Watch out, stock market,, here come the SOES BANDITS

And they're ready to make money the old-fashioned way: By outsmarting the big guys.

It was when Houtkin was starting to preach the gospel of SOES that Block dialed him up. He listened to what the man had to say, even if at first he didn't take him too seriously. He and his University of Texas classmate, Jeff Burke, were making good money at Lehman Brothers and they were only three years out of college. Of course, they weren't exactly playing the market, either. All they were doing was pitching the company's products, often to strangers, and taking a lot of rejection. Every morning, Block and Burke would check out stock prices on the computer screen and see what they were missing.

So when Chris Block flew to see his parents on Staten Island on Thanksgiving of 1991, he decided to check out Houtkin's basement SOES operation in suburban New York. Block was impressed, but the market was good when he got back to Houston and there were sales to be made. Then the market went down and so did his commissions.

"Harvey had given us the mushroom talk once again, and that opened our eyes," recalls Burke. "We were just glorified telephone salesmen."

Maybe, Block and Burke decided, it was time to make a move. In March 1992, they quit their jobs and drove cross-country to Staten Island, where they lived in Block's parents' beach house and commuted one hour a day to learn the secrets of SOES banditry from Harvey Houtkin.

Burke caught on to the trading faster than Block, while Block had more of an aptitude for business. It didn't taken the pair long to figure out that they wanted to do more than just trade. They wanted to set up their own SOES brokerage. Block returned to Houston and did something he already knew he was good at: cold calling. Going alphabetically through the yellow pages, he called brokerage after brokerage and got nothing but rejection until he hit the "t"s. Texas Capital on the third floor of the Galleria would lease him a room in the corner of its retail space. Block set up two computers on a card table, plugged into NASDAQ and called Jeff Burke back to Texas. In November 1992, Block Trading got off the ground with their first SOES trade.

All the traders agree that the only way to become a SOES trader is to watch one in action. Burke was part of Block Trading not only to make money off SOES, but to show others how it was done. The pair added computers and new traders, some of them their friends from college and high school. "We have traders from sales, former accountants, brokers, from all walks of life," Block says. "We have people making $20,000 to $40,000 all the way up to $300,000. The market makers never anticipated what would happen. Now they are cursing us."

There is a picture of Block and Burke at a Halloween costume party a couple of years ago when they dressed up as the Blues Brothers. In fedora hats, blue suits and dark glasses, Block is a perfect John Belushi, and Burke fits as the earnest, self-contained Dan Aykroyd. It's a telling photograph, because Block and Burke's operation has a similarly improvised quality, as though the two were making it up as they went along, just putting on costumes and going to a party with a bunch of friends. Now, four years into Block Trading, with nine offices and a small army of SOES traders working them, Block and Burke are dressing up as tycoons. They wear double-breasted suits to work and prop their feet up on the conference table of their corporate offices, cluttered as a sophomore dorm room, on the tenth floor of the Galleria financial tower. Just across the hall are the immaculate, gleaming wooden doors of Merrill Lynch, and the juxtaposition makes it clear that this is not just a battle about profits, of insiders against outsiders, big guys against little guys. It's a battle of cultural styles. And so when Block and Burke take out $30 Havana cigars to pose for a picture on the trading floor, you can tell that they're serious enough not to take themselves too seriously. And that, as far as the big guys are concerned, makes them dangerous.

Another reason they're dangerous is that Block and Burke, like Houtkin, have become evangelists of the SOES faith. Stephanie Clark is one who heard the message and believed. A year ago, Clark was working as a sales assistant at Oppenheimer, posting the sales of $3 million-a-year brokers and earning a nice salary, with bonuses if her brokers had big years. Not bad for a single, 27-year-old with two years of junior college.

But Clark couldn't help watching the fluctuating stock prices on Oppenheimer's computers. She knew more than the average sales assistant about the money to be made from those flickering screens. In 1992, she had been the first employee of Block Trading. She worked as an inputter, taking orders from traders and sending them on their electronic way. Inputting SOES trades required a cool head and a quick hand, and Clark had both. Still, she decided to try working with a big brokerage. But after a few months at Oppenheimer, she was itching to leave the retail brokerage and try SOES trading. Last summer, after finding three investors who staked her to $100,000 in trading capital, she bailed on Oppenheimer and knocked again on the door of Block Trading.

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