Part 24

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.”