Wild-Cat Promotion Schemes

Every so often it seems to be our misfortune to run into a boom of some kind or other when the popular fancy for investments turns in one particular direction, and then the discretion and good judgment which sober-minded people are supposed to exercise are cast aside in a gambling frenzy. If it is not in mining, then it is for the exploitation of a newly discovered oil field; if it is not for that, then it is something else which has taken hold of the public fancy. It is during such booms that the flotation of new securities reaches its flood tide.

A great many people then appear to be obsessed with but a single idea, to acquire wealth overnight. When popular fancy runs wild for a certain class of securities, it is a harvest time for unscrupulous manufacturers of securities.

Yet this is not a phenomenon exclusively characteristic of us. Nearly every other nation is afflicted more or less at some time or other, with the same sort of wild speculative mania. The phlegmatic Dutch had a black tulip craze, when fabulous sums were paid for this bulb. France was turned into a nation of besotted gamblers by John Law with his fanciful Mississippi Bubble, and more recently by De Lesseps and Hirsch with their more ambitious Panama Canal scheme. We are inclined to look upon the French as a thrifty race, yet these incidents prove that they can be aroused under peculiar circumstances to throw millions away on baubles.

In England such promotions have occurred frequently. While France was royally entertaining John Law and pouring immense riches into his lap to squander, Englishmen were no less shorn of all sober sense in their great greed to get the immense wealth which the South Sea trading enterprises (and there were a half-dozen of them) promised to bring. With the same rash spirit they launched upon the wildly speculative schemes converging upon the development of the new gold fields of Africa, and recently something approaching a frenzied boom in rubber company shares has developed and again collapsed.

Mining And Oil Propositions

There was a boom in 1849, due to the discovery of gold in California, but our first extensive boom which is remembered by the present generation and which reached any large proportions, was the speculation in oil, when the first large oil area in this country was discovered in Pennsylvania. People from everywhere flocked to the oil district. The early comers made money. Their successes lured others. In this way the fever spread until it ran wild and finally died from exhaustion.

The pioneers are the ones who usually make the money in a boom. They are able to do this through the willingness of those who follow to pay fancy prices for their holdings. They, in turn, hand them over to other late comers. The bubble, once started, continues to expand as long as there are people who will take what others have to offer at a good profit, which in boom times attains fanciful proportions. Finally there comes a pause when everyone rushes to sell in an anxiety to cash in their paper profits; but buyers are scarce. Then the bottom drops out of the boom, the bubble bursts, and property or investments which only a short while before were figured in dollars, are not worth cents. Such, in brief, is the history of all booms.

The author distinctly remembers the Texas oil boom, which it was his good fortune to observe at close range from its inception to its collapse. A week after oil was discovered the rush began to the new field. Beaumont, Texas, which was the center of the new field, grew from a small lumber town of not more than 6,000 population to a bustling city of 25,000 people, all this bottomed on a frenzied hunt for wealth. The Lucas Gusher brought this horde of people. It was spouting oil at the rate of 70,000 barrels a day. This excited the imagination of the masses.

Nothing was easier to estimate than that such a production meant enormous wealth. At fifty cents a barrel the new well was showing a production of $35,000 daily which was all right on paper. If one well could show this, then the profits on a half-dozen would reach enormous proportions. Oil land which could be bought a month before for only a few dollars an acre, jumped by leaps and bounds in price and in a few months was changing hands on the basis of $1,000,000 and over an acre. Derricks were built so close together that it was impossible, in some places, to walk between them. The outcome was a great over-production of oil, for which there was no market. Oil was soon begging for buyers. The price declined until not more than three cents a barrel was obtainable.

But this was not the only mishap that befell the region. The large number of wells drilled on the same spot almost exhausted the field in a year's time. More than a thousand different oil companies were promoted, all with varying capital, from a modest $50,000 to several million dollars. The public invested, it is conservatively estimated, nearly $100,000,000 in actual cash, most of which has been lost, as there are today only a few oil companies compared to the number formerly in this field, and they are largely owned by three or four large corporations.

It is the same with mining. The Cripple Creek, Gold-field, Tonapah, and Cobalt booms sucked up one hundred dollars from misguided investors where they returned one dollar in dividends. Other gold camps are likely to repeat history. It is not that these camps lack opportunities for successful exploitation; it is due to the public's rushing heedlessly into these things and taking anything offered without investigation, snapping at them like a school of hungry fish at the bait thrown out.

Industrial Promotions

This is what happened also in the great industrial boom following McKinley's inauguration as President in 1897. In those days it seemed that, to induce the public to pour its money in upon them, all promoters had to do was to incorporate a company, plan the manufacture of something, and arrange in their prospectuses a mass of statistics demonstrating how much money could be made. It is needless to say that where things are done thus loosely, the majority of the enterprises never can reach beyond the embryonic stock-selling stage.

The Promoter's Place In Finance. Test Questions

1. Show how promoters tend to advance economic conditions.

2. What are some of the chief differences in methods between a good promoter and a crooked promoter?

3. What is the rock upon which most ill-conceived or mismanaged promotion schemes are floundered?

4. Why does the public repeatedly bite on wild-cat promotion schemes?

5. Why do mining schemes lend themselves easily to promotion schemes?

6. Explain the waves of promotion that seem to affect a country periodically.