DAVID LENDER

Rudiger Comes Alive

 

Rudiger Comes Alive


Rudiger #1


A White Collar Crime Short Story


by


David Lender

Copyright 2013 © by David T. Lender

“We’re now a $1 billion hedge fund,” Walter Conklin said to Jim Stevens, a prospective investor sitting across the dining table.  It was mid-March of 2000.  “We’d love to have you as an investor.”

Stevens smiled and said, “The only reason I’ve hesitated is that I’ve got some concerns about risk with you being 100% invested in technology stocks.”

Conklin reached for the crystal carafe of wine and held it out to Stevens.  “I’m on the wagon, trying to lose weight, but you should help yourself.  It’s a good French burgundy.”

“Thanks,” Stevens said as Conklin poured.  Conklin watched him look around the private dining room of WGC Technology Fund: ten-foot high ceilings, Scandinavian-styled blond birch table and chairs, off-white wall fabric accenting the best of Conklin’s collection of modern art on the walls.  A dazzling view of midtown Manhattan’s Park Avenue from the windows of their tenth floor offices at Lever House.  “You’ve got quite a set-up here.  Your own Cordon Bleu-trained French chef and a private dining room.”

“We like to think of Chef Gerard as a productivity tool,” Conklin said, glancing over at George Trask, his Chief Financial Officer and only minority partner in the firm.  “When we first started out, George thought he was an extravagance, but now. . .”

Trask said, “This is the only private dining room.  The other dining room next door serves our 20 employees, where Gerard lays out a buffet lunch for them in steam trays.  Once our people realized they were getting gourmet French food—a choice of two entrees a day, three vegetables, fresh salads, appetizers and desserts—everyone stopped going out to lunch.  Many of them even take their plates back to their desks to eat while they’re doing research or trading.  Best investment we ever made.”

They were just finishing their appetizers when Nico Portali, the waiter, came in to check on their status.  Conklin smiled at him and shook his head for more time.  He left.

Conklin said, “So where do you stand, Jim.”

“I’m not crazy about the $10 million minimum investment.”  He paused as if waiting for a reaction.

Conklin made sure not to show one.

Stevens continued.  “It’s hard to argue with your performance over the last two years—56% and 101% net returns to your investors.  And I’m aware of your wunderkind reputation as a technology stock picker when you were at the Enterprise Funds.  But I’m wondering if this is the right time to get in.”

Conklin said, “How so?  The markets have been on a tear.  The NASDAQ is up 300% from 1,200 to 5,000 over the last three years with no end in sight, driven primarily by the technology stocks we specialize in.”

“That’s the point.  Some of the other guys I’ve been talking to are saying they think this market may be getting a little toppy.”

Trask leaned forward and said, “We’ve seen some signs of that, but we think it’s just some choppiness.  This run isn’t over yet.”

Conklin looked over at Trask, forced himself to hide his reaction.  Since when did his CFO start dispensing advice on the markets?  Watch yourself, George.  A year ago when Trask started whining about being the only other essential senior management, working so hard for only cash bonuses, Conklin had cut him in for 10% of the firm.  Now that Trask’s stake was worth about $10 million, he’d started becoming increasingly outspoken, and even worse, believing his own bullshit.  Conklin nudged Trask’s foot under the table, saw Trask sit up straight.

Conklin said to Stevens, “What George means is we’ve seen a normal rotation through the different tech sectors.  As, for example, Internet web hosting companies have gotten increasingly expensive, they’ve traded down as investors have rotated out of them and into software companies specializing in web applications, or into broadband companies installing fiber optic lines, pushing those two sectors up.”

Stevens looked down at his plate.  Conklin took the opportunity to shoot Trask a glance that sent his gaze into his wild striped bass tartar appetizer and his hands furiously lifting another forkful into his mouth.  Conklin looked back at Stevens, watched him, saw him pause, thinking.

Stevens looked up and said, “I don’t know.  Even you’ve advised me that I should be putting my money into a number of different funds, diversifying my risk.  Yours is one of the riskiest funds I’m looking at.  And like I said earlier, I’d like to time my investment to make sure there’s still more upside in these markets.”

Conklin said, “I’ve been a financial professional for over 15 years now.  Four years as an investment banker doing mergers and acquisition deals.  Then learning to manage money under Bernie Gould over at the Enterprise Funds before setting up WGC Technology Fund two years ago.  As an investment professional, I can tell you that nobody can consistently time the market.  One guy might get lucky selling out at the top once, maybe another guy gets lucky getting in near the bottom another time, but overall, market timing is a crapshoot.  The key is to run with the market when it’s running—and believe me, for the last three years it’s been running like nothing I’ve ever seen—just keep going with the flow until it stops.  Then pull the covers over your head and wait until it looks safe to come out and stick your toe in the water again.”

Stevens was nodding.

Conklin continued.  “We manage our downside risk like many hedge funds.  We use deep out-of-the-money puts and collars—long put, short call—to hedge our position.  That way if the market does break on the downside, we can moderate our loss and give ourselves time to sell out of our long positions, even find some selective overpriced stocks to short.  Those are relatively inexpensive derivative strategies to give us catastrophe protection.”  He pushed his plate to the side, leaned forward and put his elbows on the table so he could look Stevens in the eye.  “But overall, my job as portfolio manager of WGC is to make money for our investors by picking stocks and letting them ride while the markets are hot.  That’s what I’ve been doing since we set up shop, and that’s what I’m gonna keep doing until the music stops.”

Stevens shook his head.  “Ten million dollars is a big bite for me.”

Let’s get this over with.  He’d had two conference calls with Stevens, sent him all their materials and now this lunch.  Conklin said, “So where would you be more comfortable?”

Stevens face brightened.  “How about $5 million?”

Stevens’ $5 million would make it $50 million they’d signed up in the last week, $20 million of it without even a lunch.  The money was pouring in faster than ever before.  He said, “Okay, done.  Welcome aboard.”

After they finished lunch, Trask took Stevens into their offices to fill out the paperwork for his investment.  Conklin stayed at the dining table to finish his tea.  He glanced over at Trask and Stevens’ empty dessert plates.  Gerard’s Chocolate Mille-Feuille with Caramelized Phyllo, Thyme Gelée and Salted Milk Chocolate Ice Cream.  I wish.  In two months he’d lost about 10% off the 350 pounds he’d managed to balloon to.  He looked down at his body.  He carried it okay with his 6’2” frame, but even at 315 he was a far cry from his 270-pound college football weight.

I’m never getting this out-of-control again.  He let out a long sigh.  At that moment Nico walked in to clear the plates.

“Everything okay, Mr. Conklin?”

“Yeah, Nico.  Thanks for asking.”  He liked the kid.  He worked part-time as a waiter for lunch at WGC, then went to his restaurant job, bussing tables, always talking about working his way up.

Nico finished clearing the dishes onto his tray.  He started toward the door, then stopped about halfway, turned around and asked, “You mind if I ask you for some advice, Mr. Conklin?”

Conklin sat up.  “Sure.  Go ahead.”

“I own Bell Web Hosting’s stock and it’s been acting kinda funny.  Down 10%, back up 5%, down 5%, up another 10%.  You know the stock?”

Conklin felt a tremor someplace, not sure why.  He said, “Sure, I know it.  It’s an Internet web hosting company.  In fact, I visited their offices about eight months ago.  Nice operation, but I didn’t buy the stock for the fund.  You own a lot of it?”

Nico shifted his feet.  “It’s my whole portfolio.”

“Are you up?”

“I’m up four times my money in 14 months.”

“Then if you don’t like how it’s acting, why not sell it?”

“Because I need to make about $2,000 more to pay for culinary school.  The tuition’s $25,000.”

Twenty-five grand for culinary school.  Unbelievable.  Conklin said, “Gerard tells me all you talk about is going to culinary school, and you’ve been saving for it for three years.  So let me get this straight.  You’ve got your whole stake riding on a stock that’s a mid-tier player in an industry in its infancy that may get supplanted by a newer technology in, say, a year.  A stock that’s selling at seven times next year’s revenues, not earnings, with no prospect of any earnings in sight.  And you’re up 300% but you won’t sell because you want to squeeze out the last two grand?”

Nico gave a nervous laugh.  “Yeah, I guess you could put it that way.”

Conklin said, “You asked for my advice, so here it is.  Sell the stock, put the money in the bank, then I’ll have George give you a performance bonus of five grand.  From the bonus you should clear the two grand after taxes, plus have enough for the taxes on your capital gains on Bell.  Go back to school.”

Nico’s mouth went agape.  He didn’t move for a long moment, then said, “Thanks, Mr. Conklin.”  As he turned and walked from the room the dishes were rattling on his tray.

Conklin smiled.  Then he realized what that tremor earlier had been.  It was alarm.  He recalled the story of JFK’s father, Joe Kennedy, hearing his shoeshine kid talking about stocks just before the crash of 1929.  Kennedy decided that if the frenzy over stocks had reached the stage that shoeshines were playing them, it was time to get out.  He sold everything just before the crash.

Conklin felt that tremor of alarm again.


Copyright 2013 © by David T. Lender




 
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