All mundane things have an end, even bull markets and bear markets. The bull market saw Hayward & Co. doing a good business, as did everybody else in Wall Street. It ended, and the firm’s customers, after a few bad “slumps” in prices, were admonished to turn bears in order to recoup their losses. Bears believe prices are too high and should go lower; bulls, optimists, believe the opposite. The public can’t sell stocks “short” any more than the average man is left-handed. These customers were no exception, so they did nothing.
Hayward had “overstayed” the bull market, though not disastrously; that is, he was in error regarding the extent and duration of the upward movement of prices. He proceeded to fall into a similar error on the bear, or downward, side. The market had been extremely dull following what the financial writers called a “severe decline,” but which meant the loss of millions of dollars by speculators. A panic had been narrowly averted by a timely combination of “powerful interests,” after which the market became professional. In the absence of complaisant lambs, the financial cannibals known as “room traders” and “pikers” tried to “scalp eighths” out of each other for weeks—to take advantage of fractional fluctuations instead of waiting for big movements. Hayward’s customers, like everybody else’s customers, were not speculating. So he used their money to protect his own speculations. Office expenses were numerous and heavy, and commissions few and light.
Hayward was very bearish. He had sold stocks, sharing the belief of the majority of his fellows, that the lowest prices had not been reached. As a result he was heavily “short,” and he could not “cover” at a profit, because prices had advanced very slowly, but very steadily.
One day a big gambler in Chicago, bolder or keener than his Eastern brethren, thought the time was ripe for a “bull” or upward movement in general, and particularly in Consolidated Steel Rod Company’s stock. He was the chairman of the board of directors. Mr. William G. Dorr decided upon a plan whereby the stock would be made attractive to that class of speculative investors, so to speak, who liked to buy stocks making generous disbursements of profits to their holders. Mr. Dorr’s plan was kept a secret. The first step consisted of sending in large buying orders, handled by prominent brokers, and synchronously the publication, in the daily press, of various items, all reciting the wonderful prosperity of the Consolidated Steel Rod Company and its phenomenal earnings; also the unutterable cheapness of the stock at the prevailing price. Mr. Dorr and associates, of course, had previously taken advantage of the big “slump” or fall in values to buy back at 35 the same stock they had sold to the public some weeks before at 70. Having acquired this cheap stock, they “manipulated”—by means of further purchase—the price so that they could sell out at a profit.
It so happened, however, that once before dividend rumors about “Con. Steel Rod” had been disseminated, with the connivance of Dorr, and they had not come true, to the great detriment of credulous buyers and the greater profit of the insiders, who were “short” of the stock “up to their necks”—a typical bit of stock-jobbing whereat other and more artistic stock-jobbers had expressed the greatest indignation. Instead of putting the stock on a dividend-paying basis, the directors had decided—at the last hour—that it would not be conservative to do so, whereupon the stock had “broken” seventeen points. The lambs lost hundreds of thousands of dollars; the insiders gained as much. It was a “nice turn.”
Hayward remembered this, and when the stock, after several days of conspicuous activity and steady advances, rose to 52, he promptly sold “short” 5,000 shares—believing that the barefaced manipulation would not raise the stock much above that figure, and that before long it must decline. Only a month previously it had sold at 35 and nobody wanted any of it. He was all the more decided in his opinion that the “top” had been reached by prices, because Mr. Dorr, in a Chicago paper, had stated that the stockholders would probably receive an entire year’s dividend at one fell swoop by reason of the unexampled prosperity in the steel rod trade. Such an action was unprecedented. It had been talked about at various times in connection with other stocks, but it had never come true. Why should it come true in this instance?
Hayward, familiar with Dorr’s record, promptly “coppered” his “tip” to buy, banking on Dorr’s consistent mendacity. But Mr. William G. Dorr, shrewdest and boldest of all Western stock gamblers, fooled everybody—he actually told the truth. That week the directors did exactly as he had predicted. When a speculator of his calibre lies he fools only one half—the foolish half—of the Street. When he tells the truth he deceives everybody. Before Wall Street could recover from the shock the price of the stock was up 5 points, which meant that Hayward was out $25,000 on that deal alone. But, in addition, the general list was carried upward sympathetically. The semi-paralyzed bulls regained confidence as they saw the successful outcome of the Chicago gambler’s manœuvres in Consolidated Steel Rod. Money rates and bear hopes fell; stock values and bull courage rose! Hayward began “covering” Steel Rod. He “bought in” 5,000 shares, and after he finished he had lost $26,750 by the deal. He was still “short” about 12,000 shares of other stocks, on which his “paper” losses, at the last quoted prices, were over $35,000; but if he tried to buy back such a large amount of stock in a market so sensitive to any kind of bull impetus, he would send prices upward in a jiffy, increasing his own losses very materially.
He went to his office that morning in a tremor. He consulted the cashier, and found he had only $52,000 at the bank, of which two thirds belonged to his customers. He was already, morally speaking, an embezzler. He was ruined if he didn’t cover, and he was ruined if he did. His “seat” on the Stock Exchange was worth possibly $40,000, not a cent more; and as he personally owed his out-of-town correspondents nearly $38,000, he could not avoid being hopelessly ruined. Moreover, his bankruptcy would not be an “honest” failure, for, as he told himself bitterly, after the harm was done, “I had no business to speculate on my own hook with other people’s money.”
He had felt it rather than had seen it coming, for, gambler-like, he had closed his eyes and had buried his head in the sand of hope, trusting in luck to protect him from punishment. But now he was face to face with the question that every gambler dreads: “If I stood to lose all, how desperate a risk would I take in order to get it back?” The answer is usually so appallingly thief-like that the numerous Haywards of the Stock Exchange and the Board of Trade forthwith stop thinking with a suddenness that does credit to the remnants of their honesty. But it haunts them, does the ominous question and the commenced but unfinished answer.
As he left his office to go to the “Board Room” he put to himself the fateful query. But he would not let himself answer it until he had stopped at “Fred’s,” the official barroom of the Stock Exchange, and had taken a stiff drink of raw whiskey. Then the answer came.