When barbers turn to the stock market, it may be time to jump ship
'Do you surf the net?' said Tony, staring down at me in the mirror. Now, I know it's a barber's right to choose the subjects for discussion, but cyberspace was not on Tony's usual agenda. Last time, the conversation - or monologue - had revolved more predictably around Marcia Clarke, Rush Limbaugh and George Steinbrenner.
I wanted to explain that what I did couldn't really be called surfing; it was more like paddling gingerly in the shallows while wearing a life vest. But my questioner was anxious for an answer. 'You're into all that stuff, aren't you?' he went on.
'Kind of, yes,' I replied, hoping that the next question wouldn't force me to shop that my understanding of gophers and ftps wasn't exactly complete. 'Why do you ask?'
'I guess you made a whole bunch of money on that Netscape thing then,' he said. The conversation was taking a strange turn. Normally, when Tony talked about investments, they were his rather than mine. Over the years, I had got to know the story of every horse that had ever run at Aqueduct.
'Well no,' I said, explaining that the offer had been confined to institutions and private investors who had big accounts with brokers.
'It's always the same,' said Tony philosophically. 'When it comes to a dead cert, the big guys make it and the little guys miss out.'
'Well, in this case the big guys mostly act for the little guys,' I pointed out, causing Tony to pause in his work and give my reflection a doubtful stare. 'I mean, they're the mutual funds and pension funds who look after the money of small investors. They were the people who got the shares at $28 and got out when it hit $70.'
'So how much of that will the little guys see?' asked Tony. 'And what about the high rollers - the guys with big accounts with the brokers? They got a slice of the action.'
'Every business looks after its best customers.'
'You think so?' said Tony. 'The odds my bookie gave on the Tyson fight weren't that great.'
I advised him to confine his investments to the sporting arena. He clearly knew far more about Don King's business than he did about Marc Andreesen's. Once I had explained who Mr Andreesen was, Tony took up my prompt and launched into a detailed analysis of why the fight game stinks.
At this stage, the conversation was back on familiar terms, which meant that Tony was doing most of the talking. All I was required to do was to fill the rare pauses in his flow by contributing the occasional: 'You don't say?' or 'Is that right?' while I watched my precious locks fall under the scissors.
So I was given time to reflect on whether the securities industry was right to exclude small investors from IPOs. After all, only the so-called sophisticated investors are supposed to have the ability to analyse the detailed information which regulators around the world insist goes into offer documents.
Yet Netscape was a 16-month old company which had yet to make a profit. So it wasn't sophisticated analysis by anyone which enabled the underwriters to price the shares at $28 rather than $14. It was a perception of the expected level of demand in the secondary market created by the hype surrounding the offer.
Of course, we all know that value is not objective; it is the price which a buyer and a seller, each with equal knowledge, will agree upon. So who could complain if the closing price on the first day valued Netscape 45 times annualised sales and 37 times book value?
By now, Tony had finished. He held a mirror up behind me and I went through the embarrassing ritual of nodding approval. Then, as he was brushing me down, he said: 'I've given you some good horses over the years, haven't I?' When it came to the track, Tony counted himself as a sophisticated investor. So I didn't have the heart to point out that he'd also given me some pretty bum tips. Or that he was still renting his chair in the barbers shop instead of living it up in a condo in Hialeah.
'I know horses, you know the stock market,' he continued. 'And this information highway is the thing of the future. Right? So the next time one of these Netscapes comes along, you tip me the wink. OK?'
'OK', I replied weakly.
Outside the shop, I reflected that the last time a barber had talked to me about stocks was in the Taj in Bombay just before the scam broke and caused the market to collapse. And the time before that was in the Otani in Tokyo just before the bubble burst.
I wondered whether any quantitative analysis had been done to show that when barbers - and cab drivers and bartenders - started looking to stockbrokers rather than to bookmakers, something was about to go seriously wrong.
Maybe the fact that Tony wanted to get in on the act was insider information which I could use to my advantage.