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Quote of the Day

“You only learn who has been swimming naked when the tide goes out — and what we are witnessing at some of our largest financial institutions is an ugly sight.”

Warren Buffett in his 2007 letter to shareholders.

 

September 24th – This Day in Stock Market History

September 24th, 1869  – One of the three “Black Fridays” in stock market history as the attempt by Jay Gould and James Fisk to corner the gold market fails.

With help from corrupt government officials under President Ulysses S. Grant, Gould and Fisk began to hoard gold around September 1st.

By mid-September they would own contracts controlling $60 million in gold, driving the prices up to $163 (That is, $163 in greenback dollars for $100 in gold dollars).

But upon being tipped off of Gould and Fisk’s plan, Grant orders Treasury Secretary George Boutwell to flood the market with $4 million in gold. The result was one of Wall Street’s most chaotic collapses in history. Gold prices fell from $163 to $133 within 15 minutes.

Since many purchased gold with heavy margin at the time, many traders were ruined. The margin calls spread throughout the New York Stock exchange, leading to selling in almost every asset class.

Stocks fell 20% over the next week, while wheat and corn prices fell nearly 50%.

However Gould was tipped off on the Treasury’s sale. They had bribed Daniel Butterfield, the new assistant Treasurer, with a $10,000 payment to notify them before the Treasury sold any gold. Gould and Fisk sold most of their gold before the crash, netting $12 million.

Black_Friday_1869-gold prices

While Gould and Fisk would make it out relatively unharmed, most were not so lucky. In a statement to Congress (who immediately investigated the corner), one floor trader would announce that”half of Wall Street was involved in ruin.”

gould gold corner

Sources: Eyewitness to Wall Street: 400 Years of Dreamers, Schemers, Busts and Booms, and Manias, Panics, and Crashes: A History of Financial Crises

For those curious, there are several other days known as “Black Friday” in London and the United States:

September 24th, 2008 – The Wall Street Journal announces Berkshire Hathaway’s $5 billion investment in Goldman Sachs, offering a much needed vote of confidence during the market panic.

The news immediately helped the struggling company, sending shares up more than 10% in after hours trading.

Buffett_investment_in_goldman_sachs

Buffett experienced a wild ride before his investment paid off. By March, Goldman Sachs shares would be cut in half. It is easy to say with years of hindsight that it was an amazing timing by Buffett, but he was looking pretty foolish over the first 6 months after his investment.

GS_chart_after_buffett_investment

In the end, Buffett’s bet turned out to be the side to be on. His $5 billion investment would produce more than $3 billion in gains and a large equity stake in Goldman.

Best September 24th in Dow Jones Industrial Average History:

2001 – Up 4.47%, 368.05 points

Worst September 24th in Dow Jones Industrial Average History:

1931 – Down 7.07%, 8.2 points.

Read of the Day

Henry Adams (the Grandson of President John Adams, and who was a very well known historian in his day) wrote a very good essay on Gould and Fisk’s Gold Corner.

His original essay was titled “The New York Gold Conspiracy”

For those looking for more info on Gould and Fisk’s corner – It is a great resource (and one of Henry Adam’s most respected works today).

<– Go To Previous Day: September 23rd, 1998 – Hedge fund Long Term Capital Management is bailed out.

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