What did Bear Stearns get out of this deal

I still had very friendly relationships with the people at Bear Stearns.

To some extent, they just wanted to help me out. But it was also beneficial to them because they gained a customer. Based on their previous experience with me, I'm sure they assumed that I would generate significant brokerage business for them.

After I left Ace's office, I went downstairs to the computer store and bought myself a Macintosh, which I set up on my dining room table. I constructed the spreadsheets for a transaction opportunity I saw would be feasible over the next few days and then faxed the sheets to a Fortune 50 company for whom I had done similar deals that had worked out well. They liked the idea and gave me the goahead. The next day I opened the account at Bear Stearns and did the other necessary preparations for the trade. On the third day, I executed the transaction, and on the fourth day, I went to the bank to open an account for $ 1 00 so that I could receive the fee as a wire transfer. In effect, Fletcher Asset Management was funded for

Could you elaborate on the strategies you're using today.

A common theme in all our strategies involves finding someone who is either advantaged or disadvantaged and then capitalizing on their advantage or minimizing their disadvantage. Arbitrage opportunities are very difficult to find without that type of an angle. We are still pretty active in the dividend capture strategy we talked about earlier. Our primary current activity, however, involves finding good companies with a promising future that need more capital, but can't raise it by traditional means because of a transitory situation. Maybe it's because their earnings were down in the previous quarter and everyone is saying hands-off, or maybe it's because the whole sector is in trouble. For whatever reason, the company is temporarily disadvantaged. That is a great opportunity for us to step in. We like to approach a company like that and offer financial assistance for some concession. For example, in a recent deal involving a European software company, we provided $75 million in exchange for company stock. However, instead of pricing the stock at the prevailing market price, which was then $9, the deal was that we could price the stock at a time of our choosing up to three years in the future, but with the purchase price capped at $16. If the price of the stock falls to $6, we will get $75 million worth of stock at $6 per share. If, however, the stock goes up to $20, we will get $75 million worth of stock at a price of $16 per share because that was the maximum we agreed to. In effect, if the stock goes down we're well protected, but if the stock goes up a lot, we have tremendous opportunity.

Are you then totally eliminating the risk?

The risk is reduced by a very significant amount, but not totally. There is still risk if the company goes bankrupt. This risk, however, is small because we are only selecting companies we consider to be relatively sound. In fact, a senior officer of one of the companies we previously invested in is now part of our own staff and helps us evaluate the financial prospects of any new investments. With this expertise inhouse, it would be rare for us to choose a company that went bankrupt.

The logic of the transaction is pretty clear to me. As long as the company doesn't go bankrupt, if the stock goes down, stays about unchanged, or goes up moderately, you will at least break even, and if it goes up a lot, you can make a windfall gain. Although there is nothing wrong with that, doesn't it imply that the vast majority of times these transactions will end up being a wash and that significant profits will occur only sporadically? Why wouldn't

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