Earlier this week I did a post about an insane trade from the 90′s, and asked readers to submit their favorite trading stories from that decade.  I got a great one from Jean Fonteneau (@JFinDallas on StockTwits)  which he has kindly allowed me to post.

I have quite a few trading stories from the late 90’s, got to see a lot of crazy trades and crazy market moves and got to travel the world and meet all sort of interesting and crazy people in the process of chasing the bubble.

I can vividly remember that day in April 2000 where the Nasdaq was down 16% at some point during the day, high flyers dropping 40/50 points, closed down 9% and was up like 10% the next day…

Most of my stories revolve around the IPO market, pretty much since the Netscape IPO in 1995, and even more so starting in 1997 the IPO market was booming (or more like exploding, big-banging, insert superlative here).

I was a partner (junior partner that is) at a small fund focused on small/mid cap US market, mostly technology, we were trading the market very actively (today it would be a fancy ”hedge fund” but back then it was just a “fund”) and playing the IPO market very aggressively, basically that meant we were showering any broker that had the potential to underwrite hot IPOs with very large amounts of commissions, it was all very established (and very corrupt in a way) at the time, your fancy $GS, $CS, $MS, $RS, $HQ etc… broker would pretty much straight tell you if you do this much amount of commission with me for this year, you will be in this bracket and you will be entitled to this allocation.

So it had all started in 1995-96 with brokers calling us saying “hey, I have X thousands of shares of XYZ Silicon Valley obscure software/microchip company for you if you want them ?” and they would be instantly up $2, then they would be instantly up $5, then $10, the $20 and $50. I think I remember the first one that really really got of the rails, Broadcast.com, BCST, I remember me and my partner looking at each other like “this shit is getting really crazy” as we were ringing the register. http://news.cnet.com/Broadcast.coms-bang-up-IPO/2100-1001_3-213462.html (By the way best trade of that era still Mark Cuban cashing out at the top).

The number of IPO grew exponentially and the premiums that some of them enjoyed also, we were involved in almost all of them, now in almost every developed market around the world. I remember that period as pretty much every day coming to the office have my jaw drop at the amount of money that had been printed, start again the next day.

I would regularly go to deal roadshows, a fancy powerpoint presentation around a fancy meal in a fancy hotel, it started with one a week, then it was two a week, then three, then I remember one week at the height of the insanity in early 2000, I had almost every breakfast, lunch and diner that week booked with a roadshow, I think it was more than twelve that week, the end was near.

Thankfully my partner was a brilliant mind, older than me and had a lot more experience than me with the markets, everyday as we were counting the loot of that day he was quick to remind me “This is all a great carnival, an illusion, something never to be seen again in our lifetime, and it will all end very badly…” (this would save us and our investors a lot of money later…)

Probably didn’t need all that background info to lead us to that one trade, but oh well… So for me the trade that pretty much captured the era, the VA Linux IPO in December 1999, lead by Credit Suisse First Boston, deal was priced at $30. Our broker that usually treated us well (because we treated him well…) gave us what looked like a pretty small allocation and we were sort of pissed of at him.

Then the stock started to indicate for trading around $100, which didn’t even shock me as I had gotten used to this kind of crazy pop, but we definitely felt better about it (“Another hard day of work at the office, haha…”). At that price, multiples were already not in the hundreds but in the thousands, but who cared.

As time went by the indications started moving higher, $120, $150, $200, after an hour or 2 it finally opened at $299, 10 times the IPO price, $269 above what we had paid for it in an instant, and the craziest thing of all is that I didn’t even sell it instantly, I was so taken by the frenzy of the time myself at that point that somehow I felt it might go higher, nuts, and briefly it did hitting $320.

Thankfully my partner took the initiative and we sold our shares around $280, booking one of our largest gain on a single trade ever, of course this price would never be seen again, it would only trade south from there hitting $4 a few years later and then was finally bought out for peanuts.

To this day I can’t think of any stock being up more than $250 or 1000% in a single day, this was 1999.

(Also to this day I can’t understand who in their right mind would think it was reasonable to bid $300 for that stuff after it had been already grossly overvalued at $30 by bankers and analysts, but I guess that’s the nature of the stock market when in tulip stage).

Some souvenirs of the “Great Carnival” I have gathered and keep in my office.

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