“Still with you, Professor.”
“Splendid! Now when something good is going to happen to a little company, the number of shares sold and bought every day goes up. It becomes more active. The price of the stock goes up. So it gets noticed. So more people want to get in the act and make a buck. That creates more demand. The demand pushes the price higher. In every trade, Travis, nobody can buy unless somebody is willing to sell. The more people who want to hand on, the fewer shares floating around, and the higher it goes, because the price has to go up to the point where somebody will say: Okay, I’ve made enough off this stock, so I’ll sell it. I’ll put in my order to sell it at two-dollars a share higher than it is right now. It is a big snowball rolling up the hill. Okay?”
“One thing. What keeps Santo from making a lot of money too?”
“Nothing, if he gets out in time. But look at the credentials I fixed you up with. All splendid values back at the time you bought them, at the time you apparently bought them. Stock prices go up because the company is making money, and has the look of making more money than before when they make their next earnings report, So the stock I found, Santo will think it has the same beautiful future like these you made the capital gains out of. They are still all hanging up there pretty good. So why should he be nervous? I tell you, he would be nervous if he knows what a terrible lousy stock I found.”
“What is it?”
“A dog called Fletcher Industries. I read maybe two hundred balance sheets and operating statements. I started with two hundred and weeded down and down and down, hunting for something that looks okay fine on the surface but is rotten underneath. It could win a prize for the worst stock. It has a thin float. It shows sales and profits going up every year. It has a nice profit margin, nice book value, big words in the annual financial report about a glowing future and so on.”
“So what’s wrong with it?”
“This I shouldn’t even try to explain. Listen, there are maybe eight perfectly ethical and legitimate choices a C.P.A. has when he is figuring profit per share. Each choice makes the profit higher or lower, accordingly. You could find some old conservative companies that make the eight choices so they show the lowest per share profit Most companies make is one choice one way, another, another way, so in general it cancels out. But this little Fletcher outfit, they use every chance they have to make profits look bigger. I reworked their statements. The stock sells right now for fifteen a share. Over the last twelve months the earnings reports say they made ninetysix cents a share. This was up from seventy-seven cents the previous year. Use the most conservative methods and you know what it is? It is a lousy eleven cents the previous year, and it is a four-cent loss this year. Such a statement they publish! The book value is all puffed up. The profit margin is nonsense. Even the cash flow is jiggered up.”
“Book value? Cash flow?”
“Forget it. You don’t have to know. All you have to know is that no matter how careful Santo is, the published trading volume will go up, the stock will go up, a lot ®f careless people will jump on the wagon and push it higher. They’ll think a big increase in earnings is going on. Or a merger, or a new product. Like with the ones you are supposed to have bought. But this one has no substance. It will go up like penny rockets and when it starts down, it should maybe end up a two-dollar stock where it belongs.”
John D. MacDonald
PALE GRAY FOR GUILT
“So we con him into buying it, Meyer. So it goes up and up and he makes a lot of paper profit, and then when it goes down, he sells out and keeps the profit.”
“With everybody selling, with. everybody, trying to save out some profit, who will buy it? No buyers and they’ll suspend trading, investigate the heavy speculation, and when it opens again, it will open in the cellar. Santo should lose most or all of his bundle.”
“So how does Janine make the money you were talking about?”
“With the forty thousand from LaFrance we start her off, pick up three thousand shares. As it moves, I use the increased market value to pick up more for her. I watch it like an eagle, and then I start pulling her out of it very, very gently, and putting her into a nice solid little sleeper I happened to find when I was looking for this Fletcher dog. It should give her a hundred-percent gain in a year, along with a nice dividend yield.”
“How much can you make for her if things work out right?”
“If? Did I hear you say if? You get Santo to bite at it, and I’ll do the rest. End of the year? Oh, say the original stake plus a quarter million.”
“Come on, Meyer!”
“Oh, that’s before short-term gains tax on Fletcher. You see, that’s what’ll lock Santo into it. He’ll be hoping to ride the profit for six months. Say a fifty to sixty thousand tax she’ll pay.”
“You kill me, Meyer.”
“Make sure nobody else kills you. It would be boring around here.”
For the first time since I knew Puss would never come back, I felt a faint and reluctant little tremor of excitement and anticipation.
Meyer, frowning, said, “You are going to see 132
LaFrance the day after tomorrow? Does that give us time to do everything we have to do?“
“I was just making him sweaty Meyer. I’ll phone him Thursday night and say we’ll have to change the arrangement. Don’t call us. We’ll call you. And I can get a pretty good indication of whether he has the forty all ready.”
“You know, you look more like yourself, Travis.”
“It’s the sympathy that does it, every time.”
“An obligation of friendship. What do you do first?”
“Find that little pipeline.”
After a long conference Wednesday morning with Meyer about strategy and tactics, and the documentation he ought to have, I went down to Miami. The offices of Santo Enterprises were in an unimpressive six story office building on North East 26th Terrace, a half block east of Biscayne. Reception was on the sixth floor. A wide corridor, glass doors at the end, and beyond them a paneled room, thick blue rug, and elegant blonde desk-table on a raised dais and, behind it with a look of polite and chilly query a slender princess with white dynel hair, glowing in the drama light of a little ceiling spot, who asked me in the beautiful clarity of the English upper class if she might be of service.
When I said I would like to see Mr. Santo, she looked remotely amused. “Soddy, sir, but he is out of, the citeh. Possibleh someone else could help you?”
“I’m inclined to doubt it.”
“Praps if you might tell me the nature of your business, sir?”
“I’d rather not.”
“Actually, then, there isn’t much that can be done, sir. Mr. Santo only sees one by appointment, and he would certainly not relish having his secretry make an appointment… blind, as it were. You see the problem, do you not?”
“Why don’t I talk to his secretary then?”
“But you see, sir, I would have to know the nature of your business to know which secretry you should speak with.”
“Does he have a super-special personal private one?
“Oh yes, of course. But, sir, one must have an appointment to speak with her. And to make the appointment I should have to-”
“Know the nature of my business.”
“Quite.”
“Miss, we’re both in trouble.”
“I wouldn’t really say both of us, sir.”
“If you don’t help me a little bit, and when I do get to Gary Santo, which I most certainly will, he is going to wonder what took me so long, and I am going to tell him that I just couldn’t get past that limey wench with the white hair under the spotlight.”
“But, sir! Really, I have-”