WHO IS GREGG PISANI?

With a background in the film industry, Gregg worked alongside actors such as Kiefer Sutherland and Michael J. Fox, when he arrived to New York. With the movie industry drying up in New York, Gregg decided to take a job on the floor of the New York Stock Exchange as a two-dollar broker. In other words, he executed orders that other brokers couldn’t do themselves, because of excess business.

Gregg quickly advanced through the ranks due to his superior skills in math. Not the kind of math that gives you high grades in college, but simple and fast math combined with a talent for monetization. Today, Gregg, is making use of the same skills he acquired on Wall Street handling contracts for billions of dollars in the Defense Acquisition Corps.

IS IT STRESSFUL TO WORK ON WALL STREET?

Sort off… According to Gregg the stock trading itself was not stressful. It was more the people on the trading floor that could get a bit lightheaded when things got busy. The stress didn’t get to Gregg…well, at least most of the time. In the episode, Gregg tells a funny story of corralling a group of anxious traders that wouldn’t listen.

Preston Pysh 2:28
So you didn’t go there initially to do that. You, you went there to do the movie business and just kind of fell into the…(*inaudible*)

Greg Pisani 2:35
Yeah! You know, my, I was always into making movies I…my minor in college was film and still photography. So always had a love of movies, right? And…so, so I did that for about five years and my friend and my brother kept on with that for awhile. And then, I just, so I didn’t see, see a lot of future in it for myself so…wasn’t like dedicated to camera work or, or something else. So, you know, when the Wall Street opportunity came up, I kind of took it. So my first job was working as a…basically an assistant to $2 brokers, right? The $2 brokers are the brokers that are kind of independent from the big firms like Merrill Lynch. And they would basically take work from those bigger brokerage houses. And they would go work to pick. There was never enough brokers on the floor to represent Merrill Lynch, or Goldman Sachs, or what have you. So they would farm out to work. It was almost like contractors in our current career.

Preston Pysh 3:33
Yeah, yeah.

Greg Pisani 3:35
So you would use them to go do the work. And they would work the, the different specialist booths. And literally, they were booths where the firm’s, the different firms would hold the stocks and trade them, right? So I was a clerk for this firm.

Preston Pysh 3:50
What does the $2 broker thing mean? I, I don’t follow.

Greg Pisani 3:53
Well, I think it’s more of a, more of a euphemism than it is anything, right? So I think at one time, it meant that they got $2 per trade that they did when the firm first started, right? Somebody told me that. I don’t know if it’s urban myth or whatnot. But for the most part, you know, they were, they were contracted out officially, unofficially to do additional trading for the bigger firms above and beyond what their capacity was to do it, right?

Preston Pysh 4:21
What did they do, that model so that they could flex their size? So like if they needed, you know, like in high volume times, maybe for a certain year, the volume would be very high, so that they could kind of flex and get rid of the, that extra fat? After… (*inaudible*)

Greg Pisani 4:34
I’d like to say yes, but I don’t think it was a strategic move (*inaudible*), to be very honest with you.

Preston Pysh 4:38
Okay.

Greg Pisani 4:38
You know, you think of Wall Street as being this well-oiled machine. And as we see, as we go on, in the, in the discussion here, it was pretty chaotic for the most part.

Preston Pysh 4:48
Yeah.

Greg Pisani 4:48
You know? I think some of that was yes, and some of that they were not as…rigorous in how they did things. So, you know, it was probably a little give and take, you know?

Preston Pysh 4:58
All right. I’ll keep going because I don’t want to…I don’t want my questions to hold you up.

Greg Pisani 5:02
No, it’s fine. So, So I did that for a short amount of time. And then, I don’t really know how, but though, the biggest specialist firm on the floor, that the firm’s that actually control the trading of the stocks was fairly it’s in Kellogg, and they were hiring. And so, I really wasn’t digging the $2 broker job. There wasn’t a lot going on. You were just basically answering phones taking orders and handing it; pass them off to the, to the brokers. So I went into spear (*inaudible*) leads for an interview. Basically, it was a, “What have you done?” And I haven’t done much, and a math test. So, you know, I, I really didn’t do well in math and school, academically. But when it came to monetizing math, right? The way we probably should be taught, I really got it. So the test that they gave us was dollars and cents, and everything trades in fractions at least done in New York. Rates were in decimal points on the NASDAQ. So I did well, and you know, I could I could communicate. And so I started off as a specialist clerk, and then moved my way up the ranks. So, that’s how I got into the specialist firm. Spear Leads was big. They had, they had a big operation. Things changed over the years, you know, up until today. And I believe Goldman bought them at this point. But, you know, there’s a lot of opportunities; a lot of stocks, right? Everything from small companies you never heard of to IBM. And so, you know, spent eight years there; four years on Ame–New York, and then their American operation. The American mostly traded options at the time but there were stocks being traded there as well. It wasn’t as automated as the New York so they were looking to expand their operation there, and so I went over. There was a small specialist operation there. Like I said, it was probably, you know, 60-75% options, and, and some stocks, you know? Lesser value stocks that didn’t make it to the New York. So it was more opportunity for growth there. So that’s why…

Preston Pysh 7:04
I find that really interesting about the offices (*inaudible*) being 75% of the–wow!

Greg Pisani 7:08
Yeah, yeah.

Stig Brodersen 7:08
So Greg, let me actually ask you cause, you know, I’ve been really, I’m really delighted that you are on this show. I used to be a commodities trader myself. So it’s really interesting to talk to a guy like you. And as you probably know, this is really a world that a lot of–a few people get to experience firsthand.

Greg Pisani 7:27
Sure.

Stig Brodersen 7:27
But there’s a lot of myths about working on Wall Street. I don’t know if that’s because there were so many money involved. But, but Greg, how do you…would you like to tell us about a typical day? I mean, how is it? A typical day on Wall Street?

Greg Pisani 7:41
So, so I think the day is, it’s kind of interesting, you know, you make your way down to downtown, right? Whether it was in the New York or the American, doesn’t really matter. Everybody gets their little breakfast, right? Mine was coffee and a muffin. You get to the booth, right? You’re standing all day, right? You’re not you’re not sitting at a desk. And these were literally booths. The ones on the New York were circular or oval, and you’re behind the counter. The ones on the American were like a long counter style almost like a delicatessen.

Preston Pysh 8:16
How big’s the room? Is the room like about the size of a football field or something?

Greg Pisani 8:19
So, you know, it looks bigger than it is. But I believe the New York’s main room is pretty large. It’s probably half the size of a football field. But it actually is multiple rooms. And I’m, I’m presuming because over the years, it expanded because more stocks came in, right?

Preston Pysh 8:37
Yeah.

Greg Pisani 8:38
So they basically had to build more rooms out. And the American is not like that. American was one huge space with some smaller areas that were non-trading areas. And, big building, you know? Above that’s all offices, right? And a lot of them are part of the SEC offices. Firms have offices. So, you know, but it’s…each, each place is a little different. You know, so you’d, you’d get, you’d come in, and the day before you basically reconciled the, the accounting for the stocks that the firm bought, right? Because you also buy and sell for your firm because you have to make money, right? And the only way to do that is buying and selling the stock for what you trade. And most of the, let’s call it stake– (*inaudible*)

Preston Pysh 9:23
Regardless of the price, it’s just the transaction.

Greg Pisani 9:25
Exactly.

Preston Pysh 9:26
Yeah, yeah.

So you know, there’s stations, right? And each station has, in my day, they had very simple almost look like the old Apple Macintosh computer screens: black background with green text for the, for the price range for the stocks–

Greg Pisani 9:44
Dinosaurs outside, and all that kind of stuff.

Yeah, we had regular computers behind us. And they basically, were anything we’d want to look at. Like Bloomberg or whatever was going on as far as news, news feeds.

Uh-huh.

Right? At the time when I changed over from New York to American, American was still on paper. So you got both electronic orders and paper orders getting out of this. I don’t even remember what the name of the machine was that spit out the orders, but it had a name. And the American–and the New York was fully automated, right?

Preston Pysh 10:18
Okay.

Greg Pisani 10:18
With more modern technology because…

Preston Pysh 10:21
Yeah.

Greg Pisani 10:21
Money was really there.

Preston Pysh 10:22
Yeah, yeah.

Greg Pisani 10:23
So you get in you, you had paper books that had carbon copies below them, and two sheets: the main sheet and the carbon copy because that was your record. And basically, the top sheet you tore each day or during the day. You sent up to the, basically, the trading floor for the specialist firm, where they would reconcile the trades that you made on behalf of the company. And so you get ready, you know? You’d start looking at the screen. See where the stock closed. Orders were able to come in, right? So if you close that, let’s say round number $10, you’d get orders coming in at nine and seven-eights, you know, nine and five-eights, nine-and-a-half because it’s all traded in eights (*inaudible*). And then, you get in orders coming in at ten-and-an-eighth, tentatively (*inaudible*), you know? Quarter. You know, up and down range, and then, then you’d have stuff meet in the middle. And that’s where you most likely open the stock when the bell rang right at 9:30. So it’s all preparation, so you kind of see what’s going on. And if there’s news, it will impact what’s going, what’s going on as well. But each of the stations, you know, had a broker and some had a clerk as well. And you could have anywhere from one stock, which would mean that it’s something busy like IBM on the New York was one stock traded with one broker and one’s a clerk. So it was so busy, when I was there.

Preston Pysh 11:44
Oh, they, they weren’t handle–they weren’t handling multiples. They were just handling that one pick.

Greg Pisani 11:48
Impossible.

Preston Pysh 11:49
Wow.

Greg Pisani 11:50
And then, but then you’d have, you know, someone with three stocks. Maybe they had an AIG and a couple of smaller firms. Then, or someone else had Boeing, so it was one of the stocks they had as well, Spirit Leads. Or on the American, I think at one point, we had up to 10 stocks, I had a station. So, you know, you’re not talking about high volume…

Preston Pysh 12:12
Yeah.

Greg Pisani 12:12
Like a dollar. It could be, you know, something that’s trading at $1, $2, $3. Just kept fuel (*inaudible*).

So Greg, you, you said early on that the– so you’re looking at the buy and sell orders–and then you, you as the manager of that was kind of picking at where that was going to open up based on where things were.

Yeah. So you could, so and it’s all based on your position too, right? So that’s where some of this stuff will get into as we move, move along in the question is that while we think that everything is fluid and it’s based on the economy, and news, and stuff. The specialist broker has a lot of control. It’s almost like, you know, wrangling cattle, you know, you can let them run free and roam or you could actually pin them up in certain areas, and, and you control them. So, and it’s based on your position, especially if you bought a ton of stock the day before or the few days before.

Preston Pysh 13:01
Yeah.

Greg Pisani 13:02
And all of a sudden, you see, there’s bad news. A lot of sell orders coming in. Whatever.

Preston Pysh 13:07
Yeah.

Greg Pisani 13:07
You’re just gonna push it down. And then, you’re going to be like, “Oh, man, you know, I really, I’m holding the 50,000 shares of this or whatever, what do I, what am I going to do here?” So you could open the stock up, you know, you can’t, you couldn’t buy stock on a straight up tick or plus, right? Because, you know, you had to let other folks generate the initial uptick, then you could buy, right? And the same thing on a downtick right, on a minus you can’t sell on the first minus tickdown. Because it just, they’re just policies and guidelines that, that control it for the specialist firm. You have to have someone else. Now you can be part of a buyer’s sell. You cannot initiate them (*inaudible*). Like if I know the stock is gonna go up, you know, I can’t buy everything at the next, you know…

Preston Pysh 13:54
Yeah, yeah.

Greg Pisani 13:56
You guys understand?

Preston Pysh 13:57
Yeah, that makes sense.

Stig Brodersen 13:58
Yeah, yeah. So how long were you typically holding onto the stocks? I mean, it sounds like it was hardcore trading. So it’s clearly not one of those Warren Buffett’s hold for 10 years kind of thing you were doing

Greg Pisani 14:09
Not at all. So this is, this is probably the most, you know, it’s like investors on ADHD or whatever.

Preston Pysh 14:15
Oh, geez!

Greg Pisani 14:17
Right, the floor is not like personal investing. That’s why you could say it is a microcosm, and you don’t really understand it till you work there. That that markets are changed and shifted, especially in small firms, you know? It, there’s a lot more flexibility because the level of scrutiny. And then in IBM, you could not do that, right?

Preston Pysh 14:34
Yeah. Because the volume of trade. Yeah.

Probably…I forgot what they used to call the guys on the floor that used to work for the firm; who’d work for this exchange that would monitor that, right? There’s a whole budget. And, and the bigger the stock, the more volatile the stock; the more important the stock, the more scrutiny you got in terms of, you know, what you can and can’t do.

Yeah, so Greg. The, I mean, just listening to this. You mean there was a lot of stress going around. So how do you, how would you deal with that stress on a day-to-day basis? I mean, is, is it as as stressful as it sounds? Or is it not, not as bad as it sounds? Or what?

Greg Pisani 15:14
You know, it’s basically, I would say, for the most part, it’s not the stocks; the trading. It’s not the, you know, any of that sort of thing; the mechanics of it. It’s the people, right? So it’s the other brokers. It’s the, you know, the job you have to do for the firm you work for. When things get busy, people act stupid, you know? So for the most part, I handled it well. I, I can say the one time that the stress level got pretty high, had nothing to really do. It was a busy stock. I think it was Cheyenne, which was a software company. It did, could, could do a couple million dollars of, of shares in a day. That was on the American. You know, one time, I remember everyone getting kind of crazy. And another broker, who worked for the firm coming over trying to, an older guy was trying to get in my, my stuff, right? And then there was a huge crowd out in front of me. And I basically stopped trading and told everyone to shut the–

Stig Brodersen 16:14
You did?

Greg Pisani 16:16
Yeah. I just–I, so I mean, if you do that today in an office environment and ours, probably not. But yet, for there, no one really thought anything of it other than they shut up. And cause they were basically impacting my ability to trade, right?

Preston Pysh 16:31
Yeah.

Greg Pisani 16:31
Not only for the, for the firm, but for their orders. Orders are coming in. They’re throwing them down. The paper orders were the worst thing to have to deal with because they were handwritten. And you had to figure out, you know? A 100,000 shares at a certain price, you know?

So that was probably the most stresssful day, I still recall. Other than that, I don’t really recall anything. You know, if it was bad enough, we probably go out for a drink afterwards, and ended up we forgot about it (*inaudible*) cause what–trading day in, trading in, there’s no homework, right?

Preston Pysh 16:47
Wrong comma.

Yeah, yeah, yeah.

Stig Brodersen 17:01
Oh, yeah, yeah. Well, let me ask Greg. Well, I think you lasted longer in the game than I did. I was 28, when I quit, man. And, to be honest, I was not one of the–clearly I wasn’t one of the old guys, but I wasn’t one of the young guns either, even though I was only 28. Cause trading is really a young man’s game.

Greg Pisani 17:23
Sure.

Stig Brodersen 17:24
But what was your experience? I mean, how many years did you experience your co-workers to, to hang in there?

Greg Pisani 17:31
Well, you know, people have different reasons for staying there, you know? You’ve got guys who would want to work their way up the chain and either were, were favorites; they weren’t favorites, a lot of that going on. I mean, it’s about as old-boy network as you get, right? So, but on the other side, you know, so I had friends on the New York Stock Exchange before I ever got there. So when I came in, there was a bunch of young folks; came in as clerks and then moved up through the ranks. And the older guys were still there for the firm, and they stayed there for the firm. They were there, they were longtimers, right? So, and I don’t know how long. But I do know, personally, a family friend that I grew up with, from gosh, what age, I don’t know. Jim, Jim Henderson, who owned Henderson Brothers, was probably the biggest mall firm on the New York. Him, his sons were all there. And he’s, he was a very well-respected man. That guy spent, I’m guessing his entire life there…and is still there, and still has friends that worked for–they were absorbed by another company. So…but yeah, so you get people that come in and couldn’t handle it and left. Then you’d have people who would, for the most part, you know, stick it out for a career. And then…

Preston Pysh 18:43
So it was kind of a split, you know? You’d see it then (*inaudible*). Okay.

Greg Pisani 18:45
It was. It was a wide range, right?

Preston Pysh 18:47
Yeah.

Greg Pisani 18:48
It was tough to sink your teeth into for the most part, so you really had to be in it. And I guess you had to have a certain demeanor; to not let it get to you because for the most part people did get kind of hot and bothered about certain aspects of the trading. But for the most part, I’d say, you had a range of, of longevity in that business.

Preston Pysh 19:08
Okay…Greg, so I got a question for you. For a lot of people, they might not understand the reason why people even exist on the, on the floor of the exchange anymore.

Greg Pisani 19:16
Sure.

Preston Pysh 19:16
Like why not just have…everything like the Nasdaq, where it’s all electronically traded at this point.

Greg Pisani 19:22
You know, so…it’s interesting. I guess, Nasdaq, I’m not sure when Nasdaq came into existence. But it was, might have been either shortly before I got on the floor, or while I was on the floor. And a lot of people question, you know, “How are they gonna do that electronically and so on and so forth?” I guess. I think there’s two answers, right? One is having a human down there to monitor the situation outside of the trading gives it a little bit more connection to people who invest, you know? Retail, right? You send in an order: Merrill Lynch, Goldman Sachs; however, you, whoever you use filters through their retail desk down to the floor. A Merrill Lynch broker gets the order. You’re part of another thousands of orders, shares of say, you’re going to go buy an IBM, right? You know, someone comes in with a–you come in with 100 shares. Someone comes in with a thousand. Gets all put together. Person goes to the booth with 100,000 shares, they know they’re not going to buy it over $100 or what have you. And they sit, and they work it. So the machines can’t really work the trade. The orders come in. They get paired up, and, and they’re done, right? So you would literally have to break up orders into increments of different dollars where, you know, a broker would come in, and see what’s going on and determine that they should jump in now. Buy it all. Maybe break it up over the course of the next half hour or hour. Or step back. Stocks going, you know, too high, not worth buying at this point, right?

Preston Pysh 20:58
Like they have the ability to kind of personalize it more.

Greg Pisani 21:00
Exactly.

Preston Pysh 21:00
They can look over at the booth, and they see a big line of all sell orders, and they’re like, “Okay. Well, this isn’t…”

Greg Pisani 21:05
Yeah.

Preston Pysh 21:05
You know what I mean? Yeah.

Greg Pisani 21:06
The chronic (*inaudible*) order, is that’s all it is, right? A…there’s no control over that.

Preston Pysh 21:11
Yeah.

Greg Pisani 21:11
It’s very automated, right? There’s no, there’s no artificial intelligence system that controls those orders that come in and monitor. It’s very mechanical. So, and I don’t know exactly all the inner workings of Nasdaq, but essentially, that’s what it is.

Yeah.

And, and, so plus…you know–

Preston Pysh 21:31
So would it be safe to say that if you were a, an investor that had a very large sum of money that was putting down on a particular stock, you would want that human interaction to, to be the interface…

To make sure that you’re getting it at the price point, and maybe even take advantage of an opportunity if you saw an opportune time to even get it at a better price than what they had initially set?

Greg Pisani 21:41
I would.

Exact–exactly.

Preston Pysh 21:52
So you’re kind of getting that custom-touch by going to the…yeah.

Greg Pisani 21:55
So it works. It works, it works for the specialist firms, and it also works for, you know, big investors, who have, you know, folks on the floor that can say, you know, “I’m buying, you know, thousand shares of IBM or more more. But hey, look, AIG is going, going wild. Maybe I need my guy to go over there and buy something else, right?’

Stig Brodersen 22:17
Okay, great. You know, I’ve been really looking forward to asking this question because clearly working on Wall Street is a, is a subculture.

Greg Pisani 22:25
Yeah.

Stig Brodersen 22:25
But hopefully you can give us a rare insight. Could you share the funniest story that you have experienced on Wall Street?

Greg Pisani 22:32
Yeah, sure. So…the one that comes to mind other than the one of me screaming at all the other brokers because it wasn’t funny at the time, was…I don’t even know what was going on, you know? It was a busy day. We had a couple of oldtimers on the American working with us. You know, this was their whole life. And they were very, I don’t know, very rigid, jaded, structured, and set in motion. And we brought in some younger guys. Younger than me at the time because I was in my…I might have been 30-31, when I was on the floor. I think somewhere around that age, when I started. So we had a couple of younger guys, which, who were not as disaffected as today’s generation, but didn’t quite get the older guys, right? And I did, and I had a good rapport with them. So something was happening one day, and this guy; young guy, I don’t even remember his name. I remember his face was…was the clerk for one of the older guys, who, who stood to the two older guys; stood next to each other, right? And something happened. He got mouthy with them. And something to do with trading–should have done this; should have done that. I don’t know what. So he called one of them, not–he didn’t curse at him, but he’s called him something. I think the last guy’s name was Matricely, and he, he was a hehe, big heavy guy, and he called him “Mattress Belly,” and so…

Stig Brodersen 24:02
Classy.

Greg Pisani 24:03
Matress Belly, he basically tried to grab the kid. He took off. And our post was like I said like a deli counter with the two of them running around the counter on the middle of the trading floor, yelling at each other. Somebody had to intervene and to stop it.

Preston Pysh 24:19
And there you were.

Greg Pisani 24:21
Yeah, it was a joke (*inaudible*). Like, I mean, where does that happen, right? In an office? It doesn’t.

Stig Brodersen 24:27
No way.

Greg Pisani 24:29
Nobody thought too much of it, but–

Preston Pysh 24:30
It sounds like a cartoon.

Greg Pisani 24:32
It was. It was pretty comical. And obviously, he never caught him. That guy was an older, heavy guy.

Preston Pysh 24:38
You don’t think he lay down on a mattress afterwards?

Greg Pisani 24:40
Yeah.

Stig Brodersen 24:41
Oh, yeah.

Greg Pisani 24:43
Yeah…that was probably one of the funnier things that happened.

Preston Pysh 24:45
Oh, geez.

Greg Pisani 24:46
There’s probably many, but you know, we were talking. I left the floor in the 90s, so I have distinct memories of certain things, but other stuff, I didn’t move (*inaudible*). That was pretty humorous.

Preston Pysh 24:59
Oh, nice! So and people might not realize this, but Greg, so Greg works for the government now. And he handles all the finances for a acquisition office. And he handles over a billion dollars a year. So Greg is quite accomplished. He’s, he’s moved on to a lot of, of different things, since working on Wall Street, where he had his own business, and now he’s doing this. And so he’s got a lot of really kind of neat stories. But, so I’m going to go to the next one here. This is the one that Stig and I like to ask all the different people that come on the show, but what’s the best inve–investing advice that you have ever received, Greg?

Greg Pisani 25:32
So I would have to say, and I wish I could remember this guy’s name. He was on the New York Stock Exchange. He was one of our senior specialist brokers. Maybe it’ll come to me. Italian guy, but this guy was a cool cucumber, man. He was like you reminded me of who Chazz Palminteri a little bit, but an older version of him, and he was always calm. And his thing was be patient. Just be patient. Whether it was trading for the firm; for your leads; whether it was trading for himself, he just, his demeanor was calm, and cool, and collected. And basically, that was just who he was. And, and, and that was, so be patient.

Preston Pysh 26:21
I love that.

Greg Pisani 26:23
Yeah.

Preston Pysh 26:23
I’m serious. I, I love that advice.

Stig Brodersen 26:26
Yeah.

Preston Pysh 26:26
And just in, in, just in your normal day life, too. Like not even talking about investing. Like–

Stig Brodersen 26:32
Yeah.

Preston Pysh 26:33
Yeah.

Greg Pisani 26:34
And that’s how he was. I mean, you, you saw this. He was suave.

Preston Pysh 26:37
Yeah.

Greg Pisani 26:37
Well-dressed. I mean…

I need to be more like that.

Tinted sunglasses, right? Just like graded, reading (*inaudible*) sunglasses. So I think his name was Joe. And it was something Italian. I can’t remember. But the guy was, I distinctly (*inaudible*) remember him.

Preston Pysh 26:51
I love that.

Greg Pisani 26:52
Be patient.

Stig Brodersen 26:54
Wow, that is really good advice.

Greg Pisani 26:56
Yeah, for anything, right? I mean, no matter what you do.

Stig Brodersen 26:58
Oh yeah.

Greg Pisani 26:59
Before you make a decision. When you buy, and hold something, and watch it, you know? So.

Stig Brodersen 27:04
Yeah. Well, Greg, let me ask this of you. We really like to discuss great books and especially investment books. Do you have any books that influenced you perhaps in particular, that you think our audience would appreciate?

Greg Pisani 27:19
Sure. And I’m going back to…this guy again, Joe. Right? So he used to carry this one large book around, right? Large hardcover book, little torn and tattered. And…he didn’t talk a lot. But, you know, I worked for him for a little while; right next to him for a little while, and, and I asked him, you know, “What is that?” No one ever even asked him, you know, what that book is. I guess the other senior investors knew what it was, but it was–and I looked it up. I haven’t thought about it for a while except for a couple times in my current job. So it was called Japanese Candlestick Charting Techniques, and the author is Steve Nison. N-I-S-O-N, right? So I, I didn’t know what it was at the time. And, and Joe shared it with me, and basically what it was is it’s a, it’s a technical approach to pattern analysis…or, and I looked this up pretty much for any type of security derivative currency, what have you, right? Any type of traded thing. And, and so basically, they, they think it was first used in the 1800s in Japan by rice traders, right? They developed this technique. And I don’t know all the history of it, but basically it was, it was a pattern occurs over time, the more data that you pull together. So one of the little excerpts from the book, and I went back and looked at this was that if you had a, had ten candles in a row, and you lit them all time, they would burn differently, right? But then if you put another ten next to that, and another ten, another ten, a pattern would come out, right? So it’s interesting because I didn’t quite understand it back then. It was kind of philosophical, right? It was a little highbrow, and that’s what this dude was, right? He was very, like I said, very cool, very interesting approach to things. And this was his kind of way he did stuff. But you can’t use it alone in a vacuum. I think you have to combine it with other analytical tools.

Preston Pysh 29:30
Yeah.

Greg Pisani 29:31
Because it’s not in itself–you need something to feed that to determine the pattern.

Preston Pysh 29:37
And just so everyone in the audience knows. So everyone knows Stig and I are extremely hardcore Warren Buffett, long-term value investors that would buy a pick and hold it as long as we possibly can. And I think what Greg is talking about here is something that could be beneficial to a person who, you know, if you’re listening to us, and you’re more of a short-term investor or something like that, the book might be a fantastic tool. And even if you’re not, I think the book might be something that’s interesting to consider just so you kind of understand that aspect of it.

Greg Pisani 30:08
Right.

Preston Pysh 30:08
Right! So you can marry up three things: interest rates, earnings, you know, and then something particular to the industry.

You know, I’m of the opinion that the more vantage points that you understand about a particular area of interest, the more informed you are, and the more intelligent you become, and you can make better and more informed decisions. So, you know, reading something like that, and, and understanding the pattern analysis, and even if you were applying it to boom-bust cycles, you know? If you were looking at, okay, what is the critical variable or some of the critical variables that causes the market to collapse? You know, I’m of the opinion that interest rates is probably one of the biggest critical variable for that to happen. So, you know, you could apply that there are some of the maybe the things that you’d learn in that book that, that Greg’s highlighting to the pattern analysis of how interest rates work, and, and how they interact with the market, you know? Very interesting.

Yup.

Greg Pisani 30:57
And then you’ll probably see a pattern within the patterns, right, if you layer them together. So I just found that really interesting. And, you know, it’s a level of detail you could apply to short term, long term, and in almost in anything, where there’s a consistent occurrence of something,

Preston Pysh 31:17
Okay. So, Greg, really appreciate everything that you’ve taught us and, and talked about. I mean, it’s really interesting to be able to talk to somebody who’s been there and done that on the floor of the New York Stock Exchange, so really appreciate that.

Greg Pisani 31:31
Pleasure.

Preston Pysh 31:32
At this point Stig and I are going to go ahead and answer one of the questions that we had that came in on the website. And if anyone out there wants to send us a question and get it potentially answered on the show, go to asktheinvestors.com, and you can submit your question either by recording it and sending it to us, or you can type it up, and send it to us. This one was typed up and sent. If you are going to record your question, try to make it as concise as possible and quick and to the point because if it’s too long, it’s gonna be hard for us to play it on the air. So with that said, I’m gonna go ahead and read this question. It comes from Brandon Klein. And Brandon’s question is, “If we were planning to hold a stock forever as Warren Buffett likes to say, and we’ve decided we can predict that the business will do well say, like 10-15% growth per year into the future, is it really that important to buy the stock at a discount to its intrinsic value because the stock price and IV will grow or the intrinsic value will grow year by year? So Stig’s going to go ahead and answer the question.

Stig Brodersen 32:29
Well, first of all, Brandon, let me just say that it’s a really great question you’re asking here. And it also gives me the opportunity to reiterate that the most important attribute for a stock is really the quality of the business. I also think that was your point, Brandon. You probably know the famous quote by Warren Buffett who was saying that he would much rather “buy a wonderful business for a fair price than a fair company for a wonderful price.” And I think that really much, pretty much capture this. But one thing I had to add here is that Warren Buffett, while he advocates that you should hold (*inaudible*) the stock forever, he actually rounded (*inaudible*) us that himself. And I’m not really saying that Warren Buffett is a hypocrite. Not at all. But what he’s actually saying is that you should have the mindset that you want to hold the stock forever. And the major reason for that is that you’ll have to pay capital gains tax, whenever you’re selling the stock. So, so that’s definitely a, an important aspect to, to think about. But let me give you an example of what it is that Warren Buffett is talking about when he’s speaking about buying a stock at a discount to the intrinsic value. For instance, let’s say that you buy a stock at a fair price, and you expect it to, to get in 10% annual return. By a fair price, again, that is related to the quote that is equivalent to the intrinsic value. So you saying the price of the stock is $10 and that is also the, the value of the stock. And say, “Do you want to hold that stock for 10 years?” But if you bought that stock at a 50% discount to the intrinsic value, you would get close to 18% annual return, instead of the 10% over that time period. And really, 18% compared to 10% over the long run, that really means the world.

Preston Pysh 34:21
Hey, I’ve got something I want to piggyback on what Stig said cause he’s exactly right. So if you can buy it, let’s say you think it’s worth $10. And you can get a 10% return using a discount rate that would give you that $10 price point. If you can go ahead and buy it at five, okay, you’re able to increase that return significantly, okay? And what you’re doing when you do that, it’s almost like you’re able to warp yourself back in time. It’s almost like you could say, “If I would buy Berkshire Hathaway right now, I know that it’s trading for like $135, $140 right now. But if I can buy that at $100, that’s almost like I went back three, four years ago and was able to buy the stock at that point in time. And so then you’re able to basically get more compound interest out of it. So that’s just a different way to look at it. I mean, if you can buy something for a 10% yield, that’s fantastic or expected 10% yield, but if you can buy it an even cheaper price, you’ll even get a higher yield. So that’s, I guess the best way we can answer your question, Brandon. And we really appreciate you typing that up and sending it to us. So we’re going to send you a free signed copy of the Warren Buffett Accounting Book. And we just really hope to have more questions like that in the future and to be able to interact with the audience. So that concludes our show for today. Again, we want to say thanks to Greg Pisani for joining us, and we hope to see you next week with our next episode. So thanks for joining us.

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Extro

Thanks for listening to The Investor’s Podcast. To listen to more shows or access to the tools discussed on the show. Be sure to visit www.theinvestorspodcast.com. Submit your questions or request a guest appearance to The Investor’s Podcast by going to www.asktheinvestors.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP network and must have written approval before commercial application.