The Washington herald., 1912-05-27
BY CHRISTOPHER A. SHEA,
wan strest Journal


one of the most mysterious advances,
to the layman, which has ever occurred
in the history Of Iinance, was the recent
phenomenal rise in the market price OF
the old stock OF the Marconi Wireless
Telegraph Company Of Amerca- In
January OF this year the stock could
have been bought in any quantity at 3
per share, and IN March it sold at $3.50
per share, in one Of the widest markets
ever witnessed in the curb market Of
New York. Everybody was asking the
occasion Of this wild advance for
stock which had been regarded as not
anywhere near worth its par value 02Sl,
yet It was being sought after by nearly
every brokerage office in this country
at any price under $50 per share
What was the matter! Were the
stockholders about to receive a melon?
Was the company earning ten or twenty
times more money in March than 1t was
in January? Nobody was able to an
swer the host Of questions which were
being poured into the brokerage of1ces
and newspapers in all parts Of the
United States, as Marconi stock was
widely held in nearly every city OF any
importance in this country.
II is true the Marconi Company had
United Wireless Company for S66c.WO
but this would not be the cause Of
the great advance. as the earnings OF
both companies combined would not
nearly be sufficient II they were in
creased a hundred times. to pay = divi-
dend on the Marconi shares.
Explanation Is Given.
For the first time since this wonderful
advance The Washington Herald is able
10 give the true explanation Of the rise
This is what happened: In March Of
this year the directors of the Marconi
Wireless Telegraph Company Of Ameri-
ca decided to increase the capitalization
OF the company from $l,6OO,OO0 to SlO,-
COO 900, and, at the same time, to reduce
the par value from IS per share to $
per share. The holder Of each old share
was given the right or privilege of
buying twenty-five rev shares at par.
s. He could convert his one old share
Jpar, So irto five new shares (par, 50.
For $l25 he could, therefore, own twen-
ty-five new shares, and by converting his
one old share into five new shares, be-
come the possessOr of thirty new shares
Of stock.
Then what happened? The new stock
lad not been issued three days when
the greatest disaster known in the
worlds history, the sinking Of the IT,
taniC cGU miles OF the coast Of New
foundland. occurred, carrying with it the
lives Of more than l.4OO people, including
a score Of Americas best citizens, loss
Of more than S2,COO,oC0 in the value OF
the vessel, and perhaps Sl,JOO.OCO more
in jewels and treasure.
Impressed with Wireless.
At once every citizen the world over
who read a newspaper was impressed
with the almost divine utility of wire
less tolcgraphy. And at once the Sc
Curity markets were flooded with or
ders from every corner Of the world for
MarConi new stock, the par value of
which was only $. II the disaster had
been carefully planned and fiendishIy
executed IT could not have happened
more psyChOlOgically.
Tie flood OF orders advanced tine price
Of the new stock from = per share to s.
per share-tO SO per share-to So per
share, not One-eighth and one-quarter Of
q point at a time, but by dollars at
time. 1t advanced by leaps and bounds.
It was then that the most startling pos
sibilities Of arbitraging was unfOlded to
the experts OF the curb market in New
York, who are the most skiIlful arbi-
trageurs in the world. They are men who
are every second Of their business lives
scalping eighths, quarters and halves in
lie diTere price values between the
markets OF New York, Boston, PhiIadel-
Ihia and Pittsburg
We will digress for a moment to in
fOrl.. the reader as to the sO-Called my -
teries of arbitraging- II, for instance,
the price OF United States Steel COM
mon is Il in New York, and ii is selling
for Il l-2 in Boston, the arbitrageur, who
IS informed by telegraph, instantly, as 20
the prices In the two cities, buys, we will
say, one hundred shares at Il in New
York, and Immediately sells 1CO shares
in Boston at Il 1-2. He will therefore,
make One-haf n point. or $50, on the
transaction, less commissions. 81. II the
arbitrageur can make this turn ten times
a day, he will be making 500 per day.
Some Of the skiIlfullest Of the aTbitra-
geUrs will make twenty to fifty turns a
day. Some of them in eighths, some in
quarters some in halves
ArbItrnEuers Went wild.
Ordinarily this constitutes the bulk of
the business in arbitra ging. But when
It came to such an unheard of, such a
phenomenal arbitrayiER proft of ten,
twenty. thirty. fifty dollars per single
share mot so per one hundred shares),
the arbitrageurs, it is not surprising,
went mad with a deIirium OF profits.
But il has happened only once in the
history of the financial world, and that
once was last March It is doubtful II
the occasion will ever be repeated.
When the arbitrageurs found Marconi
new stock selling at So per share. and
that one share of old stock was equivalent
latter paying Sl25 for twenty-five shares
IF new stOck) to thirty new shares there
vas the widest kind of bidding for the
old shares-shares which had lain in old
trunks, in tin boxes, in yellow envelopes;