Consolidated Stove keeps finding support near thirty-seven dollars a share. That might suggest agreement about its value. Behind the buying, however, is a bank loan secured by the stock at thirty-five dollars a share. The man supporting the price is trying to protect that arrangement. The bank wants its money back.
Larry Livingston tells this story in Edwin Lefèvre's fictionalized memoir, Reminiscences of a Stock Operator, first published in nineteen twenty-three. His answer to the puzzle of rising prices begins with the seller's problem. A quotation records a transaction. Turning a large holding into cash requires enough people willing to buy it. Price activity can help recruit those people, even when they misunderstand whose purposes their purchases serve.
Livingston takes assignments to find buyers for other people's shares. He calls it distribution, a skill even wealthy, experienced sponsors may lack.
The people waiting to sell
Consolidated Stove combines three prosperous businesses during a boom. Its promoters expect an eager public to absorb the shares. By Livingston's account, they arrive late. Buyers are already loaded with new securities, and enthusiasm is fading. The bank has lent three and a half million dollars against a hundred thousand shares. Selling that whole block into a weak market could drive its price down further.
Jim Barnes, the broker trying to repay the loan, asks Livingston for help. Other large holders create another difficulty. If Livingston attracts buyers, those holders can sell first, consuming the demand he needs for the bank's shares.
He therefore arranges to restrict their sales by placing their stock in escrow, beyond their freedom to sell independently. He obtains rights to buy their shares at an agreed price and asks the group for cash to absorb the stock initially offered. The contributions arrive slowly while the favorable market slips away.
Livingston often receives rights to buy portions of a holding at successively higher prices. He earns money if buyers pay more. Those rights let him obtain shares to fulfill sales even when he doesn't already own enough. If he sells more than he owns, later purchases can close that obligation while helping support the price. Buying back an earlier sale leaves him with less unsold stock than buying additional shares to defend a price. These are his general methods; Stove takes an unexpected turn.
The campaign that hasn't started
Before Livingston makes his first purchase, Stove becomes active and rises. He starts selling the bank's shares. Even his first substantial sales fail to stop the advance.
A member of the group, Wolff, has been buying and telling traders that Livingston is about to push the stock up. The story reaches newspapers and brokerage offices, then draws orders from around the country. People buy before passing the tip along. Their actual purchases make the story look increasingly convincing.
Visible trading does work that a promoter's unsupported promise might struggle to do. Early professional traders attract attention; rising prices invite explanations; the explanations bring more buyers. Livingston describes this as advertising through the market itself. The demand is real, although the buyers' understanding of his intended action is wrong.
Over successive days, he sells the bank's entire block. He has bought no shares and spent none of the group's cash to produce the advance. Buyers expecting him to begin a buying campaign have already let him finish the selling job.
Wolff is furious when the price weakens. He expects Livingston to use the available money to lift it. Livingston concludes that Wolff intended to sell his extra shares into purchases financed by the group. That is his interpretation of Wolff's behavior. The supposed partner may have been preparing to compete for the same exit.
Who still owns the shares
The other large holders remain stuck. Later, in a weaker market, they accept new terms. Livingston sells their holdings on the decline. Buyers remember the recent high and see lower prices as bargains. The earlier rise keeps attracting demand after the advance itself has ended.
A falling price doesn't mean the seller must be losing. Livingston describes another pool, a group of coordinated holders, that acquired stock cheaply and could sell below its peak at a profit. Outsiders who bought much higher lose at those same prices. Reassurances about a coming recovery encourage them to keep holding while the pool continues selling.
Packaging can help attract buyers too. Dividing one share into several lowers the quoted price per share without adding anything to the business. The smaller price looks easier to afford, while the buyer still needs to judge what ownership is worth.
The public consequences trouble Livingston when his wife's dressmaker says she bought Stove after hearing that he would raise its price. He worries that innocent people may have lost money. Her purchase is known; her eventual loss is not reported.
Writing about his own period, he proposes named responsibility for insider statements and penalties for misleading bullish rumors comparable to those he says apply to bearish rumors. A signature wouldn't guarantee truth, but it would identify someone responsible for the claim.
Better accountability would still leave business surprises, fear, greed and the difficulty of understanding a growing stock list. Livingston rejects continuous, certain success. His own stories show how much an exit depends on other people's money, timing and beliefs. By the time the crowd agrees that a stock is going higher, the seller it admires may already be leaving.
Three things to keep
A high quotation matters to a large seller only when enough buyers appear.
Insiders can profit below the peak while later buyers lose at the same price.
Accountable promotion could reduce deception; it cannot make speculation certain.