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, when the price line of least resistance is established I follow it, not because I am manipulating that particular stock at that particular moment but because I am a stock operator at all times.
When my buying does not put the stock up I stop buying and then proceed to sell it down; and that also is exactly what I would do with that same stock if I did not happen to be manipulating it. The principal marketing of the stock, as you know, is done on the way down. _It is perfectly astonishing how much stock a man can get rid of on a decline._
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.