Welcome to the TradingMarkets Big Saturday
Interview! This week, I am delighted to be joined by Ron Shear. Ron began his
trading career in 1966 and quickly found success in the field. With keen
analytical skills he quickly became one of the largest market makers on the
Amex. In 1984, Ron was awarded the specialist’s book for the Major Market Index
(XMI), a contract that generated so much volume the American Stock Exchange
built a separate pit to accommodate it. Ron is also CEO and founder of Carlin
Equities Corp and Carlin Financial Group. His combination of on-the-floor
trading experience and executive leadership are essential to the smooth
operation of Carlin Futures LLC.
Ashton Dorkins: Hi Ron and welcome to
the Big Saturday Interview. Ron, you’ve been in this business a long time, tell
us a bit about your background.
Ron Shear: I have gone from being a stockbroker many
years ago in 1966 and I was a registered rep for 10 years. In that time I read
just about every book I could on the market. The charts used to come in once a
week, so I did my work every Monday night until about 1 or 2 AM. I was trying to
learn how to make a living in the stock market.
By 1977, I left the brokerage business to work on the floor of
the exchange as an options trader on the American Stock Exchange. I left there
in 1991 after building a company that was a member of about 10 different
exchanges, options exchanges, futures exchanges, even into Europe. I have an
extensive floor trading and specialist operation with many employees that was a
very nice and successful business. The markets were changing and there was more
and more institutional type money in the trading business. For example, the
options business had been characterized by a lot of little guys and locals, and
then giant companies came moving in, like the banks and brokerage firms with
proprietary options trading strategies, so the spreads and returns got much
smaller in percentage terms, but good enough for the banks with 100s of millions
of dollars. So for the little guys and locals in the options business, I felt
the easy money was over.
“The biggest influence
that I had was that I could not go home with any risk.”
Ashton: What were your early trading
experiences like and what or who influenced you the most?
Ron: The biggest influence of my early success when I
went down to the stock exchange were my partners. I didnâ€™t have any money, so I
had to borrow $1000 from an aunt, and to get started my partners put up $99,000.
The biggest influence that I had was that I could not go home with any risk. In
other words, my positions had to be completely made into conversions, and I
couldnâ€™t go home with even 100 shares of stock at risk. Everything had to be
locked up at the end of the day.
Ashton: So you had to have a lot of
Ron: Tremendous discipline
Ashton: Discipline is probably the
hardest things for new traders to master but you were forced to do so. How did
you achieve that? Was it through money management, or trading strategies?
Ron: I had low risk trading strategies, and I never
went home with a risk position for my first year. By that I mean I would be
completely hedged off. I tried to take advantage of emotions and swings in the
marketplace throughout the day to trade the positions properly and to have a
flow of market orders.
Ashton: Did you create your own
strategies and rules, were customers or partners involved?
Ron: Yes, I had rules of my own, but there were no
customers there. It was just a company, and I had a couple partners who financed
me, and we were trading for ourselves on the floor. I didnâ€™t have any money, but
they let me draw some money out each month, but not if I was at risk.
Ashton: This must have given you a
tremendous understanding of trading and how markets worked?
Ron: Well, from that experience I learned a lot about
trading. I learned a lot about training individuals. I learned how the markets
work, how the floor works, and how information flows. How different things
affect the markets and news in the day.
Ashton: And from this experience you
were able to build the Carlin Group? Or did that come later?
Ron: That is what allowed me to start up in the firm on
an upstairs basis, yes.
Ashton: Tell us about the Carlin Group,
how many traders and how many locations do you have?
Ron: Carlin Group today is really two businesses. One
is a company called Generic Trading, which is all professional traders who are
seasoned Wall Street professionals. They have backgrounds anywhere from the
hedge fund world to being an ex-floor trader, to being a broker that is now
trading their own sub-account that we support.
There are over 800 of them around the country. A lot of them
are connected to us by the internet or by network. That is about a third of
Carlin’s business. The other two-thirds of our business is in servicing
professional clients, meaning institutions. Where we have built a number of
services for them, especially electronic trading. We also have a number of
people who take advantage of our trading desk as well as the super technology
products that we built there.
Ashton: That’s a lot of traders. Does
Carlin train traders or do you only take traders with a proven track record?
Ron: No, we feel that training people is not a winning
business for us. We have never had training at this firm, we are sort of against
Ashton: So all your traders have a
proven track record?
Ron: Traders today must have a history and a
background. Years ago people used to come to the door and we would give them
jobs, but not anymore, we are much more selective. But not everyone who
graduates from high school wants to be a stock trader. Years ago, the first
thing I would ask someone is “What makes you qualified to be a stock trader?”
And the answer I got 80% of the time was, “I read Investor’s Business Daily
every day and I watch CNBC.” For some reason there was this myth in
America about trading. My answer was usually, that I subscribe to the Journal
of Neurosurgery but I’m certainly not a brain surgeon. So the markets are an
excellent place to make money, but unfortunately the makings arenâ€™t that easy.
Our traders are people who have been around for a while. They
are not in their twenties. Their average age is considerably higher. Their
experience with the firm, on average, is probably about five years, and their
Wall Street experience is much longer. So they are people who have been through
the wars. Those kind of people know how to survive and know how to play within
the structure of the market and get something out of it.
Ashton: Do you still trade actively
Ron: Compared to a lot of people, no. But if I fool
around with my account because I am involved in the business, my average trading
day would be about 60,000–80,000 shares and I donâ€™t think that is very active.
Ashton: Do you have any trading
strategies, insights or stories you can share with our readers?
Ron: Trading stories, I probably have millions.
Generally speaking, as traders, one of the important things for success is not
to have ideas or opinions contrary to what is going on on the tape. Today, its
difficult to maintain that attitude sometimes, because of the tremendous amount
of information and misinformation that people are circulating.
But let me give you an example of a stock I got in trouble
with in late August. There was a merger between a company called Enterra Energy
that trades on NASDAQ, and a company called Hyperion. It was a Canadian stock,
and I thought the merger was very attractive. I ended up putting on 100s of
thousands of shares in a position and I also thought that this Enterra Energy
was at a pretty good price level of the chart based on the growing dividend it
was at a good buy level and so forth. Somehow or another, the week that it
closed, someone got a column in Barronâ€™s somehow on how bad this company
was. The stock went down more than 10%. Unfortunately I sold some, but not all,
at the bottom because as a trader you are forced into a situation where you have
to control your capital no matter if you are right or wrong.
The following week in Barronâ€™s, in another section
where they interview successful money managers and analysts, they interviewed
someone who has got a wonderful reputation as a long-term investor and he talked
about the same exact company and what a wonderful company it was and how
management was doing a great job, and that he thought it was dramatically
undervalued. Needless to say, the stock shot up, so I missed a big trading
The answer is that there is a lot of daily and regular
volatility and misinformation going around. The good news is I didnâ€™t get fully
shaken out of my position, but the bad news is I did get out of some.
best way to learn on Wall Street is to lose money, and I have lost money in
every possible way…”
Ashton: So despite your instincts and
analysis telling you to hold onto this stock, risk control forced you to lighten
up on the position?
Ron: Yes. But the best way to learn on Wall Street is
to lose money, and I have lost money in every possible way, and I hope I have
made every possible mistake, but strategically I still make them every day.
Ashton: Over the years, what aspect of
this business has changed the most?
Ashton: What are your thoughts on the
merger between the NYSE and Archipelago, what effect do you feel the merger will
have on the exchanges, even the open outcry pits in Chicago?
Ron: I think the individual members of the exchanges,
like the NYSE, are delusionary if they think all the roles are going to
continue. With the systems such as the ones we built, we can execute better on
the NASDAQ than on NYSE because there is more clarity of information, which does
not exist on the NYSE right now. To have our systems interact with intricate
orders economically for our clients is what we would like to achieve. The more
electronic the market, the better we can achieve that for our client.
Ashton: So you feel it is going to be
more like Europe where they went form open outcry to all electronic training?
Ron: Right, I think that is the trend of the United
Ashton: Would you say technology is one
of your company’s strengths and how does it benefit your traders?
Ron: Yes it is. For example, I’ll tell you of a product
that we just rolled out only for our institutional clients. We rolled out a
spread trading module on our Carlin Accel trading platform. We rolled out a
spread trading module to a handful of clients. This allows them to put in a
single order for two different stocks with any spread prices. So the difference
between the two would be mostly for arbitrage trading, or pairs trading. The
system works with a lot of intelligence built into it by our people. It enables
our clients to be filled both substantially in size and at very good prices.
That is something that is going to be a dramatic growth product for the Carlin
Group over the next year or two. However, this is a strictly institutional
product and is not available except to the institutional marketplace.
Ashton: So are you seeing large growth
Ron: Yes, and a firm like ours typically forms some
kind of joint venture with these people. We get them some leverage because the
profit per trade isnâ€™t that great so they need more buying power to make the
Ashton: And low-cost execution is
important to them because they need to be able to trade with size in the most
Ashton: What other major changes have
you seen in the markets?
Ron: There are a lot of people who have a totally
different approach to the stock market today, one that I didnâ€™t have. And that
is everything is formulaic. The strategies that people employ are many. So they
are picking the strong stocks or the weak stocks, on a daily basis, or a
technical analysis basis. We have a lot of people who are coming to us because
they want to have their trades selected by their spreadsheet and their formulas
fed right into the markets. We see that a lot, and that is a whole other way to
trade and a lot of these people are successful and we see some decent returns.
This side of our business is growing dramatically.
“The problem today is
that people don’t do their homework.”
Ashton: Is there anything else you
would like to say?
Ron: Well, I just think that technical analysis still
works by the way. The problem today is that people don’t do their homework. They
donâ€™t read Edwards and Magee but they look at a website for 10 minutes and they
think they understand what is going on in the world. All these things work, but
you really have to do a lot of homework. We have a lot of traders working for
this firm and the successful guys are the ones who really do their work.
Ashton: So you are saying there is no
shortcut? You have to go out there and do your homework to become a successful trader?
Ron: Right, and they have to understand risk
management. It’s not the winning trades that make you at the end of the year if
you add up all your winning trades and look at how much you made this year.
Focus on the losing trades, and that is how you get your P&L better for next
Ashton: Ron, I’ve really enjoyed
talking to you and I’m sure you could tell us many more interesting stories but
I know you’re a busy man so thank you taking the time to share some of your
knowledge and experiences with me and our readers.