In the early 1900s, grocery shopping was a much different experience than it is today. There were no price tags, shopping carts or checkout lines, just a grocery clerk who would take your weekly list of essentials, gather the items in private, and deliver them to you at the front counter. This archaic and costly structure quickly became a thing of the past in 1916 when Memphis, Tennessee was introduced to a grocery store named Piggly Wiggly. The first of its kind to allow customers to wander through the store and hand-select food and beverage items, Piggly Wiggly revolutionized the grocery industry.
Piggly Wiggly founder, Clarence Saunders, envisioned big things for his pioneering grocery store, beyond the evolution of the purchasing process. To attract customers near and far, Saunders set out to change the entire shopping experience. Piggly Wiggly customers were handed flowers and balloons and listened to music by a live brass band as they roamed down the aisles, past elaborate displays. Soon, Piggly Wiggly was a household name and stores were popping up in locations across the United States. By 1922, just six years after inception, Saunders owned or franchised over 1,200 Piggly Wiggly grocery stores.
A true to riches tale, Saunders went from grocery clerk to millionaire mogul in a few short years. Due to Piggly Wiggly’s rapid growth, innovation, and visionary leader, Wall Street took notice. At the beginning of 1922, Piggly Wiggly became a publicly traded company - one in which many investors relied on for continued growth and franchise expansion.
Just a year later, after an early run up in stock price, a group of Wall Street speculators began betting against Piggly Wiggly through a trading tactic called “short selling.” Short selling involves borrowing shares of a stock to sell at a high price, waiting for the stock price to fall and rebuying the shares when the price is lower, profiting from the difference.
The proud man that he was, Saunders felt personally attacked when he learned of Wall Street’s plan. In an attempt to defend his honor, Saunders used his wealth to buy up Piggly Wiggly shares, driving up the stock price, hoping Wall Street’s plan would backfire as they would be forced to purchase back shares at a higher price, losing money instead of profiting from a stock price decline. The stubborn businessman even took a loan out for $10 million, helping him capture 99% of all Piggly Wiggly stock.
As Piggly Wiggly stock increased in value and Wall Street continued to feel the pressure, the tide began to turn. Since the Securities and Exchange Commission (SEC) wasn’t created for another decade, the New York Stock Exchange established and enforced its own rules. When some of the short sellers began complaining about being cornered, the exchange launched a full-blown investigation on Saunders. While working to prove his innocence and continuing to stand his ground, Saunders’ $10 million loan payments began coming due. Being the stubborn man that he was, Saunders knew that if he sold his shares to make the loan payments, Piggly Wiggly stock price would decline, opening the window for short sellers to gain some of their lost money back. So, instead of relinquishing any bit of his stronghold, Saunders sold some of his shares directly to the public at a small discount. He even took out ads in the newspaper that said, “once in a lifetime opportunity.” Soon, enough interested investors came forward, developed a payment plan with Saunders and bought Piggly Wiggly shares, which provided the founder more time to come up with a plan.
By March 20th, 1923, Piggly Wiggly stock price started the day at $75.50, up from the $40 range where Wall Street first began short selling. By the written and enforced rules of the New York Stock Exchange, the short sellers were required to produce the shares by 2:15pm on March 21st. As the short sellers panicked by snatching up the cheapest shares possible, the stock rocketed to $124 by noon.
To most, it seems like he accomplished his goal. Saunders fought back against Wall Street and won.
Unfortunately, Wall Street had more tricks up its sleeve. Instead of producing the shares by 2:15 on March 21st, as the New York Stock Exchange required, the rules were changed to benefit the short sellers. They were given extra time to produce the shares, which sent the stock into a nose-dive from its mid-day highs. If that wasn’t enough, on March 22nd, the New York Stock Exchange permanently barred Piggly Wiggly from being traded on its exchange, leaving Saunders with very few options. With his back against the wall, Saunders decided to settle with the short sellers.
After the settlement agreements were complete, Saunders still owed around $5 million to lenders. His cars, mansion, and valuables were all relinquished to creditors. Even his remaining Piggly Wiggly stock was actioned off - some shares for just $1. The following year, Sanders filed for bankruptcy…
Although he seemingly outsmarted those who chose to bet against him and his business, Clarence Saunders was left with nothing. His rise and fall will forever be remembered as a David and Goliath story - one in which the underdog came out victorious, but only for a moment. Wall Street had the last laugh.
Until close to a century later…
In 2021, similar to when Wall Street began betting against Piggly Wiggly stock, speculators began to short sell stock of the American video game retailer, GameStop. With GameStop’s brick and mortar locations struggling, its overall health of the business in decline and the stock’s recent run up in price, it became an easy target. As more and more risk-takers bet against the company and its stock price, a digital community on Reddit, by the name of r/WallStreetBets, or WSB, took notice. Its members, millions strong, channeled their inner Clarence Saunders and hatched a plan to buy and hold GameStop stock in an attempt to send the stock higher and back Wall Street into a corner. WSB’s members publicly encouraged others to keep buying and never sell, promising the stock will “go to the moon!” In the first month of the year, due to the online community’s influence, GameStop stock went from around $20 per share to a stunning $483 per share. In just 6 months, GameStop’s stock return was around 8,000%!
David officially defeated Goliath.
Wall Street traders and hedge funds lost billions while “the little guy,” retail investors made more money than they could’ve ever dreamed of…
Well, some of them.
As the investing community continued to learn of GameStop developments, tons of retail investors wanted in on the action. Some sunk their life savings into the stock in hopes of striking it rich, like many already have, while others were panicked by the extreme swings in stock price, selling their shares at a loss. It was only when the music stopped that we learned many were without a chair.
As the dust settled in the GameStop saga, those that got into the stock last ended holding the bag. Not only did Wall Street lose, but many of the investors that felt the urge to be a part of the historic chaos suffered a similar fate.
The lesson here is two-fold: Only take big risks with the money you can afford to lose and never do it for the fear of missing out.
Getting rich quickly in the stock market is equivalent to winning the lottery - it rarely happens, but when it does, the story spreads like wildfire. Just like how the gas station that sold the winning lottery ticket experiences a spike in ticket sales for weeks after the winnings have been claimed, stock market gamblers seek wealth from equities that have already appreciated and are considered extremely overvalued.
Stack the odds in your favor by eliminating the get-rich-quick mentality. Identify strong companies that have rock solid fundamentals, strong earnings power, and the potential for continued growth for many years to come. When you find them, stick with them.
Amazon founder and multi-billionaire, Jeff Bezos asked legendary investor, Warren Buffet, “You’re the second richest guy in the world. Your investment thesis is so simple. Why doesn’t everyone just copy you?”
Buffet replied: “Because nobody wants to get rich slow.”
Photo Credit:
https://pwadc.net/company-info/piggly-wiggly-format/
https://pwadc.net/company-info/piggly-wiggly-format/
https://memphismagazine.com/ask-vance/ask-vance-sole-owner-stores/
ABCNews.go.com: Catherine Thorbeck
KnowYourMeme.com: Wall Street Bets