Cornering the market

The eighth chapter in Business Adventures by John Brooks is all about market corners or what we might call a short squeeze (read my reviews on chapters 1, 2, 3, 4, 5, 6, & 7).

Granted intentionally cornering or forcing a short squeeze are both not legal these days, but this story takes place several decades in the past and describes Saunder’s attempt to turn around the share price of his company Piggly Wiggly Stores. At the time, there was a large group of bears shorting the stock and Saunders did everything he could to prop it back up. From borrowing money to pleads for shares in the newspaper, Saunders, in classic Vanderbuilt fashion, eventually cornered the market in the shares of his company. Saunders stuck it to the shorts, or at least he thought he had. Then the exchange declared the corner that Saunders had created a bad thing and gave the bears extra time to deliver the shares they had borrowed from him to short the company. This extra time allowed the bears to go out in search of anyone who would sell them them shares at a deal better than the one Saunders was giving them. Of course they found plenty of willing sellers who could double their investment even if that was less than the price Saunders was offering. The big difference between the corner that existed in Saunders case and the short squeeze behavior that we see in companies like Sears is that it isn’t just Eddie Lampert buying up the shares of Sears that are squeezing out shorts, there are plenty of other willing participants buying up the shares and forcing the shorts to sell at a loss.

The result of course was Saunders bankruptcy and Piggly Wiggly taking a beating in the markets and on their balance sheet. Saunders was a persistent entrepreneur though. After this battle that left him bankrupt he went on to found two more concept stores, Keedoozle & Foodelectric.

Keedoozle reminds me of Seattle based startup Hointer. Check out this GeekWire article reviewing their concept store in Seattle’s University District.

Foodelectric on the other hand reminds me more of the self-checkout line. Certainly easier to adopt, yet both of these concepts were well ahead of their time. They were created in the late 1930s and late 1940s respectively.

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