VOObyM

Reminiscences of a Stock Operator
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 price 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 then bank had loaned them thirtyfive
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.
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