CH196 | GSI

November 17, 1:00 PM.

A new two-letter ticker symbol had just been created on the New York Stock Exchange (NYSE).

The ticker was EL—marking the stock market debut of Estée Lauder, the luxury cosmetics brand born in New York.

“The trading is about to begin,” Landon said.

Seok-won leaned back comfortably on the sofa in his penthouse living room, his gaze fixed on the large television screen across from him, where CNBC was broadcasting real-time market updates.

“The IPO price was $26 per share, right?”

“That’s correct.”

Landon turned toward him and continued, “The subscription demand was so intense that we were only able to secure 500,000 shares.”

“It’s a shame we couldn’t get more, but considering how high the competition was, I’d say we’re lucky to have secured even that much.”

“Most analysts predict it will rise at least 15% on its first day.”

“I think it’ll go much higher than that.”

Landon, intrigued by Seok-won’s confident grin, asked, “How much do you think Estée Lauder’s stock will rise today?”

“It won’t be as dramatic as Netscape, but given how much attention this IPO is getting, I’d say at least 30%.”

Landon’s eyes widened slightly in surprise.

“A cosmetics company? You really think it’ll soar that much?”

“It’s not just any cosmetics company—it’s a luxury brand, famous for its brown bottle serum. That single bestselling product alone justifies a hefty premium.”

Landon tilted his head thoughtfully before nodding in agreement.

“True, that Advanced Night Repair serum or whatever it’s called is insanely popular with women. Though honestly, the name is so long that everyone just calls it ‘the brown bottle.’”

Seok-won smirked. “You sound like you’re speaking from personal experience.”

Landon let out an exasperated sigh, scrunching his nose.

“Don’t even get me started. My wife swears by that stuff. She insists it works miracles for her skin, so I’ve had to buy more bottles than I can count. Why else would I even remember the product name?”

Seok-won chuckled. “Then you must know firsthand how expensive that serum is.”

“Oh, absolutely. That tiny 1.7-ounce bottle costs a whopping $40.”

“And yet, the moment it hits the shelves, it sells out like crazy. You don’t even need to check their financial statements to know how profitable they must be.”

Seok-won took a sip of his tea before continuing.

“With interest rates expected to drop and the stock market booming, Americans are about to have deeper pockets—which means consumer spending will skyrocket.”

Landon nodded. “Makes sense. After all, consumer spending is the backbone of the U.S. economy.”

“When people have more money, their desire for luxury goods naturally increases. And that means Estée Lauder’s sales will surge right along with it.”

Landon let out a low whistle.

“So that’s why you instructed us to buy even more shares beyond what we secured in the IPO.”

As Landon looked at him in admiration, Seok-won quietly mused to himself:

‘With China’s economic growth, Estée Lauder’s revenue will explode. No way I’m missing this chance to buy in while it’s cheap.’

Of course, years later, their over-reliance on the Chinese market would backfire, and the stock price would tank. But that was a problem for the distant future.

And Seok-won had no intention of holding the stock that long, so he didn’t care.

“The market just opened,” Landon announced.

Pulled from his thoughts, Seok-won turned his attention back to the television.

As soon as trading began, a flood of buy orders poured in, and Estée Lauder’s stock shot past $30 per share in an instant.

Landon, caught off guard, stared at the screen in disbelief.

“It’s only been a few seconds, and it’s already surpassed the analysts’ predictions.”

But Seok-won just smiled and spoke in a relaxed tone.

"Just wait. It’ll go even higher."

As the stock price surged, a wave of profit-taking orders flooded in, causing the momentum to stall briefly.

But it didn’t take long for buyers to absorb the dip, and by the end of the first trading day, Estée Lauder closed at $40.12 per share.

Landon, watching in disbelief as Seok-won’s prediction proved spot on, shook his head in amazement.

“Incredible. It happened just as you said.”

Seok-won simply smiled, thinking to himself.

‘It went even higher than I expected.’

The strong buying pressure had been fueled not only by existing investors but also by Eldorado Fund, which had aggressively accumulated shares under his direction.

Just then, his phone rang. Seok-won picked it up from the table.

[We’ve completed the additional purchase of 500,000 shares as instructed.]

Hearing Andrew’s voice, Seok-won nodded and asked,

“What’s our average cost, including our initial holdings?”

[With demand so strong, our average price came to $30.26 per share.]

Seok-won responded calmly, as if he had expected as much.

“Well, considering we averaged up in a bullish market, that was inevitable. After such a sharp rise on the first day, profit-taking is likely to hit hard after the weekend when trading resumes on Monday.”

[With nearly a 60% gain for IPO subscribers, the temptation to sell will be strong, just as you said.]

“Keep buying in tranches under $35 per share until we secure a 5% stake.”

[Understood.]

After giving a few more instructions, Seok-won ended the call and set his phone down.

Landon, who had been sitting quietly, finally spoke.

“If Estée Lauder realizes we’ve become a major shareholder, they’ll reach out soon enough.”

Seok-won crossed one leg over the other and nodded.

“A 5% stake isn’t enough to threaten control, but it’s significant enough to get their attention. So yes, they’ll likely reach out.”

“Will you be meeting their executives yourself?”

“Hmm…”

Seok-won pondered for a moment before shaking his head.

“No. I have no intention of interfering with management. You’ll handle the meeting instead—make it clear that this is purely an investment, so they don’t feel threatened.”

“Even so, now that we’re a major shareholder, shouldn’t we claim a seat on the board?”

“Do as you see fit.”

Seok-won had full confidence that Landon would handle it well without further instructions.

He picked up the remote and turned off the television.

At that moment, Landon seemed to remember something.

“Oh, right. Have you been keeping up with the buzz on LTCM lately? It’s a huge topic on Wall Street.”

As soon as Landon mentioned LTCM, Seok-won’s interest was immediately piqued.

“Did something happen?”

“They made a 60% return this year just from trading Italian bonds and mortgage-backed securities.”

“That’s impressive—especially for a bond-focused strategy.”

Landon’s voice grew increasingly animated, as the topic was currently one of the hottest on Wall Street.

“With such high returns, new investors have flooded in, and their capital has already grown to $3.6 billion. Their total assets under management? Hard to say precisely, but estimates put it at well over $100 billion.”

At that, Seok-won narrowed his eyes slightly.

“If they’re managing over $100 billion, that means they’re leveraged more than 28 times.”

At the time, it wasn’t unusual for hedge funds to borrow ten times their assets to maximize returns.

Even Seok-won himself, despite leveraging his knowledge of the future, had relied heavily on high-stakes leverage to amass wealth at an extraordinary pace.

But even by today’s standards, LTCM’s 28:1 leverage ratio was dangerously excessive.

Landon, however, remained unfazed, as if he saw no issue at all.

“LTCM’s entire strategy is capturing tiny price discrepancies between bonds—basically scooping up pennies. To generate meaningful profits, they need enormous capital.”

The more money they managed, the more “pennies” they could collect. That logic was sound.

But Seok-won knew the real problem.

‘As long as they’re the only ones doing it, it works. But the moment competitors start piling in, margins shrink—inevitably.’

And in a shrinking-margin environment, there was only one way to maintain high returns:

‘Increase leverage even more—and take risks they normally wouldn’t have considered.’

In fact, LTCM—originally a conservative bond arbitrage fund—had already begun venturing into riskier merger arbitrage trades.

The concept was simple: buy stock in a company being acquired at a discount to the agreed-upon acquisition price, then profit once the deal closed.

If everything went smoothly, it was essentially a guaranteed profit.

But if the merger fell through? The stock price would crash, resulting in massive losses.

The fact that LTCM was now engaging in such trades was a blaring warning sign—but investors, intoxicated by its sky-high returns, failed to notice.

‘Well, that’s easy to say when you already know how it all ends. If I didn’t, I might be just as blind—hypnotized by the money pouring in.’

Or worse—I’d notice the risks but choose to ignore them.

Landon, still in awe, added,

“One of LTCM’s earliest investors has already made a 71% return, even after fees.”

Then, with admiration in his voice, he asked,

“Don’t you regret not investing in LTCM when they first launched?”

“It’s not like that.”

Landon hastily waved both hands, flustered.

The real reason for his reaction? It wasn’t his decision to stay out of LTCM—it was Seok-won’s.

After sneaking a glance at Seok-won’s expression, Landon felt relieved—it didn’t seem like he was upset.

Carefully, he suggested,

“LTCM is partnering with Merrill Lynch to raise an additional $1 billion. How about investing, say, $100 million—just as a test?”

“Hmm. They’re raising new capital?”

Seok-won stroked his chin thoughtfully.

Taking that as a sign of interest, Landon leaned forward, eager to convince him.

“That’s right. With their stellar performance over the past two years, investors are lining up. They’re even picking and choosing who they let in.”

“I see.”

But Seok-won’s response was indifferent, almost dismissive.

“I don’t know how others see it, but to me, LTCM looks more and more like a ticking time bomb. The bigger they get, the more leverage they take on. And when a balloon is inflated to its limit, it’s only a matter of time before it bursts.”

“Ah, then….”

“Not now, not ever. I have no intention of investing in LTCM.”

Seok-won’s voice was firm, leaving no room for argument.

Landon felt a tinge of disappointment, but seeing how resolute Seok-won was, he had no choice but to back down with a resigned sigh.

“Understood.”

As he noted Landon’s lingering hesitation, Seok-won thought to himself:

‘In a few years, when LTCM collapses, he’ll be thanking me for keeping him out of it.’

He could already picture Landon breathing a sigh of relief, realizing that—once again—his boss had made the right call.