Game stays the same, only the players change

Stock market bucketshop trading ticket from 1901

I don’t write much about the equities markets, mainly because I don’t participate in them and have a lack of interest. The recent squeeze in GME and other stocks did remind me of the above relic from my collection of the famous Panic of 1901. The trading ticket is from the St. Louis branch of the Central Stock & Grain Exchange of Chicago, which was a famous bucketshop of it’s day, and it represents a lot of similarities of the recent frenzy in stock trading.

A lot of speculative manias come down to what I regard simply as distribution of access, although the current buzzword used is “democratization” of the markets with Robin Hood or similar trading apps. Whether it’s crypto or commission free stock trading, the barrier to entry is nonexistent which can be a good thing or a bad thing but history suggests that for the majority, it’ll be a money losing endeavor to get caught up in.

Bucketshops required little to no minimums, gave easy margin access and weren’t subject to many regulatory requirements either (sound familiar?). To get in on the action just required cash on the barrelhead. Trading apps now have a little more restrictions compared to bucketshops of the 19th century, but have added gamification features that are the envy of any casino operator.

All that said, it’s not surprising that this rare bucketshop relic is from the trading frenzy in 1901 as the panic involved the greatest short squeeze seen up to that point in Northern Pacific railroad stock which sent it up 10x in May of 1901. The Global Financial Data blog has a detailed summary linked here about the squeeze in Northern Pacific and I’d suggest reading it for additional background, particularly how the squeeze was eventually diffused.

The bucketshop trading ticket pictured is for shares of Union Pacific which were caught up in the squeeze for Northern Pacific and as might be expected, the purchase was closed out at a loss a few days later as noted on the back of the card. Trading is an incredibly tough game that people don’t realize when so many others are seemingly making easy money. I had the benefit of learning a lot by osmosis on various trading floors and heard a lot of “sayings” which I didn’t really understand the meaning at the time, but eventually the wisdom was understood. Two of my favorite trading floor sayings to share, “the amateur looks for the greatest reward and the professional looks for the least amount of risk” and “there’s old traders and bold traders, but no old, bold traders.”

Jesse Livermore was probably the most famous bucketshop trader of the same era, even operating from St. Louis briefly, and his fictionalized story is told in Reminisces of a Stock Operator. Livermore’s account is worth reading to hear how he traded during the 1901 panic, did most of things right but still managed to lose all his money and go broke once again. That boom/bust trading cycle continued his entire life until he ended it with suicide in a New York hotel cloakroom. I should also note that many RobinHood traders are probably already familiar with the work of Livermore’s granddaughter.

As for the Central Stock & Grain Exchange of Chicago, it was most famous for it’s battle with the Chicago Board of Trade over market quotations after the CBOT had cut off providing market pricing to bucket shops. I believe that the Central Stock & Grain Exchange of Chicago was the last bucketshop to maintain a quote feed from the CBOT, using legal means that eventually went all the way to the Supreme Court.

I have no idea where this current trading mania leads to although it’s gotten far more bizarre that I could’ve imagined already. During the height of the Robin Hood restrictions on GME, I finished a Sunday lunch in Palo Alto and figured I’d drive by Robin Hood HQ in Menlo Park on the way back to the City just to see if anyone was protesting. As it turned out, I saw one lone protestor outside of Robin Hood’s HQ, a man in his 20s, dressed in a Jesus style biblical shepherd outfit and holding a sign stating “God hates market manipulators.” I didn’t have my phone on me, otherwise I’d post up a photo of the guy.