The Day John Cranley Saved the Market
Editor's note: This groundbreaking technology is creating investment opportunities...
The potential of artificial intelligence ("AI") has been discussed for several years. And with the development of tools like ChatGPT quickly growing popular, many people are bullish around AI – including key players in the markets...
That's why Retirement Millionaire editor Dr. David "Doc" Eifrig believes it's crucial for investors to monitor the AI trend in order to understand how to invest in this technological breakthrough.
In today's Masters Series, adapted from the July 12 issue of the free Health & Wealth Bulletin e-letter, Doc details how today's market chaos could benefit investors who are paying attention... discusses how AI could impact the markets moving forward... and reveals how investors can prepare their portfolios as this technology develops...
The Day John Cranley Saved the Market
On May 29, 1962, John J. Cranley may have single-handedly saved the stock market...
The market was in the midst of a crash... a big one. A selling frenzy of unknown origin led to a full-on panic.
It started a day earlier, on Monday, May 28. The Dow dropped 34.95 points. At the time, that was the second-largest one-day drop ever. It was behind only the 38.33-point drop on October 28, 1929... the "Black Monday" that kicked off a major stock market crash and the Great Depression.
The pain of those days was still fresh. Many people – including lots of professional floor traders, investment bankers, and mom-and-pop investors – had lived through the stock market crash of 1929.
Feeding the frenzy... was a lack of information. At the time, ticker-tape machines stationed all over Wall Street printed out every trade, one at a time. The machines could only print 500 characters per minute. So when volume surged, the tape got behind.
After the market closed on Monday, the tape took an extra 90 minutes to print the trades for the day. The prior record for a delay was 34 minutes.
That meant if you were looking to sell, the price you saw was already more than an hour old. That's a lifetime when prices are plummeting. And the growing uncertainty and poor access to information led to even more panic.
In those days, American Telephone and Telegraph – or just "Telephone," as it was known then – was the market's bellwether. For those trying to divine the health of the market, Telephone was the pulse.
When the market "opened" the next day, Tuesday morning's trades backed up. Telephone shares didn't even start trading until an hour after the market opened. When it finally did, shares opened at $98.50 – down 2.1% overnight.
The collapse continued...
Shares of Telephone bounced around throughout the morning. They dropped as low as $98.125 but eventually squeaked their way back to $100.
No one knew it then, but the market-maker in Telephone shares, George M. L. La Branche Jr., had orders in his books to sell 20,000 shares of American Telephone and Telegraph at $100.
That was a massive amount at the time, and it created an oversupply of shares at that price. Telephone wasn't going to trade for more than $100 per share until those shares got cleared out.
Enter our hero, John J. Cranley, a partner at Dreyfus and Company. For whatever reason, Cranley calmly placed an order to buy 10,000 shares of Telephone at $100 (equivalent to a $7.8 million buy in today's money).
The oversupply of shares to be sold disappeared... and Telephone started surging. It hit $106.25 within an hour.
Cranley never revealed his motivations. To this day, we don't know if he was buying for himself, his firm, or the Dreyfus mutual fund. (These funds were a relatively new force on Wall Street.)
One other factor helped Telephone's stock trade strongly that day...
While the ticker tapes were again hours behind in printing all the trades, a few select stocks received priority in line. Whenever Telephone traded, it jumped the queue, and tape readers got a quick flash update. When "T 100" printed out across town, the markets came to life. General Motors and Standard Oil jumped $5. U.S. Steel jumped $3.
About an hour after Cranley's big trade, the Dow Jones news service printed out the notice: "The market has turned strong." Indeed, it had. The panic was over. Stocks doubled over the next few years.
"Telephone" was, of course, the company we now know as AT&T (T).
As you can imagine, had you bought AT&T for $100 a share in 1962, you'd be exceedingly rich today.
And Cranley knew it. He understood that in the middle of a panic, he could get a bargain on a stock that would reward him for years.
Today, folks often complicate investing.
"Pros" spend hours a day looking at technical stock charts and sifting through reams of data, trying to find the next big moneymaker.
I'm not one of those traders. I tell my team all the time: KISS – Keep It Simple, Stupid. Look for companies that will pay you regularly for years to come, and you'll set yourself up for a wealthier future.
It's one reason folks around the office call me the "codger." I'm often old-fashioned when it comes to investing.
But new technological innovations could bring a massive change to how everyone invests, including me... I'm talking about AI.
"Generative" AI – the kind used to create text, audio, or video from various prompts – has undergone major breakthroughs and is in everyday use by the public.
According to a UBS study, ChatGPT became the fastest technology to reach 100 million monthly users, needing only two months.
Now, with these new AI models unleashed upon the world, we're all grappling with just what they mean, what they will change, and, for some of us, how to invest.
As an investor, you are providing capital to earn a return. The industry you provide it to will earn some amount of money, and that will make its way to the providers of capital.
Most investors work to find the opportunities that will earn the highest profits.
But given that there are two sides to the equation, you also need to find an opportunity with a scarcity of capital.
To illustrate with an oversimplified example...
Let's say you figure a particular industry will earn $1 billion in profits. If that industry has huge attention from investors and they funnel $100 billion in capital toward it, the eventual return on capital would be 1% (if your projection is right).
If it's an underappreciated industry and investors only provide $10 billion in capital, the return would be 10%.
Plowing money into AI today means you'll need to expect extremely big profits and you'll need to share them with the rest of the herd.
That's why you must understand what's driving the AI trend in order to find the best places to put your money to work today, with less risk of losing your shirt as AI-focused stocks remain prevalent.
Here's to our health, wealth, and a great retirement,
Doc Eifrig
Editor's note: On Wednesday, July 19, Doc is sitting down with Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – to cut through the hype around AI and give the honest answers nobody is talking about today.
They'll also explain the real story you should be paying attention to if you hope to profit from this technological breakthrough. To make sure you're not left behind, click here to reserve your spot...