Jonathan Marriott, Chief Investment Officer
I started working in financial markets in April 1979. The UK was emerging from the Winter of Discontent, when over 29 million working days had been lost to strike action. It was the tail end of the Callaghan Labour government and Margaret Thatcher was about to win the upcoming election. The Bank of England base rate was 12.5%, but would shortly rise to 17%. The following year, interest rates peaked at 20% in the US. By the end of the year, inflation was 17.3%. These were dark times; there were candles and hurricane lamps left over from the power outages when the miners had been on strike. Memories of the stock market crash of 1974 were fresh in the minds of investors. As I look back to that time, I am awestruck by the changes that have taken place.
My first employment was as a stockjobber's blue button, a role that no longer exists. A jobber was a market maker in equities and bonds that made money from taking positions on the spread between the bid and offer. A blue button was the most junior member of the team and not allowed to trade. Shares were transferred by delivering share certificates with signed transfer documents; I spent my first two weeks delivering these around the city getting to know every street and alleyway. The jobber gave prices to the brokers who advised and dealt for institutions and individuals. There was a strict segregation between the two roles. Brokers worked on fixed commissions set by the Stock Exchange so had no advantage over another broker other than their analysis of the market and relationship with their clients. Stereotypically speaking, brokers had a tendency to look down on jobbers as the 'wide boys' of the market. As part of the first graduate intake, I was a little out of place. Many jobbers came into the market fresh from school at the age of 16 and worked their way up. The traders were sharp and knew their positions and trades in their heads. While most trades were written in trading books, some large trades were only recorded later to avoid anyone looking over their shoulder to see what was going on. These were the days of trading on the Stock Exchange floor face to face. Trades would be confirmed at the end of the day and entered onto mainframe computers that printed out positions and accounts on large sheets of perforated paper. "Dictum Meum Pactum", "My word is my bond", is the motto of the Stock Exchange and in these circumstances, it really meant something.
This was ten years before Tim Berners-Lee invented the World Wide Web. Personal computers were unheard of, as were emails. Mobile phones existed but were the size of a suitcase and far from mobile. Communication was by letter or telephone call. Company analysis was done using Extel Cards, printed sheets of historic company data, and by meeting the companies directly to get information. A company analyst would write up his results and a printed report would be sent to clients, who then considered it and sent an order to a broker. This could take days to happen and while the jobber could make a knee jerk reaction in moving his price, the full impact of company changes could take much longer to come through. The Financial Times pages were the main source of price data for most members of the public. Getting an up to date price would involve ringing your broker who would send his dealer to the Stock Exchange floor to ask a jobber a price. Jobbers worked on pitches and put indicative prices up on boards behind them. On one or two pitches there were small green screens that relayed prices in US stocks from across the Atlantic. At the time it did not feel slow as brokers rushed back and forth when the market was active but relative to today's instant access news and prices, it was very slow. The computerised world has changed the speed of communication and markets forever.
In the bond market, while some bonds were listed on the exchange, Eurobonds were issued in bearer form and traded between banks over the telephone. Yields were calculated using a special Monroe Bond Calculator where you fed in price coupons and maturities by hand. If you wanted a price history, some data was available on Datastream but this took a long time to access and was not available at your desk. The introduction of Bloomberg would change all this, albeit initially only to the benefit of Merrill Lynch clients. Bearer bonds still existed in physical form and interest came in the form of coupons that were cut out and redeemed. These carried elaborate pictures to avoid fakes and if the bond was bust then frequently they became more valuable framed as works of art.
In forty years, we have come a long way and the world is faster; systematic analysis is done and instant results are expected. This has made markets more efficient in some ways, but more dangerous in others. Modern day communication channels adds to market volatility and rapid responses to headlines can prove wrong when time is allowed for longer consideration. Computer trading can trigger even bigger moves. Twenty-four hour news means that small stories can be blown out of proportion by reporters looking for the next sensational headline. This constant flow of information can be intimidating for clients who need to take a longer view. With the vast amount of noise around markets, it is at times hard to see the long-term wood from the short-term trees.