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.