NICK SOFOCLEOUS: If you can keep your head while all about are losing theirs, you're going to be just fine.

In your first experiences, you always think they're going to be replicated very soon. And it's good to have that as a mental record. But it's fatal for being able to trade correctly, because you miss your opportunities.

I ended up finding this negative 1300 tick on at least the third consecutive down day. And during a bull market, it's bulletproof.

TONY GREER: Hi. I'm Tony Greer, editor of the Morning Navigator newsletter. I'm excited for my conversation with Nick Sofocleous today. Nick is a 20-year veteran of Sanford Bernstein, currently a senior vice president. Prior to that, he has 12 years of experience in financial services in London. Because he is an employee of Sanford Bernstein, it's important to note that all of the views he expresses are his own and in no way expressions of his employer. I'm excited to get started with this conversation.

I was hesitant to bring you out here on camera because I like to have my closest confidant in the stock market to myself, or at least as to myself since I can get you. Nick, I want to thank you. You're one of the guys that I don't make a major move in my portfolio unless I check with Nick. I don't put on a size position unless I have spoken with Nick in the last 24 hours. And that has to do with your experience in the markets. I want to thank you for coming down today and sharing this with us, man. NICK

SOFOCLEOUS: Well, thanks very much for having me. It's a pleasure to be here.

TONY GREER: Yeah. So, let's start right at the beginning. August of 1987, when you got your start in the markets. Take it away from there, man. The S&P at 340. Gold under 500. And US 10 Year Yields at 9%.

NICK SOFOCLEOUS: So, yeah, fun times in in London. So, teenager, coming out of school.

TONY GREER: How old?

NICK SOFOCLEOUS: 17.

TONY GREER: 17, right onto a desk.

NICK SOFOCLEOUS: Yeah, well, not quite but close. But as close as you can get. And it wasn't on a desk and you weren't on the phones because there weren't enough phones for everybody. You weren't in front of screens, because there weren't enough screens for everybody. So, you had to work your way up. And that was post-Big Bang in London. There was some real jobs and real people in London in those mid-80s.

TONY GREER: And you get started right in the buy side, correct?

NICK SOFOCLEOUS: I did get started on the buy side. I was very lucky. And there was some people that decided to take a bit of a punt from someone that was fairly good with numbers. That happened to be me. Yeah, it was a really fun time. The 25th of August 1987 was peak market, pre-crash of October '87. I knew absolutely nothing. And everybody around me was busy. And they were busy learning. They were busy trading, they were busy assets-allocating.

And then after August of '87, in October of '87, we came up with a bit of a crash. And those days were amazing. Because when you know nothing, you learn everything. So, through the days in London, there was the hurricanes in '87. Lloyds of London was basically was touching go whether they were going to be around, they had massive losses, the crash of '87 in the US stock market. And there was one particular day, I remember it. I turned around to a colleague of mine, really senior, great, great asset manager.

And I turned at him and said, so, yesterday we were buying, but today we're not. Can you explain that? And he politely asked me to sit down and mind my own business for a minute.

TONY GREER: Stay out of the way for a bit.

NICK SOFOCLEOUS: That's right. That was right. So, it was '87.

TONY GREER: So now, you're in the middle of the firing lines, there is a market crash that takes the S&P down 22% or so and we probably wallowed around those levels for the next year or two before I guess the S&P broke out again in 1990. But what stuck with you from back then? What lessons did you pull away from being in such a volatile market with such little education at the time? Because I know all of that gets flipped on its head to where we are today.

NICK SOFOCLEOUS: Right. That's really interesting. What do you learn from '87? You learn from really smart people in '87 to keep calm that if you can keep your head while all about are losing theirs, you're going to be just fine. And that's really difficult to do in high volatility environments. But that's what I learned from '87.

TONY GREER: That's a very good point. So, from there, you started making observations on markets, taking it very seriously and picking up some tools into your toolkit as you grow as a trader. So, into the early '90s, we kicked the decade off with a war in the Gulf, we start moving into the very, very beginning of the internet boom, the infancy stages, I would say in the early '90s, '92, '93. Tell me about your experience on the buy side as a young, now, someone in your early 20s going into that experience.

NICK SOFOCLEOUS: So, 1990, you've got Gulf War I. And the experience from '87 takes you into Gulf War I. Because when we started to rise in volatility in 1990, you could turn around today and say I've seen worse. So, all of a sudden, you weren't panicking anywhere near as much as you were in '87. Fast forward into now, you're catching a bit of a wave of a bull market from '91 through two, three and into '94. So, now you're into '94. And you start getting an IPO calendar that is taking flight. So, every day, every week, you've got these red herrings coming through the post, and you're having to read these red herrings, there's no email, and you're placing orders to buy these IPOs. And every day, there's more IPOs.

Now, history has told you if you could sit through '87, through 1990 and '91, you were in a bonanza situation in '94 and into '95. Fast forward, you start getting into the Fed cheap money, Greenspan doing everything that he can do to calm everybody. Then Greenspan turns around and says irrational exuberance. And you think the bubble is burst? Far from it.

TONY GREER: Yeah, exactly. So, we keep going.

NICK SOFOCLEOUS: And we keep going. We're into 97-

TONY GREER: Amazon is delivering everything to your house already. Starting with books and CDs, but we're getting there.

NICK SOFOCLEOUS: Right. But then the real trades are, if you can hang on to the bull market in the US, your real trades are being driven by currencies and being driven by rates. So, with Russia having its troubles in '97, the US didn't care, as in the US stock market really didn't care. Fast forward, '98 and LTCM blows up. So, the lesson of '97 into '98 is as much as you think it matters in Russia, it doesn't matter until it's on your doorstep. And your doorstep was LTCM in '98, which was another episode of if you can keep your head while all about are losing theirs, you were in great shape. Because then you rode late '98 into '99 into early 2000s.

TONY GREER: So now, were you actively- do you recall yourself thinking about your first days as a trader and the stock market sort of crashing back then, back in October of '87? Are you worrying about this the whole time? Are you seizing your opportunities on all the tips and stuff?

NICK SOFOCLEOUS: It's so funny you should say that, that's so true. In your first experiences, you always think they're going to be replicated very soon. And it's good to have that as a mental record. But it's fatal for being able to trade correctly, because you miss your opportunities. And that's when you try to gauge when you have opportunities. Are you in a bull cycle? Are you in a bear cycle? Are asset prices going up? Are asset prices basically going down? By the way, asset prices going down might mean asset prices are just flat, which is what we have now.

TONY GREER: So, the markets are rallying ferociously into '98, '99, toward the dot-com bubble, which we haven't gotten to yet. But in 1999, I know you made a tremendous life decision to change time zones, life centers, and everything. Tell me what was that about? How did you pick yourself up from being so entrenched in the markets in London and saying, okay, we're going overseas?

NICK SOFOCLEOUS: Yeah, that's interesting. So, early '99, I get a call from the company in New York, Sanford Bernstein. And they basically asked me, do you want an adventure, and I thought to myself, I've traded US now for '99- probably eight years. I've been observant of the market now for 12. If you want to be in the lion's den for US equity trading, you have to be in New York. So, I said, I'd love to be part of that adventure, they were kind enough to say we'd love to have you. And off I came from London to New York. Now, the interesting thing about moving countries- and a lot of your viewers will see this, a lot of people will understand what I'm saying is it's damn difficult.

TONY GREER: I can imagine.

NICK SOFOCLEOUS: It's damn difficult. So, the people that you thought that you knew well in a city of any time, could be 24 million people, you can note that 12 million here, 24 in the tri-state area, you actually don't know anyone, it can be the loneliest experience. So, what that teaches you is take everything one step at a time, don't cross bridges you don't need to cross until you're asked to cross them. Because there's too much to take on board. It's a big city, you're being asked to be a professional in a professional firm, in a professional setting, where quite frankly, you're the underdog.

And you have to understand you're the underdog. And you have to fight again and again, not only with the market, but with the people that are in New York, it's you- you almost feel it's you versus the world. But you can't take on the world at once, you have to do it one step at a time. It was a huge life lesson. It's one step at a time. Trying to do anything well take steps. And that was a huge lesson for me.

TONY GREER: Well, I would imagine it was a huge challenge, both shifting sides of the pond, but you're also shifting sides of the business, from the buy side to the sell side. You're going from making decisions that affect the portfolio to make sure that you're making money, or at least protecting yourself to now, establishing client relationships, figuring out how to protect your clients, figuring out how to educate them. Were you ready to go on the sell side with your sort of bag of market tricks? Or was it very much a process of saying, oh, this is a totally different job now, I've got to really learn everything from scratch. What was it for you?

NICK SOFOCLEOUS: No, it wasn't relearn everything. What you did is you took your information that you've gathered in previous years, you took your personal stats that you looked at on your screens that you made yourself, because they worked for you in how you looked at things, and then you applied it to the job at hand. And what you tried to do in those days, and it's the same for today, is help. You try to help. You try to use that information to help so that other people could maybe be successful using your tools. They may not find those tools to be helpful at all. But invariably, they did. And invariably, they became as successful as they wanted to be. And you were part of that success, which was tremendous.

TONY GREER: Yes, I know. I have some remembrances of that from being on the sell side on a sort of later date. But it was very rewarding to be able to say, look, this is what I've learned in the markets, you guys have got to look at this and to point out a blind spot to somebody and have them say, oh, that was really helpful. You have got a seemingly endless number of market tools that you use to look at to formulate your views. When you and I speak on the phone, there's a sort of recurrence of let's look at this again. And let's look at this again. And where are we in cyclical versus non-cyclical? And what just happened in the tick index? And what has gone on with green to red days or red to green days? Can you tell me how that became part of your vernacular in any way?

NICK SOFOCLEOUS: Yeah. It's amazing, really. Because when you're in a bull market, when your growths are going bottom left, top right. And you've missed the first move. How do you get in? You know you're in a bull market, how do you get in? So, I've tried to figure out how there were these consecutive down days. And this all took me- I don't know- probably took me two or three years to understand that when you had consecutive down days, sometimes at the end of that, it was the right time to buy, but nobody could tell me why it was the right time to buy.

Why would they have these consecutive down days? Why were there three or four or five? Or in the crash, there was eight? Or nine? Why would they be this amount? And what was the difference between why there was three, or five? So, if I bought on the end day of the third consecutive down day, why did it go down on day four? Was I wrong on day three? If I was wrong, day three, why was I wrong on day three?

So, I needed something that gave me an indicator of that's a waterfall, that's everybody selling at the same time, so that I could then go, I will take the other side to that trade, because I know that that usually marks somewhere near the zenith of a move. So, I found this index, the tick index, and it is the amount of stocks that have just moved higher than the last price versus lower than the last price. And then I had to find a number that equated to the bottom of the waterfall.

TONY GREER: When was the selling the most intense?

NICK SOFOCLEOUS: Right. Whatever was holding the market up, when did that go? When did the floor fall out? And if I was bullish, I wanted to catch the bottom of the waterfall. I didn't want to catch everything going down. That's a falling knife. Neither did I want to wait to see if it worked out sometime later. Because then, all of a sudden, you don't get that wonderful V and your great entry points.

TONY GREER: At the bottom, they're near the bottom.

NICK SOFOCLEOUS: That's right. So, the tick index was something that I looked at, and when I might be able to use that. And then it was a case of what's the number? What's the negative number of that?

TONY GREER: How intense of a reading do you have to get on the downside or the upside, obviously, but we're talking about getting in on a waterfall. So, I'm assuming it's down.

NICK SOFOCLEOUS: Absolutely right. That took me another three years to figure out because I was using 1000, negative thousand. And then I would find that there was too many days that you'd had negative 1000. And it wasn't timing anything.

TONY GREER: They weren't determinable?

NICK SOFOCLEOUS: No. It was just noise. So, then I went to 1100. And then I had to wait for the days to see if 1100 worked. 1100 didn't work. So, then I went to negative 1200 going look, at some point, I'm going to get the number. 1200 didn't work. And then I had to wait for another set of days. And by the way, you only get three consecutive down days about 15 times a year. You only get four, therefore, eight, five, six and you're at seven, eight, nine. You just read, you don't see a lot of.

So, always having to wait to prove whether this was right, or this was wrong. So, I came up with this number 1300. And I remember the first time it worked and within a bull market. And as soon as it worked and as soon as we bounced, a light bulb went off. It was an utter light bulb moment. And then it had to be proven. And I was in a bull market. So, the cards-

TONY GREER: You're getting the chances to prove it.

NICK SOFOCLEOUS: The cards were stacked in my favor. And I knew that, so that you did want to buy. So, you had the most important function of I want to be a buyer, now, was a function of trying to find where I could get as close to an entry point as I wouldn't get stopped out. I found this negative 1300. I also had a rule of it had to be three consecutive down days. Now-

TONY GREER: Discipline is being applied. That's all.

NICK SOFOCLEOUS: That's what I'm doing. There's going to be days when you have negative 1300 ticks and you go, what just happened? But that's not an entry point. That's a place to ask a question. I ended up finding this negative 1300 tick on at least the third consecutive down day. And during a bull market, it's bulletproof. Now subsequently, I've learned that something gets triggered within the market to pull some either strategies that otherwise would be applied, they're not allowed to be applied. Because you see the whole screen go slower. It's like a go slow market as soon as you hit that negative 1300 tick in a bull market.

The last 18 months, we've seen this. On October last year, we saw that that negative 1300 tick was applied, was triggered. And then we had negative 1400.

TONY GREER: That's where we had several days below that. Reading the mood, eight or 10.

NICK SOFOCLEOUS: Now, this is where it gets interesting. You say, well, that rule applies. Surely. Yes, in a bull market. Totally. So, why did it break? Well, because we broke the market in October, and it manifested in December. That was brilliant information from the first week of October for me. And I looked at it and went, we got a broken market and discussed it with you, discussed it with friends, discussed it with other market participants. And then we get to Christmas Eve. And you go, wait a minute, we're doing something very strange here.

What all we're doing is going down, going down, there's going to be a divergence and sure is X is X, Christmas Eve boxing day we got that divergence. And you knew at that point, with that divergence, with those amount of panics that something somewhere wasn't right.