In Memory of a Legend

There are interesting dividing lines in the Wall Street community.

Some "purist" investors say they avoid listening to the media. They argue that it is a distraction that takes away from their pursuit of value and returns.

These investors are almost always long-term investors. They would include great investors like Warren Buffett. The vast majority of them aren’t so great.

On the other hand, in my three decades of investing professionally, I have never met an investor who devours the media voraciously and is not at least good. Many of them are great.

These are the investors who want every single piece of information available in the market. They trust their acumen and skill to determine what is useful and what is not. They are good enough to tune out the "noise" and hear the "song."

This has always been my philosophy. Instead of "protecting" myself from information because it will distract me from my process, I want everything out there. Everyone has their own process, but real professionals can make better decisions with more information.

As a result of this approach, I have had the cable TV news channel CNBC on in the background for thirty years now. It has been the soundtrack of my life.

As the years have passed, the CNBC regulars have genuinely felt like a family to me. I have probably heard their voices as much as any other humans in my life.

Last week, we lost one of their great commentators – the market legend Art Cashin.

Art as the Director of Floor Operations on the New York Stock Exchange (NYSE) for the large brokerage firm UBS Financial. He became a member of the NYSE back in 1964 at the ripe old age of 23 years old. This means he was on the ground there for sixty years!

I never had the opportunity to meet him, but I know many people who knew him. Every single person I have heard speak about him only spoke in the most glowing terms.

What I did know was his ability to turn a phrase. He was as "old school" as old school gets, and his comments during market volatility were both pithy and wise.

Today, we will share some of our favorite quotes from Art, along with our insights on his thoughts.

Rest in Peace, sir. Thank you for the years of wisdom!

His most famous quote is…

“You never bet on the end of the world, that only happens once, and the odds of something that happens once in an eternity are pretty long.”

This is one that I wish every investor would tattoo on the back of their hand.

At HX Research, we talk all the time about how humans are biologically programmed to be stimulated by negative information much more than positive information. It always sounds "smart" to prophesize doom. It is just a terrible way to make money.

Also, as Art says in his quote, will we be able to do much if it ever happens?

Art had some great quotes, but he was more of a storyteller.

We thought the best way to pay tribute to him was to share one of our favorite stories from him.

This is a story about the Wall Street concept of “price discovery.” This is how the market – through the interactions of buyers and sellers – finds a price to transact.

There have been thousands of pages of academic research written on the subject, but we think Art’s story is the best version we have ever read.

We have quoted this from a great CNBC article about him, which you can read here.

Here is the story…

To explain price discovery, Cashin liked to tell the story of the time the jeweler Charles Lewis Tiffany tried to sell an expensive diamond stickpin to John Pierpont Morgan.

Tiffany, Cashin said, knew that J.P. Morgan loved diamond stickpins, which he used to put in his tie. One day, the jeweler sent a man around to Morgan’s office with an envelope and a box wrapped in gift paper. Morgan opened the envelope, and in it was a message from Tiffany: “My dear Mr. Morgan, I know of your great fascination with diamond stickpins. Enclosed in this box is an absolutely exquisite example. Since it is so exquisite and unusual, its price is $5,000.”

In those days, Cashin noted, $5,000 was north of $150,000 in present dollars.

The note continued: “My man will leave the stickpin with you and will return to my office. He will come back tomorrow. If you choose to accept it, you may give him a check for $5,000. If you choose not to accept it, you may give him the box back with the diamond stickpin.”

The next day, Tiffany’s man came back to see Morgan.

Morgan presented him with the box rewrapped in new paper, along with a note, which said, “My dear Mr. Tiffany, as you’ve said, the stickpin was magnificent. However, the price seems a bit excessive. Instead of $5,000, enclosed you will find a check for $4,000. If you choose to accept that, you may send the pin back to me, and if not, you may keep the pin and tear up the check.”

The man returned to Tiffany, who read the note and saw the offer for $4,000. He knew he could still make money on the offer, but felt the pin was still worth the $5,000 he was asking.

The jeweler said to the man, "You may return the check to Mr. Morgan and tell him I hope to do business with him in the future." Tiffany then took the wrapping off the box, opened it up and found not the stickpin, but a check for $5,000 and a note that said, "Just checking the price."