Speaker 1:
From the library of the New York stock exchange at the corner of Wall and Broad streets in New York City, you're Inside the Ice House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome Inside the Ice House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Three months, almost to the day, passed between the New York stock exchange making an unprecedented pivot to fully electronic trading and the return of the designated market makers, the DMMs, to the trading floor in June. It was the longest absence of traders by a multiple, since the exchange building closed from July 31st to November 27th, 1914, with the outbreak of World War I. It's a point of pride for the NYSE and the floor trading community that the data shows that securities listed their trade with better spread, better prices and less volatility than anywhere else in the world. The cornerstone of the hybrid model that combines human judgment and best in class technology are these DMMs. DMMs are the human essence of the stocks they represent, trading with sophisticated algorithms and by interacting directly with the floor traders, DMMs normally spend their entire day standing at the trading posts, beneath vibrant screens, displaying the stocks they manage on the last major physical equities trading floor in the world.
Josh King:
But this year put their job and the entire model to the test, the results reaffirmed the value of the trading floor but also showed how the DMMs were still able to provide liquidity and stabilization to trading even when operating from their home office. One of those who got to know their home office a lot better than he ever expected was Jay Woods, an executive floor governor of the NYSE who works for one of our direct market maker firm's IMC. Jay's been making markets on the exchange trading floor for a quarter of the iconic building's 116 year history and made his triumphant return along with 25% of his DMM brethren last week. Our conversation with Jay Woods on his front row seat to the closing and reopening of the trading floor, how the DMM role has evolved and the impact of Robinhood and the democratization of trading access. That's all, right after this.
Speaker 3:
We started with a vision to transform energy markets, using technology to boost transparency and level the playing field. That vision and customer focus continues to drive how we look at opportunities and challenges in our industry. Today, we connect participants around the world so they can trade, hedge, invest and raise capital. We establish prices across asset classes and create opportunity to solve complex global problems. We provide pricing that markets rely on, transform the way business is done, help companies grow to fuel innovation and provide data to advance economies and society, while we invest in our communities. 20 years ago, we saw an opportunity to create a market driven by customer needs. Today, our markets create endless opportunity for participants around the world and our team is focused more than ever before to ensure the markets continue to function properly. On behalf of my colleagues around the globe, thank you, from Intercontinental Exchange.
Josh King:
Our guest today, Jay Woods, is a designated market maker with IMC and one of the six executive floor governors of the New York Stock Exchange trading floor. He began his career on the floor back in 1992 with the renowned firm Spear, Leeds and Kellogg, which was later acquired by Goldman Sachs, its owners, using some of those proceeds to buy Windham Mountain, which sits right outside my window as we're talking today. Shortly before IMC acquired Goldman's market maker group back in 2014, Jay took over market making for Intercontinental Exchange that's of course, NYSE ticker symbol, ICE or ICE. He continues to represent ICE on the trading floor, along with a panel of other well known securities. Jay, welcome Inside the Ice House.
Jay Woods:
Wow, Josh, it's great to be here. I've been a big listener, big fan of the show. And to think that I am now one of the guests after following Tom Farley, your first guest, Kenny Polcari, your first floor trader, Stacey Cunningham, and then celebrities like Jim Kramer, Jerry Jones, Kelsey Grammer, Sideshow Bob. It's amazing. So to have the opportunity to talk with you is awesome.
Josh King:
I've wanted to do this for a long time and I miss our days just chatting before an opening bell or after a closing bell. And I hope to get back there to be with you as soon as possible. I'm curious, how is ICE trading? I haven't checked it in maybe 15 minutes.
Jay Woods:
ICE is doing just fine. It's never as high as people that work at the firm want it to be, but given the situation we've been in, given everything going on, I think you should be quite pleased with the way it's been trading and the way things have been going. The volumes have been great. The market disruption didn't really affect things. Like everything in the market, for the most part, those first two weeks of the pandemic took it its toll on most every stock and we've rebounded nicely. Not at all time highs just yet, but we're not too far away either.
Josh King:
I used to work at companies where the CEO or the CFO would call the market maker incessantly to check on how their stock was trading. Is that your experience with Jeff Sprecher, Scott Hill and the team from ICE?
Jay Woods:
Not at all. They are very hands off. They are a pleasure to work with. Every company has a different relationship. You don't see too many companies calling incessantly wondering what's going on with the stock. And that's a good thing. They're focused on their job. And if their job goes well, the stock will continue to do well. Our job is to try to be proactive and communicate with them, but it's a pleasure working with the ICE team. We talk frequently, but no, it's been a great relationship.
Josh King:
You are our first guest who's working in their normal office at 11 Wall Street since our emergency episode with the exchange's COO Michael Blaugrund on the last day the floor was open. What was it like to walk back onto the floor after three months absence?
Jay Woods:
Yeah, it was weird. I'm not going to lie. This new normal that we're accustomed to you, it takes a little getting used to, but I got to give the guys a lot of credit. I got to give New York a lot of credit. Now that public transportation is open I've taken the PATH train. Everyone is masked. Everyone is social distant. You are aware that we just went through something traumatic. And then on the floor we have strict rules. You said 25% of the DMM staff is back. With my firm and the main firms there are eight DMMs per post.
Jay Woods:
So for us, we have 75% of our staff back, which isn't ideal, but it isn't the end of the world. We're doing a good job, but we're physically spaced. And we're very strict about how we do it. The mask has to be on all day long. We have people, including myself, who have to go around and enforce that guys are wearing their mask. We're all good about it. Lunch. We have 30 minute windows where you have to go down to the cafeteria because there aren't as many seats. We can't hang out and sit and chat like we used to. Go down there, eat down there, return to the floor. So there's a lot of getting used to. We're not back to where we want to be but it's a big step in the right direction. And to first get that floor brokerage community down there, that was vital, because their business depended on the floor.
Jay Woods:
We were able to work remote and it wasn't the same but there is a great pride about being on that floor, hearing that first bell. Now I can't wait to slowly get it back to filling it up and seeing some really important people up there on that podium, new CEOs ringing in their IPO or executives with the charity, whatever it happens to be. But one step at a time and there's been a lot of progress made.
Josh King:
Is it an endurance test for you wearing that mask from the minute you leave the house on the PATH and throughout the full day working? A lot of us, we all have our masks in our pockets or our cars. We put them on to go into the grocery store, to go into any retail shop, do anything we want outside. But you know, it's really an affair that might last 20, 30 minutes at most. You're doing it for eight hours. Is there wear and tear on the cheekbones?
Jay Woods:
Yeah. It's behind the ears. I'm learning I have to get a comfortable mask that ties around, but it's annoying, but it's what we have to do. So it's like when I started on the floor and you stand all day and people are, how do you stand all day? Well, you get used to it. You wear comfortable shoes. Now I'm getting used to the mask. I have to find a more comfortable mask. This is the new normal, the question will be, how long will it last? I don't see us going back to the way it was quickly, but we're hopeful. But as annoying as it is, we're going to do whatever it takes to populate that floor and do our jobs right there at the heart of Wall and Broad.
Josh King:
The last three months must be the longest you've been away from the exchange since 1992. The facade hasn't changed but the floor behind it certainly has evolved over your career. Did walking onto the floor again bring you back to that day, 1991, when an aspiring lawyer detoured to a trading desk for a summer internship?
Jay Woods:
Yeah, that was a long time ago. To think I wanted to go to law school instead of trade. Totally different worlds. The first time you walk onto that floor, as anybody walks onto that floor, you're just in awe. And when I walked on for the first time it was crowded and humming and buzzing. It was the exact opposite this time. It was more of a rebirth. It was good to see people. If anything, it reminded me, after 911, when you were away for that week. And it was Tuesday through the Monday, the 11th through the 17th. Seeing people and just catching up and seeing how they're doing. Are you okay? How's your family? We did have some members who lost relatives and it was tough. There wasn't a celebration, more of a relief getting back and just checking in on your brothers that are on the floor, brothers and sisters.
Josh King:
You're talking about your thought of potentially going to law school instead of trading. After graduation you did end up coming back to the exchange. What did your first post-college job entail?
Jay Woods:
Oh, my first post-college job entailed getting lunch for six months. They don't plan you for the dues you have to pay or the way you have to really prove yourself at the New York Stock Exchange. You come out of college and you learned a lot about trading and you're gung ho and you want to get in there and you want to just learn and absorb.
Jay Woods:
But my training was more learning the personalities because the floor is a dynamic place and everyone had their own style of trading, their own personality. So for six months, you're going out and getting lunch for 10 different people at 10 different places and 10 different orders. And the gist of it, and it is just like Karate Kid, he's doing all these mundane tasks. Why am I doing this? Well, if you can't get 10 lunch orders right for 10 different personalities and deal with it, then how are you going to trade 10 different stocks with 10 different brokers and handle that craziness. So it's not how I dreamt of it, you're thinking I just spent four years in college. What was I doing? But you had to pay your dues. You had to earn your way.
Jay Woods:
It was a different time in the nineties. And thankfully I survived that test, not everyone did. They hired about 12 of us the summer I started and a year later there are only six of those guys left. And then there are two of us standing now, me and Don Himpley. So it was a different time, but I wouldn't trade it in for anything.
Josh King:
It's an amazing training program. You recall the first security that you made a market in and how has the job evolved over your career since then?
Jay Woods:
Wow, the first security I made a market in was Iomega, little tech stock. It was $2, they don't [crosstalk 00:12:30]
Josh King:
Disk drives.
Jay Woods:
Yes, yes. And it was towards the end of its big run and it was more of a flipper stock, flipper stock. Because I was trading...
Josh King:
I was one of those flippers. I lost a lot of money on Iomega.
Jay Woods:
All right. Well I apologize being the market maker there. I did all right in it. But you started off small and then I went to a stock Dynergy and Occidental Petroleum and you gain confidence. You had to earn the confidence and respect of your coworkers. You had to balance your personality. And I had a little bit of... I wore my emotions on a sleeve and sometimes you lose money, you get frustrated and you had to find that balance. So they started you off slow and then you worked your way up and today... The first stock I had as a child was IBM and I get to trade the stock. I get to trade the parent of the New York Stock Exchange. It's amazing how I've evolved over these years.
Josh King:
Is wearing emotions on your sleeve a Woods family trait?
Jay Woods:
It depends. It definitely was carried down to my daughter, but no, it was a me thing and it's something you learn. As a trader you have to learn through mistakes. You have to learn to do well and then not get cocky about it. So there's a process. There isn't a book that I can recommend and say, go read this book and this is going to be your trading style. Everyone had their own. And some people were super cool and calm. Some people would go to the bar after work. Some people would go run five miles. I just talked a lot, got it all out of my system. Some people liked it. Some people hated it. But we all had our own style.
Josh King:
For our listeners, what exactly is a direct market maker? They used to be called specialists, and some still can't shake that moniker, but give us a little primer on the job that you do.
Jay Woods:
Yeah. Designated market maker, also known as specialists. That's what we were called back when I started in the nineties. We are at the point of sale. Each stock that trades at the New York stock exchange has one location where it trades and one market maker responsible for all the trading in that stock. So if you wanted to buy shares of IBM, you would come to the IMC post and you would then establish if you wanted to buy or sell. Now, when we were more open outcry, every trade was done by announcing your intentions and the market maker's job was to pair off buyers and sellers to basically make sure the market was fair and orderly. So for every buyer there has to be a seller.
Jay Woods:
Well, if there are multiple buyers, well, the stock is probably going to go up and you may have to sell stock to make that market. So we're constantly balancing making sure that the spreads are narrow, communicating with the crowd. Now we have evolved dramatically and we can go into that at some point in this conversation, where the electronics do a lot of the work and we program algorithms to make up for the open outcry system. But the two biggest trades of the day, that open and that close are still done in an auction market.
Jay Woods:
So we will slow things down if things are busy. Make sure the crowd knows exactly what's going on, price it and then go. The one thing I've noticed, especially from our model versus some of our competitors. If you open at 9:30 and there's news and you're rushing it, you're going to see excessive volatility that you could have avoided if you just took your time and you got everyone's interest and you went. And my job is not just to make sure everyone's satisfied, but then once the stock is open to make sure the volatility isn't out of control, to make sure stocks go up and down in a nice consecutive way instead of big price gaps all over the place, because you're rushed to get something open.
Josh King:
Beyond ICE, what's the relationship that you have with the companies you represent? I'm curious how you provide this added value beyond making this fair and orderly market that you just described.
Jay Woods:
Yeah, this is where we've evolved the most. And this is what I take great pride in, is that relationship. Because when a company goes public there's a lot of angst and concern and they're basically handing the keys to the car for you to run the trading.
Jay Woods:
So you want to be, one, you want to be proactive. You want to make sure they know that you're there before they're picking up the phone and calling you. So you got to feel out each company. Some companies want to hear from you when the stock is down a nickel, but the market was up a hundred points. Why did we underperform? So you have to know the right fit and the right personality. Be proactive. Something moves in the stock. The stock is up or down, especially down. When it's down, they can yell and scream at me if they want. They don't, but they can. And I can walk them through who the biggest participants are, what we were seeing. We can go through what market moving events may have caused their stock to move. And then even technicals. Technicals have really come into play in this crazy environment, we are the more volatile we get the more technicians come out of the woodwork.
Jay Woods:
And I am one of the... I think I'm the only member. I am the only member on the floor of the stock exchange with my CMT, charter market technician designation. And basically I study price movements and momentum and swings. And some of my companies like that, some of my companies thinks it's add value. Because there are days where things moving, you don't know why. Well, you just broke out. You were trading 32 35, and now you got through that 35 level. And all of a sudden you got to pop. What happened? So, we try to, one gauge our company and what they want from us, two, be proactive and three, give them actionable information. We do give them updates and statistics about what their stock does. That's auto generated but the individual market maker, you want to build a relationship with.
Jay Woods:
You want to make sure they know who you are and that you're there for them when needed.
Josh King:
Those 32 35 pop days are the good days, but you were on the floor when the market wide circuit breaker hit for the first time, back in 1997. Then 23 years passed until we saw it again. Four times just in March of this year. From your perspective, did the mechanism have the right impact when the market began to go down?
Jay Woods:
It did well, let's talk about 1997. 1997 was different than the last ones. Because every time there's a circuit breaker, you revisit and you look, what did we do? Right? What did we do wrong? Where can we improve? In 1997, it was based on Dow points. And the Dow was down 350 points, which was about 4%. And this was after a huge run up from 92 to 97.
Jay Woods:
So they didn't take into account percentage. So that was different. No one who was fearful panicked. These circuit breakers, there were four. And the first three happened right after the opening bell. We kind of knew they were coming. We were prepared for it. It gave us a chance to pause and gave everyone a chance to kind of catch their breath, regroup and go again. And that's one of the advantages of slowing things down on a busy situation, whether it's an open or an event in the stock. So the circuit breaker to me, it worked well. It served its purpose. The fourth circuit breaker was in the middle of the day and we paused for 15 minutes and there was no super surge, no spike, no panic after it stopped the market. But it gave everyone just a chance to catch their breath. Maybe brokers get on the phone and they call their clients and say, Hey, listen, we're in a break.
Jay Woods:
The stocks are down. Maybe you're not paying attention. And you try to generate some order flow, hopefully by order flow. But the circuit breakers now are at 7%, 13% and 20%. And they're based on the S & P 500, which is more indicative of the overall market. Personally, they did what they were in place to do. They worked well and we never had to go from a level one to a level two. So there was never that overwhelming panic. Wasn't fun, but there was no panic.
Josh King:
23 years passed from that one in 1997 to the four this year already. Do you think it was an anomaly of the events of 2020, or is taking it as a sign of a changing market dynamic that we may see more of them in the future?
Jay Woods:
Well, 2020, who the heck knows. I mean, we're halfway through this year and if someone predicted at the end of 2019 global pandemic and everything that would happen, God bless them and no one saw this coming. And that's why the circuit breakers are in place, for that anomaly, for that event that just kind of blindsides you and then you can regroup. So will it happen again? There's a good chance. The volatile markets, the pandemic hasn't gone away. As we're taping this, there's been flare ups in some of the states that have reopened. Hopefully it doesn't happen again in the Northeast. I think we're being very good and very calm about it, but there are going to be days, there are going to be moments, historical moments that will cause us to get volatile and to go down 7%.
Josh King:
Shortly after those breakers were hit, there was that decision made to close the floor, Jay. A few folks that I know that you know, have tested positive. You mentioned at the beginning that people have had people in their families have passed away. As an executive governor, how were you involved in those discussions and how did the broader floor community take it? Couldn't have been an easy decision.
Jay Woods:
Yeah, well, the actual decision happened right after there were two positive cases. You don't broadcast this, but you always try to have contingency plans in place. So as things were spreading, we would have meetings. Okay, what if this happens? What do we do? And we had cleaning strategies in place and we didn't have the social distancing like we do now, but we were cognizant about sanitizing our hands, washing our hands. You could eat off the floor of the New York Stock Exchange.
Jay Woods:
It was so clean. We were doing everything and anything in our power to avoid what happened. But you always have to think, okay, what if we can't go? We had the electronic system as a backstop and thank God we did. As a floor trader, as someone that would sleep in and make sure on a snow day I'm there the next morning. My biggest fear is they're going to use this as an excuse and we can go electronic because every other exchange is electronic. So we wanted to make sure we were there as much as we possibly could. And I think, if anything, the shutdown showed where we did add value and especially to the floor brokers, to their customers, the way they handle the order flow and the volatility, especially around the opens and the closes. We've seen statistics and they'll be publishing them as we go forward because the data is still coming in that show where we add value. We did have lots of meetings about this.
Jay Woods:
How are we going to handle it? But we knew it was an option and it was an option we didn't want. And we tried as hard as we could, but looking back on it, I think it was the best decision we ever made because we got out of there before it really got out of control.
Josh King:
The trading data showed that the NYSE market model operating fully electronic while providing better trading with less volatility than other models was still not a perfect avatar for the human technology hybrid. Why is that?
Jay Woods:
Well, there were a couple things. The opens and the closes, you don't have that open outcry. You don't have those conversations, you don't have those discussions. So you're missing that human touch. And sometimes you would see stocks that had negative news. The sellers were hesitant to jump in and it would open unchanged or up, and then it would react.
Jay Woods:
Well, if I'm on the floor, I would hold up because I would have an idea of what was going on. So you would dampen volatility in that way. The closing information, it wasn't getting out like it usually gets out by us disseminating it to the floor brokers. And that's why it was great that they could get back and use their discretionary orders so they could service their customers better. And then a feel, not being there. There's a sense you can walk on that floor and know if the market's up or down 500 points. You talk to your coworkers and you get ideas and bounce ideas off of each other. Now we were on a call all day and we were in communication. But to a trader feel is something that, the quads don't like to hear, but it's something we've been using for years. And to miss that feel was just odd.
Josh King:
I saw online that your daughter received several news photo credits for images she took of you hard at work in the Woods home office. What was your personal transition like?
Jay Woods:
That's our friend Richard Drew over at Reuters. He asked if we could take pictures of work. Well, work now is our home. So my daughter and Meric Greenbaum, his kids did some pictures for him that got a lot of play. It was interesting. But being at home, it was weird. You have the distractions of your family and you don't want to leave the computer. I was glued more to the computer screen now than I am at work. It was weird, but yes, my daughter did get some photo credits, never expected anything like that.
Josh King:
So on Wednesday, June 17th, the floor reopened to market makers ahead of the third Friday of the month. Why was that an important date to have your team back at their IMC posts?
Jay Woods:
Yeah, it was important because there are a couple volume events that we wanted to be there for just to make sure things ran smoothly. Last Friday was quad witching. So we had options expiration and it's a big close. And if anything is to ever get a little too volatile, it could be on the close and we could really be there to participate to dampen that volatility. And then this Friday is the Russell Reconstitution, where you're seeing the Russell 1000, 2000, the 2000 rebalance, the weighting of each of the stocks in the indexes. So there's the going to be big order flow. And for us to say we're monitoring from home, could we have done it?
Jay Woods:
I'm sure we could have. But to be their point of sale and to have communication at a socially distant six feet with brokers that are in the crowd, lined up, waiting to get looks, it makes it much more manageable. And if I'm one of my listed companies, I would want me there. I don't want to miss this. I want to be able to be there. And then I want to be able to talk to them from the floor, from the point of sale. There's just something to be said about that. So those are big events. And then the volatility is starting to pick up again. So we want to make sure we can be their point of sale as much as possible.
Josh King:
Over your career, Jay, you've managed big IPOs that have raised billions, but recently the NYSE has filed an updated proposal with the SEC to allow direct listings with a capital raise. In episode 117 of our show we talked the NYSE's John Tuttle about the direct floor listing process. But what does that look like from the market maker's perspective?
Jay Woods:
Well, the market maker perspective is really no different as far as handling the order flow than a regular IPO. You still have a banking team in place. They come to the centralized location, the trading post, where that stock goes public. If it's allowed, we have the executives from that company down, we'll see where we are in the process of the pandemic. But you build that book with the crowd in front of you, with banking teams around you. So it's not the capital raise and the roadshow that the companies are used to, but from our point of view with the New York Stock Exchange, getting that book built, taking our time, pricing it right, and then once it's open, trading it, it would be no different to us handling any big high profile IPO.
Josh King:
Another change coming to the floor, Jay, is the plan to list ETFs on the NYSE instead of only on NYSE Arca. That allows the DMM model to be used in trading them. How would representing an ETF differ from an individual security like ICE?
Jay Woods:
Well, first of all, I think this is exciting. Anytime you can venture into a new platform is fantastic. And the ETF universe is just expanding. And I've talked to a few people. In fact, Will Hershey's a good friend of mine from Roundhill who has two of the best ticker names, NERD and BETZ, BETZ. And we've discussed why it would be good if he had a human market maker there, point of sale. One, you're adding another player into the fray, whose job is to damp the volatility and add liquidity to the stock.
Jay Woods:
And some of the biggest complaints about these stocks is they're not liquid enough. They get too volatile. So if we can do anything to change that perspective on these ETFs, that would be great. And plus it's the next wave of investing. Smart investors, they want baskets of stocks. Kids like some of these cool ticker symbols, like NERD. It's a good way of diversifying, but you're trading it like a stock.
Jay Woods:
So the market maker would get to play a big role. And then you're reporting back to the ETF issuer telling them what's going on, where I don't know if they had someone to point a sale who could explain exactly what happened in the stock, why we underperformed, why we outperformed. What happened? And then who knows, maybe the technicals will come into play. I know they do, but I would throw some technicals at some of my guys as well.
Josh King:
After the break we'll talk about some of those technicals. Jay Woods, designated market maker with IMC and I will talk about the current market fundamentals, plus how these new platforms like Robinhood have changed stock trading. That's all right after this.
Speaker 5:
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Josh King:
Before the break, Jay Woods, designated market maker with IMC and I were discussing his career and the return of the DMMs to the NYSE. Last year, Jay, Stewart Franklin and his sons were our guests. And I understand that you and Stewart share some similarities in how you were introduced to the market based on that ticker symbol, IBM.
Jay Woods:
Yes, it was. And I heard that podcast and I was floored because I did not know his story. I did not know that story. When I was in second grade I got two stocks for my first communion, IBM and General Motors, two shares of each. And it was under the premise that every week I chart these stocks. I marked the high, the low, and then the close. And I would do this on graph paper in pencil. I have a famous technician for an uncle, Ralph Acampora, and he trained me as a youngster to just monitor stock prices.
Jay Woods:
So for about two months, every week we'd go to church, we'd get the Sunday Times I would see what it did for the week, high, low, close, high, low, close. And now I got two months of data and I'm, what am I doing with this? And then my uncle comes to visit. I was in Philadelphia, he was in New York. And I go, okay, this is great, but what's going on? He draws a line, connecting the lows right across the page. It went from bottom left to top, right. Just what you want to see in a nice up trend. And he goes, what's this stock doing? I go, it's going up. He goes, that's an up trend. And right then and there he's teaching me the basis. Another Miyagi, if you will. But so at eight years old, I'm charting IBM. I did it for probably two years on a weekly basis.
Jay Woods:
And then when I was nine in the summer, he brought me to the floor of the New York Stock Exchange. And he brought me into the IBM crowd. Now he loves to tell this story. I have vague memories of it, but I brought my chart and the specialist at IBM put me up on this foldable seat. And I stood there and I showed him my chart and he whipped out his chart. And we were looking at the charts together. And that was my first trip to New York Stock Exchange. First foray talking to a specialist, let alone the IBM specialist, which now trades right to my left and I make a marketing occasionally for my firm IMC. It's crazy how charting these stocks ended up forming the path. And then the ironic thing about it is once I started working on the floor, we trade IBM. So those two shares, which split and then split again, they used to split stocks. It was a cool thing. I had eight shares.
Josh King:
I miss that day.
Jay Woods:
I do too, but that's a whole another topic for another time. I had eight shares of IBM and I go to human resources as I'm signing my papers. They're like, okay, your stock holdings, you own IBM, you have to sell it. We're the market maker in IBM. I'm, oh, you got to be kidding me. So unfortunately I had to sell my IBM. It paid for a nice TV in my first apartment in Hoboken, which was nice. But yeah, it was crazy going down to the floor, actually charting these stocks and then 20, 25 years later, trading that stock. Crazy.
Josh King:
Anyone who's seen your appearances Jay, on our NYSE floor talk show knows you focus on the technical analysis when discussing the markets, when you're making decisions on the floor how do you balance your training of relying on this data that you're talking about such as VWAP, the 200 day moving average and other indicators with the gut instincts of your long 30 year experience?
Jay Woods:
Oh, it's a mix. What you want to do is you want to have a game plan every day, going into trading and trading has changed dramatically. You said VWAP [inaudible 00:33:06] volume, weighted average price, which is how people tend to judge how they're buying and selling stock. Now, 20 years ago, people would've been, what are you talking about? So markets evolve, but you still have to have a game plan. So I will know charts of the stocks I'm trading, look for levels that I think are good levels to support levels of resistance, where you may want to sell stock. And then there's some stocks that there's just kind of in the middle of a range and they don't need you.
Jay Woods:
You just stay out of the way. But it's a roadmap. It's not what I base everything on, but it's something I need to know as a trader, because if we get to a certain threshold, I want to know, all right, is this overdone to the upside, to the downside? Where do I get involved? If it breaks that moving average, is that why it accelerated? So there are lots of pieces. Gut is something we really don't use anymore. It's frowned upon now in the world of quads and back testing and position management. Back in the late nineties, you could take gut shots, you could take bigger positions, you would hold them overnight. Now we're very risk averse. And we're very smart about how we do things. So those gun slinging days, while they were fun, they weren't the most responsible. Although I think the majority of people did extremely well over time, but you know, right now you want to be smart.
Jay Woods:
You want to have a game plan and then you have to adjust. Making mistakes happen, and you have to realize it and get out. Four things can happen when you get into a trade, you can have a small profit, a big profit, a small loss, and a big loss, and to survive on the floor of the New York Stock Exchange or in this trading industry, you just have to avoid one thing, that big loss. And sometimes you have to put your ego aside and limit a loss, step back, and then look at the trade again.
Josh King:
So I listened to your episode on the Technical Analysis Radio podcast, where you mentioned an interesting chart, we'll call it the Art Cashin Leaving the Trading Floor chart. What has Art's absence from the trading floor meant to the markets?
Jay Woods:
Well, it was funny. That was a great podcast. We were talking about some of the topping indicators, and unfortunately Mr. Cashin had an accident and the day he left the floor was the top of the market. So I just threw that in as a joke. But Mr. Cashin is someone that I am in awe of. I'm in awe of his encyclopedic knowledge. I don't interact with him too much. I'm a little still... I still feel like I'm a 21 year old kid starting the job. But he's very approachable. He is the nicest guy and he has a story for everything. He remembers everything and he sees things develop as they happen. He can rationalize every move in the market. And you think about it. And the guy is spot on. I've never seen anything like it. So his presence is definitely missed. His appearances on CNBC, whether it was with Carl Quintanilla or Bob Pisani, were things that I would tune into every day.
Jay Woods:
Because if I was unsure what's going on in the market, I knew Art Cashin would be able to tell us. And from what I hear, he's doing well, he wants to come... He wanted to come back the next day. That's the kind of person he is. But I hear he's going to be back. The question of when.
Josh King:
And the day he left, I think was the day that the market hit its high.
Jay Woods:
Yeah.
Josh King:
And it hasn't been there back there since.
Jay Woods:
No, it was the day he left, the day I started doing NYSE floor talk with Judy Shaw. She got me and the market was down a thousand points. So maybe I am the bad luck. It was also the day that Phillie Phanatic changed its uniform. And I was very upset, being a Phillies fan.
Jay Woods:
You don't mess with greatness. So there were a lot of weird things going on, but this is 2020. Nothing makes sense. But yeah, when Mr. Cashin left, that iconic role model that figurehead of the floor, that spokesperson, was gone.
Josh King:
I've heard another of your axioms that you should buy when your stomach turns. What did the great recession teach you about this principle and do you expect a similar outcome from the 2020 recession?
Jay Woods:
Oh my gosh. Well, yeah, it's... There's this old Wall Street adage, Buy when there's blood in the streets and Art Cashin can probably rattle off 10 more of these great adages. This past one, when the market got hit and hit and hit, you're absorbing, you're absorbing, you're absorbing it. And then that last thousand point hit when we got to 18,000, when your stomach is turning, when you feel like you want to throw up, when you're ready to give up, that's the time to take the other side.
Jay Woods:
As a market maker we generally are that other side. So when everyone's selling, guess what? We have to be in there and buy. And when your personal portfolio is just... You don't want to look at that 401k. Yes, it's a gut punch, but you have to stand there. You have to take it. And you have to know that historically over time, these things bounce back. You can't predict where the bottom's going to be. No one is perfect at catching these falling knives, but it's also the same thing on the way back up. I remember one of my floor talks were Judy. I broke out the Dow 27,000 hat. Well guess what? That was the high. And I even joked with her. All right, we're getting a little euphoric. The stock market has rallied from a low of 18,800 back to 27,000 in record time. And I looked at my 401k today and Judy said, I did too.
Jay Woods:
That's when you're getting a little too comfortable and maybe the pendulum swung too far. And we have seen that. And right now we're kind of in the middle of the road. And let's see where we go from here.
Josh King:
Something that's been a little overlooked with everything else happening in 2020 is the introduction of zero trading fees by most of these retail trading firms and the growth of platforms like Robinhood. Is the influx of new investors good for the market, or does it add another level of uncertainty for companies and professional traders?
Jay Woods:
I think it's great for the market. I have a young kid who's interested in the market. I think getting new faces, new blood into this market, is a great thing, but it has to be done responsibly. And that's where you need financial literacy.
Jay Woods:
You need these firms to make sure. And I don't know enough to criticize them, but you have to make sure that when you have the new clientele and the new traders of the world, the Davey day traders, that you're doing so responsibly, that you just don't think the market's going to go up, up and up every single day. Because if you started investing March 24th, that's all the market has kind of done. So you have to have perspective. Now if we go back to the great recession, that was a similar time, but there were no fees. So you didn't get that new wave, that influx of people. To not charge anyone for a trade, yes, you're welcoming all these people to the market. To not have sports, you're welcoming people that need that quick fix.
Jay Woods:
And that's okay if you want to bet, but I just hope when people get involved, they have a strategy to limit those losses. It's the uninformed traders that put too much money on the line to risk it all without thinking that this could be a bad thing that you worry about. But anytime you can get new investors and new eyes on this market is a great thing. So the no fee trading has really ramped up things. And I think it's exciting.
Josh King:
When the Phillies return for their 60 game regular season, will there be a retreat from the sports betters who've now rejoined the market like Bar Stool's, Dave Portnoy, or are they back to stay?
Jay Woods:
I think there are a lot of them that are here to stay. Dave Portnoy is phenomenal. He is a showman. He is entertaining and he's being very profitable. But he's bringing a new set of eyes to this. And the people that have learned that are buying things that they know and they use, those are the ones that are going to stay. That's how you get people to learn about investing. In fact, the way I learn about some of these stocks, some of these high tech stocks, we had the disruptor 50, the NYSE published this list, and these are the stocks of the future.
Jay Woods:
Well you know who knows about these stocks? Are kids. These are the people that know what's coming. So if they can be in, guess what? They're going to find the next Amazon or the next salesforce.com, the next Square. They're out there. And if they come in and they're responsible and they want to learn, then I embrace them. The Davey Day trader, I hope he sticks around, but I know from being a stoolie myself, that he'll be back in sports and they've got great plans going over there. So I look forward to sports as well.
Josh King:
Speaking of these young kids, the tweet you pinned on your Twitter account relates to a story concerning your son and a hot stock tip he picked up from social media. What happened? And what did you both learn from the experience?
Jay Woods:
This was crazy. I couldn't believe how viral this thing went. I have a 14 year old son, freshman in high school, and he and the kids are sitting around the cafeteria. And this is January into February. And they were talking about Tesla. They're obsessed with Elon Musk. And they saw how the stock at Thanksgiving was at 350 at new year's was at 400. And now from new year's to the first week of February, it was almost at $800. And he looks at me, dad, I want to buy a stock. And, oh my God, this is... My son is interested in what I'm doing.
Jay Woods:
There's great pride. So I was about to embrace him and then it stopped and dawned on me, don't say Tesla. And he goes, how did you know? And then I'm like, oh my God. And he is, yeah, we saw it on TikTok. And all the stock does is go up. And I kind of let it slide for a week to see if this was just something. Because I didn't want him to get into something that had already gone... it tripled since he started looking at it and he came back to me again and I go, you know what we're going to buy you one share and I'm going to track it. So we tweeted it out. We tweeted out his journey and the day he went to buy it, it was trading at 804. And they did a secondary offering and it went down $64.
Jay Woods:
He bought at 741. So he got it on sale. The market goes down, it's on sale. So I texted him. I'm, you got it down $60. He's, this is great. And guess what? The stock rallied $60. So day one, the kid picks the low, it goes up $60 and he's bragging to his friends. He's sending me texts about how great he is. So then I copy those texts. I put him on social media and then it grew a following. So we wrote the story as it went from 740 to 800. The stock peaked at 938, which was February 24th, I believe. And then he went silent. He was a stock wizard and then he had his first down 100 day, then down 100 day. And then I check in on him and he's mad and he's angry. He's getting emotional.
Jay Woods:
So he took this whole ride from euphoria to despair in about two and a half weeks. And I go, whatever you want to do, you get the profit, you get the loss. I asked him if he wanted to sell it when he was up 250 bucks, he goes, no, it's going to 300,000. Oh, oh, okay. Smart man. And I guess he thought it was going to 300,000 very quickly. And then when he was finally losing money, he's, wait a second. I had all this money, the stock rebounded, he got out for a $40 loss. The ironic thing was, it happened in 20 days. I have a 30 day holding period. So I couldn't sell it for him. So I held the stock. He found out five days later, I was still holding the stock. It went down to 400. He text me, he goes, let's buy five shares more.
Jay Woods:
And I'm, wow, this kid, he wants to cost average down. It's getting through, he's still paying attention. He's learning. And I was so busy. I just ignored it. I get home it rallies again. And now I have somebody who I worked at home with for three months giving me grief. But that whole tale of him getting in and watching it and being euphoric and then seeing it puke out was unbelievable. It taught him a lesson. It taught him a lesson extremely quickly. And then two, three weeks later, he got the Davey Day traders of the world and they're following his example. They're hitting a little better than he did. It was fun to experience that, it was fun to write about it. And if anyone wants to read about it, it's at the top of my Twitter handle. So it's a fun read.
Josh King:
Well, it's sitting, TSLA is sitting at 960.85 today, ticking down 4%, Jay, after another one of those big down days today. So I'm wondering, what do you think the rest of the year has in store? Not just for that name, but for the market as a whole, are we going to retest the lows as our economy strains to recover?
Jay Woods:
Well, first of all, as we preface all our talks, this is not advice. This is 2020. I'd be crazy to know that. I'd be surprised if we retested the low. The fed is really injected a lot of capital into this market. They put such a backstop onto things that it would be hard to see such a dramatic drop off. Now you have the X Factor, you have the virus, you have the reopening, but will there be another shutdown?
Jay Woods:
I'd be hard pressed to see there's another shutdown. And then we have something coming up that's going to make all the headlines. We have a presidential election. And historically in... This is a technical thing, in years of presidential elections, you do not see the market sell off dramatically. In fact, the market tends to rise. So we may see a rally into the election, as things heat up, and then the discussion will be which candidate is best for the market, for this sector, for that sector. So there's a lot that's going to move this market. I expect a lot of volatility going forward. A retest of the lows that would be dramatic.
Josh King:
As we wrap up Jay, your career start coincided with the 200th anniversary of the exchange. We are up to 228 years. Now, what do you think the floor will look like when it gets to 250? And will you still be at your post to celebrate?
Jay Woods:
Wow. 250 and will I still be there? Oh, I can't get through this week. Think about they... It would be an honor to still be there, to be one of those old timers. There's no doubt about it. Who knows how the floor evolves during this time? You told me 10 years ago where we would be today and being behind Plexiglas and seeing what's going on. I would say no. Would I love to? Yes. I love going to that job. I love going into that building every day. It's a great sense of pride, but 25 years from now, that would be crazy. If I am there I hope they get me a cake and I get to ring the bell.
Josh King:
We will make sure you ring the bell at 250 Jay. If you get to that 250th year, that'll still put you a decade behind Mr. Cashin's current 61 years on the floor. So I think you have your work cut out.
Jay Woods:
I'll let Mr. Cashin hold that record because I think he's going to add to it in the next five to 10 years as well.
Josh King:
With that Jay, thanks so much for joining us Inside the Ice House. Real pleasure to have you.
Jay Woods:
Thanks Josh. It was great to be here.
Josh King:
And that's our conversation for this week. Our guest was Jay Woods, designated market maker with IMC. If you like what you heard please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Pete Asch and Ian Wolf. I'm Josh King your host, signing off from the remote library of the New York Stock Exchange here in the Catskill Mountains. Thanks for listening. And I'll talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
