The Piggly-Wiggly Corner (1932)
Piggly-Wiggly is a supermarket chain founded in the Midwest by a grocery clerk who noticed that it would be far more efficient for shoppers to shop in aisles and pay in checkouts instead of dealing with a clerk at a grocery counter. Clarence Saunders was fired for repeatedly suggesting the idea to his boss, but eventually founded the first supermarket chain. In 1923, he wanted to make a seasoned equity offering, but also wanted to bring in as much cash as he could for it — he got greedy.
He hired Jesse Livermore, a well-known stock manipulator, to push up the share price
in the secondary market before issuing the new stock. Mr. Livermore was very successful in driving up the price, but the trading volume and the fast rise attracted in substantial short interest, which eventually led to a bear squeeze in mid-March. Given his large position, Clarence Saunders thought that he could make even more money by canceling his previous plan to issue more stocks and thus make the bears pay even more.
In early 1932, Merrill Lynch and other bear interests on Wall Street tried to hammer down the price of Piggly-Wiggly stock. Saunders took a train to New York City with $2 million in cash in a small bag and fought back, buying Piggly-Wiggly stock until he had orders for 196,000 of the 200,000 outstanding shares. Pressured by the bulls, the stock price soared 50 points on March 23. The next day, the New York Stock Exchange declared a ‘corner’ existed and de-listed the stock, and gave the ‘bears’ five days rather than the normal 24 hours to deliver the stock Saunders had bought — Merrill Lynch was a prominent and influential member of the NYSE.
Saunders’ bank and his friends were put under pressure to sell under any terms and the price was driven back down. Clarence Saunders was driven into bankruptcy from being forced to sell all his stock in the company he had founded at a loss. On October 15, 1953, Clarence Saunders died. Having built and lost two fortunes, he is the man who brought the retail store into the 20th century.
He was a well-known corporate inside executive at the time and was well liked by the public. The lesson here is that you have to assume all inside corporate executives are potentially corrupt because you simply can’t tell them apart. This is important because the better you know their name from the popular press, the less I want you to trust them with the savings you pump into the companies they control — examples are Eisner, Iacocca, Jobs and Welch.
– 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: Assume all corporate executive insiders are dishonest — you can never tell an honest insider from a dishonest insider until long after they have left the company.
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