Business Adventures

by John Brooks

  Then, as at other times, the game of Corner suffered from a difficulty that plagues other games—post-mortem disputes about the rules. The reform legislation of the nineteen-thirties, by outlawing any short selling that is specifically intended to demoralize a stock, as well as other manipulations leading toward corners, virtually ruled the game out of existence. Wall Streeters who speak of the Corner these days are referring to the intersection of Broad and Wall. In U.S. stock markets, only an accidental corner (or near-corner, like the Bruce one) is now possible; Clarence Saunders was the last intentional player of the game.

  SAUNDERS has been variously characterized by people who knew him well as “a man of limitless imagination and energy,” “arrogant and conceited as all getout,” “essentially a four-year-old child, playing at things,” and “one of the most remarkable men of his generation.” But there is no doubt that even many of the people who lost money on his promotional schemes believed that he was the soul of honesty. He was born in 1881 to a poor family in Amherst County, Virginia, and in his teens was employed by the local grocer at the pittance that is orthodox for future tycoons taking on their first jobs—in his case, four dollars a week. Moving ahead fast, he went on to a wholesale grocery company in Clarksville, Tennessee, and then to one in Memphis, and, while still in his twenties, organized a small retail food chain called United Stores. He sold that after a few years, did a stint as a wholesale grocer on his own, and then, in 1919, began to build a chain of retail self-service markets, to which he gave the engaging name of Piggly Wiggly Stores. (When a Memphis business associate once asked him why he had chosen that name, he replied, “So people would ask me what you just did.”) The stores flourished so exuberantly that by the autumn of 1922 there were over twelve hundred of them. Of these, some six hundred and fifty were owned outright by Saunders’ Piggly Wiggly Stores, Inc.; the rest were independently owned, but their owners paid royalties to the parent company for the right to adopt its patented method of operations. In 1923, an era when a grocery store meant clerks in white aprons and often a thumb on the scale, this method was described by the New York Times with astonishment: “The customer in a Piggly Wiggly Store rambles down aisle after aisle, on both sides of which are shelves. The customer collects his purchases and pays as he goes out.” Although Saunders did not know it, he had invented the supermarket.

  A natural concomitant of the rapid rise of Piggly Wiggly Stores, Inc., was the acceptance of its shares for listing on the New York Stock Exchange, and within six months of that event Piggly Wiggly stock had become known as a dependable, if unsensational, dividend-payer—the kind of widows’-and-orphans’ stock that speculators regard with the respectful indifference that crap-shooters feel about bridge. This reputation, however, was shortlived. In November, 1922, several small companies that had been operating grocery stores in New York, New Jersey, and Connecticut under the name Piggly Wiggly failed and went into receivership. These companies had scarcely any connection with Saunders’ concern; he had merely sold them the right to use his firm’s catchy trade name, leased them some patented equipment, and washed his hands of them. But when these independent Piggly Wigglys failed, a group of stock-market operators (whose identities never were revealed, because they dealt through tight-lipped brokers) saw in the situation a heaven-sent opportunity for a bear raid. If individual Piggly Wiggly stores were failing, they reasoned, then rumors could be spread that would lead the uninformed public to believe that the parent firm was failing, too. To further this belief, they began briskly selling Piggly Wiggly short, in order to force the price down. The stock yielded readily to their pressure, and within a few weeks its price, which earlier in the year had hovered around fifty dollars a share, dropped to below forty.

  At this point, Saunders announced to the press that he was about to “beat the Wall Street professionals at their own game” with a buying campaign. He was by no means a professional himself; in fact, prior to the listing of Piggly Wiggly he had never owned a single share of any stock quoted on the New York Stock Exchange. There is little reason to believe that at the beginning of his buying campaign he had any intention of trying for a corner; it seems more likely that his announced motive—the unassailable one of supporting the price of the stock in order to protect his own investment and that of other Piggly Wiggly stockholders—was all he had in mind. In any case, he took on the bears with characteristic zest, supplementing his own funds with a loan of about ten million dollars from a group of bankers in Memphis, Nashville, New Orleans, Chattanooga, and St. Louis. Legend has it that he stuffed his ten million-plus, in bills of large denomination, into a suitcase, boarded a train for New York, and, his pockets bulging with currency that wouldn’t fit in the suitcase, marched on Wall Street, ready to do battle. He emphatically denied this in later years, insisting that he had remained in Memphis and masterminded his campaign by means of telegrams and long-distance telephone calls to various Wall Street brokers. Wherever he was at the time, he did round up a corps of some twenty brokers, among them Jesse L. Livermore, who served as his chief of staff. Livermore, one of the most celebrated American speculators of this century, was then forty-five years old but was still occasionally, and derisively, referred to by the nickname he had earned a couple of decades earlier—the Boy Plunger of Wall Street. Since Saunders regarded Wall Streeters in general and speculators in particular as parasitic scoundrels intent only on battering down his stock, it seemed likely that his decision to make an ally of Livermore was a reluctant one, arrived at simply with the idea of getting the enemy chieftain into his own camp.

  On the first day of his duel with the bears, Saunders, operating behind his mask of brokers, bought 33,000 shares of Piggly Wiggly, mostly from the short sellers; within a week he had brought the total to 105,000—more than half of the 200,000 shares outstanding. Meanwhile, ventilating his emotions at the cost of tipping his hand, he began running a series of advertisements in which he vigorously and pungently told the readers of Southern and Western newspapers what he thought of Wall Street. “Shall the gambler rule?” he demanded in one of these effusions. “On a white horse he rides. Bluff is his coat of mail and thus shielded is a yellow heart. His helmet is deceit, his spurs clink with treachery, and the hoofbeats of his horse thunder destruction. Shall good business flee? Shall it tremble with fear? Shall it be the loot of the speculator?” On Wall Street, Livermore went on buying Piggly Wiggly.

  The effectiveness of Saunders’ buying campaign was readily apparent; by late January of 1923 it had driven the price of the stock up over 60, or higher than ever before. Then, to intensify the bear raiders’ jitters, reports came in from Chicago, where the stock was also traded, that Piggly Wiggly was cornered—that the short sellers could not replace the stock they had borrowed without coming to Saunders for supplies. The reports were immediately denied by the New York Stock Exchange, which announced that the floating supply of Piggly Wiggly was ample, but they may have put an idea into Saunders’ head, and this, in turn, may have prompted a curious and—at first glance—mystifying move he made in mid-February, when, in another widely disseminated newspaper advertisement, he offered to sell fifty thousand shares of Piggly Wiggly stock to the public at fifty-five dollars a share. The ad pointed out, persuasively enough, that the stock was paying a dividend of a dollar four times a year—a return of more than 7 percent. “This is to be a quick proposition, subject to withdrawal without prior notice,” the ad went on, calmly but urgently. “To get in on the ground floor of any big proposition is the opportunity that comes to few, and then only once in a lifetime.”

  Anyone who is even slightly familiar with modern economic life can scarcely help wondering what the Securities and Exchange Commission, which is charged with seeing to it that all financial advertising is kept factual, impersonal, and unemotional, would have had to say about the hard sell in those last two sentences. But if Saunders’ first stock-offering ad would have caused an S.E.C. examiner to turn pale, his second, published four days later, mi
ght well have induced an apoplectic seizure. A full-page affair, it cried out, in huge black type:

  OPPORTUNITY! OPPORTUNITY!

  It Knocks! It Knocks! It Knocks!

  Do you hear? Do you listen? Do you understand?

  Do you wait? Do you act now?…

  Has a new Daniel appeared and the lions eat him not?

  Has a new Joseph come that riddles may be made plain?

  Has a new Moses been born to a new Promised Land?

  Why, then, asks the skeptical, can CLARENCE SAUNDERS … be so generous to the public?

  After finally making it clear that he was selling common stock and not snake oil, Saunders repeated his offer to sell at fifty-five dollars a share, and went on to explain that he was being so generous because, as a farsighted businessman, he was anxious to have Piggly Wiggly owned by its customers and other small investors, rather than by Wall Street sharks. To many people, though, it appeared that Saunders was being generous to the point of folly. The price of Piggly Wiggly on the New York Stock Exchange was just then pushing 70; it looked as if Saunders were handing anyone who had fifty-five dollars in his pocket a chance to make fifteen dollars with no risk. The arrival of a new Daniel, Joseph, or Moses might be debatable, but opportunity certainly did seem to be knocking, all right.

  Actually, as the skeptical must have suspected, there was a catch. In making what sounded like such a costly and unbusinesslike offer, Saunders, a rank novice at Corner, had devised one of the craftiest dodges ever used in the game. One of the great hazards in Corner was always that even though a player might defeat his opponents, he would discover that he had won a Pyrrhic victory. Once the short sellers had been squeezed dry, that is, the cornerer might find that the reams of stock he had accumulated in the process were a dead weight around his neck; by pushing it all back into the market in one shove, he would drive its price down close to zero. And if, like Saunders, he had had to borrow heavily to get into the game in the first place, his creditors could be expected to close in on him and perhaps not only divest him of his gains but drive him into bankruptcy. Saunders apparently anticipated this hazard almost as soon as a corner was in sight, and accordingly made plans to unload some of his stock before winning instead of afterward. His problem was to keep the stock he sold from going right back into the floating supply, thus breaking his corner; and his solution was to sell his fifty-five-dollar shares on the installment plan. In his February advertisements, he stipulated that the public could buy shares only by paying twenty-five dollars down and the balance in three ten-dollar installments, due June 1st, September 1st, and December 1st. In addition—and vastly more important—he said he would not turn over the stock certificates to the buyers until the final installment had been paid. Since the buyers obviously couldn’t sell the certificates until they had them, the stock could not be used to replenish the floating supply. Thus Saunders had until December 1st to squeeze the short sellers dry.

  Easy as it may be to see through Saunders’ plan by hindsight, his maneuver was then so unorthodox that for a while neither the governors of the Stock Exchange nor Livermore himself could be quite sure what the man in Memphis was up to. The Stock Exchange began making formal inquiries, and Livermore began getting skittish, but he went on buying for Saunders’ account, and succeeded in pushing Piggly Wiggly’s price up well above 70. In Memphis, Saunders sat back comfortably; he temporarily ceased singing the praises of Piggly Wiggly stock in his ads, and devoted them to eulogizing apples, grapefruit, onions, hams, and Lady Baltimore cakes. Early in March, though, he ran another financial ad, repeating his stock offer and inviting any readers who wanted to discuss it with him to drop in at his Memphis office. He also emphasized that quick action was necessary; time was running out.

  By now, it was apparent that Saunders was trying for a corner, and on Wall Street it was not only the Piggly Wiggly bears who were becoming apprehensive. Finally, Livermore, possibly reflecting that in 1908 he had lost almost a million dollars trying to get a corner in cotton, could stand it no longer. He demanded that Saunders come to New York and talk things over. Saunders arrived on the morning of March 12th. As he later described the meeting to reporters, there was a difference of opinion; Livermore, he said—and his tone was that of a man rather set up over having made a piker out of the Boy Plunger—“gave me the impression that he was a little afraid of my financial situation and that he did not care to be involved in any market crash.” The upshot of the conference was that Livermore bowed out of the Piggly Wiggly operation, leaving Saunders to run it by himself. Saunders then boarded a train for Chicago to attend to some business there. At Albany, he was handed a telegram from a member of the Stock Exchange who was the nearest thing he had to a friend in the white-charger-and-coat-of-mail set. The telegram informed him that his antics had provoked a great deal of head-shaking in the councils of the Exchange, and urged him to stop creating a second market by advertising stock for sale at a price so far below the quotation on the Exchange. At the next station, Saunders telegraphed back a rather unresponsive reply. If it was a possible corner the Exchange was fretting about, he said, he could assure the governors that they could put their fears aside, since he himself was maintaining the floating supply by daily offering stock for loan in any amount desired. But he didn’t say how long he would continue to do so.

  A week later, on Monday, March 19th, Saunders ran a newspaper ad stating that his stock offer was about to be withdrawn; this was the last call. At the time, or so he claimed afterward, he had acquired all but 1,128 of Piggly Wiggly’s 200,000 outstanding shares, for a total of 198,872, some of which he owned and the rest of which he “controlled”—a reference to the installment-plan shares whose certificates he still held. Actually, this figure was open to considerable argument (there was one private investor in Providence, for instance, who alone held eleven hundred shares), but there is no denying that Saunders had in his hands practically every single share of Piggly Wiggly then available for trading—and that he therefore had his corner. On that same Monday, it is believed, Saunders telephoned Livermore and asked if he would relent long enough to see the Piggly Wiggly project through by calling for delivery of all the shares that were owed Saunders; in other words, would Livermore please spring the trap? Nothing doing, Livermore is supposed to have replied, evidently considering himself well out of the whole affair. So the following morning, Tuesday, March 20th, Saunders sprang the trap himself.

  IT turned out to be one of Wall Street’s wilder days. Piggly Wiggly opened at 75½, up 5½ from the previous days’ closing price. An hour after the opening, word arrived that Saunders had called for delivery of all his Piggly Wiggly stock. According to the rules of the Exchange, stock called for under such circumstances had to be produced by two-fifteen the following afternoon. But Piggly Wiggly, as Saunders well knew, simply wasn’t to be had—except, of course, from him. To be sure, there were a few shares around that were still held by private investors, and frantic short sellers trying to shake them loose bid their price up and up. But by and large there wasn’t much actual trading in Piggly Wiggly, because there was so little Piggly Wiggly to be traded. The Stock Exchange post where it was bought and sold became the center of a mob scene as two-thirds of the brokers on the floor clustered around it, a few of them to bid but most of them just to push, whoop, and otherwise get in on the excitement. Desperate short sellers bought Piggly Wiggly at 90, then at 100, then at 110. Reports of sensational profits made the rounds. The Providence investor, who had picked up his eleven hundred shares at 39 in the previous autumn, while the bear raid was in full cry, came to town to be in on the kill, unloaded his holdings at an average price of 105, and then caught an afternoon train back home, taking with him a profit of over seventy thousand dollars. As it happened, he could have done even better if he had bided his time; by noon, or a little after, the price of Piggly Wiggly had risen to 124, and it seemed destined to zoom straight through the lofty roof above the traders’ heads. But 124 was as high as it we
nt, for that figure had barely been recorded when a rumor reached the floor that the governors of the Exchange were meeting to consider the suspension of further trading in the stock and the postponement of the short sellers’ deadline for delivery. The effect of such action would be to give the bears time to beat the bushes for stock, and thus to weaken, if not break, Saunders’ corner. On the basis of the rumor alone, Piggly Wiggly fell to 82 by the time the Exchange’s closing bell ended the chaotic session.

  The rumor proved to be true. After the close of business, the Governing Committee of the Exchange announced both the suspension of trading in Piggly Wiggly and the extension of the short sellers’ delivery deadline “until further action by this committee.” There was no immediate official reason given for this decision, but some members of the committee unofficially let it be known that they had been afraid of a repetition of the Northern Pacific panic if the corner were not broken. On the other hand, irreverent side-liners were inclined to wonder whether the Governing Committee had not been moved by the pitiful plight of the cornered short sellers, many of whom—as in the Stutz Motor case two years earlier—were believed to be members of the Exchange.