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 He must have tried everything he knew, because a pool manager does not ask to be superseded by an outsider unless he feels unequal to the task, and that is the last thing the average man likes to admit.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 was over. I had verified my first surmise by tests not alone in Pete Products but in other stocks as well. I didn’t wait for the bear market to announce its safe arrival before I started selling. Of course I didn’t sell a share of Pete Products, though I was short of other stocks.
The Pete Products pool, as I expected, was hung up with all they held to begin with and with all they had to take in their futile effort to hold up the price. In the end they did liquidate; but at much lower figures than they would have got if Prentiss had let me sell when and as I wished. It could not be otherwise. But Prentiss still thinks he was right--or says he does. I understand he says the reason I gave him the advice I did was that I was short of other stocks and the general market was going up. It implies, of course, that the break in Pete Products that would have resulted from selling out the pool’s holdings at any price would have helped my bear position in other stocks.
That is all tommyrot. I was not bearish because I was short of stocks. I was bearish because that was the way I sized up the situation, and I sold stocks short only after I turned bearish. There never is much money in doing things wrong end to; not in the stock market. My plan for selling the pool’s stock was based on what the experience of twenty years told me alone was feasible and therefore wise. Prentiss ought to have been enough of a trader to see it as plainly as I did. It was too late to try to do anything else.
I suppose Prentiss shares the delusion of thousands of outsiders who think a manipulator can do anything. He can’t. The biggest thing Keene did was his manipulation of U.S. Steel common and preferred in the spring of 1901. He succeeded not because he was clever and resourceful and not because he had a syndicate of the richest men in the country back of him. He succeeded partly because of those reasons but chiefly because the general market was right and the public’s state of mind was right.