Human nature strives to know what happens next in an uncertain world. When it comes to investing, market prophets, forecasters, and tipsters are always ready to provide it. But the results rarely pay off. No better example exists of the risk of following their advice than Lawson’s Panic.
Thomas Lawson was born in 1857. He got his start at a banking house in Boston, at age 12, after quitting school. Not long after he gained attention from speculating in stocks. He was given more important work at the bank and learned the ways to manipulate the market. He had a natural gift for it.
However, Lawson found his true calling after being charged with turning around the failing Rand, Avery publishing company. He started by publishing books that no other publisher would touch. But how would he make people aware of them?
Lawson saw the enormous possibilities in advertising. He demonstrated then, as he has many times since, that he could make a comfortable livelihood as an advertising expert… He organized an advertising bureau, a novelty in those days, and announced that this bureau would undertake to direct the advertising of large manufacturing concerns… This variety of advertising is very common nowadays, but it was decidely original when Lawson thought of it.
Lawson also quickly figured out how advertising could be used in his speculative efforts.
In those days, if you wanted to manipulate a stock, the trick was to gather a pool of friends and their money. Large blocks of shares were bought and sold in a way to give the impression of strength in the shares. The volume buying showed up on the ticker tape, which drew attention to the stock. At the same time, financial reporters were paid to write about the stock, which got the rumor mill buzzing.
Lawson added a third ingredient — newspaper ads. The ads had to be convincing enough to make people believe they could get rich if they bought.
The first trial of his new idea came in 1890. Aretas Blood dreamed of building a mining town in Kentucky complete with mines, furnace plants, shops, and homes. Blood’s Grand Rivers venture needed promotional help. Lawson was just the person for the job.
Lawson immediately got to work on prospectuses, pamphlets, brochures, maps, and articles embellishing the wonderful possibilities of getting in on the deal. For four years, he promoted the opportunity and got paid handsomely for it. But by 1894, it was clear that Grand Rivers was a flop.
His second trial came in 1892. George Westinghouse was fighting an attempted takeover by General Electric. He needed a promoter to lift the price of Westinghouse shares. Lawson, after first failing to lift Westinghouse stock, turned to attack GE.
Lawson’s campaign against GE focused on its questionable financial statement. GE’s stock traded at $106. Lawson estimated GE’s book value at $42. An anonymous pamphlet — “To the Stockholders of the General Electric Company and National Savings Banks, Trust and Insurance Companies Loaning on the Securities of the General Electric Company” — was printed explaining the valuation. The goal was to convince the banks and insurance companies to call any loans involving GE stock.
It worked. Within five weeks, GE’s stock was down to $72. Then the bear attack began. When the dust settled, GE’s stock settled at $20. It wouldn’t reach Lawson’s estimated $42 book value for another six years.
Lawson’s successful GE campaign got Henry Rogers’s attention. Rogers made his fortune in the oil business and helped Rockefeller build Standard Oil.
Lawson worked several stock deals with Rogers but the biggest was the Amalgamated Copper trust. In 1899, Rogers, Rockefeller, and Lawson teamed up to build a holding company that controlled copper in the U.S. It was a ruthless success. Through the manipulation of stock prices, copper prices, and competition they snatched up public and private copper mines under Amalgamated Copper’s umbrella. It seemed like a great partnership in the making.
That is, until 1904 when Lawson began prophesizing the direction of stock prices. Amalgamated Copper specifically.
In November 1904 an ad appeared in newspapers across the country singing the praises of Amalgamated Copper:
Since Amalgamated was created, I have unqualifiedly advised its purchase. I believe ‘coppers’ should be bought — that there will be lots of profits in them at anything like present prices. There are many reasons why ‘coppers’ should advance, but the principal one is the present and coming price of copper. The time will come soon when the profit returns will be two hundred percent; in other words, there will be a copper famine. the quirks and kinds which manipulation put into ‘coppers’ have now been ironed out, and the metal is going to sell on its merits, which, I believe, will cause much higher prices than any seen for years.
Similar ads appeared in the prior months professing Lawson’s bullish take and the stock gradually rose from $40 to $80 that year.
Lawson’s last bullish ad was on November 29. Amalgamated topped out at $82 1⁄2 on Monday, December 5th. Then he abruptly reversed course.
Half-page ads appeared in newspapers around the world proclaiming “Amalgamated Stockholders — Warning.” Attached was the following:
- Lawson had been a bull on Amalgamated continuously, at $33, $80, and $130, and had advised its purchase.
- But he had been recently told by the Amalgamated management that the stock was worth no more than $45.
- He had helped along the advance that his following might sell at good prices.
- He now predicted that the stock would slump from $80 to $33, and he advised every stockholder to sell out at once.
The panic began almost immediately. Amalgamated Copper dropped to $76 on Tuesday, December 6. Wednesday it fell to $68. That night Lawson wired another missive:
Sell Amalgamated to your last share. I will make the stand on it for a short time this morning at 60 to assist you in getting fair prices. Then it will smash.
Amalgamated fell another $10, to $58 on Thursday, but the rest of the market fell with it. The New York Tribune reported on the panic in its Friday morning edition:
Not since May 9, 1901, has the stock market been the theater of such excitement and such a crash of values as yesterday, and not since that historic day has the volume of trading been as vast as yesterday, when the total sales amounted to 2,869,751 shares. December 8, 1904, it was popularly said, would be remembered as the day of “Lawson’s Panic,” for the terrible break of the morning hours was a continuation of the violent collapse of the preceding day, the immediately inciting cause of which was the series of advertising and telegraphic fulminations launched by the Boston operator against Amalgamated Copper, at a period when technical position of the whole market had become such that a sharp and determined assault from any quarter must be followed by a serious decline in stock values.
Lawson painted himself as a stock market prophet. He fought for the small investor against big bad Wall Street by warning of their manipulation and an imminent collapse. At least, that’s what he wanted them to believe.
The risk of blindly following someone’s prophecy or tip is not knowing their true intentions. How do they benefit from sharing the information? What’s the profit motive? What aren’t they telling you?
Lawson was angry. He and Rogers had a falling out over a dispute on another deal, Bay State Gas, that had a messy end. Rogers stiffed Lawson for his work. It resulted in lawyers, lawsuits, and conflicting testimony.
Lawson had a habit of holding grudges. Plus he wanted to get paid. Lawson swore to take down his old partners, so he set his sights on Amalgamated Copper.
But first, he had shares to sell. So he promoted the stock in a positive light to push the price higher. As investors bought the stock, he used the demand to sell all his shares within a week of its peek. But before he sent out his “Warning,” he took a huge short position in Amalgamated.
His missive calling the crash played out perfectly and you probably see where this is going. The stock price tanked, the short position was closed, and he went long the stock again at its lows. Within a week, Amalgamated Copper’s stock bounced back to $69, from its $58 low. It was market manipulation at its finest:
It was the most masterful piece of tipster manipulation that has ever been seen in Wall Street. The mine under the Amalgamated market had been honeycombed with stop loss orders placed there by Lawson himself or his associates, who had given many brokers orders to “sell on stop” 5,000 shares whenever certain points in the depression had been reached and also to make other executions of orders at certain times. These stop oders acted as battering rams in the market, multiplying the force as they came pounding one upon another, and Lawson fiddled on the telegraph wires all over the country and yelled that his Amalgamated Rome was burning but that he had nothing to do with applying the torch. He was Nero and fiddler and fireman and incendiary.
Lawson made a fortune. It’s rumored he made almost $46 million on the roundtrip. Those that followed his advice faired worse. They bought late into the bull rally, sold at a loss, and never got back in.
Of course, Lawson’s true motives eventually came out. He tried to apply his craft on smaller stock campaigns but his sway over the public wained. Unfortunately, the investors that listened to him learned the hard lesson of trusting market prophets.
The Real Lawson, Success Magazine, 1907
A Personally Conducted Panic, Public Opinion 1904
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