The Trade That Bought the New York Mets' Outfield

Editor's note: The best investments rarely look obvious at first. They're often messy, misunderstood, and ignored by Wall Street. But according to our colleague and former SAC Capital analyst Gabe Marshank, that's exactly where you can find the biggest opportunities. In this issue, Gabe explains how deep research and conviction helped turn one "beaten down" stock into a career-defining trade...

In investing, most good ideas generate modest wins...

But every once in a while, one trade defines a career.

For me, that trade was Texas utility company TXU.

But before I tell you about the nine-figure return, a Vegas bachelor party, or how it helped buy part of the New York Mets' outfield... you need to first understand how I ended up working for Steve Cohen at SAC Capital Advisors in the first place...

It was 2001. I'd landed a job at Pequot Capital, covering "old economy" stocks while my peers rode the dot-com wave. My boss offered me a role based out of London covering international tech, media, and telecom... right as the bubble was bursting. The job was cushy, the expat life even more so, but I felt underutilized.

That's when my buddy Matt gave me a call...

Matt and I played poker together regularly. He was brilliant, intense, and barely out of college. But he was already managing serious money for Cohen at SAC Capital. Matt pitched me hard. "Come back to New York," he told me. "Come build something."

I did. And it changed my life.

Matt and I became partners. We worked on his portfolio, but I watched him pitch his stocks to Steve relentlessly, showing him where we thought the market was wrong. One day, Matt told Steve, "You need a team of analysts that works just for you. A personal bench."

That conversation led to a new internal team, of which I became one of the first members.

That's how I ended up pitching TXU directly to Steve...

In 2004, TXU looked like a disaster. It was a Texas-based utility weighed down by debt and bad press. But my analyst Jamie spotted something others didn't: new CEO John Wilder.

Wilder had just come over from utility company Entergy (ETR), where he had been the chief financial officer. Jamie was convinced he was the real deal.

We watched closely as Wilder started cleaning house, selling assets, fixing the balance sheet, and boosting earnings power.

Wall Street didn't care. Analysts thought TXU was dead money.

But we didn't. The stock was trading at $25 a share when we started buying in 2004. We believed it could earn $7 a share by 2007. That became our internal rallying cry: "7 in '07."

As the company executed, earnings improved. The Street began to notice. But we were paying closer attention. Its first quarterly earnings report after we established a position was a blowout.

The stock was up in pre-market trading, but we thought the move wasn't nearly enough. We bought as much stock as we could below $32. It closed that day at $35.

Over the next three years, the stock kept climbing. Not only did Wilder get the company out of its financial bind, but the operations started generating enough cash to establish a massive share-repurchase program. It seemed like the stock went up every single day.

Finally, in 2007, private-equity giant KKR (KKR) acquired TXU in the largest leveraged buyout in U.S. history at the time. The deal valued the stock above $70.

We had tripled our money in three years...

That single idea generated a nine-figure return. At the time, it was the most profitable trade in SAC history.

Steve Cohen, characteristically understated, used some of the profits to help buy an MLB franchise, the New York Mets.

I used to joke that I bought him his outfield.

But the truth is, the TXU trade worked because we did the work.

We didn't just listen to earnings calls or read sell-side notes. We made our own assumptions, starting from scratch. We rebuilt the model, tracked commodity price sensitivity, and dug into the company's hedging program. We studied power plant utilization, and we questioned every input and assumption.

Wall Street saw a levered utility. We saw a home-run setup.

There was nothing flashy about TXU. It wasn't a sexy tech stock. It was a beaten-up power company in Texas. But it had what great trades need: an asymmetric risk-reward payoff and a catalyst (in this case, Wilder).

That trade taught me everything about conviction.

It also taught me something about Steve Cohen...

Steve didn't just want ideas. He wanted to know how much you believed in them. He wanted to see the research, the edge, and the timing. But most of all, he wanted to see conviction. That's how he knew how to size a trade.

Steve was the ultimate capital allocator. And when he believed in you, he went big.

He also knew how to reward success...

In 2007, ahead of my wedding, Steve got word that I was headed to Las Vegas with my coworkers for my bachelor party. He offered to fly us out there on his private jet. He said his parents lived there and it was a good excuse to see them and have some fun with his younger colleagues.

So off we went – a crew of analysts on Steve's jet, gambling in Vegas, brushing shoulders with boxing legend Floyd Mayweather, and drinking cocktails in clubs next to Canadian rock band Nickelback.

At the blackjack table, I watched as Steve split a pair of eights, doubled down on one, and lost on all three hands.

The dealer winced. "Tough beat," he said. "I'm sorry. That $300 has to hurt."

We looked at each other and laughed. TXU had made SAC Capital more than $100 million in profits.

The big lesson for investors?...

Great trades rarely start as obvious trades.

TXU didn't have a clean narrative. It had a messy past and a misunderstood turnaround. But we ignored the noise and focused on the numbers.

Great investing is about seeing what the market doesn't... then betting big when your research and thesis align.

It's also about patience. We held TXU for years, through volatility and doubts. We had done the work, we knew what we owned, and we maintained conviction the whole way.

Today, too many investors chase momentum or consensus. They want instant gratification. But alpha (beating a benchmark) doesn't come easy. It comes from deep research, creative thinking, and the nerve to hold when things get uncomfortable.

TXU was a test of process and patience... and a masterclass in what happens when you're right.

So next time you're looking at a stock that seems too boring to bother with, ask yourself: "What am I seeing that others aren't?"

That's where real opportunities live.

Sometimes, they even get you a seat on a private jet to Vegas. 

Good investing,

Gabe Marshank

Editor's note: A failed power auction in Pennsylvania is sending shockwaves through the energy market. And as a hedge-fund veteran, Gabe says most investors still don't understand what's coming. The Department of Energy warns blackouts could rise 10-fold in the years ahead. But Gabe says this crisis is also creating a rare opportunity in a small corner of the market most investors have completely overlooked.