Oct

7

I found this book online while searching for something else. I'ts out of copyright (from 1910).The "Read Online" mode is interesting in that it shows the underlining that someone made to this volume.

Here's a section (I haven't had time to go through all of this tome) that seemed to me to have some parallels to today's situation. Actually, it's more than a bit eerie! There's also mention of the "curb market" — something I posted about recently. Later sections (~pg 57) show some stocks– none of the names I saw still exist, but most had nice healthy dividends from 5-7%.

Those were the days!

The financial and business panic of 1907 serves as the latest illustration of the significant fact. The business conditions of 1906 were the best that this country has ever enjoyed. Mills were running overtime, railroads were congested with traffic, and real estate operations were booming. The press was filled with the most roseate "write-ups" and predictions, yet despite the good news security prices showed little gain following the month o*f August. The earmarks of coming financial and business distress were at hand. The stock market was serving its purpose as the pivotal point where thousands of the brainiest men of the world were acting on judgments which-*had reference to the future and not the present.Stocks were for sale by those who reasoned correctly and knew, and were purchased by those who did not know so much. They were even sold at a sacrifice, and as knowledge of the coming state of business affairs percolated from one strata of investors to another, the selling movement became more violent, and in March of 1907 we had our first stock exchange panic. A rebound in prices occurred, but stocks were still for sale, and in July we had our second panic. In the meantime, however, business was excellent, and the press of nearly the whole country wondered what all the trouble was about, and why the Wall Street gamblers were thus losing their senses. The business depression, however, followed, and when it was a reality to even the most ignorant, the stock market had clearly discounted the event, and prices of securities refused to yield further. When business was at its worst, complaints the loudest, and the public press blue as indigo, stock market prices were again merrily ascending The exchange was again the pivotal point where thousands of the best minds of the country were ex- pressing their judgment of the future, and were willing to convert their cash into securities, because of the anticipated increase in value.

It is the failure to understand this fundamental law of price movements which has been the cause of enormous losses to the un- thinking and unknowing, whose judgments are based on what is seen and heard at the time. When the good news, whether it be big crops or large earnings, becomes common property, it has been discounted by the stock market ; and similarly, when the bad news is apparent to all, it has likewise been discounted. It is only natural, therefore, that the rank and file should regard the stock market as a most incomprehensible affair, "a bottomless pit," always going contrary to what is so perfectly evident at the time. But one should remember that the stock market is not distinct from other markets. The manufacturer, the merchant, the produce dealer and the real estate operator, all have an interest in its fluctuations, since they have an important bearing on their own transactions. Many of the stock market fluctuations, especially those of a few days or weeks, have little significance, since they may represent only some particular local cause or the whim of some speculator. But if the market steadily and rapidly declines, many business men, who know its "discounting" significance, will assume a waiting attitude as regards their planned undertakings, or curtail their production ; and this waiting attitude, since all business is closely interrelated, will react upon all other forms of business effort.

In this connection attention should be called to the operations of the so-called "bears" who speculate for the fall of stocks through the process of selling "short" that which they do not possess with the object of buying back later at a lower price, and fulfilling delivery on their contract. Many condemn and few sympathize with the "bear" in the market, because of the belief that it is wrong to sell that which one does not possess, that no economic good is performed by this practice, and that "short selling" artificially depresses security prices. In fact many have recently strongly urged the prohibition of such sales.

A moment's reflection, however, will show that all these conclusions have little basis in fact. These critics forget that "short" selling is a common practice in practically all kinds of business. The manufacturer is expected by the wholesaler to sell his finished wares at a definite price for some definite future delivery, and to insure the delivery of his goods at a stipulated price and time, the manufacturer expects the commission man or produce broker to sell the raw cotton or grain or metal for future delivery at a definite price, long before the crop has been harvested or the metal obtained. Contractors, likewise, in contracting for work at a definite price, are constantly selling labor and materials short. The general practice of "hedging" on our exchanges, resorted to by nearly all business men handling our important staples, must necessarily involve a short sale. In business generally, "short selling" is regarded as a necessary means of insurance against business or speculative losses. If recognized here by all persons who have an understanding of business methods, it certainly cannot be maintained that it is wrong in the stock market to sell something which one does not now possess and intends to buy later.As regards the two other contentions, that short selling does not perform an economic good, and that it actually depresses the prices of securities, these critics are in the wrong. The short seller in the stock market is often the greatest benefactor in repress- ing rampant speculative enthusiasm on the one hand, and in checking the effects on security prices of excessive pessimism on the other.


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