18. The stock market

David Morrison Blaikie
A Nova Scotia lumberman

18. The stock market

When I last mentioned the stock market, the year was around 1948. My experiences at that point were far from pleasant. And likely I’d have left the market alone altogether if I hadn’t gone to call on the brokerage firm of Wood Gundy & Co. in Halifax. They had sold us our first purchase of five shares of Mersey Paper preferred.

Wood Gundy’s was a large brokerage firm with offices all across Canada, a few in U.S.A., and one in England. The firm was, and is, reliable, as far as it’s possible to be reliable in anything as uncertain as the stock market. In their office I became acquainted with the manager, a Mr. Griffin. He had been a colonel in World War Two, but in that office, believe me, he was a general.

He was a sharp-talking, decisive man, and thoroughly competent to give advice in investment matters. I struck him at a good time. There was no one else around the office, and I spent over an hour discussing stocks with him.

It didn’t take long to discover that he had no use for penny stocks. After the recent experiences I’d had, it wasn’t too hard to convert me to his way of thinking. He liked the industrial stocks, the banks, the utilities, the paper stocks, heavy machinery such as Massey Harris, department stores such as Simpson’s and the Hudson’s Bay Co. and food companies.

Good advice

I appreciated his interest in me. He must have seen that at the time I hadn’t money enough to be of much value as a customer. But he gave me the best advice available, and a book on investing which gave a good explanation of the various types of stocks and bonds on the market. Up to this time, I hardly knew the difference between a stock and a bond. This book explained the difference, and went on to discuss the difference types of stock such as common, preferred, participating preferred, convertible preferred, and so on.

At this point we decided to get rid of the last of our penny stocks. I remember quite well the first stock I bought from Wood Gundy’s after this interview – 10 shares of Abitibi preferred, a paper company, at $17 dollars a share. It was a very modest purchase but it paid a good dividend – nearly 9%. However, I kept it less than a year, and sold it at $22.50 per share. Thus, after brokers commissions, we
made $50 profit. This wasn’t much money. But after our experience with mining stocks, it looked pretty good.

I still wasn’t completely through with penny stocks. My past experience in them had been educational. But in reading financial papers such as the Northern Miner, I discovered that one could get information that was reliable as far as it went. There were two theoretical ways by which, with a little luck, you might have a slim chance of making a penny stock pay off. The first one was to get in on a
pre-public offering of the shares of a newly formed mining company, before any had been advertised in financial papers.

Bucket shop brokers

To do this, you must be notified in advance by the sort of bucket shop broker who deals in highly speculative financing. These people get a list of names of people (suckers) who have done some buying of penny stocks, not a difficult thing for them to do. In the little experience I had in penny stocks, no end of brokers seemed to have your name, and you were frequently pestered with telephone calls urging you to buy this or that type of mining stock, always a bonanza in waiting.

It made little difference what they recommended. Ninety-nine out of 100 such ventures came to nothing, and mostly the principals involved knew in advance there was no possibility of a successful mining operation being developed. It’s a merely game to make money. But the initial offering often went up in price for awhile. But it didn’t often last long. If you had a chance to make a reasonable profit, it wasn’t wise to wait.

The second way was to wait until such a company had its little boom and had gone broke. By that time, if any substantial ore body had been indicated, the company’s name was likely to be changed, and the shareholders would be issued one share of the new company for perhaps each four of the original shares they had been holding.

The new shares usually sold at a price no higher than the original issue. Thus the purchasers of the old stock had lost three- quarters of their money. But by this time a diamond-drilling campaign would often be announced, which would bring more buyers of shares into the market. And if you got into the game at this point, the publicity connected with the resumption of operations was likely to give the new stock a shot in the arm.

Buying Into Zenmac

I had a friend in Truro who was interested in penny stocks. We came across an advertisment – mailed from a broker – for a pre- public offering in a mining company called Zenmac. The shares were selling at 65 cents. My past experience had made me a little edgy, but I did decide to buy two hundred shares. My friend, following my example of years ago, bought five hundred shares – with borrowed money. We bought through a firm called Seigneur Securities, which was about as crooked as C.E. Hepburn & Co. But at this point I had learned a few things.

It takes some time to get a new stock listed. In the meantime the only way to get a quotation is to call a broker’s office, and at that time it had to be in Halifax. Zenmac shares soon began to advance in price. Penny by penny they moved up to 75, then 80 and 85 cents. I had mentioned to my friend my intention to sell when and if the price reached one dollar.

One day at noon my friend phoned, saying that he’d just been in touch with his broker, and the Zenmac shares were then selling at $1 to $1.05. But he wasn’t going to sell at this figure. He had other friends in Truro holding the same stock, and they planned to hold on for $2 a share. I wished him luck.

And as soon as our conversation was ended, I called my broker and instructed him to sell my shares at a dollar each. It wasn’t much of a profit, but the investment had been very small, and lasted for only a short time.

Sudden plunge

Zenmac did continued to rise in price. The shares reached $1.25 and then $1.30. Then, just in one day’s trading, they dropped to 84 cents. My friend was crestfallen. But he wasn’t going to sell shares at 84 cents when they had so recently been selling at $1.30. So he waited for the price to resume its upward trend again. But it did not happen. Day by day Zenmac continued to weaken, until in a final slump, the shares dropped to 14 cents.

They remained in this price range for three years, during which my friend held on grimly. Then some improvement began. The shares got up around his cost price of 65 cents again. One day he called me up, jubilant. He had just sold his shares at 70 cents. Of course this still meant a loss, as interest costs for three years ate up considerably more than his slim profit. And his jubilation didn’t last

Two weeks later the shares had risen again to $1.25. It was maddening to him to reflect that after holding on for three years, another two weeks would have nearly doubled his money. But this was typical of penny stocks, and simply meant that the stock had been manipulated by unscrupulous brokers. Zenmac shares were still on the market in the early 1970s, at 10 to 15 cents a share.

Canadian stocks

Mainly, we took the advice of Mr. Griffin and bought only industrial stocks. Simpson’s, Canadian Car, Royal Bank and Domtar were among the stocks we bought during those years. One that we found very interesting was Hudson’s Bay Co., which we bought in 1952, and which we still are holding. At that time we bought 50 shares at $26.75. Since that time the shares were twice sub- divided, so that now the fifty shares have become two hundred.

These are now selling at around twenty dollars a share, which would make a total market value of around three times our original cost. We also received dividends twice a year. This company, which was originally incorporated in 1670, has had an interesting history. Regularly, I read the company’s magazine, The Beaver. Much of its long history was contained in the pages of this magazine, published only four times a year.

When we bought our first shares in the mill, we probably should have sold these stocks, but we didn’t. Instead, we took them to the bank as collateral, and borrowed the money we needed.

Rain gutter market

The subject of gutter, or eavestrough for houses, was mentioned earlier. At that time we had been making only pine gutter. But, as good quality pine was scarce, I felt that fir could be used instead. With the export lumber market still flat, and more sales required to support our business, this seemed to me the ideal time to launch a campaign for the sale of fir gutter.

In May we had an order for some pine gutter from Halliday Craftsmen in Truro. They wanted their stock as soon as possible. So one afternoon I set the planer up – no small job – and that evening Edwin and I came back to the mill and went to work making the gutter.

The first limber we planed was 25 or 30 pieces of fir, and I thought it looked good. The planer was razor sharp, and we were proud of our product. We had just switched back to pine when William Yeadon, the manager at Halliday’s, arrived at the mill. This was after Roy’s death, and I think he was wondering if we would be able to make his gutter for him.

Seeing Is believing

I was glad we had the mill running. After he had inspected the pine gutter, I showed him the fir that we had just made. Previously, I had mentioned the idea of fir gutter to him, but he was not impressed. Now, he weakened visibly on seeing the smooth symmetrical stock we showed him. “Well,” he asked “Can you guarantee that every piece you make will look like that?”

We both knew that this was fir of the highest quality. So I told him that we would make sure that only good quality wood would be used for this purpose. If it was not up to the standard of what he was now inspecting, it would be close to it. At the end, he agreed to take this small lot of fir along with the pine, and see how it sold. A month later I was in his office. We went to his warehouse and found that the fir gutter had been sold. Apparently he never had any complaints. From that time on, he placed frequent orders for fir gutter.

I was still the sawyer at the mill, and over a period of time I sawed a fair amount of 4″ x 5″, the required size for gutter, all of good quality. During the month of August we dressed this into gutter, and were then really ready for business.

Working holiday

For some years past it had become customary for us to close the mill down during the last week of August – the week before Labour Day. This was our annual holiday. Eva and I again planned a trip down through the Annapolis valley, and to Yarmouth, going from there up the South shore to Halifax. This time we took with us some samples of fir gutter, our down-spouts, and other samples of moulding.
This selling trip was fun.

We began calling at every lumber yard along the way – big and small. Nearly everyone was interested, but they had never heard of fir being used for this type of work. A few of them did not know anything about wooden gutters, except that they were familiar with the douglas fir gutter, imported from British Columbia.

At this particular time, I knew of only one mill in Nova Scotia besides our own that made any gutter, and they made very little. What they did make was horrible looking stuff. Ours was well made – even if I do say so myself. Our gutter knives were made after the western pattern, and the finished product was smooth, and very pleasing to the eye.

Small orders

Windsor was our first destination. There were two lumber yards there – Swinamer & Eldridge, and Windsor Supplies. We were well received at both places. They looked over our samples, and some discussion followed about the merits of fir for gutter. I didn’t intend to be drawn into any rash guarantees; there it was, and they could decide for themselves whether they wanted it or not. I simply said
that if we hadn’t felt it would give satisfaction, we wouldn’t be offering it for sale. In the end, both these firms gave us small orders.

We left Windsor well satisfied, and perhaps a little smug, since fir gutter was our own original idea. From there, we went on into Wolfville to two more yards, Minas Woodworkers, and a little place called MacCurdy Enterprises. I really liked Mr. Mullins, the manager at Minas Woodworkers. He was very friendly and easy to talk to. He also gave us an order. I didn’t much care for the manager at MacCurdy Enterprises.

He seemed a little too enterprising. After throwing all the cold water he could at the idea of fir gutter, he ended up buying a couple of hundred feet of it. From there, we went on to Cornwallis Supplies in Kentville. They had just been newly stocked with western gutter, so we had no luck there, but they looked over our samples, and invited us to keep in touch with them.

Fraser supplies

Our best order up to that point came from Fraser Supplies, just below Berwick. We struck this place at a time when they were very nearly out of gutter. The manager was friendly, and after some discussion he gave us an order for 1,500 feet, which he wanted as soon as we could deliver it. I told him he would have it the following week.

The trip around by Yarmouth and back is a long drive by truck. And a full load is needed in order to make it pay. When we planned this selling trip, we didn’t really expect to get orders enough for a full truck-load, and thought our deliveries would have to be made by transfer. Now, we began to think we might be able to sell a full load.

Successful trip

By this time it was too late in the day to make any more calls. We drove on toward Yarmouth, and a few miles outside we stopped for the night at a small over-night cottage. By this time, we knew that our trip was a success. It only remained to see whether we would sell enough for a full truck load. But already we had sold over half that amount, and we felt confident that the next day would bring us the remaining orders required.

It did. We drove into Yarmouth the next morning and called at the town’s main lumber yard – Yarmouth Woodworkers. I wasn’t really taken with their manager, Walter Sweeney. He was somewhat greedy, and the only way he would discuss business at all, was with the understanding that all our sales in Yarmouth must be exclusively to him. It was an unfair thing to ask.

But from what I had seen, we weren’t likely to make any other sales there anyway, so I agreed. There was no argument about price. He gave us an order for 2,000 feet, plus another order for 500 feet of downspout. I hadn’t been concentrating too much on downspout, as we had been too much interested in selling gutter. This was really a good order. We left there hoping that all these people would be
well satisfied with their gutter, so that we could continue to do business with them in the future.

Home again

It isn’t worth going into detail regarding the trip up the South shore. We made further sales in Shelburne, Liverpool and Chester, and there were more places we could have gone. But these sales would make up a full truck load, and that would about take care of all the stock we had for gutter at the present time.

On the Tuesday after Labour Day we started the mill again, and on Wednesday night of the same week, we loaded all of these orders of gutter onto the truck, ready for an early start Thursday morning. Fred Fulton was driving the truck, and I went with him. It was a long two-day trip. Our first stop was Windsor, and by leaving home at six o’clock, we arrived there as the lumber yards were opening.

Everyone seemed to be pleased with the gutter. We got as far as Yarmouth the first night. In the morning we went into Yarmouth Woodworkers. The manager had no complaints about the stock we brought him. That night, we arrived home, happy at a successful trip.

It was pointless to think about any more sales of gutter that fall. But we had proved a point regarding the sale and delivery of fir gutter.
Now, we would have to get more stock sawed, and plane some more the following spring. We intended to have plenty of sttock on hand when that time came around.

Good profit

The gutter would always remain a sideline in the business – but a profitable one. We sold our gutter for 24 cents a running foot. This worked out to $144 per thousand board feet of lumber. At the same time the stock we used would only sell for around $70.00 in the rough. It was easy to dress five thousand running feet in a day, and to have at least eight cents per foot of clear profit.

At this time the same size of western gutter sold for around 65 cents per foot, so we didn’t run into too many arguments about price. Their gutter was available in longer lengths than we could supply, but beyond that it’s questionable whether the western product was any better than ours.