Quotes of American History: Daniel Drew on the Perils of Selling Short

"He who sells what isn't his'n, Must buy it back or go to prison" - Daniel Drew

Daniel Drew was one of the richest men in America during the mid 19th century. This aphorism was dispensed as a warning to the short-sellers of what was then a very chaotic Wall Street. The cast of characters was so small that the proceedings resembled a poker game as much as an actual business market.

Drew himself battled constantly with Cornelius Vanderbilt throughout his career, first in the steamboat business and later for control of the Erie Railroad. Vanderbilt attacked Drew's short position on the Erie in 1864 and cost him $500,000. Drew struck back in 1868. He enlisted the help of James Fisk and Jay Gould, and the three of them used their authority as directors to print and sell Erie shares as fast as they could manage -- many of them to Vanderbilt himself. To avoid arrest, the three of them fled New York with up to $7 million of Vanderbilt's money stuffed into a carpetbag.

Drew's success was not to last. In 1870 he was again crushed by the Erie Railroad -- this time through the betrayal of Fisk and Gould -- losing an estimated $1.5 million. The Panic of 1873 wiped him out completely. When he was finally forced to file for bankruptcy, he owed over $1 million, which may have made him the most indebted man in the United States. He died penniless in 1879, living on the kindness of his son.

Ironically, a couple of short positions might have saved Mr. Drew from the worst of the collapse. Nevertheless, his warning lives on.