Lee Stern: Trading 65 years and going strong

August 31, 2014 07:00 PM

Lee Stern technically started his career in sports prior to trading as he took a job with the Chicago Cubs after leaving the army in 1947. That job did not last long and he decided to go to school at Roosevelt University in Chicago. 

While at Roosevelt he answered an ad for a runner position at the Chicago Board of Trade. He took the job because the hours suited his schedule. Having just got out of service he wanted later classes. “It was at Merrill Lynch for $25 a week,” Stern says. “Well $25 a week, plus $75 a month from the government for going to school on the GI Bill, gave me $175 a month. In those days you were like a rich man. I was 20-years old, what more could you ask for?”

He took to life on the floor and began taking courses on commodities and looked to become a member. At the time, memberships were $2,500. His mother, who was a buyer at a major Chicago department store, lent him the money. 

He was able to save $500 for an opening stake. Traders he befriended encouraged him to talk to John McCarthy, a past CBOT president who ran a clearing firm. When he told McCarthy he only has $500 to open an account, McCarthy said, “Well if you had more you might lose it.” He cleared through McCarthy’s firm, trading corn and the relatively new soybean contract. 

McCarthy suggested he talk to Herman Gordon, a major broker who needed a clerk. Stern clerked for Gordon and filled the occasional order. 

“One day Herman handed me an order to spread 25,000 beans (five contracts) and the spread was about half a cent out of line,” Stern says. “The market got a little crazy and all of a sudden, I saw something and filled the order. I handed it back to Herman and he said, “How’d you fill the order? The market is a half to 1 and you were able to fill the order?” Stern responded, “One of the contracts was out of line and I was able to fill the order.”  

As the market became volatile he was able to leg the spread and discovered his key to success. “All of a sudden it dawns on me: that is a nice way to make a living. That is how I started trading. There were very few people spreading at the time,” he says. 

Later Gordon offered him Cargill’s book of business to  fill (Cargill was not yet a clearing firm), and he decided to accept. “I did it for about a month and I didn’t like it,” Stern says.  “I thought I could do better trading for myself.”

And he did. By the late 1960s he would take over McCarthy’s accounts and start Lee B. Stern & Co. (This was a different John McCarthy than the predecessor to R.J. O’Brien). Despite owning a clearing firm, Stern’s attention was always focused on his personal trading. Well, that and his interest in sports. In 1974, he founded Chicago’s professional soccer franchise, the Sting, and became a sort of pied piper for the sport over the next 14 years. He led the Sting to two Championships, including the first for any Chicago professional franchise in nearly two decades. He also became a minority owner of the Chicago White Sox in 1976. 

He describes himself as an instinct trader. I kept up on the news but traded based on what happened in the pit. I was a total scalper. I would have 50-or 100-lot spreads overnight but rarely carried [outrights] overnight.”

Stern will celebrate his 65th anniversary as a member of the CBOT in November. His tremendously successful career is not without its dark moments. The darkest came on Oct. 22, 1992, when two individuals—one a customer of Stern’s firm—attempted to manipulate the bond market by entering a series on huge orders. The attempt failed but left Stern on the hook for a nearly $8 million loss and a temporary suspension of the firm’s memberships. The memberships were reinstated and the record expunged but the episode still leaves a bitter taste. “How could these brokers take the orders? They were being given to them by people who had no authority,” Stern says. “Fortunately we were able to weather the storm. I didn’t clear anymore. I could have but there was no way I was going to put any more money into the business when the exchange failed to remedy the situation.”

Stern is 87-years-old, going strong and still trading. 

He still describes himself as an instinct trader but is weary of the large algorithmic traders. “The funds have taken over the business. It makes no difference today what supply and demand is,” he says. 

Despites this or because of it Stern is still able to pick winners, pointing out how he faded a large end-of-day move for a nice profit in corn the day we spoke. He says the algorithmic trading makes it very difficult for a guy who hasn’t moved with the times. That wouldn’t include Stern who follows as many as 10 markets from his office computer. 

“I trade bonds once in a while, gold, crude oil, soybean oil, soybean meal, Kansas City wheat, but mostly soybeans. There are always changes and you have to adapt to the changes.”

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.