Behind the Counter

tales of brokers, both stock and pawn

There is over the counter and under the counter, of course, but my favorite is behind the counter--getting a look at the world through soda-jerk eyes. Two jerks who've allowed me behind the counter are my stockbroker and my pawnbroker. Although they serve opposite ends of the financial spectrum--from the wealthy to the penniless--they are equally quick-witted and warmhearted. Neither is, in fact, a jerk, and I've learned a lot from both.

I have learned, for example, what rich is.

"Rich?" laughed my stockbroker, when I suggested that he was. "You want to know what rich is? I have this one guy, Forbes 400, who----"

"Wait. You have a client who's in the Forbes 400?"

"No matter what stock it is, practically, he's got some of it."

"You have a client who's in the Forbes 400?"

"He's got so many stocks, he can't even remember them all. One day, I asked him what he thought of Texaco."

(This is how my broker does research. He asks his clients what they think. He gets them to do research for him.)

"How did you get a client like this?"

"So I ask him about Texaco and he says, 'Texaco. I think we got some of that. I can't remember. Sid, get the book.' That's what he says--'Sid, get the book.' So Sid comes over with the book and the guy goes, 'Texaco, Texaco'--you know, paging through it. 'Oh, yeah. We got 15,000.' Can you imagine not remembering you had 15,000 shares of Texaco? That's rich. I love it--'Sid, get the book.'"

But how does a lowly stockbroker with no fancy credentials--just a desk and a computer terminal out there on the floor with a couple of dozen other brokers--get clients like that?

Lesson Number One: Just Show up for Work

"I have this one client," says my broker, "who does, like, $1000 in commissions a day----"

"A day?"

"Yeah, and he----"

"So you make $100,000 a year from that one client?" My broker makes vastly more money than he would have you think.

"No, it couldn't be that."

"A thousand a day for 250 days----"

"Stop counting my money!"

"Is $250,000, and you get 40 percent of that--that's $100,000."

"Nah--no--anyway, it's only been a couple of months. So he----"

"A thousand dollars a day in commissions? Who is this guy?" I ask.

"What difference does it make? What I was telling you is that----"

"How'd you get him as a client?"

"Gu-hah!" He brightens, suddenly willing to talk. "You wanna know?"

I want to know.

"The day of the hurricane, he wants to do some commodities business. He calls here, I'm the only broker who's come in--everybody else is staying home; a lot of them live out on the Island or someplace. He says he knows the stock market's closed, but the commodities are trading out in Chicago, and he says he's called every brokerage firm in the Manhattan phone book--like, 20 of them so far--and I'm the first one who's answered. So he gives me the account."

All my broker had to do was be there.

"So you do his commodities business and his regular broker does his stocks and bonds?"

"I don't think so," he chuckles contentedly. This is a phone conversation, but I can see the creases of amusement in his eyes. He has apparently landed this man's entire account. It amuses him that he has had this success not by being so smart--everybody is smarter than he is, he insists--but by being dumb enough to take the bus to work, as usual, in a hurricane. Other big brokers have their limos; mine takes the bus.

Lesson Number Two: Don't tell clients you're Smarter than they are

"You're so smart!" my broker is always telling me. "What do I know?" he's always shrugging. "You've got so much money, the banks are charging you storage." All that, while doubtlessly chuckling in the knowledge that he hasn't done badly himself (not smirking; chuckling). This, it has been pointed out to his amusement, is the Stepin Fetchit school of broker/client relations.

Even as a child, he played dumb. Only his college-board scores gave him away.

"I'll never forget how mad everybody was," he says. "All the kids were lined up outside the headmaster's office to get their scores and talk college. When it was my turn, the headmaster was so angry he was shouting--everybody could hear him."

His parents were furious, too. Seven eighty-one on his math aptitudes and 691 on his verbals--they were really pissed. Here he'd been getting mediocre grades all these years, distinguishing himself not at all, and it turned out he was a damn genius.

"Oh," he remembers asking defiantly. "If I had gotten 300s, you would have been happy?"

But back to the hurricane.

"I get home that night and my wife says, 'You went in to the office today? In a hurricane? You're out of your mind. You're crazy! You must have been the only broker in New York who went to work today.'"

Yep--and it added $100,000 a year, or at least $40,000 or $50,000, to the cookie jar.

Lesson Number Three: Don't Judge a little old lady by how old or how little she is

"Do you have a lot of widows?" I once asked him. Widows are generally a large part of any retail broker's business.

"Well, I used to," he surprised me, "but not so much now--I don't have the patience. I have a friend here in the office who helps me with that--she's incredibly patient; she's great with these people. But have I ever told you the story about ----[not her real name]?

"My parents had given me season tickets to some concerts and every month we sat next to this little old lady. That was the only way we knew each other, from sitting next to each other, but she was very nice. She was about 85 years old and two feet tall. And at some point, she asked, 'What do you do?' and I told her and she said, 'That's very interesting. I like to trade options.' She wanted to open an account with me, and I told her I was sorry, but I wasn't really eager for that."

"You didn't want a new account?"

"With a person of her age, if she makes money trading options, she keeps it; if she loses, she complains she didn't understand what the broker was doing, and the brokerage firm has to give it back.

"But she said, 'That's OK. You don't have to worry about me.' So we went back and forth a little bit--I really wasn't very keen on this--and she kept saying, 'It's OK. You don't have to worry about me.'

"So she came in to the office and I had her meet the office manager and we took lots of notes about her financial position and all and then opened an account and let her trade options. She was a riot. She'd call up, two feet tall, with a voice [he imitated her hoarse, willowy voice]--I always knew instantly who it was--and she'd say, 'I'd like to buy some options.' Or she'd say, the way you picture a grandmother asking a little boy if he'd like some candy, 'Could you send me Du Pont's 10-K [the detailed annual report companies file with the SEC]?' And, boy, was she smart!

"But most people lose money on options, and I was worried about how it would look, us letting an 85-year-old lady do this--we're supposed to protect our customers from inappropriate investments--so even though she had about $1,000,000 and beautiful houses, and so on, we pretty well kept it down to positions of, you know, maybe $2000 bets.

"Eventually, I came to find out who she was--she was ----'s aunt. You know, the big arbitrager."

"Oh! You mean he was giving her tips?"

"No! I think she was giving him tips! She was so smart. But that's why I don't want you to use the real names. There was no connection between the options she was trading and the deals he was doing--she just liked to follow the market and trade options--but some people might immediately assume there was a connection. There wasn't.

"Anyway, she never made a killing, but she did make money, and with options, that's unusual. She died not long ago, well into her 90s. She was really great."

Lesson Number Four: 240 Percent Interest needn't be Usurious

Not all nice old ladies are so financially sophisticated.

"I had this one customer named Ruthie," my pawnbroker was telling me. "She came into the shop the first time with a huge old black-and-white console TV--I practically herniated myself getting it out of her car and into the shop--and I gave her $15 for it. The way it works, she would have 30 days to come in and buy it back for $18, or we'd be free to sell it, probably for a lot more."

"So the extra three dollars she pays to get it back is interest?"

"Heavens, no!" erupts my pawnbroker in mock horror. "That would be usury." (Three dollars on $15 is 20 percent; 20 percent a month is 240 percent a year simple interest, 791 percent a year compounded. On the other hand, it is also only three dollars.) "We don't charge interest; we enter into purchase-repurchase agreements."

If the customer repurchases the pawned item, the pawnshop makes 20 percent in a month (well, three dollars). If she doesn't, it makes an even bigger killing, selling the item not for what it paid ($15 in this case) nor for the repurchase price ($18) but for $35 or $40 or more.

Ruthie retrieved her TV by the end of the month, having, in the meantime, used her $15--"bridge financing," Citicorp or Merrill Lynch would call it--to pay her electric bill. Not long afterward, she showed up with the TV again.

"Every few weeks, I was loading and unloading that huge thing, and finally I said, 'Ruthie, look. I'll give you the $15. You don't have to bring in the TV. Just don't sell it to anybody else. We trust you.'"

My pawnbroker is a bighearted young man, razor-sharp, who just happened to start a pawnshop. Some college juniors take pictures for the yearbook, some audition for the all-male revue; my pawnbroker and a couple of partners found a conveniently seedy off-campus location and started a pawnshop. I've yet to have to hock anything myself, but when I do, his will be the (concluded on page 154)Behind the Counter(continued from page 143) place I hock it.

Suddenly, pawnshops are chic. The Wall Street Journal had a story about the good deals you could find shopping there. The New York Times called pawnshops "the latest business to discover the benefits of upscale marketing." A chain of pawnshops went public at the start of the year (stock symbol PAWN) at a stratospheric multiple of earnings. If you think we're in for really bad economic times, here's a great way to profit from the hardship. '"Twenty-five years ago, the customers were winos and the down-and-outers,'" The New York Times quoted Jon R. Boyd of the Texas Pawnbrokers Association. "'Today, we are seeing more middle-class and even upper-class people needing the services of a pawnshop. You can't go to a bank anymore and borrow $100.'"

Anyway, Ruthie would go in month after month for more money. There were a couple of other people working behind the counter, but she wouldn't talk with them; she'd go in and sit down and wait until my friend was free and then talk with him. He'd make her little loans, knowing it was money down the toilet but not having the heart to disappoint her. (No Rod Steiger, he.) She told him not to worry, she'd be getting a big government check one of these days and she'd pay it all back. Sure, thought my friend.

"She was into us for $2000 or $3000 and, well, I just couldn't say no to her. Thirty dollars here, $20 there--you know. She'd pay the interest when she could, but basically, this was just, well, I couldn't say no to Ruthie.

"One time, she asked to borrow $100 and left me a personal check for $120 as security. If she didn't come back in 30 days to repay the loan, she said, I should cash the check. She didn't come back, so I was going to deposit the check, but I figured I'd call first to make sure it was good. The bank put me on hold and then said the account had been closed five years earlier. So we just added the $120 to her tab.

"This went on for, like, a year and a half. 'Don't worry, Steve,' she'd always say; 'I'll pay you when I get my big government check.'

"Well, one day, she came in and said she'd like to pay us off. She had her government check. I looked at her like, you know [my pawnbroker squints and raises his left eyebrow until his head tilts, to show me how he was looking at her]. But she handed me a check, and I thought as I took it, Gee, maybe she's actually got $3243.81 from something or other--you know, some amount like that, which would certainly seem like a big government check to somebody like Ruthie. Well, the check was for $70,000. Apparently, it was her pension or something after 50 years as a cafeteria employee in the Florida school system. I couldn't believe it. We had this sign, We cash checks--that was one of our side lines [they also offered photocopying at 50 cents a page]--and she wanted us to cash the check.

"'Ruthie,' I said, 'we don't keep that kind of money lying around the store. Anyway, what are you going to do with so much cash? It's not safe.'

'"Well, you keep it for me,' she said. Can you imagine? I said, 'Ruthie, no,' and I took her over to a friend at E. F. Hutton and he put her in a Ginnie Mae fund."

E. F. Hutton would get four percent of Ruthie's $70,000, but the rest would be safe and would throw off a nice income.

"A couple of months later, she came in with her first check from E. F. Hutton. She was upset. 'What's wrong, Ruthie?'

"She said, 'I didn't want none of my money back, Steve.' She didn't want to touch that $70,000.

"I said, 'Ruthie, this isn't your money back, this is your interest!' All her life, she had known about interest only as something you pay others. I had to explain to her that this was interest that was for her.

"I haven't seen Ruthie in a while, but she was great."

To recap:

1. Never let a little old lady buy you a soda in a hurricane.

2. Pawnshops are better places to shop than to borrow.

3. Discount brokers are fine (I use one also)--indeed, they are often more efficient than full-service brokers and may even offer more services. But most full-service brokers offer substantial discounts, too, when prodded (go ahead, prod); and the good ones, even if they won't make you more money--and generally they won't--add a human touch you may not mind paying for (and from which you can contract no known disease).

4. Sure, you'd be better off in a couple of no-load mutual funds. But when was the last time one of your no-load mutual funds told you a good joke?

"Can you imagine not remembering you had 15,000 shares of Texaco? That's rich. I love it--'Sid, get the book.'"

"Most full-service brokers offer discounts when prodded, even if they won't make you more money."