Reminiscences of a Stock Operator
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