I’ve been going through materials from the late 1990s and early 2000s, remainders from a truly amazing time that I was going to write about in some depth but never did. The number of extraordinary stories was mind-boggling.
Among the papers was a Wall Street Journal article from December 3, 1999: “Day Trader Profits For Over 20 Years.” That trader was Steven Cohen, by then seven years into his run at SAC Capital. The outlines of the story are there: Bigger-than-big fees, huge trading volumes, and “an enviable information network.”
Cohen was quoted as saying, “It’s not growth investing. It’s not value investing. It’s short-term catalyst investing.”
The story, by Mitchell Pacelle and Charles Gasparino, includes this: “Mr. Cohen doesn’t trade blind. Rather, he makes educated guesses about when stocks will move, or stop moving.” As his firm’s success led to more assets under management, Cohen also sought to school the other traders at the firm in “the SAC way.”
Like a lot of things from the period, that way — that edge — looks different in hindsight than it did at the time. However, the dot-coms started blowing up within weeks of that story, the mega-caps were soon deflating, and revelations of shoddy accounting and analysis ultimately ruined the reputations of captains of industry and kings of the Street.
But it took a good long while for “catalyst investing” to come under fire. When it did, some of the foot soldiers came to grief, but the general lived on to trade another day.