Chapter 23
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.
Stock speculation will never disappear. Nor would it be desirable for it to disappear. Warnings about its dangers cannot stop it. You cannot prevent people from guessing wrong, no matter how skilled or experienced they are. Carefully laid plans will fail because unexpected and even unimaginable things will happen. Disaster may come from a natural disaster or the weather, from your own greed or someone else’s vanity, from fear or unchecked hope. But beyond these natural enemies, as one might call them, a stock speculator faces certain practices and abuses. These are indefensible both morally and 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.
Looking back at common practices when I first came to Wall Street twenty-five years ago, I must admit much has improved. The old-fashioned bucket shops are gone. But bucket-shop “brokerage” houses still thrive at the expense of men and women who keep trying to get rich quick. The Stock Exchange is doing excellent work pursuing these outright swindlers. It also insists that its own members strictly follow its rules. Many sound rules and restrictions are now strictly enforced, but there is still room for improvement. Certain abuses persist because of Wall Street’s deeply rooted conservatism, not a lack of ethical concern.
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.
Profitable stock speculation has always been difficult, and it is getting even more difficult every day. Not so long ago a real trader could have a good working knowledge of practically every stock on the list. In 1901 J. P. Morgan brought out the United States Steel Corporation. It was merely a consolidation of smaller consolidations, most of them less than two years old. At that time the Stock Exchange had 275 stocks on its list and about 100 in its “unlisted department.” And these included a lot that a fellow didn’t need to know anything about. Some were small issues. Others were inactive because they were minority or guaranteed stocks, and so lacked speculative appeal. In fact, an overwhelming majority were stocks that had not had 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. Moreover, the old groups or classes of stocks were easier to keep track of. There were fewer of them, their capitalization was smaller, and the news a trader had to watch 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 takes more time and more work to keep informed, 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.
Many thousands of people buy and sell stocks to speculate, but few speculate profitably. The public is always “in” the market to some extent, so the public is losing money all the time. The speculator’s deadly enemies are ignorance, greed, fear, and hope. All the laws in the world and all the rules of all the exchanges on earth cannot eliminate these from human nature. Accidents can also blow carefully made plans apart. No group of cold-blooded economists or warm-hearted philanthropists can regulate those accidents. Another source of loss is deliberate misinformation, as distinct from straightforward tips. Such misinformation is especially insidious and dangerous because it often reaches a stock trader in various disguises.
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.
The average outsider, of course, trades on tips or rumors, whether spoken or printed, direct or implied. You cannot protect yourself against ordinary tips. For example, a lifelong friend sincerely wants to make you rich. He tells you to buy or sell a stock, just as he has done. His intentions are good. But if the tip goes wrong, what can you do? The public is also about as well protected against professional or crooked tipsters as it is against fake gold bricks or wood alcohol. But the speculating public has no protection or recourse against typical Wall Street rumors. Wholesale dealers in securities, manipulators, pools and individuals use various tricks to sell their surplus holdings at the best possible prices. The most harmful trick of all is spreading bullish reports through newspapers and stock tickers.
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.”
Look at the reports from financial news agencies on any day. You may be surprised by how many statements they print that imply they are semi-official. The source is some “leading insider” or “a prominent director” or “a high official” or someone “in authority” who supposedly knows what he is talking about. Here are today’s reports. I’ll 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?
Did a leading banker really say that? If he did, why did he say it? Why won't he let his name be printed? Is he afraid people will believe him if his name is printed?
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.
Here is another statement about a company whose stock has been active this week. This time, the man making the statement is a “prominent director.” But which of the company's dozen directors is speaking, if any of them? Clearly, by remaining anonymous, no one can be blamed for any damage the statement may cause.
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.
Besides studying speculation carefully wherever it occurs, stock traders must consider certain facts about the Wall Street game. They must try to make money, but they must also try to avoid losing it. Knowing what not to do is almost as important as knowing what to do. So remember that manipulation plays a part in nearly every rise in an individual stock. Insiders engineer those rises with one goal only: to sell at the greatest possible profit. Yet the average broker’s customer thinks he is a skeptical Missouri businessman if he demands to know why a stock is rising. Naturally, the manipulators “explain” the rise in a way designed to help them sell their stock. I firmly believe that the public’s losses would be much smaller if no anonymous bullish statements were allowed in print. I mean statements designed to persuade the public to 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.
The vast majority of bullish articles attributed to unnamed directors or insiders give the public unreliable and misleading impressions. The public loses many millions of dollars every year by treating these 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.
Suppose a company has gone through a downturn in its industry. Its stock is inactive. The quoted price reflects the general belief about its actual value, which is presumably accurate. If the stock were too cheap at that price, somebody would know it and buy it. The price would then rise. If the stock were too expensive, somebody would know enough to sell it, and the price would fall. Since nothing happens either way, nobody talks about the stock 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.
Business turns around in the industry the company operates in. Who finds out first, the insiders or the public? You can bet it isn’t the public. What happens next? Well, if business keeps improving, earnings will rise. The company will then be able to resume paying dividends on its stock. Or, if it never stopped paying dividends, it can pay a higher rate. In other words, the stock’s value 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.
Suppose the improvement continues. Does management announce the good news? Does the president tell the shareholders? Does a charitable director issue a signed statement for the benefit of people who read financial pages and news agency bulletins? Does some modest insider, following his usual practice of staying anonymous, issue an unsigned statement saying the company’s future looks very promising? Not this time. Nobody says a word, and no statement appears in the newspapers or on the ticker tapes.
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 information that gives the stock its value is carefully kept from the public. Meanwhile, the now silent “prominent insiders” enter the market and buy all the cheap stock they can find. As this well-informed but discreet buying continues, the stock rises. Financial reporters know the insiders ought to know why the stock is rising, so they ask questions. The insiders, all speaking anonymously, all declare that they have no news to share. They say they do not know of any reason for the rise. Sometimes they even say they are not particularly concerned about the ups and downs 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.
The stock keeps rising. Then comes the happy day when those in the know have all the stock they want or can afford to hold. Wall Street immediately begins to hear all kinds of optimistic rumors. The ticker reports tell traders “on good authority” that the company has definitely turned the corner. Earlier, a modest director had said he knew of no reason for the stock’s rise and asked not to be named. Now that same director is quoted as saying that stockholders have every reason to feel greatly encouraged about the outlook. Of course, he is not named.
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.
Spurred by the flood of bullish news items, the public begins to buy the stock. These purchases help push the price still higher. In due course the predictions of the invariably unnamed directors come true, and the company resumes paying dividends, or raises the rate, as the case may be. With that, the bullish items multiply. They are not only 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” with business ties to the company is made to say that the growth in sales volume 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 prominently printed manifesto, expresses his astonishment at the public’s astonishment over the stock’s rise. The only astonishing thing is how modestly the stock has climbed. Anybody who analyzes the coming annual report can easily figure how far the stock’s book value exceeds its market price. 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.
As long as earnings remain good, the insiders hold on to the stock they bought at low prices. They do this as long as they see no sign that the company’s prosperity is slowing. Nothing is driving the price down, so why should they sell? But what happens the moment the company’s business takes a turn for the worse? Do they issue statements, warnings, or even the faintest hints? Not a chance. The trend is now downward. Just as they bought quietly when the company’s business improved, they now sell quietly. Naturally, this insider selling drives the stock down. Then the public begins to get the familiar “explanations.” A “leading insider” says everything is fine. He claims the decline is merely the result of selling by bears trying to influence the general market. If the stock has been falling for some time and suddenly drops sharply one day, demands for “reasons” or “explanations” grow loud. Unless somebody says something, the public will fear the worst. So the news tickers now print something like this: “We asked a prominent company director to explain the stock’s weakness. He said the only conclusion he could reach was that today’s decline was caused by a bear drive. Underlying conditions have not changed. The company’s business has never been better than it is now. Unless something entirely unforeseen happens before then, the dividend rate will probably rise at the next dividend meeting. The bears in the market have become aggressive. The stock’s weakness was clearly a raid intended to shake stock loose from holders quick to sell.” The news tickers, eager to give readers their money’s worth, will quite likely add something else. They will say they are “reliably informed” that insider interests bought most of the stock sold during the day’s decline. They will also say the bears will find 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 public loses money by believing bullish statements and buying stocks. But people also lose money when they are talked out of selling. A “prominent insider” may want people to buy the stock he wants to sell. The next best thing is to stop them from selling that same stock when he does not want to support its price or buy more of it. What is the public supposed to believe after reading the statement of the “prominent director?” What can the average outsider think? Naturally, people think the stock should never have fallen. They think bear-selling forced the price down. They also think that once the bears stop selling, the insiders will engineer a punishing rise in the price. That rise will force the short sellers to buy back shares at high prices. The public is right to believe this, because that is exactly what would happen if a bear raid had actually caused the decline.
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.
Despite all the threats or promises of a huge squeeze on traders who have sold too much stock short, the stock does not rally. It keeps falling. It cannot help it. Insiders have fed too much stock into the market for it to absorb.
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.
And the insider stock sold by the “prominent directors” and “leading insiders” becomes a football for professional traders. Its price keeps falling. There seems to be no bottom. The insiders know that business conditions will hurt the company’s future earnings. So they don’t dare support the stock until the company’s business improves again. Then they will buy shares and keep quiet.
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.
I have done my share of trading and have kept fairly well informed about the stock market for many years. I can say that I don’t recall a single instance when a bear raid caused a stock to decline a great deal. 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 because of inside selling, or because insiders were not buying. Everybody would rush to sell, and when everybody sells and nobody buys, there’s the devil 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.
The public should understand one point: Bear raids are never the real reason for a prolonged decline. When a stock keeps falling, you can bet something is wrong with its market or with the company. If the decline were unjustified, the stock would soon sell below its true value. That would bring in buyers and stop the decline. In fact, a bear can make big money selling a stock only when its price is too high. And you can bet your last cent that insiders will not announce 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 classic example is the New Haven. Today, everyone knows what only a few people knew at the time. Its stock sold for 255 in 1902, and it was New England’s top railroad investment. Men in that part of the country measured their respectability and standing in the community by how much of it they owned. If someone had said the company was heading for insolvency, he would not have been sent to jail for saying it. They would have locked him up in an insane asylum with the other lunatics. But Mr. Morgan put a new, aggressive president in charge, and the collapse began. Even then, it was not clear at first that the new policies would bring the railroad to the point they did. But as property after property was loaded onto the Consolidated Road at inflated prices, a few clear-sighted observers began to doubt the wisdom of the Mellen policies. One trolley system was bought for two million and sold to the New Haven for $10,000,000. A reckless man or two then committed lèse majesté by saying that management was acting recklessly. To suggest that even the New Haven could not withstand such extravagance was like questioning 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?
Of course, the insiders were the first to see trouble ahead. They learned the company’s true condition and sold some of their stock. They also stopped supporting the stock, and its price began to fall. This was New England’s supposedly rock-solid railroad stock. As usual, people asked questions and demanded explanations. And, as usual, explanations came promptly. “Prominent insiders” said they knew of nothing wrong. They blamed the decline on reckless selling by traders betting on a price drop. So New England’s “investors” held on to their New York, New Haven & Hartford stock. Why shouldn’t they? Hadn’t insiders said nothing was wrong and blamed the decline on those traders? Weren’t dividends still being 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.
Meanwhile, the promised squeeze on the bears never came. Instead, the stock reached new lows. Insiders sold more urgently and made less effort to hide it. Nevertheless, public spirited men in Boston were denounced as stock manipulators and demagogues for demanding a real explanation for the stock’s terrible decline. The decline meant shocking losses for everyone 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.
That historic fall from $255 to $12 a share was never a bear drive, and it could never have been one. Selling by bears did not start the fall or keep it going. The insiders kept selling, always at higher prices than they could have gotten if they had told the truth or allowed it to be told. Whether the price was $250, $200, $150, $100, $50, or $25, it was still too high for that stock. The insiders knew it, but the public did not. The public would do well to consider the disadvantage it faces when buying and selling stock for profit. Only a few men are in a position to know the whole truth about a company’s affairs.
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.
The stocks that suffered the worst drops in the past 20 years did not fall because of bear raids. But the public has lost millions upon millions of dollars by readily accepting that explanation. People who disliked how their stocks were behaving held on instead of selling. They would have sold if they had not expected prices to rebound once the bears stopped their raids. In the old days, I used to hear people blame Keene. Before him, they blamed Charley Woerishoffer or Addison Cammack. Later, I became the standard 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.
I remember the case of Intervale Oil. A pool of traders drove up the stock and found some buyers as the price rose. The manipulators pushed it to 50. At that point, the pool sold, and the price fell quickly. The usual demands for an explanation followed. Why was Intervale so weak? Enough people asked the question to make the answer important news. A financial news ticker called the brokers who knew the most about Intervale Oil’s rise. They should have known just as much about its fall. What did these brokers, members of the pool betting on a rise, say when the news agency asked for an explanation it could print and send across the country? Why, they said 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 kept selling. The stock was then only about $12 a share. 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.
It was wise and proper for insiders to sell as the price fell. But it was different for outsiders who had paid 35 or 40. Reading the ticker reports, these outsiders held on. They waited for the angry inside pool to give Larry Livingston what he deserved.
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.
In a bull market, especially during a boom, the public makes money at first. Later, people lose it simply by staying in the bull market too long. Talk of “bear raids” encourages them to stay too long. The public should beware of explanations that say only what unnamed insiders want the public to believe.