In January 1987 I accepted a position to cover corporate banking for a
newsletter owned by Institutional Investor magazine. I had graduated from
college eighteen months earlier with a B.A. in English. I had worked in politics
since graduating. I had never taken an economics course during college or high
school. I had never read the Wall Street Journal. I had never owned a stock,
never owned a bond, and had never met an investment banker, a risk arbitrageur,
a CEO, or an analyst. Upon being led to my dingy cubicle on the fourteenth floor
of 488 Madison Avenue, I nervously eyed the telephone, the typewriter, and the
condiment-stained walls. I was certain I would be fired before the month was
Fifteen-plus years, thousands of business meals, and close to a million phone
calls later, I'm still covering Wall Street. The world has changed since my
early days in financial journalism — and not just because I no longer use a
typewriter. Wall Street and the stock market have taken over a rather large
piece of real estate in our national consciousness. Kids in high school can
rattle off the words behind the initials IPO, and CEOs have become celebrities.
Still, I think back to the winter of 1987 and how much I had yet to learn.
My first three months as a reporter were terrifying. I would have trouble
breathing some mornings, as though the stress of it all were crushing my lungs.
It wasn't just the pressure of having to call complete strangers, trying to find
out things they might not want to tell me. That can be tense, but I've always
found it an exciting challenge. The real tension derived from the fact that I
knew nothing about the field I was being asked to cover — even more so,
because I couldn't really fake it. There is a language of finance, a language
that belongs only to Wall Street. Though not difficult to understand once
explained, it is an idiom designed to intimidate. I was intimidated. But I was
also determined not to fail. I had no money. I was living at home in Queens
after having moved from Washington, D.C., and was not about to give up without a
fight the luxurious annual salary of $21,000 and the promise of an apartment of
Slowly, but with certainty, I learned about Wall Street. First came the
ability to speak the language, then the ability to understand it. I'll never
forget the first time I was able to ask a followup question after receiving a
particularly stupid but jargon-heavy answer. It took quite a few years, but in
time I gained some perspective on how Wall Street really works. I also managed
not to get fired.
I spent almost seven years at Institutional Investor. I started on the
banking beat, moved over to cover the stock market a year later, and became an
executive editor of the newsletter division a year after that. It was a
wonderful time in which to learn. I covered the heady deal days of the mid to
late 1980s, complete with corporate raiders and insider trading. I covered the
demise of the commercial banking industry, swollen with losses from failed
buyouts and real estate loans. I covered the emergence of capital markets in
developing countries in the early 1990s and at one point embarked on a
round-the-world business trip that still provides me valuable perspective to
this day. And then I made my move to television, joining a fledgling cable
network in September 1993.
When I joined CNBC, the economy was just getting roused from a deep slumber
and few of us had any idea how successful and influential our network would soon
become. My ambitions were fairly modest: I wanted to find out things before
anyone else and tell the world. And I wanted to make Wall Street accessible and
comprehensible to people who might have been much the same as I had been in the
winter of 1987.
This book is simply a continuation of that ambition. The same traits that
make a good journalist make a good investor. It really is that simple.
Skepticism. Curiosity. A penchant for research. Quick analysis. The ability to
sniff out a story. A nose for rumor and an ear for BS. The courage to go with
your gut when you're right and the prudence not to leap too soon.
Combing through balance sheets, cutting through the wellrehearsed
corporate-speak of company executives, discerning relevant fact from rumor (and
true rumors from false ones!) — these strategies and techniques are available
to any investor with a little gumption. And they're the same strategies and
techniques I used to break stories such as the takeover of MCI in 1996, United
Technologies' and GE's offers for Honeywell, the fall of Long-Term Capital,
Amgen's purchase of Immunex, and the death throes of Enron, among others.
The people I've spent my career getting information from share one overriding
ambition: to make as much money as possible. No doubt, they enjoy the challenge
of their jobs and the gratification that comes from a job well done. But of the
many thousands of bankers, traders, money managers, and brokers I've spoken to,
not one came to Wall Street in order to do good for his or her fellow man. In
fact, many of these same people do devote themselves to improving humanity after
their Wall Street careers have ended. But while they're working, their interests
are not always aligned with those of investors. So although I have certainly not
been curing world hunger during my time at CNBC, I have been trying to level the
playing field. I have tried to give anyone who cares to watch and learn an
opportunity to use the same information that is available to those who make
their considerable living working on Wall Street. There have been plenty of
wealthy people whom I have helped make even wealthier. That's the price of doing
business. But I like to think that there have also been people of more modest
means who have come to understand how Wall Street works and have used that
knowledge to help them make sound investment decisions.
I haven't always been kind to Wall Street and I won't be in this book,
either. I respect the men and women of Wall Street and within the business
community. I count many of them as my friends. But I'm not sure they're going to
like this book. In fact, it will be the ultimate compliment if they don't. And
that's fine with me.
In the fall of 2001, before the collapse of Enron became front-page news,
there was a maudlin but typically funny e-mail making its way around Wall
If you bought $1,000 worth of Nortel stock one year ago, it would now be
worth $49. $1,000 worth of BroadVision is now worth $22. $1,000 worth of JDSU is
now worth $52. Now consider this... If you bought $1,000 worth of Budweiser (the
beer, not the stock) one year ago, drank all the beer, and traded in the cans
for the nickel deposit, you would have $79. My advice... start drinking heavily.
Wall Street loves to proclaim "a new paradigm" where the old rules
don't apply. But that's never true. In the end, the old rules simply adapt, and
always apply. Because if we've learned anything over the past two years, it's
that stocks do go down. And when they do, the pain is ample.
Much of the information imparted in this book may help you make money. But I
can't guarantee that following my advice unfailingly leads to fortune. Still, if
information is power, and the ability to understand that information more power
still, this book should stand you in good stead. If you want to know how Wall
Street really works, if you want to know what your broker or fund manager is
really doing, if you want to know why analysts are sometimes dirty and short
sellers often are not, if you want to know how Wall Street frauds function or
the stories behind some of my best stories, then read on. It may not be pretty,
but I guarantee it will be worth your time.
Copyright © 2002 by David Faber