Part 49

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.