When the uninitiated reads in his newspapers that "they are pyramiding the stock market " it is not surprising that he doesn't understand, because it would seem that no more substantial structure is known to engineers than a pyramid. As a matter of fact, its use in stock market phraseology refers to a dangerous condition of affairs. To understand its true meaning it is well for the reader to be possessed of a knowledge of marginal transactions (for which see " Margin"). In the boom days of the West, in some of the rapidly growing larger cities, the value of real estate was advancing by leaps and bounds, producing a very unnatural condition of affairs financially, resulting, for instance, in a man purchasing a piece of land for $5,000, mortgaging it for $3,000; the value of the land would advance so rapidly that, in an almost incredibly short time, a new mortgage could be placed on it for, say, $5,000; the land then being valued at $8,000 or $9,000. The difference between the amounts of the two mortgages, namely, $2,000, being used by the owner of the land for living expenses. When a financial collapse came, the investor who last made a mortgage upon the land had to take it to secure his debt and the land owner had nothing. There was what is known as "pyramiding" going on. The same thing takes place in the stock market when one is buying on a "margin," and the stock market advance is so fast in price, that he can buy additional stock with the increased margin. In case of a sudden drop in prices the person so "pyramiding" his stock is found underneath the debris, unless he has sufficient outside resources to protect himself. "Pyramiding " is not the proper title at all; an "inverted pyramid" is what is really understood, and an inverted pyramid is a very dangerous proposition. The following quotation from a newspaper shows the true applications:
"An inverted pyramid is not a nice thing to sit under lest some pressure on the base, now the top, cause it to topple."
"Pyramiding the market" is like building a structure with an enormous top resting on a very insecure foundation.