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Quote of the Day
“Every once in a while, the market does something so stupid it takes your breath away.”
– Jim Cramer
A fitting quote for a day in history that is the anniversary of 2 such “stupid” events. One marks the start of the meteoric rise of Northern Pacific Railroad stock. The stock traded around $117 on May 6th 1901, before advancing to $1,000 on May 9th. The other, when Jim Cramer himself was live on CNBC during the 2010 “flash crash”, which occurred on this day in 2010.
May 6th – This Day in Stock Market History
May 6th, 1901 – E.H Harriman, who ran the Union Pacific railroad empire is led to believe that he has accumulated a majority position in Northern Pacific stock. But due to a technicality was still just short of majority. At this time, J.P. Morgan (also a railroad tycoon) has become privy to Harriman’s plan and begins buying shares to prevent Harriman from gaining a majority.
The action over the next 3 days is some of the most spectacular in Wall Street’s history (Now known as the panic of 1901) as Northern Pacific stock, now trading at around $117 per share climbs to $1,000 by May 9th.
Source: Eyewitness to Wall Street
May 6th, 1964 – Berkshire Hathaway, then run by Seabury Stanton, sends out a letter to shareholders offering to buy 225,000 shares for $11.375 per share.
This offer irked at least one Berkshire shareholder, Warren Buffett, who then owned about 7% of the company.
Here’s an image of the letter from Berkshire’s 2015 50th anniversary book (click to enlarge):
Buffett had a verbal agreement with Stanton to sell for $11.50. So, instead of sell, Buffett bought more shares. A lot more.
By April 1965 Buffett purchased 392,633 shares, just under 40% of the company. 1 month later he would assume control of the company, forever changing the course of Berkshire Hathaway.
Source: Most comes from Berkshire’s 2015 Shareholder letter
May 6th, 2010 – A “Flash Crash” causes the Dow, and the markets as a whole, to fall 6%+ in just a few minutes. At one time, the Dow was down over 1,000 points (a little more than 9%). The commodity and futures trading commission (CTFC) would call this time the most “turbulent period in the history of financial markets” in a report issued after their investigation.
The event would cause wide spread problems for relatively new products such as ETFs, whose prices became disconnected from their underlying holdings. Several ETFs and commonly held holdings would trade at prices of $0.01 per share. The flash crash would lead to increased regulation and regulator scrutiny.
You can watch the most exciting 9 minutes of the crash where the Dow falls more than 600 points in a just a few minutes, as seen on CNBC here:
About 20 minutes later the market would recover the losses from the flash crash. The Dow would finish the day down 347 points, or 3.2%.
Best May 6th in Dow Jones Industrial Average History
1932 – Up 9.08%, or 4.91 points.
Worst May 6th in Dow Jones Industrial Average History
2010 – Down 3.20% or 347.80 points
Read(s) of the Day
- The Wall Street Journal has a very cool interactive graphic detailing the 2010 Flash Crash.
- The flash crash also put the spotlight on high frequency traders. Michael Lewis’ Book, ‘Flash Boys’, takes an inside look at how these high frequency traders operate. I found the book very interesting and entertaining (I finished it in one weekend on a couple cross country flights!) Flash Boys: A Wall Street Revolt
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