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diff --git a/old/60979-h/60979-h.htm b/old/60979-h/60979-h.htm deleted file mode 100644 index a4e8571..0000000 --- a/old/60979-h/60979-h.htm +++ /dev/null @@ -1,12962 +0,0 @@ -<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" - "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> -<html xmlns="http://www.w3.org/1999/xhtml" xml:lang="en" lang="en"> - <head> - <meta http-equiv="Content-Type" content="text/html;charset=utf-8" /> - <meta http-equiv="Content-Style-Type" content="text/css" /> - <title> - The Project Gutenberg eBook of Reminiscences of a Stock Operator, by Edwin Lefevre. - </title> - <link rel="coverpage" href="images/cover.jpg" /> - <style type="text/css"> - -body { - margin-left: 2.5em; - margin-right: 2.5em; -} - -h1, h2 { - text-align: center; - clear: both; - margin-top: 2.5em; - margin-bottom: 1em; -} - -h1 {line-height: 1.5;} - -h2+p {margin-top: 1.5em;} - -.transnote h2 { - margin-top: .5em; - margin-bottom: 1em; -} - -p { - text-indent: 1.75em; - margin-top: .51em; - margin-bottom: .24em; - text-align: justify; -} -.center p {text-align: center; text-indent: 0;} -p.center {text-indent: 0;} - -.p1 {margin-top: 1em;} -.p2 {margin-top: 2em;} -.p4 {margin-top: 4em;} -.b1 {margin-bottom: 1em;} -.vspace {line-height: 1.5;} - -.in0 {text-indent: 0;} -.r10 {padding-left: 10em;} - -.smaller {font-size: 85%;} -.larger {font-size: 125%;} -.large {font-size: 150%;} -.xxlarge {font-size: 200%;} - -.center {text-align: center;} - -.smcap {font-variant: small-caps;} -.smcap.smaller {font-size: 75%;} -.firstword {font-variant: small-caps;} - -.bold {font-weight: bold;} - -hr { - width: 33%; - margin-top: 4em; - margin-bottom: 4em; - margin-left: 33%; - margin-right: auto; - clear: both; -} - -table { - margin-left: auto; - margin-right: auto; - max-width: 15em; width: auto; - border-collapse: collapse; -} - -.tdr, .tdr1 { - text-align: right; - vertical-align: bottom; - padding: 0 2em .75em 6em; - white-space: nowrap; -} -.tdr1 {padding-left: 0;} - -.pagenum { - position: absolute; - right: 4px; - text-indent: 0em; - text-align: right; - font-size: 70%; - font-weight: normal; - font-variant: normal; - font-style: normal; - letter-spacing: normal; - line-height: normal; - color: #acacac; - border: 1px solid #acacac; - background: #ffffff; - padding: 1px 2px; -} - -.figcenter { - margin: 2em auto 2em auto; - text-align: center; - page-break-inside: avoid; - max-width: 100%; -} - -img { - padding: 0; - max-width: 100%; - height: auto; -} - -blockquote { - margin-left: 5%; - margin-right: 5%; - font-size: 95%; -} - -.poem-container { - text-align: center; - font-size: 98%; -} - -.poem { - display: inline-block; - text-align: left; - margin-left: 0; -} - -.poem br {display: none;} - -.poem .stanza{padding: 0.5em 0;} - -.poem span.i0 {display: block; margin-left: 0em; padding-left: 3em; text-indent: -3em;} -.poem span.i2 {display: block; margin-left: 1em; padding-left: 3em; text-indent: -3em;} - -.transnote { - background-color: #999999; - border: thin dotted; - font-family: sans-serif, serif; - margin-left: 5%; - margin-right: 5%; - margin-top: 4em; - margin-bottom: 2em; - padding: 1em; -} -.covernote {visibility: hidden; display: none;} - -.wspace {word-spacing: .3em;} - -span.locked {white-space:nowrap;} - -@media print, handheld -{ - h1, .chapter, .newpage {page-break-before: always;} - h1.nobreak, h2.nobreak, .nobreak {page-break-before: avoid; padding-top: 0;} - - p { - margin-top: .5em; - text-align: justify; - margin-bottom: .25em; - } -} - -@media handheld -{ - body {margin: 0;} - - hr { - margin-top: .1em; - margin-bottom: .1em; - visibility: hidden; - color: white; - width: .01em; - display: none; - } - - blockquote {margin: 1.5em 3% 1.5em 3%;} - - .poem-container {text-align: left; margin-left: 5%;} - .poem {display: block;} - .poem .stanza {page-break-inside: avoid;} - - .transnote { - page-break-inside: avoid; - margin-left: 2%; - margin-right: 2%; - margin-top: 1em; - margin-bottom: 1em; - padding: .5em; - } - - .covernote {visibility: visible; display: block; text-align: center;} -} - </style> - </head> - -<body> - - -<pre> - -Project Gutenberg's Reminscences of a Stock Operator, by Edwin Lefevre - -This eBook is for the use of anyone anywhere in the United States and most -other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms of -the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you'll have -to check the laws of the country where you are located before using this ebook. - -Title: Reminscences of a Stock Operator - -Author: Edwin Lefevre - -Release Date: December 20, 2019 [EBook #60979] - -Language: English - -Character set encoding: UTF-8 - -*** START OF THIS PROJECT GUTENBERG EBOOK REMINSCENCES OF A STOCK OPERATOR *** - - - - -Produced by Charlie Howard and the Online Distributed -Proofreading Team at http://www.pgdp.net - - - - - - -</pre> - - -<div class="transnote"><p class="center large">Transcriber’s Note</p> -<p class="center">Table of Contents created by Transcriber and -placed in the Public Domain.</p> - -<p class="covernote">Cover created by Transcriber and placed in the Public Domain.</p> -</div> - -<h1>REMINISCENCES<br /> -OF A<br /> -STOCK OPERATOR</h1> - -<hr /> - -<div class="newpage p4 center vspace wspace"> -<p class="xxlarge bold"> -REMINISCENCES<br /> -OF A<br /> -STOCK OPERATOR</p> - -<p class="p2 large">By Edwin Lefevre</p> - -<p class="p1 larger"><i>with a new Introduction by</i><br /> -Benton W. Davis</p> - -<div class="figcenter" style="max-width: 5.5em;"> -<img src="images/logo.png" width="88" height="79" alt="Publisher's logo" /> -</div> - -<p class="p1">American Research Council · Larchmont, New York</p> -</div> - -<hr /> - -<div class="newpage p4 center smaller"> -<p class="wspace">Copyright © 1923 by George H. Doran Company</p> - -<p class="wspace">All Rights Reserved</p> - -<p class="wspace">Reprinted by arrangement with Doubleday & Company, Inc.</p> - -<p>Library of Congress Catalog Card Number: 64-23364<br /> -Printed in the United States of America</p> -</div> - -<hr /> - -<p class="newpage p4 center"> -To<br /> -Jesse Lauriston Livermore -</p> - -<hr /> - -<div class="chapter"> -<h2 id="CONTENTS">CONTENTS</h2> -</div> - -<table id="toc" summary="Contents"> -<tr><td class="tdr1">I</td><td class="tdr"><a href="#I">1</a></td></tr> -<tr><td class="tdr1">II</td><td class="tdr"><a href="#II">14</a></td></tr> -<tr><td class="tdr1">III</td><td class="tdr"><a href="#III">30</a></td></tr> -<tr><td class="tdr1">IV</td><td class="tdr"><a href="#IV">39</a></td></tr> -<tr><td class="tdr1">V</td><td class="tdr"><a href="#V">55</a></td></tr> -<tr><td class="tdr1">VI</td><td class="tdr"><a href="#VI">67</a></td></tr> -<tr><td class="tdr1">VII</td><td class="tdr"><a href="#VII">80</a></td></tr> -<tr><td class="tdr1">VIII</td><td class="tdr"><a href="#VIII">87</a></td></tr> -<tr><td class="tdr1">IX</td><td class="tdr"><a href="#IX">100</a></td></tr> -<tr><td class="tdr1">X</td><td class="tdr"><a href="#X">117</a></td></tr> -<tr><td class="tdr1">XI</td><td class="tdr"><a href="#XI">131</a></td></tr> -<tr><td class="tdr1">XII</td><td class="tdr"><a href="#XII">144</a></td></tr> -<tr><td class="tdr1">XIII</td><td class="tdr"><a href="#XIII">160</a></td></tr> -<tr><td class="tdr1">XIV</td><td class="tdr"><a href="#XIV">173</a></td></tr> -<tr><td class="tdr1">XV</td><td class="tdr"><a href="#XV">190</a></td></tr> -<tr><td class="tdr1">XVI</td><td class="tdr"><a href="#XVI">199</a></td></tr> -<tr><td class="tdr1">XVII</td><td class="tdr"><a href="#XVII">215</a></td></tr> -<tr><td class="tdr1">XVIII</td><td class="tdr"><a href="#XVIII">230</a></td></tr> -<tr><td class="tdr1">XIX</td><td class="tdr"><a href="#XIX">238</a></td></tr> -<tr><td class="tdr1">XX</td><td class="tdr"><a href="#XX">245</a></td></tr> -<tr><td class="tdr1">XXI</td><td class="tdr"><a href="#XXI">257</a></td></tr> -<tr><td class="tdr1">XXII</td><td class="tdr"><a href="#XXII">273</a></td></tr> -<tr><td class="tdr1">XXIII</td><td class="tdr"><a href="#XXIII">293</a></td></tr> -<tr><td class="tdr1">XXIV</td><td class="tdr"><a href="#XXIV">304</a></td></tr> -</table> - -<hr /> - -<div class="chapter"> -<h2 id="I"><i>I</i><span class="pagenum" id="Page_1">1</span></h2> -</div> - -<p class="in0"><span class="firstword">I went to work</span> when I was just out of grammar school. I -got a job as quotation-board boy in a stock-brokerage office. -I was quick at figures. At school I did three years of arithmetic -in one. I was particularly good at mental arithmetic. -As quotation-board boy I posted the numbers on the big -board in the customers’ room. One of the customers usually -sat by the ticker and called out the prices. They couldn’t -come too fast for me. I have always remembered figures. No -trouble at all.</p> - -<p>There were plenty of other employes in that office. Of -course I made friends with the other fellows, but the work I -did, if the market was active, kept me too busy from ten -<span class="smcap smaller">A.M.</span> to three <span class="smcap smaller">P.M.</span> to let me do much talking. I don’t care for -it, anyhow, during business hours.</p> - -<p>But a busy market did not keep me from thinking about -the work. Those quotations did not represent prices of stocks -to me, so many dollars per share. They were numbers. Of -course, they meant something. They were always changing. -It was all I had to be interested in—the changes. Why did -they change? I didn’t know. I didn’t care. I didn’t think -about that. I simply saw that they changed. That was all I -had to think about five hours every day and two on Saturdays: -that they were always changing.</p> - -<p>That is how I first came to be interested in the behaviour -of prices. I had a very good memory for figures. I could remember -in detail how the prices had acted on the previous<span class="pagenum" id="Page_2">2</span> -day, just before they went up or down. My fondness for -mental arithmetic came in very handy.</p> - -<p>I noticed that in advances as well as declines, stock prices -were apt to show certain habits, so to speak. There was no -end of parallel cases and these made precedents to guide me. -I was only fourteen, but after I had taken hundreds of observations -in my mind I found myself testing their accuracy, -comparing the behaviour of stocks to-day with other days. It -was not long before I was anticipating movements in prices. -My only guide, as I say, was their past performances. I carried -the “dope sheets” in my mind. I looked for stock prices -to run on form. I had “clocked” them. You know what I mean.</p> - -<p>You can spot, for instance, where the buying is only a trifle -better than the selling. A battle goes on in the stock market -and the tape is your telescope. You can depend upon it seven -out of ten cases.</p> - -<p>Another lesson I learned early is that there is nothing new -in Wall Street. There can’t be because speculation is as old -as the hills. Whatever happens in the stock market to-day has -happened before and will happen again. I’ve never forgotten -that. I suppose I really manage to remember when and how -it happened. The fact that I remember that way is my way -of capitalizing experience.</p> - -<p>I got so interested in my game and so anxious to anticipate -advances and declines in all the active stocks that I got a -little book. I put down my observations in it. It was not a -record of imaginary transactions such as so many people -keep merely to make or lose millions of dollars without getting -the swelled head or going to the poorhouse. It was -rather a sort of record of my hits and misses, and next to the -determination of probable movements I was most interested -in verifying whether I had observed accurately; in other -words, whether I was right.</p> - -<p>Say that after studying every fluctuation of the day in an -active stock I would conclude that it was behaving as it always -did before it broke eight or ten points. Well, I would<span class="pagenum" id="Page_3">3</span> -jot down the stock and the price on Monday, and remembering -past performances I would write down what it ought to -do on Tuesday and Wednesday. Later I would check up with -actual transcriptions from the tape.</p> - -<p>That is how I first came to take an interest in the message -of the tape. The fluctuations were from the first associated -in my mind with upward or downward movements. Of -course there is always a reason for fluctuations, but the tape -does not concern itself with the why and wherefore. It -doesn’t go into explanations. I didn’t ask the tape why when -I was fourteen, and I don’t ask it to-day, at forty. The -reason for what a certain stock does to-day may not be -known for two or three days, or weeks, or months. But what -the dickens does that matter? Your business with the tape -is now—not to-morrow. The reason can wait. But you must -act instantly or be left. Time and again I see this happen. -You’ll remember that Hollow Tube went down three points -the other day while the rest of the market rallied sharply. -That was the fact. On the following Monday you saw that -the directors passed the dividend. That was the reason. They -knew what they were going to do, and even if they didn’t -sell the stock themselves they at least didn’t buy it. There -was no inside buying; no reason why it should not break.</p> - -<p>Well, I kept up my little memorandum book perhaps six -months. Instead of leaving for home the moment I was -through with my work, I’d jot down the figures I wanted -and would study the changes, always looking for the repetitions -and parallelisms of behaviour—learning to read the -tape, although I was not aware of it at the time.</p> - -<p>One day one of the office boys—he was older than I—came -to me where I was eating my lunch and asked me on -the quiet if I had any money.</p> - -<p>“Why do you want to know?” I said.</p> - -<p>“Well,” he said, “I’ve got a dandy tip on Burlington. I’m -going to play it if I can get somebody to go in with me.”</p> - -<p>“How do you mean, play it?” I asked. To me the only<span class="pagenum" id="Page_4">4</span> -people who played or could play tips were the customers—old -jiggers with oodles of dough. Why, it cost hundreds, even -thousands of dollars, to get into the game. It was like owning -your private carriage and having a coachman who wore a -silk hat.</p> - -<p>“That’s what I mean; play it!” he said. “How much you -got?”</p> - -<p>“How much you need?”</p> - -<p>“Well, I can trade in five shares by putting up $5.”</p> - -<p>“How are you going to play it?”</p> - -<p>“I’m going to buy all the Burlington the bucket shop will -let me carry with the money I give him for margin,” he said. -“It’s going up sure. It’s like picking up money. We’ll double -ours in a jiffy.”</p> - -<p>“Hold on!” I said to him, and pulled out my little dope -book.</p> - -<p>I wasn’t interested in doubling my money, but in his saying -that Burlington was going up. If it was, my note-book -ought to show it. I looked. Sure enough, Burlington, according -to my figuring, was acting as it usually did before it went -up. I had never bought or sold anything in my life, and I -never gambled with the other boys. But all I could see was -that this was a grand chance to test the accuracy of my -work, of my hobby. It struck me at once that if my dope -didn’t work in practice there was nothing in the theory of it -to interest anybody. So I gave him all I had, and with our -pooled resources he went to one of the near-by bucket shops -and bought some Burlington. Two days later we cashed in. I -made a profit of $3.12.</p> - -<p>After that first trade, I got to speculating on my own hook -in the bucket shops. I’d go during my lunch hour and buy or -sell—it never made any difference to me. I was playing a -system and not a favorite stock or backing opinions. All I -knew was the arithmetic of it. As a matter of fact, mine was -the ideal way to operate in a bucket shop, where all that a<span class="pagenum" id="Page_5">5</span> -trader does is to bet on fluctuations as they are printed by -the ticker on the tape.</p> - -<p>It was not long before I was taking much more money out -of the bucket shops than I was pulling down from my job in -the brokerage office. So I gave up my position. My folks objected, -but they couldn’t say much when they saw what I -was making. I was only a kid and office-boy wages were not -very high. I did mighty well on my own hook.</p> - -<p>I was fifteen when I had my first thousand and laid the -cash in front of my mother—all made in the bucket shops in -a few months, besides what I had taken home. My mother -carried on something awful. She wanted me to put it away -in the savings bank out of reach of temptation. She said it -was more money than she ever heard any boy of fifteen had -made, starting with nothing. She didn’t quite believe it was -real money. She used to worry and fret about it. But I didn’t -think of anything except that I could keep on proving my -figuring was right. That’s all the fun there is—being right by -using your head. If I was right when I tested my convictions -with ten shares I would be ten times more right if I traded -in a hundred shares. That is all that having more margin -meant to me—I was right more emphatically. More courage? -No! No difference! If all I have is ten dollars and I risk it, I -am much braver than when I risk a million, if I have another -million salted away.</p> - -<p>Anyhow, at fifteen I was making a good living out of the -stock market. I began in the smaller bucket shops, where the -man who traded in twenty shares at a clip was suspected of -being John W. Gates in disguise or J. P. Morgan traveling -incognito. Bucket shops in those days seldom lay down on -their customers. They didn’t have to. There were other ways -of parting customers from their money, even when they -guessed right. The business was tremendously profitable. -When it was conducted legitimately—I mean straight, as far -as the bucket shop went—the fluctuations took care of the -shoestrings. It doesn’t take much of a reaction to wipe out a<span class="pagenum" id="Page_6">6</span> -margin of only three quarters of a point. Also, no welsher -could ever get back in the game. Wouldn’t have any trade.</p> - -<p>I didn’t have a following. I kept my business to myself. It -was a one-man business, anyhow. It was my head, wasn’t it? -Prices either were going the way I doped them out, without -any help from friends or partners, or they were going the -other way, and nobody could stop them out of kindness to -me. I couldn’t see where I needed to tell my business to anybody -else. I’ve got friends, of course, but my business has -always been the same—a one-man affair. That is why I have -always played a lone hand.</p> - -<p>As it was, it didn’t take long for the bucket shops to get -sore on me for beating them. I’d walk in and plank down my -margin, but they’d look at it without making a move to grab -it. They’d tell me there was nothing doing. That was the -time they got to calling me the Boy Plunger. I had to be -changing brokers all the time, going from one bucket shop to -another. It got so that I had to give a fictitious name. I’d -begin light, only fifteen or twenty shares. At times, when -they got suspicious, I’d lose on purpose at first and then sting -them proper. Of course after a while they’d find me too -expensive and they’d tell me to take myself and my business -elsewhere and not interfere with the owners’ dividends.</p> - -<p>Once, when the big concern I’d been trading with for -months shut down on me I made up my mind to take a little -more of their money away from them. That bucket shop had -branches all over the city, in hotel lobbies, and in near-by -towns. I went to one of the hotel branches and asked the -manager a few questions and finally got to trading. But as -soon as I played an active stock my especial way he began -to get messages from the head office asking who it was that -was operating. The manager told me what they asked him -and I told him my name was Edward Robinson, of Cambridge. -He telephoned the glad news to the big chief. But -the other end wanted to know what I looked like. When the -manager told me that I said to him, “Tell him I am a short<span class="pagenum" id="Page_7">7</span> -fat man with dark hair and a bushy beard!” But he described -me instead, and then he listened and his face got red and he -hung up and told me to beat it.</p> - -<p>“What did they say to you?” I asked him politely.</p> - -<p>“They said, ‘You blankety-blank fool, didn’t we tell you to -take no business from Larry Livingston? And you deliberately -let him trim us out of $700!’” He didn’t say what else -they told him.</p> - -<p>I tried the other branches one after another, but they all -got to know me, and my money wasn’t any good in any of -their offices. I couldn’t even go in to look at the quotations -without some of the clerks making cracks at me. I tried to get -them to let me trade at long intervals by dividing my visits -among them all. But that didn’t work.</p> - -<p>Finally there was only one left to me and that was the -biggest and richest of all—the Cosmopolitan Stock Brokerage -Company.</p> - -<p>The Cosmopolitan was rated as A-1 and did an enormous -business. It had branches in every manufacturing town in -New England. They took my trading all right, and I bought -and sold stocks and made and lost money for months, but in -the end it happened with them as usual. They didn’t refuse -my business point-blank, as the small concerns had. Oh, not -because it wasn’t sportsmanship, but because they knew it -would give them a black eye to publish the news that they -wouldn’t take a fellow’s business just because that fellow -happened to make a little money. But they did the next -worse thing—that is, they made me put up a three-point -margin and compelled me to pay a premium at first of a half -point, then a point, and finally, a point and a half. Some -handicap, that! How? Easy! Suppose Steel was selling at 90 -and you bought it. Your ticket read, normally: “<em>Bot ten Steel -at 90⅛.</em>” If you put up a point margin it meant that if it broke -89¼ you were wiped out automatically. In a bucket shop the -customer is not importuned for more margin or put to the<span class="pagenum" id="Page_8">8</span> -painful necessity of telling his broker to sell for anything he -can get.</p> - -<p>But when the Cosmopolitan tacked on that premium they -were hitting below the belt. It meant that if the price was 90 -when I bought, instead of making my ticket: “<em>Bot Steel at -90⅛</em>,” it read: “<em>Bot Steel at 91⅛</em>.” Why, that stock could advance -a point and a quarter after I bought it and I’d still be -losing money if I closed the trade. And by also insisting that -I put up a three-point margin at the very start they reduced -my trading capacity by two-thirds. Still, that was the only -bucket shop that would take my business at all, and I had to -accept their terms or quit trading.</p> - -<p>Of course I had my ups and downs, but was a winner on -balance. However, the Cosmopolitan people were not satisfied -with the awful handicap they had tacked on me, which -should have been enough to beat anybody. They tried to -double-cross me. They didn’t get me. I escaped because of -one of my hunches.</p> - -<p>The Cosmopolitan, as I said, was my last resort. It was the -richest bucket shop in New England, and as a rule they put -no limit on a trade. I think I was the heaviest individual -trader they had—that is, of the steady, every-day customers. -They had a fine office and the largest and completest quotation -board I have ever seen anywhere. It ran along the whole -length of the big room and every imaginable thing was -quoted. I mean stocks dealt in on the New York and Boston -Stock Exchanges, cotton, wheat, provisions, metals—everything -that was bought and sold in New York, Chicago, -Boston and Liverpool.</p> - -<p>You know how they traded in bucket shops. You gave your -money to a clerk and told him what you wished to buy or -sell. He looked at the tape or the quotation board and took -the price from there—the last one, of course. He also put -down the time on the ticket so that it almost read like a -regular broker’s report—that is, that they had bought or -sold for you so many shares of such a stock at such a price at<span class="pagenum" id="Page_9">9</span> -such a time on such a day and how much money they received -from you. When you wished to close your trade you -went to the clerk—the same or another, it depended on the -shop—and you told him. He took the last price or if the -stock had not been active he waited for the next quotation -that came out on the tape. He wrote that price and the time -on your ticket, O.K.’d it and gave it back to you, and then -you went to the cashier and got whatever cash it called for. -Of course, when the market went against you and the price -went beyond the limit set by your margin, your trade automatically -closed itself and your ticket became one more -scrap of paper.</p> - -<p>In the humbler bucket shops, where people were allowed -to trade in as little as five shares, the tickets were little -slips—different colors for buying and selling—and at times, as -for instance in boiling bull markets, the shops would be hard -hit because all the customers were bulls and happened to be -right. Then the bucket shop would deduct both buying and -selling commissions and if you bought a stock at 20 the -ticket would read 20¼. You thus had only ¾, of a point’s run -for your money.</p> - -<p>But the Cosmopolitan was the finest in New England. It -had thousands of patrons and I really think I was the only -man they were afraid of. Neither the killing premium nor the -three-point margin they made me put up reduced my trading -much. I kept on buying and selling as much as they’d -let me. I sometimes had a line of 5000 shares.</p> - -<p>Well, on the day the thing happened that I am going to -tell you, I was short thirty-five hundred shares of Sugar. I -had seven big pink tickets for five hundred shares each. The -Cosmopolitan used big slips with a blank space on them -where they could write down additional margin. Of course, -the bucket shops never ask for more margin. The thinner the -shoestring the better for them, for their profit lies in your -being wiped. In the smaller shops if you wanted to margin -your trade still further they’d make out a new ticket, so they<span class="pagenum" id="Page_10">10</span> -could charge you the buying commission and only give you -a run of ¾ of a point on each point’s decline, for they figured -the selling commission also exactly as if it were a new trade.</p> - -<p>Well, this day I remember I had up over $10,000 in -margins.</p> - -<p>I was only twenty when I first accumulated ten thousand -dollars in cash. And you ought to have heard my mother. -You’d have thought that ten thousand dollars in cash was -more than anybody carried around except old John D., and -she used to tell me to be satisfied and go into some regular -business. I had a hard time convincing her that I was not -gambling, but making money by figuring. But all she could -see was that ten thousand dollars was a lot of money and all -I could see was more margin.</p> - -<p>I had put out my 3500 shares of Sugar at 105¼. There was -another fellow in the room, Henry Williams, who was short -2500 shares. I used to sit by the ticker and call out the quotations -for the board boy. The price behaved as I thought it -would. It promptly went down a couple of points and paused -a little to get its breath before taking another dip. The -general market was pretty soft and everything looked promising. -Then all of a sudden I didn’t like the way Sugar was -doing its hesitating. I began to feel uncomfortable. I -thought I ought to get out of the market. Then it sold at 103—that -was low for the day—but instead of feeling more confident -I felt more uncertain. I knew something was wrong -somewhere, but I couldn’t spot it exactly. But if something -was coming and I didn’t know where from, I couldn’t be on -my guard against it. That being the case I’d better be out -of the market.</p> - -<p>You know, I don’t do things blindly. I don’t like to. I never -did. Even as a kid I had to know why I should do certain -things. But this time I had no definite reason to give to myself, -and yet I was so uncomfortable that I couldn’t stand it. -I called to a fellow I knew, Dave Wyman, and said to him: -“Dave, you take my place here. I want you to do something<span class="pagenum" id="Page_11">11</span> -for me. Wait a little before you call out the next price of -Sugar, will you?”</p> - -<p>He said he would, and I got up and gave him my place by -the ticker so he could call out the prices for the boy. I took -my seven Sugar tickets out of my pocket and walked over to -the counter, to where the clerk was who marked the tickets -when you closed your trades. But I didn’t really know why -I should get out of the market, so I just stood there, leaning -against the counter, my tickets in my hand so that the clerk -couldn’t see them. Pretty soon I heard the clicking of a telegraph -instrument and I saw Tom Burnham, the clerk, turn -his head quickly and listen. Then I felt that something -crooked was hatching, and I decided not to wait any longer. -Just then Dave Wyman by the ticker, began: “Su—” and -quick as a flash I slapped my tickets on the counter in front -of the clerk and yelled, “Close Sugar!” before Dave had -finished calling the price. So, of course, the house had to -close my Sugar at the last quotation. What Dave called -turned out to be 103 again.</p> - -<p>According to my dope Sugar should have broken 103 by -now. The engine wasn’t hitting right. I had the feeling that -there was a trap in the neighbourhood. At all events, the -telegraph instrument was now going like mad and I noticed -that Tom Burnham, the clerk, had left my tickets unmarked -where I laid them, and was listening to the clicking as if he -were waiting for something. So I yelled at him: “Hey, Tom, -what in hell are you waiting for? Mark the price on these -tickets—103! Get a gait on!”</p> - -<p>Everybody in the room heard me and began to look -toward us and ask what was the trouble, for, you see, while -the Cosmopolitan had never laid down, there was no telling, -and a run on a bucket shop can start like a run on a bank. If -one customer gets suspicious the others follow suit. So Tom -looked sulky, but came over and marked my tickets “Closed -at 103” and shoved the seven of them over toward me. He -sure had a sour face.</p> - -<p><span class="pagenum" id="Page_12">12</span> -Say, the distance from Tom’s place to the cashier’s cage -wasn’t over eight feet. But I hadn’t got to the cashier to get -my money when Dave Wyman by the ticker yelled excitedly: -“Gosh! Sugar, 108!” But it was too late; so I just -laughed and called over to Tom, “It didn’t work that time, -did it, old boy?”</p> - -<p>Of course, it was a put-up job. Henry Williams and I together -were short six thousand shares of Sugar. That bucket -shop had my margin and Henry’s, and there may have been -a lot of other Sugar shorts in the office; possibly eight or ten -thousand shares in all. Suppose they had $20,000 in Sugar -margins. That was enough to pay the shop to thimblerig the -market on the New York Stock Exchange and wipe us out. -In the old days whenever a bucket shop found itself loaded -with too many bulls on a certain stock it was a common -practice to get some broker to wash down the price of that -particular stock far enough to wipe out all the customers -that were long of it. This seldom cost the bucket shop more -than a couple of points on a few hundred shares, and they -made thousands of dollars.</p> - -<p>That was what the Cosmopolitan did to get me and Henry -Williams and the other Sugar shorts. Their brokers in New -York ran up the price to 108. Of course it fell right back, but -Henry and a lot of others were wiped out. Whenever there -was an unexplained sharp drop which was followed by instant -recovery, the newspapers in those days used to call it -a bucket-shop drive.</p> - -<p>And the funniest thing was that not later than ten days -after the Cosmopolitan people tried to double-cross me a -New York operator did them out of over seventy thousand -dollars. This man, who was quite a market factor in his day -and a member of the New York Stock Exchange, made a -great name for himself as a bear during the Bryan panic of -’96. He was forever running up against Stock Exchange rules -that kept him from carrying out some of his plans at the expense -of his fellow members. One day he figured that there<span class="pagenum" id="Page_13">13</span> -would be no complaints from either the Exchange or the -police authorities if he took from the bucket shops of the -land some of their ill-gotten gains. In the instance I speak of -he sent thirty-five men to act as customers. They went to the -main office and to the bigger branches. On a certain day at a -fixed hour the agents all bought as much of a certain stock -as the managers would let them. They had instructions to -sneak out at a certain profit. Of course what he did was to -distribute bull tips on that stock among his cronies and then -he went in to the floor of the Stock Exchange and bid up the -price, helped by the room traders, who thought he was a -good sport. Being careful to pick out the right stock for that -work, there was no trouble in putting up the price three or -four points. His agents at the bucket shops cashed in as -prearranged.</p> - -<p>A fellow told me the originator cleaned up seventy thousand -dollars net, and his agents made their expenses and -their pay besides. He played that game several times all -over the country, punishing the bigger bucket shops of New -York, Boston, Philadelphia, Chicago, Cincinnati and St. -Louis. One of his favorite stocks was Western Union, because -it was so easy to move a semiactive stock like that a few -points up or down. His agents bought it at a certain figure, -sold at two points profit, went short and took three points -more. By the way, I read the other day that that man died, -poor and obscure. If he had died in 1896 he would have got -at least a column on the first page of every New York paper. -As it was he got two lines on the fifth.</p> - -<hr /> - -<p><span class="pagenum" id="Page_14">14</span></p> - -<div class="chapter"> -<h2 id="II"><i>II</i></h2> -</div> - -<p class="in0"><span class="firstword">Between the discovery</span> that the Cosmopolitan Stock -Brokerage Company was ready to beat me by foul means if -the killing handicap of a three-point margin and a point-and-a-half -premium didn’t do it, and hints that they didn’t -want my business anyhow, I soon made up my mind to go -to New York, where I could trade in the office of some -member of the New York Stock Exchange. I didn’t want any -Boston branch, where the quotations had to be telegraphed. -I wanted to be close to the original source. I came to New -York at the age of 21, bringing with me all I had, twenty-five -hundred dollars.</p> - -<p>I told you I had ten thousand dollars when I was twenty, -and my margin on that Sugar deal was over ten thousand. -But I didn’t always win. My plan of trading was sound -enough and won oftener than it lost. If I had stuck to it I’d -have been right perhaps as often as seven out of ten times. -<em>In fact, I always made money when I was sure I was right -before I began. What beat me was not having brains enough -to stick to my own game—that is, to play the market only -when I was satisfied that precedents favored my play.</em> There -is a time for all things, but I didn’t know it. And that is precisely -what beats so many men in Wall Street who are very -far from being in the main sucker class. There is the plain -fool, who does the wrong thing at all times everywhere, but -there is the Wall Street fool, who thinks he must trade all the -time. No man can always have adequate reasons for buying<span class="pagenum" id="Page_15">15</span> -or selling stocks daily—or sufficient knowledge to make his -play an intelligent play.</p> - -<p>I proved it. Whenever I read the tape by the light of experience -I made money, but when I made a plain fool play -I had to lose. I was no exception, was I? There was the huge -quotation board staring me in the face, and the ticker going -on, and people trading and watching their tickets turn into -cash or into waste paper. Of course I let the craving for excitement -get the better of my judgment. In a bucket shop -where your margin is a shoestring you don’t play for long -pulls. You are wiped too easily and quickly. The desire for -constant action irrespective of underlying conditions is responsible -for many losses in Wall Street even among the -professionals, who feel that they must take home some -money every day, as though they were working for regular -wages. I was only a kid, remember. [I did not know then -what I learned later, what made me fifteen years later, wait -two long weeks and see a stock on which I was very bullish -go up thirty points before I felt that it was safe to buy it. I -was broke and was trying to get back, and I couldn’t afford -to play recklessly. I had to be right, and so I waited.] That -was in 1915. It’s a long story. I’ll tell it later in its proper -place. Now let’s go on from where after years of practice at -beating them I let the bucket shops take away most of my -winnings.</p> - -<p>And with my eyes wide open, to boot! And it wasn’t the -only period of my life when I did it, either. A stock operator -has to fight a lot of expensive enemies within himself. Anyhow, -I came to New York with twenty-five hundred dollars. -There were no bucket shops here that a fellow could trust. -The Stock Exchange and the police between them had succeeded -in closing them up pretty tight. Besides, I wanted to -find a place where the only limit to my trading would be the -size of my stake. I didn’t have much of one, but I didn’t expect -it to stay little forever. The main thing at the start was -to find a place where I wouldn’t have to worry about getting<span class="pagenum" id="Page_16">16</span> -a square deal. So I went to a New York Stock Exchange -house that had a branch at home where I knew some of the -clerks. They have long since gone out of business. I wasn’t -there long, didn’t like one of the partners, and then I went -to A. R. Fullerton & Co. Somebody must have told them -about my early experiences, because it was not long before -they all got to calling me the Boy Trader. I’ve always looked -young. It was a handicap in some ways but it compelled me -to fight for my own because so many tried to take advantage -of my youth. The chaps at the bucket shops seeing what a -kid I was, always thought I was a fool for luck and that -was the only reason why I beat them so often.</p> - -<p>Well, it wasn’t six months before I was broke. I was a -pretty active trader and had a sort of reputation as a winner. -I guess my commissions amounted to something. I ran up -my account quite a little, but, of course, in the end I lost. I -played carefully; but I had to lose. I’ll tell you the reason: -it was my remarkable success in the bucket shops!</p> - -<p>I could beat the game my way only in a bucket shop, -where I was betting on fluctuations. My tape reading had to -do with that exclusively. When I bought the price was there -on the quotation board, right in front of me. Even before I -bought I knew exactly the price I’d have to pay for my stock. -And I always could sell on the instant. I could scalp successfully, -because I could move like lightning. [I could follow up -my luck or cut my loss in a second.] Sometimes, for instance, -I was certain a stock would move at least a point. Well, I -didn’t have to hog it, I could put up a point margin and -double my money in a jiffy; or I’d take half a point. On one -or two hundred shares a day, that wouldn’t be bad at the -end of the month, what?</p> - -<p>The practical trouble with that arrangement, of course, -was that even if the bucket shop had the resources to stand -a big steady loss, they wouldn’t do it. They wouldn’t have a -customer around the place who had the bad taste to win all -the time.</p> - -<p><span class="pagenum" id="Page_17">17</span> -At all events, what was a perfect system for trading in -bucket shops didn’t work in Fullerton’s office. There I was -actually buying and selling stocks. The price of Sugar on the -tape might be 105 and I could see a three-point drop coming. -As a matter of fact, at the very moment the ticker was -printing 105 on the tape the real price on the floor of the -Exchange might be 104 or 103. By the time my order to sell -a thousand shares got to Fullerton’s floor man to execute, the -price might be still lower. I couldn’t tell at what price I had -put out my thousand shares until I got a report from the -clerk. When I surely would have made three thousand on -the same transaction in a bucket shop I might not make a -cent in a Stock Exchange house. Of course, I have taken an -extreme case, but the fact remains that in A. R. Fullerton’s -office the tape always talked ancient history to me, as far as -my system of trading went, and I didn’t realise it.</p> - -<p>And then, too, if my order was fairly big my own sale -would tend further to depress the price. In the bucket shop -I didn’t have to figure on the effect of my own trading. I lost -in New York because the game was altogether different. It -was not that I now was playing it legitimately that made me -lose, but that I was playing it ignorantly. I have been told -that I am a good reader of the tape. But reading the tape -like an expert did not save me. I might have made out a -great deal better if I had been on the floor myself, a room -trader. In a particular crowd perhaps I might have adapted -my system to the conditions immediately before me. But, of -course, if I had got to operating on such a scale as I do now, -for instance, the system would have equally failed me, on -account of the effect of my own trading on prices.</p> - -<p>In short, I did not know the game of stock speculation. I -knew a part of it, a rather important part, which has been -very valuable to me at all times. But if with all I had I still -lost, what chance does the green outsider have of winning, -or, rather, of cashing in?</p> - -<p>It didn’t take me long to realise that there was something<span class="pagenum" id="Page_18">18</span> -wrong with my play, but I couldn’t spot the exact trouble. -There were times when my system worked beautifully, and -then, all of a sudden, nothing but one swat after another. I -was only twenty-two, remember; not that I was so stuck on -myself that I didn’t want to know just where I was at fault, -but that at that age nobody knows much of anything.</p> - -<p>The people in the office were very nice to me. I couldn’t -plunge as I wanted to because of their margin requirements, -but old A. R. Fullerton and the rest of the firm were so kind -to me that after six months of active trading I not only lost -all I had brought and all that I had made there but I even -owed the firm a few hundreds.</p> - -<p>There I was, a mere kid, who had never before been away -from home, flat broke; but I knew there wasn’t anything -wrong with me; only with my play. I don’t know whether I -make myself plain, but I never lose my temper over the -stock market. I never argue with the tape. Getting sore at -the market doesn’t get you anywhere.</p> - -<p>I was so anxious to resume trading that I didn’t lose a -minute, but went to old man Fullerton and said to him, -“Say, A. R., lend me five hundred dollars.”</p> - -<p>“What for?” says he.</p> - -<p>“I’ve got to have some money.”</p> - -<p>“What for?” he says again.</p> - -<p>“For margin, of course,” I said.</p> - -<p>“Five hundred dollars?” he said, and frowned. “You know -they’d expect you to keep up a 10 per cent margin, and that -means one thousand dollars on one hundred shares. Much -better to give you a credit——”</p> - -<p>“No,” I said, “I don’t want a credit here. I already owe the -firm something. What I want is for you to lend me five -hundred dollars so I can go out and get a roll and come -back.”</p> - -<p>“How are you going to do it?” asked old A. R.</p> - -<p>“I’ll go and trade in a bucket shop,” I told him.</p> - -<p>“Trade here,” he said.</p> - -<p><span class="pagenum" id="Page_19">19</span> -“No,” I said. “I’m not sure yet I can beat the game in this -office, but I am sure I can take money out of the bucket -shops. I know that game. I have a notion that I know just -where I went wrong here.”</p> - -<p>He let me have it, and I went out of that office where the -Boy Terror of the Bucket Shops, as they called him, had lost -his pile. I couldn’t go back home because the shops there -would not take my business. New York was out of the question; -there weren’t any doing business at that time. They tell -me that in the 90’s Broad Street and New Street were full of -them. But there weren’t any when I needed them in my -business. So after some thinking I decided to go to St. Louis. -I had heard of two concerns there that did an enormous -business all through the Middle West. Their profits must -have been huge. They had branch offices in dozens of towns. -In fact I had been told that there were no concerns in the -East to compare with them for volume of business. They ran -openly and the best people traded there without any qualms. -A fellow even told me that the owner of one of the concerns -was a vice-president of the Chamber of Commerce but that -couldn’t have been in St. Louis. At any rate, that is where I -went with my five hundred dollars to bring back a stake to -use as margin in the office of A. R. Fullerton & Co., members -of the New York Stock Exchange.</p> - -<p>When I got to St. Louis I went to the hotel, washed up -and went out to find the bucket shops. One was the J. G. -Dolan Company, and the other was H. S. Teller & Co. I knew -I could beat them. I was going to play dead safe—carefully -and conservatively. My one fear was that somebody might -recognize me and give me away, because the bucket shops -all over the country had heard of the Boy Trader. They are -like gambling houses and get all the gossip of the profesh.</p> - -<p>Dolan was nearer than Teller, and I went there first. I was -hoping I might be allowed to do business a few days before -they told me to take my trade somewhere else. I walked in. -It was a whopping big place and there must have been at<span class="pagenum" id="Page_20">20</span> -least a couple of hundred people there staring at the quotations. -I was glad, because in such a crowd I stood a better -chance of being unnoticed. I stood and watched the board -and looked them over carefully until I picked out the stock -for my initial play.</p> - -<p>I looked around and saw the order-clerk at the window -where you put down your money and get your ticket. He -was looking at me so I walked up to him and asked, “Is this -where you trade in cotton and wheat?”</p> - -<p>“Yes, sonny,” says he.</p> - -<p>“Can I buy stocks too?”</p> - -<p>“You can if you have the cash,” he said.</p> - -<p>“Oh, I got that all right, all right,” I said like a boasting -boy.</p> - -<p>“You have, have you?” he says with a smile.</p> - -<p>“How much stock can I buy for one hundred dollars?” I -asked, peeved-like.</p> - -<p>“One hundred; if you got the hundred.”</p> - -<p>“I got the hundred. Yes; and two hundred too!” I told him.</p> - -<p>“Oh, my!” he said.</p> - -<p>“Just you buy me two hundred shares,” I said sharply.</p> - -<p>“Two hundred what?” he asked, serious now. It was -business.</p> - -<p>I looked at the board again as if to guess wisely and told -him, “Two hundred Omaha.”</p> - -<p>“All right!” he said. He took my money, counted it and -wrote out the ticket.</p> - -<p>“What’s your name?” he asked me, and I answered, “Horace -Kent.”</p> - -<p>He gave me the ticket and I went away and sat down -among the customers to wait for the roll to grow. I got quick -action and I traded several times that day. On the next day -too. In two days I made twenty-eight hundred dollars, and I -was hoping they’d let me finish the week out. At the rate I -was going, that wouldn’t be so bad. Then I’d tackle the other<span class="pagenum" id="Page_21">21</span> -shop, and if I had similar luck there I’d go back to New -York with a wad I could do something with.</p> - -<p>On the morning of the third day, when I went to the window, -bashful-like, to buy five hundred B.R.T. the clerk said -to me, “Say, Mr. Kent, the boss wants to see you.”</p> - -<p>I knew the game was up. But I asked him, “What does he -want to see me about?”</p> - -<p>“I don’t know.”</p> - -<p>“Where is he?”</p> - -<p>“In his private office. Go in that way.” And he pointed -to a door.</p> - -<p>I went in. Dolan was sitting at his desk. He swung around -and said, “Sit down, Livingston.”</p> - -<p>He pointed to a chair. My last hope vanished. I don’t -know how he discovered who I was; perhaps from the hotel -register.</p> - -<p>“What do you want to see me about?” I asked him.</p> - -<p>“Listen, kid. I ain’t got nothin’ agin yeh, see? Nothin’ at -all. See?”</p> - -<p>“No, I don’t see,” I said.</p> - -<p>He got up from his swivel chair. He was a whopping big -guy. He said to me, “Just come over here, Livingston, will -yeh?” and he walked to the door. He opened it and then he -pointed to the customers in the big room.</p> - -<p>“D’yeh see them?” he asked me.</p> - -<p>“See what?”</p> - -<p>“Them guys. Take a look at ’em, kid. There’s three hundred -of ’em! Three hundred suckers! They feed me and -my family. See? Three hundred suckers! Then yeh come -in, and in two days yeh cop more than I get out of the three -hundred in two weeks. That ain’t business, kid—not for -me! I ain’t got nothin’ agin yeh. Yer welcome to what -ye’ve got. But yeh don’t any more. There ain’t any here -for yeh!”</p> - -<p>“Why, I——”</p> - -<p>“That’s all. I seen yeh come in day before yesterday, and<span class="pagenum" id="Page_22">22</span> -I didn’t like yer looks. On the level, I didn’t. I spotted yeh -for a ringer. I called in that jackass there”—he pointed to the -guilty clerk—“and asked what you’d done; and when he told -me I said to him: ‘I don’t like that guy’s looks. He’s a -ringer!’ And that piece of cheese says: ‘Ringer my eye, boss! -His name is Horace Kent, and he’s a rah-rah boy playing at -being used to long pants. He’s all right!’ Well, I let him have -his way. That blankety-blank cost me twenty-eight hundred -dollars. I don’t grudge it yeh, my boy. But the safe is -locked for yeh.”</p> - -<p>“Look here—” I began.</p> - -<p>“You look here, Livingston,” he said. “I’ve heard all about -yeh. I make my money coppering suckers’ bets, and yeh -don’t belong here. I aim to be a sport and yer welcome to -what yeh pried off’n us. But more of that would make me a -sucker, now that I know who yeh are. So toddle along, -sonny!”</p> - -<p>I left Dolan’s place with my twenty-eight hundred dollars’ -profit. Teller’s place was in the same block. I had found out -that Teller was a very rich man who also ran up a lot of pool -rooms. I decided to go to his bucket shop. I wondered -whether it would be wise to start moderately and work up to -a thousand shares or to begin with a plunge, on the theory -that I might not be able to trade more than one day. They -get wise mighty quick when they’re losing and I did want to -buy one thousand B.R.T. I was sure I could take four or -five points out of it. But if they got suspicious or if too many -customers were long of that stock they might not let me -trade at all. I thought perhaps I’d better scatter my trades at -first and begin small.</p> - -<p>It wasn’t as big a place as Dolan’s, but the fixtures were -nicer and evidently the crowd was of a better class. This -suited me down to the ground and I decided to buy my one -thousand B.R.T. So I stepped up to the proper window -and said to the clerk, “I’d like to buy some B.R.T. What’s -the limit?”</p> - -<p><span class="pagenum" id="Page_23">23</span> -“There’s no limit,” said the clerk. “You can buy all you -please—if you’ve got the money.”</p> - -<p>“Buy fifteen hundred shares,” I says, and took my roll from -my pocket while the clerk starts to write the ticket.</p> - -<p>Then I saw a red-headed man just shove that clerk away -from the counter. He leaned across and said to me, “Say, -Livingston, you go back to Dolan’s. We don’t want your -business.”</p> - -<p>“Wait until I get my ticket,” I said. “I just bought a little -B.R.T.”</p> - -<p>“You get no ticket here,” he said. By this time other clerks -had got behind him and were looking at me. “Don’t ever -come here to trade. We don’t take your business. Understand?”</p> - -<p>There was no sense in getting mad or trying to argue, so -I went back to the hotel, paid my bill and took the first train -back to New York. It was tough. I wanted to take back -some real money and that Teller wouldn’t let me make even -one trade.</p> - -<p>I got back to New York, paid Fullerton his five hundred, -and started trading again with the St. Louis money. I had -good and bad spells, but I was doing better than breaking -even. After all, I didn’t have much to unlearn; only to grasp -the one fact that there was more to the game of stock -speculation than I had considered before I went to Fullerton’s -office to trade. I was like one of those puzzle fans, doing -the crossword puzzles in the Sunday supplement. He isn’t -satisfied until he gets it. Well, I certainly wanted to find the -solution to my puzzle. I thought I was done with trading in -bucket shops. But I was mistaken.</p> - -<p>About a couple of months after I got back to New York an -old jigger came into Fullerton’s office. He knew A.R. Somebody -said they’d once owned a string of race horses together. -It was plain he’d seen better days. I was introduced -to old McDevitt. He was telling the crowd about a bunch of -Western race-track crooks who had just pulled off some<span class="pagenum" id="Page_24">24</span> -skin game out in St. Louis. The head devil, he said, was a -pool-room owner by the name of Teller.</p> - -<p>“What Teller?” I asked him.</p> - -<p>“Hi Teller; H. S. Teller.”</p> - -<p>“I know that bird,” I said.</p> - -<p>“He’s no good,” said McDevitt.</p> - -<p>“He’s worse than that,” I said, “and I have a little matter -to settle with him.”</p> - -<p>“Meaning how?”</p> - -<p>“The only way I can hit any of the short sports is through -their pocketbook. I can’t touch him in St. Louis just now, -but some day I will.” And I told McDevitt my grievance.</p> - -<p>“Well,” says old Mac, “he tried to connect here in New -York and couldn’t make it, so he’s opened a place in Hoboken. -The word’s gone out that there is no limit to the play -and that the house roll has got the Rock of Gibraltar faded -to the shadow of a bantam flea.”</p> - -<p>“What sort of a place?” I thought he meant pool room.</p> - -<p>“Bucket shop,” said McDevitt.</p> - -<p>“Are you sure it’s open?”</p> - -<p>“Yes; I’ve seen several fellows who’ve told me about it.”</p> - -<p>“That’s only hearsay,” I said. “Can you find out positively -if it’s running, and also how heavy they’ll really let a man -trade?”</p> - -<p>“Sure, sonny,” said McDevitt. “I’ll go myself to-morrow -morning, and come back and tell you.”</p> - -<p>He did. It seems Teller was already doing a big business -and would take all he could get. This was on Friday. The -market had been going up all that week—this was twenty -years ago, remember—and it was a cinch the bank statement -on Saturday would show a big decrease in the surplus reserve. -That would give the conventional excuse to the big -room traders to jump on the market and try to shake out -some of the weak commission-house accounts. There would -be the usual reactions in the last half hour of the trading, -particularly in stocks in which the public had been the most<span class="pagenum" id="Page_25">25</span> -active. Those, of course, also would be the very stocks that -Teller’s customers would be most heavily long of, and the -shop might be glad to see some short selling in them. There -is nothing so nice as catching the suckers both ways; and -nothing so easy—with one-point margins.</p> - -<p>That Saturday morning I chased over to Hoboken to the -Teller place. They had fitted up a big customers’ room with -a dandy quotation board and a full force of clerks and a -special policeman in gray. There were about twenty-five -customers.</p> - -<p>I got talking to the manager. He asked me what he could -do for me and I told him nothing; that a fellow could make -much more money at the track on account of the odds and -the freedom to bet your whole roll and stand to win thousands -in minutes instead of piking for chicken feed in stocks -and having to wait days, perhaps. He began to tell me how -much safer the stock-market game was, and how much some -of their customers made—you’d have sworn it was a regular -broker who actually bought and sold your stocks on the Exchange—and -how if a man only traded heavy he could make -enough to satisfy anybody. He must have thought I was -headed for some pool room and he wanted a whack at my -roll before the ponies nibbled it away, for he said I ought to -hurry up as the market closed at twelve o’clock on Saturdays. -That would leave me free to devote the entire afternoon to -other pursuits. I might have a bigger roll to carry to the track -with me—if I picked the right stocks.</p> - -<p>I looked as if I didn’t believe him, and he kept on buzzing -me. I was watching the clock. At 11:15 I said, “All right,” -and I began to give him selling orders in various stocks. I -put up two thousand dollars in cash, and he was very glad to -get it. He told me he thought I’d make a lot of money and -hoped I’d come in often.</p> - -<p>It happened just as I figured. <em>The traders hammered the -stocks in which they figured they would uncover the most -stops, and, sure enough, prices slid off. I closed out my trades<span class="pagenum" id="Page_26">26</span> -just before the rally of the last five minutes on the usual -traders’ covering.</em></p> - -<p>There was fifty-one hundred dollars coming to me. I went -to cash in.</p> - -<p>“I’m glad I dropped in,” I said to the manager, and gave -him my tickets.</p> - -<p>“Say,” he says to me, “I can’t give you all of it. I wasn’t -looking for such a run. I’ll have it here for you Monday -morning, sure as blazes.”</p> - -<p>“All right. But first I’ll take all you have in the house,” -I said.</p> - -<p>“You’ve got to let me pay off the little fellows,” he said. -“I’ll give you back what you put up, and anything that’s left. -Wait till I cash the other tickets.” So I waited while he paid -off the winners. Oh, I knew my money was safe. Teller -wouldn’t welsh with the office doing such a good business. -And if he did, what else could I do better than to take all he -had then and there? I got my own two thousand dollars and -about eight hundred dollars besides, which was all he had in -the office. I told him I’d be there Monday morning. He -swore the money would be waiting for me.</p> - -<p>I got to Hoboken a little before twelve on Monday. I saw -a fellow talking to the manager that I had seen in the St. -Louis office the day Teller told me to go back to Dolan. I -knew at once that the manager had telegraphed to the home -office and they’d sent up one of their men to investigate the -story. Crooks don’t trust anybody.</p> - -<p>“I came for the balance of my money,” I said to the -manager.</p> - -<p>“Is this the man?” asked the St. Louis chap.</p> - -<p>“Yes,” said the manager, and took a bunch of yellow backs -from his pocket.</p> - -<p>“Hold on!” said the St. Louis fellow to him and then turns -to me, “Say, Livingston, didn’t we tell you we didn’t want -your business?”</p> - -<p>“Give me my money first,” I said to the manager, and he<span class="pagenum" id="Page_27">27</span> -forked over two thousands, four five-hundreds and three -hundreds.</p> - -<p>“What did you say?” I said to St. Louis.</p> - -<p>“We told you we didn’t want you to trade in our place.”</p> - -<p>“Yes,” I said; “that’s why I came.”</p> - -<p>“Well, don’t come any more. Keep away!” he snarled at -me. The private policeman in gray came over, casual-like. -St. Louis shook his fist at the manager and yelled: “You -ought to’ve known better, you poor boob, than to let this guy -get into you. He’s Livingston. You had your orders.”</p> - -<p>“Listen, you,” I said to the St. Louis man. “This isn’t St. -Louis. You can’t pull off any trick here, like your boss did -with Belfast Boy.”</p> - -<p>“You keep away from this office! You can’t trade here!” -he yells.</p> - -<p>“If I can’t trade here nobody else is going to,” I told him. -“You can’t get away with that sort of stuff here.”</p> - -<p>Well, St. Louis changed his tune at once.</p> - -<p>“Look here, old boy,” he said, all fussed up, “do us a favor. -Be reasonable! You know we can’t stand this every day. The -old man’s going to hit the ceiling when he hears who it was. -Have a heart, Livingston!”</p> - -<p>“I’ll go easy,” I promised.</p> - -<p>“Listen to reason, won’t you? For the love of Pete, keep -away! Give us a chance to get a good start. We’re new -here. Will you?”</p> - -<p>“I don’t want any of this high-and-mighty business the -next time I come,” I said, and left him talking to the manager -at the rate of a million a minute. I’d got some money -out of them for the way they treated me in St. Louis. There -wasn’t any sense in my getting hot or trying to close them up. -I went back to Fullerton’s office and told McDevitt what had -happened. Then I told him that if it was agreeable to him -I’d like to have him go to Teller’s place and begin trading in -twenty or thirty share lots, to get them used to him. Then,<span class="pagenum" id="Page_28">28</span> -the moment I saw a good chance to clean up big, I’d telephone -him and he could plunge.</p> - -<p>I gave McDevitt a thousand dollars and he went to Hoboken -and did as I told him. He got to be one of the regulars. -Then one day when I thought I saw a break impending I -slipped Mac the word and he sold all they’d let him. I -cleared twenty-eight hundred dollars that day, after giving -Mac his rake-off and paying expenses, and I suspect Mac -put down a little bet of his own besides. Less than a month -after that, Teller closed his Hoboken branch. The police got -busy. And, anyhow, it didn’t pay, though I only traded -twice. We ran into a crazy bull market when stocks didn’t -react enough to wipe out even the one-point margins, and, -of course, all the customers were bulls and winning and -pyramiding. No end of bucket shops busted all over the -country.</p> - -<p>Their game has changed. Trading in the old-fashioned -bucket shop had some decided advantages over speculating -in a reputable broker’s office. For one thing the automatic -closing out of your trade when the margin reached the exhaustion -point was the best kind of stop-loss order. You -couldn’t get stung for more than you had put up and there -was no danger of rotten execution of orders, and so on. In -New York the shops never were as liberal with their patrons -as I’ve heard they were in the West. Here they used to limit -the possible profit on certain stocks of the football order to -two points. Sugar and Tennessee Coal and Iron were among -these. No matter if they moved ten points in ten minutes -you could only make two on one ticket. They figured that -otherwise the customer was getting too big odds; he stood to -lose one dollar and to make ten. And then there were times -when all the shops, including the biggest, refused to take -orders on certain stocks. In 1900, on the day before Election -Day, when it was foregone conclusion that McKinley would -win, not a shop in the land let its customers buy stocks. The -election odds were 3 to 1 on McKinley. By buying stocks on<span class="pagenum" id="Page_29">29</span> -Monday you stood to make from three to six points or more. -A man could bet on Bryan and buy stocks and make sure -money. The bucket shops refused orders all that day.</p> - -<p>If it hadn’t been for their refusing to take my business -I never would have stopped trading with them. And then I -never would have learned that there was much more to the -game of stock speculation than to play for fluctuations of a -few points.</p> - -<hr /> - -<p><span class="pagenum" id="Page_30">30</span></p> - -<div class="chapter"> -<h2 id="III"><i>III</i></h2> -</div> - -<p class="in0"><span class="firstword">It takes a man</span> a long time to learn all the lessons of all his -mistakes. They say there are two sides to everything. But -there is only one side to the stock market; and it is not the -bull side or the bear side, but the right side. It took me -longer to get that general principle fixed firmly in my mind -than it did most of the more technical phases of the game -of stock speculation.</p> - -<p>I have heard of people who amuse themselves conducting -imaginary operations in the stock market to prove with imaginary -dollars how right they are. Sometimes these ghost -gamblers make millions. It is very easy to be a plunger that -way. It is like the old story of the man who was going to -fight a duel the next day.</p> - -<p>His second asked him, “Are you a good shot?”</p> - -<p>“Well,” said the duelist, “I can snap the stem of a wineglass -at twenty paces,” and he looked modest.</p> - -<p>“That’s all very well,” said the unimpressed second. “But -can you snap the stem of the wineglass while the wineglass -is pointing a loaded pistol straight at your heart?”</p> - -<p>With me I must back my opinions with my money. My -losses have taught me that I must not begin to advance until -I am sure I shall not have to retreat. But if I cannot advance -I do not move at all. I do not mean by this that a man should -not limit his losses when he is wrong. He should. But that -should not breed indecision. All my life I have made mistakes, -but in losing money I have gained experience and accumulated<span class="pagenum" id="Page_31">31</span> -a lot of valuable don’ts. I have been flat broke -several times, but my loss has never been a total loss. Otherwise, -I wouldn’t be here now. I always knew I would have -another chance and that I would not make the same mistake -a second time. I believed in myself.</p> - -<p>A man must believe in himself and his judgment if he expects -to make a living at this game. That is why I don’t believe -in tips. If I buy stocks on Smith’s tip I must sell -those same stocks on Smith’s tip. I am depending on him. -Suppose Smith is away on a holiday when the selling time -comes around? No, sir, nobody can make big money on -what someone else tells him to do. <em>I know from experience -that nobody can give me a tip or a series of tips that will -make more money for me than my own judgment. It took me -five years to learn to play the game intelligently enough to -make big money when I was right.</em></p> - -<p>I didn’t have as many interesting experiences as you might -imagine. I mean, the process of learning how to speculate -does not seem very dramatic at this distance. I went broke -several times, and that is never pleasant, but the way I lost -money is the way everybody loses money who loses money -in Wall Street. Speculation is a hard and trying business, and -a speculator must be on the job all the time or he’ll soon -have no job to be on.</p> - -<p>My task, as I should have known after my early reverses at -Fullerton’s, was very simple: To look at speculation from -another angle. But I didn’t know that there was much more -to the game than I could possibly learn in the bucket shops. -There I thought I was beating the game when in reality I -was only beating the shop. At the same time the tape-reading -ability that trading in bucket-shops developed in me and -the training of my memory have been extremely valuable. -Both of these things came easy to me. I owe my early success -as a trader to them and not to my brains or knowledge, because -my mind was untrained and my ignorance was colossal.<span class="pagenum" id="Page_32">32</span> -The game taught me the game. And it didn’t spare the -rod while teaching.</p> - -<p>I remember my very first day in New York. I told you -how the bucket shops, by refusing to take my business, drove -me to seek a reputable commission house. One of the boys in -the office where I got my first job was working for Harding -Brothers, members of the New York Stock Exchange. I arrived -in this city in the morning, and before one o’clock -that same day I had opened an account with the firm and -was ready to trade.</p> - -<p>I didn’t explain to you how natural it was for me to -trade there exactly as I had done in the bucket shops, where -all I did was to bet on fluctuations and catch small but sure -changes in prices. Nobody offered to point out the essential -differences or set me right. If somebody had told me my -method would not work I nevertheless would have tried it -out to make sure for myself, for when I am wrong only one -thing convinces me of it, and that is, to lose money. And I -am only right when I make money. That is speculating.</p> - -<p>They were having some pretty lively times those days and -the market was very active. That always cheers up a fellow. -I felt at home right away. There was the old familiar quotation -board in front of me, talking a language that I had -learned before I was fifteen years old. There was a boy doing -exactly the same thing I used to do in the first office I ever -worked in. There were the customers—same old bunch—looking -at the board or standing by the ticket calling out the -prices and talking about the market. The machinery was to -all appearances the same machinery that I was used to. The -atmosphere was the atmosphere I had breathed since I had -made my first stock-market money—$3.12 in Burlington. The -same kind of ticker and the same kind of traders, therefore -the same kind of game. And remember, I was only twenty-two. -I suppose I thought I knew the game from A to Z. Why -shouldn’t I?</p> - -<p>I watched the board and saw something that looked good<span class="pagenum" id="Page_33">33</span> -to me. It was behaving right. I bought a hundred at 84. I got -out at 85 in less than a half hour. Then I saw something else -I liked, and I did the same thing; took three-quarters of a -point net within a very short time. I began well, didn’t I?</p> - -<p>Now mark this: On that, my first day as a customer of a -reputable Stock Exchange house, and only two hours of it at -that, I traded in eleven hundred shares of stock, jumping -in and out. And the net result of the day’s operations was -that I lost exactly eleven hundred dollars. That is to say, on -my first attempt, nearly one-half of my stake went up the -flue. And remember, some of the trades showed me a profit. -But I quit eleven hundred dollars minus for the day.</p> - -<p>It didn’t worry me, because I couldn’t see where there was -anything wrong with me. My moves, also, were right -enough, and if I had been trading in the old Cosmopolitan -shop I’d have broken better than even. That the machine -wasn’t as it ought to be, my eleven hundred vanished dollars -plainly told me. But as long as the machinist was all -right there was no need to stew. Ignorance at twenty-two -isn’t a structural defect.</p> - -<p>After a few days I said to myself, “I can’t trade this way -here. The ticker doesn’t help as it should!” But I let it go -at that without getting down to bed rock. I kept it up, -having good days and bad days, until I was cleaned out. I -went to old Fullerton and got him to stake me to five hundred -dollars. And I came back from St. Louis, as I told you, -with money I took out of the bucket shops there—a game I -could always beat.</p> - -<p>I played more carefully and did better for a while. As soon -as I was in easy circumstances I began to live pretty well. I -made friends and had a good time. I was not quite twenty-three, -remember; all alone in New York with easy money in -my pockets and the belief in my heart that I was beginning -to understand the new machine.</p> - -<p>I was making allowances for the actual execution of my -orders on the floor of the Exchange, and moving more cautiously.<span class="pagenum" id="Page_34">34</span> -But I was still sticking to the tape—that is, I was -still ignoring general principles; and as long as I did that I -could not spot the exact trouble with my game.</p> - -<p>We ran into the big boom of 1901 and I made a great deal -of money—that is, for a boy. You remember those times? -The prosperity of the country was unprecedented. We not -only ran into an era of industrial consolidations and combinations -of capital that beat anything we had had up to -that time, but the public went stock mad. In previous flush -times, I have heard, Wall Street used to brag of -two-hundred-and-fifty-thousand-share -days, when securities of a par -value of twenty-five million dollars changed hands. But in -1901 we had a three-million-share day. Everybody was making -money. The steel crowd came to town, a horde of millionaires -with no more regard for money than drunken sailors. -The only game that satisfied them was the stock market. -We had some of the biggest high rollers the Street ever saw: -John W. Gates, of ‘Bet-you-a-million’ fame, and his friends, -like John A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore -crowd, who sold part of their steel holdings and -with the proceeds bought in the open market the actual -majority of the stock of the great Rock Island system; and -Schwab and Frick and Phipps and the Pittsburg coterie; to -say nothing of scores of men who were lost in the shuffle but -would have been called great plungers at any other time. A -fellow could buy and sell all the stock there was. Keene -made a market for the U.S. Steel shares. A broker sold one -hundred thousand shares in a few minutes. A wonderful -time! And there were some wonderful winnings. And no -taxes to pay on stock sales! And no day of reckoning in -sight.</p> - -<p>Of course, after a while, I heard a lot of calamity howling -and the old stagers said everybody—except themselves—had -gone crazy. But everybody except themselves was making -money. I knew, of course, there must be a limit to the advances -and an end to the crazy buying of A.O.T.—Any Old<span class="pagenum" id="Page_35">35</span> -Thing—and I got bearish. But every time I sold I lost -money, and if it hadn’t been that I ran darn quick I’d have -lost a heap more. I looked for a break, but I was playing -safe—making money when I bought and chipping it out -when I sold short—so that I wasn’t profiting by the boom as -much as you’d think when you consider how heavily I used -to trade, even as a boy.</p> - -<p>There was one stock that I wasn’t short of, and that was -Northern Pacific. My tape reading came in handy. I thought -most stocks had been bought to a standstill, but Little Nipper -behaved as if it were going still higher. We know now -that both the common and the preferred were being steadily -absorbed by the Kuhn-Loeb-Harriman combination. Well, I -was long a thousand shares of Northern Pacific common, and -held it against the advice of everybody in the office. When it -got to about 110 I had thirty points profit, and I grabbed it. -It made my balance at my brokers’ nearly fifty thousand -dollars, the greatest amount of money I had been able to accumulate -up to that time. It wasn’t so bad for a chap who -had lost every cent trading in that selfsame office a few -months before.</p> - -<p>If you remember, the Harriman crowd notified Morgan -and Hill of their intention to be represented in the Burlington-Great -Northern-Northern Pacific combination, and then -the Morgan people at first instructed Keene to buy fifty -thousand shares of N.P. to keep the control in their possession. -I have heard that Keene told Robert Bacon to make the -order one hundred and fifty thousand shares and the bankers -did. At all events, Keene sent one of his brokers, Eddie Norton, -into the N.P. crowd and he bought one hundred thousand -shares of the stock. This was followed by another order, -I think, of fifty thousand shares additional, and the famous -corner followed. After the market closed on May 8, 1901, the -whole world knew that a battle of financial giants was on. -No two such combinations of capital had ever opposed each<span class="pagenum" id="Page_36">36</span> -other in this country. Harriman against Morgan; an irresistible -force meeting an immovable object.</p> - -<p>There I was on the morning of May ninth with nearly fifty -thousand dollars in cash and no stocks. As I told you, I had -been very bearish for some days, and here was my chance -at last. I knew what would happen—an awful break and -then some wonderful bargains. There would be a quick recovery -and big profits—for those who had picked up the -bargains. It didn’t take Sherlock Holmes to figure this out. -We were going to have an opportunity to catch them coming -and going, not only for big money but for sure money.</p> - -<p>Everything happened as I had foreseen. I was dead right -and—I lost every cent I had! I was wiped out by something -that was unusual. If the unusual never happened there -would be no difference in people and then there wouldn’t be -any fun in life. The game would become merely a matter of -addition and subtraction. It would make of us a race of -bookkeepers with plodding minds. It’s the guessing that develops -a man’s brain power. Just consider what you have to -do to guess right.</p> - -<p>The market fairly boiled, as I had expected. The transactions -were enormous and the fluctuations unprecedented -in extent. I put in a lot of selling orders at the market. When -I saw the opening prices I had a fit, the breaks were so -awful. My brokers were on the job. They were as competent -and conscientious as any; but by the time they executed my -orders the stocks had broken twenty points more. The tape -was way behind the market and reports were slow in coming -in by reason of the awful rush of business. When I found out -that the stocks I had ordered sold when the tape said the -price was, say, 100 and they got mine off at 80, making a -total decline of thirty or forty points from the previous -night’s close, it seemed to me that I was putting out shorts -at a level that made the stocks I sold the very bargains I had -planned to buy. The market was not going to drop right<span class="pagenum" id="Page_37">37</span> -through to China. So I decided instantly to cover my shorts -and go long.</p> - -<p>My brokers bought; not at the level that had made me -turn, but at the prices prevailing in the Stock Exchange -when their floor man got my orders. They paid an average of -fifteen points more than I had figured on. A loss of thirty-five -points in one day was more than anybody could stand.</p> - -<p>The ticker beat me by lagging so far behind the market. I -was accustomed to regarding the tape as the best little friend -I had because I bet according to what it told me. But this -time the tape double-crossed me. The divergence between -the printed and the actual prices undid me. It was the -sublimation of my previous unsuccess, the selfsame thing -that had beaten me before. It seems so obvious now that -tape reading is not enough, irrespective of the brokers’ execution, -that I wonder why I didn’t then see both my trouble -and the remedy for it.</p> - -<p>I did worse than not see it; I kept on trading, in and out, -regardless of the execution. You see, I never could trade -with a limit. I must take my chances with the market. -That is what I am trying to beat—the market, not the -particular price. When I think I should sell, I sell. When I -think stocks will go up, I buy. My adherence to that general -principle of speculation saved me. To have traded at limited -prices simply would have been my old bucket-shop method -inefficiently adapted for use in a reputable commission -broker’s office. I would never have learned to know what -stock speculation is, but would have kept on betting on what -a limited experience told me was a sure thing.</p> - -<p>Whenever I did try to limit the prices in order to minimize -the disadvantages of trading at the market when the ticker -lagged, I simply found that the market got away from me. -This happened so often that I stopped trying. I can’t tell you -how it came to take me so many years to learn that instead -of placing piking bets on what the next few quotations were<span class="pagenum" id="Page_38">38</span> -going to be, my game was to anticipate what was going to -happen in a big way.</p> - -<p>After my May ninth mishap I plugged along, using a modified -but still defective method. If I hadn’t made money some -of the time I might have acquired market wisdom quicker. -But I was making enough to enable me to live well. I liked -friends and a good time. I was living down the Jersey Coast -that summer, like hundreds of prosperous Wall Street men. -My winnings were not quite enough to offset both my losses -and my living expenses.</p> - -<p>I didn’t keep on trading the way I did through stubbornness. -I simply wasn’t able to state my own problem to myself, -and, of course, it was utterly hopeless to try to solve it. -I harp on this topic so much to show what I had to go -through before I got to where I could really make money. -My old shotgun and BB shot could not do the work of a -high-power repeating rifle against big game.</p> - -<p>Early that fall I not only was cleaned out again but I was -so sick of the game I could no longer beat that I decided to -leave New York and try something else some other place. I -had been trading since my fourteenth year. I had made my -first thousand dollars when I was a kid of fifteen, and my -first ten thousand before I was twenty-one. I had made and -lost a ten-thousand-dollar stake more than once. In New -York I had made thousands and lost them. I got up to fifty -thousand dollars and two days later that went. I had no -other business and knew no other game. After several years -I was back where I began. No—worse, for I had acquired -habits and a style of living that required money; though that -part didn’t bother me as much as being wrong so consistently.</p> - -<hr /> - -<p><span class="pagenum" id="Page_39">39</span></p> - -<div class="chapter"> -<h2 id="IV"><i>IV</i></h2> -</div> - -<p class="in0"><span class="firstword">Well, I went home.</span> But the moment I was back I knew -that I had but one mission in life and that was to get a -stake and go back to Wall Street. That was the only place -in the country where I could trade heavily. Some day, when -my game was all right, I’d need such a place. When a man is -right he wants to get all that is coming to him for being -right.</p> - -<p>I didn’t have much hope, but, of course, I tried to get into -the bucket shops again. There were fewer of them and some -of them were run by strangers. Those who remembered me -wouldn’t give me a chance to show them whether I had -gone back as a trader or not. I told them the truth, that I had -lost in New York whatever I had made at home; that I didn’t -know as much as I used to think I did; and that there was no -reason why it should not now be good business for them to -let me trade with them. But they wouldn’t. And the new -places were unreliable. Their owners thought twenty shares -was as much as a gentleman ought to buy if he had any -reason to suspect he was going to guess right.</p> - -<p>I needed the money and the bigger shops were taking in -plenty of it from their regular customers. I got a friend of -mine to go into a certain office and trade. I just sauntered in -to look them over. I again tried to coax the order clerk to accept -a small order, even if it was only fifty shares. Of course -he said no. I had rigged up a code with this friend so that -he would buy or sell when and what I told him. But that<span class="pagenum" id="Page_40">40</span> -only made me chicken feed. Then the office began to grumble -about taking my friend’s orders. Finally one day he tried -to sell a hundred St. Paul and they shut down on him.</p> - -<p>We learned afterward that one of the customers saw us -talking together outside and went in and told the office, and -when my friend went up to the order clerk to sell that hundred -St. Paul the guy said:</p> - -<p>“We’re not taking any selling orders in St. Paul, not from -you.”</p> - -<p>“Why, what’s the matter, Joe?” asked my friend.</p> - -<p>“Nothing doing, that’s all,” answered Joe.</p> - -<p>“Isn’t that money any good? Look it over. It’s all there.” -And my friend passed over the hundred—my hundred—in -tens. He tried to look indignant and I was looking unconcerned; -but most of the other customers were getting close -to the combatants, as they always did when there was loud -talking or the slightest semblance of a scrap between the -shop and any customer. They wanted to get a line on the -merits of the case in order to get a line on the solvency of the -concern.</p> - -<p>The clerk, Joe, who was a sort of assistant manager, came -out from behind his cage, walked up to my friend, looked at -him and then looked at me.</p> - -<p>“It’s funny,” he said slowly—“it’s damned funny that you -never do a single thing here when your friend Livingston -isn’t around. You just sit and look at the board by the hour. -Never a peep. But after he comes in you get busy all of a -sudden. Maybe you are acting for yourself; but not in this -office any more. We don’t fall for Livingston tipping you -off.”</p> - -<p>Well, that stopped my board money. But I had made a -few hundred more than I had spent and I wondered how I -could use them, for the need of making enough money to -go back to New York with was more urgent than ever. I felt -that I would do better the next time. I had had time to think -calmly of some of my foolish plays; and then, one can see<span class="pagenum" id="Page_41">41</span> -the whole better when one sees it from a little distance. The -immediate problem was to make the new stake.</p> - -<p>One day I was in a hotel lobby, talking to some fellows I -knew, who were pretty steady traders. Everybody was talking -stock market. I made the remark that nobody could beat -the game on account of the rotten execution he got from his -brokers, especially when he traded at the market, as I did.</p> - -<p>A fellow piped up and asked me what particular brokers I -meant.</p> - -<p>I said, “The best in the land,” and he asked who might -they be. I could see he wasn’t going to believe I ever dealt -with first-class houses.</p> - -<p>But I said, “I mean, any member of the New York Stock -Exchange. It isn’t that they are crooked or careless, but -when a man gives an order to buy at the market he never -knows what that stock is going to cost him until he gets a -report from the brokers. There are more moves of one or two -points than of ten and fifteen. But the outside trader can’t -catch the small rises or drops because of the execution. I’d -rather trade in a bucket shop any day in the week, if they’d -only let a fellow trade big.”</p> - -<p>The man who had spoken to me I had never seen before. -His name was Roberts. He seemed very friendly disposed. -He took me aside and asked me if I had ever traded in any -of the other exchanges, and I said no. He said he knew some -houses that were members of the Cotton Exchange and the -Produce Exchange and the smaller stock exchanges. These -firms were very careful and paid special attention to the execution. -He said that they had confidential connections with -the biggest and smartest houses on the New York Stock Exchange -and through their personal pull and by guaranteeing -a business of hundreds of thousands of shares a month they -got much better service than an individual customer could -get.</p> - -<p>“They really cater to the small customer,” he said. “They -make a specialty of out-of-town business and they take just<span class="pagenum" id="Page_42">42</span> -as much pains with a ten-share order as they do with one for -ten thousand. They are very competent and honest.”</p> - -<p>“Yes. But if they pay the Stock Exchange house the regular -eighth commission, where do they come in?”</p> - -<p>“Well, they are supposed to pay the eighth. But—you -know!” He winked at me.</p> - -<p>“Yes,” I said. “But the one thing a Stock Exchange firm -will not do is to split commissions. The governors would -rather a member committed murder, arson and bigamy than -to do business for outsiders for less than a kosher eighth. -The very life of the Stock Exchange depends upon their not -violating that one rule.”</p> - -<p>He must have seen that I had talked with Stock Exchange -people, for he said, “Listen! Every now and then one of those -pious Stock Exchange houses is suspended for a year for violating -that rule, isn’t it? There are ways and ways of rebating -so nobody can squeal.” He probably saw unbelief in -my face, for he went on: “And besides, on certain kinds of -business we—I mean, these wire houses—charge a thirty-second -extra, in addition to the eighth commission. They are -very nice about it. They never charge the extra commission -except in unusual cases, and then only if the customer has -an inactive account. It wouldn’t pay them, you know, otherwise. -They aren’t in business exclusively for their health.”</p> - -<p>By that time I knew he was touting for some phony brokers.</p> - -<p>“Do you know any reliable house of that kind?” I asked -him.</p> - -<p>“I know the biggest brokerage firm in the United States,” -he said. “I trade there myself. They have branches in seventy-eight -cities in the United States and Canada. They do an -enormous business. And they couldn’t very well do it year in -and year out if they weren’t strictly on the level, could they?”</p> - -<p>“Certainly not,” I agreed. “Do they trade in the same -stocks that are dealt in on the New York Stock Exchange?”</p> - -<p>“Of course; and on the curb and on any other exchange in<span class="pagenum" id="Page_43">43</span> -this country, or Europe. They deal in wheat, cotton, provisions; -anything you want. They have correspondents -everywhere and memberships in all the exchanges, either in -their own name or on the quiet.”</p> - -<p>I knew by that time, but I thought I’d lead him on.</p> - -<p>“Yes,” I said, “but that does not alter the fact that the orders -have to be executed by somebody, and nobody living -can guarantee how the market will be or how close the -ticker’s prices are to the actual prices on the floor of the Exchange. -By the time a man gets the quotation here and he -hands in an order and it’s telegraphed to New York, some -valuable time has gone. I might better go back to New York -and lose my money there in respectable company.”</p> - -<p>“I don’t know anything about losing money; our customers -don’t acquire that habit. They make money. We take care -of that.”</p> - -<p>“Your customers?”</p> - -<p>“Well, I take an interest in the firm, and if I can turn some -business their way I do so because they’ve always treated -me white and I’ve made a good deal of money through them. -If you wish I’ll introduce you to the manager.”</p> - -<p>“What’s the name of the firm?” I asked him.</p> - -<p>He told me. I had heard about them. They ran ads in all -the papers, calling attention to the great profits made by -those customers who followed their inside information on active -stocks. That was the firm’s great specialty. They were -not a regular bucket shop, but bucketeers, alleged brokers -who bucketed their orders but nevertheless went through an -elaborate camouflage to convince the world that they were -regular brokers engaged in a legitimate business. They were -one of the oldest of that class firms.</p> - -<p>They were the prototype at that time of the same sort of -brokers that went broke this year by the dozen. The general -principles and methods were the same, though the particular -devices for fleecing the public differed somewhat,<span class="pagenum" id="Page_44">44</span> -certain details having been changed when the old tricks became -too well known.</p> - -<p>These people used to send out tips to buy or sell a certain -stock—hundreds of telegrams advising the instant purchase -of a certain stock and hundreds recommending other customers -to sell the same stock, on the old racing-tipster plan. -Then orders to buy and sell would come in. The firm would -buy and sell, say, a thousand of that stock through a reputable -Stock Exchange firm and get a regular report on it. This -report they would show to any doubting Thomas who was -impolite enough to speak about bucketing customers’ orders.</p> - -<p>They also used to form discretionary pools in the office -and as a great favor allowed their customers to authorize -them, in writing, to trade with the customer’s money and in -the customer’s name, as they in their judgment deemed best. -That way the most cantankerous customer had no legal redress -when the money disappeared. They’d bull a stock, on -paper, and put the customers in and then they’d execute one -of the old-fashioned bucket-shop drives and wipe out hundreds -of shoe-string margins. They did not spare anyone, -women, school-teachers and old men being their best bet.</p> - -<p>“I’m sore on all brokers,” I told the tout. “I’ll have to think -this over,” and I left him so he wouldn’t talk any more to me.</p> - -<p>I inquired about this firm. I learned that they had hundreds -of customers and although there were the usual stories -I did not find any case of a customer not getting his money -from them if he won any. The difficulty was in finding anybody -who had ever won in that office; but I did. Things -seemed to be going their way just then, and that meant that -they probably would not welsh if a trade went against them. -Of course most concerns of that kind eventually go broke. -There are times when there are regular epidemics of bucketeering -bankruptcies, like the old-fashioned runs on several -banks after one of them goes up. The customers of the others -get frightened and they run to take their money out. But<span class="pagenum" id="Page_45">45</span> -there are plenty of retired bucket-shop keepers in this country.</p> - -<p>Well, I heard nothing alarming about the tout’s firm except -that they were on the make, first, last and all the time, and -that they were not always truthful. Their specialty was trimming -suckers who wanted to get rich quick. But they always -asked their customers’ permission, in writing, to take their -rolls away from them.</p> - -<p>One chap I met did tell me a story about seeing six hundred -telegrams go out one day advising customers to get -aboard a certain stock and six hundred telegrams to other -customers strongly urging them to sell that same stock, at -once.</p> - -<p>“Yes, I know the trick,” I said to the chap who was telling -me.</p> - -<p>“Yes,” he said. “But the next day they sent telegrams to the -same people advising them to close out their interest in -everything and buy—or sell—another stock. I asked the -senior partner, who was in the office, ‘Why do you do that? -The first part I understand. Some of your customers are -bound to make money on paper for a while, even if they and -the others eventually lose. But by sending out telegrams like -this you simply kill them all. What’s the big idea?’</p> - -<p>“‘Well,’ he said, ‘the customers are bound to lose their -money anyhow, no matter what they buy, or how or where -or when. When they lose their money I lose the customers. -Well, I might as well get as much of their money as I can—and -then look for a new crop.’”</p> - -<p>Well, I admit frankly that I wasn’t concerned with the -business ethics of the firm. I told you I felt sore on the Teller -concern and how it tickled me to get even with them. But I -didn’t have any such feeling about this firm. They might be -crooks or they might not be as black as they were painted. I -did not propose to let them do any trading for me, or follow -their tips or believe their lies. My one concern was with getting -together a stake and returning to New York to trade in<span class="pagenum" id="Page_46">46</span> -fair amounts in an office where you did not have to be afraid -the police would raid the joint, as they did the bucket shops, -or see the postal authorities swoop down and tie up your -money so that you’d be lucky to get eight cents on the dollar -a year and a half later.</p> - -<p>Anyhow, I made up my mind that I would see what trading -advantages of this firm offered over what you might call -the legitimate brokers. I didn’t have much money to put up -as margin, and firms that bucketed orders were naturally -much more liberal in that respect, so that a few hundred -dollars went much further in their offices.</p> - -<p>I went down to their place and had a talk with the manager -himself. When he found out that I was an old trader -and had formerly had accounts in New York with Stock -Exchange houses and that I had lost all I took with me he -stopped promising to make a million a minute for me if I let -them invest my savings. He figured that I was a permanent -sucker, the ticker-hound kind that always plays and always -loses; a steady-income provider for brokers, whether they -were the kind that bucket your orders or modestly content -themselves with the commissions.</p> - -<p>I just told the manager that what I was looking for was -decent execution, because I always traded at the market and -I didn’t want to get reports that showed a difference of a -half or a whole point from the ticker price.</p> - -<p>He assured me on his word of honor that they would do -whatever I thought was right. They wanted my business because -they wanted to show me what high-class brokering -was. They had in their employ the best talent in the business. -In fact, they were famous for their execution. If there was -any difference between the ticker price and the report it was -always in favor of the customer, though of course they didn’t -guarantee that. If I opened an account with them I could -buy and sell at the price which came over the wire, they were -so confident of their brokers.</p> - -<p>Naturally that meant that I could trade there to all intents<span class="pagenum" id="Page_47">47</span> -and purposes as though I were in a bucket shop—that is, -they’d let me trade at the next quotation. I didn’t want to -appear too anxious, so I shook my head and told him I -guessed I wouldn’t open an account that day, but I’d let him -know. He urged me strongly to begin right way as it was a -good market to make money in. It was—for them; a dull -market with prices seesawing slightly, just the kind to get -customers in and then wipe them out with a sharp drive in -the tipped stock. I had some trouble in getting away.</p> - -<p>I had given him my name and address, and that very same -day I began to get prepaid telegrams and letters urging me -to get aboard of some stock or other in which they said they -knew an inside pool was operating for a fifty-point rise.</p> - -<p>I was busy going around and finding out all I could about -several other brokerage concerns of the same bucketing kind. -It seemed to me that if I could be sure of getting my winnings -out of their clutches the only way of my getting together -some real money was to trade in these near bucket -shops.</p> - -<p>When I had learned all I could I opened accounts with -three firms. I had taken a small office and had direct wires -run to the three brokers.</p> - -<p>I traded in a small way so they wouldn’t get frightened off -at the very start. I made money on balance and they were -not slow in telling me that they expected real business from -customers who had direct wires to their offices. They did not -hanker for pikers. They figured that the more I did the more -I’d lose, and the more quickly I was wiped out the more -they’d make. It was a sound enough theory when you consider -that these people necessarily dealt with averages and -the average customer was never long-lived, financially speaking. -A busted customer can’t trade. A half-crippled customer -can whine and insinuate things and make trouble of one or -another kind that hurts business.</p> - -<p>I also established a connection with a local firm that had -a direct wire to its New York correspondent, who were also<span class="pagenum" id="Page_48">48</span> -members of the New York Stock Exchange. I had a stock -ticker put in and I began to trade conservatively. As I told -you, it was pretty much like trading in bucket shops, only it -was a little slower.</p> - -<p>It was a game that I could beat, and I did. I never got it -down to such a fine point that I could win ten times out of -ten; but I won on balance, taking it week in and week out. I -was again living pretty well, but always saving something, to -increase the stake that I was to take back to Wall Street. I -got a couple of wires into two more of these bucketing -brokerage houses, making five in all—and, of course, my -good firm.</p> - -<p>There were times when my plans went wrong and my -stocks did not run true to form, but they did the opposite of -what they should have done if they had kept up their regard -for precedent. But they did not hit me very hard—they -couldn’t, with my shoestring margins. My relations with my -brokers were friendly enough. Their accounts and records -did not always agree with mine, and the differences uniformly -happened to be against me. Curious coincidence—not! -But I fought for my own and usually had my way in the -end. They always had the hope of getting away from me -what I had taken from them. They regarded my winnings as -temporary loans, I think.</p> - -<p>They really were not sporty, being in the business to make -money by hook or by crook instead of being content with the -house percentage. Since suckers always lose money when -they gamble in stocks—they never really speculate—you’d -think these fellows would run what you might call a legitimate -illegitimate business. But they didn’t. “Copper your customers -and grow rich” is an old and true adage, but they did -not seem ever to have heard of it and didn’t stop at plain -bucketing.</p> - -<p>Several times they tried to double-cross me with the old -tricks. They caught me a couple of times because I wasn’t -looking. They always did that when I had taken no more<span class="pagenum" id="Page_49">49</span> -than my usual line. I accused them of being short sports or -worse, but they denied it and it ended by my going back to -trading as usual. The beauty of doing business with a crook -is that he always forgives you for catching him, so long as -you don’t stop doing business with him. It’s all right as far -as he is concerned. He is willing to meet you more than half-way. -Magnanimous souls!</p> - -<p>Well, I made up my mind that I couldn’t afford to have -the normal rate of increase of my stake impaired by crooks’ -tricks, so I decided to teach them a lesson. I picked out some -stock that after having been a speculative favorite had become -inactive. Water-logged. If I had taken one that never -had been active they would have suspected my play. I gave -out buying orders on this stock to my five bucketeering -brokers. When the orders were taken and they were waiting -for the next quotation to come out on the tape I sent in an -order through my Stock Exchange house to sell a hundred -shares of that particular stock at the market. I urgently asked -for quick action. Well, you can imagine what happened -when the selling order got to the floor of the Exchange; a -dull inactive stock that a commission house with out-of-town -connections wanted to sell in a hurry. Somebody got cheap -stock. But the transaction as it would be printed on the tape -was the price that I would pay on my five buying orders. I -was long on balance four hundred shares of that stock at a -low figure. The wire house asked me what I’d heard, and I -said I had a tip on it. Just before the close of the market I -sent an order to my reputable house to buy back that hundred -shares, and not waste any time; that I didn’t want to be -short under any circumstances; and I didn’t care what they -paid. So they wired to New York and the order to buy that -hundred quick resulted in a sharp advance. I of course had -put in selling orders for the five hundred shares that my -friends had bucketed. It worked very satisfactorily.</p> - -<p>Still, they didn’t mend their ways, and so I worked that -trick on them several times. I did not dare punish them as<span class="pagenum" id="Page_50">50</span> -severely as they deserved, seldom more than a point or two -on a hundred shares. But it helped to swell my little hoard -that I was saving for my next Wall Street venture. I sometimes -varied the process by selling some stock short, without -overdoing it. I was satisfied with my six or eight hundred -clear for each crack.</p> - -<p>One day the stunt worked so well that it went far beyond -all calculations for a ten-point swing. I wasn’t looking for it. -As a matter of fact it so happened that I had two hundred -shares instead of my usual hundred at one broker’s, though -only a hundred in the four other shops. That was too much -of a good thing—for them. They were sore as pups about it -and they began to say things over the wires. So I went and -saw the manager, the same man who had been so anxious to -get my account, and so forgiving every time I caught him -trying to put something over on me. He talked pretty big -for a man in his position.</p> - -<p>“That was a fictitious market for that stock, and we won’t -pay you a damned cent!” he swore.</p> - -<p>“It wasn’t a fictitious market when you accepted my -order to buy. You let me in then, all right, and now you’ve -got to let me out. You can’t get around that for fairness, can -you?”</p> - -<p>“Yes, I can!” he yelled. “I can prove that somebody put -up a job.”</p> - -<p>“Who put up a job?” I asked.</p> - -<p>“Somebody!”</p> - -<p>“Who did they put it up on?” I asked.</p> - -<p>“Some friends of yours were in it as sure as pop,” he said.</p> - -<p>But I told him, “You know very well that I play a lone -hand. Everybody in this town knows that. They’ve known it -ever since I started trading in stocks. Now I want to give -you some friendly advice: you just send and get that money -for me. I don’t want to be disagreeable. Just do what I tell -you.”</p> - -<p>“I won’t pay it. It was a rigged-up transaction,” he yelled.</p> - -<p><span class="pagenum" id="Page_51">51</span> -I got tired of his talk. So I told him: “You’ll pay it to me -right now and here.”</p> - -<p>Well, he blustered a little more and accused me flatly of -being the guilty thimblerigger; but he finally forked over the -cash. The others were not so rambunctious. In one office the -manager had been studying these inactive-stock plays of -mine and when he got my order he actually bought the stock -for me and then some for himself in the Little Board, and he -made some money. These fellows didn’t mind being sued by -customers on charges of fraud, as they generally had a good -technical legal defense ready. But they were afraid I’d attach -the furniture—the money in the bank I couldn’t because they -took care not to have any funds exposed to that danger. It -would not hurt them to be known as pretty sharp, but to get -a reputation for welshing was fatal. For a customer to lose -money at his broker’s is no rare event. But for a customer to -make money and then not get it is the worst crime on the -speculators’ statute books.</p> - -<p>I got my money from all; but that ten-point jump put an -end to the pleasing pastime of skinning skinners. They were -on the lookout for the little trick that they themselves had -used to defraud hundreds of poor customers. I went back to -my regular trading; but the market wasn’t always right for -my system—that is, limited as I was by the size of the orders -they would take, I couldn’t make a killing.</p> - -<p>I had been at it over a year, during which I used every -device that I could think of to make money trading in those -wire houses. I had lived very comfortably, bought an automobile -and didn’t limit myself about my expenses. I had to -make a stake, but I also had to live while I was doing it. If -my position on the market was right I couldn’t spend as -much as I made, so that I’d always be saving some. If I was -wrong I didn’t make any money and therefore couldn’t -spend. As I said, I had saved up a fair-sized roll, and there -wasn’t so much money to be made in the five wire houses; -so I decided to return to New York.</p> - -<p><span class="pagenum" id="Page_52">52</span> -I had my own automobile and I invited a friend of mine -who also was a trader to motor to New York with me. He -accepted and we started. We stopped at New Haven for -dinner. At the hotel I met an old trading acquaintance, and -among other things he told me there was a shop in town that -had a wire and was doing a pretty good business.</p> - -<p>We left the hotel on our way to New York, but I drove by -the street where the bucket shop was to see what the outside -looked like. We found it and couldn’t resist the temptation -to stop and have a look at the inside. It wasn’t very sumptuous, -but the old blackboard was there, and the customers, -and the game was on.</p> - -<p>The manager was a chap who looked as if he had been an -actor or a stump speaker. He was very impressive. He’d say -good morning as though he had discovered the morning’s -goodness after ten years of searching for it with a microscope -and was making you a present of the discovery as well as of -the sky, the sun and the firm’s bank roll. He saw us come up -in the sporty-looking automobile, and as both of us were -young and careless—I don’t suppose I looked twenty—he -naturally concluded we were a couple of Yale boys. I didn’t -tell him we weren’t. He didn’t give me a chance, but began -delivering a speech. He was very glad to see us. Would we -have a comfortable seat? The market, we would find, was -philanthropically inclined that morning; in fact, clamoring -to increase the supply of collegiate pocket money, of which -no intelligent undergraduate ever had a sufficiency since the -dawn of historic time. But here and now, by the beneficence -of the ticker, a small initial investment would return thousands. -More pocket money than anybody could spend was -what the stock market yearned to yield.</p> - -<p>Well, I thought it would be a pity not to do as the nice -man of the bucket shop was so anxious to have us do, so I -told him I would do as he wished, because I had heard that -lots of people made lots of money in the stock market.</p> - -<p><span class="pagenum" id="Page_53">53</span> -I began to trade, very conservatively, but increasing the -line as I won. My friend followed me.</p> - -<p>We stayed overnight in New Haven and the next morning -found us at the hospitable shop at five minutes to ten. The -orator was glad to see us, thinking his turn would come that -day. But I cleaned up within a few dollars of fifteen hundred. -The next morning when we dropped in on the great orator, -and handed him an order to sell five hundred Sugar he hesitated, -but finally accepted it—in silence! The stock broke -over a point and I closed out and gave him the ticket. There -was exactly five hundred dollars coming to me in profits, and -my five hundred dollar margin. He took twenty fifties from -the safe, counted them three times very slowly, then he -counted them again in front of me. It looked as if his fingers -were sweating mucilage the way the notes seemed to stick -to him, but finally he handed the money to me. He folded -his arms, bit his lower lip, kept it bit, and stared at the top -of a window behind me.</p> - -<p>I told him I’d like to sell two hundred Steel. But he never -stirred. He didn’t hear me. I repeated my wish, only I made -it three hundred shares. He turned his head. I waited for the -speech. But all he did was to look at me. Then he smacked -his lips and swallowed—as if he was going to start an attack -on fifty years of political misrule by the unspeakable grafters -of the opposition.</p> - -<p>Finally he waved his hand toward the yellow-backs in my -hand and said, “Take away that bauble!”</p> - -<p>“Take away what?” I said. I hadn’t quite understood what -he was driving at.</p> - -<p>“Where are you going, student?” He spoke very impressively.</p> - -<p>“New York,” I told him.</p> - -<p>“That’s right,” he said, nodding about twenty times. “That -is ex-actly right. You are going away from here all right, -because now I know two things—two, student! I know what -you are not, and I know what you are. Yes! Yes! Yes!”</p> - -<p><span class="pagenum" id="Page_54">54</span> -“Is that so?” I said very politely.</p> - -<p>“Yes. You two—” He paused; and then he stopped being -in Congress and snarled: “You two are the biggest sharks in -the United States of America! Students? Ye-eh! You must be -Freshmen! Ye-eh!”</p> - -<p>We left him talking to himself. He probably didn’t mind -the money so much. No professional gambler does. It’s all -in the game and the luck’s bound to turn. It was his being -fooled in us that hurt his pride.</p> - -<p>That is how I came back to Wall Street for a third attempt. -I had been studying, of course, trying to locate the exact -trouble with my system that had been responsible for my -defeats in A. R. Fullerton & Co.’s office. I was twenty when I -made my first ten thousand, and I lost that. But I knew how -and why—because I traded out of season all the time; because -when I couldn’t play according to my system, which -was based on study and experience, I went in and gambled. -I hoped to win, instead of knowing that I ought to win on -form. When I was about twenty-two I ran up my stake to -fifty thousand dollars; I lost it on May ninth. But I knew -exactly why and how. It was the laggard tape and the unprecedented -violence of the movements that awful day. But -I didn’t know why I had lost after my return from St. Louis -or after the May ninth panic. I had theories—that is, remedies -for some of the faults that I thought I found in my play. -But I needed actual practice.</p> - -<p>There is nothing like losing all you have in the world for -teaching you what not to do. And when you know what not -to do in order not to lose money, you begin to learn what to -do in order to win. Did you get that? <em>You begin to learn!</em></p> - -<hr /> - -<p><span class="pagenum" id="Page_55">55</span></p> - -<div class="chapter"> -<h2 id="V"><i>V</i></h2> -</div> - -<p class="in0"><span class="firstword">The average ticker hound</span>—or, as they used to call him, -tape-worm—goes wrong, I suspect, as much from over-specialization -as from anything else. It means a highly expensive -inelasticity. After all, the game of speculation isn’t -all mathematics or set rules, however rigid the main laws -may be. Even in my tape reading something enters that is -more than mere arithmetic. There is what I call the behavior -of a stock, actions that enable you to judge whether or not -it is going to proceed in accordance with the precedents -that your observation has noted. If a stock doesn’t act right -don’t touch it; because, being unable to tell precisely what is -wrong, you cannot tell which way it is going. No diagnosis, -no prognosis. No prognosis, no profit.</p> - -<p>It is a very old thing, this of noting the behavior of a stock -and studying its past performances. When I first came to -New York there was a broker’s office where a Frenchman -used to talk about his chart. At first I thought he was a sort -of pet freak kept by the firm because they were good-natured. -Then I learned that he was a persuasive and most impressive -talker. He said that the only thing that didn’t lie because it -simply couldn’t was mathematics. By means of his curves he -could forecast market movements. Also he could analyse -them, and tell, for instance, why Keene did the right thing -in his famous Atchison preferred bull manipulation, and -later why he went wrong in his Southern Pacific pool. At -various times one or another of the professional traders tried<span class="pagenum" id="Page_56">56</span> -the Frenchman’s system—and then went back to their old -unscientific methods of making a living. Their hit-or-miss -system was cheaper, they said. I heard that the Frenchman -said Keene admitted that the chart was 100 per cent right -but claimed that the method was too slow for practical use -in an active market.</p> - -<p>Then there was one office where a chart of the daily movement -of prices was kept. It showed at a glance just what -each stock had done for months. By comparing individual -curves with the general market curve and keeping in mind -certain rules the customers could tell whether the stock on -which they got an unscientific tip to buy was fairly entitled -to a rise. They used the chart as a sort of complementary -tipster. To-day there are scores of commission houses where -you find trading charts. They come ready-made from the -offices of statistical experts and include not only stocks but -commodities.</p> - -<p>I should say that a chart helps those who can read it or -rather who can assimilate what they read. The average chart -reader, however, is apt to become obsessed with the notion -that the dips and peaks and primary and secondary movements -are all there is to stock speculation. If he pushes his -confidence to its logical limit he is bound to go broke. There -is an extremely able man, a former partner of a well-known -Stock Exchange house, who is really a trained mathematician. -He is a graduate of a famous technical school. He devised -charts based upon a very careful and minute study of -the behaviour of prices in many markets—stocks, bonds, -grain, cotton, money, and so on. He went back years and -years and traced the correlations and seasonal movements—oh, -everything. He used his charts in his stock trading for -years. What he really did was to take advantage of some -highly intelligent averaging. They tell me he won regularly—until -the World War knocked all precedents into a cocked -hat. I heard that he and his large following lost millions before -they desisted. But not even a world war can keep the<span class="pagenum" id="Page_57">57</span> -stock market from being a bull market when conditions are -bullish, or a bear market when conditions are bearish. And -all a man needs to know to make money is to appraise -conditions.</p> - -<p>I didn’t mean to get off the track like that, but I can’t help -it when I think of my first few years in Wall Street. I know -now what I did not know then, and I think of the mistakes -of my ignorance because those are the very mistakes that -the average stock speculator makes year in and year out.</p> - -<p>After I got back to New York to try for the third time to -beat the market in a Stock Exchange house I traded quite -actively. I didn’t expect to do as well as I did in the bucket -shops, but I thought that after a while I would do much -better because I would be able to swing a much heavier line. -Yet, I can see now that my main trouble was my failure to -grasp the vital difference between stock gambling and stock -speculation. Still, by reason of my seven years’ experience in -reading the tape and a certain natural aptitude for the game, -my stake was earning not indeed a fortune but a very high -rate of interest. I won and lost as before, but I was winning -on balance. The more I made the more I spent. This is the -usual experience with most men. No, not necessarily with -easy-money pickers, but with every human being who is not -a slave of the hoarding instinct. Some men, like old Russell -Sage, have the money-making and the money-hoarding instinct -equally well developed, and of course they die disgustingly -rich.</p> - -<p>The game of beating the market exclusively interested me -from ten to three every day, and after three, the game of -living my life. Don’t misunderstand me. I never allowed -pleasure to interfere with business. When I lost it was because -I was wrong and not because I was suffering from dissipation -or excesses. There never were any shattered nerves -or rum-shaken limbs to spoil my game. I couldn’t afford anything -that kept me from feeling physically and mentally fit. -Even now I am usually in bed by ten. As a young man I<span class="pagenum" id="Page_58">58</span> -never kept late hours, because I could not do business properly -on insufficient sleep. I was doing better than breaking -even and that is why I didn’t think there was any need to -deprive myself of the good things of life. The market was -always there to supply them. I was acquiring the confidence -that comes to a man from a professionally dispassionate attitude -toward his own method of providing bread and butter -for himself.</p> - -<p>The first change I made in my play was in the matter of -time. I couldn’t wait for the sure thing to come along and -then take a point or two out of it as I could in the bucket -shops. I had to start much earlier if I wanted to catch the -move in Fullerton’s office. In other words, I had to study -what was going to happen; to anticipate stock movements. -That sounds asininely commonplace, but you know what I -mean. It was the change in my own attitude toward the -game that was of supreme importance to me. It taught me, -little by little, the essential difference between betting on -fluctuations and anticipating inevitable advances and declines, -between gambling and speculating.</p> - -<p>I had to go further back than an hour in my studies of the -market—which was something I never would have learned -to do in the biggest bucket shop in the world. I interested -myself in trade reports and railroad earnings and financial -and commercial statistics. Of course I loved to trade heavily -and they called me the Boy Plunger; but I also liked to study -the moves. I never thought that anything was irksome if it -helped me to trade more intelligently. Before I can solve a -problem I must state it to myself. When I think I have found -the solution I must prove I am right. I know of only one way -to prove it; and that is, with my own money.</p> - -<p>Slow as my progress seems now, I suppose I learned as -fast as I possibly could, considering that I was making money -on balance. If I had lost oftener perhaps it might have -spurred me to more continuous study. I certainly would have -had more mistakes to spot. But I am not sure of the exact<span class="pagenum" id="Page_59">59</span> -value of losing, for if I had lost more I would have lacked -the money to test out the improvements in my methods of -trading.</p> - -<p>Studying my winning plays in Fullerton’s office I discovered -that although I often was 100 per cent right on the -market—that is, in my diagnosis of conditions and general -trend—I was not making as much money as my market -“rightness” entitled me to. Why wasn’t I?</p> - -<p>There was as much to learn from partial victory as from -defeat.</p> - -<p>For instance, I had been bullish from the very start of a -bull market, and I had backed my opinion by buying stocks. -An advance followed, as I had clearly foreseen. So far, all -very well. But what else did I do? Why, I listened to the -elder statesmen and curbed my youthful impetuousness. I -made up my mind to be wise and play carefully, conservatively. -Everybody knew that the way to do that was to take -profits and buy back your stocks on reactions. And that is -precisely what I did, or rather what I tried to do; for I often -took profits and waited for a reaction that never came. And -I saw my stock go kiting up ten points more and I sitting -there with my four-point profit safe in my conservative -pocket. <em>They say you never grow poor taking profits. No, -you don’t. But neither do you grow rich taking a four-point -profit in a bull market.</em></p> - -<p>Where I should have made twenty thousand dollars I -made two thousand. That was what my conservatism did -for me. About the time I discovered what a small percentage -of what I should have made I was getting I discovered something -else, and that is that suckers differ among themselves -according to the degree of experience.</p> - -<p>The tyro knows nothing, and everybody, including himself, -knows it. But the next, or second, grade thinks he -knows a great deal and makes others feel that way too. He -is the experienced sucker, who has studied—not the market -itself but a few remarks about the market made by a still<span class="pagenum" id="Page_60">60</span> -higher grade of suckers. The second-grade sucker knows -how to keep from losing his money in some of the ways that -get the raw beginner. It is this semisucker rather than the -100 per cent article who is the real all-the-year-round support -of the commission houses. He lasts about three and a -half years on an average, as compared with a single season -of from three to thirty weeks, which is the usual Wall Street -life of a first offender. It is naturally the semisucker who is -always quoting the famous trading aphorisms and the various -rules of the game. <em>He knows all the don’ts that ever fell -from the oracular lips of the old stagers—excepting the -principal one, which is: Don’t be a sucker!</em></p> - -<p><em>This semisucker is the type that thinks he has cut his wisdom -teeth because he loves to buy on declines.</em> He waits for -them. He measures his bargains by the number of points it -has sold off from the top. In big bull markets the plain unadulterated -sucker, utterly ignorant of rules and precedents, -buys blindly because he hopes blindly. He makes most of the -money—until one of the healthy reactions takes it away from -him at one fell swoop. But the Careful Mike sucker does -what I did when I thought I was playing the game intelligently—according -to the intelligence of others. I knew I -needed to change my bucket-shop methods and I thought I -was solving my problem with any change, particularly one -that assayed high gold values according to the experienced -traders among the customers.</p> - -<p>Most—let us call ’em customers—are alike. You find very -few who can truthfully say that Wall Street doesn’t owe them -money. In Fullerton’s there were the usual crowd. All grades! -Well, there was one old chap who was not like the others. -To begin with, he was a much older man. Another thing was -that he never volunteered advice and never bragged of his -winnings. He was a great hand for listening very attentively -to the others. He did not seem very keen to get tips—that is, -he never asked the talkers what they’d heard or what they -knew. But when somebody gave him one he always thanked<span class="pagenum" id="Page_61">61</span> -the tipster very politely. Sometimes he thanked the tipster -again—when the tip turned out O.K. But if it went wrong he -never whined, so that nobody could tell whether he followed -it or let it slide by. It was a legend of the office that the old -jigger was rich and could swing quite a line. But he wasn’t -donating much to the firm in the way of commissions; at least -not that anyone could see. His name was Partridge, but they -nicknamed him Turkey behind his back, because he was so -thick-chested and had a habit of strutting about the various -rooms, with the point of his chin resting on his breast.</p> - -<p>The customers, who were all eager to be shoved and forced -into doing things so as to lay the blame for failure on others, -used to go to old Partridge and tell him what some friend of -a friend of an insider had advised them to do in a certain -stock. They would tell him what they had not done with the -tip so he would tell them what they ought to do. But whether -the tip they had was to buy or to sell, the old chap’s answer -was always the same.</p> - -<p>The customer would finish the tale of his perplexity and -then ask: “What do you think I ought to do?”</p> - -<p>Old Turkey would cock his head to one side, contemplate -his fellow customer with a fatherly smile, and finally he -would say very impressively, “You know, it’s a bull market!”</p> - -<p>Time and again I heard him say, “Well, this is a bull market, -you know!” as though he were giving to you a priceless -talisman wrapped up in a million-dollar accident-insurance -policy. And of course I did not get his meaning.</p> - -<p>One day a fellow named Elmer Harwood rushed into the -office, wrote out an order and gave it to the clerk. Then he -rushed over to where Mr. Partridge was listening politely to -John Fanning’s story of the time he overheard Keene give -an order to one of his brokers and all that John made was a -measly three points on a hundred shares and of course the -stock had to go up twenty-four points in three days right -after John sold out. It was at least the fourth time that John<span class="pagenum" id="Page_62">62</span> -had told him that tale of woe, but old Turkey was smiling as -sympathetically as if it was the first time he heard it.</p> - -<p>Well, Elmer made for the old man and, without a word of -apology to John Fanning, told Turkey, “Mr. Partridge, I have -just sold my Climax Motors. My people say the market is -entitled to a reaction and that I’ll be able to buy it back -cheaper. So you’d better do likewise. That is, if you’ve still -got yours.”</p> - -<p>Elmer looked suspiciously at the man to whom he had -given the original tip to buy. The amateur, or gratuitous, -tipster always thinks he owns the receiver of his tip body -and soul, even before he knows how the tip is going to turn -out.</p> - -<p>“Yes, Mr. Harwood, I still have it. Of course!” said Turkey -gratefully. It was nice of Elmer to think of the old chap.</p> - -<p>“Well, now is the time to take your profit and get in again -on the next dip,” said Elmer, as if he had just made out the -deposit slip for the old man. Failing to perceive enthusiastic -gratitude in the beneficiary’s face, Elmer went on: “I have -just sold every share I owned!”</p> - -<p>From his voice and manner you would have conservatively -estimated it at ten thousand shares.</p> - -<p>But Mr. Partridge shook his head regretfully and whined, -“No! No! I can’t do that!”</p> - -<p>“What?” yelled Elmer.</p> - -<p>“I simply can’t!” said Mr. Partridge. He was in great -trouble.</p> - -<p>“Didn’t I give you the tip to buy it?”</p> - -<p>“You did, Mr. Harwood, and I am very grateful to you. -Indeed, I am, sir. But——”</p> - -<p>“Hold on! Let me talk! And didn’t that stock go up seven -points in ten days? Didn’t it?”</p> - -<p>“It did, and I am much obliged to you, my dear boy. But -I couldn’t think of selling that stock.”</p> - -<p>“You couldn’t?” asked Elmer, beginning to look doubtful -himself. It is a habit with most tip givers to be tip takers.</p> - -<p><span class="pagenum" id="Page_63">63</span> -“No, I couldn’t.”</p> - -<p>“Why not?” And Elmer drew nearer.</p> - -<p>“Why, this is a bull market!” The old fellow said it as -though he had given a long and detailed explanation.</p> - -<p>“That’s all right,” said Elmer, looking angry because of his -disappointment. “I know this is a bull market as well as you -do. But you’d better slip them that stock of yours and buy it -back on the reaction. You might as well reduce the cost to -yourself.”</p> - -<p>“My dear boy,” said old Partridge, in great distress—“my -dear boy, <em>if I sold that stock now I’d lose my position; and -then where would I be</em>?”</p> - -<p>Elmer Harwood threw up his hands, shook his head and -walked over to me to get sympathy: “Can you beat it?” he -asked me in a stage whisper. “I ask you!”</p> - -<p>I didn’t say anything. So he went on: “I give him a tip on -Climax Motors. He buys five hundred shares. He’s got seven -points’ profit and I advise him to get out and buy ’em back -on the reaction that’s overdue even now. And what does he -say when I tell him? He says that if he sells he’ll lose his job. -What do you know about that?”</p> - -<p>“I beg your pardon, Mr. Harwood; I didn’t say I’d lose my -job,” cut in old Turkey. “I said I’d lose my position. And -when you are as old as I am and you’ve been through as -many booms and panics as I have, you’ll know that to lose -your position is something nobody can afford; not even -John D. Rockefeller. I hope the stock reacts and that you -will be able to repurchase your line at a substantial concession, -sir. But I myself can only trade in accordance with the -experience of many years. I paid a high price for it and I -don’t feel like throwing away a second tuition fee. But I am -as much obliged to you as if I had the money in the bank. -It’s a bull market, you know.” And he strutted away, leaving -Elmer dazed.</p> - -<p>What old Mr. Partridge said did not mean much to me -until I began to think about my own numerous failures to<span class="pagenum" id="Page_64">64</span> -make as much money as I ought to when I was so right on -the general market. The more I studied the more I realized -how wise that old chap was. He had evidently suffered from -the same defect in his young days and knew his own human -weaknesses. He would not lay himself open to a temptation -that experience had taught him was hard to resist and had -always proved expensive to him, as it was to me.</p> - -<p>I think it was a long step forward in my education when -I realized at last that when old Mr. Partridge kept on telling -the other customers, “Well, you know this is a bull market!” -he really meant to tell them that the big money was not in -the individual fluctuations but in the main movements—that -is, not in reading the tape but in sizing up the entire market -and its trend.</p> - -<p>And right here let me say one thing: After spending many -years in Wall Street and after making and losing millions of -dollars I want to tell you this: <em>It never was my thinking that</em> -made the big money for me. <em>It was always my sitting.</em> Got -that? My sitting tight! <em>It is no trick at all to be right on the -market. You always find lots of early bulls in bull markets -and early bears in bear markets.</em> I’ve known many men who -were right at exactly the right time, and began buying or -selling stocks when prices were at the very level which -should show the greatest profit. And their experience invariably -matched mine—that is, they made no real money out -of it. Men who can both be right and sit tight are uncommon. -I found it one of the hardest things to learn. But it is only -after a stock operator has firmly grasped this that he can -make big money. It is literally true that millions come easier -to a trader after he knows how to trade than hundreds did -in the days of his ignorance.</p> - -<p>The reason is that a man may see straight and clearly and -yet become impatient or doubtful <em>when the market takes its -time about doing as he figured it must do</em>. That is why so -many men in Wall Street, who are not at all in the sucker -class, not even in the third grade, nevertheless lose money.<span class="pagenum" id="Page_65">65</span> -The market does not beat them. They beat themselves, because -though they have brains <em>they cannot sit tight</em>. Old -Turkey was dead right in doing and saving what he did. He -had not only the courage of his convictions but the intelligent -patience to sit tight.</p> - -<p>Disregarding the big swing and trying to jump in and out -was fatal to me. <em>Nobody can catch all the fluctuations.</em> In a -bull market your game is to buy and hold until you believe -that the bull market is near its end. To do this you must -study the general conditions and not tips or special factors -affecting individual stocks. Then get out of all your stocks; -get out for keeps! Wait until you see—or if you prefer, until -you think you see—the turn of the market; the beginning of -a reversal of general conditions. You have to use your brains -and your vision to do this; otherwise my advice would be as -idiotic as to tell you to buy cheap and sell dear. <em>One of the -most helpful things that anybody can learn is to give up trying -to catch the last eighth—or the first. These two are the -most</em> expensive eighths in the world. They have cost stock -traders, in the aggregate, enough millions of dollars to build -a concrete highway across the continent.</p> - -<p>Another thing I noticed in studying my plays in Fullerton’s -office after I began to trade less unintelligently was that my -initial operations seldom showed me a loss. That naturally -made me decide to start big. It gave me confidence in my -own judgment before I allowed it to be vitiated by the advice -of others or even by my own impatience at times. Without -faith in his own judgment no man can go very far in this -game. That is about all I have learned—to study general -conditions, <em>to take a position and stick to it. I can wait without -a twinge of impatience. I can see a setback without being -shaken, knowing that it is only temporary.</em> I have been short -one hundred thousand shares and I have seen a big rally -coming. I have figured—and figured correctly—that such a -rally as I felt was inevitable, and even wholesome, would -make a difference of one million dollars in my paper profits.<span class="pagenum" id="Page_66">66</span> -And I nevertheless have stood pat and seen half my paper -profit wiped out, without once considering the advisability -of covering my shorts to put them out again on the rally. I -knew that if I did I might lose my position and with it the -certainty of a big killing. It is the big swing that makes the -big money for you.</p> - -<p>If I learned all this so slowly it was because I learned by -my mistakes, <em>and some time always elapses between making -a mistake and realizing it</em>, and more time between realizing -it and exactly determining it. But at the same time I was -faring pretty comfortably and was very young, so that I -made up in other ways. Most of my winnings were still made -in part through my tape reading because the kind of markets -we were having lent themselves fairly well to my method. I -was not losing either as often or as irritatingly as in the beginning -of my New York experiences. It wasn’t anything to -be proud of, when you think that I had been broke three -times in less than two years. And as I told you, being broke -is a very efficient educational agency.</p> - -<p>I was not increasing my stake very fast because I lived up -to the handle all the time. I did not deprive myself of many -of the things that a fellow of my age and tastes would want. -I had my own automobile and I could not see any sense in -skimping on living when I was taking it out of the market. -The ticker only stopped Sundays and holidays, which was as -it should be. Every time I found the reason for a loss or the -why and how of another mistake, I added a brand-new -<em>Don’t!</em> to my schedule of assets. And the nicest way to capitalize -my increasing assets was by not cutting down on my -living expenses. Of course I had some amusing experiences -and some that were not so amusing, but if I told them all in -detail I’d never finish. As a matter of fact, the only incidents -that I remember without special effort are those that taught -me something of definite value to me in my trading; something -that added to my store of knowledge of the game—and -of myself!</p> - -<hr /> - -<p><span class="pagenum" id="Page_67">67</span></p> - -<div class="chapter"> -<h2 id="VI"><i>VI</i></h2> -</div> - -<p class="in0"><span class="firstword">In the spring of</span> 1906 I was in Atlantic City for a short vacation. -I was out of stocks and was thinking only of having a -change of air and a nice rest. By the way, I had gone back -to my first brokers, Harding Brothers, and my account had -got to be pretty active. I could swing three or four thousand -shares. That wasn’t much more than I had done in the old -Cosmopolitan shop when I was barely twenty years of age. -But there was some difference between my one-point margin -in the bucket shop and the margin required by brokers who -actually bought or sold stocks for my account on the New -York Stock Exchange.</p> - -<p>You may remember the story I told you about that time -when I was short thirty-five hundred Sugar in the Cosmopolitan -and I had a hunch something was wrong and I’d -better close the trade? Well, I have often had that curious -feeling. As a rule, I yield to it. But at times I have pooh-poohed -the idea and have told myself that it was simply -asinine to follow any of these sudden blind impulses to reverse -my position. I have ascribed my hunch to a state of -nerves resulting from too many cigars or insufficient sleep or -a torpid liver or something of that kind. When I have argued -myself into disregarding my impulse and have stood pat I -have always had cause to regret it. A dozen instances occur to -me when I did not sell as per hunch, and the next day I’d go -downtown and the market would be strong, or perhaps even -advance, and I’d tell myself how silly it would have been to<span class="pagenum" id="Page_68">68</span> -obey the blind impulse to sell. But on the following day -there would be a pretty bad drop. Something had broken -loose somewhere and I’d have made money by not being so -wise and logical. The reason plainly was not physiological -but psychological.</p> - -<p>I want to tell you only about one of them because of what -it did for me. It happened when I was having that little -vacation in Atlantic City in the spring of 1906. I had a friend -with me who also was a customer of Harding Brothers. I had -no interest in the market one way or another and was enjoying -my rest. I can always give up trading to play, unless of -course it is an exceptionally active market in which my commitments -are rather heavy. It was a bull market, as I remember -it. The outlook was favorable for general business and -the stock market had slowed down but the tone was firm -and all indications pointed to higher prices.</p> - -<p>One morning after we had breakfasted and had finished -reading all the New York morning papers, and had got tired -of watching the sea gulls picking up clams and flying up -with them twenty feet in the air and dropping them on the -hard wet sand to open them for their breakfast, my friend -and I started up the Boardwalk. That was the most exciting -thing we did in the daytime.</p> - -<p>It was not noon yet, and we walked up slowly to kill time -and breathe the salt air. Harding Brothers had a branch -office on the Boardwalk and we used to drop in every morning -and see how they’d opened. It was more force of habit -than anything else, for I wasn’t doing anything.</p> - -<p>The market, we found, was strong and active. My friend, -who was quite bullish, was carrying a moderate line purchased -several points lower. He began to tell me what an -obviously wise thing it was to hold stocks for much higher -prices. I wasn’t paying enough attention to him to take the -trouble to agree with him. I was looking over the quotation -board, noting the changes—they were mostly advances—until -I came to Union Pacific. I got a feeling that I ought to<span class="pagenum" id="Page_69">69</span> -sell it. I can’t tell you more. I just felt like selling it. I asked -myself why I should feel like that, and I couldn’t find any -reason whatever for going short of UP.</p> - -<p>I stared at the last price on the board until I couldn’t see -any figures or any board or anything else, for that matter. -All I knew was that I wanted to sell Union Pacific and I -couldn’t find out why I wanted to.</p> - -<p>I must have looked queer, for my friend, who was standing -alongside of me, suddenly nudged me and asked, “Hey, -what’s the matter?”</p> - -<p>“I don’t know,” I answered.</p> - -<p>“Going to sleep?” he said.</p> - -<p>“No,” I said. “I am not going to sleep. What I am going -to do is to sell that stock.” I had always made money following -my hunches.</p> - -<p>I walked over to a table where there were some blank -order pads. My friend followed me. I wrote out an order to -sell a thousand Union Pacific at the market and handed it -to the manager. He was smiling when I wrote it and when -he took it. But when he read the order he stopped smiling -and looked at me.</p> - -<p>“Is this right?” he asked me. But I just looked at him and -he rushed it over to the operator.</p> - -<p>“What are you doing?” asked my friend.</p> - -<p>“I’m selling it!” I told him.</p> - -<p>“Selling what?” he yelled at me. If he was a bull how could -I be a bear? Something was wrong.</p> - -<p>“A thousand UP.,” I said.</p> - -<p>“Why?” he asked me in great excitement.</p> - -<p>I shook my head, meaning I had no reason. But he must -have thought I’d got a tip, because he took me by the arm -and led me outside into the hall, where we could be out of -sight and hearing of the other customers and rubbering -chairwarmers.</p> - -<p>“What did you hear?” he asked me.</p> - -<p>He was quite excited. UP. was one of his pets and he was<span class="pagenum" id="Page_70">70</span> -bullish on it because of its earnings and its prospects. But he -was willing to take a bear tip on it at second hand.</p> - -<p>“Nothing!” I said.</p> - -<p>“You didn’t?” He was skeptical and showed it plainly.</p> - -<p>“I didn’t hear a thing.”</p> - -<p>“Then why in blazes are you selling?”</p> - -<p>“I don’t know,” I told him. I spoke gospel truth.</p> - -<p>“Oh, come across, Larry,” he said.</p> - -<p>He knew it was my habit to know why I traded. I had -sold a thousand shares of Union Pacific. I must have a very -good reason to sell that much stock in the face of the strong -market.</p> - -<p>“I don’t know,” I repeated. “I just feel that something is -going to happen.”</p> - -<p>“What’s going to happen?”</p> - -<p>“I don’t know. I can’t give you any reason. All I know is -that I want to sell that stock. And I’m going to let ’em have -another thousand.”</p> - -<p>I walked back into the office and gave an order to sell a -second thousand. If I was right in selling the first thousand -I ought to have out a little more.</p> - -<p>“What could possibly happen?” persisted my friend, who -couldn’t make up his mind to follow my lead. If I’d told him -that I had heard UP. was going down he’d have sold it without -asking me from whom I’d heard it or why. “What could -possibly happen?” he asked again.</p> - -<p>“A million things could happen. But I can’t promise you -that any of them will. I can’t give you any reasons and I -can’t tell fortunes,” I told him.</p> - -<p>“Then you’re crazy,” he said. “Stark crazy, selling that -stock without rime or reason. You don’t know why you want -to sell it?”</p> - -<p>“I don’t know why I want to sell it. I only know I do -want to,” I said. “I want to, like everything.” The urge was -so strong that I sold another thousand.</p> - -<p>That was too much for my friend. He grabbed me by the<span class="pagenum" id="Page_71">71</span> -arm and said, “Here! Let’s get out of this place before you -sell the entire capital stock.”</p> - -<p>I had sold as much as I needed to satisfy my feeling, so I -followed him without waiting for a report on the last two -thousand shares. It was a pretty good jag of stock for me to -sell even with the best of reasons. It seemed more than -enough to be short of without any reason whatever, particularly -when the entire market was so strong and there was -nothing in sight to make anybody think of the bear side. But -I remembered that on previous occasions when I had the -same urge to sell and didn’t do it I always had reasons to -regret it.</p> - -<p>I have told some of these stories to friends, and some of -them tell me it isn’t a hunch but the subconscious mind, -which is the creative mind, at work. That is the mind which -makes artists do things without their knowing how they -came to do them. Perhaps with me it was the cumulative -effect of a lot of little things individually insignificant but -collectively powerful. Possibly my friend’s unintelligent bullishness -aroused a spirit of contradiction and I picked on UP. -because it had been touted so much. I can’t tell you what -the cause or motive for hunches may be. All I know is that -I went out of the Atlantic City branch office of Harding -Brothers short three thousand Union Pacific in a rising -market, and I wasn’t worried a bit.</p> - -<p>I wanted to know what price they’d got for my last two -thousand shares. So after luncheon we walked up to the -office. I had the pleasure of seeing that the general market -was strong and Union Pacific higher.</p> - -<p>“I see your finish,” said my friend. You could see he was -glad he hadn’t sold any.</p> - -<p>The next day the general market went up some more and -I heard nothing but cheerful remarks from my friend. But I -felt sure I had done right to sell UP., and I never get impatient -when I feel I am right. What’s the sense? That afternoon -Union Pacific stopped climbing, and toward the end of<span class="pagenum" id="Page_72">72</span> -the day began to go off. Pretty soon it got down to a point -below the level of the average of my three thousand shares. -I felt more positive than ever that I was on the right side, -and since I felt that way I naturally had to sell some more. -So, toward the close, I sold an additional two thousand -shares.</p> - -<p>There I was, short five thousand shares of UP. on a hunch. -That was as much as I could sell in Harding’s office with the -margin I had up. It was too much stock for me to be short -of, on a vacation; so I gave up the vacation and returned to -New York that very night. There was no telling what might -happen and I thought I’d better be Johnny-on-the-spot. -There I could move quickly if I had to.</p> - -<p>The next day we got the news of the San Francisco earthquake. -It was an awful disaster. But the market opened -down only a couple of points. <em>The bull forces were at work, -and the public never is independently responsive to news. -You see that all the time. If there is a solid bull foundation, -for instance, whether or not what the papers call bull -manipulation is going on the same time, certain news items -fail to have the effect they would have if the Street was -bearish.</em> It is all in the state of sentiment at the time. In -this case the Street did not appraise the extent of the catastrophe -because it didn’t wish to. Before the day was over -prices came back.</p> - -<p>I was short five thousand shares. The blow had fallen, but -my stock hadn’t. My hunch was of the first water, but my -bank account wasn’t growing; not even on paper. The friend -who had been in Atlantic City with me when I put out my -short line in UP. was glad and sad about it.</p> - -<p>He told me: “That was some hunch, kid. But, say, when -the talent and the money are all on the bull side what’s the -use of bucking against them? They are bound to win out.”</p> - -<p>“Give them time,” I said. I meant prices. I wouldn’t cover -because I knew the damage was enormous and the Union<span class="pagenum" id="Page_73">73</span> -Pacific would be one of the worst sufferers. <em>But it was exasperating -to see the blindness of the Street.</em></p> - -<p>“Give ’em time and your skin will be where all the other -bear hides are stretched out in the sun, drying,” he assured -me.</p> - -<p>“What would you do?” I asked him. “Buy UP. on the -strength of the millions of dollars of damage suffered by the -Southern Pacific and other lines? Where are the earnings for -dividends going to come from after they pay for all they’ve -lost? The best you can say is that the trouble may not be as -bad as it is painted. But is that a reason for buying the -stocks of the roads chiefly affected? Answer me that.”</p> - -<p>But all my friend said was: “Yes, that listens fine. But I -tell you, the market doesn’t agree with you. The tape doesn’t -lie, does it?”</p> - -<p>“<em>It doesn’t always tell the truth on the instant</em>,” <em>I said.</em></p> - -<p>“Listen. A man was talking to Jim Fisk a little before -Black Friday, giving ten good reasons why gold ought to go -down for keeps. He got so encouraged by his own words -that he ended by telling Fisk that he was going to sell a few -million. And Jim Fisk just looked at him and said, “Go -ahead! Do! Sell it short and invite me to your funeral.”</p> - -<p>“Yes,” I said; “and if that chap had sold it short, look at -the killing he would have made! Sell some UP. yourself.”</p> - -<p>“Not I! I’m the kind that thrives best on not rowing -against wind and tide.”</p> - -<p>On the following day, when fuller reports came in, the -market began to slide off, but even then not as violently as -it should. Knowing that nothing under the sun could stave -off a substantial break I doubled up and sold five thousand -shares. Oh, by that time it was plain to most people, and my -brokers were willing enough. It wasn’t reckless of them or -of me, not the way I sized up the market. On the day following, -the market began to go for fair. There was the dickens -to pay. Of course I pushed my luck for all it was worth. I<span class="pagenum" id="Page_74">74</span> -doubled up again and sold ten thousand shares more. It was -the only play possible.</p> - -<p>I wasn’t thinking of anything except that I was right—100 -per cent right—and that this was a heaven-sent opportunity. -It was up to me to take advantage of it. I sold more. Did I -think that with such a big line of shorts out, it wouldn’t take -much of a rally to wipe out my paper profits and possibly my -principal? I don’t know whether I thought of that or not, but -if I did it didn’t carry much weight with me. I wasn’t plunging -recklessly. I was really playing conservatively. There -was nothing that anybody could do to undo the earthquake, -was there? They couldn’t restore the crumpled buildings -overnight, free, gratis, for nothing, could they? All the -money in the world couldn’t help much in the next few -hours, could it?</p> - -<p>I was not betting blindly. I wasn’t a crazy bear. I wasn’t -drunk with success or thinking that because Frisco was -pretty well wiped off the map the entire country was headed -for the scrap heap. No, indeed! I didn’t look for a panic. -Well, the next day I cleaned up. I made two hundred and -fifty thousand dollars. It was my biggest winnings up to that -time. It was all made in a few days. The Street paid no -attention to the earthquake the first day or two. They’ll tell -you that it was because the first despatches were not so -alarming, but I think it was because it took so long to change -the point of view of the public toward the securities markets. -Even the professional traders for the most part were slow -and shortsighted.</p> - -<p>I have no explanation to give you, either scientific or -childish. I am telling you what I did, and why, and what -came of it. I was much less concerned with the mystery of -the hunch than with the fact that I got a quarter of a million -out of it. It meant that I could now swing a much bigger -line than ever, if or when the time came for it.</p> - -<p>That summer I went to Saratoga Springs. It was supposed -to be a vacation for me, but I kept an eye on the market. To<span class="pagenum" id="Page_75">75</span> -begin with, I wasn’t so tired that it bothered me to think -about it. And then, everybody I knew up there had or had -had an active interest in it. We naturally talked about it. I -have noticed that there is quite a difference between talking -and trading. Some of these chaps remind you of the bold -clerk who talks to his cantankerous employer as to a yellow -dog—when he tells you about it.</p> - -<p>Harding Brothers had a branch office in Saratoga. Many -of their customers were there. But the real reason, I suppose, -was the advertising value. Having a branch office in a resort -is simply high-class billboard advertising. I used to drop in -and sit around with the rest of the crowd. The manager was -a very nice chap from the New York office who was there to -give the glad hand to friends and strangers and, if possible, -to get business. It was a wonderful place for tips—all kinds -of tips, horse-race, stock-market, and waiters’. The office -knew I didn’t take any, so the manager didn’t come and -whisper confidentially in my ear what he’d just got on the -q. t. from the New York office. He simply passed over the -telegrams, saying, “This is what they’re sending out,” or -something of the kind.</p> - -<p>Of course I watched the market. With me, to look at the -quotation board and to read the signs is one process. My -good friend Union Pacific, I noticed, looked like going up. -<em>The price was high, but the stock acted as if it were being -accumulated.</em> I watched it a couple of days without trading -in it, and the more I watched it the more convinced I became -that it was being bought on balance by somebody who -was no piker, somebody who not only had a big bank roll -but knew what was what. Very clever accumulation, I -thought.</p> - -<p>As soon as I was sure of this I naturally began to buy it, -at about 160. It kept on acting all hunky, and so I kept on -buying it, five hundred shares at a clip. <em>The more I bought -the stronger it got, without any spurt, and I was feeling very -comfortable.</em> I couldn’t see any reason why that stock<span class="pagenum" id="Page_76">76</span> -shouldn’t go up a great deal more; not with what I read on -the tape.</p> - -<p>All of a sudden the manager came to me and said they’d -got a message from New York—they had a direct wire of -course—asking if I was in the office, and when they answered -yes, another came saying: “Keep him there. Tell him -Mr. Harding wants to speak to him.”</p> - -<p>I said I’d wait, and bought five hundred shares more of -UP. I couldn’t imagine what Harding could have to say to -me. I didn’t think it was anything about business. My margin -was more than ample for what I was buying. Pretty soon -the manager came and told me that Mr. Harding wanted me -on the long-distance telephone.</p> - -<p>“Hello, Ed,” I said.</p> - -<p>But he said, “What the devil’s the matter with you? Are -you crazy?”</p> - -<p>“Are you?” I said.</p> - -<p>“What are you doing?” he asked.</p> - -<p>“What do you mean?”</p> - -<p>“Buying all that stock.”</p> - -<p>“Why, isn’t my margin all right?”</p> - -<p>“It isn’t a case of margin, but of being a plain sucker.”</p> - -<p>“I don’t get you.”</p> - -<p>“Why are you buying all that Union Pacific?”</p> - -<p>“It’s going up,” I said.</p> - -<p>“Going up, hell! Don’t you know that the insiders are -feeding it out to you? You’re just about the easiest mark up -there. You’d have more fun losing it on the ponies. Don’t -let them kid you.”</p> - -<p>“Nobody is kidding me,” I told him. “I haven’t talked to -a soul about it.”</p> - -<p>But he came back at me: “You can’t expect a miracle to -save you every time you plunge into that stock. Get out -while you’ve still got a chance,” he said. “It’s a crime to be -long of that stock at this level—when these highbinders are -shoveling it out by the ton.”</p> - -<p><span class="pagenum" id="Page_77">77</span> -“The tape says they’re buying it,” I insisted.</p> - -<p>“Larry, I got heart disease when your orders began to -come in. For the love of Mike, don’t be a sucker. Get out! -Right away. It’s liable to bust wide open any minute. I’ve -done my duty. Good-by!” And he hung up.</p> - -<p>Ed Harding was a very clever chap, unusually well-informed -and a real friend, disinterested and kind-hearted. -And what was even more, I knew he was in position to hear -things. All I had to go by, in my purchases of UP., was my -years of studying the behaviour of stocks and my perception -of certain symptoms which experience had taught me usually -accompanied a substantial rise. <em>I don’t know what happened -to me, but I suppose I must have concluded that my tape -reading told me the stock was being absorbed simply because -very clever manipulation by the insiders made the tape -tell a story that wasn’t true.</em> Possibly I was impressed by the -pains Ed Harding took to stop me from making what he was -so sure would be a colossal mistake on my part. Neither his -brains nor his motives were to be questioned. Whatever it -was that made me decide to follow his advice, I cannot tell -you; but follow it, I did.</p> - -<p>I sold out all my Union Pacific. <em>Of course if it was unwise -to be long of it, it was equally unwise not to be short of it. So -after I got rid of my long stock I sold four thousand shares -short. I put out most of it around 162.</em></p> - -<p>The next day the directors of the Union Pacific Company -declared a 10 per cent dividend on the stock. At first nobody -in Wall Street believed it. It was too much like the desperate -manœuvre of cornered gamblers. All the newspapers -jumped on the directors. But while the Wall Street -talent hesitated to act the market boiled over. Union Pacific -led, and on huge transactions made a new high-record price. -Some of the room traders made fortunes in an hour and I remember -later hearing about a rather dull-witted specialist -who made a mistake that put three hundred and fifty thousand -dollars in his pocket. He sold his seat the following<span class="pagenum" id="Page_78">78</span> -week and became a gentleman farmer the following month.</p> - -<p>Of course I realised, the moment I heard the news of the -declaration of the unprecedented 10 per cent dividend, that -I got what I deserved for disregarding the voice of experience -and listening to the voice of a tipster. <em>My own convictions -I had set aside for the suspicions of a friend, simply because -he was disinterested and as a rule knew what he was -doing.</em></p> - -<p>As soon as I saw Union Pacific making new high records -I said to myself, “This is no stock for me to be short of.”</p> - -<p>All I had in the world was up as margin in Harding’s -office. I was neither cheered nor made stubborn by the -knowledge of that fact. What was plain was that I had read -the tape accurately and that I had been a ninny to let Ed -Harding shake my own resolution. There was no sense in -recriminations, because I had no time to lose; and besides, -what’s done is done. So I gave an order to take in my shorts. -The stock was around 165 when I sent in that order to buy in -the four thousand UP. at the market. I had a three-point loss -on it at that figure. Well, my brokers paid 172 and 174 for -some of it before they were through. I found when I got my -reports that Ed Harding’s kindly intentioned interference -cost me forty thousand dollars. <em>A low price for a man to pay -for not having the courage of his own convictions! It was a -cheap lesson.</em></p> - -<p>I wasn’t worried, because the tape said still higher prices. -It was an unusual move and there were no precedents for the -action of the directors, but I did this time what I thought -I ought to do. As soon as I had given the first order to buy -four thousand shares to cover my shorts I decided to profit -by what the tape indicated and so I went along. I bought -four thousand shares and held that stock until the next -morning. Then I got out. I not only made up the forty thousand -dollars I had lost but about fifteen thousand besides. If -Ed Harding hadn’t tried to save me money I’d have made a -killing. But he did me a very great service, for it was the lesson<span class="pagenum" id="Page_79">79</span> -of that episode that, I firmly believe, <em>completed</em> my education -as a trader.</p> - -<p>It was not that all I needed to learn was not to take tips -but follow my own inclination. <em>It was that I gained confidence -in myself and I was able finally to shake off the old -method of trading.</em> That Saratoga experience was my last -haphazard, hit-or-miss operation. From then on I began to -think of basic conditions instead of individual stocks. I promoted -myself to a higher grade in the hard school of speculation. -It was a long and difficult step to take.</p> - -<hr /> - -<p><span class="pagenum" id="Page_80">80</span></p> - -<div class="chapter"> -<h2 id="VII"><i>VII</i></h2> -</div> - -<p class="in0"><span class="firstword">I never hesitate</span> to tell a man that I am bullish or bearish. -But I do not tell people to buy or sell any particular stock. -In a bear market all stocks go down and in a bull market they -go up. I don’t mean of course that in a bear market caused -by a war, ammunition shares do not go up. I speak in a general -sense. But the average man doesn’t wish to be told that -it is a bull or a bear market. What he desires is to be told -specifically which particular stock to buy or sell. He wants -to get something for nothing. He does not wish to work. He -doesn’t even wish to have to think. It is too much bother -to have to count the money that he picks up from the -ground.</p> - -<p>Well, I wasn’t that lazy, but I found it easier to think of -individual stocks than of the general market and therefore of -individual fluctuations rather than of general movements. <em>I -had to change and I did.</em></p> - -<p><em>People don’t seem to grasp easily the fundamentals of -stock trading. I have often said that to buy on a rising market -is the most comfortable way of buying stocks. Now, the -point is not so much to buy as cheap as possible or go short -at top prices, but to buy or sell at the right time. When I am -bearish and I sell a stock, each sale must be at a lower level -than the previous sale. When I am buying, the reverse is -true. I must buy on rising scale. I don’t buy long stock on a -scale down, I buy on a scale up.</em></p> - -<p>Let us suppose, for example, that I am buying some stock.<span class="pagenum" id="Page_81">81</span> -<em>I’ll buy two thousand shares at 110. If the stock goes up to -111 after I buy it I am, at least temporarily, right in my -operation, because it is a point higher; it shows me a profit. -Well, because I am right I go in and buy another two thousand -shares.</em> If the market is still rising I buy a third lot of two -thousand shares. Say the price goes up to 114. I think it is -enough for the time being. I now have a trading basis to -work from. I am long six thousand shares at an average -of 111¾, and the stock is selling at 114. I won’t buy any -more just then. I wait and see. I figure that at some stage -of the rise there is going to be a reaction. I want to see how -the market takes care of itself after that reaction. It will -probably react to where I got my third lot. Say that after -going higher it falls back to 112¼, and then rallies. Well, -just as it goes back to 113¾ I shoot an order to buy four -thousand—at the market of course. Well, if I get that four -thousand at 113¾ I know something is wrong and I’ll give a -testing order—that is, I’ll sell one thousand shares to see how -the market takes it. But suppose that of the order to buy the -four thousand shares that I put in when the price was 113¾ -I get two thousand at 114 and five hundred at 114½ and the -rest on the way up so that for the last five hundred I pay -115½. Then I know I am right. It is the way I get the four -thousand shares that tells me whether I am right in buying -that particular stock at that particular time—<em>for of course I -am working on the assumption that I have checked up general -conditions pretty well and they are bullish. I never want -to buy stocks too cheap or too easily.</em></p> - -<p>I remember a story I heard about Deacon S. V. White -when he was one of the big operators of the Street. He was a -very fine old man, clever as they make them, and brave. He -did some wonderful things in his day, from all I’ve heard.</p> - -<p>It was in the old days when Sugar was one of the most -continuous purveyors of fireworks in the market. H. O. -Havemeyer, president of the company, was in the heyday of -his power. I gather from talks with the old-timers that<span class="pagenum" id="Page_82">82</span> -H.O. and his following had all the resources of cash and -cleverness necessary to put through successfully any deal in -their own stock. They tell me that Havemeyer trimmed -more small professional traders in that stock than any other -insider in any other stock. As a rule, the floor traders are -more likely to thwart the insiders’ game than help it.</p> - -<p>One day a man who knew Deacon White rushed into the -office all excited and said, “Deacon, you told me if I ever got -any good information to come to you at once with it and if -you used it you’d carry me for a few hundred shares.” He -paused for breath and for confirmation.</p> - -<p>The deacon looked at him in that meditative way he had -and said, “I don’t know whether I ever told you exactly that -or not, but I am willing to pay for information that I can -use.”</p> - -<p>“Well, I’ve got it for you.”</p> - -<p>“Now, that’s nice,” said the deacon, so mildly that the man -with the info swelled up and said, “Yes, sir, deacon.” Then -he came closer so nobody else would hear and said, “H. O. -Havemeyer is buying Sugar.”</p> - -<p>“Is he?” asked the deacon quite calmly.</p> - -<p>It peeved the informant, who said impressively: “Yes, sir. -Buying all he can get, deacon.”</p> - -<p>“My friend, are you sure?” asked old S.V.</p> - -<p>“Deacon, I know it for a positive fact. The old inside -gang are buying all they can lay their hands on. It’s got -something to do with the tariff and there’s going to be a killing -in the common. It will cross the preferred. And that -means a sure thirty points for a starter.”</p> - -<p>“D’you really think so?” And the old man looked at him -over the top of the old-fashioned silver-rimmed spectacles -that he had put on to look at the tape.</p> - -<p>“Do I think so? No, I don’t think so; I know so. Absolutely! -Why, deacon, when H. O. Havemeyer and his friends -buy Sugar as they’re doing now they’re never satisfied with -anything less than forty points net. I shouldn’t be surprised<span class="pagenum" id="Page_83">83</span> -to see the market get away from them any minute and -shoot up before they’ve got their full lines. There ain’t as -much of it kicking around the brokers’ offices as there was a -month ago.”</p> - -<p>“He’s buying Sugar, eh?” repeated the deacon absently.</p> - -<p>“Buying it? Why, he’s scooping it in as fast as he can -without putting up the price on himself.”</p> - -<p>“So?” said the deacon. That was all.</p> - -<p>But it was enough to nettle the tipster, and he said, “Yes, -sir-ree! And I call that very good information. Why, it’s -absolutely straight.”</p> - -<p>“Is it?”</p> - -<p>“Yes; and it ought to be worth a whole lot. Are you going -to use it?”</p> - -<p>“Oh, yes. I’m going to use it.”</p> - -<p>“When?” asked the information bringer suspiciously.</p> - -<p>“Right away.” And the deacon called: “Frank!” It was -the first name of his shrewdest broker, who was then in the -adjoining room.</p> - -<p>“Yes, sir,” said Frank.</p> - -<p>“I wish you’d go over to the Board and sell ten thousand -Sugar.”</p> - -<p>“Sell?” yelled the tipster. There was such suffering in his -voice that Frank, who had started out at a run, halted in his -tracks.</p> - -<p>“Why, yes,” said the deacon mildly.</p> - -<p>“But I told you H. O. Havemeyer was buying it!”</p> - -<p>“I know you did, my friend,” said the deacon calmly; and -turning to the broker: “Make haste, Frank!”</p> - -<p>The broker rushed out to execute the order and the tipster -turned red.</p> - -<p>“I came in here,” he said furiously, “with the best information -I ever had. I brought it to you because I thought you -were my friend, and square. I expected you to act on it—”</p> - -<p>“I am acting on it,” interrupted the deacon in a tranquillising -voice.</p> - -<p><span class="pagenum" id="Page_84">84</span> -“But I told you H.O. and his gang were buying!”</p> - -<p>“That’s right. I heard you.”</p> - -<p>“Buying! Buying! I said buying!” shrieked the tipster.</p> - -<p>“Yes, buying! That is what I understood you to say,” the -deacon assured him. He was standing by the ticker, looking -at the tape.</p> - -<p>“But you are selling it.”</p> - -<p>“Yes; ten thousand shares.” And the deacon nodded. -“Selling it, of course.”</p> - -<p>He stopped talking to concentrate on the tape and the -tipster approached to see what the deacon saw, for the old -man was very foxy. While he was looking over the deacon’s -shoulder a clerk came in with a slip, obviously the report -from Frank. The deacon barely glanced at it. He had seen -on the tape how his order had been executed.</p> - -<p>It made him say to the clerk, “Tell him to sell another ten -thousand Sugar.”</p> - -<p>“Deacon, I swear to you that they really are buying the -stock!”</p> - -<p>“Did Mr. Havemeyer tell you?” asked the deacon quietly.</p> - -<p>“Of course not! He never tells anybody anything. He -would not bat an eyelid to help his best friend make a nickel. -But I know this is true.”</p> - -<p>“Do not allow yourself to become excited, my friend.” And -the deacon held up a hand. He was looking at the tape. The -tip-bringer said, bitterly:</p> - -<p>“If I had known you were going to do the opposite of -what I expected I’d never have wasted your time or mine. -But I am not going to feel glad when you cover that stock at -an awful loss. I’m sorry for you, deacon. Honest! If you’ll -excuse me I’ll go elsewhere and act on my own information.”</p> - -<p>“I’m acting on it. I think I know a little about the market; -not as much, perhaps, as you and your friend H. O. Havemeyer, -but still a little. What I am doing is what my experience -tells me is the wise thing to do with that information -you brought me. After a man has been in Wall Street as long<span class="pagenum" id="Page_85">85</span> -as I have he is grateful for anybody who feels sorry for him. -Remain calm, my friend.”</p> - -<p>The man just stared at the deacon, for whose judgment -and nerve he had great respect.</p> - -<p>Pretty soon the clerk came in again and handed a report to -the deacon, who looked at it and said: “Now tell him to buy -thirty thousand Sugar. Thirty thousand!”</p> - -<p>The clerk hurried away and the tipster just grunted and -looked at the old gray fox.</p> - -<p>“My friend,” the deacon explained kindly, “I did not doubt -that you were telling me the truth as you saw it. But even -if I had heard H. O. Havemeyer tell you himself, I still -would have acted as I did. For there was only one way to -find out if anybody was buying the stock in the way you -said H. O. Havemeyer and his friends were buying it, and -that was to do what I did. The first ten thousand shares went -fairly easily. It was not quite conclusive. But the second ten -thousand was absorbed by a market that did not stop rising. -The way the twenty thousand shares were taken by somebody -proved to me that somebody was in truth willing to -take all the stock that was offered. It doesn’t particularly -matter at this point who that particular somebody may be. -So I have covered my shorts and am long ten thousand -shares, and I think that your information was good as far as -it went.”</p> - -<p>“And how far does it go?” asked the tipster.</p> - -<p>“You have five hundred shares in this office at the average -price of the ten thousand shares,” said the deacon. “Good -day, my friend. Be calm the next time.”</p> - -<p>“Say, deacon,” said the tipster, “won’t you please sell mine -when you sell yours? I don’t know as much as I thought -I did.”</p> - -<p>That’s the theory. <em>That is why I never buy stocks cheap.</em> -Of course I always try to buy effectively—in such a way as to -help my side of the market. When it comes to selling stocks,<span class="pagenum" id="Page_86">86</span> -it is plain that nobody can sell unless somebody wants those -stocks.</p> - -<p>If you operate on a large scale you will have to bear that -in mind all the time. A man studies conditions, plans his -operations carefully and proceeds to act. He swings a pretty -fair line and he accumulates a big profit—on paper. Well, -that man can’t sell at will. You can’t expect the market to -absorb fifty thousand shares of one stock as easily as it does -one hundred. He will have to wait until he has a market -there to take it. There comes the time when he thinks the -requisite buying power is there. When that opportunity -comes he must seize it. As a rule he will have been waiting -for it. <em>He has to sell when he can, not when he wants to.</em> To -learn the time, he has to watch and test. It is no trick to tell -when the market can take what you give it. But in starting a -movement it is unwise to take on your full line unless you are -convinced that conditions are exactly right. <em>Remember that -stocks are never too high for you to begin buying or too low -to begin selling. But after the initial transaction, don’t make -a second unless the first shows you a profit. Wait and watch.</em> -That is where your tape reading comes in—to enable you to -decide as to the proper time for beginning. <em>Much depends -upon beginning at exactly the right time.</em> It took me years to -realize the importance of this. It also cost me some hundreds -of thousands of dollars.</p> - -<p>I don’t mean to be understood as advising persistent pyramiding. -<em>A man can pyramid and make big money that he -couldn’t make if he didn’t pyramid; of course.</em> But what I -meant to say was this: Suppose a man’s line is five hundred -shares of stock. I say that he ought not to buy it all at once; -not if he is speculating. If he is merely gambling the only -advice I have to give him is, don’t!</p> - -<p>Suppose he buys his first hundred, and that promptly -shows him a loss. Why should he go to work and get more -stock? He ought to see at once that he is in wrong; at least -temporarily.</p> - -<hr /> - -<p><span class="pagenum" id="Page_87">87</span></p> - -<div class="chapter"> -<h2 id="VIII"><i>VIII</i></h2> -</div> - -<p class="in0"><span class="firstword">The Union Pacific incident</span> in Saratoga in the summer -of 1906 made me more independent than ever of tips and -talk—that is, of the opinions and surmises and suspicions of -other people, however friendly or however able they might -be personally. Events, not vanity, proved for me that I could -read the tape more accurately than most of the people about -me. I also was better equipped than the average customer of -Harding Brothers in that I was utterly free from speculative -prejudices. The bear side doesn’t appeal to me any more -than the bull side, or vice versa. My one steadfast prejudice -is against being wrong.</p> - -<p>Even as a lad I always got my own meanings out of such -facts as I observed. It is the only way in which the meaning -reaches me. I cannot get out of facts what somebody tells me -to get. They are my facts, don’t you see? If I believe something -you can be sure it is because I simply must. When I am -long of stocks it is because my reading of conditions has -made me bullish. But you find many people, reputed to be -intelligent, who are bullish because they have stocks. I do -not allow my possessions—or my prepossessions either—to -do any thinking for me. That is why I repeat that I never argue -with the tape. To be angry at the market because it unexpectedly -or even illogically goes against you is like getting -mad at your lungs because you have pneumonia.</p> - -<p>I had been gradually approaching the full realization of -how much more than tape reading there was to stock<span class="pagenum" id="Page_88">88</span> -speculation. Old man Partridge’s insistence on the vital importance -of being continuously bullish in a bull market -doubtless made my mind dwell on the need above all other -things of determining the kind of market a man is trading in. -<em>I began to realize that the big money must necessarily be in -the big swing. Whatever might seem to give a big swing its -initial impulse, the fact is that its continuance is not the result -of manipulations by pools or artifice by financiers, but -depends upon basic conditions. And no matter who opposes -it, the swing must inevitably run as far and as fast and as -long as the impelling forces determine.</em></p> - -<p>After Saratoga I began to see more clearly—perhaps I -should say more maturely—that since the entire list moves -in accordance with the main current there was not so much -need as I had imagined to study individual plays or the -behaviour of this or the other stock. Also, by thinking of the -swing a man was not limited in his trading. He could buy or -sell the entire list. In certain stocks a short line is dangerous -after a man sells more than a certain percentage of the capital -stock, the amount depending on how, where and by -whom the stock is held. But he could sell a million shares of -the general list—if he had the price—without the danger of -being squeezed. A great deal of money used to be made periodically -by insiders in the old days out of the shorts and -their carefully fostered fears of corners and squeezes.</p> - -<p><em>Obviously the thing to do was to be bullish in a bull market -and bearish in a bear market.</em> Sounds silly, doesn’t it? -But I had to grasp that general principle firmly before I saw -that to put it into practice really meant to anticipate probabilities. -It took me a long time to learn to trade on those -lines. But in justice to myself I must remind you that up to -then I had never had a big enough stake to speculate that -way. A big swing will mean big money if your line is big, -and to be able to swing a big line you need a big balance at -your broker’s.</p> - -<p>I always had—or felt that I had—to make my daily bread<span class="pagenum" id="Page_89">89</span> -out of the stock market. It interfered with my efforts to -increase the stake available for the more profitable but -slower and therefore more immediately expensive method -of trading on swings.</p> - -<p>But not only did my confidence in myself grow stronger -but my brokers ceased to think of me as a sporadically lucky -Boy Plunger. They had made a great deal out of me in commissions, -but now I was in a fair way to become their star -customer and as such to have a value beyond the actual volume -of my trading. <em>A customer who makes money is an asset -to any broker’s office.</em></p> - -<p>The moment I ceased to be satisfied with merely studying -the tape I ceased to concern myself exclusively with the -daily fluctuations in specific stocks, and when that happened -I simply had to study the game from a different angle. I -worked back from the quotation to first principles; from -price-fluctuations to basic conditions.</p> - -<p>Of course I had been reading the daily dope regularly for -a long time. All traders do. But much of it was gossip, some -of it deliberately false, and the rest merely the personal -opinion of the writers. The reputable weekly reviews when -they touched upon underlying conditions were not entirely -satisfactory to me. The point of view of the financial editors -was not mine as a rule. It was not a vital matter for them to -marshal their facts and draw their conclusions from them, -but it was for me. Also there was a vast difference in our appraisal -of the element of time. <em>The analysis of the week that -had passed was less important to me than the forecast of the -weeks that were to come.</em></p> - -<p>For years I had been the victim of an unfortunate combination -of inexperience, youth and insufficient capital. But -now I felt the elation of a discoverer. My new attitude toward -the game explained my repeated failures to make big -money in New York. But now with adequate resources, experience -and confidence, I was in such a hurry to try the new -key that I did not notice that there was another lock on the<span class="pagenum" id="Page_90">90</span> -door—<em>a time lock!</em> It was a perfectly natural oversight. I had -to pay the usual tuition—a good whack per each step forward.</p> - -<p>I studied the situation in 1906 and I thought that the -money outlook was particularly serious. Much actual wealth -the world over had been destroyed. Everybody must sooner -or later feel the pinch, and therefore nobody would be in -position to help anybody. It would not be the kind of hard -times that comes from the swapping of a house worth ten -thousand dollars for a carload of race horses worth eight -thousand dollars. It was the complete destruction of the -house by fire and of most of the horses by a railroad wreck. -It was good hard cash that went up in cannon smoke in the -Boer War, and the millions spent for feeding nonproducing -soldiers in South Africa meant no help from British investors -as in the past. Also, the earthquake and the fire in San Francisco -and other disasters touched everybody—manufacturers, -farmers, merchants, labourers and millionaires. The -railroads must suffer greatly. I figured that nothing could -stave off one peach of a smash. <em>Such being the case there -was but one thing to do—sell stocks!</em></p> - -<p>I told you I had already observed that my initial transaction, -after I made up my mind which way I was going to -trade, was apt to show me a profit. And now when I decided -to sell I plunged. Since we undoubtedly were entering upon -a genuine bear market I was sure I should make the biggest -killing of my career.</p> - -<p>The market went off. Then it came back. It shaded off and -then it began to advance steadily. My paper profits vanished -and paper losses grew. One day it looked as if not a bear -would be left to tell the tale of the strictly genuine bear market. -<em>I couldn’t stand the gaff. I covered. It was just as well. -If I hadn’t I wouldn’t have had enough to buy a postal -card. I lost most of my fur, but it was better to live to fight -another day.</em></p> - -<p>I had made a mistake. But where? I was bearish in a<span class="pagenum" id="Page_91">91</span> -bear market. That was wise. I had sold stocks short. That -was proper. <em>I had sold them too soon. That was costly. My -position was right but my play was wrong.</em> However, every -day brought the market nearer to the inevitable smash. So I -waited and when the rally began to falter and pause I let -them have as much stock as my sadly diminished margins -permitted. <em>I was right this time—for exactly one whole day</em>, -for on the next there was another rally. Another big bite out -of yours truly! So I read the tape and covered and waited. -In due course I sold again—and again they went down -promisingly and then they rudely rallied.</p> - -<p>It looked as if the market were doing its best to make me -go back to my old and simple ways of bucket-shop trading. -<em>It was the first time I had worked with a definite forward-looking -plan embracing the entire market instead of one or -two stocks.</em> I figured that I must win if I held out. Of -course at that time I had not developed my system of -placing my bets or I would have put out my short line on a -declining market, as I explained to you the last time. I would -not then have lost so much of my margin. <em>I would have been -wrong but not hurt.</em> You see, I had observed certain facts -but had not learned to co-ordinate them. My incomplete observation -not only did not help but actually hindered.</p> - -<p><em>I have always found it profitable to study my mistakes.</em> -Thus I eventually discovered that it was all very well not to -lose your bear position in a bear market, but that at all times -the tape should be read to determine the propitiousness of -the time for operating. If you begin right you will not see -your profitable position seriously menaced; and then you will -find no trouble in sitting tight.</p> - -<p>Of course to-day I have greater confidence in the accuracy -of my observations—in which neither hopes nor hobbies -play any part—and also I have greater facilities for verifying -my facts as well as for variously testing the correctness of -my views. But in 1906 the succession of rallies dangerously -impaired my margins.</p> - -<p><span class="pagenum" id="Page_92">92</span> -I was nearly twenty-seven years old. I had been at the -game twelve years. <em>But the first time I traded because of a -crisis that was still to come I found that I had been using a -telescope.</em> Between my first glimpse of the storm cloud and -the time for cashing in on the big break the stretch was evidently -so much greater than I had thought that I began to -wonder whether I really saw what I thought I saw so clearly. -<em>We had had many warnings and sensational ascensions in -call-money rates.</em> Still some of the great financiers talked -hopefully—at least to newspaper reporters—and the ensuing -rallies in the stock market gave the lie to the calamity -howlers. Was I fundamentally wrong in being bearish or -merely temporarily wrong in having begun to sell short too -soon?</p> - -<p>I decided that I began too soon, but that I really couldn’t -help it. Then the market began to sell off. That was my -opportunity. I sold all I could, and then stocks rallied again, -to quite a level.</p> - -<p>It cleaned me out.</p> - -<p>There I was—right and busted!</p> - -<p>I tell you it was remarkable. What happened was this: -I looked ahead and saw a big pile of dollars. Out of it stuck -a sign. It had “Help yourself,” on it, in huge letters. Beside -it stood a cart with “Lawrence Livingston Trucking Corporation” -painted on its side. I had a brand-new shovel in -my hand. There was not another soul in sight, so I had no -competition in the gold-shoveling, which is one beauty of -seeing the dollar-heap ahead of others. The people who -might have seen it if they had stopped to look were just then -looking at baseball games instead, or motoring or buying -houses to be paid for with the very dollars that I saw. That -was the first time that I had seen big money ahead, and I -naturally started toward it on the run. Before I could reach -the dollar-pile my wind went back on me and I fell to the -ground. The pile of dollars was still there, but I had lost the -shovel, and the wagon was gone. So much for sprinting too<span class="pagenum" id="Page_93">93</span> -soon! I was too eager to prove to myself that I had seen real -dollars and not a mirage. I saw, and knew that I saw. Thinking -about the reward for my excellent sight kept me from -considering the distance to the dollar-heap. I <em>should have -walked and not sprinted.</em></p> - -<p>That is what happened. I didn’t wait to determine -whether or not the time was right for plunging on the bear -side. On the one occasion when I should have invoked the -aid of my tape-reading I didn’t do it. That is how I came to -learn that even <em>when one is properly bearish at the very beginning -of a bear market it is well not to begin selling in -bulk until there is no danger of the engine back-firing</em>.</p> - -<p>I had traded in a good many thousands of shares at Harding’s -office in all those years, and, moreover, the firm had -confidence in me and our relations were of the pleasantest. I -think they felt that I was bound to be right again very -shortly and they knew that with my habit of pushing my -luck all I needed was a start and I’d more than recover what -I had lost. They had made a great deal of money out of my -trading and they would make more. So there was no trouble -about my being able to trade there again as long as my -credit stood high.</p> - -<p>The succession of spankings I had received made me less -aggressively cocksure; perhaps I should say less careless, for -of course I knew I was just so much nearer to the smash. -All I could do was wait watchfully, as I should have done -before plunging. It wasn’t a case of locking the stable after -the horse was stolen. I simply had to be sure, the next time I -tried. <em>If a man didn’t make mistakes he’d own the world in a -month. But if he didn’t profit by his mistakes he wouldn’t -own a blessed thing.</em></p> - -<p>Well, sir, one fine morning I came downtown feeling cocksure -once more. There wasn’t any doubt this time. I had -read an advertisement in the financial pages of all the newspapers -that was the high sign I hadn’t had the sense to wait -for before plunging. It was the announcement of a new issue<span class="pagenum" id="Page_94">94</span> -of stock by the Northern Pacific and Great Northern roads. -The payments were to be made on the installment plan for -the convenience of the stockholders. This consideration was -something new in Wall Street. It struck me as more than -ominous.</p> - -<p>For years the unfailing bull item on Great Northern preferred -had been the announcement that another melon was -to be cut, said melon consisting of the right of the lucky -stockholders to subscribe at par to a new issue of Great -Northern stock. These rights were valuable, since the market -price was always way above par. But now <em>the money market</em> -was such that the most powerful banking houses in the -country were none too sure the stockholders would be able -to pay cash for the bargain. And Great Northern preferred -was selling at about 330!</p> - -<p>As soon as I got to the office I told Ed Harding, “The time -to sell is right now. This is when I should have begun. Just -look at that ad, will you?”</p> - -<p>He had seen it. I pointed out what the bankers’ confession -amounted to in my opinion, but he couldn’t quite see -the big break right on top of us. He thought it better to wait -before putting out a very big short line by reason of the -market’s habit of having big rallies. If I waited prices might -be lower, but the operation would be safer.</p> - -<p>“Ed,” I said to him, “the longer the delay in starting the -sharper the break will be when it does start. That ad is a -signed confession on the part of the bankers. What they fear -is what I hope. This is a sign for us to get aboard the bear -wagon. It is all we needed. If I had ten million dollars I’d -stake every cent of it this minute.”</p> - -<p>I had to do some more talking and arguing. He wasn’t -content with the only inferences a sane man could draw -from that amazing advertisement. It was enough for me, but -not for most of the people in the office. I sold a little; too -little.</p> - -<p>A few days later St. Paul very kindly came out with an<span class="pagenum" id="Page_95">95</span> -announcement of an issue of its own; either stocks or notes, -I forget which. But that doesn’t matter. What mattered then -was that I noticed the moment I read it that the date of payment -was set ahead of the Great Northern and Northern -Pacific payments, which had been announced earlier. It was -as plain as though they had used a megaphone that grand -old St. Paul was trying to beat the other two railroads to -what little money there was floating around in Wall Street. -The St. Paul’s bankers quite obviously feared that there -wasn’t enough for all three and they were not saying, “After -you, my dear Alphonse!” If money already was that scarce—and -you bet the bankers knew—what would it be later? The -railroads needed it desperately. It wasn’t there. What was -the answer?</p> - -<p>Sell ’em! Of course! The public, with their eyes fixed on -the stock market, saw little—that week. The wise stock -operators saw much—that year. That was the difference.</p> - -<p>For me, that was the end of doubt and hesitation. I made -up my mind for keeps then and there. That same morning I -began what really was my first campaign along the lines that -I have since followed. I told Harding what I thought and -how I stood, and he made no objections to my selling Great -Northern preferred at around 330, and other stocks at high -prices. I profited by my earlier and costly mistakes and sold -more intelligently.</p> - -<p>My reputation and my credit were reestablished in a jiffy. -That is the beauty of being right in a broker’s office, whether -by accident or not. But this time I was cold-bloodedly right, -not because of a hunch or from skillful reading of the tape, -but as a result of my analysis of conditions affecting the -stock market in general. I wasn’t guessing. I was anticipating -the inevitable. It did not call for any courage to sell stocks. I -simply could not see anything but lower prices, and I had -to act on it, didn’t I? What else could I do?</p> - -<p>The whole list was soft as mush. Presently there was a -rally and people came to me to warn me that the end of the<span class="pagenum" id="Page_96">96</span> -decline had been reached. The big fellows, knowing the -short interest to be enormous, had decided to squeeze the -stuffing out of the bears, and so forth. It would set us pessimists -back a few millions. It was a cinch that the big fellows -would have no mercy. I used to thank these kindly counsellors. -I wouldn’t even argue, because then they would have -thought that I wasn’t grateful for the warnings.</p> - -<p>The friend who had been in Atlantic City with me was in -agony. He could understand the hunch that was followed -by the earthquake. He couldn’t disbelieve in such agencies, -since I had made a quarter of a million by intelligently -obeying my blind impulse to sell Union Pacific. He even said -it was Providence working in its mysterious way to make me -sell stocks when he himself was bullish. And he could understand -my second UP. trade in Saratoga because he could -understand any deal that involved one stock, on which the -tip definitely fixed the movement in advance, either up or -down. But this thing of predicting that all stocks were -bound to go down used to exasperate him. What did that -kind of dope do anybody? How in blazes could a gentleman -tell what to do?</p> - -<p>I recalled old Partridge’s favourite remark—“Well, this is -a bull market, you know”—as though that were tip enough -for anybody who was wise enough; as in truth it was. It was -very curious how, after suffering tremendous losses from a -break of fifteen or twenty points, people who were still -hanging on, welcomed a three-point rally and were certain -the bottom had been reached and complete recovery begun.</p> - -<p>One day my friend came to me and asked me, “Have you -covered?”</p> - -<p>“Why should I?” I said.</p> - -<p>“For the best reason in the world.”</p> - -<p>“What reason is that?”</p> - -<p>“To make money. They’ve touched bottom and what goes -down must come up. Isn’t that so?”</p> - -<p>“Yes,” I answered. “First they sink to the bottom. Then<span class="pagenum" id="Page_97">97</span> -they come up; but not right away. They’ve got to be good -and dead a couple of days. It isn’t time for these corpses to -rise to the surface. They are not quite dead yet.”</p> - -<p>An old-timer heard me. He was one of those chaps that -are always reminded of something. He said that William R. -Travers, who was bearish, once met a friend who was bullish. -They exchanged market views and the friend said, “Mr. -Travers, how can you be bearish with the market so stiff?” -and Travers retorted, “Yes! Th-the s-s-stiffness of d-death!” -It was Travers who went to the office of a company and -asked to be allowed to see the books. The clerk asked him, -“Have you an interest in this company?” and Travers answered, -“I sh-should s-say I had! I’m sh-short t-t-twenty -thousand sh-shares of the stock!”</p> - -<p>Well, the rallies grew feebler and feebler. I was pushing -my luck for all I was worth. Every time I sold a few thousand -shares of Great Northern preferred the price broke -several points. I felt out weak spots elsewhere and let ’em -have a few. All yielded, with one impressive exception; and -that was Reading.</p> - -<p>When everything else hit the toboggan slide Reading -stood like the Rock of Gibraltar. Everybody said the stock -was cornered. It certainly acted like it. They used to tell me -it was plain suicide to sell Reading short. There were people -in the office who were now as bearish on everything as I -was. But when anybody hinted at selling Reading they -shrieked for help. I myself had sold some short and was -standing pat on it. At the same time I naturally preferred to -seek and hit the soft spots instead of attacking the more -strongly protected specialties. My tape reading found easier -money for me in other stocks.</p> - -<p>I heard a great deal about the Reading bull pool. It was a -mighty strong pool. To begin with they had a lot of low-priced -stock, so that their average was actually below the -prevailing level, according to friends who told me. Moreover, -the principal members of the pool had close connections<span class="pagenum" id="Page_98">98</span> -of the friendliest character with the banks whose -money they were using to carry their huge holdings of Reading. -As long as the price stayed up the bankers’ friendship -was staunch and steadfast. One pool member’s paper profit -was upward of three millions. That allowed for some decline -without causing fatalities. No wonder the stock stood up and -defied the bears. Every now and then the room traders -looked at the price, smacked their lips and proceeded to -test it with a thousand shares or two. They could not dislodge -a share, so they covered and went looking elsewhere -for easier money. Whenever I looked at it I also sold a little -more—just enough to convince myself that I was true to my -new trading principles and wasn’t playing favourites.</p> - -<p>In the old days the strength of Reading might have fooled -me. The tape kept on saying, “Leave it alone!” But my -reason told me differently. I was anticipating a general -break, and there were not going to be any exceptions, pool -or no pool.</p> - -<p>I have always played a lone hand. I began that way in the -bucket shops and have kept it up. It is the way my mind -works. I have to do my own seeing and my own thinking. -But I can tell you after the market began to go my way I felt -for the first time in my life that I had allies—the strongest -and truest in the world: underlying conditions. They were -helping me with all their might. Perhaps they were a trifle -slow at times bringing up the reserves, but they were dependable, -provided I did not get too impatient. I was not -pitting my tape-reading knack or my hunches against -chance. The inexorable logic of events was making money -for me.</p> - -<p>The thing was to be right; to know it and to act accordingly. -General conditions, my true allies, said “Down!” and -Reading disregarded the command. It was an insult to us. It -began to annoy me to see Reading holding firmly, as though -everything was serene. It ought to be the best short sale -in the entire list because it had not gone down and the pool<span class="pagenum" id="Page_99">99</span> -was carrying a lot of stock that it would not be able to carry -when the money stringency grew more pronounced. Some -day the bankers’ friends would fare no better than the -friendless public. The stock must go with the others. If -Reading didn’t decline, then my theory was wrong; I was -wrong; facts were wrong; logic was wrong.</p> - -<p>I figured that the price held because the Street was afraid -to sell it. So one day I gave to two brokers each an order to -sell four thousand shares, at the same time.</p> - -<p>You ought to have seen that cornered stock, that it was -sure suicide to go short of, take a headlong dive when those -competitive orders struck it. I let ’em have a few thousand -more. The price was 111 when I started selling it. Within a -few minutes I took in my entire short line at 92.</p> - -<p>I had a wonderful time after that, and in <em>February of 1907 -I cleaned up</em>. Great Northern preferred had gone down sixty -or seventy points, and other stocks in proportion. <em>I had made -a good bit, but the reason I cleaned up was that I figured -that the decline had discounted the immediate future.</em> I -looked for a fair recovery, but I wasn’t bullish enough to play -for a turn. I wasn’t going to lose my position entirely. The -market would not be right for me to trade in for a while. The -first ten thousand I made in the bucket shops <em>I lost because I -traded in and out of season, every day, whether or not conditions -were right. I wasn’t making that mistake twice.</em> Also, -don’t forget that I had gone broke a little while before because -I had seen this break too soon and started selling before -it was time. Now when I had a big profit I wanted to -cash in so that I could feel I had been right. The rallies had -broken me before. I wasn’t going to let the next rally wipe -me out. Instead of sitting tight I went to Florida. I love fishing -and I needed a rest. I could get both down there. And -besides, there are direct wires between Wall Street and Palm -Beach.</p> - -<hr /> - -<p><span class="pagenum" id="Page_100">100</span></p> - -<div class="chapter"> -<h2 id="IX"><i>IX</i></h2> -</div> - -<p class="in0"><span class="firstword">I cruised off the coast</span> of Florida. The fishing was good. -I was out of stocks. My mind was easy. I was having a fine -time. One day off Palm Beach some friends came alongside -in a motor boat. One of them brought a newspaper with him. -I hadn’t looked at one in some days and had not felt any desire -to see one. I was not interested in any news it might -print. But I glanced over the one my friend brought to the -yacht, and I saw that the market had had a big rally; ten -points and more.</p> - -<p>I told my friends that I would go ashore with them. Moderate -rallies from time to time were reasonable. But the bear -market was not over; and here was Wall Street or the fool -public or desperate bull interests disregarding monetary conditions -and marking up prices beyond reason or letting somebody -else do it. It was too much for me. I simply had to take -a look at the market. I didn’t know what I might or might -not do. But I knew that my pressing need was the sight of -the quotation board.</p> - -<p>My brokers, Harding Brothers, had a branch office in Palm -Beach. When I walked in I found there a lot of chaps I -knew. Most of them were talking bullish. They were of the -type that trade on the tape and want quick action. Such -traders don’t care to look ahead very far because they don’t -need to with their style of play. I told you how I’d got to be -known in the New York office as the Boy Plunger. Of course -people always magnify a fellow’s winnings and the size of the<span class="pagenum" id="Page_101">101</span> -line he swings. The fellows in the office had heard that I had -made a killing in New York on the bear side and they now -expected that I again would plunge on the short side. They -themselves thought the rally would go to a good deal -further, but they rather considered it my duty to fight it.</p> - -<p>I had come down to Florida on a fishing trip. I had been -under a pretty severe strain and I needed my holiday. But -the moment I saw how far the recovery in prices had gone I -no longer felt the need of a vacation. I had not thought of -just what I was going to do when I came ashore. But now I -knew I must sell stocks. I was right, and I must prove it in -my old and only way—by saying it with money. To sell the -general list would be a proper, prudent, profitable and even -patriotic action.</p> - -<p>The first thing I saw on the quotation board was that Anaconda -was on the point of crossing 300. It had been going up -by leaps and bounds and there was apparently an aggressive -bull party in it. It was an old trading theory of mine that -when a stock crosses <em>100 or 200 or 300 for the first time the -price does not stop at the even figure but goes a good deal -higher, so that if you buy it as soon as it crosses the line it is -almost certain to show you a profit</em>. Timid people don’t like -to buy a stock at a new high record. But I had the history of -such movements to guide me.</p> - -<p>Anaconda was only quarter stock—that is, the par of the -shares was only twenty-five dollars. It took four hundred -shares of it to equal the usual one hundred shares of other -stocks, the par value of which was one hundred dollars. I -figured that when it crossed 300 it ought to keep on going -and probably touch 340 in a jiffy.</p> - -<p>I was bearish, remember, but I was also a tape-reading -trader. I knew Anaconda, if it went the way I figured, would -move very quickly. Whatever moves fast always appeals to -me. I have learned patience and how to sit tight, but my -personal preference is for fleet movements, and Anaconda -certainly was no sluggard. My buying it because it crossed<span class="pagenum" id="Page_102">102</span> -300 was prompted by the desire, always strong in me, of confirming -my observations.</p> - -<p>Just then the tape was saying that the buying was stronger -than the selling, and therefore the general rally might easily -go a bit further. It would be prudent to wait before going -short. Still I might as well pay myself wages for waiting. This -would be accomplished by taking a quick thirty points out -of Anaconda. Bearish on the entire market and bullish on -that one stock! So I bought thirty-two thousand shares of -Anaconda—that is, eight thousand full shares. It was a nice -little flyer but I was sure of my premises and I figured that -the profit would help to swell the margin available for bear -operations later on.</p> - -<p>On the next day the telegraph wires were down on account -of a storm up North or something of the sort. I was in -Harding’s office waiting for news. The crowd was chewing -the rag and wondering all sorts of things, as stock traders -will when they can’t trade. Then we got a quotation—the -only one that day: Anaconda, 292.</p> - -<p>There was a chap with me, a broker I had met in New -York. He knew I was long eight thousand full shares and I -suspect that he had some of his own, for when we got that -one quotation he certainly had a fit. He couldn’t tell whether -the stock at that very moment had gone off another ten -points or not. The way Anaconda had gone up it wouldn’t -have been anything unusual for it to break twenty points. -But I said to him, “Don’t you worry, John. It will be all right -to-morrow.” That was really the way I felt. But he looked at -me and shook his head. He knew better. He was that kind. -So I laughed, and I waited in the office in case some quotation -trickled through. But no, sir. That one was all we got: -Anaconda, 292. It meant a paper loss to me of nearly one -hundred thousand dollars. I had wanted quick action. Well, -I was getting it.</p> - -<p>The next day the wires were working and we got the -quotations as usual. Anaconda opened at 298 and went up<span class="pagenum" id="Page_103">103</span> -to 302¾, but pretty soon it began to fade away. Also, the rest -of the market was not acting just right for a further rally. I -made up my mind that if Anaconda went back to 301 I must -consider the whole thing a fake movement. On a legitimate -advance the price should have gone to 310 without stopping. -If instead it reacted it meant that precedents had failed me -and I was wrong; <em>and the only thing to do when a man is -wrong is to be right by ceasing to be wrong</em>. I had bought -eight thousand full shares in expectation of a thirty or forty -point rise. It would not be my first mistake; nor my last.</p> - -<p>Sure enough, Anaconda fell back to 301. The moment it -touched that figure I sneaked over to the telegraph operator—they -had a direct wire to the New York office—and I said -to him, “Sell all my Anaconda, eight thousand shares.” I said -it in a low voice. I didn’t want anybody else to know what I -was doing.</p> - -<p>He looked up at me almost in horror. But I nodded and -said, “All I’ve got!”</p> - -<p>“Surely, Mr. Livingston, you don’t mean at the market?” -and he looked as if he was going to lose a couple of millions -of his own through bum execution by a careless broker. But I -just told him, “Sell it! Don’t argue about it!”</p> - -<p>The two Black boys, Jim and Ollie, were in the office, out -of hearing of the operator and myself. They were big traders -who had come originally from Chicago, where they had been -famous plungers in wheat, and were now heavy traders on -the New York Stock Exchange. They were very wealthy and -were high rollers for fair.</p> - -<p>As I left the telegraph operator to go back to my seat in -front of the quotation board Oliver Black nodded to me and -smiled.</p> - -<p>“You’ll be sorry, Larry,” he said.</p> - -<p>I stopped and asked him, “What do you mean?”</p> - -<p>“To-morrow you’ll be buying it back.”</p> - -<p>“Buying what back?” I said. I hadn’t told a soul except the -telegraph operator.</p> - -<p><span class="pagenum" id="Page_104">104</span> -“Anaconda,” he said. “You’ll be paying 320 for it. That -wasn’t a good move of yours, Larry.” And he smiled again.</p> - -<p>“What wasn’t?” And I looked innocent.</p> - -<p>“Selling your eight thousand Anaconda at the market; in -fact, insisting on it,” said Ollie Black.</p> - -<p>I knew that he was supposed to be very clever and always -traded on inside news. But how he knew my business so accurately -was beyond me. I was sure the office hadn’t given -me away.</p> - -<p>“Ollie, how do you know that?” I asked him.</p> - -<p>He laughed and told me: “I got it from Charlie Kratzer.” -That was the telegraph operator.</p> - -<p>“But he never budged from his place,” I said.</p> - -<p>“I couldn’t hear you and him whispering,” he chuckled. -“But I heard every word of the message he sent to the New -York office for you. I learned telegraphy years ago after I -had a big row over a mistake in a message. Since then when -I do what you did just now—give an order by word of mouth -to an operator—I want to be sure the operator sends the message -as I give it to him. I know what he sends in my name. -But you will be sorry you sold that Anaconda. It’s going to -500.”</p> - -<p>“Not this trip, Ollie,” I said.</p> - -<p>He stared at me and said, “You’re pretty cocky about it.”</p> - -<p>“Not I; the tape,” I said. There wasn’t any ticker there so -there wasn’t any tape. But he knew what I meant.</p> - -<p>“I’ve heard of those birds,” he said, “who look at the tape -and instead of seeing prices they see a railroad time-table of -the arrival and departure of stocks. But they were in padded -cells where they couldn’t hurt themselves.”</p> - -<p>I didn’t answer him anything because about that time the -boy brought me a memorandum. They had sold five thousand -shares at 299¾. I knew our quotations were a little behind the -market. The price on the board at Palm Beach when I gave -the operator the order to sell was 301. I felt so certain that at -that very moment the price at which the stock was actually<span class="pagenum" id="Page_105">105</span> -selling on the Stock Exchange in New York was less, that if -anybody had offered to take the stock off my hands at 296 -I’d have been tickled to death to accept. What happened -shows you that I am right in never trading at limits. Suppose -I had limited my selling price to 300? I’d never have got it -off. No, sir! <em>When you want to get out, get out.</em></p> - -<p>Now, my stock cost me about 300. They got off five hundred -shares—full shares, of course—at 299¾. The next thousand -they sold at 299⅝. Then a hundred at ½; two hundred at -⅜ and two hundred at ¼. The last of my stock went at 298¾. It -took Harding’s cleverest floor man fifteen minutes to get rid -of that last one hundred shares. They didn’t want to crack it -wide open.</p> - -<p>The moment I got the report of the sale of the last of my -long stock I started to do what I had really come ashore to -do—that is, to sell stocks. I simply had to. There was the -market after its outrageous rally, begging to be sold. Why, -people were beginning to talk bullish again. The course of -the market, however, told me that the rally had run its -course. It was safe to sell them. It did not require reflection.</p> - -<p>The next day Anaconda opened below 296. Oliver Black, -who was waiting for a further rally, had come down early to -be Johnny-on-the-spot when the stock crossed 320. I don’t -know how much of it he was long of or whether he was long -of it all. But he didn’t laugh when he saw the opening prices, -nor later in the day when the stock broke still more and the -report came back to us in Palm Beach that there was no -market for it at all.</p> - -<p>Of course that was all the confirmation any man needed. -My growing paper profit kept reminding me that I was right, -hour by hour. Naturally I sold some more stocks. Everything! -It was a bear market. They were all going down. The next -day was Friday, Washington’s Birthday. I couldn’t stay in -Florida and fish because I had put out a very fair short line, -for me. I was needed in New York. Who needed me? I did!<span class="pagenum" id="Page_106">106</span> -Palm Beach was too far, too remote. Too much valuable time -was lost telegraphing back and forth.</p> - -<p>I left Palm Beach for New York. On Monday I had to lie -in St. Augustine three hours, waiting for a train. There was a -broker’s office there, and naturally I had to see how the market -was acting while I was waiting. Anaconda had broken -several points since the last trading day. As a matter of fact, -it didn’t stop going down until the big break that fall.</p> - -<p>I got to New York and traded on the bear side for about -four months. The market had frequent rallies as before, and -I kept covering and putting them out again. I didn’t, strictly -speaking, sit tight. Remember, I had lost every cent of the -three hundred thousand dollars I made out of the San -Francisco earthquake break. I had been right, and nevertheless -had gone broke. I was now playing safe—because after -being down a man enjoys being up, even if he doesn’t quite -make the top. <em>The way to make money is to make it. The -way to make big money is to be right at exactly the right -time.</em> In this business a man has to think of both theory and -practice. A speculator must not be merely a student, he must -be both a student and a speculator.</p> - -<p>I did pretty well, even if I can now see where my campaign -was tactically inadequate. When summer came the -market got dull. It was a cinch that there would be nothing -doing in a big way until well along in the fall. Everybody I -knew had gone or was going to Europe. I thought that -would be a good move for me. So I cleaned up. When I -sailed for Europe I was a trifle more than three-quarters of a -million to the good. To me that looked like some balance.</p> - -<p>I was in Aix-les-Bains enjoying myself. I had earned my -vacation. It was good to be in a place like that with plenty of -money and friends and acquaintances and everybody intent -upon having a good time. Not much trouble about having -that, in Aix. Wall Street was so far away that I never thought -about it, and that is more than I could say of any resort in -the United States. I didn’t have to listen to talk about the<span class="pagenum" id="Page_107">107</span> -stock market. I didn’t need to trade. I had enough to last me -quite a long time, and besides, when I got back I knew what -to do to make much more than I could spend in Europe that -summer.</p> - -<p>One day I saw in the Paris <i>Herald</i> a dispatch from New -York that Smelters had declared an extra dividend. They had -run the price of the stock and the entire market had come -back quite strong. Of course that changed everything for me -in Aix. The news simply meant that the bull cliques were -still fighting desperately against conditions—against common -sense and against common honesty, for they knew what -was coming and were resorting to such schemes to put up -the market in order to unload stocks before the storm struck -them. It is possible they really did not believe the danger -was as serious or as close at hand as I thought. <em>The big men -of the Street are as prone to be wishful thinkers as the politicians -or the plain suckers. I myself can’t work that way.</em> In -a speculator such an attitude is fatal. Perhaps a manufacturer -of securities or a promoter of new enterprises can afford -to indulge in hope-jags.</p> - -<p>At all events, I knew that all bull manipulation was foredoomed -to failure in that bear market. The instant I read the -dispatch I knew there was only one thing to do to be comfortable, -and that was to sell Smelters short. Why, the insiders -as much as begged me on their knees to do it, when they -increased the dividend rate on the verge of a money panic. It -was as infuriating as the old “dares” of your boyhood. They -dared me to sell that particular stock short.</p> - -<p>I cabled some selling orders in Smelter and advised my -friends in New York to go short of it. When I got my report -from the brokers I saw the price they got was six points below -the quotations I had seen in the Paris Herald. It shows -you what the situation was.</p> - -<p>My plans had been to return to Paris at the end of the -month and about three weeks later sail for New York, but as -soon as I received the cabled reports from my brokers I went<span class="pagenum" id="Page_108">108</span> -back to Paris. The same day I arrived I called at the steamship -offices and found there was a fast boat leaving for New -York the next day. I took it.</p> - -<p>There I was, back in New York, almost a month ahead of -my original plans, because it was the most comfortable place -to be short of the market in. I had well over half a million in -cash available for margins. My return was not due to my -being bearish but to my being logical.</p> - -<p>I sold more stocks. <em>As money got tighter call-money rates -went higher and prices of stocks lower.</em> I had foreseen it. At -first, my foresight broke me. But now I was right and prospering. -However, the real joy was in the consciousness that -as a trader I was at last on the right track. I still had much -to learn but I knew what to do. No more floundering, no more -half-right methods. <em>Tape reading was an important part of -the game; so was beginning at the right time; so was sticking -to your position. But my greatest discovery was that a man -must study general conditions, to size them so as to be able -to anticipate probabilities.</em> In short, I had learned that I had -to work for my money. I was no longer betting blindly or -concerned with mastering the technic of the game, but with -earning my successes by hard study and clear thinking. I -also found out that nobody was immune from the danger of -making sucker plays. And for a sucker play a man gets sucker -pay; for the paymaster is on the job and never loses the pay -envelope that is coming to you.</p> - -<p>Our office made a great deal of money. My own operations -were so successful that they began to be talked about and, -of course, were greatly exaggerated. I was credited with -starting the breaks in various stocks. People I didn’t know by -name used to come and congratulate me. They all thought -the most wonderful thing was the money I had made. They -did not say a word about the time when I first talked bearish -to them and they thought I was a crazy bear with a stock-market -loser’s vindictive grouch. That I had foreseen the -money troubles was nothing. That my brokers’ bookkeeper<span class="pagenum" id="Page_109">109</span> -had used a third of a drop of ink on the credit side of the -ledger under my name was a marvellous achievement to -them.</p> - -<p>Friends used to tell me that in various offices the Boy -Plunger in Harding Brothers’ office was quoted as making -all sorts of threats against the bull cliques that had tried to -mark up prices of various stocks long after it was plain that -the market was bound to seek a much lower level. To this -day they talk of my raids.</p> - -<p>From the latter part of September on, the money market -was megaphoning warnings to the entire world. But a belief -in miracles kept people from selling what remained of their -speculative holdings. Why a broker told me a story the first -week of October that made me feel almost ashamed of my -moderation.</p> - -<p>You remember that money loans used to be made on the -floor of the Exchange around the Money Post. Those brokers -who had received notice from their banks to pay call loans -knew in a general way how much money they would have to -borrow afresh. And of course the banks knew their position -so far as loanable funds were concerned, and those which -had money to loan would send it to the Exchange. This bank -money was handled by a few brokers whose principal business -was time loans. At about noon the renewal rate for the -day was posted. Usually this represented a fair average of -the loans made up to that time. Business was as a rule transacted -openly by bids and offers, so that everyone knew what -was going on. Between noon and about two o’clock there -was ordinarily not much business done in money, but after -delivery time—namely, 2:15 <span class="smcap smaller">P.M.</span>—brokers would know exactly -what their cash position for the day would be, and they -were able either to go to the Money Post and lend the balances -that they had over or to borrow what they required. -This business also was done openly.</p> - -<p>Well, sometime early in October the broker I was telling -you about came to me and told me that brokers were getting<span class="pagenum" id="Page_110">110</span> -so they didn’t go to the Money Post when they had money -to loan. The reason was that members of a couple of well-known -commission houses were on watch there, ready to -snap up any offerings of money. Of course no lender who -offered money publicly could refuse to lend to these firms. -They were solvent and the collateral was good enough. But -the trouble was that once these firms borrowed money on -call there was no prospect of the lender getting that money -back. They simply said they couldn’t pay it back and the -lender would willy-nilly have to renew the loan. So any -Stock Exchange house that had money to loan to its fellows -used to send its men about the floor instead of to the Post, -and they would whisper to good friends, “Want a hundred?” -meaning, “Do you wish to borrow a hundred thousand dollars?” -The money brokers who acted for the banks presently -adopted the same plan, and it was a dismal sight to watch -the Money Post. Think of it!</p> - -<p>Why, he also told me that it was a matter of Stock Exchange -etiquette in those October days for the borrower to -make his own rate of interest. You see, it fluctuated between -100 and 150 per cent per annum. I suppose by letting the -borrower fix the rate the lender in some strange way didn’t -feel so much like a usurer. But you bet he got as much as the -rest. The lender naturally did not dream of not paying a high -rate. He played fair and paid whatever the others did. What -he needed was the money and was glad to get it.</p> - -<p>Things got worse and worse. <em>Finally there came the awful -day of reckoning for the bulls and the optimists and the -wishful thinkers and those vast hordes that, dreading the -pain of a small loss at the beginning, were now about to -suffer total amputation—without anaesthetics.</em> A day I shall -never forget, October 24, 1907.</p> - -<p>Reports from the money crowd early indicated that borrowers -would have to pay whatever the lenders saw fit to ask. -There wouldn’t be enough to go around. That day the money -crowd was much larger than usual. When delivery time came<span class="pagenum" id="Page_111">111</span> -that afternoon there must have been a hundred brokers -around the Money Post, each hoping to borrow the money -that his firm urgently needed. Without money they must sell -what stocks they were carrying on margin—sell at any price -they could get in a market where buyers were as scarce as -money—and just then there was not a dollar in sight.</p> - -<p>My friend’s partner was as bearish as I was. The firm -therefore did not have to borrow, but my friend, the broker -I told you about, fresh from seeing the haggard faces around -the Money Post, came to me. He knew I was heavily short of -the entire market.</p> - -<p>He said, “My God, Larry! I don’t know what’s going to -happen. I never saw anything like it. It can’t go on. Something -has got to give. It looks to me as if everybody is busted -right now. You can’t sell stocks, and there is absolutely no -money in there.”</p> - -<p>“How do you mean?” I asked.</p> - -<p>But what he answered was, “Did you ever hear of the classroom -experiment of the mouse in a glass-bell when they -begin to pump the air out of the bell? You can see the poor -mouse breathe faster and faster, its sides heaving like over-worked -bellows, trying to get enough oxygen out of the decreasing -supply in the bell. You watch it suffocate till its eyes -almost pop out of their sockets, gasping, dying. Well, that is -what I think of when I see the crowd at the Money Post! No -money anywhere, and you can’t liquidate stocks because -there is nobody to buy them. The whole Street is broke at -this very moment, if you ask me!”</p> - -<p>It made me think. I had seen a smash coming, but not, I -admit, the worst panic in our history. It might not be profitable -to anybody—if it went much further.</p> - -<p>Finally it became plain that there was no use in waiting at -the Post for money. There wasn’t going to be any. Then hell -broke loose.</p> - -<p>The president of the Stock Exchange, Mr. R. H. Thomas, -so I heard later in the day, knowing that every house in the<span class="pagenum" id="Page_112">112</span> -Street was headed for disaster, went out in search of succour. -He called on James Stillman, president of the National City -Bank, the richest bank in the United States. Its boast was -that it never loaned money at a higher rate than 6 per cent.</p> - -<p>Stillman heard what the president of the New York Stock -Exchange had to say. Then he said, “Mr. Thomas, we’ll have -to go and see Mr. Morgan about this.”</p> - -<p>The two men, hoping to stave off the most disastrous panic -in our financial history, went together to the office of J. P. -Morgan & Co. and saw Mr. Morgan, Mr. Thomas laid the -case before him. The moment he got through speaking Mr. -Morgan said, “Go back to the Exchange and tell them that -there will be money for them.”</p> - -<p>“Where?”</p> - -<p>“At the banks!”</p> - -<p>So strong was the faith of all men in Mr. Morgan in those -critical times that Thomas didn’t wait for further details but -rushed back to the floor of the Exchange to announce the -reprieve to his death-sentenced fellow members.</p> - -<p>Then, before half past two in the afternoon, J. P. Morgan -sent John T. Atterbury, of Van Emburgh & Atterbury, who -was known to have close relations with J. P. Morgan & Co., -into the money crowd. My friend said that the old broker -walked quickly to the Money Post. He raised his hand like -an exhorter at a revival meeting. The crowd, that at first had -been calmed down somewhat by President Thomas’ announcement, -was beginning to fear that the relief plans had -miscarried and the worst was still to come. But when they -looked at Mr. Atterbury’s face and saw him raise his hand -they promptly petrified themselves.</p> - -<p>In the dead silence that followed, Mr. Atterbury said, “I -am authorized to lend ten million dollars. Take it easy! There -will be enough for everybody!”</p> - -<p>Then he began. Instead of giving to each borrower the -name of the lender he simply jotted down the name of the -borrower and the amount of the loan and told the borrower,<span class="pagenum" id="Page_113">113</span> -“You will be told where your money is.” He meant the name -of the bank from which the borrower would get the money -later.</p> - -<p>I heard a day or two later that Mr. Morgan simply sent -word to the frightened bankers of New York that they must -provide the money the Stock Exchange needed.</p> - -<p>“But we haven’t got any. We’re loaned up to the hilt,” the -banks protested.</p> - -<p>“You’ve got your reserves,” snapped J. P.</p> - -<p>“But we’re already below the legal limit,” they howled.</p> - -<p>“Use them! That’s what reserves are for!” And the banks -obeyed and invaded the reserves to the extent of about -twenty million dollars. It saved the stock market. The bank -panic didn’t come until the following week. He was a man, -J. P. Morgan was. They don’t come much bigger.</p> - -<p>That was the day I remember most vividly of all the days -of my life as a stock operator. It was the day when my winnings -exceeded one million dollars. It marked the successful -ending of my first deliberately planned trading campaign. -What I had foreseen had come to pass. But more than all -these things was this: a wild dream of mine had been -realised. I had been king for a day!</p> - -<p>I’ll explain, of course. After I had been in New York a -couple of years I used to cudgel my brains trying to determine -the exact reason why I couldn’t beat in a Stock Exchange -house in New York the game that I had beaten as a -kid of fifteen in a bucket shop in Boston. I knew that some -day I would find out what was wrong and I would stop being -wrong. I would then have not alone the will to be right but -the knowledge to insure my being right. And that would -mean power.</p> - -<p>Please do not misunderstand me. It was not a deliberate -dream of grandeur or a futile desire born of overweening -vanity. It was rather a sort of feeling that the same old stock -market that so baffled me in Fullerton’s office and in Harding’s<span class="pagenum" id="Page_114">114</span> -would one day eat out of my hand. I just felt that such -a day would come. And it did—October 24, 1907.</p> - -<p>The reason why I say it is this: That morning a broker -who had done a lot of business for my brokers and knew that -I had been plunging on the bear side rode down in the company -of one of the partners of the foremost banking house in -the Street. My friend told the banker how heavily I had been -trading, for I certainly pushed my luck to the limit. What is -the use of being right unless you get all the good possible out -of it.</p> - -<p>Perhaps the broker exaggerated to make his story sound -important. Perhaps I had more of a following than I knew. -Perhaps the banker knew far better than I how critical the -situation was. At all events, my friend said to me: “He listened -with great interest to what I told him you said the -market was going to do when the real selling began, after -another push or two. When I got through he said he might -have something for me to do later in the day.”</p> - -<p>When the commission houses found out there was not a -cent to be had at any price I knew the time had come. I sent -brokers into the various crowds. Why, at one time there -wasn’t a single bid for Union Pacific. Not at any price! Think -of it! And in other stocks the same thing. No money to hold -stocks and nobody to buy them.</p> - -<p>I had enormous paper profits and the certainty that all -that I had to do to smash prices still more was to send in -orders to sell ten thousand shares each of Union Pacific and -of a half dozen other good dividend-paying stocks and what -would follow would be simply hell. It seemed to me that the -panic that would be precipitated would be of such an intensity -and character that the board of governors would deem -it advisable to close the Exchange, as was done in August, -1914, when the World War broke out.</p> - -<p>It would mean greatly increased profits on paper. It might -also mean an inability to convert those profits into actual -cash. But there were other things to consider, and one was<span class="pagenum" id="Page_115">115</span> -that a further break would retard the recovery that I was beginning -to figure on, the compensating improvement after -all that blood-letting. Such a panic would do much harm to -the country generally.</p> - -<p>I made up my mind that since it was unwise and unpleasant -to continue actively bearish it was illogical for me to -stay short. So I turned and began to buy.</p> - -<p>It wasn’t long after my brokers began to buy in for me—and, -by the way, I got bottom prices—that the banker sent -for my friend.</p> - -<p>“I have sent for you,” he said, “because I want you to go -instantly to your friend Livingston and say to him that we -hope he will not sell any more stocks to-day. The market -can’t stand much more pressure. As it is, it will be an immensely -difficult task to avert a devastating panic. Appeal to -your friend’s patriotism. This is a case where a man has to -work for the benefit of all. Let me know at once what he -says.”</p> - -<p>My friend came right over and told me. He was very tactful. -I suppose he thought that having planned to smash the -market I would consider his request as equivalent to throwing -away the chance to make about ten million dollars. He -knew I was sore on some of the big guns for the way they -had acted trying to land the public with a lot of stock when -they knew as well as I did what was coming.</p> - -<p>As a matter of fact, the big men were big sufferers and lots -of the stocks I bought at the very bottom were in famous -financial names. I didn’t know it at the time, but it did not -matter. I had practically covered all my shorts and it seemed -to me there was a chance to buy stocks cheap and help the -needed recovery in prices at the same time—if nobody hammered -the market.</p> - -<p>So I told my friend, “Go back and tell Mr. Blank that I -agree with them and that I fully realised the gravity of the -situation even before he sent for you. I not only will not sell -any more stocks to-day, but I am going in and buy as much<span class="pagenum" id="Page_116">116</span> -as I can carry.” And I kept my word. I bought one hundred -thousand shares that day, for the long account. I did not sell -another stock short for nine months.</p> - -<p>That is why I said to friends that my dream had come true -and that I had been king for a moment. The stock market at -one time that day certainly was at the mercy of anybody -who wanted to hammer it. I do not suffer from delusions of -grandeur; in fact you know how I feel about being accused -of raiding the market and about the way my operations are -exaggerated by the gossip of the Street.</p> - -<p>I came out of it in fine shape. The newspapers said that -Larry Livingston, the Boy Plunger, had made several millions. -Well, I was worth over one million after the close of -business that day. But my biggest winnings were not in dollars -but in the intangibles: I had been right, I had looked -ahead and followed a clear-cut plan. I had learned what a -man must do in order to make big money; I was permanently -out of the gambler class; I had at last learned to trade intelligently -in a big way. It was a day of days for me.</p> - -<hr /> - -<p><span class="pagenum" id="Page_117">117</span></p> - -<div class="chapter"> -<h2 id="X"><i>X</i></h2> -</div> - -<p class="in0"><span class="firstword">The recognition</span> of our own mistakes should not benefit us -any more than the study of our successes. But there is a -natural tendency in all men to avoid punishment. When you -associate certain mistakes with a licking, you do not hanker -for a second dose, and, of course, all stock-market mistakes -wound you in two tender spots—your pocketbook and your -vanity. But I will tell you something curious: A stock speculator -sometimes makes mistakes and knows that he is making -them. And after he makes them he will ask himself why he -made them; and after thinking over it cold-bloodedly a long -time after the pain of punishment is over he may learn how -he came to make them, and when, and at what particular -point of his trade; but not why. And then he simply calls -himself names and lets it go at that.</p> - -<p>Of course, if a man is both wise and lucky, he will not -make the same mistake twice. But he will make any one of -the ten thousand brothers or cousins of the original. The -Mistake family is so large that there is always one of them -around when you want to see what you can do in the fool-play -line.</p> - -<p>To tell you about the first of my million-dollar mistakes I -shall have to go back to this time when I first became a millionaire, -right after the big break of October, 1907. As far as -my trading went, having a million merely meant more reserves. -Money does not give a trader more comfort, because, -rich or poor, he can make mistakes and it is never comfortable<span class="pagenum" id="Page_118">118</span> -to be wrong. And when a millionaire is right his -money is merely one of his several servants. Losing money -is the least of my troubles. <em>A loss never bothers me after I -take it. I forget it overnight. But being wrong—not taking -the loss—that is what does the damage to the pocketbook -and to the soul.</em> You remember Dickson G. Watts’ story about -the man who was so nervous that a friend asked him what -was the matter.</p> - -<p>“I can’t sleep,” answered the nervous one.</p> - -<p>“Why not?” asked the friend.</p> - -<p>“I am carrying so much cotton that I can’t sleep thinking -about it. It is wearing me out. What can I do?”</p> - -<p>“Sell down to the sleeping point,” answered the friend.</p> - -<p>As a rule a man adapts himself to conditions so quickly -that he loses the perspective. He does not feel the difference -much—that is, he does not vividly remember how it felt not -to be a millionaire. He only remembers that there were -things he could not do that he can do now. It does not take -a reasonably young and normal man very long to lose the -habit of being poor. It requires a little longer to forget that -he used to be rich. I suppose that is because money creates -needs or encourages their multiplication. I mean that after a -man makes money in the stock market he very quickly loses -the habit of not spending. But after he loses his money it -takes him a long time to lose the habit of spending.</p> - -<p>After I took in my shorts and went long in October, 1907, -I decided to take it easy for a while. I bought a yacht and -planned to go off on a cruise in Southern waters. I am crazy -about fishing and I was due to have the time of my life. I -looked forward to it and expected to go any day. But I did -not. The market wouldn’t let me.</p> - -<p><em>I always have traded in commodities as well as in stocks.</em> -I began as a youngster in the bucket shops. I studied those -markets for years, though perhaps not so assiduously as the -stock market. As a matter of fact, <em>I would rather play commodities -than stocks</em>. There is no question about their greater<span class="pagenum" id="Page_119">119</span> -legitimacy, as it were. It partakes more of the nature of a -commercial venture than trading in stocks does. A man can -approach it as he might any mercantile problem. It may be -possible to use fictitious arguments for or against a certain -trend in a commodity market; but success will be only temporary, -<em>for in the end the facts are bound to prevail</em>, so that a -trader gets dividends on study and observation, as he does in -a regular business. He can watch and weigh conditions and -he knows as much about it as anyone else. He need not guard -against inside cliques. Dividends are not unexpectedly -passed or increased overnight in the cotton market or in -wheat or corn. <em>In the long run commodity prices are governed -but by one law—the economic law of demand and -supply.</em> The business of the trader in commodities is simply -to get facts about the demand and the supply, present and -prospective. He does not indulge in guesses about a dozen -things as he does in stocks. It always appealed to me—trading -in commodities.</p> - -<p>Of course the same things happen in all speculative markets. -The message of the tape is the same. That will be perfectly -plain to anyone who will take the trouble to think. He -will find if he asks himself questions and considers conditions, -that the answers will supply themselves directly. But -people never take the trouble to ask questions, leave alone -seeking answers. The average American is from Missouri -everywhere and at all times except when he goes to the brokers’ -offices and looks at the tape, whether it is stocks or commodities. -The one game of all games that really requires -study before making a play is the one he goes into without -his usual highly intelligent preliminary and precautionary -doubts. <em>He will risk half his fortune in the stock market with -less reflection than he devotes to the selection of a medium-priced -automobile.</em></p> - -<p>This matter of tape reading is not so complicated as it appears. -Of course you need experience. But it is even more -important to keep certain fundamentals in mind. To read<span class="pagenum" id="Page_120">120</span> -the tape is not to have your fortune told. The tape does not -tell you how much you will surely be worth next Thursday -at 1:35 <span class="smcap smaller">P.M.</span> The object of reading the tape is to ascertain, -first, how and, next, when to trade—that is, whether it is -wiser to buy than to sell. It works exactly the same for stocks -as for cotton or wheat or corn or oats.</p> - -<p>You watch the market—that is, the course of prices as recorded -by the tape—with one object: to determine the direction—that -is, the price tendency. Prices, we know, will move -either up or down according to the resistance they encounter. -For purposes of easy explanation we will say that -<em>prices, like everything else, move along the line of least resistance</em>. -They will do whatever comes easiest, therefore they -will go up if there is less resistance to an advance than to a -decline; and vice versa.</p> - -<p>Nobody should be puzzled as to whether a market is a -bull market or a bear market after it fairly starts. The trend -is evident to a man who has an open mind and reasonably -clear sight, for it is never wise for a speculator to fit his facts -to his theories. Such a man will, or ought to, know whether -it is a bull or a bear market, and if he knows that he knows -whether to buy or to sell. It is therefore at the very inception -of the movement that a man needs to know whether to -buy or to sell.</p> - -<p>Let us say, for example, that the market, as it usually does -in those between-swings times, fluctuates within a range of -ten points; up to 130 and down to 120. It may look very weak -at the bottom; or, on the way up, after a rise of eight or ten -points, it may look as strong as anything. A man ought not -to be led into trading by tokens. <em>He should wait until the -tape tells him that the time is ripe. As a matter of fact, millions -upon millions of dollars have been lost by men who -bought stocks because they looked cheap or sold them because -they looked dear. The speculator is not an investor. -His object is not to secure a steady return on his money at a -good rate of interest, but to profit by either a rise or a fall in<span class="pagenum" id="Page_121">121</span> -the price of whatever he may be speculating in. Therefore -the thing to determine is the speculative line of least resistance -at the moment of trading; and what he should wait for -is the moment when that line defines itself, because that is -his signal to get busy.</em></p> - -<p>Reading the tape merely enables him to see that at 130 -the selling had been stronger than the buying and a reaction -in the price logically followed. Up to the point where the -selling prevailed over the buying, superficial students of the -tape may conclude that the price is not going to stop short -of 150, and they buy. But after the reaction begins to hold -on, or sell out at a small loss, or they go short and talk bearish. -But at 120 there is stronger resistance to the decline. The -buying prevails over the selling, there is a rally and the -shorts cover. The public is so often whipsawed that one -marvels at their persistence in not learning their lesson.</p> - -<p>Eventually something happens that increases the power of -either the upward or the downward force and the point of -greatest resistance moves up or down—that is, the buying at -130 will for the first time be stronger than the selling, or the -selling at 120 be stronger than the buying. The price will -break through the old barrier or movement-limit and go on. -As a rule, there is always a crowd of traders who are short at -120 because it looked so weak, or long at 130 because it looked -so strong, and, when the market goes against them they are -forced, after a while, either to change their minds and turn -or to close out. In either event they help to define even more -clearly the price line of least resistance. Thus the intelligent -trader who has patiently waited to determine this line will -enlist the aid of fundamental trade conditions and also of the -force of the trading of that part of the community that happened -to guess wrong and must now rectify mistakes. Such -corrections tend to push prices along the line of least resistance.</p> - -<p>And right here I will say that, though I do not give it as a -mathematical certainty or as an axiom of speculation, my<span class="pagenum" id="Page_122">122</span> -experience has been that accidents—that is, the unexpected -or unforeseen—have always helped me in my market position -whenever the latter has been based upon my determination -of the line of least resistance. Do you remember that -Union Pacific episode at Saratoga that I told you about? -Well, I was long because I found out that the line of least -resistance was upward. I should have stayed long instead of -letting my broker tell me that insiders were selling stocks. It -didn’t make any difference what was going on in the directors’ -minds. That was something I couldn’t possibly know. -But I could and did know that the tape said: “Going up!” -And then came the unexpected raising of the dividend rate -and the thirty-point rise in the stock. At 164 prices looked -mighty high, but as I told you before, <em>stocks are never too -high to buy or too low to sell</em>. <em>The price</em>, per se, <em>has nothing -to do with establishing my line of least resistance.</em></p> - -<p>You will find in actual practice that if you trade as I have -indicated any important piece of news given out between -the closing of one market and the opening of another is usually -in harmony with the line of least resistance. <em>The trend -has been established before the news is published, and in -bull markets bear items are ignored and bull news exaggerated, -and vice versa.</em> Before the war broke out the market -was in a very weak condition. There came the proclamation -of Germany’s submarine policy. I was short one hundred and -fifty thousand shares of stock, not because I knew the news -was coming, but because I was going along the line of least -resistance. What happened came out of a clear sky, as far as -my play was concerned. Of course I took advantage of the -situation and I covered my shorts that day.</p> - -<p>It sounds very easy to say that all you have to do is to -watch the tape, establish your resistance points and be ready -to trade along the line of least resistance as soon as you have -determined it. <em>But in actual practice a man has to guard -against many things, and most of all against himself</em>—that is, -against human nature. That is the reason why I say that the<span class="pagenum" id="Page_123">123</span> -man who is right always has two forces working in his favor—<em>basic -conditions and the men who are wrong</em>. <em>In a bull -market bear factors are ignored.</em> That is human nature, and -yet human beings profess astonishment at it. People will tell -you that the wheat crop has gone to pot because there has -been bad weather in one or two sections and some farmers -have been ruined. When the entire crop is gathered and all -the farmers in all the wheat-growing sections begin to take -their wheat to the elevators the bulls are surprised at the -smallness of the damage. They discover that they merely -have helped the bears.</p> - -<p>When a man makes his play in a commodity market he -must not permit himself set opinions. He must have an open -mind and flexibility. <em>It is not wise to disregard the message -of the tape, no matter what your opinion of crop conditions -or of the probable demand may be.</em> I recall how I missed a -big play just by trying to anticipate the starting signal. I felt -so sure of conditions that I thought it was not necessary to -wait for the line of least resistance to define itself. I even -thought I might help it arrive, because it looked as if it -merely needed a little assistance.</p> - -<p>I was very bullish on cotton. It was hanging around -twelve cents, running up and down within a moderate range. -It was in one of those in-between places and I could see it. -I knew I really ought to wait. But I got to thinking that if I -gave it a little push it would go beyond the upper resistance -point.</p> - -<p>I bought fifty thousand bales. Sure enough, it moved up. -And sure enough, as soon as I stopped buying it stopped -going up. Then it began to settle back to where it was when -I began buying it. I got out and it stopped going down. I -thought I was now much nearer the starting signal, and -presently I thought I’d start it myself again. I did. The same -thing happened. I bid it up, only to see it go down when I -stopped. I did this four or five times until I finally quit in -disgust. It cost me about two hundred thousand dollars. I<span class="pagenum" id="Page_124">124</span> -was done with it. It wasn’t very long after that when it began -to go up and never stopped till it got to a price that -would have meant a killing for me—if I hadn’t been in such -a great hurry to start.</p> - -<p>This experience has been the experience of so many -traders so many times that I can give this rule: <em>In a narrow -market, when prices are not getting anywhere to speak of -but move within a narrow range, there is no sense in trying -to anticipate what the next big movement is going to be—up -or down.</em> The thing to do is to watch the market, read -the tape to determine the limits of the get-nowhere prices, -and make up your mind that you will not take an interest -until the price breaks through the limit in either direction. -A speculator must concern himself with making money out -of the market and not with insisting that the tape must agree -with him. Never argue with it or ask it for reasons or explanations. -<em>Stock-market post-mortems don’t pay dividends.</em></p> - -<p>Not so long ago I was with a party of friends. They got to -talking wheat. Some of them were bullish and others bearish. -Finally they asked me what I thought. Well, I had been -studying the market for some time. I knew they did not -want any statistics or analyses of conditions. So I said: “If -you want to make some money out of wheat I can tell you -how to do it.”</p> - -<p>They all said they did and I told them, “If you are sure -you wish to make money in wheat just you watch it. Wait. -The moment it crosses $1.20 buy it and you will get a nice -quick play in it!”</p> - -<p>“Why not buy it now, at $1,14?” one of the party asked.</p> - -<p>“Because I don’t know yet that it is going up at all.”</p> - -<p>“Then why buy it at $1.20? It seems a mighty high price.”</p> - -<p>“Do you wish to gamble blindly in the hope of getting a -great big profit or do you wish to speculate intelligently -and get a smaller but much more probable profit?”</p> - -<p>They all said they wanted the smaller but surer profit, so -I said, “Then do as I tell you. If it crosses $1.20 buy.”</p> - -<p><span class="pagenum" id="Page_125">125</span> -As I told you, I had watched it a long time. For months -it sold between $1.10 and $1.20, getting nowhere in particular. -Well, sir, one day it closed at above $1.19. I got -ready for it. Sure enough the next day it opened at $1.20½, -and I bought. It went to $1.21, to $1.22, to $1.23, to $1.25, -and I went with it.</p> - -<p>Now I couldn’t have told you at the time just what was -going on. I didn’t get any explanations about its behaviour -during the course of the limited fluctuations. I couldn’t tell -whether the breaking through the limit would be up -through $1.20 or down through $1.10, though I suspected -it would be up because there was not enough wheat in the -world for a big break in prices.</p> - -<p>As a matter of fact, it seems Europe had been buying -quietly and a lot of traders had gone short of it at around -$1.19. Owing to the European purchases and other causes, -a lot of wheat had been taken out of the market, so that -finally the big movement got started. The price went beyond -the $1.20 mark. That was all the point I had and it -was all I needed. I knew that when it crossed $1.20 it would -be because the upward movement at last had gathered force -to push it over the limit and something had to happen. In -other words, by crossing $1.20 the line of least resistance of -wheat prices was established. It was a different story then.</p> - -<p>I remember that one day was a holiday with us and all -our markets were closed. Well, in Winnipeg wheat opened -up six cents a bushel. When our market opened on the -following day, it also was up six cents a bushel. The price -just went along the line of least resistance.</p> - -<p>What I have told you gives you the essence of my trading -system as based on studying the tape. I merely learn the -way prices are most probably going to move. I check up my -own trading by additional tests, to determine the psychological -moment. <em>I do that by watching the way the price -acts after I begin.</em></p> - -<p>It is surprising how many experienced traders there are<span class="pagenum" id="Page_126">126</span> -who look incredulous when I tell them that when I buy -stocks for a rise I like to pay top prices and when I sell I -must sell low or not at all. It would not be so difficult to -make money if a trader always stuck to his speculative guns—that -is, waited for the line of least resistance to define itself -and began buying only when the tape said up or selling -only when it said down. <em>He should accumulate his line on -the way up.</em> Let him buy one-fifth of his full line. If that -does not show him a profit he must not increase his holdings -because he has obviously begun wrong; he is wrong temporarily -and there is no profit in being wrong at any time. The -same tape that said <span class="smcap smaller">UP</span> did not necessarily lie merely because -it is now saying <span class="smcap smaller">NOT YET</span>.</p> - -<p>In cotton I was very successful in my trading for a long -time. I had my theory about it and I absolutely lived up to -it. Suppose I had decided that my line would be forty to -fifty thousand bales. Well, I would study the tape as I told -you, watching for an opportunity either to buy or to sell. -Suppose the line of least resistance indicated a bull movement. -Well, I would buy ten thousand bales. After I got -through buying that, if the market <em>went up ten points over -my initial purchase price, I would take on another ten thousand -bales</em>. Same thing. Then, if I could get twenty points’ -profit, or one dollar a bale, I would buy twenty thousand -more. That would give me my line—my basis for my trading. -But if after buying the first ten or twenty thousand -bales, it showed me a loss, out I’d go. I was wrong. It might -be I was only temporarily wrong. But as I have said before -<em>it doesn’t pay to start wrong in anything</em>.</p> - -<p>What I accomplished by sticking to my system was that -I always had a line of cotton in every real movement. In -the course of accumulating my full line I might chip out -fifty or sixty thousand dollars in these feeling-out plays of -mine. This looks like a very expensive testing, but it wasn’t. -After the real movement started, how long would it take -me to make up the fifty thousand dollars I had dropped in<span class="pagenum" id="Page_127">127</span> -order to make sure that I began to load up at exactly the -right time? No time at all! <em>It always pays a man to be right -at the right time.</em></p> - -<p>As I think I also said before, this describes what I may -call my system for placing my bets. It is simple arithmetic -to prove that it is a wise thing to have the big bet down -only when you win, and when you lose to lose only a small -exploratory bet, as it were. If a man trades in the way I -have described, he will always be in the profitable position -of being able to cash in on the big bet.</p> - -<p>Professional traders have always had some system or -other based upon their experience and governed either by -their attitude toward speculation or by their desires. I remember -I met an old gentleman in Palm Beach whose -name I did not catch or did not at once identify. I knew he -had been in the Street for years, way back in Civil War -times, and somebody told me that he was a very wise old -codger who had gone through so many booms and panics -that he was always saying there was nothing new under the -sun and least of all in the stock market.</p> - -<p>The old fellow asked me a lot of questions. When I got -through telling him about my usual practice in trading he -nodded and said, “Yes! Yes! You’re right. The way you’re -built, the way your mind runs, makes your system a good -system for you. It comes easy for you to practice what you -preach, because the money you bet is the least of your -cares. I recollect Pat Hearne. Ever hear of him? Well, he -was a very well-known sporting man and he had an account -with us. Clever chap and nervy. He made money in stocks, -and that made people ask him for advice. He would never -give any. If they asked him point-blank for his opinion -about the wisdom of their commitments he used a favorite -race-track maxim of his: ‘You can’t tell till you bet.’ He -traded in our office. He would buy one hundred shares of -some active stock and when, or if, it went up 1 per cent he -would buy another hundred. On another point’s advance,<span class="pagenum" id="Page_128">128</span> -another hundred shares; and so on. He used to say he -wasn’t playing the game to make money for others and -therefore he would put in a stop-loss order one point below -the price of his last purchase. When the price kept going -up he simply moved up his stop with it. On a 1 per cent -reaction he was stopped out. He declared he did not see -any sense in losing more than one point, whether it came -out of his original margin or out of his paper profits.</p> - -<p>“You know, a professional gambler is not looking for long -shots, but for sure money. Of course long shots are fine -when they come in. In the stock market Pat wasn’t after -tips or playing to catch twenty-points-a-week advances, -but sure money in sufficient quantity to provide him with -a good living. Of all the thousands of outsiders that I have -run across in Wall Street, Pat Hearne was the only one who -saw in stock speculation merely a game of chance like faro -or roulette, but, nevertheless, had the sense to stick to a -relatively sound betting method.</p> - -<p>“After Hearne’s death one of our customers who had always -traded with Pat and used his system made over one -hundred thousand dollars in Lackawanna. Then he switched -over to some other stock and because he had made a big -stake he thought he need not stick to Pat’s way. When a -reaction came, instead of cutting short his losses he let them -run—as though they were profits. Of course every cent -went. When he finally quit he owed us several thousand -dollars.</p> - -<p>“He hung around for two or three years. He kept the fever -long after the cash had gone; but we did not object as long -as he behaved himself. I remember that he used to admit -freely that he had been ten thousand kinds of an ass not to -stick to Pat Hearne’s style of play. Well, one day he came -to me greatly excited and asked me to let him sell some -stock short in our office. He was a nice enough chap who -had been a good customer in his day and I told him I personally -would guarantee his account for one hundred shares.</p> - -<p><span class="pagenum" id="Page_129">129</span> -“He sold short one hundred shares of Lake Shore. That -was the time Bill Travers hammered the market, in 1875. -My friend Roberts put out that Lake Shore at exactly the -right time and kept selling it on the way down as he had -been wont to do in the old successful days before he forsook -Pat Hearne’s system and instead listened to hope’s -whispers.</p> - -<p>“Well, sir, in four days of successful pyramiding, Roberts’ -account showed him a profit of fifteen thousand dollars. Observing -that he had not put in a stop-loss order I spoke to -him about it and he told me that the break hadn’t fairly begun -and he wasn’t going to be shaken out by any one-point -reaction. This was in August. Before the middle of September -he borrowed ten dollars from me for a baby carriage—his -fourth. He did not stick to his own proved system. -That’s the trouble with most of them,” and the old fellow -shook his head at me.</p> - -<p>And he was right. I sometimes think that speculation must -be an unnatural sort of business, because I find that the -average speculator has arrayed against him his own nature. -The weaknesses that all men are prone to are fatal to success -in speculation—usually those very weaknesses that -make him likable to his fellows or that he himself particularly -guards against in those other ventures of his where -they are not nearly so dangerous as when he is trading in -stocks or commodities.</p> - -<p><em>The speculator’s chief enemies are always boring from -within. It is inseparable from human nature to hope and to -fear.</em> In speculation when the market goes against you you -hope that every day will be the last day—and you lose more -than you should had you not listened to hope—to the same -ally that is so potent a success-bringer to empire builders and -pioneers, big and little. And when the market goes your way -you become fearful that the next day will take away your -profit, and you get out—too soon. <em>Fear keeps you from making -as much money as you ought to.</em> The successful trader<span class="pagenum" id="Page_130">130</span> -has to fight these two deep-seated instincts. He has to reverse -what you might call his natural impulses. <em>Instead of -hoping he must fear; instead of fearing he must hope.</em> He -must fear that his loss may develop into a much bigger loss, -and hope that his profit may become a big profit. <em>It is absolutely -wrong to gamble in stocks the way the average man -does.</em></p> - -<p>I have been in the speculative game ever since I was fourteen. -It is all I have ever done. I think I know what I am -talking about. And the conclusion that I have reached after -nearly thirty years of constant trading, both on a shoestring -and with millions of dollars back of me, is this: A man may -beat a stock or a group at a certain time, but no man living -can beat the stock market! A man may make money out of -individual deals in cotton or grain, but no man can beat the -cotton market or the grain market. It’s like the track. A man -may beat a horse race, but he cannot beat horse racing.</p> - -<p>If I knew how to make these statements stronger or more -emphatic I certainly would. It does not make any difference -what anybody says to the contrary. I know I am right in -saying these are incontrovertible statements.</p> - -<hr /> - -<p><span class="pagenum" id="Page_131">131</span></p> - -<div class="chapter"> -<h2 id="XI"><i>XI</i></h2> -</div> - -<p class="in0"><span class="firstword">And now</span> I’ll get back to October, 1907. I bought a yacht -and made all preparations to leave New York for a cruise in -Southern waters. I am really daffy about fishing and this -was the time when I was going to fish to my heart’s content -from my own yacht, going wherever I wished whenever I -felt like it. Everything was ready. I had made a killing in -stocks, but at the last moment corn held me back.</p> - -<p>I must explain that before the money panic which gave -me my first million I had been trading in grain at Chicago. -I was short ten million bushels of wheat and ten million -bushels of corn. I had studied the grain markets for a long -time and was as bearish on corn and wheat as I had been -on stocks.</p> - -<p>Well, they both started down, but while wheat kept on -declining the biggest of all the Chicago operators—I’ll call -him Stratton—took it into his head to run a corner in corn. -After I cleaned up in stocks and was ready to go South on -my yacht I found that wheat showed me a handsome profit, -but in corn Stratton had run up the price and I had quite -a loss.</p> - -<p>I knew there was much more corn in the country than the -price indicated. The law of demand and supply worked as -always. But the demand came chiefly from Stratton and the -supply was not coming at all, because there was an acute -congestion in the movement of corn. I remember that I used -to pray for a cold spell that would freeze the impassable<span class="pagenum" id="Page_132">132</span> -roads and enable the farmers to bring their corn into the -market. But no such luck.</p> - -<p>There I was, waiting to go on my joyously planned fishing -trip and that loss in corn holding me back. I couldn’t go -away with the market as it was. Of course Stratton kept -pretty close tabs on the short interest. He knew he had me, -and I knew it quite as well as he did. But, as I said, I was -hoping I might convince the weather that it ought to get -busy and help me. Perceiving that neither the weather nor -any other kindly wonder-worker was paying any attention -to my needs I studied how I might work out of my difficulty -by my own efforts.</p> - -<p>I closed out my line of wheat at a good profit. But the -problem in corn was infinitely more difficult. If I could have -covered my ten million bushels at the prevailing prices I instantly -and gladly would have done so, large though the -loss would have been. But, of course, the moment I started -to buy in my corn Stratton would be on the job as squeezer -in chief, and I no more relished running up the price on -myself by reason of my own purchases than cutting my own -throat with my own knife.</p> - -<p>Strong though corn was, my desire to go fishing was even -stronger, so it was up to me to find a way out at once. I -must conduct a strategic retreat. I must buy back the ten -million bushels I was short of and in so doing keep down -my loss as much as I possibly could.</p> - -<p>It so happened that Stratton at that time was also running -a deal in oats and had the market pretty well sewed up. I -had kept track of all the grain markets in the way of crop -news and pit gossip, and I heard that the powerful Armour -interests were not friendly, marketwise, to Stratton. Of -course I knew that Stratton would not let me have the corn -I needed except at his own price, but the moment I heard -the rumors about Armour being against Stratton it occurred -to me that I might look to the Chicago traders for aid. The -only way in which they could possibly help me was for them<span class="pagenum" id="Page_133">133</span> -to sell me the corn that Stratton wouldn’t. The rest was easy.</p> - -<p>First, I put in orders to buy five hundred thousand -bushels of corn every eighth of a cent down. After these -orders were in I gave to each of four houses an order to sell -simultaneously fifty thousand bushels of oats at the market. -That, I figured, ought to make a quick break in oats. Knowing -how the traders’ minds worked, it was a cinch that they -would instantly think that Armour was gunning for -Stratton. Seeing the attack opened in oats they would logically -conclude that the next break would be in corn and they -would start to sell it. If that corner in corn was busted, the -pickings would be fabulous.</p> - -<p>My dope on the psychology of the Chicago traders was -absolutely correct. When they saw oats breaking on the -scattered selling they promptly jumped on corn and sold it -with great enthusiasm. I was able to buy six million bushels -of corn in the next ten minutes. The moment I found that -their selling of corn ceased I simply bought in the other four -million bushels at the market. Of course that made the price -go up again, but the net result of my manœuvre was that I -covered the entire line of ten million bushels within one-half -cent of the price prevailing at the time I started to cover -on the traders’ selling. The two hundred thousand bushels -of oats that I sold short to start the traders’ selling of corn I -covered at a loss of only three thousand dollars. That was -pretty cheap bear bait. The profits I had made in wheat -offset so much of my deficit in corn that my total loss on all -my grain trades that time was only twenty-five thousand -dollars. Afterwards corn went up twenty-five cents a bushel. -Stratton undoubtedly had me at his mercy. If I had set -about buying my ten million bushels of corn without bothering -to think of the price there is no telling what I would -have had to pay.</p> - -<p>A man can’t spend years at one thing and not acquire a -habitual attitude towards it quite unlike that of the average -beginner. The difference distinguishes the professional from<span class="pagenum" id="Page_134">134</span> -the amateur. It is the way a man looks at things that makes -or loses money for him in the speculative markets. The -public has the dilettante’s point of view toward his own -effort. The ego obtrudes itself unduly and the thinking -therefore is not deep or exhaustive. The professional concerns -himself with doing the right thing rather than with -making money, knowing that the profit takes care of itself -if the other things are attended to. A trader gets to play the -game as the professional billiard player does—that is, he -looks far ahead instead of considering the particular shot -before him. It gets to be an instinct to play for position.</p> - -<p>I remember hearing a story about Addison Cammack that -illustrates very nicely what I wish to point out. From all I -have heard, I am inclined to think that <em>Cammack</em> was one -of the ablest stock traders the Street ever saw. He was not -a chronic bear as many believe, but he felt the greater appeal -of trading on the bear side, of utilizing in his behalf the -two great human factors of hope and fear. He is credited -with coining the warning: “Don’t sell stocks when the sap is -running up the trees!” and the old-timers tell me that his -biggest winnings were made on the bull side, so that it is -plain he did not play prejudices but conditions. At all -events, he was a consummate trader. It seems that once—this -was way back at the tag end of a bull market—Cammack -was bearish, and J. Arthur Joseph, the financial writer -and raconteur, knew it. The market, however, was not only -strong but still rising, in response to prodding by the bull -leaders and optimistic reports by the newspapers. Knowing -what use a trader like Cammack could make of bearish information, -Joseph rushed to Cammack’s office one day with -glad tidings.</p> - -<p>“Mr. Cammack, I have a very good friend who is a transfer -clerk in the St. Paul office and he has just told me something -which I think you ought to know.”</p> - -<p>“What is it?” asked Cammack listlessly.</p> - -<p>“You’ve turned, haven’t you? You are bearish now?” asked<span class="pagenum" id="Page_135">135</span> -Joseph, to make sure. If Cammack wasn’t interested he -wasn’t going to waste precious ammunition.</p> - -<p>“Yes. What’s the wonderful information?”</p> - -<p>“I went around to the St. Paul office to-day, as I do in my -news-gathering rounds two or three times a week, and my -friend there said to me: ‘The Old Man is selling stock.’ He -meant William Rockefeller. ‘Is he really, Jimmy?’ I said to -him, and he answered, ‘Yes; he is selling fifteen hundred -shares every three-eighths of a point up. I’ve been transferring -the stock for two or three days now.’ I didn’t lose any -time, but came right over to tell you.”</p> - -<p>Cammack was not easily excited, and, moreover, was so -accustomed to having all manner of people rush madly into -his office with all manner of news, gossip, rumors, tips and -lies that he had grown distrustful of them all. He merely -said now, “Are you sure you heard right, Joseph?”</p> - -<p>“Am I sure? Certainly I am sure! Do you think I am -deaf?” said Joseph.</p> - -<p>“Are you sure of your man?”</p> - -<p>“Absolutely!” declared Joseph. “I’ve known him for years. -He has never lied to me. He wouldn’t! No object! I know -he is absolutely reliable and I’d stake my life on what he -tells me. I know him as well as I know anybody in this world—a -great deal better than you seem to know me, after all -these years.”</p> - -<p>“Sure of him, eh?” And Cammack again looked at Joseph. -Then he said, “Well, you ought to know.” He called his -broker, W. B. Wheeler. Joseph expected to hear him give an -order to sell at least fifty thousand shares of St. Paul. William -Rockefeller was disposing of his holdings in St. Paul, taking -advantage of the strength of the market. Whether it was investment -stock or speculative holdings was irrelevant. The -one important fact was that the best stock trader of the -Standard Oil crowd was getting out of St. Paul. What would -the average man have done if he had received the news -from a trustworthy source? No need to ask.</p> - -<p><span class="pagenum" id="Page_136">136</span> -But Cammack, the ablest bear operator of his day, who -was bearish on the market just then, said to his broker, -“Billy, go over to the board and buy fifteen hundred St. Paul -every three-eighths up.” The stock was then in the nineties.</p> - -<p>“Don’t you mean sell?” interjected Joseph hastily. He was -no novice in Wall Street, but he was thinking of the market -from the point of view of the newspaper man and, incidentally, -of the general public. The price certainly ought to -go down on the news of inside selling. And there was no -better inside selling than Mr. William Rockefeller’s. The -Standard Oil getting out and Cammack buying! It couldn’t -be!</p> - -<p>“No,” said Cammack; “I mean buy!”</p> - -<p>“Don’t you believe me?”</p> - -<p>“Yes!”</p> - -<p>“Don’t you believe my information?”</p> - -<p>“Yes.”</p> - -<p>“Aren’t you bearish?”</p> - -<p>“Yes.”</p> - -<p>“Well, then?”</p> - -<p>“That’s why I’m buying. Listen to me now: You keep -in touch with that reliable friend of yours and the moment -the scaled selling stops, let me know. Instantly! Do you understand?”</p> - -<p>“Yes,” said Joseph, and went away, not quite sure he could -fathom Cammack’s motives in buying William Rockefeller’s -stock. It was the knowledge that Cammack was bearish on -the entire market that made his manœuvre so difficult to explain. -However, Joseph saw his friend the transfer clerk and -told him he wanted to be tipped off when the Old Man got -through selling. Regularly twice a day Joseph called on his -friend to inquire.</p> - -<p>One day the transfer clerk told him, “There isn’t any more -stock coming from the Old Man.” Joseph thanked him and -ran to Cammack’s office with the information.</p> - -<p>Cammack listened attentively, turned to Wheeler and<span class="pagenum" id="Page_137">137</span> -asked, “Billy, how much St. Paul have we got in the office?” -Wheeler looked it up and reported that they had accumulated -about sixty thousand shares.</p> - -<p>Cammack, being bearish, had been putting out short lines -in the other Grangers as well as in various other stocks, even -before he began to buy St. Paul. He was now heavily short -of the market. He promptly ordered Wheeler to sell the sixty -thousand shares of St. Paul that they were long of, and more -besides. He used his long holdings of St. Paul as a lever to -depress the general list and greatly benefit his operations for -a decline.</p> - -<p>St. Paul didn’t stop on that move until it reached forty-four -and Cammack made a killing in it. He played his cards -with consummate skill and profited accordingly. The point -I would make is his habitual attitude toward trading. He -didn’t have to reflect. He saw instantly what was far more -important to him than his profit on that one stock. He saw -that he had providentially been offered an opportunity to -begin his big bear operations not only at the proper time but -with a proper initial push. The St. Paul tip made him buy -instead of sell because he saw at once that it gave him a vast -supply of the best ammunition for his bear campaign.</p> - -<p>To get back to myself. After I closed my trade in wheat -and corn I went South in my yacht. I cruised about in -Florida waters, having a grand old time. The fishing was -great. Everything was lovely. I didn’t have a care in the -world and I wasn’t looking for any.</p> - -<p>One day I went ashore at Palm Beach. I met a lot of Wall -Street friends and others. They were all talking about the -most picturesque cotton speculator of the day. A report from -New York had it that Percy Thomas had lost every cent. It -wasn’t a commercial bankruptcy; merely the rumor of the -world-famous operator’s second Waterloo in the cotton market.</p> - -<p>I had always felt a great admiration for him. The first -I ever heard of him was through the newspapers at the time<span class="pagenum" id="Page_138">138</span> -of the failure of the Stock Exchange house of Sheldon & -Thomas, when Thomas tried to corner cotton. Sheldon, who -did not have the vision or the courage of his partner, got -cold feet on the very verge of success. At least, so the Street -said at the time. At all events, instead of making a killing -they made one of the most sensational failures in years. I -forget how many millions. The firm was wound up and -Thomas went to work alone. He devoted himself exclusively -to cotton and it was not long before he was on his feet again. -He paid off his creditors in full with interest—debts he was -not legally obliged to discharge—and withal had a million -dollars left to himself. His comeback in the cotton market -was in its way as remarkable as Deacon S. V. White’s famous -stock-market exploit of paying off one million dollars in one -year. Thomas’ pluck and brains made me admire him immensely.</p> - -<p>Everybody in Palm Beach was talking about the collapse -of Thomas’ deal in March cotton. You know how the talk -goes—and grows; the amount of misinformation and exaggeration -and improvements that you hear. Why, I’ve seen -a rumor about myself grow so that the fellow who started it -did not recognize it when it came back to him in less than -twenty-four hours, swollen with new and picturesque details.</p> - -<p>The news of Percy Thomas’ latest misadventure turned -my mind from the fishing to the cotton market. I got files of -the trade papers and read them to get a line on conditions. -When I got back to New York I gave myself up to studying -the market. Everybody was bearish and everybody was selling -July cotton. You know how people are. I suppose it is -the contagion of example that makes a man do something -because everybody around him is doing the same thing. Perhaps -it is some phase or variety in the herd instinct. In any -case it was, in the opinion of hundreds of traders, the wise -and proper thing to sell July cotton—and so safe too! You -couldn’t call that general selling reckless; the word is too<span class="pagenum" id="Page_139">139</span> -conservative. The traders simply saw one side to the market -and a great big profit. They certainly expected a collapse in -prices.</p> - -<p>I saw all this, of course, and it struck me that the chaps -who were short didn’t have a terrible lot of time to cover in. -The more I studied the situation the clearer I saw this, until -I finally decided to buy July cotton. I went to work and -quickly bought one hundred thousand bales. I experienced -no trouble in getting it because it came from so many sellers. -It seemed to me that I could have offered a reward of one -million dollars for the capture, dead or alive, of a single -trader who was not selling July cotton and nobody would -have claimed it.</p> - -<p>I should say this was in the latter part of May. I kept -buying more and they kept on selling it to me until I had -picked up all the floating contracts and I had one hundred -and twenty thousand bales. A couple of days after I had -bought the last of it it began to go up. Once it started the -market was kind enough to keep on doing very well indeed—that -is, it went up from forty to fifty points a day.</p> - -<p>One Saturday—this was about ten days after I began -operations—the price began to creep up. I did not know -whether there was any more July cotton for sale. It was up -to me to find out, so I waited until the last ten minutes. At -that time, I knew, it was usual for those fellows to be short -and if the market closed up for the day they would be safely -hooked. So I sent in four different orders to buy five thousand -bales each, at the market, at the same time. That ran -the price up thirty points and the shorts were doing their -best to wriggle away. The market closed at the top. All I -did, remember, was to buy that last twenty thousand bales.</p> - -<p>The next day was Sunday. But on Monday, Liverpool was -due to open up twenty points to be on a parity with the advance -in New York. Instead, it came fifty points higher. That -meant that Liverpool had exceeded our advance by 100 per -cent. I had nothing to do with the rise in that market. This<span class="pagenum" id="Page_140">140</span> -showed me that my deductions had been sound and that I -was trading along the line of least resistance. At the same -time I was not losing sight of the fact that I had a whopping -big line to dispose of. A market may advance sharply or rise -gradually and yet not possess the power to absorb more -than a certain amount of selling.</p> - -<p>Of course the Liverpool cables made our own market -wild. But I noticed the higher it went the scarcer July cotton -seemed to be. I wasn’t letting go any of mine. Altogether -that Monday was an exciting and not very cheerful day for -the bears; but for all that, I could detect no signs of impending -bear panic; no beginnings of a blind stampede to -cover. And I had one hundred and forty thousand bales for -which I must find a market.</p> - -<p>On Tuesday morning as I was walking to my office I met -a friend at the entrance of the building.</p> - -<p>“That was quite a story in the <i>World</i> this morning,” he -said with a smile.</p> - -<p>“What story?” I asked.</p> - -<p>“What? Do you mean to tell me you haven’t seen it?”</p> - -<p>“I never see the <i>World</i>,” I said. “What is the story?”</p> - -<p>“Why, it’s all about you. It says you’ve got July cotton -cornered.”</p> - -<p>“I haven’t seen it,” I told him and left him. I don’t know -whether he believed me or not. He probably thought it was -highly inconsiderate of me not to tell him whether it was -true or not.</p> - -<p>When I got to the office I sent out for a copy of the paper. -Sure enough, there it was, on the front page, in big headlines:</p> - -<blockquote> - -<p class="p1 b1 center larger">JULY COTTON CORNERED BY LARRY LIVINGSTON</p></blockquote> - -<p>Of course I knew at once that the article would play the -dickens with the market. If I had deliberately studied ways -and means of disposing of my one hundred and forty thousand<span class="pagenum" id="Page_141">141</span> -bales to the best advantage I couldn’t have hit upon a -better plan. It would not have been possible to find one. -That article at that very moment was being read all over -the country either in the <i>World</i> or in other papers quoting -it. It had been cabled to Europe. That was plain from the -Liverpool prices. That market was simply wild. No wonder, -with such news.</p> - -<p>Of course I knew what New York would do, and what I -ought to do. The market here opened at ten o’clock. At ten -minutes after ten I did not own any cotton. I let them have -every one of my one hundred and forty thousand bales. For -most of my line I received what proved to be the top prices -of the day. The traders made the market for me. All I really -did was to see a heaven-sent opportunity to get rid of my -cotton. I grasped it because I couldn’t help it. What else -could I do?</p> - -<p>The problem that I knew would take a great deal of hard -thinking to solve was thus solved for me by an accident. If -the <i>World</i> had not published that article I never would have -been able to dispose of my line without sacrificing the -greater portion of my paper profits. Selling one hundred -and forty thousand bales of cotton without sending the price -down was a trick beyond my powers. But the <i>World</i> story -turned it for me very nicely.</p> - -<p>Why the <i>World</i> published it I cannot tell you. I never -knew. I suppose the writer was tipped off by some friend in -the cotton market and he thought he was printing a scoop. I -didn’t see him or anybody from the <i>World</i>. I didn’t know it -was printed that morning until after nine o’clock; and if it -had not been for my friend calling my attention to it I would -not have know it then.</p> - -<p>Without it I wouldn’t have had a market <em>big</em> enough to -unload in. That is one trouble about trading on a large scale. -You cannot sneak out as you can when you pike along. You -cannot always sell out when you wish or when you think it -wise. You have to get out when you can; when you have a -market that will absorb your entire line. Failure to grasp<span class="pagenum" id="Page_142">142</span> -the opportunity to get out may cost you millions. You cannot -hesitate. If you do you are lost. Neither can you try -stunts like running up the price on the bears by means of -competitive buying, for you may thereby reduce the absorbing -capacity. And I want to tell you that perceiving -your opportunity is not as easy as it sounds. A man must be -on the lookout so alertly that when his chance sticks in its -head at his door he must grab it.</p> - -<p>Of course not everybody knew about my fortunate accident. -In Wall Street, and, for that matter, everywhere else, -any accident that makes big money for a man is regarded -with suspicion. When the accident is unprofitable it is never -considered an accident but the logical outcome of your hoggishness -or of the swelled head. But when there is a profit -they call it loot and talk about how well unscrupulousness -fares, and how ill conservatism and decency.</p> - -<p>It was not only the <em>evil-minded shorts</em> smarting under -punishment brought about by their own recklessness who -accused me of having deliberately planned the coup. Other -people thought the same thing.</p> - -<p>One of the biggest men in cotton in the entire world met -me a day or two later and said, “That was certainly the slickest -deal you ever put over, Livingston. I was wondering how -much you were going to lose when you came to market that -line of yours. You knew this market was not big enough to -take more than fifty or sixty thousand bales without selling -off, and how you were going to work off the rest and not -lose all your paper profits was beginning to interest me. I -didn’t think of your scheme. It certainly was slick.”</p> - -<p>“I had nothing to do with it,” I assured him as earnestly -as I could.</p> - -<p>But all he did was to repeat: “Mighty slick, my boy. -Mighty slick! Don’t be so modest!”</p> - -<p>It was after that deal that some of the papers referred to -me as the Cotton King. But, as I said, I really was not entitled -to that crown. It is not necessary to tell you that there<span class="pagenum" id="Page_143">143</span> -is not enough money in the United States to buy the -columns of the New York <i>World</i> or enough personal pull to -secure the publication of a story like that. It gave me an -utterly unearned reputation that time.</p> - -<p>But I have not told this story to moralize on the crowns -that are sometimes pressed down upon the brows of undeserving -traders or to emphasize the need of seizing the -opportunity, no matter where or how it comes. My object -merely was to account for the vast amount of newspaper -notoriety that came to me as a result of my deal in July -cotton. If it hadn’t been for the newspapers I never would -have met that remarkable man, Percy Thomas.</p> - -<hr /> - -<p><span class="pagenum" id="Page_144">144</span></p> - -<div class="chapter"> -<h2 id="XII"><i>XII</i></h2> -</div> - -<p class="in0"><span class="firstword">Not long</span> after I closed my July cotton deal more successfully -than I had expected I received by mail a request for -an interview. The letter was signed by Percy Thomas. Of -course I immediately answered that I’d be glad to see him -at my office at any time he cared to call. The next day he -came.</p> - -<p>I had long admired him. His name was a household word -wherever men took an interest in growing or buying or -selling cotton. In Europe as well as all over this country -people quoted <em>Percy Thomas’</em> opinions to me. I remember -once at a Swiss resort talking to a Cairo banker who was interested -in cotton growing in Egypt in association with the -late Sir Ernest Cassel. When he heard I was from New York -he immediately asked me about Percy Thomas, whose market -reports he received and read with unfailing regularity.</p> - -<p>Thomas, I always thought, went about his business scientifically. -He was a true speculator, a thinker with the vision -of a dreamer and the courage of a fighting man—an unusually -well-informed man, who knew both the theory and -the practice of trading in cotton. He loved to hear and to express -ideas and theories and abstractions, and at the same -time there was mighty little about the practical side of the -cotton market or the psychology of cotton traders that he -did not know, for he had been trading for years and had -made and lost vast sums.</p> - -<p>After the failure of his old Stock Exchange firm of Sheldon<span class="pagenum" id="Page_145">145</span> -& Thomas he went it alone. Inside of two years he came -back, almost spectacularly. I remember reading in the <i>Sun</i> -that the first thing he did when he got back on his feet -financially was to pay off his old creditors in full, and the -next was to hire an expert to study and determine for him -how he had best invest a million dollars. This expert examined -the properties and analysed the reports of several companies -and then recommended the purchase of Delaware & -Hudson stock.</p> - -<p>Well, after having failed for millions and having come -back with more millions, Thomas was cleaned out as the -result of his deal in March Cotton. There wasn’t much time -wasted after he came to see me. He proposed that we form -a working alliance. Whatever information he got he would -immediately turn over to me before passing it on to the -public. My part would be to do the actual trading, for which -he said I had a special genius and he hadn’t.</p> - -<p>That did not appeal to me for a number of reasons. I told -him frankly that I did not think I could run in double harness -and wasn’t keen about trying to learn. But he insisted -that it would be an ideal combination until I said flatly that I -did not want to have anything to do with influencing other -people to trade.</p> - -<p>“If I fool myself,” I told him, “I alone suffer and I pay -the bill at once. There are no drawn-out payments or unexpected -annoyances. I play a lone hand by choice and also -because it is the wisest and cheapest way to trade. I get my -pleasure out of matching my brains against the brains of -other traders—men whom I have never seen and never -talked to and never advised to buy or sell and never expect -to meet or know. When I make money I make it backing my -own opinions. I don’t sell them or capitalise them. If I made -money in any other way I would imagine I had not earned it. -Your proposition does not interest me because I am interested -in the game only as I play it for myself and in my own way.”</p> - -<p>He said he was sorry I felt the way I did, and tried to<span class="pagenum" id="Page_146">146</span> -convince me that I was wrong in rejecting his plan. But I -stuck to my views. The rest was a pleasant talk. I told him -I knew he would “come back” and that I would consider it a -privilege if he would allow me to be of financial assistance to -him. But he said he could not accept any loans from me. -Then he asked me about my July deal and I told him all -about it; how I had gone into it and how much cotton I -bought and the price and other details. We chatted a little -more and then he went away.</p> - -<p>When I said to you some time ago that a speculator has -a host of enemies, many of whom successfully bore from -within, I had in mind my many mistakes. I have learned -that a man may possess an original mind and a lifelong habit -of independent thinking and withal be vulnerable to attacks -by a persuasive personality. I am fairly immune from the -commoner speculative ailments, such as greed and fear and -hope. But being an ordinary man I find I can err with great -ease.</p> - -<p>I ought to have been on my guard at this particular time -because not long before that I had had an experience that -proved how easily a man may be talked into doing something -against his judgment and even against his wishes. It -happened in Harding’s office. I had a sort of private office—a -room that they let me occupy by myself—and nobody was -supposed to get to me during market hours without my consent. -I didn’t wish to be bothered and, as I was trading on a -very large scale and my account was fairly profitable, I was -pretty well guarded.</p> - -<p>One day just after the market closed I heard somebody -say, “Good afternoon, Mr. Livingston.”</p> - -<p>I turned and saw an utter stranger—a chap of about -thirty-five. I could not understand how he’d got in, but -there he was. I concluded his business with me had passed -him. But I didn’t say anything. I just looked at him and -pretty soon he said, “I came to see you about that Walter -Scott,” and he was off.</p> - -<p><span class="pagenum" id="Page_147">147</span> -He was a book agent. Now, he was not particularly pleasing -of manner or skillful of speech. Neither was he especially -attractive to look at. But he certainly had personality. -He talked and I thought I listened. But I do not know -what he said. I don’t think I ever knew, not even at the time. -When he finished his monologue he handed me first his -fountain pen and then a blank form, which I signed. It was -a contract to take a set of Scott’s works for five hundred dollars.</p> - -<p>The moment I signed I came to. But he had the contract -safe in his pocket. I did not want the books. I had no place -for them. They weren’t of any use whatever to me. I had -nobody to give them to. Yet I had agreed to buy them for -five hundred dollars.</p> - -<p>I am so accustomed to losing money that I never think -first of that phase of my mistakes. It is always the play itself, -the reason why. In the first place I wish to know my own -limitations and habits of thought. Another reason is that I -do not wish to make the same mistake a second time. <em>A man -can excuse his mistakes only by capitalising them to his subsequent -profit.</em></p> - -<p>Well, having made a five-hundred dollar mistake but not -yet having localised the trouble, I just looked at the fellow -to size him up as a first step. I’ll be hanged if he didn’t actually -smile at me—an understanding little smile! He -seemed to read my thoughts. I somehow knew that I did not -have to explain anything to him; he knew it without my telling -him. So I skipped the explanations and the preliminaries -and asked him, “How much commission will you get on that -five hundred dollar order?”</p> - -<p>He promptly shook his head and said, “I can’t do it! -Sorry!”</p> - -<p>“How much do you get?” I persisted.</p> - -<p>“A third. But I can’t do it!” he said.</p> - -<p>“A third of five hundred dollars is one hundred and sixty-six -dollars and sixty-six cents. I’ll give you two hundred<span class="pagenum" id="Page_148">148</span> -dollars cash if you give me back that signed contract.” And -to prove it I took the money out of my pocket.</p> - -<p>“I told you I couldn’t do it,” he said.</p> - -<p>“Do all of your customers make the same offer to you?” I -asked.</p> - -<p>“No,” he answered.</p> - -<p>“Then why were you so sure that I was going to make it?”</p> - -<p>“It is what your type of sport would do. You are a first-class -loser and that makes you a first-class business man. I -am much obliged to you, but I can’t do it.”</p> - -<p>“Now tell me why you do not wish to make more than -your commission?”</p> - -<p>“It isn’t that exactly,” he said. “I am not working just for -the commission.”</p> - -<p>“What are you working for then?”</p> - -<p>“For the commission and the record,” he answered.</p> - -<p>“What record?”</p> - -<p>“Mine.”</p> - -<p>“What are you driving at?”</p> - -<p>“Do you work for money alone?” he asked me.</p> - -<p>“Yes,” I said.</p> - -<p>“No.” And he shook his head. “No, you don’t. You -wouldn’t get enough fun out of it. You certainly do not work -merely to add a few more dollars to your bank account and -you are not in Wall Street because you like easy money. You -get your fun some other way. Well, same here.”</p> - -<p>I did not argue but asked him, “And how do you get your -fun?”</p> - -<p>“Well,” he confessed, “we’ve all got a weak spot.”</p> - -<p>“And what’s yours?”</p> - -<p>“Vanity,” he said.</p> - -<p>“Well,” I told him, “you’ve succeeded in getting me to sign -on. Now I want to sign off, and I am paying you two hundred -dollars for ten minutes’ work. Isn’t that enough for -your pride?”</p> - -<p>“No,” he answered. “You see, all the rest of the bunch<span class="pagenum" id="Page_149">149</span> -have been working Wall Street for months and failed to -make expenses. They said it was the fault of the goods and -the territory. So the office sent for me to prove that the fault -was with their salesmanship and not with the books or the -place. They were working on a 25 per cent commission. I -was in Cleveland, where I sold eighty-two sets in two weeks. -I am here to sell a certain number of sets not only to people -who did not buy from the other agents but to people they -couldn’t even get to see. That’s why they give me 33⅓ per -cent.”</p> - -<p>“I can’t quite figure out how you sold me that set.”</p> - -<p>“Why,” he said consolingly, “I sold J. P. Morgan a set.”</p> - -<p>“No, you didn’t,” I said.</p> - -<p>He wasn’t angry. He simply said, “Honest, I did.”</p> - -<p>“A set of Walter Scott to J. P. Morgan, who not only has -some fine editions but probably the original manuscripts of -some of the novels as well?”</p> - -<p>“Well, here’s his John Hancock.” And he promptly flashed -on me a contract signed by J. P. Morgan himself. It might -not have been Mr. Morgan’s signature, but it did not occur -to me to doubt it at the time. Didn’t he have mine in his -pocket? All I felt was curiosity. So I asked him, “How did -you get past the librarian?”</p> - -<p>“I didn’t see any librarian. I saw the Old Man himself. -In the office.”</p> - -<p>“That’s too much!” I said. Everybody knew that it was -much harder to get into Mr. Morgan’s private office empty -handed than into the White House with a parcel that ticked -like an alarm clock.</p> - -<p>But he declared, “I did.”</p> - -<p>“But how did you get into his office?”</p> - -<p>“How did I get into yours?” he retorted.</p> - -<p>“I don’t know. You tell me,” I said.</p> - -<p>“Well, the way I got into Morgan’s office and the way I -got into yours are the same. I just talked to the fellow at the -door whose business it was not to let me in. And the way<span class="pagenum" id="Page_150">150</span> -I got Morgan to sign was the same way I got you to sign. -You weren’t signing a contract for a set of books. You just -took the fountain pen I gave you and did what I asked you -to do with it. No difference. Same as you.”</p> - -<p>“And is that really Morgan’s signature?” I asked him, -about three minutes late with my skepticism.</p> - -<p>“Sure! He learned how to write his name when he was a -boy.”</p> - -<p>“And that’s all there is to it?”</p> - -<p>“That’s all,” he answered. “I know exactly what I am -doing. That’s all the secret there is. I am much obliged -to you. Good day, Mr. Livingston.” And he started to go -out.</p> - -<p>“Hold on,” I said. “I’m bound to have you make an even -two hundred dollars out of me.” And I handed him thirty-five -dollars.</p> - -<p>He shook his head. Then: “No,” he said. “I can’t do -that. But I can do this!” And he took the contract from his -pocket, tore it in two and gave me the pieces.</p> - -<p>I counted two hundred dollars and held the money before -him, but he again shook his head.</p> - -<p>“Isn’t that what you meant?” I said.</p> - -<p>“No.”</p> - -<p>“Then, why did you tear up the contract?”</p> - -<p>“Because you did not whine, but took it as I would have -taken it myself had I been in your place.”</p> - -<p>“But I offered you the two hundred dollars of my own -accord,” I said.</p> - -<p>“I know; but money isn’t everything.”</p> - -<p>Something in his voice made me say, “You’re right; it isn’t. -And now what do you really want me to do for you?”</p> - -<p>“You’re quick, aren’t you?” he said. “Do you really want -to do something for me?”</p> - -<p>“Yes,” I told him, “I do. But whether I will or not depends -what it is you have in mind.”</p> - -<p>“Take me with you into Mr. Ed Harding’s office and tell<span class="pagenum" id="Page_151">151</span> -him to let me talk to him three minutes by the clock. Then -leave me alone with him.”</p> - -<p>I shook my head and said, “He is a good friend of mine.”</p> - -<p>“He’s fifty years old and a stock broker,” said the book -agent.</p> - -<p>That was perfectly true, so I took him into Ed’s office. I -did not hear anything more from or about that book agent. -But one evening some weeks later when I was going uptown -I ran across him in a Sixth Avenue L train. He raised his hat -very politely and I nodded back. He came over and asked -me, “How do you do, Mr. Livingston? And how is Mr. -Harding?”</p> - -<p>“He’s well. Why do you ask?” I felt he was holding back -a story.</p> - -<p>“I sold him two thousand dollars’ worth of books that day -you took me in to see him.”</p> - -<p>“He never said a word to me about it,” I said.</p> - -<p>“No; that kind doesn’t talk about it.”</p> - -<p>“What kind doesn’t talk?”</p> - -<p>“The kind that never makes mistakes on account of its -being bad business to make them. That kind always knows -what he wants and nobody can tell him different. That is the -kind that’s educating my children and keeps my wife in -good humor. You did me a good turn, Mr. Livingston. I expected -it when I gave up the two hundred dollars you were -so anxious to present to me.”</p> - -<p>“And if Mr. Harding hadn’t given you an order?”</p> - -<p>“Oh, but I knew he would. I had found out what kind of -man he was. He was a cinch.”</p> - -<p>“Yes. But if he hadn’t bought any books?” I persisted.</p> - -<p>“I’d have come back to you and sold you something. Good -day, Mr. Livingston. I am going to see the mayor.” And -he got up as we pulled up at Park Place.</p> - -<p>“I hope you sell him ten sets,” I said. His Honor was a -Tammany man.</p> - -<p>“I’m a Republican, too,” he said, and went out, not hastily,<span class="pagenum" id="Page_152">152</span> -but leisurely, confident that the train would wait. And it did.</p> - -<p>I have told you this story in such detail because it concerned -a remarkable man who made me buy what I did not -wish to buy. He was the first man who did that to me. There -never should have been a second, but there was. You can -never bank on there being but one remarkable salesman in -the world or on complete immunization from the influence -of personality.</p> - -<p>When Percy Thomas left my office, after I had pleasantly -but definitely declined to enter into a working alliance with -him, I would have sworn that our business paths would -never cross. I was not sure I’d ever see him again. But on -the very next day he wrote me a letter thanking me for my -offers of help and inviting me to come and see him. I -answered that I would. He wrote again. I called.</p> - -<p>I got to see a great deal of him. It was always a pleasure -for me to listen to him, he knew so much and he expressed -his knowledge so interestingly. I think he is the most magnetic -man I ever met.</p> - -<p>We talked of many things, for he is a widely read man -with an amazing grasp of many subjects and a remarkable -gift for interesting generalization. The wisdom of his speech -is impressive; and as for plausibility, he hasn’t an equal. I -have heard many people accuse Percy Thomas of many -things, including insincerity, but I sometimes wonder if his -remarkable plausibility does not come from the fact that he -first convinces himself so thoroughly as to acquire thereby a -greatly increased power to convince others.</p> - -<p>Of course we talked about market matters at great length. -I was not bullish on cotton, but he was. I could not see the -bull side at all, but he did. He brought up so many facts and -figures that I ought to have been overwhelmed, but I wasn’t. -I couldn’t disprove them because I could not deny their authenticity, -but they did not shake my belief in what I read -for myself. But he kept at it until I no longer felt sure of my -own information as gathered from the trade papers and the<span class="pagenum" id="Page_153">153</span> -dailies. That meant I couldn’t set the market with my own -eyes. A man cannot be convinced against his own convictions, -but he can be talked into a state of uncertainty and indecision, -which is even worse, for that means that he cannot -trade with confidence and comfort.</p> - -<p>I cannot say that I got all mixed up, exactly, but I lost my -poise; or rather, I ceased to do my own thinking. I cannot -give you in detail the various steps by which I reached the -state of mind that was to prove so costly to me. I think -it was his assurances of the accuracy of his figures, which -were exclusively his, and the undependability of mine, -which were not exclusively mine, but public property. He -harped on the utter reliability, as proved time and again, of -all his ten thousand correspondents throughout the South. -In the end I came to read conditions as he himself read -them—because we were both reading from the same page -of the same book, held by him before my eyes. He has a -logical mind. Once I accepted his facts it was a cinch that -my own conclusions, derived from his facts, would agree -with his own.</p> - -<p>When he began his talks with me about the cotton situation -I not only was bearish but I was short of the market. -Gradually, as I began to accept his facts and figures, I began -to fear I had been basing my previous position on misinformation. -Of course I could not feel that way and not -cover. And once I had covered because Thomas made me -think I was wrong, I simply had to go long. It is the way my -mind works. You know, I have done nothing in my life but -trade in stocks and commodities. I naturally think that if it -is wrong to be bearish it must be right to be a bull. And if it -is right to be a bull it is imperative to buy. As my old Palm -Beach friend said Pat Hearne used to say, “You can’t tell till -you bet!” I must prove whether I am right on the market or -not; and the proofs are to be read only in my brokers’ statements -at the end of the month.</p> - -<p>I started in to buy cotton and in a jiffy I had my usual<span class="pagenum" id="Page_154">154</span> -line, about sixty thousand bales. It was the most asinine play -of my career. Instead of standing or falling by my own observation -and deductions I was merely playing another -man’s game. It was eminently fitting that my silly plays -should not end with that. I not only bought when I had no -business to be bullish but I didn’t accumulate my line in accordance -with the promptings of experience. I wasn’t trading -right. Having listened, I was lost.</p> - -<p>The market was not going my way. I am never afraid or -impatient when I am sure of my position. But the market -didn’t act the way it should have acted had Thomas been -right. Having taken the first wrong step I took the second -and the third, and of course it muddled me all up. I allowed -myself to be persuaded not only into not taking my loss but -into holding up the market. That is a style of play foreign -to my nature and contrary to my trading principles and -theories. Even as a boy in the bucket shops I had known -better. But I was not myself. I was another man—a Thomasized -person.</p> - -<p>I not only was long of cotton but I was carrying a heavy -line of wheat. That was doing famously and showed me -a handsome profit. My fool efforts to bolster up cotton had -increased my line to about one hundred and fifty thousand -bales. I may tell you that about this time I was not feeling -very well. I don’t say this to furnish an excuse for my blunders, -but merely to state a pertinent fact. I remember I went -to Bayshore for a rest.</p> - -<p>While there I did some thinking. It seemed to me that my -speculative commitments were overlarge. I am not timid as -a rule, but I got to feeling nervous and that made me decide -to lighten my load. To do this I must clean up either the -cotton or the wheat.</p> - -<p>It seems incredible that knowing the game as well as I -did and with an experience of twelve or fourteen years of -speculating in stocks and commodities <em>I did precisely the -wrong thing</em>. <em>The cotton showed me a loss and I kept it. The<span class="pagenum" id="Page_155">155</span> -wheat showed me a profit and I sold it out.</em> It was an utterly -foolish play, but all I can say in extenuation is that it wasn’t -really my deal, but Thomas’. <em>Of all speculative blunders -there are few greater than trying to average a losing game.</em> -My cotton deal proved it to the hilt a little later. <em>Always sell -what shows you a loss and keep what shows you a profit.</em> -That was so obviously the wise thing to do and was so well -known to me that even now I marvel at myself for doing the -reverse.</p> - -<p>And so I sold my wheat, deliberately cut short my profit -in it. After I got out of it the price went up twenty cents a -bushel without stopping. If I had kept it I might have taken -a profit of about eight million dollars. And having decided -to keep on with the losing proposition I bought more cotton!</p> - -<p>I remember very clearly how every day I would buy cotton, -more cotton. And why do you think I bought it? To -keep the price from going down! If that isn’t a supersucker -play, what is? I simply kept putting up more and more -money—more money to lose eventually. My brokers and my -intimate friends couldn’t understand it; and they don’t to -this day. Of course if the deal had turned out differently I -would have been a wonder. More than once I was warned -against placing too much reliance on Percy Thomas’ brilliant -analyses. To this I paid no heed, but kept on buying cotton -to keep it from going down. I was even buying it in Liverpool. -I accumulated four hundred and forty thousand bales -before I realized what I was doing. And then it was too late. -So I sold out my line.</p> - -<p>I lost nearly all that I had made out of all my other deals -in stocks and commodities. I was not completely cleaned -out, but I had left fewer hundreds of thousands than I had -millions before I met my brilliant friend Percy Thomas. For -me of all men to violate all the laws that experience had -taught me to observe in order to prosper was more than -asinine.</p> - -<p><em>To learn that a man can make foolish plays for no reason<span class="pagenum" id="Page_156">156</span> -whatever was a valuable lesson.</em> It cost me millions to learn -that another dangerous enemy to a trader is his susceptibility -to the urgings of a magnetic personality when -plausibly expressed by a brilliant mind. It has always -seemed to me, however, that I might have learned my lesson -quite as well if the cost had been only one million. But Fate -does not always let you fix the tuition fee. She delivers the -educational wallop and presents her own bill, knowing you -have to pay it, no matter what the amount may be. Having -learned what folly I was capable of I closed that particular -incident. Percy Thomas went out of my life.</p> - -<p>There I was, with more than nine-tenths of my stake, as -Jim Fisk used to say, gone where the woodbine twineth—up -the spout. I had been a millionaire rather less than a year. -My millions I had made by using brains, helped by luck. I -had lost them by reversing the process. I sold my two yachts -and was decidedly less extravagant in my manner of living.</p> - -<p>But that one blow wasn’t enough. Luck was against me. I -ran up first against illness and then against the urgent need -of two hundred thousand dollars in cash. A few months before -that sum would have been nothing at all; but now it -meant almost the entire remnant of my fleet-winged fortune. -I had to supply the money and the question was: Where -would I get it? I didn’t want to take it out of the balance I -kept at my brokers’ because if I did I wouldn’t have much of -a margin left for my own trading; and I needed trading facilities -more than ever if I was to win back my millions -quickly. There was only one alternative that I could see, -and that was to take it out of the stock market!</p> - -<p>Just think of it! If you know much about the average -customer of the average commission house you will agree -with me that the hope of making the stock market pay your -bill is one of the most prolific sources of loss in Wall Street. -You will chip out all you have if you adhere to your determination.</p> - -<p>Why, in Harding’s office one winter a little bunch of high<span class="pagenum" id="Page_157">157</span> -flyers spent thirty or forty thousand dollars for an overcoat—and -not one of them lived to wear it. It so happened that -a prominent floor trader—who since has become world-famous -as one of the dollar-a-year men—came down to the -Exchange wearing a fur overcoat lined with sea otter. In -those days, before furs went up sky high, that coat was -valued at only ten thousand dollars. Well, one of the chaps -in Harding’s office, Bob Keown, decided to get a coat lined -with Russian sable. He priced one uptown. The cost was -about the same, ten thousand dollars.</p> - -<p>“That’s the devil of a lot of money,” objected one of the -fellows.</p> - -<p>“Oh, fair! Fair!” admitted Bob Keown amiably. “About -a week’s wages—unless you guys promise to present it to -me as a slight but sincere token of the esteem in which you -hold the nicest man in the office. Do I hear the presentation -speech? No? Very well. I shall let the stock market buy it -for me!”</p> - -<p>“Why do you want a sable coat?” asked Ed Harding.</p> - -<p>“It would look particularly well on a man of my inches,” -replied Bob, drawing himself up.</p> - -<p>“And how did you say you were going to pay for it?” -asked Jim Murphy, who was the star tip-chaser of the -office.</p> - -<p>“By a judicious investment of a temporary character, -James. That’s how,” answered Bob, who knew that Murphy -merely wanted a tip.</p> - -<p>Sure enough, Jimmy asked, “What stock are you going to -buy?”</p> - -<p>“Wrong as usual, friend. This is no time to buy anything. -I propose to sell five thousand Steel. It ought to go down ten -points at the least. I’ll just take two and a half points net. -That is conservative, isn’t it?”</p> - -<p>“What do you hear about it?” asked Murphy eagerly. He -was a tall thin man with black hair and a hungry look, due<span class="pagenum" id="Page_158">158</span> -to his never going out to lunch for fear of missing something -on the tape.</p> - -<p>“I hear that coat’s the most becoming I ever planned to -get.” He turned to Harding and said, “Ed, sell five thousand -U.S. Steel common at the market. To-day, darling!”</p> - -<p>He was a plunger, Bob was, and liked to indulge in -humorous talk. It was his way of letting the world know that -he had an iron nerve. He sold five thousand Steel, and the -stock promptly went up. Not being half as big an ass as he -seemed when he talked, Bob stopped his loss at one and a -half points and confided to the office that the New York -climate was too benign for fur coats. They were unhealthy -and ostentatious. The rest of the fellows jeered. But it was -not long before one of them bought some Union Pacific to -pay for the coat. He lost eighteen hundred dollars and said -sables were all right for the outside of a woman’s wrap, but -not for the inside of a garment intended to be worn by a -modest and intelligent man.</p> - -<p>After that, one after another of the fellows tried to coax -the market to pay for that coat. One day I said I would buy -it to keep the office from going broke. But they all said that -it wasn’t a sporting thing to do; that if I wanted the coat for -myself I ought to let the market give it to me. But Ed -Harding strongly approved of my intention and that same -afternoon I went to the furrier’s to buy it. I found out that a -man from Chicago had bought it the week before.</p> - -<p>That was only one case. There isn’t a man in Wall Street -who has not lost money trying to make the market pay for -an automobile or a bracelet or a motor boat or a painting. I -could build a huge hospital with the birthday presents that -the tight-fisted stock market has refused to pay for. In fact, -of all hoodoos in Wall Street I think the resolve to induce -the stock market to act as a fairy godmother is the busiest -and most persistent.</p> - -<p>Like all well-authenticated hoodoos this has its reason for -being. What does a man do when he sets out to make the<span class="pagenum" id="Page_159">159</span> -stock market pay for a sudden need? Why, he merely hopes. -He gambles. He therefore runs much greater risks than he -would if he were speculating intelligently, in accordance -with opinions or beliefs logically arrived at after a dispassionate -study of underlying conditions. To begin with, he is -after an immediate profit. He cannot afford to wait. The -market must be nice to him at once if at all. He flatters himself -that he is not asking more than to place an even-money -bet. Because he is prepared to run quick—say, stop his loss -at two points when all he hopes to make is two points—he -hugs the fallacy that he is merely taking a fifty-fifty chance. -Why, I’ve known men to lose thousands of dollars on such -trades, particularly on purchases made at the height of a -bull market just before a moderate reaction. It certainly is -no way to trade.</p> - -<p>Well, that crowning folly of my career as a stock operator -was the last straw. It beat me. I lost what little my cotton -deal had left me. It did even more harm, for I kept on trading—and -losing. I persisted in thinking that the stock market -must perforce make money for me in the end. But the -only end in sight was the end of my resources. I went into -debt, not only to my principal brokers but to other houses -that accepted business from me without my putting up an -adequate margin. I not only got in debt but I stayed in debt -from then on.</p> - -<hr /> - -<p><span class="pagenum" id="Page_160">160</span></p> - -<div class="chapter"> -<h2 id="XIII"><i>XIII</i></h2> -</div> - -<p class="in0"><span class="firstword">There I was,</span> once more broke, which was bad, and dead -wrong in my trading, which was a sight worse. I was sick, -nervous, upset and unable to reason calmly. That is, I was -in the frame of mind in which no speculator should be -when he is trading. Everything went wrong with me. Indeed, -I began to think that I could not recover my departed -sense of proportion. Having grown accustomed to swinging -a big line—say, more than a hundred thousand shares of -stock—I feared I would not show good judgment trading in -a small way. It scarcely seemed worthwhile being right -when all you carried was a hundred shares of stock. After -the habit of taking a big profit on a big line I wasn’t sure I -would know when to take my profit on a small line. I can’t -describe to you how weaponless I felt.</p> - -<p>Broke again and incapable of assuming the offensive -vigorously. In debt and wrong! After all those long years of -successes, tempered by mistakes that really served to pave -the way for greater successes, I was now worse off than -when I began in the bucket shops. I had learned a great deal -about the game of stock speculation, but I had not learned -quite so much about the play of human weaknesses. There -is no mind so machinelike that you can depend upon it to -function with equal efficiency at all times. I now learned -that I could not trust myself to remain equally unaffected by -men and misfortunes at all times.</p> - -<p>Money losses have never worried me in the slightest. But<span class="pagenum" id="Page_161">161</span> -other troubles could and did. I studied my disaster in detail -and of course found no difficulty in seeing just where I had -been silly. I spotted the exact time and place. A man must -know himself thoroughly if he is going to make a good job -out of trading in the speculative markets. To know what I -was capable of in the line of folly was a long educational -step. I sometimes think that no price is too high for a speculator -to pay to learn that which will keep him from getting -the swelled head. A great many smashes by brilliant men -can be traced directly to the swelled head—an expensive -disease everywhere to everybody, but particularly in Wall -Street to a speculator.</p> - -<p>I was not happy in New York, feeling the way I did. I -didn’t want to trade, because I wasn’t in good trading trim. -I decided to go away and seek a stake elsewhere. The -change of scene could help me to find myself again, I -thought. So once more I left New York, beaten by the game -of speculation. I was worse than broke, since I owed over -one hundred thousand dollars spread among various brokers.</p> - -<p>I went to Chicago and there found a stake. It was not a -very substantial stake, but that merely meant that I would -need a little more time to win back my fortune. A house that -I once had done business with had faith in my ability as a -trader and they were willing to prove it by allowing me to -trade in their office in a small way.</p> - -<p>I began very conservatively. I don’t know how I might -have fared had I stayed there. But one of the most remarkable -experiences in my career cut short my stay in Chicago. -It is an almost incredible story.</p> - -<p>One day I got a telegram from Lucius Tucker. I had -known him when he was the office manager of a Stock Exchange -firm that I had at times given some business to, but -I had lost track of him. The telegram read:</p> - -<blockquote> - -<p class="center">Come to New York at once.<br /> -<span class="r10"><span class="smcap">L. Tucker.</span></span></p> -</blockquote> - -<p><span class="pagenum" id="Page_162">162</span> -I knew that he knew from mutual friends how I was fixed -and therefore it was certain he had something up his sleeve. -At the same time I had no money to throw away on an unnecessary -trip to New York; so instead of doing what he -asked me to do I got him on the long distance.</p> - -<p>“I got your telegram,” I said. “What does it mean?”</p> - -<p>“It means that a big banker in New York wants to see -you,” he answered.</p> - -<p>“Who is it?” I asked. I couldn’t imagine who it could be.</p> - -<p>“I’ll tell you when you come to New York. No use otherwise.”</p> - -<p>“You say he wants to see me?”</p> - -<p>“He does.”</p> - -<p>“What about?”</p> - -<p>“He’ll tell you in person if you give him a chance,” said -Lucius.</p> - -<p>“Can’t you write me?”</p> - -<p>“No.”</p> - -<p>“Then tell me more plainly,” I said.</p> - -<p>“I don’t want to.”</p> - -<p>“Look here, Lucius,” I said, “just tell me this much: Is this -a fool trip?”</p> - -<p>“Certainly not. It will be to your advantage to come.”</p> - -<p>“Can’t you give me an inkling?”</p> - -<p>“No,” he said. “It wouldn’t be fair to him. And besides, -I don’t know just how much he wants to do for you. But take -my advice: Come, and come quick.”</p> - -<p>“Are you sure it is I that he wishes to see?”</p> - -<p>“Nobody else but you will do. Better come, I tell you. -Telegraph me what train you take and I’ll meet you at the -station.”</p> - -<p>“Very well,” I said, and hung up.</p> - -<p>I didn’t like quite so much mystery, but I knew that -Lucius was friendly and that he must have a good reason for -talking the way he did. I wasn’t faring so sumptuously in -Chicago that it would break my heart to leave it. At the<span class="pagenum" id="Page_163">163</span> -rate I was trading it would be a long time before I could -get together enough money to operate on the old scale.</p> - -<p>I came back to New York, not knowing what would happen. -Indeed, more than once during the trip I feared nothing -at all would happen and that I’d be out my railroad fare and -my time. I could not guess that I was about to have the most -curious experience of my entire life.</p> - -<p>Lucius met me at the station and did not waste any time -in telling me that he had sent for me at the urgent request of -Mr. Daniel Williamson, of the well-known Stock Exchange -house of Williamson & Brown. Mr. Williamson told Lucius -to tell me that he had a business proposition to make to me -that he was sure I would accept since it would be very -profitable for me. Lucius swore he didn’t know what the -proposition was. The character of the firm was a guaranty -that nothing improper would be demanded of me.</p> - -<p>Dan Williamson was the senior member of the firm, which -was founded by Egbert Williamson way back in the ’70’s. -There was no Brown and hadn’t been one in the firm for -years. The house had been, very prominent in Dan’s father’s -time and Dan had inherited a considerable fortune and -didn’t go after much outside business. They had one customer -who was worth a hundred average customers and that -was Alvin Marquand, Williamson’s brother-in-law, who in -addition to being a director in a dozen banks and trust companies -was the president of the great Chesapeake and Atlantic -Railroad system. He was the most picturesque personality -in the railroad world after James J. Hill, and was the -spokesman and dominant member of the powerful banking -coterie known as the Fort Dawson gang. He was worth -from fifty million to five hundred million dollars, the estimate -depending upon the state of the speaker’s liver. When -he died they found out that he was worth two hundred and -fifty million dollars, all made in Wall Street. So you see he -was some customer.</p> - -<p>Lucius told me he had just accepted a position with Williamson<span class="pagenum" id="Page_164">164</span> -& Brown—one that was made for him. He was supposed -to be a sort of circulating general business getter. The -firm was after a general commission business and Lucius had -induced Mr. Williamson to open a couple of branch offices, -one in one of the big hotels uptown and the other in Chicago. -I rather gathered that I was going to be offered a position -in the latter place, possibly as office manager, which -was something I would not accept. I didn’t jump on Lucius -because I thought I’d better wait until the offer was made -before I refused it.</p> - -<p>Lucius took me into Mr. Williamson’s private office, introduced -me to his chief and left the room in a hurry, as though -he wished to avoid being called as witness in a case in which -he knew both parties. I prepared to listen and then to say -no.</p> - -<p>Mr. Williamson was very pleasant. He was a thorough -gentleman, with polished manners and a kindly smile. I -could see that he made friends easily and kept them. Why -not? He was healthy and therefore good-humored. He had -slathers of money and therefore could not be suspected of -sordid motives. These things, together with his education -and social training, made it easy for him to be not only polite -but friendly, and not only friendly but helpful.</p> - -<p>I said nothing. I had nothing to say and, besides, I always -let the other man have his say in full before I do any talking. -Somebody told me that the late James Stillman, president of -the National City Bank—who, by the way, was an intimate -friend of Williamson’s—made it his practice to listen in -silence, with an impassive face, to anybody who brought a -proposition to him. After the man got through Mr. Stillman -continued to look at him, as though the man had not finished. -So the man, feeling urged to say something more, did -so. Simply by looking and listening Stillman often made the -man offer terms much more advantageous to the bank than -he had meant to offer when he began to speak.</p> - -<p>I don’t keep silent just to induce people to offer a better<span class="pagenum" id="Page_165">165</span> -bargain, but because I like to know all the facts of the case. -By letting a man have his say in full you are able to decide -at once. It is a great time-saver. It averts debates and prolonged -discussions that get nowhere. Nearly every business -proposition that is brought to me can be settled, as far as my -participation in it is concerned, by my saying yes or no. But -I cannot say yes or no right off unless I have the complete -proposition before me.</p> - -<p>Dan Williamson did the talking and I did the listening. -He told me he had heard a great deal about my operations -in the stock market and how he regretted that I had gone -outside of my bailiwick and come a cropper in cotton. Still -it was to my bad luck that he owed the pleasure of that -interview with me. He thought my forte was the stock -market, that I was born for it and that I should not stray -from it.</p> - -<p>“And that is the reason, Mr. Livingston,” he concluded -pleasantly, “why we wish to do business with you.”</p> - -<p>“Do business how?” I asked him.</p> - -<p>“Be your brokers,” he said. “My firm would like to do your -stock business.”</p> - -<p>“I’d like to give it to you,” I said, “but I can’t.”</p> - -<p>“Why not?” he asked.</p> - -<p>“I haven’t any money,” I answered.</p> - -<p>“That part is all right,” he said with a friendly smile. “I’ll -furnish it.” He took out a pocket checkbook, wrote out a -check for twenty-five thousand dollars to my order, and gave -it to me.</p> - -<p>“What’s this for?” I asked.</p> - -<p>“For you to deposit in your own bank. You will draw your -own checks. I want you to do your trading in our office. I -don’t care whether you win or lose. If that money goes I will -give you another personal check. So you don’t have to be so -very careful with this one. See?”</p> - -<p>I knew that the firm was too rich and prosperous to need -anybody’s business, much less to give a fellow the money to<span class="pagenum" id="Page_166">166</span> -put up as margin. And then he was so nice about it! Instead -of giving me a credit with the house he gave me the actual -cash, so that he alone knew where it came from, the only -string being that if I traded I should do so through his firm. -And then the promise that there would be more if that went! -Still, there must be a reason.</p> - -<p>“What’s the idea?” I asked him.</p> - -<p>“The idea is simply that we want to have a customer in -this office who is known as a big active trader. Everybody -knows that you swing a big line on the short side, which is -what I particularly like about you. You are known as a -plunger.”</p> - -<p>“I still don’t get it,” I said.</p> - -<p>“I’ll be frank with you, Mr. Livingston. We have two or -three very wealthy customers who buy and sell stocks in a -big way. I don’t want the Street to suspect them of selling -long stock every time we sell ten or twenty thousand shares -of any stock. If the Street knows that you are trading in our -office it will not know whether it is your short selling or the -other customers’ long stock that is coming on the market.”</p> - -<p>I understood at once. He wanted to cover up his brother-in-law’s -operations with my reputation as a plunger! It so -happened that I had made my biggest killing on the bear -side a year and a half before, and, of course, the Street gossips -and the stupid rumor-mongers had acquired the habit -of blaming me for every decline in prices. To this day when -the market is very weak they say I am raiding it.</p> - -<p>I didn’t have to reflect. I saw at a glance that Dan Williamson -was offering me a chance to come back and come -back quickly. I took the check, banked it, opened an account -with his firm and began trading. It was a good active market, -broad enough for a man not to have to stick to one or -two specialties. I had begun to fear, as I told you, that I had -lost the knack of hitting it right. But it seems I hadn’t. In -three weeks’ time I had made a profit of one hundred and<span class="pagenum" id="Page_167">167</span> -twelve thousand dollars out of the twenty-five thousand that -Dan Williamson lent me.</p> - -<p>I went to him and said, “I’ve come to pay you back that -twenty-five thousand dollars.”</p> - -<p>“No, no!” he said and waved me away exactly as if I had -offered him a castor-oil cocktail. “No, no, my boy. Wait until -your account amounts to something. Don’t think about it -yet. You’ve only got chicken feed there.”</p> - -<p>There is where I made the mistake that I have regretted -more than any other I ever made in my Wall Street career. -It was responsible for long and dreary years of suffering. I -should have insisted on his taking the money. I was on my -way to a bigger fortune than I had lost and walking pretty -fast. For three weeks my average profit was 150 per cent per -week. From then on my trading would be on a steadily increasing -scale. But instead of freeing myself from all obligation -I let him have his way and did not compel him to accept -the twenty-five thousand dollars. Of course, since he -didn’t draw out the twenty-five thousand dollars he had -advanced me I felt I could not very well draw out my profit. -I was very grateful to him, but I am so constituted that I -don’t like to owe money or favours. I can pay the money -back with money, but the favours and kindnesses I must pay -back in kind—and you are apt to find these moral obligations -mighty high priced at times. Moreover there is no -statute of limitations.</p> - -<p>I left the money undisturbed and resumed my trading. I -was getting on very nicely. I was recovering my poise and I -was sure it would not be very long before I should get back -into my 1907 stride. Once I did that, all I’d ask for would -be for the market to hold out a little while and I’d more than -make up my losses. But making or not making the money -was not bothering me much. What made me happy was that -I was losing the habit of being wrong, of not being myself. -It had played havoc with me for months but I had learned -my lesson.</p> - -<p><span class="pagenum" id="Page_168">168</span> -Just about that time I turned bear and I began to sell -short several railroad stocks. Among them was Chesapeake -& Atlantic. I think I put out a short line in it; about eight -thousand shares.</p> - -<p>One morning when I got downtown Dan Williamson -called me into his private office before the market opened -and said to me: “Larry, don’t do anything in Chesapeake & -Atlantic just now. That was a bad play of yours, selling eight -thousand short. I covered it for you this morning in London -and went long.”</p> - -<p>I was sure Chesapeake & Atlantic was going down. The -tape told it to me quite plainly; and besides I was bearish on -the whole market, not violently or insanely bearish, but -enough to feel comfortable with a moderate short line out. I -said to Williamson, “What did you do that for? I am bearish -on the whole market and they are all going lower.”</p> - -<p>But he just shook his head and said, “I did it because I -happen to know something about Chesapeake & Atlantic -that you couldn’t know. My advice to you is not to sell that -stock short until I tell you it is safe to do so.”</p> - -<p>What could I do? That wasn’t an asinine tip. It was advice -that came from the brother-in-law of the chairman of the -board of directors. Dan was not only Alvin Marquand’s -closest friend but he had been kind and generous to me. He -had shown his faith in me and confidence in my word. I -couldn’t do less than to thank him. And so my feelings again -won over my judgment and I gave in. To subordinate my -judgment to his desires was the undoing of me. Gratitude is -something a decent man can’t help feeling, but it is for a fellow -to keep it from completely tying him up. The first thing -I knew I not only had lost all my profit but I owed the firm -one hundred and fifty thousand dollars besides. I felt pretty -badly about it, but Dan told me not to worry.</p> - -<p>“I’ll get you out of this hole,” he promised. “I know I will. -But I can only do it if you let me. You will have to stop doing -business on your own hook. I can’t be working for you<span class="pagenum" id="Page_169">169</span> -and then have you completely undo all my work in your -behalf. Just lay off the market and give me a chance to make -some money for you. Won’t you, Larry?”</p> - -<p>Again I ask you: What could I do? I thought of his kindliness -and I could not do anything that might be construed -as lacking in appreciation. I had grown to like him. He was -very pleasant and friendly. I remember that all I got from -him was encouragement. He kept on assuring me that everything -would come out O.K. One day, perhaps six months -later, he came to me with a pleased smile and gave me some -credit slips.</p> - -<p>“I told you I would pull you out of that hole,” he said, -“and I have.” And then I discovered that not only had he -wiped out the debt entirely but I had a small credit balance -besides.</p> - -<p>I think I could have run that up without much trouble, for -the market was right, but he said to me, “I have bought you -ten thousand shares of Southern Atlantic.” That was another -road controlled by his brother-in-law, Alvin Marquand, who -also ruled the market destinies of the stock.</p> - -<p>When a man does for you what Dan Williamson did for -me you can’t say anything but “Thank you”—no matter -what your market views may be. You may be sure you’re -right, but as Pat Hearne used to say: “You can’t tell till you -bet!” and Dan Williamson had bet for me—with his money.</p> - -<p>Well, Southern Atlantic went down and stayed down and -I lost, I forget how much, on my ten thousand shares before -Dan sold me out. I owed him more than ever. But you never -saw a nicer or less importunate creditor in your life. Never a -whimper from him. Instead, encouraging words and admonitions -not to worry about it. In the end the loss was -made up for me in the same generous but mysterious way.</p> - -<p>He gave no details whatever. They were all numbered -accounts. Dan Williamson would just say to me, “We made -up your Southern Atlantic loss with profits on this other -deal,” and he’d tell me how he had sold seventy-five hundred<span class="pagenum" id="Page_170">170</span> -shares of some other stock and made a nice thing out of it. I -can truthfully say that I never knew a blessed thing about -those trades of mine until I was told that the indebtedness -was wiped out.</p> - -<p>After that happened several times I began to think, and I -got to look at my case from a different angle. Finally I -tumbled. It was plain that I had been used by Dan Williamson. -It made me angry to think it, but still angrier that I had -not tumbled to it quicker. As soon as I had gone over the -whole thing in my mind I went to Dan Williamson, told him -I was through with the firm, and I quit the office of Williamson -& Brown. I had no words with him or any of his partners. -What good would that have done me? But I will admit that -I was sore—at myself quite as much as at Williamson & -Brown.</p> - -<p>The loss of the money didn’t bother me. Whenever I have -lost money in the stock market I have always considered that -I have learned something; that if I have lost money I have -gained experience, so that the money really went for a tuition -fee. A man has to have experience and he has to pay -for it. But there was something that hurt a whole lot in that -experience of mine in Dan Williamson’s office, and that was -the loss of a great opportunity. The money a man loses is -nothing; he can make it up. But opportunities such as I had -then do not come every day.</p> - -<p>The market, you see, had been a fine trading market. I -was right; I mean, I was reading it accurately. The opportunity -to make millions was there. But I allowed my gratitude -to interfere with my play. I tied my own hands. I had -to do what Dan Williamson in his kindness wished done. -Altogether it was more unsatisfactory than doing business -with a relative. Bad business!</p> - -<p>And that wasn’t the worst thing about it. It was that after -that there was practically no opportunity for me to make big -money. The market flattened out. Things drifted from bad -to worse. I not only lost all I had but got into debt again—more -heavily than ever. Those were long lean years, 1911,<span class="pagenum" id="Page_171">171</span> -1912, 1913 and 1914. There was no money to be made. The -opportunity simply wasn’t there and so I was worse off than -ever.</p> - -<p>It isn’t uncomfortable to lose when the loss is not accompanied -by a poignant vision of what might have been. That -was precisely what I could not keep my mind from dwelling -on, and of course it unsettled me further. I learned that the -weaknesses to which a speculator is prone are almost numberless. -It was proper for me as a man to act the way I did -in Dan Williamson’s office, but it was improper and unwise -for me as a speculator to allow myself to be influenced by -any consideration to act against my own judgment. <i xml:lang="fr" lang="fr">Noblesse -oblige</i>—but not in the stock market, because the tape is not -chivalrous and moreover does not reward loyalty. I realise -that I couldn’t have acted differently. I couldn’t make myself -over just because I wished to trade in the stock market. -But business is business always, and my business as a speculator -is to back my own judgment always.</p> - -<p>It was a very curious experience. I’ll tell you what I think -happened. Dan Williamson was perfectly sincere in what he -told me when he first saw me. Every time his firm did a few -thousand shares in any one stock the Street jumped at the -conclusion that Alvin Marquand was buying or selling. He -was the big trader of the office, to be sure, and he gave this -firm all his business; and he was one of the best and biggest -traders they have ever had in Wall Street. Well, I was to be -used as a smoke screen, particularly for Marquand’s selling.</p> - -<p>Alvin Marquand fell sick shortly after I went in. His ailment -was early diagnosed as incurable, and Dan Williamson -of course knew it long before Marquand himself did. That -is why Dan covered my Chesapeake & Atlantic stock. He -had begun to liquidate some of his brother-in-law’s speculative -holdings of that and other stocks.</p> - -<p>Of course when Marquand died the estate had to liquidate -his speculative and semispeculative lines, and by that -time we had run into a bear market. By tying me up the way -he did, Dan was helping the estate a whole lot. I do not<span class="pagenum" id="Page_172">172</span> -speak boastfully when I say that I was a very heavy trader -and that I was dead right in my views on the stock market. -I know that Williamson remembered my successful operations -in the bear market of 1907 and he couldn’t afford to -run the risk of having me at large. Why, if I had kept on the -way I was going I’d have made so much money that by the -time he was trying to liquidate part of Alvin Marquand’s -estate I would have been trading in hundreds of thousands -of shares. As an active bear I would have done damage running -into the millions of dollars to the Marquand heirs, for -Alvin left only a little over a couple of hundred millions.</p> - -<p>It was much cheaper for them to let me get into debt and -then to pay off the debt than to have me in some other office -operating actively on the bear side. That is precisely what I -would have been doing but for my feeling that I must not be -outdone in decency by Dan Williamson.</p> - -<p>I have always considered this the most interesting and -most unfortunate of all my experiences as a stock operator. -As a lesson it cost me a disproportionately high price. It put -off the time of my recovery several years. I was young -enough to wait with patience for the strayed millions to -come back. But five years is a long time for a man to be poor. -Young or old, it is not to be relished. I could do without the -yachts a great deal easier than I could without a market to -come back on. The greatest opportunity of a lifetime was -holding before my very nose the purse I had lost. I could -not put out my hand and reach for it. A very shrewd boy, -that Dan Williamson; as slick as they make them; farsighted, -ingenious, daring. He is a thinker, has imagination, detects -the vulnerable spot in any man and can plan cold-bloodedly -to hit it. He did his own sizing up and soon doped out just -what to do to me in order to reduce me to complete inoffensiveness -in the market. He did not actually do me out of any -money. On the contrary, he was to all appearances extremely -nice about it. He loved his sister, Mrs. Marquand, and he -did his duty toward her as he saw it.</p> - -<hr /> - -<p><span class="pagenum" id="Page_173">173</span></p> - -<div class="chapter"> -<h2 id="XIV"><i>XIV</i></h2> -</div> - -<p class="in0"><span class="firstword">It has always rankled</span> in my mind that after I left Williamson -& Brown’s office the cream was off the market. We -ran smack into a long moneyless period; four mighty lean -years. There was not a penny to be made. As Billy Henriquez -once said, “It was the kind of market in which not -even a skunk could make a scent.”</p> - -<p>It looked to me as though I was in Dutch with destiny. It -might have been the plan of Providence to chasten me, but -really I had not been filled with such pride as called for a -fall. I had not committed any of those speculative sins which -a trader must expiate on the debtor side of the account. I -was not guilty of a typical sucker play. What I had done, or, -rather, what I had left undone, was something for which I -would have received praise and not blame—north of Forty-second -Street. In Wall Street it was absurd and costly. But -by far the worst thing about it was the tendency it had to -make a man a little less inclined to permit himself human -feelings in the ticker district.</p> - -<p>I left Williamson’s and tried other brokers’ offices. In -every one of them I lost money. It served me right, because -I was trying to force the market into giving me what it -didn’t have to give—to wit, opportunities for making money. -I did not find any trouble in getting credit, because those -who knew me had faith in me. You can get an idea of how -strong their confidence was when I tell you that when I -finally stopped trading on credit I owed well over one million -dollars.</p> - -<p><span class="pagenum" id="Page_174">174</span> -The trouble was not that I had lost my grip but that during -those four wretched years the opportunities for making -money simply didn’t exist. Still I plugged along, trying to -make a stake and succeeding only in increasing my indebtedness. -After I ceased trading on my own hook because I -wouldn’t owe my friends any more money I made a living -handling accounts for people who believed I knew the game -well enough to beat it even in a dull market. For my services -I received a percentage of the profits—when there were any. -That is how I lived. Well, say that is how I sustained life.</p> - -<p>Of course, I didn’t always lose, but I never made enough -to allow me materially to reduce what I owed. Finally, as -things got worse, I felt the beginnings of discouragement for -the first time in my life.</p> - -<p>Everything seemed to have gone wrong with me. I did not -go about bewailing the descent from millions and yachts to -debts and the simple life. I didn’t enjoy the situation, but I -did not fill up with self-pity. I did not propose to wait patiently -for time and Providence to bring about the cessation -of my discomforts. I therefore studied my problem. It was -plain that the only way out of my troubles was by making -money. To make money I needed merely to trade successfully. -I had so traded before and I must do so once more. -More than once in the past I had run up a shoestring into -hundreds of thousands. Sooner or later the market would -offer me an opportunity.</p> - -<p>I convinced myself that whatever was wrong was wrong -with me and not with the market. Now what could be the -trouble with me? I asked myself that question in the same -spirit in which I always study the various phases of my -trading problems. I thought about it calmly and came to the -conclusion that my main trouble came from worrying over -the money I owed. I was never free from the mental discomfort -of it. I must explain to you that it was not mere consciousness -of my indebtedness. Any business man contracts -debts in the course of his regular business. Most of my debts<span class="pagenum" id="Page_175">175</span> -were really nothing but business debts, due to what were unfavourable -business conditions for me, and no worse than a -merchant suffers from, for instance, when there is an unusually -prolonged spell of unseasonable weather.</p> - -<p>Of course as time went on and I could not pay I began to -feel less philosophical about my debts. I’ll explain: I owed -over a million dollars—all of it stock-market losses, remember. -Most of my creditors were very nice and didn’t bother -me; but there were two who did bedevil me. They used to -follow me around. Every time I made a winning each of -them was Johnny-on-the-spot, wanting to know all about it -and insisting on getting theirs right off. One of them, to -whom I owed eight hundred dollars, threatened to sue me, -seize my furniture, and so forth. I can’t conceive why he -thought I was concealing assets, unless it was that I didn’t -quite look like a stage hobo about to die of destitution.</p> - -<p>As I studied the problem I saw that it wasn’t a case that -called for reading the tape but for reading my own self. I -quite cold-bloodedly reached the conclusion that I would -never be able to accomplish anything useful so long as I was -worried, and it was equally plain that I should be worried so -long as I owed money. I mean, as long as any creditor had -the power to vex me or to interfere with my coming back by -insisting upon being paid before I could get a decent stake -together. This was all so obviously true that I said to myself, -“I must go through bankruptcy.” What else could relieve my -mind?</p> - -<p>It sounds both easy and sensible, doesn’t it? But it was -more than unpleasant, I can tell you. I hated to do it. I hated -to put myself in a position to be misunderstood or misjudged. -I myself never cared much for money. I never -thought enough of it to consider it worthwhile lying for. -But I knew that everybody didn’t feel that way. Of course I -also knew that if I got on my feet again I’d pay everybody -off, for the obligation remained. But unless I was able to<span class="pagenum" id="Page_176">176</span> -trade in the old way I’d never be able to pay back that million.</p> - -<p>I nerved myself and went to see my creditors. It was a -mighty difficult thing for me to do, for all that most of them -were personal friends or old acquaintances.</p> - -<p>I explained the situation quite frankly to them. I said: “I -am not going to take this step because I don’t wish to pay -you but because, in justice to both myself and you, I must -put myself in a position to make money. I have been thinking -of this solution off and on for over two years, but I -simply didn’t have the nerve to come out and say so frankly -to you. It would have been infinitely better for all of us if I -had. It all simmers down to this: I positively cannot be my -old self while I am harassed or upset by these debts. I have -decided to do now what I should have done a year ago. I -have no other reason than the one I have just given you.”</p> - -<p>What the first man said was to all intents and purposes -what all of them said. He spoke for his firm.</p> - -<p>“Livingston,” he said, “we understand. We realise your -position perfectly. I’ll tell you what we’ll do: we’ll just give -you a release. Have your lawyer prepare any kind of paper -you wish, and we’ll sign it.”</p> - -<p>That was in substance what all my big creditors said. That -is one side of Wall Street for you. It wasn’t merely careless -good nature or sportsmanship. It was also a mighty intelligent -decision, for it was clearly good business. I appreciated -both the good will and the business gumption.</p> - -<p>These creditors gave me a release on debts amounting to -over a million dollars. But there were the two minor creditors -who wouldn’t sign off. One of them was the eight-hundred-dollar -man I told you about. I also owed sixty thousand -dollars to a brokerage firm which had gone into bankruptcy, -and the receivers, who didn’t know me from Adam, -were on my neck early and late. Even if they had been -disposed to follow the example set by my largest creditors -I don’t suppose the court would have let them sign off. At<span class="pagenum" id="Page_177">177</span> -all events my schedule of bankruptcy amounted to only -about one hundred thousand dollars; though, as I said, I -owed well over a million.</p> - -<p>It was extremely disagreeable to see the story in the newspapers. -I had always paid my debts in full and this new experience -was most mortifying to me. I knew I’d pay off -everybody some day if I lived, but everybody who read the -article wouldn’t know it. I was ashamed to go out after I saw -the report in the newspapers. But it all wore off presently -and I cannot tell you how intense was my feeling of relief to -know that I wasn’t going to be harried any more by people -who didn’t understand how a man must give his entire mind -to his business—if he wishes to succeed in stock speculation.</p> - -<p>My mind now being free to take up trading with some -prospect of success, unvexed by debts, the next step was to -get another stake. The Stock Exchange had been closed from -July thirty-first to the middle of December, 1914, and Wall -Street was in the dumps. There hadn’t been any business -whatever in a long time. I owed all my friends. I couldn’t -very well ask them to help me again just because they had -been so pleasant and friendly to me, when I knew that nobody -was in a position to do much for anybody.</p> - -<p>It was a mighty difficult task, getting a decent stake, for -with the closing of the Stock Exchange there was nothing -that I could ask any broker to do for me. I tried in a couple -of places. No use.</p> - -<p>Finally I went to see Dan Williamson. This was in February, -1915. I told him that I had rid myself of the mental -incubus of debt and I was ready to trade as of old. You will -recall that when he needed me he offered me the use of -twenty-five thousand dollars without my asking him.</p> - -<p>Now that I needed him he said, “When you see something -that looks good to you and you want to buy five hundred -shares go ahead and it will be all right.”</p> - -<p>I thanked him and went away. He had kept me from making -a great deal of money and the office had made a lot in<span class="pagenum" id="Page_178">178</span> -commissions from me. I admit I was a little sore to think that -Williamson & Brown didn’t give me a decent stake. I intended -to trade conservatively at first. It would make my -financial recovery easier and quicker if I could begin with a -line a little better than five hundred shares. But, anyhow, I -realised that, such as it was, there was my chance to come -back.</p> - -<p>I left Dan Williamson’s office and studied the situation in -general and my own problem in particular. It was a bull -market. That was as plain to me as it was to thousands of -traders. But my stake consisted merely of an offer to carry -five hundred shares for me. That is, I had no leeway, limited -as I was. I couldn’t afford even a slight setback at the beginning. -I must build up my stake with my very first play. That -initial purchase of mine of five hundred shares must be -profitable. I had to make real money. I knew unless I had -sufficient trading capital I would not be able to use good -judgment. Without adequate margins it would be impossible -to take the cold-blooded, dispassionate attitude toward the -game that comes from the ability to afford a few minor losses -such as I often incurred in testing the market before putting -down the big bet.</p> - -<p>I think now that I found myself then at the most critical -period of my career as a speculator. If I failed this time there -was no telling where or when, if ever, I might get another -stake for another try. It was very clear that I simply must -wait for the exact psychological moment.</p> - -<p>I didn’t go near Williamson & Brown’s. I mean, I purposely -kept away from them for six long weeks of steady -tape reading. I was afraid that if I went to the office, knowing -that I could buy five hundred shares, I might be tempted -into trading at the wrong time or in the wrong stock. A -trader, in addition to studying basic conditions, remembering -market precedents and keeping in mind the psychology -of the outside public as well as the limitations of his brokers, -must also know himself and provide against his own weaknesses.<span class="pagenum" id="Page_179">179</span> -There is no need to feel anger over being human. I -have come to feel that it is as necessary to know how to read -myself as to know how to read the tape. I have studied and -reckoned on my own reactions to given impulses or to the -inevitable temptations of an active market, quite in the same -mood and spirit as I have considered crop conditions or -analysed reports of earnings.</p> - -<p>So day after day, broke and anxious to resume trading, I -sat in front of a quotation-board in another broker’s office -where I couldn’t buy or sell as much as one share of stock, -studying the market, not missing a single transaction on the -tape, watching for the psychological moment to ring the -full-speed-ahead bell.</p> - -<p>By reason of conditions known to the whole world the -stock I was most bullish on in those critical days of early -1915 was Bethlehem Steel. I was morally certain it was going -way up, but in order to make sure that I would win on -my very first play, as I must, I decided to wait until it -crossed par.</p> - -<p>I think I have told you it has been my experience that -<em>whenever a stock crosses 100 or 200 or 300 for the first time, -it nearly always keeps going up for 30 to 50 points—and after -300 faster than after 100 or 200</em>. One of my first big coups -was in Anaconda, which I bought when it crossed 200 and -sold a day later at 260. My practice of buying a stock just -after it crossed par dated back to my early bucket-shop days. -It is an old trading principle.</p> - -<p>You can imagine how keen I was to get back to trading on -my old scale. I was so eager to begin that I could not think -of anything else; but I held myself in leash. I saw Bethlehem -Steel climb, every day, higher and higher, as I was sure -it would, and yet there I was checking my impulse to run -over to Williamson & Brown’s office and buy five hundred -shares. I knew I simply had to make my initial operation as -nearly a cinch as was humanly possible.</p> - -<p>Every point that stock went up meant five hundred dollars<span class="pagenum" id="Page_180">180</span> -I had not made. The first ten points’ advance meant that I -would have been able to pyramid, and instead of five hundred -shares I might now be carrying one thousand shares -that would be earning for me one thousand dollars a point. -But I sat tight and instead of listening to my loud-mouthed -hopes or to my clamorous beliefs I heeded only the level -voice of my experience and the counsel of common sense. -Once I got a decent stake together I could afford to take -chances. But without a stake, taking chances, even slight -chances, was a luxury utterly beyond my reach. Six weeks -of patience—but, in the end, a victory for common sense -over greed and hope!</p> - -<p>I really began to waver and sweat blood when the stock -got up to 90. Think of what I had not made by not buying, -when I was so bullish. Well, when it got to 98 I said to myself, -“Bethlehem is going through 100, and when it does the -roof is going to blow clean off!” The tape said the same thing -more than plainly. In fact, it used a megaphone. I tell you, -I saw <em>100</em> on the tape when the ticker was only printing <em>98</em>. -And I knew that wasn’t the voice of my hope or the sight of -my desire, but the assertion of my tape-reading instinct. So -I said to myself, “I can’t wait until it gets through 100. I -have to get it now. It is as good as gone through par.”</p> - -<p>I rushed to Williamson & Brown’s office and put in an -order to buy five hundred shares of Bethlehem Steel. The -market was then 98. I got five hundred shares at 98 to 99. -After that she shot right up, and closed that night, I think, at -114 or 115. I bought five hundred shares more.</p> - -<p>The next day Bethlehem Steel was 145 and I had my -stake. But I earned it. Those six weeks of waiting for the -right moment were the most strenuous and wearing six -weeks I ever put in. But it paid me, for I now had enough -capital to trade in fair-sized lots. I never would have got -anywhere just on five hundred shares of stock.</p> - -<p>There is a great deal in starting right, whatever the enterprise -may be, and I did very well after my Bethlehem deal—so<span class="pagenum" id="Page_181">181</span> -well, indeed, that you would not have believed it was the -selfsame man trading. As a matter of fact I wasn’t the same -man, for where I had been harassed and wrong I was now at -ease and right. There were no creditors to annoy and no lack -of funds to interfere with my thinking or with my listening -to the truthful voice of experience, and so I was winning -right along.</p> - -<p>All of a sudden, as I was on my way to a sure fortune, we -had the <i>Lusitania</i> break. Every once in a while a man gets a -crack like that in the solar plexus, probably that he may be -reminded of the sad fact that no human being can be so uniformly -right on the market as to be beyond the reach of unprofitable -accidents. I have heard people say that no professional -speculator need have been hit very hard by the news -of the torpedoing of the <i>Lusitania</i>, and they go on to tell -how they had it long before the Street did. I was not clever -enough to escape by means of advance information, and all -I can tell you is that on account of what I lost through the -<i>Lusitania</i> break and one or two other reverses that I wasn’t -wise enough to foresee, I found myself at the end of 1915 -with a balance at my brokers’ of about one hundred and -forty thousand dollars. That was all I actually made, though -I was consistently right on the market throughout the -greater part of the year.</p> - -<p>I did much better during the following year. I was very -lucky. I was rampantly bullish in a wild bull market. Things -were certainly coming my way so that there wasn’t anything -to do but to make money. It made me remember a saying of -the late H. H. Rogers, of the Standard Oil Company, to the -effect that there were times when a man could no more help -making money than he could help getting wet if he went out -in a rainstorm without an umbrella. It was the most clearly -defined bull market we ever had. It was plain to everybody -that the Allied purchases of all kinds of supplies here made -the United States the most prosperous nation in the world. -We had all the things that no one else had for sale, and we<span class="pagenum" id="Page_182">182</span> -were fast getting all the cash in the world. I mean that -the wide world’s gold was pouring into this country in torrents. -Inflation was inevitable, and, of course, that meant -rising prices for everything.</p> - -<p>All this was so evident from the first that little or no -manipulation for the rise was needed. That was the reason -why the preliminary work was so much less than in other -bull markets. And not only was the war-bride boom more -naturally developed than all others but it proved unprecedentedly -profitable for the general public. That is, the stock-market -winnings during 1915 were more widely distributed -than in any other boom in the history of Wall Street. That -the public did not turn all their paper profits into good hard -cash or that they did not long keep what profits they actually -took was merely history repeating itself. Nowhere does -history indulge in repetitions so often or so uniformly as in -Wall Street. When you read contemporary accounts of -booms or panics the one thing that strikes you most forcibly -is how little either stock speculation or stock speculators to-day -differ from yesterday. The game does not change and -neither does human nature.</p> - -<p>I went along with the rise in 1916. I was as bullish as the -next man, but of course I kept my eyes open. I knew, as -everybody did, that there must be an end, and I was on the -watch for warning signals. I wasn’t particularly interested -in guessing from which quarter the tip would come and so -I didn’t stare at just one spot. I was not, and I never have -felt that I was, wedded indissolubly to one or the other side -of the market. That a bull market has added to my bank -account or a bear market has been particularly generous I -do not consider sufficient reason for sticking to the bull or -the bear side after I receive the get-out warning. <em>A man does -not swear eternal allegiance to either the bull or the bear -side. His concern lies with being right.</em></p> - -<p><em>And there is another thing to remember, and that is that -a market does not culminate in one grand blaze of glory.<span class="pagenum" id="Page_183">183</span> -Neither does it end with a sudden reversal of form. A market -can and does often cease to be a bull market long before -prices generally begin to break.</em> My long expected warning -came to me when I noticed that, one after another, <em>those -stocks which had been the leaders of the market reacted -several points from the top and—for the first time in many -months—did not come back</em>. Their race evidently was run, -and that clearly necessitated a change in my trading tactics.</p> - -<p>It was simple enough. In a bull market the trend of prices, -of course, is decidedly and definitely upward. Therefore -whenever a stock goes against the general trend you are justified -in assuming that there is something wrong with that -particular stock. It is enough for the experienced trader to -perceive that something is wrong. He must not expect the -tape to become a lecturer. His job is to listen for it to say -“Get out!” and not wait for it to submit a legal brief for approval.</p> - -<p>As I said before, <em>I noticed that stocks which had been the -leaders of the wonderful advance had ceased to advance. -They dropped six or seven points and stayed there. At the -same time the rest of the market kept on advancing under -new standard bearers.</em> Since nothing wrong had developed -with the companies themselves, the reason had to be sought -elsewhere. Those stocks had gone with the current for -months. When they ceased to do so, though the bull tide -was still running strong, it meant that for those particular -stocks the bull market was over. For the rest of the list the -tendency was still decidedly upward.</p> - -<p>There was no need to be perplexed into inactivity, for -there were really no cross currents. I did not turn bearish on -the market then, because the tape didn’t tell me to do so. -The end of the bull market had not come, though it was -within hailing distance. Pending its arrival there was still -bull money to be made. <em>Such being the case, I merely turned -bearish on the stocks which had stopped advancing and as<span class="pagenum" id="Page_184">184</span> -the rest of the market had rising power behind it I both -bought and sold.</em></p> - -<p>The leaders that had ceased to lead I sold. I put out a -short line of five thousand shares in each of them; and then -I went long of the new leaders. The stocks I was short of -didn’t do much, but my long stocks kept on rising. When -finally these in turn ceased to advance I sold them out and -went short—five thousand shares of each. By this time I was -more bearish than bullish, because obviously the next big -money was going to be made on the down side. While I felt -certain that the bear market had really begun before the -bull market had really ended, I knew the time for being a -rampant bear was not yet. There was no sense in being more -royalist than the king; especially in being so too soon. The -tape merely said that patrolling parties from the main bear -army had dashed by. Time to get ready.</p> - -<p>I kept on both buying and selling until after about a -month’s trading I had out a short line of sixty thousand -shares—five thousand shares each in a dozen different stocks -which earlier in the year had been the public’s favourites because -they had been the leaders of the great bull market. It -was not a very heavy line; but don’t forget that neither was -the market definitely bearish.</p> - -<p>Then one day the entire market became quite weak and -prices of all stocks began to fall. When I had a profit of at -least four points in each and every one of the twelve stocks -that I was short of, I knew that I was right. The tape told -me it was now safe to be bearish, so I promptly doubled up.</p> - -<p>I had my position. I was short of stocks in a market that -now was plainly a bear market. There wasn’t any need for -me to push things along. The market was bound to go my -way, and, knowing that, I could afford to wait. After I -doubled up I didn’t make another trade for a long time. -About seven weeks after I put out my full line, we had the -famous “leak,” and stocks broke badly. It was said that -somebody had advance news from Washington that President<span class="pagenum" id="Page_185">185</span> -Wilson was going to issue a message that would bring -back the dove of peace to Europe in a hurry. Of course the -war-bride boom was started and kept up by the World War, -and peace was a bear item. When one of the cleverest -traders on the floor was accused of profiting by advance -information he simply said he had sold stocks not on any -news but because he considered that the bull market was -overripe. I myself had doubled my line of shorts seven -weeks before.</p> - -<p>On the news the market broke badly and I naturally -covered. It was the only play possible. <em>When something -happens on which you did not count when you made your -plans it behooves you to utilise the opportunity that a kindly -fate offers you.</em> For one thing, on a bad break like that you -have a big market, one that you can turn around in, and that -is the time to turn your paper profits into real money. Even -in a bear market a man cannot always cover one hundred -and twenty thousand shares of stock without putting up the -price on himself. He must wait for the market that will allow -him to buy that much at no damage to his profit as it stands -him on paper.</p> - -<p>I should like to point out that I was not counting on that -particular break at that particular time for that particular -reason. But, as I have told you before, my experience of -thirty years as a trader is that such <em>accidents are usually -along the line of least resistance on</em> which I base my position -in the market. Another thing to bear in mind is this: <em>Never -try to sell at the top.</em> It isn’t wise. <em>Sell after a reaction if -there is no rally.</em></p> - -<p>I cleared about three million dollars in 1916 by being -bullish as long as the bull market lasted and then by being -bearish when the bear market started. As I said before, a -man does not have to marry one side of the market till death -do them part.</p> - -<p>That winter I went South, to Palm Beach, as I usually do -for a vacation, because I am very fond of salt-water fishing.<span class="pagenum" id="Page_186">186</span> -I was short of stocks and wheat, and both lines showed me -a handsome profit. There wasn’t anything to annoy me and -I was having a good time. Of course unless I go to Europe -I cannot really be out of touch with the stock or commodities -markets. For instance, in the Adirondacks I have -a direct wire from my broker’s office to my house.</p> - -<p>In Palm Beach I used to go to my broker’s branch office -regularly. I noticed that cotton, in which I had no interest, -was strong and rising. About that time—this was in 1917—I -heard a great deal about the efforts that President Wilson -was making to bring about peace. The reports came from -Washington, both in the shape of press dispatches and -private advice to friends in Palm Beach. That is the reason -why one day I got the notion that the course of the various -markets reflected confidence in Mr. Wilson’s success. With -peace supposedly close at hand, stocks and wheat ought to -go down and cotton up. I was all set as far as stocks and -wheat went, but I had not done anything in cotton in some -time.</p> - -<p>At 2:20 that afternoon I did not own a single bale, but at -2:25 my belief that peace was impending made me buy -fifteen thousand bales as a starter. I proposed to follow my -old system of trading—that is, of buying my full line—which -I have already described to you.</p> - -<p>That very afternoon, after the market closed, we got the -Unrestricted Warfare note. There wasn’t anything to do except -to wait for the market to open the next day. I recall -that at Gridley’s that night one of the greatest captains of -industry in the country was offering to sell any amount of -United States Steel at five points below the closing price -that afternoon. There were several Pittsburgh millionaires -within hearing. Nobody took the big man’s offer. They knew -there was bound to be a whopping big break at the opening.</p> - -<p>Sure enough, the next morning the stock and commodity -markets were in an uproar, as you can imagine. Some stocks -opened eight points below the previous night’s close. To me<span class="pagenum" id="Page_187">187</span> -that meant a heaven-sent opportunity to cover all my shorts -profitably. As I said before, <em>in a bear market it is always -wise to cover if complete demoralisation suddenly develops</em>. -That is the only way, if you swing a good-sized line, of turning -a big paper profit into real money both quickly and -without regrettable reductions. For instance, I was short -fifty thousand shares of United States Steel alone. Of course -I was short of other stocks, and when I saw I had the market -to cover in, I did. My profits amounted to about one and a -half million dollars. It was not a chance to disregard.</p> - -<p>Cotton, of which I was long fifteen thousand bales, -bought in the last half hour of the trading the previous afternoon, -opened down five hundred points. Some break! It -meant an overnight loss of three hundred and seventy-five -thousand dollars. While it was perfectly clear that the only -wise play in stocks and wheat was to cover on the break I -was not so clear as to what I ought to do in cotton. There -were various things to consider, and while I always take my -loss the moment I am convinced I am wrong, I did not like -to take that loss that morning. Then I reflected that I had -gone South to have a good time fishing instead of perplexing -myself over the course of the cotton market. And, moreover, -I had taken such big profits in my wheat and in stocks -that I decided to take my loss in cotton. I would figure that -my profit had been a little more than one million instead of -over a million and a half. It was all a matter of bookkeeping, -as promoters are apt to tell you when you ask too many -questions.</p> - -<p>If I hadn’t bought that cotton just before the market -closed the day before, I would have saved that four hundred -thousand dollars. It shows you how quickly a man may lose -big money on a moderate line. My main position was absolutely -correct and I benefited by an accident of a nature -diametrically opposite to the considerations that led me to -take the position I did in stocks and wheat. Observe, please, -that the speculative line of least resistance again demonstrated<span class="pagenum" id="Page_188">188</span> -its value to a trader. Prices went as I expected, notwithstanding -the unexpected market factor introduced by -the German note. If things had turned out as I had figured -I would have been 100 per cent right in all three of my lines, -for with peace stocks and wheat would have gone down and -cotton would have gone kiting up. I would have cleaned up -in all three. Irrespective of peace or war, I was right in my -position on the stock market and in wheat and that is why -the unlooked-for event helped. In cotton I based my play -on something that might happen outside of the market—that -is, I bet on Mr. Wilson’s success in his peace negotiations. -It was the German military leaders who made me lose -the cotton bet.</p> - -<p>When I returned to New York early in 1917 I paid back -all the money I owed, which was over a million dollars. It -was a great pleasure to me to pay my debts. I might have -paid it back a few months earlier, but I didn’t for a very -simple reason. I was trading actively and successfully and I -needed all the capital I had. I owed it to myself as well as -to the men I considered my creditors to take every advantage -of the wonderful markets we had in 1915 and 1916. I -knew that I would make a great deal of money and I wasn’t -worrying because I was letting them wait a few months -longer for money many of them never expected to get back. -I did not wish to pay off my obligations in driblets or to one -man at a time, but in full to all at once. So as long as the -market was doing all it could for me I just kept on trading -on as big a scale as my resources permitted.</p> - -<p>I wished to pay interest, but all those creditors who had -signed releases positively refused to accept it. The man I -paid off the last of all was the chap I owed the eight -hundred dollars to, who had made my life a burden and had -upset me until I couldn’t trade. I let him wait until he heard -that I had paid off all the others. Then he got his money. I -wanted to teach him to be considerate the next time somebody -owed him a few hundreds.</p> - -<p><span class="pagenum" id="Page_189">189</span> -And that is how I came back.</p> - -<p>After I paid off my debts in full I put a pretty fair amount -into annuities. I made up my mind I wasn’t going to be -strapped and uncomfortable and minus a stake ever again. -Of course, after I married I put some money in trust for my -wife. And after the boy came I put some in trust for him.</p> - -<p>The reason I did this was not alone the fear that the stock -market might take it away from me, but because I knew that -a man will spend anything he can lay his hands on. By doing -what I did my wife and child are safe from me.</p> - -<p>More than one man I know has done the same thing, but -has coaxed his wife to sign off when he needed the money, -and he has lost it. But I have fixed it up so that no matter -what I want or what my wife wants, that trust holds. It is -absolutely safe from all attacks by either of us; safe from -my market needs; safe even from a devoted wife’s love. I’m -taking no chances!</p> - -<hr /> - -<p><span class="pagenum" id="Page_190">190</span></p> - -<div class="chapter"> -<h2 id="XV"><i>XV</i></h2> -</div> - -<p class="in0"><span class="firstword">Among the hazards</span> of speculation the happening of the -unexpected—I might even say of the unexpectable—ranks -high. <em>There are certain chances that the most prudent man -is justified in taking—chances that he must take if he wishes -to be more than a mercantile mollusk.</em> Normal business hazards -are no worse than the risks a man runs when he goes -out of his house into the street or sets out on a railroad journey. -When I lose money by reason of some development -which nobody could foresee I think no more vindictively of -it than I do of an inconveniently timed storm. Life itself -from the cradle to the grave is a gamble and what happens -to me because I do not possess the gift of second sight I can -bear undisturbed. But there have been times in my career -as a speculator when I have both been right and played -square and nevertheless I have been cheated out of my earnings -by the sordid unfairness of unsportsmanlike opponents.</p> - -<p>Against misdeeds by crooks, cowards and crowds a quick-thinking -or far-sighted businessman can protect himself. I -have never gone up against downright dishonesty except in -a bucket shop or two because even there honesty was the -best policy; the big money was in being square and not in -welshing. I have never thought it good business to play any -game in any place where it was necessary to keep an eye on -the dealer because he was likely to cheat if unwatched. But -against the whining welsher the decent man is powerless. -Fair play is fair play. I could tell you a dozen instances<span class="pagenum" id="Page_191">191</span> -where I have been the victim of my own belief in the -sacredness of the pledged word or of the inviolability of a -gentlemen’s agreement. I shall not do so because no useful -purpose can be served thereby.</p> - -<p>Fiction writers, clergymen and women are fond of alluding -to the floor of the Stock Exchange as a boodlers’ battlefield -and to Wall Street’s daily business as a fight. It is quite -dramatic but utterly misleading. I do not think that my -business is strife and contest. I never fight either individuals -or speculative cliques. I merely differ in opinion—that is, in -my reading of basic conditions. What playwrights call battles -of business are not fights between human beings. They -are merely tests of business vision. <em>I try to stick to facts and -facts only, and govern my actions accordingly. That is Bernard -M. Baruch’s recipe for success in wealth-winning.</em> -Sometimes I do not see the facts—all the facts—clearly -enough or early enough; or else I do not reason logically. -Whenever any of these things happen I lose. I am wrong. -And it always costs me money to be wrong.</p> - -<p>No reasonable man objects to paying for his mistakes. -There are no preferred creditors in mistake-making and no -exceptions or exemptions. But I object to losing money when -I am right. I do not mean, either, those deals that have cost -me money because of sudden changes in the rules of some -particular exchange. I have in mind certain hazards of -speculation that from time to time remind a man that no -profit should be counted safe until it is deposited in your -bank to your credit.</p> - -<p>After the Great War broke out in Europe there began the -rise in the prices of commodities that was to be expected. It -was as easy to foresee that as to foresee war inflation. Of -course the general advance continued as the war prolonged -itself. As you may remember, I was busy “coming back” in -1915. The boom in stocks was there and it was my duty to -utilise it. My safest, easiest and quickest big play was in the -stock market, and I was lucky, as you know.</p> - -<p><span class="pagenum" id="Page_192">192</span> -By July, 1917, I not only had been able to pay off all my -debts but was quite a little to the good besides. This meant -that I now had the time, the money and the inclination to -consider trading in commodities as well as in stocks. For -many years I have made it my practice to study all the -markets. The advance in commodity prices over the pre-war -level ranged from 100 to 400 per cent. There was only one -exception, and that was coffee. Of course there was a reason -for this. The breaking out of the war meant the closing up -of European markets and huge cargoes were sent to this -country, which was the one big market. That led in time to -an enormous surplus of raw coffee here, and that, in turn, -kept the price low. Why, when I first began to consider its -speculative possibilities coffee was actually selling below -pre-war prices. If the reasons for this anomaly were plain, no -less plain was it that the active and increasingly efficient -operation by the German and Austrian submarines must -mean an appalling reduction in the number of ships available -for commercial purposes. This eventually in turn must -lead to dwindling imports of coffee. With reduced receipts -and an unchanged consumption the surplus stocks must be -absorbed, and when that happened the price of coffee must -do what the prices of all other commodities had done, which -was, go way up.</p> - -<p>It didn’t require a Sherlock Holmes to size up the situation. -Why everybody did not buy coffee I cannot tell you. -When I decided to buy it I did not consider it a speculation. -It was much more of an investment. I knew it would take -time to cash in, but I knew also that it was bound to yield a -good profit. That made it a conservative investment operation—a -banker’s act rather than a gambler’s play.</p> - -<p>I started my buying operations in the winter of 1917. I -took quite a lot of coffee. The market, however, did nothing -to speak of. It continued inactive and as for the price, it did -not go up as I had expected. The outcome of it all was that -I simply carried my line to no purpose for nine long months.<span class="pagenum" id="Page_193">193</span> -My contracts expired then and I sold out all my options. I -took a whopping big loss on that deal and yet I was sure my -views were sound. I had been clearly wrong in the matter of -time, but I was confident that coffee must advance as all -commodities had done, so that no sooner had I sold out my -line than I started in to buy again. I bought three times as -much coffee as I had so unprofitably carried during those -nine disappointing months. Of course I bought deferred -options—for as long a time as I could get.</p> - -<p>I was not so wrong now. As soon as I had taken on my -trebled line the market began to go up. People everywhere -seemed to realise all of a sudden what was bound to happen -in the coffee market. It began to look as if my investment -was going to return me a mighty good rate of interest.</p> - -<p>The sellers of the contracts I held were roasters, mostly -of German names and affiliations, who had bought the coffee -in Brazil confidently expecting to bring it to this country. -But there were no ships to bring it, and presently they found -themselves in the uncomfortable position of having no end -of coffee down there and being heavily short of it to me up -here.</p> - -<p>Please bear in mind that I first became bullish on coffee -while the price was practically at a pre-war level, and don’t -forget that after I bought it I carried it the greater part of -a year and then took a big loss on it. The punishment for -being wrong is to lose money. The reward for being right is -to make money. Being clearly right and carrying a big line, -I was justified in expecting to make a killing. It would not -take much of an advance to make my profit satisfactory to -me, for I was carrying several hundred thousand bags. I -don’t like to talk about my operations in figures because -sometimes they sound rather formidable and people might -think I was boasting. As a matter of fact I trade in accordance -to my means and always leave myself an ample margin -of safety. In this instance I was conservative enough. The -reason I bought options so freely was because I couldn’t see<span class="pagenum" id="Page_194">194</span> -how I could lose. Conditions were in my favour. I had been -made to wait a year, but now I was going to be paid both -for my waiting and for being right. I could see the profit -coming—fast. There wasn’t any cleverness about it. It was -simply that I wasn’t blind.</p> - -<p>Coming sure and fast, that profit of millions! But it never -reached me. No; it wasn’t side-tracked by a sudden change -in conditions. The market did not experience an abrupt reversal -of form. Coffee did not pour into the country. What -happened? The unexpectable! What had never happened in -anybody’s experience; what I therefore had no reason to -guard against. I added a new one to the long list of hazards -of speculation that I must always keep before me. It was -simply that the fellows who had sold me the coffee, the -shorts, knew what was in store for them, and in their efforts -to squirm out of the position into which they had sold themselves, -devised a new way of welshing. They rushed to -Washington for help, and got it.</p> - -<p>Perhaps you remember that the Government had evolved -various plans for preventing further profiteering in necessities. -You know how most of them worked. Well, the philanthropic -coffee shorts appeared before the Price Fixing -Committee of the War Industries Board—I think that was -the official designation—and made a patriotic appeal to that -body to protect the American breakfaster. They asserted -that a professional speculator, one Lawrence Livingston, -had cornered, or was about to corner, coffee. If his speculative -plans were not brought to naught he would take -advantage of the conditions created by the war and the -American people would be forced to pay exorbitant prices -for their daily coffee. It was unthinkable to the patriots who -had sold me cargoes of coffee they couldn’t find ships for, -that one hundred millions of Americans, more or less, should -pay tribute to conscienceless speculators. They represented -the coffee trade, not the coffee gamblers, and they were<span class="pagenum" id="Page_195">195</span> -willing to help the Government curb profiteering actual or -prospective.</p> - -<p>Now I have a horror of whiners and I do not mean to intimate -that the Price Fixing Committee was not doing its -honest best to curb profiteering and wastefulness. But that -need not stop me from expressing the opinion that the committee -could not have gone very deeply into the particular -problem of the coffee market. They fixed on a maximum -price for raw coffee and also fixed a time limit for closing out -all existing contracts. This decision meant, of course, that -the Coffee Exchange would have to go out of business. -There was only one thing for me to do and I did it, and that -was to sell out my contracts. Those profits of millions that I -had deemed as certain to come my way as any I ever made -failed completely to materialise. I was and am as keen as -anybody against the profiteer in the necessaries of life, but -at the time the Price Fixing Committee made their ruling on -coffee, all other commodities were selling at from 250 to 400 -per cent above pre-war prices while raw coffee was actually -below the average prevailing for some years before the war. -I can’t see that it made any real difference who held the -coffee. The price was bound to advance; and the reason for -that was not the operations of conscienceless speculators, -but the dwindling surplus for which the diminishing importations -were responsible, and they in turn were affected -exclusively by the appalling destruction of the world’s ships -by the German submarines. The committee did not wait for -coffee to start; they clamped on the brakes.</p> - -<p>As a matter of policy and of expediency it was a mistake -to force the Coffee Exchange to close just then. If the committee -had let coffee alone the price undoubtedly would -have risen for the reasons I have already stated, which had -nothing to do with any alleged corner. But the high price—which -need not have been exorbitant—would have been an -incentive to attract supplies to this market. I have heard Mr. -Bernard M. Baruch say that the War Industries Board took<span class="pagenum" id="Page_196">196</span> -into consideration this factor—the insuring of a supply—in -fixing prices, and for that reason some of the complaints -about the high limit on certain commodities were unjust. -When the Coffee Exchange resumed business, later on, -coffee sold at twenty-three cents. The American people paid -that price because of the small supply, and the supply was -small because the price had been fixed too low, at the suggestion -of philanthropic shorts, to make it possible to pay the -high ocean freights and thus insure continued importations.</p> - -<p>I have always thought that my coffee deal was the most -legitimate of all my trades in commodities. I considered it -more of an investment than a speculation. I was in it over a -year. If there was any gambling it was done by the patriotic -roasters with German names and ancestry. They had coffee -in Brazil and they sold it to me in New York. The Price Fixing -Committee fixed the price of the only commodity that -had not advanced. They protected the public against profiteering -before it started, but not against the inevitable -higher prices that followed. Not only that, but even when -green coffee hung around nine cents a pound, roasted coffee -went up with everything else. It was only the roasters who -benefited. If the price of green coffee had gone up two or -three cents a pound it would have meant several millions for -me. And it wouldn’t have cost the public as much as the -later advance did.</p> - -<p>Post-mortems in speculation are a waste of time. They -get you nowhere. But this particular deal has a certain educational -value. It was as pretty as any I ever went into. The -rise was so sure, so logical, that I figured that I simply -couldn’t help making several millions of dollars. But I didn’t.</p> - -<p>On two other occasions I have suffered from the action of -exchange committees making rulings that changed trading -rules without warning. But in those cases my own position, -while technically right, was not quite so sound commercially -as in my coffee trade. You cannot be dead sure of anything -in a speculative operation. It was the experience I have just<span class="pagenum" id="Page_197">197</span> -told you that made me add the unexpectable to the unexpected -in my list of hazards.</p> - -<p>After the coffee episode I was so successful in other commodities -and on the short side of the stock market, that I -began to suffer from silly gossip. The professionals in Wall -Street and the newspaper writers got the habit of blaming -me and my alleged raids for the inevitable breaks in prices. -At times my selling was called unpatriotic—whether I was -really selling or not. The reason for exaggerating the magnitude -and the effect of my operations, I suppose, was the -need to satisfy the public’s insatiable demand for reasons -for each and every price movement.</p> - -<p>As I have said a thousand times, no manipulation can put -stocks down and keep them down. There is nothing mysterious -about this. The reason is plain to everybody who will -take the trouble to think about it half a minute. Suppose an -operator raided a stock—that is, put the price down to a -level below its real value—what would inevitably happen? -Why, the raider would at once be up against the best kind -of inside buying. The people who know what a stock is -worth will always buy it when it is selling at bargain prices. -<em>If the insiders are not able to buy, it will be because general -conditions are against their free command of their own resources, -and such conditions are not bull conditions.</em> When -people speak about raids the inference is that the raids are -unjustified; almost criminal. But selling a stock down to a -price much below what it is worth is mighty dangerous business. -It is well to bear in mind that a raided stock that fails -to rally is not getting much inside buying and where there -is a raid—that is, unjustified short selling—there is usually -apt to be inside buying; and when there is that, the price -does not stay down. I should say that in ninety-nine cases -out of a hundred, so-called raids are really legitimate declines, -accelerated at times but not primarily caused by the operations -of a professional trader, however big a line he may be -able to swing.</p> - -<p><span class="pagenum" id="Page_198">198</span> -The theory that most of the sudden declines or particular -sharp breaks are the results of some plunger’s operations -probably was invented as an easy way of supplying reasons -to those speculators who, being nothing but blind gamblers, -will believe anything that is told them rather than do a little -thinking. The raid excuse for losses that unfortunate speculators -so often receive from brokers and financial gossipers -is really an inverted tip. The difference lies in this: A bear -tip is distinct, positive advice to sell short. But the inverted -tip—that is, the explanation that does not explain—serves -merely to keep you from wisely selling short. <em>The natural -tendency when a stock breaks badly is to sell it. There is a -reason—an unknown reason but a good reason; therefore, -get out.</em> But it is not wise to get out when the break is the -result of a raid by an operator, because the moment he stops -the price must rebound. Inverted tips!</p> - -<hr /> - -<p><span class="pagenum" id="Page_199">199</span></p> - -<div class="chapter"> -<h2 id="XVI"><i>XVI</i></h2> -</div> - -<p class="in0"><span class="firstword">Tips!</span> How people want tips! They crave not only to get -them but to give them. There is greed involved, and vanity. -It is very amusing, at times, to watch really intelligent -people fish for them. And the tip-giver need not hesitate -about the quality, for the tip-seeker is not really after good -tips, but after any tip. If it makes good, fine! If it doesn’t, -better luck with the next. I am thinking of the average -customer of the average commission house. There is a type -of promoter or manipulator that believes in tips first, last -and all the time. A good flow of tips is considered by him as -a sort of sublimated publicity work, the best merchandising -dope in the world, for, since tip-seekers and tip-takers are -invariably tip-passers, tip-broadcasting becomes a sort of -endless-chain advertising. The tipster-promoter labours under -the delusion that no human being breathes who can -resist a tip if properly delivered. He studies the art of handing -them out artistically.</p> - -<p>I get tips by the hundreds every day from all sorts of -people. I’ll tell you a story about Borneo Tin. You remember -when the stock was brought out? It was at the height of the -boom. The promoter’s pool had taken the advice of a very -clever banker and decided to float the new company in the -open market at once instead of letting an underwriting syndicate -take its time about it. It was good advice. The only -mistake the members of the pool made came from inexperience. -They did not know what the stock market was capable<span class="pagenum" id="Page_200">200</span> -of doing during a crazy boom and at the same time they -were not intelligently liberal. They were agreed on the need -of marking up the price in order to market the stock, but -they started the trading at a figure at which the traders and -the speculative pioneers could not buy it without misgivings.</p> - -<p>By rights the promoters ought to have got stuck with it, -but in the wild bull market their hoggishness turned out to -be rank conservatism. The public was buying anything that -was adequately tipped. Investments were not wanted. The -demand was for easy money; for the sure gambling profit. -Gold was pouring into this country through the huge purchases -of war material. They tell me that the promoters, -while making their plans for bringing out Borneo stock, -marked up the opening price three different times before -their first transaction was officially recorded for the benefit -of the public.</p> - -<p>I had been approached to join the pool and I had looked -into it but I didn’t accept the offer because if there is any -market manoeuvring to do, I like to do it myself. I trade on -my own information and follow my own methods. When -Borneo Tin was brought out, knowing what the pool’s resources -were and what they had planned to do, and also -knowing what the public was capable of, I bought ten thousand -shares during the first hour of the first day. Its market -début was successful at least to that extent. As a matter of -fact the promoters found the demand so active that they -decided it would be a mistake to lose so much stock so soon. -They found out that I had acquired my ten thousand shares -about at the same time that they found out that they would -probably be able to sell every share they owned if they -merely marked up the price twenty-five or thirty points. -They therefore concluded that the profit on my ten thousand -shares would take too big a chunk out of the millions -they felt were already as good as banked. So they actually -ceased their bull operations and tried to shake me out. But -I simply sat tight. They gave me up as a bad job because<span class="pagenum" id="Page_201">201</span> -they didn’t want the market to get away from them, and -then they began to put up the price, without losing any -more stock than they could help.</p> - -<p>They saw the crazy height that other stocks rose to and -they began to think in billions. Well, when Borneo Tin got -up to 120 I let them have my ten thousand shares. It -checked the rise and the pool managers let up on their jacking-up -process. On the next general rally they again tried to -make an active market for it and disposed of quite a little, -but the merchandising proved to be rather expensive. Finally -they marked it up to 150. But the bloom was off the -bull market for keeps, so the pool was compelled to market -what stock it could on the way down to those people who -love to buy after a good reaction, on the fallacy that a stock -that has once sold at 150 must be cheap at 130 and a great -bargain at 120. Also, they passed the tip to the floor traders, -who often are able to make a temporary market, and later -to the commission houses. Every little helped and the pool -was using every device known. The trouble was that the -time for bulling stocks had passed. The suckers had -swallowed other hooks. The Borneo bunch didn’t or -wouldn’t see it.</p> - -<p>I was down in Palm Beach with my wife. One day I made -a little money at Gridley’s and when I got home I gave Mrs. -Livingston a five-hundred-dollar bill out of it. It was a curious -coincidence, but that same night she met at a dinner the -president of the Borneo Tin Company, a Mr. Wisenstein, -who had become the manager of the stock pool. We didn’t -learn until some time afterward that this Wisenstein deliberately -manœuvred so that he sat next to Mrs. Livingston -at dinner.</p> - -<p>He laid himself out to be particularly nice to her and -talked most entertainingly. In the end he told her, very confidentially, -“Mrs. Livingston, I’m going to do something I’ve -never done before. I am very glad to do it because you know -exactly what it means.” He stopped and looked at Mrs.<span class="pagenum" id="Page_202">202</span> -Livingston anxiously, to make sure she was not only wise -but discreet. She could read it on his face, plain as print. -But all she said was, “Yes.”</p> - -<p>“Yes, Mrs. Livingston. It has been a very great pleasure -to meet you and your husband, and I want to prove that I -am sincere in saying this because I hope to see a great deal -of both of you. I am sure I don’t have to tell you that what I -am going to say is strictly confidential!” Then he whispered, -“If you will buy some Borneo Tin you will make a great -deal of money.”</p> - -<p>“Do you think so?” she asked.</p> - -<p>“Just before I left the hotel,” he said, “I received some -cables with news that won’t be known to the public for -several days at least. I am going to gather in as much of the -stock as I can. If you get some at the opening to-morrow -you will be buying it at the same time and at the same price -as I. I give you my word that Borneo Tin will surely advance. -You are the only person that I have told this to. -Absolutely the only one!”</p> - -<p>She thanked him and then she told him that she didn’t -know anything about speculating in stocks. But he assured -her it wasn’t necessary for her to know any more than he -had told her. To make sure she heard it correctly he repeated -his advice to her:</p> - -<p>“All you have to do is to buy as much Borneo Tin as you -wish. I can give you my word that if you do you will not -lose a cent. I’ve never before told a woman—or a man, for -that matter—to buy anything in my life. But I am so sure -the stock won’t stop this side of 200 that I’d like you to make -some money. I can’t buy all the stock myself, you know, and -if somebody besides myself is going to benefit by the rise I’d -rather it was you than some stranger. Much rather! I’ve told -you in confidence because I know you won’t talk about it. -Take my word for it, Mrs. Livingston, and buy Borneo Tin!”</p> - -<p>He was very earnest about it and succeeded in so impressing -her that she began to think she had found an excellent<span class="pagenum" id="Page_203">203</span> -use for the five hundred dollars I had given her that afternoon. -That money hadn’t cost me anything and was outside -of her allowance. In other words, it was easy money to lose -if the luck went against her. But he had said she would -surely win. It would be nice to make money on her own -hook—and tell me all about it afterwards.</p> - -<p>Well, sir, the very next morning before the market opened -she went into Harding’s office and said to the manager:</p> - -<p>“Mr. Haley, I want to buy some stock, but I don’t want it -to go in my regular account because I don’t wish my husband -to know anything about it until I’ve made some money. -Can you fix it for me?”</p> - -<p>Haley, the manager, said, “Oh, yes. We can make it a -special account. What’s the stock and how much of it do -you want to buy?”</p> - -<p>She gave him the five hundred dollars and told him, -“Listen, please. I do not wish to lose more than this money. -If that goes I don’t want to owe you anything; and remember, -I don’t want Mr. Livingston to know anything about -this. Buy me as much Borneo Tin as you can for the money, -at the opening.”</p> - -<p>Haley took the money and told her he’d never say a word -to a soul, and bought her a hundred shares at the opening. I -think she got it at 108. The stock was very active that day -and closed at an advance of three points. Mrs. Livingston -was so delighted with her exploit that it was all she could -do to keep from telling me all about it.</p> - -<p>It so happened that I had been getting more and more -bearish on the general market. The unusual activity in -Borneo Tin drew my attention to it. I didn’t think the time -was right for any stock to advance, much less one like that. -I had decided to begin my bear operations that very day, -and I started by selling about ten thousand shares of Borneo. -If I had not I rather think the stock would have gone up -five or six points instead of three.</p> - -<p>On the very next day I sold two thousand shares at the<span class="pagenum" id="Page_204">204</span> -opening and two thousand shares just before the close, and -the stock broke to 102.</p> - -<p>Haley, the manager of Harding Brothers’ Palm Beach -Branch, was waiting for Mrs. Livingston to call there on the -third morning. She usually strolled in about eleven to see -how things were, if I was doing anything.</p> - -<p>Haley took her aside and said, “Mrs. Livingston, if you -want me to carry that hundred shares of Borneo Tin for you -you will have to give me more margin.”</p> - -<p>“But I haven’t any more,” she told him.</p> - -<p>“I can transfer it to your regular account,” he said.</p> - -<p>“No,” she objected, “because that way L.L. would learn -about it.”</p> - -<p>“But the account already shows a loss of—” he began.</p> - -<p>“But I told you distinctly I didn’t want to lose more than -the five hundred dollars. I didn’t even want to lose that,” -she said.</p> - -<p>“I know, Mrs. Livingston, but I didn’t want to sell it without -consulting you, and now unless you authorise me to hold -it I’ll have to let it go.”</p> - -<p>“But it did so nicely the day I bought it,” she said, “that -I didn’t believe it would act this way so soon. Did you?”</p> - -<p>“No,” answered Haley, “I didn’t.” They have to be diplomatic -in brokers’ offices.</p> - -<p>“What’s gone wrong with it, Mr. Haley?”</p> - -<p>Haley knew, but he could not tell her without giving me -away, and a customer’s business is sacred. So he said, “I -don’t hear anything special about it, one way or the other. -There she goes! That’s low for the move!” and he pointed to -the quotation board.</p> - -<p>Mrs. Livingston gazed at the sinking stock and cried: “Oh, -Mr. Haley! I don’t want to lose my five hundred dollars! -What shall I do?”</p> - -<p>“I don’t know, Mrs. Livingston, but if I were you I’d ask -Mr. Livingston.”</p> - -<p>“Oh, no! He doesn’t want me to speculate on my own<span class="pagenum" id="Page_205">205</span> -hook. He told me so. He’ll buy or sell stock for me, if I -ask him, but I’ve never before done trading that he did not -know all about. I wouldn’t dare tell him.”</p> - -<p>“That’s all right,” said Haley soothingly. “He is a wonderful -trader and he’ll know just what to do.” Seeing her -shake her head violently he added devilishly: “Or else you -put up a thousand or two to take care of your Borneo.”</p> - -<p>The alternative decided her then and there. She hung -about the office, but as the market got weaker and weaker -she came over to where I sat watching the board and told -me she wanted to speak to me. We went into the private -office and she told me the whole story. So I just said to her: -“You foolish little girl, you keep your hands off this deal.”</p> - -<p>She promised that she would, and so I gave her back her -five hundred dollars and she went away happy. The stock -was par by that time.</p> - -<p>I saw what had happened. Wisenstein was an astute person. -He figured that Mrs. Livingston would tell me what he -had told her and I’d study the stock. He knew that activity -always attracted me and I was known to swing a pretty fair -line. I suppose he thought I’d buy ten or twenty thousand -shares.</p> - -<p>It was one of the most cleverly planned and artistically -propelled tips I’ve ever heard of. But it went wrong. It -had to. In the first place, the lady had that very day received -an unearned five hundred dollars and was therefore -in a much more venturesome mood than usual. She wished -to make some money all by herself, and womanlike dramatised -the temptation so attractively that it was irresistible. -She knew how I felt about stock speculation as practised by -outsiders, and she didn’t dare mention the matter to me. -Wisenstein didn’t size up her psychology right.</p> - -<p>He also was utterly wrong in his guess about the kind of -trader I was. I never take tips and I was bearish on the entire -market. The tactics that he thought would prove effective -in inducing me to buy Borneo—that is, the activity and<span class="pagenum" id="Page_206">206</span> -the three-point rise—were precisely what made me pick -Borneo as a starter when I decided to sell the entire market.</p> - -<p>After I heard Mrs. Livingston’s story I was keener than -ever to sell Borneo. Every morning at the opening and every -afternoon just before closing I let him have some stock regularly, -until I saw a chance to take in my shorts at a handsome -profit.</p> - -<p>It has always seemed to me the height of damfoolishness -to trade on tips. I suppose I am not built the way a tip-taker -is. I sometimes think that tip-takers are like drunkards. -There are some who can’t resist the craving and always look -forward to those jags which they consider indispensable to -their happiness. It is so easy to open your ears and let the -tip in. To be told precisely what to do to be happy in such -a manner that you can easily obey is the next nicest thing to -being happy—which is a mighty long first step toward the -fulfilment of your heart’s desire. It is not so much greed -made blind by eagerness as it is hope bandaged by the unwillingness -to do any thinking.</p> - -<p>And it is not only among the outside public that you find -inveterate tip-takers. The professional trader on the floor of -the New York Stock Exchange is quite as bad. I am definitely -aware that no end of them cherish mistaken notions -of me because I never give anybody tips. If I told the average -man, “Sell yourself five thousand Steel!” he would do it -on the spot. But if I tell him I am quite bearish on the entire -market and give him my reasons in detail, he finds trouble in -listening and after I’m done talking he will glare at me for -wasting his time expressing my views on general conditions -instead of giving him a direct and specific tip, like a real -philanthropist of the type that is so abundant in Wall Street—the -sort who loves to put millions into the pockets of -friends, acquaintances and utter strangers alike.</p> - -<p>The belief in miracles that all men cherish is born of immoderate -indulgence in hope. There are people who go on -hope sprees periodically and we all know the chronic hope<span class="pagenum" id="Page_207">207</span> -drunkard that is held up before us as an exemplary optimist. -Tip-takers are all they really are.</p> - -<p>I have an acquaintance, a member of the New York Stock -Exchange, who was one of those who thought I was a selfish, -cold-blooded pig because I never gave tips or put friends -into things. One day—this was some years ago—he was -talking to a newspaper man who casually mentioned that he -had had it from a good source that G.O.H. was going up. My -broker friend promptly bought a thousand shares and saw -the price decline so quickly that he was out thirty-five hundred -dollars before he could stop his loss. He met the newspaper -man a day or two later, while he was still sore.</p> - -<p>“That was a hell of a tip you gave me,” he complained.</p> - -<p>“What tip was that?” asked the reporter, who did not remember.</p> - -<p>“About G.O.H. You said you had it from a good source.”</p> - -<p>“So I did. A director of the company who is a member -of the finance committee told me.”</p> - -<p>“Which of them was it?” asked the broker vindictively.</p> - -<p>“If you must know,” answered the newspaper man, “it was -your own father-in-law, Mr. Westlake.”</p> - -<p>“Why in Hades didn’t you tell me you meant him!” yelled -the broker. “You cost me thirty-five hundred dollars!” He -didn’t believe in family tips. The farther away the source the -purer the tip.</p> - -<p>Old Westlake was a rich and successful banker and promoter. -He ran across John W. Gates one day. Gates asked -him what he knew. “If you will act on it I’ll give you a tip. -If you won’t I’ll save my breath,” answered old Westlake -grumpily.</p> - -<p>“Of course I’ll act on it,” promised Gates cheerfully.</p> - -<p>“Sell Reading! There is a sure twenty-five points in it, -and possibly more. But twenty-five absolutely certain,” said -Westlake impressively.</p> - -<p>“I’m much obliged to you,” and Bet-you-a-million Gates<span class="pagenum" id="Page_208">208</span> -shook hands warmly and went away in the direction of his -broker’s office.</p> - -<p>Westlake had specialized on Reading. He knew all about -the company and stood in with the insiders so that the market -for the stock was an open book to him and everybody -knew it. Now he was advising the Western plunger to go -short of it.</p> - -<p>Well, Reading never stopped going up. It rose something -like one hundred points in a few weeks. One day old Westlake -ran smack up against John W. in the Street, but he -made out he hadn’t seen him and was walking on. John W. -Gates caught up with him, his face all smiles and held out -his hand. Old Westlake shook it dazedly.</p> - -<p>“I want to thank you for that tip you gave me on Reading,” -said Gates.</p> - -<p>“I didn’t give you any tip,” said Westlake, frowning.</p> - -<p>“Sure you did. And it was a Jim Hickey of a tip too. I -made sixty thousand dollars.”</p> - -<p>“Made sixty thousand dollars?”</p> - -<p>“Sure! Don’t you remember? You told me to sell Reading; -so I bought it! I’ve always made money coppering your -tips, Westlake,” said John W. Gates pleasantly. “Always!”</p> - -<p>Old Westlake looked at the bluff Westerner and presently -remarked admiringly, “Gates, what a rich man I’d be if I had -your brains!”</p> - -<p>The other day I met Mr. W. A. Rogers, the famous cartoonist, -whose Wall Street drawings brokers so greatly admire. -His daily cartoons in the New York <i>Herald</i> for years -gave pleasure to thousands. Well, he told me a story. It was -just before we went to war with Spain. He was spending an -evening with a broker friend. When he left he picked up his -derby hat from the rack, at least he thought it was his hat, -for it was the same shape and fitted him perfectly.</p> - -<p>The Street at that time was thinking and talking of -nothing but war with Spain. Was there to be one or not? If -it was to be war the market would go down; not so much on<span class="pagenum" id="Page_209">209</span> -our own selling as on pressure from European holders of our -securities. If peace, it would be a cinch to buy stocks, as -there had been considerable declines prompted by the sensational -clamorings of the yellow papers. Mr. Rogers told me -the rest of the story as follows:</p> - -<p>“My friend, the broker, at whose house I had been the -night before, stood in the Exchange the next day anxiously -debating in his mind which side of the market to play. He -went over the pros and cons, but it was impossible to distinguish -which were rumors and which were facts. There -was no authentic news to guide him. At one moment he -thought war was inevitable, and on the next he almost convinced -himself that it was utterly unlikely. His perplexity -must have caused a rise in his temperature, for he took off -his derby to wipe his fevered brow. He couldn’t tell whether -he should buy or sell.</p> - -<p>“He happened to look inside of his hat. There in gold -letters was the word WAR. That was all the hunch he -needed. Was it not a tip from Providence via my hat? So he -sold a raft of stock, war was duly declared, he covered on -the break and made a killing.” And then W. A. Rogers finished, -“I never got back that hat!”</p> - -<p>But the prize tip story of my collection concerns one of -the most popular members of the New York Stock Exchange, -J. T. Hood. One day another floor trader, Bert Walker, told -him that he had done a good turn to a prominent director of -the Atlantic & Southern. In return the grateful insider told -him to buy all the A. & S. he could carry. The directors were -going to do something that would put the stock up at least -twenty-five points. All the directors were not in the deal, but -the majority would be sure to vote as wanted.</p> - -<p>Bert Walker concluded that the dividend rate was going -to be raised. He told his friend Hood and they each bought -a couple of thousand shares of A. & S. The stock was very -weak, before and after they bought, but Hood said that was<span class="pagenum" id="Page_210">210</span> -obviously intended to facilitate accumulation by the inside -clique, headed by Bert’s grateful friend.</p> - -<p>On the following Thursday, after the market closed, the -directors of the Atlantic & Southern met and passed the -dividend. The stock broke six points in the first six minutes -of trading Friday morning.</p> - -<p>Bert Walker was sore as a pup. He called on the grateful -director, who was broken-hearted about it and very penitent. -He said that he had forgotten that he had told Walker -to buy. That was the reason he had neglected to call him up -to tell him of a change in the plans of the dominant faction -in the board. The remorseful director was so anxious to -make up that he gave Bert another tip. He kindly explained -that a couple of his colleagues wanted to get cheap stock -and against his judgment resorted to coarse work. He had to -yield to win their votes. But now that they all had accumulated -their full lines there was nothing to stop the advance. -It was a double-riveted, lead-pipe cinch to buy A. & -S. now.</p> - -<p>Bert not only forgave him but shook hands warmly with -the high financier. Naturally he hastened to find his friend -and fellow-victim, Hood, to impart the glad tidings to him. -They were going to make a killing. The stock had been -tipped for a rise before and they bought. But now it was -fifteen points lower. That made it a cinch. So they bought -five thousand shares, joint account.</p> - -<p>As if they had rung a bell to start it, the stock broke badly -on what quite obviously was inside selling. Two specialists -cheerfully confirmed the suspicion. Hood sold out their five -thousand shares. When he got through Bert Walker said -to him, “If that blankety-blank blanker hadn’t gone to Florida -day before yesterday I’d lick the stuffing out of him. Yes, -I would. But you come with me.”</p> - -<p>“Where to?” asked Hood.</p> - -<p>“To the telegraph office. I want to send that skunk a telegram -that he’ll never forget. Come on.”</p> - -<p><span class="pagenum" id="Page_211">211</span> -Hood went on. Bert led the way to the telegraph office. -There, carried away by his feelings—they had taken quite a -loss on the five thousand shares—he composed a masterpiece -of vituperation. He read it to Hood and finished, “That -will come pretty near to showing him what I think of him.”</p> - -<p>He was about to slide it toward the waiting clerk when -Hood said, “Hold on, Bert!”</p> - -<p>“What’s the matter?”</p> - -<p>“I wouldn’t send it,” advised Hood earnestly.</p> - -<p>“Why not?” snapped Bert.</p> - -<p>“It will make him sore as the dickens.”</p> - -<p>“That’s what we want, isn’t it?” said Bert, looking at -Hood in surprise.</p> - -<p>But Hood shook his head disapprovingly and said in all -seriousness, “We’ll never get another tip from him if you -send that telegram!”</p> - -<p>A professional trader actually said that. Now what’s the -use of talking about sucker tip-takers? Men do not take tips -because they are bally asses but because they like those -hope cocktails I spoke of. Old Baron Rothschild’s recipe for -wealth winning applies with greater force than ever to -speculation. Somebody asked him if making money in the -Bourse was not a very difficult matter, and he replied that, -on the contrary, he thought it was very easy.</p> - -<p>“That is because you are so rich,” objected the interviewer.</p> - -<p>“Not at all. I have found an easy way and I stick to it. I -simply cannot help making money. I will tell you my secret -if you wish. It is this: <em>I never buy at the bottom and I -always sell too soon</em>.”</p> - -<p>Investors are a different breed of cats. Most of them go -in strong for inventories and statistics of earnings and all -sorts of mathematical data, as though that meant facts and -certainties. <em>The human factor is minimised as a rule.</em> Very -few people like to buy into a one-man business. But the -wisest investor I ever knew was a man who began by being<span class="pagenum" id="Page_212">212</span> -a Pennsylvania Dutchman and followed it up by coming to -Wall Street and seeing a great deal of Russell Sage.</p> - -<p>He was a great investigator, an indefatigable Missourian. -He believed in asking his own questions and in doing his -seeing with his own eyes. He had no use for another man’s -spectacles. This was years ago. It seems he held quite a -little Atchison. Presently he began to hear disquieting reports -about the company and its management. He was told -that Mr. Reinhart, the president, instead of being the marvel -he was credited with being, in reality was a most extravagant -manager whose recklessness was fast pushing the company -into a mess. There would be the deuce to pay on the inevitable -day of reckoning.</p> - -<p>This was precisely the kind of news that was as the breath -of life to the Pennsylvania Dutchman. He hurried over to -Boston to interview Mr. Reinhart and ask him a few questions. -The questions consisted of repeating the accusations -he had heard and then asking the president of the Atchison, -Topeka & Santa Fe Railroad if they were true.</p> - -<p>Mr. Reinhart not only denied the allegations emphatically -but said even more: He proceeded to prove by figures that -the allegators were malicious liars. The Pennsylvania Dutchman -had asked for exact information and the president gave -it to him, showing him what the company was doing and -how it stood financially, to a cent.</p> - -<p>The Pennsylvania Dutchman thanked President Reinhart, -returned to New York and promptly sold all his Atchison -holdings. A week or so later he used his idle funds to buy a -big lot of Delaware, Lackawanna & Western.</p> - -<p>Years afterward we were talking of lucky swaps and he -cited his own case. He explained what prompted him to -make it.</p> - -<p>“You see,” he said, “I noticed that President Reinhart, -when he wrote down figures, took sheets of letter paper from -a pigeonhole in his mahogany roll-top desk. It was fine heavy -linen paper with beautifully engraved letterheads in two<span class="pagenum" id="Page_213">213</span> -colors. It was not only very expensive but worse—it was unnecessarily -expensive. He would write a few figures on a -sheet to show me exactly what the company was earning on -certain divisions or to prove how they were cutting down -expenses or reducing operating costs, and then he would -crumple up the sheet of the expensive paper and throw it in -the waste-basket. Pretty soon he would want to impress me -with the economies they were introducing and he would -reach for a fresh sheet of the beautiful notepaper with the -engraved letterheads in two colors. A few figures—and -bingo, into the waste-basket! More money wasted without a -thought. It struck me that if the president was that kind of -a man he would scarcely be likely to insist upon having or -rewarding economical assistants. I therefore decided to believe -the people who had told me the management was extravagant -instead of accepting the president’s version and I -sold what Atchison stock I held.</p> - -<p>“It so happened that I had occasion to go to the offices of -the Delaware, Lackawanna & Western a few days later. Old -Sam Sloan was the president. His office was the nearest to -the entrance and his door was wide open. It was always -open. Nobody could walk into the general offices of the -D.L.&W. in those days and not see the president of the company -seated at his desk. Any man could walk in and do -business with him right off, if he had any business to do. The -financial reporters used to tell me that they never had to -beat around the bush with old Sam Sloan, but would ask -their questions and get a straight yes or no from him, no -matter what the stock-market exigencies of the other directors -might be.</p> - -<p>“When I walked in I saw the old man was busy. I thought -at first that he was opening his mail, but after I got inside -close to the desk I saw what he was doing. I learned afterwards -that it was his daily custom to do it. After the mail -was sorted and open, instead of throwing away the empty -envelopes he had them gathered up and taken to his office.<span class="pagenum" id="Page_214">214</span> -In his leisure moments he would rip the envelope all around. -That gave him two bits of paper, each with one clean blank -side. He would pile these up and then he would have them -distributed about, to be used in lieu of scratch pads for such -figuring as Reinhart had done for me on engraved notepaper. -No waste of empty envelopes and no waste of the -president’s idle moments. Everything utilised.</p> - -<p>“It struck me that if that was the kind of man the -D.L.&W. had for president, the company was managed -economically in all departments. The president would see to -that! Of course I knew the company was paying regular -dividends and had a good property. I bought all the -D.L.&W. stock I could. Since that time the capital stock has -been doubled and quadrupled. My annual dividends amount -to as much as my original investment. I still have my D.L.&W. -And Atchison went into the hands of a receiver a few -months after I saw the president throwing sheet after sheet -of linen paper with engraved letterheads in two colors into -the waste-basket to prove to me with figures that he was not -extravagant.”</p> - -<p>And the beauty of that story is that it is true and that no -other stock that the Pennsylvania Dutchman could have -bought would have proved to be so good an investment as -D.L.&W.</p> - -<hr /> - -<p><span class="pagenum" id="Page_215">215</span></p> - -<div class="chapter"> -<h2 id="XVII"><i>XVII</i></h2> -</div> - -<p class="in0"><span class="firstword">One of my most intimate friends</span> is very fond of telling -stories about what he calls my hunches. He is forever ascribing -to me powers that defy analysis. He declares I -merely follow blindly certain mysterious impulses and -thereby get out of the stock market at precisely the right -time. His pet yarn is about a black cat that told me, at his -breakfast-table, to sell a lot of stock I was carrying, and that -after I got the pussy’s message I was grouchy and nervous -until I sold every share I was long of. I got practically the -top prices of the movement, which of course strengthened -the hunch theory of my hard-headed friend.</p> - -<p>I had gone to Washington to endeavor to convince a few -Congressmen that there was no wisdom in taxing us to death -and I wasn’t paying much attention to the stock market. My -decision to sell out my line came suddenly, hence my -friend’s yarn.</p> - -<p>I admit that I do get irresistible impulses at times to do -certain things in the market. It doesn’t matter whether I am -long or short of stocks. I must get out. I am uncomfortable -until I do. I myself think that what happens is that I see -a lot of warning-signals. Perhaps not a single one may be -sufficiently clear or powerful to afford me a positive, definite -reason for doing what I suddenly feel like doing. Probably -that is all there is to what they call “ticker-sense” that old -traders say James R. Keene had so strongly developed and -other operators before him. Usually, I confess, the warning<span class="pagenum" id="Page_216">216</span> -turns out to be not only sound but timed to the minute. But -in this particular instance there was no hunch. The black cat -had nothing to do with it. What he tells everybody about -my getting up so grumpy that morning I suppose can be explained—if -I in truth was grouchy—by my disappointment. -I knew I was not convincing the Congressman I talked to -and the Committee did not view the problem of taxing Wall -Street as I did. I wasn’t trying to arrest or evade taxation on -stock transactions but to suggest a tax that I as an experienced -stock operator felt was neither unfair nor unintelligent. -I didn’t want Uncle Sam to kill the goose that could -lay so many golden eggs with fair treatment. Possibly my -lack of success not only irritated me but made me pessimistic -over the future of an unfairly taxed business. But I’ll tell -you exactly what happened.</p> - -<p>At the beginning of the bull market I thought well of the -outlook in both the Steel trade and the Copper market and I -therefore felt bullish on stocks of both groups. So I started -to accumulate some of them. I began by buying 5000 shares -of Utah Copper and stopped because it didn’t act right. That -is, it did not behave as it should have behaved to make me -feel I was wise in buying it. I think the price was around -114. I also started to buy United States Steel at almost the -same price. I bought in all 20,000 shares the first day because -it did act right. I followed the method I have described -before.</p> - -<p>Steel continued to act right and I therefore continued to -accumulate it until I was carrying 72,000 shares of it in all. -But my holdings of Utah Copper consisted of my initial purchase. -I never got above the 5000 shares. Its behaviour -did not encourage me to do more with it.</p> - -<p>Everybody knows what happened. We had a big bull -movement. I knew the market was going up. General conditions -were favourable. Even after stocks had gone up extensively -and my paper profit was not to be sneezed at, the -tape kept trumpeting: <em>Not yet! Not yet!</em> When I arrived in<span class="pagenum" id="Page_217">217</span> -Washington the tape was still saying that to me. Of course, -I had no intention of increasing my line at that late day, -even though I was still bullish. At the same time, the market -was plainly going my way and there was no occasion for me -to sit in front of a quotation board all day, in hourly expectation -of getting a tip to get out. Before the clarion call to retreat -came—barring an utterly unexpected catastrophe, of -course—the market would hesitate or otherwise prepare me -for a reversal of the speculative situation. That was the -reason why I went blithely about my business with my Congressman.</p> - -<p>At the same time, prices kept going up and that meant -that the end of the bull market was drawing nearer. I did -not look for the end on any fixed date. That was something -quite beyond my power to determine. But I needn’t tell you -that I was on the watch for the tip-off. I always am, anyhow. -It has become a matter of business habit with me.</p> - -<p>I cannot swear to it but I rather suspect that the day before -I sold out, seeing the high prices made me think of the -magnitude of my paper profit as well as of the line I was -carrying and, later on, of my vain efforts to induce our legislators -to deal fairly and intelligently by Wall Street. That was -probably the way and the time the seed was sown within -me. The subconscious mind worked on it all night. In the -morning I thought of the market and began to wonder how -it would act that day. When I went down to the office I saw -not so much that prices were still higher and that I had a -satisfying profit but that there was a great big market with -a tremendous power of absorption. I could sell any amount -of stock in that market; and, of course, when a man is carrying -his full line of stocks, he must be on the watch for an -opportunity to change his paper profit into actual cash. He -should try to lose as little of the profit as possible in the -swapping. Experience has taught me that a man can always -find an opportunity to make his profits real and that this opportunity<span class="pagenum" id="Page_218">218</span> -usually comes at the end of the move. That isn’t -tape-reading or a hunch.</p> - -<p>Of course, when I found that morning a market in which -I could sell out all my stocks without any trouble I did so. -When you are selling out it is no wiser or braver to sell fifty -shares than fifty thousand; but fifty shares you can sell in the -dullest market without breaking the price and fifty thousand -shares of a single stock is a different proposition. I had -seventy-two thousand shares of U.S. Steel. This may not -seem a colossal line, but you can’t always sell that much -without losing some of that profit that looks so nice on paper -when you figure it out and that hurts as much to lose as if -you actually had it safe in the bank.</p> - -<p>I had a total profit of about $1,500,000 and I grabbed it -while the grabbing was good. But that wasn’t the principal -reason for thinking that I did the right thing in selling out -when I did. The market proved it for me and that was indeed -a source of satisfaction for me. It was this way: I succeeded -in selling my entire line of seventy-two thousand -shares of U.S. Steel at a price which averaged me just one -point from the top of the day and of the movement. It -proved that I was right, to the minute. But when, on the -very same hour of the very same day I came to sell my -5000 shares of Utah Copper, the price broke five points. -Please recall that I began buying both stocks at the same -time and that I acted wisely in increasing my line of U.S. -Steel from twenty thousand shares to seventy-two thousand, -and equally wisely in not increasing my line of Utah from -the original 5000 shares. The reason why I didn’t sell out my -Utah Copper before was that I was bullish on the copper -trade and it was a bull market in stocks and I didn’t think -that Utah would hurt me much even if I didn’t make a killing -in it. But as for hunches, there weren’t any.</p> - -<p>The training of a stock trader is like a medical education. -The physician has to spend long years learning anatomy, -physiology, materia medica and collateral subjects by the<span class="pagenum" id="Page_219">219</span> -dozen. He learns the theory and then proceeds to devote his -life to the practice. He observes and classifies all sorts of -pathological phenomena. He learns to diagnose. If his diagnosis -is correct—and that depends upon the accuracy of his -observation—he ought to do pretty well in his prognosis, -always keeping in mind, of course, that human fallibility -and the utterly unforeseen will keep him from scoring 100 -per cent of bull’s-eyes. And then, as he gains in experience, -he learns not only to do the right thing but to do it instantly, -so that many people will think he does it instinctively. It -really isn’t automatism. It is that he has diagnosed the case -according to his observations of such cases during a period -of many years; and, naturally, after he has diagnosed it, he -can only treat it in the way that experience has taught him -is the proper treatment. You can transmit knowledge—that -is, your particular collection of card-indexed facts—but not -your experience. <em>A man may know what to do and lose -money—if he doesn’t do it quickly enough.</em></p> - -<p>Observation, experience, memory and mathematics—these -are what the successful trader must depend on. He -must not only observe accurately but remember at all times -what he has observed. He cannot bet on the unreasonable -or on the unexpected, however strong his personal convictions -may be about man’s unreasonableness or however certain -he may feel that the unexpected happens very frequently. -He must bet always on probabilities—that is, try -to anticipate them. Years of practice at the game, of constant -study, of always remembering, enable the trader to act on -the instant when the unexpected happens as well as when -the expected comes to pass.</p> - -<p>A man can have great mathematical ability and an unusual -power of accurate observation and yet fail in speculation -unless he also possesses <em>the experience and the memory</em>. -And then, like the physician who keeps up with the advances -of science, <em>the wise trader never ceases to study -general conditions, to keep track of developments everywhere<span class="pagenum" id="Page_220">220</span> -that are likely to affect or influence the course of the -various markets</em>. After years at the game it becomes a habit -to keep posted. He acts almost automatically. He requires -the invaluable professional attitude and that enables him to -beat the game—at times! This difference between the professional -and the amateur or occasional trader cannot be -overemphasised. I find, for instance, that memory and mathematics -help me very much. Wall Street makes its money on -a mathematical basis. I mean, <em>it makes its money by dealing -with facts and figures</em>.</p> - -<p>When I said that a trader has to keep posted to the minute -and that he must take a purely professional attitude toward -all markets and all developments, I merely meant to emphasise -again that hunches and the mysterious ticker-sense -haven’t so much to do with success. Of course, it often happens -that an experienced trader acts so quickly that he -hasn’t time to give all his reasons in advance—but nevertheless -they are good and sufficient reasons, because they are -based on facts collected by him in his years of working and -thinking and seeing things from the angle of the professional, -to whom everything that comes to his mill is grist. -Let me illustrate what I mean by professional attitude.</p> - -<p>I keep track of the commodities markets, always. It is a -habit of years. As you know, the Government reports indicated -a winter wheat crop about the same as last year and a -bigger spring wheat crop than in 1921. The condition was -much better and we probably would have an earlier harvest -than usual. When I got the figures of condition and I saw -what we might expect in the way of yield—mathematics—I -also thought at once of the coal miner’s strike and the railroad -shopmen’s strike. I couldn’t help thinking of them because -my mind always thinks of all developments that have -a bearing on the markets. It instantly struck me that the -strike which had already affected the movement of freight -everywhere must affect wheat prices adversely. I figured this -way: There was bound to be considerable delay in moving<span class="pagenum" id="Page_221">221</span> -winter wheat to market by reason of the strike-crippled -transportation facilities, and by the time those improved the -spring wheat crop would be ready to move. That meant that -when the railroads were able to move wheat in quantity -they would be bringing in both crops together—the delayed -winter and the early spring wheat—and that would mean a -vast quantity of wheat pouring into the market at one fell -swoop. Such being the facts of the case—the obvious probabilities—the -traders, who would know and figure as I did, -would not bull wheat for a while. They would not feel like -buying it unless the price declined to such figures as made -the purchase of wheat a good investment. With no buying -power in the market, the price ought to go down. Thinking -the way I did I must find whether I was right or not. As old -Pat Hearne used to remark, “You can’t tell till you bet.” -Between being bearish and selling there is no need to waste -time.</p> - -<p><em>Experience has taught me that the way a market behaves -is an excellent guide for an operator to follow. It is like -taking a patient’s temperature and pulse or noting the colour -of the eyeballs and the coating of the tongue.</em></p> - -<p>Now, ordinarily a man ought to be able to buy or sell a -million bushels of wheat within a range of ¼ cent. On this -day when I sold the 250,000 bushels to test the market for -timeliness, the price went down ¼ cent. Then, since the reaction -did not definitely tell me all I wished to know, I sold -another quarter of a million bushels. I noticed that it was -taken in driblets; that is, the buying was in lots of 10,000 or -15,000 bushels instead of being taken in two or three transactions -which would have been the normal way. In addition -to the homeopathic buying the price went down 1¼ cents on -my selling. Now, I need not waste my time pointing out that -the way in which the market took my wheat and the disproportionate -decline on my selling told me that there was -no buying power there. Such being the case, what was the -only thing to do? Of course, to sell a lot more. Following the<span class="pagenum" id="Page_222">222</span> -dictates of experience may possibly fool you, now and then. -But not following them invariably makes an ass of you. -So I sold 2,000,000 bushels and the price went down some -more. A few days later the market’s behaviour practically -compelled me to sell an additional 2,000,000 bushels and -the price declined further still; a few days later wheat -started to break badly and slumped off 6 cents a bushel. -And it didn’t stop there. It has been going down, with short-lived -rallies.</p> - -<p>Now, I didn’t follow a hunch. Nobody gave me a tip. It -was my habitual or professional mental attitude toward the -commodities markets that gave me the profit and that attitude -came from my years at this business. I study because -my business is to trade. The moment the tape told me that I -was on the right track my business duty was to increase my -line. I did. That is all there is to it.</p> - -<p>I have found that experience is apt to be a steady dividend -payer in this game and that observation gives you the best -tips of all. The behaviour of a certain stock is all you need -at times. You observe it. Then experience shows you how to -profit by variations from the usual, that is, from the probable. -For example, we know <em>that all stocks do not move one -way together but that all the stocks of a group will move up -in a bull market and down in a bear market</em>. This is a common-place -of speculation. It is the commonest of all self-given -tips and the commission houses are well aware of it -and pass it on to any customer who has not thought of it -himself; I mean, the advice to trade in those stocks which -have lagged behind other stocks of the same group. Thus, if -U.S. Steel goes up, it is logically assumed that it is only a -matter of time when Crucible or Republic or Bethlehem will -follow suit. Trade conditions and prospects should work -alike with all stocks of a group and the prosperity should be -shared by all. On the theory, corroborated by experience -times without number, that every dog has his day in the<span class="pagenum" id="Page_223">223</span> -market, the public will buy A.B. Steel because it has not -advanced while C.D. Steel and X.Y. Steel have gone up.</p> - -<p>I never buy a stock even in a bull market, if it doesn’t act -as it ought to act in that kind of market. I have sometimes -bought a stock during an undoubted bull market and found -out that other stocks in the same group were not acting bullishly -and I have sold out my stock. Why? <em>Experience tells -me that it is not wise to buck against what I may call the -manifest group-tendency.</em> I cannot expect to play certainties -only. I must reckon on probabilities—and anticipate them. -An old broker once said to me: “If I am walking along a -railroad track and I see a train coming toward me at sixty -miles an hour, do I keep on walking on the ties? Friend, I -sidestep. And I don’t even pat myself on the back for being -so wise and prudent.”</p> - -<p>Last year, after the general bull movement was well under -way, I noticed that one stock in a certain group was not -going with the rest of the group, though the group with that -one exception was going with the rest of the market. I was -long a very fair amount of Blackwood Motors. Everybody -knew that the company was doing a very big business. The -price was rising from one to three points a day and the public -was coming in more and more. This naturally centered attention -on the group and all the various motor stocks began -to go up. One of them, however, persistently held back and -that was Chester. It lagged behind the others so that it -was not long before it made people talk. The low price of -Chester and its apathy was contrasted with the strength and -activity in Blackwood and other motor stocks and the public -logically enough listened to the touts and tipsters and wise-acres -and began to buy Chester on the theory that it must -presently move up with the rest of the group.</p> - -<p>Instead of going on this moderate public buying, Chester -actually declined. Now, it would have been no job to put it -up in that bull market, considering that Blackwood, a stock -of the same group, was one of the sensational leaders of the<span class="pagenum" id="Page_224">224</span> -general advance and we were hearing nothing but the -wonderful improvement in the demand for automobiles of -all kinds and the record output.</p> - -<p>It was thus plain that the inside clique in Chester were -not doing any of the things that inside cliques invariably do -in a bull market. For this failure to do the usual thing there -might be two reasons. Perhaps the insiders did not put it up -because they wished to accumulate more stock before advancing -the price. But this was an untenable theory if you -analysed the volume and character of the trading in Chester. -The other reason was that they did not put it up because -they were afraid of getting stock if they tried to.</p> - -<p>When the men who ought to want a stock don’t want it, -why should I want it? I figured that no matter how prosperous -other automobile companies might be, it was a cinch to -sell Chester short. <em>Experiences had taught me to beware of -buying a stock that refuses to follow the group-leader.</em></p> - -<p>I easily established the fact that not only there was no inside -buying but that there was actually inside selling. There -were other symptomatic warnings against buying Chester, -though all I required was its inconsistent market behaviour. -It was again the tape that tipped me off and that was why -I sold Chester short. One day, not very long afterward, the -stock broke wide open. Later on we learned—officially, as it -were—that insiders had indeed been selling it, knowing full -well that the condition of the company was not good. The -reason, as usual, was disclosed after the break. But the warning -came before the break. <em>I don’t look out for the breaks; -I look out for the warnings.</em> I didn’t know what was the -trouble with Chester; neither did I follow a hunch. I merely -knew that something must be wrong.</p> - -<p>Only the other day we had what the newspapers called a -sensational movement in Guiana Gold. After selling on the -Curb at 50 or close to it, it was listed on the Stock Exchange. -It started there at around 35, began to go down and finally -broke 20.</p> - -<p><span class="pagenum" id="Page_225">225</span> -Now, I’d never have called that break sensational because -it was fully to be expected. If you had asked you could have -learned the history of the company. No end of people knew -it. It was told to me as follows: A syndicate was formed consisting -of a half dozen extremely well-known capitalists and -a prominent banking house. One of the members was the -head of the Belle Isle Exploration Company, which advanced -Guiana over $10,000,000 cash and received in return -bonds and 250,000 shares out of a total of one million shares -of the Guiana Gold Mining Company. The stock went on a -dividend basis and it was mighty well advertised. The Belle -Isle people thought it well to cash in and they gave a call on -their 250,000 shares to the bankers, who arranged to try to -market that stock and some of their own holdings as well. -They thought of entrusting the market manipulation to a -professional whose fee was to be one third of the profits -from the sale of the 250,000 shares above 36. I understand -that the agreement was drawn up and ready to be signed -but at the last moment the bankers decided to undertake the -marketing themselves and save the fee. So they organized an -inside pool. The bankers had a call on the Belle Isle holdings -of 250,000 at 36. They put this in at 41. That is, insiders paid -their own banking colleagues a 5-point profit to start with. I -don’t know whether they knew it or not.</p> - -<p>It is perfectly plain that to the bankers the operation had -every semblance of a cinch. We had run into a bull market -and the stocks of the group to which Guiana Gold belonged -were among the market leaders. The company was making -big profits and paying regular dividends. This together with -the high character of the sponsors made the public regard -Guiana almost as an investment stock. I was told that about -400,000 shares were sold to the public all the way up to 47.</p> - -<p>The gold group was very strong. But presently Guiana -began to sag. It declined ten points. That was all right if -the pool was marketing stock. But pretty soon the Street -began to hear that things were not altogether satisfactory<span class="pagenum" id="Page_226">226</span> -and the property was not bearing out the high expectations -of the promoters. Then, of course, the reason for the decline -became plain. But before the reason was known I had -the warning and had taken steps to test the market for -Guiana. The stock was acting pretty much as Chester -Motors did. I sold Guiana. The price went down. I sold -more. The price went still lower. The stock was repeating -the performance of Chester and of a dozen other stocks -whose clinical history I remembered. The tape plainly told -me that there was something wrong—something that kept -insiders from buying it—insiders who knew exactly why -they should not buy their own stock in a bull market. On the -other hand, outsiders, who did not know, were now buying -because having sold at 45 and higher the stock looked cheap -at 35 and lower. The dividend was still being paid. The stock -was a bargain.</p> - -<p>Then the news came. It reached me, as important market -news often does, before it reached the public. But the confirmation -of the reports of striking barren rock instead of -rich ore merely gave me the reason for the earlier inside selling. -I myself didn’t sell on the news. I had sold long before, -on the stock’s behaviour. My concern with it was not philosophical. -I am a trader and therefore looked for one sign: Inside -buying. There wasn’t any. I didn’t have to know why the -insiders did not think enough of their own stock to buy it on -the decline. It was enough that their market plans plainly did -not include further manipulation for the rise. That made it -a cinch to sell the stock short. The public had bought almost -a half million shares and the only change in ownership -possible was from one set of ignorant outsiders who would -sell in the hope of stopping losses to another set of ignorant -outsiders who might buy in the hope of making money.</p> - -<p>I am not telling you this to moralise on the public’s losses -through their buying of Guiana or on my profit through my -selling of it, but to emphasise how important the study of -group-behaviourism is and how its lessons are disregarded<span class="pagenum" id="Page_227">227</span> -by inadequately equipped traders, big and little. And it is -not only in the stock market that the tape warns you. It -blows the whistle quite as loudly in commodities.</p> - -<p>I had an interesting experience in cotton. I was bearish on -stocks and put out a moderate short line. At the same time I -sold cotton short; 50,000 bales. My stock deal proved profitable -and I neglected my cotton. The first thing I knew I had -a loss of $250,000 on my 50,000 bales. As I said, my stock -deal was so interesting and I was doing so well in it that I -did not wish to take my mind off it. Whenever I thought -of cotton I just said to myself: “I’ll wait for a reaction and -cover.” The price would react a little but before I could -decide to take my loss and cover, the price would rally again, -and go higher than ever. So I’d decide again to wait a little -and I’d go back to my stock deal and confine my attention -to that. Finally I closed out my stocks at a very handsome -profit and went away to Hot Springs for a rest and a holiday.</p> - -<p>That really was the first time that I had my mind free to -deal with the problem of my losing deal in cotton. The trade -had gone against me. There were times when it almost -looked as if I might win out. I noticed that whenever anybody -sold heavily there was a good reaction. But almost -instantly the price would rally and make a new high for the -move.</p> - -<p>Finally, by the time I had been in Hot Springs a few days, -I was a million to the bad and no let up in the rising tendency. -I thought over all I had done and had not done and -I said to myself: “I must be wrong!” With me to feel that I -am wrong and to decide to get out are practically one -process. So I covered, at a loss of about one million.</p> - -<p>The next morning I was playing golf and not thinking of -anything else. I had made my play in cotton. I had been -wrong. I had paid for being wrong and the receipted bill was -in my pocket. I had no more concern with the cotton market -than I have at this moment. When I went back to the hotel -for luncheon I stopped at the broker’s office and took a look<span class="pagenum" id="Page_228">228</span> -at the quotations. I saw that cotton had gone off 50 points. -That wasn’t anything. But I also noticed that it had not rallied -as it had been in the habit of doing for weeks, as soon -as the pressure of the particular selling that had depressed it -eased up. This had indicated that the line of least resistance -was upward and it had cost me a million to shut my eyes to -it.</p> - -<p>Now, however, the reason that had made me cover at a -big loss was no longer a good reason since there had not -been the usual prompt and vigorous rally. So I sold 10,000 -bales and waited. Pretty soon the market went off 50 points. -I waited a little while longer. There was no rally. I had got -pretty hungry by now, so I went into the dining-room and -ordered my luncheon. Before the waiter could serve it, I -jumped up, went to the broker’s office, I saw that there had -been no rally and so I sold 10,000 bales more. I waited a -little and had the pleasure of seeing the price decline 40 -points more. That showed me I was trading correctly so I -returned to the dining-room ate my luncheon and went back -to the broker’s. There was no rally in cotton that day. That -very night I left Hot Springs.</p> - -<p>It was all very well to play golf but I had been wrong in -cotton in selling when I did and in covering when I did. So I -simply had to get back on the job and be where I could -trade in comfort. The way the market took my first ten thousand -bales made me sell the second ten thousand, and the -way the market took the second made me certain the turn -had come. It was the difference in behaviour.</p> - -<p>Well, I reached Washington and went to my brokers’ -office there, which was in charge of my old friend Tucker. -While I was there the market went down some more. I was -more confident of being right now than I had been of being -wrong before. So I sold 40,000 bales and the market went off -75 points. It showed that there was no support there. That -night the market closed still lower. The old buying power -was plainly gone. There was no telling at what level that<span class="pagenum" id="Page_229">229</span> -power would again develop, but I felt confident of the wisdom -of my position. The next morning I left Washington for -New York by motor. There was no need to hurry.</p> - -<p>When we got to Philadelphia I drove to a broker’s office. -I saw that there was the very dickens to pay in the cotton -market. Prices had broken badly and there was a small-sized -panic on. I didn’t wait to get to New York. I called up my -brokers on the long distance and I covered my shorts. As -soon as I got my reports and found that I had practically -made up my previous loss, I motored on to New York without -having to stop en route to see any more quotations.</p> - -<p>Some friends who were with me in Hot Springs talk to -this day of the way I jumped up from the luncheon table to -sell that second lot of 10,000 bales. But again that clearly -was not a hunch. It was an impulse that came from the conviction -that the time to sell cotton had now come, however -great my previous mistake had been. I had to take advantage -of it. It was my chance. The subconscious mind probably -went on working, reaching conclusions for me. The decision -to sell in Washington was the result of my observation. My -years of experience in trading told me that the line of least -resistance had changed from up to down.</p> - -<p>I bore the cotton market no grudge for taking a million -dollars out of me and I did not hate myself for making a mistake -of that calibre any more than I felt proud for covering -in Philadelphia and making up my loss. My trading mind -concerns itself with trading problems and I think I am justified -in asserting that I made up my first loss because I had -the experience and the memory.</p> - -<hr /> - -<p><span class="pagenum" id="Page_230">230</span></p> - -<div class="chapter"> -<h2 id="XVIII"><i>XVIII</i></h2> -</div> - -<p class="in0"><span class="firstword">History repeats itself</span> all the time in Wall Street. Do you -remember a story I told you about covering my shorts at the -time Stratton had corn cornered? Well, another time I used -practically the same tactics in the stock market. The stock -was Tropical Trading. I have made money bulling it and -also bearing it. It always was an active stock and a favourite -with adventurous traders. The inside coterie has been accused -time and again by the newspapers of being more concerned -over the fluctuations in the stock than with encouraging -permanent investment in it. The other day one of the -ablest brokers I know asserted that not even Daniel Drew in -Erie or H. O. Havemeyer in Sugar developed so perfect a -method for milking the market for a stock as President Mulligan -and his friends have done in Tropical Trading. Many -times they have encouraged the bears to sell TT short and -then have proceeded to squeeze them with business-like -thoroughness. There was no more vindictiveness about the -process than is felt by a hydraulic press—or no more -squeamishness, either.</p> - -<p>Of course, there have been people who have spoken about -certain “unsavory incidents” in the market career of TT -stock. But I dare say these critics were suffering from the -squeezing. Why do the room traders, who have suffered so -often from the loaded dice of the insiders, continue to go up -against the game? Well, for one thing they like action and -they certainly get it in Tropical Trading. No prolonged spells<span class="pagenum" id="Page_231">231</span> -of dullness. No reasons asked or given. No time wasted. No -patience strained by waiting for the tipped movement to -begin. Always enough stock to go around—except when the -short interest is big enough to make the scarcity worthwhile. -One born every minute!</p> - -<p>It so happened some time ago that I was in Florida on my -usual winter vacation. I was fishing and enjoying myself -without any thought of the markets excepting when we -received a batch of newspapers. One morning when the -semi-weekly mail came in I looked at the stock quotations -and saw that Tropical Trading was selling at 155. The last -time I’d seen a quotation in it, I think, was around 140. My -opinion was that we were going into a bear market and I was -biding my time before going short of stocks. But there was -no mad rush. That was why I was fishing and out of hearing -of the ticker. I knew that I’d be back home when the real -call came. In the meanwhile nothing that I did or failed to -do would hurry matters a bit.</p> - -<p>The behaviour of Tropical Trading was the outstanding -feature of the market, according to the newspapers I got that -morning. It served to crystallise my general bearishness because -I thought it particularly asinine for the insiders to run -up the price of TT in the face of the heaviness of the general -list. There are times when the milking process must be suspended. -What is abnormal is seldom a desirable factor in a -trader’s calculations and it looked to me as if the marking up -of that stock were a capital blunder. Nobody can make -blunders of that magnitude with impunity; not in the stock -market.</p> - -<p>After I got through reading the newspapers I went back -to my fishing but I kept thinking of what the insiders in -Tropical Trading were trying to do. That they were bound -to fail was as certain as that a man is bound to smash himself -if he jumps from the roof of a twenty-story building -without a parachute. I couldn’t think of anything else and -finally I gave up trying to fish and sent off a telegram to my<span class="pagenum" id="Page_232">232</span> -brokers to sell 2000 shares of TT at the market. After that I -was able to go back to my fishing. I did pretty well.</p> - -<p>That afternoon I received the reply to my telegram by -special courier. My brokers reported that they had sold the -2000 shares of Tropical Trading at 153. So far so good. I was -selling short on a declining market, which was as it should -be. But I could not fish any more. I was too far away from -a quotation board. I discovered this after I began to think of -all the reasons why Tropical Trading should go down with -the rest of the market instead of going up on inside manipulation. -I therefore left my fishing camp and returned to Palm -Beach; or, rather, to the direct wire to New York.</p> - -<p>The moment I got to Palm Beach and saw what the misguided -insiders were still trying to do, I let them have a second -lot of 2000 TT. Back came the report and I sold another -2000 shares. The market behaved excellently. That is, it -declined on my selling. Everything being satisfactory I went -out and had a chair ride. But I wasn’t happy. The more I -thought the unhappier it made me to think that I hadn’t -sold more. So back I went to the broker’s office and sold -another 2000 shares.</p> - -<p>I was happy only when I was selling that stock. Presently -I was short 10,000 shares. Then I decided to return to New -York. I had business to do now. My fishing I would do some -other time.</p> - -<p>When I arrived in New York I made it a point to get a -line on the company’s business, actual and prospective. What -I learned strengthened my conviction that the insiders had -been worse than reckless in jacking up the price at a time -when such an advance was not justified either by the tone -of the general market or by the company’s earnings.</p> - -<p>The rise, illogical and ill-timed though it was, had developed -some public following and this doubtless encouraged -the insiders to pursue their unwise tactics. Therefore I sold -more stock. The insiders ceased their folly. So I tested the -market again and again, in accordance with my trading<span class="pagenum" id="Page_233">233</span> -methods, until finally I was short 30,000 shares of the stock -of the Tropical Trading Company. By then the price was -133.</p> - -<p>I had been warned that the TT insiders knew the exact -whereabouts of every stock certificate in the Street and the -precise dimensions and identity of the short interest as well -as other facts of tactical importance. They were able men -and shrewd traders. Altogether it was a dangerous combination -to go up against. But facts are facts and the strongest of -all allies are conditions.</p> - -<p>Of course, on the way down from 153 to 133 the short interest -had grown and the public that buys on reactions began -to argue as usual: That stock had been considered a -good purchase at 153 and higher. Now 20 points lower, it -was necessarily a much better purchase. Same stock; same -dividend rate; same officers; same business. Great bargain!</p> - -<p>The public’s purchases reduced the floating supply and -the insiders, knowing that a lot of room traders were short, -thought the time propitious for a squeezing. The price was -duly run up to 150. I daresay there was plenty of covering -but I stayed pat. Why shouldn’t I? The insiders might know -that a short line of 30,000 shares had not been taken in but -why should that frighten me? The reasons that had impelled -me to begin selling at 153 and keep at it on the way down to -133, not only still existed but were stronger than ever. The -insiders might desire to force me to cover but they adduced -no convincing arguments. Fundamental conditions were -fighting for me. It was not difficult to be both fearless and -patient. A speculator must have faith in himself and in his -judgment. The late Dickson G. Watts, ex-President of the -New York Cotton Exchange and famous author of “Speculation -as a Fine Art,” says that courage in a speculator is -merely confidence to act on the decision of his mind. With -me, I cannot fear to be wrong because I never think I am -wrong until I am proven wrong. In fact, I am uncomfortable -unless I am capitalising my experience. The course of the<span class="pagenum" id="Page_234">234</span> -market at a given time does not necessarily prove me wrong. -It is the character of the advance—or of the decline—that -determines for me the correctness or the fallacy of my -market position. I can only rise by knowledge. If I fall it -must be by my own blunders.</p> - -<p>There was nothing in the character of the rally from 133 -to 150 to frighten me into covering and presently the stock, -as was to be expected, started down again. It broke 140 before -the inside clique began to give it support. Their buying -was coincident with a flood of bull rumors about the stock. -The company, we heard, was making perfectly fabulous -profits, and the earnings justified an increase in the regular -dividend rate. Also, the short interest was said to be perfectly -huge and the squeeze of the century was about to be -inflicted on the bear party in general and in particular on a -certain operator who was more than over-extended. I -couldn’t begin to tell you all I heard as they ran the price up -ten points.</p> - -<p>The manipulation did not seem particularly dangerous to -me but when the price touched 149 I decided that it was not -wise to let the Street accept as true all the bull statements -that were floating around. Of course, there was nothing that -I or any other rank outsider could say that would carry conviction -either to the frightened shorts or to those credulous -customers of commission houses that trade on hearsay tips. -The most effective retort courteous is that which the tape -alone can print. People will believe that when they will not -believe an affidavit from any living man, much less one from -a chap who is short 30,000 shares. So I used the same tactics -that I did at the time of the Stratton corner in corn, when I -sold oats to make the traders bearish on corn. Experience -and memory again.</p> - -<p>When the insiders jacked up the price of Tropical Trading -with a view to frightening the shorts I didn’t try to check the -rise by selling that stock. I was already short 30,000 shares -of it which was as big a percentage of the floating supply as -I thought wise to be short of. I did not propose to put my<span class="pagenum" id="Page_235">235</span> -head into the noose so obligingly held open for me—the -second rally was really an urgent invitation. What I did -when TT touched 149 was to sell about 10,000 shares of -Equatorial Commercial Corporation. This company owned -a large block of Tropical Trading.</p> - -<p>Equatorial Commercial, which was not as active a stock -as TT, broke badly on my selling, as I had foreseen; and, of -course, my purpose was achieved. When the traders—and -the customers of the commission houses who had listened to -the uncontradicted bull dope on TT—saw that the rise in -Tropical synchronised with heavy selling and a sharp break -in Equatorial, they naturally concluded that the strength of -TT was merely a smoke-screen—a manipulated advance obviously -designed to facilitate inside liquidation in Equatorial -Commercial, which was largest holder of TT stock. It must -be both long stock and inside stock in Equatorial, because -no outsider would dream of selling so much short stock at -the very moment when Tropical Trading was so very strong. -So they sold Tropical Trading and checked the rise in that -stock, the insiders very properly not wishing to take all the -stock that was pressed for sale. The moment the insiders -took away their support the price of TT declined. The traders -and principal commission houses now sold some Equatorial -also and I took in my short line in that at a small profit. -I hadn’t sold it to make money out of the operation but to -check the rise in TT.</p> - -<p>Time and again the Tropical Trading insiders and their -hard-working publicity man flooded the Street with all manner -of bull items and tried to put up the price. And every -time they did I sold Equatorial Commercial short and covered -it with TT reacted and carried EC with it. It took the -wind out of the manipulators’ sails. The price of TT finally -went down to 125 and the short interest really grew so big -that the insiders were enabled to run it up 20 or 25 points. -This time it was a legitimate enough drive against an over-extended -short interest; but while I foresaw the rally I did -not cover, not wishing to lose my position. Before Equatorial<span class="pagenum" id="Page_236">236</span> -Commercial could advance in sympathy with the rise in TT -I sold a raft of it short—with the usual results. This gave the -lie to the bull talk in TT which had got quite boisterous -after the latest sensational rise.</p> - -<p>By this time the general market had grown quite weak. As -I told you, it was the conviction that we were in a bear market -that started me selling TT short in the fishing-camp in -Florida. I was short of quite a few other stocks but TT was -my pet. Finally, general conditions proved too much for the -inside clique to defy and TT hit the toboggan slide. It went -below 120 for the first time in years; then below 110; below -par; and still I did not cover. One day when the entire market -was extremely weak Tropical Trading broke 90 and on -the demoralisation I covered. Same old reason! I had the opportunity—the -big market and the weakness and the excess -of sellers over buyers. I may tell you, even at the risk of -appearing to be monotonously bragging of my cleverness, -that I took in my 30,000 shares of TT at practically the lowest -prices of the movement. But I wasn’t thinking of covering -at the bottom. I was intent on turning my paper profits into -cash without losing much of the profit in the changing.</p> - -<p>I stood pat throughout because I knew my position was -sound. I wasn’t bucking the trend of the market or going -against basic conditions but the reverse, and that was what -made me so sure of the failure of an over-confident inside -clique. What they tried to do others had tried before and it -had always failed. The frequent rallies, even when I knew -as well as anybody that they were due, could not frighten -me. I knew I’d do much better in the end by staying pat -than by trying to cover to put out a new short line at a -higher price. By sticking to the position that I felt was right -I made over a million dollars. I was not indebted to hunches -or to skillful tape reading or to stubborn courage. It was a -dividend declared by my faith in my judgment and not by -my cleverness or by my vanity. Knowledge is power and -power need not fear lies—not even when the tape prints -them. The retraction follows pretty quickly.</p> - -<p><span class="pagenum" id="Page_237">237</span> -A year later, TT was jacked up again to 150 and hung -around there for a couple of weeks. The entire market was -entitled to a good reaction for it had risen uninterruptedly -and it did not bull any longer. I know because I tested it. -Now, the group to which TT belonged had been suffering -from very poor business and I couldn’t see anything to bull -those stocks on anyhow, even if the rest of the market were -due for a rise, which it wasn’t. So I began to sell Tropical -Trading. I intended to put out 10,000 shares in all. The price -broke on my selling. I couldn’t see that there was any support -whatever. Then suddenly, the character of the buying -changed.</p> - -<p>I am not trying to make myself out a wizard when I assure -you that I could tell the moment support came in. It instantly -struck me that if the insiders in that stock, who never -felt a moral obligation to keep the price up, were now buying -the stock in the face of a declining general market there -must be a reason. They were not ignorant asses nor philanthropists -nor yet bankers concerned with keeping the price -up to sell more securities over the counter. The price rose -notwithstanding my selling and the selling of others. At -153 I covered my 10,000 shares and at 156 I actually went -long because by that time the tape told me the line of least -resistance was upward. I was bearish on the general market -but I was confronted by a trading condition in a certain -stock and not by a speculative theory in general. The price -went out of sight, above 200. It was the sensation of the -year. I was flattered by reports spoken and printed that I -had been squeezed out of eight or nine millions of dollars. -As a matter of fact, instead of being short I was long of TT -all the way up. In fact, I held on a little too long and let -some of my paper profits get away. Do you wish to know -why I did? Because I thought the TT insiders would naturally -do what I would have done had I been in their place. -But that was something I had no business to think because -my business is to trade—that is, to stick to the facts before -me and not to what I think other people ought to do.</p> - -<hr /> - -<p><span class="pagenum" id="Page_238">238</span></p> - -<div class="chapter"> -<h2 id="XIX"><i>XIX</i></h2> -</div> - -<p class="in0"><span class="firstword">I do not know</span> when or by whom the word “manipulation” -was first used in connection with what really are no more -than common merchandising processes applied to the sale in -bulk of securities on the Stock Exchange. Rigging the market -to facilitate cheap purchases of a stock which it is desired -to accumulate is also manipulation. But it is different. -It may not be necessary to stoop to illegal practices, but it -would be difficult to avoid doing what some would think -illegitimate. How are you going to buy a big block of a stock -in a bull market without putting up the price on yourself? -That would be the problem. How can it be solved? It depends -upon so many things that you can’t give a general -solution unless you say: possibly by means of very adroit -manipulation. For instance? Well, it would depend upon -conditions. You can’t give any closer answer than that.</p> - -<p>I am profoundly interested in all phases of my business, -and of course I learn from the experience of others as well as -from my own. But it is very difficult to learn how to manipulate -stocks to-day from such yarns as are told of an afternoon -in the brokers’ offices after the close. Most of the tricks, devices -and expedients of bygone days are obsolete and futile; -or illegal and impracticable. Stock Exchange rules and conditions -have changed, and the story—even the accurately -detailed story—of what Daniel Drew or Jacob Little or Jay -Gould could do fifty or seventy-five years ago is scarcely -worth listening to. The manipulator to-day has no more need<span class="pagenum" id="Page_239">239</span> -to consider what they did and how they did it than a cadet -at West Point need study archery as practiced by the ancients -in order to increase his working knowledge of ballistics.</p> - -<p>On the other hand there is profit in studying the human -factors—the ease with which human beings believe what it -pleases them to believe; and how they allow themselves—indeed, -urge themselves—to be influenced by their cupidity -or by the dollar-cost of the average man’s carelessness. Fear -and hope remain the same; therefore the study of the psychology -of speculators is as valuable as it ever was. Weapons -change, but strategy remains strategy, on the New York -Stock Exchange as on the battlefield. I think the clearest -summing up of the whole thing was expressed by Thomas F. -Woodlock when he declared: “The principles of successful -stock speculation are based on the supposition that people -will continue in the future to make the mistakes that they -have made in the past.”</p> - -<p>In booms, which is when the public is in the market in the -greatest numbers, there is never any need of subtlety, so -there is no sense of wasting time discussing either manipulation -or speculation during such times; it would be like trying -to find the difference in raindrops that are falling synchronously -on the same roof across the street. The sucker -has always tried to get something for nothing, and the appeal -in all booms is always frankly to the gambling instinct -aroused by cupidity and spurred by a pervasive prosperity. -People who look for easy money invariably pay for the -privilege of proving conclusively that it cannot be found on -this sordid earth. At first, when I listened to the accounts of -old-time deals and devices I used to think that people were -more gullible in the 1860’s and ’70’s than in the 1900’s. But -I was sure to read in the newspapers that very day or the -next something about the latest Ponzi or the bust-up of some -bucketing broker and about the millions of sucker money -gone to join the silent majority of vanished savings.</p> - -<p><span class="pagenum" id="Page_240">240</span> -When I first came to New York there was a great fuss -made about wash sales and matched orders, for all that such -practices were forbidden by the Stock Exchange. At times -the washing was too crude to deceive anyone. The brokers -had no hesitation in saying that “the laundry was active” -whenever anybody tried to wash up some stock or other, -and, as I have said before, more than once they had what -were frankly referred to as “bucket-shop drives,” when a -stock was offered down two or three points in a jiffy just to -establish the decline on the tape and wipe up the myriad -shoe-string traders who were long of the stock in the bucket -shops. As for matched orders, they were always used with -some misgivings by reason of the difficulty of coordinating -and synchronising operations by brokers, all such business -being against Stock Exchange rules. A few years ago a famous -operator canceled the selling but not the buying part -of his matched orders, and the result was that an innocent -broker ran up the price twenty-five points or so in a few -minutes, only to see it break with equal celerity as soon as -his buying ceased. The original intention was to create an -appearance of activity. Bad business, playing with such unreliable -weapons. You see, you can’t take your best brokers -into your confidence—not if you want them to remain members -of the New York Stock Exchange. Then also, the taxes -have made all practices involving fictitious transactions -much more expensive than they used to be in the old times.</p> - -<p>The dictionary definition of manipulation includes corners. -Now, a corner might be the result of manipulation or it might -be the result of competitive buying, as, for instance, the -Northern Pacific corner on May 9, 1901, which certainly was -not manipulation. The Stutz corner was expensive to everybody -concerned, both in money and in prestige. And it was -not a deliberately engineered corner, at that.</p> - -<p>As a matter of fact very few of the great corners were -profitable to the engineers of them. Both Commodore Vanderbilt’s -Harlem corners paid big, but the old chap deserved<span class="pagenum" id="Page_241">241</span> -the millions he made out of a lot of short sports, crooked -legislators and aldermen who tried to double-cross him. On -the other hand, Jay Gould lost in his Northwestern corner. -Deacon S. V. White made a million in his Lackawanna -corner, but Jim Keene dropped a million in the Hannibal & -St. Joe deal. The financial success of a corner of course depends -upon the marketing of the accumulated holdings at -higher than cost, and the short interest has to be of some -magnitude for that to happen easily.</p> - -<p>I used to wonder why corners were so popular among the -big operators of a half-century ago. They were men of ability -and experience, wide-awake and not prone to childlike trust -in the philanthropy of their fellow traders. Yet they used to -get stung with an astonishing frequency. A wise old broker -told me that all the big operators of the ’60’s and ’70’s had -one ambition, and that was to work a corner. In many cases -this was the offspring of vanity; in others, of the desire for -revenge. At all events, to be pointed out as the man who had -successfully cornered this or the other stock was in reality -recognition of brains, boldness and boodle. It gave the cornerer -the right to be haughty. He accepted the plaudits of -his fellows as fully earned. It was more than the prospective -money profit that prompted the engineers of corners to do -their damnedest. It was the vanity complex asserting itself -among cold-blooded operators.</p> - -<p>Dog certainly ate dog in those days with relish and ease. -I think I told you before that I have managed to escape being -squeezed more than once, not because of the possession -of a mysterious ticker-sense but because I can generally tell -the moment the character of the buying in the stock makes -it imprudent for me to be short of it. This I do by common-sense -tests, which must have been tried in the old times -also. Old Daniel Drew used to squeeze the boys with some -frequency and make them pay high prices for the Erie -“sheers” they had sold short to him. He was himself squeezed -by Commodore Vanderbilt in Erie, and when old Drew<span class="pagenum" id="Page_242">242</span> -begged for mercy the Commodore grimly quoted the Great -Bear’s own deathless distich:</p> - -<div class="poem-container"> -<div class="poem"><div class="stanza"><i> -<span class="i0">He that sells what isn’t hisn<br /></span> -<span class="i0">Must buy it back or go to prisn.<br /></span></i> -</div></div> -</div> - -<p>Wall Street remembers very little of an operator who for -more than a generation was one of its Titans. His chief claim -to immortality seems to be the phrase “watering stock.”</p> - -<p>Addison G. Jerome was the acknowledged king of the -Public Board in the spring of 1863. His market tips, they tell -me, were considered as good as cash in bank. From all accounts -he was a great trader and made millions. He was -liberal, to the point of extravagance and had a great following -in the Street—until Henry Keep, known as William the -Silent, squeezed him out of all his millions in the Old Southern -corner. Keep, by the way, was the brother-in-law of Gov. -Roswell P. Flower.</p> - -<p>In most of the old corners the manipulation consisted -chiefly of not letting the other man know that you were -cornering the stock which he was variously invited to sell -short. It therefore was aimed chiefly at fellow professionals, -for the general public does not take kindly to the short side -of the account. The reasons that prompted these wise professionals -to put out short lines in such stocks were pretty -much the same as prompts them to do the same thing to-day. -Apart from the selling by faith-breaking politicians in -the Harlem corner of the Commodore, I gather from the -stories I have read that the professional traders sold the -stock because it was too high. And the reason they thought -it was too high was that it never before had sold so high; -and that made it too high to buy; and if it was too high to -buy it was just right to sell. That sounds pretty modern, -doesn’t it? They were thinking of the price, and the Commodore -was thinking of the value! And so, for years afterwards, -old-timers tell me that people used to say, “He went short of -Harlem!” whenever they wished to describe abject poverty.</p> - -<p><span class="pagenum" id="Page_243">243</span> -Many years ago I happened to be speaking to one of Jay -Gould’s old brokers. He assured me earnestly that Mr. Gould -not only was a most unusual man—it was of him that old -Daniel Drew shiveringly remarked, “His touch is Death!”—but -that he was head and shoulders above all other manipulators -past and present. He must have been a financial -wizard indeed to have done what he did; there can be no -question of that. Even at this distance I can see that he had -an amazing knack for adapting himself to new conditions, -and that is valuable in a trader. He varied his methods of -attack and defense without a pang because he was more concerned -with the manipulation of properties than with stock -speculation. He manipulated for investment rather than for -a market turn. He early saw that the big money was in owning -the railroads instead of rigging their securities on the -floor of the Stock Exchange. He utilised the stock market of -course. But I suspect it was because that was the quickest -and easiest way to quick and easy money and he needed -many millions, just as old Collis P. Huntington was always -hard up because he always needed twenty or thirty millions -more than the bankers were willing to lend him. Vision without -money means heartaches; with money, it means achievement; -and that means power; and that means money; and -that means achievement; and so on, over and over and over.</p> - -<p>Of course manipulation was not confined to the great figures -of those days. There were scores of minor manipulators. -I remember a story an old broker told me about the -manners and morals of the early ’60’s. He said:</p> - -<p>“The earliest recollection I have of Wall Street is of my -first visit to the financial district. My father had some business -to attend to there and for some reason or other took me -with him. We came down Broadway and I remember turning -off at Wall Street. We walked down Wall and just as we -came to Broad or, rather, Nassau Street, to the corner where -the Bankers’ Trust Company’s building now stands, I saw a -crowd following two men. The first was walking eastward,<span class="pagenum" id="Page_244">244</span> -trying to look unconcerned. He was followed by the other, a -red-faced man who was wildly waving his hat with one hand -and shaking the other fist in the air. He was yelling to beat -the band: ‘Shylock! Shylock! What’s the price of money? -Shylock! Shylock!’ I could see heads sticking out of windows. -They didn’t have skyscrapers in those days, but I was sure -the second- and third-story rubbernecks would tumble out. -My father asked what was the matter, and somebody answered -something I didn’t hear. I was too busy keeping a -death clutch on my father’s hand so that the jostling -wouldn’t separate us. The crowd was growing, as street -crowds do, and I wasn’t comfortable. Wild-eyed men came -running down from Nassau Street and up from Broad as well -as east and west on Wall Street. After we finally got out of -the jam my father explained to me that the man who was -shouting ‘Shylock’ was So-and-So. I have forgotten the name, -but he was the biggest operator in clique stocks in the city -and was understood to have made—and lost—more money -than any other man in Wall Street with the exception of -Jacob Little. I remember Jacob Little’s name because I -thought it was a funny name for a man to have. The other -man, the Shylock, was a notorious locker-up of money. His -name has also gone from me. But I remember he was tall and -thin and pale. In those days the cliques used to lock up -money by borrowing it or, rather, by reducing the amount -available to Stock Exchange borrowers. They would borrow -it and get a certified check. They wouldn’t actually take the -money out and use it. Of course that was rigging. It was a -form of manipulation, I think.”</p> - -<p>I agree with the old chap. It was a phase of manipulation -that we don’t have nowadays.</p> - -<hr /> - -<p><span class="pagenum" id="Page_245">245</span></p> - -<div class="chapter"> -<h2 id="XX"><i>XX</i></h2> -</div> - -<p class="in0"><span class="firstword">I myself</span> never spoke to any of the great stock manipulators -that the Street still talks about. I don’t mean leaders; I mean -manipulators. They were all before my time, although when -I first came to New York, <em>James R. Keene, greatest of them -all</em>, was in his prime. But I was a mere youngster then, exclusively -concerned with duplicating, in a reputable broker’s -office, the success I had enjoyed in the bucket shops of my -native city. And, then, too, at the time Keene was busy with -the U.S. Steel stocks—his manipulative masterpiece—I had -no experience with manipulation, no real knowledge of it or -of its value or meaning, and, for that matter, no great need -of such knowledge. If I thought about it at all I suppose I -must have regarded it as a well-dressed form of thimble-rigging, -of which the lowbrow form was such tricks as had -been tried on me in the bucket shops. Such talk as I since -have heard on the subject has consisted in great part of surmises -and suspicions; of guesses rather than intelligent analyses.</p> - -<p>More than one man who knew him well has told me that -Keene was the boldest and most brilliant operator that ever -worked in Wall Street. That is saying a great deal, for there -have been some great traders. Their names are now all but -forgotten, but nevertheless they were kings in their day—for -a day! They were pulled up out of obscurity into the sunlight -of financial fame by the ticker tape—and the little -paper ribbon didn’t prove strong enough to keep them suspended<span class="pagenum" id="Page_246">246</span> -there long enough for them to become historical fixtures. -At all events Keene was by all odds the best manipulator -of his day—and it was a long and exciting day.</p> - -<p>He capitalized his knowledge of the game, his experience -as an operator and his talents when he sold his services to -the Havemeyer brothers, who wanted him to develop a -market for the Sugar stocks. He was broke at the time or he -would have continued to trade on his own hook; and he was -some plunger! He was successful with Sugar; made the -shares trading favourites, and that made them easily vendible. -After that, he was asked time and again to take charge -of pools. I am told that in these pool operations he never -asked nor accepted a fee, but paid for his share like the other -members of the pool. The market conduct of the stock, of -course, was exclusively in his charge. Often there was talk -of treachery—on both sides. His feud with the Whitney-Ryan -clique arose from such accusations. It is not difficult -for a manipulator to be misunderstood by his associates. -They don’t see his needs as he himself does. I know this -from my own experience.</p> - -<p>It is a matter of regret that Keene did not leave an accurate -record of his greatest exploit—the successful manipulation -of the U.S. Steel shares in the spring of 1901. As I -understand it, Keene never had an interview with J. P. Morgan -about it. Morgan’s firm dealt with or through Talbot J. -Taylor & Co., at whose office Keene made his headquarters. -Talbot Taylor was Keene’s son-in-law. I am assured that -Keene’s fee for his work consisted of the pleasure he derived -from the work. That he made millions trading in the market -he helped to put up that spring is well known. He told a -friend of mine that in the course of a few weeks he sold in -the open market for the underwriters’ syndicate more than -seven hundred and fifty thousand shares. Not bad when you -consider two things: That they were new and untried stocks -of a corporation whose capitalization was greater than the -entire debt of the United States at that time; and second,<span class="pagenum" id="Page_247">247</span> -that men like D. G. Reid, W. B. Leeds, the Moore brothers, -Henry Phipps, H. C. Frick and the other Steel magnates also -sold hundreds of thousands of shares to the public at the -same time in the same market that Keene helped to create.</p> - -<p>Of course, general conditions favoured him. Not only actual -business but sentiment and his unlimited financial backing -made possible his success. What we had was not merely -a big bull market but a boom and a state of mind not likely -to be seen again. The undigested-securities panic came later, -when Steel common, which Keene had marked up to 55 in -1901, sold at 10 in 1903 and at 8⅞ in 1904.</p> - -<p>We can’t analyse Keene’s manipulative campaigns. His -books are not available; the adequately detailed record is -nonexistent. For example, it would be interesting to see how -he worked in Amalgamated Copper. H. H. Rogers and William -Rockefeller had tried to dispose of their surplus stock -in the market and had failed. Finally they asked Keene to -market their line, and he agreed. Bear in mind that H. H. -Rogers was one of the ablest business men of his day in Wall -Street and that William Rockefeller was the boldest speculator -of the entire Standard Oil coterie. They had practically -unlimited resources and vast prestige as well as years of experience -in the stock-market game. And yet they had to go -to Keene. I mention this to show you that there are some -tasks which it requires a specialist to perform. Here was a -widely touted stock, sponsored by America’s greatest capitalists, -that could not be sold except at a great sacrifice of -money and prestige. Rogers and Rockefeller were intelligent -enough to decide that Keene alone might help them.</p> - -<p>Keene began to work at once. He had a bull market to -work in and sold two hundred and twenty thousand shares -of Amalgamated at around par. After he disposed of the -insiders’ line the public kept on buying and the price went -ten points higher. Indeed the insiders got bullish on the -stock they had sold when they saw how eagerly the public -was taking it. There was a story that Rogers actually advised<span class="pagenum" id="Page_248">248</span> -Keene to go long of Amalgamated. It is scarcely credible -that Rogers meant to unload on Keene. He was too -shrewd a man not to know that Keene was no bleating lamb. -Keene worked as he always did—that is, <em>doing his big selling -on the way down after the big rise</em>. Of course his tactical -moves were directed by his needs and by the minor currents -that changed from day to day. In the stock market, as in -warfare, it is well to keep in mind the difference between -strategy and tactics.</p> - -<p>One of Keene’s confidential men—he is the best fly fisherman -I know—told me only the other day that during the -Amalgamated campaign Keene would find himself almost -out of stock one day—that is, out of the stock he had been -forced to take in marking up the price; and on the next day -he would buy back thousands of shares. On the day after -that, he would sell on balance. Then he would leave the -market absolutely alone, to see how it would take care of -itself and also to accustom it to do so. When it came to the -actual marketing of the line he did what I told you: he sold -it on the way down. The trading public is always looking for -a rally, and, besides, there is the covering by the shorts.</p> - -<p>The man who was closest to Keene during that deal told -me that after Keene sold the Rogers-Rockefeller line for -something like twenty or twenty-five million dollars in cash -Rogers sent him a check for two hundred thousand. This reminds -you of the millionaire’s wife who gave the Metropolitan -Opera House scrub-woman fifty cents reward for finding -the one-hundred-thousand-dollar pearl necklace. Keene sent -the check back with a polite note saying he was not a stock -broker and that he was glad to have been of some service to -them. They kept the check and wrote him that they would -be glad to work with him again. Shortly after that it was -that H. H. Rogers gave Keene the friendly tip to buy Amalgamated -at around 130!</p> - -<p>A brilliant operator, James R. Keene! His private secretary -told me that when the market was going his way Mr. Keene<span class="pagenum" id="Page_249">249</span> -was irascible; and those who knew him say his irascibility -was expressed in sardonic phrases that lingered long in the -memory of his hearers. But when he was losing he was in -the best of humour, a polished man of the world, agreeable, -epigrammatic, interesting.</p> - -<p>He had in superlative degree the qualities of mind that -are associated with successful speculators anywhere. That -he did not argue with the tape is plain. He was utterly fearless -but never reckless. He could and did turn in a twinkling, -if he found he was wrong.</p> - -<p>Since his day there have been so many changes in Stock -Exchange rules and so much more rigorous enforcement of -old rules, so many new taxes on stock sales and profits, and -so on, that the game seems different. Devices that Keene -could use with skill and profit can no longer be utilised. Also, -we are assured, the business morality of Wall Street is on a -higher plane. Nevertheless it is fair to say that in any period -of our financial history Keene would have been a great -manipulator because he was a great stock operator and knew -the game of speculation from the ground up. He achieved -what he did because conditions at the time permitted him -to do so. He would have been as successful in his undertakings -in 1922 as he was in 1901 or in 1876, when he first came -to New York from California and made nine million dollars -in two years. There are men whose gait is far quicker than -the mob’s. They are bound to lead—no matter how much -the mob changes.</p> - -<p>As a matter of fact, the change is by no means as radical -as you’d imagine. The rewards are not so great, for it is no -longer pioneer work and therefore it is not pioneer’s pay. -But in certain respects manipulation is easier than it was; in -other ways much harder than in Keene’s day.</p> - -<p>There is no question that advertising is an art, and manipulation -is the art of advertising through the medium of the -tape. The tape should tell the story the manipulator wishes -its readers to see. The truer the story the more convincing it<span class="pagenum" id="Page_250">250</span> -is bound to be, and the more convincing it is the better the -advertising is. A manipulator to-day, for instance, has not -only to make a stock look strong but also to make it be -strong. Manipulation therefore must be based on sound trading -principles. That is what made Keene such a marvellous -manipulator; he was a consummate trader to begin with.</p> - -<p>The word “manipulation” has come to have an ugly sound. -It needs an alias. I do not think there is anything so very -mysterious or crooked about the process itself when it has -for an object the selling of a stock in bulk, provided, of -course, that such operations are not accompanied by misrepresentation. -There is little question that a manipulator necessarily -seeks his buyers among speculators. He turns to men -who are looking for big returns on their capital and are -therefore willing to run a greater than normal business risk. -I can’t have much sympathy for the man who, knowing this, -nevertheless blames others for his own failure to make easy -money. He is a devil of a clever fellow when he wins. But -when he loses money the other fellow was a crook; a manipulator! -In such moments and from such lips the word connotes -the use of marked cards. But this is not so.</p> - -<p>Usually the object of manipulation is to develop marketability—that -is, the ability to dispose of fair-sized blocks at -some price at any time. Of course a pool, by reason of a reversal -of general market conditions, may find itself unable -to sell except at a sacrifice too great to be pleasing. They -then may decide to employ a professional, believing that -his skill and experience will enable him to conduct an -orderly retreat instead of suffering an appalling rout.</p> - -<p>You will notice that I do not speak of manipulation designed -to permit considerable accumulation of a stock as -cheaply as possible, as, for instance, in buying for control, -because this does not happen often nowadays.</p> - -<p>When Jay Gould wished to cinch his control of Western -Union and decided to buy a big block of the stock, Washington -E. Connor, who had not been seen on the floor of the<span class="pagenum" id="Page_251">251</span> -Stock Exchange for years, suddenly showed up in person at -the Western Union Post. He began to bid for Western -Union. The traders to a man laughed—at his stupidity in -thinking them so simple—and they cheerfully sold him all -the stock he wanted to buy. It was too raw a trick, to think -he could put up the price by acting as though Mr. Gould -wanted to buy Western Union. Was that manipulation? I -think I can only answer that by saying “No; and yes!”</p> - -<p>In the majority of cases the object of manipulation is, as -I said, to sell stock to the public at the best possible price. -It is not alone a question of selling but of distributing. It is -obviously better in every way for a stock to be held by a -thousand people than by one man—better for the market in -it. So it is not alone the sale at a good price but the character -of the distribution that a manipulator must consider.</p> - -<p>There is no sense in marking up the price to a very high -level if you cannot induce the public to take it off your -hands later. Whenever inexperienced manipulators try to -unload at the top and fail, old-timers look mighty wise and -tell you that you can lead a horse to water but you cannot -make him drink. Original devils! As a matter of fact, it is -well to remember a rule of manipulation, a rule that Keene -and his able predecessors well knew. It is this: <em>Stocks are -manipulated to the highest point possible and then sold to -the public on the way down</em>.</p> - -<p>Let me begin at the beginning. Assume that there is some -one—an underwriting syndicate or a pool or an individual—that -has a block of stock which it is desired to sell at the best -price possible. It is a stock duly listed on the New York -Stock Exchange. The best place for selling it ought to be the -open market, and the best buyer ought to be the general -public. The negotiations for the sale are in charge of a man. -He—or some present or former associate—has tried to sell -the stock on the Stock Exchange and has not succeeded. He -is—or soon becomes—sufficiently familiar with stock-market -operations to realise that more experience and greater aptitude<span class="pagenum" id="Page_252">252</span> -for the work are needed than he possesses. He knows -personally or by hearsay several men who have been successful -in their handling of similar deals, and he decides to -avail himself of their professional skill. He seeks one of them -as he would seek a physician if he were ill or an engineer if -he needed that kind of expert.</p> - -<p>Suppose he has heard of me as a man who knows the -game. Well, I take it that he tries to find out all he can about -me. He then arranges for an interview, and in due time calls -at my office.</p> - -<p>Of course, the chances are that I know about the stock -and what it represents. It is my business to know. That is -how I make my living. My visitor tells me what he and his -associates wish to do, and asks me to undertake the deal.</p> - -<p>It is then my turn to talk. I ask for whatever information -I deem necessary to give me a clear understanding of what I -am asked to undertake. I determine the value and estimate -the market possibilities of that stock. That and my reading -of current conditions in turn help me to gauge the likelihood -of success for the proposed operation.</p> - -<p>If my information inclines me to a favourable view I accept -the proposition and tell him then and there what my -terms will be for my services. If he in turn accepts my terms—the -honorarium and the conditions—I begin my work at -once.</p> - -<p>I generally ask and receive calls on a block of stock. I insist -upon graduated calls as the fairest to all concerned. The -price of the call begins at a little below the prevailing market -price and goes up; say, for example, that I get calls on one -hundred thousand shares and the stock is quoted at 40. I -begin with a call for some thousands of shares at 35, another -at 37, another at 40, and at 45 and 50, and so on up to 75 -or 80.</p> - -<p>If as the result of my professional work—my manipulation—the -price goes up, and if at the highest level there is a -good demand for the stock so that I can sell fair-sized blocks<span class="pagenum" id="Page_253">253</span> -of it I of course call the stock. I am making money; but so -are my clients making money. This is as it should be. If my -skill is what they are paying for they ought to get value. Of -course, there are times when a pool may be wound up at a -loss, but that is seldom, for I do not undertake the work unless -I see my way clear to a profit. This year I was not so -fortunate in one or two deals, and I did not make a profit. -There are reasons, but that is another story, to be told later—perhaps.</p> - -<p>The first step in a bull movement in a stock is to advertise -the fact that there is a bull movement on. Sounds silly, -doesn’t it? Well, think a moment. It isn’t as silly as it -sounded, is it? The most effective way to advertise what, in -effect, are your honourable intentions is to make the stock -active and strong. After all is said and done, <em>the greatest -publicity agent in the wide world is the ticker, and by far -the best advertising medium is the tape</em>. I do not need to -put out any literature for my clients. I do not have to inform -the daily press as to the value of the stock or to work the -financial reviews for notices about the company’s prospects. -Neither do I have to get a following. I accomplish all these -highly desirable things by merely making the stock active. -<em>When there is activity there is a synchronous demand for -explanations</em>; and that means, of course, that the necessary -reasons—for publication—supply themselves without the -slightest aid from me.</p> - -<p>Activity is all that the floor traders ask. They will buy or -sell any stock at any level if only there is a free market for -it. They will deal in thousands of shares wherever they see -activity, and their aggregate capacity is considerable. It -necessarily happens that they constitute the manipulator’s -first crop of buyers. They will follow you all the way up and -they thus are a great help at all the stages of the operation. -I understand that James R. Keene used habitually to employ -the most active of the room traders, both to conceal the -source of the manipulation and also because he knew that<span class="pagenum" id="Page_254">254</span> -they were by far the best business-spreaders and tip-distributors. -He often gave calls to them—verbal calls—above -the market, so that they might do some helpful work -before they could cash in. He made them earn their profit. -To get a professional following I myself have never had to -do more than to make a stock active. Traders don’t ask for -more. It is well, of course, to remember that these professionals -on the floor of the Exchange buy stocks with the intention -of selling them at a profit. They do not insist on its -being a big profit; but it must be a quick profit.</p> - -<p>I make the stock active in order to draw the attention of -speculators to it, for the reasons I have given. I buy it and I -sell it and the traders follow suit. The selling pressure is not -apt to be strong where a man has as much speculatively held -stock sewed up—in calls—as I insist on having. The buying, -therefore, prevails over the selling, and the public follows -the lead not so much of the manipulator as of the room traders. -It comes in as a buyer. This highly desirable demand I -fill—that is, I sell stock on balance. If the demand is what it -ought to be it will absorb more than the amount of stock I -was compelled to accumulate in the earlier stages of the -manipulation; and when this happens I sell the stock short—that -is, technically. In other words, I sell more stock than I -actually hold. It is perfectly safe for me to do so since I am -really selling against my calls. Of course, when the demand -from the public slackens, the stock ceases to advance. Then -I wait.</p> - -<p>Say, then, that the stock has ceased to advance. There -comes a weak day. The entire market may develop a reactionary -tendency or some sharp-eyed trader may perceive -that there are no buying orders to speak of in my stock, and -he sells it, and his fellows follow. Whatever the reason may -be, my stock starts to go down. Well, I begin to buy it. I -give it the support that a stock ought to have if it is in good -odour with its own sponsors. And more: I am able to support -it without accumulating it—that is, without increasing the<span class="pagenum" id="Page_255">255</span> -amount I shall have to sell later on. Observe that I do this -without decreasing my financial resources. Of course what -I am really doing is covering stock I sold short at higher -prices when the demand from the public or from the traders -or from both enabled me to do it. It is always well to make -it plain to the traders—and to the public, also—that there is -a demand for the stock on the way down. That tends to -check both reckless short selling by the professionals and -liquidation by frightened holders—which is the selling you -usually see when a stock gets weaker and weaker, which in -turn is what a stock does when it is not supported. These -covering purchases of mine constitute what I call the stabilising -process.</p> - -<p>As the market broadens I of course sell stock on the way -up, but never enough to check the rise. This is in strict accordance -with my stabilising plans. It is obvious that the -more stock I sell on a reasonable and orderly advance the -more I encourage the conservative speculators, who are -more numerous than the reckless room traders; and in addition -the more support I shall be able to give to the stock on -the inevitable weak days. By always being short I always am -in a position to support the stock without danger to myself. -As a rule I begin my selling at a price that will show me a -profit. But I often sell without having a profit, simply to -create or to increase what I may call my riskless buying -power. My business is not alone to put up the price or to -sell a big block of stock for a client but to make money for -myself. That is why I do not ask my clients to finance my -operations. My fee is contingent upon my success.</p> - -<p>Of course what I have described is not my invariable -practice. I neither have nor adhere to an inflexible system. I -modify my terms and conditions according to circumstances.</p> - -<p>A stock which it is desired to distribute should be manipulated -to the highest possible point and then sold. I repeat -this both because it is fundamental and because the public -apparently believes that the selling is all done at the top.<span class="pagenum" id="Page_256">256</span> -Sometimes a stock gets waterlogged, as it were; it doesn’t go -up. That is the time to sell. The price naturally will go down -on your selling rather further than you wish, but you can -generally nurse it back. As long as a stock that I am manipulating -goes up on my buying I know I am hunky, and if need -be I buy it with confidence and use my own money without -fear—precisely as I would any other stock that acts the same -way. It is the line of least resistance. You remember my trading -theories about that line, don’t you? Well, when the price -line of least resistance is established I follow it, not because -I am manipulating that particular stock at that particular -moment but because I am a stock operator at all times.</p> - -<p>When my buying does not put the stock up I stop buying -and then proceed to sell it down; and that also is exactly -what I would do with that same stock if I did not happen to -be manipulating it. The principal marketing of the stock, as -you know, is done on the way down. <em>It is perfectly astonishing -how much stock a man can get rid of on a decline.</em></p> - -<p>I repeat that at no time during the manipulation do I forget -to be a stock trader. My problems as a manipulator, after -all, are the same that confront me as an operator. All manipulation -comes to an end when the manipulator cannot make -a stock do what he wants it to do. <em>When the stock you are -manipulating doesn’t act as it should, quit. Don’t argue with -the tape. Do not seek to lure the profit back. Quit while the -quitting is good—and cheap.</em></p> - -<hr /> - -<p><span class="pagenum" id="Page_257">257</span></p> - -<div class="chapter"> -<h2 id="XXI"><i>XXI</i></h2> -</div> - -<p class="in0"><span class="firstword">I am well aware</span> that all these generalities do not sound -especially impressive. Generalities seldom do. Possibly I may -succeed better if I give a concrete example. I’ll tell you how -I marked up the price of a stock 30 points, and in so doing -accumulated only seven thousand shares and developed a -market that would absorb almost any amount of stock.</p> - -<p>It was Imperial Steel. The stock had been brought out by -reputable people and it had been fairly well tipped as a -property of value. About 30 per cent of the capital stock was -placed with the general public through various Wall Street -houses, but there had been no significant activity in the -shares after they were listed. From time to time somebody -would ask about it and one or another insider—members of -the original underwriting syndicate—would say that the -company’s earnings were better than expected and the prospects -more than encouraging. This was true enough and -very good as far as it went, but not exactly thrilling. The -speculative appeal was absent, and from the investor’s point -of view the price stability and dividend permanency of the -stock were not yet demonstrated. It was a stock that never -behaved sensationally. It was so gentlemanly that no corroborative -rise ever followed the insiders’ eminently truthful -reports. On the other hand, neither did the price decline.</p> - -<p>Imperial Steel remained unhonoured and unsung and untipped, -content to be one of those stocks that don’t go down -because nobody sells and that nobody sells because nobody<span class="pagenum" id="Page_258">258</span> -likes to go short of a stock that is not well distributed; the -seller is too much at the mercy of the loaded-up inside -clique. Similarly, there is no inducement to buy such a stock. -To the investor Imperial Steel therefore remained a speculation. -To the speculator it was a dead one—the kind that -makes an investor of you against your will by the simple -expedient of falling into a trance the moment you go long -of it. The chap who is compelled to lug a corpse a year or -two always loses more than the original cost of the deceased; -he is sure to find himself tied up with it when some really -good things come his way.</p> - -<p>One day the foremost member of the Imperial Steel syndicate, -acting for himself and associates, came to see me. -They wished to create a market for the stock, of which they -controlled the undistributed 70 per cent. They wanted me -to dispose of their holdings at better prices than they -thought they would obtain if they tried to sell in the open -market. They wanted to know on what terms I would undertake -the job.</p> - -<p>I told him that I would let him know in a few days. Then -I looked into the property. I had experts go over the various -departments of the company—industrial, commercial and -financial. They made reports to me which were unbiased. I -wasn’t looking for the good or the bad points, but for the -facts, such as they were.</p> - -<p>The reports showed that it was a valuable property. The -prospects justified purchases of the stock at the prevailing -market price—if the investor were willing to wait a little. -Under the circumstances an advance in the price would in -reality be the commonest and most legitimate of all market -movements—to wit, the process of discounting the future. -There was therefore no reason that I could see why I should -not conscientiously and confidently undertake the bull -manipulation of Imperial Steel.</p> - -<p>I let my man know my mind and he called at my office to -talk the deal over in detail. I told him what my terms were.<span class="pagenum" id="Page_259">259</span> -For my services I asked no cash, but calls on one hundred -thousand shares of the Imperial Steel stock. The price of the -calls ran up from 70 to 100. That may seem like a big fee to -some. But they should consider that the insiders were certain -they themselves could not sell one hundred thousand -shares, or even fifty thousand shares, at 70. There was no -market for the stock. All the talk about wonderful earnings -and excellent prospects had not brought in buyers, not to -any great extent. In addition, I could not get my fee in cash -without my clients first making some millions of dollars. -What I stood to make was not an exorbitant selling commission. -It was a fair contingent fee.</p> - -<p>Knowing that the stock had real value and that general -market conditions were bullish and therefore favourable for -an advance in all good stocks, I figured that I ought to do -pretty well. My clients were encouraged by the opinions I -expressed, agreed to my terms at once, and the deal began -with pleasant feelings all around.</p> - -<p>I proceeded to protect myself as thoroughly as I could. -The syndicate owned or controlled about 70 per cent of the -outstanding stock. I had them deposit their 70 per cent -under a trust agreement. I didn’t propose to be used as a -dumping ground for the big holders. With the majority -holdings thus securely tied up, I still had 30 per cent of scattered -holdings to consider, but that was a risk I had to take. -Experienced speculators do not expect ever to engage in -utterly riskless ventures. As a matter of fact, it was not much -more likely that all the untrusteed stock would be thrown on -the market at one fell swoop than that all the policyholders -of a life-insurance company would die at the same hour, the -same day. There are unprinted actuarial tables of stock-market -risks as well as of human mortality.</p> - -<p>Having protected myself from some of the avoidable dangers -of a stock-market deal of that sort, I was ready to begin -my campaign. Its objective was to make my calls valuable. -To do this I must put up the price and develop a market in<span class="pagenum" id="Page_260">260</span> -which I could sell one hundred thousand shares—the stock -in which I held options.</p> - -<p>The first thing I did was to find out how much stock was -likely to come on the market on an advance. This was easily -done through my brokers, who had no trouble in ascertaining -what stock was for sale at or a little above the market. I -don’t know whether the specialists told them what orders -they had on their books or not. The price was nominally 70, -but I could not have sold one thousand shares at that price. -I had no evidence of even a moderate demand at that figure -or even a few points lower. I had to go by what my brokers -found out. But it was enough to show me how much stock -there was for sale and how little was wanted.</p> - -<p>As soon as I had a line on these points I quietly took all -the stock that was for sale at 70 and higher. When I say “I” -you will understand that I mean my brokers. The sales were -for account of some of the minority holders because my -clients naturally had cancelled whatever selling orders they -might have given out before they tied up their stock.</p> - -<p>I didn’t have to buy very much stock. Moreover, I knew -that the right kind of advance would bring in other buying -orders—and, of course, selling orders also.</p> - -<p>I didn’t give bull tips on Imperial Steel to anybody. I -didn’t have to. My job was to seek directly to influence sentiment -by the best possible kind of publicity. I do not say that -there should never be bull propaganda. It is as legitimate -and indeed as desirable to advertise the value of a new stock -as to advertise the value of woolens or shoes or automobiles. -Accurate and reliable information should be given by the -public. But what I meant was that the tape did all that was -needed for my purpose. As I said before, the reputable -newspapers always try to print explanations for market -movements. It is news. Their readers demand to know not -only what happens in the stock market but why it happens. -Therefore without the manipulator lifting a finger the financial -writers will print all the available information and gossip,<span class="pagenum" id="Page_261">261</span> -and also analyse the reports of earnings, trade condition -and outlook; in short, whatever may throw light on the advance. -Whenever a newspaperman or an acquaintance asks -my opinion of a stock and I have one I do not hesitate to -express it. I do not volunteer advice and I never give tips, -but I have nothing to gain in my operations from secrecy. -At the same time I realise that the best of all tipsters, the -most persuasive of all salesmen, is the tape.</p> - -<p>When I had absorbed all the stock that was for sale at 70 -and a little higher I relieved the market of that pressure, and -naturally that made clear for trading purposes the line of -least resistance in Imperial Steel. It was manifestly upward. -The moment that fact was perceived by the observant traders -on the floor they logically assumed that the stock was in -for an advance the extent of which they could not know; but -they knew enough to begin buying. Their demand for Imperial -Steel, created exclusively by the obviousness of the -stock’s rising tendency—the tape’s infallible bull tip!—I -promptly filled. I sold to the traders the stock that I had -bought from the tired-out holders at the beginning. Of -course this selling was judiciously done; I contented myself -with supplying the demand. I was not forcing my stock on -the market and I did not want too rapid an advance. It -wouldn’t have been good business to sell out the half of my -one hundred thousand shares at that stage of the proceedings. -My job was to make a market on which I might sell -my entire line.</p> - -<p>But even though I sold only as much as the traders were -anxious to buy, the market was temporarily deprived of my -own buying power, which I had hitherto exerted steadily. -In due course the traders’ purchases ceased and the price -stopped rising. As soon as that happened there began the -selling by disappointed bulls or by those traders whose reasons -for buying disappeared the instant the rising tendency -was checked. But I was ready for this selling, and on the -way down I bought back the stock I had sold to the traders<span class="pagenum" id="Page_262">262</span> -a couple of points higher. This buying of stock I knew was -bound to be sold in turn checked the downward course; and -when the price stopped going down the selling orders -stopped coming in.</p> - -<p>I then began all over again. I took all the stock that was -for sale on the way up—it wasn’t very much—and the price -began to rise a second time; from a higher starting point -than 70. <em>Don’t</em> forget that on the way down there are many -holders who wish to heaven they had sold theirs but won’t -do it three or four points from the top. Such speculators always -vow they will surely sell out if there is a rally. They -put in their orders to sell on the way up, and then they -change their minds with the change in the stock’s price-trend. -Of course there is always profit taking from safe-playing -quick runners to whom a profit is always a profit to -be taken.</p> - -<p>All I had to do after that was to repeat the process; alternately -buying and selling; but always working higher.</p> - -<p>Sometimes, after you have taken all the stock that is for -sale, it pays to rush up the price sharply, to have what might -be called little bull flurries in the stock you are manipulating. -It is excellent advertising, because it makes talk and also -brings in both the professional traders and that portion of -the speculating public that likes action. It is, I think, a large -portion. I did that in Imperial Steel, and whatever demand -was created by those spurts I supplied. My selling always -kept the upward movement within bounds both as to extent -and as to speed. In buying on the way down and selling on -the way up I was doing more than marking up the price: I -was developing the marketability of Imperial Steel.</p> - -<p>After I began my operations in it there never was a time -when a man could not buy or sell the stock freely; I mean by -this, buy or sell a reasonable amount without causing over-violent -fluctuations in the price. The fear of being left high -and dry if he bought, or squeezed to death if he sold, was -gone. The gradual spread among the professionals and the<span class="pagenum" id="Page_263">263</span> -public of a belief in the permanence of the market for Imperial -Steel had much to do with creating confidence in the -movement; and, of course, the activity also put an end to a -lot of other objections. The result was that after buying and -selling a good many thousands of shares I succeeded in -making the stocks sell at par. At one hundred dollars a share -everybody wanted to buy Imperial Steel. Why not? Everybody -now knew that it was a good stock; that it had been -and still was a bargain. The proof was the rise. A stock that -could go thirty points from 70 could go up thirty more from -par. That is the way a good many argued.</p> - -<p>In the course of marking up the price those thirty points I -accumulated only seven thousand shares. The price on this -line averaged me almost exactly 85. That meant a profit of -fifteen points on it; but, of course, my entire profit, still on -paper, was much more. It was a safe enough profit, for I had -a market for all I wanted to sell. The stock would sell higher -on judicious manipulation and I had graduated calls on one -hundred thousand shares beginning at 70 and ending at 100.</p> - -<p>Circumstances prevented me from carrying out certain -plans of mine for converting my paper profits into good hard -cash. It had been, if I do say so myself, a beautiful piece of -manipulation, strictly legitimate and deservedly successful. -The property of the company was valuable and the stock -was not dear at the higher price. One of the members of the -original syndicate developed a desire to secure the control -of the property—a prominent banking house with ample resources. -The control of a prosperous and growing concern -like the Imperial Steel Corporation is possibly more valuable -to a banking firm than to individual investors. At all events, -this firm made me an offer for all my options on the stock. It -meant an enormous profit for me, and I instantly took it. I -am always willing to sell out when I can do so in a lump at -a good profit. I was quite content with what I made out of it.</p> - -<p>Before I disposed of my calls on the hundred thousand -shares I learned that these bankers had employed more experts<span class="pagenum" id="Page_264">264</span> -to make a still more thorough examination of the property. -Their reports showed enough to bring me in the offer I -got. I kept several thousand shares of the stock for investment. -I believe in it.</p> - -<p>There wasn’t anything about my manipulation of Imperial -Steel that wasn’t normal and sound. As long as the price -went up on my buying I knew I was O.K. The stock never -got waterlogged, as a stock sometimes does. When you find -that it fails to respond adequately to your buying you don’t -need any better tip to sell. You know that if there is any -value to a stock and general market conditions are right you -can always nurse it back after a decline, no matter if it’s -twenty points. But I never had to do anything like that in -Imperial Steel.</p> - -<p>In my manipulation of stocks I never lose sight of basic -trading principles. Perhaps you wonder why I repeat this or -why I keep on harping on the fact that I never argue with -the tape or lose my temper at the market because of its behaviour. -You would think—wouldn’t you?—that shrewd -men who have made millions in their own business and in -addition have successfully operated in Wall Street at times -would realise the wisdom of playing the game dispassionately. -Well, you would be surprised at the frequency with -which some of our most successful promoters behave like -peevish women because the market does not act the way -they wish it to act. They seem to take it as a personal slight, -and they proceed to lose money by first losing their temper.</p> - -<p>There has been much gossip about a disagreement between -John Prentiss and myself. People have been led to -expect a dramatic narrative of a stock-market deal that went -wrong or some double-crossing that cost me—or him—millions; -or something of that sort. Well, it wasn’t.</p> - -<p>Prentiss and I had been friendly for years. He had given -me at various times information that I was able to utilise -profitably, and I had given him advice which he may or may -not have followed. If he did he saved money.</p> - -<p><span class="pagenum" id="Page_265">265</span> -He was largely instrumental in the organisation and promotion -of the Petroleum Products Company. After a more -or less successful market début general conditions changed -for the worse and the new stock did not fare as well as -Prentiss and his associates had hoped. When basic conditions -took a turn for the better Prentiss formed a pool and -began operations in Pete Products.</p> - -<p>I cannot tell you anything about his technique. He didn’t -tell me how he worked and I didn’t ask him. But it was plain -that notwithstanding his Wall Street experience and his undoubted -cleverness, whatever it was he did proved of little -value and it didn’t take the pool long to find out that they -couldn’t get rid of much stock. He must have tried everything -he knew, because a pool manager does not ask to be -superseded by an outsider unless he feels unequal to the -task, and that is the last thing the average man likes to admit. -At all events he came to me and after some friendly -preliminaries he said he wanted me to take charge of the -market for Pete Products and dispose of the pool’s holdings, -which amounted to a little over one hundred thousand -shares. The stock was selling at 102 to 103.</p> - -<p>The thing looked dubious to me and I declined his proposition -with thanks. But he insisted that I accept. He put it -on personal grounds, so that in the end I consented. I constitutionally -dislike to identify myself with enterprises in the -success of which I cannot feel confidence, but I also think a -man owes something to his friends and acquaintances. I said -I would do my best, but I told him I did not feel very cocky -about it and I enumerated the adverse factors that I would -have to contend with. But all Prentiss said to that was that -he wasn’t asking me to guarantee millions in profits to the -pool. He was sure that if I took hold I’d make out well -enough to satisfy any reasonable being.</p> - -<p>Well, there I was, engaged in doing something against my -own judgment. I found, as I feared, a pretty tough state of -affairs, due in great measure to Prentiss’ own mistakes while<span class="pagenum" id="Page_266">266</span> -he was manipulating the stock for account of the pool. But -the chief factor against me was time. I was convinced that -we were rapidly approaching the end of a bull swing and -therefore that the improvement in the market, which had -so encouraged Prentiss, would prove to be merely a short-lived -rally. I feared that the market would turn definitely -bearish before I could accomplish much with Pete Products. -However, I had given my promise and I decided to work as -hard as I knew how.</p> - -<p>I started to put up the price. I had moderate success. I -think I ran it up to 107 or thereabouts, which was pretty -fair, and I was even able to sell a little stock on balance. It -wasn’t much, but I was glad not to have increased the pool’s -holdings. There were a lot of people not in the pool who -were just waiting for a small rise to dump their stock, and I -was a godsend to them. Had general conditions been better -I also would have done better. It was too bad that I wasn’t -called in earlier. All I could do now, I felt, was to get out -with as little loss as possible to the pool.</p> - -<p>I sent for Prentiss and told him my views. But he started -to object. I then explained to him why I took the position I -did. I said: “Prentiss, I can feel very plainly the pulse of the -market. There is no follow-up in your stock. It is no trick to -see just what the public’s reaction is to my manipulation. -Listen: When Pete Products is made as attractive to traders -as possible and you give it all the support needed at all times -and notwithstanding all that you find that the public leaves -it alone you may be sure that there is something wrong, not -with the stock but with the market. There is absolutely no -use in trying to force matters. You are bound to lose if you -do. A pool manager should be willing to buy his own stock -when he has company. But when he is the only buyer in the -market he’d be an ass to buy it. For every five thousand -shares I buy the public ought to be willing or able to buy -five thousand more. But I certainly am not going to do all -the buying. If I did, all I would succeed in doing would be<span class="pagenum" id="Page_267">267</span> -to get soaked with a lot of long stock that I don’t want. -There is only one thing to do, and that is to sell. And the -only way to sell is to sell.”</p> - -<p>“You mean, sell for what you can get?” asked Prentiss.</p> - -<p>“Right!” I said. I could see he was getting ready to object. -“If I am to sell the pool’s stock at all you can make up your -mind that the price is going to break through par and——”</p> - -<p>“Oh, no! Never!” he yelled. You’d have imagined I was -asking him to join a suicide club.</p> - -<p>“Prentiss,” I said to him, “it is a cardinal principle of stock -manipulation to put up a stock in order to sell it. But you -don’t sell in bulk on the advance. You can’t. The big selling -is done on the way down from the top. I cannot put up your -stock to 125 or 130. I’d like to, but it can’t be done. So you -will have to begin your selling from this level. In my opinion -all stocks are going down, and Petroleum Products isn’t going -to be the one exception. It is better for it to go down -now on the pool’s selling than for it to break next month on -selling by some one else. It will go down anyhow.”</p> - -<p>I can’t see that I said anything harrowing, but you could -have heard his howls in China. He simply wouldn’t listen to -such a thing. It would never do. It would play the dickens -with the stock’s record, to say nothing of inconvenient possibilities -at the banks where the stock was held as collateral -on loans, and so on.</p> - -<p>I told him again that in my judgment nothing in the world -could prevent Pete Products from breaking fifteen or twenty -points, because the entire market was headed that way, and -I once more said it was absurd to expect his stock to be a -dazzling exception. But again my talk went for nothing. He -insisted that I support the stock.</p> - -<p>Here was a shrewd business man, one of the most successful -promoters of the day, who had made millions in Wall -Street deals and knew much more than the average man -about the game of speculation, actually insisting on supporting -a stock in an incipient bear market. It was his stock, to<span class="pagenum" id="Page_268">268</span> -be sure, but it was nevertheless bad business. So much so -that it went against the grain and I again began to argue -with him. But it was no use. He insisted on putting in supporting -orders.</p> - -<p>Of course when the general market got weak and the decline -began in earnest Pete Products went with the rest. -Instead of selling I actually bought stock for the insiders’ -pool—by Prentiss’ orders.</p> - -<p>The only explanation is that Prentiss did not believe the -bear market was right on top of us. I myself was confident -that the bull market was over. I had verified my first surmise -by tests not alone in Pete Products but in other stocks as -well. I didn’t wait for the bear market to announce its safe -arrival before I started selling. Of course I didn’t sell a share -of Pete Products, though I was short of other stocks.</p> - -<p>The Pete Products pool, as I expected, was hung up with -all they held to begin with and with all they had to take in -their futile effort to hold up the price. In the end they did -liquidate; but at much lower figures than they would have -got if Prentiss had let me sell when and as I wished. It -could not be otherwise. But Prentiss still thinks he was right—or -says he does. I understand he says the reason I gave -him the advice I did was that I was short of other stocks and -the general market was going up. It implies, of course, that -the break in Pete Products that would have resulted from -selling out the pool’s holdings at any price would have -helped my bear position in other stocks.</p> - -<p>That is all tommyrot. I was not bearish because I was -short of stocks. I was bearish because that was the way I -sized up the situation, and I sold stocks short only after I -turned bearish. There never is much money in doing things -wrong end to; not in the stock market. My plan for selling -the pool’s stock was based on what the experience of twenty -years told me alone was feasible and therefore wise. Prentiss -ought to have been enough of a trader to see it as plainly as -I did. It was too late to try to do anything else.</p> - -<p><span class="pagenum" id="Page_269">269</span> -I suppose Prentiss shares the delusion of thousands of outsiders -who think a manipulator can do anything. He can’t. -The biggest thing Keene did was his manipulation of U.S. -Steel common and preferred in the spring of 1901. He succeeded -not because he was clever and resourceful and not -because he had a syndicate of the richest men in the country -back of him. He succeeded partly because of those reasons -but chiefly because the general market was right and the -public’s state of mind was right.</p> - -<p>It isn’t good business for a man to act against the teachings -of experience and against common sense. But the suckers -in Wall Street are not all outsiders. Prentiss’ grievance -against me is what I have just told you. He feels sore because -I did my manipulation not as I wanted to but as he -asked me to.</p> - -<p>There isn’t anything mysterious or underhanded or -crooked about manipulation designed to sell a stock in bulk -provided such operations are not accompanied by deliberate -misrepresentations. Sound manipulation must be based on -sound trading principles. People lay great stress on old-time -practices, such as wash sales. But I can assure you that the -mere mechanics of deception count for very little. The difference -between stock-market manipulation and the over-the-counter -sale of stocks and bonds is in the character of the -clientele rather than in the character of the appeal. J. P. -Morgan & Co. sell an issue of bonds to the public—that is, -to investors. A manipulator disposes of a block of stock to -the public—that is, to speculators. An investor looks for -safety, for permanence of the interest return on the capital -he invests. The speculator looks for a quick profit.</p> - -<p>The manipulator necessarily finds his primary market -among speculators—who are willing to run a greater than -normal business risk so long as they have a reasonable -chance to get a big return on their capital. I myself never -have believed in blind gambling. I may plunge or I may buy<span class="pagenum" id="Page_270">270</span> -one hundred shares. But in either case I must have a reason -for what I do.</p> - -<p>I distinctly remember how I got into the game of manipulation—that -is, in the marketing of stocks for others. It gives -me pleasure to recall it because it shows so beautifully the -professional Wall Street attitude toward stock-market operations. -It happened after I had “come back”—that is, after -my Bethlehem Steel trade in 1915 started me on the road to -financial recovery.</p> - -<p>I traded pretty steadily and had very good luck. I have -never sought newspaper publicity, but neither have I gone -out of my way to hide myself. At the same time, you know -that professional Wall Street exaggerates both the successes -and the failures of whichever operator happens to be active; -and, of course, the newspapers hear about him and print -rumors. I have been broke so many times, according to the -gossips, or have made so many millions, according to the -same authorities, that my only reaction to such reports is to -wonder how and where they are born. And how they grow! -I have had broker friend after broker friend bring the same -story to me, a little changed each time, improved, more circumstantial.</p> - -<p>All this preface is to tell you how I first came to undertake -the manipulation of a stock for someone else. The -stories the newspapers printed of how I had paid back in full -the millions I owed did the trick. My plungings and my -winnings were so magnified by the newspapers that I was -talked about in Wall Street. The day was past when an -operator swinging a line of two hundred thousand shares of -stock could dominate the market. But, as you know, the -public always desires to find successors to the old leaders. It -was Mr. Keene’s reputation as a skillful stock operator, a -winner of millions on his own hook, that made promoters -and banking houses apply to him for selling large blocks of -securities. In short, his services as manipulator were in demand<span class="pagenum" id="Page_271">271</span> -because of the stories the Street had heard about his -previous successes as a trader.</p> - -<p>But Keene was gone—passed on to that heaven where he -once said he wouldn’t stay a moment unless he found Sysonby -there waiting for him. Two or three other men who -made stock-market history for a few months had relapsed -into the obscurity of prolonged inactivity. I refer particularly -to certain of those plunging Westerners who came to -Wall Street in 1901 and after making many millions out of -their Steel holdings remained in Wall Street. They were in -reality superpromoters rather than operators of the Keene -type. But they were extremely able, extremely rich and extremely -successful in the securities of the companies which -they and their friends controlled. They were not really great -manipulators, like Keene or Governor Flower. Still, the -Street found in them plenty to gossip about and they certainly -had a following among the professionals and the -sportier commission houses. After they ceased to trade actively -the Street found itself without manipulators; at least, -it couldn’t read about them in the newspapers.</p> - -<p>You remember the big bull market that began when the -Stock Exchange resumed business in 1915. As the market -broadened and the Allies’ purchases in this country mounted -into billions we ran into a boom. As far as manipulation -went, it wasn’t necessary for anybody to lift a finger to create -an unlimited market for a war bride. Scores of men made -millions by capitalizing contracts or even promises of contracts. -They became successful promoters, either with the -aid of friendly bankers or by bringing out their companies -on the Curb market. The public bought anything that was -adequately touted.</p> - -<p>When the bloom wore off the boom, some of these promoters -found themselves in need of help from experts in -stock salesmanship. When the public is hung up with all -kinds of securities, some of them purchased at higher prices, -it is not an easy task to dispose of untried stocks. <em>After a<span class="pagenum" id="Page_272">272</span> -boom the public is positive that nothing is going up. It isn’t -that buyers become more discriminating, but that the blind -buying is over. It is the state of mind that has changed. -Prices don’t even have to go down to make people pessimistic. -It is enough if the market gets dull and stays dull for a -time.</em></p> - -<p>In every boom companies are formed primarily if not -exclusively to take advantage of the public’s appetite for all -kinds of stocks. Also there are belated promotions. The reason -why promoters make that mistake is that being human -they are unwilling to see the end of the boom. Moreover, it -is good business to take chances when the possible profit is -big enough. <em>The top is never in sight when the vision is -vitiated by hope.</em> The average man sees a stock that nobody -wanted at twelve dollars or fourteen dollars a share suddenly -advance to thirty—which surely is the top—until it -rises to fifty. That is absolutely the end of the rise. Then it -goes to sixty; to seventy; to seventy-five. It then becomes a -certainty that this stock, which a few weeks ago was selling -for less than fifteen, can’t go any higher. But it goes to -eighty; and to eighty-five. Whereupon the average man, who -never thinks of values but of prices, and is not governed in -his actions by conditions but by fears, takes the easiest way—he -stops thinking that there must be a limit to the advances. -That is why those outsiders who are wise enough -not to buy at the top make up for it by not taking profits. -The big money in booms is always made first by the public—on -paper. And it remains on paper.</p> - -<hr /> - -<p><span class="pagenum" id="Page_273">273</span></p> - -<div class="chapter"> -<h2 id="XXII"><i>XXII</i></h2> -</div> - -<p class="in0"><span class="firstword">One day</span> Jim Barnes, who not only was one of my principal -brokers but an intimate friend as well, called on me. He -said he wanted me to do him a great favour. He never before -had talked that way, and so I asked him to tell me what the -favour was, hoping it was something I could do, for I certainly -wished to oblige him. He then told me that his firm -was interested in a certain stock; in fact, they had been the -principal promoters of the company and had placed the -greater part of the stock. Circumstances had arisen that -made it imperative for them to market a rather large block. -Jim wanted me to undertake to do the marketing for him. -The stock was Consolidated Stove.</p> - -<p>I did not wish to have anything to do with it for various -reasons. But Barnes, to whom I was under some obligations, -insisted on the personal-favour phase of the matter, which -alone could overcome my objections. He was a good fellow, -a friend, and his firm, I gathered, was pretty heavily involved, -so in the end I consented to do what I could.</p> - -<p>It has always seemed to me that the most picturesque -point of difference between the war boom and other booms -was the part that was played by a type new in stock-market -affairs—the boy banker.</p> - -<p>The boom was stupendous and its origins and causes were -plainly to be grasped by all. But at the same time the greatest -banks and trust companies in the country certainly did -all they could to help make millionaires overnight of all sorts<span class="pagenum" id="Page_274">274</span> -and conditions of promoters and munition makers. It got so -that all a man had to do was to say that he had a friend who -was a friend of a member of one of the Allied commissions -and he would be offered all the capital needed to carry out -the contracts he had not yet secured. I used to hear incredible -stories of clerks becoming presidents of companies -doing a business of millions of dollars on money borrowed -from trusting trust companies, and of contracts that left a -trail of profits as they passed from man to man. A flood of -gold was pouring into this country from Europe and the -banks had to find ways of impounding it.</p> - -<p>The way business was done might have been regarded -with misgivings by the old, but there didn’t seem to be so -many of them about. The fashion for gray-haired presidents -of banks was all very well in tranquil times, but youth was -the chief qualification in these strenuous times. The banks -certainly did make enormous profits.</p> - -<p>Jim Barnes and his associates, enjoying the friendship and -confidence of the youthful president of the Marshall National -Bank, decided to consolidate three well-known stove -companies and sell the stock of the new company to the -public that for months had been buying any old thing in the -way of engraved stock certificates.</p> - -<p>One trouble was that the stove business was so prosperous -that all three companies were actually earning dividends on -their common stock for the first time in their history. Their -principal stockholders did not wish to part with the control. -There was a good market for their stocks on the Curb; and -they had sold as much as they cared to part with and they -were content with things as they were. Their individual -capitalisation was too small to justify big market movements, -and that is where Jim Barnes’ firm came in. It pointed out -that the consolidated company must be big enough to list on -the Stock Exchange, where the new shares could be made -more valuable than the old ones. It is an old device in Wall -Street—to change the colour of the certificates in order to<span class="pagenum" id="Page_275">275</span> -make them more valuable. Say a stock ceases to be easily -vendible at war. Well, sometimes by quadrupling the stock -you may make the new shares sell at 30 or 35. This is equivalent -to 120 or 140 for the old stock—a figure it never could -have reached.</p> - -<p>It seems that Barnes and his associates succeeded in inducing -some of their friends who held speculatively some -blocks of Gray Stove Company—a large concern—to come -into the consolidation on the basis of four shares of Consolidated -for each share of Gray. Then the Midland and the -Western followed their big sister and came in on the basis of -share for share. Theirs had been quoted on the Curb at -around 25 to 30, and the Gray, which was better known and -paid dividends, hung around 125.</p> - -<p>In order to raise the money to buy out those holders who -insisted upon selling for cash, and also to provide additional -working capital for improvements and promotion expenses, -it became necessary to raise a few millions. So Barnes saw -the president of his bank, who kindly lent his syndicate three -million five hundred thousand dollars. The collateral was -one hundred thousand shares of the newly organised corporation. -The syndicate assured the president, or so I was told, -that the price would not go below 50. It would be a very -profitable deal as there was big value there.</p> - -<p>The promoters’ first mistake was in the matter of timeliness. -The saturation point for new stock issues had been -reached by the market, and they should have seen it. But -even then they might have made a fair profit after all if they -had not tried to duplicate the unreasonable killings which -other promoters had made at the very height of the boom.</p> - -<p>Now you must not run away with the notion that Jim -Barnes and his associates were fools or inexperienced kids. -They were shrewd men. All of them were familiar with Wall -Street methods and some of them were exceptionally successful -stock traders. But they did rather more than merely -overestimate the public’s buying capacity. After all, that<span class="pagenum" id="Page_276">276</span> -capacity was something that they could determine only by -actual tests. Where they erred more expensively was in expecting -the bull market to last longer than it did. I suppose -the reason was that these same men had met with such great -and particularly with such quick success that they didn’t -doubt they’d be all through with the deal before the bull -market turned. They were all well known and had a considerable -following among the professional traders and the -wire houses.</p> - -<p>The deal was extremely well advertised. The newspapers -certainly were generous with their space. The older concerns -were identified with the stove industry of America and their -product was known the world over. It was a patriotic amalgamation -and there was a heap of literature in the daily -papers about the world conquests. The markets of Asia, -Africa and South America were as good as cinched.</p> - -<p>The directors of the company were all men whose names -were familiar to all readers of the financial pages. The publicity -work was so well handled and the promises of unnamed -insiders as to what the price was going to do were so -definite and convincing that a great demand for the new -stock was created. The result was that when the books were -closed it was found that the stock which was offered to the -public at fifty dollars a share had been oversubscribed by 25 -per cent.</p> - -<p>Think of it! The best the promoters should have expected -was to succeed in selling the new stock at that price after -weeks of work and after putting up the price to 75 or higher -in order to average 50. At that, it meant an advance of about -100 per cent in the old prices of the stocks of the constituent -companies. That was the crisis and they did not meet it as it -should have been met. It shows you that every business has -its own needs. General wisdom is less valuable than specific -savvy. The promoters, delighted by the unexpected oversubscription, -concluded that the public was ready to pay -any price for any quantity of that stock. And they actually<span class="pagenum" id="Page_277">277</span> -were stupid enough to underallot the stock. After the promoters -made up their minds to be hoggish they should have -tried to be intelligently hoggish.</p> - -<p>What they should have done, of course, was to allot the -stock in full. That would have made them short to the extent -of 25 per cent of the total amount offered for subscription -to the public, and that, of course, would have enabled them -to support the stock when necessary and at no cost to themselves. -Without any effort on their part they would have -been in the strong strategic position that I always try to find -myself in when I am manipulating a stock. They could have -kept the price from sagging, thereby inspiring confidence in -the new stock’s stability and in the underwriting syndicate -back of it. They should have remembered that their work -was not over when they sold the stock offered to the public. -That was only a part of what they had to market.</p> - -<p>They thought they had been very successful, but it was -not long before the consequences of their two capital blunders -became apparent. The public did not buy any more of -the new stock, because the entire market developed reactionary -tendencies. The insiders got cold feet and did not -support Consolidated Stove; and if insiders don’t buy their -own stock on recessions, who should? The absence of inside -support is generally accepted as a pretty good bear tip.</p> - -<p>There is no need to go into statistical details. The price of -Consolidated Stove fluctuated with the rest of the market, -but it never went above the initial market quotations, which -were only a fraction above 50. Barnes and his friends in the -end had to come in as buyers in order to keep it above 40. -Not to have supported that stock at the outset of its market -career was regrettable. But not to have sold all the stock the -public subscribed for was much worse.</p> - -<p>At all events, the stock was duly listed on the New York -Stock Exchange and the price of it duly kept sagging until -it nominally stood at 37. And it stood there because Jim -Barnes and his associates had to keep it there because their<span class="pagenum" id="Page_278">278</span> -bank had loaned them thirty-five dollars a share on one hundred -thousand shares. If the bank ever tried to liquidate that -loan there was no telling what the price would break to. The -public that had been eager to buy it at 50, now didn’t care -for it at 37, and probably wouldn’t want it at 27.</p> - -<p>As time went on the banks’ excesses in the matter of extensions -of credits made people think. The day of the boy -banker was over. The banking business appeared to be on -the ragged edge of suddenly relapsing into conservatism. -Intimate friends were now asked to pay off loans, for all the -world as though they had never played golf with the president.</p> - -<p>There was no need to threaten on the lender’s part or to -plead for more time on the borrower’s. The situation was -highly uncomfortable for both. The bank, for example, with -which my friend Jim Barnes did business, was still kindly -disposed. But it was a case of “For heaven’s sake take up -that loan or we’ll all be in a dickens of a mess!”</p> - -<p>The character of the mess and its explosive possibilities -were enough to make Jim Barnes come to me to ask me to -sell the one hundred thousand shares for enough to pay off -the bank’s three-million-five-hundred-thousand-dollar loan. -Jim did not now expect to make a profit on that stock. If the -syndicate only made a small loss on it they would be more -than grateful.</p> - -<p>It seemed a hopeless task. The general market was neither -active nor strong, though at times there were rallies, when -everybody perked up and tried to believe the bull swing was -about to resume.</p> - -<p>The answer I gave Barnes was that I’d look into the matter -and let him know under what conditions I’d undertake -the work. Well, I did look into it. I didn’t analyse the company’s -last annual report. My studies were confined to the -stock-market phases of the problem. I was not going to tout -the stock for a rise on its earnings or its prospects, but to dispose -of that block in the open market. All I considered was<span class="pagenum" id="Page_279">279</span> -what should, could or might help or hinder me in that task.</p> - -<p>I discovered for one thing that there was too much stock -held by too few people—that is, too much for safety and far -too much for comfort. Clifton P. Kane & Co., bankers and -brokers, members of the New York Stock Exchange, were -carrying seventy thousand shares. They were intimate -friends of Barnes and had been influential in effecting the -consolidation, as they had made a specialty of stove stocks -for years. Their customers had been let into the good thing. -Ex-Senator Samuel Gordon, who was the special partner in -his nephews’ firm, Gordon Bros., was the owner of a second -block of seventy thousand shares; and the famous Joshua -Wolff had sixty thousand shares. This made a total of two -hundred thousand shares of Consolidated Stove held by this -handful of veteran Wall Street professionals. They did not -need any kind person to tell them when to sell their stock. -If I did anything in the manipulating line calculated to bring -in public buying—that is to say, if I made the stock strong -and active—I could see Kane and Gordon and Wolff unloading, -and not in homeopathic doses either. The vision of their -two hundred thousand shares Niagaraing into the market -was not exactly entrancing. Don’t forget that the cream was -off the bull movement and that no overwhelming demand -was going to be manufactured by my operations, however -skillfully conducted they might be. Jim Barnes had no illusions -about the job he was modestly sidestepping in my -favour. He had given me a waterlogged stock to sell on a -bull market that was about to breathe its last. Of course -there was no talk in the newspapers about the ending of the -bull market, but I knew it, and Jim Barnes knew it, and you -bet the bank knew it.</p> - -<p>Still, I had given Jim my word, so I sent for Kane, Gordon -and Wolff. Their two hundred thousand shares was the -sword of Damocles. I thought I’d like to substitute a steel -chain for the hair. The easiest way, it seemed to me, was by -some sort of reciprocity agreement. If they helped me passively<span class="pagenum" id="Page_280">280</span> -by holding off while I sold the bank’s one hundred -thousand shares, I would help them actively by trying to -make a market for all of us to unload on. As things were, -they couldn’t sell one-tenth of their holdings without having -Consolidated Stove break wide open, and they knew it so -well that they had never dreamed of trying. All I asked of -them was judgment in timing the selling and an intelligent -unselfishness in order not to be unintelligently selfish. It -never pays to be a dog in the manger in Wall Street or anywhere -else. I desired to convince them that premature or ill-considered -unloading would prevent complete unloading. -Time urged.</p> - -<p>I hoped my proposition would appeal to them because -they were experienced Wall Street men and had no illusions -about the actual demand for Consolidated Stove. Clifton P. -Kane was the head of a prosperous commission house with -branches in eleven cities and customers by the hundreds. -His firm had acted as managers for more than one pool in -the past.</p> - -<p>Senator Gordon, who held seventy thousand shares, was -an exceedingly wealthy man. His name was as familiar to the -readers of the metropolitan press as though he had been sued -for breach of promise by a sixteen-year-old manicurist possessing -a five-thousand-dollar mink coat and one hundred -and thirty-two letters from the defendant. He had started his -nephews in business as brokers and he was a special partner -in their firm. He had been in dozens of pools. He had inherited -a large interest in the Midland Stove Company and he -got one hundred thousand shares of Consolidated Stove for -it. He had been carrying enough to disregard Jim Barnes’ -wild bull tips and had cashed in on thirty thousand shares -before the market petered out on him. He told a friend later -that he would have sold more only the other big holders, -who were old and intimate friends, pleaded with him not to -sell any more, and out of regard for them he stopped. Besides -which, as I said, he had no market to unload on.</p> - -<p><span class="pagenum" id="Page_281">281</span> -The third man was Joshua Wolff. He was probably the -best know of all the traders. For twenty years everybody had -know him as one of the plungers on the floor. In bidding up -stocks or offering them down he had few equals, for ten or -twenty thousand shares meant no more to him than two or -three hundred. Before I came to New York I had heard of -him as a plunger. He was then trailing with a sporting -coterie that played a no limit game, whether on the race -track or in the stock market.</p> - -<p>They used to accuse him of being nothing but a gambler, -but he had real ability and a strongly developed aptitude for -the speculative game. At the same time his reputed indifference -to highbrow pursuits made him the hero of numberless -anecdotes. One of the most highly circulated of the yarns -was that Joshua was a guest at what he called a swell dinner -and by some oversight of the hostess several of the other -guests began to discuss literature before they could be -stopped.</p> - -<p>A girl who sat next to Josh and had not heard him use his -mouth except for masticating purposes, turned to him and -looking anxious to hear the great financier’s opinion asked -him, “Oh, Mr. Wolff, what do you think of Balzac?”</p> - -<p>Josh politely ceased to masticate, swallowed and answered, -“I never trade in them Curb stocks!”</p> - -<p>Such were the three largest individual holders of Consolidated -Stove. When they came over to see me I told them -that if they formed a syndicate to put up some cash and gave -me a call on their stock at a little above the market I would -do what I could to make a market. They promptly asked me -how much money would be required.</p> - -<p>I answered, “You’ve had that stock a long time and you -can’t do a thing with it. Between the three of you you’ve got -two hundred thousand shares, and you know very well that -you haven’t the slightest chance of getting rid of it unless -you make a market for it. It’s got be some market to absorb -what you’ve got to give it, and it will be wise to have enough<span class="pagenum" id="Page_282">282</span> -cash to pay for whatever stock it may be necessary to buy at -first. It’s no use to begin and then have to stop because there -isn’t enough money. I suggest that you form a syndicate and -raise six millions in cash. Then give the syndicate a call on -your two hundred thousand shares at 40 and put all your -stock in escrow. If everything goes well you chaps will get -rid of your dead pet and the syndicate will make some -money.”</p> - -<p>As I told you before, there had been all sorts of rumours -about my stock-market winnings. I suppose that helped, for -nothing succeeds like success. At all events, I didn’t have to -do much explaining to these chaps. They knew exactly how -far they’d get if they tried to play a lone hand. They thought -mine was a good plan. When they went away they said they -would form the syndicate at once.</p> - -<p>They didn’t have much trouble in inducing a lot of their -friends to join them. I suppose they spoke with more assurance -than I had of the syndicate’s profits. From all I heard -they really believed it, so theirs were no conscienceless tips. -At all events the syndicate was formed in a couple of days. -Kane, Gordon and Wolff gave calls on the two hundred -thousand shares at 40 and I saw to it that the stock itself was -put in escrow, so that none of it would come out on the market -if I should put up the price. I had to protect myself. -More than one promising deal has failed to pan out as expected -because the members of the pool or clique failed to -keep faith with one another. Dog has no foolish prejudices -against eating dog in Wall Street. At the time the second -American Steel and Wire Company was brought out the insiders -accused one another of breach of faith and trying to -unload. There had been a gentlemen’s agreement between -John W. Gates and his pals and the Seligmans and their -banking associates. Well, I heard somebody in a broker’s -office reciting this quatrain, which was said to have been -composed by John W. Gates:</p> - -<p><span class="pagenum" id="Page_283">283</span></p> - -<div class="poem-container"> -<div class="poem"><div class="stanza"><i> -<span class="i0">The tarantula jumped on the centipede’s back<br /></span> -<span class="i2">And chortled with ghoulish glee:<br /></span> -<span class="i0">“I’ll poison this murderous son of a gun.<br /></span> -<span class="i2">If I don’t he’ll poison me!”<br /></span></i> -</div></div> -</div> - -<p>Mind you, I do not mean for one moment to imply that -any of my friends in Wall Street would even dream of -double-crossing me in a stock deal. But on general principles -it is just as well to provide for any and all contingencies. It’s -plain sense.</p> - -<p>After Wolff and Kane and Gordon told me that they had -formed their syndicate to put up six millions in cash there -was nothing for me to do but wait for the money to come in. -I had urged the vital need of haste. Nevertheless the money -came in driblets. I think it took four or five installments. I -don’t know what the reason was, but I remember that I had -to send out an S O S call to Wolff and Kane and Gordon.</p> - -<p>That afternoon I got some big checks that brought the -cash in my possession to about four million dollars and the -promise of the rest in a day or two. It began to look as -though the syndicate might do something before the bull -market passed away. At best it would be no cinch, and the -sooner I began work the better. The public had not been -particularly keen about new market movements in inactive -stocks. But a man could do a great deal to arouse interest in -any stock with four millions in cash. It was enough to absorb -all the probable offerings. If time urged, as I had said, there -was no sense in waiting for the other two millions. The -sooner the stock got up to 50 the better for the syndicate. -That was obvious.</p> - -<p>The next morning at the opening I was surprised to see -that there were unusually heavy dealings in Consolidated -Stove. As I told you before, the stock had been waterlogged -for months. The price had been pegged at 37, Jim Barnes -taking good care not to let it go any lower on account of the -big bank loan at 35. But as for going any higher, he’d as soon -expect to see the Rock of Gibraltar shimmying across the<span class="pagenum" id="Page_284">284</span> -Strait as to see Consolidated Stove do any climbing on the -tape.</p> - -<p>Well, sir, this morning there was quite a demand for the -stock, and the price went up to 39. In the first hour of the -trading the transactions were heavier than for the whole previous -half year. It was the sensation of the day and affected -bullishly the entire market. I heard afterwards that nothing -else was talked about in the customers’ rooms of the commission -houses.</p> - -<p>I didn’t know what it meant, but it didn’t hurt my feelings -any to see Consolidated Stove perk up. As a rule I do not -have to ask about any unusual movement in any stock because -my friends on the floor—brokers who do business for -me, as well as personal friends among the room traders—keep -me posted. They assume I’d like to know and they -telephone me any news or gossip they pick up. On this day -all I heard was that there was unmistakable inside buying -in Consolidated Stove. There wasn’t any washing. It was all -genuine. The purchasers took all the offerings from 37 to 39 -and when importuned for reasons or begged for a tip, flatly -refused to give any. This made the wily and watchful traders -conclude that there was something doing; something big. -When a stock goes up on buying by insiders who refuse to -encourage the world at large to follow suit the ticker hounds -begin to wonder aloud when the official notice will be given -out.</p> - -<p>I didn’t do anything myself. I watched and wondered and -kept track of the transactions. But on the next day the buying -was not only greater in volume but more aggressive in -character. The selling orders that had been on the specialists’ -books for months at above the pegged price of 37 were absorbed -without any trouble, and not enough new selling -orders came in to check the rise. Naturally, up went the -price. It crossed 40. Presently it touched 42.</p> - -<p>The moment it touched that figure I felt that I was justified -in starting to sell the stock the bank held as collateral.<span class="pagenum" id="Page_285">285</span> -Of course I figured that the price would go down on my selling, -but if my average on the entire line was 37 I’d have no -fault to find. I knew what the stock was worth and I had -gathered some idea of the vendibility from the months of -inactivity. Well, sir, I let them have stock carefully until I -had got rid of thirty thousand shares. And the advance was -not checked!</p> - -<p>That afternoon I was told the reason for that opportune -but mystifying rise. It seems that the floor traders had been -tipped off after the close the night before and also the next -morning before the opening, that I was bullish as blazes on -Consolidated Stove and was going to rush the price right up -fifteen or twenty points without a reaction, as was my custom—that -is, my custom according to people who never -kept my books. The tipster in chief was no less a personage -than Joshua Wolff. It was his own inside buying that started -the rise of the day before. His cronies among the floor -traders were only too willing to follow his tip, for he knew -too much to give wrong steers to his fellows.</p> - -<p>As a matter of fact, there was not so much stock pressing -on the market as had been feared. Consider that I had tied -up three hundred thousand shares and you will realize that -the old fears had been well founded. It now proved less of -a job than I had anticipated to put up the stock. After all, -Governor Flower was right. Whenever he was accused of -manipulating his firm’s specialties, like Chicago Gas, Federal -Steel or B. R. T., he used to say: “The only way I know -of making a stock go up is to buy it.” That also was the floor -traders’ only way, and the price responded.</p> - -<p>On the next day, before breakfast, I read in the morning -papers what was read by thousands and what undoubtedly -was sent over the wires to hundreds of branches and out-of-town -offices, and that was that Larry Livingston was about -to begin active bull operations in Consolidated Stove. The -additional details differed. One version had it that I had -formed an insiders’ pool and was going to punish the over-extended<span class="pagenum" id="Page_286">286</span> -short interest. Another hinted at dividend announcements -in the near future. Another reminded the -world that what I usually did to a stock I was bullish on was -something to remember. Still another accused the company -of concealing its assets in order to permit accumulation by -insiders. And all of them agreed that the rise hadn’t fairly -started.</p> - -<p>By the time I reached my office and read my mail before -the market opened I was made aware that the Street was -flooded with red-hot tips to buy Consolidated Stove at once. -My telephone bell kept ringing and the clerk who answered -the calls heard the same question asked in one form or another -a hundred times that morning: Was it true that Consolidated -Stove was going up? I must say that Joshua Wolff -and Kane and Gordon—and possibly Jim Barnes—handled -that little tipping job mighty well.</p> - -<p>I had no idea that I had such a following. Why, that morning -the buying orders came in from all over the country—orders -to buy thousands of shares of a stock that nobody -wanted at any price three days before. And don’t forget that, -as a matter of fact, all that the public had to go by was my -newspaper reputation as a successful plunger; something for -which I had to thank an imaginative reporter or two.</p> - -<p>Well, sir, on that, the third day of the rise, I sold Consolidated -Stove; and on the fourth day and the fifth; and the -first thing I knew I had sold for Jim Barnes the one hundred -thousand shares of stock which the Marshall National Bank -held as collateral on the three-million-five-hundred-thousand-dollar -loan that needed paying off. If the most successful -manipulation consists of that in which the desired end is -gained at the least possible cost to the manipulator, the -Consolidated Stove deal is by all means the most successful -of my Wall Street career. Why, at no time did I have to take -any stock. I didn’t have to buy first in order to sell the more -easily later on. I did not put up the price to the highest possible -point and then begin my real selling. I didn’t even do<span class="pagenum" id="Page_287">287</span> -my principal selling on the way down, but on the way up. -It was like a dream of Paradise to find an adequate buying -power created for you without your stirring a finger to bring -it about, particularly when you were in a hurry. I once heard -a friend of Governor Flower’s say that in one of the great -bull-leader’s operations for the account of a pool in B. R. T. -the pool sold fifty thousand shares of the stock at a profit, -but Flower & Co. got commissions on more than two hundred -and fifty thousand shares and W. P. Hamilton says that -to distribute two hundred and twenty thousand shares of -Amalgamated Copper, James R. Keene must have traded in -at least seven hundred thousand shares of the stock during -the necessary manipulation. Some commission bill! Think of -that and then consider that the only commissions that I had -to pay were the commissions on the one hundred thousand -shares I actually sold for Jim Barnes. I call that some saving.</p> - -<p>Having sold what I had engaged to sell for my friend Jim, -and all the money the syndicate had agreed to raise not having -been sent in, and feeling no desire to buy back any of -the stock I had sold, I rather think I went away somewhere -for a short vacation. I do not remember exactly. But I do -remember very well that I let the stock alone and that it was -not long before the price began to sag. One day, when the -entire market was weak, some disappointed bull wanted to -get rid of his Consolidated Stove in a hurry, and on his offerings -the stock broke below the call price, which was 40. Nobody -seemed to want any of it. As I told you before, I wasn’t -bullish on the general situation and that made me more -grateful than ever for the miracle that had enabled me to -dispose of the one hundred thousand shares without having -to put the price up twenty or thirty points in a week, as the -kindly tipsters had prophesied.</p> - -<p>Finding no support, the price developed a habit of declining -regularly until one day it broke rather badly and -touched 32. That was the lowest that had ever been recorded -for it, for, as you will remember, Jim Barnes and the<span class="pagenum" id="Page_288">288</span> -original syndicate had pegged it at 37 in order not to have -their one hundred thousand shares dumped on the market -by the bank.</p> - -<p>I was in my office that day peacefully studying the tape -when Joshua Wolff was announced. I said I would see him. -He rushed in. He is not a very large man, but he certainly -seemed all swelled up—with anger, as I instantly discovered.</p> - -<p>He ran to where I stood by the ticker and yelled, “Hey? -What the devil’s the matter?”</p> - -<p>“Have a chair, Mr. Wolff,” I said politely and sat down -myself to encourage him to talk calmly.</p> - -<p>“I don’t want any chair! I want to know what it means!” -he cried at the top of his voice.</p> - -<p>“What does what mean?”</p> - -<p>“What in hell are you doing to it?”</p> - -<p>“What am I doing to what?”</p> - -<p>“That stock! That stock!”</p> - -<p>“What stock?” I asked him.</p> - -<p>But that only made him see red, for he shouted, “Consolidated -Stove! What are you doing to it?”</p> - -<p>“Nothing! Absolutely nothing. What’s wrong?” I said.</p> - -<p>He stared at me fully five seconds before he exploded: -“Look at the price! Look at it!”</p> - -<p>He certainly was angry. So I got up and looked at the tape.</p> - -<p>I said, “The price of it is now 31¼.”</p> - -<p>“Yeh! Thirty-one and a quarter, and I’ve got a raft of it.”</p> - -<p>“I know you have sixty thousand shares. You have had it -a long time, because when you originally bought your Gray -Stove——”</p> - -<p>But he didn’t let me finish. He said, “But I bought a lot -more. Some of it cost me as high as 40! And I’ve got it yet!”</p> - -<p>He was glaring at me so hostilely that I said, “I didn’t tell -you to buy it.”</p> - -<p>“You didn’t what?”</p> - -<p>“I didn’t tell you to load up with it.”</p> - -<p>“I didn’t say you did. But you were going to put it up——”</p> - -<p>“Why was I?” I interrupted.<span class="pagenum" id="Page_289">289</span> -He looked at me, unable to speak for anger. When he -found his voice again, he said, “You were going to put it up. -You had the money to buy it.”</p> - -<p>“Yes. But I didn’t buy a share,” I told him.</p> - -<p>That was the last straw.</p> - -<p>“You didn’t buy a share, and you had over four millions -in cash to buy with? You didn’t buy any?”</p> - -<p>“Not a share!” I repeated.</p> - -<p>He was so mad by now that he couldn’t talk plainly. -Finally he managed to say, “What kind of a game do you -call that?”</p> - -<p>He was inwardly accusing me of all sorts of unspeakable -crimes. I sure could see a long list of them in his eyes. It -made me say to him: “What you really mean to ask me, -Wolff, is, why I didn’t buy from you above 50 the stock you -bought below 40. Isn’t that it?”</p> - -<p>“No, it isn’t. You had a call at 40 and four millions in cash -to put up the price with.”</p> - -<p>“Yes, but I didn’t touch the money and the syndicate has -not lost a cent by my operations.”</p> - -<p>“Look here, Livingston—” he began.</p> - -<p>But I didn’t let him say any more.</p> - -<p>“You listen to me, Wolff. You knew that the two hundred -thousand shares you and Gordon and Kane held were tied -up, and that there wouldn’t be an awful lot of floating stock -to come on the market if I put up the price, as I’d have to do -for two reasons: The first to make a market for the stock; -and the second to make a profit out of the call at 40. But you -weren’t satisfied to get 40 for the sixty thousand shares you’d -been lugging for months or with your share of the syndicate -profits, if any; so you decided to take on a lot of stock under -40 to unload on me when I put the price up with the syndicate’s -money, as you were sure I meant to do. You’d buy before -I did and you’d unload before I did; in all probability -I’d be the one to unload on. I suspect you figured on my<span class="pagenum" id="Page_290">290</span> -having to put the price up to 60. It was such a cinch that -you probably bought ten thousand shares strictly for unloading -purposes, and to make sure somebody held the bag if I -didn’t, you tipped off everybody in the United States, -Canada and Mexico without thinking of my added difficulties. -All your friends knew what I was supposed to do. Between -their buying and mine you were going to be all -hunky. Well, your intimate friends to whom you gave the tip -passed it on to their friends after they had bought their -lines, and the third stratum of tip-takers planned to supply -the fourth, fifth and possibly sixth strata of suckers, so that -when I finally came to do some selling I’d find myself anticipated -by a few thousands of wise speculators. It was a -friendly thought, that notion of yours, Wolff. You can’t imagine -how surprised I was when Consolidated Stove began -to go up before I even thought of buying a single share; or -how grateful, either, when the underwriting syndicate sold -one hundred thousand shares around 40 to the people who -were going to sell those same shares to me at 50 or 60. I sure -was a sucker not to use the four millions to make money for -them, wasn’t I? The cash was supplied to buy stock with, -but only if I thought it necessary to do so. Well, I didn’t.”</p> - -<p>Joshua had been in Wall Street long enough not to let -anger interfere with business. He cooled off as he heard me, -and when I was through talking he said in a friendly tone -of voice, “Look here, Larry, old chap, what shall we do?”</p> - -<p>“Do whatever you please.”</p> - -<p>“Aw, be a sport. What would you do if you were in our -place?”</p> - -<p>“If I were in your place,” I said solemnly, “do you know -what I’d do?”</p> - -<p>“What?”</p> - -<p>“I’d sell out!” I told him.</p> - -<p>He looked at me a moment, and without another word -turned on his heel and walked out of my office. He’s never -been in it since.</p> - -<p><span class="pagenum" id="Page_291">291</span> -Not long after that, Senator Gordon also called. He, too, -was quite peevish and blamed me for their troubles. Then -Kane joined the anvil chorus. They forgot that their stock -had been unsalable in bulk when they formed the syndicate. -All they could remember was that I didn’t sell their holdings -when I had the syndicate’s millions and the stock was active -at 44, and that now it was 30 and dull as dishwater. To their -way of thinking I should have sold out at a good fat profit.</p> - -<p>Of course they also cooled down in due time. The syndicate -wasn’t out a cent and the main problem remained unchanged: -to sell their stock. A day or two later they came -back and asked me to help them out. Gordon was particularly -insistent, and in the end I made them put in their -pooled stock at 25½. My fee for my services was to be one-half -of whatever I got above that figure. The last sale had -been at about 30.</p> - -<p>There I was with their stock to liquidate. Given general -market conditions and specifically the behaviour of Consolidated -Stove, there was only one way to do it, and that was, -of course, to sell on the way down and without first trying -to put up the price, and I certainly would have got stock by -the ream on the way up. But on the way down I could reach -those buyers who always argue that a stock is cheap when -it sells fifteen or twenty points below the top of the movement, -particularly when that top is a matter of recent history. -A rally is due, in their opinion. After seeing Consolidated -Stove sell up to close to 44 it sure looked like a good -thing below 30.</p> - -<p>It worked out as always. Bargain hunters bought it in -sufficient volume to enable me to liquidate the pool’s holdings. -But do you think that Gordon or Wolff or Kane felt -any gratitude? Not a bit of it. They are still sore at me, or so -their friends tell me. They often tell people how I did them. -They cannot forgive me for not putting up the price on myself, -as they expected.</p> - -<p>As a matter of fact I never would have been able to sell<span class="pagenum" id="Page_292">292</span> -the bank’s hundred thousand shares if Wolff and the rest -had not passed around those red-hot bull tips of theirs. If I -had worked as I usually do—that is, in a logical natural way—I -would have had to take whatever price I could get. I -told you we ran into a declining market. The only way to -sell on such a market is to sell not necessarily recklessly but -really regardless of price. No other way was possible, but I -suppose they do not believe this. They are still angry. I am -not. Getting angry doesn’t get a man anywhere. More than -once it has been borne in on me that a speculator who loses -his temper is a goner. In this case there was no aftermath to -the grouches. But I’ll tell you something curious. One day -Mrs. Livingston went to a dressmaker who had been warmly -recommended to her. The woman was competent and obliging -and had a very pleasing personality. At the third or -fourth visit, when the dressmaker felt less like a stranger, -she said to Mrs. Livingston: “I hope Mr. Livingston puts up -Consolidated Stove soon. We have some that we bought because -we were told he was going to put it up, and we’d -always heard that he was very successful in all his deals.”</p> - -<p>I tell you it isn’t pleasant to think that innocent people -may have lost money following a tip of that sort. Perhaps -you understand why I never give any myself. That dressmaker -made me feel that in the matter of grievances I had -a real one against Wolff.</p> - -<hr /> - -<p><span class="pagenum" id="Page_293">293</span></p> - -<div class="chapter"> -<h2 id="XXIII"><i>XXIII</i></h2> -</div> - -<p class="in0"><span class="firstword">Speculation in stocks</span> will never disappear. It isn’t desirable -that it should. It cannot be checked by warnings as to -its dangers. You cannot prevent people from guessing wrong -no matter how able or how experienced they may be. Carefully -laid plans will miscarry because the unexpected and -even the unexpectable will happen. Disaster may come from -a convulsion of nature or from the weather, from your own -greed or from some man’s vanity; from fear or from uncontrolled -hope. But apart from what one might call his natural -foes, a speculator in stocks has to contend with certain practices -or abuses that are indefensible normally as well as -commercially.</p> - -<p>As I look back and consider what were the common practices -twenty-five years ago when I first came to Wall Street, -I have to admit that there have been many changes for the -better. The old-fashioned bucket shops are gone, though -bucketeering “brokerage” houses still prosper at the expense -of men and women who persist in playing the game of -getting rich quick. The Stock Exchange is doing excellent -work not only in getting after these out-and-out swindlers -but in insisting upon strict adherence to its rules by its own -members. Many wholesome regulations and restrictions are -now strictly enforced but there is still room for improvement. -The ingrained conservatism of Wall Street rather than -ethical callousness is to blame for the persistence of certain -abuses.</p> - -<p><span class="pagenum" id="Page_294">294</span> -Difficult as profitable stock speculation always has been it -is becoming even more difficult every day. It was not so long -ago when a real trader could have a good working knowledge -of practically every stock on the list. In 1901, when J. -P. Morgan brought out the United States Steel Corporation, -which was merely a consolidation of lesser consolidations -most of which were less than two years old, the Stock Exchange -had 275 stocks on its list and about 100 in its “unlisted -department”; and this included a lot that a chap -didn’t have to know anything about because they were small -issues, or inactive by reason of being minority or guaranteed -stocks and therefore lacking in speculative attractions. In -fact, an overwhelming majority were stocks in which there -had not been a sale in years. Today there are about 900 -stocks on the regular list and in our recent active markets -about 600 separate issues were traded in. Moreover, the old -groups or classes of stocks were easier to keep track of. They -not only were fewer but the capitalization was smaller and -the news a trader had to be on the lookout for did not cover -so wide a field. But today, a man is trading in everything; -almost every industry in the world is represented. It requires -more time and more work to keep posted and to that -extent speculation has become much more difficult for those -who operate intelligently.</p> - -<p>There are many thousands of people who buy and sell -stocks speculatively but the number of those who speculate -profitably is small. As the public always is “in” the market to -some extent, it follows that there are losses by the public all -the time. The speculator’s deadly enemies are: Ignorance, -greed, fear and hope. All the statute books in the world and -all the rules of all the Exchanges on earth cannot eliminate -these from the human animal. Accidents which knock carefully -conceived plans skyhigh also are beyond regulation by -bodies of cold-blooded economists or warm-hearted philanthropists. -There remains another source of loss and that is, -deliberate misinformation as distinguished from straight<span class="pagenum" id="Page_295">295</span> -tips. And because it is apt to come to a stock trader variously -disguised and camouflaged, it is the more insidious and -dangerous.</p> - -<p>The average outsider, of course, trades either on tips or on -rumours, spoken or printed, direct or implied. Against ordinary -tips you cannot guard. For instance, a lifelong friend -sincerely desires to make you rich by telling you what he has -done, that is, to buy or sell some stock. His intent is good. -If the tip goes wrong what can you do? Also against the professional -or crooked tipster the public is protected to about -the same extent that he is against gold-bricks or wood-alcohol. -But against the typical Wall Street rumours, the -speculating public has neither protection nor redress. -Wholesale dealers in securities, manipulators, pools and individuals -resort to various devices to aid them in disposing -of their surplus holdings at the best possible prices. The circulation -of bullish items by the newspapers and the tickers -is the most pernicious of all.</p> - -<p>Get the slips of the financial news-agencies any day and it -will surprise you to see how many statements of an implied -semi-official nature they print. The authority is some “leading -insider” or “a prominent director” or “a high official” -or someone “in authority” who presumably knows what he -is talking about. Here are today’s slips. I pick an item at -random. Listen to this: “A leading banker says it is too early -yet to expect a declining market.”</p> - -<p>Did a leading banker really say that and if he said it why -did he say it? Why does he not allow his name to be printed? -Is he afraid that people will believe him if he does?</p> - -<p>Here is another one about a company the stock of which -has been active this week. This time the man who makes the -statement is a “prominent director.” Now which—if any—of -the company’s dozen directors is doing the talking? It is -plain that by remaining anonymous nobody can be blamed -for any damage that may be done by the statement.</p> - -<p>Quite apart from the intelligent study of speculation<span class="pagenum" id="Page_296">296</span> -everywhere the trader in stocks must consider certain facts -in connection with the game in Wall Street. In addition to -trying to determine how to make money one must also try -to keep from losing money. It is almost as important to know -what not to do as to know what should be done. It is therefore -well to remember that manipulation of some sort enters -into practically all advances in individual stocks and that -such advances are engineered by insiders with one object in -view and one only and that is to sell at the best profit possible. -However, the average broker’s customer believes himself -to be a business man from Missouri if he insists upon -being told why a certain stock goes up. Naturally, the -manipulators “explain” the advance in a way calculated to -facilitate distribution. I am firmly convinced that the public’s -losses would be greatly reduced if no anonymous statements -of a bullish nature were allowed to be printed. I mean statements -calculated to make the public buy or hold stocks.</p> - -<p>The overwhelming majority of the bullish articles printed -on the authority of unnamed directors or insiders convey -unreliable and misleading impressions to the public. The -public loses many millions of dollars every year by accepting -such statements as semi-official and therefore trustworthy.</p> - -<p>Say for example that a company has gone through a -period of depression in its particular line of business. The -stock is inactive. The quotation represents the general and -presumably accurate belief of its actual value. If the stock -were too cheap at that level somebody would know it and -buy it and it would advance. If too dear somebody would -know enough to sell it and the price would decline. As nothing -happens one way or another nobody talks about it or -does anything.</p> - -<p>The turn comes in the line of business the company is engaged -in. Who are the first to know it, the insiders or the -public? You can bet it isn’t the public. What happens next? -Why, if the improvement continues the earnings will increase<span class="pagenum" id="Page_297">297</span> -and the company will be in position to resume dividends -on the stock; or, if dividends were not discontinued, -to pay a higher rate. That is, the value of the stock will -increase.</p> - -<p>Say that the improvement keeps up. Does the management -make public that glad fact? Does the president tell the -stockholders? Does a philanthropic director come out with -a signed statement for the benefit of that part of the public -that reads the financial page in the newspapers and the slips -of the news agencies? Does some modest insider pursuing -his usual policy of anonymity come out with an unsigned -statement to the effect that the company’s future is most -promising? Not this time. Not a word is said by anyone and -no statement whatever is printed by newspapers or tickers.</p> - -<p>The value-making information is carefully kept from the -public while the now taciturn “prominent insiders” go into -the market and buy all the cheap stock they can lay their -hands on. As this well-informed but unostentatious buying -keeps on, the stock rises. The financial reporters, knowing -that the insiders ought to know the reason for the rise, ask -questions. The unanimously anonymous insiders unanimously -declare that they have no news to give out. They do -not know that there is any warrant for the rise. Sometimes -they even state that they are not particularly concerned -with the vagaries of the stock market or the actions of stock -speculators.</p> - -<p>The rise continues and there comes a happy day when -those who know have all the stock they want or can carry. -The Street at once begins to hear all kinds of bullish rumours. -The tickers tell the traders “on good authority” that the -company has definitely turned the corner. The same modest -director who did not wish his name used when he said he -knew no warrant for the rise in the stock is now quoted—of -course not by name—as saying that the stockholders have -every reason to feel greatly encouraged over the outlook.</p> - -<p>Urged by the deluge of bullish news items the public begins<span class="pagenum" id="Page_298">298</span> -to buy the stock. These purchases help to put the price -still higher. In due course the predictions of the uniformly -unnamed directors come true and the company resumes dividend -payments; or increases the rate, as the case may be. -With that the bullish items multiply. They not only are more -numerous than ever but much more enthusiastic. A “leading -director,” asked point blank for a statement of conditions, -informs the world that the improvement is more than keeping -up. A “prominent insider,” after much coaxing, is finally -induced by a news-agency to confess that the earnings are -nothing short of phenomenal. A “well-known banker,” who -is affiliated in a business way with the company, is made to -say that the expansion in the volume of sales is simply unprecedented -in the history of the trade. If not another order -came in the company would run night and day for heaven -knows how many months. A “member of the finance committee,” -in a double-leaded manifesto, expresses his astonishment -at the public’s astonishment over the stock’s rise. The -only astonishing thing is the stock’s moderation in the climbing -line. Anybody who will analyse the forthcoming annual -report can easily figure how much more than the market-price -the book-value of the stock is. But in no instance is -the name of the communicative philanthropist given.</p> - -<p>As long as the earnings continue good and the insiders do -not discern any sign of a let up in the company’s prosperity -they sit on the stock they bought at the low prices. There is -nothing to put the price down, so why should they sell? But -the moment there is a turn for the worse in the company’s -business, what happens? Do they come out with statements -or warnings or the faintest of hints? Not much. The trend is -now downward. Just as they bought without any flourish of -trumpets when the company’s business turned for the better, -they now silently sell. On this inside selling the stock naturally -declines. Then the public begins to get the familiar “explanations.” -A “leading insider” asserts that everything is -O.K. and the decline is merely the result of selling by bears<span class="pagenum" id="Page_299">299</span> -who are trying to affect the general market. If on one fine -day, after the stock has been declining for some time, there -should be a sharp break, the demand for “reasons” or “explanations” -becomes clamorous. Unless somebody says something -the public will fear the worst. So the news-tickers now -print something like this: “When we asked a prominent -director of the company to explain the weakness in the -stock, he replied that the only conclusion he could arrive at -was that the decline today was caused by a bear drive. Underlying -conditions are unchanged. The business of the -company was never better than at present and the probabilities -are that unless something entirely unforeseen happens -in the meanwhile, there will be an increase in the rate -at the next dividend meeting. The bear party in the market -has become aggressive and the weakness in the stock was -clearly a raid intended to dislodge weakly held stock.” The -news-tickers, wishing to give good measure, as likely as not -will go on to state that they are “reliably informed” that -most of the stock bought on the day’s decline was taken by -inside interests and that the bears will find that they have -sold themselves into a trap. There will be a day of reckoning.</p> - -<p>In addition to the losses sustained by the public through -believing bullish statements and buying stocks, there are the -losses that come through being dissuaded from selling out. -The next best thing to having people buy the stock the -“prominent insider” wishes to sell is to prevent people from -selling the same stock when he does not wish to support or -accumulate it. What is the public to believe after reading -the statement of the “prominent director?” What can the -average outsider think? Of course, that the stock should -never have gone down; that it was forced down by bear-selling -and that as soon as the bears stop the insiders will -engineer a punitive advance during which the shorts will be -driven to cover at high prices. The public properly believes -this because it is exactly what would happen if the decline -had in truth been caused by a bear raid.</p> - -<p><span class="pagenum" id="Page_300">300</span> -The stock in question, notwithstanding all the threats or -promises of a tremendous squeeze of the over-extended -short interest, does not rally. It keeps on going down. It -can’t help it. There has been too much stock fed to the -market from the inside to be digested.</p> - -<p>And this inside stock that has been sold by the “prominent -directors” and “leading insiders” becomes a football -among the professional traders. It keeps on going down. -There seems to be no bottom for it. The insiders knowing -that trade conditions will adversely affect the company’s -future earnings do not dare to support that stock until the -next turn for the better in the company’s business. Then -there will be inside buying and inside silence.</p> - -<p>I have done my share of trading and have kept fairly well -posted on the stock market for many years and I can say -that I do not recall an instance when a bear raid caused a -stock to decline extensively. What was called bear raiding -was nothing but selling based on accurate knowledge of real -conditions. But it would not do to say that the stock declined -on inside selling or on inside non-buying. Everybody -would hasten to sell and when everybody sells and nobody -buys there is the dickens to pay.</p> - -<p>The public ought to grasp firmly this one point: That the -real reason for a protracted decline is never bear raiding. -When a stock keeps on going down you can bet there is -something wrong with it, either with the market for it or -with the company. If the decline were unjustified the stock -would soon sell below its real value and that would bring in -buying that would check the decline. As a matter of fact, -the only time a bear can make big money selling a stock is -when that stock is too high. And you can gamble your last -cent on the certainty that insiders will not proclaim that -fact to the world.</p> - -<p>Of course, the classic example is the New Haven. Everybody -knows today what only a few knew at the time. The -stock sold at 255 in 1902 and was the premier railroad investment<span class="pagenum" id="Page_301">301</span> -of New England. A man in that part of the country -measured his respectability and standing in the community -by his holdings of it. If somebody had said that the company -was on the road to insolvency he would not have been sent -to jail for saying it. They would have clapped him in an insane -asylum with other lunatics. But when a new and aggressive -president was placed in charge by Mr. Morgan and -the débâcle began, it was not clear from the first that the -new policies would land the road where it did. But as property -after property began to be saddled in the Consolidated -Road at inflated prices, a few clear sighted observers began -to doubt the wisdom of the <em>Mellen</em> policies. A trolley system -was bought for two million and sold to the New Haven for -$10,000,000; whereupon a reckless man or two committed -lèse majesté by saying that the management was acting -recklessly. Hinting that not even the New Haven could stand -such extravagance was like impugning the strength of -Gibraltar.</p> - -<p>Of course, the first to see breakers ahead were the insiders. -They became aware of the real condition of the company -and they reduced their holdings of the stock. On their -selling as well as on their non-support, the price of New -England’s gilt-edged railroad stock began to yield. Questions -were asked, and explanations were demanded as usual; and -the usual explanations were promptly forthcoming. “Prominent -insiders” declared that there was nothing wrong that -they knew of and that the decline was due to reckless bear -selling. So the “investors” of New England kept their holdings -of New York, New Haven & Hartford stock. Why -shouldn’t they? Didn’t insiders say there was nothing wrong -and cry bear selling? Didn’t dividends continue to be declared -and paid?</p> - -<p>In the meantime the promised squeeze of the bears did not -come but new low records did. The insider selling became -more urgent and less disguised. Nevertheless public spirited -men in Boston were denounced as stock-jobbers and demagogues<span class="pagenum" id="Page_302">302</span> -for demanding a genuine explanation for the stock’s -deplorable decline that meant appalling losses to everybody -in New England who had wanted a safe investment and a -steady dividend payer.</p> - -<p>That historic break from $255 to $12 a share never was -and never could have been a bear drive. It was not started -and it was not kept up by bear operations. The insiders sold -right along and always at higher prices than they could have -done if they had told the truth or allowed the truth to be -told. It did not matter whether the price was 250 or 200 or -150 or 100 or 50 or 25, it still was too high for that stock, -and the insiders knew it and the public did not. The public -might profitably consider the disadvantages under which it -labours when it tries to make money buying and selling the -stock of a company concerning whose affairs only a few men -are in position to know the whole truth.</p> - -<p>The stocks which have had the worst breaks in the past 20 -years did not decline on bear raiding. But the easy acceptance -of that form of explanation has been responsible for -losses by the public amounting to millions upon millions of -dollars. It has kept people from selling who did not like the -way his stock was acting and would have liquidated if they -had not expected the price to go right back after the bears -stopped their raiding. I used to hear Keene blamed in the -old days. Before him they used to accuse Charley -Woerishoffer or Addison Cammack. Later on I became the -stock excuse.</p> - -<p>I recall the case of Intervale Oil. There was a pool in it -that put the stock up and found some buyers on the advance. -The manipulators ran the price to 50. There the pool -sold and there was a quick break. The usual demand for -explanations followed. Why was Intervale so weak? Enough -people asked this question to make the answer important -news. One of the financial news tickers called up the brokers -who knew the most about Intervale Oil’s advance and ought -to be equally well posted as to the decline. What did these<span class="pagenum" id="Page_303">303</span> -brokers, members of the bull pool, say when the news -agency asked them for a reason that could be printed and -sent broadcast over the country? Why, that Larry Livingston -was raiding the market! And that wasn’t enough. They -added that they were going to “get” him. But of course, the -Intervale pool continued to sell. The stock only stood then -about $12 a share and they could sell it down to 10 or lower -and their average selling price would still be above cost.</p> - -<p>It was wise and proper for insiders to sell on the decline. -But for outsiders who had paid 35 or 40, it was a different -matter. Reading what the tickers printed there outsiders -held on and waited for Larry Livingston to get what was -coming to him at the hands of the indignant inside pool.</p> - -<p>In a bull market and particularly in booms the public at -first makes money which it later loses simply by overstaying -the bull market. This talk of “bear raids” helps them to overstay. -The public should beware of explanations that explain -only what unnamed insiders wish the public to believe.</p> - -<hr /> - -<p><span class="pagenum" id="Page_304">304</span></p> - -<div class="chapter"> -<h2 id="XXIV"><i>XXIV</i></h2> -</div> - -<p class="in0"><span class="firstword">The public</span> always wants to be told. That is what makes tip-giving -and tip-taking universal practices. It is proper that -brokers should give their customers trading advice through -the medium of their market letters as well as by word of -mouth. But brokers should not dwell too strongly on actual -conditions because the course of the market is always from -six to nine months ahead of actual conditions. Today’s earnings -do not justify brokers in advising their customers to buy -stocks unless there is some assurance that six or nine months -from today the business outlook will warrant the belief that -the same rate of earnings will be maintained. If on looking -that far ahead you can see, reasonably clearly, that conditions -are developing which will change the present actual -power, the argument about stocks being cheap today will -disappear. The trader must look far ahead, but the broker -is concerned with getting commissions now; hence the inescapable -fallacy of the average market letter. Brokers make -their living out of commissions from the public and yet they -will try to induce the public through their market letters or -by word of mouth to buy the same stocks in which they have -received selling orders from insiders or manipulators.</p> - -<p>It often happens that an insider goes to the head of a -brokerage concern and says: “I wish you’d make a market -in which to dispose of 50,000 shares of my stock.”</p> - -<p>The broker asks for further details. Let us say that the -quoted price of that stock is 50. The insider tells him: “I<span class="pagenum" id="Page_305">305</span> -will give you calls on 5000 shares at 45 and 5000 shares -every point up for the entire fifty thousand shares. I also -will give you a put on 50,000 shares at the market.”</p> - -<p>Now, this is pretty easy money for the broker, if he has a -large following and of course this is precisely the kind of -broker the insider seeks. A house with direct wires to -branches and connections in various parts of the country can -usually get a large following in a deal of that kind. Remember -that in any event the broker is playing absolutely safe -by reason of the put. If he can get his public to follow he -will be able to dispose of his entire line at a big profit in -addition to his regular commissions.</p> - -<p>I have in mind the exploits of an “insider” who is well-known -in Wall Street.</p> - -<p>He will call up the head customers’ man of a large brokerage -house. At times he goes even further and calls up one of -the junior partners of the firm. He will say something like -this:</p> - -<p>“Say, old man, I want to show you that I appreciate what -you have done for me at various times. I am going to give -you a chance to make some real money. We are forming a -new company to absorb the assets of one of our companies -and we’ll take over that stock at a big advance over present -quotations. I’m going to send in to you 500 shares of Bantam -Shops at $65. The stock is now quoted at 72.”</p> - -<p>The grateful insider tells the thing to a dozen of the headmen -in various big brokerage houses. Now since these recipients -of the insider’s bounty are in Wall Street what are they -going to do when they get that stock that already shows -them a profit? Of course, advise every man and woman they -can reach to buy that stock. The kind donor knew this. They -will help to create a market in which the kind insider can -sell his good things at high prices to the poor public.</p> - -<p>There are other devices of stock-selling promoters that -should be barred. The Exchanges should not allow trading -in listed stocks that are offered outside to the public on the<span class="pagenum" id="Page_306">306</span> -partial payment plan. To have the price officially quoted -gives a sort of sanction to any stock. Moreover, the official -evidence of a free market, and at times the difference in -prices, is all the inducement needed.</p> - -<p>Another common selling device that costs the unthinking -public many millions of dollars and sends nobody to jail because -it is perfectly legal, is that of increasing the capital -stock exclusively by reason of market exigencies. The process -does not really amount to much more than changing the -color of the stock certificates.</p> - -<p>The juggling whereby 2 or 4 or even 10 shares of new -stock are given in exchange for one of the old, is usually -prompted by a desire to make the old merchandise easily -vendible. The old price was $1 per pound package and hard -to move. At 25 cents for a quarter-pound box it might go -better; and perhaps at 27 or 30 cents.</p> - -<p>Why does not the public ask why the stock is made easy -to buy? It is a case of the Wall Street philanthropist operating -again, but the wise trader bewares of the Greeks bearing -gifts. It is all the warning needed. The public disregards it -and loses millions of dollars annually.</p> - -<p>The law punishes whoever originates or circulates rumors -calculated to affect adversely the credit or business of individuals -or corporations, that is, that tend to depress the -values of securities by influencing the public to sell. Originally, -the chief intention may have been to reduce the -danger of panic by punishing anyone who doubted aloud -the solvency of banks in times of stress. But of course, it -serves also to protect the public against selling stocks below -their real value. In other words the law of the land punishes -the disseminator of bearish items of that nature.</p> - -<p>How is the public protected against the danger of buying -stocks above their real value? Who punishes the distributor -of unjustified bullish news items? Nobody; and yet, the public -loses more money buying stocks on anonymous inside advice -when they are too high than it does selling out stocks<span class="pagenum" id="Page_307">307</span> -below their value as a consequence of bearish advice during -so-called “raids.”</p> - -<p>If a law were passed that would punish bull liars as the -law now punishes bear liars, I believe the public would save -millions.</p> - -<p>Naturally, promoters, manipulators and other beneficiaries -of anonymous optimism will tell you that anyone who trades -on rumors and unsigned statements has only himself to -blame for his losses. One might as well argue that any one -who is silly enough to be a drug addict is not entitled to protection.</p> - -<p>The Stock Exchange should help. It is vitally interested -in protecting the public against unfair practices. If a man in -position to know wishes to make the public accept his statements -of fact or even his opinions, let him sign his name. -Signing bullish items would not necessarily make them true. -But it would make the “insiders” and “directors” more careful.</p> - -<p>The public ought always to keep in mind the elementals -of stock trading. When a stock is going up no elaborate explanation -is needed as to why it is going up. It takes continuous -buying to make a stock keep on going up. As long as it -does so, with only small and natural reactions from time to -time, it is a pretty safe proposition to trail along with it. But -if after a long steady rise a stock turns and gradually begins -to go down, with only occasional small rallies, it is obvious -that the line of least resistance has changed from upward -to downward. Such being the case why should any one ask -for explanations? There are probably very good reasons why -it should go down, but these reasons are known only to a -few people who either keep those reasons to themselves, or -else actually tell the public that the stock is cheap. The nature -of the game as it is played is such that the public should -realise that the truth cannot be told by the few who know.</p> - -<p>Many of the so-called statements attributed to “insiders” -or officials have no basis in fact. Sometimes the insiders are<span class="pagenum" id="Page_308">308</span> -not even asked to make a statement, anonymous or signed. -These stories are invented by somebody or other who has a -large interest in the market. At a certain stage of an advance -in the market-price of a security the big insiders are not -averse to getting the help of the professional element to -trade in that stock. But while the insider might tell the big -plunger the right time to buy, you can bet he will never tell -when is the time to sell. That puts the big professional -in the same position as the public, only he has to have a -market big enough for him to get out on. Then is when you -get the most misleading “information.” Of course, there are -certain insiders who cannot be trusted at any stage of the -game. As a rule the men who are the head of big corporations -may act in the market upon their inside knowledge, -but they don’t actually tell lies. They merely say nothing, -for they have discovered that there are times when silence is -golden.</p> - -<p>I have said many times and cannot say it too often that -the experience of years as a stock operator has convinced me -that no man can consistently and continuously beat the stock -market though he may make money in individual stocks on -certain occasions. No matter how experienced a trader is the -possibility of his making losing plays is always present because -speculation cannot be made 100 per cent safe. Wall -Street professionals know that acting on “inside” tips will -break a man more quickly than famine, pestilence, crop failures, -political readjustments or what might be called normal -accidents. There is no asphalt boulevard to success in Wall -Street or anywhere else. Why additionally block traffic?</p> - -<div class="chapter"><div class="transnote"> -<h2 class="nobreak p1" id="Transcribers_Notes">Transcriber’s Notes</h2> - -<p>Punctuation and spelling were made -consistent when a predominant preference was found -in the original book; otherwise they were not changed. -Inconsistent hyphenation was not changed.</p> - -<p>Simple typographical errors were corrected; unbalanced -quotation marks were remedied when the change was -obvious, and otherwise left unbalanced.</p> - -<p>The illustration on the title page is the -publisher’s logo.</p> - -<p>Page <a href="#Page_224">224</a>: “they were afraid of getting stock if they tried to” -was printed that way; “stock” may be a typographic error for “stuck”.</p> -</div></div> - - - - - - - - -<pre> - - - - - -End of Project Gutenberg's Reminscences of a Stock Operator, by Edwin Lefevre - -*** END OF THIS PROJECT GUTENBERG EBOOK REMINSCENCES OF A STOCK OPERATOR *** - -***** This file should be named 60979-h.htm or 60979-h.zip ***** -This and all associated files of various formats will be found in: - http://www.gutenberg.org/6/0/9/7/60979/ - -Produced by Charlie Howard and the Online Distributed -Proofreading Team at http://www.pgdp.net - -Updated editions will replace the previous one--the old editions will -be renamed. - -Creating the works from print editions not protected by U.S. copyright -law means that no one owns a United States copyright in these works, -so the Foundation (and you!) can copy and distribute it in the United -States without permission and without paying copyright -royalties. 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