The Northwestern Corner (1972)
Jay Gould tricked Daniel Drew and Henry Smith into joining him for another bear raid by selling Northwestern stock short. They didn’t suspect that Gould was going to try to trick them and kept selling the Northwestern Railway stock short while Gould built up a big long position buying as much as he could. As prices rose instead of dropped, Smith got suspicious and acquired a warrant from a judge for Gould’s arrest on charges of looting the Erie Railroad treasury that Gould controlled. See Note.
Gould wriggled out of the charges…
and decided to ruin Drew and Smith by cornering the market for Northwestern even more. The price soared from $80 to $230 in a few days, then Gould forced them to settle their short positions at that price. The corner had a serious impact on all stocks, as people sold their holdings to buy into the rapid price increases of the Northwestern Railway stock. What I want you to notice here is that the people in the public who noticed that this was a good stock and bought it cheap ended up walking away with a huge profit — the manipulation only increased the smiles of experienced public investors who had bought low and thus could sell high.
– Doc Brown
BIO: Doc Brown is a national expert on the stock market. His courses “How to Make a Million Dollar Portfolio from Scratch” at the Oxford Club is a national bestseller. Dr. Brown’s research appears in some of the most prestigious academic journals in the field of finance. See Journal of Financial Research and Financial Management. Scott is an associate professor of finance in the Graduate School of Business at the University of Puerto Rico.
SURVIVAL RULE: Buy good stocks when nobody else wants to.
NOTE: See New York Times, November 26th, 1872 and also Chancellor (2000) “Devil Take the Hindmost”, page 171.
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