Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-11-11

the corporation. Eft,
To be sure. large amounts OF liquid
capital and credit are often required
for these purposes, and such capltal
must earn a return, but it is doubtful
If the larger operations of this charac-
ter return market profits in excess OF
the current interest rates on money. ON
special occasions, of course, large-scale
speculative operations work in con-
junction with the investment interests
for example, when merger Is to be
effected or some unusual program to be
financed. And the big shots" the large
pool operators who assume the risks OF
these transactions, take profits or losses
in proportion. But the real strength OF
such INSIDE pools" lies in the co-opera-
tion of stockholders who do not take
advantage of price advances to dispose
of holdings. Nine times out OF ten
these major operations extend over long
periods of time: and actual cash prontS
are realized only when the stock Is ul-
timately distributed to genuine invest
ors, matter of months ana years
rather than days and weeks. ~The men
who manage operations in this category
are obviously only concerned to estap-
fish a steady dependable market Tor
the stocks in which they are interested.
They endeavor to prevent. so. lar as
possible, the rapid fluctuations IN Stock
prices which tend to disturb the con-
QQSnce OF lnFeSVOES.
Little Wheels Inside Big Wheels.
However. whenever major operations
of this kind are under way In an
active and widely-held stock, opportun-
tiles are opened for smaller operators
Small pools are formed to take az
vantage of the situation by accumulat-
ing the stock on technical reactions,
thereafter running up the price Tor
rand profit, These smaller operators
are protected against large losses by the
buying power of the major operators,
who cannot let prices fall OF at
rate to endanger their own undertaK,
ings. and the smaller pools are aided
by the favorable information which is
released by the major interests for the
purpose of expanding the investment
market for the stock. BY rapidly bid
ding I'D the price the small pools at
tract following OF margin traders, ana
the pool manager is frequently able 10
unload his comparatively small hotdlngS
ct a substantial profit.
Most of the pools operating in the
stock market are secondary" or out
siders' pools" of this description. Dur
ing the bull markets of the last few
years members Of secondary pools
which have been amply financed and
ably managed have made a great deal
of money. Perhaps the best way to
explain the methods of these smaller
pool operators will be to recite the
actual history of recent pool. The
one I am selecting for this illustration
was formed last July to operate in the
stock of public utility corporation.
Within so days the price of the stock
had been advanced 80 points and the
pool closed with net profit OF IS
points on 10000 shares Of stock.
Pool in Utility sleeper"
Fxyl.. zkaoI- ,,,tioI, 4I1ic YaooI OVrar-
ated was discovered by young sta
tiscian, who has since become partner
in firm of stock brokers. One very
hot day last July this young man rushed
into a private Office in lower Broad
way, where small group of men habit
ually meet after the close OF the stock
market. I've turned up wonderful
sleeper" he announced, 1.-The best bet
I've seen in months"
Another man replied: well, 1t will
have to be good If listen to you today.
It's too hot to talk about making
money"
you will forget the heat when you
hear about this the Statistician re-
turned, and he was right. In 10
minutes the heat was forgotten and
the men in the room were laying
plan of campaign. One man present was
member of the Stock Exchange who
confines his business to trading for
his own account and for few pro-
fesSional SPECTATORS who carry rather
heavy lines of stock. Another man
was pool manager with following
of wealthy friends who find it worth
while to follow his judgment. Some
of his hackers" were in the group this
July afternoon.
The Sleeper" which our young man
described was the stock of a sub
sidiary corporation of an important
public utility holding company. The
parent company had been for many
months engaged in program OF rapid
expansion, taking over a number OF
large properties and constantly increas-
ing its capital by the fotation of new
securities. The price of the parent
company had advanced to high figures,
more than IS times the current earn
ings. The stock of the subsidiary had
not advanced; 1t was selling at only
nine times earnings, with dividend
yield above 5 per cent on the current
price. This in spite of the fact that
the subsidiary was an important link
in the combination and contributed
substantially to the parent company'S
income. Trading in the subsidiary
corporation stock had been dormant;
the sleeper" was so inactive that
many days it did not even appear OH
the list of active stocks.
whats the matter with that crowd?'
the pool manager asked. why haven't
they run this stock up?" The statls-
tician replied: 1.-THE parent company
owns go per cent of the shares. They
do not have to worry about control.
And the outfit has every dollar it can
lay its hands on at work on the hold
ing company expansion program"
t'That's nice. Who owns the other
40 per cent of the stock? Have you
the stockholders list?"
Certainly" said the young man;
there it is"
The list of stockholders showed that
the minority stock was in the hands of
Investors, most of whom had held it
over period of years. Discreet inquiries
over the telephone brought the informa-
ton that the floating supply of the
stock in the Street was almost negligi-
kle. The statistician went on with the
presentation of his deductions: "The
holding company people cannot afford
to sell stock to run us out While they
are floating the holding company issues
they cannot permit declines in the stock
of an important subsidiary. The insiders
cannot do anything but cheer us on
when we start to put it up"
But where can we get any stock?
There is none In the market, and we
would have to bid 1t up over the roof
to get any
answered Mr., Statistician. But some
of these stockholders have held on a
long time. Doubtless they are hungry
for some action. I have bunch we
can get some options If we work fast
enough"
This bunch proved correct. Men were
sent out to call on a selected list OF
the stockholders and succeeded In