25 May 2006

Mike Wekerle, the Best Trader on Bay Street?

The Globe and Mail, SInclair Stewart, 26 May 2006

He whisks in, a dervish in perfectly tailored pinstripes, raising a caramel leather briefcase by way of hello to the waiter as he navigates the tables, legs pumping like pistons, a trim, 5-foot-10 package of coiled potential who pauses for maybe a nanosecond to shake hands and slide out of his overcoat before plunging headlong into an accelerating discourse on crude oil and base metals, on the markets, mining and index movements, flitting dizzyingly between these subjects without any perceptible breathing, for that is a wasted effort, really, a time-killer for someone who is already checking the face of his gold Jaeger-LeCoultre and deciding he better order, then summoning the waiter, Pat (he never forgets a name), without so much as a cursory glance at the menu because he has committed it to memory along with God only knows how many prices and stock transactions.

It is barely 7 o'clock in the morning, but the last thing the Best Trader on Bay Street needs is a cup of coffee. He is plenty wired already.

I should have been prepared for this. Acquaintances and colleagues of Mike Wekerle—a.k.a. "the Wek," a.k.a. the Gretzky of the trading floor—had described him as "enthusiastic," "effervescent" and "energetic." Those adjectives seem like the stalest of canned responses until you meet the man himself; then they dissolve into gross understatements. Sure, the Wek is "energetic." And Bill Gates has done well for himself.

Wekerle is a vice-chairman and co-head of trading at GMP Capital Trust, a brokerage that caters to corporate clients and focuses on growth companies, particularly in the resource sector. His primary job is to help large investors obtain or unload large blocks of stock in these companies, either by bringing a buyer and seller together, or, if need be, by using GMP's own money to help someone get out of a position.

In this line of work, it helps to be fast. And the Wek has got fast in spades: It's in the lightning recall he exhibits for trades that occurred years ago, right down to the number of shares and the price; it's in his choice of toys (lately, a Porsche Carrera GT); and, above all, it's in his machine-gun verbal delivery. His words cascade so quickly that listening can be vertiginous. Take his view on what makes a good trader (but take it at double your normal speed):

"Trading is 40% art, 40% science and 20% luck. To be a good trader, you have to be lucky, but to be lucky you have to be good. You wake up early, you do your routine—going to the gym, or whatever you do that gets you going in the morning, that inspires you in the morning—and you come into work charged up, you're ready to go, so you put yourself in the right place. Therefore you're lucky. It's like being in the right place at the right time. If you miss everything, you're never going to be lucky. Bad luck is never good. I tell my people bad luck is bad for me, just don't be unlucky. It's a bad career decision."

Got that?

Wekerle is more than just lucky. On Bay Street he's considered the top trader in the business. (Off the Street, he's little-known; he has never given an in-depth interview prior to this article.) Even rivals attest to his canny feel for swapping stock, and few do it grudgingly. He may be No. 1 in an industry that runs on jealousy, but the Wek is well liked. "Michael drives this fabulous Porsche," says a former colleague. "If I did it, people would say, 'What a jerk.' With Michael, it's like, 'Isn't it nice?' "

Wekerle is "the best," declares Bill Holland, CEO of mutual-fund heavyweight CI Financial, which trades regularly with GMP. "A friend of mine who's been on the Street 30 years described him as a trading savant. There's no one who can put a buyer and a seller together better than this guy."

Everyone has a theory as to how Wekerle pulls it off. Is it his indefatigability, his refusal, at 42, to burn out? His contacts? His memory? His math power?

"You saw the movie Amadeus?" asks Seymour Schulich, the wealthy investor and philanthropist. "To me, he's the character in that movie, Mozart. He's a prodigy.

"I've never seen a guy who can keep more deals in his head than that guy. I'm not even close. He must have somewhere between 25 and 50 deals in his head at any given time. He's the best I know."

Oh, and one other thing, Schulich adds.

"He's got the balls of a cat burglar."

Meanwhile, at home, he heard about how the markets worked. The family had Old World finance roots: One member was Hungary's finance minister and prime minister around the turn of the 20th century. Wekerle's mother, Hermine, who emigrated from Vienna in 1952, taught at Michael Power High School in Toronto, while his father, Anthony, a chemist who emigrated from Hungary in 1949, ran an import-export business. It was a small operation that bought confectionery, syrups and other foodstuffs from Europe and then sold them to customers in Ontario and upstate New York. Sugar was a key expense in his business. Anthony discovered he could hedge his exposure to this crucial feedstock's price fluctuations—and even make some extra cash—by taking positions in the commodities market. Sugar eventually gave way to gold, and soon he was developing his own technical models, building trading systems and littering his office with charts. At 83, Anthony still goes down to GMP once a week to see his son and make a few trades for his personal account.

"My father had a very interesting, objective understanding of commerce, yet I think that he also knew what it takes to start from zero," says Wekerle. "Having been very wealthy in Europe, and having had to give everything away to start from zero again, it set up the kids [Wekerle and his three sisters] to be relatively grounded, knowing that to win you have to know how to lose."

Unsure what he wanted to do when he graduated from high school, Wekerle enrolled at York University and lasted one desultory year. Then a friend helped him get a job on the trading floor of the Toronto Stock Exchange.

He began with a since-subsumed firm called Geoffrion Leclerc, which had just five people in its trading operation. He spent his days fetching coffee and lunch for the traders, running errands and occasionally taking phone orders. It was menial work, but he loved it. Soon, however, Geoffrion chopped its staff to three, and Wekerle was faced with a choice: Go back to York, or shoehorn his way into another firm.

Not a hard choice. At 19, he was working bankers' hours, honing his backgammon game and making a decent wage in the bargain. It was too sweet to give up. So he worked up the nerve to approach Alec Miller for a job.

Miller—Barney, as he was known in the industry—was the burly head trader at First Marathon Securities, famous for inspiring fear on the floor. He could cow his charges simply by putting on a glare and walking around the room.

Wekerle didn't exactly look the part of an up-and-comer—he had scraggly, shoulder-length hair (even today his mane verges dangerously on mullet territory)—but Miller decided to cut him a break.

"Okay, kid, meet me tomorrow at 8 o'clock sharp," he said. "If it's 8:01, I'm gone."

The two met at the appointed time. After peppering the youngster with questions, Miller made an offer: Wekerle could have a job if he could get his hair cut and be back in 15 minutes. It took him 20, but he was hired, nevertheless.

"I yelled at him every day," says the now-retired Miller, thinking back to 1982. "I saw someone who was hungry, who was willing to work, who had good market sense and personality. But you never know until you get in the game. It's just like an NFL quarterback—some of them are stars in college, but they don't make it in the [pros]."

Wekerle made a good first impression at First Marathon. But you couldn't actually become a floor trader until you were 21. That gave Wekerle two years to ease himself in, soaking up whatever he could learn from the veterans, guys like Lawrence Bloomberg, John Lydall and Bob Disbrow. He also enrolled in a half-dozen courses on securities, bonds, futures and the like.

By 21, he was on the floor. A year later, he moved to Marathon's trading desk, coming in at 5 a.m. to trade the overseas markets.

As the young trader's stock heated up within the firm, so did his lifestyle. Traders were encouraged to spend their free time working the Street. Wekerle threw himself into the party scene. One of his more celebrated exploits came at the end of a posh dinner with Disbrow. His colleague bet Wekerle that he could "walk" across the ceiling, insect-fashion, by hanging onto a water pipe and pulling himself along with his hands. He managed the feat, as did Wekerle, and both were shown the door.

"We were out five nights a week, four at the minimum, in my early 20s to early 30s," Wekerle says. "I'd be coming home at 5.30 [in the morning]—now I'm waking up at 5. There's a time in your life when you can handle it, but it catches up with you quick. And it's a vice: The vices that kill the trading floor are greed, fear and excess booze or drugs or whatever."

First Marathon, founded in 1979, was an aggressive upstart that had quickly become a player in financing mining companies. Its "eat what you kill" culture stood in stark contrast to the blue-blood brokerages, and it got the firm into trouble with regulators more than once. But it was also a trading powerhouse for its size, and Wekerle was a key player.

Wekerle's particular forte was liability trading, in which a firm uses its own money to buy shares from clients looking to unload their positions. Say, for instance, that one of your regular customers wants to rid itself of a block of one million shares, at $10 apiece, in MiningCo. If you know someone who will take the whole trade, it becomes a matter of matching buyer and seller. But what happens if there are no buyers for that big chunk of stock? If the seller is a lucrative client, you can help him out by buying the shares. Your firm is left shouldering a multimillion-dollar liability and the responsibility for selling the stock. This is a delicate act—"like performing brain surgery on a mouse," says one brokerage official—and it requires a solid understanding of risk. Occasionally, the stock moves up and the firm makes a small profit. But usually, either because there is not enough demand for the shares or because they are being sold at peak prices, the firm will lose money.

Even considering commissions, this may sound like a marginal business. But liability trading is a crucial loss leader. By accommodating clients at First Marathon, Wekerle cemented their loyalty, setting the table for quid-pro-quo trading fees and financing work.

Word of Wekerle's feats at First Marathon—his razor of a memory, and how he applied it to find harmonious matches—didn't take long to spread on the Street. Gene McBurney recalls having drinks with some investment banking friends in early 1995. He and Brad Griffiths had just launched their own firm, Griffiths McBurney & Partners (later simply GMP), and they wanted advice on who should run their trading operation.

One of the bankers explained there was an A list and a B list. On the B list were about 10 names, all solid traders. On the A list there was only one name: Mike Wekerle.

Griffiths, meanwhile, remembers the panic that gripped First Marathon when the principals began to suspect their head trader was being recruited. The night after he and Wekerle went out for dinner, he received a call from one of the brokerage's top executives. The message was clear: "We don't want you eating with Michael any more."

It didn't matter. Wekerle decided to go, and several colleagues eventually went with him, including Kevin Sullivan (now CEO of GMP) and the trading duo of Anne Nelson and Cindy Tripp.

Any doubts about the wisdom of the move were quickly erased at Griffith McBurney's coming-out on Oct. 30, 1995. That date is remembered in political circles as the day Quebec narrowly voted to stay in Canada. But on Bay Street, it was the day a brand-new shop shot out of the gates. By the time the markets had closed, GMP was the leading block trader on the Street.

"There's a certain mental toughness you have to have," says Wekerle, who can be abrasive and hard-driving on the floor. "It's not, 'Please, can you do this?' or, 'Could you please pass me that fork?' It's like, 'Get over here and do this!' You have to be a team leader who motivates people and understands the value of being motivational, yet not destructive—where you are trying to pump people up, but you have to be able to knock them down. Not in a negative way, but in a positive way."

Wekerle insists—in every conversation—that it's not about him; it's about the team: "They really make Mike Wekerle the trader that he is."

There is indeed some evidence of team spirit at GMP. It is a perennial contender in the annual Bay Street tournaments in baseball and hockey. More importantly, there's no mistaking that GMP has bench strength on its cramped, low-slung trading floor. Wekerle isn't off in a gilded office, but sitting cheek by jowl with other accomplished traders such as Mark Hawkins, Bruce Minns, Mike Wilson, Cindy Tripp and Anne Nelson.

Still, there's no escaping that Wekerle's singular talent makes him the axis of the organization.

"A trader always has a bias," says a First Marathon colleague. "Mike is good at enunciating that bias for both sides. People think the platform matters more than the person. Michael is the exception to that rule. It's important to have a lot of people who will have enough regard for you to take your call. Michael has got the most people."

Once he has those people's attention, a trader must be able to tell two stories at once: why one party should be selling a stock, and why the other party should be buying it. The trick, most traders say, is making both sides of a trade happy.

Not Wekerle.

"If you can find an equal trade, where the two people you're trading with—both your clients—are a little unhappy at the end of that process, then you've done your job. If one guy's really happy, one guy's really pissed off, right? So if you keep everything kind of mediocre, then you've done your job. That's the best trade."

After listening to Wekerle talk for a while at one of our meetings, I begin to suspect he could sell me his half-finished breakfast if he felt like it. Yes, he can plot his moves several steps in advance. Sure, he's got the memory of an elephant (and the cojones to match). But what really makes the Wek a great trader is that he's a great salesman: He's almost congenitally difficult to dislike, and it's easy to understand how his almost childlike enthusiasm—never mind the torrential assault of his sentences—could make even the toughest customer feel defenceless.

Yet Wekerle insists that too much talk can sink a trader. Good traders are not dispensing information; they're absorbing it: from analysts, conference calls, the papers and, above all, their clients. They remember what made them buy or sell a stock, and note their fears and predilections, all the while weaving together a story they can pitch when the right forces coalesce.

"You have to remember those things from conversation after conversation as part of a building block that creates a trade," he says. "What people want in a trader is value-added—that you're investing with them, that you're a partner."

The attitude obviously works. In the game of block trading (blocks being groups of 10,000 or more shares), GMP has remained a force to be reckoned with. It was the top block trader in Canada by volume last year, using its dominance in the mid-cap market to trade more than five billion shares, or roughly 12% of the block volume on the Toronto Stock Exchange.

The big banks will question this ranking, arguing that it doesn't account for the value of shares traded, or for algorithmic trading (see "Man vs. algorithm," below), much less transactions in U.S. markets for international stocks.

But these are quibbles, given how dominant GMP is for its size. Wekerle does have a hierarchical advantage over most bank traders. As a vice-chairman of GMP, and one with a considerable ownership position, he can make snap decisions on major trades that are above the normal risk limits, rather than having to navigate a bank's complex approval process.

Risk, of course, doesn't daunt him. Successful traders, he says, accept that they're going to lose. And when they do lose, they assess what went wrong so they can mitigate their risk next time around.

"The average person, when they trade, they ride their losers and sell their winners," he says. "You're hopeful that maybe the losers come back. The winners go up 20 cents and you're happy, and you get out. The losers, you keep feeding. That's human nature. The best traders cut their losses and ride their winners. It's a very hard discipline to get into."

Once you're into it, though, you can trade with what Wekerle calls OPM: "other people's money." Take a breath:

"If you buy Company X at a buck, in your analysis you have to have a decisive view of where you want to exit. So where would you be happy, with what rate of return? If you believe that the company's worth $2 a share, and there's a 100% gain in the company, then it's prudent that over a period of time you start taking a profit.

"Different people have different thresholds. I've got a rule of thumb here that for every 25% that the company goes up, you take a range of anywhere from 10% of your position to 25% of your position, depending on how aggressive or unaggressive you are. It depends on how much capital you have and what your view on that company is. And over that period of time, for every 25% increment or 20% increment, you reduce your exposure to a point where you've taken your initial capital out of the transaction. And if the company continues to meet your expectation, then the best thing to do is to stay with that initial investment, which has a cost base of zero. You've taken off your original cost base, and you're running in the market with no capital risk inherent.

"It's like going to the casino and playing with their money."

"My wife is spectacular," he says. "I really changed my lifestyle when I met Lea-Anne. The only person that the king's afraid of is the queen."

The castle is a $4-million home in Forest Hill; the couple also have a property in Fort Lauderdale. Both are health nuts. He tries to work out five mornings a week, usually splitting his regimen between the stationary bike and free weights. She is more avid, and he credits her with weaning him off fast food. Now, Wekerle believes passionately that balance is in.

"You like to go out and have the odd beer, or go out and have a nice glass of wine, or go out and eat well. So you have to compensate. It's all about intake-outtake. If you can exercise the body, the mind's a stronger place. The better trading days are the ones that I have woken up at 5 o'clock, got on the bike and worked out, and come in fresh. And the worst trading days are after you have those occasional late nights, and you kind of drag yourself home very late, and have kind of a half-sleep."

Wekerle has reduced not just the time he spends in the high life but also his investments. He has owned chunks of three ├╝ber-chic restaurants: Splendido, Flow and Centro. Over time, he has sold his stakes in all but the latter, but he continues to have a stake in the former Indian Motorcycle Club, which is being made over under the name of the street it's on, King West.

He's not in it for the money—in the restaurant business, who is?—but rather because of personal relationships. He got involved with Centro to help its partners work out a difficult ownership structure, and ended up in Splendido because he's a friend of chef David Lee and manager Yannick Bigourdan.

"The reason I invest in people is because I look at the jockey," Wekerle says. "I look at the individual, and I like people that have a strong backbone and share the same kinds of views and values in commerce that I do. And if they're hard-working and they want to succeed, hey, all the power to them. I'll help them."

He can afford to. Wekerle made approximately $4 million in bonuses last year and about $3 million the year before (the GMP senior partners are only paid bonuses, not salaries). Yet this is chump change compared with the equity he has built up in the firm: more than $90 million worth, going by the company's unit price in early May.

Some of his energy and wealth goes to charity, either under the firm's name, or personally, with Lea-Anne. He helps organize various Bay Street sporting tournaments for charities, and last year his trading desk raised $1.27 million in a day for tsunami relief. His primary focus, however, is health care: He and Lea-Anne are backers of Mount Sinai Hospital, the University Health Network and the Hospital for Sick Children.

Wekerle doesn't mind discussing his benefactions, but he clams up if the subject is turned to another object of his spending: exotic sports cars. After some prodding, he admits that his toys do help rev him up for the job. He drove a purple Lamborghini Diablo until it was crunched by a delivery truck, and then replaced it with an orange model. This was a bit too flashy, so he traded it in for the Porsche GT, a street-legal race car that retails for about $440,000 (U.S.).

"One of the motivational tools I use is getting in the car at 6:30 or 6 o'clock in the morning, driving downtown. There's no cars on the road. Not to say that you need to speed, but acceleration from first to second gear is a pretty exciting thing. Going from zero to 60 kilometres per hour in a very short period of time, with whatever music you enjoy—it's a motivational tool that works for me."

Live fast and prosper.