Audacity, Gratitude, Resilience
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October 1987 Crash

I had hungered to be wealthy even when I didn’t become a millionaire before the age of thirty. So after leveraging our debt to buy Genzyme founder’s stock from Sam, then taking Genzyme public in 1986, I borrowed as much as I could on margin to buy yet more Genzyme stock. I believed by taking on margin debt, and raising the value of our Genzyme holdings, though heavily leveraged, we could better reap the fruit of all my hard work.

Loretta asked me how low the stock could go before we lost it all. Genzyme had gone public at $10 per share and traded as high as $16 per share. I told her Genzyme had never traded below $7 as a public company and we could meet any margin calls as long as the stock was above $5.25 per share, which was less than half its current level, and 25% below its lowest price ever. On the other hand if Genzyme went to $30 per share as predicted by analysts we would become wealthy.

Then came the stock market crash of October 1987. For ten days stocks were in free fall with no apparent bottom, each day worse than the day before, Genzyme falling from $16 to $12, $12 to $10, $10 to $7.50, and then for the first time ever below $7 per share. I was deeply scared but there was little I could do. I called our major investors to try and lessen their anxiety.

Genzyme was fundamentally sound. Someone would step in at some point to begin buying again. One large investor said he had seen the reports of my buying stock on margin. He asked the same question my wife had asked. At what point could I not cover the margin call so I would go personally bankrupt? I gave him the same answer. I had given Loretta.

Three days later Genzyme traded at its lowest point, $5.75 per share, and he began aggressively accumulating shares. I called a few weeks later to thank him. He said no problem, he had made an extraordinary profit on Genzyme when the stock rebounded. He thought having a bankrupt CFO might hurt Genzyme and his investment going forward. So complete financial disaster was forestalled by a prudent investor. I learned from this near bankruptcy experience, but did not scale back my appetite for risk, just managed it a lot better.

I learned to better calibrate and diversify risk. To make sure the risks I was taking were well worth the risk involved. Joining Genzyme as CFO was an incredible career risk but through hard work and luck we made it work. Joining TSI as Chairman and CEO was another incredible career risk yet I set out to build a team that could make it work. I sold my Genzyme stock and took TSI public in 1989 in my 33rd year. TSI’s miraculous 800% rise in stock price over the next four years meant we were, at least on paper, already wealthy in 1993, when I was only 37, at least by our modest standards. But we stayed grounded in our values and our integrity.

http://www.jimsherblom.com

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