Rolling stock

“ In fine, the ultimate purpose in this regard of all the promotion machinery of Wall Street—the machinery that has been putting out billions of dollars' worth of securities to investors—is to place stock where it will "stay put," that is, not come out on the open market again to embarrass the interests that are behind the enterprise, and who for a long period are compelled to support the market. ”

“ The number of persons who deal in the 3 per cent stock being large, any one desirous of selling can always dispose of his stock at one-eighth per cent under the market price; but those who wish to dispose of bank stock, or of any other securities of more limited circulation, are obliged to make a sacrifice of eight or ten times this amount upon each hundred pounds value. ”

“ There are now six industrial companies with an aggregate capital of 171,927,540 shares outstanding; and from the side lines it looks as if there ought to be time enough to start another boom when the stock market gets over its present case of indigestion.
In the final analysis the following essentials should be constantly borne in mind: The stock and grain markets are always capable of playing new tricks on you—of doing things you never dreamed of. ”

“ This is an effectual demand, for the increased price of railway stock enables those who wish it to borrow more upon it. The common practice is to lend a certain portion of the market value of such securities, and, if that value increases, the amount of the usual loan to be obtained on them increases too. ”

“ It is so whether the purchases or sales are by investors or speculators, for speculation on the Stock Exchange is not gambling. Whether stocks, or bonds, are bought, or sold, by investors or speculators is immaterial between the contracting brokers on the floor of the Exchange. They know no difference whatever. Delivery of the stocks or bonds is made by the one, and received by the other, in every case, and payments made accordingly, at the sale and purchase prices, investment and speculative transactions being treated exactly alike. ”

“ The heavy liquidation by large and small operators in 1903 caused a heavy and almost continuous decline in prices on the Stock Exchange. Many rich men were compelled by this shrinkage and the calling in of their loans by the banks to sell out heavy lines of both railway and industrial stocks. ”

“ The collapse of the rubber boom is one cause for the lack of business in the Stock Exchange. Hundreds of thousands of pounds poured into the plantation rubber industry by the British public are represented by huge stocks of certificates, the depreciation on which, reckoned from the price at which the public got them, will serve as a painful lesson till the next boom, from whatever quarter it may spring up, comes along. ”

“ They instruct their brokers to offer small quantities under the market price, and to keep on offering lower and lower, until other holders of the same stock who are not in their confidence become alarmed, and sell out at the best price they can get. In the meantime the clique have other brokers buying all the stock that is offered, and thus they get possession of a large amount of stock at low prices, which they can probably sell, a few days later, at a large profit. ”

“ The values of railway securities, for example, depend upon the management of the companies issuing them, the directors of which may use their power to increase, diminish, or even extinguish them, while they make gains for themselves by operations on the Exchange. They may advance the price of a stock by an unexpected dividend, or depress it by passing an expected one. They may water a stock by issuing new shares, with no proportionate addition to the productive assets of the company, or load it with indebtedness, putting an unexpected lien on the shareholders’ property. ”

“ They planned from the first to wreck you for just that purpose—to make Consolidated stock seem more desirable when the stock sales began to dwindle—and they are perfectly willing to furnish the consumers in your twelve blocks with current at their present ridiculously low rate, because, with them, any possible profits to be derived from the business are insignificant compared to the profits to be derived from the sale of their watered stock. ”

“ When a stock is headed downward in price, the offer of another large block at a lower price than yet offered has a strong tendency to force the price still lower, for scared investors who really own large blocks of the stock may become panic-stricken and close out their holdings of that particular stock at any price they can obtain.
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Thus, a “short operator” may offer, in a falling market, ten thousand shares of a certain stock at 67. ”

“ Downward to the $3 point the stock traveled, breaking from 25 to 50 cents between sales. Through $3 and on down to the $2 point the price crashed. Blocks of 10,000 shares were madly thrown into the vortex of trading. The Curb was a struggling, screaming, maddened throng of brokers. Every trader appeared to be determined to crush the market structure. At $2 a share there was a temporary check in the decline, but the bears renewed their onslaught, gaining confidence by the outpour of selling orders. Within less than an hour after the opening the stock hit $1 1-2 a share. ”

“ The market rose to such heights that the selling price of securities listed on the New York Stock Exchange—to say nothing of the untold billions listed on other exchanges—reached a figure far in excess of all the money in the world. Though it was reiterated time and time again that customers’ accounts with brokers were amply protected, they were of course margined with other securities, and thus the pyramid grew until it staggered the imagination even of those who built it. ”

“ He bought a control of the stocks and bonds of badly-managed and bankrupt railroads. He consolidated them, re-equipped them, built feeders, opened new sources of traffic, and so doubled, trebled, and quadrupled his investments. He sold short the stock of a prosperous railroad, and obtained, by purchase of proxies, the control of its management. He 216cut rates, diminished traffic, enlarged expenses, and passed dividends until he depreciated the value of the stock to a point where he could gain millions by covering his shorts, and other millions by again restoring the road to prosperity. ”

“ The fluctuations in the price of the funds, which were frequent in those unsettled times, presented an irresistible temptation to buying and selling for the account—a process by means of which a small capital may be made to represent fictitiously an enormous amount of stock: no transfers being required, and in fact no sales created, the real stake being the difference between the buying and the selling prices. ”

“ The young corn is beginning to clothe the naked furrow, and the various fruits of the earth are appearing, which only to read and hear of is to fill the eye with a sense of plenty that half converts a Tory Stock Exchange operator into an ultra-radical speculator. ”

“ Meanwhile, the treasures of the Great West offered irresistible attractions to new enterprise and settlement. The demand for more railroads was insistent; then came the devices of stock-watering and overcapitalization as inducements to new capital. Roads were often built entirely on bonds; and stock, having little or no value except for voting, was given away as a bonus with the bonds, or used for various purposes, often in speculation, and such stock frequently found its way back to the original promoters at bargain if not waste-paper prices. ”

“ We now turn to the non-professional speculator, and what a pitiable plight is that in which these gentlemen in ninety-nine cases out of one hundred ultimately find themselves. The members of the Stock Exchange liken their place of gathering in Capel Court to a barn, and themselves to fowls inside it, who repair thither every day to pick up the golden grain thrown in by the public. ”

“ Many of these so-called investment trusts accumulated thousands upon thousands of highly speculative common shares that paid less than 2% income on their market value. Indeed one day in September, 1929, a statistician figured that the twelve most active stocks on the New York Stock Exchange averaged a return of only one and three-fifths per cent. ”

“ The possibility occurred to me yesterday—Pacific Southwestern stock being so badly scattered among small holders. I wired a broker, a good friend of mine, to pick up a few shares on my account. Here is what he says: 'Market bone dry. ”

“ Often the steel men, bored with gaping admiration, would extemporize a midnight stock market and buy and sell their shares among themselves. Each morning as addenda to the regular stock market reports would appear: “Transactions at the Waldorf.” ”

“ They applied for allotments, and subscribed for shares in lines, of the engineering character or probable traffic of which they knew nothing. Provided they could but obtain allotments which they could sell at a premium, and put the profit—in many cases the only capital they possessed [289] —into their pocket, it was enough for them. The mania was not confined to the precincts of the Stock Exchange, but infected all ranks. It embraced merchants and manufacturers, gentry and shopkeepers, clerks in public offices, and loungers at the clubs. ”

“ Even the gray-haired wizards of Wall Street who had preached caution for two or three years, finally fell into line with the new order of things, and not only did they plunge into the market long after it had passed the point of safety, but they organized more investment trusts running into billions of dollars, and advertised far and wide for the public to buy their stock and join them in amassing fortunes. They would manage everything, and all the people had to do was to furnish the money. ”

“ That is to say, if ten thousand purchasers throughout the country should buy even small amounts of a certain stock on a given day, the combined effect of all these purchases would undoubtedly lift its price on the Stock Exchange, and thus we see that each buyer’s action carries with it a privilege of no inconsiderable proportions. ”

“ Ninety-nine per cent of net income was being absorbed in paying interest on all classes of securities, although maintenance figures were kept as low as $630 per mile of line. This large volume of stocks and bonds made improvement from earnings impossible, and prevented conservative management by taking from the stockholders any chance of dividends, and by reducing the quotations of common152 stock to less than $5 per share. ”

“ When stocks have attained a reasonably high level of value as a result of the recovery [105] of a country’s industry, the chances for the speculator to profit by a continuous rise are of course gone, and he seeks in other directions to turn his capital to account; but the example we have given illustrates perhaps the most legitimate of all forms of speculation in Stocks, provided always the operator knows his business, and allows a sufficient margin for contingencies. ”

“ As a consequence, when interest rates go up, bond prices go down. During this period, speculative stocks are selling at their highest prices; and under the influence of this movement, many stocks that have no actual value sell up at high prices. ”

“ In other words, when prosperity is beginning to revive after a prolonged stagnation, and the prices of stocks are very low, the bull speculator’s great chance occurs. When the great industries of a nation seem to rise as from the grave, and where lifelessness and inactivity ruled before the blows of the hammer resound and the blast furnace roars, a new life springs through the arteries of the commercial system, and the result is a rise in public securities. The solid rise in the price of stocks is that caused by the hard money-buying by a public that is well to do. ”

“ If the buyer of railroad stocks for investment, besides looking into the returns of freight and passenger business for his decision, would investigate carefully the method adopted for the purchase and distribution of supplies on any road in which he may be interested, he might get information enough to satisfy himself that a large portion of the earnings were dribbling out through this department, and that, as a result, his stock might eventually cease to be a dividend payer. ”

“ Another trouble evidently was the great number of companies organized to sell stock east, rather than to mine successfully. Companies, with a property worth a hundred thousand dollars, had frequently issued stock for a million, and of course could not expect to make regular dividends on such an overplus. On a basis of a hundred thousand dollars, or real value, with an experienced honest superintendent, they might have got along well, if content to creep at first and walk afterwards. ”

“ It will at once be seen that although the Stock Exchange may be defined as a mere market, the wares that are displayed and dealt in are of such importance as to entitle it to the more ambitious definitions with which it has been exalted. It is worthy of being defined as the mart of the world, because these wares represent property in every part of the world, and because the orders which are executed in this mere market emanate from all over the world. The business of the Stock Exchange is more varied and cosmopolitan than that of any other mart, except, perhaps, the Money Market. ”

“ Now that we have reached a point in our discussion that brings us face to face with the so-called “evils” of speculation on the Stock Exchange, let us pause and consider the difference between speculation, which is held by many to be abhorrent, and investment, which is generally thought right and proper. The first thing we encounter is the shadowy and indistinct boundary line that separates the one from the other. ”