Alfred Lee Loomis wore many hats. He was an attorney, soldier, physicist, inventor, and briefly a Wall Street legend.
Upon graduating from Harvard Law School in 1912, Loomis took a job at Winthrop & Stimson practicing corporate law. He wore his attorney hat until World War I. He volunteered for the Army the moment the U.S. entered the war in 1917.
Loomis’s “inventiveness” and a written recommendation from his former boss, Henry Stimson, got him assigned to the Aberdeen Proving Grounds. He was given the role of head of the development and experimental department. Specifically, ballistics.
His first breakthrough was measuring the velocity of shells fired from a gun. His Aberdeen chronograph was a major improvement on what already existed at the time. It was reliable, portable, and could be quickly mass-produced. In other words, it was designed to be used in the war.
Loomis’s next major breakthrough wouldn’t come about until WWII. He played a key role in the development of radar, sat in on the early meetings of the Manhattan Project, invented LORAN (short for long-range navigation), and helped develop ground-controlled approach, which helped pilots land in bad weather.
But it was his time between the two wars where he made his impact on Wall Street.
After WWI, Loomis followed his brother-in-law to Wall Street. Landon Thorne worked as a bond salesman for Bonbright & Company, a prominent investment house. Thorne was such a good salesman that he was offered a partnership in Bonbright after his first year. Little did he know Bonbright was on the verge of bankruptcy.
Thorne asked Loomis to dust off his corporate law hat to look over Bonbright’s financials. They both believed the company could be turned around. So with some help from the president of General Electric, they quietly bought control of the investment firm. The question was how best to direct the company?
Loomis saw potential in electric utilities. Unlike today, utilities were an exciting, growth industry back then. Only 8% of homes were wired for electricity in 1902. That number only sat at 24% in 1917 and 34% in 1920. Loomis saw the growth opportunity, especially in electrifying rural America.
Bonbright immediately began specializing in underwriting electric utility securities. Between 1924 and 1929, Bonbright was responsible for almost $1.6 billion in financing for utility companies.
The creation of utility holding companies also began under their watch. They would bundle smaller local utilities, into a large holding company, then underwrite the security issues of the new company. One of the biggest was the consolidation of American Super Power in 1923. However, it was their work in creating another holding company in January 1929, that tipped Loomis off.
J.P. Morgan & Company got the idea to merge two large utility companies, along with a smattering of small ones, to create a holding company that controlled over a third of the power in twelve states. They called it United Corporation and turned to Bonbright for help. With every company in agreement on the merger, it was simply a matter of setting the offering price for the new holding company’s stock.
The partners at J.P. Morgan insisted on a higher price that Loomis and Thorne believed the market could bear. Yet, surprising both of them, the public happily scooped up the new shares without any trouble. To Loomis, it was a sign to get out.
Over the next several months, Loomis and Thorne sold all their stocks and converted everything into cash and Treasury bonds. It helped that they kept a strict rule to always keep Bonbright’s profits in cash. Most investment firms at the time held a large inventory of the securities they underwrote, which came back to bite them. Not Bonbright.
On October 24, 1929, Black Thursday hit.
Maybe they were “just lucky,” as Landon Thorne always maintained, or perhaps, as Loomis would later claim, the mathematical charts he devised to follow the market did not justify gambling on a bell curve. The fact that Loomis made an estimated $50 million during the first few years of the Depression served only to intensify the mystique about the “scientific approach” he used to guide his financial affairs…
Loomis adapted the standard biological growth chart to the problem of timing — namely, when to get into and out of businesses: Loomis, it seems, once sat down with graph paper, pencil and documentary material to plot the “growth curves” of various industries along a time axis. According to the story, he decided from this comparative analysis that the time to put your money into any particular industry is while its growth curve is still on the upgrade, and that the time to cash in is just before the curve starts to level off. On this theory, he is also supposed to have decided that public utility investments were the thing to get into in 1920 and to get out from under in early 1929. Some market operators might consider this just a fancy way of saying that it is important to buy at the low and sell at the high, might even raise the point that Mr. Loomis had one of the best inside tracks in Wall Street at the time…
Maybe they were lucky as Thorne said. Maybe specializing in electric utilities for nine years, and sitting on the boards of numerous companies, gave them special insight into the industry.
Loomis recognized that growth in a new industry follows a curve. It starts off slowly, then accelerates, but eventually slows as it reaches peak capacity.
He also recognized that growth could be sped up if the electric companies were consolidated. As far as Loomis was concerned, getting electricity to the rural areas of the country was paramount. Consolidation and creating large holding companies made it easier for utilities to access capital markets to finance faster growth. Of course, consolidation presented a secondary effect that reduced competition, which increased profits and shareholder value.
The point is Loomis likely knew that each utility company’s growth potential had limits and was swiftly reaching that end. And his experience with the offering of United Corporation showed the excessive prices people would pay for a company with slowing future growth.
So selling into that enthusiasm turned out to be a great decision. Was the timing “lucky”? Absolutely. So maybe it was a little bit of both.
Loomis continued to help Thorne run Bonbright until 1933. He stepped down that spring. Over the next year, he resigned from the numerous board seats he held. He had more than enough money to do whatever he wanted. So he retired to his private laboratory to fund his research in science. He was done with Wall Street for good.
The Man Who Made a Killing on the 1929 Crash