Grahamian Value Week in Review ― January 29, 2021

Jan 29, 2021

Share Grahamian Value Week in Review

“If you are in the right stocks at the wrong time, you may be right but have a long wait; at least you are better off than coming late to the party. You don’t want to be on the dance floor when the music stops.”

— George Goodman

PART ONE.

WEEK IN REVIEW

PART TWO.

WEEKEND READING

PART THREE.

WEEKEND WATCHING

PART FOUR.

WEEKEND LISTENING

In the past week —

One business returns to the list of Grahamian Value companies.
There have been no material developments at Grahamian Value listed companies.

OVERVIEW —

Friedman Industries, Inc. returns to the Grahamian Value Classic list, most recently explored on December 11, 2020.

A BRIEF UPDATE —

We note two classics, each of which aptly describe present circumstances:

The Money Game, Adam Smith (1968)
Business Adventures, John Brooks (1969)

I. WEEK IN REVIEW

This marks our sixteenth consecutive week with no new additions to the Grahamian Value Classic list of companies.

Due to underlying share price movement, Friedman Industries, Inc. (again) meets the valuation requirement for inclusion on the Grahamian Value Classic list. Please refer to December 11, 2020 and November 20, 2020 for further situational background.

II. WEEKEND READING

Nick Maggiulli @dollarsanddata

You think the Gamestop short squeeze is the greatest ever? Not. Even. Close. This is the story of Piggly Wiggly and one man taking on Wall Street ALONE. Buckle up, because this is one of the craziest stories in investment history.

Nick Maggiulli @dollarsanddata

It all started in 1919 when a man by the name of Clarence Saunders invented the first modern supermarket—Piggly Wiggly stores. Before this time, people had to go into a store, give the clerk a shopping list, and then wait for their items to be gathered and brought out.

Nick Maggiulli @dollarsanddata

Saunders changed all that when he created a retail self-service market where people could pick the items themselves and pay on the way out. People loved the idea so much that within 3 years there were over 1,200 Piggly Wiggly stores in the U.S.

Nick Maggiulli @dollarsanddata

With this success, Saunders began licensing the Piggly Wiggly name out to other retailers. Unfortunately, some of these retailers in the northeast began going out of business in the fall of 1922, all while using the Piggly Wiggly name.

Nick Maggiulli @dollarsanddata

Traders on Wall Street heard of these closings and decided that they had an opportunity on their hands. They began shorting Piggly Wiggly while also spreading rumors that the parent corporation was in trouble. Within a week the price dropped from $50 to $40 a share.

Nick Maggiulli @dollarsanddata

When Clarence Saunders got word of these rumors he got angry. Piggly Wiggly was doing fine, yet these traders on Wall Street were trying to ruin him. As a result, Sanders publicly announced that he would “beat the Wall Street professionals at their own game.”

Nick Maggiulli @dollarsanddata

Sanders had never bought another stock before in his life, but he was determined to teach Wall Street a lesson. Immediately Sanders took out a $10 million loan sourced from various banks, stuffed his suitcase and pockets full of cash, and boarded a train to New York City.

Nick Maggiulli @dollarsanddata

Upon arrival in New York, Sanders assembled a team of brokers, led by the famous Jesse L. Livermore to start a massive buying campaign. Sanders was determined that he could corner the market.

Nick Maggiulli @dollarsanddata

Flush with cash and with only 200,000 Piggly Wiggly shares available for trading, Saunders began buying. On the first day he (and his secret group of traders) bought 30,000 shares. Within a week Saunders owned 105,000 shares, or more than half of those available for trading.

Nick Maggiulli @dollarsanddata

The problem with cornering the market occurs AFTER you have done it. Even if you squeeze the shorts dry, how do you get your money out? If you try to sell all your shares at once, the price crashes and you are ruined.

Nick Maggiulli @dollarsanddata

Well Saunders knew this, so in March 1923 he offered to sell 50,000 of his Piggly Wiggly shares to the public. Yes, he was selling, but at a price of $55 a share, or about $15 below the current market price. But there was a catch…

Nick Maggiulli @dollarsanddata

In order to buy the shares, you had to do so via an installment plan that ended December 1923 (9 months later). More importantly, you couldn't own the shares (and re-sell them) until the final payment was made.

Nick Maggiulli @dollarsanddata

Why did Saunders structure it this way? Because he needed to keep these shares off the market in the short term (to burn the shorts), but he also needed some assurance that he could cash out. In doing the sale, he got both.

Nick Maggiulli @dollarsanddata

Unfortunately, just as the sale was being orchestrated, Saunders’ chief of staff, Jesse L. Livermore, quit after he worried that the corner wouldn’t succeed. With Livermore gone, Saunders was truly alone against Wall Street

Nick Maggiulli @dollarsanddata

But what Livermore didn’t know was that Saunders’ was ready to pounce. So on March 20, 1923, Clarence Saunders sprang his trap on the shorts—that morning he called for delivery of his Piggly Wiggly stock.

Nick Maggiulli @dollarsanddata

What happened next was one of the wilder days in Wall Street history. Piggly Wiggly opened at $75 and kept ripping upward. The shorts were forced to buy at $90, then $100, then $105. By noon the price was $124.

(…read the full thread for the full details: Direct link)

Ultimately —

Nick Maggiulli @dollarsanddata

Unfortunately, very few short sellers came forward to pay Saunders what he wanted. Then, the Governing Committee delivered the death blow to Saunders. They restricted trading of Piggly Wiggly and gave the short sellers until the next Monday to deliver the shares.

Nick Maggiulli @dollarsanddata

While the exchange was legally allowed to halt trading of Piggly Wiggly, scholars still debate whether the extension of the short seller deadline was within their rights. Either way, Saunders’ corner didn’t ultimately failed.

Nick Maggiulli @dollarsanddata

In the aftermath, a wave of support grew for Saunders across the country. People were enamored with the man from Tennessee who took on Wall Street. Unfortunately, this adulation didn’t translate into financial assistance. Saunders eventually declared bankruptcy.

Nick Maggiulli @dollarsanddata

In the end, Saunders will go down as the man who pulled off “The Last Great Corner.” If you liked this story, you can read the full version in “Business Adventures” by John Brooks:

amzn.toAmazon.com: Business Adventures: Twelve Classic Tales from the World of Wall Street eBook: Brooks, John: Kindle StoreAmazon.com: Business Adventures: Twelve Classic Tales from the World of Wall Street eBook: Brooks, John: Kindle Store

In appreciation —

Nick Maggiulli @dollarsanddata

Lastly, thank you for reading and happy investing! If you liked this story, you can get more of my insights by signing up for my weekly newsletter:

ofdollarsanddata.comOf Dollars And Data Newsletter – Of Dollars And Data“The perfect intersection of data and finance.” Every Tuesday morning, I send out my free newsletter which contains a new Of Dollars And Data blog post, a creative data visualization, and three articles that caught my eye over the past week. The goal of the newsletter is to help you: Make bett…

III. WEEKEND WATCHING

Courtesy of Bloomberg Front Row: Jeremy Grantham, co-founder and chief investment strategist of Boston’s GMO, believes U.S. stocks have become an epic bubble and will burst in a collapse rivaling the crashes of 1929 and 2000. In this interview, he explains why, discusses the futility of Federal Reserve policy, criticizes the state of American capitalism, and shares his thoughts on gold, Bitcoin, emerging markets and climate change. He spoke exclusively to Bloomberg’s Erik Schatzker. (Recorded January 22, 2021)

IV. WEEKEND LISTENING

The Money Game
By: Adam Smith
Narrated by: David Rapkin
Length: 7 hrs and 5 mins

Publisher's Summary —

Hailed by the New York Times Book Review as “the best book there is about the stock market,” this timeless classic by the creator and host of the Emmy Award-winning TV show Adam Smith's Money World is still relevant more than 40 years later.
This essential book takes listeners to the Street to learn about the intricacies of money and how the stock market impacts every area of our lives. According to the author, the key to making wise, lucrative investments is knowing ourselves. In witty, easily accessible language, he shares pithy insights about the role of intuition and the psychology of guilt, arguing that there is no substitute for information. Smith’s Irregular Rules shatter common myths and misconceptions, revealing why nothing works all the time and illustrating how greed and fear fuel the market. Listeners will learn about the safest types of investing, the key to following market trends, and how to capitalize growth, gleaning tips on stock movers, winners and losers, and much more. Peppered with entertaining and prescient anecdotes, The Money Game analyzes who makes the really big money and explores the meaning of our desire to become rich. From selling short and buying long to Wall Street’s crowd mentality, from what constitutes a random walk to why timing is everything, this is the definitive portrait of the Street, then and now.

ABOUT GRAHAMIAN VALUE

Founded in 2020, Grahamian Value is a labor of love centered around our desire to openly share data and perspectives that we find helpful in our pursuit of Benjamin Graham-inspired investment ideas.

The co-editors of Grahamian Value, as of the date of this communication, may individually own shares of companies mentioned herein. The publishers do not receive compensation from the companies and people covered in Grahamian Value for such coverage. This communication is for informational purposes only. This is not intended to be investment advice. Seek a duly licensed professional for investment advice.