Jesse Livermore on Insurance Economics

I get tips by the hundreds every clay from all sorts of people. I'll tell you a story about Borneo Tin. You remember when the stock was brought out? It was at the height of the boom. The promoter's pool had taken the advice of a very clever banker and decided to float the new company in the open market at once instead of letting an underwriting syndicate take its time about it. It was good advice. The only mistake the members of the pool made came from inexperience. They did not know what the stock market was capable of doing during a crazy boom and at the same time they were not intelligently liberal. They were agreed on the need of marking up the price in order to market the stock, but they started the trading at a figure at which the traders and the speculative pioneers could not buy it without misgivings.

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.

I am well aware that all these generalities do not sound especially impressive. Generalities seldom do. Possibly I may succeed better if I give a concrete example. I'll tell you how I marked up the price of a stock 30 points, and in so doing accumulated only seven thousand shares and developed a market that would absorb almost any amount of stock. It was Imperial Steel. The stock had been brought out by reputable people and it had been fairly well tipped as a property of value. About 30 per cent of the capital stock was placed with the general public through various Wall Street houses, but there had been no significant activity in the shares after they were listed. From time to time somebody would ask about it and one or another insider members of the original underwriting syndicate would say that the company's earnings were better than expected and the prospects more than encouraging. This was true enough and very good as far as it went, but not exactly thrilling. The speculative appeal was absent, and from the investor's point of view the price stability and dividend permanency of the stock were not yet demonstrated. It was a stock that never behaved sensationally. It was so gentlemanly that no corroborative rise ever followed the insiders' eminently truthful reports. On the other hand, neither did the price decline.

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.

thought of buying a single share; or how grateful, either, when the underwriting syndicate sold one hundred thousand shares around 40 to the people who were going to sell those same shares to me at 50 or 60. I sure was a sucker not to use the four millions to make money for them, wasn't I? The cash was supplied to buy stock with, but only if I thought it necessary to do so. Well, didn't."