Chapter XII: Part 12

There was no need to threaten on the lender’s part or to plead for more time on the borrower’s. The situation was highly uncomfortable for both. The bank, for example, with which my friend Jim Barnes did business, was still kindly disposed. But it was a case of “For heaven’s sake take up that loan or we’ll all be in a dickens of a mess!”

The character of the mess and its explosive possibilities were enough to make Jim Barnes come to me to ask me to sell the one hundred thousand shares for enough to pay off the bank’s three-million-five-hundred-thousand-dollar loan. Jim did not now expect to make a profit on that stock. If the syndicate only made a small loss on it they would be more than grateful.

It seemed a hopeless task. The general market was neither active nor strong, though at times there were rallies, when everybody perked up and tried to believe the bull swing was about to resume.

The answer I gave Barnes was that I’d look into the matter and let him know under what conditions I’d undertake the work. Well, I did look into it. I didn’t analyse the company’s last annual report. My studies were confined to the stock-market phases of the problem. I was not going to tout the stock for a rise on its earnings or its prospects, but to dispose of that block in the open market. All I considered was what should, could or might help or hinder me in that task.

I discovered for one thing that there was too much stock held by too few people--that is, too much for safety and far too much for comfort. Clifton P. Kane & Co., bankers and brokers, members of the New York Stock Exchange, were carrying seventy thousand shares. They were intimate friends of Barnes and had been influential in effecting the consolidation, as they had made a specialty of stove stocks for years. Their customers had been let into the good thing. Ex-Senator Samuel Gordon, who was the special partner in his nephews’ firm, Gordon Bros., was the owner of a second block of seventy thousand shares; and the famous Joshua Wolff had sixty thousand shares. This made a total of two hundred thousand shares of Consolidated Stove held by this handful of veteran Wall Street professionals. They did not need any kind person to tell them when to sell their stock. If I did anything in the manipulating line calculated to bring in public buying--that is to say, if I made the stock strong and active--I could see Kane and Gordon and Wolff unloading, and not in homeopathic doses either. The vision of their two hundred thousand shares Niagaraing into the market was not exactly entrancing. Don’t forget that the cream was off the bull movement and that no overwhelming demand was going to be manufactured by my operations, however skillfully conducted they might be. Jim Barnes had no illusions about the job he was modestly sidestepping in my favour. He had given me a waterlogged stock to sell on a bull market that was about to breathe its last. Of course there was no talk in the newspapers about the ending of the bull market, but I knew it, and Jim Barnes knew it, and you bet the bank knew it.

Still, I had given Jim my word, so I sent for Kane, Gordon and Wolff. Their two hundred thousand shares was the sword of Damocles. I thought I’d like to substitute a steel chain for the hair. The easiest way, it seemed to me, was by some sort of reciprocity agreement. If they helped me passively by holding off while I sold the bank’s one hundred thousand shares, I would help them actively by trying to make a market for all of us to unload on. As things were, they couldn’t sell one-tenth of their holdings without having Consolidated Stove break wide open, and they knew it so well that they had never dreamed of trying. All I asked of them was judgment in timing the selling and an intelligent unselfishness in order not to be unintelligently selfish. It never pays to be a dog in the manger in Wall Street or anywhere else. I desired to convince them that premature or ill-considered unloading would prevent complete unloading. Time urged.

I hoped my proposition would appeal to them because they were experienced Wall Street men and had no illusions about the actual demand for Consolidated Stove. Clifton P. Kane was the head of a prosperous commission house with branches in eleven cities and customers by the hundreds. His firm had acted as managers for more than one pool in the past.

Senator Gordon, who held seventy thousand shares, was an exceedingly wealthy man. His name was as familiar to the readers of the metropolitan press as though he had been sued for breach of promise by a sixteen-year-old manicurist possessing a five-thousand-dollar mink coat and one hundred and thirty-two letters from the defendant. He had started his nephews in business as brokers and he was a special partner in their firm. He had been in dozens of pools. He had inherited a large interest in the Midland Stove Company and he got one hundred thousand shares of Consolidated Stove for it. He had been carrying enough to disregard Jim Barnes’ wild bull tips and had cashed in on thirty thousand shares before the market petered out on him. He told a friend later that he would have sold more only the other big holders, who were old and intimate friends, pleaded with him not to sell any more, and out of regard for them he stopped. Besides which, as I said, he had no market to unload on.

The third man was Joshua Wolff. He was probably the best know of all the traders. For twenty years everybody had know him as one of the plungers on the floor. In bidding up stocks or offering them down he had few equals, for ten or twenty thousand shares meant no more to him than two or three hundred. Before I came to New York I had heard of him as a plunger. He was then trailing with a sporting coterie that played a no limit game, whether on the race track or in the stock market.

They used to accuse him of being nothing but a gambler, but he had real ability and a strongly developed aptitude for the speculative game. At the same time his reputed indifference to highbrow pursuits made him the hero of numberless anecdotes. One of the most highly circulated of the yarns was that Joshua was a guest at what he called a swell dinner and by some oversight of the hostess several of the other guests began to discuss literature before they could be stopped.

A girl who sat next to Josh and had not heard him use his mouth except for masticating purposes, turned to him and looking anxious to hear the great financier’s opinion asked him, “Oh, Mr. Wolff, what do you think of Balzac?”

Josh politely ceased to masticate, swallowed and answered, “I never trade in them Curb stocks!”

Such were the three largest individual holders of Consolidated Stove. When they came over to see me I told them that if they formed a syndicate to put up some cash and gave me a call on their stock at a little above the market I would do what I could to make a market. They promptly asked me how much money would be required.

I answered, “You’ve had that stock a long time and you can’t do a thing with it. Between the three of you you’ve got two hundred thousand shares, and you know very well that you haven’t the slightest chance of getting rid of it unless you make a market for it. It’s got be some market to absorb what you’ve got to give it, and it will be wise to have enough cash to pay for whatever stock it may be necessary to buy at first. It’s no use to begin and then have to stop because there isn’t enough money. I suggest that you form a syndicate and raise six millions in cash. Then give the syndicate a call on your two hundred thousand shares at 40 and put all your stock in escrow. If everything goes well you chaps will get rid of your dead pet and the syndicate will make some money.”

As I told you before, there had been all sorts of rumours about my stock-market winnings. I suppose that helped, for nothing succeeds like success. At all events, I didn’t have to do much explaining to these chaps. They knew exactly how far they’d get if they tried to play a lone hand. They thought mine was a good plan. When they went away they said they would form the syndicate at once.

They didn’t have much trouble in inducing a lot of their friends to join them. I suppose they spoke with more assurance than I had of the syndicate’s profits. From all I heard they really believed it, so theirs were no conscienceless tips. At all events the syndicate was formed in a couple of days. Kane, Gordon and Wolff gave calls on the two hundred thousand shares at 40 and I saw to it that the stock itself was put in escrow, so that none of it would come out on the market if I should put up the price. I had to protect myself. More than one promising deal has failed to pan out as expected because the members of the pool or clique failed to keep faith with one another. Dog has no foolish prejudices against eating dog in Wall Street. At the time the second American Steel and Wire Company was brought out the insiders accused one another of breach of faith and trying to unload. There had been a gentlemen’s agreement between John W. Gates and his pals and the Seligmans and their banking associates. Well, I heard somebody in a broker’s office reciting this quatrain, which was said to have been composed by John W. Gates:

_The tarantula jumped on the centipede’s back
And chortled with ghoulish glee:
“I’ll poison this murderous son of a gun.
If I don’t he’ll poison me!”_

Mind you, I do not mean for one moment to imply that any of my friends in Wall Street would even dream of double-crossing me in a stock deal. But on general principles it is just as well to provide for any and all contingencies. It’s plain sense.

After Wolff and Kane and Gordon told me that they had formed their syndicate to put up six millions in cash there was nothing for me to do but wait for the money to come in. I had urged the vital need of haste. Nevertheless the money came in driblets. I think it took four or five installments. I don’t know what the reason was, but I remember that I had to send out an S O S call to Wolff and Kane and Gordon.

That afternoon I got some big checks that brought the cash in my possession to about four million dollars and the promise of the rest in a day or two. It began to look as though the syndicate might do something before the bull market passed away. At best it would be no cinch, and the sooner I began work the better. The public had not been particularly keen about new market movements in inactive stocks. But a man could do a great deal to arouse interest in any stock with four millions in cash. It was enough to absorb all the probable offerings. If time urged, as I had said, there was no sense in waiting for the other two millions. The sooner the stock got up to 50 the better for the syndicate. That was obvious.

The next morning at the opening I was surprised to see that there were unusually heavy dealings in Consolidated Stove. As I told you before, the stock had been waterlogged for months. The price had been pegged at 37, Jim Barnes taking good care not to let it go any lower on account of the big bank loan at 35. But as for going any higher, he’d as soon expect to see the Rock of Gibraltar shimmying across the Strait as to see Consolidated Stove do any climbing on the tape.

Well, sir, this morning there was quite a demand for the stock, and the price went up to 39. In the first hour of the trading the transactions were heavier than for the whole previous half year. It was the sensation of the day and affected bullishly the entire market. I heard afterwards that nothing else was talked about in the customers’ rooms of the commission houses.

I didn’t know what it meant, but it didn’t hurt my feelings any to see Consolidated Stove perk up. As a rule I do not have to ask about any unusual movement in any stock because my friends on the floor--brokers who do business for me, as well as personal friends among the room traders--keep me posted. They assume I’d like to know and they telephone me any news or gossip they pick up. On this day all I heard was that there was unmistakable inside buying in Consolidated Stove. There wasn’t any washing. It was all genuine. The purchasers took all the offerings from 37 to 39 and when importuned for reasons or begged for a tip, flatly refused to give any. This made the wily and watchful traders conclude that there was something doing; something big. When a stock goes up on buying by insiders who refuse to encourage the world at large to follow suit the ticker hounds begin to wonder aloud when the official notice will be given out.

I didn’t do anything myself. I watched and wondered and kept track of the transactions. But on the next day the buying was not only greater in volume but more aggressive in character. The selling orders that had been on the specialists’ books for months at above the pegged price of 37 were absorbed without any trouble, and not enough new selling orders came in to check the rise. Naturally, up went the price. It crossed 40. Presently it touched 42.

The moment it touched that figure I felt that I was justified in starting to sell the stock the bank held as collateral. Of course I figured that the price would go down on my selling, but if my average on the entire line was 37 I’d have no fault to find. I knew what the stock was worth and I had gathered some idea of the vendibility from the months of inactivity. Well, sir, I let them have stock carefully until I had got rid of thirty thousand shares. And the advance was not checked!

That afternoon I was told the reason for that opportune but mystifying rise. It seems that the floor traders had been tipped off after the close the night before and also the next morning before the opening, that I was bullish as blazes on Consolidated Stove and was going to rush the price right up fifteen or twenty points without a reaction, as was my custom--that is, my custom according to people who never kept my books. The tipster in chief was no less a personage than Joshua Wolff. It was his own inside buying that started the rise of the day before. His cronies among the floor traders were only too willing to follow his tip, for he knew too much to give wrong steers to his fellows.

As a matter of fact, there was not so much stock pressing on the market as had been feared. Consider that I had tied up three hundred thousand shares and you will realize that the old fears had been well founded. It now proved less of a job than I had anticipated to put up the stock. After all, Governor Flower was right. Whenever he was accused of manipulating his firm’s specialties, like Chicago Gas, Federal Steel or B. R. T., he used to say: “The only way I know of making a stock go up is to buy it.” That also was the floor traders’ only way, and the price responded.

On the next day, before breakfast, I read in the morning papers what was read by thousands and what undoubtedly was sent over the wires to hundreds of branches and out-of-town offices, and that was that Larry Livingston was about to begin active bull operations in Consolidated Stove. The additional details differed. One version had it that I had formed an insiders’ pool and was going to punish the over-extended short interest. Another hinted at dividend announcements in the near future. Another reminded the world that what I usually did to a stock I was bullish on was something to remember. Still another accused the company of concealing its assets in order to permit accumulation by insiders. And all of them agreed that the rise hadn’t fairly started.

By the time I reached my office and read my mail before the market opened I was made aware that the Street was flooded with red-hot tips to buy Consolidated Stove at once. My telephone bell kept ringing and the clerk who answered the calls heard the same question asked in one form or another a hundred times that morning: Was it true that Consolidated Stove was going up? I must say that Joshua Wolff and Kane and Gordon--and possibly Jim Barnes--handled that little tipping job mighty well.

I had no idea that I had such a following. Why, that morning the buying orders came in from all over the country--orders to buy thousands of shares of a stock that nobody wanted at any price three days before. And don’t forget that, as a matter of fact, all that the public had to go by was my newspaper reputation as a successful plunger; something for which I had to thank an imaginative reporter or two.

Well, sir, on that, the third day of the rise, I sold Consolidated Stove; and on the fourth day and the fifth; and the first thing I knew I had sold for Jim Barnes the one hundred thousand shares of stock which the Marshall National Bank held as collateral on the three-million-five-hundred-thousand-dollar loan that needed paying off. If the most successful manipulation consists of that in which the desired end is gained at the least possible cost to the manipulator, the Consolidated Stove deal is by all means the most successful of my Wall Street career. Why, at no time did I have to take any stock. I didn’t have to buy first in order to sell the more easily later on. I did not put up the price to the highest possible point and then begin my real selling. I didn’t even do my principal selling on the way down, but on the way up. It was like a dream of Paradise to find an adequate buying power created for you without your stirring a finger to bring it about, particularly when you were in a hurry. I once heard a friend of Governor Flower’s say that in one of the great bull-leader’s operations for the account of a pool in B. R. T. the pool sold fifty thousand shares of the stock at a profit, but Flower & Co. got commissions on more than two hundred and fifty thousand shares and W. P. Hamilton says that to distribute two hundred and twenty thousand shares of Amalgamated Copper, James R. Keene must have traded in at least seven hundred thousand shares of the stock during the necessary manipulation. Some commission bill! Think of that and then consider that the only commissions that I had to pay were the commissions on the one hundred thousand shares I actually sold for Jim Barnes. I call that some saving.

Having sold what I had engaged to sell for my friend Jim, and all the money the syndicate had agreed to raise not having been sent in, and feeling no desire to buy back any of the stock I had sold, I rather think I went away somewhere for a short vacation. I do not remember exactly. But I do remember very well that I let the stock alone and that it was not long before the price began to sag. One day, when the entire market was weak, some disappointed bull wanted to get rid of his Consolidated Stove in a hurry, and on his offerings the stock broke below the call price, which was 40. Nobody seemed to want any of it. As I told you before, I wasn’t bullish on the general situation and that made me more grateful than ever for the miracle that had enabled me to dispose of the one hundred thousand shares without having to put the price up twenty or thirty points in a week, as the kindly tipsters had prophesied.

Finding no support, the price developed a habit of declining regularly until one day it broke rather badly and touched 32. That was the lowest that had ever been recorded for it, for, as you will remember, Jim Barnes and the original syndicate had pegged it at 37 in order not to have their one hundred thousand shares dumped on the market by the bank.

I was in my office that day peacefully studying the tape when Joshua Wolff was announced. I said I would see him. He rushed in. He is not a very large man, but he certainly seemed all swelled up--with anger, as I instantly discovered.

He ran to where I stood by the ticker and yelled, “Hey? What the devil’s the matter?”

“Have a chair, Mr. Wolff,” I said politely and sat down myself to encourage him to talk calmly.

“I don’t want any chair! I want to know what it means!” he cried at the top of his voice.

“What does what mean?”

“What in hell are you doing to it?”

“What am I doing to what?”

“That stock! That stock!”

“What stock?” I asked him.

But that only made him see red, for he shouted, “Consolidated Stove! What are you doing to it?”

“Nothing! Absolutely nothing. What’s wrong?” I said.

He stared at me fully five seconds before he exploded: “Look at the price! Look at it!”

He certainly was angry. So I got up and looked at the tape.

I said, “The price of it is now 31¼.”

“Yeh! Thirty-one and a quarter, and I’ve got a raft of it.”

“I know you have sixty thousand shares. You have had it a long time, because when you originally bought your Gray Stove----”

But he didn’t let me finish. He said, “But I bought a lot more. Some of it cost me as high as 40! And I’ve got it yet!”

He was glaring at me so hostilely that I said, “I didn’t tell you to buy it.”

“You didn’t what?”

“I didn’t tell you to load up with it.”

“I didn’t say you did. But you were going to put it up----”

“Why was I?” I interrupted.

He looked at me, unable to speak for anger. When he found his voice again, he said, “You were going to put it up. You had the money to buy it.”

“Yes. But I didn’t buy a share,” I told him.

That was the last straw.

“You didn’t buy a share, and you had over four millions in cash to buy with? You didn’t buy any?”

“Not a share!” I repeated.

He was so mad by now that he couldn’t talk plainly. Finally he managed to say, “What kind of a game do you call that?”

He was inwardly accusing me of all sorts of unspeakable crimes. I sure could see a long list of them in his eyes. It made me say to him: “What you really mean to ask me, Wolff, is, why I didn’t buy from you above 50 the stock you bought below 40. Isn’t that it?”

“No, it isn’t. You had a call at 40 and four millions in cash to put up the price with.”

“Yes, but I didn’t touch the money and the syndicate has not lost a cent by my operations.”

“Look here, Livingston--” he began.

But I didn’t let him say any more.

“You listen to me, Wolff. You knew that the two hundred thousand shares you and Gordon and Kane held were tied up, and that there wouldn’t be an awful lot of floating stock to come on the market if I put up the price, as I’d have to do for two reasons: The first to make a market for the stock; and the second to make a profit out of the call at 40. But you weren’t satisfied to get 40 for the sixty thousand shares you’d been lugging for months or with your share of the syndicate profits, if any; so you decided to take on a lot of stock under 40 to unload on me when I put the price up with the syndicate’s money, as you were sure I meant to do. You’d buy before I did and you’d unload before I did; in all probability I’d be the one to unload on. I suspect you figured on my having to put the price up to 60. It was such a cinch that you probably bought ten thousand shares strictly for unloading purposes, and to make sure somebody held the bag if I didn’t, you tipped off everybody in the United States, Canada and Mexico without thinking of my added difficulties. All your friends knew what I was supposed to do. Between their buying and mine you were going to be all hunky. Well, your intimate friends to whom you gave the tip passed it on to their friends after they had bought their lines, and the third stratum of tip-takers planned to supply the fourth, fifth and possibly sixth strata of suckers, so that when I finally came to do some selling I’d find myself anticipated by a few thousands of wise speculators. It was a friendly thought, that notion of yours, Wolff. You can’t imagine how surprised I was when Consolidated Stove began to go up before I even thought of buying a single share; or how grateful, either, when the underwriting syndicate sold one hundred thousand shares around 40 to the people who were going to sell those same shares to me at 50 or 60. I sure was a sucker not to use the four millions to make money for them, wasn’t I? The cash was supplied to buy stock with, but only if I thought it necessary to do so. Well, I didn’t.”

Joshua had been in Wall Street long enough not to let anger interfere with business. He cooled off as he heard me, and when I was through talking he said in a friendly tone of voice, “Look here, Larry, old chap, what shall we do?”

“Do whatever you please.”

“Aw, be a sport. What would you do if you were in our place?”

“If I were in your place,” I said solemnly, “do you know what I’d do?”

“What?”

“I’d sell out!” I told him.

He looked at me a moment, and without another word turned on his heel and walked out of my office. He’s never been in it since.

Not long after that, Senator Gordon also called. He, too, was quite peevish and blamed me for their troubles. Then Kane joined the anvil chorus. They forgot that their stock had been unsalable in bulk when they formed the syndicate. All they could remember was that I didn’t sell their holdings when I had the syndicate’s millions and the stock was active at 44, and that now it was 30 and dull as dishwater. To their way of thinking I should have sold out at a good fat profit.

Of course they also cooled down in due time. The syndicate wasn’t out a cent and the main problem remained unchanged: to sell their stock. A day or two later they came back and asked me to help them out. Gordon was particularly insistent, and in the end I made them put in their pooled stock at 25½. My fee for my services was to be one-half of whatever I got above that figure. The last sale had been at about 30.

There I was with their stock to liquidate. Given general market conditions and specifically the behaviour of Consolidated Stove, there was only one way to do it, and that was, of course, to sell on the way down and without first trying to put up the price, and I certainly would have got stock by the ream on the way up. But on the way down I could reach those buyers who always argue that a stock is cheap when it sells fifteen or twenty points below the top of the movement, particularly when that top is a matter of recent history. A rally is due, in their opinion. After seeing Consolidated Stove sell up to close to 44 it sure looked like a good thing below 30.

It worked out as always. Bargain hunters bought it in sufficient volume to enable me to liquidate the pool’s holdings. But do you think that Gordon or Wolff or Kane felt any gratitude? Not a bit of it. They are still sore at me, or so their friends tell me. They often tell people how I did them. They cannot forgive me for not putting up the price on myself, as they expected.

As a matter of fact I never would have been able to sell the bank’s hundred thousand shares if Wolff and the rest had not passed around those red-hot bull tips of theirs. If I had worked as I usually do--that is, in a logical natural way--I would have had to take whatever price I could get. I told you we ran into a declining market. The only way to sell on such a market is to sell not necessarily recklessly but really regardless of price. No other way was possible, but I suppose they do not believe this. They are still angry. I am not. Getting angry doesn’t get a man anywhere. More than once it has been borne in on me that a speculator who loses his temper is a goner. In this case there was no aftermath to the grouches. But I’ll tell you something curious. One day Mrs. Livingston went to a dressmaker who had been warmly recommended to her. The woman was competent and obliging and had a very pleasing personality. At the third or fourth visit, when the dressmaker felt less like a stranger, she said to Mrs. Livingston: “I hope Mr. Livingston puts up Consolidated Stove soon. We have some that we bought because we were told he was going to put it up, and we’d always heard that he was very successful in all his deals.”

I tell you it isn’t pleasant to think that innocent people may have lost money following a tip of that sort. Perhaps you understand why I never give any myself. That dressmaker made me feel that in the matter of grievances I had a real one against Wolff.

_XXIII_

Speculation in stocks will never disappear. It isn’t desirable that it should. It cannot be checked by warnings as to its dangers. You cannot prevent people from guessing wrong no matter how able or how experienced they may be. Carefully laid plans will miscarry because the unexpected and even the unexpectable will happen. Disaster may come from a convulsion of nature or from the weather, from your own greed or from some man’s vanity; from fear or from uncontrolled hope. But apart from what one might call his natural foes, a speculator in stocks has to contend with certain practices or abuses that are indefensible normally as well as commercially.

As I look back and consider what were the common practices twenty-five years ago when I first came to Wall Street, I have to admit that there have been many changes for the better. The old-fashioned bucket shops are gone, though bucketeering “brokerage” houses still prosper at the expense of men and women who persist in playing the game of getting rich quick. The Stock Exchange is doing excellent work not only in getting after these out-and-out swindlers but in insisting upon strict adherence to its rules by its own members. Many wholesome regulations and restrictions are now strictly enforced but there is still room for improvement. The ingrained conservatism of Wall Street rather than ethical callousness is to blame for the persistence of certain abuses.

Difficult as profitable stock speculation always has been it is becoming even more difficult every day. It was not so long ago when a real trader could have a good working knowledge of practically every stock on the list. In 1901, when J. P. Morgan brought out the United States Steel Corporation, which was merely a consolidation of lesser consolidations most of which were less than two years old, the Stock Exchange had 275 stocks on its list and about 100 in its “unlisted department”; and this included a lot that a chap didn’t have to know anything about because they were small issues, or inactive by reason of being minority or guaranteed stocks and therefore lacking in speculative attractions. In fact, an overwhelming majority were stocks in which there had not been a sale in years. Today there are about 900 stocks on the regular list and in our recent active markets about 600 separate issues were traded in. Moreover, the old groups or classes of stocks were easier to keep track of. They not only were fewer but the capitalization was smaller and the news a trader had to be on the lookout for did not cover so wide a field. But today, a man is trading in everything; almost every industry in the world is represented. It requires more time and more work to keep posted and to that extent speculation has become much more difficult for those who operate intelligently.

There are many thousands of people who buy and sell stocks speculatively but the number of those who speculate profitably is small. As the public always is “in” the market to some extent, it follows that there are losses by the public all the time. The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statute books in the world and all the rules of all the Exchanges on earth cannot eliminate these from the human animal. Accidents which knock carefully conceived plans skyhigh also are beyond regulation by bodies of cold-blooded economists or warm-hearted philanthropists. There remains another source of loss and that is, deliberate misinformation as distinguished from straight tips. And because it is apt to come to a stock trader variously disguised and camouflaged, it is the more insidious and dangerous.

The average outsider, of course, trades either on tips or on rumours, spoken or printed, direct or implied. Against ordinary tips you cannot guard. For instance, a lifelong friend sincerely desires to make you rich by telling you what he has done, that is, to buy or sell some stock. His intent is good. If the tip goes wrong what can you do? Also against the professional or crooked tipster the public is protected to about the same extent that he is against gold-bricks or wood-alcohol. But against the typical Wall Street rumours, the speculating public has neither protection nor redress. Wholesale dealers in securities, manipulators, pools and individuals resort to various devices to aid them in disposing of their surplus holdings at the best possible prices. The circulation of bullish items by the newspapers and the tickers is the most pernicious of all.

Get the slips of the financial news-agencies any day and it will surprise you to see how many statements of an implied semi-official nature they print. The authority is some “leading insider” or “a prominent director” or “a high official” or someone “in authority” who presumably knows what he is talking about. Here are today’s slips. I pick an item at random. Listen to this: “A leading banker says it is too early yet to expect a declining market.”

Did a leading banker really say that and if he said it why did he say it? Why does he not allow his name to be printed? Is he afraid that people will believe him if he does?

Here is another one about a company the stock of which has been active this week. This time the man who makes the statement is a “prominent director.” Now which--if any--of the company’s dozen directors is doing the talking? It is plain that by remaining anonymous nobody can be blamed for any damage that may be done by the statement.

Quite apart from the intelligent study of speculation everywhere the trader in stocks must consider certain facts in connection with the game in Wall Street. In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done. It is therefore well to remember that manipulation of some sort enters into practically all advances in individual stocks and that such advances are engineered by insiders with one object in view and one only and that is to sell at the best profit possible. However, the average broker’s customer believes himself to be a business man from Missouri if he insists upon being told why a certain stock goes up. Naturally, the manipulators “explain” the advance in a way calculated to facilitate distribution. I am firmly convinced that the public’s losses would be greatly reduced if no anonymous statements of a bullish nature were allowed to be printed. I mean statements calculated to make the public buy or hold stocks.

The overwhelming majority of the bullish articles printed on the authority of unnamed directors or insiders convey unreliable and misleading impressions to the public. The public loses many millions of dollars every year by accepting such statements as semi-official and therefore trustworthy.

Say for example that a company has gone through a period of depression in its particular line of business. The stock is inactive. The quotation represents the general and presumably accurate belief of its actual value. If the stock were too cheap at that level somebody would know it and buy it and it would advance. If too dear somebody would know enough to sell it and the price would decline. As nothing happens one way or another nobody talks about it or does anything.

The turn comes in the line of business the company is engaged in. Who are the first to know it, the insiders or the public? You can bet it isn’t the public. What happens next? Why, if the improvement continues the earnings will increase and the company will be in position to resume dividends on the stock; or, if dividends were not discontinued, to pay a higher rate. That is, the value of the stock will increase.

Say that the improvement keeps up. Does the management make public that glad fact? Does the president tell the stockholders? Does a philanthropic director come out with a signed statement for the benefit of that part of the public that reads the financial page in the newspapers and the slips of the news agencies? Does some modest insider pursuing his usual policy of anonymity come out with an unsigned statement to the effect that the company’s future is most promising? Not this time. Not a word is said by anyone and no statement whatever is printed by newspapers or tickers.

The value-making information is carefully kept from the public while the now taciturn “prominent insiders” go into the market and buy all the cheap stock they can lay their hands on. As this well-informed but unostentatious buying keeps on, the stock rises. The financial reporters, knowing that the insiders ought to know the reason for the rise, ask questions. The unanimously anonymous insiders unanimously declare that they have no news to give out. They do not know that there is any warrant for the rise. Sometimes they even state that they are not particularly concerned with the vagaries of the stock market or the actions of stock speculators.

The rise continues and there comes a happy day when those who know have all the stock they want or can carry. The Street at once begins to hear all kinds of bullish rumours. The tickers tell the traders “on good authority” that the company has definitely turned the corner. The same modest director who did not wish his name used when he said he knew no warrant for the rise in the stock is now quoted--of course not by name--as saying that the stockholders have every reason to feel greatly encouraged over the outlook.

Urged by the deluge of bullish news items the public begins to buy the stock. These purchases help to put the price still higher. In due course the predictions of the uniformly unnamed directors come true and the company resumes dividend payments; or increases the rate, as the case may be. With that the bullish items multiply. They not only are more numerous than ever but much more enthusiastic. A “leading director,” asked point blank for a statement of conditions, informs the world that the improvement is more than keeping up. A “prominent insider,” after much coaxing, is finally induced by a news-agency to confess that the earnings are nothing short of phenomenal. A “well-known banker,” who is affiliated in a business way with the company, is made to say that the expansion in the volume of sales is simply unprecedented in the history of the trade. If not another order came in the company would run night and day for heaven knows how many months. A “member of the finance committee,” in a double-leaded manifesto, expresses his astonishment at the public’s astonishment over the stock’s rise. The only astonishing thing is the stock’s moderation in the climbing line. Anybody who will analyse the forthcoming annual report can easily figure how much more than the market-price the book-value of the stock is. But in no instance is the name of the communicative philanthropist given.

As long as the earnings continue good and the insiders do not discern any sign of a let up in the company’s prosperity they sit on the stock they bought at the low prices. There is nothing to put the price down, so why should they sell? But the moment there is a turn for the worse in the company’s business, what happens? Do they come out with statements or warnings or the faintest of hints? Not much. The trend is now downward. Just as they bought without any flourish of trumpets when the company’s business turned for the better, they now silently sell. On this inside selling the stock naturally declines. Then the public begins to get the familiar “explanations.” A “leading insider” asserts that everything is O.K. and the decline is merely the result of selling by bears who are trying to affect the general market. If on one fine day, after the stock has been declining for some time, there should be a sharp break, the demand for “reasons” or “explanations” becomes clamorous. Unless somebody says something the public will fear the worst. So the news-tickers now print something like this: “When we asked a prominent director of the company to explain the weakness in the stock, he replied that the only conclusion he could arrive at was that the decline today was caused by a bear drive. Underlying conditions are unchanged. The business of the company was never better than at present and the probabilities are that unless something entirely unforeseen happens in the meanwhile, there will be an increase in the rate at the next dividend meeting. The bear party in the market has become aggressive and the weakness in the stock was clearly a raid intended to dislodge weakly held stock.” The news-tickers, wishing to give good measure, as likely as not will go on to state that they are “reliably informed” that most of the stock bought on the day’s decline was taken by inside interests and that the bears will find that they have sold themselves into a trap. There will be a day of reckoning.

In addition to the losses sustained by the public through believing bullish statements and buying stocks, there are the losses that come through being dissuaded from selling out. The next best thing to having people buy the stock the “prominent insider” wishes to sell is to prevent people from selling the same stock when he does not wish to support or accumulate it. What is the public to believe after reading the statement of the “prominent director?” What can the average outsider think? Of course, that the stock should never have gone down; that it was forced down by bear-selling and that as soon as the bears stop the insiders will engineer a punitive advance during which the shorts will be driven to cover at high prices. The public properly believes this because it is exactly what would happen if the decline had in truth been caused by a bear raid.

The stock in question, notwithstanding all the threats or promises of a tremendous squeeze of the over-extended short interest, does not rally. It keeps on going down. It can’t help it. There has been too much stock fed to the market from the inside to be digested.

And this inside stock that has been sold by the “prominent directors” and “leading insiders” becomes a football among the professional traders. It keeps on going down. There seems to be no bottom for it. The insiders knowing that trade conditions will adversely affect the company’s future earnings do not dare to support that stock until the next turn for the better in the company’s business. Then there will be inside buying and inside silence.

I have done my share of trading and have kept fairly well posted on the stock market for many years and I can say that I do not recall an instance when a bear raid caused a stock to decline extensively. What was called bear raiding was nothing but selling based on accurate knowledge of real conditions. But it would not do to say that the stock declined on inside selling or on inside non-buying. Everybody would hasten to sell and when everybody sells and nobody buys there is the dickens to pay.

The public ought to grasp firmly this one point: That the real reason for a protracted decline is never bear raiding. When a stock keeps on going down you can bet there is something wrong with it, either with the market for it or with the company. If the decline were unjustified the stock would soon sell below its real value and that would bring in buying that would check the decline. As a matter of fact, the only time a bear can make big money selling a stock is when that stock is too high. And you can gamble your last cent on the certainty that insiders will not proclaim that fact to the world.

Of course, the classic example is the New Haven. Everybody knows today what only a few knew at the time. The stock sold at 255 in 1902 and was the premier railroad investment of New England. A man in that part of the country measured his respectability and standing in the community by his holdings of it. If somebody had said that the company was on the road to insolvency he would not have been sent to jail for saying it. They would have clapped him in an insane asylum with other lunatics. But when a new and aggressive president was placed in charge by Mr. Morgan and the débâcle began, it was not clear from the first that the new policies would land the road where it did. But as property after property began to be saddled in the Consolidated Road at inflated prices, a few clear sighted observers began to doubt the wisdom of the _Mellen_ policies. A trolley system was bought for two million and sold to the New Haven for $10,000,000; whereupon a reckless man or two committed lèse majesté by saying that the management was acting recklessly. Hinting that not even the New Haven could stand such extravagance was like impugning the strength of Gibraltar.

Of course, the first to see breakers ahead were the insiders. They became aware of the real condition of the company and they reduced their holdings of the stock. On their selling as well as on their non-support, the price of New England’s gilt-edged railroad stock began to yield. Questions were asked, and explanations were demanded as usual; and the usual explanations were promptly forthcoming. “Prominent insiders” declared that there was nothing wrong that they knew of and that the decline was due to reckless bear selling. So the “investors” of New England kept their holdings of New York, New Haven & Hartford stock. Why shouldn’t they? Didn’t insiders say there was nothing wrong and cry bear selling? Didn’t dividends continue to be declared and paid?

In the meantime the promised squeeze of the bears did not come but new low records did. The insider selling became more urgent and less disguised. Nevertheless public spirited men in Boston were denounced as stock-jobbers and demagogues for demanding a genuine explanation for the stock’s deplorable decline that meant appalling losses to everybody in New England who had wanted a safe investment and a steady dividend payer.

That historic break from $255 to $12 a share never was and never could have been a bear drive. It was not started and it was not kept up by bear operations. The insiders sold right along and always at higher prices than they could have done if they had told the truth or allowed the truth to be told. It did not matter whether the price was 250 or 200 or 150 or 100 or 50 or 25, it still was too high for that stock, and the insiders knew it and the public did not. The public might profitably consider the disadvantages under which it labours when it tries to make money buying and selling the stock of a company concerning whose affairs only a few men are in position to know the whole truth.

The stocks which have had the worst breaks in the past 20 years did not decline on bear raiding. But the easy acceptance of that form of explanation has been responsible for losses by the public amounting to millions upon millions of dollars. It has kept people from selling who did not like the way his stock was acting and would have liquidated if they had not expected the price to go right back after the bears stopped their raiding. I used to hear Keene blamed in the old days. Before him they used to accuse Charley Woerishoffer or Addison Cammack. Later on I became the stock excuse.

I recall the case of Intervale Oil. There was a pool in it that put the stock up and found some buyers on the advance. The manipulators ran the price to 50. There the pool sold and there was a quick break. The usual demand for explanations followed. Why was Intervale so weak? Enough people asked this question to make the answer important news. One of the financial news tickers called up the brokers who knew the most about Intervale Oil’s advance and ought to be equally well posted as to the decline. What did these brokers, members of the bull pool, say when the news agency asked them for a reason that could be printed and sent broadcast over the country? Why, that Larry Livingston was raiding the market! And that wasn’t enough. They added that they were going to “get” him. But of course, the Intervale pool continued to sell. The stock only stood then about $12 a share and they could sell it down to 10 or lower and their average selling price would still be above cost.

It was wise and proper for insiders to sell on the decline. But for outsiders who had paid 35 or 40, it was a different matter. Reading what the tickers printed there outsiders held on and waited for Larry Livingston to get what was coming to him at the hands of the indignant inside pool.

In a bull market and particularly in booms the public at first makes money which it later loses simply by overstaying the bull market. This talk of “bear raids” helps them to overstay. The public should beware of explanations that explain only what unnamed insiders wish the public to believe.

_XXIV_