Reminiscences of a Stock Operator
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,