JAMES R. KEENE — A MAN LIVERMORE CALLED “THE GREATES OF ALL”.
by Małgorzata Halaba on August 5th, 2022.
There were few stock market speculators whom Jesse Livermore — the famous Boy Plunger — held such high esteem, and James Keene was one of them. He was the most prominent figure on Wall Street in the speculation field — the master who pulled the ropes, putting railroad heads, bank presidents, and industry leaders. When Keene stepped into action, the market was likely to boil over. He had a tremendous number of followers who waited for his clues. If there were rumors Keene was buying, they followed him blindly because Keene was usually right and successful. He was daring, but at the same time, he knew when to step out. He was aggressive but never to the point of madness. It has been said that there will never be another Jim Keene.
Keene’s contemporaries described him as “a slightly built man of light complexion, with cold, penetrating grey eyes, sickly-looking face wearing a grim expression. Well dressed in a quiet style, with no jewelry display, he wears a derby hat that tends to give him a common-place appearance”. But at Wall Street, he was anything but an ordinary guy.
Early days
Keene was an Englishman born in London in 1832. His father, of North Ireland ancestry, was a small merchant, and young Keene was educated in a private school in Lincolnshire, later going to Dublin. The family came to America in 1850 and settled in San Francisco. After arriving in this country, Keene did all sorts of things, even caring for horses and teaching at school.
It was the time when the whole country was electrified with the discovery and opening of the Comstock Lode, rich silver deposits in Virginia City. Keene was no exception, and that’s when he started to develop the latent sense of speculation that later dominated his whole career.
In Virginia City, he accumulated a small fortune to return to San Francisco, where he found other attractive activities: he bought the San Francisco Examiner and became an editor. In the meantime, he studied and practiced law for two years. All this broadened his viewpoint, and while the speculative fever was pushed to the back burner for some time, it was destined to become the dominant force in Keene’s career. Moreover, because of his earlier successes in Virginia City, Keene felt attracted to the San Francisco mining exchange. That’s where Keene began his career as the most outstanding market operator.
What was his strategy?
Before 1884, Keene invested using a combination of fundamental analysis, attempting to measure market sentiment, and going with his gut instinct. Later, he often got involved in various “pools” and “rings,” syndicates to spread rumors to push up a company’s share price and dump many of its shares on the market.
The strategy certainly worked — Keene was said to have a fortune of 13 million dollars (324 million in today’s money). When he died in 1913, his estate was estimated at 15 million dollars (370 million). In addition, the legendary trader Jesse Livermore rated Keene highly, calling him both a “master manipulator” and a “consummate trader.”
In the early 1870s, Keene bought a couple of shares in mining companies on the advice of a friend. A year later, he found out the initial investment of a few hundred dollars was worth 200,000 dollars. Then, as the mining craze intensified, he cashed in his stake and sold some of the most overvalued mining shares short. The short sales added three million dollars to his coffers.
Though Keene claimed he expected to succeed in only half of his coups, he cashed on practically every deal. He manipulated the stock of sugar, railroad, tobacco, and whiskey companies. He also helped bring on the mini-panic of 1901, when J.P.Morgan hired him to buy 150,000 shares of Northern Pacific Railroad stock in one of the most significant railroad wars ever.
The railroads remained the focus of Keene’s life for a long: when railroad strikes threatened the entire U. S. transportation system and the railroad market crashed, Keene bought up all the railroad stock and became known as the man who saved the industry.
Yet, Keene’s most famous and essential job was creating a market for the first billion-dollar corporation, U.S. Steel. Again, working for Morgan, he manipulated the stock so much that it became the center of a bull market. He repeatedly sold 1,000 shares, then bought back 100 to support the stock, driving its price up to attract speculators and small-time investors. When asked why he took the job, which paid him about one million dollars on top of his already-secured fortune, Keene said: “Why does a dog chase his thousandth rabbit?”
The answer tells everything about the man: Keene just loved chasing. He loved racing for the sake of the race and maintained one of the most excellent breeding stables in the country at Castleton, Kentucky. Moreover, he used to breed winners. Few remember the halcyon days of racing but do not recall the success of Keene’s most incredible horse, Sysonby. Also, the feats of such horses as Domino, Colin, Superman, Maskette, Sweep, Peter Pan, and others from the Keene racing stables.
Keene could be seen at the races when his horses were running, always with a derby hat and field glasses and absorbing interest in his hobby. In 1881 his horse Foxhall won the Grand Prix at Paris, and he was almost as well known on the English turf as on the American racetracks. In 1907 his winnings on his horses aggregated half a million dollars — a small sum, perhaps, to him, but a triumph to his success in breeding horses.
Keene’s career, however, was not a series of continued successes. Shortly after he began operating on the San Francisco Exchange, an unexpected movement in the market of the Comstock issues found Keene on the wrong side of the market and went busted. He was, however, not to stay down long, and two years later, we find him back in the market again. But in the interim, he had built up a reputation for sagacity as an operator that attracted the attention of the financial community in San Francisco. Among the men impressed by Keene’s ability and judgment was Cornelius N. Felton, who was then one of the most potent operators of the Pacific Coast. When Felton became Assistant Treasurer of the United States, he sold his seat to Keene.
Keene’s archrival — Jay Gould
Keene used to keep all the stock market operators on their toes. Finally, however, he found his match in Jay Gould — the only one who was able to beat him. The rivalry between the two men was legendary: Gould was reported to say that he would break him before he would get through with Mr. Keene. Other records quote Gould as saying that Keene arrived in New York by private railroad car, and he would send him home to California in a boxcar.
It’s not clear if it’s true — Gould’s friends said he would never have made such remarks. But whether or not he made such an open threat toward Keene is of little importance. Most importantly, Gould played a considerable role in Keene’s downfall.
In the beginning, Keene teamed with Jay Gould in a pool formed to bear Western Union stock. Once loaded with the stock, Keene realized Gould had sold out his position, taken his profits, and left Keene holding the bag. That repeatedly happened until Keene was left with less than half his fortune — and then he vindictively roared, “I have six million dollars. I guess I will say right here and get the man’s scalp”.
But no matter how many times he had tried, Keene never did get Gould’s scalp. Instead, Jay continued to outmaneuver his “partner” during a few more deals, then ducked out of the market by the early 1890s, taking millions of Keene’s former winnings. Had Keene held the grudge? That’s unlikely — after all, he claimed that all life is a gamble, whether on Wall Street or not.
One of their most famous hits was an attempt to corner the wheat market — and predictably, just as they were about to close in on the corner, Gould sold short, prices plummeted, and Keene lost seven million dollars in a few days. Bust once again, Keene auctioned his valuables, including a painting that ironically wound up on Gould’s wall — Gould renamed it — “Jim Keene’s Scalp”.
Keene was the classic 19th-century operator. Is there a lesson in Keene’s life for us? Rather unlikely. Was he among the minds that made the market? Absolutely. He correctly knew, contrary to many people today, that an investor’s life, whether a speculator or a long-term holder, adds value to society and that by helping to make a market, the investor may help the world.
Keene was a man of many dimensions: to start with; he was merciless to those who refused to play fair with him. There is a story that a group of financial interests approached him intending to establish a market in new industrial security. Keene made them agree to deliver all the stock they owned to him. His operations reached far beyond the crowd’s expectations, and they tried to beat Keene to the barrier by selling large blocks of the stock short. Keene saw through the trick and forced the price of the stock higher. Then he called for delivery and made the group cover at the top prices. Then he smashed the price by throwing huge blocks of stock into the market, and when the smoke had blown away, Keene had the spoils, and the would-be financiers had a working knowledge of Jim Keene’s code of ethics.
One of Keene’s chief characteristics was his directness. There were no long-winded conversations, no “beating about the bush.” He never wasted time or words. He never temporized. He would or he wouldn’t. It was “yes” or “no.” He would see you if you had something worthwhile and cut right down to the heart of your proposition.
However, there was another thing that only James R. Keene knew — the extent of his benevolence. Today, many men on Wall Street can attribute their success to some generous act of Keene’s. The following story shows this side of his character.
In the old mining days, Keene had many friends when the real struggle was on. One day he heard that one of the old-timers of the San Francisco days was “up against it.” The man was then old, and his prospects were black for the evening of his life.
Keene, it is said, went to see him and, pulling a bundle of securities out of his pocket, created in the older man’s mind the impression that he and Keene had invested in those securities jointly several years ago. He was, therefore, entitled to his share, especially since they had become so valuable. And the older man passed the rest of his days in comparative ease, without ever knowing that the stock came from Jim Keene’s fortune.
What are the lessons there for investors?
While today’s regulation is (thankfully) stricter than it was in Keene’s day, market bubbles still occur. That creates an opportunity for short sellers to step in, provided they have enough courage, can endure volatility, and be well-prepared for a rainy day. Keene, on his wife’s insistence, handed over half of his profits to her to be invested in high-quality bonds. That also enabled him to ride the occasional downturn in his fortunes. Interestingly, Keene himself advised the public to stay away from speculation.
Got hookd’? Here is some recommended reading:
Kenneth L. Fisher, 100 Minds That Made the Market
Capital Ideas Online, Keene operations
An American Speculator, James R. Keene’s Failure and Triumphs in Speculative Life
Macro-ops.com: https://macro-ops.com/james-r-keene-the-man-jesse-livermore-called-the-greatest-trader-of-them-all/
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