Delaware Investments was established during the Great Depression in 1938, a date which might be significant for financial historians who want to explain the firm's singular focus on value investing. The founder, Admiral Linton Nelson, was a strong believer in the adage that, "the best way to make money in the investment markets is not to lose it."
Still, Delaware Investments is not a stodgy old firm. It helped to pioneer the first small stock funds, single-state muni funds, and even high-yield bond funds. The firm has about $100 billion in assets, $30 billion in equities.
Gary Abrams, who joined the firm as a trader in 1997, is aware of Delaware's storied history. And he is quick to sing its praises. After a year on the job, he moved from the small-cap to the large-cap fund. "Of course, the average trade size is much higher today," said Abrams, currently a senior equity trader. "If I trade five million in a stock, it is likely not to make a difference in the stock price. It is a drop in the bucket. This was a big change from doing trades of, say, 500,000 in small-cap stocks."
Some of the challenges that Abrams must deal with today? One is decimalization. "I think it has been a hindrance for traders," he said. He gives an example: Suppose he wants to buy a stock at $80 per share. Before decimalization, this was much easier to accomplish. He could place a limit order and name the price of $80 or better. If someone else wanted the stock, he would have to pay $80-1/8. This extra 1/8th would be enough to deter traders.
But what about a penny? "Basically, I cannot place limit orders any more," Abrams said. "If I want the stock at $80, someone can come in at $80.01. This is done all day long – and it is usually the specialist who does it."
Abrams believes that a successful trader needs to "take a stand on a stock." In volatile markets, this is not easy. "If volume is light, I will not be afraid to take a significant position in a stock," he said. "In a few days, the markets may be roaring up 200 points."
The relationship between the traders and portfolio managers is very close at Delaware Investments. In a sense, the traders act as the PM's eyes and ears' for the market. "Many of our PMs are on the road a lot," Abrams said. "So they will call in often and get updates."
It helps that all traders have spreadsheets that provide real-time access to the PM's portfolios, as well as the benchmarks. "I follow the earnings reports," Abrams said. "I follow the general news, such as from CNN.com or the USAToday.com. It also helps that each trader at our firm focuses on certain industry segments." Abrams specializes in finance, drugs, oils and international.
This focus can be very helpful. An example is Texas Instruments. A PM wanted to sell the stock the day before the company reported its earnings. But Abrams advised against this step. "I noticed that companies warned about two weeks ahead of time," he said, "but this was not the case with Texas Instruments. They had ample time to warn the Street."
Well, Texas Instruments did not warn. Actually, the company gave an upbeat forecast, as the stock surged $1.66 to $33.79.
On the communications side, e-mail is one way Abram's keeps abreast of the latest information that has an impact on his firm's portfolios. "I have relationships with over 75 dealers, as well as traders at other firms," he said. "Every morning, I get e-mails from them about news they know I'll be interested in."
Technology is also helpful in monitoring results. "With today's technology, we can monitor our performance on an absolute basis and versus our peers," Abrams said. "Our funds have fared well lately, so even while the markets have taken their lumps, we have something to hang our hats on. With everything about the markets being measured in numbers, it makes it easy to add up your wins and losses at the end of each day."
Abrams does not just sit behind a desk all day. Actually, he was a jock in college, getting a track-and-field scholarship from North Carolina University. Right now, he plays a lot of basketball and flag football. In fact, his flag football team travels the country to play in invitational tournaments.
"We went to Myrtle Beach last year to play in the National Finals," he said. Apparently, he's just as competitive on the football field as on the trading floor. Last year, his team was ranked sixth in the nation.
