Common Stocks and Uncommon Profits and Other Writings

 
Learning from Experience 
2 3 9 
by a man with great enthusiasm for Food Machinery Corporation 
decided to “run an operation” in the company’s shares. The methods of 
all these pools were fundamentally similar. The members would sell 
stock back and forth among themselves at gradually rising prices. All this 
activity on the stock tape would attract the attention of others, who 
would then start to buy and take the pool’s shares off its hands at still 
higher prices. Some highly skilled manipulators, some of whom had
made many millions of dollars and one of whom, a year or so later, was 
to offer me a junior partnership, were quite experienced and able prac- 
titioners of this rather questionable art. Manipulation was not the objec-
tive of the operators of this Food Machinery pool, however. As the 
autumn of 1929 was to arrive and stocks were to face the precipice that
lay ahead, the pool managed to buy for itself most of the shares that had 
been offered to the public. Although the quoted price of the Food 
Machinery shares at the peak was in the high 50’s, there was very little 
stock in the hands of the public as a result. 
As in each of the succeeding years the general level of business 
activities worsened relative to the year before, it was obvious what was 
to happen to the flotsam and jetsam of small companies that went pub-
lic in the 1928 excitement. One after another of these companies passed 
into bankruptcy, with many of the remainder reporting losses rather 
than profits. The market for the shares of these firms largely dried up. 
There were one or two companies in this group other than Food 
Machinery that were fundamentally both sound and attractive. However,
the general public showed no discrimination whatsoever, considering all of 
them little more than speculative junk. By the time the market was to reach
its final low in 1932, and again equal that low at the time of closing of the 
entire banking system of the country coincidental with the inauguration 
of Franklin D. Roosevelt on March 4, 1933, Food Machinery shares were 
down to a price of between $4 and $5, with the all-time low being 100 
shares at $3¾.