Chapter 20

Chapter XX

I myself never spoke to any of the great stock manipulators that the

Street still talks about. I don’t mean leaders; I mean manipulators.

They were all before my time, although when I first came to New York,

_James R. Keene, greatest of them all_, was in his prime. But I was

a mere youngster then, exclusively concerned with duplicating, in a

reputable broker’s office, the success I had enjoyed in the bucket

shops of my native city. And, then, too, at the time Keene was busy

with the U.S. Steel stocks--his manipulative masterpiece--I had no

experience with manipulation, no real knowledge of it or of its value

or meaning, and, for that matter, no great need of such knowledge.

If I thought about it at all I suppose I must have regarded it as a

well-dressed form of thimble-rigging, of which the lowbrow form was

such tricks as had been tried on me in the bucket shops. Such talk as I

since have heard on the subject has consisted in great part of surmises

and suspicions; of guesses rather than intelligent analyses.

More than one man who knew him well has told me that Keene was the

boldest and most brilliant operator that ever worked in Wall Street.

That is saying a great deal, for there have been some great traders.

Their names are now all but forgotten, but nevertheless they were kings

in their day--for a day! They were pulled up out of obscurity into the

sunlight of financial fame by the ticker tape--and the little paper

ribbon didn’t prove strong enough to keep them suspended there long

enough for them to become historical fixtures. At all events Keene was

by all odds the best manipulator of his day--and it was a long and

exciting day.

He capitalized his knowledge of the game, his experience as an operator

and his talents when he sold his services to the Havemeyer brothers,

who wanted him to develop a market for the Sugar stocks. He was broke

at the time or he would have continued to trade on his own hook; and

he was some plunger! He was successful with Sugar; made the shares

trading favourites, and that made them easily vendible. After that, he

was asked time and again to take charge of pools. I am told that in

these pool operations he never asked nor accepted a fee, but paid for

his share like the other members of the pool. The market conduct of

the stock, of course, was exclusively in his charge. Often there was

talk of treachery--on both sides. His feud with the Whitney-Ryan clique

arose from such accusations. It is not difficult for a manipulator to

be misunderstood by his associates. They don’t see his needs as he

himself does. I know this from my own experience.

It is a matter of regret that Keene did not leave an accurate record

of his greatest exploit--the successful manipulation of the U.S.

Steel shares in the spring of 1901. As I understand it, Keene never

had an interview with J. P. Morgan about it. Morgan’s firm dealt with

or through Talbot J. Taylor & Co., at whose office Keene made his

headquarters. Talbot Taylor was Keene’s son-in-law. I am assured that

Keene’s fee for his work consisted of the pleasure he derived from the

work. That he made millions trading in the market he helped to put

up that spring is well known. He told a friend of mine that in the

course of a few weeks he sold in the open market for the underwriters’

syndicate more than seven hundred and fifty thousand shares. Not bad

when you consider two things: That they were new and untried stocks of

a corporation whose capitalization was greater than the entire debt of

the United States at that time; and second, that men like D. G. Reid,

W. B. Leeds, the Moore brothers, Henry Phipps, H. C. Frick and the

other Steel magnates also sold hundreds of thousands of shares to the

public at the same time in the same market that Keene helped to create.

Of course, general conditions favoured him. Not only actual business

but sentiment and his unlimited financial backing made possible his

success. What we had was not merely a big bull market but a boom and a

state of mind not likely to be seen again. The undigested-securities

panic came later, when Steel common, which Keene had marked up to 55 in

1901, sold at 10 in 1903 and at 8⅞ in 1904.

We can’t analyse Keene’s manipulative campaigns. His books are not

available; the adequately detailed record is nonexistent. For example,

it would be interesting to see how he worked in Amalgamated Copper.

H. H. Rogers and William Rockefeller had tried to dispose of their

surplus stock in the market and had failed. Finally they asked Keene

to market their line, and he agreed. Bear in mind that H. H. Rogers

was one of the ablest business men of his day in Wall Street and that

William Rockefeller was the boldest speculator of the entire Standard

Oil coterie. They had practically unlimited resources and vast prestige

as well as years of experience in the stock-market game. And yet they

had to go to Keene. I mention this to show you that there are some

tasks which it requires a specialist to perform. Here was a widely

touted stock, sponsored by America’s greatest capitalists, that could

not be sold except at a great sacrifice of money and prestige. Rogers

and Rockefeller were intelligent enough to decide that Keene alone

might help them.

Keene began to work at once. He had a bull market to work in and sold

two hundred and twenty thousand shares of Amalgamated at around par.

After he disposed of the insiders’ line the public kept on buying and

the price went ten points higher. Indeed the insiders got bullish on

the stock they had sold when they saw how eagerly the public was taking

it. There was a story that Rogers actually advised Keene to go long

of Amalgamated. It is scarcely credible that Rogers meant to unload on

Keene. He was too shrewd a man not to know that Keene was no bleating

lamb. Keene worked as he always did--that is, _doing his big selling

on the way down after the big rise_. Of course his tactical moves were

directed by his needs and by the minor currents that changed from day

to day. In the stock market, as in warfare, it is well to keep in mind

the difference between strategy and tactics.

One of Keene’s confidential men--he is the best fly fisherman I

know--told me only the other day that during the Amalgamated campaign

Keene would find himself almost out of stock one day--that is, out

of the stock he had been forced to take in marking up the price; and

on the next day he would buy back thousands of shares. On the day

after that, he would sell on balance. Then he would leave the market

absolutely alone, to see how it would take care of itself and also to

accustom it to do so. When it came to the actual marketing of the line

he did what I told you: he sold it on the way down. The trading public

is always looking for a rally, and, besides, there is the covering by

the shorts.

The man who was closest to Keene during that deal told me that after

Keene sold the Rogers-Rockefeller line for something like twenty or

twenty-five million dollars in cash Rogers sent him a check for two

hundred thousand. This reminds you of the millionaire’s wife who gave

the Metropolitan Opera House scrub-woman fifty cents reward for finding

the one-hundred-thousand-dollar pearl necklace. Keene sent the check

back with a polite note saying he was not a stock broker and that he

was glad to have been of some service to them. They kept the check

and wrote him that they would be glad to work with him again. Shortly

after that it was that H. H. Rogers gave Keene the friendly tip to buy

Amalgamated at around 130!

A brilliant operator, James R. Keene! His private secretary told me

that when the market was going his way Mr. Keene was irascible; and

those who knew him say his irascibility was expressed in sardonic

phrases that lingered long in the memory of his hearers. But when he

was losing he was in the best of humour, a polished man of the world,

agreeable, epigrammatic, interesting.

He had in superlative degree the qualities of mind that are associated

with successful speculators anywhere. That he did not argue with the

tape is plain. He was utterly fearless but never reckless. He could and

did turn in a twinkling, if he found he was wrong.

Since his day there have been so many changes in Stock Exchange rules

and so much more rigorous enforcement of old rules, so many new taxes

on stock sales and profits, and so on, that the game seems different.

Devices that Keene could use with skill and profit can no longer be

utilised. Also, we are assured, the business morality of Wall Street is

on a higher plane. Nevertheless it is fair to say that in any period

of our financial history Keene would have been a great manipulator

because he was a great stock operator and knew the game of speculation

from the ground up. He achieved what he did because conditions at the

time permitted him to do so. He would have been as successful in his

undertakings in 1922 as he was in 1901 or in 1876, when he first came

to New York from California and made nine million dollars in two years.

There are men whose gait is far quicker than the mob’s. They are bound

to lead--no matter how much the mob changes.

As a matter of fact, the change is by no means as radical as you’d

imagine. The rewards are not so great, for it is no longer pioneer

work and therefore it is not pioneer’s pay. But in certain respects

manipulation is easier than it was; in other ways much harder than in

Keene’s day.

There is no question that advertising is an art, and manipulation

is the art of advertising through the medium of the tape. The tape

should tell the story the manipulator wishes its readers to see. The

truer the story the more convincing it is bound to be, and the more

convincing it is the better the advertising is. A manipulator to-day,

for instance, has not only to make a stock look strong but also to make

it be strong. Manipulation therefore must be based on sound trading

principles. That is what made Keene such a marvellous manipulator; he

was a consummate trader to begin with.

The word “manipulation” has come to have an ugly sound. It needs an

alias. I do not think there is anything so very mysterious or crooked

about the process itself when it has for an object the selling of

a stock in bulk, provided, of course, that such operations are not

accompanied by misrepresentation. There is little question that a

manipulator necessarily seeks his buyers among speculators. He turns to

men who are looking for big returns on their capital and are therefore

willing to run a greater than normal business risk. I can’t have much

sympathy for the man who, knowing this, nevertheless blames others for

his own failure to make easy money. He is a devil of a clever fellow

when he wins. But when he loses money the other fellow was a crook; a

manipulator! In such moments and from such lips the word connotes the

use of marked cards. But this is not so.

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.

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._