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GM’s Long History of Booms and Busts

I was not paying too much attention to the GM offering until the second week of November when I started getting calls from brokers asking if I wanted IPO shares, and then from friends and subscribers who had been offered shares. Then the night before the IPO I was having dinner in New York when my companion, an old friend, received a call from his broker to see how much GM he wanted. I felt like it was the late 1990s all over again, when IPOs like TeleGlobe, Webvan and were rocking the street.

My guess was that the investment banks will try to rally the market in a bout of showmanship — it would not look good to float GM on a down day — and then let the shares end the day not too far from flat. The reason is that the banks will want to be able to say the pricing of the IPO gave the government the maximum possible value. If it were to soar on Day 1, the politicians would complain that the banks left too much on the table that rightfully belonged to the taxpayers. After the first day, though, the stock will be on its own and it will probably do fine.

The history of the booms and busts of GM is fascinating, and since I am traveling and was not plugged into my usual network of sources, let me conclude by offering you a passage from my latest book project, an annotated edition of the 1923 classic, Reminiscences of a Stock Operator. It will help put the Thursday offering into context.

“Even in the 1920s being an insider was no instant path to riches. There were plenty of corporate titans who blew their fortunes in the market.

“One of the most sensational rises and failures was experienced by William Crapo Durant, the eccentric founder of General Motors. The grandson of a Michigan governor who was born in Boston in 1861, Durant started his career as a cigar salesman but showed an early entrepreneurial streak by parlaying a $2,000 investment in a horse-drawn carriage business in Flint, Michigan, into a $2 million business with worldwide sales in the mid-1890s.

“He was among the few in the buggy-whip set to transition to autos, and created General Motors in 1908 by consolidating 13 small car makers and 10 parts makers, including Cadillac, Buick, and Oldsmobile. Big investors in the new firm ousted him in 1911 over complaints about his risk taking, but he then started a new economy-car firm with famed racer Louis Chevrolet, and later managed to win back GM through a clever series of stock transactions. Leading the bull pool himself, he acquired shares in the company cheaply during a weak spot in the economy, and then manipulated the stock from $82 in January 1916 to $558 in December that year. ‘The visionary gambler was on the loose,’ said historian Kenneth Fisher.

“During his second term at the helm of GM, Durant brought in the managers who would ultimately create the midcentury glory of the firm — organizational genius Alfred Sloan and Charles Kettering — but World War I was harsh on the company’s sales, and ultimately Durant was wiped out of stock he had bought on 10 percent margin. Shares rose in the 1919 expansion, but then plunged again in the 1920 recession, wiping Durant out a third time.

“Chemicals tycoon Pierre DuPont, who was a major GM shareholder, brought in J. P. Morgan and Co. to reorganize GM and issue new stock, and although Durant worked tirelessly in bull syndicates to bolster the price, he ended up $90 million in debt and was booted again from his firm.

“In the mid-1920s bull market, the ultimate car salesman was back on his feet again and became a major player on the Street right alongside Jesse Livermore, launching a new firm, Durant Motors, and running bull pools in a variety of stocks in conjunction with other dilettantes from the fast-growing auto industry, including the Fisher brothers, who had made a fortune in carriage and auto frames.

“But being an insider did not help Durant avoid the devastating first leg of the 1929 crash, or the hubris of borrowing to buy more stocks in 1930 just ahead of the second leg of the crash. By 1932, he had lost his fortune once and for all. He declared bankruptcy in 1936, and ended his years living on a small GM pension and managing a bowling alley in Flint. He died in 1947 at age 86.”

As Paul Harvey used to say, and now you know … the rest of the story. 

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