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."The broker asks for further details.Let us say that the quoted price of that stock is 50.The insider tells him: "I will give you calls on 5000 shares at 45 and 5000 shares everypoint up for the entire fifty thousand shares.I also will give you a put on 50,000 sharesat the market."Now, this is pretty easy money for the broker, if he has a large following and of coursethis is precisely the kind of broker the insider seeks.A house with direct wires tobranches and connections in various parts of the country can usually get a large- 253 - Reminiscences of a Stock Operatorfollowing in a deal of that kind.Remember that in any event the broker is playingabsolutely safe by reason of the put.If he can get his public to follow he will be able todispose of his entire line at a big profit in addition to his regular commissions.I have in mind the exploits of an "insider" who is well-known in Wall Street.He will call up the head customers' man of a large brokerage house.At times he goeseven further and calls up one of the junior partners of the firm.He will say somethinglike this:"Say, old man, I want to show you that I appreciate what you have done for me atvarious times.I am going to give you a chance to make some real money.We areforming a new company to absorb the assets of one of our companies and we'll take overthat stock at a big advance over present quotations.I'm going to send in to you 500shares of Bantam Shops at $65.The stock is now quoted at 72."The grateful insider tells the thing to a dozen of the headmen in various big brokeragehouses.Now since these recipients of the insider's bounty are in Wall Street what arethey going to do when they get that stock that already shows them a profit? Of course,advise every man and woman they can reach to buy that stock.The kind donor knewthis.They will help to create a market in which the kind insider can sell his good thingsat high prices to the poor public.There are other devices of stock-selling promoters that should be barred.The Exchangesshould not allow trading in listed stocks that are offered outside to the public on thepartial payment plan.To have the price officially quoted gives a sort of sanction to anystock.Moreover, the official evidence of a free market, and at times the difference inprices, is all the inducement needed.Another common selling device that costs the unthinking public many millions ofdollars and sends nobody to jail because it is perfectly legal, is that of increasing thecapital stock exclusively by reason of market exigencies.The process does not reallyamount to much more than changing the color of the stock certificates.The juggling whereby 2 or 4 or even 10 shares of new stock are given in exchange forone of the old, is usually prompted by a desire to make the old merchandise more easilyvendible.The old price was $1 per pound package and hard to move.At 25 cents for a- 254 - Reminiscences of a Stock Operatorquarter-pound box it might go better; and perhaps at 27 or 30 cents.Why does not the public ask why the stock is made easy to buy? It is a case of the WallStreet philanthropist operating again, but the wise trader bewares of the Greeks bearinggifts.It is all the warning needed.The public disregards it and loses millions of dollarsannually.The law punishes whoever originates or circulates rumors calculated to affect adverselythe credit or business of individuals or corporations, that is, that tend to depress thevalues of securities by influencing the public to sell.Originally, the chief intention mayhave been to reduce the danger of panic by punishing anyone who doubted aloud thesolvency of banks in times of stress.But of course, it serves also to protect the publicagainst selling stocks below their real value.In other words the law of the land punishesthe disseminator of bearish items of that nature.How is the public protected against the danger of buying stocks above their real value?Who punishes the distributor of unjustified bullish news items? Nobody; and yet, thepublic loses more money buying stocks on anonymous inside advice when they are toohigh than it does selling out stocks below their value as a consequence of bearish adviceduring so-called "raids."If a law were passed that would punish bull liars as the law now punishes bear liars, Ibelieve the public would save millions.Naturally, promoters, manipulators and other beneficiaries of anonymous optimism willtell you that anyone who trades on rumors and unsigned statements has only himself toblame for his losses
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