REMINISCENCES OF A STOCK OPERATOR -- LIVERMORE --

REMINISCENCES OF A STOCK OPERATOR

Edwin LeFevre

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. O£ 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 little 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 90-1/8." If
you put up a point margin it meant that if it broke 89-1/4 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 90-l/8," it read: "Bot
Steel at 91-1/8." 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 20-1/4. You thus had only 3/4 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 3/4 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 3509 shares of Sugar at 105-1/4. 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 then 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 bis favorite stocks was Western
Union, because it was so easy to move a semiactive stock like that a
few points up en-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 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 go'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 recognise 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. "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 get 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 these 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 here and tell you."

He did. It seems Teller was already doing a big business and would
take all he could get. This was on a 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 toe—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 n 115 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 am 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 other 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 there 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 a
foregone conclusion that McKinley would win, not a shop in the land
let its customers buy stocks. The election odds were 3 to i 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 that day.

If it hadn't been for their refusing to take my business I never would
have stopped trading in 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 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 Pittsburgh 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 a 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 *en 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 or 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 wou'i 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 kind
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, 1 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 of 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 his 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 shoestring
margins. They did not spare anyone, women, schoolteachers 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 away 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 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 halfway. 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 cony 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 "tightness" 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 op 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 1"

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 trading 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
always was 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 saying 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 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 chair-warmers.

"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 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? AH 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. Ed 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 Jet 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 in 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 manoeuvre 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 ancl 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 that 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 lake 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 a 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 no. If the stock goes up to ill 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 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 in%, 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 H2J4, and then rallies. Well, just
as it goes back to 113% I shoot an order to buy four thousand—at the
market of course. Well, if I get that fouf thousand at 113% 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 113^4 I get two thousand at 114 and five hundred at 114^ and
the rest on the way up so that for the last five hundred I pay 115^.
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 the 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 conies 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 some thing 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 tny 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 manipulation 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 upon 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 now 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 my 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 left 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 high 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 stock 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 two other 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 skilful reading of the tape, but as the 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 good 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 in 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 were 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 on 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 in 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 dollars 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 302^4, 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 full 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 meant 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 did 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 299-3/4. 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 299-3/4. The next thousand they sold at 299-5/8.
Then a hundred at 1/2; two hundred at 3/8 and two hundred at 1/4. The
last of my stock went at 298-3/4. 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 at 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
though 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 up 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 Smelters 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 had 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 overworked 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 mnst 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 Hoarding'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 bloodletting. 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 mat 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 surfer 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 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 they 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 $1.2O-1/2, 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 favourite 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 I 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 tip he simply moved up his stop with it. On
a I 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 ray 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 de-dining 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 manoeuvre 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 bushed. 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 utilising 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
manoeuvre 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 for 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 recognise 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 of 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 an 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 July 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 known 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 hoggish-ness 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 when or how
it comes. My object merely was to account for the vast amount of
newspaper notoriety that came to me as the 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
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 or
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 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 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 33-1/3 percent."

"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 his 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's 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 even 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 see 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 Thomas-ized 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 tht 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 on putting
up more and more money— more money to lose eventually. My brokers and
my intimate friends could not 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 realised 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 could 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. Today 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 worth while 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 get to New York. No use otherwise."

"You say he wants to see me?"

"He does."

"What about?"

"He'll tell you that 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 '70s. 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 check book, 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 1 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 you 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 puil 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 1 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 Hen-riquez 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 shoe string 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 the 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 worth while
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 that 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 1 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 snares 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 tune. 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 advices 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 Joss 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. 16 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 business man 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 all 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 clay 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 debut 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 first 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 manoeuvred 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 another. 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 didn'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's 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 still was 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 West-lake 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 rumours 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 about 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 opened, 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 Congressmen.

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 sa
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 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 to 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 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 acquires 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 very 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 the 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 miners' 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 means 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 1/4 cent. On this day when I sold
the 250,000 bushels to test the market for timeliness, the price went
down 1/4 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 1-1/4 cents on my selling. Now,
I need not waste 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 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 commonplace
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 do not 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 Black-wood and other motor stocks and the public logically
enough listened to the touts and tipsters and wiseacres and began to
buy Chester on the theory that it must presently move up with the rest
of the group.

Instead of going up 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 ir
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 dulness. 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 worth while. 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 E C 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 skilful 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 l860'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
Vander-bilt'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 his'n

Must buy it back or go to pris'n. 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
valu-able 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 or
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 8-7/8 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 tip. 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 woss, but
that is seldom, for I do not undertake the work unless * 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 ail 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 my 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 any 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, bur you can generally nurse it back. As long as
a stock that I am manipulating goes up on my buying I know I am all
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 un-tipped, 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 debut 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 every-thing 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
skilful 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 par. 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 price 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 then bank had
loaned them thirty-five dollars a share on one hun-dred 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 skilfully 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 experiencd 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
known of all the traders. For twenty years everybody had known 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 widely 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
to 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 at last 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 realise 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 overextended
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 31-1/4."

"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

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 Air. 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 morally 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
stock 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 coldblooded 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 tate. 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 debacle 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 lese majeste 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 more 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 at 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?

—THE END—