1837 Jacob Little

By 1837 the United States had more miles of completed railroads than any other country. But in that year the nation experienced a very unpleasant shock -- a severe stock market crash. The nation's unstable banking system, consisting of poorly regulated state-chartered banks, collapsed under the burden of rampant speculation in western lands and in the new railroads. The banking crisis pulled down the stock market and left a bitter hangover in the form of a depression that would last six years. The rapid stock price fluctuations of the period also brought to the fore a new type of professional market participant, more interested in exploiting short-term moves in share prices than in executing orders for outside investors. A former clerk named Jacob Little was the most prominent of the new breed, and was soon almost universally despised in the small Wall Street community.

Little was a tall, slender man, with a slight stoop and a curt, cold manner. He dressed carelessly and made no real effort to fit into the clubby atmosphere of the Exchange Board. He profited from the 1837 market collapse through a technique he is credited with inventing -- the "short sale" of stock. As practiced by Little, short-selling involved the sale of stock for delivery at a future date, often six to twelve months later. Little would gamble that share prices would fall in the interim, allowing him to buy back at a lower price the stock he would be required to deliver in the future. While this method of short-selling differs mechanically from the way in which short sales are transacted today, the objective is the same -- to profit from a decline in the market. Needless to say, in a time of crisis such as the 1837 panic, a short-selling market operator who openly profited from the distress of others could be (and was) quite unpopular. His nick names included the "Great Bear," the "Old Bear," and the "Napoleon of Wall Street". Little is also known as the inventor of the convertible bond.

Little was the first professional "bear" in the history of the American stock market. The term "bear," as applied to a speculator who believed prices would fall, was derived from the well-known proverb "to sell the bear's skin before one has caught the bear" -- in other words, to contract to sell something one does not yet own. "Bears" were opposed in the market by "bulls " -- strong, powerful animals who would push prices higher. Little's practice of aggressively trading stocks to profit from short-term fluctuations did not sit well with the gentlemen members of the Exchange Board. Over the next two decades Little would be forced into bankruptcy four times, at least partly as a result of organized efforts by other brokers who reviled him. He was able to recover and resume his activities three times but was finally done in by the panic of 1857. There would be many others to replace him. As much as the leading members of the Exchange Board wished to preserve the genteel character of their business, economic realities did not allow them to do so. The stock market was now a fundamentally different game, with a different set of players.