Behind its respectable facade, the Toronto Stock Exchange is a rowdy casino where a stenographer may win a fortune or a tycoon may lose his shirt. It’s also an essential source of vitality for Canada’s expanding economy
The Toronto Stock Exchange has a curiously fitting façade. It sheers up from Bay Street in downtown Toronto, austere as befits a national shrine to mammon. Coin-like metal discs stud its door grilles. Above them carved stone figures form a frieze. It represents a nation in growth, wresting wealth from the earth.
This is what the designer. Charles Comfort, intended. But, apparently through an oversight, he has shown at the right of the door a top-hatted man thrusting one hand into a worker’s pocket thus suggesting, however inadvertently, the strange schizophrenia of the exchange; at once a mirror of growth and a mirror of greed; a temple of finance and a temple of chance; the best institution yet devised for sharing the national wealth, and, in the heart of Toronto the Good, where even bingo is frowned on, a private club for public gambling, probably the world’s biggest.
The one hundred brokers who make up its exclusive membership will deny this description indignantly. The TSE claims that its members act merely as agents for their customers, that their income depends on their fees, from .5 to 2 per cent on every sale and purchase of shares.
“The TSE doesn’t sell stock, doesn’t buy stock, doesn’t set prices,” says vice-president W. L. Somerville, personable boss of the TSE’s one hundred and thirty-four staffers, “It merely offers its members a meeting place, an auction market. Prices are set by supply and demand.”
The TSE presents, as one broker puts it, “a straight investment front.” But at least one quarter of the shares in Canadian companies which it lists offer their buyers little but expectation.
The bulk of these shares are in companies scouring the back bush of Canada for that modern treasure trove, a commercial ore body. They cover their costs by selling shares in their company on the exchange. “Everybody can’t put up a half million dollars,” says the president of a company that can. Norman Urquhart of The Mining Corporation of Canada. “It takes a lot of little people.” While two thirds of its trading in terms of dollar volume is done in industrial stocks, which seldom move spectacularly, the bulk of trading in terms of number of shares is done in mining stocks.
The TSE, the “little man’s market,” is the biggest, most exciting market for mining stocks in the world. “The Russians have their national lotteries,” says Warren Goldring, whose market column, Pathfinder, appeared in The Financial Post, “Monacans their casinos, Englishmen their football pools, Australians their horse racing, and Canadians their mining stocks.”
On an average day, when the giant New York Stock Exchange trades three million shares, Toronto, with half the floor space and one quarter as many members, will top it by a million. But while the cost of an average share on the Big Board at New York is fifty-odd dollars, the TSE’s wares average little more than two.
Roughly half of Toronto’s eleven hundred listed stocks are in mining and oil companies and more than half of these sell at from five to ninety-nine cents a share. These are the “pennies,” the “specs” (for speculative), the “drill-hole dogs.” They rocket up on promising news from the drill-site, plummet when drill cores prove disappointing.
“It’s a drill-hole market,” says Edward Brooks, of Thomson & McKinnon, a brokerage firm. “I remember when Sherritt Gordon made their strike in Manitoba. The stock went from ninety cents to six dollars. They drilled six holes and you could figure a dollar for every hole.”
“Prices can flip while you’re out for coffee,” another broker says. In just forty-five minutes one day last March, Radiore Uranium Mines, drilling for copper-zinc in northern Quebec, shot up from seventy-two cents to $1.50. Later, it climbed to $1.75, then, with startling celerity, dropped to just under a dollar.
This is far from unusual. New Hosco, the previous July, soared from seventeen cents to seven dollars in a week. One mining man bought sixty thousand sixty-cent shares on a Monday and sold them on Thursday for three hundred and sixty thousand dollars—ten times what he paid. “It’s a huge legal casino,” says T. H. Mitchell, who writes a market letter called Mitchell of Canada. “Nothing in Las Vegas can touch it.”
In one day during the 1956 copper boom twenty thousand people traded stock and thirty-one million dollars changed hands. Says a clerk at Frank S. Leslie & Co., where full-bodied girls chalk quotations on the board, “When the pennies are running our customers don’t even watch the chorus line. You can see the dollar signs in their eyes.” Across the country thousands of eyes are fixed on the ticker tape, the teletype that relays every sale on the TSE floor to three hundred and ten Canadian and U. S. brokerage offices. Cabbies, clerks and civil servants crowd the board rooms at lunch hour. Sténos bet their savings on a tip from the office boy.
In the mining and oil towns housewives bid up prices with grocery money, and their husbands pick up the latest gossip by buying drinks for the drillers. “You should see our Kirkland Lake office when a strike’s made,” says George Hunter, partner in T. A. Richardson & Co., Toronto. “You wouldn’t believe there were that many people in town.”
On the TSE floor three hundred and seventyfive traders mill around the nine six-sided trading booths, ankle – deep in paper, jostling, shouting, snatching at stocks like women at a bargain sale. At one of the school-like brokers’ desks that ring the floor on all sides a clerk shouts hoarsely above the din: “Harry! Harry! Aw. you bastard, look at me!” He signals a sale of Coldstream. A trader dashes up to him. “Have we any Ajax left?”
“People think it’s crazy, a madhouse.” says Chuck Ellis, head trader for Thomson & McKinnon. “You get used to it. But the tension can build. A lot of young fellows find out in short order it’s not for them. We’ve had fellows with heart attacks, fellows with ulcers—I’ve got one myself.”
“We all feel it.” says Harry Abbey, one of fifteen floor governors who settle any disputes that arise. “Openings are like the start of a football game. You get a little nervous feeling in your stomach.”
The floor trader lives with uncertainty from 10 a.m. to 3.30. His job is to fill his orders fast at the best possible price but nine out of ten traders arc “playing the market” themselves. Always, as they talk, their eyes turn overhead to the tape, to the inexorable flickering march of figures that tell their fortunes.
Fifteen seconds after 3.30 the closing prices are shooting underground by tube to the Toronto Telegram and Star offices. A Canadian Press teletypesetter is punching them out to the rest of the nation’s dailies and to AP and UPI, which will flash them across the U.S. A TSE clerk is on the phone to Reuters news agency in New York, which will relay them to Europe and as far east as Hong Kong.
The motif of all this activity can be found on the east wall of the TSE trading chamber, where a mural depicts a rainbow arcing down to a pot of gold. “Everyone’s living for another Quemont,” sighs a broker. “Eighteen cents to twenty-two dollars.”
It can happen. In 1953 Gilbert LaBine struck uranium and his Gunnar Gold (now Gunnar Mines) soared from seventeen cents to $13.75. A thirty-dollar-a-week broker’s clerk, with her savings invested in Gunnar, quit her job with twenty-four thousand dollars. A rewrite man at Canadian Press bought a house and car with his winnings. A commercial artist came back from a West Indies holiday and found himself ten thousand dollars richer. A group of ladies in the heart of northern Ontario’s mining country, Haileybury, who held thirty thousand shares arc now wealthy .
In search of a winner thousands comb the mining news every weekend. Some chart price patterns. Others visit the drillsite. Some watch the tape for a rise in volume that may accompany a move. Others insist that the closest you should get to your stock is its price in the morning paper.
Disagreement is the essence of the exchange. It provides a buyer for every seller There are those who agree with Rockefeller, who, when asked how he got rich, said he always sold too soon. They bet against those who agree with Randolph Reynolds, Bay Street securities adviser, who says, “The man who makes money is one who buys an issue with merit then takes the first boat to Europe.”
Reynolds cites the case of a client who bought fifty thousand shares of Can-Erin, a copper prospect, at fifty cents. Then he left for Hawaii. When he came back three months later Can-Erin was selling at $2.40. ” Thank God I wasn’t here,” the client told Reynolds, “I’d have sold when it moved up fifty cents.”
“Fortunes have been made by plenty of people who had the guts to let their money gro,” claims J. S. Rattray, TSE statistician, who has, however, no data on the subject. “Only five percent make money,” Reynolds says, after years of comparing notes with his colleagues.
“Unfortunately, few people realize the odds,” says John Rogers, partner in Doherty Roadhouse & Co., Toronto. “People don’t tell when they’ve lost. They just tell how much they won. Like when you go to a crap game. You lose fifty dollars and tell your wife it was ten. When you win it’s the other way around.”
“Playing the penny-dogs is like playing the horses,” a trader says. “Anything can happen.” A few years ago New Bidlamaquc Gold Mines leased some claims beside Lamaque, a producing gold mine in northern Quebec. The drill cores showed good values. The stock leaped up, then fell. A Lamaque engineer, walking through his drift, had found that New Bidlamaque’s drill was boring into Lamaque’s ore body.
No one knows what the drill will strike, or when. “You can’t put ore in the ground and you can’t tell it’s there till you drill for it,” says The Mining Corporation’s Norman Urquhart. And the way the Lord’s put it in you might have a thousand feet here and the next foot — no ore.”
Every year several hundred companies stake several thousand claims out of which may develop four or five mines. And production doesn’t guarantee success. In 1952. when it started milling zinc, Barvue Mines was billed by the press as “one of the world’s largest new mines” and its stock was selling at $4.25. Six years later it sold at eleven cents. Zinc prices had slumped and Barvue’s costs were too high to compete.
Copper prices, says John Bradfield, Noranda Mines’ president, are so sensitive that “the trend of nationalism in Africa and the whims of union leaders can upset the most careful forecasts.” Last year the aluminum market suddenly sagged—Russia had dumped a small bargain-priced shipment in Europe.
Fads in metals come and go. A 1953 uranium find in the Beaverlodge area of Saskatchewan boosted TSE sales to eleven million shares a day. Traders paid two and three dollars a share for uranium properties that hadn’t as much as a pickhole in them. This year they wouldn’t pay one dollar a share for junior uranium producers like Stanrock, Stanleigh or Faraday.
Columbium caught the public fancy in 1953 and Inspiration Mining, drilling near North Bay, jumped in a week from forty cents to $4.50. Then the U. S. government stopped stockpiling and prices collapsed.
Copper was the magic word in 1956. The price had risen from sixteen cents to forty-six cents a pound. New Jaculet, a thirteen-cent hopeful the year before, hit $2.15. Consolidated Halliwell rose from forty-four cents to $3.75. Opemiska from $3.75 to $19.50. Any share faintly tinged with bronze sold for three times its value.
“Everybody was beating the bush looking for copper mines.” says customer’s man Edward Brooks. “Everything runs to excess in this crazy business. Even in a shooting war copper isn’t worth forty-six cents. By the same token it goes too low.” When copper slid back to twenty-four cents, dollar stocks became pennies again.
People who lost their savings in the ’56 copper crash say bitterly that their brokers should have told them the odds against them. They say the broker cares only about his commission, that he has little time for the little man.
Brokers admit they would like to raise their average commission. “Our salesmen get a third (of the fee).” says Eric Scott, partner in J. H. Crang & Co., Toronto. “We spend up to a hundred and twenty-five thousand dollars a year on research. With the cost of your seat, capital, overhead, even a mechanized firm like ours with IBM must get fifteen or twenty dollars a transaction.” It costs as much for a broker to put through an order for one hundred dollars on which his commission is five dollars, as it does to put through one for one hundred thousand dollars.
On the other hand, says Edward Brooks. “Business begets business. You start getting snotty with the fellow who has only a few’ hundred and he may have friends with money. His parents may be wealthy. He may be secretary to a millionaire. Every customer’s a good customer in my book.”
Broker George Hunter, entering a counter-complaint, points out, “The average person doesn’t use the broker properly. He has his mind made up before he calls you. He asks, What do you think?’ You say. It’s too high.’ He says. Buy me anyway.’ If it goes up he tells his friends how’ smart he is. If it goes down he says. ‘My broker put me into it.’ ”
If a man comes in and wants my opinion of a stock. I’ll give it to him,” says John Rogers. “It’s not my function to argue with him. A great friend of mine, a lady, recently wanted to buy a stock that had gone from sixteen to forty-seven cents. There was absolutely no news on it. Just a dead dormant mine. I told her I wouldn’t buy it for my worst enemy. She couldn’t afford a thousand dollars. I wouldn’t have it on my conscience. I know that when she hung up she called a competitor and bought it from him. And damned if that stock didn’t go to a dollar twenty-five.”
Rogers recalls promoter Steven Roman selling by phone in Kansas City. “He was selling Consolidated Denison at forty-seven cents. People were buying it. How stupid can you be? Anybody who would buy a uranium mine from somebody he doesn’t know ought to have his head examined. So what happens? Consolidated Denison goes up to fifteen dollars. No, if a man’s made up his mind I won’t try to talk him out of it.”
More important, the broker is inherently a bull. He needs a constant stream of orders to keep him in the black, and no matter how high the market goes he will recommend stocks to buy. Some he may be holding himself. If they move up, one cynic asks, “Who do you think he’ll sell first?”
Few people in the business are impartial. Most financial editors and reporters play the market. But, says John Carrington. editor of The Northern Miner, which started in Cobalt 45 years ago and grew up with mining. “We don’t allow our men to sell short (in effect, bet that a stock will go down). We want people to know our reports are impartial. You might say that a man who buys stock will write optimistic reports. Perhaps. But we’d sooner be optimistic than pessimistic.”
Optimism also afflicts the market analysts who write weekly letters of advice for subscription fees of fifty dollars a year and up. Almost all are in the market, some under fictitious names, though as Oswald Lennox, Ontario securities commissioner, says, “They’re required by law to say if they’ve any interest in a stock. The last one I put out of business was because he represented that he had five thousand dollars’ worth of stock and we found he hadn’t put anything in.”
In the past few years Lennox has canceled sixteen analysts’ licenses. “Some of their promotions are so ridiculous you’d think a person with any intelligence would see through them.” he says, “ ‘Would you like to see ten dollars go to a thousand?’ They’re not as dangerous as the ones that shade it.”
Some students of the market claim it doesn’t really matter if an analyst is right or wrong—if enough people take his advice the stock will move. Randolph Reynolds recalls one U.S. analyst who “took a stock from twenty-five cents to three dollars just on the strength of his letter.” He reflected. “I don’t think it could happen here, except on a very fast market. Action doesn’t come from the market letters. A little maybe. Five cents or so.”
“People have likes and dislikes,” explains analyst T. H. (Tex) Mitchell, an ex-RCAF test pilot with a degree in economics. “Take people who go to the races. Some won’t bet on fillies, others won’t bet on geldings. Some of my clients like golds, some like coppers, some like oils. They don’t all bid for the same stock at once. Sometimes they even bet against each other.”
The basic rule of the market, though no one admits it in public, is to make sure the other fellow is left holding at the top. Except for that longshot, a new mine, where the payoff comes from new wealth, someone must always lose. And that someone is usually the public.
They give various explanations. “Human greed and ignorance.” says broker Eric Scott, partner in J. H. Crang & Co., Toronto. “People are never satisfied. They always hang on for more.”
“They buy on tips and rumors,” says Norman Urquhart, a broker before he became a mining-corporation president. “If you walked to King and Bay and talked out loud about any stock, you’d get people rushing out to buy it.”
“Most people don’t look before they buy,” agrees Oswald Lennox. ‘I’ve seen people buy up an issue when the engineer’s report condemned it in plain language.”
The public finds it hard to disentangle fact from myth. The TSE, while striving to improve its members’ ethics, insists that there is nothing to improve, that its members are merely agents for their clients, that the price of each stock is set by supply and demand and that this depends on a company’s value and earnings. The public does not clearly grasp the nature of the gamble, or the split personality of the exchange.
Twelve brokers started the TSE in 1852 to draw unwilling British investors into Canada. They met in each other’s offices to read off their small list of stocks. It was nineteen years before they could buy a building. Even in 1901 a British paper was still declaring that Canadians were silly “to dig holes in the ground in hopes that Canada may at some time produce a few odd ounces of precious metals.”
Then came Cobalt and Porcupine, the Dome, Hollinger, McIntyre—a long roster of famous mines which began as penny prospects. But the TSE frowned on some of the methods used to sell mining stock, and brokers to whom they refused membership began the rival Standard Stock and Mining Exchange. Standard brokers would talk of “those stuffed shirts at the TSE,” and TSE brokers referred to “those crooks at the Standard.”
In 1929 an exposé by The Financial Post revealed widespread “bucketing by brokers. When a client told them to buy they’d record the purchase under his name and charge him the current price. But instead of buying they would sell. This would depress the price of the stock. The broker would buy at this low price, put the stock in his client’s folder, and pocket the amount the stock had fallen —plus the commission, of course. Thus they were betting against the dient with his own money.
The resulting investigation caused the arrest of a score of brokers, set up the group of stock cops called the Ontario Securities Commission and forced a shotgun marriage between the two exchanges in 1934. Three years later the bustling new TSE moved into its present building, which the London Stock Exchange Gazette has called “the best designed and most efficient in the world.”
Since then a succession of oil and base-metal booms has made it the world’s fastest-growing exchange—at least until the current slump in these commodities. In 1939 the market value of its stocks was four and a half billion dollars. Today it’s fifty billion. It has outgrown its building and expects to decide by this fall on whether to move to the corner of King and Church, where a bearded British financier, Felix Fenston, offers to house it for a dollar a year, hoping to build a community of brokers and bankers around it, to create a financial heart in the city’s centre.
But the schism still remains between the brokers who sell mining stock and those who handle industrial issues. The latter feel that the violent ups and dowms of the pennies cast discredit on the exchange. But they cannot simply vote them off the board; as in the beginning the TSE’s role is to raise risk capital.
This is the TSE’s salient feature. To get money, mining companies sell shares to an underwriter. He sells them, through a broker, on the exchange. Like any other merchant he tries to sell at a profit, which means he must “promote” the stock, get its price up while he sells it.
The underwriter may be a mine promoter, a broker, or both. “The exchange doesn’t like its members promoting a mine,” says an underwriter. “A brokerage house is more or less like a bank. If it fools around with promotions it might jeopardize the security of the bank, so most brokers who underwrite mining issues work through a separate company.” About one quarter of the TSE’s members handle underwritings. They’re the mysterious “they’s” behind most of the action in the pennies. This does not imply dishonesty. They work within rules so stringent that one broker claims, “They’re scaring promoters off.”
“I think they’re growing up,” says securities commissioner Oswald Lennox. “At the peak of the high-pressure selling about five years ago I used to cancel twelve or thirteen licenses a year. Now it’s down to about two—out of a hundred and twenty. The TSE has done a lot in these last two years. I give them marks.”
The TSE specs give the public the finest gamble on the globe. No casino, no lottery, no race track offers such odds at such reasonable risk. No gamble could be fairer—once the rules are learned. And none could serve more purpose: today’s specs are tomorrow’s mines, which yield more than two billion dollars a year in new wealth, almost five hundred dollars for each Canadian family.
But it is a gamble. Behind the TSE façade of solemn respectability is a rowdy arena where words like value and earnings are incidental, where the pennies plunge as bulls and bears lock wits in ruthless battle, and fortunes ebb and flow on the moods evoked by master psychologists.
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