market, would rates rise? I mean, I understand that the government is in a tough spot, now, with COVID and everything, but I think if they're not very careful, we could see another long-term result of artificially low interest rates, like we did, you know, a decade ago.
Dan Ferris: Yeah, I have to wonder, ultimately – I'm trying to learn more about the fed, and I think a lot of the time they're sort of pushing on a string. Because their main tools don't – their main tools basically can't make people do anything. You know, they can't make people buy stocks and they can't make people borrow money and spend money. All they can do is, you know, lower interest rates, and then they go into the market and they buy securities, which basically has the effect of raising bank reserves. But, you know, if the money doesn't get lent, you know, it doesn't get borrowed, it doesn't get spent, and then we're sitting around, you know, waiting for something to happen.
But there again, historically, you know, if you look at what they did in, like, 1924, 1927, and, you know, they bailed out the Bank of England, 1928. And then, all of a sudden, [laughs] we had this horrendous run, you know, we're having this horrendous run straight up, and then a huge crash in the Great Depression. Oops, you know? [Laughs] So, they definitely have a role and they definitely – for me, Mark, I think, like, when I keep an eye on the Fed, it's like the easier thing to watch, you know? It's easier to watch the Fed in its belief that it can, you know, keep inflation in line from the top down, and target a specific inflation number from the top down, and pull the levers of the economy like the Wizard of Oz or something. It's easier to watch that as a representation of what the government does, too.
Mark Putrino: I remember, I mean, I could find it, I don't know exactly when, but I remember back in the '90s, or maybe it was the early 2000s, Ben Bernanke saying – this was before he was, you know, in his role, but when he was an academic, I believe. He said that, basically, the business cycle has been eliminated because of government now knows how to always keep the business cycle going strong. Basically, what he was saying is, we don't have to worry about ebbs and flows in the economy, anymore, because of government intervention. So, clearly, he was wrong [laughs], as history [crosstalk].
Dan Ferris: Yeah, [laughs] yeah.
Mark Putrino: You know, I think the trouble with a lot of these guys is they're academics, and that comes with a certain amount of arrogance, maybe? But I don't know. I don't know, but it is worrisome, there's certainly no doubt about that.
Dan Ferris: Yeah, the market likes to seem to climb and climb and climb this particular wall of worrisomeness. [Laughs]
Mark Putrino: Oh, it's free money, all you've got to do is show up.
Dan Ferris: Right, that's right. So, as we sit here watching this happen, and with seemingly horrendous fundamentals, and, you know, market action that, I don't know, I certainly wouldn't have guessed, at this point, we're right back to being the most expensive thing in the world. Is there anything, in particular, that is making you salivate, as a trade?
Mark Putrino: Uh, lumber? [Laughs]
Dan Ferris: Lumber is the one, huh? OK. Just shorting lumber is getting juicy.
Mark Putrino: Yeah, yeah. I think silver is about to kick back into gear. I think the stock market is looking pretty healthy. The tech sector and the communication services sector were overbought last week, but that's kind of shaken out a little bit, so this little kind of selling we're seeing here is good. The S&P was really overbought, as of last week. The critical level to watch, for the SPY, is around 339, or, for the S&P, that would be, you know, 3,390. That's where the peak was in February, and then, the market ran into that for about a month or so, before finally breaking through, over the past couple weeks.
So, what we're looking for now is, does this former resistance level become a support level? Because markets go down really fast, right, in a straight line, because they're driven by panic. But markets go up on hope, so it takes a lot longer, so, each, you know, successive trading range is higher than the one above it. So, why does this happen? Well, traditionally, people say, well, if you're a seller at, you know, the resistance, the 339, you regret your decision when it goes higher, so you say, "Well, I'm going to buy it back if it falls back to my level," OK? There are the shorts who shorted it, and now that it's higher, they say, "Oh, I'm losing money. If it falls back to my level, I am going to buy it back."
Probably more important are the market watchers and the professional traders that see a clear level and want to profit off of it. So, I would say, going forward through September, that's the critical level to watch in the stock market. And I think SPY is trading, today – I can actually just bring it up on my computer – it was about 350 – let's see where it is now –
Dan Ferris: And for listeners, the SPDR S&P 500 ETF, SPY.
Mark Putrino: SPY, yeah, like, Sam-Peter-Yellow. So, as you can see, if you're looking at a chart, it was really where the market peaked in February. And now we just broke through that, so now what I'm looking for is that conversion. Because there's going to be some selling, there's going to be some profit taking, you know, that's just how markets work. If this level doesn't hold, then we can see a big, you know, breakdown and sell-off. But if it does hold, then I think we're going to see a rally at least through the election, or through the end of the year.
Dan Ferris: So, at what point, Mark, do you say, "This is holding and, you know, we should go up from here"? Like, what tells you whether or not it's breaking down or holding?
Mark Putrino: Well, that's where it's the, you know, it's an art and not a science [laughs] kind of thing. You know, you just, if it was a science – well, it is a science, but, you know, there would be quantitative funds doing it. But quantitative funds are not, you know, they're not imperfect, they make mistakes, too. So, it really is – you know, I'm not trying to evade the question or anything like that, you know, I don't know, if the market sells off and it holds, maybe three or four days. But here's something to think about, too, when a market gets to an important level: If it sells off fast and it's oversold and it gets to support, then, that's when you're going to see a rebound, OK?
If it sells off kind of slowly and it's not oversold, that's the sign that the level's going to break and it's going to go down. Because when markets are oversold, then they get to support, they rebound. And when markets are overbought and they get to resistance, they sell off, OK? When the SPY, in August, got up to this 340 level, it spent about a week or two consolidating, so it wasn't overbought anymore, and that told us that it was going to push its way through, which is what happened. As of last week, SPY was a little bit overbought, and I think we're kind of in the last week of the summer, here, so we're due from some profit-taking. So, I would be looking for that conversion.
And again, it's not – you know, you can't just say, well, 339. I mean, it's around 339, you know, around 340. You can't really tie yourself to a precise level, just like, you know, a recommendation's not going to say, "Oh, buy this stock – it's going to go to $96.83." You know, you might have a $100 price target on it or a $95 price target on it. But going forward in the stock market, I would look for that conversion of that resistance to support, and we clearly saw that in gold, with a couple levels. You know, it's like kind of that stairway. Bull markets are like stairways: they form a range, then they go up, and they form another range, then they go up again.
So, if we, you know, hold sideways and we don't get oversold when there is some profit-taking, that tells me the market will probably continue to rally. If, you know, we get down to the _____ level and it's not oversold and the people on TV aren't talking about it, that's when there's a chance that it breaks. And the next level of support for SPY would be down around 320, which doesn't sound like much, but on a percentage basis it's, you know, 20 points against 350 is a big move. Actually, it would be 30 points, yeah.
Dan Ferris: Yeah, yeah. So, this is a good place for us to wrap up. And as I ask, like, every guest I think I've ever interviewed [laughs], you know, if there were just one more thing that you had on your mind today, or one more idea, one more principle, one more thing to tell our listener, today, what would that be?
Mark Putrino: I would say, in my opinion, the most important rule of investing is: How you sell is more important than what you buy, OK? Because you could buy any stock randomly – it's either going to go up or go down, OK? Well, it might stay the same, but just say, [laughs] for our purposes, it goes up or it goes down. If it goes up, you're going to have to make a decision, "Do I take a profit, here, or do I let it keep going?" Your adrenaline is going to be pumping. If it goes down, you're going to say, "Do I blow out of it or do I hold on to it, and maybe it'll come back and, you know, work my way?"
So, I would say the most important rule of investing is having a selling plan. Don't get into a position unless you know how you're going to get out of it. You know, it could be a long-term value name, "All right, well, I'm going to buy it at $10, and Dan says it's going to go to $50, so, when it gets to $50, I'll sell it," and, you know, don't worry about all those intermarket gyrations. If you're a short-term trader, you know, you're going to have to have probably a more detailed plan. But the secret is, you know, don't go in unless you know how you're going to get out. I want to bring this back to the golf analogy, because I play golf and I see this all the time, although I'm terrible. But, you know, people think they're great golfers because they can hit the ball well off the range. Well, that doesn't matter. Go to the course, put the ball on the green, and then sink the putt. [Laughs] You know, the sinking the putt is analogous _____ selling.
Dan Ferris: Perfect, absolutely perfect. Well, thanks, Mark. I hope that we will get a chance to talk to you again. Maybe we will get that sell-off, and you better believe, if we do, I'll be shooting you an e-mail to get back on the program [laughs] and talk about it a little bit.
Mark Putrino: All right, sounds great, Dan. Thank you so much.
Dan Ferris: All right, bye-bye.
Well, I hope you enjoyed that as much as I did. Mark is a – I just love to pick Mark's brain. He's obviously had a wide range of experiences, and he gave us a totally different kind of look at what it means to be a trader. And I hope it kind of intimidated you a little bit, because trading is really hard, and most people don't realize that. Trading is very hard, it's like – it's like training for the Olympics or something, you just have to be on it all the time, and nothing can, you know, distract you, if you want to do it right. It has to be perfect, or you're going to blow up, you know, or get a bad result. You know, plus, all the other stuff – he's got good stories. He's just a great guy to talk to, and we're lucky to have him at Stansberry.
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Male: That was Mark Putrino with Dan, from earlier this week. Dan returns, next week, for another episode of the Stansberry Investor Hour. Be sure to subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. Also, follow us on Facebook and Instagram. Our handle is @investorhour, and on Twitter at @investor_hour.
Outro: Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail: [email protected]
This broadcast is for entertainment purposes only, and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear.
Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.
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