In most of the old corners the manipulation consisted chiefly of not

letting the other man know that you were cornering the stock which he

was variously invited to sell short. It therefore was aimed chiefly

at fellow professionals, for the general public does not take kindly

to the short side of the account. The reasons that prompted these

wise professionals to put out short lines in such stocks were pretty

much the same as prompts them to do the same thing to-day. Apart from

the selling by faith-breaking politicians in the Harlem corner of the

Commodore, I gather from the stories I have read that the professional

traders sold the stock because it was too high. And the reason they

thought it was too high was that it never before had sold so high; and

that made it too high to buy; and if it was too high to buy it was

just right to sell. That sounds pretty modern, doesn’t it? They were

thinking of the price, and the Commodore was thinking of the value!

And so, for years afterwards, old-timers tell me that people used to

say, “He went short of Harlem!” whenever they wished to describe abject

poverty.

Many years ago I happened to be speaking to one of Jay Gould’s old

brokers. He assured me earnestly that Mr. Gould not only was a most

unusual man--it was of him that old Daniel Drew shiveringly remarked,

“His touch is Death!”--but that he was head and shoulders above all

other manipulators past and present. He must have been a financial

wizard indeed to have done what he did; there can be no question of

that. Even at this distance I can see that he had an amazing knack for

adapting himself to new conditions, and that is valuable in a trader.

He varied his methods of attack and defense without a pang because he

was more concerned with the manipulation of properties than with stock

speculation. He manipulated for investment rather than for a market

turn. He early saw that the big money was in owning the railroads

instead of rigging their securities on the floor of the Stock Exchange.

He utilised the stock market of course. But I suspect it was because

that was the quickest and easiest way to quick and easy money and he

needed many millions, just as old Collis P. Huntington was always

hard up because he always needed twenty or thirty millions more than

the bankers were willing to lend him. Vision without money means

heartaches; with money, it means achievement; and that means power; and

that means money; and that means achievement; and so on, over and over

and over.

Of course manipulation was not confined to the great figures of those

days. There were scores of minor manipulators. I remember a story an

old broker told me about the manners and morals of the early ’60’s. He

said:

“The earliest recollection I have of Wall Street is of my first visit

to the financial district. My father had some business to attend to

there and for some reason or other took me with him. We came down

Broadway and I remember turning off at Wall Street. We walked down

Wall and just as we came to Broad or, rather, Nassau Street, to the

corner where the Bankers’ Trust Company’s building now stands, I saw

a crowd following two men. The first was walking eastward, trying to

look unconcerned. He was followed by the other, a red-faced man who

was wildly waving his hat with one hand and shaking the other fist in

the air. He was yelling to beat the band: ‘Shylock! Shylock! What’s

the price of money? Shylock! Shylock!’ I could see heads sticking out

of windows. They didn’t have skyscrapers in those days, but I was sure

the second- and third-story rubbernecks would tumble out. My father

asked what was the matter, and somebody answered something I didn’t

hear. I was too busy keeping a death clutch on my father’s hand so

that the jostling wouldn’t separate us. The crowd was growing, as

street crowds do, and I wasn’t comfortable. Wild-eyed men came running

down from Nassau Street and up from Broad as well as east and west on

Wall Street. After we finally got out of the jam my father explained

to me that the man who was shouting ‘Shylock’ was So-and-So. I have

forgotten the name, but he was the biggest operator in clique stocks

in the city and was understood to have made--and lost--more money than

any other man in Wall Street with the exception of Jacob Little. I

remember Jacob Little’s name because I thought it was a funny name for

a man to have. The other man, the Shylock, was a notorious locker-up

of money. His name has also gone from me. But I remember he was tall

and thin and pale. In those days the cliques used to lock up money by

borrowing it or, rather, by reducing the amount available to Stock

Exchange borrowers. They would borrow it and get a certified check.

They wouldn’t actually take the money out and use it. Of course that

was rigging. It was a form of manipulation, I think.”

I agree with the old chap. It was a phase of manipulation that we don’t

have nowadays.

_XX_

I myself never spoke to any of the great stock manipulators that the

Street still talks about. I don’t mean leaders; I mean manipulators.

They were all before my time, although when I first came to New York,

_James R. Keene, greatest of them all_, was in his prime. But I was

a mere youngster then, exclusively concerned with duplicating, in a

reputable broker’s office, the success I had enjoyed in the bucket

shops of my native city. And, then, too, at the time Keene was busy

with the U.S. Steel stocks--his manipulative masterpiece--I had no

experience with manipulation, no real knowledge of it or of its value

or meaning, and, for that matter, no great need of such knowledge.

If I thought about it at all I suppose I must have regarded it as a

well-dressed form of thimble-rigging, of which the lowbrow form was

such tricks as had been tried on me in the bucket shops. Such talk as I

since have heard on the subject has consisted in great part of surmises

and suspicions; of guesses rather than intelligent analyses.

More than one man who knew him well has told me that Keene was the

boldest and most brilliant operator that ever worked in Wall Street.

That is saying a great deal, for there have been some great traders.

Their names are now all but forgotten, but nevertheless they were kings

in their day--for a day! They were pulled up out of obscurity into the

sunlight of financial fame by the ticker tape--and the little paper

ribbon didn’t prove strong enough to keep them suspended there long

enough for them to become historical fixtures. At all events Keene was

by all odds the best manipulator of his day--and it was a long and

exciting day.

He capitalized his knowledge of the game, his experience as an operator

and his talents when he sold his services to the Havemeyer brothers,

who wanted him to develop a market for the Sugar stocks. He was broke

at the time or he would have continued to trade on his own hook; and

he was some plunger! He was successful with Sugar; made the shares

trading favourites, and that made them easily vendible. After that, he

was asked time and again to take charge of pools. I am told that in

these pool operations he never asked nor accepted a fee, but paid for

his share like the other members of the pool. The market conduct of

the stock, of course, was exclusively in his charge. Often there was

talk of treachery--on both sides. His feud with the Whitney-Ryan clique

arose from such accusations. It is not difficult for a manipulator to

be misunderstood by his associates. They don’t see his needs as he

himself does. I know this from my own experience.

It is a matter of regret that Keene did not leave an accurate record

of his greatest exploit--the successful manipulation of the U.S.

Steel shares in the spring of 1901. As I understand it, Keene never

had an interview with J. P. Morgan about it. Morgan’s firm dealt with

or through Talbot J. Taylor & Co., at whose office Keene made his

headquarters. Talbot Taylor was Keene’s son-in-law. I am assured that

Keene’s fee for his work consisted of the pleasure he derived from the

work. That he made millions trading in the market he helped to put

up that spring is well known. He told a friend of mine that in the

course of a few weeks he sold in the open market for the underwriters’

syndicate more than seven hundred and fifty thousand shares. Not bad

when you consider two things: That they were new and untried stocks of

a corporation whose capitalization was greater than the entire debt of

the United States at that time; and second, that men like D. G. Reid,

W. B. Leeds, the Moore brothers, Henry Phipps, H. C. Frick and the

other Steel magnates also sold hundreds of thousands of shares to the

public at the same time in the same market that Keene helped to create.

Of course, general conditions favoured him. Not only actual business

but sentiment and his unlimited financial backing made possible his

success. What we had was not merely a big bull market but a boom and a

state of mind not likely to be seen again. The undigested-securities

panic came later, when Steel common, which Keene had marked up to 55 in

1901, sold at 10 in 1903 and at 8⅞ in 1904.

We can’t analyse Keene’s manipulative campaigns. His books are not

available; the adequately detailed record is nonexistent. For example,

it would be interesting to see how he worked in Amalgamated Copper.

H. H. Rogers and William Rockefeller had tried to dispose of their

surplus stock in the market and had failed. Finally they asked Keene

to market their line, and he agreed. Bear in mind that H. H. Rogers

was one of the ablest business men of his day in Wall Street and that

William Rockefeller was the boldest speculator of the entire Standard

Oil coterie. They had practically unlimited resources and vast prestige

as well as years of experience in the stock-market game. And yet they

had to go to Keene. I mention this to show you that there are some

tasks which it requires a specialist to perform. Here was a widely

touted stock, sponsored by America’s greatest capitalists, that could

not be sold except at a great sacrifice of money and prestige. Rogers

and Rockefeller were intelligent enough to decide that Keene alone

might help them.

Keene began to work at once. He had a bull market to work in and sold

two hundred and twenty thousand shares of Amalgamated at around par.

After he disposed of the insiders’ line the public kept on buying and

the price went ten points higher. Indeed the insiders got bullish on

the stock they had sold when they saw how eagerly the public was taking

it. There was a story that Rogers actually advised Keene to go long

of Amalgamated. It is scarcely credible that Rogers meant to unload on

Keene. He was too shrewd a man not to know that Keene was no bleating

lamb. Keene worked as he always did--that is, _doing his big selling

on the way down after the big rise_. Of course his tactical moves were

directed by his needs and by the minor currents that changed from day

to day. In the stock market, as in warfare, it is well to keep in mind

the difference between strategy and tactics.

One of Keene’s confidential men--he is the best fly fisherman I

know--told me only the other day that during the Amalgamated campaign

Keene would find himself almost out of stock one day--that is, out

of the stock he had been forced to take in marking up the price; and

on the next day he would buy back thousands of shares. On the day

after that, he would sell on balance. Then he would leave the market

absolutely alone, to see how it would take care of itself and also to

accustom it to do so. When it came to the actual marketing of the line

he did what I told you: he sold it on the way down. The trading public

is always looking for a rally, and, besides, there is the covering by

the shorts.

The man who was closest to Keene during that deal told me that after

Keene sold the Rogers-Rockefeller line for something like twenty or

twenty-five million dollars in cash Rogers sent him a check for two

hundred thousand. This reminds you of the millionaire’s wife who gave

the Metropolitan Opera House scrub-woman fifty cents reward for finding

the one-hundred-thousand-dollar pearl necklace. Keene sent the check

back with a polite note saying he was not a stock broker and that he

was glad to have been of some service to them. They kept the check

and wrote him that they would be glad to work with him again. Shortly

after that it was that H. H. Rogers gave Keene the friendly tip to buy

Amalgamated at around 130!

A brilliant operator, James R. Keene! His private secretary told me

that when the market was going his way Mr. Keene was irascible; and

those who knew him say his irascibility was expressed in sardonic

phrases that lingered long in the memory of his hearers. But when he

was losing he was in the best of humour, a polished man of the world,

agreeable, epigrammatic, interesting.

He had in superlative degree the qualities of mind that are associated

with successful speculators anywhere. That he did not argue with the

tape is plain. He was utterly fearless but never reckless. He could and

did turn in a twinkling, if he found he was wrong.

Since his day there have been so many changes in Stock Exchange rules

and so much more rigorous enforcement of old rules, so many new taxes

on stock sales and profits, and so on, that the game seems different.

Devices that Keene could use with skill and profit can no longer be

utilised. Also, we are assured, the business morality of Wall Street is

on a higher plane. Nevertheless it is fair to say that in any period

of our financial history Keene would have been a great manipulator

because he was a great stock operator and knew the game of speculation

from the ground up. He achieved what he did because conditions at the

time permitted him to do so. He would have been as successful in his

undertakings in 1922 as he was in 1901 or in 1876, when he first came

to New York from California and made nine million dollars in two years.

There are men whose gait is far quicker than the mob’s. They are bound

to lead--no matter how much the mob changes.

As a matter of fact, the change is by no means as radical as you’d

imagine. The rewards are not so great, for it is no longer pioneer

work and therefore it is not pioneer’s pay. But in certain respects

manipulation is easier than it was; in other ways much harder than in

Keene’s day.

There is no question that advertising is an art, and manipulation

is the art of advertising through the medium of the tape. The tape

should tell the story the manipulator wishes its readers to see. The

truer the story the more convincing it is bound to be, and the more

convincing it is the better the advertising is. A manipulator to-day,

for instance, has not only to make a stock look strong but also to make

it be strong. Manipulation therefore must be based on sound trading

principles. That is what made Keene such a marvellous manipulator; he

was a consummate trader to begin with.

The word “manipulation” has come to have an ugly sound. It needs an

alias. I do not think there is anything so very mysterious or crooked

about the process itself when it has for an object the selling of

a stock in bulk, provided, of course, that such operations are not

accompanied by misrepresentation. There is little question that a

manipulator necessarily seeks his buyers among speculators. He turns to

men who are looking for big returns on their capital and are therefore

willing to run a greater than normal business risk. I can’t have much

sympathy for the man who, knowing this, nevertheless blames others for

his own failure to make easy money. He is a devil of a clever fellow

when he wins. But when he loses money the other fellow was a crook; a

manipulator! In such moments and from such lips the word connotes the

use of marked cards. But this is not so.

Usually the object of manipulation is to develop marketability--that

is, the ability to dispose of fair-sized blocks at some price at any

time. Of course a pool, by reason of a reversal of general market

conditions, may find itself unable to sell except at a sacrifice too

great to be pleasing. They then may decide to employ a professional,

believing that his skill and experience will enable him to conduct an

orderly retreat instead of suffering an appalling rout.

You will notice that I do not speak of manipulation designed to permit

considerable accumulation of a stock as cheaply as possible, as, for

instance, in buying for control, because this does not happen often

nowadays.

When Jay Gould wished to cinch his control of Western Union and decided

to buy a big block of the stock, Washington E. Connor, who had not been

seen on the floor of the Stock Exchange for years, suddenly showed

up in person at the Western Union Post. He began to bid for Western

Union. The traders to a man laughed--at his stupidity in thinking them

so simple--and they cheerfully sold him all the stock he wanted to buy.

It was too raw a trick, to think he could put up the price by acting as

though Mr. Gould wanted to buy Western Union. Was that manipulation? I

think I can only answer that by saying “No; and yes!”

In the majority of cases the object of manipulation is, as I said, to

sell stock to the public at the best possible price. It is not alone

a question of selling but of distributing. It is obviously better in

every way for a stock to be held by a thousand people than by one

man--better for the market in it. So it is not alone the sale at a good

price but the character of the distribution that a manipulator must

consider.

There is no sense in marking up the price to a very high level if you

cannot induce the public to take it off your hands later. Whenever

inexperienced manipulators try to unload at the top and fail,

old-timers look mighty wise and tell you that you can lead a horse

to water but you cannot make him drink. Original devils! As a matter

of fact, it is well to remember a rule of manipulation, a rule that

Keene and his able predecessors well knew. It is this: _Stocks are

manipulated to the highest point possible and then sold to the public

on the way down_.

Let me begin at the beginning. Assume that there is some one--an

underwriting syndicate or a pool or an individual--that has a block

of stock which it is desired to sell at the best price possible. It

is a stock duly listed on the New York Stock Exchange. The best place

for selling it ought to be the open market, and the best buyer ought

to be the general public. The negotiations for the sale are in charge

of a man. He--or some present or former associate--has tried to sell

the stock on the Stock Exchange and has not succeeded. He is--or soon

becomes--sufficiently familiar with stock-market operations to realise

that more experience and greater aptitude for the work are needed than

he possesses. He knows personally or by hearsay several men who have

been successful in their handling of similar deals, and he decides to

avail himself of their professional skill. He seeks one of them as he

would seek a physician if he were ill or an engineer if he needed that

kind of expert.

Suppose he has heard of me as a man who knows the game. Well, I take it

that he tries to find out all he can about me. He then arranges for an

interview, and in due time calls at my office.

Of course, the chances are that I know about the stock and what it

represents. It is my business to know. That is how I make my living. My

visitor tells me what he and his associates wish to do, and asks me to

undertake the deal.

It is then my turn to talk. I ask for whatever information I deem

necessary to give me a clear understanding of what I am asked to

undertake. I determine the value and estimate the market possibilities

of that stock. That and my reading of current conditions in turn help

me to gauge the likelihood of success for the proposed operation.

If my information inclines me to a favourable view I accept the

proposition and tell him then and there what my terms will be for

my services. If he in turn accepts my terms--the honorarium and the

conditions--I begin my work at once.

I generally ask and receive calls on a block of stock. I insist upon

graduated calls as the fairest to all concerned. The price of the call

begins at a little below the prevailing market price and goes up; say,

for example, that I get calls on one hundred thousand shares and the

stock is quoted at 40. I begin with a call for some thousands of shares

at 35, another at 37, another at 40, and at 45 and 50, and so on up to

75 or 80.

If as the result of my professional work--my manipulation--the price

goes up, and if at the highest level there is a good demand for the

stock so that I can sell fair-sized blocks of it I of course call the

stock. I am making money; but so are my clients making money. This is

as it should be. If my skill is what they are paying for they ought to

get value. Of course, there are times when a pool may be wound up at a

loss, but that is seldom, for I do not undertake the work unless I see

my way clear to a profit. This year I was not so fortunate in one or

two deals, and I did not make a profit. There are reasons, but that is

another story, to be told later--perhaps.

The first step in a bull movement in a stock is to advertise the fact

that there is a bull movement on. Sounds silly, doesn’t it? Well, think

a moment. It isn’t as silly as it sounded, is it? The most effective

way to advertise what, in effect, are your honourable intentions is

to make the stock active and strong. After all is said and done, _the

greatest publicity agent in the wide world is the ticker, and by far

the best advertising medium is the tape_. I do not need to put out any

literature for my clients. I do not have to inform the daily press as

to the value of the stock or to work the financial reviews for notices

about the company’s prospects. Neither do I have to get a following.

I accomplish all these highly desirable things by merely making the

stock active. _When there is activity there is a synchronous demand

for explanations_; and that means, of course, that the necessary

reasons--for publication--supply themselves without the slightest aid

from me.

Activity is all that the floor traders ask. They will buy or sell any

stock at any level if only there is a free market for it. They will

deal in thousands of shares wherever they see activity, and their

aggregate capacity is considerable. It necessarily happens that they

constitute the manipulator’s first crop of buyers. They will follow

you all the way up and they thus are a great help at all the stages

of the operation. I understand that James R. Keene used habitually to

employ the most active of the room traders, both to conceal the source

of the manipulation and also because he knew that they were by far

the best business-spreaders and tip-distributors. He often gave calls

to them--verbal calls--above the market, so that they might do some

helpful work before they could cash in. He made them earn their profit.

To get a professional following I myself have never had to do more

than to make a stock active. Traders don’t ask for more. It is well,

of course, to remember that these professionals on the floor of the

Exchange buy stocks with the intention of selling them at a profit.

They do not insist on its being a big profit; but it must be a quick

profit.

I make the stock active in order to draw the attention of speculators

to it, for the reasons I have given. I buy it and I sell it and the

traders follow suit. The selling pressure is not apt to be strong where

a man has as much speculatively held stock sewed up--in calls--as I

insist on having. The buying, therefore, prevails over the selling, and

the public follows the lead not so much of the manipulator as of the

room traders. It comes in as a buyer. This highly desirable demand I

fill--that is, I sell stock on balance. If the demand is what it ought

to be it will absorb more than the amount of stock I was compelled to

accumulate in the earlier stages of the manipulation; and when this

happens I sell the stock short--that is, technically. In other words,

I sell more stock than I actually hold. It is perfectly safe for me to

do so since I am really selling against my calls. Of course, when the

demand from the public slackens, the stock ceases to advance. Then I

wait.

Say, then, that the stock has ceased to advance. There comes a weak

day. The entire market may develop a reactionary tendency or some

sharp-eyed trader may perceive that there are no buying orders to speak

of in my stock, and he sells it, and his fellows follow. Whatever

the reason may be, my stock starts to go down. Well, I begin to buy

it. I give it the support that a stock ought to have if it is in

good odour with its own sponsors. And more: I am able to support it

without accumulating it--that is, without increasing the amount I

shall have to sell later on. Observe that I do this without decreasing

my financial resources. Of course what I am really doing is covering

stock I sold short at higher prices when the demand from the public

or from the traders or from both enabled me to do it. It is always

well to make it plain to the traders--and to the public, also--that

there is a demand for the stock on the way down. That tends to check

both reckless short selling by the professionals and liquidation by

frightened holders--which is the selling you usually see when a stock

gets weaker and weaker, which in turn is what a stock does when it is

not supported. These covering purchases of mine constitute what I call

the stabilising process.

As the market broadens I of course sell stock on the way up, but

never enough to check the rise. This is in strict accordance with

my stabilising plans. It is obvious that the more stock I sell on a

reasonable and orderly advance the more I encourage the conservative

speculators, who are more numerous than the reckless room traders;

and in addition the more support I shall be able to give to the stock

on the inevitable weak days. By always being short I always am in a

position to support the stock without danger to myself. As a rule I

begin my selling at a price that will show me a profit. But I often

sell without having a profit, simply to create or to increase what I

may call my riskless buying power. My business is not alone to put up

the price or to sell a big block of stock for a client but to make

money for myself. That is why I do not ask my clients to finance my

operations. My fee is contingent upon my success.

Of course what I have described is not my invariable practice. I

neither have nor adhere to an inflexible system. I modify my terms and

conditions according to circumstances.

A stock which it is desired to distribute should be manipulated to the

highest possible point and then sold. I repeat this both because it is

fundamental and because the public apparently believes that the selling

is all done at the top. Sometimes a stock gets waterlogged, as it

were; it doesn’t go up. That is the time to sell. The price naturally

will go down on your selling rather further than you wish, but you can

generally nurse it back. As long as a stock that I am manipulating

goes up on my buying I know I am hunky, and if need be I buy it with

confidence and use my own money without fear--precisely as I would any

other stock that acts the same way. It is the line of least resistance.

You remember my trading theories about that line, don’t you? Well,

when the price line of least resistance is established I follow it,

not because I am manipulating that particular stock at that particular

moment but because I am a stock operator at all times.

When my buying does not put the stock up I stop buying and then proceed

to sell it down; and that also is exactly what I would do with that

same stock if I did not happen to be manipulating it. The principal

marketing of the stock, as you know, is done on the way down. _It is

perfectly astonishing how much stock a man can get rid of on a decline._

I repeat that at no time during the manipulation do I forget to be a

stock trader. My problems as a manipulator, after all, are the same

that confront me as an operator. All manipulation comes to an end when

the manipulator cannot make a stock do what he wants it to do. _When

the stock you are manipulating doesn’t act as it should, quit. Don’t

argue with the tape. Do not seek to lure the profit back. Quit while

the quitting is good--and cheap._

_XXI_

I am well aware that all these generalities do not sound especially

impressive. Generalities seldom do. Possibly I may succeed better if I

give a concrete example. I’ll tell you how I marked up the price of a

stock 30 points, and in so doing accumulated only seven thousand shares

and developed a market that would absorb almost any amount of stock.

It was Imperial Steel. The stock had been brought out by reputable

people and it had been fairly well tipped as a property of value. About

30 per cent of the capital stock was placed with the general public

through various Wall Street houses, but there had been no significant

activity in the shares after they were listed. From time to time

somebody would ask about it and one or another insider--members of the

original underwriting syndicate--would say that the company’s earnings

were better than expected and the prospects more than encouraging.

This was true enough and very good as far as it went, but not exactly

thrilling. The speculative appeal was absent, and from the investor’s

point of view the price stability and dividend permanency of the

stock were not yet demonstrated. It was a stock that never behaved

sensationally. It was so gentlemanly that no corroborative rise ever

followed the insiders’ eminently truthful reports. On the other hand,

neither did the price decline.

Imperial Steel remained unhonoured and unsung and untipped, content to

be one of those stocks that don’t go down because nobody sells and that

nobody sells because nobody likes to go short of a stock that is not

well distributed; the seller is too much at the mercy of the loaded-up

inside clique. Similarly, there is no inducement to buy such a stock.

To the investor Imperial Steel therefore remained a speculation. To the

speculator it was a dead one--the kind that makes an investor of you

against your will by the simple expedient of falling into a trance the

moment you go long of it. The chap who is compelled to lug a corpse a

year or two always loses more than the original cost of the deceased;

he is sure to find himself tied up with it when some really good things

come his way.

One day the foremost member of the Imperial Steel syndicate, acting for

himself and associates, came to see me. They wished to create a market

for the stock, of which they controlled the undistributed 70 per cent.

They wanted me to dispose of their holdings at better prices than they

thought they would obtain if they tried to sell in the open market.

They wanted to know on what terms I would undertake the job.

I told him that I would let him know in a few days. Then I looked into

the property. I had experts go over the various departments of the

company--industrial, commercial and financial. They made reports to me

which were unbiased. I wasn’t looking for the good or the bad points,

but for the facts, such as they were.

The reports showed that it was a valuable property. The prospects

justified purchases of the stock at the prevailing market price--if

the investor were willing to wait a little. Under the circumstances

an advance in the price would in reality be the commonest and most

legitimate of all market movements--to wit, the process of discounting

the future. There was therefore no reason that I could see why I should

not conscientiously and confidently undertake the bull manipulation of

Imperial Steel.

I let my man know my mind and he called at my office to talk the deal

over in detail. I told him what my terms were. For my services I asked

no cash, but calls on one hundred thousand shares of the Imperial Steel

stock. The price of the calls ran up from 70 to 100. That may seem like

a big fee to some. But they should consider that the insiders were

certain they themselves could not sell one hundred thousand shares, or

even fifty thousand shares, at 70. There was no market for the stock.

All the talk about wonderful earnings and excellent prospects had not

brought in buyers, not to any great extent. In addition, I could not

get my fee in cash without my clients first making some millions of

dollars. What I stood to make was not an exorbitant selling commission.

It was a fair contingent fee.

Knowing that the stock had real value and that general market

conditions were bullish and therefore favourable for an advance in all

good stocks, I figured that I ought to do pretty well. My clients were

encouraged by the opinions I expressed, agreed to my terms at once, and

the deal began with pleasant feelings all around.

I proceeded to protect myself as thoroughly as I could. The syndicate

owned or controlled about 70 per cent of the outstanding stock. I

had them deposit their 70 per cent under a trust agreement. I didn’t

propose to be used as a dumping ground for the big holders. With the

majority holdings thus securely tied up, I still had 30 per cent of

scattered holdings to consider, but that was a risk I had to take.

Experienced speculators do not expect ever to engage in utterly

riskless ventures. As a matter of fact, it was not much more likely

that all the untrusteed stock would be thrown on the market at one

fell swoop than that all the policyholders of a life-insurance company

would die at the same hour, the same day. There are unprinted actuarial

tables of stock-market risks as well as of human mortality.

Having protected myself from some of the avoidable dangers of a

stock-market deal of that sort, I was ready to begin my campaign. Its

objective was to make my calls valuable. To do this I must put up the

price and develop a market in which I could sell one hundred thousand

shares--the stock in which I held options.

The first thing I did was to find out how much stock was likely to come

on the market on an advance. This was easily done through my brokers,

who had no trouble in ascertaining what stock was for sale at or a

little above the market. I don’t know whether the specialists told them

what orders they had on their books or not. The price was nominally 70,

but I could not have sold one thousand shares at that price. I had no

evidence of even a moderate demand at that figure or even a few points

lower. I had to go by what my brokers found out. But it was enough to

show me how much stock there was for sale and how little was wanted.

As soon as I had a line on these points I quietly took all the stock

that was for sale at 70 and higher. When I say “I” you will understand

that I mean my brokers. The sales were for account of some of the

minority holders because my clients naturally had cancelled whatever

selling orders they might have given out before they tied up their

stock.

I didn’t have to buy very much stock. Moreover, I knew that the right

kind of advance would bring in other buying orders--and, of course,

selling orders also.

I didn’t give bull tips on Imperial Steel to anybody. I didn’t have

to. My job was to seek directly to influence sentiment by the best

possible kind of publicity. I do not say that there should never

be bull propaganda. It is as legitimate and indeed as desirable to

advertise the value of a new stock as to advertise the value of woolens

or shoes or automobiles. Accurate and reliable information should be

given by the public. But what I meant was that the tape did all that

was needed for my purpose. As I said before, the reputable newspapers

always try to print explanations for market movements. It is news.

Their readers demand to know not only what happens in the stock market

but why it happens. Therefore without the manipulator lifting a finger

the financial writers will print all the available information and

gossip, and also analyse the reports of earnings, trade condition and

outlook; in short, whatever may throw light on the advance. Whenever a

newspaperman or an acquaintance asks my opinion of a stock and I have

one I do not hesitate to express it. I do not volunteer advice and

I never give tips, but I have nothing to gain in my operations from

secrecy. At the same time I realise that the best of all tipsters, the

most persuasive of all salesmen, is the tape.

When I had absorbed all the stock that was for sale at 70 and a little

higher I relieved the market of that pressure, and naturally that made

clear for trading purposes the line of least resistance in Imperial

Steel. It was manifestly upward. The moment that fact was perceived

by the observant traders on the floor they logically assumed that

the stock was in for an advance the extent of which they could not

know; but they knew enough to begin buying. Their demand for Imperial

Steel, created exclusively by the obviousness of the stock’s rising

tendency--the tape’s infallible bull tip!--I promptly filled. I sold to

the traders the stock that I had bought from the tired-out holders at

the beginning. Of course this selling was judiciously done; I contented

myself with supplying the demand. I was not forcing my stock on the

market and I did not want too rapid an advance. It wouldn’t have been

good business to sell out the half of my one hundred thousand shares at

that stage of the proceedings. My job was to make a market on which I

might sell my entire line.

But even though I sold only as much as the traders were anxious to buy,

the market was temporarily deprived of my own buying power, which I had

hitherto exerted steadily. In due course the traders’ purchases ceased

and the price stopped rising. As soon as that happened there began the

selling by disappointed bulls or by those traders whose reasons for

buying disappeared the instant the rising tendency was checked. But I

was ready for this selling, and on the way down I bought back the stock

I had sold to the traders a couple of points higher. This buying of

stock I knew was bound to be sold in turn checked the downward course;

and when the price stopped going down the selling orders stopped coming

in.

I then began all over again. I took all the stock that was for sale on

the way up--it wasn’t very much--and the price began to rise a second

time; from a higher starting point than 70. _Don’t_ forget that on the

way down there are many holders who wish to heaven they had sold theirs

but won’t do it three or four points from the top. Such speculators

always vow they will surely sell out if there is a rally. They put in

their orders to sell on the way up, and then they change their minds

with the change in the stock’s price-trend. Of course there is always

profit taking from safe-playing quick runners to whom a profit is

always a profit to be taken.

All I had to do after that was to repeat the process; alternately

buying and selling; but always working higher.

Sometimes, after you have taken all the stock that is for sale, it

pays to rush up the price sharply, to have what might be called little

bull flurries in the stock you are manipulating. It is excellent

advertising, because it makes talk and also brings in both the

professional traders and that portion of the speculating public that

likes action. It is, I think, a large portion. I did that in Imperial

Steel, and whatever demand was created by those spurts I supplied.

My selling always kept the upward movement within bounds both as to

extent and as to speed. In buying on the way down and selling on the

way up I was doing more than marking up the price: I was developing the

marketability of Imperial Steel.

After I began my operations in it there never was a time when a

man could not buy or sell the stock freely; I mean by this, buy or

sell a reasonable amount without causing over-violent fluctuations

in the price. The fear of being left high and dry if he bought, or

squeezed to death if he sold, was gone. The gradual spread among the

professionals and the public of a belief in the permanence of the

market for Imperial Steel had much to do with creating confidence in

the movement; and, of course, the activity also put an end to a lot of

other objections. The result was that after buying and selling a good

many thousands of shares I succeeded in making the stocks sell at par.

At one hundred dollars a share everybody wanted to buy Imperial Steel.

Why not? Everybody now knew that it was a good stock; that it had been

and still was a bargain. The proof was the rise. A stock that could go

thirty points from 70 could go up thirty more from par. That is the way

a good many argued.

In the course of marking up the price those thirty points I accumulated

only seven thousand shares. The price on this line averaged me almost

exactly 85. That meant a profit of fifteen points on it; but, of

course, my entire profit, still on paper, was much more. It was a safe

enough profit, for I had a market for all I wanted to sell. The stock

would sell higher on judicious manipulation and I had graduated calls

on one hundred thousand shares beginning at 70 and ending at 100.

Circumstances prevented me from carrying out certain plans of mine for

converting my paper profits into good hard cash. It had been, if I do

say so myself, a beautiful piece of manipulation, strictly legitimate

and deservedly successful. The property of the company was valuable

and the stock was not dear at the higher price. One of the members of

the original syndicate developed a desire to secure the control of the

property--a prominent banking house with ample resources. The control

of a prosperous and growing concern like the Imperial Steel Corporation

is possibly more valuable to a banking firm than to individual

investors. At all events, this firm made me an offer for all my options

on the stock. It meant an enormous profit for me, and I instantly took

it. I am always willing to sell out when I can do so in a lump at a

good profit. I was quite content with what I made out of it.

Before I disposed of my calls on the hundred thousand shares I learned

that these bankers had employed more experts to make a still more

thorough examination of the property. Their reports showed enough to

bring me in the offer I got. I kept several thousand shares of the

stock for investment. I believe in it.

There wasn’t anything about my manipulation of Imperial Steel that

wasn’t normal and sound. As long as the price went up on my buying I

knew I was O.K. The stock never got waterlogged, as a stock sometimes

does. When you find that it fails to respond adequately to your buying

you don’t need any better tip to sell. You know that if there is any

value to a stock and general market conditions are right you can always

nurse it back after a decline, no matter if it’s twenty points. But I

never had to do anything like that in Imperial Steel.

In my manipulation of stocks I never lose sight of basic trading

principles. Perhaps you wonder why I repeat this or why I keep on

harping on the fact that I never argue with the tape or lose my temper

at the market because of its behaviour. You would think--wouldn’t

you?--that shrewd men who have made millions in their own business and

in addition have successfully operated in Wall Street at times would

realise the wisdom of playing the game dispassionately. Well, you would

be surprised at the frequency with which some of our most successful

promoters behave like peevish women because the market does not act the

way they wish it to act. They seem to take it as a personal slight, and

they proceed to lose money by first losing their temper.

There has been much gossip about a disagreement between John Prentiss

and myself. People have been led to expect a dramatic narrative of a

stock-market deal that went wrong or some double-crossing that cost

me--or him--millions; or something of that sort. Well, it wasn’t.

Prentiss and I had been friendly for years. He had given me at various

times information that I was able to utilise profitably, and I had

given him advice which he may or may not have followed. If he did he

saved money.

He was largely instrumental in the organisation and promotion of the

Petroleum Products Company. After a more or less successful market

début general conditions changed for the worse and the new stock did

not fare as well as Prentiss and his associates had hoped. When basic

conditions took a turn for the better Prentiss formed a pool and began

operations in Pete Products.

I cannot tell you anything about his technique. He didn’t tell me how

he worked and I didn’t ask him. But it was plain that notwithstanding

his Wall Street experience and his undoubted cleverness, whatever it

was he did proved of little value and it didn’t take the pool long

to find out that they couldn’t get rid of much stock. He must have

tried everything he knew, because a pool manager does not ask to be

superseded by an outsider unless he feels unequal to the task, and that

is the last thing the average man likes to admit. At all events he came

to me and after some friendly preliminaries he said he wanted me to

take charge of the market for Pete Products and dispose of the pool’s

holdings, which amounted to a little over one hundred thousand shares.

The stock was selling at 102 to 103.

The thing looked dubious to me and I declined his proposition with

thanks. But he insisted that I accept. He put it on personal grounds,

so that in the end I consented. I constitutionally dislike to identify

myself with enterprises in the success of which I cannot feel

confidence, but I also think a man owes something to his friends and

acquaintances. I said I would do my best, but I told him I did not feel

very cocky about it and I enumerated the adverse factors that I would

have to contend with. But all Prentiss said to that was that he wasn’t

asking me to guarantee millions in profits to the pool. He was sure

that if I took hold I’d make out well enough to satisfy any reasonable

being.

Well, there I was, engaged in doing something against my own judgment.

I found, as I feared, a pretty tough state of affairs, due in great

measure to Prentiss’ own mistakes while he was manipulating the stock

for account of the pool. But the chief factor against me was time.

I was convinced that we were rapidly approaching the end of a bull

swing and therefore that the improvement in the market, which had so

encouraged Prentiss, would prove to be merely a short-lived rally. I

feared that the market would turn definitely bearish before I could

accomplish much with Pete Products. However, I had given my promise and

I decided to work as hard as I knew how.

I started to put up the price. I had moderate success. I think I ran it

up to 107 or thereabouts, which was pretty fair, and I was even able to

sell a little stock on balance. It wasn’t much, but I was glad not to

have increased the pool’s holdings. There were a lot of people not in

the pool who were just waiting for a small rise to dump their stock,

and I was a godsend to them. Had general conditions been better I also

would have done better. It was too bad that I wasn’t called in earlier.

All I could do now, I felt, was to get out with as little loss as

possible to the pool.

I sent for Prentiss and told him my views. But he started to object. I

then explained to him why I took the position I did. I said: “Prentiss,

I can feel very plainly the pulse of the market. There is no follow-up

in your stock. It is no trick to see just what the public’s reaction is

to my manipulation. Listen: When Pete Products is made as attractive to

traders as possible and you give it all the support needed at all times

and notwithstanding all that you find that the public leaves it alone

you may be sure that there is something wrong, not with the stock but

with the market. There is absolutely no use in trying to force matters.

You are bound to lose if you do. A pool manager should be willing to

buy his own stock when he has company. But when he is the only buyer in

the market he’d be an ass to buy it. For every five thousand shares I

buy the public ought to be willing or able to buy five thousand more.

But I certainly am not going to do all the buying. If I did, all I

would succeed in doing would be to get soaked with a lot of long stock

that I don’t want. There is only one thing to do, and that is to sell.

And the only way to sell is to sell.”

“You mean, sell for what you can get?” asked Prentiss.

“Right!” I said. I could see he was getting ready to object. “If I am

to sell the pool’s stock at all you can make up your mind that the

price is going to break through par and----”

“Oh, no! Never!” he yelled. You’d have imagined I was asking him to

join a suicide club.

“Prentiss,” I said to him, “it is a cardinal principle of stock

manipulation to put up a stock in order to sell it. But you don’t sell

in bulk on the advance. You can’t. The big selling is done on the way

down from the top. I cannot put up your stock to 125 or 130. I’d like

to, but it can’t be done. So you will have to begin your selling from

this level. In my opinion all stocks are going down, and Petroleum

Products isn’t going to be the one exception. It is better for it to

go down now on the pool’s selling than for it to break next month on

selling by some one else. It will go down anyhow.”

I can’t see that I said anything harrowing, but you could have heard

his howls in China. He simply wouldn’t listen to such a thing. It would

never do. It would play the dickens with the stock’s record, to say

nothing of inconvenient possibilities at the banks where the stock was

held as collateral on loans, and so on.

I told him again that in my judgment nothing in the world could prevent

Pete Products from breaking fifteen or twenty points, because the

entire market was headed that way, and I once more said it was absurd

to expect his stock to be a dazzling exception. But again my talk went

for nothing. He insisted that I support the stock.

Here was a shrewd business man, one of the most successful promoters of

the day, who had made millions in Wall Street deals and knew much more

than the average man about the game of speculation, actually insisting

on supporting a stock in an incipient bear market. It was his stock,

to be sure, but it was nevertheless bad business. So much so that it

went against the grain and I again began to argue with him. But it was

no use. He insisted on putting in supporting orders.

Of course when the general market got weak and the decline began in

earnest Pete Products went with the rest. Instead of selling I actually

bought stock for the insiders’ pool--by Prentiss’ orders.

The only explanation is that Prentiss did not believe the bear market

was right on top of us. I myself was confident that the bull market

was over. I had verified my first surmise by tests not alone in Pete

Products but in other stocks as well. I didn’t wait for the bear market

to announce its safe arrival before I started selling. Of course I

didn’t sell a share of Pete Products, though I was short of other

stocks.

The Pete Products pool, as I expected, was hung up with all they held

to begin with and with all they had to take in their futile effort to

hold up the price. In the end they did liquidate; but at much lower

figures than they would have got if Prentiss had let me sell when and

as I wished. It could not be otherwise. But Prentiss still thinks he

was right--or says he does. I understand he says the reason I gave him

the advice I did was that I was short of other stocks and the general

market was going up. It implies, of course, that the break in Pete

Products that would have resulted from selling out the pool’s holdings

at any price would have helped my bear position in other stocks.

That is all tommyrot. I was not bearish because I was short of stocks.

I was bearish because that was the way I sized up the situation, and

I sold stocks short only after I turned bearish. There never is much

money in doing things wrong end to; not in the stock market. My plan

for selling the pool’s stock was based on what the experience of twenty

years told me alone was feasible and therefore wise. Prentiss ought to

have been enough of a trader to see it as plainly as I did. It was too

late to try to do anything else.

I suppose Prentiss shares the delusion of thousands of outsiders who

think a manipulator can do anything. He can’t. The biggest thing Keene

did was his manipulation of U.S. Steel common and preferred in the

spring of 1901. He succeeded not because he was clever and resourceful

and not because he had a syndicate of the richest men in the country

back of him. He succeeded partly because of those reasons but chiefly

because the general market was right and the public’s state of mind was

right.

It isn’t good business for a man to act against the teachings of

experience and against common sense. But the suckers in Wall Street are

not all outsiders. Prentiss’ grievance against me is what I have just

told you. He feels sore because I did my manipulation not as I wanted

to but as he asked me to.

There isn’t anything mysterious or underhanded or crooked about

manipulation designed to sell a stock in bulk provided such

operations are not accompanied by deliberate misrepresentations.

Sound manipulation must be based on sound trading principles. People

lay great stress on old-time practices, such as wash sales. But I

can assure you that the mere mechanics of deception count for very

little. The difference between stock-market manipulation and the

over-the-counter sale of stocks and bonds is in the character of the

clientele rather than in the character of the appeal. J. P. Morgan

& Co. sell an issue of bonds to the public--that is, to investors.

A manipulator disposes of a block of stock to the public--that is,

to speculators. An investor looks for safety, for permanence of the

interest return on the capital he invests. The speculator looks for a

quick profit.

The manipulator necessarily finds his primary market among

speculators--who are willing to run a greater than normal business risk

so long as they have a reasonable chance to get a big return on their

capital. I myself never have believed in blind gambling. I may plunge

or I may buy one hundred shares. But in either case I must have a

reason for what I do.

I distinctly remember how I got into the game of manipulation--that

is, in the marketing of stocks for others. It gives me pleasure to

recall it because it shows so beautifully the professional Wall Street

attitude toward stock-market operations. It happened after I had “come

back”--that is, after my Bethlehem Steel trade in 1915 started me on

the road to financial recovery.

I traded pretty steadily and had very good luck. I have never sought

newspaper publicity, but neither have I gone out of my way to hide

myself. At the same time, you know that professional Wall Street

exaggerates both the successes and the failures of whichever operator

happens to be active; and, of course, the newspapers hear about him

and print rumors. I have been broke so many times, according to

the gossips, or have made so many millions, according to the same

authorities, that my only reaction to such reports is to wonder how and

where they are born. And how they grow! I have had broker friend after

broker friend bring the same story to me, a little changed each time,

improved, more circumstantial.

All this preface is to tell you how I first came to undertake the

manipulation of a stock for someone else. The stories the newspapers

printed of how I had paid back in full the millions I owed did the

trick. My plungings and my winnings were so magnified by the newspapers

that I was talked about in Wall Street. The day was past when an

operator swinging a line of two hundred thousand shares of stock could

dominate the market. But, as you know, the public always desires to

find successors to the old leaders. It was Mr. Keene’s reputation

as a skillful stock operator, a winner of millions on his own hook,

that made promoters and banking houses apply to him for selling large

blocks of securities. In short, his services as manipulator were in

demand because of the stories the Street had heard about his previous

successes as a trader.

But Keene was gone--passed on to that heaven where he once said he

wouldn’t stay a moment unless he found Sysonby there waiting for

him. Two or three other men who made stock-market history for a few

months had relapsed into the obscurity of prolonged inactivity. I

refer particularly to certain of those plunging Westerners who came to

Wall Street in 1901 and after making many millions out of their Steel

holdings remained in Wall Street. They were in reality superpromoters

rather than operators of the Keene type. But they were extremely able,

extremely rich and extremely successful in the securities of the

companies which they and their friends controlled. They were not really

great manipulators, like Keene or Governor Flower. Still, the Street

found in them plenty to gossip about and they certainly had a following

among the professionals and the sportier commission houses. After they

ceased to trade actively the Street found itself without manipulators;

at least, it couldn’t read about them in the newspapers.

You remember the big bull market that began when the Stock Exchange

resumed business in 1915. As the market broadened and the Allies’

purchases in this country mounted into billions we ran into a boom.

As far as manipulation went, it wasn’t necessary for anybody to lift

a finger to create an unlimited market for a war bride. Scores of men

made millions by capitalizing contracts or even promises of contracts.

They became successful promoters, either with the aid of friendly

bankers or by bringing out their companies on the Curb market. The

public bought anything that was adequately touted.

When the bloom wore off the boom, some of these promoters found

themselves in need of help from experts in stock salesmanship. When the

public is hung up with all kinds of securities, some of them purchased

at higher prices, it is not an easy task to dispose of untried stocks.

_After a boom the public is positive that nothing is going up. It

isn’t that buyers become more discriminating, but that the blind buying

is over. It is the state of mind that has changed. Prices don’t even

have to go down to make people pessimistic. It is enough if the market

gets dull and stays dull for a time._

In every boom companies are formed primarily if not exclusively to take

advantage of the public’s appetite for all kinds of stocks. Also there

are belated promotions. The reason why promoters make that mistake

is that being human they are unwilling to see the end of the boom.

Moreover, it is good business to take chances when the possible profit

is big enough. _The top is never in sight when the vision is vitiated

by hope._ The average man sees a stock that nobody wanted at twelve

dollars or fourteen dollars a share suddenly advance to thirty--which

surely is the top--until it rises to fifty. That is absolutely the

end of the rise. Then it goes to sixty; to seventy; to seventy-five.

It then becomes a certainty that this stock, which a few weeks ago

was selling for less than fifteen, can’t go any higher. But it goes

to eighty; and to eighty-five. Whereupon the average man, who never

thinks of values but of prices, and is not governed in his actions by

conditions but by fears, takes the easiest way--he stops thinking that

there must be a limit to the advances. That is why those outsiders who

are wise enough not to buy at the top make up for it by not taking

profits. The big money in booms is always made first by the public--on

paper. And it remains on paper.

_XXII_

One day Jim Barnes, who not only was one of my principal brokers but

an intimate friend as well, called on me. He said he wanted me to do

him a great favour. He never before had talked that way, and so I asked

him to tell me what the favour was, hoping it was something I could do,

for I certainly wished to oblige him. He then told me that his firm was

interested in a certain stock; in fact, they had been the principal

promoters of the company and had placed the greater part of the stock.

Circumstances had arisen that made it imperative for them to market a

rather large block. Jim wanted me to undertake to do the marketing for

him. The stock was Consolidated Stove.

I did not wish to have anything to do with it for various reasons.

But Barnes, to whom I was under some obligations, insisted on the

personal-favour phase of the matter, which alone could overcome my

objections. He was a good fellow, a friend, and his firm, I gathered,

was pretty heavily involved, so in the end I consented to do what I

could.

It has always seemed to me that the most picturesque point of

difference between the war boom and other booms was the part that was

played by a type new in stock-market affairs--the boy banker.

The boom was stupendous and its origins and causes were plainly to

be grasped by all. But at the same time the greatest banks and trust

companies in the country certainly did all they could to help make

millionaires overnight of all sorts and conditions of promoters and

munition makers. It got so that all a man had to do was to say that

he had a friend who was a friend of a member of one of the Allied

commissions and he would be offered all the capital needed to carry out

the contracts he had not yet secured. I used to hear incredible stories

of clerks becoming presidents of companies doing a business of millions

of dollars on money borrowed from trusting trust companies, and of

contracts that left a trail of profits as they passed from man to man.

A flood of gold was pouring into this country from Europe and the banks

had to find ways of impounding it.

The way business was done might have been regarded with misgivings by

the old, but there didn’t seem to be so many of them about. The fashion

for gray-haired presidents of banks was all very well in tranquil

times, but youth was the chief qualification in these strenuous times.

The banks certainly did make enormous profits.

Jim Barnes and his associates, enjoying the friendship and confidence

of the youthful president of the Marshall National Bank, decided to

consolidate three well-known stove companies and sell the stock of the

new company to the public that for months had been buying any old thing

in the way of engraved stock certificates.

One trouble was that the stove business was so prosperous that all

three companies were actually earning dividends on their common stock

for the first time in their history. Their principal stockholders did

not wish to part with the control. There was a good market for their

stocks on the Curb; and they had sold as much as they cared to part

with and they were content with things as they were. Their individual

capitalisation was too small to justify big market movements, and that

is where Jim Barnes’ firm came in. It pointed out that the consolidated

company must be big enough to list on the Stock Exchange, where the

new shares could be made more valuable than the old ones. It is an

old device in Wall Street--to change the colour of the certificates

in order to make them more valuable. Say a stock ceases to be easily

vendible at war. Well, sometimes by quadrupling the stock you may make

the new shares sell at 30 or 35. This is equivalent to 120 or 140 for

the old stock--a figure it never could have reached.

It seems that Barnes and his associates succeeded in inducing some

of their friends who held speculatively some blocks of Gray Stove

Company--a large concern--to come into the consolidation on the basis

of four shares of Consolidated for each share of Gray. Then the Midland

and the Western followed their big sister and came in on the basis of

share for share. Theirs had been quoted on the Curb at around 25 to 30,

and the Gray, which was better known and paid dividends, hung around

125.

In order to raise the money to buy out those holders who insisted upon

selling for cash, and also to provide additional working capital for

improvements and promotion expenses, it became necessary to raise a few

millions. So Barnes saw the president of his bank, who kindly lent his

syndicate three million five hundred thousand dollars. The collateral

was one hundred thousand shares of the newly organised corporation. The

syndicate assured the president, or so I was told, that the price would

not go below 50. It would be a very profitable deal as there was big

value there.

The promoters’ first mistake was in the matter of timeliness. The

saturation point for new stock issues had been reached by the market,

and they should have seen it. But even then they might have made a fair

profit after all if they had not tried to duplicate the unreasonable

killings which other promoters had made at the very height of the boom.

Now you must not run away with the notion that Jim Barnes and his

associates were fools or inexperienced kids. They were shrewd men. All

of them were familiar with Wall Street methods and some of them were

exceptionally successful stock traders. But they did rather more than

merely overestimate the public’s buying capacity. After all, that

capacity was something that they could determine only by actual tests.

Where they erred more expensively was in expecting the bull market

to last longer than it did. I suppose the reason was that these same

men had met with such great and particularly with such quick success

that they didn’t doubt they’d be all through with the deal before the

bull market turned. They were all well known and had a considerable

following among the professional traders and the wire houses.

The deal was extremely well advertised. The newspapers certainly were

generous with their space. The older concerns were identified with the

stove industry of America and their product was known the world over.

It was a patriotic amalgamation and there was a heap of literature in

the daily papers about the world conquests. The markets of Asia, Africa

and South America were as good as cinched.

The directors of the company were all men whose names were familiar

to all readers of the financial pages. The publicity work was so well

handled and the promises of unnamed insiders as to what the price was

going to do were so definite and convincing that a great demand for the

new stock was created. The result was that when the books were closed

it was found that the stock which was offered to the public at fifty

dollars a share had been oversubscribed by 25 per cent.

Think of it! The best the promoters should have expected was to

succeed in selling the new stock at that price after weeks of work and

after putting up the price to 75 or higher in order to average 50.

At that, it meant an advance of about 100 per cent in the old prices

of the stocks of the constituent companies. That was the crisis and

they did not meet it as it should have been met. It shows you that

every business has its own needs. General wisdom is less valuable

than specific savvy. The promoters, delighted by the unexpected

oversubscription, concluded that the public was ready to pay any price

for any quantity of that stock. And they actually were stupid enough

to underallot the stock. After the promoters made up their minds to be

hoggish they should have tried to be intelligently hoggish.

What they should have done, of course, was to allot the stock in full.

That would have made them short to the extent of 25 per cent of the

total amount offered for subscription to the public, and that, of

course, would have enabled them to support the stock when necessary

and at no cost to themselves. Without any effort on their part they

would have been in the strong strategic position that I always try to

find myself in when I am manipulating a stock. They could have kept the

price from sagging, thereby inspiring confidence in the new stock’s

stability and in the underwriting syndicate back of it. They should

have remembered that their work was not over when they sold the stock

offered to the public. That was only a part of what they had to market.

They thought they had been very successful, but it was not long before

the consequences of their two capital blunders became apparent. The

public did not buy any more of the new stock, because the entire market

developed reactionary tendencies. The insiders got cold feet and did

not support Consolidated Stove; and if insiders don’t buy their own

stock on recessions, who should? The absence of inside support is

generally accepted as a pretty good bear tip.

There is no need to go into statistical details. The price of

Consolidated Stove fluctuated with the rest of the market, but it never

went above the initial market quotations, which were only a fraction

above 50. Barnes and his friends in the end had to come in as buyers

in order to keep it above 40. Not to have supported that stock at the

outset of its market career was regrettable. But not to have sold all

the stock the public subscribed for was much worse.

At all events, the stock was duly listed on the New York Stock Exchange

and the price of it duly kept sagging until it nominally stood at 37.

And it stood there because Jim Barnes and his associates had to keep it

there because their bank had loaned them thirty-five dollars a share

on one hundred thousand shares. If the bank ever tried to liquidate

that loan there was no telling what the price would break to. The

public that had been eager to buy it at 50, now didn’t care for it at

37, and probably wouldn’t want it at 27.

As time went on the banks’ excesses in the matter of extensions

of credits made people think. The day of the boy banker was over.

The banking business appeared to be on the ragged edge of suddenly

relapsing into conservatism. Intimate friends were now asked to pay off

loans, for all the world as though they had never played golf with the

president.

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.