My Summer Vacation 26 Years Ago

This time of year on the calendar always makes me think about what I saw when I started my investing career in the late 1990s.

While I had an interest in stocks dating back to high school and my time at the Wharton School at the University of Pennsylvania, I didn't begin working as a full-time investor until 1997. That summer, I joined my first buy-side shop, Atalanta Sosnoff Capital.

The first year of my career was spent learning the ropes from the firm's highly experienced professionals. They were a great mix of old school – like Martin Sosnoff and Bill Knobler – and new blood – like Craig Steinberg.

Atalanta Sosnoff managed almost $3 billion of assets and only had a handful of investment professionals. This presented a great opportunity... and in 1998, within a year, I was a portfolio manager.

That was also when I got some of my first lessons on how the stock markets really work...

In 1997, we saw a wave of an emerging market crisis that began in Thailand and then swept through the rest of Asia.

U.S. stocks initially sold off on this news but continued to have an outstanding year—up 33% in 1997.

But at the time, none of us knew that another crisis was brewing quietly much closer in Greenwich, Connecticut—the headquarters of the world-renowned hedge fund Long-Term Capital Management (or "LTCM").

Having come from the bond side of the business, I had heard of LTCM's famous founder, John Meriwether (the former head of bond trading at investment bank Salomon Brothers). However, given that I ran an equity portfolio, I didn't think much about the firm.

That summer, during a week that I had taken off for a trip to Colorado, many of the stocks in our firm's portfolio began to act crazy.

One stock in particular – Chancellor Media – would cause me massive angst. Chancellor had been a great investment. The company had been "rolling up" the radio industry.

These days, radio is left for dead, but back then, it was booming. Chancellor was buying up stations like crazy using debt and financial engineering. That might sound like a risky strategy, but it was a savvy approach.

The stock had massive momentum... But it also spoiled my vacation.

At some point, as I was driving through the Rockies, I started receiving panicked calls from our trading desk about Chancellor. The stock was trading down 10% in the morning... and saw another 10% drop by midday. At one point, it traded down almost 50%.

Remember, this was before e-mail on phones, messenger, or pretty much anything except phone calls. So, I frantically called analysts and trading desks across the Street, trying to figure out what was going on.

The answer was... nothing. Not a single analyst or trader had any news whatsoever. They only knew that Chancellor's stock was seeing frantic selling.

I spoke to my frustrated portfolio manager and told him what I had learned. After more than 20 calls (including to Chancellor's investor relations department), I heard no reason the stock was down. My recommendation was that we stick with Chancellor.

The annoyed general partner agreed to keep our position... mainly because he likely thought it was crazy to sell the stock when it was down so much.

Little did we know that the unwinding of LTCM in the background was causing portfolio liquidations throughout the stock market.

Somehow, Chancellor had been a stock in one of those liquidations.

The value of the business hadn't changed one bit, but folks were selling because they had to sell, and they did it with such urgency that it crushed the stock.

This was one of my first hard lessons about buying stocks, not companies, and I reflected on this episode recently when I was looking at the calendar.

My memories of that vacation will always revolve around the two days I spent frantically trying to figure everything out. It was a tough experience, but it also set me on a more successful path.

It gave me a healthy respect for understanding that—in the short term—the price of a stock can have little (or nothing) to do with what's happening with the underlying company. This has guided my investing principles ever since, and it's the most important advice I could give to any investor: We're buying stocks, not companies.