Odd Lots - Episode 6: Meet The Man Who Made Millions Trading Mules

Episode Date: December 14, 2015

This week we're thinking about what it means to be a trader in today's electronified markets and contrast it with trading in the era of horse and buggies. That's right, we're going back in time to talk mule trading and the story of the legendary Ray Lum, who spent years buying and selling livestock all over the U.S. in the early 1900s. William R. Ferris, history professor at the University of North Carolina and author of Mule Trader: Ray Lum's Tales of Horses, Mules, and Men, tells us about Lum's adventures in the South, including the purchase and transportation by train of 80,000 mules from South Dakota to New Orleans. He explains why the "trader is the poet of capitalism," how the term "day trader" can be traced to stable storage trades and why some things—like boozy dinners between brokers and their clients—never seem to change. It's arbitrage of the animal sort, with storage trades thrown in to boot.Along the way, we ask whether traders provide a social service and explore the trade-off between modern efficient markets and the bygone era of 100 percent mark-ups on (mule) trades.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello, it's Monday the 14th of December. Welcome to another edition of the Odd Lots podcast. I'm Joe Wisenthall, managing editor of Bloomberg Markets. And I'm Tracy Allaway, executive editor of Bloomberg Markets. So today I'm really excited because we're going to talk a lot about the trading business. And Tracy, you and I, we sit in front of the Bloomberg tournament. all day, basically staring at these streams of data and headlines and economic information and charts. Lots of numbers. Lots of electronic things. Yeah.

And I think like what people, including myself, think of what a trader does, they imagine a similar environment, wouldn't you say? Yeah. I think they think of that or, you know, the New York Stock Exchange floor, even though there's no one actually on it anymore. But basically this idea is that a trader looks at a lot. of numbers and spots, things that they see it's undervalued and things it's overvalued. Maybe they use a spreadsheet.

Maybe they use algorithms. But it's just this very digital type of thing. Yeah, a very abstract set of numbers and an abstract kind of activity. Yeah. But obviously trading hasn't always been like that. And today we're going to be talking about a very different style of trading. Here is an audio hint of what we're going to be talking about. Pay $50.05, $60, $60, $6, $7, $75, $8, $8, $5,000, $800,000, $100,000, sold, Oscar, $1,000, $100 bill.

So that kind of sounds like auctioneering to me. Pretty much. That's almost exactly right. So we're going to be talking about mule trading, and specifically a guy who made his fortune trading mules in the early 1900s in Mississippi. Joe, you have to tell me, was mule trading a big thing back then? So I wouldn't have guessed this. I mean, it makes sense, I guess, because mules were important for farms and other activity. And no one had cars, right?

Or a few people had cars. So, yes, mules were a big thing. A few years ago, I was visiting my wife's grandmother down in northern Mississippi, and I walked into a bookstore in Oxford, Mississippi. be. And I saw this book on the shelf called Mule Trader. And I didn't even need to open it. I'm a very big believer in judging a book by the title or the cover. And it was called Mule Trader. So I had to buy it. No idea you were so attracted to mules. Well, I'm attracted to mule trading. And it's a fantastic book by this guy, William Ferris. He's a professor currently at the University

of North Carolina. And it's about this guy, Ray Lum. The full title is Mule Trader Ray Lum. tales of horses, mules, and men. And the idea is there's this guy who grew up in northern Mississippi, and at the age of 13, he did his first mule trade, and then he bought more mules, and he had a really good sense for what mules were valued. And he started trading all over the south, of the southwest, and Texas and Tennessee, and everywhere. And he became a huge deal, eventually more than in just mules, but in cattle, horses,

livestock in general. Was he like the citadel of mule trading? I think so. I think one of the things is that there's a lot of interesting parallels and things that we can learn about what he did. And trading today, for example, he engaged in interstate arbitrage buying mules in one state, selling them elsewhere. He also engaged in warehousing. So he had these huge stables that he bought. And then when other farmers needed a place to store their mules, he made a lot of money. keeping their meals for them. Well, this sounds awesome. I'm really excited.

Yeah. And one other thing, I mean, you know, something we've been watching in the markets a lot lately, especially you, is sort of this illiquidity in certain areas of the market. Are mules illiquid? Very much so. And so to the point where, like, there was very poor price discovery. Again, they didn't have mule Bloomberg's back then. So they, you couldn't just look up a price.

You could sometimes buy a mule and sell it for twice as much that very same day. All right. I'm very intrigued. On that point, I want to bring in the author of the book, William R. Ferris, a history professor at the University of North Carolina. Bill, thank you so much for joining us. It's my pleasure. Who was Ray Lum, and why was his story worth telling? He famous, lucky enough to be able to record many hours of his...

How big was the mule trade? How big of a deal were mules and how big was this whole industry big? Backbone of life. Not only in the south, but in our nation, America was Bill George Washington of the mule. Heavy loads of a thing that is done on the back of a mule. Why mules? Why not just donkeys or horses? What was the actual benefit of having this cross breed?

A mule is a hymn of donkey, and it's stronger than either of the pan. A horse will work itself to death. A mule, if it's... So, Bill, let's... Talk about Ray. How did he get his start? He made his first mule trade at the age of 13, right? That's right. He really had trading in his DNA. He was working for a merchant. One day, he bought a horse. Make more money trading horses than you can. That's exactly what he did. A few days later, nothing come up with the horse. I bought him and give 15 for him.

Horses were cheap, then. A little horse was thin, but he was young. So I gave him $15 for him, tied him over there at the post. Mr. Smith says, Ray, he said, don't you think you could make more money out trading and you could hear? Oh, I says, I don't know, Mr. George, but I'll try it. Well, I haven't been without a horse said. Do you think the way he interacted with people was the key to his success as a trader? Or I guess what I'm getting at is what made him so good at trading? Well, I think he just lame. You never know what hand you'll be dealt. But if a horse was blind and he bought a lame horse, trade it to the next thing.

But he made a big deal in the book he talks about the importance of honesty, that he didn't want to lie about the quality of his mules. How do you trade a blind mule while also being honest with everyone? traded with other trade was not. You would use, which meant to another trader, and he's lame in the fourth. You have to tell us, how did mules actually trade back then? Because I imagine it wasn't on an electronic exchange or anything like that, right? No, that. Just a bit. To work with livestock where you would have thousands of animals.

So one thing I find interesting about this is that in addition to looking at an animal, animal and sizing up its value and what you might be able to sell it for. You also have to take into account the costs of transporting a living thing and warehousing it, I guess, and feeding it and taking care of it. He bought 80,000 horses and mules, and he gathered them and shipped them by train, Italian merchant. They had never seen a ringman said, let's thought these horses are going to get them home. Falknirian kind of scene. You mentioned some of the lingo that he used to describe a mule.

What are some of the other terms? I love one of the terms that in the book is if he made 1% on a trade, that was actually meant he made 100% on a trade or a 2% gain actually meant 200% on a trade. What were some of the other lingo the traders used to talk back then? He would use language associated with livestock for people. He's not fully there or he's not as sharp as he. One day a fella come along with a little horse. And I bought his little horse, give him 12 and a half for him.

Tied him over there to the post. Well, the full night came. Long came a fella, and I sold him to him for $25. Made one percentage, as the Dutchman says. One of the ways that he made money, he owns some huge storage facilities, right? That's right. And so there was a part in the book that mentions, you know, there was a big flood, a lot of flooding, and some of the local farmers had to store their mules in his facilities, and he made money on that.

And it made me think about sort of modern trading and how the people who own the storage facilities for various commodities often can make money on warehousing fees. I felt on livestock, the word stock oddities, which you buy and sell the same mine's morning change. Absolutely. And Ross Perrault traded at the famous Fort Worth Stockyards and regular. Lum, a generation earlier, was also a major player in the Fort Worth Stockyards market. Is that correct? What was Fort Worth like the lifestyle back of the day? Was it sort of a lot of gambling and drinking? Boiled tycoons. Yeah. What was it like?

And he would pour out an evening and the next day thing he had. I can see a lot of parallels with trading back then and trading as it's done today. We still use the term day trader. Obviously, brokers still take their clients out for boozy, expensive dinners. Right, to sell their products, you have like a mutual fund company take out a broker with a steak and alcohol. But there's one thing where I think there is a big difference, and that's in price transparency. The idea that Ray Lum was making 100 or 200 percent markup, I'd find that hard to believe in today's market. Certainly. So why were, you know, everybody knew who Ray Lum was, he became this huge, legendary figure.

If the only way to beat him was to not trade with him, then why did people continue to trade with him? And you needed a good, you trade with him. Bill, do you think what Ray provided as a trader was a service that was valuable to the rest of society? A trader is a man that trades in everything. A real trader, don't never find nothing that he can't use. If he's a trader, he'll trade for anything you've got. He can use it. If he can't use it, he'll find somebody else that can.

That's his business. A good trader helps lots of people, and he makes money for himself. I always consider it that I was a very good trader. The closest thing to that today is probably the used car salesman, who when you have an old car that's worn out and you want a new, many of the old trade, many of the old life. Yeah, I wanted to ask you that specifically. So obviously, you know, Ray Lund was born in the 1890s.

He lived over 80 years. So tell us quickly how he dealt with the economic transition, which was massive that he saw during his lifetime. And when horses and mules with him, he began to. Bill Ferris, thank you so much for joining us. I love this. I love the parallels to the modern day and I really appreciate you talking to us about the life of Ray Lum. Thank you. I'm a different colors to match a saddle.

There wasn't too many automobiles around. Cotton was about a dollar a pound at that time. Money was easy to get. People loved horses. They wanted horses. Sorry, I was an auctioneer. I went to Memphis and I went to Fort Worth and I bought almost a trainload of horses. So, Tracy.

What did you learn? I learned a lot. I think even more than what I learned, I really just enjoyed listening to that tale of a sort of bygone era that's full of nostalgia and the idea of, you know, people taking horses on trains down to New Orleans and selling them to Italians. Yeah, I love, I love like the salesmanship that was involved. I love the idea that because he was a good storyteller that really helped him. Although, again, it kind of reminds me of today where some of the most famous investors and fund managers also happen to be great stories and they can spin you a great yarn about what they're investing in. Yeah, I mean, I guess there are some pockets in investing and trading nowadays where there is still a human element that's really important. But the thing that all of this reminds me of, as we were talking about earlier, is just how electronified our markets are nowadays.

And on the one hand, that can be kind of bad because we lose those sort of human emotional connections to trading. But on the other hand, you could make a strong argument that markets are more efficient. I doubt. I don't think that's not a tough argument to make when someone could sell a mule for twice what they bought it for the same day. Right. But then on the other hand, you know, mules, I guess, were such idiosyncratic things that really required a lot of expertise to price. Again, maybe that was a big service to the market. I love that point about service, the idea that, you know, even though he was the better trader, and if you were traded with him as speculation, you were probably going to lose.

But if you were a farmer that needed a new mule or, you know, trade-in-year-old bum mule, that essentially he was like sort of providing liquidity. There was nobody else who would give you anything for that mule probably. Right. And I think the liquidity point is a big one because, as you and I both know, one of the main discussions in financial markets right now is about liquidity and whether or not investors need to pay up for the service of liquidity and, you know, whether or not they should expect that liquidity to always be there. Again, there are no easy answers,

but it's certainly interesting to look back at a bygone era and think about it. Yeah, and it's cool to think of a very clear example where someone who can provide that liquidity is clearly providing a service to people. And is compensated for it. Exactly. All right. Well, thank you very much for joining us on another edition of Odd Lots. I'm Joe Wisenthall. You can find me on Twitter at the stalwart. And I'm Tracy Allaway. I'm on Twitter at Tracy Allaway. Thanks for listening, and we'll be back here next week.

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