I've been informed that almost nobody – and this includes finance types and even many financial historians – has heard of the third best-selling book of 1903 that became a play, a film and even a board game that still exists.
That's a shame, because it almost perfectly anticipates the WallStreetBets/Robin Hood/To the moon attitudes of today, with gems such as
“I'm going to buy it tomorrow…, and if the market goes as I think it will later on, I'm going to buy more... I'm going to boost this market right through till the last bell rings; and from now on Curtis Jadwin spells B-u-double l—Bull."
The Pit by Frank Norris is available as a free read and download at gutenberg.org. The book struck a chord with Americans given the speculative frenzy of the time: stock and commodity manipulators were romantic characters to be both envied and vilified, in equal measure. It tells the story of a trader who re-finds true love after short squeezing his best friend out of his position and his life, and then losing his fortune. A stonk bros love story?
This story could have happened in 2021. Indeed, some of the quotes are ageless, and are worth revisiting in this short re-telling of the story.
The book/play/film open with the protagonists overhearing a conversation at the opera about an ongoing failed commodity short squeeze.
"Never should have tried to swing a corner. The short interest was too small and the visible supply was too great."
"Never saw such a call for margins in my life."
"…Clearing House balance of three thousand dollars."
"—a conspiracy of the Bears"
Drawn into the commodities markets, the direction of our hero's first big trade was decided on a coin flip:
"Sam," he said, "I'll flip a coin for it."
"Oh, get out," protested the broker; then suddenly—the gambling instinct that a lifetime passed in that place had cultivated in him—exclaimed:
"All right. Flip a coin. But give me your word you'll stay by it. Heads you come in; tails you don't. Will you give me your word?"
"Oh, I don't know about that," replied Jadwin, amused at the foolishness of the whole proceeding. "It will come heads. It could not possibly be anything else. I know it will be heads."
And as a matter of course the coin fell heads.
"All right," he said, "I'll come in."
"For a million?"
"Yes"
The trade was successful yet his friends and acquaintances urged caution in the face of Jadwin's overconfidence:
"This wasn't speculating," interrupted Jadwin. "It was a certainty. It was found money. If I had known a certain piece of real estate was going to appreciate in value I would have bought it, wouldn't I?"
"All the worse, if it made it seem easy and sure to you.”
“I'm going to preach a little if you'll let me. I've been a speculator myself, and a ruined one at that, and I know what I am talking about. Here is what I was going to say. These fellows themselves, the gamblers—well, call them speculators, if you like. Oh, the fine, promising manly young men I've seen wrecked—absolutely and hopelessly wrecked and ruined by speculation! It's as easy to get into as going across the street. They make three hundred, five hundred, yes, even a thousand dollars sometimes in a couple of hours, without so much as raising a finger. Think what that means to a boy of twenty-five... Why, it would take him maybe ten years to save a thousand, and here he's made it in a single morning. Think you can keep him out of speculation then? First thing you know he's thrown up his honest, humdrum position…
“I believe it's worse than liquor, worse than morphine. Once you get into it, it grips you and draws you and draws you, and the nearer you get to the end the easier it seems to win, till all of a sudden, ah! there's the whirlpool.... keep away from it, my boy.”
After a long three years away from the market, Jadwin re-enters the market on the long side and begins his short squeeze.
“I'm going to buy it tomorrow…, and if the market goes as I think it will later on, I'm going to buy more. I'm no Bear any longer. I'm going to boost this market right through till the last bell rings; and from now on Curtis Jadwin spells B-u-double l—Bull."
“If I was conservative and cautious… I wouldn't be in this game at all. I'd be buying U.S. four percent [bonds]. That's the big mistake so many of these fellows down here make. They go into a game where the only ones who can possibly win are the ones who take big chances, and then they try to play the thing cautiously.”
Smaller traders jump on the bandwagon and the short squeeze is on.
The “tailers”—the little Bulls—were radiant. In the dark, they hung hard by their unseen and mysterious friend who daily, weekly, was making them richer. The Bears were scarcely visible.
Then the "outsiders" came into the market. All in a moment all the traders were talking "higher prices." The price went up by convulsive bounds... Dismayed, chagrined, and humiliated, [the shorts] sat back inert, watching the tremendous reaction, hoping against hope that the market would break again.
But by now Jadwin is obsessed with the market, and all but abandons his wife and friends.
“You think I am wilfully doing this! You don't know, you haven't a guess. I corner the wheat! Great heavens, it is the wheat that has cornered me! The corner made itself. I happened to stand between two sets of circumstances, and they made me do what I've done. I couldn't get out of it now, with all the good will in the world.”
His entire personal fortune now swung in the balance. It was the last fight, the supreme attempt—the final consummate assault, and the thrill of a victory more brilliant, more conclusive, more decisive than any he had ever known.
Unknown to our hero, one of his best friends is short, capitulates and then kills himself.
The buyers commenced to bid against each other, offering a dollar and two cents…
At the last-named price [the shorts] acknowledged defeat.
Yet, nobody can hold a market up forever, and new supply comes into the market from everywhere. The shorts sense the opportunity and force margin calls on Jadwin and his broker.
A new harvest was coming in; the new harvest of wheat, huge beyond possibility of control; so vast that no money could buy it, so swift that no strategy could turn it.
“don't you see we can't meet our margin calls? It's the end of the game. You've got no more money."
There in the middle of the Pit, surrounded and assaulted by herd after herd of wolves yelping for his destruction, he stood braced, rigid upon his feet, his head up, his hand, the great bony hand that once had held the whole Pit in its grip, flung high in the air, in a gesture of defiance, while his voice like the clangour of bugles sounding to the charge of the forlorn hope, rang out again and again, over the din of his enemies
The jubilee was irrepressible, they had been too cruelly pressed, these others; [the shorts] had felt the weight of the Bull's hoof, the rip of his horn. Now they had beaten him, had pulled him down.
"Yah-h-h, whoop, yi, yi, yi. Busted, busted, busted. Hip, hip, hip, and a tiger!"
The story ends with our chastened hero disappearing into the sunset, with renewed love in his heart and his wife on his arm.
If you've read this far, please forgive this shameless plug for my rather academic look at what the exchanges and the US government did in the 1920s to curb such speculation. There is even a quote from The Pit:
And that is just what these gamblers are doing all the time, booming it up or booming it down. Think of it, the food of hundreds and hundreds of thousands of people just at the mercy of a few men down there on the Board of Trade. They make the price. They say just how much the peasant shall pay for his loaf of bread. If he can't pay the price he simply starves.