16. LUNCH AT SCARSDALE FATS’

With all that money in so relatively few hands, it was inevitable that someone would get the hands together on an informal basis, just as a pleasant, tension-relieving gesture. The gentleman who is the Madame de Staël of the institutional investment business is called Scarsdale Fats, and he really does exist. He exists, he gives lunches, and everybody comes. Lunch on Wall Street is working time, and what started at Scarsdale’s informally has developed to such a point that the lunch guests bone up beforehand and take notes.

On any given day, the lunch guests at Scarsdale’s are likely to represent a couple of billion dollars in managed money. Now, when you handle this kind of money, you are, believe me, welcome almost everywhere. You could eat at any place on Wall Street, free, in private dining rooms where the paneling has been flown over from busted merchant banks in the City of London, where the silver is hallmarked with the house mark, the house being Lehman Brothers or Eastman Dillon or Loeb Rhoades or even the places that fly their own flags over the Street. Over in the other private dining rooms the waiters move on cat feet and dishes never clatter and the cigars are pre-Castro Uppmanns out of the firm humidor, and through the pleasant masculine Havana haze after lunch you can feel, as the voices murmur about pieces of empire, $100 million here, $200 million there, that all’s right with the world, if there’s trouble anywhere we send a gunboat and give the beggars a good thrashing.

So why are they here at Scarsdale Fats’, these guys with all the money? Here there is no French chef, no house silver, no paneling, no carpeting, no noiseless, perfectly uniformed corps of waiters. The chairs are metal folding chairs, the tables are plastic, there is a big bowl of pickles on the table, the napkins are paper, and if this is the private dining room of a New York Stock Exchange firm, Wall Street is not what it used to be. If the trend catches on, Robert Lehman will look at the empty seats in his dining room and think the chef has been putting flour in the gravy, and John Loeb will be sitting in his like Stella Dallas wondering if everybody somehow got the date wrong, not that either of them is going to get any poorer.

And here is Scarsdale himself. As far as I know it was a couple of the Boston institutions that hung the nickname on him, which shows that Boston institutions are not as stuffy as they used to be. In the old days they wouldn’t talk to anybody who didn’t have a Groton nasal drip, and now they’ll talk to just about anybody they think will make them some money. Anyway, here is Scarsdale, pressing the hors d’oeuvres on his guests with mother love, eat, eat. He has already wolfed down about a third of the deviled eggs himself, so the guests better be quick on the draw. Obviously he stepped over, not on, the scale his partners keep beside his desk to save his life. One of his enthusiasts describes him as “glob-shaped.” Minnesota Fats is an ectomorph and Sydney Greenstreet would blow away in the Scarsdale Fats ratio! All Scarsdale will say is that he is comfortably over two hundred pounds. Let’s say he is pyknic. Look it up.

Scarsdale introduces the guests. There is a guy who handles the trust accounts from a Very Big Bank. And a second Very Big Bank. And two guys from Very Big Funds. A young gunslinger type from a performance fund. A hedge fund-er and a man from one of the statistical reporting services. The effort of introducing everybody makes Scarsdale so nudgy he washes down the hors d’oeuvres with a roll and butter.

And why are they here? Because Scarsdale asked them. Let him tell: “I had to do it to compete. What have I got? Nothing. Those hot young research analysts at Donaldson Lufkin can write hundred-page reports. Bache can field a thousand salesmen. The white-shoe firms can fly the Old St. Wasp flags. So I thought: Who has money? The funds. Be nice. Ask them to lunch.” To corned-beef sandwiches, to meatballs? “Everywhere else these guys go, somebody is trying to promote them, to sell them something. Not me. I have no opinions.”

So what Scarsdale did was to call, say, Wellington, and say that Keystone and the Chemical were coming to lunch, and then he called, say, Keystone and said the others were coming, and then he called, perhaps, the Chemical and pretty soon there he was, Perle Mesta. Two more things helped. One was the rules: Everything is off the record, informal, no names, no sandbagging. You don’t want to say what you’re buying, fine, but don’t say you’re selling what you’re buying or Scarsdale will come and lean on you himself and then no more meatballs forever.

The other thing is Scarsdale himself, the way he runs the lunch with no nonsense, as if he were Lawrence Spivak and there were only thirty minutes minus commercials to extract the truth.

Now look at it another way. You are thirty-two years old and you are a portfolio manager making $25,000 a year. All you have to do is handle $250 million and make sure it does better than anybody else handling a portfolio anywhere. You get two phone calls, lunch invitations, one from the old firm with Wedgwood plates in the private dining room and one from Scarsdale. You already know what stocks the Wedgwood-plates-dining-room people are selling. At Scarsdale’s you can find out—maybe, because there is a certain poker-game aspect—what some of your compatriots are up to, and nobody will try to sell you. Certainly not Scarsdale; he prides himself on not knowing anything, even though his corned-beef sandwiches are buying the best research in the country. All you have to do is stay friends. Maybe—it’s not required—you give him a little order sometime, a thousand Telephone, just to help pay for lunch. Where do you go?

“Awright, everybody siddown,” Scarsdale says. He calls on the man from the Very Big Bank. What’s gonna happen, and what are they buying?

The man from the Very Big Bank starts talking about the gross national product and productivity and other verbal smoke-screen items and Scarsdale cuts him down.

“You had seven hundred million in cash last week. You still got it?”

“We spent fifty million,” admits the man from the Very Big Bank. “We bought some utilities, at the bottom, before they went up last week.”

“Of course before they went up,” Scarsdale says. “Anything else?”

“This bear market isn’t over yet,” says the man from the Very Big Bank. “You fellas—you young fellas under forty—you haven’t seen a real bear market. You don’t know what it is.”

“Did you buy anything else? Come on, come on,” Scarsdale says.

“Nothing else,” says the Big Bank man, but nobody is leaning forward to hear because most of the other guests are under forty and they don’t know what a real bear market is. They’ve just seen the market go down $100 billion and their best holdings have melted and if this isn’t a real bear market they don’t want to know about the real one. Maybe next time the Chinese will have ICBMs.

“All right,” Scarsdale Fats says. “Give the man over there some meatballs,” he tells the waitress. Scarsdale Fats strikes like an adder at the meatballs as they go by and manages to spear two before the bank man falls gratefully on his portion. Then he butters up another roll to refuel. He turns on one of the fund men.

“Charley X was here for lunch Tuesday,” he says, mentioning a rival fund manager. “He says this market is like it was in fifty-seven-fifty-eight. He says he bought stocks at the bottom.”

“He bought at every bottom this year,” says the fund man, “and every bottom was lower than the last. I’m surprised he has any chips left.”

“Where is the market going?” says Scarsdale.

“We’ve seen the lows,” the fund man says. There is a collective ah-h-h from the assembled guests. Candor. Commitment. The market turns around and drops through 744 on the Dow, this guy has committed himself wrong, but he’s definitely committed himself.

“What three stocks do you like?” Scarsdale says.

“We nibbled at a few airlines,” the fund man says.

“The airlines have had it; we’re selling our airlines. Look at the strike settlement. Look at equipment delays. You can have them,” says a counterpart fund manager across the table.

“So go sell your airlines,” the first fund man says. The guests are warming up, and the lunch is turning into a success. “We think the growth stocks will move up thirty percent or forty percent from here, the true ones will double, and the others will drop away and disappear.”

“What growth stocks? What growth stocks?” says Scarsdale. Scarsdale does not even know it, he is being such a good moderator, but at the moment he is eating all the remaining rolls in the roll dish.

“I bought some Polaroid, down around the lows, maybe at one hundred twenty-five,” says the fund man. There is another collective ah-h-h. Nine other slide-rule brains are working away: Even if he says he bought it at 125, maybe he bought it at 135. If he bought it at 135, and the earnings go up, he’s not going to turn around and sell it. Strongly held Polaroid at 135. Ah-h-h.

“What earnings next year for Polaroid?” says Scarsdale. “Four dollars? Four-fifty? Five?”

“What’s the difference?” the fund man says.

“Good,” Scarsdale says. “What else? What other stocks? What else?”

“Well-l-l,” says the fund man, “I may have bought some Fairchild at the lows. I think I bought some at ninety-six.”

“Fairchild never sold at ninety-six!” hollers the second bank man. “The low was ninety-seven.”

“No sandbagging!” Scarsdale cries.

“Maybe it was ninety-eight,” the fund man says. “I recall buying a lot at ninety-eight.”

“Fairchild is falling apart,” says the man from the hedge fund. With a hedge fund, you can go short. “Fairchild has lost control of its inventories. The Street doesn’t know it yet, but Fairchild’s fourth quarter is going to be disappointing.”

“I don’t care,” says the fund man.

“Next year could be extremely disappointing,” the hedge fund man says.

“I don’t care,” says the fund man.

Now the lunch has really warmed up. Maybe the hedge fund is short the Fairchild the other fund is long. Gunfight at the Broad Street Corral. Or maybe the hedge fund man isn’t short the Fairchild—he hasn’t said he was—maybe he is just making growling noises to make people think he is short the Fairchild. When the Rothschilds got the word about the battle of Waterloo—in the movie it was by carrier pigeon—they didn’t rush down and buy British consols, the government bonds. They rushed in and sold, and then, in the panic, they bought.

“What else? What else?” cries Scarsdale.

“The market is going up,” the fund man says. “I don’t know for how long, and I may change my mind. Maybe next spring. But, for the moment, up.”

“Good!” says Scarsdale. “Give the man some meatballs! Give him some salad! Where are all the rolls?” Scarsdale cries to the waitress.

Lunch is over and Scarsdale is back at his desk. Two of the guests didn’t eat their cheese cake and the empty plates are now on Scarsdale’s desk, plundered, a few crumbs stirring after the pounce. Scarsdale is on the phone keeping his other institutional managers wired in, trusting there will be orders and other profitable fallout. He has his notebook open.

“Larry X was here to lunch today and he thinks we’ve seen the lows and he is buying some airlines. Joe Y was here and he thinks we have another leg to go on the downside and he isn’t buying. Harry thinks Joe’s figures on capital spending are ten billion dollars too low. Here are the airlines Harry likes …”

At the next desk, Scarsdale’s secretary is lining up some senators for a dinner Scarsdale is giving. The legends are already starting. Scarsdale is supposed to have introduced Neddy Johnson, the junior Johnson of Fidelity, to a senator and to have said, “This man controls two billion dollars.” And the senator says, “So what, we spend that in half an hour.” Senators! Next thing you know, there will be a tablecloth in Scarsdale’s dining room, and the pickle bowl will be gone, the silver will have a leopard’s head and the mark SF, everybody will turn stuffy again, and we’ll all have to figure out somewhere else to go.

It has been a while since that lunch where the hedge fund type who was short Fairchild and the other fund which bought it met head-on. The pickle bowl is still there, and Scarsdale does not yet have SF and a leopard’s bead on the silver, or a house flag, like Brown Brothers, fluttering over Wall Street. When senators come to lunch—and they do, including some Presidential hopefuls—there are steak sandwiches instead of corned-beef sandwiches. Sometimes there are tablecloths, too. Some day the whole operation will get upgraded to the point at which it will be just about the same as Robert Lehman’s, and nobody young goes to lunch there. Then some bright young fellow out of Yale will set a plastic table with corned-beef sandwiches and call up six funds, but by then Scarsdale may have replaced Lawrence Spivak or Mike Wallace as an interrogator, or he may have gotten so rich from the commissions the luncheon guests leave behind that he may not care. Because of certain changes in the Stock Exchange rules, it is harder to pay for lunches with commissions. But meanwhile, in the world of institutions, Scarsdale’s lunches are one themselves.