Title: Reminscences of a Stock Operator
Author: Lefevre, Edwin
Language: English
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  REMINISCENCES
  OF A
  STOCK OPERATOR



  REMINISCENCES
  OF A
  STOCK OPERATOR


  By Edwin Lefevre

  _with a new Introduction by_
  Benton W. Davis


  [Illustration]

  American Research Council · Larchmont, New York



  Copyright © 1923 by George H. Doran Company

  All Rights Reserved

  Reprinted by arrangement with Doubleday & Company, Inc.

  Library of Congress Catalog Card Number: 64-23364
  Printed in the United States of America



  To
  Jesse Lauriston Livermore



CONTENTS


      I                1
     II               14
    III               30
     IV               39
      V               55
     VI               67
    VII               80
   VIII               87
     IX              100
      X              117
     XI              131
    XII              144
   XIII              160
    XIV              173
     XV              190
    XVI              199
   XVII              215
  XVIII              230
    XIX              238
     XX              245
    XXI              257
   XXII              273
  XXIII              293
   XXIV              304



_I_


I went to work when I was just out of grammar school. I got a job
as quotation-board boy in a stock-brokerage office. I was quick at
figures. At school I did three years of arithmetic in one. I was
particularly good at mental arithmetic. As quotation-board boy I
posted the numbers on the big board in the customers’ room. One of the
customers usually sat by the ticker and called out the prices. They
couldn’t come too fast for me. I have always remembered figures. No
trouble at all.

There were plenty of other employes in that office. Of course I made
friends with the other fellows, but the work I did, if the market was
active, kept me too busy from ten A.M. to three P.M. to let me do much
talking. I don’t care for it, anyhow, during business hours.

But a busy market did not keep me from thinking about the work. Those
quotations did not represent prices of stocks to me, so many dollars
per share. They were numbers. Of course, they meant something. They
were always changing. It was all I had to be interested in--the
changes. Why did they change? I didn’t know. I didn’t care. I didn’t
think about that. I simply saw that they changed. That was all I had to
think about five hours every day and two on Saturdays: that they were
always changing.

That is how I first came to be interested in the behaviour of prices.
I had a very good memory for figures. I could remember in detail how
the prices had acted on the previous day, just before they went up or
down. My fondness for mental arithmetic came in very handy.

I noticed that in advances as well as declines, stock prices were apt
to show certain habits, so to speak. There was no end of parallel cases
and these made precedents to guide me. I was only fourteen, but after
I had taken hundreds of observations in my mind I found myself testing
their accuracy, comparing the behaviour of stocks to-day with other
days. It was not long before I was anticipating movements in prices. My
only guide, as I say, was their past performances. I carried the “dope
sheets” in my mind. I looked for stock prices to run on form. I had
“clocked” them. You know what I mean.

You can spot, for instance, where the buying is only a trifle better
than the selling. A battle goes on in the stock market and the tape is
your telescope. You can depend upon it seven out of ten cases.

Another lesson I learned early is that there is nothing new in Wall
Street. There can’t be because speculation is as old as the hills.
Whatever happens in the stock market to-day has happened before and
will happen again. I’ve never forgotten that. I suppose I really manage
to remember when and how it happened. The fact that I remember that way
is my way of capitalizing experience.

I got so interested in my game and so anxious to anticipate advances
and declines in all the active stocks that I got a little book. I
put down my observations in it. It was not a record of imaginary
transactions such as so many people keep merely to make or lose
millions of dollars without getting the swelled head or going to the
poorhouse. It was rather a sort of record of my hits and misses, and
next to the determination of probable movements I was most interested
in verifying whether I had observed accurately; in other words, whether
I was right.

Say that after studying every fluctuation of the day in an active stock
I would conclude that it was behaving as it always did before it broke
eight or ten points. Well, I would jot down the stock and the price
on Monday, and remembering past performances I would write down what
it ought to do on Tuesday and Wednesday. Later I would check up with
actual transcriptions from the tape.

That is how I first came to take an interest in the message of the
tape. The fluctuations were from the first associated in my mind with
upward or downward movements. Of course there is always a reason for
fluctuations, but the tape does not concern itself with the why and
wherefore. It doesn’t go into explanations. I didn’t ask the tape why
when I was fourteen, and I don’t ask it to-day, at forty. The reason
for what a certain stock does to-day may not be known for two or three
days, or weeks, or months. But what the dickens does that matter? Your
business with the tape is now--not to-morrow. The reason can wait. But
you must act instantly or be left. Time and again I see this happen.
You’ll remember that Hollow Tube went down three points the other day
while the rest of the market rallied sharply. That was the fact. On the
following Monday you saw that the directors passed the dividend. That
was the reason. They knew what they were going to do, and even if they
didn’t sell the stock themselves they at least didn’t buy it. There was
no inside buying; no reason why it should not break.

Well, I kept up my little memorandum book perhaps six months. Instead
of leaving for home the moment I was through with my work, I’d jot down
the figures I wanted and would study the changes, always looking for
the repetitions and parallelisms of behaviour--learning to read the
tape, although I was not aware of it at the time.

One day one of the office boys--he was older than I--came to me where I
was eating my lunch and asked me on the quiet if I had any money.

“Why do you want to know?” I said.

“Well,” he said, “I’ve got a dandy tip on Burlington. I’m going to play
it if I can get somebody to go in with me.”

“How do you mean, play it?” I asked. To me the only people who
played or could play tips were the customers--old jiggers with oodles
of dough. Why, it cost hundreds, even thousands of dollars, to get
into the game. It was like owning your private carriage and having a
coachman who wore a silk hat.

“That’s what I mean; play it!” he said. “How much you got?”

“How much you need?”

“Well, I can trade in five shares by putting up $5.”

“How are you going to play it?”

“I’m going to buy all the Burlington the bucket shop will let me carry
with the money I give him for margin,” he said. “It’s going up sure.
It’s like picking up money. We’ll double ours in a jiffy.”

“Hold on!” I said to him, and pulled out my little dope book.

I wasn’t interested in doubling my money, but in his saying that
Burlington was going up. If it was, my note-book ought to show it.
I looked. Sure enough, Burlington, according to my figuring, was
acting as it usually did before it went up. I had never bought or sold
anything in my life, and I never gambled with the other boys. But all I
could see was that this was a grand chance to test the accuracy of my
work, of my hobby. It struck me at once that if my dope didn’t work in
practice there was nothing in the theory of it to interest anybody. So
I gave him all I had, and with our pooled resources he went to one of
the near-by bucket shops and bought some Burlington. Two days later we
cashed in. I made a profit of $3.12.

After that first trade, I got to speculating on my own hook in the
bucket shops. I’d go during my lunch hour and buy or sell--it never
made any difference to me. I was playing a system and not a favorite
stock or backing opinions. All I knew was the arithmetic of it. As a
matter of fact, mine was the ideal way to operate in a bucket shop,
where all that a trader does is to bet on fluctuations as they are
printed by the ticker on the tape.

It was not long before I was taking much more money out of the bucket
shops than I was pulling down from my job in the brokerage office. So I
gave up my position. My folks objected, but they couldn’t say much when
they saw what I was making. I was only a kid and office-boy wages were
not very high. I did mighty well on my own hook.

I was fifteen when I had my first thousand and laid the cash in front
of my mother--all made in the bucket shops in a few months, besides
what I had taken home. My mother carried on something awful. She wanted
me to put it away in the savings bank out of reach of temptation. She
said it was more money than she ever heard any boy of fifteen had made,
starting with nothing. She didn’t quite believe it was real money. She
used to worry and fret about it. But I didn’t think of anything except
that I could keep on proving my figuring was right. That’s all the fun
there is--being right by using your head. If I was right when I tested
my convictions with ten shares I would be ten times more right if I
traded in a hundred shares. That is all that having more margin meant
to me--I was right more emphatically. More courage? No! No difference!
If all I have is ten dollars and I risk it, I am much braver than when
I risk a million, if I have another million salted away.

Anyhow, at fifteen I was making a good living out of the stock market.
I began in the smaller bucket shops, where the man who traded in twenty
shares at a clip was suspected of being John W. Gates in disguise or
J. P. Morgan traveling incognito. Bucket shops in those days seldom
lay down on their customers. They didn’t have to. There were other
ways of parting customers from their money, even when they guessed
right. The business was tremendously profitable. When it was conducted
legitimately--I mean straight, as far as the bucket shop went--the
fluctuations took care of the shoestrings. It doesn’t take much of a
reaction to wipe out a margin of only three quarters of a point. Also,
no welsher could ever get back in the game. Wouldn’t have any trade.

I didn’t have a following. I kept my business to myself. It was a
one-man business, anyhow. It was my head, wasn’t it? Prices either
were going the way I doped them out, without any help from friends
or partners, or they were going the other way, and nobody could stop
them out of kindness to me. I couldn’t see where I needed to tell my
business to anybody else. I’ve got friends, of course, but my business
has always been the same--a one-man affair. That is why I have always
played a lone hand.

As it was, it didn’t take long for the bucket shops to get sore on me
for beating them. I’d walk in and plank down my margin, but they’d
look at it without making a move to grab it. They’d tell me there
was nothing doing. That was the time they got to calling me the Boy
Plunger. I had to be changing brokers all the time, going from one
bucket shop to another. It got so that I had to give a fictitious name.
I’d begin light, only fifteen or twenty shares. At times, when they got
suspicious, I’d lose on purpose at first and then sting them proper.
Of course after a while they’d find me too expensive and they’d tell
me to take myself and my business elsewhere and not interfere with the
owners’ dividends.

Once, when the big concern I’d been trading with for months shut down
on me I made up my mind to take a little more of their money away
from them. That bucket shop had branches all over the city, in hotel
lobbies, and in near-by towns. I went to one of the hotel branches
and asked the manager a few questions and finally got to trading. But
as soon as I played an active stock my especial way he began to get
messages from the head office asking who it was that was operating. The
manager told me what they asked him and I told him my name was Edward
Robinson, of Cambridge. He telephoned the glad news to the big chief.
But the other end wanted to know what I looked like. When the manager
told me that I said to him, “Tell him I am a short fat man with dark
hair and a bushy beard!” But he described me instead, and then he
listened and his face got red and he hung up and told me to beat it.

“What did they say to you?” I asked him politely.

“They said, ‘You blankety-blank fool, didn’t we tell you to take no
business from Larry Livingston? And you deliberately let him trim us
out of $700!’” He didn’t say what else they told him.

I tried the other branches one after another, but they all got to know
me, and my money wasn’t any good in any of their offices. I couldn’t
even go in to look at the quotations without some of the clerks making
cracks at me. I tried to get them to let me trade at long intervals by
dividing my visits among them all. But that didn’t work.

Finally there was only one left to me and that was the biggest and
richest of all--the Cosmopolitan Stock Brokerage Company.

The Cosmopolitan was rated as A-1 and did an enormous business. It
had branches in every manufacturing town in New England. They took
my trading all right, and I bought and sold stocks and made and lost
money for months, but in the end it happened with them as usual. They
didn’t refuse my business point-blank, as the small concerns had. Oh,
not because it wasn’t sportsmanship, but because they knew it would
give them a black eye to publish the news that they wouldn’t take a
fellow’s business just because that fellow happened to make a little
money. But they did the next worse thing--that is, they made me put
up a three-point margin and compelled me to pay a premium at first
of a half point, then a point, and finally, a point and a half. Some
handicap, that! How? Easy! Suppose Steel was selling at 90 and you
bought it. Your ticket read, normally: “_Bot ten Steel at 90⅛._” If you
put up a point margin it meant that if it broke 89¼ you were wiped out
automatically. In a bucket shop the customer is not importuned for more
margin or put to the painful necessity of telling his broker to sell
for anything he can get.

But when the Cosmopolitan tacked on that premium they were hitting
below the belt. It meant that if the price was 90 when I bought,
instead of making my ticket: “_Bot Steel at 90⅛_,” it read: “_Bot
Steel at 91⅛_.” Why, that stock could advance a point and a quarter
after I bought it and I’d still be losing money if I closed the trade.
And by also insisting that I put up a three-point margin at the very
start they reduced my trading capacity by two-thirds. Still, that was
the only bucket shop that would take my business at all, and I had to
accept their terms or quit trading.

Of course I had my ups and downs, but was a winner on balance. However,
the Cosmopolitan people were not satisfied with the awful handicap they
had tacked on me, which should have been enough to beat anybody. They
tried to double-cross me. They didn’t get me. I escaped because of one
of my hunches.

The Cosmopolitan, as I said, was my last resort. It was the richest
bucket shop in New England, and as a rule they put no limit on a trade.
I think I was the heaviest individual trader they had--that is, of the
steady, every-day customers. They had a fine office and the largest and
completest quotation board I have ever seen anywhere. It ran along the
whole length of the big room and every imaginable thing was quoted.
I mean stocks dealt in on the New York and Boston Stock Exchanges,
cotton, wheat, provisions, metals--everything that was bought and sold
in New York, Chicago, Boston and Liverpool.

You know how they traded in bucket shops. You gave your money to a
clerk and told him what you wished to buy or sell. He looked at the
tape or the quotation board and took the price from there--the last
one, of course. He also put down the time on the ticket so that it
almost read like a regular broker’s report--that is, that they had
bought or sold for you so many shares of such a stock at such a price
at such a time on such a day and how much money they received from
you. When you wished to close your trade you went to the clerk--the
same or another, it depended on the shop--and you told him. He took the
last price or if the stock had not been active he waited for the next
quotation that came out on the tape. He wrote that price and the time
on your ticket, O.K.’d it and gave it back to you, and then you went to
the cashier and got whatever cash it called for. Of course, when the
market went against you and the price went beyond the limit set by your
margin, your trade automatically closed itself and your ticket became
one more scrap of paper.

In the humbler bucket shops, where people were allowed to trade in as
little as five shares, the tickets were little slips--different colors
for buying and selling--and at times, as for instance in boiling bull
markets, the shops would be hard hit because all the customers were
bulls and happened to be right. Then the bucket shop would deduct both
buying and selling commissions and if you bought a stock at 20 the
ticket would read 20¼. You thus had only ¾, of a point’s run for your
money.

But the Cosmopolitan was the finest in New England. It had thousands
of patrons and I really think I was the only man they were afraid of.
Neither the killing premium nor the three-point margin they made me put
up reduced my trading much. I kept on buying and selling as much as
they’d let me. I sometimes had a line of 5000 shares.

Well, on the day the thing happened that I am going to tell you, I was
short thirty-five hundred shares of Sugar. I had seven big pink tickets
for five hundred shares each. The Cosmopolitan used big slips with a
blank space on them where they could write down additional margin. Of
course, the bucket shops never ask for more margin. The thinner the
shoestring the better for them, for their profit lies in your being
wiped. In the smaller shops if you wanted to margin your trade still
further they’d make out a new ticket, so they could charge you the
buying commission and only give you a run of ¾ of a point on each
point’s decline, for they figured the selling commission also exactly
as if it were a new trade.

Well, this day I remember I had up over $10,000 in margins.

I was only twenty when I first accumulated ten thousand dollars in
cash. And you ought to have heard my mother. You’d have thought that
ten thousand dollars in cash was more than anybody carried around
except old John D., and she used to tell me to be satisfied and go into
some regular business. I had a hard time convincing her that I was not
gambling, but making money by figuring. But all she could see was that
ten thousand dollars was a lot of money and all I could see was more
margin.

I had put out my 3500 shares of Sugar at 105¼. There was another fellow
in the room, Henry Williams, who was short 2500 shares. I used to sit
by the ticker and call out the quotations for the board boy. The price
behaved as I thought it would. It promptly went down a couple of points
and paused a little to get its breath before taking another dip. The
general market was pretty soft and everything looked promising. Then
all of a sudden I didn’t like the way Sugar was doing its hesitating.
I began to feel uncomfortable. I thought I ought to get out of the
market. Then it sold at 103--that was low for the day--but instead of
feeling more confident I felt more uncertain. I knew something was
wrong somewhere, but I couldn’t spot it exactly. But if something was
coming and I didn’t know where from, I couldn’t be on my guard against
it. That being the case I’d better be out of the market.

You know, I don’t do things blindly. I don’t like to. I never did.
Even as a kid I had to know why I should do certain things. But this
time I had no definite reason to give to myself, and yet I was so
uncomfortable that I couldn’t stand it. I called to a fellow I knew,
Dave Wyman, and said to him: “Dave, you take my place here. I want you
to do something for me. Wait a little before you call out the next
price of Sugar, will you?”

He said he would, and I got up and gave him my place by the ticker so
he could call out the prices for the boy. I took my seven Sugar tickets
out of my pocket and walked over to the counter, to where the clerk was
who marked the tickets when you closed your trades. But I didn’t really
know why I should get out of the market, so I just stood there, leaning
against the counter, my tickets in my hand so that the clerk couldn’t
see them. Pretty soon I heard the clicking of a telegraph instrument
and I saw Tom Burnham, the clerk, turn his head quickly and listen.
Then I felt that something crooked was hatching, and I decided not to
wait any longer. Just then Dave Wyman by the ticker, began: “Su--”
and quick as a flash I slapped my tickets on the counter in front of
the clerk and yelled, “Close Sugar!” before Dave had finished calling
the price. So, of course, the house had to close my Sugar at the last
quotation. What Dave called turned out to be 103 again.

According to my dope Sugar should have broken 103 by now. The engine
wasn’t hitting right. I had the feeling that there was a trap in the
neighbourhood. At all events, the telegraph instrument was now going
like mad and I noticed that Tom Burnham, the clerk, had left my tickets
unmarked where I laid them, and was listening to the clicking as if he
were waiting for something. So I yelled at him: “Hey, Tom, what in hell
are you waiting for? Mark the price on these tickets--103! Get a gait
on!”

Everybody in the room heard me and began to look toward us and ask what
was the trouble, for, you see, while the Cosmopolitan had never laid
down, there was no telling, and a run on a bucket shop can start like a
run on a bank. If one customer gets suspicious the others follow suit.
So Tom looked sulky, but came over and marked my tickets “Closed at
103” and shoved the seven of them over toward me. He sure had a sour
face.

Say, the distance from Tom’s place to the cashier’s cage wasn’t over
eight feet. But I hadn’t got to the cashier to get my money when Dave
Wyman by the ticker yelled excitedly: “Gosh! Sugar, 108!” But it was
too late; so I just laughed and called over to Tom, “It didn’t work
that time, did it, old boy?”

Of course, it was a put-up job. Henry Williams and I together were
short six thousand shares of Sugar. That bucket shop had my margin and
Henry’s, and there may have been a lot of other Sugar shorts in the
office; possibly eight or ten thousand shares in all. Suppose they had
$20,000 in Sugar margins. That was enough to pay the shop to thimblerig
the market on the New York Stock Exchange and wipe us out. In the old
days whenever a bucket shop found itself loaded with too many bulls on
a certain stock it was a common practice to get some broker to wash
down the price of that particular stock far enough to wipe out all
the customers that were long of it. This seldom cost the bucket shop
more than a couple of points on a few hundred shares, and they made
thousands of dollars.

That was what the Cosmopolitan did to get me and Henry Williams and the
other Sugar shorts. Their brokers in New York ran up the price to 108.
Of course it fell right back, but Henry and a lot of others were wiped
out. Whenever there was an unexplained sharp drop which was followed
by instant recovery, the newspapers in those days used to call it a
bucket-shop drive.

And the funniest thing was that not later than ten days after the
Cosmopolitan people tried to double-cross me a New York operator did
them out of over seventy thousand dollars. This man, who was quite a
market factor in his day and a member of the New York Stock Exchange,
made a great name for himself as a bear during the Bryan panic of
’96. He was forever running up against Stock Exchange rules that
kept him from carrying out some of his plans at the expense of his
fellow members. One day he figured that there would be no complaints
from either the Exchange or the police authorities if he took from
the bucket shops of the land some of their ill-gotten gains. In the
instance I speak of he sent thirty-five men to act as customers. They
went to the main office and to the bigger branches. On a certain day
at a fixed hour the agents all bought as much of a certain stock as
the managers would let them. They had instructions to sneak out at a
certain profit. Of course what he did was to distribute bull tips on
that stock among his cronies and then he went in to the floor of the
Stock Exchange and bid up the price, helped by the room traders, who
thought he was a good sport. Being careful to pick out the right stock
for that work, there was no trouble in putting up the price three or
four points. His agents at the bucket shops cashed in as prearranged.

A fellow told me the originator cleaned up seventy thousand dollars
net, and his agents made their expenses and their pay besides. He
played that game several times all over the country, punishing the
bigger bucket shops of New York, Boston, Philadelphia, Chicago,
Cincinnati and St. Louis. One of his favorite stocks was Western Union,
because it was so easy to move a semiactive stock like that a few
points up or down. His agents bought it at a certain figure, sold at
two points profit, went short and took three points more. By the way, I
read the other day that that man died, poor and obscure. If he had died
in 1896 he would have got at least a column on the first page of every
New York paper. As it was he got two lines on the fifth.



_II_


Between the discovery that the Cosmopolitan Stock Brokerage Company was
ready to beat me by foul means if the killing handicap of a three-point
margin and a point-and-a-half premium didn’t do it, and hints that they
didn’t want my business anyhow, I soon made up my mind to go to New
York, where I could trade in the office of some member of the New York
Stock Exchange. I didn’t want any Boston branch, where the quotations
had to be telegraphed. I wanted to be close to the original source.
I came to New York at the age of 21, bringing with me all I had,
twenty-five hundred dollars.

I told you I had ten thousand dollars when I was twenty, and my margin
on that Sugar deal was over ten thousand. But I didn’t always win. My
plan of trading was sound enough and won oftener than it lost. If I
had stuck to it I’d have been right perhaps as often as seven out of
ten times. _In fact, I always made money when I was sure I was right
before I began. What beat me was not having brains enough to stick to
my own game--that is, to play the market only when I was satisfied
that precedents favored my play._ There is a time for all things, but
I didn’t know it. And that is precisely what beats so many men in Wall
Street who are very far from being in the main sucker class. There is
the plain fool, who does the wrong thing at all times everywhere, but
there is the Wall Street fool, who thinks he must trade all the time.
No man can always have adequate reasons for buying or selling stocks
daily--or sufficient knowledge to make his play an intelligent play.

I proved it. Whenever I read the tape by the light of experience I
made money, but when I made a plain fool play I had to lose. I was no
exception, was I? There was the huge quotation board staring me in
the face, and the ticker going on, and people trading and watching
their tickets turn into cash or into waste paper. Of course I let the
craving for excitement get the better of my judgment. In a bucket
shop where your margin is a shoestring you don’t play for long pulls.
You are wiped too easily and quickly. The desire for constant action
irrespective of underlying conditions is responsible for many losses
in Wall Street even among the professionals, who feel that they must
take home some money every day, as though they were working for regular
wages. I was only a kid, remember. [I did not know then what I learned
later, what made me fifteen years later, wait two long weeks and see
a stock on which I was very bullish go up thirty points before I felt
that it was safe to buy it. I was broke and was trying to get back,
and I couldn’t afford to play recklessly. I had to be right, and so I
waited.] That was in 1915. It’s a long story. I’ll tell it later in its
proper place. Now let’s go on from where after years of practice at
beating them I let the bucket shops take away most of my winnings.

And with my eyes wide open, to boot! And it wasn’t the only period of
my life when I did it, either. A stock operator has to fight a lot
of expensive enemies within himself. Anyhow, I came to New York with
twenty-five hundred dollars. There were no bucket shops here that a
fellow could trust. The Stock Exchange and the police between them
had succeeded in closing them up pretty tight. Besides, I wanted to
find a place where the only limit to my trading would be the size of
my stake. I didn’t have much of one, but I didn’t expect it to stay
little forever. The main thing at the start was to find a place where
I wouldn’t have to worry about getting a square deal. So I went to
a New York Stock Exchange house that had a branch at home where I
knew some of the clerks. They have long since gone out of business. I
wasn’t there long, didn’t like one of the partners, and then I went
to A. R. Fullerton & Co. Somebody must have told them about my early
experiences, because it was not long before they all got to calling me
the Boy Trader. I’ve always looked young. It was a handicap in some
ways but it compelled me to fight for my own because so many tried to
take advantage of my youth. The chaps at the bucket shops seeing what a
kid I was, always thought I was a fool for luck and that was the only
reason why I beat them so often.

Well, it wasn’t six months before I was broke. I was a pretty active
trader and had a sort of reputation as a winner. I guess my commissions
amounted to something. I ran up my account quite a little, but, of
course, in the end I lost. I played carefully; but I had to lose. I’ll
tell you the reason: it was my remarkable success in the bucket shops!

I could beat the game my way only in a bucket shop, where I was betting
on fluctuations. My tape reading had to do with that exclusively. When
I bought the price was there on the quotation board, right in front
of me. Even before I bought I knew exactly the price I’d have to pay
for my stock. And I always could sell on the instant. I could scalp
successfully, because I could move like lightning. [I could follow up
my luck or cut my loss in a second.] Sometimes, for instance, I was
certain a stock would move at least a point. Well, I didn’t have to
hog it, I could put up a point margin and double my money in a jiffy;
or I’d take half a point. On one or two hundred shares a day, that
wouldn’t be bad at the end of the month, what?

The practical trouble with that arrangement, of course, was that even
if the bucket shop had the resources to stand a big steady loss, they
wouldn’t do it. They wouldn’t have a customer around the place who had
the bad taste to win all the time.

At all events, what was a perfect system for trading in bucket shops
didn’t work in Fullerton’s office. There I was actually buying and
selling stocks. The price of Sugar on the tape might be 105 and I could
see a three-point drop coming. As a matter of fact, at the very moment
the ticker was printing 105 on the tape the real price on the floor
of the Exchange might be 104 or 103. By the time my order to sell a
thousand shares got to Fullerton’s floor man to execute, the price
might be still lower. I couldn’t tell at what price I had put out my
thousand shares until I got a report from the clerk. When I surely
would have made three thousand on the same transaction in a bucket shop
I might not make a cent in a Stock Exchange house. Of course, I have
taken an extreme case, but the fact remains that in A. R. Fullerton’s
office the tape always talked ancient history to me, as far as my
system of trading went, and I didn’t realise it.

And then, too, if my order was fairly big my own sale would tend
further to depress the price. In the bucket shop I didn’t have to
figure on the effect of my own trading. I lost in New York because the
game was altogether different. It was not that I now was playing it
legitimately that made me lose, but that I was playing it ignorantly.
I have been told that I am a good reader of the tape. But reading
the tape like an expert did not save me. I might have made out a
great deal better if I had been on the floor myself, a room trader.
In a particular crowd perhaps I might have adapted my system to the
conditions immediately before me. But, of course, if I had got to
operating on such a scale as I do now, for instance, the system would
have equally failed me, on account of the effect of my own trading on
prices.

In short, I did not know the game of stock speculation. I knew a part
of it, a rather important part, which has been very valuable to me at
all times. But if with all I had I still lost, what chance does the
green outsider have of winning, or, rather, of cashing in?

It didn’t take me long to realise that there was something wrong with
my play, but I couldn’t spot the exact trouble. There were times when
my system worked beautifully, and then, all of a sudden, nothing but
one swat after another. I was only twenty-two, remember; not that I
was so stuck on myself that I didn’t want to know just where I was at
fault, but that at that age nobody knows much of anything.

The people in the office were very nice to me. I couldn’t plunge as I
wanted to because of their margin requirements, but old A. R. Fullerton
and the rest of the firm were so kind to me that after six months of
active trading I not only lost all I had brought and all that I had
made there but I even owed the firm a few hundreds.

There I was, a mere kid, who had never before been away from home,
flat broke; but I knew there wasn’t anything wrong with me; only with
my play. I don’t know whether I make myself plain, but I never lose my
temper over the stock market. I never argue with the tape. Getting sore
at the market doesn’t get you anywhere.

I was so anxious to resume trading that I didn’t lose a minute, but
went to old man Fullerton and said to him, “Say, A. R., lend me five
hundred dollars.”

“What for?” says he.

“I’ve got to have some money.”

“What for?” he says again.

“For margin, of course,” I said.

“Five hundred dollars?” he said, and frowned. “You know they’d expect
you to keep up a 10 per cent margin, and that means one thousand
dollars on one hundred shares. Much better to give you a credit----”

“No,” I said, “I don’t want a credit here. I already owe the firm
something. What I want is for you to lend me five hundred dollars so I
can go out and get a roll and come back.”

“How are you going to do it?” asked old A. R.

“I’ll go and trade in a bucket shop,” I told him.

“Trade here,” he said.

“No,” I said. “I’m not sure yet I can beat the game in this office, but
I am sure I can take money out of the bucket shops. I know that game. I
have a notion that I know just where I went wrong here.”

He let me have it, and I went out of that office where the Boy Terror
of the Bucket Shops, as they called him, had lost his pile. I couldn’t
go back home because the shops there would not take my business. New
York was out of the question; there weren’t any doing business at that
time. They tell me that in the 90’s Broad Street and New Street were
full of them. But there weren’t any when I needed them in my business.
So after some thinking I decided to go to St. Louis. I had heard of two
concerns there that did an enormous business all through the Middle
West. Their profits must have been huge. They had branch offices in
dozens of towns. In fact I had been told that there were no concerns in
the East to compare with them for volume of business. They ran openly
and the best people traded there without any qualms. A fellow even told
me that the owner of one of the concerns was a vice-president of the
Chamber of Commerce but that couldn’t have been in St. Louis. At any
rate, that is where I went with my five hundred dollars to bring back a
stake to use as margin in the office of A. R. Fullerton & Co., members
of the New York Stock Exchange.

When I got to St. Louis I went to the hotel, washed up and went out to
find the bucket shops. One was the J. G. Dolan Company, and the other
was H. S. Teller & Co. I knew I could beat them. I was going to play
dead safe--carefully and conservatively. My one fear was that somebody
might recognize me and give me away, because the bucket shops all over
the country had heard of the Boy Trader. They are like gambling houses
and get all the gossip of the profesh.

Dolan was nearer than Teller, and I went there first. I was hoping I
might be allowed to do business a few days before they told me to take
my trade somewhere else. I walked in. It was a whopping big place and
there must have been at least a couple of hundred people there staring
at the quotations. I was glad, because in such a crowd I stood a better
chance of being unnoticed. I stood and watched the board and looked
them over carefully until I picked out the stock for my initial play.

I looked around and saw the order-clerk at the window where you put
down your money and get your ticket. He was looking at me so I walked
up to him and asked, “Is this where you trade in cotton and wheat?”

“Yes, sonny,” says he.

“Can I buy stocks too?”

“You can if you have the cash,” he said.

“Oh, I got that all right, all right,” I said like a boasting boy.

“You have, have you?” he says with a smile.

“How much stock can I buy for one hundred dollars?” I asked,
peeved-like.

“One hundred; if you got the hundred.”

“I got the hundred. Yes; and two hundred too!” I told him.

“Oh, my!” he said.

“Just you buy me two hundred shares,” I said sharply.

“Two hundred what?” he asked, serious now. It was business.

I looked at the board again as if to guess wisely and told him, “Two
hundred Omaha.”

“All right!” he said. He took my money, counted it and wrote out the
ticket.

“What’s your name?” he asked me, and I answered, “Horace Kent.”

He gave me the ticket and I went away and sat down among the customers
to wait for the roll to grow. I got quick action and I traded several
times that day. On the next day too. In two days I made twenty-eight
hundred dollars, and I was hoping they’d let me finish the week out.
At the rate I was going, that wouldn’t be so bad. Then I’d tackle the
other shop, and if I had similar luck there I’d go back to New York
with a wad I could do something with.

On the morning of the third day, when I went to the window,
bashful-like, to buy five hundred B.R.T. the clerk said to me, “Say,
Mr. Kent, the boss wants to see you.”

I knew the game was up. But I asked him, “What does he want to see me
about?”

“I don’t know.”

“Where is he?”

“In his private office. Go in that way.” And he pointed to a door.

I went in. Dolan was sitting at his desk. He swung around and said,
“Sit down, Livingston.”

He pointed to a chair. My last hope vanished. I don’t know how he
discovered who I was; perhaps from the hotel register.

“What do you want to see me about?” I asked him.

“Listen, kid. I ain’t got nothin’ agin yeh, see? Nothin’ at all. See?”

“No, I don’t see,” I said.

He got up from his swivel chair. He was a whopping big guy. He said to
me, “Just come over here, Livingston, will yeh?” and he walked to the
door. He opened it and then he pointed to the customers in the big room.

“D’yeh see them?” he asked me.

“See what?”

“Them guys. Take a look at ’em, kid. There’s three hundred of ’em!
Three hundred suckers! They feed me and my family. See? Three hundred
suckers! Then yeh come in, and in two days yeh cop more than I get out
of the three hundred in two weeks. That ain’t business, kid--not for
me! I ain’t got nothin’ agin yeh. Yer welcome to what ye’ve got. But
yeh don’t any more. There ain’t any here for yeh!”

“Why, I----”

“That’s all. I seen yeh come in day before yesterday, and I didn’t
like yer looks. On the level, I didn’t. I spotted yeh for a ringer. I
called in that jackass there”--he pointed to the guilty clerk--“and
asked what you’d done; and when he told me I said to him: ‘I don’t
like that guy’s looks. He’s a ringer!’ And that piece of cheese says:
‘Ringer my eye, boss! His name is Horace Kent, and he’s a rah-rah boy
playing at being used to long pants. He’s all right!’ Well, I let him
have his way. That blankety-blank cost me twenty-eight hundred dollars.
I don’t grudge it yeh, my boy. But the safe is locked for yeh.”

“Look here--” I began.

“You look here, Livingston,” he said. “I’ve heard all about yeh. I make
my money coppering suckers’ bets, and yeh don’t belong here. I aim to
be a sport and yer welcome to what yeh pried off’n us. But more of that
would make me a sucker, now that I know who yeh are. So toddle along,
sonny!”

I left Dolan’s place with my twenty-eight hundred dollars’ profit.
Teller’s place was in the same block. I had found out that Teller was
a very rich man who also ran up a lot of pool rooms. I decided to
go to his bucket shop. I wondered whether it would be wise to start
moderately and work up to a thousand shares or to begin with a plunge,
on the theory that I might not be able to trade more than one day. They
get wise mighty quick when they’re losing and I did want to buy one
thousand B.R.T. I was sure I could take four or five points out of it.
But if they got suspicious or if too many customers were long of that
stock they might not let me trade at all. I thought perhaps I’d better
scatter my trades at first and begin small.

It wasn’t as big a place as Dolan’s, but the fixtures were nicer and
evidently the crowd was of a better class. This suited me down to the
ground and I decided to buy my one thousand B.R.T. So I stepped up to
the proper window and said to the clerk, “I’d like to buy some B.R.T.
What’s the limit?”

“There’s no limit,” said the clerk. “You can buy all you please--if
you’ve got the money.”

“Buy fifteen hundred shares,” I says, and took my roll from my pocket
while the clerk starts to write the ticket.

Then I saw a red-headed man just shove that clerk away from the
counter. He leaned across and said to me, “Say, Livingston, you go back
to Dolan’s. We don’t want your business.”

“Wait until I get my ticket,” I said. “I just bought a little B.R.T.”

“You get no ticket here,” he said. By this time other clerks had got
behind him and were looking at me. “Don’t ever come here to trade. We
don’t take your business. Understand?”

There was no sense in getting mad or trying to argue, so I went back
to the hotel, paid my bill and took the first train back to New York.
It was tough. I wanted to take back some real money and that Teller
wouldn’t let me make even one trade.

I got back to New York, paid Fullerton his five hundred, and started
trading again with the St. Louis money. I had good and bad spells, but
I was doing better than breaking even. After all, I didn’t have much to
unlearn; only to grasp the one fact that there was more to the game of
stock speculation than I had considered before I went to Fullerton’s
office to trade. I was like one of those puzzle fans, doing the
crossword puzzles in the Sunday supplement. He isn’t satisfied until he
gets it. Well, I certainly wanted to find the solution to my puzzle. I
thought I was done with trading in bucket shops. But I was mistaken.

About a couple of months after I got back to New York an old jigger
came into Fullerton’s office. He knew A.R. Somebody said they’d once
owned a string of race horses together. It was plain he’d seen better
days. I was introduced to old McDevitt. He was telling the crowd about
a bunch of Western race-track crooks who had just pulled off some skin
game out in St. Louis. The head devil, he said, was a pool-room owner
by the name of Teller.

“What Teller?” I asked him.

“Hi Teller; H. S. Teller.”

“I know that bird,” I said.

“He’s no good,” said McDevitt.

“He’s worse than that,” I said, “and I have a little matter to settle
with him.”

“Meaning how?”

“The only way I can hit any of the short sports is through their
pocketbook. I can’t touch him in St. Louis just now, but some day I
will.” And I told McDevitt my grievance.

“Well,” says old Mac, “he tried to connect here in New York and
couldn’t make it, so he’s opened a place in Hoboken. The word’s gone
out that there is no limit to the play and that the house roll has got
the Rock of Gibraltar faded to the shadow of a bantam flea.”

“What sort of a place?” I thought he meant pool room.

“Bucket shop,” said McDevitt.

“Are you sure it’s open?”

“Yes; I’ve seen several fellows who’ve told me about it.”

“That’s only hearsay,” I said. “Can you find out positively if it’s
running, and also how heavy they’ll really let a man trade?”

“Sure, sonny,” said McDevitt. “I’ll go myself to-morrow morning, and
come back and tell you.”

He did. It seems Teller was already doing a big business and would
take all he could get. This was on Friday. The market had been going
up all that week--this was twenty years ago, remember--and it was a
cinch the bank statement on Saturday would show a big decrease in the
surplus reserve. That would give the conventional excuse to the big
room traders to jump on the market and try to shake out some of the
weak commission-house accounts. There would be the usual reactions in
the last half hour of the trading, particularly in stocks in which the
public had been the most active. Those, of course, also would be the
very stocks that Teller’s customers would be most heavily long of,
and the shop might be glad to see some short selling in them. There
is nothing so nice as catching the suckers both ways; and nothing so
easy--with one-point margins.

That Saturday morning I chased over to Hoboken to the Teller place.
They had fitted up a big customers’ room with a dandy quotation board
and a full force of clerks and a special policeman in gray. There were
about twenty-five customers.

I got talking to the manager. He asked me what he could do for me and
I told him nothing; that a fellow could make much more money at the
track on account of the odds and the freedom to bet your whole roll and
stand to win thousands in minutes instead of piking for chicken feed in
stocks and having to wait days, perhaps. He began to tell me how much
safer the stock-market game was, and how much some of their customers
made--you’d have sworn it was a regular broker who actually bought and
sold your stocks on the Exchange--and how if a man only traded heavy he
could make enough to satisfy anybody. He must have thought I was headed
for some pool room and he wanted a whack at my roll before the ponies
nibbled it away, for he said I ought to hurry up as the market closed
at twelve o’clock on Saturdays. That would leave me free to devote the
entire afternoon to other pursuits. I might have a bigger roll to carry
to the track with me--if I picked the right stocks.

I looked as if I didn’t believe him, and he kept on buzzing me. I was
watching the clock. At 11:15 I said, “All right,” and I began to give
him selling orders in various stocks. I put up two thousand dollars in
cash, and he was very glad to get it. He told me he thought I’d make a
lot of money and hoped I’d come in often.

It happened just as I figured. _The traders hammered the stocks in
which they figured they would uncover the most stops, and, sure enough,
prices slid off. I closed out my trades just before the rally of the
last five minutes on the usual traders’ covering._

There was fifty-one hundred dollars coming to me. I went to cash in.

“I’m glad I dropped in,” I said to the manager, and gave him my tickets.

“Say,” he says to me, “I can’t give you all of it. I wasn’t looking for
such a run. I’ll have it here for you Monday morning, sure as blazes.”

“All right. But first I’ll take all you have in the house,” I said.

“You’ve got to let me pay off the little fellows,” he said. “I’ll give
you back what you put up, and anything that’s left. Wait till I cash
the other tickets.” So I waited while he paid off the winners. Oh, I
knew my money was safe. Teller wouldn’t welsh with the office doing
such a good business. And if he did, what else could I do better than
to take all he had then and there? I got my own two thousand dollars
and about eight hundred dollars besides, which was all he had in the
office. I told him I’d be there Monday morning. He swore the money
would be waiting for me.

I got to Hoboken a little before twelve on Monday. I saw a fellow
talking to the manager that I had seen in the St. Louis office the day
Teller told me to go back to Dolan. I knew at once that the manager had
telegraphed to the home office and they’d sent up one of their men to
investigate the story. Crooks don’t trust anybody.

“I came for the balance of my money,” I said to the manager.

“Is this the man?” asked the St. Louis chap.

“Yes,” said the manager, and took a bunch of yellow backs from his
pocket.

“Hold on!” said the St. Louis fellow to him and then turns to me, “Say,
Livingston, didn’t we tell you we didn’t want your business?”

“Give me my money first,” I said to the manager, and he forked over
two thousands, four five-hundreds and three hundreds.

“What did you say?” I said to St. Louis.

“We told you we didn’t want you to trade in our place.”

“Yes,” I said; “that’s why I came.”

“Well, don’t come any more. Keep away!” he snarled at me. The private
policeman in gray came over, casual-like. St. Louis shook his fist
at the manager and yelled: “You ought to’ve known better, you poor
boob, than to let this guy get into you. He’s Livingston. You had your
orders.”

“Listen, you,” I said to the St. Louis man. “This isn’t St. Louis. You
can’t pull off any trick here, like your boss did with Belfast Boy.”

“You keep away from this office! You can’t trade here!” he yells.

“If I can’t trade here nobody else is going to,” I told him. “You can’t
get away with that sort of stuff here.”

Well, St. Louis changed his tune at once.

“Look here, old boy,” he said, all fussed up, “do us a favor. Be
reasonable! You know we can’t stand this every day. The old man’s going
to hit the ceiling when he hears who it was. Have a heart, Livingston!”

“I’ll go easy,” I promised.

“Listen to reason, won’t you? For the love of Pete, keep away! Give us
a chance to get a good start. We’re new here. Will you?”

“I don’t want any of this high-and-mighty business the next time I
come,” I said, and left him talking to the manager at the rate of a
million a minute. I’d got some money out of them for the way they
treated me in St. Louis. There wasn’t any sense in my getting hot or
trying to close them up. I went back to Fullerton’s office and told
McDevitt what had happened. Then I told him that if it was agreeable
to him I’d like to have him go to Teller’s place and begin trading in
twenty or thirty share lots, to get them used to him. Then, the moment
I saw a good chance to clean up big, I’d telephone him and he could
plunge.

I gave McDevitt a thousand dollars and he went to Hoboken and did as I
told him. He got to be one of the regulars. Then one day when I thought
I saw a break impending I slipped Mac the word and he sold all they’d
let him. I cleared twenty-eight hundred dollars that day, after giving
Mac his rake-off and paying expenses, and I suspect Mac put down a
little bet of his own besides. Less than a month after that, Teller
closed his Hoboken branch. The police got busy. And, anyhow, it didn’t
pay, though I only traded twice. We ran into a crazy bull market when
stocks didn’t react enough to wipe out even the one-point margins, and,
of course, all the customers were bulls and winning and pyramiding. No
end of bucket shops busted all over the country.

Their game has changed. Trading in the old-fashioned bucket shop had
some decided advantages over speculating in a reputable broker’s
office. For one thing the automatic closing out of your trade when the
margin reached the exhaustion point was the best kind of stop-loss
order. You couldn’t get stung for more than you had put up and there
was no danger of rotten execution of orders, and so on. In New York
the shops never were as liberal with their patrons as I’ve heard they
were in the West. Here they used to limit the possible profit on
certain stocks of the football order to two points. Sugar and Tennessee
Coal and Iron were among these. No matter if they moved ten points in
ten minutes you could only make two on one ticket. They figured that
otherwise the customer was getting too big odds; he stood to lose one
dollar and to make ten. And then there were times when all the shops,
including the biggest, refused to take orders on certain stocks. In
1900, on the day before Election Day, when it was foregone conclusion
that McKinley would win, not a shop in the land let its customers buy
stocks. The election odds were 3 to 1 on McKinley. By buying stocks
on Monday you stood to make from three to six points or more. A man
could bet on Bryan and buy stocks and make sure money. The bucket shops
refused orders all that day.

If it hadn’t been for their refusing to take my business I never would
have stopped trading with them. And then I never would have learned
that there was much more to the game of stock speculation than to play
for fluctuations of a few points.



_III_


It takes a man a long time to learn all the lessons of all his
mistakes. They say there are two sides to everything. But there is
only one side to the stock market; and it is not the bull side or
the bear side, but the right side. It took me longer to get that
general principle fixed firmly in my mind than it did most of the more
technical phases of the game of stock speculation.

I have heard of people who amuse themselves conducting imaginary
operations in the stock market to prove with imaginary dollars how
right they are. Sometimes these ghost gamblers make millions. It is
very easy to be a plunger that way. It is like the old story of the man
who was going to fight a duel the next day.

His second asked him, “Are you a good shot?”

“Well,” said the duelist, “I can snap the stem of a wineglass at twenty
paces,” and he looked modest.

“That’s all very well,” said the unimpressed second. “But can you snap
the stem of the wineglass while the wineglass is pointing a loaded
pistol straight at your heart?”

With me I must back my opinions with my money. My losses have taught me
that I must not begin to advance until I am sure I shall not have to
retreat. But if I cannot advance I do not move at all. I do not mean
by this that a man should not limit his losses when he is wrong. He
should. But that should not breed indecision. All my life I have made
mistakes, but in losing money I have gained experience and accumulated
a lot of valuable don’ts. I have been flat broke several times, but my
loss has never been a total loss. Otherwise, I wouldn’t be here now. I
always knew I would have another chance and that I would not make the
same mistake a second time. I believed in myself.

A man must believe in himself and his judgment if he expects to make
a living at this game. That is why I don’t believe in tips. If I buy
stocks on Smith’s tip I must sell those same stocks on Smith’s tip.
I am depending on him. Suppose Smith is away on a holiday when the
selling time comes around? No, sir, nobody can make big money on what
someone else tells him to do. _I know from experience that nobody can
give me a tip or a series of tips that will make more money for me
than my own judgment. It took me five years to learn to play the game
intelligently enough to make big money when I was right._

I didn’t have as many interesting experiences as you might imagine.
I mean, the process of learning how to speculate does not seem very
dramatic at this distance. I went broke several times, and that is
never pleasant, but the way I lost money is the way everybody loses
money who loses money in Wall Street. Speculation is a hard and trying
business, and a speculator must be on the job all the time or he’ll
soon have no job to be on.

My task, as I should have known after my early reverses at Fullerton’s,
was very simple: To look at speculation from another angle. But I
didn’t know that there was much more to the game than I could possibly
learn in the bucket shops. There I thought I was beating the game
when in reality I was only beating the shop. At the same time the
tape-reading ability that trading in bucket-shops developed in me and
the training of my memory have been extremely valuable. Both of these
things came easy to me. I owe my early success as a trader to them and
not to my brains or knowledge, because my mind was untrained and my
ignorance was colossal. The game taught me the game. And it didn’t
spare the rod while teaching.

I remember my very first day in New York. I told you how the bucket
shops, by refusing to take my business, drove me to seek a reputable
commission house. One of the boys in the office where I got my first
job was working for Harding Brothers, members of the New York Stock
Exchange. I arrived in this city in the morning, and before one o’clock
that same day I had opened an account with the firm and was ready to
trade.

I didn’t explain to you how natural it was for me to trade there
exactly as I had done in the bucket shops, where all I did was to bet
on fluctuations and catch small but sure changes in prices. Nobody
offered to point out the essential differences or set me right. If
somebody had told me my method would not work I nevertheless would have
tried it out to make sure for myself, for when I am wrong only one
thing convinces me of it, and that is, to lose money. And I am only
right when I make money. That is speculating.

They were having some pretty lively times those days and the market was
very active. That always cheers up a fellow. I felt at home right away.
There was the old familiar quotation board in front of me, talking a
language that I had learned before I was fifteen years old. There was
a boy doing exactly the same thing I used to do in the first office
I ever worked in. There were the customers--same old bunch--looking
at the board or standing by the ticket calling out the prices and
talking about the market. The machinery was to all appearances the
same machinery that I was used to. The atmosphere was the atmosphere
I had breathed since I had made my first stock-market money--$3.12
in Burlington. The same kind of ticker and the same kind of traders,
therefore the same kind of game. And remember, I was only twenty-two. I
suppose I thought I knew the game from A to Z. Why shouldn’t I?

I watched the board and saw something that looked good to me. It was
behaving right. I bought a hundred at 84. I got out at 85 in less than
a half hour. Then I saw something else I liked, and I did the same
thing; took three-quarters of a point net within a very short time. I
began well, didn’t I?

Now mark this: On that, my first day as a customer of a reputable Stock
Exchange house, and only two hours of it at that, I traded in eleven
hundred shares of stock, jumping in and out. And the net result of the
day’s operations was that I lost exactly eleven hundred dollars. That
is to say, on my first attempt, nearly one-half of my stake went up the
flue. And remember, some of the trades showed me a profit. But I quit
eleven hundred dollars minus for the day.

It didn’t worry me, because I couldn’t see where there was anything
wrong with me. My moves, also, were right enough, and if I had been
trading in the old Cosmopolitan shop I’d have broken better than even.
That the machine wasn’t as it ought to be, my eleven hundred vanished
dollars plainly told me. But as long as the machinist was all right
there was no need to stew. Ignorance at twenty-two isn’t a structural
defect.

After a few days I said to myself, “I can’t trade this way here. The
ticker doesn’t help as it should!” But I let it go at that without
getting down to bed rock. I kept it up, having good days and bad days,
until I was cleaned out. I went to old Fullerton and got him to stake
me to five hundred dollars. And I came back from St. Louis, as I told
you, with money I took out of the bucket shops there--a game I could
always beat.

I played more carefully and did better for a while. As soon as I was in
easy circumstances I began to live pretty well. I made friends and had
a good time. I was not quite twenty-three, remember; all alone in New
York with easy money in my pockets and the belief in my heart that I
was beginning to understand the new machine.

I was making allowances for the actual execution of my orders on the
floor of the Exchange, and moving more cautiously. But I was still
sticking to the tape--that is, I was still ignoring general principles;
and as long as I did that I could not spot the exact trouble with my
game.

We ran into the big boom of 1901 and I made a great deal of
money--that is, for a boy. You remember those times? The prosperity
of the country was unprecedented. We not only ran into an era of
industrial consolidations and combinations of capital that beat
anything we had had up to that time, but the public went stock mad.
In previous flush times, I have heard, Wall Street used to brag of
two-hundred-and-fifty-thousand-share days, when securities of a par
value of twenty-five million dollars changed hands. But in 1901 we had
a three-million-share day. Everybody was making money. The steel crowd
came to town, a horde of millionaires with no more regard for money
than drunken sailors. The only game that satisfied them was the stock
market. We had some of the biggest high rollers the Street ever saw:
John W. Gates, of ‘Bet-you-a-million’ fame, and his friends, like John
A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore crowd, who
sold part of their steel holdings and with the proceeds bought in the
open market the actual majority of the stock of the great Rock Island
system; and Schwab and Frick and Phipps and the Pittsburg coterie; to
say nothing of scores of men who were lost in the shuffle but would
have been called great plungers at any other time. A fellow could
buy and sell all the stock there was. Keene made a market for the
U.S. Steel shares. A broker sold one hundred thousand shares in a few
minutes. A wonderful time! And there were some wonderful winnings. And
no taxes to pay on stock sales! And no day of reckoning in sight.

Of course, after a while, I heard a lot of calamity howling and the
old stagers said everybody--except themselves--had gone crazy. But
everybody except themselves was making money. I knew, of course, there
must be a limit to the advances and an end to the crazy buying of
A.O.T.--Any Old Thing--and I got bearish. But every time I sold I lost
money, and if it hadn’t been that I ran darn quick I’d have lost a
heap more. I looked for a break, but I was playing safe--making money
when I bought and chipping it out when I sold short--so that I wasn’t
profiting by the boom as much as you’d think when you consider how
heavily I used to trade, even as a boy.

There was one stock that I wasn’t short of, and that was Northern
Pacific. My tape reading came in handy. I thought most stocks had been
bought to a standstill, but Little Nipper behaved as if it were going
still higher. We know now that both the common and the preferred were
being steadily absorbed by the Kuhn-Loeb-Harriman combination. Well,
I was long a thousand shares of Northern Pacific common, and held it
against the advice of everybody in the office. When it got to about 110
I had thirty points profit, and I grabbed it. It made my balance at my
brokers’ nearly fifty thousand dollars, the greatest amount of money
I had been able to accumulate up to that time. It wasn’t so bad for
a chap who had lost every cent trading in that selfsame office a few
months before.

If you remember, the Harriman crowd notified Morgan and Hill of their
intention to be represented in the Burlington-Great Northern-Northern
Pacific combination, and then the Morgan people at first instructed
Keene to buy fifty thousand shares of N.P. to keep the control in
their possession. I have heard that Keene told Robert Bacon to make
the order one hundred and fifty thousand shares and the bankers did.
At all events, Keene sent one of his brokers, Eddie Norton, into the
N.P. crowd and he bought one hundred thousand shares of the stock.
This was followed by another order, I think, of fifty thousand shares
additional, and the famous corner followed. After the market closed on
May 8, 1901, the whole world knew that a battle of financial giants was
on. No two such combinations of capital had ever opposed each other in
this country. Harriman against Morgan; an irresistible force meeting an
immovable object.

There I was on the morning of May ninth with nearly fifty thousand
dollars in cash and no stocks. As I told you, I had been very bearish
for some days, and here was my chance at last. I knew what would
happen--an awful break and then some wonderful bargains. There would
be a quick recovery and big profits--for those who had picked up the
bargains. It didn’t take Sherlock Holmes to figure this out. We were
going to have an opportunity to catch them coming and going, not only
for big money but for sure money.

Everything happened as I had foreseen. I was dead right and--I lost
every cent I had! I was wiped out by something that was unusual. If
the unusual never happened there would be no difference in people and
then there wouldn’t be any fun in life. The game would become merely
a matter of addition and subtraction. It would make of us a race of
bookkeepers with plodding minds. It’s the guessing that develops a
man’s brain power. Just consider what you have to do to guess right.

The market fairly boiled, as I had expected. The transactions were
enormous and the fluctuations unprecedented in extent. I put in a lot
of selling orders at the market. When I saw the opening prices I had a
fit, the breaks were so awful. My brokers were on the job. They were
as competent and conscientious as any; but by the time they executed
my orders the stocks had broken twenty points more. The tape was way
behind the market and reports were slow in coming in by reason of the
awful rush of business. When I found out that the stocks I had ordered
sold when the tape said the price was, say, 100 and they got mine
off at 80, making a total decline of thirty or forty points from the
previous night’s close, it seemed to me that I was putting out shorts
at a level that made the stocks I sold the very bargains I had planned
to buy. The market was not going to drop right through to China. So I
decided instantly to cover my shorts and go long.

My brokers bought; not at the level that had made me turn, but at the
prices prevailing in the Stock Exchange when their floor man got my
orders. They paid an average of fifteen points more than I had figured
on. A loss of thirty-five points in one day was more than anybody could
stand.

The ticker beat me by lagging so far behind the market. I was
accustomed to regarding the tape as the best little friend I had
because I bet according to what it told me. But this time the tape
double-crossed me. The divergence between the printed and the actual
prices undid me. It was the sublimation of my previous unsuccess, the
selfsame thing that had beaten me before. It seems so obvious now that
tape reading is not enough, irrespective of the brokers’ execution,
that I wonder why I didn’t then see both my trouble and the remedy for
it.

I did worse than not see it; I kept on trading, in and out, regardless
of the execution. You see, I never could trade with a limit. I must
take my chances with the market. That is what I am trying to beat--the
market, not the particular price. When I think I should sell, I sell.
When I think stocks will go up, I buy. My adherence to that general
principle of speculation saved me. To have traded at limited prices
simply would have been my old bucket-shop method inefficiently adapted
for use in a reputable commission broker’s office. I would never have
learned to know what stock speculation is, but would have kept on
betting on what a limited experience told me was a sure thing.

Whenever I did try to limit the prices in order to minimize the
disadvantages of trading at the market when the ticker lagged, I simply
found that the market got away from me. This happened so often that I
stopped trying. I can’t tell you how it came to take me so many years
to learn that instead of placing piking bets on what the next few
quotations were going to be, my game was to anticipate what was going
to happen in a big way.

After my May ninth mishap I plugged along, using a modified but still
defective method. If I hadn’t made money some of the time I might have
acquired market wisdom quicker. But I was making enough to enable me
to live well. I liked friends and a good time. I was living down the
Jersey Coast that summer, like hundreds of prosperous Wall Street men.
My winnings were not quite enough to offset both my losses and my
living expenses.

I didn’t keep on trading the way I did through stubbornness. I simply
wasn’t able to state my own problem to myself, and, of course, it was
utterly hopeless to try to solve it. I harp on this topic so much to
show what I had to go through before I got to where I could really make
money. My old shotgun and BB shot could not do the work of a high-power
repeating rifle against big game.

Early that fall I not only was cleaned out again but I was so sick
of the game I could no longer beat that I decided to leave New York
and try something else some other place. I had been trading since my
fourteenth year. I had made my first thousand dollars when I was a kid
of fifteen, and my first ten thousand before I was twenty-one. I had
made and lost a ten-thousand-dollar stake more than once. In New York
I had made thousands and lost them. I got up to fifty thousand dollars
and two days later that went. I had no other business and knew no other
game. After several years I was back where I began. No--worse, for I
had acquired habits and a style of living that required money; though
that part didn’t bother me as much as being wrong so consistently.



_IV_


Well, I went home. But the moment I was back I knew that I had but one
mission in life and that was to get a stake and go back to Wall Street.
That was the only place in the country where I could trade heavily.
Some day, when my game was all right, I’d need such a place. When a man
is right he wants to get all that is coming to him for being right.

I didn’t have much hope, but, of course, I tried to get into the bucket
shops again. There were fewer of them and some of them were run by
strangers. Those who remembered me wouldn’t give me a chance to show
them whether I had gone back as a trader or not. I told them the truth,
that I had lost in New York whatever I had made at home; that I didn’t
know as much as I used to think I did; and that there was no reason why
it should not now be good business for them to let me trade with them.
But they wouldn’t. And the new places were unreliable. Their owners
thought twenty shares was as much as a gentleman ought to buy if he had
any reason to suspect he was going to guess right.

I needed the money and the bigger shops were taking in plenty of it
from their regular customers. I got a friend of mine to go into a
certain office and trade. I just sauntered in to look them over. I
again tried to coax the order clerk to accept a small order, even if
it was only fifty shares. Of course he said no. I had rigged up a code
with this friend so that he would buy or sell when and what I told him.
But that only made me chicken feed. Then the office began to grumble
about taking my friend’s orders. Finally one day he tried to sell a
hundred St. Paul and they shut down on him.

We learned afterward that one of the customers saw us talking together
outside and went in and told the office, and when my friend went up to
the order clerk to sell that hundred St. Paul the guy said:

“We’re not taking any selling orders in St. Paul, not from you.”

“Why, what’s the matter, Joe?” asked my friend.

“Nothing doing, that’s all,” answered Joe.

“Isn’t that money any good? Look it over. It’s all there.” And my
friend passed over the hundred--my hundred--in tens. He tried to
look indignant and I was looking unconcerned; but most of the other
customers were getting close to the combatants, as they always did when
there was loud talking or the slightest semblance of a scrap between
the shop and any customer. They wanted to get a line on the merits of
the case in order to get a line on the solvency of the concern.

The clerk, Joe, who was a sort of assistant manager, came out from
behind his cage, walked up to my friend, looked at him and then looked
at me.

“It’s funny,” he said slowly--“it’s damned funny that you never do a
single thing here when your friend Livingston isn’t around. You just
sit and look at the board by the hour. Never a peep. But after he comes
in you get busy all of a sudden. Maybe you are acting for yourself; but
not in this office any more. We don’t fall for Livingston tipping you
off.”

Well, that stopped my board money. But I had made a few hundred more
than I had spent and I wondered how I could use them, for the need of
making enough money to go back to New York with was more urgent than
ever. I felt that I would do better the next time. I had had time to
think calmly of some of my foolish plays; and then, one can see the
whole better when one sees it from a little distance. The immediate
problem was to make the new stake.

One day I was in a hotel lobby, talking to some fellows I knew, who
were pretty steady traders. Everybody was talking stock market. I made
the remark that nobody could beat the game on account of the rotten
execution he got from his brokers, especially when he traded at the
market, as I did.

A fellow piped up and asked me what particular brokers I meant.

I said, “The best in the land,” and he asked who might they be. I could
see he wasn’t going to believe I ever dealt with first-class houses.

But I said, “I mean, any member of the New York Stock Exchange. It
isn’t that they are crooked or careless, but when a man gives an order
to buy at the market he never knows what that stock is going to cost
him until he gets a report from the brokers. There are more moves of
one or two points than of ten and fifteen. But the outside trader can’t
catch the small rises or drops because of the execution. I’d rather
trade in a bucket shop any day in the week, if they’d only let a fellow
trade big.”

The man who had spoken to me I had never seen before. His name was
Roberts. He seemed very friendly disposed. He took me aside and asked
me if I had ever traded in any of the other exchanges, and I said no.
He said he knew some houses that were members of the Cotton Exchange
and the Produce Exchange and the smaller stock exchanges. These firms
were very careful and paid special attention to the execution. He said
that they had confidential connections with the biggest and smartest
houses on the New York Stock Exchange and through their personal pull
and by guaranteeing a business of hundreds of thousands of shares a
month they got much better service than an individual customer could
get.

“They really cater to the small customer,” he said. “They make a
specialty of out-of-town business and they take just as much pains
with a ten-share order as they do with one for ten thousand. They are
very competent and honest.”

“Yes. But if they pay the Stock Exchange house the regular eighth
commission, where do they come in?”

“Well, they are supposed to pay the eighth. But--you know!” He winked
at me.

“Yes,” I said. “But the one thing a Stock Exchange firm will not do is
to split commissions. The governors would rather a member committed
murder, arson and bigamy than to do business for outsiders for less
than a kosher eighth. The very life of the Stock Exchange depends upon
their not violating that one rule.”

He must have seen that I had talked with Stock Exchange people, for he
said, “Listen! Every now and then one of those pious Stock Exchange
houses is suspended for a year for violating that rule, isn’t it? There
are ways and ways of rebating so nobody can squeal.” He probably saw
unbelief in my face, for he went on: “And besides, on certain kinds of
business we--I mean, these wire houses--charge a thirty-second extra,
in addition to the eighth commission. They are very nice about it. They
never charge the extra commission except in unusual cases, and then
only if the customer has an inactive account. It wouldn’t pay them, you
know, otherwise. They aren’t in business exclusively for their health.”

By that time I knew he was touting for some phony brokers.

“Do you know any reliable house of that kind?” I asked him.

“I know the biggest brokerage firm in the United States,” he said.
“I trade there myself. They have branches in seventy-eight cities in
the United States and Canada. They do an enormous business. And they
couldn’t very well do it year in and year out if they weren’t strictly
on the level, could they?”

“Certainly not,” I agreed. “Do they trade in the same stocks that are
dealt in on the New York Stock Exchange?”

“Of course; and on the curb and on any other exchange in this country,
or Europe. They deal in wheat, cotton, provisions; anything you
want. They have correspondents everywhere and memberships in all the
exchanges, either in their own name or on the quiet.”

I knew by that time, but I thought I’d lead him on.

“Yes,” I said, “but that does not alter the fact that the orders have
to be executed by somebody, and nobody living can guarantee how the
market will be or how close the ticker’s prices are to the actual
prices on the floor of the Exchange. By the time a man gets the
quotation here and he hands in an order and it’s telegraphed to New
York, some valuable time has gone. I might better go back to New York
and lose my money there in respectable company.”

“I don’t know anything about losing money; our customers don’t acquire
that habit. They make money. We take care of that.”

“Your customers?”

“Well, I take an interest in the firm, and if I can turn some business
their way I do so because they’ve always treated me white and I’ve made
a good deal of money through them. If you wish I’ll introduce you to
the manager.”

“What’s the name of the firm?” I asked him.

He told me. I had heard about them. They ran ads in all the papers,
calling attention to the great profits made by those customers who
followed their inside information on active stocks. That was the firm’s
great specialty. They were not a regular bucket shop, but bucketeers,
alleged brokers who bucketed their orders but nevertheless went through
an elaborate camouflage to convince the world that they were regular
brokers engaged in a legitimate business. They were one of the oldest
of that class firms.

They were the prototype at that time of the same sort of brokers that
went broke this year by the dozen. The general principles and methods
were the same, though the particular devices for fleecing the public
differed somewhat, certain details having been changed when the old
tricks became too well known.

These people used to send out tips to buy or sell a certain
stock--hundreds of telegrams advising the instant purchase of a certain
stock and hundreds recommending other customers to sell the same stock,
on the old racing-tipster plan. Then orders to buy and sell would come
in. The firm would buy and sell, say, a thousand of that stock through
a reputable Stock Exchange firm and get a regular report on it. This
report they would show to any doubting Thomas who was impolite enough
to speak about bucketing customers’ orders.

They also used to form discretionary pools in the office and as a
great favor allowed their customers to authorize them, in writing, to
trade with the customer’s money and in the customer’s name, as they in
their judgment deemed best. That way the most cantankerous customer
had no legal redress when the money disappeared. They’d bull a stock,
on paper, and put the customers in and then they’d execute one of the
old-fashioned bucket-shop drives and wipe out hundreds of shoe-string
margins. They did not spare anyone, women, school-teachers and old men
being their best bet.

“I’m sore on all brokers,” I told the tout. “I’ll have to think this
over,” and I left him so he wouldn’t talk any more to me.

I inquired about this firm. I learned that they had hundreds of
customers and although there were the usual stories I did not find any
case of a customer not getting his money from them if he won any. The
difficulty was in finding anybody who had ever won in that office; but
I did. Things seemed to be going their way just then, and that meant
that they probably would not welsh if a trade went against them. Of
course most concerns of that kind eventually go broke. There are times
when there are regular epidemics of bucketeering bankruptcies, like
the old-fashioned runs on several banks after one of them goes up.
The customers of the others get frightened and they run to take their
money out. But there are plenty of retired bucket-shop keepers in this
country.

Well, I heard nothing alarming about the tout’s firm except that they
were on the make, first, last and all the time, and that they were not
always truthful. Their specialty was trimming suckers who wanted to
get rich quick. But they always asked their customers’ permission, in
writing, to take their rolls away from them.

One chap I met did tell me a story about seeing six hundred telegrams
go out one day advising customers to get aboard a certain stock and six
hundred telegrams to other customers strongly urging them to sell that
same stock, at once.

“Yes, I know the trick,” I said to the chap who was telling me.

“Yes,” he said. “But the next day they sent telegrams to the same
people advising them to close out their interest in everything and
buy--or sell--another stock. I asked the senior partner, who was in the
office, ‘Why do you do that? The first part I understand. Some of your
customers are bound to make money on paper for a while, even if they
and the others eventually lose. But by sending out telegrams like this
you simply kill them all. What’s the big idea?’

“‘Well,’ he said, ‘the customers are bound to lose their money anyhow,
no matter what they buy, or how or where or when. When they lose their
money I lose the customers. Well, I might as well get as much of their
money as I can--and then look for a new crop.’”

Well, I admit frankly that I wasn’t concerned with the business ethics
of the firm. I told you I felt sore on the Teller concern and how it
tickled me to get even with them. But I didn’t have any such feeling
about this firm. They might be crooks or they might not be as black as
they were painted. I did not propose to let them do any trading for me,
or follow their tips or believe their lies. My one concern was with
getting together a stake and returning to New York to trade in fair
amounts in an office where you did not have to be afraid the police
would raid the joint, as they did the bucket shops, or see the postal
authorities swoop down and tie up your money so that you’d be lucky to
get eight cents on the dollar a year and a half later.

Anyhow, I made up my mind that I would see what trading advantages of
this firm offered over what you might call the legitimate brokers. I
didn’t have much money to put up as margin, and firms that bucketed
orders were naturally much more liberal in that respect, so that a few
hundred dollars went much further in their offices.

I went down to their place and had a talk with the manager himself.
When he found out that I was an old trader and had formerly had
accounts in New York with Stock Exchange houses and that I had lost
all I took with me he stopped promising to make a million a minute for
me if I let them invest my savings. He figured that I was a permanent
sucker, the ticker-hound kind that always plays and always loses; a
steady-income provider for brokers, whether they were the kind that
bucket your orders or modestly content themselves with the commissions.

I just told the manager that what I was looking for was decent
execution, because I always traded at the market and I didn’t want to
get reports that showed a difference of a half or a whole point from
the ticker price.

He assured me on his word of honor that they would do whatever I
thought was right. They wanted my business because they wanted to show
me what high-class brokering was. They had in their employ the best
talent in the business. In fact, they were famous for their execution.
If there was any difference between the ticker price and the report
it was always in favor of the customer, though of course they didn’t
guarantee that. If I opened an account with them I could buy and sell
at the price which came over the wire, they were so confident of their
brokers.

Naturally that meant that I could trade there to all intents and
purposes as though I were in a bucket shop--that is, they’d let me
trade at the next quotation. I didn’t want to appear too anxious, so I
shook my head and told him I guessed I wouldn’t open an account that
day, but I’d let him know. He urged me strongly to begin right way as
it was a good market to make money in. It was--for them; a dull market
with prices seesawing slightly, just the kind to get customers in and
then wipe them out with a sharp drive in the tipped stock. I had some
trouble in getting away.

I had given him my name and address, and that very same day I began to
get prepaid telegrams and letters urging me to get aboard of some stock
or other in which they said they knew an inside pool was operating for
a fifty-point rise.

I was busy going around and finding out all I could about several other
brokerage concerns of the same bucketing kind. It seemed to me that if
I could be sure of getting my winnings out of their clutches the only
way of my getting together some real money was to trade in these near
bucket shops.

When I had learned all I could I opened accounts with three firms. I
had taken a small office and had direct wires run to the three brokers.

I traded in a small way so they wouldn’t get frightened off at the very
start. I made money on balance and they were not slow in telling me
that they expected real business from customers who had direct wires to
their offices. They did not hanker for pikers. They figured that the
more I did the more I’d lose, and the more quickly I was wiped out the
more they’d make. It was a sound enough theory when you consider that
these people necessarily dealt with averages and the average customer
was never long-lived, financially speaking. A busted customer can’t
trade. A half-crippled customer can whine and insinuate things and make
trouble of one or another kind that hurts business.

I also established a connection with a local firm that had a direct
wire to its New York correspondent, who were also members of the New
York Stock Exchange. I had a stock ticker put in and I began to trade
conservatively. As I told you, it was pretty much like trading in
bucket shops, only it was a little slower.

It was a game that I could beat, and I did. I never got it down to
such a fine point that I could win ten times out of ten; but I won on
balance, taking it week in and week out. I was again living pretty
well, but always saving something, to increase the stake that I was
to take back to Wall Street. I got a couple of wires into two more of
these bucketing brokerage houses, making five in all--and, of course,
my good firm.

There were times when my plans went wrong and my stocks did not run
true to form, but they did the opposite of what they should have done
if they had kept up their regard for precedent. But they did not hit
me very hard--they couldn’t, with my shoestring margins. My relations
with my brokers were friendly enough. Their accounts and records did
not always agree with mine, and the differences uniformly happened to
be against me. Curious coincidence--not! But I fought for my own and
usually had my way in the end. They always had the hope of getting
away from me what I had taken from them. They regarded my winnings as
temporary loans, I think.

They really were not sporty, being in the business to make money by
hook or by crook instead of being content with the house percentage.
Since suckers always lose money when they gamble in stocks--they never
really speculate--you’d think these fellows would run what you might
call a legitimate illegitimate business. But they didn’t. “Copper your
customers and grow rich” is an old and true adage, but they did not
seem ever to have heard of it and didn’t stop at plain bucketing.

Several times they tried to double-cross me with the old tricks. They
caught me a couple of times because I wasn’t looking. They always did
that when I had taken no more than my usual line. I accused them of
being short sports or worse, but they denied it and it ended by my
going back to trading as usual. The beauty of doing business with a
crook is that he always forgives you for catching him, so long as you
don’t stop doing business with him. It’s all right as far as he is
concerned. He is willing to meet you more than half-way. Magnanimous
souls!

Well, I made up my mind that I couldn’t afford to have the normal rate
of increase of my stake impaired by crooks’ tricks, so I decided to
teach them a lesson. I picked out some stock that after having been
a speculative favorite had become inactive. Water-logged. If I had
taken one that never had been active they would have suspected my
play. I gave out buying orders on this stock to my five bucketeering
brokers. When the orders were taken and they were waiting for the next
quotation to come out on the tape I sent in an order through my Stock
Exchange house to sell a hundred shares of that particular stock at
the market. I urgently asked for quick action. Well, you can imagine
what happened when the selling order got to the floor of the Exchange;
a dull inactive stock that a commission house with out-of-town
connections wanted to sell in a hurry. Somebody got cheap stock. But
the transaction as it would be printed on the tape was the price that I
would pay on my five buying orders. I was long on balance four hundred
shares of that stock at a low figure. The wire house asked me what
I’d heard, and I said I had a tip on it. Just before the close of the
market I sent an order to my reputable house to buy back that hundred
shares, and not waste any time; that I didn’t want to be short under
any circumstances; and I didn’t care what they paid. So they wired to
New York and the order to buy that hundred quick resulted in a sharp
advance. I of course had put in selling orders for the five hundred
shares that my friends had bucketed. It worked very satisfactorily.

Still, they didn’t mend their ways, and so I worked that trick on
them several times. I did not dare punish them as severely as they
deserved, seldom more than a point or two on a hundred shares. But it
helped to swell my little hoard that I was saving for my next Wall
Street venture. I sometimes varied the process by selling some stock
short, without overdoing it. I was satisfied with my six or eight
hundred clear for each crack.

One day the stunt worked so well that it went far beyond all
calculations for a ten-point swing. I wasn’t looking for it. As a
matter of fact it so happened that I had two hundred shares instead
of my usual hundred at one broker’s, though only a hundred in the four
other shops. That was too much of a good thing--for them. They were
sore as pups about it and they began to say things over the wires. So
I went and saw the manager, the same man who had been so anxious to
get my account, and so forgiving every time I caught him trying to put
something over on me. He talked pretty big for a man in his position.

“That was a fictitious market for that stock, and we won’t pay you a
damned cent!” he swore.

“It wasn’t a fictitious market when you accepted my order to buy. You
let me in then, all right, and now you’ve got to let me out. You can’t
get around that for fairness, can you?”

“Yes, I can!” he yelled. “I can prove that somebody put up a job.”

“Who put up a job?” I asked.

“Somebody!”

“Who did they put it up on?” I asked.

“Some friends of yours were in it as sure as pop,” he said.

But I told him, “You know very well that I play a lone hand. Everybody
in this town knows that. They’ve known it ever since I started trading
in stocks. Now I want to give you some friendly advice: you just send
and get that money for me. I don’t want to be disagreeable. Just do
what I tell you.”

“I won’t pay it. It was a rigged-up transaction,” he yelled.

I got tired of his talk. So I told him: “You’ll pay it to me right now
and here.”

Well, he blustered a little more and accused me flatly of being
the guilty thimblerigger; but he finally forked over the cash. The
others were not so rambunctious. In one office the manager had been
studying these inactive-stock plays of mine and when he got my order
he actually bought the stock for me and then some for himself in the
Little Board, and he made some money. These fellows didn’t mind being
sued by customers on charges of fraud, as they generally had a good
technical legal defense ready. But they were afraid I’d attach the
furniture--the money in the bank I couldn’t because they took care not
to have any funds exposed to that danger. It would not hurt them to be
known as pretty sharp, but to get a reputation for welshing was fatal.
For a customer to lose money at his broker’s is no rare event. But for
a customer to make money and then not get it is the worst crime on the
speculators’ statute books.

I got my money from all; but that ten-point jump put an end to the
pleasing pastime of skinning skinners. They were on the lookout for the
little trick that they themselves had used to defraud hundreds of poor
customers. I went back to my regular trading; but the market wasn’t
always right for my system--that is, limited as I was by the size of
the orders they would take, I couldn’t make a killing.

I had been at it over a year, during which I used every device that I
could think of to make money trading in those wire houses. I had lived
very comfortably, bought an automobile and didn’t limit myself about
my expenses. I had to make a stake, but I also had to live while I was
doing it. If my position on the market was right I couldn’t spend as
much as I made, so that I’d always be saving some. If I was wrong I
didn’t make any money and therefore couldn’t spend. As I said, I had
saved up a fair-sized roll, and there wasn’t so much money to be made
in the five wire houses; so I decided to return to New York.

I had my own automobile and I invited a friend of mine who also was a
trader to motor to New York with me. He accepted and we started. We
stopped at New Haven for dinner. At the hotel I met an old trading
acquaintance, and among other things he told me there was a shop in
town that had a wire and was doing a pretty good business.

We left the hotel on our way to New York, but I drove by the street
where the bucket shop was to see what the outside looked like. We found
it and couldn’t resist the temptation to stop and have a look at the
inside. It wasn’t very sumptuous, but the old blackboard was there, and
the customers, and the game was on.

The manager was a chap who looked as if he had been an actor or a stump
speaker. He was very impressive. He’d say good morning as though he
had discovered the morning’s goodness after ten years of searching for
it with a microscope and was making you a present of the discovery as
well as of the sky, the sun and the firm’s bank roll. He saw us come
up in the sporty-looking automobile, and as both of us were young and
careless--I don’t suppose I looked twenty--he naturally concluded we
were a couple of Yale boys. I didn’t tell him we weren’t. He didn’t
give me a chance, but began delivering a speech. He was very glad to
see us. Would we have a comfortable seat? The market, we would find,
was philanthropically inclined that morning; in fact, clamoring to
increase the supply of collegiate pocket money, of which no intelligent
undergraduate ever had a sufficiency since the dawn of historic time.
But here and now, by the beneficence of the ticker, a small initial
investment would return thousands. More pocket money than anybody could
spend was what the stock market yearned to yield.

Well, I thought it would be a pity not to do as the nice man of the
bucket shop was so anxious to have us do, so I told him I would do as
he wished, because I had heard that lots of people made lots of money
in the stock market.

I began to trade, very conservatively, but increasing the line as I
won. My friend followed me.

We stayed overnight in New Haven and the next morning found us at the
hospitable shop at five minutes to ten. The orator was glad to see us,
thinking his turn would come that day. But I cleaned up within a few
dollars of fifteen hundred. The next morning when we dropped in on the
great orator, and handed him an order to sell five hundred Sugar he
hesitated, but finally accepted it--in silence! The stock broke over a
point and I closed out and gave him the ticket. There was exactly five
hundred dollars coming to me in profits, and my five hundred dollar
margin. He took twenty fifties from the safe, counted them three times
very slowly, then he counted them again in front of me. It looked as if
his fingers were sweating mucilage the way the notes seemed to stick to
him, but finally he handed the money to me. He folded his arms, bit his
lower lip, kept it bit, and stared at the top of a window behind me.

I told him I’d like to sell two hundred Steel. But he never stirred.
He didn’t hear me. I repeated my wish, only I made it three hundred
shares. He turned his head. I waited for the speech. But all he did was
to look at me. Then he smacked his lips and swallowed--as if he was
going to start an attack on fifty years of political misrule by the
unspeakable grafters of the opposition.

Finally he waved his hand toward the yellow-backs in my hand and said,
“Take away that bauble!”

“Take away what?” I said. I hadn’t quite understood what he was driving
at.

“Where are you going, student?” He spoke very impressively.

“New York,” I told him.

“That’s right,” he said, nodding about twenty times. “That is ex-actly
right. You are going away from here all right, because now I know two
things--two, student! I know what you are not, and I know what you are.
Yes! Yes! Yes!”

“Is that so?” I said very politely.

“Yes. You two--” He paused; and then he stopped being in Congress
and snarled: “You two are the biggest sharks in the United States of
America! Students? Ye-eh! You must be Freshmen! Ye-eh!”

We left him talking to himself. He probably didn’t mind the money so
much. No professional gambler does. It’s all in the game and the luck’s
bound to turn. It was his being fooled in us that hurt his pride.

That is how I came back to Wall Street for a third attempt. I had
been studying, of course, trying to locate the exact trouble with my
system that had been responsible for my defeats in A. R. Fullerton &
Co.’s office. I was twenty when I made my first ten thousand, and I
lost that. But I knew how and why--because I traded out of season all
the time; because when I couldn’t play according to my system, which
was based on study and experience, I went in and gambled. I hoped to
win, instead of knowing that I ought to win on form. When I was about
twenty-two I ran up my stake to fifty thousand dollars; I lost it on
May ninth. But I knew exactly why and how. It was the laggard tape
and the unprecedented violence of the movements that awful day. But
I didn’t know why I had lost after my return from St. Louis or after
the May ninth panic. I had theories--that is, remedies for some of the
faults that I thought I found in my play. But I needed actual practice.

There is nothing like losing all you have in the world for teaching you
what not to do. And when you know what not to do in order not to lose
money, you begin to learn what to do in order to win. Did you get that?
_You begin to learn!_



_V_


The average ticker hound--or, as they used to call him, tape-worm--goes
wrong, I suspect, as much from over-specialization as from anything
else. It means a highly expensive inelasticity. After all, the game
of speculation isn’t all mathematics or set rules, however rigid the
main laws may be. Even in my tape reading something enters that is more
than mere arithmetic. There is what I call the behavior of a stock,
actions that enable you to judge whether or not it is going to proceed
in accordance with the precedents that your observation has noted. If a
stock doesn’t act right don’t touch it; because, being unable to tell
precisely what is wrong, you cannot tell which way it is going. No
diagnosis, no prognosis. No prognosis, no profit.

It is a very old thing, this of noting the behavior of a stock and
studying its past performances. When I first came to New York there
was a broker’s office where a Frenchman used to talk about his chart.
At first I thought he was a sort of pet freak kept by the firm because
they were good-natured. Then I learned that he was a persuasive and
most impressive talker. He said that the only thing that didn’t lie
because it simply couldn’t was mathematics. By means of his curves
he could forecast market movements. Also he could analyse them, and
tell, for instance, why Keene did the right thing in his famous
Atchison preferred bull manipulation, and later why he went wrong in
his Southern Pacific pool. At various times one or another of the
professional traders tried the Frenchman’s system--and then went back
to their old unscientific methods of making a living. Their hit-or-miss
system was cheaper, they said. I heard that the Frenchman said Keene
admitted that the chart was 100 per cent right but claimed that the
method was too slow for practical use in an active market.

Then there was one office where a chart of the daily movement of prices
was kept. It showed at a glance just what each stock had done for
months. By comparing individual curves with the general market curve
and keeping in mind certain rules the customers could tell whether the
stock on which they got an unscientific tip to buy was fairly entitled
to a rise. They used the chart as a sort of complementary tipster.
To-day there are scores of commission houses where you find trading
charts. They come ready-made from the offices of statistical experts
and include not only stocks but commodities.

I should say that a chart helps those who can read it or rather who can
assimilate what they read. The average chart reader, however, is apt to
become obsessed with the notion that the dips and peaks and primary and
secondary movements are all there is to stock speculation. If he pushes
his confidence to its logical limit he is bound to go broke. There is
an extremely able man, a former partner of a well-known Stock Exchange
house, who is really a trained mathematician. He is a graduate of a
famous technical school. He devised charts based upon a very careful
and minute study of the behaviour of prices in many markets--stocks,
bonds, grain, cotton, money, and so on. He went back years and years
and traced the correlations and seasonal movements--oh, everything. He
used his charts in his stock trading for years. What he really did was
to take advantage of some highly intelligent averaging. They tell me he
won regularly--until the World War knocked all precedents into a cocked
hat. I heard that he and his large following lost millions before they
desisted. But not even a world war can keep the stock market from
being a bull market when conditions are bullish, or a bear market when
conditions are bearish. And all a man needs to know to make money is to
appraise conditions.

I didn’t mean to get off the track like that, but I can’t help it when
I think of my first few years in Wall Street. I know now what I did not
know then, and I think of the mistakes of my ignorance because those
are the very mistakes that the average stock speculator makes year in
and year out.

After I got back to New York to try for the third time to beat the
market in a Stock Exchange house I traded quite actively. I didn’t
expect to do as well as I did in the bucket shops, but I thought that
after a while I would do much better because I would be able to swing
a much heavier line. Yet, I can see now that my main trouble was my
failure to grasp the vital difference between stock gambling and stock
speculation. Still, by reason of my seven years’ experience in reading
the tape and a certain natural aptitude for the game, my stake was
earning not indeed a fortune but a very high rate of interest. I won
and lost as before, but I was winning on balance. The more I made the
more I spent. This is the usual experience with most men. No, not
necessarily with easy-money pickers, but with every human being who is
not a slave of the hoarding instinct. Some men, like old Russell Sage,
have the money-making and the money-hoarding instinct equally well
developed, and of course they die disgustingly rich.

The game of beating the market exclusively interested me from ten to
three every day, and after three, the game of living my life. Don’t
misunderstand me. I never allowed pleasure to interfere with business.
When I lost it was because I was wrong and not because I was suffering
from dissipation or excesses. There never were any shattered nerves or
rum-shaken limbs to spoil my game. I couldn’t afford anything that kept
me from feeling physically and mentally fit. Even now I am usually in
bed by ten. As a young man I never kept late hours, because I could
not do business properly on insufficient sleep. I was doing better than
breaking even and that is why I didn’t think there was any need to
deprive myself of the good things of life. The market was always there
to supply them. I was acquiring the confidence that comes to a man
from a professionally dispassionate attitude toward his own method of
providing bread and butter for himself.

The first change I made in my play was in the matter of time. I
couldn’t wait for the sure thing to come along and then take a point
or two out of it as I could in the bucket shops. I had to start much
earlier if I wanted to catch the move in Fullerton’s office. In other
words, I had to study what was going to happen; to anticipate stock
movements. That sounds asininely commonplace, but you know what I
mean. It was the change in my own attitude toward the game that was of
supreme importance to me. It taught me, little by little, the essential
difference between betting on fluctuations and anticipating inevitable
advances and declines, between gambling and speculating.

I had to go further back than an hour in my studies of the
market--which was something I never would have learned to do in the
biggest bucket shop in the world. I interested myself in trade reports
and railroad earnings and financial and commercial statistics. Of
course I loved to trade heavily and they called me the Boy Plunger;
but I also liked to study the moves. I never thought that anything was
irksome if it helped me to trade more intelligently. Before I can solve
a problem I must state it to myself. When I think I have found the
solution I must prove I am right. I know of only one way to prove it;
and that is, with my own money.

Slow as my progress seems now, I suppose I learned as fast as I
possibly could, considering that I was making money on balance. If I
had lost oftener perhaps it might have spurred me to more continuous
study. I certainly would have had more mistakes to spot. But I am not
sure of the exact value of losing, for if I had lost more I would have
lacked the money to test out the improvements in my methods of trading.

Studying my winning plays in Fullerton’s office I discovered that
although I often was 100 per cent right on the market--that is, in my
diagnosis of conditions and general trend--I was not making as much
money as my market “rightness” entitled me to. Why wasn’t I?

There was as much to learn from partial victory as from defeat.

For instance, I had been bullish from the very start of a bull market,
and I had backed my opinion by buying stocks. An advance followed,
as I had clearly foreseen. So far, all very well. But what else did
I do? Why, I listened to the elder statesmen and curbed my youthful
impetuousness. I made up my mind to be wise and play carefully,
conservatively. Everybody knew that the way to do that was to take
profits and buy back your stocks on reactions. And that is precisely
what I did, or rather what I tried to do; for I often took profits and
waited for a reaction that never came. And I saw my stock go kiting up
ten points more and I sitting there with my four-point profit safe in
my conservative pocket. _They say you never grow poor taking profits.
No, you don’t. But neither do you grow rich taking a four-point profit
in a bull market._

Where I should have made twenty thousand dollars I made two thousand.
That was what my conservatism did for me. About the time I discovered
what a small percentage of what I should have made I was getting I
discovered something else, and that is that suckers differ among
themselves according to the degree of experience.

The tyro knows nothing, and everybody, including himself, knows it.
But the next, or second, grade thinks he knows a great deal and makes
others feel that way too. He is the experienced sucker, who has
studied--not the market itself but a few remarks about the market made
by a still higher grade of suckers. The second-grade sucker knows how
to keep from losing his money in some of the ways that get the raw
beginner. It is this semisucker rather than the 100 per cent article
who is the real all-the-year-round support of the commission houses.
He lasts about three and a half years on an average, as compared with
a single season of from three to thirty weeks, which is the usual Wall
Street life of a first offender. It is naturally the semisucker who is
always quoting the famous trading aphorisms and the various rules of
the game. _He knows all the don’ts that ever fell from the oracular
lips of the old stagers--excepting the principal one, which is: Don’t
be a sucker!_

_This semisucker is the type that thinks he has cut his wisdom teeth
because he loves to buy on declines._ He waits for them. He measures
his bargains by the number of points it has sold off from the top. In
big bull markets the plain unadulterated sucker, utterly ignorant of
rules and precedents, buys blindly because he hopes blindly. He makes
most of the money--until one of the healthy reactions takes it away
from him at one fell swoop. But the Careful Mike sucker does what I
did when I thought I was playing the game intelligently--according to
the intelligence of others. I knew I needed to change my bucket-shop
methods and I thought I was solving my problem with any change,
particularly one that assayed high gold values according to the
experienced traders among the customers.

Most--let us call ’em customers--are alike. You find very few who can
truthfully say that Wall Street doesn’t owe them money. In Fullerton’s
there were the usual crowd. All grades! Well, there was one old chap
who was not like the others. To begin with, he was a much older man.
Another thing was that he never volunteered advice and never bragged of
his winnings. He was a great hand for listening very attentively to the
others. He did not seem very keen to get tips--that is, he never asked
the talkers what they’d heard or what they knew. But when somebody gave
him one he always thanked the tipster very politely. Sometimes he
thanked the tipster again--when the tip turned out O.K. But if it went
wrong he never whined, so that nobody could tell whether he followed it
or let it slide by. It was a legend of the office that the old jigger
was rich and could swing quite a line. But he wasn’t donating much to
the firm in the way of commissions; at least not that anyone could see.
His name was Partridge, but they nicknamed him Turkey behind his back,
because he was so thick-chested and had a habit of strutting about the
various rooms, with the point of his chin resting on his breast.

The customers, who were all eager to be shoved and forced into doing
things so as to lay the blame for failure on others, used to go to old
Partridge and tell him what some friend of a friend of an insider had
advised them to do in a certain stock. They would tell him what they
had not done with the tip so he would tell them what they ought to do.
But whether the tip they had was to buy or to sell, the old chap’s
answer was always the same.

The customer would finish the tale of his perplexity and then ask:
“What do you think I ought to do?”

Old Turkey would cock his head to one side, contemplate his fellow
customer with a fatherly smile, and finally he would say very
impressively, “You know, it’s a bull market!”

Time and again I heard him say, “Well, this is a bull market, you
know!” as though he were giving to you a priceless talisman wrapped up
in a million-dollar accident-insurance policy. And of course I did not
get his meaning.

One day a fellow named Elmer Harwood rushed into the office, wrote out
an order and gave it to the clerk. Then he rushed over to where Mr.
Partridge was listening politely to John Fanning’s story of the time he
overheard Keene give an order to one of his brokers and all that John
made was a measly three points on a hundred shares and of course the
stock had to go up twenty-four points in three days right after John
sold out. It was at least the fourth time that John had told him that
tale of woe, but old Turkey was smiling as sympathetically as if it was
the first time he heard it.

Well, Elmer made for the old man and, without a word of apology to
John Fanning, told Turkey, “Mr. Partridge, I have just sold my Climax
Motors. My people say the market is entitled to a reaction and that
I’ll be able to buy it back cheaper. So you’d better do likewise. That
is, if you’ve still got yours.”

Elmer looked suspiciously at the man to whom he had given the original
tip to buy. The amateur, or gratuitous, tipster always thinks he owns
the receiver of his tip body and soul, even before he knows how the tip
is going to turn out.

“Yes, Mr. Harwood, I still have it. Of course!” said Turkey gratefully.
It was nice of Elmer to think of the old chap.

“Well, now is the time to take your profit and get in again on the
next dip,” said Elmer, as if he had just made out the deposit slip
for the old man. Failing to perceive enthusiastic gratitude in the
beneficiary’s face, Elmer went on: “I have just sold every share I
owned!”

From his voice and manner you would have conservatively estimated it at
ten thousand shares.

But Mr. Partridge shook his head regretfully and whined, “No! No! I
can’t do that!”

“What?” yelled Elmer.

“I simply can’t!” said Mr. Partridge. He was in great trouble.

“Didn’t I give you the tip to buy it?”

“You did, Mr. Harwood, and I am very grateful to you. Indeed, I am,
sir. But----”

“Hold on! Let me talk! And didn’t that stock go up seven points in ten
days? Didn’t it?”

“It did, and I am much obliged to you, my dear boy. But I couldn’t
think of selling that stock.”

“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is
a habit with most tip givers to be tip takers.

“No, I couldn’t.”

“Why not?” And Elmer drew nearer.

“Why, this is a bull market!” The old fellow said it as though he had
given a long and detailed explanation.

“That’s all right,” said Elmer, looking angry because of his
disappointment. “I know this is a bull market as well as you do. But
you’d better slip them that stock of yours and buy it back on the
reaction. You might as well reduce the cost to yourself.”

“My dear boy,” said old Partridge, in great distress--“my dear boy, _if
I sold that stock now I’d lose my position; and then where would I be_?”

Elmer Harwood threw up his hands, shook his head and walked over to me
to get sympathy: “Can you beat it?” he asked me in a stage whisper. “I
ask you!”

I didn’t say anything. So he went on: “I give him a tip on Climax
Motors. He buys five hundred shares. He’s got seven points’ profit and
I advise him to get out and buy ’em back on the reaction that’s overdue
even now. And what does he say when I tell him? He says that if he
sells he’ll lose his job. What do you know about that?”

“I beg your pardon, Mr. Harwood; I didn’t say I’d lose my job,” cut in
old Turkey. “I said I’d lose my position. And when you are as old as I
am and you’ve been through as many booms and panics as I have, you’ll
know that to lose your position is something nobody can afford; not
even John D. Rockefeller. I hope the stock reacts and that you will be
able to repurchase your line at a substantial concession, sir. But I
myself can only trade in accordance with the experience of many years.
I paid a high price for it and I don’t feel like throwing away a second
tuition fee. But I am as much obliged to you as if I had the money in
the bank. It’s a bull market, you know.” And he strutted away, leaving
Elmer dazed.

What old Mr. Partridge said did not mean much to me until I began
to think about my own numerous failures to make as much money as I
ought to when I was so right on the general market. The more I studied
the more I realized how wise that old chap was. He had evidently
suffered from the same defect in his young days and knew his own
human weaknesses. He would not lay himself open to a temptation that
experience had taught him was hard to resist and had always proved
expensive to him, as it was to me.

I think it was a long step forward in my education when I realized at
last that when old Mr. Partridge kept on telling the other customers,
“Well, you know this is a bull market!” he really meant to tell them
that the big money was not in the individual fluctuations but in the
main movements--that is, not in reading the tape but in sizing up the
entire market and its trend.

And right here let me say one thing: After spending many years in
Wall Street and after making and losing millions of dollars I want to
tell you this: _It never was my thinking that_ made the big money for
me. _It was always my sitting._ Got that? My sitting tight! _It is no
trick at all to be right on the market. You always find lots of early
bulls in bull markets and early bears in bear markets._ I’ve known
many men who were right at exactly the right time, and began buying or
selling stocks when prices were at the very level which should show the
greatest profit. And their experience invariably matched mine--that is,
they made no real money out of it. Men who can both be right and sit
tight are uncommon. I found it one of the hardest things to learn. But
it is only after a stock operator has firmly grasped this that he can
make big money. It is literally true that millions come easier to a
trader after he knows how to trade than hundreds did in the days of his
ignorance.

The reason is that a man may see straight and clearly and yet become
impatient or doubtful _when the market takes its time about doing
as he figured it must do_. That is why so many men in Wall Street,
who are not at all in the sucker class, not even in the third grade,
nevertheless lose money. The market does not beat them. They beat
themselves, because though they have brains _they cannot sit tight_.
Old Turkey was dead right in doing and saving what he did. He had not
only the courage of his convictions but the intelligent patience to sit
tight.

Disregarding the big swing and trying to jump in and out was fatal to
me. _Nobody can catch all the fluctuations._ In a bull market your game
is to buy and hold until you believe that the bull market is near its
end. To do this you must study the general conditions and not tips or
special factors affecting individual stocks. Then get out of all your
stocks; get out for keeps! Wait until you see--or if you prefer, until
you think you see--the turn of the market; the beginning of a reversal
of general conditions. You have to use your brains and your vision to
do this; otherwise my advice would be as idiotic as to tell you to buy
cheap and sell dear. _One of the most helpful things that anybody can
learn is to give up trying to catch the last eighth--or the first.
These two are the most_ expensive eighths in the world. They have cost
stock traders, in the aggregate, enough millions of dollars to build a
concrete highway across the continent.

Another thing I noticed in studying my plays in Fullerton’s office
after I began to trade less unintelligently was that my initial
operations seldom showed me a loss. That naturally made me decide to
start big. It gave me confidence in my own judgment before I allowed
it to be vitiated by the advice of others or even by my own impatience
at times. Without faith in his own judgment no man can go very far
in this game. That is about all I have learned--to study general
conditions, _to take a position and stick to it. I can wait without
a twinge of impatience. I can see a setback without being shaken,
knowing that it is only temporary._ I have been short one hundred
thousand shares and I have seen a big rally coming. I have figured--and
figured correctly--that such a rally as I felt was inevitable, and even
wholesome, would make a difference of one million dollars in my paper
profits. And I nevertheless have stood pat and seen half my paper
profit wiped out, without once considering the advisability of covering
my shorts to put them out again on the rally. I knew that if I did I
might lose my position and with it the certainty of a big killing. It
is the big swing that makes the big money for you.

If I learned all this so slowly it was because I learned by my
mistakes, _and some time always elapses between making a mistake
and realizing it_, and more time between realizing it and exactly
determining it. But at the same time I was faring pretty comfortably
and was very young, so that I made up in other ways. Most of my
winnings were still made in part through my tape reading because the
kind of markets we were having lent themselves fairly well to my
method. I was not losing either as often or as irritatingly as in the
beginning of my New York experiences. It wasn’t anything to be proud
of, when you think that I had been broke three times in less than two
years. And as I told you, being broke is a very efficient educational
agency.

I was not increasing my stake very fast because I lived up to the
handle all the time. I did not deprive myself of many of the things
that a fellow of my age and tastes would want. I had my own automobile
and I could not see any sense in skimping on living when I was taking
it out of the market. The ticker only stopped Sundays and holidays,
which was as it should be. Every time I found the reason for a loss or
the why and how of another mistake, I added a brand-new _Don’t!_ to
my schedule of assets. And the nicest way to capitalize my increasing
assets was by not cutting down on my living expenses. Of course I had
some amusing experiences and some that were not so amusing, but if I
told them all in detail I’d never finish. As a matter of fact, the only
incidents that I remember without special effort are those that taught
me something of definite value to me in my trading; something that
added to my store of knowledge of the game--and of myself!



_VI_


In the spring of 1906 I was in Atlantic City for a short vacation. I
was out of stocks and was thinking only of having a change of air and
a nice rest. By the way, I had gone back to my first brokers, Harding
Brothers, and my account had got to be pretty active. I could swing
three or four thousand shares. That wasn’t much more than I had done in
the old Cosmopolitan shop when I was barely twenty years of age. But
there was some difference between my one-point margin in the bucket
shop and the margin required by brokers who actually bought or sold
stocks for my account on the New York Stock Exchange.

You may remember the story I told you about that time when I was
short thirty-five hundred Sugar in the Cosmopolitan and I had a hunch
something was wrong and I’d better close the trade? Well, I have often
had that curious feeling. As a rule, I yield to it. But at times I have
pooh-poohed the idea and have told myself that it was simply asinine
to follow any of these sudden blind impulses to reverse my position.
I have ascribed my hunch to a state of nerves resulting from too many
cigars or insufficient sleep or a torpid liver or something of that
kind. When I have argued myself into disregarding my impulse and have
stood pat I have always had cause to regret it. A dozen instances
occur to me when I did not sell as per hunch, and the next day I’d go
downtown and the market would be strong, or perhaps even advance, and
I’d tell myself how silly it would have been to obey the blind impulse
to sell. But on the following day there would be a pretty bad drop.
Something had broken loose somewhere and I’d have made money by not
being so wise and logical. The reason plainly was not physiological but
psychological.

I want to tell you only about one of them because of what it did for
me. It happened when I was having that little vacation in Atlantic City
in the spring of 1906. I had a friend with me who also was a customer
of Harding Brothers. I had no interest in the market one way or another
and was enjoying my rest. I can always give up trading to play, unless
of course it is an exceptionally active market in which my commitments
are rather heavy. It was a bull market, as I remember it. The outlook
was favorable for general business and the stock market had slowed down
but the tone was firm and all indications pointed to higher prices.

One morning after we had breakfasted and had finished reading all the
New York morning papers, and had got tired of watching the sea gulls
picking up clams and flying up with them twenty feet in the air and
dropping them on the hard wet sand to open them for their breakfast, my
friend and I started up the Boardwalk. That was the most exciting thing
we did in the daytime.

It was not noon yet, and we walked up slowly to kill time and breathe
the salt air. Harding Brothers had a branch office on the Boardwalk and
we used to drop in every morning and see how they’d opened. It was more
force of habit than anything else, for I wasn’t doing anything.

The market, we found, was strong and active. My friend, who was quite
bullish, was carrying a moderate line purchased several points lower.
He began to tell me what an obviously wise thing it was to hold stocks
for much higher prices. I wasn’t paying enough attention to him to take
the trouble to agree with him. I was looking over the quotation board,
noting the changes--they were mostly advances--until I came to Union
Pacific. I got a feeling that I ought to sell it. I can’t tell you
more. I just felt like selling it. I asked myself why I should feel
like that, and I couldn’t find any reason whatever for going short of
UP.

I stared at the last price on the board until I couldn’t see any
figures or any board or anything else, for that matter. All I knew
was that I wanted to sell Union Pacific and I couldn’t find out why I
wanted to.

I must have looked queer, for my friend, who was standing alongside of
me, suddenly nudged me and asked, “Hey, what’s the matter?”

“I don’t know,” I answered.

“Going to sleep?” he said.

“No,” I said. “I am not going to sleep. What I am going to do is to
sell that stock.” I had always made money following my hunches.

I walked over to a table where there were some blank order pads. My
friend followed me. I wrote out an order to sell a thousand Union
Pacific at the market and handed it to the manager. He was smiling when
I wrote it and when he took it. But when he read the order he stopped
smiling and looked at me.

“Is this right?” he asked me. But I just looked at him and he rushed it
over to the operator.

“What are you doing?” asked my friend.

“I’m selling it!” I told him.

“Selling what?” he yelled at me. If he was a bull how could I be a
bear? Something was wrong.

“A thousand UP.,” I said.

“Why?” he asked me in great excitement.

I shook my head, meaning I had no reason. But he must have thought I’d
got a tip, because he took me by the arm and led me outside into the
hall, where we could be out of sight and hearing of the other customers
and rubbering chairwarmers.

“What did you hear?” he asked me.

He was quite excited. UP. was one of his pets and he was bullish on it
because of its earnings and its prospects. But he was willing to take a
bear tip on it at second hand.

“Nothing!” I said.

“You didn’t?” He was skeptical and showed it plainly.

“I didn’t hear a thing.”

“Then why in blazes are you selling?”

“I don’t know,” I told him. I spoke gospel truth.

“Oh, come across, Larry,” he said.

He knew it was my habit to know why I traded. I had sold a thousand
shares of Union Pacific. I must have a very good reason to sell that
much stock in the face of the strong market.

“I don’t know,” I repeated. “I just feel that something is going to
happen.”

“What’s going to happen?”

“I don’t know. I can’t give you any reason. All I know is that I want
to sell that stock. And I’m going to let ’em have another thousand.”

I walked back into the office and gave an order to sell a second
thousand. If I was right in selling the first thousand I ought to have
out a little more.

“What could possibly happen?” persisted my friend, who couldn’t make up
his mind to follow my lead. If I’d told him that I had heard UP. was
going down he’d have sold it without asking me from whom I’d heard it
or why. “What could possibly happen?” he asked again.

“A million things could happen. But I can’t promise you that any of
them will. I can’t give you any reasons and I can’t tell fortunes,” I
told him.

“Then you’re crazy,” he said. “Stark crazy, selling that stock without
rime or reason. You don’t know why you want to sell it?”

“I don’t know why I want to sell it. I only know I do want to,” I
said. “I want to, like everything.” The urge was so strong that I sold
another thousand.

That was too much for my friend. He grabbed me by the arm and said,
“Here! Let’s get out of this place before you sell the entire capital
stock.”

I had sold as much as I needed to satisfy my feeling, so I followed him
without waiting for a report on the last two thousand shares. It was a
pretty good jag of stock for me to sell even with the best of reasons.
It seemed more than enough to be short of without any reason whatever,
particularly when the entire market was so strong and there was nothing
in sight to make anybody think of the bear side. But I remembered that
on previous occasions when I had the same urge to sell and didn’t do it
I always had reasons to regret it.

I have told some of these stories to friends, and some of them tell me
it isn’t a hunch but the subconscious mind, which is the creative mind,
at work. That is the mind which makes artists do things without their
knowing how they came to do them. Perhaps with me it was the cumulative
effect of a lot of little things individually insignificant but
collectively powerful. Possibly my friend’s unintelligent bullishness
aroused a spirit of contradiction and I picked on UP. because it had
been touted so much. I can’t tell you what the cause or motive for
hunches may be. All I know is that I went out of the Atlantic City
branch office of Harding Brothers short three thousand Union Pacific in
a rising market, and I wasn’t worried a bit.

I wanted to know what price they’d got for my last two thousand shares.
So after luncheon we walked up to the office. I had the pleasure of
seeing that the general market was strong and Union Pacific higher.

“I see your finish,” said my friend. You could see he was glad he
hadn’t sold any.

The next day the general market went up some more and I heard nothing
but cheerful remarks from my friend. But I felt sure I had done right
to sell UP., and I never get impatient when I feel I am right. What’s
the sense? That afternoon Union Pacific stopped climbing, and toward
the end of the day began to go off. Pretty soon it got down to a point
below the level of the average of my three thousand shares. I felt more
positive than ever that I was on the right side, and since I felt that
way I naturally had to sell some more. So, toward the close, I sold an
additional two thousand shares.

There I was, short five thousand shares of UP. on a hunch. That was
as much as I could sell in Harding’s office with the margin I had
up. It was too much stock for me to be short of, on a vacation; so
I gave up the vacation and returned to New York that very night.
There was no telling what might happen and I thought I’d better be
Johnny-on-the-spot. There I could move quickly if I had to.

The next day we got the news of the San Francisco earthquake. It was
an awful disaster. But the market opened down only a couple of points.
_The bull forces were at work, and the public never is independently
responsive to news. You see that all the time. If there is a solid
bull foundation, for instance, whether or not what the papers call
bull manipulation is going on the same time, certain news items fail
to have the effect they would have if the Street was bearish._ It is
all in the state of sentiment at the time. In this case the Street did
not appraise the extent of the catastrophe because it didn’t wish to.
Before the day was over prices came back.

I was short five thousand shares. The blow had fallen, but my stock
hadn’t. My hunch was of the first water, but my bank account wasn’t
growing; not even on paper. The friend who had been in Atlantic City
with me when I put out my short line in UP. was glad and sad about it.

He told me: “That was some hunch, kid. But, say, when the talent and
the money are all on the bull side what’s the use of bucking against
them? They are bound to win out.”

“Give them time,” I said. I meant prices. I wouldn’t cover because I
knew the damage was enormous and the Union Pacific would be one of the
worst sufferers. _But it was exasperating to see the blindness of the
Street._

“Give ’em time and your skin will be where all the other bear hides are
stretched out in the sun, drying,” he assured me.

“What would you do?” I asked him. “Buy UP. on the strength of the
millions of dollars of damage suffered by the Southern Pacific and
other lines? Where are the earnings for dividends going to come from
after they pay for all they’ve lost? The best you can say is that the
trouble may not be as bad as it is painted. But is that a reason for
buying the stocks of the roads chiefly affected? Answer me that.”

But all my friend said was: “Yes, that listens fine. But I tell you,
the market doesn’t agree with you. The tape doesn’t lie, does it?”

“_It doesn’t always tell the truth on the instant_,” _I said._

“Listen. A man was talking to Jim Fisk a little before Black Friday,
giving ten good reasons why gold ought to go down for keeps. He got so
encouraged by his own words that he ended by telling Fisk that he was
going to sell a few million. And Jim Fisk just looked at him and said,
“Go ahead! Do! Sell it short and invite me to your funeral.”

“Yes,” I said; “and if that chap had sold it short, look at the killing
he would have made! Sell some UP. yourself.”

“Not I! I’m the kind that thrives best on not rowing against wind and
tide.”

On the following day, when fuller reports came in, the market began to
slide off, but even then not as violently as it should. Knowing that
nothing under the sun could stave off a substantial break I doubled up
and sold five thousand shares. Oh, by that time it was plain to most
people, and my brokers were willing enough. It wasn’t reckless of them
or of me, not the way I sized up the market. On the day following, the
market began to go for fair. There was the dickens to pay. Of course I
pushed my luck for all it was worth. I doubled up again and sold ten
thousand shares more. It was the only play possible.

I wasn’t thinking of anything except that I was right--100 per cent
right--and that this was a heaven-sent opportunity. It was up to me to
take advantage of it. I sold more. Did I think that with such a big
line of shorts out, it wouldn’t take much of a rally to wipe out my
paper profits and possibly my principal? I don’t know whether I thought
of that or not, but if I did it didn’t carry much weight with me. I
wasn’t plunging recklessly. I was really playing conservatively. There
was nothing that anybody could do to undo the earthquake, was there?
They couldn’t restore the crumpled buildings overnight, free, gratis,
for nothing, could they? All the money in the world couldn’t help much
in the next few hours, could it?

I was not betting blindly. I wasn’t a crazy bear. I wasn’t drunk with
success or thinking that because Frisco was pretty well wiped off the
map the entire country was headed for the scrap heap. No, indeed! I
didn’t look for a panic. Well, the next day I cleaned up. I made two
hundred and fifty thousand dollars. It was my biggest winnings up to
that time. It was all made in a few days. The Street paid no attention
to the earthquake the first day or two. They’ll tell you that it was
because the first despatches were not so alarming, but I think it was
because it took so long to change the point of view of the public
toward the securities markets. Even the professional traders for the
most part were slow and shortsighted.

I have no explanation to give you, either scientific or childish. I am
telling you what I did, and why, and what came of it. I was much less
concerned with the mystery of the hunch than with the fact that I got a
quarter of a million out of it. It meant that I could now swing a much
bigger line than ever, if or when the time came for it.

That summer I went to Saratoga Springs. It was supposed to be a
vacation for me, but I kept an eye on the market. To begin with,
I wasn’t so tired that it bothered me to think about it. And then,
everybody I knew up there had or had had an active interest in it.
We naturally talked about it. I have noticed that there is quite a
difference between talking and trading. Some of these chaps remind you
of the bold clerk who talks to his cantankerous employer as to a yellow
dog--when he tells you about it.

Harding Brothers had a branch office in Saratoga. Many of their
customers were there. But the real reason, I suppose, was the
advertising value. Having a branch office in a resort is simply
high-class billboard advertising. I used to drop in and sit around
with the rest of the crowd. The manager was a very nice chap from the
New York office who was there to give the glad hand to friends and
strangers and, if possible, to get business. It was a wonderful place
for tips--all kinds of tips, horse-race, stock-market, and waiters’.
The office knew I didn’t take any, so the manager didn’t come and
whisper confidentially in my ear what he’d just got on the q. t. from
the New York office. He simply passed over the telegrams, saying, “This
is what they’re sending out,” or something of the kind.

Of course I watched the market. With me, to look at the quotation board
and to read the signs is one process. My good friend Union Pacific, I
noticed, looked like going up. _The price was high, but the stock acted
as if it were being accumulated._ I watched it a couple of days without
trading in it, and the more I watched it the more convinced I became
that it was being bought on balance by somebody who was no piker,
somebody who not only had a big bank roll but knew what was what. Very
clever accumulation, I thought.

As soon as I was sure of this I naturally began to buy it, at about
160. It kept on acting all hunky, and so I kept on buying it, five
hundred shares at a clip. _The more I bought the stronger it got,
without any spurt, and I was feeling very comfortable._ I couldn’t see
any reason why that stock shouldn’t go up a great deal more; not with
what I read on the tape.

All of a sudden the manager came to me and said they’d got a message
from New York--they had a direct wire of course--asking if I was in
the office, and when they answered yes, another came saying: “Keep him
there. Tell him Mr. Harding wants to speak to him.”

I said I’d wait, and bought five hundred shares more of UP. I couldn’t
imagine what Harding could have to say to me. I didn’t think it was
anything about business. My margin was more than ample for what I was
buying. Pretty soon the manager came and told me that Mr. Harding
wanted me on the long-distance telephone.

“Hello, Ed,” I said.

But he said, “What the devil’s the matter with you? Are you crazy?”

“Are you?” I said.

“What are you doing?” he asked.

“What do you mean?”

“Buying all that stock.”

“Why, isn’t my margin all right?”

“It isn’t a case of margin, but of being a plain sucker.”

“I don’t get you.”

“Why are you buying all that Union Pacific?”

“It’s going up,” I said.

“Going up, hell! Don’t you know that the insiders are feeding it out to
you? You’re just about the easiest mark up there. You’d have more fun
losing it on the ponies. Don’t let them kid you.”

“Nobody is kidding me,” I told him. “I haven’t talked to a soul about
it.”

But he came back at me: “You can’t expect a miracle to save you every
time you plunge into that stock. Get out while you’ve still got a
chance,” he said. “It’s a crime to be long of that stock at this
level--when these highbinders are shoveling it out by the ton.”

“The tape says they’re buying it,” I insisted.

“Larry, I got heart disease when your orders began to come in. For the
love of Mike, don’t be a sucker. Get out! Right away. It’s liable to
bust wide open any minute. I’ve done my duty. Good-by!” And he hung up.

Ed Harding was a very clever chap, unusually well-informed and a real
friend, disinterested and kind-hearted. And what was even more, I knew
he was in position to hear things. All I had to go by, in my purchases
of UP., was my years of studying the behaviour of stocks and my
perception of certain symptoms which experience had taught me usually
accompanied a substantial rise. _I don’t know what happened to me,
but I suppose I must have concluded that my tape reading told me the
stock was being absorbed simply because very clever manipulation by the
insiders made the tape tell a story that wasn’t true._ Possibly I was
impressed by the pains Ed Harding took to stop me from making what he
was so sure would be a colossal mistake on my part. Neither his brains
nor his motives were to be questioned. Whatever it was that made me
decide to follow his advice, I cannot tell you; but follow it, I did.

I sold out all my Union Pacific. _Of course if it was unwise to be long
of it, it was equally unwise not to be short of it. So after I got rid
of my long stock I sold four thousand shares short. I put out most of
it around 162._

The next day the directors of the Union Pacific Company declared a 10
per cent dividend on the stock. At first nobody in Wall Street believed
it. It was too much like the desperate manœuvre of cornered gamblers.
All the newspapers jumped on the directors. But while the Wall Street
talent hesitated to act the market boiled over. Union Pacific led, and
on huge transactions made a new high-record price. Some of the room
traders made fortunes in an hour and I remember later hearing about
a rather dull-witted specialist who made a mistake that put three
hundred and fifty thousand dollars in his pocket. He sold his seat the
following week and became a gentleman farmer the following month.

Of course I realised, the moment I heard the news of the declaration
of the unprecedented 10 per cent dividend, that I got what I deserved
for disregarding the voice of experience and listening to the voice of
a tipster. _My own convictions I had set aside for the suspicions of a
friend, simply because he was disinterested and as a rule knew what he
was doing._

As soon as I saw Union Pacific making new high records I said to
myself, “This is no stock for me to be short of.”

All I had in the world was up as margin in Harding’s office. I was
neither cheered nor made stubborn by the knowledge of that fact. What
was plain was that I had read the tape accurately and that I had been a
ninny to let Ed Harding shake my own resolution. There was no sense in
recriminations, because I had no time to lose; and besides, what’s done
is done. So I gave an order to take in my shorts. The stock was around
165 when I sent in that order to buy in the four thousand UP. at the
market. I had a three-point loss on it at that figure. Well, my brokers
paid 172 and 174 for some of it before they were through. I found when
I got my reports that Ed Harding’s kindly intentioned interference cost
me forty thousand dollars. _A low price for a man to pay for not having
the courage of his own convictions! It was a cheap lesson._

I wasn’t worried, because the tape said still higher prices. It was
an unusual move and there were no precedents for the action of the
directors, but I did this time what I thought I ought to do. As soon
as I had given the first order to buy four thousand shares to cover my
shorts I decided to profit by what the tape indicated and so I went
along. I bought four thousand shares and held that stock until the next
morning. Then I got out. I not only made up the forty thousand dollars
I had lost but about fifteen thousand besides. If Ed Harding hadn’t
tried to save me money I’d have made a killing. But he did me a very
great service, for it was the lesson of that episode that, I firmly
believe, _completed_ my education as a trader.

It was not that all I needed to learn was not to take tips but follow
my own inclination. _It was that I gained confidence in myself and I
was able finally to shake off the old method of trading._ That Saratoga
experience was my last haphazard, hit-or-miss operation. From then on
I began to think of basic conditions instead of individual stocks. I
promoted myself to a higher grade in the hard school of speculation. It
was a long and difficult step to take.



_VII_


I never hesitate to tell a man that I am bullish or bearish. But I do
not tell people to buy or sell any particular stock. In a bear market
all stocks go down and in a bull market they go up. I don’t mean of
course that in a bear market caused by a war, ammunition shares do not
go up. I speak in a general sense. But the average man doesn’t wish to
be told that it is a bull or a bear market. What he desires is to be
told specifically which particular stock to buy or sell. He wants to
get something for nothing. He does not wish to work. He doesn’t even
wish to have to think. It is too much bother to have to count the money
that he picks up from the ground.

Well, I wasn’t that lazy, but I found it easier to think of individual
stocks than of the general market and therefore of individual
fluctuations rather than of general movements. _I had to change and I
did._

_People don’t seem to grasp easily the fundamentals of stock trading. I
have often said that to buy on a rising market is the most comfortable
way of buying stocks. Now, the point is not so much to buy as cheap as
possible or go short at top prices, but to buy or sell at the right
time. When I am bearish and I sell a stock, each sale must be at a
lower level than the previous sale. When I am buying, the reverse is
true. I must buy on rising scale. I don’t buy long stock on a scale
down, I buy on a scale up._

Let us suppose, for example, that I am buying some stock. _I’ll buy
two thousand shares at 110. If the stock goes up to 111 after I buy
it I am, at least temporarily, right in my operation, because it is a
point higher; it shows me a profit. Well, because I am right I go in
and buy another two thousand shares._ If the market is still rising I
buy a third lot of two thousand shares. Say the price goes up to 114.
I think it is enough for the time being. I now have a trading basis to
work from. I am long six thousand shares at an average of 111¾, and
the stock is selling at 114. I won’t buy any more just then. I wait
and see. I figure that at some stage of the rise there is going to be
a reaction. I want to see how the market takes care of itself after
that reaction. It will probably react to where I got my third lot. Say
that after going higher it falls back to 112¼, and then rallies. Well,
just as it goes back to 113¾ I shoot an order to buy four thousand--at
the market of course. Well, if I get that four thousand at 113¾ I know
something is wrong and I’ll give a testing order--that is, I’ll sell
one thousand shares to see how the market takes it. But suppose that of
the order to buy the four thousand shares that I put in when the price
was 113¾ I get two thousand at 114 and five hundred at 114½ and the
rest on the way up so that for the last five hundred I pay 115½. Then
I know I am right. It is the way I get the four thousand shares that
tells me whether I am right in buying that particular stock at that
particular time--_for of course I am working on the assumption that I
have checked up general conditions pretty well and they are bullish. I
never want to buy stocks too cheap or too easily._

I remember a story I heard about Deacon S. V. White when he was one of
the big operators of the Street. He was a very fine old man, clever as
they make them, and brave. He did some wonderful things in his day,
from all I’ve heard.

It was in the old days when Sugar was one of the most continuous
purveyors of fireworks in the market. H. O. Havemeyer, president of the
company, was in the heyday of his power. I gather from talks with the
old-timers that H.O. and his following had all the resources of cash
and cleverness necessary to put through successfully any deal in their
own stock. They tell me that Havemeyer trimmed more small professional
traders in that stock than any other insider in any other stock. As a
rule, the floor traders are more likely to thwart the insiders’ game
than help it.

One day a man who knew Deacon White rushed into the office all excited
and said, “Deacon, you told me if I ever got any good information to
come to you at once with it and if you used it you’d carry me for a few
hundred shares.” He paused for breath and for confirmation.

The deacon looked at him in that meditative way he had and said, “I
don’t know whether I ever told you exactly that or not, but I am
willing to pay for information that I can use.”

“Well, I’ve got it for you.”

“Now, that’s nice,” said the deacon, so mildly that the man with the
info swelled up and said, “Yes, sir, deacon.” Then he came closer so
nobody else would hear and said, “H. O. Havemeyer is buying Sugar.”

“Is he?” asked the deacon quite calmly.

It peeved the informant, who said impressively: “Yes, sir. Buying all
he can get, deacon.”

“My friend, are you sure?” asked old S.V.

“Deacon, I know it for a positive fact. The old inside gang are buying
all they can lay their hands on. It’s got something to do with the
tariff and there’s going to be a killing in the common. It will cross
the preferred. And that means a sure thirty points for a starter.”

“D’you really think so?” And the old man looked at him over the top of
the old-fashioned silver-rimmed spectacles that he had put on to look
at the tape.

“Do I think so? No, I don’t think so; I know so. Absolutely! Why,
deacon, when H. O. Havemeyer and his friends buy Sugar as they’re doing
now they’re never satisfied with anything less than forty points net. I
shouldn’t be surprised to see the market get away from them any minute
and shoot up before they’ve got their full lines. There ain’t as much
of it kicking around the brokers’ offices as there was a month ago.”

“He’s buying Sugar, eh?” repeated the deacon absently.

“Buying it? Why, he’s scooping it in as fast as he can without putting
up the price on himself.”

“So?” said the deacon. That was all.

But it was enough to nettle the tipster, and he said, “Yes, sir-ree!
And I call that very good information. Why, it’s absolutely straight.”

“Is it?”

“Yes; and it ought to be worth a whole lot. Are you going to use it?”

“Oh, yes. I’m going to use it.”

“When?” asked the information bringer suspiciously.

“Right away.” And the deacon called: “Frank!” It was the first name of
his shrewdest broker, who was then in the adjoining room.

“Yes, sir,” said Frank.

“I wish you’d go over to the Board and sell ten thousand Sugar.”

“Sell?” yelled the tipster. There was such suffering in his voice that
Frank, who had started out at a run, halted in his tracks.

“Why, yes,” said the deacon mildly.

“But I told you H. O. Havemeyer was buying it!”

“I know you did, my friend,” said the deacon calmly; and turning to the
broker: “Make haste, Frank!”

The broker rushed out to execute the order and the tipster turned red.

“I came in here,” he said furiously, “with the best information I ever
had. I brought it to you because I thought you were my friend, and
square. I expected you to act on it--”

“I am acting on it,” interrupted the deacon in a tranquillising voice.

“But I told you H.O. and his gang were buying!”

“That’s right. I heard you.”

“Buying! Buying! I said buying!” shrieked the tipster.

“Yes, buying! That is what I understood you to say,” the deacon assured
him. He was standing by the ticker, looking at the tape.

“But you are selling it.”

“Yes; ten thousand shares.” And the deacon nodded. “Selling it, of
course.”

He stopped talking to concentrate on the tape and the tipster
approached to see what the deacon saw, for the old man was very foxy.
While he was looking over the deacon’s shoulder a clerk came in with a
slip, obviously the report from Frank. The deacon barely glanced at it.
He had seen on the tape how his order had been executed.

It made him say to the clerk, “Tell him to sell another ten thousand
Sugar.”

“Deacon, I swear to you that they really are buying the stock!”

“Did Mr. Havemeyer tell you?” asked the deacon quietly.

“Of course not! He never tells anybody anything. He would not bat an
eyelid to help his best friend make a nickel. But I know this is true.”

“Do not allow yourself to become excited, my friend.” And the deacon
held up a hand. He was looking at the tape. The tip-bringer said,
bitterly:

“If I had known you were going to do the opposite of what I expected
I’d never have wasted your time or mine. But I am not going to feel
glad when you cover that stock at an awful loss. I’m sorry for you,
deacon. Honest! If you’ll excuse me I’ll go elsewhere and act on my own
information.”

“I’m acting on it. I think I know a little about the market; not as
much, perhaps, as you and your friend H. O. Havemeyer, but still a
little. What I am doing is what my experience tells me is the wise
thing to do with that information you brought me. After a man has been
in Wall Street as long as I have he is grateful for anybody who feels
sorry for him. Remain calm, my friend.”

The man just stared at the deacon, for whose judgment and nerve he had
great respect.

Pretty soon the clerk came in again and handed a report to the deacon,
who looked at it and said: “Now tell him to buy thirty thousand Sugar.
Thirty thousand!”

The clerk hurried away and the tipster just grunted and looked at the
old gray fox.

“My friend,” the deacon explained kindly, “I did not doubt that you
were telling me the truth as you saw it. But even if I had heard H. O.
Havemeyer tell you himself, I still would have acted as I did. For
there was only one way to find out if anybody was buying the stock in
the way you said H. O. Havemeyer and his friends were buying it, and
that was to do what I did. The first ten thousand shares went fairly
easily. It was not quite conclusive. But the second ten thousand was
absorbed by a market that did not stop rising. The way the twenty
thousand shares were taken by somebody proved to me that somebody was
in truth willing to take all the stock that was offered. It doesn’t
particularly matter at this point who that particular somebody may be.
So I have covered my shorts and am long ten thousand shares, and I
think that your information was good as far as it went.”

“And how far does it go?” asked the tipster.

“You have five hundred shares in this office at the average price of
the ten thousand shares,” said the deacon. “Good day, my friend. Be
calm the next time.”

“Say, deacon,” said the tipster, “won’t you please sell mine when you
sell yours? I don’t know as much as I thought I did.”

That’s the theory. _That is why I never buy stocks cheap._ Of course I
always try to buy effectively--in such a way as to help my side of the
market. When it comes to selling stocks, it is plain that nobody can
sell unless somebody wants those stocks.

If you operate on a large scale you will have to bear that in mind all
the time. A man studies conditions, plans his operations carefully and
proceeds to act. He swings a pretty fair line and he accumulates a big
profit--on paper. Well, that man can’t sell at will. You can’t expect
the market to absorb fifty thousand shares of one stock as easily as
it does one hundred. He will have to wait until he has a market there
to take it. There comes the time when he thinks the requisite buying
power is there. When that opportunity comes he must seize it. As a
rule he will have been waiting for it. _He has to sell when he can,
not when he wants to._ To learn the time, he has to watch and test. It
is no trick to tell when the market can take what you give it. But in
starting a movement it is unwise to take on your full line unless you
are convinced that conditions are exactly right. _Remember that stocks
are never too high for you to begin buying or too low to begin selling.
But after the initial transaction, don’t make a second unless the first
shows you a profit. Wait and watch._ That is where your tape reading
comes in--to enable you to decide as to the proper time for beginning.
_Much depends upon beginning at exactly the right time._ It took me
years to realize the importance of this. It also cost me some hundreds
of thousands of dollars.

I don’t mean to be understood as advising persistent pyramiding. _A
man can pyramid and make big money that he couldn’t make if he didn’t
pyramid; of course._ But what I meant to say was this: Suppose a man’s
line is five hundred shares of stock. I say that he ought not to buy
it all at once; not if he is speculating. If he is merely gambling the
only advice I have to give him is, don’t!

Suppose he buys his first hundred, and that promptly shows him a loss.
Why should he go to work and get more stock? He ought to see at once
that he is in wrong; at least temporarily.



_VIII_


The Union Pacific incident in Saratoga in the summer of 1906 made me
more independent than ever of tips and talk--that is, of the opinions
and surmises and suspicions of other people, however friendly or
however able they might be personally. Events, not vanity, proved
for me that I could read the tape more accurately than most of the
people about me. I also was better equipped than the average customer
of Harding Brothers in that I was utterly free from speculative
prejudices. The bear side doesn’t appeal to me any more than the bull
side, or vice versa. My one steadfast prejudice is against being wrong.

Even as a lad I always got my own meanings out of such facts as I
observed. It is the only way in which the meaning reaches me. I cannot
get out of facts what somebody tells me to get. They are my facts,
don’t you see? If I believe something you can be sure it is because
I simply must. When I am long of stocks it is because my reading of
conditions has made me bullish. But you find many people, reputed to be
intelligent, who are bullish because they have stocks. I do not allow
my possessions--or my prepossessions either--to do any thinking for me.
That is why I repeat that I never argue with the tape. To be angry at
the market because it unexpectedly or even illogically goes against you
is like getting mad at your lungs because you have pneumonia.

I had been gradually approaching the full realization of how much more
than tape reading there was to stock speculation. Old man Partridge’s
insistence on the vital importance of being continuously bullish in a
bull market doubtless made my mind dwell on the need above all other
things of determining the kind of market a man is trading in. _I began
to realize that the big money must necessarily be in the big swing.
Whatever might seem to give a big swing its initial impulse, the fact
is that its continuance is not the result of manipulations by pools
or artifice by financiers, but depends upon basic conditions. And no
matter who opposes it, the swing must inevitably run as far and as fast
and as long as the impelling forces determine._

After Saratoga I began to see more clearly--perhaps I should say more
maturely--that since the entire list moves in accordance with the
main current there was not so much need as I had imagined to study
individual plays or the behaviour of this or the other stock. Also,
by thinking of the swing a man was not limited in his trading. He
could buy or sell the entire list. In certain stocks a short line is
dangerous after a man sells more than a certain percentage of the
capital stock, the amount depending on how, where and by whom the stock
is held. But he could sell a million shares of the general list--if he
had the price--without the danger of being squeezed. A great deal of
money used to be made periodically by insiders in the old days out of
the shorts and their carefully fostered fears of corners and squeezes.

_Obviously the thing to do was to be bullish in a bull market and
bearish in a bear market._ Sounds silly, doesn’t it? But I had to grasp
that general principle firmly before I saw that to put it into practice
really meant to anticipate probabilities. It took me a long time to
learn to trade on those lines. But in justice to myself I must remind
you that up to then I had never had a big enough stake to speculate
that way. A big swing will mean big money if your line is big, and to
be able to swing a big line you need a big balance at your broker’s.

I always had--or felt that I had--to make my daily bread out of the
stock market. It interfered with my efforts to increase the stake
available for the more profitable but slower and therefore more
immediately expensive method of trading on swings.

But not only did my confidence in myself grow stronger but my brokers
ceased to think of me as a sporadically lucky Boy Plunger. They had
made a great deal out of me in commissions, but now I was in a fair way
to become their star customer and as such to have a value beyond the
actual volume of my trading. _A customer who makes money is an asset to
any broker’s office._

The moment I ceased to be satisfied with merely studying the tape I
ceased to concern myself exclusively with the daily fluctuations in
specific stocks, and when that happened I simply had to study the game
from a different angle. I worked back from the quotation to first
principles; from price-fluctuations to basic conditions.

Of course I had been reading the daily dope regularly for a long time.
All traders do. But much of it was gossip, some of it deliberately
false, and the rest merely the personal opinion of the writers. The
reputable weekly reviews when they touched upon underlying conditions
were not entirely satisfactory to me. The point of view of the
financial editors was not mine as a rule. It was not a vital matter for
them to marshal their facts and draw their conclusions from them, but
it was for me. Also there was a vast difference in our appraisal of the
element of time. _The analysis of the week that had passed was less
important to me than the forecast of the weeks that were to come._

For years I had been the victim of an unfortunate combination of
inexperience, youth and insufficient capital. But now I felt the
elation of a discoverer. My new attitude toward the game explained my
repeated failures to make big money in New York. But now with adequate
resources, experience and confidence, I was in such a hurry to try
the new key that I did not notice that there was another lock on the
door--_a time lock!_ It was a perfectly natural oversight. I had to pay
the usual tuition--a good whack per each step forward.

I studied the situation in 1906 and I thought that the money outlook
was particularly serious. Much actual wealth the world over had
been destroyed. Everybody must sooner or later feel the pinch, and
therefore nobody would be in position to help anybody. It would not
be the kind of hard times that comes from the swapping of a house
worth ten thousand dollars for a carload of race horses worth eight
thousand dollars. It was the complete destruction of the house by fire
and of most of the horses by a railroad wreck. It was good hard cash
that went up in cannon smoke in the Boer War, and the millions spent
for feeding nonproducing soldiers in South Africa meant no help from
British investors as in the past. Also, the earthquake and the fire in
San Francisco and other disasters touched everybody--manufacturers,
farmers, merchants, labourers and millionaires. The railroads must
suffer greatly. I figured that nothing could stave off one peach of a
smash. _Such being the case there was but one thing to do--sell stocks!_

I told you I had already observed that my initial transaction, after I
made up my mind which way I was going to trade, was apt to show me a
profit. And now when I decided to sell I plunged. Since we undoubtedly
were entering upon a genuine bear market I was sure I should make the
biggest killing of my career.

The market went off. Then it came back. It shaded off and then it began
to advance steadily. My paper profits vanished and paper losses grew.
One day it looked as if not a bear would be left to tell the tale
of the strictly genuine bear market. _I couldn’t stand the gaff. I
covered. It was just as well. If I hadn’t I wouldn’t have had enough to
buy a postal card. I lost most of my fur, but it was better to live to
fight another day._

I had made a mistake. But where? I was bearish in a bear market.
That was wise. I had sold stocks short. That was proper. _I had sold
them too soon. That was costly. My position was right but my play was
wrong._ However, every day brought the market nearer to the inevitable
smash. So I waited and when the rally began to falter and pause I let
them have as much stock as my sadly diminished margins permitted. _I
was right this time--for exactly one whole day_, for on the next there
was another rally. Another big bite out of yours truly! So I read the
tape and covered and waited. In due course I sold again--and again they
went down promisingly and then they rudely rallied.

It looked as if the market were doing its best to make me go back to
my old and simple ways of bucket-shop trading. _It was the first time
I had worked with a definite forward-looking plan embracing the entire
market instead of one or two stocks._ I figured that I must win if
I held out. Of course at that time I had not developed my system of
placing my bets or I would have put out my short line on a declining
market, as I explained to you the last time. I would not then have lost
so much of my margin. _I would have been wrong but not hurt._ You see,
I had observed certain facts but had not learned to co-ordinate them.
My incomplete observation not only did not help but actually hindered.

_I have always found it profitable to study my mistakes._ Thus I
eventually discovered that it was all very well not to lose your bear
position in a bear market, but that at all times the tape should be
read to determine the propitiousness of the time for operating. If
you begin right you will not see your profitable position seriously
menaced; and then you will find no trouble in sitting tight.

Of course to-day I have greater confidence in the accuracy of my
observations--in which neither hopes nor hobbies play any part--and
also I have greater facilities for verifying my facts as well as
for variously testing the correctness of my views. But in 1906 the
succession of rallies dangerously impaired my margins.

I was nearly twenty-seven years old. I had been at the game twelve
years. _But the first time I traded because of a crisis that was still
to come I found that I had been using a telescope._ Between my first
glimpse of the storm cloud and the time for cashing in on the big break
the stretch was evidently so much greater than I had thought that I
began to wonder whether I really saw what I thought I saw so clearly.
_We had had many warnings and sensational ascensions in call-money
rates._ Still some of the great financiers talked hopefully--at least
to newspaper reporters--and the ensuing rallies in the stock market
gave the lie to the calamity howlers. Was I fundamentally wrong in
being bearish or merely temporarily wrong in having begun to sell short
too soon?

I decided that I began too soon, but that I really couldn’t help it.
Then the market began to sell off. That was my opportunity. I sold all
I could, and then stocks rallied again, to quite a level.

It cleaned me out.

There I was--right and busted!

I tell you it was remarkable. What happened was this: I looked ahead
and saw a big pile of dollars. Out of it stuck a sign. It had “Help
yourself,” on it, in huge letters. Beside it stood a cart with
“Lawrence Livingston Trucking Corporation” painted on its side. I had
a brand-new shovel in my hand. There was not another soul in sight,
so I had no competition in the gold-shoveling, which is one beauty of
seeing the dollar-heap ahead of others. The people who might have seen
it if they had stopped to look were just then looking at baseball games
instead, or motoring or buying houses to be paid for with the very
dollars that I saw. That was the first time that I had seen big money
ahead, and I naturally started toward it on the run. Before I could
reach the dollar-pile my wind went back on me and I fell to the ground.
The pile of dollars was still there, but I had lost the shovel, and the
wagon was gone. So much for sprinting too soon! I was too eager to
prove to myself that I had seen real dollars and not a mirage. I saw,
and knew that I saw. Thinking about the reward for my excellent sight
kept me from considering the distance to the dollar-heap. I _should
have walked and not sprinted._

That is what happened. I didn’t wait to determine whether or not the
time was right for plunging on the bear side. On the one occasion when
I should have invoked the aid of my tape-reading I didn’t do it. That
is how I came to learn that even _when one is properly bearish at the
very beginning of a bear market it is well not to begin selling in bulk
until there is no danger of the engine back-firing_.

I had traded in a good many thousands of shares at Harding’s office in
all those years, and, moreover, the firm had confidence in me and our
relations were of the pleasantest. I think they felt that I was bound
to be right again very shortly and they knew that with my habit of
pushing my luck all I needed was a start and I’d more than recover what
I had lost. They had made a great deal of money out of my trading and
they would make more. So there was no trouble about my being able to
trade there again as long as my credit stood high.

The succession of spankings I had received made me less aggressively
cocksure; perhaps I should say less careless, for of course I knew
I was just so much nearer to the smash. All I could do was wait
watchfully, as I should have done before plunging. It wasn’t a case of
locking the stable after the horse was stolen. I simply had to be sure,
the next time I tried. _If a man didn’t make mistakes he’d own the
world in a month. But if he didn’t profit by his mistakes he wouldn’t
own a blessed thing._

Well, sir, one fine morning I came downtown feeling cocksure once more.
There wasn’t any doubt this time. I had read an advertisement in the
financial pages of all the newspapers that was the high sign I hadn’t
had the sense to wait for before plunging. It was the announcement
of a new issue of stock by the Northern Pacific and Great Northern
roads. The payments were to be made on the installment plan for the
convenience of the stockholders. This consideration was something new
in Wall Street. It struck me as more than ominous.

For years the unfailing bull item on Great Northern preferred had
been the announcement that another melon was to be cut, said melon
consisting of the right of the lucky stockholders to subscribe at par
to a new issue of Great Northern stock. These rights were valuable,
since the market price was always way above par. But now _the money
market_ was such that the most powerful banking houses in the country
were none too sure the stockholders would be able to pay cash for the
bargain. And Great Northern preferred was selling at about 330!

As soon as I got to the office I told Ed Harding, “The time to sell is
right now. This is when I should have begun. Just look at that ad, will
you?”

He had seen it. I pointed out what the bankers’ confession amounted to
in my opinion, but he couldn’t quite see the big break right on top of
us. He thought it better to wait before putting out a very big short
line by reason of the market’s habit of having big rallies. If I waited
prices might be lower, but the operation would be safer.

“Ed,” I said to him, “the longer the delay in starting the sharper the
break will be when it does start. That ad is a signed confession on
the part of the bankers. What they fear is what I hope. This is a sign
for us to get aboard the bear wagon. It is all we needed. If I had ten
million dollars I’d stake every cent of it this minute.”

I had to do some more talking and arguing. He wasn’t content with the
only inferences a sane man could draw from that amazing advertisement.
It was enough for me, but not for most of the people in the office. I
sold a little; too little.

A few days later St. Paul very kindly came out with an announcement of
an issue of its own; either stocks or notes, I forget which. But that
doesn’t matter. What mattered then was that I noticed the moment I read
it that the date of payment was set ahead of the Great Northern and
Northern Pacific payments, which had been announced earlier. It was as
plain as though they had used a megaphone that grand old St. Paul was
trying to beat the other two railroads to what little money there was
floating around in Wall Street. The St. Paul’s bankers quite obviously
feared that there wasn’t enough for all three and they were not saying,
“After you, my dear Alphonse!” If money already was that scarce--and
you bet the bankers knew--what would it be later? The railroads needed
it desperately. It wasn’t there. What was the answer?

Sell ’em! Of course! The public, with their eyes fixed on the stock
market, saw little--that week. The wise stock operators saw much--that
year. That was the difference.

For me, that was the end of doubt and hesitation. I made up my mind
for keeps then and there. That same morning I began what really was
my first campaign along the lines that I have since followed. I told
Harding what I thought and how I stood, and he made no objections to
my selling Great Northern preferred at around 330, and other stocks at
high prices. I profited by my earlier and costly mistakes and sold more
intelligently.

My reputation and my credit were reestablished in a jiffy. That is the
beauty of being right in a broker’s office, whether by accident or not.
But this time I was cold-bloodedly right, not because of a hunch or
from skillful reading of the tape, but as a result of my analysis of
conditions affecting the stock market in general. I wasn’t guessing.
I was anticipating the inevitable. It did not call for any courage to
sell stocks. I simply could not see anything but lower prices, and I
had to act on it, didn’t I? What else could I do?

The whole list was soft as mush. Presently there was a rally and people
came to me to warn me that the end of the decline had been reached.
The big fellows, knowing the short interest to be enormous, had decided
to squeeze the stuffing out of the bears, and so forth. It would set
us pessimists back a few millions. It was a cinch that the big fellows
would have no mercy. I used to thank these kindly counsellors. I
wouldn’t even argue, because then they would have thought that I wasn’t
grateful for the warnings.

The friend who had been in Atlantic City with me was in agony. He could
understand the hunch that was followed by the earthquake. He couldn’t
disbelieve in such agencies, since I had made a quarter of a million
by intelligently obeying my blind impulse to sell Union Pacific. He
even said it was Providence working in its mysterious way to make me
sell stocks when he himself was bullish. And he could understand my
second UP. trade in Saratoga because he could understand any deal that
involved one stock, on which the tip definitely fixed the movement
in advance, either up or down. But this thing of predicting that all
stocks were bound to go down used to exasperate him. What did that kind
of dope do anybody? How in blazes could a gentleman tell what to do?

I recalled old Partridge’s favourite remark--“Well, this is a bull
market, you know”--as though that were tip enough for anybody who
was wise enough; as in truth it was. It was very curious how, after
suffering tremendous losses from a break of fifteen or twenty points,
people who were still hanging on, welcomed a three-point rally and were
certain the bottom had been reached and complete recovery begun.

One day my friend came to me and asked me, “Have you covered?”

“Why should I?” I said.

“For the best reason in the world.”

“What reason is that?”

“To make money. They’ve touched bottom and what goes down must come up.
Isn’t that so?”

“Yes,” I answered. “First they sink to the bottom. Then they come up;
but not right away. They’ve got to be good and dead a couple of days.
It isn’t time for these corpses to rise to the surface. They are not
quite dead yet.”

An old-timer heard me. He was one of those chaps that are always
reminded of something. He said that William R. Travers, who was
bearish, once met a friend who was bullish. They exchanged market
views and the friend said, “Mr. Travers, how can you be bearish with
the market so stiff?” and Travers retorted, “Yes! Th-the s-s-stiffness
of d-death!” It was Travers who went to the office of a company and
asked to be allowed to see the books. The clerk asked him, “Have you an
interest in this company?” and Travers answered, “I sh-should s-say I
had! I’m sh-short t-t-twenty thousand sh-shares of the stock!”

Well, the rallies grew feebler and feebler. I was pushing my luck
for all I was worth. Every time I sold a few thousand shares of
Great Northern preferred the price broke several points. I felt out
weak spots elsewhere and let ’em have a few. All yielded, with one
impressive exception; and that was Reading.

When everything else hit the toboggan slide Reading stood like the Rock
of Gibraltar. Everybody said the stock was cornered. It certainly acted
like it. They used to tell me it was plain suicide to sell Reading
short. There were people in the office who were now as bearish on
everything as I was. But when anybody hinted at selling Reading they
shrieked for help. I myself had sold some short and was standing pat
on it. At the same time I naturally preferred to seek and hit the soft
spots instead of attacking the more strongly protected specialties. My
tape reading found easier money for me in other stocks.

I heard a great deal about the Reading bull pool. It was a mighty
strong pool. To begin with they had a lot of low-priced stock, so that
their average was actually below the prevailing level, according to
friends who told me. Moreover, the principal members of the pool had
close connections of the friendliest character with the banks whose
money they were using to carry their huge holdings of Reading. As
long as the price stayed up the bankers’ friendship was staunch and
steadfast. One pool member’s paper profit was upward of three millions.
That allowed for some decline without causing fatalities. No wonder
the stock stood up and defied the bears. Every now and then the room
traders looked at the price, smacked their lips and proceeded to test
it with a thousand shares or two. They could not dislodge a share, so
they covered and went looking elsewhere for easier money. Whenever
I looked at it I also sold a little more--just enough to convince
myself that I was true to my new trading principles and wasn’t playing
favourites.

In the old days the strength of Reading might have fooled me. The tape
kept on saying, “Leave it alone!” But my reason told me differently. I
was anticipating a general break, and there were not going to be any
exceptions, pool or no pool.

I have always played a lone hand. I began that way in the bucket shops
and have kept it up. It is the way my mind works. I have to do my
own seeing and my own thinking. But I can tell you after the market
began to go my way I felt for the first time in my life that I had
allies--the strongest and truest in the world: underlying conditions.
They were helping me with all their might. Perhaps they were a trifle
slow at times bringing up the reserves, but they were dependable,
provided I did not get too impatient. I was not pitting my tape-reading
knack or my hunches against chance. The inexorable logic of events was
making money for me.

The thing was to be right; to know it and to act accordingly. General
conditions, my true allies, said “Down!” and Reading disregarded the
command. It was an insult to us. It began to annoy me to see Reading
holding firmly, as though everything was serene. It ought to be the
best short sale in the entire list because it had not gone down and the
pool was carrying a lot of stock that it would not be able to carry
when the money stringency grew more pronounced. Some day the bankers’
friends would fare no better than the friendless public. The stock
must go with the others. If Reading didn’t decline, then my theory was
wrong; I was wrong; facts were wrong; logic was wrong.

I figured that the price held because the Street was afraid to sell it.
So one day I gave to two brokers each an order to sell four thousand
shares, at the same time.

You ought to have seen that cornered stock, that it was sure suicide
to go short of, take a headlong dive when those competitive orders
struck it. I let ’em have a few thousand more. The price was 111 when I
started selling it. Within a few minutes I took in my entire short line
at 92.

I had a wonderful time after that, and in _February of 1907 I cleaned
up_. Great Northern preferred had gone down sixty or seventy points,
and other stocks in proportion. _I had made a good bit, but the reason
I cleaned up was that I figured that the decline had discounted the
immediate future._ I looked for a fair recovery, but I wasn’t bullish
enough to play for a turn. I wasn’t going to lose my position entirely.
The market would not be right for me to trade in for a while. The first
ten thousand I made in the bucket shops _I lost because I traded in
and out of season, every day, whether or not conditions were right. I
wasn’t making that mistake twice._ Also, don’t forget that I had gone
broke a little while before because I had seen this break too soon
and started selling before it was time. Now when I had a big profit I
wanted to cash in so that I could feel I had been right. The rallies
had broken me before. I wasn’t going to let the next rally wipe me out.
Instead of sitting tight I went to Florida. I love fishing and I needed
a rest. I could get both down there. And besides, there are direct
wires between Wall Street and Palm Beach.



_IX_


I cruised off the coast of Florida. The fishing was good. I was out of
stocks. My mind was easy. I was having a fine time. One day off Palm
Beach some friends came alongside in a motor boat. One of them brought
a newspaper with him. I hadn’t looked at one in some days and had not
felt any desire to see one. I was not interested in any news it might
print. But I glanced over the one my friend brought to the yacht, and I
saw that the market had had a big rally; ten points and more.

I told my friends that I would go ashore with them. Moderate rallies
from time to time were reasonable. But the bear market was not over;
and here was Wall Street or the fool public or desperate bull interests
disregarding monetary conditions and marking up prices beyond reason or
letting somebody else do it. It was too much for me. I simply had to
take a look at the market. I didn’t know what I might or might not do.
But I knew that my pressing need was the sight of the quotation board.

My brokers, Harding Brothers, had a branch office in Palm Beach. When
I walked in I found there a lot of chaps I knew. Most of them were
talking bullish. They were of the type that trade on the tape and want
quick action. Such traders don’t care to look ahead very far because
they don’t need to with their style of play. I told you how I’d got to
be known in the New York office as the Boy Plunger. Of course people
always magnify a fellow’s winnings and the size of the line he swings.
The fellows in the office had heard that I had made a killing in New
York on the bear side and they now expected that I again would plunge
on the short side. They themselves thought the rally would go to a good
deal further, but they rather considered it my duty to fight it.

I had come down to Florida on a fishing trip. I had been under a pretty
severe strain and I needed my holiday. But the moment I saw how far the
recovery in prices had gone I no longer felt the need of a vacation.
I had not thought of just what I was going to do when I came ashore.
But now I knew I must sell stocks. I was right, and I must prove it in
my old and only way--by saying it with money. To sell the general list
would be a proper, prudent, profitable and even patriotic action.

The first thing I saw on the quotation board was that Anaconda was on
the point of crossing 300. It had been going up by leaps and bounds
and there was apparently an aggressive bull party in it. It was an old
trading theory of mine that when a stock crosses _100 or 200 or 300
for the first time the price does not stop at the even figure but goes
a good deal higher, so that if you buy it as soon as it crosses the
line it is almost certain to show you a profit_. Timid people don’t
like to buy a stock at a new high record. But I had the history of such
movements to guide me.

Anaconda was only quarter stock--that is, the par of the shares was
only twenty-five dollars. It took four hundred shares of it to equal
the usual one hundred shares of other stocks, the par value of which
was one hundred dollars. I figured that when it crossed 300 it ought to
keep on going and probably touch 340 in a jiffy.

I was bearish, remember, but I was also a tape-reading trader. I knew
Anaconda, if it went the way I figured, would move very quickly.
Whatever moves fast always appeals to me. I have learned patience and
how to sit tight, but my personal preference is for fleet movements,
and Anaconda certainly was no sluggard. My buying it because it
crossed 300 was prompted by the desire, always strong in me, of
confirming my observations.

Just then the tape was saying that the buying was stronger than the
selling, and therefore the general rally might easily go a bit further.
It would be prudent to wait before going short. Still I might as well
pay myself wages for waiting. This would be accomplished by taking a
quick thirty points out of Anaconda. Bearish on the entire market and
bullish on that one stock! So I bought thirty-two thousand shares of
Anaconda--that is, eight thousand full shares. It was a nice little
flyer but I was sure of my premises and I figured that the profit would
help to swell the margin available for bear operations later on.

On the next day the telegraph wires were down on account of a storm
up North or something of the sort. I was in Harding’s office waiting
for news. The crowd was chewing the rag and wondering all sorts of
things, as stock traders will when they can’t trade. Then we got a
quotation--the only one that day: Anaconda, 292.

There was a chap with me, a broker I had met in New York. He knew I
was long eight thousand full shares and I suspect that he had some of
his own, for when we got that one quotation he certainly had a fit.
He couldn’t tell whether the stock at that very moment had gone off
another ten points or not. The way Anaconda had gone up it wouldn’t
have been anything unusual for it to break twenty points. But I said to
him, “Don’t you worry, John. It will be all right to-morrow.” That was
really the way I felt. But he looked at me and shook his head. He knew
better. He was that kind. So I laughed, and I waited in the office in
case some quotation trickled through. But no, sir. That one was all we
got: Anaconda, 292. It meant a paper loss to me of nearly one hundred
thousand dollars. I had wanted quick action. Well, I was getting it.

The next day the wires were working and we got the quotations as usual.
Anaconda opened at 298 and went up to 302¾, but pretty soon it began
to fade away. Also, the rest of the market was not acting just right
for a further rally. I made up my mind that if Anaconda went back to
301 I must consider the whole thing a fake movement. On a legitimate
advance the price should have gone to 310 without stopping. If instead
it reacted it meant that precedents had failed me and I was wrong; _and
the only thing to do when a man is wrong is to be right by ceasing to
be wrong_. I had bought eight thousand full shares in expectation of a
thirty or forty point rise. It would not be my first mistake; nor my
last.

Sure enough, Anaconda fell back to 301. The moment it touched that
figure I sneaked over to the telegraph operator--they had a direct wire
to the New York office--and I said to him, “Sell all my Anaconda, eight
thousand shares.” I said it in a low voice. I didn’t want anybody else
to know what I was doing.

He looked up at me almost in horror. But I nodded and said, “All I’ve
got!”

“Surely, Mr. Livingston, you don’t mean at the market?” and he looked
as if he was going to lose a couple of millions of his own through bum
execution by a careless broker. But I just told him, “Sell it! Don’t
argue about it!”

The two Black boys, Jim and Ollie, were in the office, out of hearing
of the operator and myself. They were big traders who had come
originally from Chicago, where they had been famous plungers in wheat,
and were now heavy traders on the New York Stock Exchange. They were
very wealthy and were high rollers for fair.

As I left the telegraph operator to go back to my seat in front of the
quotation board Oliver Black nodded to me and smiled.

“You’ll be sorry, Larry,” he said.

I stopped and asked him, “What do you mean?”

“To-morrow you’ll be buying it back.”

“Buying what back?” I said. I hadn’t told a soul except the telegraph
operator.

“Anaconda,” he said. “You’ll be paying 320 for it. That wasn’t a good
move of yours, Larry.” And he smiled again.

“What wasn’t?” And I looked innocent.

“Selling your eight thousand Anaconda at the market; in fact, insisting
on it,” said Ollie Black.

I knew that he was supposed to be very clever and always traded on
inside news. But how he knew my business so accurately was beyond me. I
was sure the office hadn’t given me away.

“Ollie, how do you know that?” I asked him.

He laughed and told me: “I got it from Charlie Kratzer.” That was the
telegraph operator.

“But he never budged from his place,” I said.

“I couldn’t hear you and him whispering,” he chuckled. “But I heard
every word of the message he sent to the New York office for you. I
learned telegraphy years ago after I had a big row over a mistake in a
message. Since then when I do what you did just now--give an order by
word of mouth to an operator--I want to be sure the operator sends the
message as I give it to him. I know what he sends in my name. But you
will be sorry you sold that Anaconda. It’s going to 500.”

“Not this trip, Ollie,” I said.

He stared at me and said, “You’re pretty cocky about it.”

“Not I; the tape,” I said. There wasn’t any ticker there so there
wasn’t any tape. But he knew what I meant.

“I’ve heard of those birds,” he said, “who look at the tape and instead
of seeing prices they see a railroad time-table of the arrival and
departure of stocks. But they were in padded cells where they couldn’t
hurt themselves.”

I didn’t answer him anything because about that time the boy brought me
a memorandum. They had sold five thousand shares at 299¾. I knew our
quotations were a little behind the market. The price on the board at
Palm Beach when I gave the operator the order to sell was 301. I felt
so certain that at that very moment the price at which the stock was
actually selling on the Stock Exchange in New York was less, that if
anybody had offered to take the stock off my hands at 296 I’d have been
tickled to death to accept. What happened shows you that I am right in
never trading at limits. Suppose I had limited my selling price to 300?
I’d never have got it off. No, sir! _When you want to get out, get out._

Now, my stock cost me about 300. They got off five hundred shares--full
shares, of course--at 299¾. The next thousand they sold at 299⅝. Then
a hundred at ½; two hundred at ⅜ and two hundred at ¼. The last of
my stock went at 298¾. It took Harding’s cleverest floor man fifteen
minutes to get rid of that last one hundred shares. They didn’t want to
crack it wide open.

The moment I got the report of the sale of the last of my long stock
I started to do what I had really come ashore to do--that is, to sell
stocks. I simply had to. There was the market after its outrageous
rally, begging to be sold. Why, people were beginning to talk bullish
again. The course of the market, however, told me that the rally had
run its course. It was safe to sell them. It did not require reflection.

The next day Anaconda opened below 296. Oliver Black, who was waiting
for a further rally, had come down early to be Johnny-on-the-spot when
the stock crossed 320. I don’t know how much of it he was long of or
whether he was long of it all. But he didn’t laugh when he saw the
opening prices, nor later in the day when the stock broke still more
and the report came back to us in Palm Beach that there was no market
for it at all.

Of course that was all the confirmation any man needed. My growing
paper profit kept reminding me that I was right, hour by hour.
Naturally I sold some more stocks. Everything! It was a bear market.
They were all going down. The next day was Friday, Washington’s
Birthday. I couldn’t stay in Florida and fish because I had put out a
very fair short line, for me. I was needed in New York. Who needed me?
I did! Palm Beach was too far, too remote. Too much valuable time was
lost telegraphing back and forth.

I left Palm Beach for New York. On Monday I had to lie in St. Augustine
three hours, waiting for a train. There was a broker’s office there,
and naturally I had to see how the market was acting while I was
waiting. Anaconda had broken several points since the last trading day.
As a matter of fact, it didn’t stop going down until the big break that
fall.

I got to New York and traded on the bear side for about four months.
The market had frequent rallies as before, and I kept covering and
putting them out again. I didn’t, strictly speaking, sit tight.
Remember, I had lost every cent of the three hundred thousand dollars
I made out of the San Francisco earthquake break. I had been right,
and nevertheless had gone broke. I was now playing safe--because after
being down a man enjoys being up, even if he doesn’t quite make the
top. _The way to make money is to make it. The way to make big money is
to be right at exactly the right time._ In this business a man has to
think of both theory and practice. A speculator must not be merely a
student, he must be both a student and a speculator.

I did pretty well, even if I can now see where my campaign was
tactically inadequate. When summer came the market got dull. It was
a cinch that there would be nothing doing in a big way until well
along in the fall. Everybody I knew had gone or was going to Europe.
I thought that would be a good move for me. So I cleaned up. When I
sailed for Europe I was a trifle more than three-quarters of a million
to the good. To me that looked like some balance.

I was in Aix-les-Bains enjoying myself. I had earned my vacation. It
was good to be in a place like that with plenty of money and friends
and acquaintances and everybody intent upon having a good time. Not
much trouble about having that, in Aix. Wall Street was so far away
that I never thought about it, and that is more than I could say of any
resort in the United States. I didn’t have to listen to talk about the
stock market. I didn’t need to trade. I had enough to last me quite a
long time, and besides, when I got back I knew what to do to make much
more than I could spend in Europe that summer.

One day I saw in the Paris _Herald_ a dispatch from New York that
Smelters had declared an extra dividend. They had run the price of the
stock and the entire market had come back quite strong. Of course that
changed everything for me in Aix. The news simply meant that the bull
cliques were still fighting desperately against conditions--against
common sense and against common honesty, for they knew what was coming
and were resorting to such schemes to put up the market in order to
unload stocks before the storm struck them. It is possible they really
did not believe the danger was as serious or as close at hand as I
thought. _The big men of the Street are as prone to be wishful thinkers
as the politicians or the plain suckers. I myself can’t work that way._
In a speculator such an attitude is fatal. Perhaps a manufacturer of
securities or a promoter of new enterprises can afford to indulge in
hope-jags.

At all events, I knew that all bull manipulation was foredoomed to
failure in that bear market. The instant I read the dispatch I knew
there was only one thing to do to be comfortable, and that was to sell
Smelters short. Why, the insiders as much as begged me on their knees
to do it, when they increased the dividend rate on the verge of a money
panic. It was as infuriating as the old “dares” of your boyhood. They
dared me to sell that particular stock short.

I cabled some selling orders in Smelter and advised my friends in New
York to go short of it. When I got my report from the brokers I saw the
price they got was six points below the quotations I had seen in the
Paris Herald. It shows you what the situation was.

My plans had been to return to Paris at the end of the month and about
three weeks later sail for New York, but as soon as I received the
cabled reports from my brokers I went back to Paris. The same day I
arrived I called at the steamship offices and found there was a fast
boat leaving for New York the next day. I took it.

There I was, back in New York, almost a month ahead of my original
plans, because it was the most comfortable place to be short of the
market in. I had well over half a million in cash available for
margins. My return was not due to my being bearish but to my being
logical.

I sold more stocks. _As money got tighter call-money rates went higher
and prices of stocks lower._ I had foreseen it. At first, my foresight
broke me. But now I was right and prospering. However, the real joy was
in the consciousness that as a trader I was at last on the right track.
I still had much to learn but I knew what to do. No more floundering,
no more half-right methods. _Tape reading was an important part of
the game; so was beginning at the right time; so was sticking to your
position. But my greatest discovery was that a man must study general
conditions, to size them so as to be able to anticipate probabilities._
In short, I had learned that I had to work for my money. I was no
longer betting blindly or concerned with mastering the technic of the
game, but with earning my successes by hard study and clear thinking. I
also found out that nobody was immune from the danger of making sucker
plays. And for a sucker play a man gets sucker pay; for the paymaster
is on the job and never loses the pay envelope that is coming to you.

Our office made a great deal of money. My own operations were so
successful that they began to be talked about and, of course, were
greatly exaggerated. I was credited with starting the breaks in various
stocks. People I didn’t know by name used to come and congratulate me.
They all thought the most wonderful thing was the money I had made.
They did not say a word about the time when I first talked bearish to
them and they thought I was a crazy bear with a stock-market loser’s
vindictive grouch. That I had foreseen the money troubles was nothing.
That my brokers’ bookkeeper had used a third of a drop of ink on the
credit side of the ledger under my name was a marvellous achievement to
them.

Friends used to tell me that in various offices the Boy Plunger in
Harding Brothers’ office was quoted as making all sorts of threats
against the bull cliques that had tried to mark up prices of various
stocks long after it was plain that the market was bound to seek a much
lower level. To this day they talk of my raids.

From the latter part of September on, the money market was megaphoning
warnings to the entire world. But a belief in miracles kept people from
selling what remained of their speculative holdings. Why a broker told
me a story the first week of October that made me feel almost ashamed
of my moderation.

You remember that money loans used to be made on the floor of the
Exchange around the Money Post. Those brokers who had received notice
from their banks to pay call loans knew in a general way how much
money they would have to borrow afresh. And of course the banks knew
their position so far as loanable funds were concerned, and those
which had money to loan would send it to the Exchange. This bank money
was handled by a few brokers whose principal business was time loans.
At about noon the renewal rate for the day was posted. Usually this
represented a fair average of the loans made up to that time. Business
was as a rule transacted openly by bids and offers, so that everyone
knew what was going on. Between noon and about two o’clock there
was ordinarily not much business done in money, but after delivery
time--namely, 2:15 P.M.--brokers would know exactly what their cash
position for the day would be, and they were able either to go to the
Money Post and lend the balances that they had over or to borrow what
they required. This business also was done openly.

Well, sometime early in October the broker I was telling you about came
to me and told me that brokers were getting so they didn’t go to the
Money Post when they had money to loan. The reason was that members of
a couple of well-known commission houses were on watch there, ready to
snap up any offerings of money. Of course no lender who offered money
publicly could refuse to lend to these firms. They were solvent and the
collateral was good enough. But the trouble was that once these firms
borrowed money on call there was no prospect of the lender getting that
money back. They simply said they couldn’t pay it back and the lender
would willy-nilly have to renew the loan. So any Stock Exchange house
that had money to loan to its fellows used to send its men about the
floor instead of to the Post, and they would whisper to good friends,
“Want a hundred?” meaning, “Do you wish to borrow a hundred thousand
dollars?” The money brokers who acted for the banks presently adopted
the same plan, and it was a dismal sight to watch the Money Post. Think
of it!

Why, he also told me that it was a matter of Stock Exchange etiquette
in those October days for the borrower to make his own rate of
interest. You see, it fluctuated between 100 and 150 per cent per
annum. I suppose by letting the borrower fix the rate the lender in
some strange way didn’t feel so much like a usurer. But you bet he got
as much as the rest. The lender naturally did not dream of not paying
a high rate. He played fair and paid whatever the others did. What he
needed was the money and was glad to get it.

Things got worse and worse. _Finally there came the awful day of
reckoning for the bulls and the optimists and the wishful thinkers
and those vast hordes that, dreading the pain of a small loss at
the beginning, were now about to suffer total amputation--without
anaesthetics._ A day I shall never forget, October 24, 1907.

Reports from the money crowd early indicated that borrowers would have
to pay whatever the lenders saw fit to ask. There wouldn’t be enough
to go around. That day the money crowd was much larger than usual.
When delivery time came that afternoon there must have been a hundred
brokers around the Money Post, each hoping to borrow the money that his
firm urgently needed. Without money they must sell what stocks they
were carrying on margin--sell at any price they could get in a market
where buyers were as scarce as money--and just then there was not a
dollar in sight.

My friend’s partner was as bearish as I was. The firm therefore did not
have to borrow, but my friend, the broker I told you about, fresh from
seeing the haggard faces around the Money Post, came to me. He knew I
was heavily short of the entire market.

He said, “My God, Larry! I don’t know what’s going to happen. I never
saw anything like it. It can’t go on. Something has got to give. It
looks to me as if everybody is busted right now. You can’t sell stocks,
and there is absolutely no money in there.”

“How do you mean?” I asked.

But what he answered was, “Did you ever hear of the classroom
experiment of the mouse in a glass-bell when they begin to pump the air
out of the bell? You can see the poor mouse breathe faster and faster,
its sides heaving like over-worked bellows, trying to get enough oxygen
out of the decreasing supply in the bell. You watch it suffocate till
its eyes almost pop out of their sockets, gasping, dying. Well, that
is what I think of when I see the crowd at the Money Post! No money
anywhere, and you can’t liquidate stocks because there is nobody to buy
them. The whole Street is broke at this very moment, if you ask me!”

It made me think. I had seen a smash coming, but not, I admit, the
worst panic in our history. It might not be profitable to anybody--if
it went much further.

Finally it became plain that there was no use in waiting at the Post
for money. There wasn’t going to be any. Then hell broke loose.

The president of the Stock Exchange, Mr. R. H. Thomas, so I heard later
in the day, knowing that every house in the Street was headed for
disaster, went out in search of succour. He called on James Stillman,
president of the National City Bank, the richest bank in the United
States. Its boast was that it never loaned money at a higher rate than
6 per cent.

Stillman heard what the president of the New York Stock Exchange had
to say. Then he said, “Mr. Thomas, we’ll have to go and see Mr. Morgan
about this.”

The two men, hoping to stave off the most disastrous panic in our
financial history, went together to the office of J. P. Morgan & Co.
and saw Mr. Morgan, Mr. Thomas laid the case before him. The moment he
got through speaking Mr. Morgan said, “Go back to the Exchange and tell
them that there will be money for them.”

“Where?”

“At the banks!”

So strong was the faith of all men in Mr. Morgan in those critical
times that Thomas didn’t wait for further details but rushed back
to the floor of the Exchange to announce the reprieve to his
death-sentenced fellow members.

Then, before half past two in the afternoon, J. P. Morgan sent John
T. Atterbury, of Van Emburgh & Atterbury, who was known to have close
relations with J. P. Morgan & Co., into the money crowd. My friend said
that the old broker walked quickly to the Money Post. He raised his
hand like an exhorter at a revival meeting. The crowd, that at first
had been calmed down somewhat by President Thomas’ announcement, was
beginning to fear that the relief plans had miscarried and the worst
was still to come. But when they looked at Mr. Atterbury’s face and saw
him raise his hand they promptly petrified themselves.

In the dead silence that followed, Mr. Atterbury said, “I am authorized
to lend ten million dollars. Take it easy! There will be enough for
everybody!”

Then he began. Instead of giving to each borrower the name of the
lender he simply jotted down the name of the borrower and the amount
of the loan and told the borrower, “You will be told where your money
is.” He meant the name of the bank from which the borrower would get
the money later.

I heard a day or two later that Mr. Morgan simply sent word to the
frightened bankers of New York that they must provide the money the
Stock Exchange needed.

“But we haven’t got any. We’re loaned up to the hilt,” the banks
protested.

“You’ve got your reserves,” snapped J. P.

“But we’re already below the legal limit,” they howled.

“Use them! That’s what reserves are for!” And the banks obeyed and
invaded the reserves to the extent of about twenty million dollars. It
saved the stock market. The bank panic didn’t come until the following
week. He was a man, J. P. Morgan was. They don’t come much bigger.

That was the day I remember most vividly of all the days of my life as
a stock operator. It was the day when my winnings exceeded one million
dollars. It marked the successful ending of my first deliberately
planned trading campaign. What I had foreseen had come to pass. But
more than all these things was this: a wild dream of mine had been
realised. I had been king for a day!

I’ll explain, of course. After I had been in New York a couple of years
I used to cudgel my brains trying to determine the exact reason why I
couldn’t beat in a Stock Exchange house in New York the game that I
had beaten as a kid of fifteen in a bucket shop in Boston. I knew that
some day I would find out what was wrong and I would stop being wrong.
I would then have not alone the will to be right but the knowledge to
insure my being right. And that would mean power.

Please do not misunderstand me. It was not a deliberate dream of
grandeur or a futile desire born of overweening vanity. It was rather
a sort of feeling that the same old stock market that so baffled me in
Fullerton’s office and in Harding’s would one day eat out of my hand.
I just felt that such a day would come. And it did--October 24, 1907.

The reason why I say it is this: That morning a broker who had done
a lot of business for my brokers and knew that I had been plunging
on the bear side rode down in the company of one of the partners of
the foremost banking house in the Street. My friend told the banker
how heavily I had been trading, for I certainly pushed my luck to the
limit. What is the use of being right unless you get all the good
possible out of it.

Perhaps the broker exaggerated to make his story sound important.
Perhaps I had more of a following than I knew. Perhaps the banker knew
far better than I how critical the situation was. At all events, my
friend said to me: “He listened with great interest to what I told him
you said the market was going to do when the real selling began, after
another push or two. When I got through he said he might have something
for me to do later in the day.”

When the commission houses found out there was not a cent to be had at
any price I knew the time had come. I sent brokers into the various
crowds. Why, at one time there wasn’t a single bid for Union Pacific.
Not at any price! Think of it! And in other stocks the same thing. No
money to hold stocks and nobody to buy them.

I had enormous paper profits and the certainty that all that I had
to do to smash prices still more was to send in orders to sell ten
thousand shares each of Union Pacific and of a half dozen other good
dividend-paying stocks and what would follow would be simply hell. It
seemed to me that the panic that would be precipitated would be of such
an intensity and character that the board of governors would deem it
advisable to close the Exchange, as was done in August, 1914, when the
World War broke out.

It would mean greatly increased profits on paper. It might also mean
an inability to convert those profits into actual cash. But there were
other things to consider, and one was that a further break would
retard the recovery that I was beginning to figure on, the compensating
improvement after all that blood-letting. Such a panic would do much
harm to the country generally.

I made up my mind that since it was unwise and unpleasant to continue
actively bearish it was illogical for me to stay short. So I turned and
began to buy.

It wasn’t long after my brokers began to buy in for me--and, by the
way, I got bottom prices--that the banker sent for my friend.

“I have sent for you,” he said, “because I want you to go instantly to
your friend Livingston and say to him that we hope he will not sell
any more stocks to-day. The market can’t stand much more pressure. As
it is, it will be an immensely difficult task to avert a devastating
panic. Appeal to your friend’s patriotism. This is a case where a man
has to work for the benefit of all. Let me know at once what he says.”

My friend came right over and told me. He was very tactful. I suppose
he thought that having planned to smash the market I would consider his
request as equivalent to throwing away the chance to make about ten
million dollars. He knew I was sore on some of the big guns for the way
they had acted trying to land the public with a lot of stock when they
knew as well as I did what was coming.

As a matter of fact, the big men were big sufferers and lots of the
stocks I bought at the very bottom were in famous financial names. I
didn’t know it at the time, but it did not matter. I had practically
covered all my shorts and it seemed to me there was a chance to buy
stocks cheap and help the needed recovery in prices at the same
time--if nobody hammered the market.

So I told my friend, “Go back and tell Mr. Blank that I agree with them
and that I fully realised the gravity of the situation even before he
sent for you. I not only will not sell any more stocks to-day, but I am
going in and buy as much as I can carry.” And I kept my word. I bought
one hundred thousand shares that day, for the long account. I did not
sell another stock short for nine months.

That is why I said to friends that my dream had come true and that
I had been king for a moment. The stock market at one time that day
certainly was at the mercy of anybody who wanted to hammer it. I do not
suffer from delusions of grandeur; in fact you know how I feel about
being accused of raiding the market and about the way my operations are
exaggerated by the gossip of the Street.

I came out of it in fine shape. The newspapers said that Larry
Livingston, the Boy Plunger, had made several millions. Well, I was
worth over one million after the close of business that day. But my
biggest winnings were not in dollars but in the intangibles: I had been
right, I had looked ahead and followed a clear-cut plan. I had learned
what a man must do in order to make big money; I was permanently out of
the gambler class; I had at last learned to trade intelligently in a
big way. It was a day of days for me.



_X_


The recognition of our own mistakes should not benefit us any more
than the study of our successes. But there is a natural tendency in
all men to avoid punishment. When you associate certain mistakes with
a licking, you do not hanker for a second dose, and, of course, all
stock-market mistakes wound you in two tender spots--your pocketbook
and your vanity. But I will tell you something curious: A stock
speculator sometimes makes mistakes and knows that he is making them.
And after he makes them he will ask himself why he made them; and
after thinking over it cold-bloodedly a long time after the pain of
punishment is over he may learn how he came to make them, and when, and
at what particular point of his trade; but not why. And then he simply
calls himself names and lets it go at that.

Of course, if a man is both wise and lucky, he will not make the same
mistake twice. But he will make any one of the ten thousand brothers or
cousins of the original. The Mistake family is so large that there is
always one of them around when you want to see what you can do in the
fool-play line.

To tell you about the first of my million-dollar mistakes I shall have
to go back to this time when I first became a millionaire, right after
the big break of October, 1907. As far as my trading went, having a
million merely meant more reserves. Money does not give a trader more
comfort, because, rich or poor, he can make mistakes and it is never
comfortable to be wrong. And when a millionaire is right his money
is merely one of his several servants. Losing money is the least of
my troubles. _A loss never bothers me after I take it. I forget it
overnight. But being wrong--not taking the loss--that is what does the
damage to the pocketbook and to the soul._ You remember Dickson G.
Watts’ story about the man who was so nervous that a friend asked him
what was the matter.

“I can’t sleep,” answered the nervous one.

“Why not?” asked the friend.

“I am carrying so much cotton that I can’t sleep thinking about it. It
is wearing me out. What can I do?”

“Sell down to the sleeping point,” answered the friend.

As a rule a man adapts himself to conditions so quickly that he loses
the perspective. He does not feel the difference much--that is, he
does not vividly remember how it felt not to be a millionaire. He only
remembers that there were things he could not do that he can do now. It
does not take a reasonably young and normal man very long to lose the
habit of being poor. It requires a little longer to forget that he used
to be rich. I suppose that is because money creates needs or encourages
their multiplication. I mean that after a man makes money in the stock
market he very quickly loses the habit of not spending. But after he
loses his money it takes him a long time to lose the habit of spending.

After I took in my shorts and went long in October, 1907, I decided to
take it easy for a while. I bought a yacht and planned to go off on a
cruise in Southern waters. I am crazy about fishing and I was due to
have the time of my life. I looked forward to it and expected to go any
day. But I did not. The market wouldn’t let me.

_I always have traded in commodities as well as in stocks._ I began as
a youngster in the bucket shops. I studied those markets for years,
though perhaps not so assiduously as the stock market. As a matter
of fact, _I would rather play commodities than stocks_. There is no
question about their greater legitimacy, as it were. It partakes more
of the nature of a commercial venture than trading in stocks does.
A man can approach it as he might any mercantile problem. It may be
possible to use fictitious arguments for or against a certain trend in
a commodity market; but success will be only temporary, _for in the
end the facts are bound to prevail_, so that a trader gets dividends
on study and observation, as he does in a regular business. He can
watch and weigh conditions and he knows as much about it as anyone
else. He need not guard against inside cliques. Dividends are not
unexpectedly passed or increased overnight in the cotton market or in
wheat or corn. _In the long run commodity prices are governed but by
one law--the economic law of demand and supply._ The business of the
trader in commodities is simply to get facts about the demand and the
supply, present and prospective. He does not indulge in guesses about a
dozen things as he does in stocks. It always appealed to me--trading in
commodities.

Of course the same things happen in all speculative markets. The
message of the tape is the same. That will be perfectly plain to
anyone who will take the trouble to think. He will find if he asks
himself questions and considers conditions, that the answers will
supply themselves directly. But people never take the trouble to
ask questions, leave alone seeking answers. The average American is
from Missouri everywhere and at all times except when he goes to
the brokers’ offices and looks at the tape, whether it is stocks or
commodities. The one game of all games that really requires study
before making a play is the one he goes into without his usual highly
intelligent preliminary and precautionary doubts. _He will risk half
his fortune in the stock market with less reflection than he devotes to
the selection of a medium-priced automobile._

This matter of tape reading is not so complicated as it appears. Of
course you need experience. But it is even more important to keep
certain fundamentals in mind. To read the tape is not to have your
fortune told. The tape does not tell you how much you will surely be
worth next Thursday at 1:35 P.M. The object of reading the tape is to
ascertain, first, how and, next, when to trade--that is, whether it is
wiser to buy than to sell. It works exactly the same for stocks as for
cotton or wheat or corn or oats.

You watch the market--that is, the course of prices as recorded by the
tape--with one object: to determine the direction--that is, the price
tendency. Prices, we know, will move either up or down according to the
resistance they encounter. For purposes of easy explanation we will
say that _prices, like everything else, move along the line of least
resistance_. They will do whatever comes easiest, therefore they will
go up if there is less resistance to an advance than to a decline; and
vice versa.

Nobody should be puzzled as to whether a market is a bull market or a
bear market after it fairly starts. The trend is evident to a man who
has an open mind and reasonably clear sight, for it is never wise for a
speculator to fit his facts to his theories. Such a man will, or ought
to, know whether it is a bull or a bear market, and if he knows that he
knows whether to buy or to sell. It is therefore at the very inception
of the movement that a man needs to know whether to buy or to sell.

Let us say, for example, that the market, as it usually does in those
between-swings times, fluctuates within a range of ten points; up to
130 and down to 120. It may look very weak at the bottom; or, on the
way up, after a rise of eight or ten points, it may look as strong as
anything. A man ought not to be led into trading by tokens. _He should
wait until the tape tells him that the time is ripe. As a matter of
fact, millions upon millions of dollars have been lost by men who
bought stocks because they looked cheap or sold them because they
looked dear. The speculator is not an investor. His object is not to
secure a steady return on his money at a good rate of interest, but to
profit by either a rise or a fall in the price of whatever he may be
speculating in. Therefore the thing to determine is the speculative
line of least resistance at the moment of trading; and what he should
wait for is the moment when that line defines itself, because that is
his signal to get busy._

Reading the tape merely enables him to see that at 130 the selling had
been stronger than the buying and a reaction in the price logically
followed. Up to the point where the selling prevailed over the buying,
superficial students of the tape may conclude that the price is not
going to stop short of 150, and they buy. But after the reaction
begins to hold on, or sell out at a small loss, or they go short and
talk bearish. But at 120 there is stronger resistance to the decline.
The buying prevails over the selling, there is a rally and the shorts
cover. The public is so often whipsawed that one marvels at their
persistence in not learning their lesson.

Eventually something happens that increases the power of either the
upward or the downward force and the point of greatest resistance moves
up or down--that is, the buying at 130 will for the first time be
stronger than the selling, or the selling at 120 be stronger than the
buying. The price will break through the old barrier or movement-limit
and go on. As a rule, there is always a crowd of traders who are short
at 120 because it looked so weak, or long at 130 because it looked so
strong, and, when the market goes against them they are forced, after a
while, either to change their minds and turn or to close out. In either
event they help to define even more clearly the price line of least
resistance. Thus the intelligent trader who has patiently waited to
determine this line will enlist the aid of fundamental trade conditions
and also of the force of the trading of that part of the community that
happened to guess wrong and must now rectify mistakes. Such corrections
tend to push prices along the line of least resistance.

And right here I will say that, though I do not give it as a
mathematical certainty or as an axiom of speculation, my experience
has been that accidents--that is, the unexpected or unforeseen--have
always helped me in my market position whenever the latter has been
based upon my determination of the line of least resistance. Do you
remember that Union Pacific episode at Saratoga that I told you about?
Well, I was long because I found out that the line of least resistance
was upward. I should have stayed long instead of letting my broker tell
me that insiders were selling stocks. It didn’t make any difference
what was going on in the directors’ minds. That was something I
couldn’t possibly know. But I could and did know that the tape said:
“Going up!” And then came the unexpected raising of the dividend rate
and the thirty-point rise in the stock. At 164 prices looked mighty
high, but as I told you before, _stocks are never too high to buy
or too low to sell_. _The price_, per se, _has nothing to do with
establishing my line of least resistance._

You will find in actual practice that if you trade as I have indicated
any important piece of news given out between the closing of one market
and the opening of another is usually in harmony with the line of
least resistance. _The trend has been established before the news is
published, and in bull markets bear items are ignored and bull news
exaggerated, and vice versa._ Before the war broke out the market was
in a very weak condition. There came the proclamation of Germany’s
submarine policy. I was short one hundred and fifty thousand shares of
stock, not because I knew the news was coming, but because I was going
along the line of least resistance. What happened came out of a clear
sky, as far as my play was concerned. Of course I took advantage of the
situation and I covered my shorts that day.

It sounds very easy to say that all you have to do is to watch the
tape, establish your resistance points and be ready to trade along the
line of least resistance as soon as you have determined it. _But in
actual practice a man has to guard against many things, and most of all
against himself_--that is, against human nature. That is the reason
why I say that the man who is right always has two forces working in
his favor--_basic conditions and the men who are wrong_. _In a bull
market bear factors are ignored._ That is human nature, and yet human
beings profess astonishment at it. People will tell you that the wheat
crop has gone to pot because there has been bad weather in one or two
sections and some farmers have been ruined. When the entire crop is
gathered and all the farmers in all the wheat-growing sections begin
to take their wheat to the elevators the bulls are surprised at the
smallness of the damage. They discover that they merely have helped the
bears.

When a man makes his play in a commodity market he must not permit
himself set opinions. He must have an open mind and flexibility. _It
is not wise to disregard the message of the tape, no matter what
your opinion of crop conditions or of the probable demand may be._
I recall how I missed a big play just by trying to anticipate the
starting signal. I felt so sure of conditions that I thought it was not
necessary to wait for the line of least resistance to define itself. I
even thought I might help it arrive, because it looked as if it merely
needed a little assistance.

I was very bullish on cotton. It was hanging around twelve cents,
running up and down within a moderate range. It was in one of those
in-between places and I could see it. I knew I really ought to wait.
But I got to thinking that if I gave it a little push it would go
beyond the upper resistance point.

I bought fifty thousand bales. Sure enough, it moved up. And sure
enough, as soon as I stopped buying it stopped going up. Then it began
to settle back to where it was when I began buying it. I got out and
it stopped going down. I thought I was now much nearer the starting
signal, and presently I thought I’d start it myself again. I did.
The same thing happened. I bid it up, only to see it go down when I
stopped. I did this four or five times until I finally quit in disgust.
It cost me about two hundred thousand dollars. I was done with it. It
wasn’t very long after that when it began to go up and never stopped
till it got to a price that would have meant a killing for me--if I
hadn’t been in such a great hurry to start.

This experience has been the experience of so many traders so many
times that I can give this rule: _In a narrow market, when prices
are not getting anywhere to speak of but move within a narrow range,
there is no sense in trying to anticipate what the next big movement
is going to be--up or down._ The thing to do is to watch the market,
read the tape to determine the limits of the get-nowhere prices, and
make up your mind that you will not take an interest until the price
breaks through the limit in either direction. A speculator must concern
himself with making money out of the market and not with insisting that
the tape must agree with him. Never argue with it or ask it for reasons
or explanations. _Stock-market post-mortems don’t pay dividends._

Not so long ago I was with a party of friends. They got to talking
wheat. Some of them were bullish and others bearish. Finally they asked
me what I thought. Well, I had been studying the market for some time.
I knew they did not want any statistics or analyses of conditions. So I
said: “If you want to make some money out of wheat I can tell you how
to do it.”

They all said they did and I told them, “If you are sure you wish to
make money in wheat just you watch it. Wait. The moment it crosses
$1.20 buy it and you will get a nice quick play in it!”

“Why not buy it now, at $1,14?” one of the party asked.

“Because I don’t know yet that it is going up at all.”

“Then why buy it at $1.20? It seems a mighty high price.”

“Do you wish to gamble blindly in the hope of getting a great big
profit or do you wish to speculate intelligently and get a smaller but
much more probable profit?”

They all said they wanted the smaller but surer profit, so I said,
“Then do as I tell you. If it crosses $1.20 buy.”

As I told you, I had watched it a long time. For months it sold between
$1.10 and $1.20, getting nowhere in particular. Well, sir, one day it
closed at above $1.19. I got ready for it. Sure enough the next day it
opened at $1.20½, and I bought. It went to $1.21, to $1.22, to $1.23,
to $1.25, and I went with it.

Now I couldn’t have told you at the time just what was going on. I
didn’t get any explanations about its behaviour during the course of
the limited fluctuations. I couldn’t tell whether the breaking through
the limit would be up through $1.20 or down through $1.10, though I
suspected it would be up because there was not enough wheat in the
world for a big break in prices.

As a matter of fact, it seems Europe had been buying quietly and a lot
of traders had gone short of it at around $1.19. Owing to the European
purchases and other causes, a lot of wheat had been taken out of the
market, so that finally the big movement got started. The price went
beyond the $1.20 mark. That was all the point I had and it was all
I needed. I knew that when it crossed $1.20 it would be because the
upward movement at last had gathered force to push it over the limit
and something had to happen. In other words, by crossing $1.20 the line
of least resistance of wheat prices was established. It was a different
story then.

I remember that one day was a holiday with us and all our markets were
closed. Well, in Winnipeg wheat opened up six cents a bushel. When our
market opened on the following day, it also was up six cents a bushel.
The price just went along the line of least resistance.

What I have told you gives you the essence of my trading system as
based on studying the tape. I merely learn the way prices are most
probably going to move. I check up my own trading by additional tests,
to determine the psychological moment. _I do that by watching the way
the price acts after I begin._

It is surprising how many experienced traders there are who look
incredulous when I tell them that when I buy stocks for a rise I like
to pay top prices and when I sell I must sell low or not at all. It
would not be so difficult to make money if a trader always stuck to his
speculative guns--that is, waited for the line of least resistance to
define itself and began buying only when the tape said up or selling
only when it said down. _He should accumulate his line on the way up._
Let him buy one-fifth of his full line. If that does not show him a
profit he must not increase his holdings because he has obviously begun
wrong; he is wrong temporarily and there is no profit in being wrong
at any time. The same tape that said UP did not necessarily lie merely
because it is now saying NOT YET.

In cotton I was very successful in my trading for a long time. I had my
theory about it and I absolutely lived up to it. Suppose I had decided
that my line would be forty to fifty thousand bales. Well, I would
study the tape as I told you, watching for an opportunity either to
buy or to sell. Suppose the line of least resistance indicated a bull
movement. Well, I would buy ten thousand bales. After I got through
buying that, if the market _went up ten points over my initial purchase
price, I would take on another ten thousand bales_. Same thing. Then,
if I could get twenty points’ profit, or one dollar a bale, I would
buy twenty thousand more. That would give me my line--my basis for my
trading. But if after buying the first ten or twenty thousand bales,
it showed me a loss, out I’d go. I was wrong. It might be I was only
temporarily wrong. But as I have said before _it doesn’t pay to start
wrong in anything_.

What I accomplished by sticking to my system was that I always had a
line of cotton in every real movement. In the course of accumulating
my full line I might chip out fifty or sixty thousand dollars in these
feeling-out plays of mine. This looks like a very expensive testing,
but it wasn’t. After the real movement started, how long would it take
me to make up the fifty thousand dollars I had dropped in order to
make sure that I began to load up at exactly the right time? No time at
all! _It always pays a man to be right at the right time._

As I think I also said before, this describes what I may call my system
for placing my bets. It is simple arithmetic to prove that it is a wise
thing to have the big bet down only when you win, and when you lose to
lose only a small exploratory bet, as it were. If a man trades in the
way I have described, he will always be in the profitable position of
being able to cash in on the big bet.

Professional traders have always had some system or other based
upon their experience and governed either by their attitude toward
speculation or by their desires. I remember I met an old gentleman in
Palm Beach whose name I did not catch or did not at once identify. I
knew he had been in the Street for years, way back in Civil War times,
and somebody told me that he was a very wise old codger who had gone
through so many booms and panics that he was always saying there was
nothing new under the sun and least of all in the stock market.

The old fellow asked me a lot of questions. When I got through telling
him about my usual practice in trading he nodded and said, “Yes! Yes!
You’re right. The way you’re built, the way your mind runs, makes your
system a good system for you. It comes easy for you to practice what
you preach, because the money you bet is the least of your cares. I
recollect Pat Hearne. Ever hear of him? Well, he was a very well-known
sporting man and he had an account with us. Clever chap and nervy. He
made money in stocks, and that made people ask him for advice. He would
never give any. If they asked him point-blank for his opinion about
the wisdom of their commitments he used a favorite race-track maxim of
his: ‘You can’t tell till you bet.’ He traded in our office. He would
buy one hundred shares of some active stock and when, or if, it went up
1 per cent he would buy another hundred. On another point’s advance,
another hundred shares; and so on. He used to say he wasn’t playing the
game to make money for others and therefore he would put in a stop-loss
order one point below the price of his last purchase. When the price
kept going up he simply moved up his stop with it. On a 1 per cent
reaction he was stopped out. He declared he did not see any sense in
losing more than one point, whether it came out of his original margin
or out of his paper profits.

“You know, a professional gambler is not looking for long shots,
but for sure money. Of course long shots are fine when they come
in. In the stock market Pat wasn’t after tips or playing to catch
twenty-points-a-week advances, but sure money in sufficient quantity
to provide him with a good living. Of all the thousands of outsiders
that I have run across in Wall Street, Pat Hearne was the only one who
saw in stock speculation merely a game of chance like faro or roulette,
but, nevertheless, had the sense to stick to a relatively sound betting
method.

“After Hearne’s death one of our customers who had always traded with
Pat and used his system made over one hundred thousand dollars in
Lackawanna. Then he switched over to some other stock and because he
had made a big stake he thought he need not stick to Pat’s way. When a
reaction came, instead of cutting short his losses he let them run--as
though they were profits. Of course every cent went. When he finally
quit he owed us several thousand dollars.

“He hung around for two or three years. He kept the fever long after
the cash had gone; but we did not object as long as he behaved himself.
I remember that he used to admit freely that he had been ten thousand
kinds of an ass not to stick to Pat Hearne’s style of play. Well, one
day he came to me greatly excited and asked me to let him sell some
stock short in our office. He was a nice enough chap who had been a
good customer in his day and I told him I personally would guarantee
his account for one hundred shares.

“He sold short one hundred shares of Lake Shore. That was the time Bill
Travers hammered the market, in 1875. My friend Roberts put out that
Lake Shore at exactly the right time and kept selling it on the way
down as he had been wont to do in the old successful days before he
forsook Pat Hearne’s system and instead listened to hope’s whispers.

“Well, sir, in four days of successful pyramiding, Roberts’ account
showed him a profit of fifteen thousand dollars. Observing that he had
not put in a stop-loss order I spoke to him about it and he told me
that the break hadn’t fairly begun and he wasn’t going to be shaken
out by any one-point reaction. This was in August. Before the middle
of September he borrowed ten dollars from me for a baby carriage--his
fourth. He did not stick to his own proved system. That’s the trouble
with most of them,” and the old fellow shook his head at me.

And he was right. I sometimes think that speculation must be an
unnatural sort of business, because I find that the average speculator
has arrayed against him his own nature. The weaknesses that all men
are prone to are fatal to success in speculation--usually those very
weaknesses that make him likable to his fellows or that he himself
particularly guards against in those other ventures of his where
they are not nearly so dangerous as when he is trading in stocks or
commodities.

_The speculator’s chief enemies are always boring from within. It is
inseparable from human nature to hope and to fear._ In speculation when
the market goes against you you hope that every day will be the last
day--and you lose more than you should had you not listened to hope--to
the same ally that is so potent a success-bringer to empire builders
and pioneers, big and little. And when the market goes your way you
become fearful that the next day will take away your profit, and you
get out--too soon. _Fear keeps you from making as much money as you
ought to._ The successful trader has to fight these two deep-seated
instincts. He has to reverse what you might call his natural impulses.
_Instead of hoping he must fear; instead of fearing he must hope._ He
must fear that his loss may develop into a much bigger loss, and hope
that his profit may become a big profit. _It is absolutely wrong to
gamble in stocks the way the average man does._

I have been in the speculative game ever since I was fourteen. It is
all I have ever done. I think I know what I am talking about. And the
conclusion that I have reached after nearly thirty years of constant
trading, both on a shoestring and with millions of dollars back of
me, is this: A man may beat a stock or a group at a certain time, but
no man living can beat the stock market! A man may make money out of
individual deals in cotton or grain, but no man can beat the cotton
market or the grain market. It’s like the track. A man may beat a horse
race, but he cannot beat horse racing.

If I knew how to make these statements stronger or more emphatic I
certainly would. It does not make any difference what anybody says to
the contrary. I know I am right in saying these are incontrovertible
statements.



_XI_


And now I’ll get back to October, 1907. I bought a yacht and made all
preparations to leave New York for a cruise in Southern waters. I am
really daffy about fishing and this was the time when I was going to
fish to my heart’s content from my own yacht, going wherever I wished
whenever I felt like it. Everything was ready. I had made a killing in
stocks, but at the last moment corn held me back.

I must explain that before the money panic which gave me my first
million I had been trading in grain at Chicago. I was short ten million
bushels of wheat and ten million bushels of corn. I had studied the
grain markets for a long time and was as bearish on corn and wheat as I
had been on stocks.

Well, they both started down, but while wheat kept on declining the
biggest of all the Chicago operators--I’ll call him Stratton--took it
into his head to run a corner in corn. After I cleaned up in stocks
and was ready to go South on my yacht I found that wheat showed me a
handsome profit, but in corn Stratton had run up the price and I had
quite a loss.

I knew there was much more corn in the country than the price
indicated. The law of demand and supply worked as always. But the
demand came chiefly from Stratton and the supply was not coming at
all, because there was an acute congestion in the movement of corn. I
remember that I used to pray for a cold spell that would freeze the
impassable roads and enable the farmers to bring their corn into the
market. But no such luck.

There I was, waiting to go on my joyously planned fishing trip and that
loss in corn holding me back. I couldn’t go away with the market as it
was. Of course Stratton kept pretty close tabs on the short interest.
He knew he had me, and I knew it quite as well as he did. But, as I
said, I was hoping I might convince the weather that it ought to get
busy and help me. Perceiving that neither the weather nor any other
kindly wonder-worker was paying any attention to my needs I studied how
I might work out of my difficulty by my own efforts.

I closed out my line of wheat at a good profit. But the problem in corn
was infinitely more difficult. If I could have covered my ten million
bushels at the prevailing prices I instantly and gladly would have done
so, large though the loss would have been. But, of course, the moment I
started to buy in my corn Stratton would be on the job as squeezer in
chief, and I no more relished running up the price on myself by reason
of my own purchases than cutting my own throat with my own knife.

Strong though corn was, my desire to go fishing was even stronger, so
it was up to me to find a way out at once. I must conduct a strategic
retreat. I must buy back the ten million bushels I was short of and in
so doing keep down my loss as much as I possibly could.

It so happened that Stratton at that time was also running a deal in
oats and had the market pretty well sewed up. I had kept track of all
the grain markets in the way of crop news and pit gossip, and I heard
that the powerful Armour interests were not friendly, marketwise, to
Stratton. Of course I knew that Stratton would not let me have the
corn I needed except at his own price, but the moment I heard the
rumors about Armour being against Stratton it occurred to me that I
might look to the Chicago traders for aid. The only way in which they
could possibly help me was for them to sell me the corn that Stratton
wouldn’t. The rest was easy.

First, I put in orders to buy five hundred thousand bushels of corn
every eighth of a cent down. After these orders were in I gave to each
of four houses an order to sell simultaneously fifty thousand bushels
of oats at the market. That, I figured, ought to make a quick break in
oats. Knowing how the traders’ minds worked, it was a cinch that they
would instantly think that Armour was gunning for Stratton. Seeing the
attack opened in oats they would logically conclude that the next break
would be in corn and they would start to sell it. If that corner in
corn was busted, the pickings would be fabulous.

My dope on the psychology of the Chicago traders was absolutely
correct. When they saw oats breaking on the scattered selling they
promptly jumped on corn and sold it with great enthusiasm. I was
able to buy six million bushels of corn in the next ten minutes. The
moment I found that their selling of corn ceased I simply bought in
the other four million bushels at the market. Of course that made
the price go up again, but the net result of my manœuvre was that I
covered the entire line of ten million bushels within one-half cent of
the price prevailing at the time I started to cover on the traders’
selling. The two hundred thousand bushels of oats that I sold short
to start the traders’ selling of corn I covered at a loss of only
three thousand dollars. That was pretty cheap bear bait. The profits I
had made in wheat offset so much of my deficit in corn that my total
loss on all my grain trades that time was only twenty-five thousand
dollars. Afterwards corn went up twenty-five cents a bushel. Stratton
undoubtedly had me at his mercy. If I had set about buying my ten
million bushels of corn without bothering to think of the price there
is no telling what I would have had to pay.

A man can’t spend years at one thing and not acquire a habitual
attitude towards it quite unlike that of the average beginner. The
difference distinguishes the professional from the amateur. It is the
way a man looks at things that makes or loses money for him in the
speculative markets. The public has the dilettante’s point of view
toward his own effort. The ego obtrudes itself unduly and the thinking
therefore is not deep or exhaustive. The professional concerns himself
with doing the right thing rather than with making money, knowing that
the profit takes care of itself if the other things are attended to.
A trader gets to play the game as the professional billiard player
does--that is, he looks far ahead instead of considering the particular
shot before him. It gets to be an instinct to play for position.

I remember hearing a story about Addison Cammack that illustrates very
nicely what I wish to point out. From all I have heard, I am inclined
to think that _Cammack_ was one of the ablest stock traders the Street
ever saw. He was not a chronic bear as many believe, but he felt the
greater appeal of trading on the bear side, of utilizing in his behalf
the two great human factors of hope and fear. He is credited with
coining the warning: “Don’t sell stocks when the sap is running up the
trees!” and the old-timers tell me that his biggest winnings were made
on the bull side, so that it is plain he did not play prejudices but
conditions. At all events, he was a consummate trader. It seems that
once--this was way back at the tag end of a bull market--Cammack was
bearish, and J. Arthur Joseph, the financial writer and raconteur,
knew it. The market, however, was not only strong but still rising,
in response to prodding by the bull leaders and optimistic reports by
the newspapers. Knowing what use a trader like Cammack could make of
bearish information, Joseph rushed to Cammack’s office one day with
glad tidings.

“Mr. Cammack, I have a very good friend who is a transfer clerk in the
St. Paul office and he has just told me something which I think you
ought to know.”

“What is it?” asked Cammack listlessly.

“You’ve turned, haven’t you? You are bearish now?” asked Joseph,
to make sure. If Cammack wasn’t interested he wasn’t going to waste
precious ammunition.

“Yes. What’s the wonderful information?”

“I went around to the St. Paul office to-day, as I do in my
news-gathering rounds two or three times a week, and my friend
there said to me: ‘The Old Man is selling stock.’ He meant William
Rockefeller. ‘Is he really, Jimmy?’ I said to him, and he answered,
‘Yes; he is selling fifteen hundred shares every three-eighths of a
point up. I’ve been transferring the stock for two or three days now.’
I didn’t lose any time, but came right over to tell you.”

Cammack was not easily excited, and, moreover, was so accustomed to
having all manner of people rush madly into his office with all manner
of news, gossip, rumors, tips and lies that he had grown distrustful of
them all. He merely said now, “Are you sure you heard right, Joseph?”

“Am I sure? Certainly I am sure! Do you think I am deaf?” said Joseph.

“Are you sure of your man?”

“Absolutely!” declared Joseph. “I’ve known him for years. He has never
lied to me. He wouldn’t! No object! I know he is absolutely reliable
and I’d stake my life on what he tells me. I know him as well as I know
anybody in this world--a great deal better than you seem to know me,
after all these years.”

“Sure of him, eh?” And Cammack again looked at Joseph. Then he said,
“Well, you ought to know.” He called his broker, W. B. Wheeler. Joseph
expected to hear him give an order to sell at least fifty thousand
shares of St. Paul. William Rockefeller was disposing of his holdings
in St. Paul, taking advantage of the strength of the market. Whether it
was investment stock or speculative holdings was irrelevant. The one
important fact was that the best stock trader of the Standard Oil crowd
was getting out of St. Paul. What would the average man have done if he
had received the news from a trustworthy source? No need to ask.

But Cammack, the ablest bear operator of his day, who was bearish on
the market just then, said to his broker, “Billy, go over to the board
and buy fifteen hundred St. Paul every three-eighths up.” The stock was
then in the nineties.

“Don’t you mean sell?” interjected Joseph hastily. He was no novice in
Wall Street, but he was thinking of the market from the point of view
of the newspaper man and, incidentally, of the general public. The
price certainly ought to go down on the news of inside selling. And
there was no better inside selling than Mr. William Rockefeller’s. The
Standard Oil getting out and Cammack buying! It couldn’t be!

“No,” said Cammack; “I mean buy!”

“Don’t you believe me?”

“Yes!”

“Don’t you believe my information?”

“Yes.”

“Aren’t you bearish?”

“Yes.”

“Well, then?”

“That’s why I’m buying. Listen to me now: You keep in touch with that
reliable friend of yours and the moment the scaled selling stops, let
me know. Instantly! Do you understand?”

“Yes,” said Joseph, and went away, not quite sure he could fathom
Cammack’s motives in buying William Rockefeller’s stock. It was the
knowledge that Cammack was bearish on the entire market that made his
manœuvre so difficult to explain. However, Joseph saw his friend the
transfer clerk and told him he wanted to be tipped off when the Old Man
got through selling. Regularly twice a day Joseph called on his friend
to inquire.

One day the transfer clerk told him, “There isn’t any more stock coming
from the Old Man.” Joseph thanked him and ran to Cammack’s office with
the information.

Cammack listened attentively, turned to Wheeler and asked, “Billy,
how much St. Paul have we got in the office?” Wheeler looked it up and
reported that they had accumulated about sixty thousand shares.

Cammack, being bearish, had been putting out short lines in the other
Grangers as well as in various other stocks, even before he began to
buy St. Paul. He was now heavily short of the market. He promptly
ordered Wheeler to sell the sixty thousand shares of St. Paul that
they were long of, and more besides. He used his long holdings of St.
Paul as a lever to depress the general list and greatly benefit his
operations for a decline.

St. Paul didn’t stop on that move until it reached forty-four and
Cammack made a killing in it. He played his cards with consummate
skill and profited accordingly. The point I would make is his habitual
attitude toward trading. He didn’t have to reflect. He saw instantly
what was far more important to him than his profit on that one stock.
He saw that he had providentially been offered an opportunity to begin
his big bear operations not only at the proper time but with a proper
initial push. The St. Paul tip made him buy instead of sell because he
saw at once that it gave him a vast supply of the best ammunition for
his bear campaign.

To get back to myself. After I closed my trade in wheat and corn I went
South in my yacht. I cruised about in Florida waters, having a grand
old time. The fishing was great. Everything was lovely. I didn’t have a
care in the world and I wasn’t looking for any.

One day I went ashore at Palm Beach. I met a lot of Wall Street friends
and others. They were all talking about the most picturesque cotton
speculator of the day. A report from New York had it that Percy Thomas
had lost every cent. It wasn’t a commercial bankruptcy; merely the
rumor of the world-famous operator’s second Waterloo in the cotton
market.

I had always felt a great admiration for him. The first I ever heard of
him was through the newspapers at the time of the failure of the Stock
Exchange house of Sheldon & Thomas, when Thomas tried to corner cotton.
Sheldon, who did not have the vision or the courage of his partner, got
cold feet on the very verge of success. At least, so the Street said
at the time. At all events, instead of making a killing they made one
of the most sensational failures in years. I forget how many millions.
The firm was wound up and Thomas went to work alone. He devoted himself
exclusively to cotton and it was not long before he was on his feet
again. He paid off his creditors in full with interest--debts he was
not legally obliged to discharge--and withal had a million dollars
left to himself. His comeback in the cotton market was in its way as
remarkable as Deacon S. V. White’s famous stock-market exploit of
paying off one million dollars in one year. Thomas’ pluck and brains
made me admire him immensely.

Everybody in Palm Beach was talking about the collapse of Thomas’ deal
in March cotton. You know how the talk goes--and grows; the amount of
misinformation and exaggeration and improvements that you hear. Why,
I’ve seen a rumor about myself grow so that the fellow who started it
did not recognize it when it came back to him in less than twenty-four
hours, swollen with new and picturesque details.

The news of Percy Thomas’ latest misadventure turned my mind from the
fishing to the cotton market. I got files of the trade papers and read
them to get a line on conditions. When I got back to New York I gave
myself up to studying the market. Everybody was bearish and everybody
was selling July cotton. You know how people are. I suppose it is the
contagion of example that makes a man do something because everybody
around him is doing the same thing. Perhaps it is some phase or variety
in the herd instinct. In any case it was, in the opinion of hundreds
of traders, the wise and proper thing to sell July cotton--and so safe
too! You couldn’t call that general selling reckless; the word is too
conservative. The traders simply saw one side to the market and a great
big profit. They certainly expected a collapse in prices.

I saw all this, of course, and it struck me that the chaps who were
short didn’t have a terrible lot of time to cover in. The more I
studied the situation the clearer I saw this, until I finally decided
to buy July cotton. I went to work and quickly bought one hundred
thousand bales. I experienced no trouble in getting it because it
came from so many sellers. It seemed to me that I could have offered
a reward of one million dollars for the capture, dead or alive, of a
single trader who was not selling July cotton and nobody would have
claimed it.

I should say this was in the latter part of May. I kept buying more
and they kept on selling it to me until I had picked up all the
floating contracts and I had one hundred and twenty thousand bales. A
couple of days after I had bought the last of it it began to go up.
Once it started the market was kind enough to keep on doing very well
indeed--that is, it went up from forty to fifty points a day.

One Saturday--this was about ten days after I began operations--the
price began to creep up. I did not know whether there was any more July
cotton for sale. It was up to me to find out, so I waited until the
last ten minutes. At that time, I knew, it was usual for those fellows
to be short and if the market closed up for the day they would be
safely hooked. So I sent in four different orders to buy five thousand
bales each, at the market, at the same time. That ran the price up
thirty points and the shorts were doing their best to wriggle away. The
market closed at the top. All I did, remember, was to buy that last
twenty thousand bales.

The next day was Sunday. But on Monday, Liverpool was due to open up
twenty points to be on a parity with the advance in New York. Instead,
it came fifty points higher. That meant that Liverpool had exceeded
our advance by 100 per cent. I had nothing to do with the rise in that
market. This showed me that my deductions had been sound and that I
was trading along the line of least resistance. At the same time I was
not losing sight of the fact that I had a whopping big line to dispose
of. A market may advance sharply or rise gradually and yet not possess
the power to absorb more than a certain amount of selling.

Of course the Liverpool cables made our own market wild. But I noticed
the higher it went the scarcer July cotton seemed to be. I wasn’t
letting go any of mine. Altogether that Monday was an exciting and not
very cheerful day for the bears; but for all that, I could detect no
signs of impending bear panic; no beginnings of a blind stampede to
cover. And I had one hundred and forty thousand bales for which I must
find a market.

On Tuesday morning as I was walking to my office I met a friend at the
entrance of the building.

“That was quite a story in the _World_ this morning,” he said with a
smile.

“What story?” I asked.

“What? Do you mean to tell me you haven’t seen it?”

“I never see the _World_,” I said. “What is the story?”

“Why, it’s all about you. It says you’ve got July cotton cornered.”

“I haven’t seen it,” I told him and left him. I don’t know whether he
believed me or not. He probably thought it was highly inconsiderate of
me not to tell him whether it was true or not.

When I got to the office I sent out for a copy of the paper. Sure
enough, there it was, on the front page, in big headlines:

          JULY COTTON CORNERED BY LARRY LIVINGSTON

Of course I knew at once that the article would play the dickens with
the market. If I had deliberately studied ways and means of disposing
of my one hundred and forty thousand bales to the best advantage I
couldn’t have hit upon a better plan. It would not have been possible
to find one. That article at that very moment was being read all over
the country either in the _World_ or in other papers quoting it. It had
been cabled to Europe. That was plain from the Liverpool prices. That
market was simply wild. No wonder, with such news.

Of course I knew what New York would do, and what I ought to do. The
market here opened at ten o’clock. At ten minutes after ten I did not
own any cotton. I let them have every one of my one hundred and forty
thousand bales. For most of my line I received what proved to be the
top prices of the day. The traders made the market for me. All I really
did was to see a heaven-sent opportunity to get rid of my cotton. I
grasped it because I couldn’t help it. What else could I do?

The problem that I knew would take a great deal of hard thinking to
solve was thus solved for me by an accident. If the _World_ had not
published that article I never would have been able to dispose of my
line without sacrificing the greater portion of my paper profits.
Selling one hundred and forty thousand bales of cotton without sending
the price down was a trick beyond my powers. But the _World_ story
turned it for me very nicely.

Why the _World_ published it I cannot tell you. I never knew. I suppose
the writer was tipped off by some friend in the cotton market and he
thought he was printing a scoop. I didn’t see him or anybody from the
_World_. I didn’t know it was printed that morning until after nine
o’clock; and if it had not been for my friend calling my attention to
it I would not have know it then.

Without it I wouldn’t have had a market _big_ enough to unload in. That
is one trouble about trading on a large scale. You cannot sneak out as
you can when you pike along. You cannot always sell out when you wish
or when you think it wise. You have to get out when you can; when you
have a market that will absorb your entire line. Failure to grasp the
opportunity to get out may cost you millions. You cannot hesitate. If
you do you are lost. Neither can you try stunts like running up the
price on the bears by means of competitive buying, for you may thereby
reduce the absorbing capacity. And I want to tell you that perceiving
your opportunity is not as easy as it sounds. A man must be on the
lookout so alertly that when his chance sticks in its head at his door
he must grab it.

Of course not everybody knew about my fortunate accident. In Wall
Street, and, for that matter, everywhere else, any accident that makes
big money for a man is regarded with suspicion. When the accident is
unprofitable it is never considered an accident but the logical outcome
of your hoggishness or of the swelled head. But when there is a profit
they call it loot and talk about how well unscrupulousness fares, and
how ill conservatism and decency.

It was not only the _evil-minded shorts_ smarting under punishment
brought about by their own recklessness who accused me of having
deliberately planned the coup. Other people thought the same thing.

One of the biggest men in cotton in the entire world met me a day or
two later and said, “That was certainly the slickest deal you ever put
over, Livingston. I was wondering how much you were going to lose when
you came to market that line of yours. You knew this market was not big
enough to take more than fifty or sixty thousand bales without selling
off, and how you were going to work off the rest and not lose all your
paper profits was beginning to interest me. I didn’t think of your
scheme. It certainly was slick.”

“I had nothing to do with it,” I assured him as earnestly as I could.

But all he did was to repeat: “Mighty slick, my boy. Mighty slick!
Don’t be so modest!”

It was after that deal that some of the papers referred to me as the
Cotton King. But, as I said, I really was not entitled to that crown.
It is not necessary to tell you that there is not enough money in the
United States to buy the columns of the New York _World_ or enough
personal pull to secure the publication of a story like that. It gave
me an utterly unearned reputation that time.

But I have not told this story to moralize on the crowns that are
sometimes pressed down upon the brows of undeserving traders or to
emphasize the need of seizing the opportunity, no matter where or
how it comes. My object merely was to account for the vast amount of
newspaper notoriety that came to me as a result of my deal in July
cotton. If it hadn’t been for the newspapers I never would have met
that remarkable man, Percy Thomas.



_XII_


Not long after I closed my July cotton deal more successfully than I
had expected I received by mail a request for an interview. The letter
was signed by Percy Thomas. Of course I immediately answered that I’d
be glad to see him at my office at any time he cared to call. The next
day he came.

I had long admired him. His name was a household word wherever men took
an interest in growing or buying or selling cotton. In Europe as well
as all over this country people quoted _Percy Thomas’_ opinions to me.
I remember once at a Swiss resort talking to a Cairo banker who was
interested in cotton growing in Egypt in association with the late Sir
Ernest Cassel. When he heard I was from New York he immediately asked
me about Percy Thomas, whose market reports he received and read with
unfailing regularity.

Thomas, I always thought, went about his business scientifically. He
was a true speculator, a thinker with the vision of a dreamer and the
courage of a fighting man--an unusually well-informed man, who knew
both the theory and the practice of trading in cotton. He loved to hear
and to express ideas and theories and abstractions, and at the same
time there was mighty little about the practical side of the cotton
market or the psychology of cotton traders that he did not know, for he
had been trading for years and had made and lost vast sums.

After the failure of his old Stock Exchange firm of Sheldon &
Thomas he went it alone. Inside of two years he came back, almost
spectacularly. I remember reading in the _Sun_ that the first thing he
did when he got back on his feet financially was to pay off his old
creditors in full, and the next was to hire an expert to study and
determine for him how he had best invest a million dollars. This expert
examined the properties and analysed the reports of several companies
and then recommended the purchase of Delaware & Hudson stock.

Well, after having failed for millions and having come back with more
millions, Thomas was cleaned out as the result of his deal in March
Cotton. There wasn’t much time wasted after he came to see me. He
proposed that we form a working alliance. Whatever information he
got he would immediately turn over to me before passing it on to the
public. My part would be to do the actual trading, for which he said I
had a special genius and he hadn’t.

That did not appeal to me for a number of reasons. I told him frankly
that I did not think I could run in double harness and wasn’t keen
about trying to learn. But he insisted that it would be an ideal
combination until I said flatly that I did not want to have anything to
do with influencing other people to trade.

“If I fool myself,” I told him, “I alone suffer and I pay the bill at
once. There are no drawn-out payments or unexpected annoyances. I play
a lone hand by choice and also because it is the wisest and cheapest
way to trade. I get my pleasure out of matching my brains against the
brains of other traders--men whom I have never seen and never talked
to and never advised to buy or sell and never expect to meet or know.
When I make money I make it backing my own opinions. I don’t sell them
or capitalise them. If I made money in any other way I would imagine I
had not earned it. Your proposition does not interest me because I am
interested in the game only as I play it for myself and in my own way.”

He said he was sorry I felt the way I did, and tried to convince me
that I was wrong in rejecting his plan. But I stuck to my views. The
rest was a pleasant talk. I told him I knew he would “come back” and
that I would consider it a privilege if he would allow me to be of
financial assistance to him. But he said he could not accept any loans
from me. Then he asked me about my July deal and I told him all about
it; how I had gone into it and how much cotton I bought and the price
and other details. We chatted a little more and then he went away.

When I said to you some time ago that a speculator has a host of
enemies, many of whom successfully bore from within, I had in mind my
many mistakes. I have learned that a man may possess an original mind
and a lifelong habit of independent thinking and withal be vulnerable
to attacks by a persuasive personality. I am fairly immune from the
commoner speculative ailments, such as greed and fear and hope. But
being an ordinary man I find I can err with great ease.

I ought to have been on my guard at this particular time because not
long before that I had had an experience that proved how easily a
man may be talked into doing something against his judgment and even
against his wishes. It happened in Harding’s office. I had a sort of
private office--a room that they let me occupy by myself--and nobody
was supposed to get to me during market hours without my consent. I
didn’t wish to be bothered and, as I was trading on a very large scale
and my account was fairly profitable, I was pretty well guarded.

One day just after the market closed I heard somebody say, “Good
afternoon, Mr. Livingston.”

I turned and saw an utter stranger--a chap of about thirty-five. I
could not understand how he’d got in, but there he was. I concluded
his business with me had passed him. But I didn’t say anything. I just
looked at him and pretty soon he said, “I came to see you about that
Walter Scott,” and he was off.

He was a book agent. Now, he was not particularly pleasing of manner or
skillful of speech. Neither was he especially attractive to look at.
But he certainly had personality. He talked and I thought I listened.
But I do not know what he said. I don’t think I ever knew, not even
at the time. When he finished his monologue he handed me first his
fountain pen and then a blank form, which I signed. It was a contract
to take a set of Scott’s works for five hundred dollars.

The moment I signed I came to. But he had the contract safe in his
pocket. I did not want the books. I had no place for them. They weren’t
of any use whatever to me. I had nobody to give them to. Yet I had
agreed to buy them for five hundred dollars.

I am so accustomed to losing money that I never think first of that
phase of my mistakes. It is always the play itself, the reason why.
In the first place I wish to know my own limitations and habits of
thought. Another reason is that I do not wish to make the same mistake
a second time. _A man can excuse his mistakes only by capitalising them
to his subsequent profit._

Well, having made a five-hundred dollar mistake but not yet having
localised the trouble, I just looked at the fellow to size him up as
a first step. I’ll be hanged if he didn’t actually smile at me--an
understanding little smile! He seemed to read my thoughts. I somehow
knew that I did not have to explain anything to him; he knew it without
my telling him. So I skipped the explanations and the preliminaries
and asked him, “How much commission will you get on that five hundred
dollar order?”

He promptly shook his head and said, “I can’t do it! Sorry!”

“How much do you get?” I persisted.

“A third. But I can’t do it!” he said.

“A third of five hundred dollars is one hundred and sixty-six dollars
and sixty-six cents. I’ll give you two hundred dollars cash if you
give me back that signed contract.” And to prove it I took the money
out of my pocket.

“I told you I couldn’t do it,” he said.

“Do all of your customers make the same offer to you?” I asked.

“No,” he answered.

“Then why were you so sure that I was going to make it?”

“It is what your type of sport would do. You are a first-class loser
and that makes you a first-class business man. I am much obliged to
you, but I can’t do it.”

“Now tell me why you do not wish to make more than your commission?”

“It isn’t that exactly,” he said. “I am not working just for the
commission.”

“What are you working for then?”

“For the commission and the record,” he answered.

“What record?”

“Mine.”

“What are you driving at?”

“Do you work for money alone?” he asked me.

“Yes,” I said.

“No.” And he shook his head. “No, you don’t. You wouldn’t get enough
fun out of it. You certainly do not work merely to add a few more
dollars to your bank account and you are not in Wall Street because you
like easy money. You get your fun some other way. Well, same here.”

I did not argue but asked him, “And how do you get your fun?”

“Well,” he confessed, “we’ve all got a weak spot.”

“And what’s yours?”

“Vanity,” he said.

“Well,” I told him, “you’ve succeeded in getting me to sign on. Now
I want to sign off, and I am paying you two hundred dollars for ten
minutes’ work. Isn’t that enough for your pride?”

“No,” he answered. “You see, all the rest of the bunch have been
working Wall Street for months and failed to make expenses. They said
it was the fault of the goods and the territory. So the office sent for
me to prove that the fault was with their salesmanship and not with
the books or the place. They were working on a 25 per cent commission.
I was in Cleveland, where I sold eighty-two sets in two weeks. I am
here to sell a certain number of sets not only to people who did not
buy from the other agents but to people they couldn’t even get to see.
That’s why they give me 33⅓ per cent.”

“I can’t quite figure out how you sold me that set.”

“Why,” he said consolingly, “I sold J. P. Morgan a set.”

“No, you didn’t,” I said.

He wasn’t angry. He simply said, “Honest, I did.”

“A set of Walter Scott to J. P. Morgan, who not only has some fine
editions but probably the original manuscripts of some of the novels as
well?”

“Well, here’s his John Hancock.” And he promptly flashed on me a
contract signed by J. P. Morgan himself. It might not have been Mr.
Morgan’s signature, but it did not occur to me to doubt it at the time.
Didn’t he have mine in his pocket? All I felt was curiosity. So I asked
him, “How did you get past the librarian?”

“I didn’t see any librarian. I saw the Old Man himself. In the office.”

“That’s too much!” I said. Everybody knew that it was much harder to
get into Mr. Morgan’s private office empty handed than into the White
House with a parcel that ticked like an alarm clock.

But he declared, “I did.”

“But how did you get into his office?”

“How did I get into yours?” he retorted.

“I don’t know. You tell me,” I said.

“Well, the way I got into Morgan’s office and the way I got into yours
are the same. I just talked to the fellow at the door whose business it
was not to let me in. And the way I got Morgan to sign was the same
way I got you to sign. You weren’t signing a contract for a set of
books. You just took the fountain pen I gave you and did what I asked
you to do with it. No difference. Same as you.”

“And is that really Morgan’s signature?” I asked him, about three
minutes late with my skepticism.

“Sure! He learned how to write his name when he was a boy.”

“And that’s all there is to it?”

“That’s all,” he answered. “I know exactly what I am doing. That’s
all the secret there is. I am much obliged to you. Good day, Mr.
Livingston.” And he started to go out.

“Hold on,” I said. “I’m bound to have you make an even two hundred
dollars out of me.” And I handed him thirty-five dollars.

He shook his head. Then: “No,” he said. “I can’t do that. But I can do
this!” And he took the contract from his pocket, tore it in two and
gave me the pieces.

I counted two hundred dollars and held the money before him, but he
again shook his head.

“Isn’t that what you meant?” I said.

“No.”

“Then, why did you tear up the contract?”

“Because you did not whine, but took it as I would have taken it myself
had I been in your place.”

“But I offered you the two hundred dollars of my own accord,” I said.

“I know; but money isn’t everything.”

Something in his voice made me say, “You’re right; it isn’t. And now
what do you really want me to do for you?”

“You’re quick, aren’t you?” he said. “Do you really want to do
something for me?”

“Yes,” I told him, “I do. But whether I will or not depends what it is
you have in mind.”

“Take me with you into Mr. Ed Harding’s office and tell him to let me
talk to him three minutes by the clock. Then leave me alone with him.”

I shook my head and said, “He is a good friend of mine.”

“He’s fifty years old and a stock broker,” said the book agent.

That was perfectly true, so I took him into Ed’s office. I did not hear
anything more from or about that book agent. But one evening some weeks
later when I was going uptown I ran across him in a Sixth Avenue L
train. He raised his hat very politely and I nodded back. He came over
and asked me, “How do you do, Mr. Livingston? And how is Mr. Harding?”

“He’s well. Why do you ask?” I felt he was holding back a story.

“I sold him two thousand dollars’ worth of books that day you took me
in to see him.”

“He never said a word to me about it,” I said.

“No; that kind doesn’t talk about it.”

“What kind doesn’t talk?”

“The kind that never makes mistakes on account of its being bad
business to make them. That kind always knows what he wants and
nobody can tell him different. That is the kind that’s educating my
children and keeps my wife in good humor. You did me a good turn, Mr.
Livingston. I expected it when I gave up the two hundred dollars you
were so anxious to present to me.”

“And if Mr. Harding hadn’t given you an order?”

“Oh, but I knew he would. I had found out what kind of man he was. He
was a cinch.”

“Yes. But if he hadn’t bought any books?” I persisted.

“I’d have come back to you and sold you something. Good day, Mr.
Livingston. I am going to see the mayor.” And he got up as we pulled up
at Park Place.

“I hope you sell him ten sets,” I said. His Honor was a Tammany man.

“I’m a Republican, too,” he said, and went out, not hastily, but
leisurely, confident that the train would wait. And it did.

I have told you this story in such detail because it concerned a
remarkable man who made me buy what I did not wish to buy. He was the
first man who did that to me. There never should have been a second,
but there was. You can never bank on there being but one remarkable
salesman in the world or on complete immunization from the influence of
personality.

When Percy Thomas left my office, after I had pleasantly but definitely
declined to enter into a working alliance with him, I would have sworn
that our business paths would never cross. I was not sure I’d ever see
him again. But on the very next day he wrote me a letter thanking me
for my offers of help and inviting me to come and see him. I answered
that I would. He wrote again. I called.

I got to see a great deal of him. It was always a pleasure for me
to listen to him, he knew so much and he expressed his knowledge so
interestingly. I think he is the most magnetic man I ever met.

We talked of many things, for he is a widely read man with an
amazing grasp of many subjects and a remarkable gift for interesting
generalization. The wisdom of his speech is impressive; and as for
plausibility, he hasn’t an equal. I have heard many people accuse Percy
Thomas of many things, including insincerity, but I sometimes wonder
if his remarkable plausibility does not come from the fact that he
first convinces himself so thoroughly as to acquire thereby a greatly
increased power to convince others.

Of course we talked about market matters at great length. I was not
bullish on cotton, but he was. I could not see the bull side at all,
but he did. He brought up so many facts and figures that I ought to
have been overwhelmed, but I wasn’t. I couldn’t disprove them because
I could not deny their authenticity, but they did not shake my belief
in what I read for myself. But he kept at it until I no longer felt
sure of my own information as gathered from the trade papers and the
dailies. That meant I couldn’t set the market with my own eyes. A man
cannot be convinced against his own convictions, but he can be talked
into a state of uncertainty and indecision, which is even worse, for
that means that he cannot trade with confidence and comfort.

I cannot say that I got all mixed up, exactly, but I lost my poise; or
rather, I ceased to do my own thinking. I cannot give you in detail
the various steps by which I reached the state of mind that was to
prove so costly to me. I think it was his assurances of the accuracy
of his figures, which were exclusively his, and the undependability of
mine, which were not exclusively mine, but public property. He harped
on the utter reliability, as proved time and again, of all his ten
thousand correspondents throughout the South. In the end I came to read
conditions as he himself read them--because we were both reading from
the same page of the same book, held by him before my eyes. He has a
logical mind. Once I accepted his facts it was a cinch that my own
conclusions, derived from his facts, would agree with his own.

When he began his talks with me about the cotton situation I not only
was bearish but I was short of the market. Gradually, as I began
to accept his facts and figures, I began to fear I had been basing
my previous position on misinformation. Of course I could not feel
that way and not cover. And once I had covered because Thomas made
me think I was wrong, I simply had to go long. It is the way my mind
works. You know, I have done nothing in my life but trade in stocks
and commodities. I naturally think that if it is wrong to be bearish
it must be right to be a bull. And if it is right to be a bull it is
imperative to buy. As my old Palm Beach friend said Pat Hearne used to
say, “You can’t tell till you bet!” I must prove whether I am right on
the market or not; and the proofs are to be read only in my brokers’
statements at the end of the month.

I started in to buy cotton and in a jiffy I had my usual line, about
sixty thousand bales. It was the most asinine play of my career.
Instead of standing or falling by my own observation and deductions I
was merely playing another man’s game. It was eminently fitting that my
silly plays should not end with that. I not only bought when I had no
business to be bullish but I didn’t accumulate my line in accordance
with the promptings of experience. I wasn’t trading right. Having
listened, I was lost.

The market was not going my way. I am never afraid or impatient when
I am sure of my position. But the market didn’t act the way it should
have acted had Thomas been right. Having taken the first wrong step I
took the second and the third, and of course it muddled me all up. I
allowed myself to be persuaded not only into not taking my loss but
into holding up the market. That is a style of play foreign to my
nature and contrary to my trading principles and theories. Even as a
boy in the bucket shops I had known better. But I was not myself. I was
another man--a Thomasized person.

I not only was long of cotton but I was carrying a heavy line of
wheat. That was doing famously and showed me a handsome profit. My
fool efforts to bolster up cotton had increased my line to about one
hundred and fifty thousand bales. I may tell you that about this time
I was not feeling very well. I don’t say this to furnish an excuse for
my blunders, but merely to state a pertinent fact. I remember I went to
Bayshore for a rest.

While there I did some thinking. It seemed to me that my speculative
commitments were overlarge. I am not timid as a rule, but I got to
feeling nervous and that made me decide to lighten my load. To do this
I must clean up either the cotton or the wheat.

It seems incredible that knowing the game as well as I did and with
an experience of twelve or fourteen years of speculating in stocks
and commodities _I did precisely the wrong thing_. _The cotton showed
me a loss and I kept it. The wheat showed me a profit and I sold it
out._ It was an utterly foolish play, but all I can say in extenuation
is that it wasn’t really my deal, but Thomas’. _Of all speculative
blunders there are few greater than trying to average a losing game._
My cotton deal proved it to the hilt a little later. _Always sell
what shows you a loss and keep what shows you a profit._ That was so
obviously the wise thing to do and was so well known to me that even
now I marvel at myself for doing the reverse.

And so I sold my wheat, deliberately cut short my profit in it. After I
got out of it the price went up twenty cents a bushel without stopping.
If I had kept it I might have taken a profit of about eight million
dollars. And having decided to keep on with the losing proposition I
bought more cotton!

I remember very clearly how every day I would buy cotton, more cotton.
And why do you think I bought it? To keep the price from going down!
If that isn’t a supersucker play, what is? I simply kept putting up
more and more money--more money to lose eventually. My brokers and my
intimate friends couldn’t understand it; and they don’t to this day.
Of course if the deal had turned out differently I would have been a
wonder. More than once I was warned against placing too much reliance
on Percy Thomas’ brilliant analyses. To this I paid no heed, but kept
on buying cotton to keep it from going down. I was even buying it in
Liverpool. I accumulated four hundred and forty thousand bales before I
realized what I was doing. And then it was too late. So I sold out my
line.

I lost nearly all that I had made out of all my other deals in stocks
and commodities. I was not completely cleaned out, but I had left fewer
hundreds of thousands than I had millions before I met my brilliant
friend Percy Thomas. For me of all men to violate all the laws that
experience had taught me to observe in order to prosper was more than
asinine.

_To learn that a man can make foolish plays for no reason whatever was
a valuable lesson._ It cost me millions to learn that another dangerous
enemy to a trader is his susceptibility to the urgings of a magnetic
personality when plausibly expressed by a brilliant mind. It has always
seemed to me, however, that I might have learned my lesson quite as
well if the cost had been only one million. But Fate does not always
let you fix the tuition fee. She delivers the educational wallop and
presents her own bill, knowing you have to pay it, no matter what the
amount may be. Having learned what folly I was capable of I closed that
particular incident. Percy Thomas went out of my life.

There I was, with more than nine-tenths of my stake, as Jim Fisk used
to say, gone where the woodbine twineth--up the spout. I had been a
millionaire rather less than a year. My millions I had made by using
brains, helped by luck. I had lost them by reversing the process. I
sold my two yachts and was decidedly less extravagant in my manner of
living.

But that one blow wasn’t enough. Luck was against me. I ran up first
against illness and then against the urgent need of two hundred
thousand dollars in cash. A few months before that sum would have
been nothing at all; but now it meant almost the entire remnant of my
fleet-winged fortune. I had to supply the money and the question was:
Where would I get it? I didn’t want to take it out of the balance I
kept at my brokers’ because if I did I wouldn’t have much of a margin
left for my own trading; and I needed trading facilities more than
ever if I was to win back my millions quickly. There was only one
alternative that I could see, and that was to take it out of the stock
market!

Just think of it! If you know much about the average customer of the
average commission house you will agree with me that the hope of making
the stock market pay your bill is one of the most prolific sources of
loss in Wall Street. You will chip out all you have if you adhere to
your determination.

Why, in Harding’s office one winter a little bunch of high flyers
spent thirty or forty thousand dollars for an overcoat--and not one
of them lived to wear it. It so happened that a prominent floor
trader--who since has become world-famous as one of the dollar-a-year
men--came down to the Exchange wearing a fur overcoat lined with
sea otter. In those days, before furs went up sky high, that coat
was valued at only ten thousand dollars. Well, one of the chaps in
Harding’s office, Bob Keown, decided to get a coat lined with Russian
sable. He priced one uptown. The cost was about the same, ten thousand
dollars.

“That’s the devil of a lot of money,” objected one of the fellows.

“Oh, fair! Fair!” admitted Bob Keown amiably. “About a week’s
wages--unless you guys promise to present it to me as a slight but
sincere token of the esteem in which you hold the nicest man in the
office. Do I hear the presentation speech? No? Very well. I shall let
the stock market buy it for me!”

“Why do you want a sable coat?” asked Ed Harding.

“It would look particularly well on a man of my inches,” replied Bob,
drawing himself up.

“And how did you say you were going to pay for it?” asked Jim Murphy,
who was the star tip-chaser of the office.

“By a judicious investment of a temporary character, James. That’s
how,” answered Bob, who knew that Murphy merely wanted a tip.

Sure enough, Jimmy asked, “What stock are you going to buy?”

“Wrong as usual, friend. This is no time to buy anything. I propose to
sell five thousand Steel. It ought to go down ten points at the least.
I’ll just take two and a half points net. That is conservative, isn’t
it?”

“What do you hear about it?” asked Murphy eagerly. He was a tall thin
man with black hair and a hungry look, due to his never going out to
lunch for fear of missing something on the tape.

“I hear that coat’s the most becoming I ever planned to get.” He turned
to Harding and said, “Ed, sell five thousand U.S. Steel common at the
market. To-day, darling!”

He was a plunger, Bob was, and liked to indulge in humorous talk. It
was his way of letting the world know that he had an iron nerve. He
sold five thousand Steel, and the stock promptly went up. Not being
half as big an ass as he seemed when he talked, Bob stopped his loss
at one and a half points and confided to the office that the New
York climate was too benign for fur coats. They were unhealthy and
ostentatious. The rest of the fellows jeered. But it was not long
before one of them bought some Union Pacific to pay for the coat. He
lost eighteen hundred dollars and said sables were all right for the
outside of a woman’s wrap, but not for the inside of a garment intended
to be worn by a modest and intelligent man.

After that, one after another of the fellows tried to coax the market
to pay for that coat. One day I said I would buy it to keep the office
from going broke. But they all said that it wasn’t a sporting thing to
do; that if I wanted the coat for myself I ought to let the market give
it to me. But Ed Harding strongly approved of my intention and that
same afternoon I went to the furrier’s to buy it. I found out that a
man from Chicago had bought it the week before.

That was only one case. There isn’t a man in Wall Street who has
not lost money trying to make the market pay for an automobile or a
bracelet or a motor boat or a painting. I could build a huge hospital
with the birthday presents that the tight-fisted stock market has
refused to pay for. In fact, of all hoodoos in Wall Street I think the
resolve to induce the stock market to act as a fairy godmother is the
busiest and most persistent.

Like all well-authenticated hoodoos this has its reason for being.
What does a man do when he sets out to make the stock market pay for
a sudden need? Why, he merely hopes. He gambles. He therefore runs
much greater risks than he would if he were speculating intelligently,
in accordance with opinions or beliefs logically arrived at after a
dispassionate study of underlying conditions. To begin with, he is
after an immediate profit. He cannot afford to wait. The market must
be nice to him at once if at all. He flatters himself that he is not
asking more than to place an even-money bet. Because he is prepared
to run quick--say, stop his loss at two points when all he hopes to
make is two points--he hugs the fallacy that he is merely taking a
fifty-fifty chance. Why, I’ve known men to lose thousands of dollars
on such trades, particularly on purchases made at the height of a bull
market just before a moderate reaction. It certainly is no way to trade.

Well, that crowning folly of my career as a stock operator was the
last straw. It beat me. I lost what little my cotton deal had left me.
It did even more harm, for I kept on trading--and losing. I persisted
in thinking that the stock market must perforce make money for me in
the end. But the only end in sight was the end of my resources. I went
into debt, not only to my principal brokers but to other houses that
accepted business from me without my putting up an adequate margin. I
not only got in debt but I stayed in debt from then on.



_XIII_


There I was, once more broke, which was bad, and dead wrong in my
trading, which was a sight worse. I was sick, nervous, upset and unable
to reason calmly. That is, I was in the frame of mind in which no
speculator should be when he is trading. Everything went wrong with me.
Indeed, I began to think that I could not recover my departed sense of
proportion. Having grown accustomed to swinging a big line--say, more
than a hundred thousand shares of stock--I feared I would not show good
judgment trading in a small way. It scarcely seemed worthwhile being
right when all you carried was a hundred shares of stock. After the
habit of taking a big profit on a big line I wasn’t sure I would know
when to take my profit on a small line. I can’t describe to you how
weaponless I felt.

Broke again and incapable of assuming the offensive vigorously. In
debt and wrong! After all those long years of successes, tempered by
mistakes that really served to pave the way for greater successes, I
was now worse off than when I began in the bucket shops. I had learned
a great deal about the game of stock speculation, but I had not learned
quite so much about the play of human weaknesses. There is no mind
so machinelike that you can depend upon it to function with equal
efficiency at all times. I now learned that I could not trust myself to
remain equally unaffected by men and misfortunes at all times.

Money losses have never worried me in the slightest. But other
troubles could and did. I studied my disaster in detail and of course
found no difficulty in seeing just where I had been silly. I spotted
the exact time and place. A man must know himself thoroughly if he is
going to make a good job out of trading in the speculative markets. To
know what I was capable of in the line of folly was a long educational
step. I sometimes think that no price is too high for a speculator
to pay to learn that which will keep him from getting the swelled
head. A great many smashes by brilliant men can be traced directly to
the swelled head--an expensive disease everywhere to everybody, but
particularly in Wall Street to a speculator.

I was not happy in New York, feeling the way I did. I didn’t want to
trade, because I wasn’t in good trading trim. I decided to go away
and seek a stake elsewhere. The change of scene could help me to find
myself again, I thought. So once more I left New York, beaten by the
game of speculation. I was worse than broke, since I owed over one
hundred thousand dollars spread among various brokers.

I went to Chicago and there found a stake. It was not a very
substantial stake, but that merely meant that I would need a little
more time to win back my fortune. A house that I once had done business
with had faith in my ability as a trader and they were willing to prove
it by allowing me to trade in their office in a small way.

I began very conservatively. I don’t know how I might have fared had I
stayed there. But one of the most remarkable experiences in my career
cut short my stay in Chicago. It is an almost incredible story.

One day I got a telegram from Lucius Tucker. I had known him when he
was the office manager of a Stock Exchange firm that I had at times
given some business to, but I had lost track of him. The telegram read:

                    Come to New York at once.
                                        L. TUCKER.

I knew that he knew from mutual friends how I was fixed and therefore
it was certain he had something up his sleeve. At the same time I had
no money to throw away on an unnecessary trip to New York; so instead
of doing what he asked me to do I got him on the long distance.

“I got your telegram,” I said. “What does it mean?”

“It means that a big banker in New York wants to see you,” he answered.

“Who is it?” I asked. I couldn’t imagine who it could be.

“I’ll tell you when you come to New York. No use otherwise.”

“You say he wants to see me?”

“He does.”

“What about?”

“He’ll tell you in person if you give him a chance,” said Lucius.

“Can’t you write me?”

“No.”

“Then tell me more plainly,” I said.

“I don’t want to.”

“Look here, Lucius,” I said, “just tell me this much: Is this a fool
trip?”

“Certainly not. It will be to your advantage to come.”

“Can’t you give me an inkling?”

“No,” he said. “It wouldn’t be fair to him. And besides, I don’t know
just how much he wants to do for you. But take my advice: Come, and
come quick.”

“Are you sure it is I that he wishes to see?”

“Nobody else but you will do. Better come, I tell you. Telegraph me
what train you take and I’ll meet you at the station.”

“Very well,” I said, and hung up.

I didn’t like quite so much mystery, but I knew that Lucius was
friendly and that he must have a good reason for talking the way he
did. I wasn’t faring so sumptuously in Chicago that it would break my
heart to leave it. At the rate I was trading it would be a long time
before I could get together enough money to operate on the old scale.

I came back to New York, not knowing what would happen. Indeed, more
than once during the trip I feared nothing at all would happen and that
I’d be out my railroad fare and my time. I could not guess that I was
about to have the most curious experience of my entire life.

Lucius met me at the station and did not waste any time in telling me
that he had sent for me at the urgent request of Mr. Daniel Williamson,
of the well-known Stock Exchange house of Williamson & Brown. Mr.
Williamson told Lucius to tell me that he had a business proposition
to make to me that he was sure I would accept since it would be very
profitable for me. Lucius swore he didn’t know what the proposition
was. The character of the firm was a guaranty that nothing improper
would be demanded of me.

Dan Williamson was the senior member of the firm, which was founded by
Egbert Williamson way back in the ’70’s. There was no Brown and hadn’t
been one in the firm for years. The house had been, very prominent
in Dan’s father’s time and Dan had inherited a considerable fortune
and didn’t go after much outside business. They had one customer who
was worth a hundred average customers and that was Alvin Marquand,
Williamson’s brother-in-law, who in addition to being a director in
a dozen banks and trust companies was the president of the great
Chesapeake and Atlantic Railroad system. He was the most picturesque
personality in the railroad world after James J. Hill, and was the
spokesman and dominant member of the powerful banking coterie known as
the Fort Dawson gang. He was worth from fifty million to five hundred
million dollars, the estimate depending upon the state of the speaker’s
liver. When he died they found out that he was worth two hundred and
fifty million dollars, all made in Wall Street. So you see he was some
customer.

Lucius told me he had just accepted a position with Williamson &
Brown--one that was made for him. He was supposed to be a sort of
circulating general business getter. The firm was after a general
commission business and Lucius had induced Mr. Williamson to open a
couple of branch offices, one in one of the big hotels uptown and the
other in Chicago. I rather gathered that I was going to be offered a
position in the latter place, possibly as office manager, which was
something I would not accept. I didn’t jump on Lucius because I thought
I’d better wait until the offer was made before I refused it.

Lucius took me into Mr. Williamson’s private office, introduced me to
his chief and left the room in a hurry, as though he wished to avoid
being called as witness in a case in which he knew both parties. I
prepared to listen and then to say no.

Mr. Williamson was very pleasant. He was a thorough gentleman,
with polished manners and a kindly smile. I could see that he made
friends easily and kept them. Why not? He was healthy and therefore
good-humored. He had slathers of money and therefore could not be
suspected of sordid motives. These things, together with his education
and social training, made it easy for him to be not only polite but
friendly, and not only friendly but helpful.

I said nothing. I had nothing to say and, besides, I always let the
other man have his say in full before I do any talking. Somebody
told me that the late James Stillman, president of the National City
Bank--who, by the way, was an intimate friend of Williamson’s--made
it his practice to listen in silence, with an impassive face, to
anybody who brought a proposition to him. After the man got through Mr.
Stillman continued to look at him, as though the man had not finished.
So the man, feeling urged to say something more, did so. Simply by
looking and listening Stillman often made the man offer terms much more
advantageous to the bank than he had meant to offer when he began to
speak.

I don’t keep silent just to induce people to offer a better bargain,
but because I like to know all the facts of the case. By letting a man
have his say in full you are able to decide at once. It is a great
time-saver. It averts debates and prolonged discussions that get
nowhere. Nearly every business proposition that is brought to me can be
settled, as far as my participation in it is concerned, by my saying
yes or no. But I cannot say yes or no right off unless I have the
complete proposition before me.

Dan Williamson did the talking and I did the listening. He told me he
had heard a great deal about my operations in the stock market and how
he regretted that I had gone outside of my bailiwick and come a cropper
in cotton. Still it was to my bad luck that he owed the pleasure of
that interview with me. He thought my forte was the stock market, that
I was born for it and that I should not stray from it.

“And that is the reason, Mr. Livingston,” he concluded pleasantly, “why
we wish to do business with you.”

“Do business how?” I asked him.

“Be your brokers,” he said. “My firm would like to do your stock
business.”

“I’d like to give it to you,” I said, “but I can’t.”

“Why not?” he asked.

“I haven’t any money,” I answered.

“That part is all right,” he said with a friendly smile. “I’ll furnish
it.” He took out a pocket checkbook, wrote out a check for twenty-five
thousand dollars to my order, and gave it to me.

“What’s this for?” I asked.

“For you to deposit in your own bank. You will draw your own checks. I
want you to do your trading in our office. I don’t care whether you win
or lose. If that money goes I will give you another personal check. So
you don’t have to be so very careful with this one. See?”

I knew that the firm was too rich and prosperous to need anybody’s
business, much less to give a fellow the money to put up as margin.
And then he was so nice about it! Instead of giving me a credit with
the house he gave me the actual cash, so that he alone knew where
it came from, the only string being that if I traded I should do so
through his firm. And then the promise that there would be more if that
went! Still, there must be a reason.

“What’s the idea?” I asked him.

“The idea is simply that we want to have a customer in this office who
is known as a big active trader. Everybody knows that you swing a big
line on the short side, which is what I particularly like about you.
You are known as a plunger.”

“I still don’t get it,” I said.

“I’ll be frank with you, Mr. Livingston. We have two or three very
wealthy customers who buy and sell stocks in a big way. I don’t want
the Street to suspect them of selling long stock every time we sell
ten or twenty thousand shares of any stock. If the Street knows that
you are trading in our office it will not know whether it is your
short selling or the other customers’ long stock that is coming on the
market.”

I understood at once. He wanted to cover up his brother-in-law’s
operations with my reputation as a plunger! It so happened that I had
made my biggest killing on the bear side a year and a half before, and,
of course, the Street gossips and the stupid rumor-mongers had acquired
the habit of blaming me for every decline in prices. To this day when
the market is very weak they say I am raiding it.

I didn’t have to reflect. I saw at a glance that Dan Williamson was
offering me a chance to come back and come back quickly. I took the
check, banked it, opened an account with his firm and began trading. It
was a good active market, broad enough for a man not to have to stick
to one or two specialties. I had begun to fear, as I told you, that I
had lost the knack of hitting it right. But it seems I hadn’t. In three
weeks’ time I had made a profit of one hundred and twelve thousand
dollars out of the twenty-five thousand that Dan Williamson lent me.

I went to him and said, “I’ve come to pay you back that twenty-five
thousand dollars.”

“No, no!” he said and waved me away exactly as if I had offered him a
castor-oil cocktail. “No, no, my boy. Wait until your account amounts
to something. Don’t think about it yet. You’ve only got chicken feed
there.”

There is where I made the mistake that I have regretted more than any
other I ever made in my Wall Street career. It was responsible for long
and dreary years of suffering. I should have insisted on his taking the
money. I was on my way to a bigger fortune than I had lost and walking
pretty fast. For three weeks my average profit was 150 per cent per
week. From then on my trading would be on a steadily increasing scale.
But instead of freeing myself from all obligation I let him have his
way and did not compel him to accept the twenty-five thousand dollars.
Of course, since he didn’t draw out the twenty-five thousand dollars he
had advanced me I felt I could not very well draw out my profit. I was
very grateful to him, but I am so constituted that I don’t like to owe
money or favours. I can pay the money back with money, but the favours
and kindnesses I must pay back in kind--and you are apt to find these
moral obligations mighty high priced at times. Moreover there is no
statute of limitations.

I left the money undisturbed and resumed my trading. I was getting on
very nicely. I was recovering my poise and I was sure it would not be
very long before I should get back into my 1907 stride. Once I did
that, all I’d ask for would be for the market to hold out a little
while and I’d more than make up my losses. But making or not making
the money was not bothering me much. What made me happy was that I was
losing the habit of being wrong, of not being myself. It had played
havoc with me for months but I had learned my lesson.

Just about that time I turned bear and I began to sell short several
railroad stocks. Among them was Chesapeake & Atlantic. I think I put
out a short line in it; about eight thousand shares.

One morning when I got downtown Dan Williamson called me into his
private office before the market opened and said to me: “Larry, don’t
do anything in Chesapeake & Atlantic just now. That was a bad play of
yours, selling eight thousand short. I covered it for you this morning
in London and went long.”

I was sure Chesapeake & Atlantic was going down. The tape told it to
me quite plainly; and besides I was bearish on the whole market, not
violently or insanely bearish, but enough to feel comfortable with a
moderate short line out. I said to Williamson, “What did you do that
for? I am bearish on the whole market and they are all going lower.”

But he just shook his head and said, “I did it because I happen to know
something about Chesapeake & Atlantic that you couldn’t know. My advice
to you is not to sell that stock short until I tell you it is safe to
do so.”

What could I do? That wasn’t an asinine tip. It was advice that came
from the brother-in-law of the chairman of the board of directors. Dan
was not only Alvin Marquand’s closest friend but he had been kind and
generous to me. He had shown his faith in me and confidence in my word.
I couldn’t do less than to thank him. And so my feelings again won over
my judgment and I gave in. To subordinate my judgment to his desires
was the undoing of me. Gratitude is something a decent man can’t help
feeling, but it is for a fellow to keep it from completely tying him
up. The first thing I knew I not only had lost all my profit but I owed
the firm one hundred and fifty thousand dollars besides. I felt pretty
badly about it, but Dan told me not to worry.

“I’ll get you out of this hole,” he promised. “I know I will. But I
can only do it if you let me. You will have to stop doing business on
your own hook. I can’t be working for you and then have you completely
undo all my work in your behalf. Just lay off the market and give me a
chance to make some money for you. Won’t you, Larry?”

Again I ask you: What could I do? I thought of his kindliness and
I could not do anything that might be construed as lacking in
appreciation. I had grown to like him. He was very pleasant and
friendly. I remember that all I got from him was encouragement. He kept
on assuring me that everything would come out O.K. One day, perhaps
six months later, he came to me with a pleased smile and gave me some
credit slips.

“I told you I would pull you out of that hole,” he said, “and I have.”
And then I discovered that not only had he wiped out the debt entirely
but I had a small credit balance besides.

I think I could have run that up without much trouble, for the market
was right, but he said to me, “I have bought you ten thousand shares
of Southern Atlantic.” That was another road controlled by his
brother-in-law, Alvin Marquand, who also ruled the market destinies of
the stock.

When a man does for you what Dan Williamson did for me you can’t say
anything but “Thank you”--no matter what your market views may be. You
may be sure you’re right, but as Pat Hearne used to say: “You can’t
tell till you bet!” and Dan Williamson had bet for me--with his money.

Well, Southern Atlantic went down and stayed down and I lost, I forget
how much, on my ten thousand shares before Dan sold me out. I owed him
more than ever. But you never saw a nicer or less importunate creditor
in your life. Never a whimper from him. Instead, encouraging words and
admonitions not to worry about it. In the end the loss was made up for
me in the same generous but mysterious way.

He gave no details whatever. They were all numbered accounts. Dan
Williamson would just say to me, “We made up your Southern Atlantic
loss with profits on this other deal,” and he’d tell me how he had sold
seventy-five hundred shares of some other stock and made a nice thing
out of it. I can truthfully say that I never knew a blessed thing about
those trades of mine until I was told that the indebtedness was wiped
out.

After that happened several times I began to think, and I got to look
at my case from a different angle. Finally I tumbled. It was plain that
I had been used by Dan Williamson. It made me angry to think it, but
still angrier that I had not tumbled to it quicker. As soon as I had
gone over the whole thing in my mind I went to Dan Williamson, told
him I was through with the firm, and I quit the office of Williamson &
Brown. I had no words with him or any of his partners. What good would
that have done me? But I will admit that I was sore--at myself quite as
much as at Williamson & Brown.

The loss of the money didn’t bother me. Whenever I have lost money
in the stock market I have always considered that I have learned
something; that if I have lost money I have gained experience, so that
the money really went for a tuition fee. A man has to have experience
and he has to pay for it. But there was something that hurt a whole lot
in that experience of mine in Dan Williamson’s office, and that was the
loss of a great opportunity. The money a man loses is nothing; he can
make it up. But opportunities such as I had then do not come every day.

The market, you see, had been a fine trading market. I was right; I
mean, I was reading it accurately. The opportunity to make millions was
there. But I allowed my gratitude to interfere with my play. I tied
my own hands. I had to do what Dan Williamson in his kindness wished
done. Altogether it was more unsatisfactory than doing business with a
relative. Bad business!

And that wasn’t the worst thing about it. It was that after that there
was practically no opportunity for me to make big money. The market
flattened out. Things drifted from bad to worse. I not only lost all I
had but got into debt again--more heavily than ever. Those were long
lean years, 1911, 1912, 1913 and 1914. There was no money to be made.
The opportunity simply wasn’t there and so I was worse off than ever.

It isn’t uncomfortable to lose when the loss is not accompanied by a
poignant vision of what might have been. That was precisely what I
could not keep my mind from dwelling on, and of course it unsettled me
further. I learned that the weaknesses to which a speculator is prone
are almost numberless. It was proper for me as a man to act the way I
did in Dan Williamson’s office, but it was improper and unwise for me
as a speculator to allow myself to be influenced by any consideration
to act against my own judgment. _Noblesse oblige_--but not in the stock
market, because the tape is not chivalrous and moreover does not reward
loyalty. I realise that I couldn’t have acted differently. I couldn’t
make myself over just because I wished to trade in the stock market.
But business is business always, and my business as a speculator is to
back my own judgment always.

It was a very curious experience. I’ll tell you what I think happened.
Dan Williamson was perfectly sincere in what he told me when he first
saw me. Every time his firm did a few thousand shares in any one stock
the Street jumped at the conclusion that Alvin Marquand was buying or
selling. He was the big trader of the office, to be sure, and he gave
this firm all his business; and he was one of the best and biggest
traders they have ever had in Wall Street. Well, I was to be used as a
smoke screen, particularly for Marquand’s selling.

Alvin Marquand fell sick shortly after I went in. His ailment was early
diagnosed as incurable, and Dan Williamson of course knew it long
before Marquand himself did. That is why Dan covered my Chesapeake &
Atlantic stock. He had begun to liquidate some of his brother-in-law’s
speculative holdings of that and other stocks.

Of course when Marquand died the estate had to liquidate his
speculative and semispeculative lines, and by that time we had run
into a bear market. By tying me up the way he did, Dan was helping the
estate a whole lot. I do not speak boastfully when I say that I was a
very heavy trader and that I was dead right in my views on the stock
market. I know that Williamson remembered my successful operations
in the bear market of 1907 and he couldn’t afford to run the risk of
having me at large. Why, if I had kept on the way I was going I’d have
made so much money that by the time he was trying to liquidate part
of Alvin Marquand’s estate I would have been trading in hundreds of
thousands of shares. As an active bear I would have done damage running
into the millions of dollars to the Marquand heirs, for Alvin left only
a little over a couple of hundred millions.

It was much cheaper for them to let me get into debt and then to pay
off the debt than to have me in some other office operating actively on
the bear side. That is precisely what I would have been doing but for
my feeling that I must not be outdone in decency by Dan Williamson.

I have always considered this the most interesting and most unfortunate
of all my experiences as a stock operator. As a lesson it cost me a
disproportionately high price. It put off the time of my recovery
several years. I was young enough to wait with patience for the strayed
millions to come back. But five years is a long time for a man to be
poor. Young or old, it is not to be relished. I could do without the
yachts a great deal easier than I could without a market to come back
on. The greatest opportunity of a lifetime was holding before my very
nose the purse I had lost. I could not put out my hand and reach for
it. A very shrewd boy, that Dan Williamson; as slick as they make
them; farsighted, ingenious, daring. He is a thinker, has imagination,
detects the vulnerable spot in any man and can plan cold-bloodedly to
hit it. He did his own sizing up and soon doped out just what to do to
me in order to reduce me to complete inoffensiveness in the market.
He did not actually do me out of any money. On the contrary, he was
to all appearances extremely nice about it. He loved his sister, Mrs.
Marquand, and he did his duty toward her as he saw it.



_XIV_


It has always rankled in my mind that after I left Williamson & Brown’s
office the cream was off the market. We ran smack into a long moneyless
period; four mighty lean years. There was not a penny to be made. As
Billy Henriquez once said, “It was the kind of market in which not even
a skunk could make a scent.”

It looked to me as though I was in Dutch with destiny. It might have
been the plan of Providence to chasten me, but really I had not been
filled with such pride as called for a fall. I had not committed any of
those speculative sins which a trader must expiate on the debtor side
of the account. I was not guilty of a typical sucker play. What I had
done, or, rather, what I had left undone, was something for which I
would have received praise and not blame--north of Forty-second Street.
In Wall Street it was absurd and costly. But by far the worst thing
about it was the tendency it had to make a man a little less inclined
to permit himself human feelings in the ticker district.

I left Williamson’s and tried other brokers’ offices. In every one
of them I lost money. It served me right, because I was trying to
force the market into giving me what it didn’t have to give--to wit,
opportunities for making money. I did not find any trouble in getting
credit, because those who knew me had faith in me. You can get an idea
of how strong their confidence was when I tell you that when I finally
stopped trading on credit I owed well over one million dollars.

The trouble was not that I had lost my grip but that during those
four wretched years the opportunities for making money simply didn’t
exist. Still I plugged along, trying to make a stake and succeeding
only in increasing my indebtedness. After I ceased trading on my
own hook because I wouldn’t owe my friends any more money I made a
living handling accounts for people who believed I knew the game well
enough to beat it even in a dull market. For my services I received a
percentage of the profits--when there were any. That is how I lived.
Well, say that is how I sustained life.

Of course, I didn’t always lose, but I never made enough to allow me
materially to reduce what I owed. Finally, as things got worse, I felt
the beginnings of discouragement for the first time in my life.

Everything seemed to have gone wrong with me. I did not go about
bewailing the descent from millions and yachts to debts and the
simple life. I didn’t enjoy the situation, but I did not fill up with
self-pity. I did not propose to wait patiently for time and Providence
to bring about the cessation of my discomforts. I therefore studied
my problem. It was plain that the only way out of my troubles was by
making money. To make money I needed merely to trade successfully. I
had so traded before and I must do so once more. More than once in the
past I had run up a shoestring into hundreds of thousands. Sooner or
later the market would offer me an opportunity.

I convinced myself that whatever was wrong was wrong with me and not
with the market. Now what could be the trouble with me? I asked myself
that question in the same spirit in which I always study the various
phases of my trading problems. I thought about it calmly and came to
the conclusion that my main trouble came from worrying over the money
I owed. I was never free from the mental discomfort of it. I must
explain to you that it was not mere consciousness of my indebtedness.
Any business man contracts debts in the course of his regular business.
Most of my debts were really nothing but business debts, due to
what were unfavourable business conditions for me, and no worse than
a merchant suffers from, for instance, when there is an unusually
prolonged spell of unseasonable weather.

Of course as time went on and I could not pay I began to feel less
philosophical about my debts. I’ll explain: I owed over a million
dollars--all of it stock-market losses, remember. Most of my creditors
were very nice and didn’t bother me; but there were two who did bedevil
me. They used to follow me around. Every time I made a winning each of
them was Johnny-on-the-spot, wanting to know all about it and insisting
on getting theirs right off. One of them, to whom I owed eight hundred
dollars, threatened to sue me, seize my furniture, and so forth. I
can’t conceive why he thought I was concealing assets, unless it was
that I didn’t quite look like a stage hobo about to die of destitution.

As I studied the problem I saw that it wasn’t a case that called for
reading the tape but for reading my own self. I quite cold-bloodedly
reached the conclusion that I would never be able to accomplish
anything useful so long as I was worried, and it was equally plain that
I should be worried so long as I owed money. I mean, as long as any
creditor had the power to vex me or to interfere with my coming back by
insisting upon being paid before I could get a decent stake together.
This was all so obviously true that I said to myself, “I must go
through bankruptcy.” What else could relieve my mind?

It sounds both easy and sensible, doesn’t it? But it was more than
unpleasant, I can tell you. I hated to do it. I hated to put myself
in a position to be misunderstood or misjudged. I myself never cared
much for money. I never thought enough of it to consider it worthwhile
lying for. But I knew that everybody didn’t feel that way. Of course I
also knew that if I got on my feet again I’d pay everybody off, for the
obligation remained. But unless I was able to trade in the old way I’d
never be able to pay back that million.

I nerved myself and went to see my creditors. It was a mighty difficult
thing for me to do, for all that most of them were personal friends or
old acquaintances.

I explained the situation quite frankly to them. I said: “I am not
going to take this step because I don’t wish to pay you but because,
in justice to both myself and you, I must put myself in a position to
make money. I have been thinking of this solution off and on for over
two years, but I simply didn’t have the nerve to come out and say so
frankly to you. It would have been infinitely better for all of us if
I had. It all simmers down to this: I positively cannot be my old self
while I am harassed or upset by these debts. I have decided to do now
what I should have done a year ago. I have no other reason than the one
I have just given you.”

What the first man said was to all intents and purposes what all of
them said. He spoke for his firm.

“Livingston,” he said, “we understand. We realise your position
perfectly. I’ll tell you what we’ll do: we’ll just give you a release.
Have your lawyer prepare any kind of paper you wish, and we’ll sign it.”

That was in substance what all my big creditors said. That is one
side of Wall Street for you. It wasn’t merely careless good nature
or sportsmanship. It was also a mighty intelligent decision, for it
was clearly good business. I appreciated both the good will and the
business gumption.

These creditors gave me a release on debts amounting to over a million
dollars. But there were the two minor creditors who wouldn’t sign off.
One of them was the eight-hundred-dollar man I told you about. I also
owed sixty thousand dollars to a brokerage firm which had gone into
bankruptcy, and the receivers, who didn’t know me from Adam, were on
my neck early and late. Even if they had been disposed to follow the
example set by my largest creditors I don’t suppose the court would
have let them sign off. At all events my schedule of bankruptcy
amounted to only about one hundred thousand dollars; though, as I said,
I owed well over a million.

It was extremely disagreeable to see the story in the newspapers. I
had always paid my debts in full and this new experience was most
mortifying to me. I knew I’d pay off everybody some day if I lived,
but everybody who read the article wouldn’t know it. I was ashamed to
go out after I saw the report in the newspapers. But it all wore off
presently and I cannot tell you how intense was my feeling of relief to
know that I wasn’t going to be harried any more by people who didn’t
understand how a man must give his entire mind to his business--if he
wishes to succeed in stock speculation.

My mind now being free to take up trading with some prospect of
success, unvexed by debts, the next step was to get another stake. The
Stock Exchange had been closed from July thirty-first to the middle of
December, 1914, and Wall Street was in the dumps. There hadn’t been any
business whatever in a long time. I owed all my friends. I couldn’t
very well ask them to help me again just because they had been so
pleasant and friendly to me, when I knew that nobody was in a position
to do much for anybody.

It was a mighty difficult task, getting a decent stake, for with the
closing of the Stock Exchange there was nothing that I could ask any
broker to do for me. I tried in a couple of places. No use.

Finally I went to see Dan Williamson. This was in February, 1915. I
told him that I had rid myself of the mental incubus of debt and I was
ready to trade as of old. You will recall that when he needed me he
offered me the use of twenty-five thousand dollars without my asking
him.

Now that I needed him he said, “When you see something that looks good
to you and you want to buy five hundred shares go ahead and it will be
all right.”

I thanked him and went away. He had kept me from making a great deal of
money and the office had made a lot in commissions from me. I admit
I was a little sore to think that Williamson & Brown didn’t give me a
decent stake. I intended to trade conservatively at first. It would
make my financial recovery easier and quicker if I could begin with a
line a little better than five hundred shares. But, anyhow, I realised
that, such as it was, there was my chance to come back.

I left Dan Williamson’s office and studied the situation in general
and my own problem in particular. It was a bull market. That was as
plain to me as it was to thousands of traders. But my stake consisted
merely of an offer to carry five hundred shares for me. That is, I had
no leeway, limited as I was. I couldn’t afford even a slight setback at
the beginning. I must build up my stake with my very first play. That
initial purchase of mine of five hundred shares must be profitable. I
had to make real money. I knew unless I had sufficient trading capital
I would not be able to use good judgment. Without adequate margins it
would be impossible to take the cold-blooded, dispassionate attitude
toward the game that comes from the ability to afford a few minor
losses such as I often incurred in testing the market before putting
down the big bet.

I think now that I found myself then at the most critical period of
my career as a speculator. If I failed this time there was no telling
where or when, if ever, I might get another stake for another try. It
was very clear that I simply must wait for the exact psychological
moment.

I didn’t go near Williamson & Brown’s. I mean, I purposely kept away
from them for six long weeks of steady tape reading. I was afraid
that if I went to the office, knowing that I could buy five hundred
shares, I might be tempted into trading at the wrong time or in the
wrong stock. A trader, in addition to studying basic conditions,
remembering market precedents and keeping in mind the psychology of
the outside public as well as the limitations of his brokers, must
also know himself and provide against his own weaknesses. There is no
need to feel anger over being human. I have come to feel that it is as
necessary to know how to read myself as to know how to read the tape. I
have studied and reckoned on my own reactions to given impulses or to
the inevitable temptations of an active market, quite in the same mood
and spirit as I have considered crop conditions or analysed reports of
earnings.

So day after day, broke and anxious to resume trading, I sat in front
of a quotation-board in another broker’s office where I couldn’t buy or
sell as much as one share of stock, studying the market, not missing a
single transaction on the tape, watching for the psychological moment
to ring the full-speed-ahead bell.

By reason of conditions known to the whole world the stock I was most
bullish on in those critical days of early 1915 was Bethlehem Steel. I
was morally certain it was going way up, but in order to make sure that
I would win on my very first play, as I must, I decided to wait until
it crossed par.

I think I have told you it has been my experience that _whenever a
stock crosses 100 or 200 or 300 for the first time, it nearly always
keeps going up for 30 to 50 points--and after 300 faster than after
100 or 200_. One of my first big coups was in Anaconda, which I bought
when it crossed 200 and sold a day later at 260. My practice of buying
a stock just after it crossed par dated back to my early bucket-shop
days. It is an old trading principle.

You can imagine how keen I was to get back to trading on my old scale.
I was so eager to begin that I could not think of anything else; but I
held myself in leash. I saw Bethlehem Steel climb, every day, higher
and higher, as I was sure it would, and yet there I was checking my
impulse to run over to Williamson & Brown’s office and buy five hundred
shares. I knew I simply had to make my initial operation as nearly a
cinch as was humanly possible.

Every point that stock went up meant five hundred dollars I had not
made. The first ten points’ advance meant that I would have been able
to pyramid, and instead of five hundred shares I might now be carrying
one thousand shares that would be earning for me one thousand dollars
a point. But I sat tight and instead of listening to my loud-mouthed
hopes or to my clamorous beliefs I heeded only the level voice of my
experience and the counsel of common sense. Once I got a decent stake
together I could afford to take chances. But without a stake, taking
chances, even slight chances, was a luxury utterly beyond my reach. Six
weeks of patience--but, in the end, a victory for common sense over
greed and hope!

I really began to waver and sweat blood when the stock got up to 90.
Think of what I had not made by not buying, when I was so bullish.
Well, when it got to 98 I said to myself, “Bethlehem is going through
100, and when it does the roof is going to blow clean off!” The tape
said the same thing more than plainly. In fact, it used a megaphone.
I tell you, I saw _100_ on the tape when the ticker was only printing
_98_. And I knew that wasn’t the voice of my hope or the sight of my
desire, but the assertion of my tape-reading instinct. So I said to
myself, “I can’t wait until it gets through 100. I have to get it now.
It is as good as gone through par.”

I rushed to Williamson & Brown’s office and put in an order to buy five
hundred shares of Bethlehem Steel. The market was then 98. I got five
hundred shares at 98 to 99. After that she shot right up, and closed
that night, I think, at 114 or 115. I bought five hundred shares more.

The next day Bethlehem Steel was 145 and I had my stake. But I earned
it. Those six weeks of waiting for the right moment were the most
strenuous and wearing six weeks I ever put in. But it paid me, for I
now had enough capital to trade in fair-sized lots. I never would have
got anywhere just on five hundred shares of stock.

There is a great deal in starting right, whatever the enterprise may
be, and I did very well after my Bethlehem deal--so well, indeed,
that you would not have believed it was the selfsame man trading. As a
matter of fact I wasn’t the same man, for where I had been harassed and
wrong I was now at ease and right. There were no creditors to annoy and
no lack of funds to interfere with my thinking or with my listening to
the truthful voice of experience, and so I was winning right along.

All of a sudden, as I was on my way to a sure fortune, we had the
_Lusitania_ break. Every once in a while a man gets a crack like that
in the solar plexus, probably that he may be reminded of the sad fact
that no human being can be so uniformly right on the market as to be
beyond the reach of unprofitable accidents. I have heard people say
that no professional speculator need have been hit very hard by the
news of the torpedoing of the _Lusitania_, and they go on to tell how
they had it long before the Street did. I was not clever enough to
escape by means of advance information, and all I can tell you is that
on account of what I lost through the _Lusitania_ break and one or two
other reverses that I wasn’t wise enough to foresee, I found myself
at the end of 1915 with a balance at my brokers’ of about one hundred
and forty thousand dollars. That was all I actually made, though I was
consistently right on the market throughout the greater part of the
year.

I did much better during the following year. I was very lucky. I was
rampantly bullish in a wild bull market. Things were certainly coming
my way so that there wasn’t anything to do but to make money. It
made me remember a saying of the late H. H. Rogers, of the Standard
Oil Company, to the effect that there were times when a man could no
more help making money than he could help getting wet if he went out
in a rainstorm without an umbrella. It was the most clearly defined
bull market we ever had. It was plain to everybody that the Allied
purchases of all kinds of supplies here made the United States the most
prosperous nation in the world. We had all the things that no one else
had for sale, and we were fast getting all the cash in the world.
I mean that the wide world’s gold was pouring into this country in
torrents. Inflation was inevitable, and, of course, that meant rising
prices for everything.

All this was so evident from the first that little or no manipulation
for the rise was needed. That was the reason why the preliminary
work was so much less than in other bull markets. And not only was
the war-bride boom more naturally developed than all others but it
proved unprecedentedly profitable for the general public. That is, the
stock-market winnings during 1915 were more widely distributed than in
any other boom in the history of Wall Street. That the public did not
turn all their paper profits into good hard cash or that they did not
long keep what profits they actually took was merely history repeating
itself. Nowhere does history indulge in repetitions so often or so
uniformly as in Wall Street. When you read contemporary accounts of
booms or panics the one thing that strikes you most forcibly is how
little either stock speculation or stock speculators to-day differ from
yesterday. The game does not change and neither does human nature.

I went along with the rise in 1916. I was as bullish as the next man,
but of course I kept my eyes open. I knew, as everybody did, that there
must be an end, and I was on the watch for warning signals. I wasn’t
particularly interested in guessing from which quarter the tip would
come and so I didn’t stare at just one spot. I was not, and I never
have felt that I was, wedded indissolubly to one or the other side of
the market. That a bull market has added to my bank account or a bear
market has been particularly generous I do not consider sufficient
reason for sticking to the bull or the bear side after I receive the
get-out warning. _A man does not swear eternal allegiance to either the
bull or the bear side. His concern lies with being right._

_And there is another thing to remember, and that is that a market
does not culminate in one grand blaze of glory. Neither does it end
with a sudden reversal of form. A market can and does often cease to
be a bull market long before prices generally begin to break._ My long
expected warning came to me when I noticed that, one after another,
_those stocks which had been the leaders of the market reacted several
points from the top and--for the first time in many months--did not
come back_. Their race evidently was run, and that clearly necessitated
a change in my trading tactics.

It was simple enough. In a bull market the trend of prices, of course,
is decidedly and definitely upward. Therefore whenever a stock goes
against the general trend you are justified in assuming that there
is something wrong with that particular stock. It is enough for the
experienced trader to perceive that something is wrong. He must not
expect the tape to become a lecturer. His job is to listen for it to
say “Get out!” and not wait for it to submit a legal brief for approval.

As I said before, _I noticed that stocks which had been the leaders
of the wonderful advance had ceased to advance. They dropped six or
seven points and stayed there. At the same time the rest of the market
kept on advancing under new standard bearers._ Since nothing wrong had
developed with the companies themselves, the reason had to be sought
elsewhere. Those stocks had gone with the current for months. When they
ceased to do so, though the bull tide was still running strong, it
meant that for those particular stocks the bull market was over. For
the rest of the list the tendency was still decidedly upward.

There was no need to be perplexed into inactivity, for there were
really no cross currents. I did not turn bearish on the market then,
because the tape didn’t tell me to do so. The end of the bull market
had not come, though it was within hailing distance. Pending its
arrival there was still bull money to be made. _Such being the case,
I merely turned bearish on the stocks which had stopped advancing and
as the rest of the market had rising power behind it I both bought and
sold._

The leaders that had ceased to lead I sold. I put out a short line of
five thousand shares in each of them; and then I went long of the new
leaders. The stocks I was short of didn’t do much, but my long stocks
kept on rising. When finally these in turn ceased to advance I sold
them out and went short--five thousand shares of each. By this time I
was more bearish than bullish, because obviously the next big money was
going to be made on the down side. While I felt certain that the bear
market had really begun before the bull market had really ended, I knew
the time for being a rampant bear was not yet. There was no sense in
being more royalist than the king; especially in being so too soon. The
tape merely said that patrolling parties from the main bear army had
dashed by. Time to get ready.

I kept on both buying and selling until after about a month’s trading
I had out a short line of sixty thousand shares--five thousand shares
each in a dozen different stocks which earlier in the year had been the
public’s favourites because they had been the leaders of the great bull
market. It was not a very heavy line; but don’t forget that neither was
the market definitely bearish.

Then one day the entire market became quite weak and prices of all
stocks began to fall. When I had a profit of at least four points in
each and every one of the twelve stocks that I was short of, I knew
that I was right. The tape told me it was now safe to be bearish, so I
promptly doubled up.

I had my position. I was short of stocks in a market that now was
plainly a bear market. There wasn’t any need for me to push things
along. The market was bound to go my way, and, knowing that, I could
afford to wait. After I doubled up I didn’t make another trade for a
long time. About seven weeks after I put out my full line, we had the
famous “leak,” and stocks broke badly. It was said that somebody had
advance news from Washington that President Wilson was going to issue
a message that would bring back the dove of peace to Europe in a hurry.
Of course the war-bride boom was started and kept up by the World War,
and peace was a bear item. When one of the cleverest traders on the
floor was accused of profiting by advance information he simply said he
had sold stocks not on any news but because he considered that the bull
market was overripe. I myself had doubled my line of shorts seven weeks
before.

On the news the market broke badly and I naturally covered. It was the
only play possible. _When something happens on which you did not count
when you made your plans it behooves you to utilise the opportunity
that a kindly fate offers you._ For one thing, on a bad break like
that you have a big market, one that you can turn around in, and that
is the time to turn your paper profits into real money. Even in a bear
market a man cannot always cover one hundred and twenty thousand shares
of stock without putting up the price on himself. He must wait for the
market that will allow him to buy that much at no damage to his profit
as it stands him on paper.

I should like to point out that I was not counting on that particular
break at that particular time for that particular reason. But, as I
have told you before, my experience of thirty years as a trader is that
such _accidents are usually along the line of least resistance on_
which I base my position in the market. Another thing to bear in mind
is this: _Never try to sell at the top._ It isn’t wise. _Sell after a
reaction if there is no rally._

I cleared about three million dollars in 1916 by being bullish as long
as the bull market lasted and then by being bearish when the bear
market started. As I said before, a man does not have to marry one side
of the market till death do them part.

That winter I went South, to Palm Beach, as I usually do for a
vacation, because I am very fond of salt-water fishing. I was short
of stocks and wheat, and both lines showed me a handsome profit. There
wasn’t anything to annoy me and I was having a good time. Of course
unless I go to Europe I cannot really be out of touch with the stock or
commodities markets. For instance, in the Adirondacks I have a direct
wire from my broker’s office to my house.

In Palm Beach I used to go to my broker’s branch office regularly.
I noticed that cotton, in which I had no interest, was strong and
rising. About that time--this was in 1917--I heard a great deal about
the efforts that President Wilson was making to bring about peace. The
reports came from Washington, both in the shape of press dispatches and
private advice to friends in Palm Beach. That is the reason why one
day I got the notion that the course of the various markets reflected
confidence in Mr. Wilson’s success. With peace supposedly close at
hand, stocks and wheat ought to go down and cotton up. I was all set as
far as stocks and wheat went, but I had not done anything in cotton in
some time.

At 2:20 that afternoon I did not own a single bale, but at 2:25 my
belief that peace was impending made me buy fifteen thousand bales as
a starter. I proposed to follow my old system of trading--that is, of
buying my full line--which I have already described to you.

That very afternoon, after the market closed, we got the Unrestricted
Warfare note. There wasn’t anything to do except to wait for the market
to open the next day. I recall that at Gridley’s that night one of the
greatest captains of industry in the country was offering to sell any
amount of United States Steel at five points below the closing price
that afternoon. There were several Pittsburgh millionaires within
hearing. Nobody took the big man’s offer. They knew there was bound to
be a whopping big break at the opening.

Sure enough, the next morning the stock and commodity markets were in
an uproar, as you can imagine. Some stocks opened eight points below
the previous night’s close. To me that meant a heaven-sent opportunity
to cover all my shorts profitably. As I said before, _in a bear
market it is always wise to cover if complete demoralisation suddenly
develops_. That is the only way, if you swing a good-sized line, of
turning a big paper profit into real money both quickly and without
regrettable reductions. For instance, I was short fifty thousand shares
of United States Steel alone. Of course I was short of other stocks,
and when I saw I had the market to cover in, I did. My profits amounted
to about one and a half million dollars. It was not a chance to
disregard.

Cotton, of which I was long fifteen thousand bales, bought in the last
half hour of the trading the previous afternoon, opened down five
hundred points. Some break! It meant an overnight loss of three hundred
and seventy-five thousand dollars. While it was perfectly clear that
the only wise play in stocks and wheat was to cover on the break I was
not so clear as to what I ought to do in cotton. There were various
things to consider, and while I always take my loss the moment I am
convinced I am wrong, I did not like to take that loss that morning.
Then I reflected that I had gone South to have a good time fishing
instead of perplexing myself over the course of the cotton market. And,
moreover, I had taken such big profits in my wheat and in stocks that
I decided to take my loss in cotton. I would figure that my profit had
been a little more than one million instead of over a million and a
half. It was all a matter of bookkeeping, as promoters are apt to tell
you when you ask too many questions.

If I hadn’t bought that cotton just before the market closed the day
before, I would have saved that four hundred thousand dollars. It shows
you how quickly a man may lose big money on a moderate line. My main
position was absolutely correct and I benefited by an accident of a
nature diametrically opposite to the considerations that led me to
take the position I did in stocks and wheat. Observe, please, that the
speculative line of least resistance again demonstrated its value to
a trader. Prices went as I expected, notwithstanding the unexpected
market factor introduced by the German note. If things had turned out
as I had figured I would have been 100 per cent right in all three of
my lines, for with peace stocks and wheat would have gone down and
cotton would have gone kiting up. I would have cleaned up in all three.
Irrespective of peace or war, I was right in my position on the stock
market and in wheat and that is why the unlooked-for event helped.
In cotton I based my play on something that might happen outside
of the market--that is, I bet on Mr. Wilson’s success in his peace
negotiations. It was the German military leaders who made me lose the
cotton bet.

When I returned to New York early in 1917 I paid back all the money
I owed, which was over a million dollars. It was a great pleasure to
me to pay my debts. I might have paid it back a few months earlier,
but I didn’t for a very simple reason. I was trading actively and
successfully and I needed all the capital I had. I owed it to myself as
well as to the men I considered my creditors to take every advantage of
the wonderful markets we had in 1915 and 1916. I knew that I would make
a great deal of money and I wasn’t worrying because I was letting them
wait a few months longer for money many of them never expected to get
back. I did not wish to pay off my obligations in driblets or to one
man at a time, but in full to all at once. So as long as the market was
doing all it could for me I just kept on trading on as big a scale as
my resources permitted.

I wished to pay interest, but all those creditors who had signed
releases positively refused to accept it. The man I paid off the last
of all was the chap I owed the eight hundred dollars to, who had made
my life a burden and had upset me until I couldn’t trade. I let him
wait until he heard that I had paid off all the others. Then he got his
money. I wanted to teach him to be considerate the next time somebody
owed him a few hundreds.

And that is how I came back.

After I paid off my debts in full I put a pretty fair amount into
annuities. I made up my mind I wasn’t going to be strapped and
uncomfortable and minus a stake ever again. Of course, after I married
I put some money in trust for my wife. And after the boy came I put
some in trust for him.

The reason I did this was not alone the fear that the stock market
might take it away from me, but because I knew that a man will spend
anything he can lay his hands on. By doing what I did my wife and child
are safe from me.

More than one man I know has done the same thing, but has coaxed his
wife to sign off when he needed the money, and he has lost it. But I
have fixed it up so that no matter what I want or what my wife wants,
that trust holds. It is absolutely safe from all attacks by either of
us; safe from my market needs; safe even from a devoted wife’s love.
I’m taking no chances!



_XV_


Among the hazards of speculation the happening of the unexpected--I
might even say of the unexpectable--ranks high. _There are certain
chances that the most prudent man is justified in taking--chances
that he must take if he wishes to be more than a mercantile mollusk._
Normal business hazards are no worse than the risks a man runs when
he goes out of his house into the street or sets out on a railroad
journey. When I lose money by reason of some development which nobody
could foresee I think no more vindictively of it than I do of an
inconveniently timed storm. Life itself from the cradle to the grave is
a gamble and what happens to me because I do not possess the gift of
second sight I can bear undisturbed. But there have been times in my
career as a speculator when I have both been right and played square
and nevertheless I have been cheated out of my earnings by the sordid
unfairness of unsportsmanlike opponents.

Against misdeeds by crooks, cowards and crowds a quick-thinking or
far-sighted businessman can protect himself. I have never gone up
against downright dishonesty except in a bucket shop or two because
even there honesty was the best policy; the big money was in being
square and not in welshing. I have never thought it good business to
play any game in any place where it was necessary to keep an eye on
the dealer because he was likely to cheat if unwatched. But against
the whining welsher the decent man is powerless. Fair play is fair
play. I could tell you a dozen instances where I have been the victim
of my own belief in the sacredness of the pledged word or of the
inviolability of a gentlemen’s agreement. I shall not do so because no
useful purpose can be served thereby.

Fiction writers, clergymen and women are fond of alluding to the floor
of the Stock Exchange as a boodlers’ battlefield and to Wall Street’s
daily business as a fight. It is quite dramatic but utterly misleading.
I do not think that my business is strife and contest. I never
fight either individuals or speculative cliques. I merely differ in
opinion--that is, in my reading of basic conditions. What playwrights
call battles of business are not fights between human beings. They are
merely tests of business vision. _I try to stick to facts and facts
only, and govern my actions accordingly. That is Bernard M. Baruch’s
recipe for success in wealth-winning._ Sometimes I do not see the
facts--all the facts--clearly enough or early enough; or else I do not
reason logically. Whenever any of these things happen I lose. I am
wrong. And it always costs me money to be wrong.

No reasonable man objects to paying for his mistakes. There are no
preferred creditors in mistake-making and no exceptions or exemptions.
But I object to losing money when I am right. I do not mean, either,
those deals that have cost me money because of sudden changes in the
rules of some particular exchange. I have in mind certain hazards of
speculation that from time to time remind a man that no profit should
be counted safe until it is deposited in your bank to your credit.

After the Great War broke out in Europe there began the rise in the
prices of commodities that was to be expected. It was as easy to
foresee that as to foresee war inflation. Of course the general advance
continued as the war prolonged itself. As you may remember, I was busy
“coming back” in 1915. The boom in stocks was there and it was my duty
to utilise it. My safest, easiest and quickest big play was in the
stock market, and I was lucky, as you know.

By July, 1917, I not only had been able to pay off all my debts but was
quite a little to the good besides. This meant that I now had the time,
the money and the inclination to consider trading in commodities as
well as in stocks. For many years I have made it my practice to study
all the markets. The advance in commodity prices over the pre-war level
ranged from 100 to 400 per cent. There was only one exception, and that
was coffee. Of course there was a reason for this. The breaking out
of the war meant the closing up of European markets and huge cargoes
were sent to this country, which was the one big market. That led in
time to an enormous surplus of raw coffee here, and that, in turn, kept
the price low. Why, when I first began to consider its speculative
possibilities coffee was actually selling below pre-war prices. If the
reasons for this anomaly were plain, no less plain was it that the
active and increasingly efficient operation by the German and Austrian
submarines must mean an appalling reduction in the number of ships
available for commercial purposes. This eventually in turn must lead
to dwindling imports of coffee. With reduced receipts and an unchanged
consumption the surplus stocks must be absorbed, and when that happened
the price of coffee must do what the prices of all other commodities
had done, which was, go way up.

It didn’t require a Sherlock Holmes to size up the situation. Why
everybody did not buy coffee I cannot tell you. When I decided to
buy it I did not consider it a speculation. It was much more of an
investment. I knew it would take time to cash in, but I knew also
that it was bound to yield a good profit. That made it a conservative
investment operation--a banker’s act rather than a gambler’s play.

I started my buying operations in the winter of 1917. I took quite
a lot of coffee. The market, however, did nothing to speak of. It
continued inactive and as for the price, it did not go up as I had
expected. The outcome of it all was that I simply carried my line to
no purpose for nine long months. My contracts expired then and I sold
out all my options. I took a whopping big loss on that deal and yet I
was sure my views were sound. I had been clearly wrong in the matter of
time, but I was confident that coffee must advance as all commodities
had done, so that no sooner had I sold out my line than I started in to
buy again. I bought three times as much coffee as I had so unprofitably
carried during those nine disappointing months. Of course I bought
deferred options--for as long a time as I could get.

I was not so wrong now. As soon as I had taken on my trebled line the
market began to go up. People everywhere seemed to realise all of a
sudden what was bound to happen in the coffee market. It began to
look as if my investment was going to return me a mighty good rate of
interest.

The sellers of the contracts I held were roasters, mostly of German
names and affiliations, who had bought the coffee in Brazil confidently
expecting to bring it to this country. But there were no ships to bring
it, and presently they found themselves in the uncomfortable position
of having no end of coffee down there and being heavily short of it to
me up here.

Please bear in mind that I first became bullish on coffee while the
price was practically at a pre-war level, and don’t forget that after I
bought it I carried it the greater part of a year and then took a big
loss on it. The punishment for being wrong is to lose money. The reward
for being right is to make money. Being clearly right and carrying a
big line, I was justified in expecting to make a killing. It would not
take much of an advance to make my profit satisfactory to me, for I was
carrying several hundred thousand bags. I don’t like to talk about my
operations in figures because sometimes they sound rather formidable
and people might think I was boasting. As a matter of fact I trade
in accordance to my means and always leave myself an ample margin
of safety. In this instance I was conservative enough. The reason I
bought options so freely was because I couldn’t see how I could lose.
Conditions were in my favour. I had been made to wait a year, but now I
was going to be paid both for my waiting and for being right. I could
see the profit coming--fast. There wasn’t any cleverness about it. It
was simply that I wasn’t blind.

Coming sure and fast, that profit of millions! But it never reached
me. No; it wasn’t side-tracked by a sudden change in conditions. The
market did not experience an abrupt reversal of form. Coffee did not
pour into the country. What happened? The unexpectable! What had never
happened in anybody’s experience; what I therefore had no reason
to guard against. I added a new one to the long list of hazards of
speculation that I must always keep before me. It was simply that the
fellows who had sold me the coffee, the shorts, knew what was in store
for them, and in their efforts to squirm out of the position into which
they had sold themselves, devised a new way of welshing. They rushed to
Washington for help, and got it.

Perhaps you remember that the Government had evolved various plans
for preventing further profiteering in necessities. You know how
most of them worked. Well, the philanthropic coffee shorts appeared
before the Price Fixing Committee of the War Industries Board--I
think that was the official designation--and made a patriotic appeal
to that body to protect the American breakfaster. They asserted that
a professional speculator, one Lawrence Livingston, had cornered,
or was about to corner, coffee. If his speculative plans were not
brought to naught he would take advantage of the conditions created
by the war and the American people would be forced to pay exorbitant
prices for their daily coffee. It was unthinkable to the patriots who
had sold me cargoes of coffee they couldn’t find ships for, that one
hundred millions of Americans, more or less, should pay tribute to
conscienceless speculators. They represented the coffee trade, not the
coffee gamblers, and they were willing to help the Government curb
profiteering actual or prospective.

Now I have a horror of whiners and I do not mean to intimate that
the Price Fixing Committee was not doing its honest best to curb
profiteering and wastefulness. But that need not stop me from
expressing the opinion that the committee could not have gone very
deeply into the particular problem of the coffee market. They fixed
on a maximum price for raw coffee and also fixed a time limit for
closing out all existing contracts. This decision meant, of course,
that the Coffee Exchange would have to go out of business. There was
only one thing for me to do and I did it, and that was to sell out my
contracts. Those profits of millions that I had deemed as certain to
come my way as any I ever made failed completely to materialise. I was
and am as keen as anybody against the profiteer in the necessaries of
life, but at the time the Price Fixing Committee made their ruling on
coffee, all other commodities were selling at from 250 to 400 per cent
above pre-war prices while raw coffee was actually below the average
prevailing for some years before the war. I can’t see that it made any
real difference who held the coffee. The price was bound to advance;
and the reason for that was not the operations of conscienceless
speculators, but the dwindling surplus for which the diminishing
importations were responsible, and they in turn were affected
exclusively by the appalling destruction of the world’s ships by the
German submarines. The committee did not wait for coffee to start; they
clamped on the brakes.

As a matter of policy and of expediency it was a mistake to force the
Coffee Exchange to close just then. If the committee had let coffee
alone the price undoubtedly would have risen for the reasons I have
already stated, which had nothing to do with any alleged corner.
But the high price--which need not have been exorbitant--would have
been an incentive to attract supplies to this market. I have heard
Mr. Bernard M. Baruch say that the War Industries Board took into
consideration this factor--the insuring of a supply--in fixing prices,
and for that reason some of the complaints about the high limit on
certain commodities were unjust. When the Coffee Exchange resumed
business, later on, coffee sold at twenty-three cents. The American
people paid that price because of the small supply, and the supply
was small because the price had been fixed too low, at the suggestion
of philanthropic shorts, to make it possible to pay the high ocean
freights and thus insure continued importations.

I have always thought that my coffee deal was the most legitimate of
all my trades in commodities. I considered it more of an investment
than a speculation. I was in it over a year. If there was any gambling
it was done by the patriotic roasters with German names and ancestry.
They had coffee in Brazil and they sold it to me in New York. The Price
Fixing Committee fixed the price of the only commodity that had not
advanced. They protected the public against profiteering before it
started, but not against the inevitable higher prices that followed.
Not only that, but even when green coffee hung around nine cents a
pound, roasted coffee went up with everything else. It was only the
roasters who benefited. If the price of green coffee had gone up two or
three cents a pound it would have meant several millions for me. And it
wouldn’t have cost the public as much as the later advance did.

Post-mortems in speculation are a waste of time. They get you nowhere.
But this particular deal has a certain educational value. It was as
pretty as any I ever went into. The rise was so sure, so logical,
that I figured that I simply couldn’t help making several millions of
dollars. But I didn’t.

On two other occasions I have suffered from the action of exchange
committees making rulings that changed trading rules without warning.
But in those cases my own position, while technically right, was not
quite so sound commercially as in my coffee trade. You cannot be dead
sure of anything in a speculative operation. It was the experience I
have just told you that made me add the unexpectable to the unexpected
in my list of hazards.

After the coffee episode I was so successful in other commodities
and on the short side of the stock market, that I began to suffer
from silly gossip. The professionals in Wall Street and the
newspaper writers got the habit of blaming me and my alleged raids
for the inevitable breaks in prices. At times my selling was called
unpatriotic--whether I was really selling or not. The reason for
exaggerating the magnitude and the effect of my operations, I suppose,
was the need to satisfy the public’s insatiable demand for reasons for
each and every price movement.

As I have said a thousand times, no manipulation can put stocks down
and keep them down. There is nothing mysterious about this. The reason
is plain to everybody who will take the trouble to think about it
half a minute. Suppose an operator raided a stock--that is, put the
price down to a level below its real value--what would inevitably
happen? Why, the raider would at once be up against the best kind of
inside buying. The people who know what a stock is worth will always
buy it when it is selling at bargain prices. _If the insiders are not
able to buy, it will be because general conditions are against their
free command of their own resources, and such conditions are not bull
conditions._ When people speak about raids the inference is that the
raids are unjustified; almost criminal. But selling a stock down to
a price much below what it is worth is mighty dangerous business. It
is well to bear in mind that a raided stock that fails to rally is
not getting much inside buying and where there is a raid--that is,
unjustified short selling--there is usually apt to be inside buying;
and when there is that, the price does not stay down. I should say
that in ninety-nine cases out of a hundred, so-called raids are really
legitimate declines, accelerated at times but not primarily caused by
the operations of a professional trader, however big a line he may be
able to swing.

The theory that most of the sudden declines or particular sharp breaks
are the results of some plunger’s operations probably was invented
as an easy way of supplying reasons to those speculators who, being
nothing but blind gamblers, will believe anything that is told them
rather than do a little thinking. The raid excuse for losses that
unfortunate speculators so often receive from brokers and financial
gossipers is really an inverted tip. The difference lies in this: A
bear tip is distinct, positive advice to sell short. But the inverted
tip--that is, the explanation that does not explain--serves merely to
keep you from wisely selling short. _The natural tendency when a stock
breaks badly is to sell it. There is a reason--an unknown reason but a
good reason; therefore, get out._ But it is not wise to get out when
the break is the result of a raid by an operator, because the moment he
stops the price must rebound. Inverted tips!



_XVI_


Tips! How people want tips! They crave not only to get them but to
give them. There is greed involved, and vanity. It is very amusing,
at times, to watch really intelligent people fish for them. And the
tip-giver need not hesitate about the quality, for the tip-seeker
is not really after good tips, but after any tip. If it makes good,
fine! If it doesn’t, better luck with the next. I am thinking of the
average customer of the average commission house. There is a type of
promoter or manipulator that believes in tips first, last and all the
time. A good flow of tips is considered by him as a sort of sublimated
publicity work, the best merchandising dope in the world, for, since
tip-seekers and tip-takers are invariably tip-passers, tip-broadcasting
becomes a sort of endless-chain advertising. The tipster-promoter
labours under the delusion that no human being breathes who can resist
a tip if properly delivered. He studies the art of handing them out
artistically.

I get tips by the hundreds every day from all sorts of people. I’ll
tell you a story about Borneo Tin. You remember when the stock was
brought out? It was at the height of the boom. The promoter’s pool had
taken the advice of a very clever banker and decided to float the new
company in the open market at once instead of letting an underwriting
syndicate take its time about it. It was good advice. The only mistake
the members of the pool made came from inexperience. They did not know
what the stock market was capable of doing during a crazy boom and at
the same time they were not intelligently liberal. They were agreed
on the need of marking up the price in order to market the stock, but
they started the trading at a figure at which the traders and the
speculative pioneers could not buy it without misgivings.

By rights the promoters ought to have got stuck with it, but in the
wild bull market their hoggishness turned out to be rank conservatism.
The public was buying anything that was adequately tipped. Investments
were not wanted. The demand was for easy money; for the sure gambling
profit. Gold was pouring into this country through the huge purchases
of war material. They tell me that the promoters, while making their
plans for bringing out Borneo stock, marked up the opening price three
different times before their first transaction was officially recorded
for the benefit of the public.

I had been approached to join the pool and I had looked into it but I
didn’t accept the offer because if there is any market manoeuvring to
do, I like to do it myself. I trade on my own information and follow my
own methods. When Borneo Tin was brought out, knowing what the pool’s
resources were and what they had planned to do, and also knowing what
the public was capable of, I bought ten thousand shares during the
first hour of the first day. Its market début was successful at least
to that extent. As a matter of fact the promoters found the demand so
active that they decided it would be a mistake to lose so much stock
so soon. They found out that I had acquired my ten thousand shares
about at the same time that they found out that they would probably
be able to sell every share they owned if they merely marked up the
price twenty-five or thirty points. They therefore concluded that the
profit on my ten thousand shares would take too big a chunk out of the
millions they felt were already as good as banked. So they actually
ceased their bull operations and tried to shake me out. But I simply
sat tight. They gave me up as a bad job because they didn’t want the
market to get away from them, and then they began to put up the price,
without losing any more stock than they could help.

They saw the crazy height that other stocks rose to and they began to
think in billions. Well, when Borneo Tin got up to 120 I let them have
my ten thousand shares. It checked the rise and the pool managers let
up on their jacking-up process. On the next general rally they again
tried to make an active market for it and disposed of quite a little,
but the merchandising proved to be rather expensive. Finally they
marked it up to 150. But the bloom was off the bull market for keeps,
so the pool was compelled to market what stock it could on the way down
to those people who love to buy after a good reaction, on the fallacy
that a stock that has once sold at 150 must be cheap at 130 and a great
bargain at 120. Also, they passed the tip to the floor traders, who
often are able to make a temporary market, and later to the commission
houses. Every little helped and the pool was using every device known.
The trouble was that the time for bulling stocks had passed. The
suckers had swallowed other hooks. The Borneo bunch didn’t or wouldn’t
see it.

I was down in Palm Beach with my wife. One day I made a little
money at Gridley’s and when I got home I gave Mrs. Livingston a
five-hundred-dollar bill out of it. It was a curious coincidence, but
that same night she met at a dinner the president of the Borneo Tin
Company, a Mr. Wisenstein, who had become the manager of the stock
pool. We didn’t learn until some time afterward that this Wisenstein
deliberately manœuvred so that he sat next to Mrs. Livingston at
dinner.

He laid himself out to be particularly nice to her and talked most
entertainingly. In the end he told her, very confidentially, “Mrs.
Livingston, I’m going to do something I’ve never done before. I am very
glad to do it because you know exactly what it means.” He stopped and
looked at Mrs. Livingston anxiously, to make sure she was not only
wise but discreet. She could read it on his face, plain as print. But
all she said was, “Yes.”

“Yes, Mrs. Livingston. It has been a very great pleasure to meet you
and your husband, and I want to prove that I am sincere in saying this
because I hope to see a great deal of both of you. I am sure I don’t
have to tell you that what I am going to say is strictly confidential!”
Then he whispered, “If you will buy some Borneo Tin you will make a
great deal of money.”

“Do you think so?” she asked.

“Just before I left the hotel,” he said, “I received some cables with
news that won’t be known to the public for several days at least. I am
going to gather in as much of the stock as I can. If you get some at
the opening to-morrow you will be buying it at the same time and at
the same price as I. I give you my word that Borneo Tin will surely
advance. You are the only person that I have told this to. Absolutely
the only one!”

She thanked him and then she told him that she didn’t know anything
about speculating in stocks. But he assured her it wasn’t necessary for
her to know any more than he had told her. To make sure she heard it
correctly he repeated his advice to her:

“All you have to do is to buy as much Borneo Tin as you wish. I can
give you my word that if you do you will not lose a cent. I’ve never
before told a woman--or a man, for that matter--to buy anything in my
life. But I am so sure the stock won’t stop this side of 200 that I’d
like you to make some money. I can’t buy all the stock myself, you
know, and if somebody besides myself is going to benefit by the rise
I’d rather it was you than some stranger. Much rather! I’ve told you in
confidence because I know you won’t talk about it. Take my word for it,
Mrs. Livingston, and buy Borneo Tin!”

He was very earnest about it and succeeded in so impressing her that
she began to think she had found an excellent use for the five hundred
dollars I had given her that afternoon. That money hadn’t cost me
anything and was outside of her allowance. In other words, it was easy
money to lose if the luck went against her. But he had said she would
surely win. It would be nice to make money on her own hook--and tell me
all about it afterwards.

Well, sir, the very next morning before the market opened she went into
Harding’s office and said to the manager:

“Mr. Haley, I want to buy some stock, but I don’t want it to go in my
regular account because I don’t wish my husband to know anything about
it until I’ve made some money. Can you fix it for me?”

Haley, the manager, said, “Oh, yes. We can make it a special account.
What’s the stock and how much of it do you want to buy?”

She gave him the five hundred dollars and told him, “Listen, please.
I do not wish to lose more than this money. If that goes I don’t want
to owe you anything; and remember, I don’t want Mr. Livingston to know
anything about this. Buy me as much Borneo Tin as you can for the
money, at the opening.”

Haley took the money and told her he’d never say a word to a soul, and
bought her a hundred shares at the opening. I think she got it at 108.
The stock was very active that day and closed at an advance of three
points. Mrs. Livingston was so delighted with her exploit that it was
all she could do to keep from telling me all about it.

It so happened that I had been getting more and more bearish on the
general market. The unusual activity in Borneo Tin drew my attention to
it. I didn’t think the time was right for any stock to advance, much
less one like that. I had decided to begin my bear operations that very
day, and I started by selling about ten thousand shares of Borneo. If I
had not I rather think the stock would have gone up five or six points
instead of three.

On the very next day I sold two thousand shares at the opening and two
thousand shares just before the close, and the stock broke to 102.

Haley, the manager of Harding Brothers’ Palm Beach Branch, was waiting
for Mrs. Livingston to call there on the third morning. She usually
strolled in about eleven to see how things were, if I was doing
anything.

Haley took her aside and said, “Mrs. Livingston, if you want me to
carry that hundred shares of Borneo Tin for you you will have to give
me more margin.”

“But I haven’t any more,” she told him.

“I can transfer it to your regular account,” he said.

“No,” she objected, “because that way L.L. would learn about it.”

“But the account already shows a loss of--” he began.

“But I told you distinctly I didn’t want to lose more than the five
hundred dollars. I didn’t even want to lose that,” she said.

“I know, Mrs. Livingston, but I didn’t want to sell it without
consulting you, and now unless you authorise me to hold it I’ll have to
let it go.”

“But it did so nicely the day I bought it,” she said, “that I didn’t
believe it would act this way so soon. Did you?”

“No,” answered Haley, “I didn’t.” They have to be diplomatic in
brokers’ offices.

“What’s gone wrong with it, Mr. Haley?”

Haley knew, but he could not tell her without giving me away, and a
customer’s business is sacred. So he said, “I don’t hear anything
special about it, one way or the other. There she goes! That’s low for
the move!” and he pointed to the quotation board.

Mrs. Livingston gazed at the sinking stock and cried: “Oh, Mr. Haley! I
don’t want to lose my five hundred dollars! What shall I do?”

“I don’t know, Mrs. Livingston, but if I were you I’d ask Mr.
Livingston.”

“Oh, no! He doesn’t want me to speculate on my own hook. He told me
so. He’ll buy or sell stock for me, if I ask him, but I’ve never before
done trading that he did not know all about. I wouldn’t dare tell him.”

“That’s all right,” said Haley soothingly. “He is a wonderful trader
and he’ll know just what to do.” Seeing her shake her head violently he
added devilishly: “Or else you put up a thousand or two to take care of
your Borneo.”

The alternative decided her then and there. She hung about the office,
but as the market got weaker and weaker she came over to where I sat
watching the board and told me she wanted to speak to me. We went into
the private office and she told me the whole story. So I just said to
her: “You foolish little girl, you keep your hands off this deal.”

She promised that she would, and so I gave her back her five hundred
dollars and she went away happy. The stock was par by that time.

I saw what had happened. Wisenstein was an astute person. He figured
that Mrs. Livingston would tell me what he had told her and I’d study
the stock. He knew that activity always attracted me and I was known to
swing a pretty fair line. I suppose he thought I’d buy ten or twenty
thousand shares.

It was one of the most cleverly planned and artistically propelled
tips I’ve ever heard of. But it went wrong. It had to. In the first
place, the lady had that very day received an unearned five hundred
dollars and was therefore in a much more venturesome mood than usual.
She wished to make some money all by herself, and womanlike dramatised
the temptation so attractively that it was irresistible. She knew how I
felt about stock speculation as practised by outsiders, and she didn’t
dare mention the matter to me. Wisenstein didn’t size up her psychology
right.

He also was utterly wrong in his guess about the kind of trader I
was. I never take tips and I was bearish on the entire market. The
tactics that he thought would prove effective in inducing me to buy
Borneo--that is, the activity and the three-point rise--were precisely
what made me pick Borneo as a starter when I decided to sell the entire
market.

After I heard Mrs. Livingston’s story I was keener than ever to sell
Borneo. Every morning at the opening and every afternoon just before
closing I let him have some stock regularly, until I saw a chance to
take in my shorts at a handsome profit.

It has always seemed to me the height of damfoolishness to trade on
tips. I suppose I am not built the way a tip-taker is. I sometimes
think that tip-takers are like drunkards. There are some who can’t
resist the craving and always look forward to those jags which they
consider indispensable to their happiness. It is so easy to open your
ears and let the tip in. To be told precisely what to do to be happy
in such a manner that you can easily obey is the next nicest thing to
being happy--which is a mighty long first step toward the fulfilment of
your heart’s desire. It is not so much greed made blind by eagerness as
it is hope bandaged by the unwillingness to do any thinking.

And it is not only among the outside public that you find inveterate
tip-takers. The professional trader on the floor of the New York Stock
Exchange is quite as bad. I am definitely aware that no end of them
cherish mistaken notions of me because I never give anybody tips. If
I told the average man, “Sell yourself five thousand Steel!” he would
do it on the spot. But if I tell him I am quite bearish on the entire
market and give him my reasons in detail, he finds trouble in listening
and after I’m done talking he will glare at me for wasting his time
expressing my views on general conditions instead of giving him a
direct and specific tip, like a real philanthropist of the type that is
so abundant in Wall Street--the sort who loves to put millions into the
pockets of friends, acquaintances and utter strangers alike.

The belief in miracles that all men cherish is born of immoderate
indulgence in hope. There are people who go on hope sprees periodically
and we all know the chronic hope drunkard that is held up before us as
an exemplary optimist. Tip-takers are all they really are.

I have an acquaintance, a member of the New York Stock Exchange, who
was one of those who thought I was a selfish, cold-blooded pig because
I never gave tips or put friends into things. One day--this was some
years ago--he was talking to a newspaper man who casually mentioned
that he had had it from a good source that G.O.H. was going up. My
broker friend promptly bought a thousand shares and saw the price
decline so quickly that he was out thirty-five hundred dollars before
he could stop his loss. He met the newspaper man a day or two later,
while he was still sore.

“That was a hell of a tip you gave me,” he complained.

“What tip was that?” asked the reporter, who did not remember.

“About G.O.H. You said you had it from a good source.”

“So I did. A director of the company who is a member of the finance
committee told me.”

“Which of them was it?” asked the broker vindictively.

“If you must know,” answered the newspaper man, “it was your own
father-in-law, Mr. Westlake.”

“Why in Hades didn’t you tell me you meant him!” yelled the broker.
“You cost me thirty-five hundred dollars!” He didn’t believe in family
tips. The farther away the source the purer the tip.

Old Westlake was a rich and successful banker and promoter. He ran
across John W. Gates one day. Gates asked him what he knew. “If you
will act on it I’ll give you a tip. If you won’t I’ll save my breath,”
answered old Westlake grumpily.

“Of course I’ll act on it,” promised Gates cheerfully.

“Sell Reading! There is a sure twenty-five points in it, and possibly
more. But twenty-five absolutely certain,” said Westlake impressively.

“I’m much obliged to you,” and Bet-you-a-million Gates shook hands
warmly and went away in the direction of his broker’s office.

Westlake had specialized on Reading. He knew all about the company and
stood in with the insiders so that the market for the stock was an open
book to him and everybody knew it. Now he was advising the Western
plunger to go short of it.

Well, Reading never stopped going up. It rose something like one
hundred points in a few weeks. One day old Westlake ran smack up
against John W. in the Street, but he made out he hadn’t seen him and
was walking on. John W. Gates caught up with him, his face all smiles
and held out his hand. Old Westlake shook it dazedly.

“I want to thank you for that tip you gave me on Reading,” said Gates.

“I didn’t give you any tip,” said Westlake, frowning.

“Sure you did. And it was a Jim Hickey of a tip too. I made sixty
thousand dollars.”

“Made sixty thousand dollars?”

“Sure! Don’t you remember? You told me to sell Reading; so I bought it!
I’ve always made money coppering your tips, Westlake,” said John W.
Gates pleasantly. “Always!”

Old Westlake looked at the bluff Westerner and presently remarked
admiringly, “Gates, what a rich man I’d be if I had your brains!”

The other day I met Mr. W. A. Rogers, the famous cartoonist, whose
Wall Street drawings brokers so greatly admire. His daily cartoons in
the New York _Herald_ for years gave pleasure to thousands. Well, he
told me a story. It was just before we went to war with Spain. He was
spending an evening with a broker friend. When he left he picked up his
derby hat from the rack, at least he thought it was his hat, for it was
the same shape and fitted him perfectly.

The Street at that time was thinking and talking of nothing but war
with Spain. Was there to be one or not? If it was to be war the market
would go down; not so much on our own selling as on pressure from
European holders of our securities. If peace, it would be a cinch to
buy stocks, as there had been considerable declines prompted by the
sensational clamorings of the yellow papers. Mr. Rogers told me the
rest of the story as follows:

“My friend, the broker, at whose house I had been the night before,
stood in the Exchange the next day anxiously debating in his mind which
side of the market to play. He went over the pros and cons, but it
was impossible to distinguish which were rumors and which were facts.
There was no authentic news to guide him. At one moment he thought war
was inevitable, and on the next he almost convinced himself that it
was utterly unlikely. His perplexity must have caused a rise in his
temperature, for he took off his derby to wipe his fevered brow. He
couldn’t tell whether he should buy or sell.

“He happened to look inside of his hat. There in gold letters was
the word WAR. That was all the hunch he needed. Was it not a tip
from Providence via my hat? So he sold a raft of stock, war was duly
declared, he covered on the break and made a killing.” And then W. A.
Rogers finished, “I never got back that hat!”

But the prize tip story of my collection concerns one of the most
popular members of the New York Stock Exchange, J. T. Hood. One day
another floor trader, Bert Walker, told him that he had done a good
turn to a prominent director of the Atlantic & Southern. In return the
grateful insider told him to buy all the A. & S. he could carry. The
directors were going to do something that would put the stock up at
least twenty-five points. All the directors were not in the deal, but
the majority would be sure to vote as wanted.

Bert Walker concluded that the dividend rate was going to be raised. He
told his friend Hood and they each bought a couple of thousand shares
of A. & S. The stock was very weak, before and after they bought, but
Hood said that was obviously intended to facilitate accumulation by
the inside clique, headed by Bert’s grateful friend.

On the following Thursday, after the market closed, the directors of
the Atlantic & Southern met and passed the dividend. The stock broke
six points in the first six minutes of trading Friday morning.

Bert Walker was sore as a pup. He called on the grateful director, who
was broken-hearted about it and very penitent. He said that he had
forgotten that he had told Walker to buy. That was the reason he had
neglected to call him up to tell him of a change in the plans of the
dominant faction in the board. The remorseful director was so anxious
to make up that he gave Bert another tip. He kindly explained that a
couple of his colleagues wanted to get cheap stock and against his
judgment resorted to coarse work. He had to yield to win their votes.
But now that they all had accumulated their full lines there was
nothing to stop the advance. It was a double-riveted, lead-pipe cinch
to buy A. & S. now.

Bert not only forgave him but shook hands warmly with the high
financier. Naturally he hastened to find his friend and fellow-victim,
Hood, to impart the glad tidings to him. They were going to make a
killing. The stock had been tipped for a rise before and they bought.
But now it was fifteen points lower. That made it a cinch. So they
bought five thousand shares, joint account.

As if they had rung a bell to start it, the stock broke badly on
what quite obviously was inside selling. Two specialists cheerfully
confirmed the suspicion. Hood sold out their five thousand shares. When
he got through Bert Walker said to him, “If that blankety-blank blanker
hadn’t gone to Florida day before yesterday I’d lick the stuffing out
of him. Yes, I would. But you come with me.”

“Where to?” asked Hood.

“To the telegraph office. I want to send that skunk a telegram that
he’ll never forget. Come on.”

Hood went on. Bert led the way to the telegraph office. There, carried
away by his feelings--they had taken quite a loss on the five thousand
shares--he composed a masterpiece of vituperation. He read it to Hood
and finished, “That will come pretty near to showing him what I think
of him.”

He was about to slide it toward the waiting clerk when Hood said, “Hold
on, Bert!”

“What’s the matter?”

“I wouldn’t send it,” advised Hood earnestly.

“Why not?” snapped Bert.

“It will make him sore as the dickens.”

“That’s what we want, isn’t it?” said Bert, looking at Hood in surprise.

But Hood shook his head disapprovingly and said in all seriousness,
“We’ll never get another tip from him if you send that telegram!”

A professional trader actually said that. Now what’s the use of talking
about sucker tip-takers? Men do not take tips because they are bally
asses but because they like those hope cocktails I spoke of. Old Baron
Rothschild’s recipe for wealth winning applies with greater force than
ever to speculation. Somebody asked him if making money in the Bourse
was not a very difficult matter, and he replied that, on the contrary,
he thought it was very easy.

“That is because you are so rich,” objected the interviewer.

“Not at all. I have found an easy way and I stick to it. I simply
cannot help making money. I will tell you my secret if you wish. It is
this: _I never buy at the bottom and I always sell too soon_.”

Investors are a different breed of cats. Most of them go in strong for
inventories and statistics of earnings and all sorts of mathematical
data, as though that meant facts and certainties. _The human factor
is minimised as a rule._ Very few people like to buy into a one-man
business. But the wisest investor I ever knew was a man who began by
being a Pennsylvania Dutchman and followed it up by coming to Wall
Street and seeing a great deal of Russell Sage.

He was a great investigator, an indefatigable Missourian. He believed
in asking his own questions and in doing his seeing with his own eyes.
He had no use for another man’s spectacles. This was years ago. It
seems he held quite a little Atchison. Presently he began to hear
disquieting reports about the company and its management. He was told
that Mr. Reinhart, the president, instead of being the marvel he was
credited with being, in reality was a most extravagant manager whose
recklessness was fast pushing the company into a mess. There would be
the deuce to pay on the inevitable day of reckoning.

This was precisely the kind of news that was as the breath of life
to the Pennsylvania Dutchman. He hurried over to Boston to interview
Mr. Reinhart and ask him a few questions. The questions consisted of
repeating the accusations he had heard and then asking the president of
the Atchison, Topeka & Santa Fe Railroad if they were true.

Mr. Reinhart not only denied the allegations emphatically but said
even more: He proceeded to prove by figures that the allegators
were malicious liars. The Pennsylvania Dutchman had asked for exact
information and the president gave it to him, showing him what the
company was doing and how it stood financially, to a cent.

The Pennsylvania Dutchman thanked President Reinhart, returned to New
York and promptly sold all his Atchison holdings. A week or so later he
used his idle funds to buy a big lot of Delaware, Lackawanna & Western.

Years afterward we were talking of lucky swaps and he cited his own
case. He explained what prompted him to make it.

“You see,” he said, “I noticed that President Reinhart, when he wrote
down figures, took sheets of letter paper from a pigeonhole in his
mahogany roll-top desk. It was fine heavy linen paper with beautifully
engraved letterheads in two colors. It was not only very expensive
but worse--it was unnecessarily expensive. He would write a few
figures on a sheet to show me exactly what the company was earning on
certain divisions or to prove how they were cutting down expenses or
reducing operating costs, and then he would crumple up the sheet of
the expensive paper and throw it in the waste-basket. Pretty soon he
would want to impress me with the economies they were introducing and
he would reach for a fresh sheet of the beautiful notepaper with the
engraved letterheads in two colors. A few figures--and bingo, into the
waste-basket! More money wasted without a thought. It struck me that
if the president was that kind of a man he would scarcely be likely
to insist upon having or rewarding economical assistants. I therefore
decided to believe the people who had told me the management was
extravagant instead of accepting the president’s version and I sold
what Atchison stock I held.

“It so happened that I had occasion to go to the offices of the
Delaware, Lackawanna & Western a few days later. Old Sam Sloan was the
president. His office was the nearest to the entrance and his door
was wide open. It was always open. Nobody could walk into the general
offices of the D.L.&W. in those days and not see the president of the
company seated at his desk. Any man could walk in and do business with
him right off, if he had any business to do. The financial reporters
used to tell me that they never had to beat around the bush with old
Sam Sloan, but would ask their questions and get a straight yes or
no from him, no matter what the stock-market exigencies of the other
directors might be.

“When I walked in I saw the old man was busy. I thought at first that
he was opening his mail, but after I got inside close to the desk I saw
what he was doing. I learned afterwards that it was his daily custom to
do it. After the mail was sorted and open, instead of throwing away the
empty envelopes he had them gathered up and taken to his office. In
his leisure moments he would rip the envelope all around. That gave him
two bits of paper, each with one clean blank side. He would pile these
up and then he would have them distributed about, to be used in lieu of
scratch pads for such figuring as Reinhart had done for me on engraved
notepaper. No waste of empty envelopes and no waste of the president’s
idle moments. Everything utilised.

“It struck me that if that was the kind of man the D.L.&W. had for
president, the company was managed economically in all departments. The
president would see to that! Of course I knew the company was paying
regular dividends and had a good property. I bought all the D.L.&W.
stock I could. Since that time the capital stock has been doubled
and quadrupled. My annual dividends amount to as much as my original
investment. I still have my D.L.&W. And Atchison went into the hands of
a receiver a few months after I saw the president throwing sheet after
sheet of linen paper with engraved letterheads in two colors into the
waste-basket to prove to me with figures that he was not extravagant.”

And the beauty of that story is that it is true and that no other stock
that the Pennsylvania Dutchman could have bought would have proved to
be so good an investment as D.L.&W.



_XVII_


One of my most intimate friends is very fond of telling stories about
what he calls my hunches. He is forever ascribing to me powers that
defy analysis. He declares I merely follow blindly certain mysterious
impulses and thereby get out of the stock market at precisely the
right time. His pet yarn is about a black cat that told me, at his
breakfast-table, to sell a lot of stock I was carrying, and that after
I got the pussy’s message I was grouchy and nervous until I sold every
share I was long of. I got practically the top prices of the movement,
which of course strengthened the hunch theory of my hard-headed friend.

I had gone to Washington to endeavor to convince a few Congressmen that
there was no wisdom in taxing us to death and I wasn’t paying much
attention to the stock market. My decision to sell out my line came
suddenly, hence my friend’s yarn.

I admit that I do get irresistible impulses at times to do certain
things in the market. It doesn’t matter whether I am long or short of
stocks. I must get out. I am uncomfortable until I do. I myself think
that what happens is that I see a lot of warning-signals. Perhaps not
a single one may be sufficiently clear or powerful to afford me a
positive, definite reason for doing what I suddenly feel like doing.
Probably that is all there is to what they call “ticker-sense” that
old traders say James R. Keene had so strongly developed and other
operators before him. Usually, I confess, the warning turns out to be
not only sound but timed to the minute. But in this particular instance
there was no hunch. The black cat had nothing to do with it. What he
tells everybody about my getting up so grumpy that morning I suppose
can be explained--if I in truth was grouchy--by my disappointment. I
knew I was not convincing the Congressman I talked to and the Committee
did not view the problem of taxing Wall Street as I did. I wasn’t
trying to arrest or evade taxation on stock transactions but to suggest
a tax that I as an experienced stock operator felt was neither unfair
nor unintelligent. I didn’t want Uncle Sam to kill the goose that
could lay so many golden eggs with fair treatment. Possibly my lack of
success not only irritated me but made me pessimistic over the future
of an unfairly taxed business. But I’ll tell you exactly what happened.

At the beginning of the bull market I thought well of the outlook in
both the Steel trade and the Copper market and I therefore felt bullish
on stocks of both groups. So I started to accumulate some of them.
I began by buying 5000 shares of Utah Copper and stopped because it
didn’t act right. That is, it did not behave as it should have behaved
to make me feel I was wise in buying it. I think the price was around
114. I also started to buy United States Steel at almost the same
price. I bought in all 20,000 shares the first day because it did act
right. I followed the method I have described before.

Steel continued to act right and I therefore continued to accumulate
it until I was carrying 72,000 shares of it in all. But my holdings of
Utah Copper consisted of my initial purchase. I never got above the
5000 shares. Its behaviour did not encourage me to do more with it.

Everybody knows what happened. We had a big bull movement. I knew
the market was going up. General conditions were favourable. Even
after stocks had gone up extensively and my paper profit was not to
be sneezed at, the tape kept trumpeting: _Not yet! Not yet!_ When I
arrived in Washington the tape was still saying that to me. Of course,
I had no intention of increasing my line at that late day, even though
I was still bullish. At the same time, the market was plainly going my
way and there was no occasion for me to sit in front of a quotation
board all day, in hourly expectation of getting a tip to get out.
Before the clarion call to retreat came--barring an utterly unexpected
catastrophe, of course--the market would hesitate or otherwise prepare
me for a reversal of the speculative situation. That was the reason why
I went blithely about my business with my Congressman.

At the same time, prices kept going up and that meant that the end of
the bull market was drawing nearer. I did not look for the end on any
fixed date. That was something quite beyond my power to determine. But
I needn’t tell you that I was on the watch for the tip-off. I always
am, anyhow. It has become a matter of business habit with me.

I cannot swear to it but I rather suspect that the day before I sold
out, seeing the high prices made me think of the magnitude of my
paper profit as well as of the line I was carrying and, later on, of my
vain efforts to induce our legislators to deal fairly and intelligently
by Wall Street. That was probably the way and the time the seed was
sown within me. The subconscious mind worked on it all night. In the
morning I thought of the market and began to wonder how it would act
that day. When I went down to the office I saw not so much that prices
were still higher and that I had a satisfying profit but that there
was a great big market with a tremendous power of absorption. I could
sell any amount of stock in that market; and, of course, when a man
is carrying his full line of stocks, he must be on the watch for an
opportunity to change his paper profit into actual cash. He should try
to lose as little of the profit as possible in the swapping. Experience
has taught me that a man can always find an opportunity to make his
profits real and that this opportunity usually comes at the end of the
move. That isn’t tape-reading or a hunch.

Of course, when I found that morning a market in which I could sell
out all my stocks without any trouble I did so. When you are selling
out it is no wiser or braver to sell fifty shares than fifty thousand;
but fifty shares you can sell in the dullest market without breaking
the price and fifty thousand shares of a single stock is a different
proposition. I had seventy-two thousand shares of U.S. Steel. This may
not seem a colossal line, but you can’t always sell that much without
losing some of that profit that looks so nice on paper when you figure
it out and that hurts as much to lose as if you actually had it safe in
the bank.

I had a total profit of about $1,500,000 and I grabbed it while the
grabbing was good. But that wasn’t the principal reason for thinking
that I did the right thing in selling out when I did. The market proved
it for me and that was indeed a source of satisfaction for me. It was
this way: I succeeded in selling my entire line of seventy-two thousand
shares of U.S. Steel at a price which averaged me just one point from
the top of the day and of the movement. It proved that I was right, to
the minute. But when, on the very same hour of the very same day I came
to sell my 5000 shares of Utah Copper, the price broke five points.
Please recall that I began buying both stocks at the same time and that
I acted wisely in increasing my line of U.S. Steel from twenty thousand
shares to seventy-two thousand, and equally wisely in not increasing
my line of Utah from the original 5000 shares. The reason why I didn’t
sell out my Utah Copper before was that I was bullish on the copper
trade and it was a bull market in stocks and I didn’t think that Utah
would hurt me much even if I didn’t make a killing in it. But as for
hunches, there weren’t any.

The training of a stock trader is like a medical education. The
physician has to spend long years learning anatomy, physiology, materia
medica and collateral subjects by the dozen. He learns the theory
and then proceeds to devote his life to the practice. He observes and
classifies all sorts of pathological phenomena. He learns to diagnose.
If his diagnosis is correct--and that depends upon the accuracy of
his observation--he ought to do pretty well in his prognosis, always
keeping in mind, of course, that human fallibility and the utterly
unforeseen will keep him from scoring 100 per cent of bull’s-eyes.
And then, as he gains in experience, he learns not only to do the
right thing but to do it instantly, so that many people will think he
does it instinctively. It really isn’t automatism. It is that he has
diagnosed the case according to his observations of such cases during
a period of many years; and, naturally, after he has diagnosed it, he
can only treat it in the way that experience has taught him is the
proper treatment. You can transmit knowledge--that is, your particular
collection of card-indexed facts--but not your experience. _A man may
know what to do and lose money--if he doesn’t do it quickly enough._

Observation, experience, memory and mathematics--these are what the
successful trader must depend on. He must not only observe accurately
but remember at all times what he has observed. He cannot bet on
the unreasonable or on the unexpected, however strong his personal
convictions may be about man’s unreasonableness or however certain
he may feel that the unexpected happens very frequently. He must bet
always on probabilities--that is, try to anticipate them. Years of
practice at the game, of constant study, of always remembering, enable
the trader to act on the instant when the unexpected happens as well as
when the expected comes to pass.

A man can have great mathematical ability and an unusual power of
accurate observation and yet fail in speculation unless he also
possesses _the experience and the memory_. And then, like the physician
who keeps up with the advances of science, _the wise trader never
ceases to study general conditions, to keep track of developments
everywhere that are likely to affect or influence the course of the
various markets_. After years at the game it becomes a habit to keep
posted. He acts almost automatically. He requires the invaluable
professional attitude and that enables him to beat the game--at times!
This difference between the professional and the amateur or occasional
trader cannot be overemphasised. I find, for instance, that memory
and mathematics help me very much. Wall Street makes its money on a
mathematical basis. I mean, _it makes its money by dealing with facts
and figures_.

When I said that a trader has to keep posted to the minute and that he
must take a purely professional attitude toward all markets and all
developments, I merely meant to emphasise again that hunches and the
mysterious ticker-sense haven’t so much to do with success. Of course,
it often happens that an experienced trader acts so quickly that he
hasn’t time to give all his reasons in advance--but nevertheless they
are good and sufficient reasons, because they are based on facts
collected by him in his years of working and thinking and seeing things
from the angle of the professional, to whom everything that comes
to his mill is grist. Let me illustrate what I mean by professional
attitude.

I keep track of the commodities markets, always. It is a habit of
years. As you know, the Government reports indicated a winter wheat
crop about the same as last year and a bigger spring wheat crop than
in 1921. The condition was much better and we probably would have an
earlier harvest than usual. When I got the figures of condition and
I saw what we might expect in the way of yield--mathematics--I also
thought at once of the coal miner’s strike and the railroad shopmen’s
strike. I couldn’t help thinking of them because my mind always thinks
of all developments that have a bearing on the markets. It instantly
struck me that the strike which had already affected the movement of
freight everywhere must affect wheat prices adversely. I figured this
way: There was bound to be considerable delay in moving winter wheat
to market by reason of the strike-crippled transportation facilities,
and by the time those improved the spring wheat crop would be ready to
move. That meant that when the railroads were able to move wheat in
quantity they would be bringing in both crops together--the delayed
winter and the early spring wheat--and that would mean a vast quantity
of wheat pouring into the market at one fell swoop. Such being the
facts of the case--the obvious probabilities--the traders, who would
know and figure as I did, would not bull wheat for a while. They would
not feel like buying it unless the price declined to such figures as
made the purchase of wheat a good investment. With no buying power in
the market, the price ought to go down. Thinking the way I did I must
find whether I was right or not. As old Pat Hearne used to remark, “You
can’t tell till you bet.” Between being bearish and selling there is no
need to waste time.

_Experience has taught me that the way a market behaves is an excellent
guide for an operator to follow. It is like taking a patient’s
temperature and pulse or noting the colour of the eyeballs and the
coating of the tongue._

Now, ordinarily a man ought to be able to buy or sell a million bushels
of wheat within a range of ¼ cent. On this day when I sold the 250,000
bushels to test the market for timeliness, the price went down ¼ cent.
Then, since the reaction did not definitely tell me all I wished to
know, I sold another quarter of a million bushels. I noticed that it
was taken in driblets; that is, the buying was in lots of 10,000 or
15,000 bushels instead of being taken in two or three transactions
which would have been the normal way. In addition to the homeopathic
buying the price went down 1¼ cents on my selling. Now, I need not
waste my time pointing out that the way in which the market took my
wheat and the disproportionate decline on my selling told me that there
was no buying power there. Such being the case, what was the only
thing to do? Of course, to sell a lot more. Following the dictates
of experience may possibly fool you, now and then. But not following
them invariably makes an ass of you. So I sold 2,000,000 bushels and
the price went down some more. A few days later the market’s behaviour
practically compelled me to sell an additional 2,000,000 bushels and
the price declined further still; a few days later wheat started to
break badly and slumped off 6 cents a bushel. And it didn’t stop there.
It has been going down, with short-lived rallies.

Now, I didn’t follow a hunch. Nobody gave me a tip. It was my habitual
or professional mental attitude toward the commodities markets that
gave me the profit and that attitude came from my years at this
business. I study because my business is to trade. The moment the tape
told me that I was on the right track my business duty was to increase
my line. I did. That is all there is to it.

I have found that experience is apt to be a steady dividend payer in
this game and that observation gives you the best tips of all. The
behaviour of a certain stock is all you need at times. You observe it.
Then experience shows you how to profit by variations from the usual,
that is, from the probable. For example, we know _that all stocks do
not move one way together but that all the stocks of a group will move
up in a bull market and down in a bear market_. This is a common-place
of speculation. It is the commonest of all self-given tips and the
commission houses are well aware of it and pass it on to any customer
who has not thought of it himself; I mean, the advice to trade in those
stocks which have lagged behind other stocks of the same group. Thus,
if U.S. Steel goes up, it is logically assumed that it is only a matter
of time when Crucible or Republic or Bethlehem will follow suit. Trade
conditions and prospects should work alike with all stocks of a group
and the prosperity should be shared by all. On the theory, corroborated
by experience times without number, that every dog has his day in the
market, the public will buy A.B. Steel because it has not advanced
while C.D. Steel and X.Y. Steel have gone up.

I never buy a stock even in a bull market, if it doesn’t act as it
ought to act in that kind of market. I have sometimes bought a stock
during an undoubted bull market and found out that other stocks in the
same group were not acting bullishly and I have sold out my stock. Why?
_Experience tells me that it is not wise to buck against what I may
call the manifest group-tendency._ I cannot expect to play certainties
only. I must reckon on probabilities--and anticipate them. An old
broker once said to me: “If I am walking along a railroad track and
I see a train coming toward me at sixty miles an hour, do I keep on
walking on the ties? Friend, I sidestep. And I don’t even pat myself on
the back for being so wise and prudent.”

Last year, after the general bull movement was well under way, I
noticed that one stock in a certain group was not going with the rest
of the group, though the group with that one exception was going with
the rest of the market. I was long a very fair amount of Blackwood
Motors. Everybody knew that the company was doing a very big business.
The price was rising from one to three points a day and the public
was coming in more and more. This naturally centered attention on the
group and all the various motor stocks began to go up. One of them,
however, persistently held back and that was Chester. It lagged behind
the others so that it was not long before it made people talk. The low
price of Chester and its apathy was contrasted with the strength and
activity in Blackwood and other motor stocks and the public logically
enough listened to the touts and tipsters and wise-acres and began to
buy Chester on the theory that it must presently move up with the rest
of the group.

Instead of going on this moderate public buying, Chester actually
declined. Now, it would have been no job to put it up in that bull
market, considering that Blackwood, a stock of the same group, was one
of the sensational leaders of the general advance and we were hearing
nothing but the wonderful improvement in the demand for automobiles of
all kinds and the record output.

It was thus plain that the inside clique in Chester were not doing any
of the things that inside cliques invariably do in a bull market. For
this failure to do the usual thing there might be two reasons. Perhaps
the insiders did not put it up because they wished to accumulate more
stock before advancing the price. But this was an untenable theory if
you analysed the volume and character of the trading in Chester. The
other reason was that they did not put it up because they were afraid
of getting stock if they tried to.

When the men who ought to want a stock don’t want it, why should I want
it? I figured that no matter how prosperous other automobile companies
might be, it was a cinch to sell Chester short. _Experiences had taught
me to beware of buying a stock that refuses to follow the group-leader._

I easily established the fact that not only there was no inside
buying but that there was actually inside selling. There were other
symptomatic warnings against buying Chester, though all I required was
its inconsistent market behaviour. It was again the tape that tipped
me off and that was why I sold Chester short. One day, not very long
afterward, the stock broke wide open. Later on we learned--officially,
as it were--that insiders had indeed been selling it, knowing full
well that the condition of the company was not good. The reason, as
usual, was disclosed after the break. But the warning came before the
break. _I don’t look out for the breaks; I look out for the warnings._
I didn’t know what was the trouble with Chester; neither did I follow a
hunch. I merely knew that something must be wrong.

Only the other day we had what the newspapers called a sensational
movement in Guiana Gold. After selling on the Curb at 50 or close to
it, it was listed on the Stock Exchange. It started there at around 35,
began to go down and finally broke 20.

Now, I’d never have called that break sensational because it was fully
to be expected. If you had asked you could have learned the history of
the company. No end of people knew it. It was told to me as follows: A
syndicate was formed consisting of a half dozen extremely well-known
capitalists and a prominent banking house. One of the members was the
head of the Belle Isle Exploration Company, which advanced Guiana over
$10,000,000 cash and received in return bonds and 250,000 shares out
of a total of one million shares of the Guiana Gold Mining Company.
The stock went on a dividend basis and it was mighty well advertised.
The Belle Isle people thought it well to cash in and they gave a call
on their 250,000 shares to the bankers, who arranged to try to market
that stock and some of their own holdings as well. They thought of
entrusting the market manipulation to a professional whose fee was to
be one third of the profits from the sale of the 250,000 shares above
36. I understand that the agreement was drawn up and ready to be signed
but at the last moment the bankers decided to undertake the marketing
themselves and save the fee. So they organized an inside pool. The
bankers had a call on the Belle Isle holdings of 250,000 at 36. They
put this in at 41. That is, insiders paid their own banking colleagues
a 5-point profit to start with. I don’t know whether they knew it or
not.

It is perfectly plain that to the bankers the operation had every
semblance of a cinch. We had run into a bull market and the stocks of
the group to which Guiana Gold belonged were among the market leaders.
The company was making big profits and paying regular dividends. This
together with the high character of the sponsors made the public regard
Guiana almost as an investment stock. I was told that about 400,000
shares were sold to the public all the way up to 47.

The gold group was very strong. But presently Guiana began to sag.
It declined ten points. That was all right if the pool was marketing
stock. But pretty soon the Street began to hear that things were not
altogether satisfactory and the property was not bearing out the high
expectations of the promoters. Then, of course, the reason for the
decline became plain. But before the reason was known I had the warning
and had taken steps to test the market for Guiana. The stock was acting
pretty much as Chester Motors did. I sold Guiana. The price went down.
I sold more. The price went still lower. The stock was repeating the
performance of Chester and of a dozen other stocks whose clinical
history I remembered. The tape plainly told me that there was something
wrong--something that kept insiders from buying it--insiders who knew
exactly why they should not buy their own stock in a bull market. On
the other hand, outsiders, who did not know, were now buying because
having sold at 45 and higher the stock looked cheap at 35 and lower.
The dividend was still being paid. The stock was a bargain.

Then the news came. It reached me, as important market news often does,
before it reached the public. But the confirmation of the reports of
striking barren rock instead of rich ore merely gave me the reason for
the earlier inside selling. I myself didn’t sell on the news. I had
sold long before, on the stock’s behaviour. My concern with it was
not philosophical. I am a trader and therefore looked for one sign:
Inside buying. There wasn’t any. I didn’t have to know why the insiders
did not think enough of their own stock to buy it on the decline. It
was enough that their market plans plainly did not include further
manipulation for the rise. That made it a cinch to sell the stock
short. The public had bought almost a half million shares and the only
change in ownership possible was from one set of ignorant outsiders who
would sell in the hope of stopping losses to another set of ignorant
outsiders who might buy in the hope of making money.

I am not telling you this to moralise on the public’s losses through
their buying of Guiana or on my profit through my selling of it, but
to emphasise how important the study of group-behaviourism is and how
its lessons are disregarded by inadequately equipped traders, big and
little. And it is not only in the stock market that the tape warns you.
It blows the whistle quite as loudly in commodities.

I had an interesting experience in cotton. I was bearish on stocks and
put out a moderate short line. At the same time I sold cotton short;
50,000 bales. My stock deal proved profitable and I neglected my
cotton. The first thing I knew I had a loss of $250,000 on my 50,000
bales. As I said, my stock deal was so interesting and I was doing
so well in it that I did not wish to take my mind off it. Whenever I
thought of cotton I just said to myself: “I’ll wait for a reaction and
cover.” The price would react a little but before I could decide to
take my loss and cover, the price would rally again, and go higher than
ever. So I’d decide again to wait a little and I’d go back to my stock
deal and confine my attention to that. Finally I closed out my stocks
at a very handsome profit and went away to Hot Springs for a rest and a
holiday.

That really was the first time that I had my mind free to deal with the
problem of my losing deal in cotton. The trade had gone against me.
There were times when it almost looked as if I might win out. I noticed
that whenever anybody sold heavily there was a good reaction. But
almost instantly the price would rally and make a new high for the move.

Finally, by the time I had been in Hot Springs a few days, I was a
million to the bad and no let up in the rising tendency. I thought
over all I had done and had not done and I said to myself: “I must be
wrong!” With me to feel that I am wrong and to decide to get out are
practically one process. So I covered, at a loss of about one million.

The next morning I was playing golf and not thinking of anything else.
I had made my play in cotton. I had been wrong. I had paid for being
wrong and the receipted bill was in my pocket. I had no more concern
with the cotton market than I have at this moment. When I went back
to the hotel for luncheon I stopped at the broker’s office and took a
look at the quotations. I saw that cotton had gone off 50 points. That
wasn’t anything. But I also noticed that it had not rallied as it had
been in the habit of doing for weeks, as soon as the pressure of the
particular selling that had depressed it eased up. This had indicated
that the line of least resistance was upward and it had cost me a
million to shut my eyes to it.

Now, however, the reason that had made me cover at a big loss was no
longer a good reason since there had not been the usual prompt and
vigorous rally. So I sold 10,000 bales and waited. Pretty soon the
market went off 50 points. I waited a little while longer. There was no
rally. I had got pretty hungry by now, so I went into the dining-room
and ordered my luncheon. Before the waiter could serve it, I jumped up,
went to the broker’s office, I saw that there had been no rally and so
I sold 10,000 bales more. I waited a little and had the pleasure of
seeing the price decline 40 points more. That showed me I was trading
correctly so I returned to the dining-room ate my luncheon and went
back to the broker’s. There was no rally in cotton that day. That very
night I left Hot Springs.

It was all very well to play golf but I had been wrong in cotton in
selling when I did and in covering when I did. So I simply had to get
back on the job and be where I could trade in comfort. The way the
market took my first ten thousand bales made me sell the second ten
thousand, and the way the market took the second made me certain the
turn had come. It was the difference in behaviour.

Well, I reached Washington and went to my brokers’ office there, which
was in charge of my old friend Tucker. While I was there the market
went down some more. I was more confident of being right now than I had
been of being wrong before. So I sold 40,000 bales and the market went
off 75 points. It showed that there was no support there. That night
the market closed still lower. The old buying power was plainly gone.
There was no telling at what level that power would again develop, but
I felt confident of the wisdom of my position. The next morning I left
Washington for New York by motor. There was no need to hurry.

When we got to Philadelphia I drove to a broker’s office. I saw that
there was the very dickens to pay in the cotton market. Prices had
broken badly and there was a small-sized panic on. I didn’t wait to get
to New York. I called up my brokers on the long distance and I covered
my shorts. As soon as I got my reports and found that I had practically
made up my previous loss, I motored on to New York without having to
stop en route to see any more quotations.

Some friends who were with me in Hot Springs talk to this day of
the way I jumped up from the luncheon table to sell that second lot
of 10,000 bales. But again that clearly was not a hunch. It was an
impulse that came from the conviction that the time to sell cotton
had now come, however great my previous mistake had been. I had to
take advantage of it. It was my chance. The subconscious mind probably
went on working, reaching conclusions for me. The decision to sell in
Washington was the result of my observation. My years of experience in
trading told me that the line of least resistance had changed from up
to down.

I bore the cotton market no grudge for taking a million dollars out of
me and I did not hate myself for making a mistake of that calibre any
more than I felt proud for covering in Philadelphia and making up my
loss. My trading mind concerns itself with trading problems and I think
I am justified in asserting that I made up my first loss because I had
the experience and the memory.



_XVIII_


History repeats itself all the time in Wall Street. Do you remember a
story I told you about covering my shorts at the time Stratton had corn
cornered? Well, another time I used practically the same tactics in the
stock market. The stock was Tropical Trading. I have made money bulling
it and also bearing it. It always was an active stock and a favourite
with adventurous traders. The inside coterie has been accused time and
again by the newspapers of being more concerned over the fluctuations
in the stock than with encouraging permanent investment in it. The
other day one of the ablest brokers I know asserted that not even
Daniel Drew in Erie or H. O. Havemeyer in Sugar developed so perfect a
method for milking the market for a stock as President Mulligan and his
friends have done in Tropical Trading. Many times they have encouraged
the bears to sell TT short and then have proceeded to squeeze them with
business-like thoroughness. There was no more vindictiveness about the
process than is felt by a hydraulic press--or no more squeamishness,
either.

Of course, there have been people who have spoken about certain
“unsavory incidents” in the market career of TT stock. But I dare
say these critics were suffering from the squeezing. Why do the room
traders, who have suffered so often from the loaded dice of the
insiders, continue to go up against the game? Well, for one thing they
like action and they certainly get it in Tropical Trading. No prolonged
spells of dullness. No reasons asked or given. No time wasted. No
patience strained by waiting for the tipped movement to begin. Always
enough stock to go around--except when the short interest is big enough
to make the scarcity worthwhile. One born every minute!

It so happened some time ago that I was in Florida on my usual winter
vacation. I was fishing and enjoying myself without any thought of the
markets excepting when we received a batch of newspapers. One morning
when the semi-weekly mail came in I looked at the stock quotations and
saw that Tropical Trading was selling at 155. The last time I’d seen a
quotation in it, I think, was around 140. My opinion was that we were
going into a bear market and I was biding my time before going short of
stocks. But there was no mad rush. That was why I was fishing and out
of hearing of the ticker. I knew that I’d be back home when the real
call came. In the meanwhile nothing that I did or failed to do would
hurry matters a bit.

The behaviour of Tropical Trading was the outstanding feature of the
market, according to the newspapers I got that morning. It served to
crystallise my general bearishness because I thought it particularly
asinine for the insiders to run up the price of TT in the face of the
heaviness of the general list. There are times when the milking process
must be suspended. What is abnormal is seldom a desirable factor in
a trader’s calculations and it looked to me as if the marking up of
that stock were a capital blunder. Nobody can make blunders of that
magnitude with impunity; not in the stock market.

After I got through reading the newspapers I went back to my fishing
but I kept thinking of what the insiders in Tropical Trading were
trying to do. That they were bound to fail was as certain as that a man
is bound to smash himself if he jumps from the roof of a twenty-story
building without a parachute. I couldn’t think of anything else and
finally I gave up trying to fish and sent off a telegram to my brokers
to sell 2000 shares of TT at the market. After that I was able to go
back to my fishing. I did pretty well.

That afternoon I received the reply to my telegram by special courier.
My brokers reported that they had sold the 2000 shares of Tropical
Trading at 153. So far so good. I was selling short on a declining
market, which was as it should be. But I could not fish any more. I was
too far away from a quotation board. I discovered this after I began
to think of all the reasons why Tropical Trading should go down with
the rest of the market instead of going up on inside manipulation. I
therefore left my fishing camp and returned to Palm Beach; or, rather,
to the direct wire to New York.

The moment I got to Palm Beach and saw what the misguided insiders
were still trying to do, I let them have a second lot of 2000 TT. Back
came the report and I sold another 2000 shares. The market behaved
excellently. That is, it declined on my selling. Everything being
satisfactory I went out and had a chair ride. But I wasn’t happy. The
more I thought the unhappier it made me to think that I hadn’t sold
more. So back I went to the broker’s office and sold another 2000
shares.

I was happy only when I was selling that stock. Presently I was short
10,000 shares. Then I decided to return to New York. I had business to
do now. My fishing I would do some other time.

When I arrived in New York I made it a point to get a line on the
company’s business, actual and prospective. What I learned strengthened
my conviction that the insiders had been worse than reckless in jacking
up the price at a time when such an advance was not justified either by
the tone of the general market or by the company’s earnings.

The rise, illogical and ill-timed though it was, had developed some
public following and this doubtless encouraged the insiders to pursue
their unwise tactics. Therefore I sold more stock. The insiders ceased
their folly. So I tested the market again and again, in accordance with
my trading methods, until finally I was short 30,000 shares of the
stock of the Tropical Trading Company. By then the price was 133.

I had been warned that the TT insiders knew the exact whereabouts of
every stock certificate in the Street and the precise dimensions and
identity of the short interest as well as other facts of tactical
importance. They were able men and shrewd traders. Altogether it was
a dangerous combination to go up against. But facts are facts and the
strongest of all allies are conditions.

Of course, on the way down from 153 to 133 the short interest had grown
and the public that buys on reactions began to argue as usual: That
stock had been considered a good purchase at 153 and higher. Now 20
points lower, it was necessarily a much better purchase. Same stock;
same dividend rate; same officers; same business. Great bargain!

The public’s purchases reduced the floating supply and the insiders,
knowing that a lot of room traders were short, thought the time
propitious for a squeezing. The price was duly run up to 150. I daresay
there was plenty of covering but I stayed pat. Why shouldn’t I? The
insiders might know that a short line of 30,000 shares had not been
taken in but why should that frighten me? The reasons that had impelled
me to begin selling at 153 and keep at it on the way down to 133, not
only still existed but were stronger than ever. The insiders might
desire to force me to cover but they adduced no convincing arguments.
Fundamental conditions were fighting for me. It was not difficult to
be both fearless and patient. A speculator must have faith in himself
and in his judgment. The late Dickson G. Watts, ex-President of the
New York Cotton Exchange and famous author of “Speculation as a Fine
Art,” says that courage in a speculator is merely confidence to act on
the decision of his mind. With me, I cannot fear to be wrong because
I never think I am wrong until I am proven wrong. In fact, I am
uncomfortable unless I am capitalising my experience. The course of
the market at a given time does not necessarily prove me wrong. It is
the character of the advance--or of the decline--that determines for me
the correctness or the fallacy of my market position. I can only rise
by knowledge. If I fall it must be by my own blunders.

There was nothing in the character of the rally from 133 to 150 to
frighten me into covering and presently the stock, as was to be
expected, started down again. It broke 140 before the inside clique
began to give it support. Their buying was coincident with a flood
of bull rumors about the stock. The company, we heard, was making
perfectly fabulous profits, and the earnings justified an increase in
the regular dividend rate. Also, the short interest was said to be
perfectly huge and the squeeze of the century was about to be inflicted
on the bear party in general and in particular on a certain operator
who was more than over-extended. I couldn’t begin to tell you all I
heard as they ran the price up ten points.

The manipulation did not seem particularly dangerous to me but when
the price touched 149 I decided that it was not wise to let the Street
accept as true all the bull statements that were floating around. Of
course, there was nothing that I or any other rank outsider could say
that would carry conviction either to the frightened shorts or to
those credulous customers of commission houses that trade on hearsay
tips. The most effective retort courteous is that which the tape alone
can print. People will believe that when they will not believe an
affidavit from any living man, much less one from a chap who is short
30,000 shares. So I used the same tactics that I did at the time of the
Stratton corner in corn, when I sold oats to make the traders bearish
on corn. Experience and memory again.

When the insiders jacked up the price of Tropical Trading with a view
to frightening the shorts I didn’t try to check the rise by selling
that stock. I was already short 30,000 shares of it which was as big
a percentage of the floating supply as I thought wise to be short of.
I did not propose to put my head into the noose so obligingly held
open for me--the second rally was really an urgent invitation. What I
did when TT touched 149 was to sell about 10,000 shares of Equatorial
Commercial Corporation. This company owned a large block of Tropical
Trading.

Equatorial Commercial, which was not as active a stock as TT, broke
badly on my selling, as I had foreseen; and, of course, my purpose was
achieved. When the traders--and the customers of the commission houses
who had listened to the uncontradicted bull dope on TT--saw that the
rise in Tropical synchronised with heavy selling and a sharp break in
Equatorial, they naturally concluded that the strength of TT was merely
a smoke-screen--a manipulated advance obviously designed to facilitate
inside liquidation in Equatorial Commercial, which was largest holder
of TT stock. It must be both long stock and inside stock in Equatorial,
because no outsider would dream of selling so much short stock at the
very moment when Tropical Trading was so very strong. So they sold
Tropical Trading and checked the rise in that stock, the insiders
very properly not wishing to take all the stock that was pressed for
sale. The moment the insiders took away their support the price of TT
declined. The traders and principal commission houses now sold some
Equatorial also and I took in my short line in that at a small profit.
I hadn’t sold it to make money out of the operation but to check the
rise in TT.

Time and again the Tropical Trading insiders and their hard-working
publicity man flooded the Street with all manner of bull items and
tried to put up the price. And every time they did I sold Equatorial
Commercial short and covered it with TT reacted and carried EC with
it. It took the wind out of the manipulators’ sails. The price of TT
finally went down to 125 and the short interest really grew so big that
the insiders were enabled to run it up 20 or 25 points. This time it
was a legitimate enough drive against an over-extended short interest;
but while I foresaw the rally I did not cover, not wishing to lose my
position. Before Equatorial Commercial could advance in sympathy with
the rise in TT I sold a raft of it short--with the usual results. This
gave the lie to the bull talk in TT which had got quite boisterous
after the latest sensational rise.

By this time the general market had grown quite weak. As I told you,
it was the conviction that we were in a bear market that started me
selling TT short in the fishing-camp in Florida. I was short of quite a
few other stocks but TT was my pet. Finally, general conditions proved
too much for the inside clique to defy and TT hit the toboggan slide.
It went below 120 for the first time in years; then below 110; below
par; and still I did not cover. One day when the entire market was
extremely weak Tropical Trading broke 90 and on the demoralisation I
covered. Same old reason! I had the opportunity--the big market and the
weakness and the excess of sellers over buyers. I may tell you, even
at the risk of appearing to be monotonously bragging of my cleverness,
that I took in my 30,000 shares of TT at practically the lowest prices
of the movement. But I wasn’t thinking of covering at the bottom. I was
intent on turning my paper profits into cash without losing much of the
profit in the changing.

I stood pat throughout because I knew my position was sound. I wasn’t
bucking the trend of the market or going against basic conditions but
the reverse, and that was what made me so sure of the failure of an
over-confident inside clique. What they tried to do others had tried
before and it had always failed. The frequent rallies, even when I knew
as well as anybody that they were due, could not frighten me. I knew
I’d do much better in the end by staying pat than by trying to cover to
put out a new short line at a higher price. By sticking to the position
that I felt was right I made over a million dollars. I was not indebted
to hunches or to skillful tape reading or to stubborn courage. It was a
dividend declared by my faith in my judgment and not by my cleverness
or by my vanity. Knowledge is power and power need not fear lies--not
even when the tape prints them. The retraction follows pretty quickly.

A year later, TT was jacked up again to 150 and hung around there for
a couple of weeks. The entire market was entitled to a good reaction
for it had risen uninterruptedly and it did not bull any longer. I
know because I tested it. Now, the group to which TT belonged had been
suffering from very poor business and I couldn’t see anything to bull
those stocks on anyhow, even if the rest of the market were due for a
rise, which it wasn’t. So I began to sell Tropical Trading. I intended
to put out 10,000 shares in all. The price broke on my selling. I
couldn’t see that there was any support whatever. Then suddenly, the
character of the buying changed.

I am not trying to make myself out a wizard when I assure you that I
could tell the moment support came in. It instantly struck me that if
the insiders in that stock, who never felt a moral obligation to keep
the price up, were now buying the stock in the face of a declining
general market there must be a reason. They were not ignorant asses nor
philanthropists nor yet bankers concerned with keeping the price up to
sell more securities over the counter. The price rose notwithstanding
my selling and the selling of others. At 153 I covered my 10,000 shares
and at 156 I actually went long because by that time the tape told me
the line of least resistance was upward. I was bearish on the general
market but I was confronted by a trading condition in a certain stock
and not by a speculative theory in general. The price went out of
sight, above 200. It was the sensation of the year. I was flattered by
reports spoken and printed that I had been squeezed out of eight or
nine millions of dollars. As a matter of fact, instead of being short
I was long of TT all the way up. In fact, I held on a little too long
and let some of my paper profits get away. Do you wish to know why I
did? Because I thought the TT insiders would naturally do what I would
have done had I been in their place. But that was something I had no
business to think because my business is to trade--that is, to stick to
the facts before me and not to what I think other people ought to do.



_XIX_


I do not know when or by whom the word “manipulation” was first used
in connection with what really are no more than common merchandising
processes applied to the sale in bulk of securities on the Stock
Exchange. Rigging the market to facilitate cheap purchases of a stock
which it is desired to accumulate is also manipulation. But it is
different. It may not be necessary to stoop to illegal practices,
but it would be difficult to avoid doing what some would think
illegitimate. How are you going to buy a big block of a stock in a
bull market without putting up the price on yourself? That would be
the problem. How can it be solved? It depends upon so many things that
you can’t give a general solution unless you say: possibly by means
of very adroit manipulation. For instance? Well, it would depend upon
conditions. You can’t give any closer answer than that.

I am profoundly interested in all phases of my business, and of course
I learn from the experience of others as well as from my own. But it
is very difficult to learn how to manipulate stocks to-day from such
yarns as are told of an afternoon in the brokers’ offices after the
close. Most of the tricks, devices and expedients of bygone days are
obsolete and futile; or illegal and impracticable. Stock Exchange
rules and conditions have changed, and the story--even the accurately
detailed story--of what Daniel Drew or Jacob Little or Jay Gould could
do fifty or seventy-five years ago is scarcely worth listening to.
The manipulator to-day has no more need to consider what they did
and how they did it than a cadet at West Point need study archery as
practiced by the ancients in order to increase his working knowledge of
ballistics.

On the other hand there is profit in studying the human factors--the
ease with which human beings believe what it pleases them to believe;
and how they allow themselves--indeed, urge themselves--to be
influenced by their cupidity or by the dollar-cost of the average man’s
carelessness. Fear and hope remain the same; therefore the study of
the psychology of speculators is as valuable as it ever was. Weapons
change, but strategy remains strategy, on the New York Stock Exchange
as on the battlefield. I think the clearest summing up of the whole
thing was expressed by Thomas F. Woodlock when he declared: “The
principles of successful stock speculation are based on the supposition
that people will continue in the future to make the mistakes that they
have made in the past.”

In booms, which is when the public is in the market in the greatest
numbers, there is never any need of subtlety, so there is no sense of
wasting time discussing either manipulation or speculation during such
times; it would be like trying to find the difference in raindrops
that are falling synchronously on the same roof across the street. The
sucker has always tried to get something for nothing, and the appeal
in all booms is always frankly to the gambling instinct aroused by
cupidity and spurred by a pervasive prosperity. People who look for
easy money invariably pay for the privilege of proving conclusively
that it cannot be found on this sordid earth. At first, when I listened
to the accounts of old-time deals and devices I used to think that
people were more gullible in the 1860’s and ’70’s than in the 1900’s.
But I was sure to read in the newspapers that very day or the next
something about the latest Ponzi or the bust-up of some bucketing
broker and about the millions of sucker money gone to join the silent
majority of vanished savings.

When I first came to New York there was a great fuss made about wash
sales and matched orders, for all that such practices were forbidden
by the Stock Exchange. At times the washing was too crude to deceive
anyone. The brokers had no hesitation in saying that “the laundry
was active” whenever anybody tried to wash up some stock or other,
and, as I have said before, more than once they had what were frankly
referred to as “bucket-shop drives,” when a stock was offered down two
or three points in a jiffy just to establish the decline on the tape
and wipe up the myriad shoe-string traders who were long of the stock
in the bucket shops. As for matched orders, they were always used
with some misgivings by reason of the difficulty of coordinating and
synchronising operations by brokers, all such business being against
Stock Exchange rules. A few years ago a famous operator canceled the
selling but not the buying part of his matched orders, and the result
was that an innocent broker ran up the price twenty-five points or so
in a few minutes, only to see it break with equal celerity as soon as
his buying ceased. The original intention was to create an appearance
of activity. Bad business, playing with such unreliable weapons. You
see, you can’t take your best brokers into your confidence--not if you
want them to remain members of the New York Stock Exchange. Then also,
the taxes have made all practices involving fictitious transactions
much more expensive than they used to be in the old times.

The dictionary definition of manipulation includes corners. Now, a
corner might be the result of manipulation or it might be the result of
competitive buying, as, for instance, the Northern Pacific corner on
May 9, 1901, which certainly was not manipulation. The Stutz corner was
expensive to everybody concerned, both in money and in prestige. And it
was not a deliberately engineered corner, at that.

As a matter of fact very few of the great corners were profitable to
the engineers of them. Both Commodore Vanderbilt’s Harlem corners
paid big, but the old chap deserved the millions he made out of a
lot of short sports, crooked legislators and aldermen who tried to
double-cross him. On the other hand, Jay Gould lost in his Northwestern
corner. Deacon S. V. White made a million in his Lackawanna corner,
but Jim Keene dropped a million in the Hannibal & St. Joe deal. The
financial success of a corner of course depends upon the marketing of
the accumulated holdings at higher than cost, and the short interest
has to be of some magnitude for that to happen easily.

I used to wonder why corners were so popular among the big operators of
a half-century ago. They were men of ability and experience, wide-awake
and not prone to childlike trust in the philanthropy of their fellow
traders. Yet they used to get stung with an astonishing frequency. A
wise old broker told me that all the big operators of the ’60’s and
’70’s had one ambition, and that was to work a corner. In many cases
this was the offspring of vanity; in others, of the desire for revenge.
At all events, to be pointed out as the man who had successfully
cornered this or the other stock was in reality recognition of brains,
boldness and boodle. It gave the cornerer the right to be haughty. He
accepted the plaudits of his fellows as fully earned. It was more than
the prospective money profit that prompted the engineers of corners to
do their damnedest. It was the vanity complex asserting itself among
cold-blooded operators.

Dog certainly ate dog in those days with relish and ease. I think I
told you before that I have managed to escape being squeezed more than
once, not because of the possession of a mysterious ticker-sense but
because I can generally tell the moment the character of the buying in
the stock makes it imprudent for me to be short of it. This I do by
common-sense tests, which must have been tried in the old times also.
Old Daniel Drew used to squeeze the boys with some frequency and make
them pay high prices for the Erie “sheers” they had sold short to him.
He was himself squeezed by Commodore Vanderbilt in Erie, and when old
Drew begged for mercy the Commodore grimly quoted the Great Bear’s own
deathless distich:

  _He that sells what isn’t hisn
  Must buy it back or go to prisn._

Wall Street remembers very little of an operator who for more than a
generation was one of its Titans. His chief claim to immortality seems
to be the phrase “watering stock.”

Addison G. Jerome was the acknowledged king of the Public Board in
the spring of 1863. His market tips, they tell me, were considered as
good as cash in bank. From all accounts he was a great trader and made
millions. He was liberal, to the point of extravagance and had a great
following in the Street--until Henry Keep, known as William the Silent,
squeezed him out of all his millions in the Old Southern corner. Keep,
by the way, was the brother-in-law of Gov. Roswell P. Flower.

In most of the old corners the manipulation consisted chiefly of not
letting the other man know that you were cornering the stock which he
was variously invited to sell short. It therefore was aimed chiefly
at fellow professionals, for the general public does not take kindly
to the short side of the account. The reasons that prompted these
wise professionals to put out short lines in such stocks were pretty
much the same as prompts them to do the same thing to-day. Apart from
the selling by faith-breaking politicians in the Harlem corner of the
Commodore, I gather from the stories I have read that the professional
traders sold the stock because it was too high. And the reason they
thought it was too high was that it never before had sold so high; and
that made it too high to buy; and if it was too high to buy it was
just right to sell. That sounds pretty modern, doesn’t it? They were
thinking of the price, and the Commodore was thinking of the value!
And so, for years afterwards, old-timers tell me that people used to
say, “He went short of Harlem!” whenever they wished to describe abject
poverty.

Many years ago I happened to be speaking to one of Jay Gould’s old
brokers. He assured me earnestly that Mr. Gould not only was a most
unusual man--it was of him that old Daniel Drew shiveringly remarked,
“His touch is Death!”--but that he was head and shoulders above all
other manipulators past and present. He must have been a financial
wizard indeed to have done what he did; there can be no question of
that. Even at this distance I can see that he had an amazing knack for
adapting himself to new conditions, and that is valuable in a trader.
He varied his methods of attack and defense without a pang because he
was more concerned with the manipulation of properties than with stock
speculation. He manipulated for investment rather than for a market
turn. He early saw that the big money was in owning the railroads
instead of rigging their securities on the floor of the Stock Exchange.
He utilised the stock market of course. But I suspect it was because
that was the quickest and easiest way to quick and easy money and he
needed many millions, just as old Collis P. Huntington was always
hard up because he always needed twenty or thirty millions more than
the bankers were willing to lend him. Vision without money means
heartaches; with money, it means achievement; and that means power; and
that means money; and that means achievement; and so on, over and over
and over.

Of course manipulation was not confined to the great figures of those
days. There were scores of minor manipulators. I remember a story an
old broker told me about the manners and morals of the early ’60’s. He
said:

“The earliest recollection I have of Wall Street is of my first visit
to the financial district. My father had some business to attend to
there and for some reason or other took me with him. We came down
Broadway and I remember turning off at Wall Street. We walked down
Wall and just as we came to Broad or, rather, Nassau Street, to the
corner where the Bankers’ Trust Company’s building now stands, I saw
a crowd following two men. The first was walking eastward, trying to
look unconcerned. He was followed by the other, a red-faced man who
was wildly waving his hat with one hand and shaking the other fist in
the air. He was yelling to beat the band: ‘Shylock! Shylock! What’s
the price of money? Shylock! Shylock!’ I could see heads sticking out
of windows. They didn’t have skyscrapers in those days, but I was sure
the second- and third-story rubbernecks would tumble out. My father
asked what was the matter, and somebody answered something I didn’t
hear. I was too busy keeping a death clutch on my father’s hand so
that the jostling wouldn’t separate us. The crowd was growing, as
street crowds do, and I wasn’t comfortable. Wild-eyed men came running
down from Nassau Street and up from Broad as well as east and west on
Wall Street. After we finally got out of the jam my father explained
to me that the man who was shouting ‘Shylock’ was So-and-So. I have
forgotten the name, but he was the biggest operator in clique stocks
in the city and was understood to have made--and lost--more money than
any other man in Wall Street with the exception of Jacob Little. I
remember Jacob Little’s name because I thought it was a funny name for
a man to have. The other man, the Shylock, was a notorious locker-up
of money. His name has also gone from me. But I remember he was tall
and thin and pale. In those days the cliques used to lock up money by
borrowing it or, rather, by reducing the amount available to Stock
Exchange borrowers. They would borrow it and get a certified check.
They wouldn’t actually take the money out and use it. Of course that
was rigging. It was a form of manipulation, I think.”

I agree with the old chap. It was a phase of manipulation that we don’t
have nowadays.



_XX_


I myself never spoke to any of the great stock manipulators that the
Street still talks about. I don’t mean leaders; I mean manipulators.
They were all before my time, although when I first came to New York,
_James R. Keene, greatest of them all_, was in his prime. But I was
a mere youngster then, exclusively concerned with duplicating, in a
reputable broker’s office, the success I had enjoyed in the bucket
shops of my native city. And, then, too, at the time Keene was busy
with the U.S. Steel stocks--his manipulative masterpiece--I had no
experience with manipulation, no real knowledge of it or of its value
or meaning, and, for that matter, no great need of such knowledge.
If I thought about it at all I suppose I must have regarded it as a
well-dressed form of thimble-rigging, of which the lowbrow form was
such tricks as had been tried on me in the bucket shops. Such talk as I
since have heard on the subject has consisted in great part of surmises
and suspicions; of guesses rather than intelligent analyses.

More than one man who knew him well has told me that Keene was the
boldest and most brilliant operator that ever worked in Wall Street.
That is saying a great deal, for there have been some great traders.
Their names are now all but forgotten, but nevertheless they were kings
in their day--for a day! They were pulled up out of obscurity into the
sunlight of financial fame by the ticker tape--and the little paper
ribbon didn’t prove strong enough to keep them suspended there long
enough for them to become historical fixtures. At all events Keene was
by all odds the best manipulator of his day--and it was a long and
exciting day.

He capitalized his knowledge of the game, his experience as an operator
and his talents when he sold his services to the Havemeyer brothers,
who wanted him to develop a market for the Sugar stocks. He was broke
at the time or he would have continued to trade on his own hook; and
he was some plunger! He was successful with Sugar; made the shares
trading favourites, and that made them easily vendible. After that, he
was asked time and again to take charge of pools. I am told that in
these pool operations he never asked nor accepted a fee, but paid for
his share like the other members of the pool. The market conduct of
the stock, of course, was exclusively in his charge. Often there was
talk of treachery--on both sides. His feud with the Whitney-Ryan clique
arose from such accusations. It is not difficult for a manipulator to
be misunderstood by his associates. They don’t see his needs as he
himself does. I know this from my own experience.

It is a matter of regret that Keene did not leave an accurate record
of his greatest exploit--the successful manipulation of the U.S.
Steel shares in the spring of 1901. As I understand it, Keene never
had an interview with J. P. Morgan about it. Morgan’s firm dealt with
or through Talbot J. Taylor & Co., at whose office Keene made his
headquarters. Talbot Taylor was Keene’s son-in-law. I am assured that
Keene’s fee for his work consisted of the pleasure he derived from the
work. That he made millions trading in the market he helped to put
up that spring is well known. He told a friend of mine that in the
course of a few weeks he sold in the open market for the underwriters’
syndicate more than seven hundred and fifty thousand shares. Not bad
when you consider two things: That they were new and untried stocks of
a corporation whose capitalization was greater than the entire debt of
the United States at that time; and second, that men like D. G. Reid,
W. B. Leeds, the Moore brothers, Henry Phipps, H. C. Frick and the
other Steel magnates also sold hundreds of thousands of shares to the
public at the same time in the same market that Keene helped to create.

Of course, general conditions favoured him. Not only actual business
but sentiment and his unlimited financial backing made possible his
success. What we had was not merely a big bull market but a boom and a
state of mind not likely to be seen again. The undigested-securities
panic came later, when Steel common, which Keene had marked up to 55 in
1901, sold at 10 in 1903 and at 8⅞ in 1904.

We can’t analyse Keene’s manipulative campaigns. His books are not
available; the adequately detailed record is nonexistent. For example,
it would be interesting to see how he worked in Amalgamated Copper.
H. H. Rogers and William Rockefeller had tried to dispose of their
surplus stock in the market and had failed. Finally they asked Keene
to market their line, and he agreed. Bear in mind that H. H. Rogers
was one of the ablest business men of his day in Wall Street and that
William Rockefeller was the boldest speculator of the entire Standard
Oil coterie. They had practically unlimited resources and vast prestige
as well as years of experience in the stock-market game. And yet they
had to go to Keene. I mention this to show you that there are some
tasks which it requires a specialist to perform. Here was a widely
touted stock, sponsored by America’s greatest capitalists, that could
not be sold except at a great sacrifice of money and prestige. Rogers
and Rockefeller were intelligent enough to decide that Keene alone
might help them.

Keene began to work at once. He had a bull market to work in and sold
two hundred and twenty thousand shares of Amalgamated at around par.
After he disposed of the insiders’ line the public kept on buying and
the price went ten points higher. Indeed the insiders got bullish on
the stock they had sold when they saw how eagerly the public was taking
it. There was a story that Rogers actually advised Keene to go long
of Amalgamated. It is scarcely credible that Rogers meant to unload on
Keene. He was too shrewd a man not to know that Keene was no bleating
lamb. Keene worked as he always did--that is, _doing his big selling
on the way down after the big rise_. Of course his tactical moves were
directed by his needs and by the minor currents that changed from day
to day. In the stock market, as in warfare, it is well to keep in mind
the difference between strategy and tactics.

One of Keene’s confidential men--he is the best fly fisherman I
know--told me only the other day that during the Amalgamated campaign
Keene would find himself almost out of stock one day--that is, out
of the stock he had been forced to take in marking up the price; and
on the next day he would buy back thousands of shares. On the day
after that, he would sell on balance. Then he would leave the market
absolutely alone, to see how it would take care of itself and also to
accustom it to do so. When it came to the actual marketing of the line
he did what I told you: he sold it on the way down. The trading public
is always looking for a rally, and, besides, there is the covering by
the shorts.

The man who was closest to Keene during that deal told me that after
Keene sold the Rogers-Rockefeller line for something like twenty or
twenty-five million dollars in cash Rogers sent him a check for two
hundred thousand. This reminds you of the millionaire’s wife who gave
the Metropolitan Opera House scrub-woman fifty cents reward for finding
the one-hundred-thousand-dollar pearl necklace. Keene sent the check
back with a polite note saying he was not a stock broker and that he
was glad to have been of some service to them. They kept the check
and wrote him that they would be glad to work with him again. Shortly
after that it was that H. H. Rogers gave Keene the friendly tip to buy
Amalgamated at around 130!

A brilliant operator, James R. Keene! His private secretary told me
that when the market was going his way Mr. Keene was irascible; and
those who knew him say his irascibility was expressed in sardonic
phrases that lingered long in the memory of his hearers. But when he
was losing he was in the best of humour, a polished man of the world,
agreeable, epigrammatic, interesting.

He had in superlative degree the qualities of mind that are associated
with successful speculators anywhere. That he did not argue with the
tape is plain. He was utterly fearless but never reckless. He could and
did turn in a twinkling, if he found he was wrong.

Since his day there have been so many changes in Stock Exchange rules
and so much more rigorous enforcement of old rules, so many new taxes
on stock sales and profits, and so on, that the game seems different.
Devices that Keene could use with skill and profit can no longer be
utilised. Also, we are assured, the business morality of Wall Street is
on a higher plane. Nevertheless it is fair to say that in any period
of our financial history Keene would have been a great manipulator
because he was a great stock operator and knew the game of speculation
from the ground up. He achieved what he did because conditions at the
time permitted him to do so. He would have been as successful in his
undertakings in 1922 as he was in 1901 or in 1876, when he first came
to New York from California and made nine million dollars in two years.
There are men whose gait is far quicker than the mob’s. They are bound
to lead--no matter how much the mob changes.

As a matter of fact, the change is by no means as radical as you’d
imagine. The rewards are not so great, for it is no longer pioneer
work and therefore it is not pioneer’s pay. But in certain respects
manipulation is easier than it was; in other ways much harder than in
Keene’s day.

There is no question that advertising is an art, and manipulation
is the art of advertising through the medium of the tape. The tape
should tell the story the manipulator wishes its readers to see. The
truer the story the more convincing it is bound to be, and the more
convincing it is the better the advertising is. A manipulator to-day,
for instance, has not only to make a stock look strong but also to make
it be strong. Manipulation therefore must be based on sound trading
principles. That is what made Keene such a marvellous manipulator; he
was a consummate trader to begin with.

The word “manipulation” has come to have an ugly sound. It needs an
alias. I do not think there is anything so very mysterious or crooked
about the process itself when it has for an object the selling of
a stock in bulk, provided, of course, that such operations are not
accompanied by misrepresentation. There is little question that a
manipulator necessarily seeks his buyers among speculators. He turns to
men who are looking for big returns on their capital and are therefore
willing to run a greater than normal business risk. I can’t have much
sympathy for the man who, knowing this, nevertheless blames others for
his own failure to make easy money. He is a devil of a clever fellow
when he wins. But when he loses money the other fellow was a crook; a
manipulator! In such moments and from such lips the word connotes the
use of marked cards. But this is not so.

Usually the object of manipulation is to develop marketability--that
is, the ability to dispose of fair-sized blocks at some price at any
time. Of course a pool, by reason of a reversal of general market
conditions, may find itself unable to sell except at a sacrifice too
great to be pleasing. They then may decide to employ a professional,
believing that his skill and experience will enable him to conduct an
orderly retreat instead of suffering an appalling rout.

You will notice that I do not speak of manipulation designed to permit
considerable accumulation of a stock as cheaply as possible, as, for
instance, in buying for control, because this does not happen often
nowadays.

When Jay Gould wished to cinch his control of Western Union and decided
to buy a big block of the stock, Washington E. Connor, who had not been
seen on the floor of the Stock Exchange for years, suddenly showed
up in person at the Western Union Post. He began to bid for Western
Union. The traders to a man laughed--at his stupidity in thinking them
so simple--and they cheerfully sold him all the stock he wanted to buy.
It was too raw a trick, to think he could put up the price by acting as
though Mr. Gould wanted to buy Western Union. Was that manipulation? I
think I can only answer that by saying “No; and yes!”

In the majority of cases the object of manipulation is, as I said, to
sell stock to the public at the best possible price. It is not alone
a question of selling but of distributing. It is obviously better in
every way for a stock to be held by a thousand people than by one
man--better for the market in it. So it is not alone the sale at a good
price but the character of the distribution that a manipulator must
consider.

There is no sense in marking up the price to a very high level if you
cannot induce the public to take it off your hands later. Whenever
inexperienced manipulators try to unload at the top and fail,
old-timers look mighty wise and tell you that you can lead a horse
to water but you cannot make him drink. Original devils! As a matter
of fact, it is well to remember a rule of manipulation, a rule that
Keene and his able predecessors well knew. It is this: _Stocks are
manipulated to the highest point possible and then sold to the public
on the way down_.

Let me begin at the beginning. Assume that there is some one--an
underwriting syndicate or a pool or an individual--that has a block
of stock which it is desired to sell at the best price possible. It
is a stock duly listed on the New York Stock Exchange. The best place
for selling it ought to be the open market, and the best buyer ought
to be the general public. The negotiations for the sale are in charge
of a man. He--or some present or former associate--has tried to sell
the stock on the Stock Exchange and has not succeeded. He is--or soon
becomes--sufficiently familiar with stock-market operations to realise
that more experience and greater aptitude for the work are needed than
he possesses. He knows personally or by hearsay several men who have
been successful in their handling of similar deals, and he decides to
avail himself of their professional skill. He seeks one of them as he
would seek a physician if he were ill or an engineer if he needed that
kind of expert.

Suppose he has heard of me as a man who knows the game. Well, I take it
that he tries to find out all he can about me. He then arranges for an
interview, and in due time calls at my office.

Of course, the chances are that I know about the stock and what it
represents. It is my business to know. That is how I make my living. My
visitor tells me what he and his associates wish to do, and asks me to
undertake the deal.

It is then my turn to talk. I ask for whatever information I deem
necessary to give me a clear understanding of what I am asked to
undertake. I determine the value and estimate the market possibilities
of that stock. That and my reading of current conditions in turn help
me to gauge the likelihood of success for the proposed operation.

If my information inclines me to a favourable view I accept the
proposition and tell him then and there what my terms will be for
my services. If he in turn accepts my terms--the honorarium and the
conditions--I begin my work at once.

I generally ask and receive calls on a block of stock. I insist upon
graduated calls as the fairest to all concerned. The price of the call
begins at a little below the prevailing market price and goes up; say,
for example, that I get calls on one hundred thousand shares and the
stock is quoted at 40. I begin with a call for some thousands of shares
at 35, another at 37, another at 40, and at 45 and 50, and so on up to
75 or 80.

If as the result of my professional work--my manipulation--the price
goes up, and if at the highest level there is a good demand for the
stock so that I can sell fair-sized blocks of it I of course call the
stock. I am making money; but so are my clients making money. This is
as it should be. If my skill is what they are paying for they ought to
get value. Of course, there are times when a pool may be wound up at a
loss, but that is seldom, for I do not undertake the work unless I see
my way clear to a profit. This year I was not so fortunate in one or
two deals, and I did not make a profit. There are reasons, but that is
another story, to be told later--perhaps.

The first step in a bull movement in a stock is to advertise the fact
that there is a bull movement on. Sounds silly, doesn’t it? Well, think
a moment. It isn’t as silly as it sounded, is it? The most effective
way to advertise what, in effect, are your honourable intentions is
to make the stock active and strong. After all is said and done, _the
greatest publicity agent in the wide world is the ticker, and by far
the best advertising medium is the tape_. I do not need to put out any
literature for my clients. I do not have to inform the daily press as
to the value of the stock or to work the financial reviews for notices
about the company’s prospects. Neither do I have to get a following.
I accomplish all these highly desirable things by merely making the
stock active. _When there is activity there is a synchronous demand
for explanations_; and that means, of course, that the necessary
reasons--for publication--supply themselves without the slightest aid
from me.

Activity is all that the floor traders ask. They will buy or sell any
stock at any level if only there is a free market for it. They will
deal in thousands of shares wherever they see activity, and their
aggregate capacity is considerable. It necessarily happens that they
constitute the manipulator’s first crop of buyers. They will follow
you all the way up and they thus are a great help at all the stages
of the operation. I understand that James R. Keene used habitually to
employ the most active of the room traders, both to conceal the source
of the manipulation and also because he knew that they were by far
the best business-spreaders and tip-distributors. He often gave calls
to them--verbal calls--above the market, so that they might do some
helpful work before they could cash in. He made them earn their profit.
To get a professional following I myself have never had to do more
than to make a stock active. Traders don’t ask for more. It is well,
of course, to remember that these professionals on the floor of the
Exchange buy stocks with the intention of selling them at a profit.
They do not insist on its being a big profit; but it must be a quick
profit.

I make the stock active in order to draw the attention of speculators
to it, for the reasons I have given. I buy it and I sell it and the
traders follow suit. The selling pressure is not apt to be strong where
a man has as much speculatively held stock sewed up--in calls--as I
insist on having. The buying, therefore, prevails over the selling, and
the public follows the lead not so much of the manipulator as of the
room traders. It comes in as a buyer. This highly desirable demand I
fill--that is, I sell stock on balance. If the demand is what it ought
to be it will absorb more than the amount of stock I was compelled to
accumulate in the earlier stages of the manipulation; and when this
happens I sell the stock short--that is, technically. In other words,
I sell more stock than I actually hold. It is perfectly safe for me to
do so since I am really selling against my calls. Of course, when the
demand from the public slackens, the stock ceases to advance. Then I
wait.

Say, then, that the stock has ceased to advance. There comes a weak
day. The entire market may develop a reactionary tendency or some
sharp-eyed trader may perceive that there are no buying orders to speak
of in my stock, and he sells it, and his fellows follow. Whatever
the reason may be, my stock starts to go down. Well, I begin to buy
it. I give it the support that a stock ought to have if it is in
good odour with its own sponsors. And more: I am able to support it
without accumulating it--that is, without increasing the amount I
shall have to sell later on. Observe that I do this without decreasing
my financial resources. Of course what I am really doing is covering
stock I sold short at higher prices when the demand from the public
or from the traders or from both enabled me to do it. It is always
well to make it plain to the traders--and to the public, also--that
there is a demand for the stock on the way down. That tends to check
both reckless short selling by the professionals and liquidation by
frightened holders--which is the selling you usually see when a stock
gets weaker and weaker, which in turn is what a stock does when it is
not supported. These covering purchases of mine constitute what I call
the stabilising process.

As the market broadens I of course sell stock on the way up, but
never enough to check the rise. This is in strict accordance with
my stabilising plans. It is obvious that the more stock I sell on a
reasonable and orderly advance the more I encourage the conservative
speculators, who are more numerous than the reckless room traders;
and in addition the more support I shall be able to give to the stock
on the inevitable weak days. By always being short I always am in a
position to support the stock without danger to myself. As a rule I
begin my selling at a price that will show me a profit. But I often
sell without having a profit, simply to create or to increase what I
may call my riskless buying power. My business is not alone to put up
the price or to sell a big block of stock for a client but to make
money for myself. That is why I do not ask my clients to finance my
operations. My fee is contingent upon my success.

Of course what I have described is not my invariable practice. I
neither have nor adhere to an inflexible system. I modify my terms and
conditions according to circumstances.

A stock which it is desired to distribute should be manipulated to the
highest possible point and then sold. I repeat this both because it is
fundamental and because the public apparently believes that the selling
is all done at the top. Sometimes a stock gets waterlogged, as it
were; it doesn’t go up. That is the time to sell. The price naturally
will go down on your selling rather further than you wish, but you can
generally nurse it back. As long as a stock that I am manipulating
goes up on my buying I know I am hunky, and if need be I buy it with
confidence and use my own money without fear--precisely as I would any
other stock that acts the same way. It is the line of least resistance.
You remember my trading theories about that line, don’t you? Well,
when the price line of least resistance is established I follow it,
not because I am manipulating that particular stock at that particular
moment but because I am a stock operator at all times.

When my buying does not put the stock up I stop buying and then proceed
to sell it down; and that also is exactly what I would do with that
same stock if I did not happen to be manipulating it. The principal
marketing of the stock, as you know, is done on the way down. _It is
perfectly astonishing how much stock a man can get rid of on a decline._

I repeat that at no time during the manipulation do I forget to be a
stock trader. My problems as a manipulator, after all, are the same
that confront me as an operator. All manipulation comes to an end when
the manipulator cannot make a stock do what he wants it to do. _When
the stock you are manipulating doesn’t act as it should, quit. Don’t
argue with the tape. Do not seek to lure the profit back. Quit while
the quitting is good--and cheap._



_XXI_


I am well aware that all these generalities do not sound especially
impressive. Generalities seldom do. Possibly I may succeed better if I
give a concrete example. I’ll tell you how I marked up the price of a
stock 30 points, and in so doing accumulated only seven thousand shares
and developed a market that would absorb almost any amount of stock.

It was Imperial Steel. The stock had been brought out by reputable
people and it had been fairly well tipped as a property of value. About
30 per cent of the capital stock was placed with the general public
through various Wall Street houses, but there had been no significant
activity in the shares after they were listed. From time to time
somebody would ask about it and one or another insider--members of the
original underwriting syndicate--would say that the company’s earnings
were better than expected and the prospects more than encouraging.
This was true enough and very good as far as it went, but not exactly
thrilling. The speculative appeal was absent, and from the investor’s
point of view the price stability and dividend permanency of the
stock were not yet demonstrated. It was a stock that never behaved
sensationally. It was so gentlemanly that no corroborative rise ever
followed the insiders’ eminently truthful reports. On the other hand,
neither did the price decline.

Imperial Steel remained unhonoured and unsung and untipped, content to
be one of those stocks that don’t go down because nobody sells and that
nobody sells because nobody likes to go short of a stock that is not
well distributed; the seller is too much at the mercy of the loaded-up
inside clique. Similarly, there is no inducement to buy such a stock.
To the investor Imperial Steel therefore remained a speculation. To the
speculator it was a dead one--the kind that makes an investor of you
against your will by the simple expedient of falling into a trance the
moment you go long of it. The chap who is compelled to lug a corpse a
year or two always loses more than the original cost of the deceased;
he is sure to find himself tied up with it when some really good things
come his way.

One day the foremost member of the Imperial Steel syndicate, acting for
himself and associates, came to see me. They wished to create a market
for the stock, of which they controlled the undistributed 70 per cent.
They wanted me to dispose of their holdings at better prices than they
thought they would obtain if they tried to sell in the open market.
They wanted to know on what terms I would undertake the job.

I told him that I would let him know in a few days. Then I looked into
the property. I had experts go over the various departments of the
company--industrial, commercial and financial. They made reports to me
which were unbiased. I wasn’t looking for the good or the bad points,
but for the facts, such as they were.

The reports showed that it was a valuable property. The prospects
justified purchases of the stock at the prevailing market price--if
the investor were willing to wait a little. Under the circumstances
an advance in the price would in reality be the commonest and most
legitimate of all market movements--to wit, the process of discounting
the future. There was therefore no reason that I could see why I should
not conscientiously and confidently undertake the bull manipulation of
Imperial Steel.

I let my man know my mind and he called at my office to talk the deal
over in detail. I told him what my terms were. For my services I asked
no cash, but calls on one hundred thousand shares of the Imperial Steel
stock. The price of the calls ran up from 70 to 100. That may seem like
a big fee to some. But they should consider that the insiders were
certain they themselves could not sell one hundred thousand shares, or
even fifty thousand shares, at 70. There was no market for the stock.
All the talk about wonderful earnings and excellent prospects had not
brought in buyers, not to any great extent. In addition, I could not
get my fee in cash without my clients first making some millions of
dollars. What I stood to make was not an exorbitant selling commission.
It was a fair contingent fee.

Knowing that the stock had real value and that general market
conditions were bullish and therefore favourable for an advance in all
good stocks, I figured that I ought to do pretty well. My clients were
encouraged by the opinions I expressed, agreed to my terms at once, and
the deal began with pleasant feelings all around.

I proceeded to protect myself as thoroughly as I could. The syndicate
owned or controlled about 70 per cent of the outstanding stock. I
had them deposit their 70 per cent under a trust agreement. I didn’t
propose to be used as a dumping ground for the big holders. With the
majority holdings thus securely tied up, I still had 30 per cent of
scattered holdings to consider, but that was a risk I had to take.
Experienced speculators do not expect ever to engage in utterly
riskless ventures. As a matter of fact, it was not much more likely
that all the untrusteed stock would be thrown on the market at one
fell swoop than that all the policyholders of a life-insurance company
would die at the same hour, the same day. There are unprinted actuarial
tables of stock-market risks as well as of human mortality.

Having protected myself from some of the avoidable dangers of a
stock-market deal of that sort, I was ready to begin my campaign. Its
objective was to make my calls valuable. To do this I must put up the
price and develop a market in which I could sell one hundred thousand
shares--the stock in which I held options.

The first thing I did was to find out how much stock was likely to come
on the market on an advance. This was easily done through my brokers,
who had no trouble in ascertaining what stock was for sale at or a
little above the market. I don’t know whether the specialists told them
what orders they had on their books or not. The price was nominally 70,
but I could not have sold one thousand shares at that price. I had no
evidence of even a moderate demand at that figure or even a few points
lower. I had to go by what my brokers found out. But it was enough to
show me how much stock there was for sale and how little was wanted.

As soon as I had a line on these points I quietly took all the stock
that was for sale at 70 and higher. When I say “I” you will understand
that I mean my brokers. The sales were for account of some of the
minority holders because my clients naturally had cancelled whatever
selling orders they might have given out before they tied up their
stock.

I didn’t have to buy very much stock. Moreover, I knew that the right
kind of advance would bring in other buying orders--and, of course,
selling orders also.

I didn’t give bull tips on Imperial Steel to anybody. I didn’t have
to. My job was to seek directly to influence sentiment by the best
possible kind of publicity. I do not say that there should never
be bull propaganda. It is as legitimate and indeed as desirable to
advertise the value of a new stock as to advertise the value of woolens
or shoes or automobiles. Accurate and reliable information should be
given by the public. But what I meant was that the tape did all that
was needed for my purpose. As I said before, the reputable newspapers
always try to print explanations for market movements. It is news.
Their readers demand to know not only what happens in the stock market
but why it happens. Therefore without the manipulator lifting a finger
the financial writers will print all the available information and
gossip, and also analyse the reports of earnings, trade condition and
outlook; in short, whatever may throw light on the advance. Whenever a
newspaperman or an acquaintance asks my opinion of a stock and I have
one I do not hesitate to express it. I do not volunteer advice and
I never give tips, but I have nothing to gain in my operations from
secrecy. At the same time I realise that the best of all tipsters, the
most persuasive of all salesmen, is the tape.

When I had absorbed all the stock that was for sale at 70 and a little
higher I relieved the market of that pressure, and naturally that made
clear for trading purposes the line of least resistance in Imperial
Steel. It was manifestly upward. The moment that fact was perceived
by the observant traders on the floor they logically assumed that
the stock was in for an advance the extent of which they could not
know; but they knew enough to begin buying. Their demand for Imperial
Steel, created exclusively by the obviousness of the stock’s rising
tendency--the tape’s infallible bull tip!--I promptly filled. I sold to
the traders the stock that I had bought from the tired-out holders at
the beginning. Of course this selling was judiciously done; I contented
myself with supplying the demand. I was not forcing my stock on the
market and I did not want too rapid an advance. It wouldn’t have been
good business to sell out the half of my one hundred thousand shares at
that stage of the proceedings. My job was to make a market on which I
might sell my entire line.

But even though I sold only as much as the traders were anxious to buy,
the market was temporarily deprived of my own buying power, which I had
hitherto exerted steadily. In due course the traders’ purchases ceased
and the price stopped rising. As soon as that happened there began the
selling by disappointed bulls or by those traders whose reasons for
buying disappeared the instant the rising tendency was checked. But I
was ready for this selling, and on the way down I bought back the stock
I had sold to the traders a couple of points higher. This buying of
stock I knew was bound to be sold in turn checked the downward course;
and when the price stopped going down the selling orders stopped coming
in.

I then began all over again. I took all the stock that was for sale on
the way up--it wasn’t very much--and the price began to rise a second
time; from a higher starting point than 70. _Don’t_ forget that on the
way down there are many holders who wish to heaven they had sold theirs
but won’t do it three or four points from the top. Such speculators
always vow they will surely sell out if there is a rally. They put in
their orders to sell on the way up, and then they change their minds
with the change in the stock’s price-trend. Of course there is always
profit taking from safe-playing quick runners to whom a profit is
always a profit to be taken.

All I had to do after that was to repeat the process; alternately
buying and selling; but always working higher.

Sometimes, after you have taken all the stock that is for sale, it
pays to rush up the price sharply, to have what might be called little
bull flurries in the stock you are manipulating. It is excellent
advertising, because it makes talk and also brings in both the
professional traders and that portion of the speculating public that
likes action. It is, I think, a large portion. I did that in Imperial
Steel, and whatever demand was created by those spurts I supplied.
My selling always kept the upward movement within bounds both as to
extent and as to speed. In buying on the way down and selling on the
way up I was doing more than marking up the price: I was developing the
marketability of Imperial Steel.

After I began my operations in it there never was a time when a
man could not buy or sell the stock freely; I mean by this, buy or
sell a reasonable amount without causing over-violent fluctuations
in the price. The fear of being left high and dry if he bought, or
squeezed to death if he sold, was gone. The gradual spread among the
professionals and the public of a belief in the permanence of the
market for Imperial Steel had much to do with creating confidence in
the movement; and, of course, the activity also put an end to a lot of
other objections. The result was that after buying and selling a good
many thousands of shares I succeeded in making the stocks sell at par.
At one hundred dollars a share everybody wanted to buy Imperial Steel.
Why not? Everybody now knew that it was a good stock; that it had been
and still was a bargain. The proof was the rise. A stock that could go
thirty points from 70 could go up thirty more from par. That is the way
a good many argued.

In the course of marking up the price those thirty points I accumulated
only seven thousand shares. The price on this line averaged me almost
exactly 85. That meant a profit of fifteen points on it; but, of
course, my entire profit, still on paper, was much more. It was a safe
enough profit, for I had a market for all I wanted to sell. The stock
would sell higher on judicious manipulation and I had graduated calls
on one hundred thousand shares beginning at 70 and ending at 100.

Circumstances prevented me from carrying out certain plans of mine for
converting my paper profits into good hard cash. It had been, if I do
say so myself, a beautiful piece of manipulation, strictly legitimate
and deservedly successful. The property of the company was valuable
and the stock was not dear at the higher price. One of the members of
the original syndicate developed a desire to secure the control of the
property--a prominent banking house with ample resources. The control
of a prosperous and growing concern like the Imperial Steel Corporation
is possibly more valuable to a banking firm than to individual
investors. At all events, this firm made me an offer for all my options
on the stock. It meant an enormous profit for me, and I instantly took
it. I am always willing to sell out when I can do so in a lump at a
good profit. I was quite content with what I made out of it.

Before I disposed of my calls on the hundred thousand shares I learned
that these bankers had employed more experts to make a still more
thorough examination of the property. Their reports showed enough to
bring me in the offer I got. I kept several thousand shares of the
stock for investment. I believe in it.

There wasn’t anything about my manipulation of Imperial Steel that
wasn’t normal and sound. As long as the price went up on my buying I
knew I was O.K. The stock never got waterlogged, as a stock sometimes
does. When you find that it fails to respond adequately to your buying
you don’t need any better tip to sell. You know that if there is any
value to a stock and general market conditions are right you can always
nurse it back after a decline, no matter if it’s twenty points. But I
never had to do anything like that in Imperial Steel.

In my manipulation of stocks I never lose sight of basic trading
principles. Perhaps you wonder why I repeat this or why I keep on
harping on the fact that I never argue with the tape or lose my temper
at the market because of its behaviour. You would think--wouldn’t
you?--that shrewd men who have made millions in their own business and
in addition have successfully operated in Wall Street at times would
realise the wisdom of playing the game dispassionately. Well, you would
be surprised at the frequency with which some of our most successful
promoters behave like peevish women because the market does not act the
way they wish it to act. They seem to take it as a personal slight, and
they proceed to lose money by first losing their temper.

There has been much gossip about a disagreement between John Prentiss
and myself. People have been led to expect a dramatic narrative of a
stock-market deal that went wrong or some double-crossing that cost
me--or him--millions; or something of that sort. Well, it wasn’t.

Prentiss and I had been friendly for years. He had given me at various
times information that I was able to utilise profitably, and I had
given him advice which he may or may not have followed. If he did he
saved money.

He was largely instrumental in the organisation and promotion of the
Petroleum Products Company. After a more or less successful market
début general conditions changed for the worse and the new stock did
not fare as well as Prentiss and his associates had hoped. When basic
conditions took a turn for the better Prentiss formed a pool and began
operations in Pete Products.

I cannot tell you anything about his technique. He didn’t tell me how
he worked and I didn’t ask him. But it was plain that notwithstanding
his Wall Street experience and his undoubted cleverness, whatever it
was he did proved of little value and it didn’t take the pool long
to find out that they couldn’t get rid of much stock. He must have
tried everything he knew, because a pool manager does not ask to be
superseded by an outsider unless he feels unequal to the task, and that
is the last thing the average man likes to admit. At all events he came
to me and after some friendly preliminaries he said he wanted me to
take charge of the market for Pete Products and dispose of the pool’s
holdings, which amounted to a little over one hundred thousand shares.
The stock was selling at 102 to 103.

The thing looked dubious to me and I declined his proposition with
thanks. But he insisted that I accept. He put it on personal grounds,
so that in the end I consented. I constitutionally dislike to identify
myself with enterprises in the success of which I cannot feel
confidence, but I also think a man owes something to his friends and
acquaintances. I said I would do my best, but I told him I did not feel
very cocky about it and I enumerated the adverse factors that I would
have to contend with. But all Prentiss said to that was that he wasn’t
asking me to guarantee millions in profits to the pool. He was sure
that if I took hold I’d make out well enough to satisfy any reasonable
being.

Well, there I was, engaged in doing something against my own judgment.
I found, as I feared, a pretty tough state of affairs, due in great
measure to Prentiss’ own mistakes while he was manipulating the stock
for account of the pool. But the chief factor against me was time.
I was convinced that we were rapidly approaching the end of a bull
swing and therefore that the improvement in the market, which had so
encouraged Prentiss, would prove to be merely a short-lived rally. I
feared that the market would turn definitely bearish before I could
accomplish much with Pete Products. However, I had given my promise and
I decided to work as hard as I knew how.

I started to put up the price. I had moderate success. I think I ran it
up to 107 or thereabouts, which was pretty fair, and I was even able to
sell a little stock on balance. It wasn’t much, but I was glad not to
have increased the pool’s holdings. There were a lot of people not in
the pool who were just waiting for a small rise to dump their stock,
and I was a godsend to them. Had general conditions been better I also
would have done better. It was too bad that I wasn’t called in earlier.
All I could do now, I felt, was to get out with as little loss as
possible to the pool.

I sent for Prentiss and told him my views. But he started to object. I
then explained to him why I took the position I did. I said: “Prentiss,
I can feel very plainly the pulse of the market. There is no follow-up
in your stock. It is no trick to see just what the public’s reaction is
to my manipulation. Listen: When Pete Products is made as attractive to
traders as possible and you give it all the support needed at all times
and notwithstanding all that you find that the public leaves it alone
you may be sure that there is something wrong, not with the stock but
with the market. There is absolutely no use in trying to force matters.
You are bound to lose if you do. A pool manager should be willing to
buy his own stock when he has company. But when he is the only buyer in
the market he’d be an ass to buy it. For every five thousand shares I
buy the public ought to be willing or able to buy five thousand more.
But I certainly am not going to do all the buying. If I did, all I
would succeed in doing would be to get soaked with a lot of long stock
that I don’t want. There is only one thing to do, and that is to sell.
And the only way to sell is to sell.”

“You mean, sell for what you can get?” asked Prentiss.

“Right!” I said. I could see he was getting ready to object. “If I am
to sell the pool’s stock at all you can make up your mind that the
price is going to break through par and----”

“Oh, no! Never!” he yelled. You’d have imagined I was asking him to
join a suicide club.

“Prentiss,” I said to him, “it is a cardinal principle of stock
manipulation to put up a stock in order to sell it. But you don’t sell
in bulk on the advance. You can’t. The big selling is done on the way
down from the top. I cannot put up your stock to 125 or 130. I’d like
to, but it can’t be done. So you will have to begin your selling from
this level. In my opinion all stocks are going down, and Petroleum
Products isn’t going to be the one exception. It is better for it to
go down now on the pool’s selling than for it to break next month on
selling by some one else. It will go down anyhow.”

I can’t see that I said anything harrowing, but you could have heard
his howls in China. He simply wouldn’t listen to such a thing. It would
never do. It would play the dickens with the stock’s record, to say
nothing of inconvenient possibilities at the banks where the stock was
held as collateral on loans, and so on.

I told him again that in my judgment nothing in the world could prevent
Pete Products from breaking fifteen or twenty points, because the
entire market was headed that way, and I once more said it was absurd
to expect his stock to be a dazzling exception. But again my talk went
for nothing. He insisted that I support the stock.

Here was a shrewd business man, one of the most successful promoters of
the day, who had made millions in Wall Street deals and knew much more
than the average man about the game of speculation, actually insisting
on supporting a stock in an incipient bear market. It was his stock,
to be sure, but it was nevertheless bad business. So much so that it
went against the grain and I again began to argue with him. But it was
no use. He insisted on putting in supporting orders.

Of course when the general market got weak and the decline began in
earnest Pete Products went with the rest. Instead of selling I actually
bought stock for the insiders’ pool--by Prentiss’ orders.

The only explanation is that Prentiss did not believe the bear market
was right on top of us. I myself was confident that the bull market
was over. I had verified my first surmise by tests not alone in Pete
Products but in other stocks as well. I didn’t wait for the bear market
to announce its safe arrival before I started selling. Of course I
didn’t sell a share of Pete Products, though I was short of other
stocks.

The Pete Products pool, as I expected, was hung up with all they held
to begin with and with all they had to take in their futile effort to
hold up the price. In the end they did liquidate; but at much lower
figures than they would have got if Prentiss had let me sell when and
as I wished. It could not be otherwise. But Prentiss still thinks he
was right--or says he does. I understand he says the reason I gave him
the advice I did was that I was short of other stocks and the general
market was going up. It implies, of course, that the break in Pete
Products that would have resulted from selling out the pool’s holdings
at any price would have helped my bear position in other stocks.

That is all tommyrot. I was not bearish because I was short of stocks.
I was bearish because that was the way I sized up the situation, and
I sold stocks short only after I turned bearish. There never is much
money in doing things wrong end to; not in the stock market. My plan
for selling the pool’s stock was based on what the experience of twenty
years told me alone was feasible and therefore wise. Prentiss ought to
have been enough of a trader to see it as plainly as I did. It was too
late to try to do anything else.

I suppose Prentiss shares the delusion of thousands of outsiders who
think a manipulator can do anything. He can’t. The biggest thing Keene
did was his manipulation of U.S. Steel common and preferred in the
spring of 1901. He succeeded not because he was clever and resourceful
and not because he had a syndicate of the richest men in the country
back of him. He succeeded partly because of those reasons but chiefly
because the general market was right and the public’s state of mind was
right.

It isn’t good business for a man to act against the teachings of
experience and against common sense. But the suckers in Wall Street are
not all outsiders. Prentiss’ grievance against me is what I have just
told you. He feels sore because I did my manipulation not as I wanted
to but as he asked me to.

There isn’t anything mysterious or underhanded or crooked about
manipulation designed to sell a stock in bulk provided such
operations are not accompanied by deliberate misrepresentations.
Sound manipulation must be based on sound trading principles. People
lay great stress on old-time practices, such as wash sales. But I
can assure you that the mere mechanics of deception count for very
little. The difference between stock-market manipulation and the
over-the-counter sale of stocks and bonds is in the character of the
clientele rather than in the character of the appeal. J. P. Morgan
& Co. sell an issue of bonds to the public--that is, to investors.
A manipulator disposes of a block of stock to the public--that is,
to speculators. An investor looks for safety, for permanence of the
interest return on the capital he invests. The speculator looks for a
quick profit.

The manipulator necessarily finds his primary market among
speculators--who are willing to run a greater than normal business risk
so long as they have a reasonable chance to get a big return on their
capital. I myself never have believed in blind gambling. I may plunge
or I may buy one hundred shares. But in either case I must have a
reason for what I do.

I distinctly remember how I got into the game of manipulation--that
is, in the marketing of stocks for others. It gives me pleasure to
recall it because it shows so beautifully the professional Wall Street
attitude toward stock-market operations. It happened after I had “come
back”--that is, after my Bethlehem Steel trade in 1915 started me on
the road to financial recovery.

I traded pretty steadily and had very good luck. I have never sought
newspaper publicity, but neither have I gone out of my way to hide
myself. At the same time, you know that professional Wall Street
exaggerates both the successes and the failures of whichever operator
happens to be active; and, of course, the newspapers hear about him
and print rumors. I have been broke so many times, according to
the gossips, or have made so many millions, according to the same
authorities, that my only reaction to such reports is to wonder how and
where they are born. And how they grow! I have had broker friend after
broker friend bring the same story to me, a little changed each time,
improved, more circumstantial.

All this preface is to tell you how I first came to undertake the
manipulation of a stock for someone else. The stories the newspapers
printed of how I had paid back in full the millions I owed did the
trick. My plungings and my winnings were so magnified by the newspapers
that I was talked about in Wall Street. The day was past when an
operator swinging a line of two hundred thousand shares of stock could
dominate the market. But, as you know, the public always desires to
find successors to the old leaders. It was Mr. Keene’s reputation
as a skillful stock operator, a winner of millions on his own hook,
that made promoters and banking houses apply to him for selling large
blocks of securities. In short, his services as manipulator were in
demand because of the stories the Street had heard about his previous
successes as a trader.

But Keene was gone--passed on to that heaven where he once said he
wouldn’t stay a moment unless he found Sysonby there waiting for
him. Two or three other men who made stock-market history for a few
months had relapsed into the obscurity of prolonged inactivity. I
refer particularly to certain of those plunging Westerners who came to
Wall Street in 1901 and after making many millions out of their Steel
holdings remained in Wall Street. They were in reality superpromoters
rather than operators of the Keene type. But they were extremely able,
extremely rich and extremely successful in the securities of the
companies which they and their friends controlled. They were not really
great manipulators, like Keene or Governor Flower. Still, the Street
found in them plenty to gossip about and they certainly had a following
among the professionals and the sportier commission houses. After they
ceased to trade actively the Street found itself without manipulators;
at least, it couldn’t read about them in the newspapers.

You remember the big bull market that began when the Stock Exchange
resumed business in 1915. As the market broadened and the Allies’
purchases in this country mounted into billions we ran into a boom.
As far as manipulation went, it wasn’t necessary for anybody to lift
a finger to create an unlimited market for a war bride. Scores of men
made millions by capitalizing contracts or even promises of contracts.
They became successful promoters, either with the aid of friendly
bankers or by bringing out their companies on the Curb market. The
public bought anything that was adequately touted.

When the bloom wore off the boom, some of these promoters found
themselves in need of help from experts in stock salesmanship. When the
public is hung up with all kinds of securities, some of them purchased
at higher prices, it is not an easy task to dispose of untried stocks.
_After a boom the public is positive that nothing is going up. It
isn’t that buyers become more discriminating, but that the blind buying
is over. It is the state of mind that has changed. Prices don’t even
have to go down to make people pessimistic. It is enough if the market
gets dull and stays dull for a time._

In every boom companies are formed primarily if not exclusively to take
advantage of the public’s appetite for all kinds of stocks. Also there
are belated promotions. The reason why promoters make that mistake
is that being human they are unwilling to see the end of the boom.
Moreover, it is good business to take chances when the possible profit
is big enough. _The top is never in sight when the vision is vitiated
by hope._ The average man sees a stock that nobody wanted at twelve
dollars or fourteen dollars a share suddenly advance to thirty--which
surely is the top--until it rises to fifty. That is absolutely the
end of the rise. Then it goes to sixty; to seventy; to seventy-five.
It then becomes a certainty that this stock, which a few weeks ago
was selling for less than fifteen, can’t go any higher. But it goes
to eighty; and to eighty-five. Whereupon the average man, who never
thinks of values but of prices, and is not governed in his actions by
conditions but by fears, takes the easiest way--he stops thinking that
there must be a limit to the advances. That is why those outsiders who
are wise enough not to buy at the top make up for it by not taking
profits. The big money in booms is always made first by the public--on
paper. And it remains on paper.



_XXII_


One day Jim Barnes, who not only was one of my principal brokers but
an intimate friend as well, called on me. He said he wanted me to do
him a great favour. He never before had talked that way, and so I asked
him to tell me what the favour was, hoping it was something I could do,
for I certainly wished to oblige him. He then told me that his firm was
interested in a certain stock; in fact, they had been the principal
promoters of the company and had placed the greater part of the stock.
Circumstances had arisen that made it imperative for them to market a
rather large block. Jim wanted me to undertake to do the marketing for
him. The stock was Consolidated Stove.

I did not wish to have anything to do with it for various reasons.
But Barnes, to whom I was under some obligations, insisted on the
personal-favour phase of the matter, which alone could overcome my
objections. He was a good fellow, a friend, and his firm, I gathered,
was pretty heavily involved, so in the end I consented to do what I
could.

It has always seemed to me that the most picturesque point of
difference between the war boom and other booms was the part that was
played by a type new in stock-market affairs--the boy banker.

The boom was stupendous and its origins and causes were plainly to
be grasped by all. But at the same time the greatest banks and trust
companies in the country certainly did all they could to help make
millionaires overnight of all sorts and conditions of promoters and
munition makers. It got so that all a man had to do was to say that
he had a friend who was a friend of a member of one of the Allied
commissions and he would be offered all the capital needed to carry out
the contracts he had not yet secured. I used to hear incredible stories
of clerks becoming presidents of companies doing a business of millions
of dollars on money borrowed from trusting trust companies, and of
contracts that left a trail of profits as they passed from man to man.
A flood of gold was pouring into this country from Europe and the banks
had to find ways of impounding it.

The way business was done might have been regarded with misgivings by
the old, but there didn’t seem to be so many of them about. The fashion
for gray-haired presidents of banks was all very well in tranquil
times, but youth was the chief qualification in these strenuous times.
The banks certainly did make enormous profits.

Jim Barnes and his associates, enjoying the friendship and confidence
of the youthful president of the Marshall National Bank, decided to
consolidate three well-known stove companies and sell the stock of the
new company to the public that for months had been buying any old thing
in the way of engraved stock certificates.

One trouble was that the stove business was so prosperous that all
three companies were actually earning dividends on their common stock
for the first time in their history. Their principal stockholders did
not wish to part with the control. There was a good market for their
stocks on the Curb; and they had sold as much as they cared to part
with and they were content with things as they were. Their individual
capitalisation was too small to justify big market movements, and that
is where Jim Barnes’ firm came in. It pointed out that the consolidated
company must be big enough to list on the Stock Exchange, where the
new shares could be made more valuable than the old ones. It is an
old device in Wall Street--to change the colour of the certificates
in order to make them more valuable. Say a stock ceases to be easily
vendible at war. Well, sometimes by quadrupling the stock you may make
the new shares sell at 30 or 35. This is equivalent to 120 or 140 for
the old stock--a figure it never could have reached.

It seems that Barnes and his associates succeeded in inducing some
of their friends who held speculatively some blocks of Gray Stove
Company--a large concern--to come into the consolidation on the basis
of four shares of Consolidated for each share of Gray. Then the Midland
and the Western followed their big sister and came in on the basis of
share for share. Theirs had been quoted on the Curb at around 25 to 30,
and the Gray, which was better known and paid dividends, hung around
125.

In order to raise the money to buy out those holders who insisted upon
selling for cash, and also to provide additional working capital for
improvements and promotion expenses, it became necessary to raise a few
millions. So Barnes saw the president of his bank, who kindly lent his
syndicate three million five hundred thousand dollars. The collateral
was one hundred thousand shares of the newly organised corporation. The
syndicate assured the president, or so I was told, that the price would
not go below 50. It would be a very profitable deal as there was big
value there.

The promoters’ first mistake was in the matter of timeliness. The
saturation point for new stock issues had been reached by the market,
and they should have seen it. But even then they might have made a fair
profit after all if they had not tried to duplicate the unreasonable
killings which other promoters had made at the very height of the boom.

Now you must not run away with the notion that Jim Barnes and his
associates were fools or inexperienced kids. They were shrewd men. All
of them were familiar with Wall Street methods and some of them were
exceptionally successful stock traders. But they did rather more than
merely overestimate the public’s buying capacity. After all, that
capacity was something that they could determine only by actual tests.
Where they erred more expensively was in expecting the bull market
to last longer than it did. I suppose the reason was that these same
men had met with such great and particularly with such quick success
that they didn’t doubt they’d be all through with the deal before the
bull market turned. They were all well known and had a considerable
following among the professional traders and the wire houses.

The deal was extremely well advertised. The newspapers certainly were
generous with their space. The older concerns were identified with the
stove industry of America and their product was known the world over.
It was a patriotic amalgamation and there was a heap of literature in
the daily papers about the world conquests. The markets of Asia, Africa
and South America were as good as cinched.

The directors of the company were all men whose names were familiar
to all readers of the financial pages. The publicity work was so well
handled and the promises of unnamed insiders as to what the price was
going to do were so definite and convincing that a great demand for the
new stock was created. The result was that when the books were closed
it was found that the stock which was offered to the public at fifty
dollars a share had been oversubscribed by 25 per cent.

Think of it! The best the promoters should have expected was to
succeed in selling the new stock at that price after weeks of work and
after putting up the price to 75 or higher in order to average 50.
At that, it meant an advance of about 100 per cent in the old prices
of the stocks of the constituent companies. That was the crisis and
they did not meet it as it should have been met. It shows you that
every business has its own needs. General wisdom is less valuable
than specific savvy. The promoters, delighted by the unexpected
oversubscription, concluded that the public was ready to pay any price
for any quantity of that stock. And they actually were stupid enough
to underallot the stock. After the promoters made up their minds to be
hoggish they should have tried to be intelligently hoggish.

What they should have done, of course, was to allot the stock in full.
That would have made them short to the extent of 25 per cent of the
total amount offered for subscription to the public, and that, of
course, would have enabled them to support the stock when necessary
and at no cost to themselves. Without any effort on their part they
would have been in the strong strategic position that I always try to
find myself in when I am manipulating a stock. They could have kept the
price from sagging, thereby inspiring confidence in the new stock’s
stability and in the underwriting syndicate back of it. They should
have remembered that their work was not over when they sold the stock
offered to the public. That was only a part of what they had to market.

They thought they had been very successful, but it was not long before
the consequences of their two capital blunders became apparent. The
public did not buy any more of the new stock, because the entire market
developed reactionary tendencies. The insiders got cold feet and did
not support Consolidated Stove; and if insiders don’t buy their own
stock on recessions, who should? The absence of inside support is
generally accepted as a pretty good bear tip.

There is no need to go into statistical details. The price of
Consolidated Stove fluctuated with the rest of the market, but it never
went above the initial market quotations, which were only a fraction
above 50. Barnes and his friends in the end had to come in as buyers
in order to keep it above 40. Not to have supported that stock at the
outset of its market career was regrettable. But not to have sold all
the stock the public subscribed for was much worse.

At all events, the stock was duly listed on the New York Stock Exchange
and the price of it duly kept sagging until it nominally stood at 37.
And it stood there because Jim Barnes and his associates had to keep it
there because their bank had loaned them thirty-five dollars a share
on one hundred thousand shares. If the bank ever tried to liquidate
that loan there was no telling what the price would break to. The
public that had been eager to buy it at 50, now didn’t care for it at
37, and probably wouldn’t want it at 27.

As time went on the banks’ excesses in the matter of extensions
of credits made people think. The day of the boy banker was over.
The banking business appeared to be on the ragged edge of suddenly
relapsing into conservatism. Intimate friends were now asked to pay off
loans, for all the world as though they had never played golf with the
president.

There was no need to threaten on the lender’s part or to plead for
more time on the borrower’s. The situation was highly uncomfortable
for both. The bank, for example, with which my friend Jim Barnes did
business, was still kindly disposed. But it was a case of “For heaven’s
sake take up that loan or we’ll all be in a dickens of a mess!”

The character of the mess and its explosive possibilities were
enough to make Jim Barnes come to me to ask me to sell the
one hundred thousand shares for enough to pay off the bank’s
three-million-five-hundred-thousand-dollar loan. Jim did not now expect
to make a profit on that stock. If the syndicate only made a small loss
on it they would be more than grateful.

It seemed a hopeless task. The general market was neither active nor
strong, though at times there were rallies, when everybody perked up
and tried to believe the bull swing was about to resume.

The answer I gave Barnes was that I’d look into the matter and let him
know under what conditions I’d undertake the work. Well, I did look
into it. I didn’t analyse the company’s last annual report. My studies
were confined to the stock-market phases of the problem. I was not
going to tout the stock for a rise on its earnings or its prospects,
but to dispose of that block in the open market. All I considered was
what should, could or might help or hinder me in that task.

I discovered for one thing that there was too much stock held by too
few people--that is, too much for safety and far too much for comfort.
Clifton P. Kane & Co., bankers and brokers, members of the New York
Stock Exchange, were carrying seventy thousand shares. They were
intimate friends of Barnes and had been influential in effecting the
consolidation, as they had made a specialty of stove stocks for years.
Their customers had been let into the good thing. Ex-Senator Samuel
Gordon, who was the special partner in his nephews’ firm, Gordon Bros.,
was the owner of a second block of seventy thousand shares; and the
famous Joshua Wolff had sixty thousand shares. This made a total of
two hundred thousand shares of Consolidated Stove held by this handful
of veteran Wall Street professionals. They did not need any kind
person to tell them when to sell their stock. If I did anything in the
manipulating line calculated to bring in public buying--that is to say,
if I made the stock strong and active--I could see Kane and Gordon
and Wolff unloading, and not in homeopathic doses either. The vision
of their two hundred thousand shares Niagaraing into the market was
not exactly entrancing. Don’t forget that the cream was off the bull
movement and that no overwhelming demand was going to be manufactured
by my operations, however skillfully conducted they might be. Jim
Barnes had no illusions about the job he was modestly sidestepping in
my favour. He had given me a waterlogged stock to sell on a bull market
that was about to breathe its last. Of course there was no talk in the
newspapers about the ending of the bull market, but I knew it, and Jim
Barnes knew it, and you bet the bank knew it.

Still, I had given Jim my word, so I sent for Kane, Gordon and Wolff.
Their two hundred thousand shares was the sword of Damocles. I thought
I’d like to substitute a steel chain for the hair. The easiest way,
it seemed to me, was by some sort of reciprocity agreement. If they
helped me passively by holding off while I sold the bank’s one hundred
thousand shares, I would help them actively by trying to make a
market for all of us to unload on. As things were, they couldn’t sell
one-tenth of their holdings without having Consolidated Stove break
wide open, and they knew it so well that they had never dreamed of
trying. All I asked of them was judgment in timing the selling and an
intelligent unselfishness in order not to be unintelligently selfish.
It never pays to be a dog in the manger in Wall Street or anywhere
else. I desired to convince them that premature or ill-considered
unloading would prevent complete unloading. Time urged.

I hoped my proposition would appeal to them because they were
experienced Wall Street men and had no illusions about the actual
demand for Consolidated Stove. Clifton P. Kane was the head of a
prosperous commission house with branches in eleven cities and
customers by the hundreds. His firm had acted as managers for more than
one pool in the past.

Senator Gordon, who held seventy thousand shares, was an exceedingly
wealthy man. His name was as familiar to the readers of the
metropolitan press as though he had been sued for breach of promise by
a sixteen-year-old manicurist possessing a five-thousand-dollar mink
coat and one hundred and thirty-two letters from the defendant. He had
started his nephews in business as brokers and he was a special partner
in their firm. He had been in dozens of pools. He had inherited a large
interest in the Midland Stove Company and he got one hundred thousand
shares of Consolidated Stove for it. He had been carrying enough to
disregard Jim Barnes’ wild bull tips and had cashed in on thirty
thousand shares before the market petered out on him. He told a friend
later that he would have sold more only the other big holders, who were
old and intimate friends, pleaded with him not to sell any more, and
out of regard for them he stopped. Besides which, as I said, he had no
market to unload on.

The third man was Joshua Wolff. He was probably the best know of all
the traders. For twenty years everybody had know him as one of the
plungers on the floor. In bidding up stocks or offering them down he
had few equals, for ten or twenty thousand shares meant no more to him
than two or three hundred. Before I came to New York I had heard of him
as a plunger. He was then trailing with a sporting coterie that played
a no limit game, whether on the race track or in the stock market.

They used to accuse him of being nothing but a gambler, but he had real
ability and a strongly developed aptitude for the speculative game. At
the same time his reputed indifference to highbrow pursuits made him
the hero of numberless anecdotes. One of the most highly circulated of
the yarns was that Joshua was a guest at what he called a swell dinner
and by some oversight of the hostess several of the other guests began
to discuss literature before they could be stopped.

A girl who sat next to Josh and had not heard him use his mouth except
for masticating purposes, turned to him and looking anxious to hear the
great financier’s opinion asked him, “Oh, Mr. Wolff, what do you think
of Balzac?”

Josh politely ceased to masticate, swallowed and answered, “I never
trade in them Curb stocks!”

Such were the three largest individual holders of Consolidated Stove.
When they came over to see me I told them that if they formed a
syndicate to put up some cash and gave me a call on their stock at a
little above the market I would do what I could to make a market. They
promptly asked me how much money would be required.

I answered, “You’ve had that stock a long time and you can’t do a thing
with it. Between the three of you you’ve got two hundred thousand
shares, and you know very well that you haven’t the slightest chance
of getting rid of it unless you make a market for it. It’s got be some
market to absorb what you’ve got to give it, and it will be wise to
have enough cash to pay for whatever stock it may be necessary to buy
at first. It’s no use to begin and then have to stop because there
isn’t enough money. I suggest that you form a syndicate and raise six
millions in cash. Then give the syndicate a call on your two hundred
thousand shares at 40 and put all your stock in escrow. If everything
goes well you chaps will get rid of your dead pet and the syndicate
will make some money.”

As I told you before, there had been all sorts of rumours about my
stock-market winnings. I suppose that helped, for nothing succeeds like
success. At all events, I didn’t have to do much explaining to these
chaps. They knew exactly how far they’d get if they tried to play a
lone hand. They thought mine was a good plan. When they went away they
said they would form the syndicate at once.

They didn’t have much trouble in inducing a lot of their friends to
join them. I suppose they spoke with more assurance than I had of the
syndicate’s profits. From all I heard they really believed it, so
theirs were no conscienceless tips. At all events the syndicate was
formed in a couple of days. Kane, Gordon and Wolff gave calls on the
two hundred thousand shares at 40 and I saw to it that the stock itself
was put in escrow, so that none of it would come out on the market
if I should put up the price. I had to protect myself. More than one
promising deal has failed to pan out as expected because the members
of the pool or clique failed to keep faith with one another. Dog has
no foolish prejudices against eating dog in Wall Street. At the time
the second American Steel and Wire Company was brought out the insiders
accused one another of breach of faith and trying to unload. There had
been a gentlemen’s agreement between John W. Gates and his pals and
the Seligmans and their banking associates. Well, I heard somebody in
a broker’s office reciting this quatrain, which was said to have been
composed by John W. Gates:

  _The tarantula jumped on the centipede’s back
    And chortled with ghoulish glee:
  “I’ll poison this murderous son of a gun.
    If I don’t he’ll poison me!”_

Mind you, I do not mean for one moment to imply that any of my friends
in Wall Street would even dream of double-crossing me in a stock deal.
But on general principles it is just as well to provide for any and all
contingencies. It’s plain sense.

After Wolff and Kane and Gordon told me that they had formed their
syndicate to put up six millions in cash there was nothing for me to do
but wait for the money to come in. I had urged the vital need of haste.
Nevertheless the money came in driblets. I think it took four or five
installments. I don’t know what the reason was, but I remember that I
had to send out an S O S call to Wolff and Kane and Gordon.

That afternoon I got some big checks that brought the cash in my
possession to about four million dollars and the promise of the rest
in a day or two. It began to look as though the syndicate might do
something before the bull market passed away. At best it would be no
cinch, and the sooner I began work the better. The public had not been
particularly keen about new market movements in inactive stocks. But
a man could do a great deal to arouse interest in any stock with four
millions in cash. It was enough to absorb all the probable offerings.
If time urged, as I had said, there was no sense in waiting for the
other two millions. The sooner the stock got up to 50 the better for
the syndicate. That was obvious.

The next morning at the opening I was surprised to see that there were
unusually heavy dealings in Consolidated Stove. As I told you before,
the stock had been waterlogged for months. The price had been pegged at
37, Jim Barnes taking good care not to let it go any lower on account
of the big bank loan at 35. But as for going any higher, he’d as soon
expect to see the Rock of Gibraltar shimmying across the Strait as to
see Consolidated Stove do any climbing on the tape.

Well, sir, this morning there was quite a demand for the stock, and the
price went up to 39. In the first hour of the trading the transactions
were heavier than for the whole previous half year. It was the
sensation of the day and affected bullishly the entire market. I heard
afterwards that nothing else was talked about in the customers’ rooms
of the commission houses.

I didn’t know what it meant, but it didn’t hurt my feelings any to see
Consolidated Stove perk up. As a rule I do not have to ask about any
unusual movement in any stock because my friends on the floor--brokers
who do business for me, as well as personal friends among the room
traders--keep me posted. They assume I’d like to know and they
telephone me any news or gossip they pick up. On this day all I heard
was that there was unmistakable inside buying in Consolidated Stove.
There wasn’t any washing. It was all genuine. The purchasers took all
the offerings from 37 to 39 and when importuned for reasons or begged
for a tip, flatly refused to give any. This made the wily and watchful
traders conclude that there was something doing; something big. When a
stock goes up on buying by insiders who refuse to encourage the world
at large to follow suit the ticker hounds begin to wonder aloud when
the official notice will be given out.

I didn’t do anything myself. I watched and wondered and kept track of
the transactions. But on the next day the buying was not only greater
in volume but more aggressive in character. The selling orders that had
been on the specialists’ books for months at above the pegged price of
37 were absorbed without any trouble, and not enough new selling orders
came in to check the rise. Naturally, up went the price. It crossed 40.
Presently it touched 42.

The moment it touched that figure I felt that I was justified in
starting to sell the stock the bank held as collateral. Of course I
figured that the price would go down on my selling, but if my average
on the entire line was 37 I’d have no fault to find. I knew what the
stock was worth and I had gathered some idea of the vendibility from
the months of inactivity. Well, sir, I let them have stock carefully
until I had got rid of thirty thousand shares. And the advance was not
checked!

That afternoon I was told the reason for that opportune but mystifying
rise. It seems that the floor traders had been tipped off after the
close the night before and also the next morning before the opening,
that I was bullish as blazes on Consolidated Stove and was going to
rush the price right up fifteen or twenty points without a reaction, as
was my custom--that is, my custom according to people who never kept my
books. The tipster in chief was no less a personage than Joshua Wolff.
It was his own inside buying that started the rise of the day before.
His cronies among the floor traders were only too willing to follow his
tip, for he knew too much to give wrong steers to his fellows.

As a matter of fact, there was not so much stock pressing on the market
as had been feared. Consider that I had tied up three hundred thousand
shares and you will realize that the old fears had been well founded.
It now proved less of a job than I had anticipated to put up the stock.
After all, Governor Flower was right. Whenever he was accused of
manipulating his firm’s specialties, like Chicago Gas, Federal Steel or
B. R. T., he used to say: “The only way I know of making a stock go up
is to buy it.” That also was the floor traders’ only way, and the price
responded.

On the next day, before breakfast, I read in the morning papers what
was read by thousands and what undoubtedly was sent over the wires to
hundreds of branches and out-of-town offices, and that was that Larry
Livingston was about to begin active bull operations in Consolidated
Stove. The additional details differed. One version had it that I had
formed an insiders’ pool and was going to punish the over-extended
short interest. Another hinted at dividend announcements in the near
future. Another reminded the world that what I usually did to a stock
I was bullish on was something to remember. Still another accused the
company of concealing its assets in order to permit accumulation by
insiders. And all of them agreed that the rise hadn’t fairly started.

By the time I reached my office and read my mail before the market
opened I was made aware that the Street was flooded with red-hot tips
to buy Consolidated Stove at once. My telephone bell kept ringing and
the clerk who answered the calls heard the same question asked in
one form or another a hundred times that morning: Was it true that
Consolidated Stove was going up? I must say that Joshua Wolff and Kane
and Gordon--and possibly Jim Barnes--handled that little tipping job
mighty well.

I had no idea that I had such a following. Why, that morning the buying
orders came in from all over the country--orders to buy thousands of
shares of a stock that nobody wanted at any price three days before.
And don’t forget that, as a matter of fact, all that the public had to
go by was my newspaper reputation as a successful plunger; something
for which I had to thank an imaginative reporter or two.

Well, sir, on that, the third day of the rise, I sold Consolidated
Stove; and on the fourth day and the fifth; and the first thing I
knew I had sold for Jim Barnes the one hundred thousand shares of
stock which the Marshall National Bank held as collateral on the
three-million-five-hundred-thousand-dollar loan that needed paying
off. If the most successful manipulation consists of that in which the
desired end is gained at the least possible cost to the manipulator,
the Consolidated Stove deal is by all means the most successful of my
Wall Street career. Why, at no time did I have to take any stock. I
didn’t have to buy first in order to sell the more easily later on.
I did not put up the price to the highest possible point and then
begin my real selling. I didn’t even do my principal selling on
the way down, but on the way up. It was like a dream of Paradise to
find an adequate buying power created for you without your stirring
a finger to bring it about, particularly when you were in a hurry. I
once heard a friend of Governor Flower’s say that in one of the great
bull-leader’s operations for the account of a pool in B. R. T. the pool
sold fifty thousand shares of the stock at a profit, but Flower & Co.
got commissions on more than two hundred and fifty thousand shares and
W. P. Hamilton says that to distribute two hundred and twenty thousand
shares of Amalgamated Copper, James R. Keene must have traded in at
least seven hundred thousand shares of the stock during the necessary
manipulation. Some commission bill! Think of that and then consider
that the only commissions that I had to pay were the commissions on the
one hundred thousand shares I actually sold for Jim Barnes. I call that
some saving.

Having sold what I had engaged to sell for my friend Jim, and all the
money the syndicate had agreed to raise not having been sent in, and
feeling no desire to buy back any of the stock I had sold, I rather
think I went away somewhere for a short vacation. I do not remember
exactly. But I do remember very well that I let the stock alone and
that it was not long before the price began to sag. One day, when the
entire market was weak, some disappointed bull wanted to get rid of his
Consolidated Stove in a hurry, and on his offerings the stock broke
below the call price, which was 40. Nobody seemed to want any of it. As
I told you before, I wasn’t bullish on the general situation and that
made me more grateful than ever for the miracle that had enabled me to
dispose of the one hundred thousand shares without having to put the
price up twenty or thirty points in a week, as the kindly tipsters had
prophesied.

Finding no support, the price developed a habit of declining regularly
until one day it broke rather badly and touched 32. That was the lowest
that had ever been recorded for it, for, as you will remember, Jim
Barnes and the original syndicate had pegged it at 37 in order not to
have their one hundred thousand shares dumped on the market by the bank.

I was in my office that day peacefully studying the tape when Joshua
Wolff was announced. I said I would see him. He rushed in. He is not a
very large man, but he certainly seemed all swelled up--with anger, as
I instantly discovered.

He ran to where I stood by the ticker and yelled, “Hey? What the
devil’s the matter?”

“Have a chair, Mr. Wolff,” I said politely and sat down myself to
encourage him to talk calmly.

“I don’t want any chair! I want to know what it means!” he cried at the
top of his voice.

“What does what mean?”

“What in hell are you doing to it?”

“What am I doing to what?”

“That stock! That stock!”

“What stock?” I asked him.

But that only made him see red, for he shouted, “Consolidated Stove!
What are you doing to it?”

“Nothing! Absolutely nothing. What’s wrong?” I said.

He stared at me fully five seconds before he exploded: “Look at the
price! Look at it!”

He certainly was angry. So I got up and looked at the tape.

I said, “The price of it is now 31¼.”

“Yeh! Thirty-one and a quarter, and I’ve got a raft of it.”

“I know you have sixty thousand shares. You have had it a long time,
because when you originally bought your Gray Stove----”

But he didn’t let me finish. He said, “But I bought a lot more. Some of
it cost me as high as 40! And I’ve got it yet!”

He was glaring at me so hostilely that I said, “I didn’t tell you to
buy it.”

“You didn’t what?”

“I didn’t tell you to load up with it.”

“I didn’t say you did. But you were going to put it up----”

“Why was I?” I interrupted.

He looked at me, unable to speak for anger. When he found his voice
again, he said, “You were going to put it up. You had the money to buy
it.”

“Yes. But I didn’t buy a share,” I told him.

That was the last straw.

“You didn’t buy a share, and you had over four millions in cash to buy
with? You didn’t buy any?”

“Not a share!” I repeated.

He was so mad by now that he couldn’t talk plainly. Finally he managed
to say, “What kind of a game do you call that?”

He was inwardly accusing me of all sorts of unspeakable crimes. I sure
could see a long list of them in his eyes. It made me say to him: “What
you really mean to ask me, Wolff, is, why I didn’t buy from you above
50 the stock you bought below 40. Isn’t that it?”

“No, it isn’t. You had a call at 40 and four millions in cash to put up
the price with.”

“Yes, but I didn’t touch the money and the syndicate has not lost a
cent by my operations.”

“Look here, Livingston--” he began.

But I didn’t let him say any more.

“You listen to me, Wolff. You knew that the two hundred thousand shares
you and Gordon and Kane held were tied up, and that there wouldn’t be
an awful lot of floating stock to come on the market if I put up the
price, as I’d have to do for two reasons: The first to make a market
for the stock; and the second to make a profit out of the call at 40.
But you weren’t satisfied to get 40 for the sixty thousand shares you’d
been lugging for months or with your share of the syndicate profits, if
any; so you decided to take on a lot of stock under 40 to unload on me
when I put the price up with the syndicate’s money, as you were sure
I meant to do. You’d buy before I did and you’d unload before I did;
in all probability I’d be the one to unload on. I suspect you figured
on my having to put the price up to 60. It was such a cinch that you
probably bought ten thousand shares strictly for unloading purposes,
and to make sure somebody held the bag if I didn’t, you tipped off
everybody in the United States, Canada and Mexico without thinking
of my added difficulties. All your friends knew what I was supposed
to do. Between their buying and mine you were going to be all hunky.
Well, your intimate friends to whom you gave the tip passed it on to
their friends after they had bought their lines, and the third stratum
of tip-takers planned to supply the fourth, fifth and possibly sixth
strata of suckers, so that when I finally came to do some selling I’d
find myself anticipated by a few thousands of wise speculators. It was
a friendly thought, that notion of yours, Wolff. You can’t imagine
how surprised I was when Consolidated Stove began to go up before I
even thought of buying a single share; or how grateful, either, when
the underwriting syndicate sold one hundred thousand shares around 40
to the people who were going to sell those same shares to me at 50 or
60. I sure was a sucker not to use the four millions to make money for
them, wasn’t I? The cash was supplied to buy stock with, but only if I
thought it necessary to do so. Well, I didn’t.”

Joshua had been in Wall Street long enough not to let anger interfere
with business. He cooled off as he heard me, and when I was through
talking he said in a friendly tone of voice, “Look here, Larry, old
chap, what shall we do?”

“Do whatever you please.”

“Aw, be a sport. What would you do if you were in our place?”

“If I were in your place,” I said solemnly, “do you know what I’d do?”

“What?”

“I’d sell out!” I told him.

He looked at me a moment, and without another word turned on his heel
and walked out of my office. He’s never been in it since.

Not long after that, Senator Gordon also called. He, too, was quite
peevish and blamed me for their troubles. Then Kane joined the anvil
chorus. They forgot that their stock had been unsalable in bulk when
they formed the syndicate. All they could remember was that I didn’t
sell their holdings when I had the syndicate’s millions and the stock
was active at 44, and that now it was 30 and dull as dishwater. To
their way of thinking I should have sold out at a good fat profit.

Of course they also cooled down in due time. The syndicate wasn’t out
a cent and the main problem remained unchanged: to sell their stock. A
day or two later they came back and asked me to help them out. Gordon
was particularly insistent, and in the end I made them put in their
pooled stock at 25½. My fee for my services was to be one-half of
whatever I got above that figure. The last sale had been at about 30.

There I was with their stock to liquidate. Given general market
conditions and specifically the behaviour of Consolidated Stove, there
was only one way to do it, and that was, of course, to sell on the way
down and without first trying to put up the price, and I certainly
would have got stock by the ream on the way up. But on the way down
I could reach those buyers who always argue that a stock is cheap
when it sells fifteen or twenty points below the top of the movement,
particularly when that top is a matter of recent history. A rally is
due, in their opinion. After seeing Consolidated Stove sell up to close
to 44 it sure looked like a good thing below 30.

It worked out as always. Bargain hunters bought it in sufficient volume
to enable me to liquidate the pool’s holdings. But do you think that
Gordon or Wolff or Kane felt any gratitude? Not a bit of it. They are
still sore at me, or so their friends tell me. They often tell people
how I did them. They cannot forgive me for not putting up the price on
myself, as they expected.

As a matter of fact I never would have been able to sell the bank’s
hundred thousand shares if Wolff and the rest had not passed around
those red-hot bull tips of theirs. If I had worked as I usually
do--that is, in a logical natural way--I would have had to take
whatever price I could get. I told you we ran into a declining market.
The only way to sell on such a market is to sell not necessarily
recklessly but really regardless of price. No other way was possible,
but I suppose they do not believe this. They are still angry. I am not.
Getting angry doesn’t get a man anywhere. More than once it has been
borne in on me that a speculator who loses his temper is a goner. In
this case there was no aftermath to the grouches. But I’ll tell you
something curious. One day Mrs. Livingston went to a dressmaker who had
been warmly recommended to her. The woman was competent and obliging
and had a very pleasing personality. At the third or fourth visit, when
the dressmaker felt less like a stranger, she said to Mrs. Livingston:
“I hope Mr. Livingston puts up Consolidated Stove soon. We have some
that we bought because we were told he was going to put it up, and we’d
always heard that he was very successful in all his deals.”

I tell you it isn’t pleasant to think that innocent people may have
lost money following a tip of that sort. Perhaps you understand why I
never give any myself. That dressmaker made me feel that in the matter
of grievances I had a real one against Wolff.



_XXIII_


Speculation in stocks will never disappear. It isn’t desirable that
it should. It cannot be checked by warnings as to its dangers. You
cannot prevent people from guessing wrong no matter how able or how
experienced they may be. Carefully laid plans will miscarry because the
unexpected and even the unexpectable will happen. Disaster may come
from a convulsion of nature or from the weather, from your own greed
or from some man’s vanity; from fear or from uncontrolled hope. But
apart from what one might call his natural foes, a speculator in stocks
has to contend with certain practices or abuses that are indefensible
normally as well as commercially.

As I look back and consider what were the common practices twenty-five
years ago when I first came to Wall Street, I have to admit that there
have been many changes for the better. The old-fashioned bucket shops
are gone, though bucketeering “brokerage” houses still prosper at the
expense of men and women who persist in playing the game of getting
rich quick. The Stock Exchange is doing excellent work not only in
getting after these out-and-out swindlers but in insisting upon strict
adherence to its rules by its own members. Many wholesome regulations
and restrictions are now strictly enforced but there is still room for
improvement. The ingrained conservatism of Wall Street rather than
ethical callousness is to blame for the persistence of certain abuses.

Difficult as profitable stock speculation always has been it is
becoming even more difficult every day. It was not so long ago when a
real trader could have a good working knowledge of practically every
stock on the list. In 1901, when J. P. Morgan brought out the United
States Steel Corporation, which was merely a consolidation of lesser
consolidations most of which were less than two years old, the Stock
Exchange had 275 stocks on its list and about 100 in its “unlisted
department”; and this included a lot that a chap didn’t have to know
anything about because they were small issues, or inactive by reason
of being minority or guaranteed stocks and therefore lacking in
speculative attractions. In fact, an overwhelming majority were stocks
in which there had not been a sale in years. Today there are about 900
stocks on the regular list and in our recent active markets about 600
separate issues were traded in. Moreover, the old groups or classes
of stocks were easier to keep track of. They not only were fewer but
the capitalization was smaller and the news a trader had to be on the
lookout for did not cover so wide a field. But today, a man is trading
in everything; almost every industry in the world is represented. It
requires more time and more work to keep posted and to that extent
speculation has become much more difficult for those who operate
intelligently.

There are many thousands of people who buy and sell stocks
speculatively but the number of those who speculate profitably is
small. As the public always is “in” the market to some extent,
it follows that there are losses by the public all the time. The
speculator’s deadly enemies are: Ignorance, greed, fear and hope. All
the statute books in the world and all the rules of all the Exchanges
on earth cannot eliminate these from the human animal. Accidents which
knock carefully conceived plans skyhigh also are beyond regulation by
bodies of cold-blooded economists or warm-hearted philanthropists.
There remains another source of loss and that is, deliberate
misinformation as distinguished from straight tips. And because it is
apt to come to a stock trader variously disguised and camouflaged, it
is the more insidious and dangerous.

The average outsider, of course, trades either on tips or on rumours,
spoken or printed, direct or implied. Against ordinary tips you cannot
guard. For instance, a lifelong friend sincerely desires to make you
rich by telling you what he has done, that is, to buy or sell some
stock. His intent is good. If the tip goes wrong what can you do? Also
against the professional or crooked tipster the public is protected to
about the same extent that he is against gold-bricks or wood-alcohol.
But against the typical Wall Street rumours, the speculating public
has neither protection nor redress. Wholesale dealers in securities,
manipulators, pools and individuals resort to various devices to aid
them in disposing of their surplus holdings at the best possible
prices. The circulation of bullish items by the newspapers and the
tickers is the most pernicious of all.

Get the slips of the financial news-agencies any day and it will
surprise you to see how many statements of an implied semi-official
nature they print. The authority is some “leading insider” or “a
prominent director” or “a high official” or someone “in authority” who
presumably knows what he is talking about. Here are today’s slips. I
pick an item at random. Listen to this: “A leading banker says it is
too early yet to expect a declining market.”

Did a leading banker really say that and if he said it why did he say
it? Why does he not allow his name to be printed? Is he afraid that
people will believe him if he does?

Here is another one about a company the stock of which has been active
this week. This time the man who makes the statement is a “prominent
director.” Now which--if any--of the company’s dozen directors is doing
the talking? It is plain that by remaining anonymous nobody can be
blamed for any damage that may be done by the statement.

Quite apart from the intelligent study of speculation everywhere the
trader in stocks must consider certain facts in connection with the
game in Wall Street. In addition to trying to determine how to make
money one must also try to keep from losing money. It is almost as
important to know what not to do as to know what should be done. It
is therefore well to remember that manipulation of some sort enters
into practically all advances in individual stocks and that such
advances are engineered by insiders with one object in view and one
only and that is to sell at the best profit possible. However, the
average broker’s customer believes himself to be a business man from
Missouri if he insists upon being told why a certain stock goes up.
Naturally, the manipulators “explain” the advance in a way calculated
to facilitate distribution. I am firmly convinced that the public’s
losses would be greatly reduced if no anonymous statements of a bullish
nature were allowed to be printed. I mean statements calculated to make
the public buy or hold stocks.

The overwhelming majority of the bullish articles printed on the
authority of unnamed directors or insiders convey unreliable and
misleading impressions to the public. The public loses many millions of
dollars every year by accepting such statements as semi-official and
therefore trustworthy.

Say for example that a company has gone through a period of depression
in its particular line of business. The stock is inactive. The
quotation represents the general and presumably accurate belief of its
actual value. If the stock were too cheap at that level somebody would
know it and buy it and it would advance. If too dear somebody would
know enough to sell it and the price would decline. As nothing happens
one way or another nobody talks about it or does anything.

The turn comes in the line of business the company is engaged in. Who
are the first to know it, the insiders or the public? You can bet it
isn’t the public. What happens next? Why, if the improvement continues
the earnings will increase and the company will be in position to
resume dividends on the stock; or, if dividends were not discontinued,
to pay a higher rate. That is, the value of the stock will increase.

Say that the improvement keeps up. Does the management make public
that glad fact? Does the president tell the stockholders? Does a
philanthropic director come out with a signed statement for the benefit
of that part of the public that reads the financial page in the
newspapers and the slips of the news agencies? Does some modest insider
pursuing his usual policy of anonymity come out with an unsigned
statement to the effect that the company’s future is most promising?
Not this time. Not a word is said by anyone and no statement whatever
is printed by newspapers or tickers.

The value-making information is carefully kept from the public while
the now taciturn “prominent insiders” go into the market and buy all
the cheap stock they can lay their hands on. As this well-informed
but unostentatious buying keeps on, the stock rises. The financial
reporters, knowing that the insiders ought to know the reason for the
rise, ask questions. The unanimously anonymous insiders unanimously
declare that they have no news to give out. They do not know that there
is any warrant for the rise. Sometimes they even state that they are
not particularly concerned with the vagaries of the stock market or the
actions of stock speculators.

The rise continues and there comes a happy day when those who know have
all the stock they want or can carry. The Street at once begins to hear
all kinds of bullish rumours. The tickers tell the traders “on good
authority” that the company has definitely turned the corner. The same
modest director who did not wish his name used when he said he knew
no warrant for the rise in the stock is now quoted--of course not by
name--as saying that the stockholders have every reason to feel greatly
encouraged over the outlook.

Urged by the deluge of bullish news items the public begins to buy
the stock. These purchases help to put the price still higher. In due
course the predictions of the uniformly unnamed directors come true
and the company resumes dividend payments; or increases the rate, as
the case may be. With that the bullish items multiply. They not only
are more numerous than ever but much more enthusiastic. A “leading
director,” asked point blank for a statement of conditions, informs
the world that the improvement is more than keeping up. A “prominent
insider,” after much coaxing, is finally induced by a news-agency
to confess that the earnings are nothing short of phenomenal. A
“well-known banker,” who is affiliated in a business way with the
company, is made to say that the expansion in the volume of sales
is simply unprecedented in the history of the trade. If not another
order came in the company would run night and day for heaven knows how
many months. A “member of the finance committee,” in a double-leaded
manifesto, expresses his astonishment at the public’s astonishment over
the stock’s rise. The only astonishing thing is the stock’s moderation
in the climbing line. Anybody who will analyse the forthcoming annual
report can easily figure how much more than the market-price the
book-value of the stock is. But in no instance is the name of the
communicative philanthropist given.

As long as the earnings continue good and the insiders do not discern
any sign of a let up in the company’s prosperity they sit on the stock
they bought at the low prices. There is nothing to put the price
down, so why should they sell? But the moment there is a turn for the
worse in the company’s business, what happens? Do they come out with
statements or warnings or the faintest of hints? Not much. The trend
is now downward. Just as they bought without any flourish of trumpets
when the company’s business turned for the better, they now silently
sell. On this inside selling the stock naturally declines. Then the
public begins to get the familiar “explanations.” A “leading insider”
asserts that everything is O.K. and the decline is merely the result of
selling by bears who are trying to affect the general market. If on
one fine day, after the stock has been declining for some time, there
should be a sharp break, the demand for “reasons” or “explanations”
becomes clamorous. Unless somebody says something the public will fear
the worst. So the news-tickers now print something like this: “When
we asked a prominent director of the company to explain the weakness
in the stock, he replied that the only conclusion he could arrive at
was that the decline today was caused by a bear drive. Underlying
conditions are unchanged. The business of the company was never better
than at present and the probabilities are that unless something
entirely unforeseen happens in the meanwhile, there will be an increase
in the rate at the next dividend meeting. The bear party in the market
has become aggressive and the weakness in the stock was clearly a raid
intended to dislodge weakly held stock.” The news-tickers, wishing to
give good measure, as likely as not will go on to state that they are
“reliably informed” that most of the stock bought on the day’s decline
was taken by inside interests and that the bears will find that they
have sold themselves into a trap. There will be a day of reckoning.

In addition to the losses sustained by the public through believing
bullish statements and buying stocks, there are the losses that come
through being dissuaded from selling out. The next best thing to
having people buy the stock the “prominent insider” wishes to sell
is to prevent people from selling the same stock when he does not
wish to support or accumulate it. What is the public to believe after
reading the statement of the “prominent director?” What can the average
outsider think? Of course, that the stock should never have gone down;
that it was forced down by bear-selling and that as soon as the bears
stop the insiders will engineer a punitive advance during which the
shorts will be driven to cover at high prices. The public properly
believes this because it is exactly what would happen if the decline
had in truth been caused by a bear raid.

The stock in question, notwithstanding all the threats or promises of a
tremendous squeeze of the over-extended short interest, does not rally.
It keeps on going down. It can’t help it. There has been too much stock
fed to the market from the inside to be digested.

And this inside stock that has been sold by the “prominent directors”
and “leading insiders” becomes a football among the professional
traders. It keeps on going down. There seems to be no bottom for it.
The insiders knowing that trade conditions will adversely affect the
company’s future earnings do not dare to support that stock until the
next turn for the better in the company’s business. Then there will be
inside buying and inside silence.

I have done my share of trading and have kept fairly well posted on
the stock market for many years and I can say that I do not recall
an instance when a bear raid caused a stock to decline extensively.
What was called bear raiding was nothing but selling based on accurate
knowledge of real conditions. But it would not do to say that the stock
declined on inside selling or on inside non-buying. Everybody would
hasten to sell and when everybody sells and nobody buys there is the
dickens to pay.

The public ought to grasp firmly this one point: That the real reason
for a protracted decline is never bear raiding. When a stock keeps on
going down you can bet there is something wrong with it, either with
the market for it or with the company. If the decline were unjustified
the stock would soon sell below its real value and that would bring in
buying that would check the decline. As a matter of fact, the only time
a bear can make big money selling a stock is when that stock is too
high. And you can gamble your last cent on the certainty that insiders
will not proclaim that fact to the world.

Of course, the classic example is the New Haven. Everybody knows today
what only a few knew at the time. The stock sold at 255 in 1902 and
was the premier railroad investment of New England. A man in that
part of the country measured his respectability and standing in the
community by his holdings of it. If somebody had said that the company
was on the road to insolvency he would not have been sent to jail
for saying it. They would have clapped him in an insane asylum with
other lunatics. But when a new and aggressive president was placed in
charge by Mr. Morgan and the débâcle began, it was not clear from the
first that the new policies would land the road where it did. But as
property after property began to be saddled in the Consolidated Road
at inflated prices, a few clear sighted observers began to doubt the
wisdom of the _Mellen_ policies. A trolley system was bought for two
million and sold to the New Haven for $10,000,000; whereupon a reckless
man or two committed lèse majesté by saying that the management was
acting recklessly. Hinting that not even the New Haven could stand such
extravagance was like impugning the strength of Gibraltar.

Of course, the first to see breakers ahead were the insiders. They
became aware of the real condition of the company and they reduced
their holdings of the stock. On their selling as well as on their
non-support, the price of New England’s gilt-edged railroad stock began
to yield. Questions were asked, and explanations were demanded as
usual; and the usual explanations were promptly forthcoming. “Prominent
insiders” declared that there was nothing wrong that they knew of and
that the decline was due to reckless bear selling. So the “investors”
of New England kept their holdings of New York, New Haven & Hartford
stock. Why shouldn’t they? Didn’t insiders say there was nothing wrong
and cry bear selling? Didn’t dividends continue to be declared and paid?

In the meantime the promised squeeze of the bears did not come but
new low records did. The insider selling became more urgent and less
disguised. Nevertheless public spirited men in Boston were denounced as
stock-jobbers and demagogues for demanding a genuine explanation for
the stock’s deplorable decline that meant appalling losses to everybody
in New England who had wanted a safe investment and a steady dividend
payer.

That historic break from $255 to $12 a share never was and never
could have been a bear drive. It was not started and it was not kept
up by bear operations. The insiders sold right along and always at
higher prices than they could have done if they had told the truth or
allowed the truth to be told. It did not matter whether the price was
250 or 200 or 150 or 100 or 50 or 25, it still was too high for that
stock, and the insiders knew it and the public did not. The public
might profitably consider the disadvantages under which it labours
when it tries to make money buying and selling the stock of a company
concerning whose affairs only a few men are in position to know the
whole truth.

The stocks which have had the worst breaks in the past 20 years did
not decline on bear raiding. But the easy acceptance of that form of
explanation has been responsible for losses by the public amounting to
millions upon millions of dollars. It has kept people from selling who
did not like the way his stock was acting and would have liquidated
if they had not expected the price to go right back after the bears
stopped their raiding. I used to hear Keene blamed in the old days.
Before him they used to accuse Charley Woerishoffer or Addison Cammack.
Later on I became the stock excuse.

I recall the case of Intervale Oil. There was a pool in it that put the
stock up and found some buyers on the advance. The manipulators ran the
price to 50. There the pool sold and there was a quick break. The usual
demand for explanations followed. Why was Intervale so weak? Enough
people asked this question to make the answer important news. One of
the financial news tickers called up the brokers who knew the most
about Intervale Oil’s advance and ought to be equally well posted as
to the decline. What did these brokers, members of the bull pool, say
when the news agency asked them for a reason that could be printed and
sent broadcast over the country? Why, that Larry Livingston was raiding
the market! And that wasn’t enough. They added that they were going to
“get” him. But of course, the Intervale pool continued to sell. The
stock only stood then about $12 a share and they could sell it down to
10 or lower and their average selling price would still be above cost.

It was wise and proper for insiders to sell on the decline. But for
outsiders who had paid 35 or 40, it was a different matter. Reading
what the tickers printed there outsiders held on and waited for Larry
Livingston to get what was coming to him at the hands of the indignant
inside pool.

In a bull market and particularly in booms the public at first makes
money which it later loses simply by overstaying the bull market. This
talk of “bear raids” helps them to overstay. The public should beware
of explanations that explain only what unnamed insiders wish the public
to believe.



_XXIV_


The public always wants to be told. That is what makes tip-giving and
tip-taking universal practices. It is proper that brokers should give
their customers trading advice through the medium of their market
letters as well as by word of mouth. But brokers should not dwell too
strongly on actual conditions because the course of the market is
always from six to nine months ahead of actual conditions. Today’s
earnings do not justify brokers in advising their customers to buy
stocks unless there is some assurance that six or nine months from
today the business outlook will warrant the belief that the same rate
of earnings will be maintained. If on looking that far ahead you can
see, reasonably clearly, that conditions are developing which will
change the present actual power, the argument about stocks being cheap
today will disappear. The trader must look far ahead, but the broker
is concerned with getting commissions now; hence the inescapable
fallacy of the average market letter. Brokers make their living out
of commissions from the public and yet they will try to induce the
public through their market letters or by word of mouth to buy the same
stocks in which they have received selling orders from insiders or
manipulators.

It often happens that an insider goes to the head of a brokerage
concern and says: “I wish you’d make a market in which to dispose of
50,000 shares of my stock.”

The broker asks for further details. Let us say that the quoted price
of that stock is 50. The insider tells him: “I will give you calls on
5000 shares at 45 and 5000 shares every point up for the entire fifty
thousand shares. I also will give you a put on 50,000 shares at the
market.”

Now, this is pretty easy money for the broker, if he has a large
following and of course this is precisely the kind of broker the
insider seeks. A house with direct wires to branches and connections
in various parts of the country can usually get a large following in
a deal of that kind. Remember that in any event the broker is playing
absolutely safe by reason of the put. If he can get his public to
follow he will be able to dispose of his entire line at a big profit in
addition to his regular commissions.

I have in mind the exploits of an “insider” who is well-known in Wall
Street.

He will call up the head customers’ man of a large brokerage house. At
times he goes even further and calls up one of the junior partners of
the firm. He will say something like this:

“Say, old man, I want to show you that I appreciate what you have done
for me at various times. I am going to give you a chance to make some
real money. We are forming a new company to absorb the assets of one
of our companies and we’ll take over that stock at a big advance over
present quotations. I’m going to send in to you 500 shares of Bantam
Shops at $65. The stock is now quoted at 72.”

The grateful insider tells the thing to a dozen of the headmen in
various big brokerage houses. Now since these recipients of the
insider’s bounty are in Wall Street what are they going to do when they
get that stock that already shows them a profit? Of course, advise
every man and woman they can reach to buy that stock. The kind donor
knew this. They will help to create a market in which the kind insider
can sell his good things at high prices to the poor public.

There are other devices of stock-selling promoters that should be
barred. The Exchanges should not allow trading in listed stocks that
are offered outside to the public on the partial payment plan. To have
the price officially quoted gives a sort of sanction to any stock.
Moreover, the official evidence of a free market, and at times the
difference in prices, is all the inducement needed.

Another common selling device that costs the unthinking public many
millions of dollars and sends nobody to jail because it is perfectly
legal, is that of increasing the capital stock exclusively by reason of
market exigencies. The process does not really amount to much more than
changing the color of the stock certificates.

The juggling whereby 2 or 4 or even 10 shares of new stock are given in
exchange for one of the old, is usually prompted by a desire to make
the old merchandise easily vendible. The old price was $1 per pound
package and hard to move. At 25 cents for a quarter-pound box it might
go better; and perhaps at 27 or 30 cents.

Why does not the public ask why the stock is made easy to buy? It is a
case of the Wall Street philanthropist operating again, but the wise
trader bewares of the Greeks bearing gifts. It is all the warning
needed. The public disregards it and loses millions of dollars annually.

The law punishes whoever originates or circulates rumors calculated to
affect adversely the credit or business of individuals or corporations,
that is, that tend to depress the values of securities by influencing
the public to sell. Originally, the chief intention may have been to
reduce the danger of panic by punishing anyone who doubted aloud the
solvency of banks in times of stress. But of course, it serves also to
protect the public against selling stocks below their real value. In
other words the law of the land punishes the disseminator of bearish
items of that nature.

How is the public protected against the danger of buying stocks above
their real value? Who punishes the distributor of unjustified bullish
news items? Nobody; and yet, the public loses more money buying stocks
on anonymous inside advice when they are too high than it does selling
out stocks below their value as a consequence of bearish advice during
so-called “raids.”

If a law were passed that would punish bull liars as the law now
punishes bear liars, I believe the public would save millions.

Naturally, promoters, manipulators and other beneficiaries of anonymous
optimism will tell you that anyone who trades on rumors and unsigned
statements has only himself to blame for his losses. One might as well
argue that any one who is silly enough to be a drug addict is not
entitled to protection.

The Stock Exchange should help. It is vitally interested in protecting
the public against unfair practices. If a man in position to know
wishes to make the public accept his statements of fact or even his
opinions, let him sign his name. Signing bullish items would not
necessarily make them true. But it would make the “insiders” and
“directors” more careful.

The public ought always to keep in mind the elementals of stock
trading. When a stock is going up no elaborate explanation is needed
as to why it is going up. It takes continuous buying to make a stock
keep on going up. As long as it does so, with only small and natural
reactions from time to time, it is a pretty safe proposition to trail
along with it. But if after a long steady rise a stock turns and
gradually begins to go down, with only occasional small rallies, it is
obvious that the line of least resistance has changed from upward to
downward. Such being the case why should any one ask for explanations?
There are probably very good reasons why it should go down, but these
reasons are known only to a few people who either keep those reasons to
themselves, or else actually tell the public that the stock is cheap.
The nature of the game as it is played is such that the public should
realise that the truth cannot be told by the few who know.

Many of the so-called statements attributed to “insiders” or officials
have no basis in fact. Sometimes the insiders are not even asked to
make a statement, anonymous or signed. These stories are invented by
somebody or other who has a large interest in the market. At a certain
stage of an advance in the market-price of a security the big insiders
are not averse to getting the help of the professional element to trade
in that stock. But while the insider might tell the big plunger the
right time to buy, you can bet he will never tell when is the time
to sell. That puts the big professional in the same position as the
public, only he has to have a market big enough for him to get out on.
Then is when you get the most misleading “information.” Of course,
there are certain insiders who cannot be trusted at any stage of the
game. As a rule the men who are the head of big corporations may act in
the market upon their inside knowledge, but they don’t actually tell
lies. They merely say nothing, for they have discovered that there are
times when silence is golden.

I have said many times and cannot say it too often that the experience
of years as a stock operator has convinced me that no man can
consistently and continuously beat the stock market though he may
make money in individual stocks on certain occasions. No matter how
experienced a trader is the possibility of his making losing plays is
always present because speculation cannot be made 100 per cent safe.
Wall Street professionals know that acting on “inside” tips will break
a man more quickly than famine, pestilence, crop failures, political
readjustments or what might be called normal accidents. There is no
asphalt boulevard to success in Wall Street or anywhere else. Why
additionally block traffic?



Transcriber’s Notes


Punctuation and spelling were made consistent when a predominant
preference was found in the original book; otherwise they were not
changed. Inconsistent hyphenation was not changed.

Simple typographical errors were corrected; unbalanced quotation
marks were remedied when the change was obvious, and otherwise left
unbalanced.

The illustration on the title page is the publisher’s logo.

Page 224: “they were afraid of getting stock if they tried to” was
printed that way; “stock” may be a typographic error for “stuck”.





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