Friday, February 27, 2009


Sent by - Purushottam Holani

I WENT to work when I was just out of grammar school. I got
a job as quotation-board boy in a stock-brokerage office. I was
quick at figures. At school I did three years of arithmetic in
one. I was particularly good at mental arithmetic. As
quotation-board boy I posted the numbers on the big board in the
customers' room. One of the customers usually sat by the ticker
and called out the prices. They couldn't come too fast for me. I
have always remembered figures. No trouble at all.
There were plenty of other employes in that office. Of
course I made friends with the other fellows, but the work I
did, if the market was active, kept me too busy from ten A.M. to
three P.m. to let me do much talking. I don't care for it,
anyhow, during business hours.
But a busy market did not keep me from thinking about the
work. Those quotations did not represent prices of stocks to'
me, so many dollars per share. They were numbers. Of course,
they meant something. They were always changing. It was all I
had to be interested in the changes. Why did they change? I
didn't know. I didn't care. I didn't think about that. I simply
saw that they changed. That was all I had to think about five
hours every day and two on Saturdays: that they were always
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 today 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 today 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 today, at forty. The reason for what a certain
stock does today 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 tomorrow. 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 1" 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
I wasn't interested in doubling my money, but in his saying
that Burlington was going up. If it was, my notebook 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 nearby 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 officeboy 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
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 nearby 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 1" 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 Livermore? 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
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 90-1/8," it
read: "Bot Steel at 90-1/8." 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 doublecross 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, everyday 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
commissions and if you bought a stock at 20 the ticket would
read 20%. You thus had only Y4 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 5,000 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 1/4 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 3500 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
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 io8. 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
And the funniest thing was that not later than ten days
after the Cosmopolitan people tried to doublecross me a New York
operator did them out of over seventy thousand dollars. This
man, who was quite a market factor in his day and a member of
the New York Stock Exchange, made a great name for himself as a
bear during the Bryan panic of '96. He was forever running up
against Stock Exchange rules that kept him from carrying out
some of his plans at the expense of his fellow members. One day
he figured that there would be no complaints from either the
Exchange or the police authorities if he took from the bucket
shops of the land some of their ill-gotten gains. In the
instance I speak of he sent thirty-five men to act as customers.
They went to the main office and to the bigger branches. On a
certain day at a fixed hour the agents all bought as much of a
certain stock as the managers would let them. They had
instructions to sneak out at a certain profit. Of course what he
did was to distribute bull tips on that stock among his cronies
and then he went in to the floor of the Stock Exchange and bid
up the price, helped by the room traders, who thought he was a
good sport. Being careful to pick out the right stock for that
work, there was no trouble in putting up the price three or four
points. His agents at the bucket shops cashed in as prearranged.
A fellow told me the originator cleaned up seventy thousand
dollars net, and his agents made their expenses and their pay
besides. He played that game several times all over the country,
punishing the bigger bucket shops of New York, Boston,
Philadelphia, Chicago, Cincinnati and St. Louis. One of his
favorite stocks was Western Union, because it was so easy to
move a semiactive stock like that a few points up or down. His
agents bought it at a certain figure, sold at two points profit,
went short and took three points more. By the way, I read the
other day that that man died, poor and obscure. I f 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.
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
io4 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
realize 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 blrtter 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
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
I was so anxious to resume trading that I didn't lose a
minute, but went to old man Fullerton and said to him, "Say, A.
R., lend me five hundred dollars."
"What for?" says he.
"I've got to have some money."
"What for?" he says again.
"For margin, of course," I said.
"Five hundred dollars?" he said, and frowned. "You know
they'd expect you to keep up a 10 per cent margin, and that
means one thousand dollars on one hundred shares. Much better to
give you a credit --"
"No," I said, "I don't want a credit here. I already owe
the firm something. What I want is for you to lend me five
hundred dollars so I can go out and get a roll and come back."
"How are you going to do it?" asked old A. R.
"I'll go and trade in a bucket shop," I told him.
"Trade here," he said.
"No," I said. "I'm not sure yet I can beat the game in this
office, but I am sure I can take money out of the bucket shops.
I know that game. I have a notion that I know just where I went
wrong here."
He let me have it, and I went out of that office where the
Boy Terror of the Bucket Shops, as they called him, had lost his
pile. I couldn't go back home because the shops there would not
take my business. New York was out of the question; there
weren't any doing business at that time. They tell me that in
the 90's Broad Street and New Street were full of them. But
there weren't any when I needed them in my business. So after
some thinking I decided to go to St. Louis. I had heard of two
concerns there that did an enormous business all through the
Middle West. Their profits must have been huge. They had branch
offices in dozens of towns. In fact I had been told that there
were no concerns in the East to compare with them for volume of
business. They ran openly and the best people traded there
without any qualms. A fellow even told me that the owner of one
of the concerns was a vice-president of the Chamber of Commerce
but that couldn't have been in St. Louis. At any rate, that is
where I went with my five hundred dollars to bring back a stake
to use as margin in the office of A. R. Fullerton & Co., members
of the New York Stock Exchange.
When I got to St. Louis I went to the hotel, washed up and
went out to find the bucket shops. One was the J. G. Dolan
Company, and the other was H. S. Teller & Co. I knew I could
beat them. I was going to play dead safe -- carefully and
conservatively. My one fear was that somebody might 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
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
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, Livermore."
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, Livermore, 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 1 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, Livermore," 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, Livermore,
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
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 racetrack
crooks who had just pulled off some skin game out in St. Louis.
The head devil, he said, was a poolroom owner by the name of
"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
"Sure, sonny," said McDevitt. "I'll go myself tomorrow
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 if
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 -- if I picked the right stocks.
I looked as if I didn't believe him, and he kept on buzzing
me. I was watching the clock. At 11:15 I said, "All right," and
I began to give him selling orders in various stocks. I put up
two thousand dollars in cash, and he was very glad to get it. He
told me he thought I'd make a lot of money and hoped I'd come in
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'
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
"Is this the man?" asked the St. Louis chap.
"Hold on!" said the St. Louis fellow to him and then turns
to me, "Say, Livermore, didn't we tell you we didn't want your
"Give me my money first," I said to the manager, and he
forked over two thousands, four five-hundreds and three
"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
Livermore. 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
"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, Livermore !"
"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
"Yes," said the manager, and took a bunch of yellow backs
from his pocket.
"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 igoo, 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 t 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.
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
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 ex
peas 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 bedrock. 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 t9oi 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
brainpower. 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, zoo
and they got mine off at 80, making a total decline of thirty or
forty points from the previous night's close, it seemed to me
that I was putting out shorts at a level that made the stocks I
sold the very bargains I had planned to buy. The market was not
going to drop right through to China. So I decided instantly to
cover my shorts and go long.
My brokers bought; not at the level that had made me turn,
but at the prices prevailing in the Stock Exchange when their
floor man got my orders. They paid an average of fifteen points
more than I had figured on. A loss of thirty-five points in one
day was more than anybody could stand.
The ticker beat me by lagging so far behind the market. I
was accustomed to regarding the tape as the best little friend I
had because I bet according to what it told me. But this time
the tape double-crossed me. The divergence between the printed
and the actual prices undid me. It was the sublimation of my
previous unsuccess, the selfsame thing that had beaten me
before. It seems so obvious now that tape reading is not enough,
irrespective of the brokers' execution, that I wonder why I
didn't then see both my trouble and the remedy for it.
I did worse than not see it; I kept on trading, in and out,
regardless of the execution. You see, I never could trade with a
limit. I must take my chances with the market. That is what I am
trying to beat the market, not the particular price. When I
think I should sell, I sell. When I think stocks will go up, I
buy. My adherence to that general
principle of speculation saved me. To have traded at limited
prices simply would have been my old bucket-shop method
inefficiently adapted for use in a reputable commission broker's
office. I would never have learned to know what stock
speculation is, but would have kept on betting on what a limited
experience told me was a sure thing.
Whenever I did try to limit the prices in order to minimize
the disadvantages of trading at the market when the ticker
lagged, I simply found that the market got away from me. This
happened so often that I stopped trying. I can't tell you how it
came to take me so many years to learn that instead of placing
piking bets on what the next few quotations were going to be, my
game was to anticipate what was going to happen in a big way.
After my May ninth mishap I plugged along, using a modified
but still defective method. If I hadn't made money some of the
time I might have acquired market wisdom quicker. But I was
making enough to enable me to live well. I liked friends and a
good time. I was living down the Jersey Coast that summer, like
hundreds of prosperous Wall Street men. My winnings were not
quite enough to offset both my losses and my living expenses.
I didn't keep on trading the way I did through
stubbornness. I simply wasn't able to state my own problem to
myself, and, of course, it was utterly hopeless to try to solve
it. I harp on this topic so much to show what I had to go
through before I got to where I could really make money. My old
shotgun and BB shot could not do the work of a high-power
repeating rifle against big game.
Early that fall I not only was cleaned out again but I was
so sick of the game I could no longer beat that I decided to
leave New York and try something else some other place. I had
been trading since my fourteenth year. I had made my first
thousand dollars when I was a kid of fifteen, and my first ten
thousand before I was twenty-one. I had made and lost a
ten-thousand-dollar stake more than once. In New York I had made
thousands and lost them. I got up to fifty thousand dollars and
two days later that went. I had no other business and knew no
other game. After several years I was back where I began. No
worse, for I had acquired habits and a style of living that
required money; though that part didn't bother me as much as
being wrong so consistently.
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
"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 Livermore 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 Livermore 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
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
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 sand no. He said he knew some houses that were
members of the Cotton Exchange and the Produce Exchange and the
smaller stock exchanges. These firms were very careful and paid
special attention to the execution. He said that they had
confidential connections with the biggest and smartest houses on
the New York Stock Exchange and through their personal pull and
by guaranteeing a business of hundreds of thousands of shares a
month they got much better service than an individual customer
could get.
"They really cater to the small customer," he said. "They make
a specialty of out-of-town business and they take just as much
pains with a ten-share order as they do with one for ten
thousand. They are very competent and honest."
"Yes. But if they pay the Stock Exchange house the regular
eighth commission, where do they come in?"
"Well, they are supposed to pay the eighth. But you know!" He
winked at me.
"Yes," I said. "But the one thing a Stock Exchange firm
will not do is to split commissions. The governors would rather
a member committed murder, arson and bigamy than to do business
for outsiders for less than a kosher eighth. The very life of
the Stock Exchange depends upon their not violating that one
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 seventyeight
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, 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
"Your customers?"
"Well, I take an interest in the firm, and if I can turn
some business their way I do so because they've always treated
me white and I've made a good deal of money through them. If you
wish I'll introduce you to the manager."
"What's the name of the firm?" I asked him.
He told me. I had heard about them. They ran ads in all the
papers, calling attention to the great profits made by those
customers who followed their inside information on active
stocks. That was the firm's great specialty. They were not a
regular bucket shop, but bucketeers, alleged brokers who
bucketed their orders but nevertheless went through an elaborate
camouflage to convince the world that they were regular brokers
engaged in a legitimate business. They were one of the oldest of
that class 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
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 oldfashioned
bucket-shop drives and wipe out hundreds of shoe-string 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
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
"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
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, 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
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
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.
"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
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 thimble rigger; 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 bankroll. He saw us come up in the sporty-looking
automobile, and as both of us were young and careless -- I don't
suppose I looked twenty -- he naturally concluded we were a
couple of Yale boys. I didn't tell him we weren't. He didn't
give me a chance, but began delivering a speech. He was very
glad to see us. Would we have a comfortable seat? The market, we
would find, was philanthropically inclined that morning; in
fact, clamoring to increase the supply of collegiate pocket
money, of which no intelligent undergraduate ever had a
sufficiency since the dawn of historic time. But here and now,
by the beneficence of the ticker, a small initial investment
would return thousands. More pocket money than anybody could
spend was what the stock market yearned to yield.
Well, I thought it would be a pity not to do as the nice
man of the bucket shop was so anxious to have us do, so I told
him I would do as he wished, because I had heard that lots of
people made lots of money in the stock market.
I began to trade, very conservatively, but increasing the
line as I won. My friend followed me.
We stayed overnight in New Haven and the next morning found
us at the hospitable shop at five minutes to ten. The orator was
glad to see us, thinking his turn would come that day. But I
cleaned up within a few dollars of fifteen hundred. The next
morning when we dropped in on the great orator, and handed him
an order to sell five hundred Sugar he hesitated, but finally
accepted it in silence! The stock broke over a point and I
closed out and gave him the ticket. There was exactly five
hundred dollars coming to me in profits, and my five hundred
dollar margin. He took twenty fifties from the safe, counted
them three times very slowly, then he counted them again in
front of me. It looked as if his fingers were sweating mucilage
the way the notes seemed to stick to him, but finally he handed
the money to me. He folded his arms, bit his lower lip, kept it
bit, and stared at the top of a window behind me.
I told him I'd like to sell 200 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
"New York," I told him.
"That's right," he said, nodding about twenty times. "That
is exactly 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 l Students? Ye-eh! You must be freshmen
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!
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. Today there are scores of commission
houses when you find trading charts. They come ready-made from
the offices of statistical experts and include not only stocks
but also 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 behavior 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 on 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
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, railroad earnings, and financial and commercial
statistic. 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
too more continuous study. I certainly would have had more
mistakes to spot. But I am not sure of the exact value of
losing, for if I had lost more I would have lacked the money to
test out the improvements in my methods of trading.
Studying my winning plays in Fullerton's office I discovered
that although I often was 100 per cent right on the market that
is, in my diagnosis of conditions and general trend -- I was not
making as much money as my market "rightness" entitled me to.
Why wasn't I?
There was as much to learn from partial victory as from
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
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 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 un
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
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
"Didn't I give you the tip to buy it?"
"You did, Mr. Harwood, and I am very grateful to you.
Indeed, I am, sir. But --"
"Hold on! Let me talk! And didn't that stock go up seven
points in ten days? Didn't it?"
"It did, and I am much obliged to you, my dear boy. But I
couldn't think of selling that stock."
"You couldn't?" asked Elmer, beginning to look doubtful
himself. It is a habit with most tip givers to be tip takers.
"No, I couldn't."
"Why not?" And Elmer drew nearer.
"Why, this is a bull market!" The old fellow said it as
though he had given a long and detailed explanation.
"That's all right," said Elmer, looking angry because of
his disappointment. "I know this is a bull market as well as you
do. But you'd better slip them that stock of yours and buy it
back on the reaction. You might as well reduce the cost to
"My dear boy," said old Partridge, in great distress "my
dear boy, if I sold that stock now I'd lose my position; and
then where would I be?"
Elmer Harwood threw up his hands, shook his head and walked
over to me to get sympathy: "Can you beat it?" he asked me in a
stage whisper. "I ask you!"
I didn't say anything. So he went on: "I give him a tip on
Climax Motors. He buys five hundred shares. He's got seven
points' profit and I advise him to get out and buy 'em back on
the reaction that's overdue even now. And what does he say when
I tell him? He says that if he sells he'll lose his job. What do
you know about that?"
"I beg your pardon, Mr. Harwood; I didn't say I'd lose my
job," cut in old Turkey. "I said I'd lose my position. And when
you are as old as I am and you've been through as many booms and
panics as I have, you'll know that to lose your position is
something nobody can afford; not even John D. Rockefeller. I
hope the stock reacts and that you will be able to repurchase
your line at a substantial concession, sir. But I myself can
only trade in accordance with the experience of many years. I
paid a high price for it and I don't feel like throwing away a
second tuition fee. But I am as much obliged to you as if I had
the money in the bank. It's a bull market, you know." And he
strutted away, leaving Elmer dazed.
What old Mr. Partridge said did not mean much to me until I
began to think about my own numerous failures to make as much
money as I ought to when I was so right on the general market.
The more I studied the more I realized how wise that old chap
was. He had evidently suffered from the same defect in his young
days and knew his own human weaknesses. He would not lay himself
open to a temptation that experience had taught him was hard to
resist and had always proved expensive to him, as it was to me.
I think it was a long step forward in my 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
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
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 i9o6. 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
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
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
"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
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. I f he was a bull how
could I be a bear? Something was wrong.
"A thousand UP," I said.
"Why?" he asked me in great excitement.
I shook my head, meaning I had no reason. But he must have
thought I'd got a tip, because he took me by the arm and led me
outside into the hall, where we could be out of sight and
hearing of the other customers and rubbering chairwarmers.
"What did you bear?" 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 1" I said.
"You didn't?" He was skeptical and showed it plainly.
"I didn't hear a thing."
"Then why in blazes are you selling?"
"I don't know," I told him. I spoke gospel truth.
"Oh, come across, Larry," he said.
He knew it was my habit to know why I traded. I had sold a
thousand shares of Union Pacific. I must have a very good reason
to sell that much stock in the face of the strong market.
"I don't know," I repeated. "I just feel that something is
going to happen."
"What's going to happen?"
"I don't know. I can't give you any reason. All I know is
that I want to sell that stock. And I'm going to let 'em have
another thousand."
I walked back into the office and gave an order to sell a
second thousand. If I was right in selling the first thousand I
ought to have out a little more.
"What could possibly happen?" persisted my friend, who
couldn't make up his mind to follow my lead. If I'd told him
that I had heard UP. was going down he'd have sold it without
asking me from whom I'd heard it or why. "What could possibly
happen?" he asked again.
"A million things could happen. But I can't promise you
that any of them will. I can't give you any reasons and I can't
tell fortunes," I told him.
"Then you're crazy," he said. "Stark crazy, selling that
stock without rime or reason. You don't know why you want to
sell it?"
"I don't know why I want to sell it. I only know I do want
to," I said. "I want to, like everything." The urge was so
strong that I sold another thousand.
That was too much for my friend. He grabbed me by the arm
and said, "Here! Let's get out of this place before you sell the
entire capital stock."
I had sold as much as I needed to satisfy my feeling, so I
followed him without waiting for a report on the last two
thousand shares. It was a pretty good jag of stock for me to
sell even with the best of reasons. It seemed more than enough
to be short of without any reason whatever, particularly when
the entire market was so strong and there was nothing in sight
to make anybody think of the bear side. But I remembered that on
previous occasions when I had the same urge to sell and didn't
do it I always had reasons to regret it.
I have told some of these stories to friends, and some of
them tell me it isn't a hunch but the subconscious mind, which
is the creative mind, at work. That is the mind which makes
artists do things without their knowing how they came to do
them. Perhaps with me it was the cumulative effect of a lot of
little things individually insignificant but collectively powerful.
Possibly my friend's unintelligent bullishness aroused a
spirit of contradiction and I picked on UP. because it had been
touted so much. I can't tell you what the cause or motive for
hunches may be. All I know is that I went out of the Atlantic
City branch office of Harding Brothers short three thousand
Union Pacific in a rising market, and I wasn't worried a bit.
I wanted to know what price they'd got for my last two
thousand shares. So after luncheon we walked up to the office. I
had the pleasure of seeing that the general market was strong
and Union Pacific higher.
"I see your finish," said my friend. You could see he was
glad he hadn't sold any.
The next day the general market went up some more and I
heard nothing but cheerful remarks from my friend. But I felt
sure I had done right to sell UP, and I never get impatient when
I feel I am right. What's the sense? That afternoon Union
Pacific stopped climbing, and toward the end of the day it began
to go off. Pretty soon it got down to a point below the level of
the average of my three thousand shares. I felt more positive
than ever that I was on the right side, and since I felt that
way I naturally had to sell some more. So, toward the close, I
sold an additional two thousand shares.
There I was, short five thousand shares of UP. On a hunch.
That was as much as I could sell in Harding's office with the
margin I had up. It was too much stock for me to be short of, on
a vacation; so I gave up the vacation and returned to New York
that very night. There was no telling what might happen and I
thought I'd better be Johnny-on-the-spot. There I could move
quickly if I had to.
The next day we got the news of the San Francisco earthquake.
It was an awful disaster. But the market opened down only
a couple of points. The bull forces were at work, and the public
never is independently responsive to news. You see that all
the time. If there is a solid bull foundation, for instance,
whether or not what the papers call bull manipulation is going
on at the same time, certain news items fail to have the effect
they would have if the Street was bearish. It is all in the
state of sentiment at the time. In this case the Street did
not appraise the extent of the catastrophe because it didn't
wish to. Before the day was over prices came back. I was short
five thousand shares. The blow had fallen, but my stock hadn't.
My hunch was of the first water, but my bank account wasn't
growing; not even on paper. The friend who had been in Atlantic
City with me when I put out my short line in UP. Was glad and
sad about it.
He told me: "That was some hunch, kid. But, say, when the
talent and the money are all on the bull side what's the use of
bucking against them? They are bound to win out."
"Give them time," I said. I meant prices. I wouldn't cover
because I knew the damage was enormous and the Union Pacific
would be one of the worst sufferers. But it was exasperating to
see the blindness of the Street.
"Give 'em time and your skin will be where all the other
bear hides are stretched out in the sun, drying," he assured me.
"What would you do?" I asked him. "Buy UP. On the strength
of the millions of dollars of damage suffered by the Southern
Pacific and other lines? Where are the earnings for dividends
going to come from after they pay for all they've lost? The best
you can say is that the trouble may not be as bad as it is
painted. But is that a reason for buying the stocks of the roads
chiefly affected? Answer me that."
But all my friend said was: "Yes, that listens fine. But I
tell you, the market doesn't agree with you. The tape doesn't
lie, does it?"
"It doesn't always tell the truth on the instant," I said.
"Listen. A man was talking to Jim Fisk a little before
Black Friday, giving ten good reasons why gold ought to go down
for keeps. He got so encouraged by his own words that he ended
by telling Fisk that he was going to sell a few million. And Jim
Fisk just looked at him and said, "Go ahead! Do! Sell it short
and invite me to your funeral."'
"Yes," I said; "and if that chap had sold it short, look at
the killing he would have made l Sell some UP. yourself."
"Not I! I'm the kind that thrives best on not rowing
against wind and tide."
On the following day, when fuller reports came in, the
market began to slide off, but even then not as violently as it
should. Knowing that nothing under the sun could stave off a
substantial break I doubled up and sold five thousand shares.
Oh, by that time it was plain to most people, and my brokers
were willing enough. It wasn't reckless of them or of me, not
the way I sized up the market. On the day following, the market
began to go for fair. There was the dickens to pay. Of course I
pushed my luck for all it was worth. I doubled up again and sold
ten thousand shares more. It was the only play possible.
I wasn't thinking of anything except that I was right 100
per cent right and that this was a heaven-sent opportunity. It
was up to me to take advantage of it. I sold more. Did I think
that with such a big line of shorts out, it wouldn't take much
of a rally to wipe out my paper profits and possibly my
principal? I don't know whether I thought of that or not, but if
I did it didn't carry much weight with me. I wasn't plunging
recklessly. I was really playing conservatively. There was
nothing that anybody could do to undo the earthquake, was there?
They couldn't restore the crumpled buildings overnight, free,
gratis, for nothing, could they? All the money in the world
couldn't help much in the next few hours, could it?
I was not betting blindly. I wasn't a crazy bear. I wasn't
drunk with success or thinking that because Frisco was pretty
well wiped off the map the entire country was headed for the
scrap heap. No, indeed! I didn't look for a panic. Well, the
next day I cleaned up. I made two hundred and fifty thousand
dollars. It was my biggest winnings up to that time. It was all
made in a few days. The Street paid no attention to the
earthquake the first day or two. They'll tell you that it was
because the first dispatches were not so alarm ring, 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
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 i6o. 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
"Hello, Ed," I said.
But he said, "What the devil's the matter with you? Are you
"Are you?" I said.
"What are you doing?" he asked.
"What do you mean?"
"Buying all that stock."'
"Why, isn't my margin all right?"
"It isn't a case of margin, but of being a plain sucker."
"I don't get you."
"Why are you buying all that Union Pacific?"
"It's going up," I said.
"Going up, hell! Don't you know that the insiders are
feeding it out to you? You're just about the easiest mark up
there. You'd have more fun losing it on the ponies. Don't let
them kid you."
"Nobody is kidding me," I told him. "I haven't talked to a
soul about it."
But he came back at me: "You can't expect a miracle to save
you every time you plunge 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 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 to per cent dividend on the stock. At first nobody in
Wall Street believed it. It was too much like the desperate
maneuver 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 hew high-record price. Some of the room traders made
fortunes in an hour and I remember later hearing about a rather
dull-witted specialist who made a mistake that put three hundred
and fifty thousand dollars in his pocket. He sold his seat the
following week and became a gentleman farmer the following
Of course I realised, the moment I heard the news of the
declaration of that unprecedented to 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 i65
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 17¢ for some of it before they were
through. I found when I got my reports that Ed Harding's kindly
intentioned interference cost me forty thousand dollars. A low
price for a man to pay for not having the courage of his own
convictions! It was a cheap lesson.
I wasn't worried, because the tape said still higher
prices. It was an unusual move and there were no precedents for
the action of the directors, but I did this time what I thought
I ought to do. As soon as I had given the first order to buy
four thousand shares to cover my shorts I decided to profit by
what the tape indicated and so I went along. I bought four
thousand shares and held that stock until the next morning. Then
I got out. I not only made up the forty thousand dollars I had
lost but about fifteen thousand besides. If Ed Harding hadn't
tried to save me money I'd have made a killing. But he did me a
very great service, for it was the lesson of that episode that,
I firmly believe, completed my education as a trader.
It was not that all I needed to learn was not to take tips
but follow my own inclination. It was that I gained confidence
in myself and I was able finally to shake off the old method of
trading. That Saratoga experience was my last haphazard,
hit-or-miss operation. From then on I began to think of basic
conditions instead of individual stocks. I promoted myself to a
higher grade in the hard school of speculation. It was a long
and difficult step to take.
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 110. If the stock goes up to 111
after I buy it I am, at least temporarily, right in my
operation, because it is a point higher; it shows me a profit.
Well, because I am right I go in and buy another two thousand
shares. If the market is still rising I buy a third lot of two
thousand shares. Say the price goes 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 111-3/4 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
112-1/4, and then rallies. Well, just as it goes back to 113-3/4
I shoot an order to buy four thousand at the market of course.
Well, if I get that four thousand at 113-3/4 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 113-3/4 I get two thousand at 114 and five hundred
at 114-1/2 and the rest on the way up so that for the last five
hundred I pay 115-1/2. 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 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-reel 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
"Sell?" yelled the tipster. There was such suffering in his
voice that Frank, who had started out at a run, halted in his
"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
tranquillizing 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 1"
"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 l if
you'll excuse me I'll go elsewhere and act on my own
"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 1"
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
"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
That's the theory. That is why I never buy stocks cheap. Of
course I always try to buy effectively in such a way as to help
my side of the market. When it comes to selling stocks, it is
plain that nobody can sell unless somebody wants those stocks.
If you operate on a large scale you will have to bear that
in mind all the time. A man studies conditions, plans his
operations carefully and proceeds to act. He swings a pretty
fair line and he accumulates a big profit on paper. Well, that
man can't sell at will. You can't expect the market to absorb
fifty thousand shares of one stock as easily as it does one
hundred. He will have to wait until he has a market there to
take it. There comes the time when he thinks the requisite
buying power is there. When that opportunity comes he must seize
it. As a rule he will have been waiting for it. He has to sell
when he can, not when he wants to. To learn the time, he has to
watch and test. It is no trick to tell when the market can take
what you give it. But in starting a movement it is unwise to
take on your full line unless you are convinced that conditions
are exactly right. Remember that stocks are never too high for
you to begin buying or too low to begin selling. But after the
initial transaction, don't make a second unless the first shows
you a profit. Wait and watch. That is where your tape reading
comes into 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.
THE Union Pacific incident in Saratoga in the summer of 1906
made me more independent than ever of tips and talk that is, of
the opinions and surmises and suspicions of other people,
however friendly or however able they might be personally.
Events, not vanity, proved for me that I could read the tape
more accurately than most of the people about me. I also was
better equipped than the average customer of Harding Brothers in
that I was utterly free from speculative prejudices. The bear
side doesn't appeal to me any more than the bull side, or vice
versa. My one steadfast prejudice is against being wrong.
Even as a lad I always got my own meanings out of such
facts as I observed. It is the only way in which the meaning
reaches me. I cannot get out of facts what somebody tells me to
get. They are my facts, don't you see? If I believe something
you can be sure it is because I simply must. When I am long of
stocks it is because my reading of conditions has made me
bullish. But you find many people, reputed to be intelligent,
who are bullish because they have stocks. I do not allow my
possessions or my prepossessions either to do any thinking for
me. That is why I repeat that I never argue with the tape. To be
angry at the market because it unexpectedly or even illogically
goes against you is like getting mad at your lungs because you
have pneumonia.
I had been gradually approaching the full realization of
how much more than tape reading there was to stock speculation.
Old man Partridge's insistence on the vital importance of being
continuously bullish in a bull market doubtless made my mind
dwell on the need above all other things of determining the kind
of market a man is trading in. I began to realize that the big
money must necessarily be in the big swing. Whatever might seem
to give a big swing, 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
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
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 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 racehorses 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 soldiery 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
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
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 today 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 i9o6 the succession of rallies dangerously impaired my
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 Livermore 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
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
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 counselors. 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
"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 booxs. 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
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
I figured that the price held because the Street was afraid
to sell it. So one day I gave to two brokers each an order to
sell four thousand shares, at the same time.
You ought to have seen that cornered stock, that it was sure
suicide to go short of, take a headlong dive when those competitive
orders struck it. I let 'em have a few thousand more.
The price was 111 when I started selling it. Within a few
minutes I took in my entire short line at 92.
I had a wonderful time after that, and in February of 1907 I
cleaned up. Great Northern preferred had gone down sixty or
seventy points, and other stocks in proportion. I had made a
good bit, but the reason I cleaned up was that I figured that
the decline had discounted the immediate future. I looked for a
fair recovery, but I wasn't bullish enough to play for a turn. I
wasn't going to lose my position entirely. The market would not
be right for me to trade in for a while. The first ten thousand
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.
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 tomorrow." 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
3ozY4, 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
He looked up at me almost in horror. But I nodded and said,
"All I've got!"
"Surely, Mr. Livermore, 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
As I left the telegraph operator to go back to my seat in
front of the quotation board Oliver Black nodded to me and
"You'll be sorry, Larry," he said.
I stopped and asked him, "What do you mean?"
"Tomorrow 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 timetable 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 299Y4. 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 30 1 - 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
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
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.
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 ioo 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 moneyand just then there was not a dollar in
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, i f 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
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
"At the banks!"
So strong was the faith of all men in Mr. Morgan in those
critical times that Thomas didn't wait for further details but
rushed back to the floor of the Exchange to announce the
reprieve to his death-sentenced fellow members.
Then, before half past two in the afternoon, J. P. Morgan
sent John T. Atterbury, of Van Emburgh & Atterbury, who was
known to have close relations with J. P. Morgan & Co., into the
money crowd. My friend said that the old broker walked quickly
to the Money Post. He raised his hand like an exhorter at a
revival meeting. The crowd, that at first had been calmed down
somewhat by President Thomas' announcement, was beginning to
fear that the relief plans had miscarried and the worst was
still to come. But when they looked at Mr. Atterbury's face and
saw him raise his hand they promptly petrified themselves.
In the dead silence that followed, Mr. Atterbury said, "I
am authorized to lend ten million dollars. Take it easy ! There
will be enough for everybody!"
Then he began. Instead of giving to each borrower the name
of the lender he simply jotted down the name of the borrower and
the amount of the loan and told the borrower, "You will be told
where your money is." He meant the name of the bank from which
the borrower would get the money later.
I heard a day or two later that Mr. Morgan simply sent word
to the frightened bankers of New York that they must provide the
money the Stock Exchange needed.
"But we haven't got any. We're loaned up to the hilt," the
banks protested.
"You've got your reserves," snapped J. P.
"But we're already below the legal limit," they howled
"Use them! That's what reserves are for!" And the banks
obeyed and invaded the reserves to the extent of about twenty
million dollars. It saved the stock market. The bank panic
didn't come until the following week. He was a man, J. P. Morgan
was. They don't come much bigger.
That was the day I remember most vividly of all the days of
my life as a stock operator. It was the day when my winnings
exceeded one million dollars. It marked the successful ending of
my first deliberately planned trading campaign. What I had
foreseen had come to pass. But more than all these things was
this: a wild dream of mine had been realised. I had been king
for a day!
I'll explain, of course. After I had been in New York a
couple of years I used to cudgel my brains trying to determine
the exact reason why I couldn't beat in a Stock Exchange house
in New York the game that I had beaten as a kid of fifteen in a
bucket shop in Boston. I knew that some day I would find out
what was wrong and I would stop being wrong. I would then have
not alone the will to be right but the knowledge to insure my
being right. And that would mean power.
Please do not misunderstand me. It was not a deliberate
dream of grandeur or a futile desire born of overweening vanity.
It was rather a sort of feeling that the same old stock market
that so baffled me in Fullerton's office and in Harding's would
one day eat out of my hand. I just felt that such a day would
come. And it did October 24, 1907.
The reason why I say it is this: That morning a broker who
had done a lot of business for my brokers and knew that I had
been plunging on the bear side rode down in the company of one
of the partners of the foremost banking house in the Street. My
friend told the banker how heavily I had been trading, for I
certainly pushed my luck to the limit. What is the use of being
right unless you get all the good possible i 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
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 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 meand,
by the way, I got bottom prices that the banker sent for my
"I have sent for you," he said, "because I want you to go
instantly to your friend Livermore and say to him that we hope
he will not sell any more stocks today. 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
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 today, but I am going in and buy as much as I
can carry." And I kept my word. I bought one hundred thousand
shares that day, for the long account. I did not sell another
stock short for nine months.
That is why I said to friends that my dream had come true
and that I had been king for a moment. The stock market at one
time that day certainly was at the mercy of anybody who wanted
to hammer it. I do not suffer from delusions of grandeur; in
fact you know how I feel about being accused of raiding the
market and about the way my operations are exaggerated by the
gossip of the Street.
I came out of it in fine shape. The newspapers said that
Larry Livermore, 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.
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
trcubles. 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 13o 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 1 So, 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
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 clown -- that is, the buying at
130 will for the first time be stronger than the selling, or the
selling at 12o be stronger than the buying. The price will break
through the old barrier or movement-limit and so on. As a rule,
there is always a crowd of traders who are short at 12o because
it looked so weak, or long at 13o 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 estab lishing 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
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 favorbasic 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 $I.20 buy it and you will get a nice quick
play in it!"
"Why not buy it now, at $I.I4?" 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.I9. I got ready for it.
Sure enough the next day it opened at $1.20-1/2, and I bought.
It went to $1.21, to $1.22, to $1.23, to $1.25, and I went with
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
As a matter of fact, it seems Europe had been buying
quietly and a lot of traders had gone short of it at around
$I.I9. 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
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
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
stoploss order one point below the price of his last purchase.
When the price kept going up he simply moved up his stop with
it. On a 1 per cent reaction he was stopped out. He declared he
did not see any sense in losing more than one point, whether it
came out of his original margin or out of his paper profits.
"You know, a professional gambler is not looking for long
shots, but for sure money. Of course long shots are fine when
they come in. In the stock market Pat wasn't after tips or
playing to catch twenty-points-a-week advances, but sure money
in sufficient quantity to provide him with a good living. Of all
the thousands of outsiders that I have run across in Wall
Street, Pat Hearne was the only one who saw in stock speculation
merely a game of chance like faro or roulette, but, nevertheless,
had the sense to stick to a relatively sound betting
"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.
AND now I'll get back to October, 1907. I bought a yacht
and made all preparations to leave New York for a cruise in
Southern waters. I am really daffy about fishing and this was
the time when I was going to fish to my heart's content from my
own yacht, going wherever I wished whenever I felt like it.
Everything was ready. I had made a killing in stocks, but at the
last moment corn held me back.
I must explain that before the money panic which gave me my
first million I had been trading in grain at Chicago. I was
short ten million bushels of wheat and ten million bushels of
corn. I had studied the grain markets for a long time and was as
bearish on corn and wheat as I had been on stocks.
Well, they both started down, but while wheat kept on declining
the biggest of all the Chicago operators -- I'll call
him Stratton -- took it into his head to run a corner in corn.
After I cleaned up in stocks and was ready to go South on my
yacht I found that wheat showed me a handsome, profit, but in
corn Stratton had run up the price and I had quite a loss.
I knew there was much more corn in the country than the
price indicated. The law of demand and supply worked as always.
But the demand came chiefly from Stratton and the supply was not
coming at all, because there was an acute congestion in the
movement of corn. I remember that I used to pray for a cold
spell that would freeze the impassable roads and enable the
farmers to bring their corn into the market. But no such luck.
There I was, waiting to go on my joyously planned fishing
trip and that loss in corn holding me back. I couldn't go away
with the market as it was. Of course Stratton kept pretty close
tabs on the short interest. He knew he had me, and I knew it
quite as well as he did. But, as I said, I was hoping I might
convince the weather that it ought to get busy and help me.
Perceiving that neither the weather nor any other kindly
wonder-worker was paying any attention to my needs I studied how
I might work out of my difficulty by my own efforts.
I closed out my line of wheat at a good profit. But the
problem in corn was infinitely more difficult. If I could have
covered my ten million bushels at the prevailing prices I instantly
and gladly would have done so, large though the loss
would have been. But, of course, the moment I started to buy in
my corn Stratton would be on the job as squeezer in chief, and I
no more relished running up the price on myself by reason of my
own purchases than cutting my own throat with my own knife.
Strong though corn was, my desire to go fishing was even
stronger, so it was up to me to find a way out at once. I must
conduct a strategic retreat. I must buy back the ten million
bushels I was short of and in so doing keep down my loss as much
as I possibly could.
It so happened that Stratton at that time was also running
a deal in oats and had the market pretty well sewed up. I had
kept track of all the grain markets in the way of crop news and
pit gossip, and I heard that the powerful Armour interests were
not friendly, marketwise, to Stratton. Of course I knew that
Stratton would not let me have the corn I needed except at his
own price, but the moment I heard the rumors about Armour being
against Stratton it occurred to me that I might look to the
Chicago traders for aid. The only way in which they could
possibly help me was for them to sell me the corn that Stratton
wouldn't. The rest was easy.
First, I put in orders to buy five hundred thousand bushels
of corn every eighth of a cent down. After these orders were in
I gave to each of four houses an order to sell simultaneously
fifty thousand bushels of oats at the market. That, I figured,
ought to make a quick break in oats. Knowing how the traders'
minds worked, it was a cinch that they would instantly think
that Armour was gunning for Stratton. Seeing the attack opened
in oats they would logically conclude that the next break would
be in corn and they would start to sell it. If that corner in
corn was busted, the pickings would be fabulous.
My dope on the psychology of the Chicago traders was
absolutely correct. When they saw oats breaking on the scattered
selling they promptly jumped on corn and sold it with great
enthusiasm. I was able to buy six million bushels of corn in the
next ten minutes. The moment I found that their selling of corn
ceased I simply bought in the other four million bushels at the
market. Of course that made the price go up again, but the net
result of my 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
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
"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 today, 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 carne
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 bet
"No," said Cammack; "I mean buy!"
"Don't you believe me?"
"Yes !»
"Don't you believe my information?"
"Aren't you bearish?"
"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 fortyfour
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
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
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
"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
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
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. I f you do you
are lost. Neither can you try stunts like running up the price
on the bears by means of competitive buying, for you may thereby
reduce the absorbing capacity. And I want to tell you that
perceiving your opportunity is not as easy as it sounds. A man
must be on the lookout so alertly that when his chance sticks in
its head at his door he must grab it.
Of course not everybody knew about my fortunate accident.
In Wall Street, and, for that matter, everywhere else, any
accident that makes big money for a man is regarded with suspicion.
When the accident is unprofitable it is never considered
an accident but the logical outcome of your hoggishness or of
the swelled head. But when there is a profit they call it loot
and talk about how well unscrupulousness fares, and how ill
conservatism and decency.
It was not only the evil-minded shorts smarting under punishment
brought about by their own recklessness who accused me
of having deliberately planned the coup. Other people thought
the same thing.
One of the biggest men in cotton in the entire world met me
a day or two later and said, "That was certainly the slickest
deal you ever put over, Livermore. 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
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
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
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
"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 afternon, Mr. Livermore."
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 caine 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
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
He promptly shook his head and said, "I can't do it!
"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 sixtysix
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
"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 firstclass
loser and that makes you a first-class businessman. 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
"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?"
"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
"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 33A per cent."
"I can't quite figure out how you sold me that set."
"Why," he said consolingly, "I sold J. P. Morgan a set."
"No, you didn't," I said.
He wasn't angry. He simply said, "Honest, I did!"
"A set of Walter Scott to J. P. Morgan, who not only has
some fine editions but probably the original manuscripts of some
of the novels as well?"
"Well, here's his John Hancock." And he promptly flashed on
me a contract signed by J. P. Morgan himself. It might not have
been Mr. Morgan's signature, but it did not occur to me to doubt
it at the time. Didn't he have mine in his pocket? All I felt
was curiosity. So I asked him, "How did you get past the
"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
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. Livermore." 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
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.
"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
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. Livermore? And how is Mr. Harding?"
"He's well. Why do you ask?" I felt he was holding back a
"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. Livermore. 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. Livermore. 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 teas
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 thembecause we were both reading
from the same page of the same book, held by him before my eyes.
He has a logical mind. Once I accepted his facts it was a cinch
that my own conclusions, derived from his facts, would agree
with his own.
When he began his talks with me about the cotton situation
I not only was bearish but I was short of the market. Gradually,
as I began to accept his facts and figures, I began to fear I
had been basing my previous position on misinformation. Of
course I could not feel that way and not cover. And once I had
covered because Thomas made me think I was wrong, I simply had
to go long. It is the way my mind works. You know, I have done
nothing in my life but trade in stocks and commodities. I
naturally think that if it is wrong to be bearish it must be
right to be a bull. And if it is right to be a bull it is
imperative to buy. As my old Palm Beach friend said Pat Hearne
used to say, "You can't tell till you bet!" I must prove whether
I am right on the market or not; and the proofs are to be read
only in my brokers' statements at the end of the month.
I started in to buy cotton and in a jiffy I had my usual
line, about sixty thousand bales. It was the most asinine play
of my career. Instead of standing or falling by my own observation
and deductions I was merely playing another man's game. It
was eminently fitting that my silly plays should not end with
that. I not only bought when I had no business to be bullish but
I didn't accumulate my line in accordance with the promptings of
experience. I wasn't trading right. Having listened, I was lost.
The market was not going my way. I am never afraid or
impatient when I am sure of my position. But the market didn't
act the way it should have acted had Thomas been right. Having
taken the first wrong step I took the second and the third, and
of course it muddled me all up. I allowed myself to be persuaded
not only into not taking my loss but into holding up the market.
That is a style of play foreign to my nature and contrary to my
trading principles and theories. Even as a boy in the bucket
shops I had known better. But I was not myself. I was another
man -- a Thomasized person.
I not only was long of cotton but I was carrying a heavy
line of wheat. That was doing famously and showed me a handsome
profit. My fool efforts to bolster up cotton had increased my
line to about one hundred and fifty thousand bales. I may tell
you that about this time I was not feeling very well. I don't
say this to furnish an excuse for my blunders, but merely to
state a pertinent fact. I remember I went to Bayshore for a
While there I did some thinking. It seemed to me that my
speculative commitments were overlarge. I am not timid as a
rule, but I got to feeling nervous and that made me decide to
lighten my load. To do this I must clean up either the cotton or
the wheat.
It seems incredible that knowing the game as well as I did
and with an experience of twelve or fourteen years of
speculating in stocks and commodities I did precisely the wrong
thing. The cotton showed me a loss and I kept it. The wheat
showed me a profit and I sold it out. It was an utterly foolish
play, but all I can say in extenuation is that it wasn't really
my deal, but Thomas'. Of all speculative blunders there are few
greater than trying to average a losing game. My cotton deal
proved it to the hilt a little later. Always sell what shows you
a loss and keep what shows you a profit. That was so obviously
the wise thing to do and was so well known to me that even now I
marvel at myself for doing the reverse.
And so I sold my wheat, deliberately cut short my profit in
it. After I got out of it the price went up twenty cents a
bushel without stopping. If I had kept it I might have taken a
profit of about eight million dollars. And having decided to
keep on with the losing proposition I bought more cotton
I remember very clearly how every day I would buy cotton,
more cotton. And why do you think I bought it? To keep the price
from going down! If that isn't a supersucker play, what is? I
simply kept on putting up more and more moneymore 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
"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
Sure enough, Jimmy asked, "What stock are you going to
"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
"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 i f I wanted the coat for
myself I ought to let the market give it to me. But Ed Hardingstrongly
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
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.
THERE I was, once more broke, which was bad, and dead wrong
in my trading, which was a sight worse. I was sick, nervous,
upset and unable to reason calmly. That is, I was in the frame
of mind in which no speculator should be when he is trading.
Everything went wrong with me. Indeed, I began to think that I
could not recover my departed sense of proportion. Having grown
accustomed to swinging a big line -- say, more than a hundred
thousand shares of stock -- I feared I would not show good
judgment trading in a small way. It scarcely seemed worthwhile
being right when all you carried was a hundred shares of stock.
After the habit of taking a big profit on a big line I wasn't
sure I would know when to take my profit on a small line. I
can't describe to you how weaponless I felt.
Broke again and incapable of assuming the offensive vigorously.
In debt and wrong! After all those long years of
successes, tempered by mistakes that really served to pave the
way for greater successes, I was now worse off than when I began
in the bucket shops. I had learned a great deal about the game
of stock speculation, but I had not learned quite so much about
the play of human weaknesses. There is no mind so machinelike
that you can depend upon it to function with equal efficiency at
all times. I now learned that I could not trust myself to remain
equally unaffected by men and misfortunes at all times.
Money losses have never worried me in the slightest. But
other troubles could and did. I studied my disaster in detail
and of course found no difficulty in seeing just where I had
been silly. I spotted the exact time and place. A man must know
himself thoroughly if he is going to make a good job out of
trading in the speculative markets. To know what I was capable
of in the line of folly was a long educational step. I sometimes
think that no price is too high for a speculator to pay to learn
that which will keep him from getting the swelled head. A great
many smashes by brilliant men can be traced directly to the
swelled head -- an expensive disease everywhere to everybody,
but particularly in Wall Street to a speculator.
I was not happy in New York, feeling the way I did. I
didn't want to trade, because I wasn't in good trading trim. I
decided to go away and seek a stake elsewhere. The change of
scene could help me to find myself again, I thought. So once
more I left New York, beaten by the game of speculation. I was
worse than broke, since I owed over one hundred thousand dollars
spread among various brokers.
I went to Chicago and there found a stake. It was not a
very substantial stake, but that merely meant that I would need
a little more time to win back my fortune. A house that I once
had done business with had faith in my ability as a trader and
they were willing to prove it by allowing me to trade in their
office in a small way.
I began very conservatively. I don't know how I might have
fared had I stayed there. But one of the most remarkable
experiences in my career cut short my stay in Chicago. It is an
almost incredible story.
One day I got a telegram from Lucius Tucker. I had known
him when he was the office manager of a Stock Exchange firm that
I had at times given some business to, but I had lost track of
him. The telegram read
Come to New York at once.
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?"
"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
"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 '7o's. There was no
Brown and hadn't been one in the firm for years. The house had
been very prominent in Dan's father's time and Dan had inherited
a considerable fortune and didn't go after much outside
business. They had one customer who was worth a hundred average
customers and that was Alvin Marquand, Williamson's
brother-in-law, who in addition to being a director in a dozen
banks and trust companies was the president of the great
Chesapeake and Atlantic Railroad system. He was the most
picturesque personality in the railroad world after James J.
Hill, and was the spokesman and dominant member of the powerful
banking coterie known as the Fort Dawson gang. He was worth from
fifty million to five hundred million dollars, the estimate
depending upon the state of the speaker's liver. When he died
they found out that he was worth two hundred and fifty million
dollars, all made in Wail Street. So you see he was some
Lucius told me lie 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
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
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. Livermore," 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 I will give you
another personal check. So you don't have to be so very careful
with this one. See?"
I knew that the firm was too rich and prosperous to need
anybody's business, much less to give a fellow the money to put
up as margin. And then he was so nice about it! Instead of
giving me a credit with the house lie 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 i f 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. Livermore. 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 brotherin-
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 tan 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
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
"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 pull you out of that hole," he said,
"and I have." And then I discovered that not only had he wiped
out the debt entirely but I had a small credit balance besides.
I think I could have run that up without much trouble, for
the market was right, but he said to me, "I have bought you ten
thousand shares of Southern Atlantic." That was another road
controlled by his brother-in-law, Alvin Marquand, who also ruled
the market destinies of the stock.
When a man does for you what Dan Williamson did for me you
can't say anything but "Thank you" -- no matter what your market
views may be. You may be sure you're right, but as Pat Hearne
used to say: "You can't tell till you bet!" and Dan Williamson
had bet for me with his money.
Well, Southern Atlantic went down and stayed down and I
lost, I forget how much, on my ten thousand shares before Dan
sold me out. I owed him more than ever. But you never saw a
nicer or less importunate creditor in your life. Never a whimper
from him. Instead, encouraging words and admonitions not to
worry about it. In the end the loss was made up for me in the
same generous but mysterious way.
He gave no details whatever. They were all numbered
accounts. Dan Williamson would just say to me, "We made up your
Southern Atlantic loss with profits on this other deal," and
he'd tell me how he had sold seventy-five hundred shares of some
other stock and made a nice thing out of it. I can truthfully
say that I never knew a blessed thing about those trades of mine
until I was told that the indebtedness was wiped out.
After that happened several times I began to think, and I
got to look at my case from a different angle. Finally I
tumbled. It was plain that I had been used by Dan Williamson. It
made me angry to think it, but still angrier that I had not
tumbled to it quicker. As soon as I had gone over the whole
thing in my mind I went to Dan Williamson, told him I was
through with the firm, and I quit the office of Williamson &
Brown. I had no words with him or any of his partners. What good
would that have done me? But I will admit that I was sore at
myself quite as much as at Williamson & Brown.
The loss of the money didn't bother me. Whenever I have
lost money in the stock market I have always considered that I
have learned something; that if I have lost money I have gained
experience, so that the money really went for a tuition fee. A
man has to have experience and he has to pay for it. But there
was something that hurt a whole lot in that experience of mine
in Dan Williamson's office, and that was the loss of a great
opportunity. The money a man loses is nothing; he can make it
up. But opportunities such as I had then do not come every day.
The market, you see, had been a fine trading market. I was
right; I mean, I was reading it accurately. The opportunity to
make millions was there. But I allowed my gratitude to interfere
with my play. I tied my own hands. I had to do what Dan
Williamson in his kindness wished done. Altogether it was more
unsatisfactory than doing business with a relative. Bad
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, i f I had kept on the way I was going I'd have made so much
money that by the time he was trying to liquidate part of Alvin
Marquand's estate I would have been trading in hundreds of
thousands of shares. As an active bear I would have done damage
running into the millions of dollars to the Marquand heirs, for
Alvin left only a little over a couple of hundred millions.
It was much cheaper for them to let me get into debt and
then to pay off the debt than to have me in some other office
operating actively on the bear side. That is precisely what I
would have been doing but for my feeling that I must not be
outdone in decency by Dan Williamson.
I have always considered this the most interesting and most
unfortunate of all my experiences as a stock operator. As a
lesson it cost me a disproportionately high price. It put off
the time of my recovery several years. I was young enough to
wait with patience for the strayed millions to come back. But
five years is a long time for a man to be poor. Young or old, it
is not to be relished. I could do without the yachts a great
deal easier than I could without a market to come back on. The
greatest opportunity of a lifetime was holding before my very
nose the purse I had lost. I could not put out my hand and reach
for it. A very shrewd boy, that Dan Williamson; as slick as they
make them; farsighted, ingenious, daring. He is a thinker, has
imagination, detects the vulnerable spot in any man and can plan
cold-bloodedly to hit it. He did his own sizing up and soon
doped out just what to do to me in order to reduce me to
complete inoffensiveness in the market. He did not actually do
me out of any money. On the contrary, he was to all appearances
extremely nice about it. He loved his sister, Mrs. Marquand, and
he did his duty toward her as he saw it.
IT has always rankled in my mind that after I left Williamson
& Brown's office the cream was off the market. We ran smack
into a long moneyless period; four mighty lean years. There was
not a penny to be made. As Billy Henriquez once said, "It was
the kind of market in which not even a skunk could make a
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
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 i f 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.
"Livermore," 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 fullspeed-
ahead bell.
By reason of conditions known to the whole world the stock
I was most bullish on in those critical days of early 1915 was
Bethlehem Steel. I was morally certain it was going way up, but
in order to make sure that I would win on my very first play, as
I must, I decided to wait until it crossed par.
I think I have told you it has been my experience that
whenever a stock crosses 100 or 200 or 300 for the first time,
it nearly always keeps going up for 30 to 50 points and after
300 faster than after 100 or 200. One of my first big coups was
in Anaconda, which I bought when it crossed 200 and sold a day
later at 260. My practice of buying a stock just after it
crossed par dated back to my early bucket-shop days. It is an
old trading principle.
You can imagine how keen I was to get back to trading on my
old scale. I was so eager to begin that I could not think of
anything else; but I held myself in leash. I saw Bethlehem Steel
climb, every day, higher and higher, as I was sure it would, and
yet there I was checking my impulse to run over to Williamson &
Brown's office and buy five hundred shares. I knew I simply had
to make my initial operation as nearly a cinch as was humanly
Every point that stock went up meant five hundred dollars I
had not made. The first ten points' advance meant that I would
have been able to pyramid, and instead of five hundred shares I
might now be carrying one thousand shares that would be earning
for me one thousand dollars a point. But I sat tight and instead
of listening to my loud-mouthed hopes or to my clamorous beliefs
I heeded only the level voice of my experience and the counsel
of common sense. Once I got a decent stake together I could
afford to take chances. But without a stake, taking chances,
even slight chances, was a luxury utterly beyond my reach. Six
weeks of patience, but in the end, a victory for common sense
over greed and hope!
I really began to waver and sweat blood when the stock got
up to go. 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 too, 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 (lid
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 today 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
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 couxse, is decidedly and definitely upward. Therefore
whenever a stock goes against the general trend you are justified
in assuming that there is something wrong with that
particular stock. It is enough for the experienced trader to
perceive that something is wrong. He must not expect the tape to
become a lecturer. His job is to listen for it to say "Get out!"
and not wait for it to submit a legal brief for approval.
As I said before, I noticed that stocks which had been the
leaders of the wonderful advance had ceased to advance. They
dropped six or seven points and stayed there. At the same time
the rest of the market kept on advancing under new standard
bearers. Since nothing wrong had developed with the companies
themselves, the reason had to be sought elsewhere. Those stocks
had gone with the current for months. When they ceased to do so,
though the bull tide was still running strong, it meant that for
those particular stocks the bull market was over. For the rest
of the list the tendency was still decidedly upward.
There was no need to be perplexed into inactivity, for
there were really no cross currents. I did not turn bearish on
the market then, because the tape didn't tell me to do so. The
end of the bull market had not come, though it was within
hailing distance. Pending its arrival there was still bull money
to be made. Such being the case, I merely turned bearish on the
stocks which had stopped advancing and as the rest of the market
had rising power behind it I both bought and sold.
The leaders that had ceased to lead I sold. I put out a
short line of five thousand shares in each of them; and then I
went long of the new leaders. The stocks I was short of didn't
do much, but my long stocks kept on rising. When finally these
in turn ceased to advance I sold them out and went short five
thousand shares of each. By this time I was more bearish than
bullish, because obviously the next big money was going to be
made on the down side. While I felt certain that the bear market
had really begun before the bull market had really ended, I knew
the time for being a rampant bear was not yet. There was no
sense in being more royalist than the king; especially in being
so too soon. The tape merely said that patrolling parties from
the main bear army had dashed by. Time to get ready.
I kept on both buying and selling until after about a
month's trading I had out a short line of sixty thousand shares
-- five thousand shares each in a dozen different stocks which
earlier in the year had been the public's favourites because
they had been the leaders of the great bull market. It was not a
very heavy line; but don't forget that neither was the market
definitely bearish.
Then one day the entire market became quite weak and prices
of all stocks began to fall. When I had a profit of at least
four points in each and every one of the twelve stocks that I
was short of, I knew that I was right. The tape told me it was
now safe to be bearish, so I promptly doubled up.
I had my position. I was short of stocks in a market that
now was plainly a bear market. There wasn't any need for me to
push things along. The market was bound to go my way, and,
knowing that, I could afford to wait. After I doubled up I
didn't make another trade for a long time. About seven weeks
after I put out my full line, we had the famous "leak," and
stocks broke badly. It was said that somebody had advance news
from Washington that President Wilson was going to issue a
message that would bring back the dove of peace to Europe in a
hurry. Of course the war-bride boom was started and kept up by
the World War, and peace was a bear item. When one of the
cleverest traders on the floor was accused of profiting by
advance information he simply said he had sold stocks not on any
news but because he considered that the bull market was
overripe. I myself had doubled my line of shorts seven weeks
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
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
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 tjnless 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
(lid. 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
tune fishing instead of perplexing myself over the course of the
cotton market. And, moreover, I had taken such big profits in my
wheat and in stocks that I decided to take my loss in cotton. I
would figure that my profit had been a little more than one
million instead of over a million and a half. It was all a
matter of bookkeeping, as promoters are apt to tell you when you
ask too many questions.
If I hadn't bought that cotton just before the market
closed the day before, I would have saved that four hundred
thousand dollars. It shows you how quickly a man may lose big
money on a moderate line. My main position was absolutely
correct and I benefited by an accident of a nature diametrically
opposite to the considerations that led me to take the position
I did in stocks and wheat. Observe, please, that the speculative
line of least resistance again demonstrated its value to a
trader. Prices went as I expected, notwithstanding the
unexpected market factor introduced by the German note. If
things had turned out as I had figured I would have been ioo 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. If 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
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!
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 quickthinking
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
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 prewar level ranged from
ioo to 4oo 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 prewar 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
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 Livermore, 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
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
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!
TIPS! How people want tips! They crave not only to get them
but to give them. There is greed involved, and vanity. It is
very amusing, at times, to watch really intelligent people fish
for them. And the tip-giver need not hesitate about the quality,
for the tip-seeker is not really after good tips, but after any
tip. If it makes good, fine! If it doesn't, better luck with the
next. I am thinking of the average customer of the average
commission house. There is a type of promoter or manipulator
that believes in tips first, last and all the time. A good flow
of tips is considered by him as a sort of sublimated publicity
work, the best merchandising dope in the world, for, since
tip-seekers and tip-takers are invariably tip-passers,
tip-broadcasting becomes a sort of endless chain advertising.
The tipster-promoter labours under the delusion that no human
being breathes who can resist a tip if properly delivered. He
studies the art of handing them out artistically.
I get tips by the hundreds every day from all sorts of
people. I'll tell you a story about Borneo Tin. You remember
when the stock was brought out? It was at the height of the
boom. The promoter's pool had taken the advice of a very clever
banker and decided to float the new company in the open market
at once instead of letting an underwriting syndicate take its
time about it. It was good advice. The only mistake the members
of the pool made came from inexperience. They did not know what
the stock market was capable of doing during a crazy boom and at
the same time they were not intelligently liberal. They were
agreed on the need of marking up the price in order to market
the stock, but they started the trading at a figure at which the
traders and the speculative pioneers could not buy it without
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 teo 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 'rill 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 15o. 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 IV 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.
Livermore 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 manceuvred so that
he sat next to Mrs. Livermore 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. Livermore, 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. Livermore
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, Mrs. Livermore. 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 tomorrow you will be buying
it at the same time and at the same price as 1. 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
"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 Zoo 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. Livermore, 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
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. Livermore to know anything about this. Buy me as
much Borneo Tin as you can for the money, at the opening."
Haley tool; 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 io8. The stock was very active that day and closed
at an advance of three points. Mrs. Livermore 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
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 t0 102.
Haley, the manager of Harding Brothers' Palm Beach Branch,
was waiting for Mrs. Livermore 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. Livermore, 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
"I know, Mrs. Livermore, 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
Mrs. Livermore 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. Livermore, but if I were you I'd ask
Mr. Livermore."
"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. Livermore would tell one 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. Livermore'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 dam foolishness 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
eagily 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 Streetthe 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
"About G. O. H. You said you had it from a good source."
"So I did. A director of the company who is a member of the
finance committee told me."
"Which of them was it?" asked the broker vindictively.
"If you must know," answered the newspaper man, "it was
your own father-in-law, Mr. Westlake."
"Why in Hades didn't you tell me you meant him!" yelled the
broker. "You cost me thirty-five hundred dollars!" He didn't
believe in family tips. The farther away the source the purer
the tip.
Old Westlake was a rich and successful banker and promoter.
He ran across John W. Gates one day. Gates asked him what he
knew. "If you will act on it I'll give you a tip. If you won't
I'll save my breath," answered old Westlake grumpily.
"Of course I'll act on it," promised Gates cheerfully.
"Sell Reading! There is a sure twenty-five points in it,
and possibly more. But twenty-five absolutely certain," said
Westlake impressively.
"I'm much obliged to you," and Bet-you-a-million Gates
shook hands warmly and went away in the direction of his
broker's office.
Westlake had specialized on Reading. He knew all about the
company and stood in with the insiders so that the market for
the stock was an open book to him and everybody knew it. Now he
was advising the Western plunger to go short of it.
Well, Reading never stopped going up. It rose something
like one hundred points in a few weeks. One day old Westlake ran
smack up against John W. in the Street, but he made out he
hadn't seen him and was walking on. John W. Gates caught up with
him, his face all smiles and held out his hand. Old Westlake
shook it dazedly.
"I want to thank you for that tip you gave me on Reading,"
said Gates.
"I didn't give you any tip," said Westlake, frowning.
"Sure you did. And it was a Jim Hickey of a tip too. I made
sixty thousand dollars."
"Made sixty thousand dollars?"
"Sure! Don't you remember? You told me to sell Reading; so
I bought it! I've always made money coppering your tips,
Westlake," said John W. Gates pleasantly. "Always!"
Old Westlake looked at the bluff Westerner and presently
remarked admiringly, "Gates, what a rich man I'd be if I had
your brains!"
The other day I met Mr. W. A. Rogers, the famous cartoonist,
whose Wall Street drawings brokers so greatly admire.
His daily cartoons in the New York Herald for years gave
pleasure to thousands. Well, he told me a story. It was just
before we went to war with Spain. He was spending an evening
with a broker friend. When he left he picked up his 'ederby 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
` "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 con vinced 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
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 doubleriveted, 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
"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 wastebasket. 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 wastebasket! 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 wastebasket 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.
0NE 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. Ile 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 breakfasttable, 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
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 Sooo 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 II¢. 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 camebarring 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 so much that
prices were still higher and that I had a satisfying profit but
that there was a great big market with a tremendous power of
absorption. I could sell any amount o£ 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
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 meant that when the railroads were able to move wheat in
quantity they would be bringing in both crops together the
delayed winter and the early spring wheat and that would mean a
vast quantity of wheat pouring into the market at one fell
swoop. Such being the facts of the case -- the obvious
probabilities -- the traders, who would know and figure as I
did, would not bull wheat for a while. They would not feel like
buying it unless the price declined to such figures as made the
purchase of wheat a good investment. With no buying power in the
market, the price ought to go down. Thinking the way I did I
must find whether I was right or not. As old Pat Hearne used to
remark, "You can't tell till you bet." Between being bearish and
selling there is no need to waste time.
Experience has taught me that the way a market behaves is
an excellent guide for an operator to follow. It is like taking
a patient's temperature and pulse or noting the colour of the
eyeballs and the coating of the tongue.
Now, ordinarily a man ought to be able to buy or sell a
million bushels of wheat within a range of Y4 cent. On this day
when I sold the 250,000 bushels to test the market for
timeliness, the price went down Y4 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 io,ooo 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 i Y4 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."
L~_at 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 v:rh that one
exception was going with the rest of the marl:ct. I was long a
very fair amount of Blackwood Motors. Evcrybody knew that the
company was doing a very big busines. The price was rising from
one to three points a day and tile public was coming in more and
more. This naturally centered attention on the group and all the
various motor stocks began to go up. One of them, however,
persistently held back and that was Chester. It lagged behind
the others so that it was not long before it made people talk.
The low price of Chester and its apathy was contrasted with the
strength and activity in Blackwood and other motor stocks and
the public logically enough listened to the touts and tipsters
and 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 decline,. 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 w e 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
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
signdd 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 itinsiders 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 i 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 5o points. That
wasn't anything. But I also noticedithat 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 ro,ooo bales and
waited. Pretty soon the market went off So 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 io,ooo 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 diningroom, 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,ooo 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 io,ooo bales. But again that clearly was not a
hunch. It was an impulse that came from the conviction that the
time to sell cotton had now come, however great my previous
mistake had been. I had to take advantage of it. It was my
chance. The subconscious mind probably went on working, reaching
conclusions for me. The decision to sell in Washington was the
result of my observation. My years of experience in trading told
me that the line of least resistance had changed from up to
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.
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 with
out 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 iqo. 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 9f 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.
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 aooo 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 io,ooo 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 l
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 i5o. 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 fry 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 i49 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 o f 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 2o 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 iio; below par; and
still I did not cover. One day when the entire market was
extremely weak Tropical Trading broke go 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 i 5o 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 io,ooo 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. Ft 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.
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 today 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 today 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 i86o's and '7o's than in
the igoo'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 twentyfive 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
The dictionary definition of manipulation includes corners.
Now, a corner might be the result of manipulation or it might
ibe the result of competitive buying, as, for instance, the
Northern Pacific corner on May 9, igoi, which certainly was not
manipulation. The Stutz corner was expensive to every body
concerned, both in money and in prestige. And it wasnot a
deliberately engineered corner, at that.
As a matter of fact very few of the great corners were
profitable to the engineers of them. Both Commodore Vanderbilt's
Harlem corners paid big, but the old chap deserved the millions
he made out of a lot of short sports, crooked legislators and
aldermen who tried to double-cross him. On the other hand, Jay
Gould lost in his Northwestern corner. Deacon S. V. White made a
million in his Lackawanna corner, but Jim Keene dropped a
million in the Hannibal & St. Joe deal. The financial success of
a corner of course depends upon the marketing of the accumulated
holdings at higher than cost, and the short interest has to be
of some magnitude for that to happen easily.
I used to wonder why corners were so popular among the big
operators of a half-century ago. They were men of ability and
experience, wide-awake and not prone to childlike trust in the
philanthropy of their fellow traders. Yet they used to get stung
with an astonishing frequency. A wise old broker told me that
all the big operators of the '60's and 'do'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
Dog certainly ate dog in those days with relish and
I think I told you before that I have managed to escape
being squeezed more than once, not because of the possession of
mysterious ticker-sense but because I can generally tell the
moment the character of the buying in the stock makes it
imprudent for me to be short of it. This I do by common-sense
tests, which must have been tried in the old times also. Old
Daniel Drew used to squeeze the boys with some frequency and
make them pay high prices for the Erie "sheers" they had sold
short to him. He was himself squeezed by Commodore Vanderbilt in
Erie, and when old Drew begged for mercy the Commodore grimly
quoted the Great Bear's own deathless distich
He that sells what isn't hisn
Must buy it back or go to prim.
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 today. 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
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 1"but that he was
head and shoulders above all other manipulators past and
present. He must have been a financial wizard indeed to have
done what he did; there can be no question of that. Even at this
distance I can see that he had an amazing knack for adapting
himself to new conditions, and that is valuable in a trader. He
varied his methods of attack and defense without a pang because
he was more concerned with the manipulation of properties than
with stock speculation. He manipulated for investment rather
than for a market turn. He early saw that the big money was in
owning the railroads instead of rigging their securities on the
floor of the Stock Exchange.
He utilised the stock market of course. But I suspect it
was because that was the quickest and easiest way to quick and
easy money and he needed many millions, just as old Collis P.
Huntington was always hard up because he always needed twenty or
thirty millions more than the bankers were willing to lend him.
Vision without money means heartaches; with money, it means
achievement; and that means power; and that means money; and
that means achievement; and so on, over and over and over.
Of course manipulation was not confined to the great
figures of those days. There were scores of minor manipulators.
I remember a story an old broker told me about the manners and
morals of the early '60's. He said
"The earliest recollection I have of Wall Street is of my
first visit to the financial district. My father had some
business to attend to there and for some reason or other took me
with him. We came down Broadway and I remember turning off at
Wall Street. We walked down Wall and just as we came to Broad
or, rather, Nassau Street, to the corner where the Bankers'
Trust Company's: building now stands, I saw a crowd following
two men. The first was walking eastward, trying to look
unconcerned. He was followed by the other, a redfaced 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 lockerup
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.
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 thimblerigging, 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 igoi. 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 io in
1903 and at 8Y8 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. II 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
Amal?amated 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 onehundred-
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,
He had in superlative degree the qualities of mind that are
associated with successful speculators anywhere. That he did not
argue with the tape is plain. He was utterly fearless but never
reckless. He could and did turn in a twinkling, if he found he
was wrong.
Since his day there have been so many changes in Stock
Exchange rules and so much more rigorous enforcement of old
rules, so many new taxes on stock sales and profits, and so on,
that the game seems different. Devices that Keene could use with
skill and profit can no longer be utilised. Also, we are
assured, the business morality of Wall Street is on a higher
plane. Nevertheless it is fair to say that in any period of our
financial history Keene would have been a great manipulator
because he was a great stock operator and knew the game of
speculation from the ground up. He achieved what he did because
conditions at the time permitted him to do so. He would have
been as successful in his undertakings in 1922 as he was in igoi
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 today, 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 cn 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
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
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 had 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 individualthat
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
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. I f he in turn accepts my terms the
honorarium and the conditions -- I begin my work at once.
I generally ask and receive calls on a block of stock. I
insist upon graduated calls as the fairest to all concerned. The
price of the call begins at a little below the prevailing market
price and goes up; say, for example, that I get calls on one
hundred thousand shares and the stock is quoted at 40. I begin
with a call for some thousands of shares at 35, another at 37,
another at 40, and at 45 and 50, and so on up to 75 or 80.
If as the result of my professional work my manipulation --
the price goes up, and if at the highest level there is a good
demand for the stock so that I can sell fair-sized blocks of it
I of course call the stock. I am making money; but so are my
clients making money. This is as it should be. If my skill is
what they are paying for they ought to get value. Of course,
there are times when a pool may be wound up at a loss, but that
is seldom, for I do not undertake the work unless I see my way
clear to a profit. This year I was not so fortunate in one or
two deals, and I did not make a profit. There are reasons, but
that is another story, to be told later perhaps.
The first step in a bull movement in a stock is to
advertise the fact that there is a bull movement on. Sounds
silly, doesn't it? Well, think a moment. It isn't as silly as it
sounded, is it? The most effective way to advertise what, in
effect, are your honourable intentions is to make the stock
active and strong. After all is said and done, the greatest
publicity agent in the wide world is the ticker, and by far the
best advertising medium is the tape. I do not need to put out
any literature for my clients. I do not have to inform the daily
press as to the value of the stock or to work the financial
reviews for notices about the company's prospects. Neither do I
have to get a following. I accomplish all these highly desirable
things by merely making the stock active. When there is activity
there is a synchronous demand for explanations; and that means,
of course, that the necessary reasons for publication supply
themselves without the slightest aid from me.
Activity is all that the floor traders ask. They will buy
or sell any stock at any level if only there is a free market
for it. They will deal in thousands of shares wherever they see
activity, and their aggregate capacity is considerable. It
necessarily happens that they constitute the manipulator's first
crop of buyers. They will follow you all the way up and they
thus are a great help at all the stages of the operation. I
understand that James R.' Keene used habitually to employ the
most active of the room traders, both to conceal the source of
the manipulation and also because he knew that they were by far
the best business-spreaders and tip-distributors. He often gave
calls to them verbal calls above the market, so that they might
do some helpful work before they could cash in. He made them
earn their profit. To get a professional following I myself have
never had to do more than to make a stock active. Traders don't
ask for more. It is well, of course, to remember that these
professionals on the floor of the Exchange buy stocks with the
intention of selling them at a profit They do not insist on its
being a big profit; but it must be a quick profit.
I make the stock active in order to draw the attention of
speculators to it, for the reasons I have given. I buy it and I
sell it and the traders follow suit. The selling pressure is not
apt to be strong where a man has as much speculatively held
stock sewed up in calls -- as I insist on having. The buying,
therefore, prevails over the selling, and the public follows the
lead not so much of the manipulator as of the room traders. It
comes in as a buyer. This highly desirable demand I fill -- that
is, I sell stock on balance. If the demand is what it ought to
be it will absorb more than the amount of stock I was compelled
to accumulate in the earlier stages of the manipulation; and
when this happens I sell the stock shortthat 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
Of course what I have described is not my invariable
practice. I neither have nor adhere to an inflexible system. I
modify my terms and conditions according to circumstances. A
stock which it is desired to distribute should be manipulated to
the highest possible point and then sold. I repeat this both
because it is fundamental and because the public apparently
believes that the selling is all done at the top. Sometimes a
stock gets waterlogged, as it were; it doesn't go up. That is
the time to sell. The price naturally will go down on your
selling rather further than you wish, but you can generally
nurse it back. As long as a stock that I am manipulating goes up
on my buying I know I am 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.
AM well aware that all these generalities do not sound
especially impressive. Generalities seldom do. Possibly I may
succeed better if I give a concrete example. I'll tell you how I
marked up the price of a stock 30 points, and in so doing
accumulated only seven thousand shares and developed a market
that would absorb almost any amount of stock.
It was Imperial Steel. The stock had been brought out by
reputable people and it had been fairly well tipped as a
property of value. About 30 per cent of the capital stock was
placed with the general public through various Wall Street
houses, but there had been no significant activity in the shares
after they were listed. From time to time somebody would ask
about it and one or another insider -- members of the original
underwriting syndicate would say that the company's earnings
were better than expected and the prospects more than
encouraging. This was true enough and very good as far as.
It went, but not exactly thrilling. The speculative appeal
was absent, and from the investor's point of view the price
stability and dividend permanency of the stock were not yet
demonstrated. It was a stock that never behaved sensationally.
It was so gentlemanly that no corroborative rise ever
followed the insiders' eminently truthful reports. On the other
hand, neither did the price decline.
Imperial Steel remained unhonoured and unsung and untipped,
content to be one of those stocks that don't go down because
nobody sells and that nobody sells because nobody likes to go
short of a stock that is not well distributed; the seller is too
much at the mercy of the loaded-up inside clique.
Similarly, there is no inducement to buy such a stock. To
the investor Imperial Steel therefore remained a speculation. To
the speculator it was a dead one -- the kind that makes an
investor of you against your will by the simple expedient of
falling into a trance the moment you go long of it. The chap who
is compelled to lug a corpse a year or two always loses more
than the original cost of the deceased; he is sure to find
himself tied up with it when some really good things come his
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 manpulation 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
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
I proceeded to protect myself as thoroughly as I could. The
syndicate owned or controlled about 70 per cent of the out
standing stock. I had them deposit their' 7o 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 7o 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 a orders
and, of course, selling orders also.
I didn't give bull tips on Impdrial 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 news paperman 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 1 -- 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
you. 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 the
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 thoy wish it to act. They seem to take it as a personal
slight, and they proceed to lose money by first losing their
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
I cannot tell you anything about his technique. He didn't
tell me how he worked and I didn't ask him. But it was plain
that notwithstanding his Wall Street experience and his
undoubted cleverness, whatever it was he did proved of little
value and it didn't take the pool long to find out that they
couldn't get rid of much stock. He must have tried everything he
knew, because a pool manager does not ask to be superseded by an
outsider unless he feels unequal to the task, and that is the
last thing the average man likes to admit. At all events he came
to me and after some friendly preliminaries he said he wanted me
to take charge of the market for Pete Products and dispose of
the pool's holdings, which amounted to a little over one hundred
thousand shares. The stock was selling at 102 to 103.
The thing looked dubious to me and I declined his
proposition with thanks. But he insisted that I accept. He put
it on personal grounds, so that in the end I consented. I
constitutionally dislike to identify myself With enterprises in
the success of which I cannot feel confidence, but I also think
a man owes something to his friends and acquaintances. I said Id
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 i f 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 ion 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
“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
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 yoi. 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 publies state of mind was
It isn't good business for a man to act against the
teachings of experience and against common sense. But the
suckers in Walt 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
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.
Th i l t il fi d hi 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 igi5 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 actwe; 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 super promoters 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. 1t 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. More over, 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.
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 affairsthe boy
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 compames 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
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 colidated 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 3o, and the
Gray, which was better known and paid dividends, hung around
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
protmoters 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 a, 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
awere 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.
hey 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 So. Barnes and his friends in the end
had to come in as buyers in order to keep it above ¢o. Not to
have supported that stock at the outset of its market career was
regrettable. But not to have sold all the stock the public
subscribed for was much worse.
At all events, the stock was duly listed on the New York
Stock Exchange and the price of it duly kept sagging until it
nominally stood at 37. And it stood there because Jim Barnes and
his associates had to keep it there because their bank had
loaned them thirty-five dollars a share on one hundred thousand
shares. If the bank ever tried to liquidate that loan there was
no telling what the price would break to. The public that had
been eager to buy it at 50, now didn't care for it at 37, and
probably wouldn't want it at 27.
As time went on the banks' excesses in the matter of extensions
of credits made people think. The day of the boy banker
was over. The banking business appeared to be on the ragged edge
of suddenly relapsing into conservatism. Intimate friends were
now asked to pay off loans, for all the world as though they had
never played golf with the president.
There was no need to threaten on the lender's part or to
plead for more time on the borrower's. The situation was highly
uncomfortable for both. The bank, for example, with which my
friend Jim Barnes did business, was still kindly
disposed. But it was a case of "For heaven's sake take up that
loan or we'll all be in a dickens of a mess!"
The character of the mess and its explosive possibilities
were enough to make Jim Barnes come to me to ask me to sell the
one hundred thousand shares for enough to pay off the bank's
three-million-five-hundred-thousand-dollar loan. Jim did not now
expect to make a profit on that stock. If the syndicate only
made a small loss on it they would be more than grateful.
It seemed a hopeless task. The general market was neither
active nor strong, though at times there were rallies, when
everybody perked up and tried to believe the bull swing was
about to resume.
The answer I gave Barnes was that I'd look into the matter
and let him know under what conditions I'd undertake the work.
Well, I did look into it. I didn't analyse the company's last
annual report. My studies were confined to the stock market
phases of the problem. I was not going to tout the stock for a
rise on its earnings or its prospects, but to dispose of that
block in the open market. All I considered was what should,
could or might help or hinder me in that task.
I discovered for one thing that there was too much stock
held by too few people -- that is, too much for safety and far
too much for comfort. Clifton P. Kane & Co., bankers and
brokers, members of the New York Stock Exchange, were carrying
seventy thousand shares. They were intimate friends of Barnes
and had been influential in effecting the consolidation, as they
had made a specialty of stove stocks for years. Their
customers had been let into the good thing. Ex-Senator Samuel
Gordon, who was the special partner in his nephews' firm, Gordon
Bros., was the owner of a second block of seventy thousand
shares; and the famous Joshua Wolff had sixty thousand shares.
This made a total of two hundred thousand shares of Consolidated
Stove held by this handful of veteran Wall Street professionals.
They did not need any kind person to tell them when to sell
their stock. If I did anything in the manipulating line
calculated to bring in public buying that is to say, if I made
the stock strong and active I could see Kane and Gordon and
Wolff unloading, and not in homeopatQ 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 v
readers of the metropolitan press as though he had been
sued for breach of promise by a sixteen-year-old manicurist
possassing 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 in herited 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 indiffer ence 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 4o 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 o f 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 doublecrossing 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
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 qo. 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
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
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 Livermore 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
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 countryorders 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 qo. 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? I
What the devil's the matter?"
"Have a chair, Mr. Wolff," I said politely and sat down
myself to encourage him to talk calmly. t .
"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.
said, "The price of it is now 3 i A."
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
crib 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, Livermore" 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 q.o. But you weren't
satisfied to get 4o 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 h 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
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
`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 z
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 3o 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 25-1/2.
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 i f 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. Livermore
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. Livermore: "I hope
Mr. Livermore 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
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 i9oi, 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 zoo 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 coo 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
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
sky high also are beyond regulation by bodies of cold blooded
economists or warm-hearted philanthropists. There remains
another source of loss and that is, deliberate misinformation as
distinguished from straight tips. And because it is apt to come
to a stock trader variously disguised and camouflaged, it is the
more insidious and dangerous.
The average outsider, of course, trades either on tips or
on rumours, spoken or printed, direct or implied. Against
ordinary tips you cannot guard. For instance, a lifelong friend
sincerely desires to make you rich by telling you what he has
done, that is, to buy or sell some stock. His intent is good a
job. 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 every
where 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 fiany millions of dollars every year by accepting such.
statements as semi-official and therefore trustworthy.
Say for example that a company has gone through a period of
depression in its particular line of business. The stock is
inactive. The quotation represents the general and presumably
accurate belief of its actual value. If the stock were too cheap
at that level somebody would know it and buy it and it would
advance. If too dear somebody would know enough to sell it and
the price would decline. As nothing happens one way or another
nobody talks about it or does anything.
The turn comes in the line of business the company is
engaged in. Who are the first to know it, the insiders or the
public? You can bet it isn't the public. What happens next? Why,
if the improvement continues the earnings will increase and the
company will be in position to resume dividends on the stock;
or, if dividends were not discontinued, to pay a higher rate.
That is, the value of the stock will increase.
Say that the improvement keeps up. Does the management make
public that glad fact? Does the president tell the stockholders?
Does a philanthropic director come out with a signed statement
for the benefit of that part of the public that reads the
financial page in the newspapers and the slips of the news
agencies? Does some modest insider pursuing his usual policy of
anonymity come out with an unsigned statement to the effect that
the company's future is most promising? Not this time. Not a
word is said by anyone and no statement whatever is printed by
newspapers or tickers:
The value-making information is carefully kept from the
public while the now taciturn "prominent insiders" go into the
market and buy all the cheap stock they can lay their hands on
As this well-informed but unostentatious buying keeps on, the
stock rises. The financial reporters, knowing that the insiders
ought to know the reason for the rise, ask questions. The
unanimously anonymous insiders unanimously declare that they
have no news to give out. They do not know that there is any
warrant for the rise. Sometimes they even state that they are
not particularly concerned with the vagaries of the stock market
or the actions of stock speculators.
The rise continues and there comes a happy day when those
who know have all the stock they want or can carry. The Street
at once begins to hear all kinds of bullish rumours. The tickers
tell the traders "on good authority" that the company has
definitely turned the corner. The same modest director who did
not wish his name used when he said he knew no warrant for the
rise in the stock is now quoted, of course, not by name as
saying that the stockholders have every reason to feel greatly
encouraged over the outlook.
Urged by the deluge of bullish news items the public begins
to buy the stock. These purchases help to put the price stilt
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
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" "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 lias 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
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
giltedged 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 too 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 tire brokers who knew the ost about Intervale
Oil's advance and ought to he 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 salt broadcast over the country? Why, that Larry
Livermore was raiding the marked 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 io 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 Livermore 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.
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
ofbroker 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 I 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 50o
shares of Bantam Shops at $65. The stock is now quoted at 7a."
The grateful insider tells the thing to a dozen of the head
men 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
The juggling whereby s or 4 or even io 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 $t 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 socalled
If a law were passed that would punish bull liars as the
law now punishes bear liars, I believe the public would save
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 to
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.
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?

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