Initial commitHEAD main

author: nfenwick <nfenwick@pglaf.org> 2025-03-09 14:21:04 -0700
committer: nfenwick <nfenwick@pglaf.org> 2025-03-09 14:21:04 -0700
commit: 88cfbabb2453924e30475feabec61225d48243e7 (patch)
tree: b980eaf9b23295693ed69a65f736be8e57a64052 /75570-h/75570-h.htm
1 files changed, 3571 insertions, 0 deletions
diff --git a/75570-h/75570-h.htm b/75570-h/75570-h.htm
new file mode 100644
index 0000000..260b7b3
--- /dev/null
+++ b/75570-h/75570-h.htm
@@ -0,0 +1,3571 @@
+<!DOCTYPE html>
+<html lang="en">
+<head>
+    <meta charset="UTF-8">
+    <title>
+      Psychology of the Stock Market | Project Gutenberg
+    </title>
+    <link rel="icon" href="images/cover.jpg" type="image/x-cover">
+    <style>
+
+body {
+    margin-left: 10%;
+    margin-right: 10%;
+}
+
+    h1,h2,h3 {
+    text-align: center; /* all headings centered */
+    clear: both;
+}
+
+p {
+    margin-top: .51em;
+    text-align: justify;
+    margin-bottom: .49em;
+    text-indent: 1em;
+}
+
+hr {
+    width: 33%;
+    margin-top: 2em;
+    margin-bottom: 2em;
+    margin-left: 33.5%;
+    margin-right: 33.5%;
+    clear: both;
+}
+
+hr.chap {width: 65%; margin-left: 17.5%; margin-right: 17.5%;}
+ 
+div.chapter {page-break-before: always;}
+h2.nobreak  {page-break-before: avoid;}
+
+table {
+    margin-left: auto;
+    margin-right: auto;
+}
+table.autotable    { border-collapse: collapse; }
+
+.tdl      {text-align: left; padding-left: .5em;}
+.tdr      {text-align: right;}
+
+.pagenum { /* uncomment the next line for invisible page numbers */
+    /*  visibility: hidden;  */
+    position: absolute;
+    left: 92%;
+    font-size: small;
+    text-align: right;
+    font-style: normal;
+    font-weight: normal;
+    font-variant: normal;
+    text-indent: 0;
+    color: #A9A9A9;
+} /* page numbers */
+
+.blockquot {
+    margin-left: 5%;
+    margin-right: 10%;
+}
+
+.center   {text-align: center;}
+
+.right    {text-align: right;}
+
+.smcap    {font-variant: small-caps;}
+
+/* Images */
+
+img {
+    max-width: 100%;
+    height: auto;
+}
+
+
+.figcenter {
+    margin: auto;
+    text-align: center;
+    page-break-inside: avoid;
+    max-width: 100%;
+}
+
+/* Footnotes */
+.footnotes        {border: 1px dashed;}
+
+.footnote         {margin-left: 10%; margin-right: 10%; font-size: 0.9em;}
+
+.footnote .label  {position: absolute; right: 84%; text-align: right;}
+
+.fnanchor {
+    vertical-align: super;
+    font-size: .8em;
+    text-decoration:
+    none;
+}
+
+/* Transcriber's notes */
+.transnote {background-color: #E6E6FA;
+    color: black;
+    font-size:small;
+    padding:0.5em;
+    margin-bottom:5em;
+    font-family:sans-serif, serif;
+}
+
+.fs70 {font-size: 70%}
+.fs80 {font-size: 80%}
+.fs90 {font-size: 90%}
+.fs120 {font-size: 120%}
+.fs150 {font-size: 150%}
+.fs350 {font-size: 350%}
+
+.no-indent {text-indent: 0em;}
+.bold {font-weight: bold;}
+.wsp {word-spacing: 0.3em;}
+.lh {line-height: 1.5em;}
+
+p.drop-cap {
+  text-indent: 0em;
+}
+p.drop-cap:first-letter
+{
+  float: left;
+  margin: 0em 0.1em 0em 0em;
+  font-size: 250%;
+  line-height:0.85em;
+}
+
+.upper-case
+{
+  text-transform: uppercase;
+}
+
+.pageborder {width: 400px; border: 2px solid; padding: 10px; margin: auto;}
+
+    </style>
+</head>
+<body>
+<div style='text-align:center'>*** START OF THE PROJECT GUTENBERG EBOOK 75570 ***</div>
+
+<div class="figcenter" style="width: 85%">
+<img src="images/cover.jpg" alt="">
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<div class="pageborder">
+<h1>PSYCHOLOGY<br>
+<span class="fs70">OF THE</span><br>
+STOCK MARKET</h1>
+</div>
+<br>
+<br>
+
+<p class="center no-indent fs150 wsp">By G. C. Selden</p>
+
+<p class="center no-indent fs90 wsp">Author of “Trade Cycles,” “What Makes the Market?”
+Etc.</p>
+<br>
+<br>
+
+<p class="center no-indent wsp lh"><span class="smcap fs150">Ticker Publishing Company</span><br>
+2 RECTOR STREET<br>
+NEW YORK
+</p>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<h2 class="nobreak" id="PREFACE">PREFACE</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">This</span> book is based upon the belief that the
+movements of prices on the exchanges
+are dependent to a very large degree on the
+mental attitude of the investing and trading
+public. It is the result of years of study and
+experience as fellow at Columbia University,
+news writer, statistician, on the editorial staff
+of <span class="smcap">The Magazine of Wall Street</span>, etc.</p>
+
+<p>The book is intended chiefly as a practical
+help to that considerable part of the community
+which is interested, directly or indirectly,
+in the markets; but it is hoped that it
+may also have some scientific value as a preliminary
+discussion in a new field, where opportunities
+for further research seem almost
+unlimited.</p>
+
+<p class="right">
+<span class="smcap">G. C. Selden.</span><br>
+</p>
+
+<p>New York, May 28, 1912.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p class="center no-indent fs80">
+Copyright, 1912<br>
+Ticker Publishing Company
+</p>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<h2 class="nobreak" id="CONTENTS">CONTENTS.</h2>
+</div>
+
+<table class="autotable lh">
+<tr>
+<td class="tdr">I.</td>
+<td class="tdl">The Speculative Cycle</td>
+<td class="tdr"><a href="#Page_9">9</a></td>
+</tr>
+<tr>
+<td class="tdr">II.</td>
+<td class="tdl">Inverted Reasoning and Its Consequences</td>
+<td class="tdr"><a href="#Page_27">27</a></td>
+</tr>
+<tr>
+<td class="tdr">III.</td>
+<td class="tdl">“They”</td>
+<td class="tdr"><a href="#Page_39">39</a></td>
+</tr>
+<tr>
+<td class="tdr">IV.</td>
+<td class="tdl">Confusing the Present with the Future—Discounting</td>
+<td class="tdr"><a href="#Page_55">55</a></td>
+</tr>
+<tr>
+<td class="tdr">V.</td>
+<td class="tdl">Confusing the Personal with the General</td>
+<td class="tdr"><a href="#Page_71">71</a></td>
+</tr>
+<tr>
+<td class="tdr">VI.</td>
+<td class="tdl">The Panic and the Boom</td>
+<td class="tdr"><a href="#Page_87">87</a></td>
+</tr>
+<tr>
+<td class="tdr">VII.</td>
+<td class="tdl">The Psychology of Scale Orders</td>
+<td class="tdr"><a href="#Page_101">101</a></td>
+</tr>
+<tr>
+<td class="tdr">VIII.</td>
+<td class="tdl">The Mental Attitude of the Individual</td>
+<td class="tdr"><a href="#Page_109">109</a></td>
+</tr>
+</table>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_9">[Pg 9]</span></p>
+
+<h2 class="nobreak" id="IThe_Speculative_Cycle">I—The Speculative Cycle</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">Most</span> experienced professional
+traders in the stock market will
+readily admit that the minor
+fluctuations, amounting to perhaps five
+or ten dollars a share in the active
+speculative issues, are chiefly psychological.
+They result from varying attitudes
+of the public mind, or, more
+strictly, from the mental attitudes of
+those persons who are interested in the
+market at the time.</p>
+
+<p>Such fluctuations may be, and often
+are, based on “fundamental” conditions—that
+is, on real changes in the
+dividend prospects of the stocks affected
+or on variations in the earning
+power of the corporations represented—and
+again they may not. The broad
+movements of the market, covering
+periods of months or even years, are
+always the result of general financial<span class="pagenum" id="Page_10">[Pg 10]</span>
+conditions; but the smaller intermediate
+fluctuations represent changes in
+the state of the public mind, which
+may or may not coincide with alterations
+in basic factors.</p>
+
+<p>To bring out clearly the degree to
+which psychology enters into the stock
+market problem from day to day, it is
+only necessary to reproduce a conversation
+between professional traders
+such as may be heard almost any day
+in New street or in the neighboring
+cafés.</p>
+
+<p>“Well, what do you know?” says one
+trader to the other.</p>
+
+<p>“Just covered my Steel,” is the reply.
+“Too much company. Everybody
+seems to be short.”</p>
+
+<p>“Everybody I’ve seen thinks just as
+you do. Each one has covered because
+he thinks everybody else is short—still
+the market doesn’t rally much.
+I don’t believe there’s much short interest
+left, and if that’s the case we
+shall get another break.”</p>
+
+<p>“Yes, that’s what they all say—and<span class="pagenum" id="Page_11">[Pg 11]</span>
+they’ve all sold short again because
+they think everybody else has covered.
+I believe there’s just as much short
+interest now as there was before.”</p>
+
+<p>It is evident that this series of inversions
+might be continued indefinitely.
+These alert mental acrobats are doing
+a succession of flip-flops, each one of
+which leads up logically to the next,
+without ever arriving at a final stopping-place.</p>
+
+<p>The main point of their argument is
+that the state of mind of a man short
+of the market is radically different from
+the state of mind of one who is long.
+Their whole study, in such a conversation,
+is the mental attitude of those interested
+in the market. If a majority
+of the volatile class of in-and-out traders
+are long, many of them will hasten
+to sell on any sign of weakness and
+a decline will result. If the majority
+are short, they will buy on any development
+of strength and an advance may
+be expected.</p>
+
+<p>The psychological aspects of speculation<span class="pagenum" id="Page_12">[Pg 12]</span>
+may be considered from two points
+of view, equally important. One question
+is, What effect do varying mental
+attitudes of the public have upon the
+course of prices? How is the character
+of the market influenced by psychological
+conditions?</p>
+
+<p>A second consideration is, How does
+the mental attitude of the individual
+trader affect his chances of success?
+To what extent, and how, can he overcome
+the obstacles placed in his pathway
+by his own hopes and fears, his
+timidities and his obstinacies?</p>
+
+<p>These two points of view are so
+closely involved and intermingled that
+it is almost impossible to consider
+either one alone. It will be necessary
+to take up first the subject of speculative
+psychology as a whole, and later
+to attempt to draw conclusions both
+as to its effects upon the market and
+its influence upon the fortunes of the
+individual trader.</p>
+
+<p>As a convenient starting point it may
+be well to trace briefly the history of<span class="pagenum" id="Page_13">[Pg 13]</span>
+the typical speculative cycle, which
+runs its course over and over, year after
+year, with infinite slight variations but
+with substantial similarity, on every
+stock exchange and in every speculative
+market of the world—and presumably
+will continue to do so as long as
+prices are fixed by the competition of
+buyers and sellers, and as long as human
+beings seek a profit and fear a loss.<a id="FNanchor_1" href="#Footnote_1" class="fnanchor">[1]</a></p>
+
+<p>Beginning with a condition of dullness
+and inactivity, with small fluctuations
+and very slight public interest,
+prices begin to rise, at first almost imperceptibly.
+No special reason appears
+for the advance, and it is generally
+thought to be merely temporary, due to
+small professional operations. There
+is, of course, some short interest in the
+market, mostly, at this time, of the
+character sometimes called a “sleeping”<span class="pagenum" id="Page_14">[Pg 14]</span>
+short interest. An active speculative
+stock is never entirely free from shorts.</p>
+
+<p>As there is so little public speculation
+at this period in the cycle, there
+are but few who are willing to sell out
+on so small an advance, hence prices
+are not met by any large volume of
+profit-taking. The smaller professionals
+take the short side for a turn,
+with the idea that trifling fluctuations
+are the best that can be hoped for at
+the moment and must be taken advantage
+of if any profits are to be secured.
+This class of selling brings prices back
+almost to their former dead level.</p>
+
+<p>Soon another unostentatious upward
+movement begins, carrying prices a
+trifle higher than the first. A few
+shrewd traders take the long side, but
+the public is still unmoved and the
+sleeping short interest—most of it originally
+put out at much higher figures—still
+refuses to waken.</p>
+
+<p>Gradually prices harden further and
+finally advance somewhat sharply. A
+few of the more timid shorts cover, perhaps<span class="pagenum" id="Page_15">[Pg 15]</span>
+to save a part of their profits or
+to prevent their trades from running
+into a loss. The fact that a bull turn
+is coming now penetrates through another
+layer of intellectual density and
+another wave of traders take the long
+side. The public notes the advance and
+begins to think some further upturn
+is possible, but that there will be plenty
+of opportunities to buy on substantial
+reactions.</p>
+
+<p>Strangely enough, these reactions, except
+of the most trifling character, do
+not appear. Waiting buyers do not get
+a satisfactory chance to take hold.
+Prices begin to move up faster. There
+is a halt from time to time, but when
+a real reaction finally comes the market
+looks “too weak to buy,” and when it
+starts up again it often does so with a
+sudden leap that leaves would-be purchasers
+far in the rear.</p>
+
+<p>At length the more stubborn bears
+become alarmed and begin to cover in
+large volume. The market “boils,” and
+to the short who is watching the tape,<span class="pagenum" id="Page_16">[Pg 16]</span>
+seems likely to shoot through the ceiling
+at almost any moment. However
+firm may be his bearish convictions, his
+nervous system eventually gives out under
+this continual pounding, and he
+covers everything “at the market” with
+a sigh of relief that his losses are no
+greater.</p>
+
+<p>About this time the outside public
+begins to reach the conclusion that the
+market is “too strong to react much,”
+and that the only thing to do is to “buy
+’em anywhere.” From this source
+comes another wave of buying, which
+soon carries prices to new high levels,
+and purchasers congratulate themselves
+on their quick and easy profits.</p>
+
+<p>For every buyer there must be a
+seller—or, more accurately, for every
+one hundred shares bought one hundred
+shares must be sold, as the actual number
+of <em>persons</em> buying at this stage is
+likely to be much greater than the number
+of <em>persons</em> selling. Early in the
+advance the supply of stocks is small
+and comes from scattered sources, but<span class="pagenum" id="Page_17">[Pg 17]</span>
+as prices rise, more and more holders
+become satisfied with their profits and
+willing to sell. The bears, also, begin
+to fight the advance by selling short
+on every quick rise. A stubborn professional
+bear will often be forced to
+cover again and again, with a small
+loss each time, before he finally locates
+the top and secures a liberal profit on
+the ensuing decline.</p>
+
+<p>Those selling at this stage are not,
+as a rule, the largest holders. The largest
+holders are usually those whose
+judgment is sound enough, or whose
+connections are good enough, so that
+they have made a good deal of money;
+and neither a sound judgment nor the
+best advisers are likely to favor selling
+so early in the advance, when much
+larger profits can be secured by simply
+holding on.</p>
+
+<p>The height to which prices can now
+be carried depends on the underlying
+conditions. If money is easy and general
+business prosperous a prolonged
+bull movement may result, while<span class="pagenum" id="Page_18">[Pg 18]</span>
+strained banking resources or depressed
+trade will set a definite limit to the
+possible advance. If conditions are
+bearish, the driving of the biggest
+shorts to cover will practically end the
+rise; but in a genuine bull market the
+advance will continue until checked by
+sales of stocks held for investment,
+which come upon the market only
+when prices are believed to be unduly
+high.</p>
+
+<p>In a sense, the market is always a
+contest between investors and speculators.
+The real investor, looking chiefly
+to interest return, but by no means unwilling
+to make a profit by buying low
+and selling high, is ready, perhaps, to
+buy his favorite stock at a price which
+will yield him six per cent. on his investment,
+or to sell at a price yielding
+only four per cent. The speculator
+cares nothing about interest return.
+He wants to buy before prices go up
+and to sell short before they go down.
+He would as soon buy at the top of a<span class="pagenum" id="Page_19">[Pg 19]</span>
+big rise at any other time, provided prices
+are going still higher.</p>
+
+<p>As the market advances, therefore,
+one investor after another sees his limit
+reached and his stock sold. Thus the
+volume of stocks to be carried or tossed
+from hand to hand by bullish speculators
+is constantly rolling up like a
+snowball. On the ordinary intermediate
+fluctuations, covering five to
+twenty dollars a share, these sales by
+investors are small compared with the
+speculative business. In one hundred
+shares of a stock selling at 150, the
+investor has $15,000; but with this sum
+the speculator can easily carry ten
+times that number of shares.</p>
+
+<p>The reason why sales by investors
+are so effective is not because of the
+actual amount of stock thrown on the
+market, but because this stock is a permanent
+load, which will not be got
+rid of again until prices have suffered
+a severe decline. What the speculator
+sells he or some other trader may buy
+back tomorrow.</p>
+
+<p><span class="pagenum" id="Page_20">[Pg 20]</span></p>
+
+<p>The time comes when everybody
+seems to be buying. Prices become
+confused. One stock leaps upward in
+a way to strike terror to the heart of
+the last surviving short. Another appears
+almost equally strong, but slips
+back unobtrusively when nobody is
+looking, like the frog jumping out of
+the well in the arithmetic of our boyhood.
+Still another churns violently in
+one place, like a side-wheeler stuck on
+a sand-bar.</p>
+
+<p>Then the market gives a sudden
+lurch downward, as though in danger
+of spilling out its unwieldy contents.
+This is hailed as a “healthy reaction,”
+though it is a mystery whom it can be
+healthy for, unless it is the shorts.
+Prices recover again, with everybody
+happy except a few disgruntled bears,
+who are rightly regarded with contemptuous
+amusement.</p>
+
+<p>Curiously, however, there seems to
+be stock enough for all comers, and
+the few cranks who have time to
+bother with such things notice that<span class="pagenum" id="Page_21">[Pg 21]</span>
+the general average of prices is now
+rising very slowly, if at all. The largest
+speculative holders of stocks, finding
+a market big enough to absorb
+their sales, are letting go. And there
+are always stocks enough to go around.
+Our big capitalists are seldom entirely
+out of stocks. They merely have more
+stocks when prices are low and fewer
+when prices are high. Moreover, long
+before there is any danger of the supply
+running out, plenty of new issues
+are created.</p>
+
+<p>When there is a general public interest
+in the stock market, an immense
+amount of realizing will often be absorbed
+within three or four days or a
+week, after which the deluge; but if
+speculation is narrow, prices may remain
+around top figures for weeks or
+months, while big holdings are fed out,
+a few hundred shares here and a few
+hundred there, and even then a balance
+may be left to be thrown over on
+the ensuing decline at whatever prices
+can be obtained. Great speculative<span class="pagenum" id="Page_22">[Pg 22]</span>
+leaders are far from infallible. They
+have often sold out too soon and later
+have seen the market run away to unexpected
+heights, or have held on too
+long and have suffered severe losses
+before they could get out.</p>
+
+<p>In this selling the bull leaders get a
+good deal of undesired help from the
+bears. However wary the bulls may
+be in concealing their sales, their machinations
+will be discovered by watchful
+professionals and shrewd chart students,
+and a considerable sprinkling of
+short sales will be put out within a
+few points of the top. This is one of
+the reasons why the long swings in
+active speculative stocks are smaller
+in proportion to price than in inactive
+specialties of a similar character—contrary
+to the generally received impression.
+It is rare that any considerable
+short interest exists in the inactive
+stocks.</p>
+
+<p>Once the top-heavy load is overturned,
+the decline is usually more
+rapid than the previous advance. The<span class="pagenum" id="Page_23">[Pg 23]</span>
+floating supply, now greatly increased,
+is tossed about from one speculator to
+another at lower and lower prices.
+From time to time stocks become temporarily
+lodged in stubborn hands, so
+that part of the shorts take fright and
+cover, causing a sharp upturn; but so
+long as the load of stocks is still on
+the market the general course of prices
+must be downward.</p>
+
+<p>Until investors or big speculative
+capitalists again come into the market,
+the load of stocks to be carried by ordinary
+speculative bulls increases almost
+continually. There is no lessening
+of the floating supply of stock certificates
+in the Street, and there is a
+gradual increase in the short interest;
+and of course the bulls have to carry
+these short sales as well as the actual
+certificates, since for every seller there
+must be a buyer, whether the sale be
+made by a short or a long. Shorts
+cover again and again on the sharp
+breaks, but in most cases they put out
+their lines again, either higher or lower,<span class="pagenum" id="Page_24">[Pg 24]</span>
+as opportunity offers. On the average,
+the short interest is largest at low
+prices, though there are likely to be
+periods during the decline when it will
+be larger than at the final bottom,
+where buying by shorts often helps to
+avert panicky conditions.</p>
+
+<p>The length of this decline, like the
+extent of the preceding advance, depends
+on fundamental conditions; for
+both investors and speculative capitalists
+will come into the market sooner
+if all conditions are favorable than they
+will in a stringent money market or
+when the future prospects of business
+are unsatisfactory. As a rule, buyers
+do not appear in force until a “bargain
+day” appears. This is when, in its
+downward course, the heavy load of
+stocks strikes an area honeycombed
+with stop loss orders. Floor traders
+seize the opportunity to put out short
+lines and a general collapse results.</p>
+
+<p>Here are plenty of stocks to be had
+cheap, and shrewd operators—large
+and small, but mostly large or on the<span class="pagenum" id="Page_25">[Pg 25]</span>
+way to become so—are busy picking
+them up. The fixed limits of many investors
+are also reached by the sharp
+break, and their purchases disappear,
+to be seen in the Street no more until
+the next bull turn.</p>
+
+<p>Many shorts cover on such a break,
+but not all. The sequel to the “bargain
+day” is a big short interest which
+has overstayed its market, and a quick
+rally follows; but when the more
+urgent shorts get relief, prices sag
+again and fall into that condition of
+lethargy from which this consideration
+of the speculative cycle started.</p>
+
+<p>The movements described are substantially
+uniform, whether the cycle
+be one covering a week, a month, or a
+year. The big cycle includes many
+intermediate movements, and these
+movements in turn contain smaller
+swings. Investors do not participate to
+any extent in the small swings, but otherwise
+the forces involved in a three-point
+turn up and down are substantially the
+same as those which appear in a thirty-point<span class="pagenum" id="Page_26">[Pg 26]</span>
+cycle, though not so easy to identify.</p>
+
+<p>The fact will at once be recognized
+that the above description is, in essence,
+a story of human hopes and
+fears; of a mental attitude, on the part
+of those interested, resulting from their
+own position in the market, rather than
+from any deliberate judgment of conditions;
+of an unwarranted projection
+by the public imagination of a perceived
+present into an unknown though not
+wholly unknowable future.</p>
+
+<p>Laying aside for the present the influence
+of fundamental conditions on
+prices, it is our task to trace out both
+the causes and the effects of these
+psychological elements in speculation.</p>
+
+
+<div class="footnotes"><h3>FOOTNOTES:</h3>
+
+<div class="footnote">
+
+<p><a id="Footnote_1" href="#FNanchor_1" class="label">[1]</a> The writer discussed this subject rather fully in
+the <cite>Quarterly Journal of Economics</cite>, Vol. XVI, No. 2.
+The article will also be found extensively summarized
+and quoted in Vol. VII of “Modern Business,” edited
+by Joseph French Johnson, Dean of New York University
+School of Commerce.</p>
+
+</div>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+<p><span class="pagenum" id="Page_27">[Pg 27]</span></p>
+
+<div class="chapter">
+<h2 class="nobreak" id="IIInverted_Reasoning_and_its">II—Inverted Reasoning and its
+Consequences</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">It</span> is hard for the average man to oppose
+what appears to be the general
+drift of public opinion. In the
+stock market this is perhaps harder
+than elsewhere; for we all realize that
+the prices of stocks must, in the long
+run, be controlled by public opinion.
+The point we fail to remember is that
+public opinion in a speculative market
+is measured in dollars, not in population.
+One man controlling one million
+dollars has double the weight of five
+hundred men with one thousand dollars
+each. Dollars are the horse-power
+of the markets—the mere number of
+men does not signify.</p>
+
+<p>This is why the great body of opinion
+appears to be bullish at the top and
+bearish at the bottom. The multitude
+of small traders must be, as a plain<span class="pagenum" id="Page_28">[Pg 28]</span>
+necessity, long when prices are at the
+top, and short or out of the market at
+the bottom. The very fact that they
+<em>are</em> long at the top shows that they
+have been supplied with stocks from
+some source.</p>
+
+<p>Again, the man with one million dollars
+is a silent individual. The time
+when it was necessary for him to talk
+is past—his money now does the talking.
+But the one thousand men who
+have one thousand dollars each are
+conversational, fluent, verbose to the
+last degree; and among these smaller
+traders are the writers—the newspaper
+and news bureau men, and the manufacturers
+of gossip for brokerage
+houses.</p>
+
+<p>It will be observed that the above
+course of reasoning leads us to the conclusion
+that most of those who write
+and talk about the market are more
+likely to be wrong than right, at least
+so far as speculative fluctuations are
+concerned. This is not complimentary
+to the “moulders of public opinion,”<span class="pagenum" id="Page_29">[Pg 29]</span>
+but most seasoned newspaper readers
+will agree that it is true. The press
+reflects, in a general way, the thoughts
+of the multitude, and in the stock market
+the multitude is necessarily, as a
+logical deduction from the facts of the
+case, likely to be bullish at high prices
+and bearish at low.</p>
+
+<p>It has often been remarked that the
+average man is an optimist regarding
+his own enterprises and a pessimist regarding
+those of others. Certainly this
+is true of the professional trader in
+stocks. As a result of the reasoning
+outlined above, he comes habitually to
+expect that nearly every one else will
+be wrong, but is, as a rule, confident
+that his own analysis of the situation
+will prove correct. He values the opinions
+of a few persons whom he believes
+to be generally successful; but
+aside from these few, the greater the
+number of the bullish opinions he
+hears, the more doubtful he becomes
+about the wisdom of following the bull
+side.</p>
+
+<p><span class="pagenum" id="Page_30">[Pg 30]</span></p>
+
+<p>This apparent contrariness of the
+market, although easily understood
+when its causes are analyzed, breeds
+in professional traders a peculiar sort
+of skepticism—leads them always to
+distrust the obvious and to apply a
+kind of inverted reasoning to almost
+all stock market problems. Often, in
+the minds of traders who are not naturally
+logical, this inverted reasoning
+assumes the most erratic and grotesque
+forms, and it accounts for many
+apparently absurd fluctuations in prices
+which are commonly charged to manipulation.</p>
+
+<p>For example, a trader starts with
+this assumption: The market has had
+a good advance; all the small traders
+are bullish; somebody must have sold
+them the stock which they are carrying;
+hence the big capitalists are probably
+sold out or short and ready for a
+reaction or perhaps for a bear market.
+Then if a strong item of bullish news
+comes out—one, let us say, that really
+makes an important change in the<span class="pagenum" id="Page_31">[Pg 31]</span>
+situation—he says, “Ah, so this is what
+they have been bulling the market on!
+It has been discounted by the previous
+rise.” Or he may say, “They are putting
+out this bull news to sell stocks
+on.” He proceeds to sell out any long
+stocks he may have or perhaps to sell
+short.</p>
+
+<p>His reasoning may be correct or it
+may not; but at any rate his selling
+and that of others who reason in a
+similar way, is likely to produce at
+least a temporary decline on the announcement
+of the good news. This
+decline looks absurd to the outsider
+and he falls back on the old explanation,
+“All manipulation.”</p>
+
+<p>The same principle is often carried
+further. You will find professional
+traders reasoning that favorable figures
+on the steel industry, for example,
+have been concocted to enable insiders
+to sell their Steel; or that gloomy reports
+are put in circulation to facilitate
+accumulation. Hence they may act in
+direct opposition to the news and carry<span class="pagenum" id="Page_32">[Pg 32]</span>
+the market with them, for the time at
+least.</p>
+
+<p>The less the trader knows about the
+fundamentals of the financial situation
+the more likely he is to be led astray
+in conclusions of this character. If he
+has confidence in the general strength
+of conditions he may be ready to accept
+as genuine and natural, a piece of
+news which he would otherwise receive
+with cynical skepticism and use as a
+basis for short sales. If he knows that
+fundamental conditions are unsound,
+he will not be so likely to interpret bad
+news as issued to assist in accumulation
+of stocks.</p>
+
+<p>The same reasoning is applied to
+large purchases through brokers known
+to be associated with capitalists. In fact,
+in this case we often hear a double inversion,
+as it were. Such buying may
+impress the observer in three ways:</p>
+
+<p>1. The “rank outsider” takes it at
+face value, as bullish.</p>
+
+<p>2. A more experienced trader may
+say, “If they really wished to get the<span class="pagenum" id="Page_33">[Pg 33]</span>
+stocks they would not buy through
+their own brokers, but would endeavor
+to conceal their buying by scattering
+it among other houses.”</p>
+
+<p>3. A still more suspicious professional
+may turn another mental somersault
+and say, “They are buying
+through their own brokers so as to
+throw us off the scent and make us
+think someone else is using their brokers
+as a blind.” By this double somersault
+such a trader arrives at the same
+conclusion as the outsider.</p>
+
+<p>The reasoning of traders becomes
+even more complicated when large
+buying or selling is done openly by a
+big professional who is known to trade
+in-and-out for small profits. If he buys
+50,000 shares, other traders are quite
+willing to sell to him and their opinion
+of the market is little influenced,
+simply because they know he may sell
+50,000 the next day or even the next
+hour. For this reason great capitalists
+sometimes buy or sell through such big
+professional traders in order to execute<span class="pagenum" id="Page_34">[Pg 34]</span>
+their orders easily and without arousing
+suspicion. Hence the play of subtle
+intellects around big trading of this
+kind often becomes very elaborate.</p>
+
+<p>It is to be noticed that this inverted
+reasoning is useful chiefly at the top
+or bottom of a movement, when distribution
+or accumulation is taking
+place on a large scale. A market which
+repeatedly refuses to respond to good
+news after a considerable advance is
+likely to be “full of stocks.” Likewise
+a market which will not go down on
+bad news is usually “bare of stocks.”</p>
+
+<p>Between the extremes will be found
+long stretches in which capitalists have
+very little cause to conceal their position.
+Having accumulated their lines
+as low as possible, they are then willing
+to be known as the leaders of the upward
+movement and have every reason
+to be perfectly open in their buying.
+This condition continues until they are
+ready to sell. Likewise, having sold as
+much as they desire, they have no
+reason to conceal their position further,<span class="pagenum" id="Page_35">[Pg 35]</span>
+even though a subsequent decline may
+run for months or a year.</p>
+
+<p>It is during a long upward movement
+that the “lamb” makes money,
+because he accepts facts as facts, while
+the professional trader is often found
+fighting the advance and losing heavily
+because of his over-development of
+cynicism and suspicion.</p>
+
+<p>The successful trader eventually
+learns when to invert his natural mental
+processes and when to leave them
+in their usual position. Often he
+develops a sort of instinct which could
+scarcely be reduced to cold print. But
+in the hands of the tyro this form of
+reasoning is exceedingly dangerous, because
+it permits of putting an alternate
+construction on any event. Bull news
+either (1) is significant of a rising
+trend of prices, or (2) indicates that
+“they” are trying to make a market
+to sell on. Bad news may indicate
+either a genuinely bearish situation or
+a desire to accumulate stocks at low
+prices.</p>
+
+<p><span class="pagenum" id="Page_36">[Pg 36]</span></p>
+
+<p>The inexperienced operator is therefore
+left very much at sea. He is playing
+with the professional’s edged tools
+and is likely to cut himself. Of what
+use is it for him to try to apply his
+reason to stock market conditions when
+every event may be doubly interpreted?</p>
+
+<p>Indeed, it is doubtful if the professional’s
+distrust of the obvious is of
+much benefit to him in the long run.
+Most of us have met those deplorable
+mental wrecks, often found among the
+“chairwarmers” in brokers’ offices,
+whose thinking machinery seems to
+have become permanently demoralized
+as a result of continued acrobatics.
+They are always seeking an “ulterior
+motive” in everything. They credit—or
+debit—Morgan and Rockefeller with
+the smallest and meanest trickery and
+ascribe to them the most artful duplicity
+in matters which those “high financiers”
+wouldn’t stoop to notice. The
+continual reversal of the mental engine
+sometimes deranges its mechanism.</p>
+
+<p>Probably no better general rule can<span class="pagenum" id="Page_37">[Pg 37]</span>
+be laid down than the brief one, “Stick
+to common sense.” Maintain a balanced,
+receptive mind and avoid abstruse
+deductions. A few further suggestions
+may, however, be offered:</p>
+
+<p>If you already have a position in
+the market, do not attempt to bolster
+up your failing faith by resorting to
+intellectual subtleties in the interpretation
+of obvious facts. If you are
+long or short of the market, you are
+not an unprejudiced judge, and you will
+be greatly tempted to put such an interpretation
+upon current events as will
+coincide with your preconceived opinion.
+It is hardly too much to say that
+this is the greatest obstacle to success.
+The least you can do is to avoid inverted
+reasoning in support of your
+own position.</p>
+
+<p>After a prolonged advance, do not
+call inverted reasoning to your aid in
+order to prove that prices are going
+still higher; likewise after a big break
+do not let your bearish deductions become
+too complicated. Be suspicious<span class="pagenum" id="Page_38">[Pg 38]</span>
+of bull news at high prices, and of bear
+news at low prices.</p>
+
+<p>Bear in mind that an item of news
+usually causes but <em>one</em> considerable
+movement of prices. If the movement
+takes place before the news comes out,
+as a result of rumors and expectations,
+then it is not likely to be repeated after
+the announcement is made; but if the
+movement of prices has not preceded,
+then the news contributes to the general
+strength or weakness of the situation
+and a movement of prices may
+follow.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_39">[Pg 39]</span></p>
+
+<h2 class="nobreak" id="IIIThey">III—“They”</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">If</span> a man entirely unfamiliar with the
+stock market should spend several
+days around the Exchange listening
+to the conversation of all sorts of
+traders and investors, in order to pick
+up information about the causes of price
+movements, the probability is that the
+most pressing question in his mind at the
+end of that time would be “Who are
+‘They?’”</p>
+
+<p>Everywhere he went he would
+hear about Them. In the customers’
+rooms of the fractional lot houses
+he would find young men trading in
+ten shares and arguing learnedly as
+to what They were to do next. Tape
+readers—experts and tyros alike—would
+tell him that They were accumulating
+Steel, or distributing Reading.
+Floor traders and members of the Exchange
+would whisper that they were<span class="pagenum" id="Page_40">[Pg 40]</span>
+told They were going to put the market
+up, or down, as the case might be. Even
+sedate investors might inform him that,
+although the situation was bearish, undoubtedly
+They would have to put the
+market temporarily higher in order to
+unload Their stocks.</p>
+
+<p>This “They” theory of the market is
+quite as prevalent among successful
+traders as among beginners—probably
+more so. There may be room for argument
+as to why this is so, but as to the
+fact itself there is no doubt. Whether
+They are a myth or a definite reality,
+many persons are making money by
+studying the market from this point of
+view.</p>
+
+<p>If you were to go around Wall street
+and ask various classes of traders who
+They are, you would get nearly as many
+different answers as the number of people
+interviewed. One would say, “The
+house of Morgan”; another, “Standard
+Oil and associated interests”—which is
+pretty broad, when you stop to think of
+it; another, “The big banking interests”;<span class="pagenum" id="Page_41">[Pg 41]</span>
+still another, “Professional traders on the
+floor”; a fifth, “Pools in the various favorite
+stocks, which act more or less in
+concert”; a sixth might say, “Shrewd and
+successful speculators, whoever and
+wherever they are”; while to the seventh,
+They may typify merely active traders
+as a whole, whom he conceives to make
+prices by falling over each other to buy
+or to sell.</p>
+
+<p>Indeed, one writer of no small attainments
+as a student of market conditions
+believes that the entire phenomena of the
+New York stock market are under the
+control of some one individual, who is
+presumably, in some way or other, the
+representative of great associated interests.</p>
+
+<p>It seems obviously impossible to trace
+to its source, tag and identify any sort
+of permanent controlling power. The
+stock markets of the world move pretty
+much together in the broad cyclical
+swings, so that such a power would have
+to consist of a world-wide association of
+great financial interests, controlling all of<span class="pagenum" id="Page_42">[Pg 42]</span>
+the principal security markets. The average
+observer will find it difficult to
+masticate and swallow this proposition.</p>
+
+<p>The effort to reduce the science of
+speculation and investment to an impossible
+definiteness or an ideal simplicity
+is, I believe, responsible for many failures.
+A. S. Hardy, the diplomat, who was
+formerly a professor of mathematics and
+wrote books on quaternions, differential
+calculus, etc., once remarked that the
+study of mathematics is very poor mental
+discipline, because it does not cultivate
+the judgment. Given fixed and certain
+premises, your mathematician will follow
+them out to a correct conclusion; but in
+practical affairs the whole difficulty lies
+in selecting your premises.</p>
+
+<p>So the market student of a mathematical
+turn of mind is always seeking a
+rule or a set of rules—a “sure thing” as
+traders put it. He would not seek such
+rules for succeeding in the grocery business
+or the lumber business; he would,
+on the contrary, analyze each situation as
+it arose and act accordingly. The stock<span class="pagenum" id="Page_43">[Pg 43]</span>
+market presents itself to my mind as a
+purely practical proposition. Scientific
+methods may be applied to any line of
+business, from stocks to chickens, but
+this is a very different thing from trying
+to reduce the fluctuations of the stock
+market to a basis of mathematical certainty.</p>
+
+<p>In discussing the identity of Them,
+therefore, we must be content to take
+obvious facts as we find them without
+attempting to spin fine theories.</p>
+
+<p>There are three senses in which this
+idea of “Them” has some foundation in
+fact. First, “They” may be and often
+are roughly conceived of as the floor
+traders on the Stock Exchange who are
+directly concerned in making quotations,
+pools formed to control certain stocks, or
+individual manipulators.</p>
+
+<p>Floor traders exercise an important influence
+on the immediate movement of
+prices. Suppose, for example, they observe
+that offerings of Reading are very
+light. Declines do not induce liquidation
+and only small offerings of stock are met<span class="pagenum" id="Page_44">[Pg 44]</span>
+on advances. They begin to feel that, in
+the absence of unexpected cataclysms,
+Reading will not decline much. The natural
+thing for them to do is to begin buying
+Reading on all soft spots. Whenever
+a few hundred shares are offered at a
+bargain, floor traders snap up the stock.</p>
+
+<p>As a result of this “bailing out” of the
+market, Reading becomes scarcer still,
+and traders, being now long, become
+more bullish. They begin to “mark up
+prices.” This is not difficult, since they
+are, for the time being, practically unanimous
+in a desire for higher prices. Suppose
+the market is 161⅛ bid, offered at
+161¼. They find that only 100 shares
+are for sale at ¼, and 200 are offered
+at ⅜. As to how much stock may be
+awaiting bids at ½ or higher, they cannot
+be sure, but can generally make a
+shrewd guess. One or more traders take
+these offerings, of perhaps 500 shares,
+and make the market ½ bid. The other
+floor traders are not willing to sell at
+this trifling profit, and a wait ensues to
+see whether any outside orders are attracted<span class="pagenum" id="Page_45">[Pg 45]</span>
+by the movement of the price,
+and if so, whether they are buying or
+selling orders. If a few buying orders
+come in, they are filled, perhaps at ⅝
+and ¾. If selling appears, the floor
+traders retire in good order, take the
+offerings at lower prices, and try it again
+the next day or perhaps the next hour.
+Eventually, by seizing every favorable
+opportunity, they engineer an upward
+move of perhaps two or three points
+without taking any more stock than they
+want.</p>
+
+<p>If such a movement attracts a following,
+it may easily run ten points without
+any real change in the prospects of the
+Reading road—though the prospects of
+the road may have had something to do
+with making the stock scarce before the
+movement started. On the other hand,
+if large offerings of stock are encountered
+at the advance, the boomlet is
+ignominiously squelched and the floor
+traders make trifling profits or losses.</p>
+
+<p>Pools are not so common as most outsiders
+believe. There are many difficulties<span class="pagenum" id="Page_46">[Pg 46]</span>
+and complications to be overcome before
+a pool can be formed, held together,
+and operated successfully, as we had ample
+opportunity to observe not long ago
+in the case of Hocking Coal &amp; Iron.
+But if a definite pool exists in any stock,
+its operations are practically a reproduction,
+on a larger scale and under a binding
+agreement, of the methods employed
+by floor traders over a smaller range and
+in a mere loose and voluntary association
+resulting from their common interests.
+And the individual manipulator is
+only a pool consisting of one person.</p>
+
+<p>Second, many conceive “Them” as an association
+of powerful capitalists who are
+running a campaign in all the important
+speculative stocks simultaneously. It is
+safe to say that no such permanent and
+united association exists, though it would
+be hard to prove such a statement. But
+there have been many times when a single
+great interest was practically in control
+of the market for a time, other interests
+being content to look on, or to<span class="pagenum" id="Page_47">[Pg 47]</span>
+participate in a small way, or to await a
+favorable chance to take the other side.</p>
+
+<p>The “Standard Oil crowd,” the “Gates
+crowd,” the “Morgan interests,” and
+Harriman and his associates, will at
+once occur to the reader as having been,
+at various times in the past, in sole control
+of an important general campaign.
+At present the great interests are generally
+classified into three divisions—Morgan,
+Standard Oil, and Kuhn-Loeb.</p>
+
+<p>A definite agreement among such interests
+as these would be impossible, except
+for limited and temporary purposes.
+This is perhaps not so much because
+these high financiers couldn’t trust each
+other, as it is because each so-called interest
+consists of a loosely bound aggregation
+of followers of all sorts and varieties,
+having only one thing in common—control
+of capital. Such an “interest”
+is not an army, where the traitor
+can be court-martialed and shot; it is
+a mob, and has to be led, not driven.
+True, the known traitor might be put to
+death, financially speaking, but in stock<span class="pagenum" id="Page_48">[Pg 48]</span>
+market operations the traitor cannot, as
+a rule, be known. Unless his operations
+are of unusual size, he can successfully
+cover his tracks.</p>
+
+<p>From this second point of view,
+“They” are not always active in the market.
+Great campaigns can only be undertaken
+with safety in periods when the
+future is to a certain extent assured. When
+the future is in doubt, when various
+confusing elements enter into the financial
+and political situation, leading financiers
+may be quite content to confine
+their stock market operations to individual
+deals, and to postpone the inauguration
+of a broad campaign until a more
+solid foundation exists for it.</p>
+
+<p>Third, “They” may be conceived simply
+as speculators and investors in
+general—all that miscellaneous and
+heterogeneous troop of persons, scattered
+over the whole world, each of
+whom contributes his mite to the fluctuations
+of prices on the Stock Exchange.
+In this sense there is no doubt about the
+existence of Them, and They are the<span class="pagenum" id="Page_49">[Pg 49]</span>
+court of last resort in the establishment
+of prices. To put it another way, these
+are the “They” who are the ultimate consumers
+of securities. It is to Them that
+everybody else is planning, sooner or
+later, directly or indirectly, to sell his
+stocks.</p>
+
+<p>You can lead the horse to water, but
+you can’t make him drink. You or I or
+any other great millionaire can put up
+prices, but you can’t make Them buy the
+stocks from you, unless They have the
+purchasing power and the purchasing
+disposition. So there is no doubt that
+here, at any rate, we have a conception
+of Them which will stand analysis without
+exploding.</p>
+
+<p>In cases where a general campaign is
+being conducted, the “They” theory of
+values is of considerable help in the accumulation
+or distribution of stocks. In
+fact, in the late stages of a bull campaign
+the argument most frequently heard is
+likely to be something as follows: “Yes,
+prices are high and I can’t see that future
+prospects are especially bullish—but<span class="pagenum" id="Page_50">[Pg 50]</span>
+stocks are in strong hands and They
+will have to put them higher to make
+a market to sell on.” Some investors
+make a point of dumping over all their
+stocks as soon as this veteran war-horse
+of the news brigade is groomed and trotted
+out. Likewise, after a prolonged
+bear campaign, we hear that somebody
+is “in trouble” and that They are going
+to break the market until certain concentrated
+holdings are brought out.</p>
+
+<p>All this is very likely to be nothing
+but dust thrown in the eyes of that most
+gullible of all created beings—the haphazard
+speculator. When prices are so
+high in comparison with conditions that
+no sound reason can be advanced why
+they should go higher, a certain number
+of people are still induced to buy because
+of what They are going to do. Or,
+at least, if the public can no longer be
+induced to buy in any large volume, it is
+prevented from selling short for fear of
+what They may do.</p>
+
+<p>The close student of the technical condition
+of the market—by which is meant<span class="pagenum" id="Page_51">[Pg 51]</span>
+the character of the long and short interests
+from day to day—is pretty sure to
+base his operations to a considerable extent
+on what he thinks They will do
+next. He has in mind Them as described
+in the first classification above—floor
+traders, pools and manipulators.
+He gets a good deal of help from this
+conception, crude as it may appear to
+be—largely, no doubt, because it serves
+to distract his mind from current news
+and gossip, and to prevent him from
+being too greatly influenced by the momentary
+appearance of the market.</p>
+
+<p>When the market looks weakest, when
+the news is at the worst, when bearish
+prognostications are most general, is the
+time to buy, as every schoolboy knows;
+but if a man has in mind a picture of a
+flood of stocks pouring out from the four
+quarters of the globe, with no buyers,
+because of some desperately bad news
+which is just coming over the ticker, it
+is almost a mental impossibility for him
+to get up the courage to plunge in and
+buy. If, on the other hand, he conceives<span class="pagenum" id="Page_52">[Pg 52]</span>
+that They are just giving the market a
+final smash to facilitate covering a gigantic
+line of short stocks, he has courage
+to buy. His view may be right or
+wrong, but at least he avoids buying at
+the top and selling at the bottom, and he
+has nerve to buy a weak market and sell
+a strong one.</p>
+
+<p>The reason for the haziness of the
+“They” conception in the average trader’s
+mind is that he is only concerned
+with Them as They manifest Themselves
+through the stock market. As to who
+They are he feels a mild and detached
+curiosity; but as to Their manifestations
+in the market he is vitally and financially
+interested. It is on the latter point,
+therefore, that he concentrates his
+thoughts.</p>
+
+<p>But inasmuch as definite, painstaking
+analysis of a situation is always better
+than a hazy general notion of it, the
+trader or investor would do much better
+to rid his mind of Them. The word
+“They” means nothing until it has an
+antecedent; and to use it continually<span class="pagenum" id="Page_53">[Pg 53]</span>
+without having any antecedent in mind
+is slipshod language, which stands for
+slipshod thinking. They, in the sense
+of the big banking interests, may be
+working directly against Them in the
+sense of individual manipulators; the
+manipulator, again, may be trying to trap
+Them in the sense of floor traders.</p>
+
+<p>A genuine knowledge of the technical
+condition of the market cannot be
+summed up in any offhand declaration
+about what They are going to do. You
+cannot determine the attitude toward the
+market of every individual who is interested
+in it, but you can roughly classify
+the sources from which buying and selling
+are likely to come, the motives which
+are likely to actuate the various classes,
+and the character of the long interest and
+short interest. In brief, after enough
+study and observation, you can always
+have in mind some kind of an antecedent
+for Them, and must have it, if you base
+your operations on technical conditions.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_55">[Pg 55]</span></p>
+
+<h2 class="nobreak" id="IVConfusing_the_Present_with">IV—Confusing the Present with
+the Future—Discounting</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">It</span> is axiomatic that inexperienced
+traders and investors, and indeed a
+majority of the more experienced as
+well, are continually trying to speculate
+on past events. Suppose, for example,
+railroad earnings as published are showing
+constant large increases in net. The
+novice reasons, “Increased earnings mean
+increased amounts applicable to the payment
+of dividends. Prices should rise.
+I will buy.”</p>
+
+<p>Not at all. He should say, “Prices
+<em>have risen</em> to the extent represented by
+these increased earnings, unless this effect
+has been counterbalanced by other
+considerations. Now what next?”</p>
+
+<p>It is a sort of automatic assumption of
+the human mind that present conditions
+will continue, and our whole scheme of
+life is necessarily based to a great degree<span class="pagenum" id="Page_56">[Pg 56]</span>
+on this assumption. When the price of
+wheat is high farmers increase their
+acreage because wheat-growing pays
+better; when it is low they plant less.
+I remember talking with a potato-raiser
+who claimed that he had made a good
+deal of money by simply reversing the
+above custom. When potatoes were low
+he had planted liberally; when high he
+had cut down his acreage—because he
+reasoned that other farmers would do
+just the opposite.</p>
+
+<p>The average man is not blessed—or
+cursed, however you may look at it—with
+an analytical mind. We see “as
+through a glass darkly.” Our ideas are
+always enveloped in a haze and our
+reasoning powers work in a rut from
+which we find it painful if not impossible
+to escape. Many of our emotions and
+some of our acts are merely automatic
+responses to external stimuli. Wonderful
+as is the development of the human
+brain, it originated as an enlarged ganglion,
+and its first response is still practically
+that of the ganglion.</p>
+
+<p><span class="pagenum" id="Page_57">[Pg 57]</span></p>
+
+<p>A simple illustration of this is found
+in the enmity we all feel toward the alarm
+clock which arouses us in the morning.
+We have carefully set and wound that
+alarm and if it failed to go off it would
+perhaps put us to serious inconvenience;
+yet we reward the faithful clock with
+anathemas.</p>
+
+<p>When a subway train is delayed nine-tenths
+of the people waiting on the platforms
+are anxiously craning their necks
+to see if it is coming, while many persons
+on it who are in danger of missing an
+engagement are holding themselves tense,
+apparently in the effort to help the train
+along. As a rule we apply more well-meant,
+but to a great extent ineffective,
+energy, physical or nervous, to the accomplishment
+of an object, than analysis
+or calculation.</p>
+
+<p>When it comes to so complicated a
+matter as the price of stocks, our haziness
+increases in proportion to the difficulty
+of the subject and our ignorance
+of it. From reading, observation and
+conversation we imbibe a miscellaneous<span class="pagenum" id="Page_58">[Pg 58]</span>
+assortment of ideas from which we conclude
+that the situation is bullish or
+bearish. The very form of the expression
+“the situation is bullish”—not “the
+situation will soon become bullish”—shows
+the extent to which we allow the
+present to obscure the future in the
+formation of our judgment.</p>
+
+<p>Catch any trader and pin him down to
+it and he will readily admit that the
+logical moment for the highest prices is
+when the news is most bullish; yet you
+will find him buying stocks on this news
+after it comes out—if not at the moment,
+at any rate “on a reaction.”</p>
+
+<p>Most coming events cast their shadows
+before, and it is on this that intelligent
+speculation must be based. The movement
+of prices in anticipation of such
+an event is called “discounting,” and this
+process of discounting is worthy a little
+careful examination.</p>
+
+<p>The first point to be borne in mind is
+that some events cannot be discounted,
+even by the supposed omniscience of the
+great banking interests—which is in<span class="pagenum" id="Page_59">[Pg 59]</span>
+point of fact, more than half imaginary.
+The San Francisco earthquake is the
+standard example of an event which
+could not be foreseen and therefore
+could not be discounted; but an event
+does not have to be purely an “act of
+God” to be undiscountable. There can
+be no question that our great bankers
+have been as much in the dark in regard
+to some recent Supreme Court decisions
+as the smallest “piker” in the customers’
+room of an odd-lot brokerage house.</p>
+
+<p>If the effect of an event does not make
+itself felt before the event takes place, it
+must come after. In all discussion of
+discounting we must bear this fact in
+mind in order that our subject may not
+run away with us.</p>
+
+<p>On the other hand an event may sometimes
+be overdiscounted. If the dividend
+rate on a stock is to be raised from
+four to five per cent., earnest bulls, with
+an eye to their own commitments, may
+spread rumors of six or seven per cent.,
+so that the actual declaration of five per<span class="pagenum" id="Page_60">[Pg 60]</span>
+cent. may be received as disappointing
+and cause a decline.</p>
+
+<p>Generally speaking, every event which
+is under the control of capitalists associated
+with the property, or any financial
+condition which is subject to the
+management of combined banking interests,
+is likely to be pretty thoroughly
+discounted before it occurs. There is
+never any lack of capital to take advantage
+of a sure thing, even though it
+may be known in advance to only a few
+persons.</p>
+
+<p>The extent to which future business
+conditions are known to “insiders” is,
+however, usually overestimated. So
+much depends, especially in America,
+upon the size of the crops, the temper of
+the people, and the policies adopted by
+leading politicians, that the future of
+business becomes a very complicated
+problem. No power can drive the American
+people. Any control over their action
+has to be exercised by cajolery or
+by devious and circuitous methods.</p>
+
+<p>Moreover, public opinion is becoming<span class="pagenum" id="Page_61">[Pg 61]</span>
+more volatile and changeable year by
+year, owing to the quicker spread of information
+and the rapid multiplication of
+the reading public. One can easily
+imagine that some of our older financiers
+must be saying to themselves, “If I had
+only had my present capital in 1870, or
+else had the conditions of 1870 to work
+on today!”</p>
+
+<p>A fair idea of when the discounting
+process will be completed may usually be
+formed by studying conditions from
+every angle. The great question is,
+when will the buying or selling become
+most general and urgent? In 1907, for
+example, the safest and best time to buy
+the sound dividend-paying stocks was
+on the Monday following the bank statement
+which showed the greatest decrease
+in reserves. The markets opened down
+several points under pressure of liquidation,
+and standard issues never sold so
+low afterward. The simple explanation
+was that conditions had become so bad
+that they could not get any worse without<span class="pagenum" id="Page_62">[Pg 62]</span>
+utter ruin, which all parties must and
+did unite to prevent.</p>
+
+<p>Likewise in the Presidential campaign
+of 1900, the lowest prices were made on
+Bryan’s nomination. Everyone said at
+once, “He can’t be elected.” Therefore
+his nomination was the worst that could
+happen—the point of time where the
+political news became most intensely
+bearish. As the campaign developed his
+defeat became more and more certain,
+and prices continued to rise in accordance
+with the general economic and financial
+conditions of the period.</p>
+
+<p>It is not the discounting of an event
+thus known in advance to capitalists, that
+presents the greatest difficulties, but
+cases where considerable uncertainty
+exists, so that even the clearest mind and
+the most accurate information can result
+only in a balancing of probabilities, with
+the scale perhaps inclined to a greater or
+less degree in one direction or the other.</p>
+
+<p>In some cases the uncertainty which
+precedes such an event is more depressing
+than the worst that can happen<span class="pagenum" id="Page_63">[Pg 63]</span>
+afterward. An example is a Supreme
+Court decision upon a previously undetermined
+public policy which has kept
+business men so much in the dark that
+they feared to go ahead with any important
+plans. This was the case at the
+time of the Northern Securities decision
+in 1904. “Big business” could easily
+enough adjust itself to either result. It
+was the uncertainty that was bearish.
+Hence the decision was practically discounted
+in advance, no matter what it
+might prove to be.</p>
+
+<p>This was not true to the same extent
+of the Standard Oil and American Tobacco
+decisions of 1911, because those
+decisions were an earnest of more
+trouble to come. The decisions were
+greeted by a temporary spurt of activity,
+based on the theory that the removal of
+uncertainty was the important thing; but
+a sensational decline started soon after
+and was not checked until the announcement
+that the Government would prosecute
+the United States Steel Corporation.
+This was deemed the worst that<span class="pagenum" id="Page_64">[Pg 64]</span>
+could happen for some time to come, and
+was followed by a considerable advance.</p>
+
+<p>More commonly, when an event is uncertain
+the market estimates the chances
+with considerable nicety. Each trader
+backs his own opinion, strongly if he
+feels confident, moderately if he still has
+a few doubts which he cannot down.
+The result of these opposing views may
+be stationary prices, or a market fluctuating
+nervously within a narrow range, or
+a movement in either direction, greater
+or smaller in proportion to the more or
+less emphatic preponderance of the buying
+or selling.</p>
+
+<p>Of course it must always be remembered
+that it is the dollars that count,
+not the number of buyers or sellers. A
+few great capitalists having advance information
+which they regard as accurate,
+may more than counterbalance thousands
+of small traders who hold an opposite
+opinion. In fact, this is a condition very
+frequently seen, as explained in a previous
+chapter.</p>
+
+<p>Even the operations of an individual<span class="pagenum" id="Page_65">[Pg 65]</span>
+investor usually have an effect on prices
+pretty accurately adjusted to his opinions.
+When he believes prices are low
+and everything favors an upward movement,
+he will strain his resources in
+order to accumulate as heavy a load of
+securities as he can carry. After a fair
+advance, if he sees the development of
+some factor which <em>might</em> cause a decline—though
+he doesn’t really believe it will—he
+thinks it wise to lighten his load
+somewhat and make sure of some of his
+accumulated profits. Later when he
+feels that prices are “high enough,” he
+is a liberal seller; and if some danger
+appears while the level of quoted values
+continues high, he “cleans house,” to be
+ready for whatever may come. Then if
+what he considers an unwarranted speculation
+carries prices still higher, he is
+very likely to sell a few hundred shares
+short by way of occupying his capital
+and his mind.</p>
+
+<p>It is, however, the variation of opinion
+among different men that has the largest
+influence in making the market responsive<span class="pagenum" id="Page_66">[Pg 66]</span>
+to changing conditions. A development
+which causes one trader to lighten his
+line of stocks may be regarded as harmless
+or even beneficial by another, so that
+he maintains his position or perhaps buys
+more. Out of a world-wide mixture of
+varying ideas, personalities and information
+emerges the average level of
+prices—the true index number of investment
+conditions.</p>
+
+<p>The necessary result of the above line
+of reasoning is that not only probabilities
+but even rather remote possibilities
+are reflected in the market. Hardly any
+event can happen of sufficient importance
+to attract general attention which some
+process of reasoning cannot construe as
+bullish and some other process interpret
+as bearish. Doubtless even our old friend
+of the news columns to the effect that
+“the necessary activities of a nation of
+ninety million souls create and maintain
+a large volume of business,” may influence
+some red-blooded optimist to buy
+100 Union; but the grouchy pessimist who
+has eaten too many doughnuts for breakfast<span class="pagenum" id="Page_67">[Pg 67]</span>
+will accept the statement as an evidence
+of the scarcity of real bull news
+and will likely enough sell 100 Union
+short on the strength of it.</p>
+
+<p>It is the overextended speculator who
+causes most of the fluctuations that look
+absurd to the sober observer. It does not
+take much to make a man buy when he
+is short of stocks “up to his neck.” A
+bit of news which he would regard as insignificant
+at any other time will then
+assume an exaggerated importance in his
+eyes. His fears increase in geometrical
+proportion to the size of his line of
+stocks. Likewise the overloaded bull
+may begin to “throw his stocks” on some
+absurd story of a war between Honduras
+and Roumania, without even stopping to
+look up the geographical location of the
+countries involved.</p>
+
+<p>Fluctuations based on absurdities are
+always relatively small. They are due
+to an exaggerated fear of what “the
+other fellow” may do. Personally, you
+do not fear a war between Honduras and
+Roumania; but may not the rumor be<span class="pagenum" id="Page_68">[Pg 68]</span>
+seized upon by the bears as an excuse
+for a raid? And you have too many
+stocks to be comfortable if such a break
+should occur. Moreover, even if the
+bears do not raid the market, will there
+not be a considerable number of persons
+who, like yourself, will fear such a raid,
+and will therefore lighten their load of
+stocks, thus causing some decline?</p>
+
+<p>The professional trader, following this
+line of reasoning to the limit, eventually
+comes to base all his operations for short
+turns in the market not on the facts but
+on what he believes the facts will cause
+others to do—or more accurately, perhaps,
+on what he <em>sees</em> that the news <em>is</em>
+causing others to do; for such a trader
+is likely to keep his finger constantly on
+the pulse of buying and selling as it
+throbs on the floor of the Exchange or
+as recorded on the tape.</p>
+
+<p>The non-professional, however, will
+do well not to let his mind stray too far
+into the unknown territory of what others
+may do. Like the “They” theory of
+values, it is dangerous ground in that it<span class="pagenum" id="Page_69">[Pg 69]</span>
+leads toward the abdication of common
+sense; and after all, others may not prove
+to be such fools as we think they are.
+While the market is likely to discount
+even a possibility, the chances are very
+much against <em>our</em> being able to discount
+the possibility profitably.</p>
+
+<p>In this matter of discounting, as in
+connection with most other stock market
+phenomena, the most useful hint that can
+be given is to avoid all efforts to reduce
+the movement of prices to rules, measures,
+or similarities and to analyze each case
+by itself. Historical parallels are likely
+to be misleading. Every situation is new,
+though usually composed of familiar
+elements. Each element must be weighed
+by itself and the probable result of the
+combination estimated. In most cases
+the problem is by no means impossible,
+but the student must learn to look into
+the future and to consider the present
+only as a guide to the future. Extreme
+prices will come at the time when the
+news is most emphatic and most widely
+disseminated. When that point is passed<span class="pagenum" id="Page_70">[Pg 70]</span>
+the question must always be, “What
+next?”</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_71">[Pg 71]</span></p>
+
+<h2 class="nobreak" id="VConfusing_the_Personal_with">V—Confusing the Personal with
+the General</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">In</span> a previous chapter the fact has
+been mentioned that one of the
+greatest difficulties encountered by
+the active trader is that of keeping his
+mind in a balanced and unprejudiced
+condition when he is heavily committed
+to either the long or short side
+of the market. Unconsciously to himself,
+he permits his judgment to be
+swayed by his hopes.</p>
+
+<p>A former large speculator on the
+Chicago Board of Trade, after being
+short of the market and very bearish
+on wheat for a long time, one day surprised
+all his friends by covering
+everything, going long a moderate
+amount, and arguing violently on the
+bull side. For two days he maintained
+this position, but the market failed to
+go up. He then turned back to the
+short side, and had even more bear<span class="pagenum" id="Page_72">[Pg 72]</span>
+arguments at his tongue’s end than before.</p>
+
+<p>To a certain extent he did this to
+test the market, but still more to test
+himself—to see whether, by changing
+front and taking the other side, he
+could persuade himself out of his bearish
+opinions. When even this failed
+to make any real change in his views,
+he was reassured and was ready for
+a new and more aggressive campaign
+on the short side.</p>
+
+<p>There is nothing peculiar about this
+condition. While it is especially difficult
+to maintain a balanced mind in
+regard to commitments in the markets,
+it is not easy to do so about anything
+that closely touches our personal interests.
+As a rule we can find plenty
+of reasons for doing what we very
+much want to do, and we are still more
+prolific with excuses for not doing
+what we don’t want to do. Most of
+us change the old sophism “Whatever
+is, is right” to the more directly useful
+form “Whatever I want is right.”
+To many readers will occur at once the<span class="pagenum" id="Page_73">[Pg 73]</span>
+name of a man prominent in public
+life who seems very frequently to act
+on this motto.</p>
+
+<p>If Smith and Jones have a verbal
+agreement, which afterwards turns out
+to be greatly to Jones’ advantage,
+Smith’s recollection is that it was
+merely a loose understanding which
+could be cancelled at any time, while
+Jones remembers it to have been a
+definite legal contract, perfectly enforceable
+if it had only been written.
+Talleyrand said that language was
+given us for the purpose of concealing
+thought. Likewise many seem to
+think that logic was given us for the
+purpose of backing up our desires.</p>
+
+<p>Few persons are so introspective as
+to be able to tell where this bias in
+favor of their own interests begins and
+where it leaves off. Still fewer bother
+to make the effort to tell. To a great
+extent we train our judgment to lend
+itself to our selfish interests. The
+question with us is not so much
+whether we have the facts of a situation<span class="pagenum" id="Page_74">[Pg 74]</span>
+correctly in mind, as whether we
+can “put it over.”</p>
+
+<p>When it comes to buying and selling
+stocks, there is no such thing as
+“putting it over.” The market is relentless.
+It cannot be budged by our
+sophistries. It will respond exactly to
+the forces and personalities which are
+working upon it, with no more regard
+for our opinions than if we couldn’t
+vote. We cannot work for our own
+interests as in other lines of business—we
+can only fit our interests to the
+facts.</p>
+
+<p>To make the greatest success it is
+necessary for the trader to forget entirely
+his own position <em>in</em> the market,
+his profits or losses, the relation of
+present prices to the point where he
+bought or sold, and to fix his thoughts
+upon the position <em>of</em> the market. If
+the market is going down the trader
+must sell, no matter whether he has a
+profit or a loss, whether he bought a
+year ago or two minutes ago.</p>
+
+<p>How far the average trader is from
+attaining this point of view is quickly<span class="pagenum" id="Page_75">[Pg 75]</span>
+seen from his conversation, and it is
+also true that a great deal of the literature
+of speculation absolutely fails to
+reach this conception.</p>
+
+<p>“You have five points profit—you
+had better take it,” advises the broker.
+Perhaps so, if you know nothing about
+the market; but if you understand the
+market the time to take your profit is
+when the upward movement shows
+signs of culminating, regardless of
+your own deal.</p>
+
+<p>“Stop your losses; let your profits
+run” is a saying which appeals to the
+novice as the essence of wisdom. But
+the whole question is <em>where</em> to stop the
+losses and <em>how far</em> to let the profits
+run. In other words, what is the <em>market</em>
+going to do? If you can tell this
+your personal losses and profits will
+take care of themselves.</p>
+
+<p>Here is a man who has done a great
+deal of figuring and has proved to his
+own satisfaction that seven points is
+the correct profit to take in Union
+Pacific, while losses should be limited
+to two and one-half points. Nothing<span class="pagenum" id="Page_76">[Pg 76]</span>
+could be more foolish than these arbitrary
+figures. He is trying to make
+the market fit itself around his own
+trades, instead of adapting his trades
+to the market.</p>
+
+<p>In any broker’s office you will notice
+that a large part of the talk concerns
+the profits and losses of the traders.
+Brown had a profit of ten points and
+then let it get away from him. “Great
+Scott!” says his wise friend. “What
+do you want? Aren’t you satisfied with
+ten points profit?” The reply should
+be, though it rarely is, “Certainly not,
+if I think the market is going higher.”</p>
+
+<p>“Get them out with a small profit,”
+I once heard one broker say to another.
+“If you don’t they will hang
+on and take a loss. They never get
+profit enough to satisfy them.” A
+good policy, probably, if neither the
+broker nor his customer had any real
+knowledge of the market; but mere
+nonsense for the trader who aims to
+be in the slightest degree scientific.</p>
+
+<p>The fact is that the more a trader
+allows his mind to dwell upon his own<span class="pagenum" id="Page_77">[Pg 77]</span>
+position in the market the more likely
+it is that his judgment will become
+warped so that his mind is blind to
+those considerations which do not fall
+in with his preconceived opinion.</p>
+
+<p>Until you try it, you have almost no
+idea of the extent to which you may
+be rendered unreasonable by the mere
+fact that you are committed to one
+side of the market. “In the market,
+to be consistent is to be stubborn,”
+some one has said; and it is true that
+the man of strong will and logical intellect
+is often less successful than the
+more shallow and volatile observer,
+who is ready to whiffle about like the
+weathercock at any suspicion of a
+change in the wind. This is because
+the strong man has in this instance
+embarked upon an enterprise where
+he cannot use his natural force and determination—he
+can employ only his
+faculties of observation and interpretation.
+Yet in the end the man of character
+will be the more permanently
+successful, because he will eventually<span class="pagenum" id="Page_78">[Pg 78]</span>
+master his subject more thoroughly
+and attain a more judicial attitude.</p>
+
+<p>The more simple-minded, after once
+committing themselves to a position,
+are thereafter chiefly influenced and
+supported by the illusions of hope.
+They bought, probably, as a result of
+some bullish development. If prices
+have advanced, they find that the market
+“looks strong,” a good deal of encouraging
+news comes out on the
+tickers, and they hope for large profits.
+After five points in their favor, they
+hope for ten, and after ten they look
+for fifteen or twenty.</p>
+
+<p>On the other hand, if prices decline
+they charge it to “manipulation,” “bear
+raids,” etc., and expect an early recovery.
+Much of the bear news appears
+to them to be put out maliciously,
+in order to cause prices to decline
+further. It is not until the decline
+begins to cause a painful encroachment
+upon their capital that they
+reach the point of saying, “If
+‘they’ can depress prices like this
+in the face of a bullish situation,<span class="pagenum" id="Page_79">[Pg 79]</span>
+what is the use of fighting them? By
+a flood of short sales, they can put
+prices down as much as they like”—or
+something of the sort.</p>
+
+<p>Such traders are suffering merely
+from youth, or lack of sound business
+sense, or both. They have a considerable
+period of study before them, if
+they persist until they get permanently
+profitable results. Most of them, of
+course, do not persist.</p>
+
+<p>A much more intelligent class, many
+of whom are properly to be considered
+as investors, do not allow their position
+in the market to blind them so far
+as current news or statistical developments
+are concerned, but do permit
+themselves to become biased in regard
+to the most important factor of all—the
+effect of a change in the price level.</p>
+
+<p>They bought stocks in the expectation
+of an improved situation. The
+improved situation comes and prices
+rise. Nothing serious in the way of
+bear news appears. On the contrary,
+bull news continues plentiful.<span class="pagenum" id="Page_80">[Pg 80]</span>
+Under these conditions they see no
+reason for selling.</p>
+
+<p>Yet there may be a most important
+reason for selling—namely, that prices
+have risen sufficiently to counterbalance
+the improved situation—and they
+would see and appreciate this fact if
+they were in the position of an uninterested
+observer.</p>
+
+<p>One of the principal reasons why investors
+of this class allow themselves
+to become confused as to the influence
+of the price level is because a bull
+market nearly always goes unreasonably
+high before it culminates. The
+investor has perhaps, in several previous
+instances, sold out at what he
+thought was a fair price level, only to
+see the public run away with the market
+to a point where his profits would
+have been doubled if he had held on.</p>
+
+<p>It is in such cases that an expert
+knowledge of speculation is essential.
+If the investor has not this knowledge,
+and cannot obtain the dependable advice
+of one who has it, then he must
+content himself with more moderate<span class="pagenum" id="Page_81">[Pg 81]</span>
+profits and forego the expectation of
+getting the full benefit of the advance.
+But with a fair knowledge of speculative
+influences, he can fix his mind on
+the development of the campaign, regardless
+of his own holdings, and can
+usually secure a larger profit than if
+he depended merely upon ordinary
+business “common sense.”</p>
+
+<p>The mistake is made when, without
+any expert knowledge of speculation,
+he permits himself to hold on in
+the hope of higher prices after a level
+has been reached which has fairly discounted
+improved business conditions.</p>
+
+<p>Not one trader in a thousand ever
+becomes so expert or so seasoned as
+to entirely overcome the influence his
+position in the market exerts upon his
+judgment. That influence appears in
+the most insidious and elusive ways.
+One of the principal difficulties of the
+expert is in preventing his active imagination
+from causing him to see
+what he is looking for just because he
+is looking for it.</p>
+
+<p>An example will make this clear.<span class="pagenum" id="Page_82">[Pg 82]</span>
+The expert has learned from experience,
+let us say, that the appearance
+of “holes” in the market is a sign of
+weakness. By a “hole” is meant a
+condition of the market where it suddenly
+and unaccountably refuses to
+take stock. A few hundred shares of
+an active stock are offered for sale.
+Sentiment is generally bullish, but
+there is no buyer for that stock. Prices
+slip quickly down half a point or a
+point before buyers are found. This,
+in an active stock, is unusual; and although
+the price may recover, the professional
+does not forget this treacherous
+failure of the market to accept
+moderate offerings. He considers it a
+sign of an “over-bought” market.</p>
+
+<p>Now suppose the trader has calculated
+that an advance is about to culminate
+and has taken the short side
+in anticipation of that event. He suspects
+that the market is over-bought,
+but is not yet sure of it. Under these
+circumstances any little dip in the
+price will perhaps look to him like a
+“hole,” even though under other conditions<span class="pagenum" id="Page_83">[Pg 83]</span>
+he would not notice it or would
+think nothing about it. He is looking
+for the development of weakness and
+there is danger that his imagination may
+show him what he is looking for even
+though it isn’t there!</p>
+
+<p>The same remarks would apply to
+the detection of accumulation or distribution.
+If you want to see distribution
+after a sharp advance, you are
+very likely to see it. If you have sold
+out and want to get a reaction on which
+to repurchase, you will see plenty of
+indications of a reaction. Indeed, it
+is a sort of proverb in Wall Street that
+there is no bear so bearish as a sold out
+bull who wants a chance to repurchase.</p>
+
+<p>In the study of so-called “technical”
+conditions of the market, a situation
+often appears which permits a double
+construction. Indications of various
+kinds are almost evenly balanced; some
+things might be interpreted in two different
+ways; and a trader not already
+interested in the market would be likely<span class="pagenum" id="Page_84">[Pg 84]</span>
+to think it wise to stay out until
+he could see his way more clearly.</p>
+
+<p>Under such circumstances you will
+find it an almost invariable rule that
+the man who was long before this condition
+arose will interpret technical
+conditions as bullish, while the man
+who was and remains short, sees plain
+indications of technical weakness.
+Somewhat amusing, but true.</p>
+
+<p>In this matter of allowing the judgment
+to be influenced by personal commitments,
+very little of a constructive
+or practically helpful nature can be
+written, except the one word “Don’t.”
+Yet when the investor or trader has
+come to realize that he is a prejudiced
+observer, he has made progress; for
+this knowledge keeps him from trusting
+too blindly to something which, at
+the moment, he calls judgment, but
+which may turn out to be simply an
+unusually strong impulse of greed.</p>
+
+<p>It has often been noted by stock market
+writers that since the great public
+is bearish at the bottom and bullish at
+the top, it could make its fortune and<span class="pagenum" id="Page_85">[Pg 85]</span>
+beat the multi-millionaires at their own
+game by simply reversing itself—buying
+when it feels like selling and selling
+when it feels like buying. Tom Lawson,
+in the heyday of his publicity,
+seems to have had some sort of dream
+of the public selling back to Standard
+Oil capitalists the stocks which it had
+bought from them and thus bringing
+everything to smash in a heap—the
+philanthropic Thomas, doubtless, being
+first properly short of the market.</p>
+
+<p>This wrongheadedness of the public
+no longer exists to the same extent as
+formerly. A great number of small investors
+buy and sell intelligently and
+there has been a most noticeable falling
+off in the gambling class of trade—much
+to the satisfaction of everyone,
+except, perhaps, the brokers who formerly
+handled such business.</p>
+
+<p>It remains true, nevertheless, that
+the very moment when the market
+looks strongest, is likely to be near the
+top, and just when prices appear to
+have started on a straight drop to the
+zero point is usually near the bottom.<span class="pagenum" id="Page_86">[Pg 86]</span>
+The practical way for the investor to
+use this principle is to be ready to
+sell at the moment when bull sentiment
+seems to be most widely distributed,
+and to buy when the public in general
+seem most discouraged. It is especially
+important for him to bear this principle
+in mind in taking profits on previous
+commitments, as his own interests are
+then identified with the current trend
+of prices.</p>
+
+<p>In a word, the trader or investor who
+has studied the subject enough to be
+reading this book, probably could
+not make profits by reversing himself,
+even if such a thing were
+possible; but he can endeavor to hold
+himself in a detached, unprejudiced
+frame of mind, and to study the psychology
+of the crowd, especially as it
+manifests itself in the movement of
+prices.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_87">[Pg 87]</span></p>
+
+<h2 class="nobreak" id="VIThe_Panic_and_the_Boom">VI—The Panic and the Boom</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">Both</span> the panic and the boom are
+eminently psychological phenomena.
+This is not saying
+that fundamental conditions do not at
+times warrant sharp declines in prices
+and at other times equally sharp advances.
+But the panic, properly so-called,
+represents a decline greater
+than is warranted by conditions, usually
+because of an excited state of the
+public mind, accompanied by exhaustion
+of resources; while the term
+“boom” is used to mean an excessive
+and largely speculative advance.</p>
+
+<p>There are some special features connected
+with the panic and the boom
+which are worthy of separate consideration.</p>
+
+<p>It is really astonishing what a hold
+the fear of a possible panic has upon
+the minds of many investors. The<span class="pagenum" id="Page_88">[Pg 88]</span>
+memory of the events of 1907 has undoubtedly
+operated greatly to lessen
+the volume of speculative trade from
+that time to the present (April, 1912).
+Panics of equal severity have occurred
+only a few times in the entire history
+of the country, and the possibility of
+such an outbreak in any one month is
+smaller than the chance of loss on the
+average investment through the failure
+of the company. Yet the specter of
+such a panic rises in the minds of the
+inexperienced whenever they think of
+buying stocks.</p>
+
+<p>“Yes,” the investor may say, “Reading
+seems to be in a very strong position,
+but look where it sold in 1907—at
+$70 a share!”</p>
+
+<p>It is sometimes assumed that the
+low prices in a panic are due to a sudden
+spasm of fear, which comes quickly
+and passes away quickly. This is not
+the case. In a way, the operation of
+the element of fear begins when prices
+are near the top. Some cautious investors
+begin to fear that the boom is<span class="pagenum" id="Page_89">[Pg 89]</span>
+being overdone and that a disastrous
+decline must follow the excessive speculation
+for the rise. They sell under
+the influence of this feeling.</p>
+
+<p>During the ensuing decline, which
+may run for years, more and more
+people begin to feel uneasy over business
+or financial conditions, and they
+liquidate their holdings. This caution
+or fearfulness gradually spreads, increasing
+and decreasing in waves, but
+growing a little greater at each successive
+swell. The panic is not a sudden
+development, but is the result of causes
+long accumulated.</p>
+
+<p>The actual bottom prices of the panic
+are more likely to result from necessity
+than from fear. Those investors who
+could be frightened out of their holdings
+are likely to give up before the
+bottom is reached. The lowest prices
+are usually made by sales for those
+whose immediate resources are exhausted.
+Most of them are taken by
+surprise and could raise the money necessary
+to carry their stocks if they had<span class="pagenum" id="Page_90">[Pg 90]</span>
+a little time; but in the stock market,
+“time is the essence of the contract,”
+and is the very thing that they cannot
+have.</p>
+
+<p>The great cause of loss in times of
+panic is the failure of the investor to
+keep enough of his capital in liquid
+form. He becomes “tied up” in various
+undertakings so that he cannot realize
+quickly. He may have abundant property,
+but no ready money. This condition,
+in turn, results from trying to do
+too much—greed, haste, excessive ambition,
+an oversupply of easy confidence
+as to the future.</p>
+
+<p>It is noticeable in panic times that
+a period arrives when nearly every one
+thinks that stocks are low enough, yet
+prices continue downward to a still
+lower level. The result is that many
+investors, after thinking that they have
+“loaded up” near the bottom, find that
+it was a false bottom, and are finally
+forced to throw over their holdings on
+a further decline.</p>
+
+<p>This is due to the fact mentioned<span class="pagenum" id="Page_91">[Pg 91]</span>
+above, that final low prices are the result
+of necessities, not of opinions. In
+1907, for example, every one of good
+sense knew perfectly well that stocks
+were selling below their value—the
+trouble was that investors could not
+get hold of the money with which to
+buy.</p>
+
+<p>The moral is that low prices, after
+a prolonged bear period, are not in
+themselves a sufficient reason for buying
+stocks. The key to the situation
+lies in the <em>accumulation of liquid capital</em>,
+which is most quickly evidenced by a
+rapid recovery of the excess of deposits
+over loans in the New York clearing
+house banks (excluding the trust companies,
+in which loans are more varied).
+This subject, however, takes us outside
+our present field.</p>
+
+<p>It is to a great extent because the
+last part of the decline in a panic has
+been caused not by public opinion, or
+even by public fear, but by necessity,
+arising from absolute exhaustion of
+available funds, that the first part of<span class="pagenum" id="Page_92">[Pg 92]</span>
+the ensuing recovery takes place without
+any apparent reason.</p>
+
+<p>Traders say, “The panic is over, but
+stocks cannot go up much under such
+bearish conditions as now exist.” Yet
+stocks can and do go up, because they
+are merely regaining the natural level
+from which they were depressed by
+“bankrupt sales,” as we would say in
+discussing dry goods.</p>
+
+<p>Perhaps the word “fear” has been
+overworked in the discussion of stock
+market psychology. It is only the very
+few who actually sell their stocks under
+the direct influence of the emotion
+of fear. But a feeling of caution strong
+enough to induce sales, or even a fixed
+belief that prices must decline, constitutes
+in itself a sort of modification
+of fear, and has the same result so far
+as prices are concerned.</p>
+
+<p>The effect of this fear or caution in a
+panic is not limited to the selling of
+stocks, but is even more important in
+preventing purchases. It takes far less
+uneasiness to cause the intending investor<span class="pagenum" id="Page_93">[Pg 93]</span>
+to delay purchases than to precipitate
+actual sales by holders. For
+this reason, a small quantity of stock
+pressed for sale in a panicky market
+may cause a decline out of all proportion
+to its importance. The offerings
+may be small, but nobody wants them.</p>
+
+<p>It is this factor which accounts for
+the rapid recoveries which frequently
+follow panics. Waiting investors are
+afraid to step in front of a demoralized
+market, but once the turn appears, they
+fall over each other to buy.</p>
+
+<p>The boom is in many ways the reverse
+of the panic. Just as fear keeps
+growing and spreading until the final
+crash, so confidence and enthusiasm
+keep reproducing each other on a wider
+and wider scale until the result is a
+sort of hilarity on the part of thousands
+of men, many of them comparatively
+young and inexperienced, who have
+“made big money” during the long advance
+in prices.</p>
+
+<p>These imaginary millionaires appear
+in a small swarm during every prolonged<span class="pagenum" id="Page_94">[Pg 94]</span>
+bull market, only to fall with
+their wings singed as soon as prices
+decline. Such speculators are, to all
+practical intents and purposes, irresponsible.
+It is their very irresponsibility
+which has enabled them to make money
+so rapidly on advancing prices. The
+prudent man gets only moderate profits
+in a bull market—it is the man who
+trades on “shoe-string margins” who
+gets the biggest benefit out of the rise.</p>
+
+<p>When such mushroom fortunes have
+accumulated, the market may fall temporarily
+into the hands of these daredevil
+spirits, so that almost any recklessness
+is possible for the time. It is
+this kind of buying which causes prices
+to go higher after they are already high
+enough—just as they go lower in a
+panic after they are plainly seen to be
+low enough.</p>
+
+<p>When prices get above the natural
+level, a well-judged short interest begins
+to appear. These shorts are right,
+but right too soon. In a genuine bull
+market they are nearly always driven<span class="pagenum" id="Page_95">[Pg 95]</span>
+to cover by a further rise, which is,
+from any common sense standpoint, unreasonable.
+A riot of pyramided margins
+drives the sane and calculating
+short seller temporarily to shelter.</p>
+
+<p>A psychological influence of a much
+wider scope also operates to help a bull
+market along to unreasonable heights.
+Such a market is usually accompanied
+by rising prices in all lines of business
+and these rising prices always create,
+in the minds of business men, the impression
+that their various enterprises
+are more profitable than is really the
+case.</p>
+
+<p>One reason for this false impression
+is found in stocks of goods on hand.
+Take the wholesale grocer, for example,
+carrying a stock of goods which
+inventories $10,000 in January, 1909.
+On that date Bradstreet’s index of commodity
+prices stood at 8.26. In January,
+1910, Bradstreet’s index was 9.23.
+If the prices of the various articles included
+in this stock of groceries increased
+in the same ratio as Bradstreet’s<span class="pagenum" id="Page_96">[Pg 96]</span>
+list, and if the grocer had on
+hand exactly the same things, he would
+inventory them at about $11,168 in
+January, 1910.</p>
+
+<p>He made an additional profit of
+$1,168 during the year without any effort,
+and probably without any calculation,
+on his part. But this profit was
+only apparent, not real; for he could
+not buy any more with the $11,168 in
+January, 1910, than he could have
+bought with the $10,000 in January,
+1909. He is deceived into supposing
+himself richer than he really is, and
+this false idea leads to a gradual
+growth of extravagance and speculation
+in every line of business and every
+walk of life.</p>
+
+<p>The secondary results of this delusion
+of increased wealth because of rising
+prices, are even more important
+than the primary results. Our grocer,
+for example, decides to spend this
+$1,168 for an automobile. This helps
+the automobile business. Hundreds of
+similar orders induce the automobile<span class="pagenum" id="Page_97">[Pg 97]</span>
+company to enlarge its plant. This
+means extensive purchases of material
+and employment of labor. The increased
+demand resulting from a similar
+condition of things in all departments
+of industry produces, if other
+conditions are favorable, a still further
+rise in prices; hence at the end of another
+year the grocer perhaps has another
+imaginary profit, which he
+spends in enlarging his residence or
+buying new furniture, etc.</p>
+
+<p>The stock market feels the reflection
+of all this increased business and
+higher prices. Yet the whole thing is
+psychological, and sooner or later our
+grocer must earn and save, by hard
+work, economical living and shrewd
+calculation, the amount he has paid for
+his automobile or furniture.</p>
+
+<p>Again, rising stock prices and rising
+commodity prices react on each other.
+If the grocer, in addition to his imaginary
+profit of $1,168 sees a ten per
+cent. advance in the prices of various
+securities which he holds for investment,<span class="pagenum" id="Page_98">[Pg 98]</span>
+he is encouraged to still larger
+expenditures; and likewise if the capitalist
+notes a ten per cent. advance in
+the stock market, he perhaps employs
+additional servants and enlarges his
+household expenditures so that he buys
+more groceries. Thus the feeling of
+confidence and enthusiasm spreads
+wider and wider like ripples from a
+stone dropped into a pond. And all of
+these developments are faithfully reflected
+by the stock market barometer.</p>
+
+<p>The result is that, in a year like 1902
+or 1906, the high prices for stocks and
+the feverish activity of general trade
+are based, to an entirely unsuspected
+extent, on a sort of pyramid of mistaken
+impressions, most of which may
+be traced, directly or indirectly, to the
+fact that we measure everything in
+money and always think of this money-measure
+as fixed and unchangeable,
+while in reality our money fluctuates
+in value just like iron, potatoes, or
+“Fruit of the Loom.” We are accustomed
+to figuring the money-value of<span class="pagenum" id="Page_99">[Pg 99]</span>
+wheat, but we get a headache when we
+try to reckon the wheat-value of
+money.</p>
+
+<p>When a fictitious situation like this
+begins to go to pieces, the stock market,
+fulfilling its function of barometer,
+declines first, while general business
+continues active. Then the “money
+sharks of Wall Street” get themselves
+roundly cursed by the public and there
+is a widespread desire to wipe them off
+the earth in summary fashion. The
+stock market never finds itself popular
+unless it is going up; yet its going
+down undoubtedly does far more to
+promote the country’s welfare in the
+long run, for it serves to temper the
+crash which must eventually come in
+general business circles and to forewarn
+us of trouble ahead so that we
+may prepare for it.</p>
+
+<p>It is generally more difficult to distinguish
+the end of a stock market
+boom than to decide when a panic is
+definitely over. The principle of the
+thing is simple enough, however. It<span class="pagenum" id="Page_100">[Pg 100]</span>
+was an oversupply of liquid capital that
+started the market upward after the
+panic was over. Similarly it is exhaustion
+of liquid capital which brings the
+bull movement to an end. This exhaustion
+is shown by higher call money
+rates, loss of the excess of deposits over
+loans in New York clearinghouse
+banks, a steady rise in commercial paper
+rates, and a sagging market for
+high-grade bonds.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_101">[Pg 101]</span></p>
+
+<h2 class="nobreak" id="VIIThe_Psychology_of_Scale">VII—The Psychology of Scale
+Orders</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">The</span> observer of market conditions
+soon comes to know that there
+are two general classes of minds
+whose operations are reflected in
+prices. These classes might be named
+the “impulsive” and the “phlegmatic.”</p>
+
+<p>The “impulsive” operator says, for
+example, “Conditions, both fundamental
+and technical, warrant higher
+prices. Stocks are a purchase.” Having
+formed this conclusion, he proceeds
+to buy. He does not try or expect to
+buy at the bottom. On the contrary
+he is perfectly willing to buy at the top
+so far, provided he sees prospects of a
+further advance. When he concludes
+that conditions have turned bearish, or
+that the advance in prices has overdiscounted
+previous conditions, he sells out.</p>
+
+<p>The “phlegmatic” type of investor,<span class="pagenum" id="Page_102">[Pg 102]</span>
+on the other hand, can hardly ever be
+persuaded to buy on an advance. He
+reasons, “Prices frequently move several
+points against conditions, or at
+least against what the conditions seem
+to me to be. The sensible thing for me
+to do is to take advantage of these contrary
+movements.”</p>
+
+<p>Hence when he believes stocks
+should be bought he places an order
+to buy on a scale. His thought is:</p>
+
+<p>“It seems to me stocks should advance
+from these prices, but I am not
+a soothsayer, and prices have often
+declined three points when I felt just
+as bullish as I do now. So I will place
+orders to buy every half point down
+for three points. These speculators
+are a crazy lot and there is no knowing
+what passing breeze might strike
+them that would cause a temporary decline
+of a few points.”</p>
+
+<p>Among large capitalists, and especially
+in the banking community, the
+“phlegmatic” type naturally predominates.
+Such men have neither the<span class="pagenum" id="Page_103">[Pg 103]</span>
+time nor the disposition to watch the
+ticker closely and they nearly always
+disclaim any ability to predict the
+smaller movements of prices. They
+are entirely ready, nevertheless, to take
+advantage of these small fluctuations
+when they occur, and having plenty of
+capital, they can easily accomplish this
+by buying or selling on a scale.</p>
+
+<p>As a matter of fact, the market is
+usually full of scale orders, and the
+knowledge of this and of the way in
+which such orders are handled is decidedly
+helpful in judging the tone and
+technical position of the market from
+day to day.</p>
+
+<p>The two types of operators above
+described are always working against
+each other. The buying or selling of
+the “impulsive” trader tends to force
+prices up or down, while the scale orders
+of the “phlegmatic” class tend to
+oppose any movement.</p>
+
+<p>For example, let us suppose that
+banking interests believe conditions to
+be fundamentally sound and that the<span class="pagenum" id="Page_104">[Pg 104]</span>
+general trend of the market will be upward
+for some time to come. Orders
+are therefore placed by various persons
+to buy stocks every point down,
+or every half, quarter, or even eighth
+point down.</p>
+
+<p>On the other hand, the active floor
+traders find that, owing to some temporary
+unfavorable development, a following
+can be obtained on the bear
+side. They perceive the presence of
+scale orders, but they think stocks enough
+will come out on the decline to fill the
+scale orders and leave a balance over.</p>
+
+<p>To put it another way, the floating
+supply of stocks has become, at the
+moment, larger than can comfortably
+be tossed about from hand to hand by
+the in-and-out class of traders. The
+market must decline until a part of this
+floating supply is absorbed by the scale
+orders which underlie current prices.</p>
+
+<p>These conditions produce what is
+commonly called a “reaction.” Once
+this surplus floating supply of stocks
+is absorbed by standing orders, the<span class="pagenum" id="Page_105">[Pg 105]</span>
+market is ready to start upward again.
+If the general trend is upward, far less
+resistance will be encountered on the
+advance than was met on the reaction;
+hence prices rise to a new high level.
+Then profit-taking sales will be met,
+on limited or scale orders at various
+prices, and as the market advances the
+floating supply will gradually increase
+until it again becomes unwieldy and
+another reaction is necessary.</p>
+
+<p>Eventually a level is reached, or
+some change in conditions appears,
+which causes these scale buying orders
+to be partially or entirely withdrawn,
+and selling orders to be substituted on
+a scale up. The bull market will not
+go much further after this change
+takes place. It has now become easier
+to produce declines than advances.
+The situation is the reverse of that described
+above, and a bear market follows.</p>
+
+<p>Commonly there is a considerable
+period around top prices when scale
+buying orders are still found on declines,
+but profit-taking sales are also<span class="pagenum" id="Page_106">[Pg 106]</span>
+met on advances, so that the market is
+kept fluctuating within comparatively
+narrow limits for a month or more. In
+fact, it is likely to be kept on this level
+so long as public buying continues
+greater than public selling. This is
+sometimes called “distribution.” A
+similar period of “accumulation” often
+occurs after a bear market has run its
+course, and before any important advance
+appears.</p>
+
+<p>A close watch of transactions, or a
+study of continuous quotations as published
+in certain newspapers, often enables
+the experienced trader to discover
+when the most important of these scale
+orders are withdrawn or reversed.</p>
+
+<p>A bull market which is full of scale
+buying orders encounters “support,”
+so-called, on declines. Bears are timid
+about driving down prices, because
+they are continually “losing their
+stocks.” They say that “very little
+stock comes out on declines”; hence
+there is a certain appearance of caution
+in the way the market goes down, and<span class="pagenum" id="Page_107">[Pg 107]</span>
+the activity of trade shows, in a broad
+way, a falling off at lower prices. On
+the advances, however, a following is
+obtained and activity increases.</p>
+
+<p>Toward the end of the bull market
+a change is noticeable. Prices go
+down easily and on larger transactions,
+while advances are sluggish and opposition
+is met at higher levels where
+profit-taking orders have been placed.
+The very day when scale buying orders
+in a stock are withdrawn can
+oftentimes be distinguished.</p>
+
+<p>In a bear market, “pressure” appears
+in place of “support.” The scale orders
+are mostly to sell as the market
+rises. Only a small following of purchasers
+is obtainable on advances,
+hence the activity of business, in a general
+way, falls off as prices go up.
+The end of the bear market is marked
+by the reappearance of “support” and
+the removal of “pressure,” so that
+prices rebound quickly and sharply
+from declines.</p>
+
+<p>The common assumption is that this<span class="pagenum" id="Page_108">[Pg 108]</span>
+“support” or “pressure” is supplied by
+“manipulators.” But it is quite as
+likely to result from the scale operations
+of hundreds of different persons,
+whose mental make-up prevents them
+from buying or selling in the “impulsive”
+way.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter">
+<p><span class="pagenum" id="Page_109">[Pg 109]</span></p>
+
+<h2 class="nobreak" id="VIIIThe_Mental_Attitude_of_the">VIII—The Mental Attitude of the
+Individual</h2>
+</div>
+
+<p class="drop-cap"><span class="upper-case">In</span> previous chapters we have seen
+that many, if not most, of the eccentricities
+of speculative markets,
+commonly charged to manipulation,
+are in fact due to the peculiar psychological
+conditions which surround such
+markets. Especially, and more than all
+else together, these erratic fluctuations
+are the result of the efforts of traders
+to operate, not on the basis of facts,
+nor on their own judgment as to the
+effect of facts on prices, but on what
+they believe will be the probable effect
+of facts or rumors on the minds of
+other traders. This mental attitude
+opens up a broad field of conjecture,
+which is not limited by any definite
+boundaries of fact or common sense.</p>
+
+<p>Yet it would be foolish to assert that
+assuming a position in the market
+based on what others will do is a wrong<span class="pagenum" id="Page_110">[Pg 110]</span>
+attitude. It is confusing to the uninitiated,
+and first efforts to work on such
+a plan are almost certain to be disastrous;
+but for the experienced it becomes
+a successful, though of course
+never a certain, method. A child’s first
+efforts to use a sharp tool are likely to
+result in bloodshed, but the same tool
+may trace an exquisite carving in the
+hands of an expert.</p>
+
+<p>What, then, should be the mental attitude
+of the intelligent buyer and
+seller of securities?</p>
+
+<p>The “long pull” investor, buying outright
+for cash and holding for a liberal
+profit, need only consider this matter
+enough to guard against becoming confused
+by the vagaries of public sentiment
+or by his own inverted reasoning
+processes. He will get the best results
+by keeping his eye single to two things:
+Facts and Prices. The current rate of
+interest, the earning power of the corporations
+whose stocks he buys, the
+development of political conditions as
+affecting invested capital, and the relation<span class="pagenum" id="Page_111">[Pg 111]</span>
+of current prices to the situation
+as shown by these three factors—these
+constitute the most important food for
+his mind to work upon.</p>
+
+<p>When he finds himself wandering off
+into a consideration of what “They”
+will do next, or what effect such and
+such events may have on the sentiment
+of speculators, he cannot do better
+than to bring himself up with a short
+turn and sternly bid himself “Back to
+common sense.”</p>
+
+<p>For the more active trader the situation
+is different. He need not be entirely
+unregardful of values or fundamental
+conditions, but his prime object
+is to “go with the tide.” That means
+basing his operations to a great extent
+on what others will think and do. His
+own mental attitude, then, is a most important
+part of his equipment for
+success.</p>
+
+<p>First, the trader must be a <em>reasoning
+optimist</em>. A more horrible fate can
+scarcely be imagined than the shallow
+pessimism of many market habitués,
+whose minds, incapable of grasping the<span class="pagenum" id="Page_112">[Pg 112]</span>
+larger forces beneath the movements
+of prices, take refuge in a cynical disbelief
+in pretty much everything that
+makes life worth living.</p>
+
+<p>Owing to the nature of the business,
+however, this optimism must be of a
+somewhat different character from that
+which brings success in other lines. As
+a general thing optimism includes the
+persistent nourishing of hope, an aggressive
+confidence, the certainty that
+you are right, a firm determination to
+accomplish your end. But you cannot
+make the stock market move your way
+by believing that it will do so. Here
+is one case, at any rate, where New
+Thought methods cannot be directly
+applied.</p>
+
+<p>In the market you are nothing but
+a chip on the tide of events. Optimism,
+then, must consist in believing, not
+that the tide will continually flow your
+way, but that you will succeed in floating
+with the tide. Your optimism must
+be, in a sense, of the intellect, not of
+the will. An optimism based on determination<span class="pagenum" id="Page_113">[Pg 113]</span>
+would, in this case, amount
+to stubbornness.</p>
+
+<p>Another quality that makes for success
+in nearly every line of business is
+enthusiasm. For this you have absolutely
+no use in the stock market. The
+moment you permit yourself to become
+enthusiastic, you are subordinating
+your reasoning powers to your beliefs
+or desires.</p>
+
+<p>Enthusiasm helps you influence other
+men’s minds, but in the market you do
+not desire to do this (unless you happen
+to be a big bull leader). You wish
+to keep your mind as clear, cool and
+unruffled as the surface of a mountain
+lake on a calm day. Any emotion—enthusiasm,
+fear, anger, depression—will
+only cloud the intellect.</p>
+
+<p>Doubtless it would be axiomatic to
+warn the trader against stubbornness.
+It cannot be assumed that any operator
+would consciously permit himself to
+become stubborn. The trouble arises
+in drawing the line between, on the
+one hand, persistence, consistence, pursuit<span class="pagenum" id="Page_114">[Pg 114]</span>
+of a definite plan until conditions
+change; and, on the other, stubborn adherence
+to a course of action which
+subsequent events have proved to be
+erroneous.</p>
+
+<p>A day in the country, with the market
+forgotten, or if necessary forcibly
+ejected from the thoughts, will often
+enable the trader to return with a clarified
+mind, so that he can then intelligently
+convict or acquit himself of the vice of
+stubbornness. Sometimes it may become
+necessary to close all commitments
+and remain out of the market
+for a few days.</p>
+
+<p>One of the most common errors
+might be described as “getting a notion.”
+This is due to the failure or inability
+of the trader to take a broad
+view of the entire situation. Some
+particular point in the complex conditions
+which usually control prices, appeals
+to him strongly and impresses
+him as certain to have its effect on the
+market. He acts on this single idea.
+The idea may be all right, but other<span class="pagenum" id="Page_115">[Pg 115]</span>
+counterbalancing factors may prevent
+it from having its natural effect.</p>
+
+<p>You encounter these “notions” every
+day in the Street. You meet a highly
+conservative individual and ask him
+what he thinks of the situation. “I am
+alarmed at the rapid spread of radical
+sentiment,” he replies. “How can we
+expect capital to branch out into new
+enterprises when the profits may be
+swept away at any moment by socialistic
+legislation?”</p>
+
+<p>You say mildly that the crops are
+good, the banking situation sound, business
+active, etc. But all this produces
+no impression upon him. He has sold
+all his stocks and has his money in the
+banks. (He is also short a considerable
+line, but he doesn’t tell you this).
+He will not buy again until the public
+becomes “sane.”</p>
+
+<p>The next man you talk with says:
+“We cannot have much decline with
+the present good crop prospect. Crops
+lie at the basis of everything. With
+nine billions of new wealth coming out<span class="pagenum" id="Page_116">[Pg 116]</span>
+of the ground and flowing into the
+channels of trade, we are bound to
+have prosperous conditions for some
+time to come.”</p>
+
+<p>You speak of radicalism, adverse legislation,
+high cost of living, etc.; but
+he thinks these are relatively unimportant
+compared with that $9,000,000,000
+of new wealth. Of course, he
+is long of stocks.</p>
+
+<p>“To make the worse appear the better
+reason,” said Mr. Socrates, some
+little time ago. It is too bad we can’t
+have Socrates’ comments on Wall
+Street. The Socratic method applied
+to the average speculator would produce
+amusing results.</p>
+
+<p>Beware of saying, “This is the most
+important factor in the situation,” unless
+the action of the market shows
+that others agree with you. Every
+human mind has its own peculiarities,
+so presumably yours has, though you
+can’t see them plainly; but the stock
+market is the meeting of many minds,
+having every imaginable peculiarity.<span class="pagenum" id="Page_117">[Pg 117]</span>
+However important some single factor
+in the situation may appear to you, it
+is not going to control the movement
+of prices regardless of everything else.</p>
+
+<p>An exaggerated example of “getting
+a notion” is seen in the so-called
+“hunch.” This term appears to mean,
+when it means anything, a sort of sudden
+welling up of instinct so strong as
+to induce the trader to follow it regardless
+of reason. In many cases, the
+“hunch” is nothing more than a strong
+impulse.</p>
+
+<p>Almost any business man will say
+at times, “I have a feeling that we
+ought not to do this,” or “Somehow I
+don’t like that proposition,” without
+being able to explain clearly the
+grounds for his opposition. Likewise the
+“hunch” of a man who has watched
+the stock market for half a lifetime
+may not be without value. In such a
+case it doubtless represents an accumulation
+of small indications, each so
+trifling or so evasive that the trader<span class="pagenum" id="Page_118">[Pg 118]</span>
+cannot clearly marshal and review
+them even in his own mind.</p>
+
+<p>Only the experienced trader is entitled
+to a “hunch.” The novice, or the
+man who is not closely in touch with
+technical conditions, is merely making
+an unusual ass of himself when he
+talks about a “hunch.”</p>
+
+<p>The successful trader gradually
+learns to study his own psychological
+characteristics and allow to some extent
+for his customary errors of judgment.
+If he finds that he is generally
+too hasty in reaching a conclusion, he
+learns to wait and reflect further.
+After making his decision, he withdraws
+it and lays it up on a shelf to
+ripen. He makes only a part of his full
+commitment at the moment when he
+feels most confident, holding the remainder
+in reserve.</p>
+
+<p>If he finds that he is usually overcautious,
+he eventually learns to be a
+little more daring, to buy a part of his
+line while his mind is still partially enveloped
+in the mists of doubt.</p>
+
+<p><span class="pagenum" id="Page_119">[Pg 119]</span></p>
+
+<p>Most of the practical suggestions
+which can be offered are necessarily of
+a somewhat negative character. We
+can point out the errors to be avoided
+much more successfully than we can
+lay out a course of positive action. But
+the following summary may be useful
+to the active trader:</p>
+
+<p>(1) Your main purpose must be to
+keep the mind clear and well balanced.
+Hence, do not act hastily on apparently
+sensational information; do not trade
+so heavily as to become anxious; and
+do not permit yourself to be influenced
+by your position in the market.</p>
+
+<p>(2) Act on your own judgment, or
+else act absolutely and entirely on the
+judgment of another, regardless of
+your own opinion. “Too many cooks
+spoil the broth.”</p>
+
+<p>(3) When in doubt, keep out of the
+market. Delays cost less than losses.</p>
+
+<p>(4) Endeavor to catch the trend of
+sentiment. Even if this should be temporarily
+against fundamental conditions,<span class="pagenum" id="Page_120">[Pg 120]</span>
+it is nevertheless unprofitable to
+oppose it.</p>
+
+<p>(5) The greatest fault of ninety-nine
+out of one hundred active traders is
+being bullish at high prices and bearish
+at low prices. Therefore, refuse to
+follow the market beyond what you
+consider a reasonable climax, no matter
+how large the possible profits that
+you may appear to be losing by inaction.</p>
+
+<p>The field covered by these chapters
+is to a great extent new. As it becomes
+more thoroughly cultivated, it
+may be possible to speak with more
+scientific definiteness. In the meantime,
+the author hopes that his comments
+and suggestions may be of some
+service in helping readers to avoid unwise
+risks and to apply sound principles
+of analysis to the investment or
+speculative situation.</p>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter pageborder">
+<p class="center no-indent fs150 wsp bold"><em>THE MAGAZINE<br>
+OF<br>
+WALL STREET</em></p>
+
+<p class="center no-indent wsp"><em>Articles by practical, authoritative writers
+discuss each month</em>:</p>
+
+
+<div class="blockquot">
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Business and Investment Conditions</b>—the
+future, not the past.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Fundamental Statistics</b>—as they bear upon
+financial conditions.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Special Opportunities in Bonds</b>—pointed out
+by a well-known expert.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Bargains in Stocks</b>—as indicated by earning
+power.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Railroad and Industrial Reports</b>—analyzed
+and interpreted.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Digest of Investment News</b>—condensed
+from all authentic sources.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>The Market Outlook</b>—factors beneath the
+surface of current events.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Cotton and Grain</b>—articles by practical
+students of the situation.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Inquiries</b>—a suggestive department of answers
+by conservative authorities.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Dividend Calendar</b>—showing in advance
+when books close.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Scientific Methods of Investment</b>—explained
+in special articles.</p>
+
+<p style="margin-left: 2em; text-indent: -2em;"><b>Analyses of Trader’s Accounts, etc.</b>—showing
+right and wrong methods.</p>
+</div>
+
+
+<p class="center no-indent wsp">
+25c. a Copy—$3.00 a Year<br>
+TICKER PUBLISHING COMPANY<br>
+2 Rector St., New York<br>
+</p>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter pageborder">
+<p class="center no-indent fs150 wsp bold">14 METHODS OF OPERATING<br>
+IN THE STOCK MARKET</p>
+
+<p class="center no-indent wsp bold"><em>Contains Some of the Best Ideas Printed<br>
+in The Magazine of Wall Street</em></p>
+
+<p class="center no-indent wsp bold">Bound in Leather, $1.00 Postpaid</p>
+
+
+<p>The tried and tested methods of market experts
+are here collected for the first time.</p>
+
+<p>CONTENTS:—PRINCIPLES OF PRICE
+MOVEMENTS; the fundamental basis of
+market changes, by Thos. F. Woodlock,
+Member N. Y. Stock Exchange—A SCALE
+PLAN; recommended by Chas. H. Dow, formerly
+of Dow, Jones &amp; Co.—METHODS OF
+FORECASTING THE MARKET; by Roger W.
+Babson, the eminent statistician—TAKING
+AN INVESTMENT POSITION; by Henry
+Hall, the prominent financial writer—THE
+STUDY OF VOLUMES; practical methods of
+applying recognized stock market principles—A
+SIGN OF BULL MOVES; a principle
+which shows when stocks are scarce—A STOP
+ORDER METHOD; successfully used by an experienced
+trader—HOW TO JUDGE THE
+MARKET FROM THE TAPE; by “Rollo
+Tape”—A SUCCESSFUL ACCOUNT; from
+small capital and sound methods—METHOD
+OF FORECASTING A GREAT RISE—HOW
+A SMALL TRADER BUILT UP A FORTUNE—WHEN
+TO BUY BANKRUPT STOCKS.</p>
+
+<p>Illustrated with charts and diagrams.
+Pocket size.</p>
+
+
+<p class="center no-indent wsp fs150 bold">
+The Magazine of Wall Street</p>
+
+<p class="center no-indent wsp bold">(formerly The Ticker and Investment Digest)</p>
+
+<div>
+ <p style="float: left;">2 Rector St.</p>
+ <p style="float: right;">New York</p>
+</div>
+<div style="clear:both;"></div>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter pageborder">
+<p class="center no-indent wsp fs120">The Most Important Factor in<br>
+Trading or Investing is a<br>
+Knowledge of</p>
+
+<p class="center no-indent fs350 bold">The Trend</p>
+
+<p>It is better to know which way
+the general market is likely to
+swing than to know earnings, dividends
+or fundamentals.</p>
+
+<p>The tape gives very definite indications
+as to the immediate future.</p>
+
+<p>Our Trend Letter, written from
+the tape, contains this information.</p>
+
+<p class="center no-indent bold wsp fs90">Issued every Thursday with additional special letters<br>
+whenever a change occurs. Condensed “collect”<br>
+night letter given by wire to distant subscribers<br>
+without additional charge.</p>
+
+<p class="center no-indent bold wsp fs90">Write TODAY for samples, terms and record of results</p>
+
+
+<p class="center no-indent bold wsp">
+<span class="fs150">Ticker Publishing Company</span><br>
+2 Rector Street, New York<br>
+</p>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter pageborder">
+<p class="center no-indent fs350 wsp bold">A NEW ERIE</p>
+
+<p class="center no-indent wsp fs120 bold"><em>Read the history of this<br>
+great railroad</em></p>
+
+<p class="center no-indent wsp fs150 bold">“The Story of Erie”</p>
+
+<p class="center no-indent wsp">By EDWARD HAROLD MOTT.</p>
+
+
+<p>Jay Gould’s manipulations—his amazing genius
+and audacity—Commodore Vanderbilt’s attempt
+to control Erie; Daniel Drew and his printing
+press; the inside stories of Manipulation; the
+conspiracies and corners in Erie; the story of
+Jim Fisk; the Wall Street bouts of Drew and
+Vanderbilt; the Black Friday panic—all are
+faithfully depicted here in the most absorbing
+style. No one with a dollar’s interest in Wall
+Street can afford to miss this opportunity to
+secure one of these books. Size, 10 × 12; 524
+pp.; nearly 2 inches thick. Cost to mail, 45
+cents. Bound in extra cloth.</p>
+<br>
+
+<p class="center no-indent wsp">Price, $1.00 net; $1.45 postpaid</p>
+
+<p class="center no-indent wsp fs150 bold">THE TICKER PUBLISHING CO.</p>
+
+<p class="center no-indent wsp">2 Rector Street, New York</p>
+</div>
+
+
+<hr class="chap x-ebookmaker-drop">
+
+<div class="chapter transnote">
+<h2>
+Transcriber’s Notes</h2>
+
+<table class="autotable lh">
+<tr>
+<td class="tdr">pg 17 Changed:</td>
+<td class="tdl">to fight the advance by by selling short</td>
+</tr>
+<tr>
+<td class="tdr">to:</td>
+<td class="tdl">to fight the advance by selling short</td>
+</tr>
+<tr>
+<td class="tdr">pg 111 Changed:</td>
+<td class="tdl">His own mental attitute, then, is a most important</td>
+</tr>
+<tr>
+<td class="tdr">to:</td>
+<td class="tdl">His own mental attitude, then, is a most important</td>
+</tr>
+<tr>
+<td class="tdl" colspan="2">New original cover art included with this eBook is granted to the public domain.</td>
+</tr>
+</table>
+</div>
+
+
+<div style='text-align:center'>*** END OF THE PROJECT GUTENBERG EBOOK 75570 ***</div>
+</body>
+</html>
+
author	nfenwick <nfenwick@pglaf.org>	2025-03-09 14:21:04 -0700
committer	nfenwick <nfenwick@pglaf.org>	2025-03-09 14:21:04 -0700
commit	88cfbabb2453924e30475feabec61225d48243e7 (patch)
tree	b980eaf9b23295693ed69a65f736be8e57a64052 /75570-h/75570-h.htm