Let's go back to 1979 and fast-forward a few months after the Boston Commodity Broker from Hell episode. I occasionally glanced at the commodity futures contract quotes in the Wall Street Journal and noticed sugar kept climbing. So did gold. I couldnât take it anymore and decided to drive down to Merrill Lynch and walk out with some Krugerrands. I walked into the cigar smoke-filled office. Gold closed at $420 an ounce that day. I met Max, the sole commodity futures broker among a sea of stockbrokers.
Max was a serious looking, dark haired guy of about 45 years old who sat in the corner. He looked like he had been around the block a few times. He would become my commodity futures and options broker for the next year or so. I liked Max. They say the main reason you do business with a broker is because you like him. Making money is secondary. Strange but true.
Being a commodities futures broker, he said I should buy gold futures, not coins. (of course) I opened an account and funded it with $15,000. Commodity commissions were somewhat better at $100 a trade. Gold was quiet and in a correction, so I switched to cattle. I spent the next few weekends at the library looking up cattle prices and charting them. I drove the librarians nuts running up and down the cellar stairs pulling out the old Wall Street Journals. Poor things. But, I wanted to be a âmeatsâ trader!
Max called the shots and after getting permission for each trade, put in the futures day-trades for me. Over the next month or so he made about 25 losing futures trades in a row. All were small day trading losses. I was down about $3,000. I told him this couldnât go on. He agreed, but what could he do? Now that I think about it, most of the loss was made up of commissions. Twenty-five trades times $100 = $2500.
One thing that stands out to me is the flow of commodity news we traded on. This has to be the most confusing way to trade. I would sometimes stay on the phone for an hour as he gave me the results of the trade. Just like a horse race. One day I went short cattle futures because of some oversupply report on his noisy little real-time mechanical commodity ticker machine. I could always hear it rapping in the background.
The cattle futures market started to rally against me. He told me the news ticker said it was raining in the Midwest and, âthe cattle were in the mud and couldnât be brought to market!" I covered at a loss and went long. I donât remember the reason today, but that trade was also a loser. Then we decided to âdiversify.â I went long soybean oil because a hot story came through about soybean âcrushâ shortages. The futures market started dropping like a bomb and I was losing again.
He told me the commodity news ticker said a major crop processor had discovered a large quantity of soybeans that had been unaccounted for. It had potential to flood the market. I panicked out for a loss. Minutes later he said the report turned out to be a rumor and the futures market was rallying big. I bought back and lost again, of course. Max always held my hand after a loss. Whenever I had a winner, he always gave me credit and would say, âyouâ made a great trade. When there was a loss, it was, âweâ got hit. I always remembered that.
Part Four of Four - Next!
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