Chapter Three - Table of Contents - Chapter Five
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| North Union Station, Boston - 1890's |
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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.
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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.
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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.
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We learned afterward that one of
the customers saw us talking together outside and went in and told the
office, and when my friend went up to the order clerk to sell that
hundred St. Paul the guy said: "We're not taking any selling orders in St. Paul, not from you."
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"Why, what's the matter, Joe?" asked my friend.
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"Nothing doing, that's all," answered Joe.
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"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.
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The clerk, Joe, who was a sort
of assistant manager, came out from behind his cage, walked up to my
friend, looked at him and then looked at me.
.
"It's funny," he said
slowly—"it's damned funny that you never do a single thing here when
your friend Livingston isn't around. You just sit and look at the board
by the hour. Never a peep. But after he comes in you get busy all of a
sudden. Maybe you are acting for yourself; but not in this office any
more. We don't fall for Livingston tipping you off."
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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.
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One day I was in a hotel lobby, talking to some fellows I knew, who were pretty steady traders.
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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.
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A fellow piped up and asked me what particular brokers I meant.
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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.
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But I said, "I mean, any member
of the New York Stock Exchange. It isn't that they are crooked or
careless, but when a man gives an order to buy at the market he never
knows what that stock is going to cost him until he gets a report from
the brokers. There are more moves of one or two points than of ten or
fifteen. But the outside trader can't catch the small rises or drops
because of the execution. I'd rather trade in a bucket shop any day in
the week, if they'd only let a fellow trade big."
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The man who had spoken to me I
had never seen before. His name was Roberts. He seemed very friendly
disposed. He took me aside and asked me if I had ever traded in any of
the other exchanges, and I said no.
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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.
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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.
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"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."
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"Yes. But if they pay the Stock Exchange house the regular eighth commission, where do they come in?"
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"Well, they are supposed to pay the eighth. But—you know!" He winked at me.
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"Yes," I said. "But the one
thing a Stock Exchange firm will not do is to split commissions. The
governors wou'i rather a member committed murder, arson and bigamy than
to do business for outsiders for less than a kosher eighth. The very
life of the Stock Exchange depends upon their not violating that one
rule."
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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."
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By that time I knew he was touting for some phony brokers.
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"Do you know any reliable house of that kind?" I asked him.
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"I know the biggest brokerage
firm in the United States," he said. "I trade there myself. They have
branches in seventy-eight cities in the United States and Canada. They
do an enormous business. And they couldn't very well do it year in and
year out if they weren't strictly on the level, could they?"
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"Certainly not," I agreed. "Do they trade in the same stocks that are dealt in on the New York Stock Exchange?"
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"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."
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I knew by that time, but I thought I'd lead him on.
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"Yes," I said, "but that does
not alter the fact that the orders have to be executed by somebody, and
nobody living can guarantee how the market will be or how close the
ticker's prices are to the actual prices on the floor of the Exchange.
By the time a man gets the quotation here and he hands in an order and
it's telegraphed to New York, some valuable time has gone. I might
better go back to New York and lose my money there in respectable
company."
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"I don't know anything about losing money; our customers don't acquire that habit. They make money.
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We take care of that."
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"Your customers?"
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"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."
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"What's the name of the firm?" I asked him.
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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.
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They were the prototype at that time of the same sort of brokers that went broke this year by the dozen.
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The general principles and
methods were the same, though the particular devices for fleecing the
public differed somewhat, certain details having been changed when the
old tricks became too well known.
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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.
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They also used to form
discretionary pools in the office and as a great favor allowed their
customers to authorize them, in writing, to trade with the customer's
money and in the customer's name, as they in their judgment deemed best.
That way the most cantankerous customer had no legal redress when his
money disappeared. They'd bull a stock, on paper, and put the customers
in and then they'd execute one of the old-fashioned bucket-shop drives
and wipe out hundreds of shoestring margins. They did not spare anyone,
women, schoolteachers and old men being their best bet.
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"I'm sore on all brokers," I told the tout. "I'll have to think this over," and I left him so he wouldn't talk any more to me.
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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.
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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.
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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.
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"Yes, I know the trick," I said to the chap who was telling me.
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"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?''
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" '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.''
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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.
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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.
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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.
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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.
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He assured me on his word of
honor that they would do whatever I thought was right. They wanted my
business because they wanted to show me what high-class brokering was.
They had in their employ the best talent in the business. In fact, they
were famous for their execution. If there was any difference between the
ticker price and the report it was always in favor of the customer,
though of course they didn't guarantee that. If I opened an account with
them I could buy and sell at the price which came over the wire, they
were so confident of their brokers.
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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.
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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.
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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.
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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.
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I traded in a small way so they wouldn't get frightened off at the very start. I made money on balance and they were not slow in telling me
that they expected real business from customers who had direct wires to
their offices. They did not hanker for pikers. They figured that the
more I did the more I'd lose, and the more quickly I was wiped out the
more they'd make. It was a sound enough theory when you consider that
these people necessarily dealt with averages and the average customer
was never long-lived, financially speaking. A busted customer can't
trade. A half-crippled customer can whine and insinuate things and make
trouble of one or another kind that hurts business.
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I also established a connection
with a local firm that had a direct wire to its New York correspondent,
who were also members of the New York Stock Exchange. I had a stock
ticker put in and I began to trade conservatively. As I told you, it was
pretty much like trading in bucket shops, only it was a little slower.
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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.
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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.
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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.
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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!
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Well, I made up my mind that I
couldn't afford to have the normal rate of increase of my stake impaired
by crooks' tricks, so I decided to teach them a lesson. I picked out
some stock that after having been a speculative favorite had become
inactive. Water-logged. If I had taken one that never had been active
they would have suspected my play. I gave out buying orders on this
stock to my five bucketeering brokers. When the orders were taken and
they were waiting for the next quotation to come out on the tape I sent
in an order through my Stock Exchange house to sell a hundred shares of
that particular stock at the market. I urgently asked for quick action.
Well, you can imagine what happened when the selling order got to the
floor of the Exchange; a dull inactive stock that a commission house
with out-of-town connections wanted to sell in a hurry. Somebody got
cheap stock. But the transaction as it would be printed on the tape was
the price that I would pay on my five buying orders. I was long on
balance four hundred shares of that stock at a low figure. The wire
house asked me what I'd heard, and I said I had a tip on it. Just before
the close of the market I sent an order to my reputable house to buy
back that hundred shares, and not waste any time; that I didn't want to
be short under any circumstances; and I didn't care what they paid. So
they wired to New York and the order to buy that hundred quick resulted
in a sharp advance. I of course had put in selling orders for the five
hundred shares that my friends had bucketed. It worked very
satisfactorily.
Still, they didn't mend their
ways, and so I worked that trick on them several times. I did not dare
punish them as severely as they deserved, seldom more than a point or
two on a hundred shares. But it helped to swell my little hoard that I
was saving for my next Wall Street venture. I sometimes varied the
process by selling some stock short, without overdoing it. I was
satisfied with my six or eight hundred clear for each crack.
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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.
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"That was a fictitious market for that stock, and we won't pay you a damned cent!" he swore.
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"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?"
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"Yes, I can!" he yelled. "I can prove that somebody put up a job."
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"Who put up a job?" I asked.
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"Somebody!"
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"Who did they put it up on?" I asked.
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"Some friends of yours were in it as sure as pop," he said.
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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."
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"I won't pay it. It was a rigged-up transaction," he yelled.
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I got tired of his talk. So I told him: "You'll pay it to me right now and here."
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Well, he blustered a little more
and accused me flatly of being the guilty thimblerigger; but he finally
forked over the cash. The others were not so rambunctious. In one
office the manager had been studying these inactive-stock plays of mine
and when he got my order he actually bought the stock for me and then
some for himself in the Little Board, and he made some money. These
fellows didn't mind being sued by customers on charges of fraud, as they
generally had a good technical legal defense ready. But they were
afraid I'd attach the furniture—the money in the bank I couldn't because
they took care not to have any funds exposed to that danger. It would
not hurt them to be known as pretty sharp, but to get a reputation for
welshing was fatal. For a customer to lose money at his broker's is no
rare event. But for a customer to make money and then not get it is the
worst crime on the speculators' statute books.
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I got my money from all; but that ten-point jump put an end to the pleasing pastime of skinning skinners.
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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.
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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.
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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.
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The manager was a chap who
looked as if he had been an actor or a stump speaker. He was very
impressive. He'd say good morning as though he had discovered the
morning's goodness after ten years of searching for it with a microscope
and was making you a present of the discovery as well as of the sky,
the sun and the firm's bank roll. He saw us come up in the
sporty-looking automobile, and as both of us were young and careless—I
don't suppose I looked twenty—he naturally concluded we were a couple of
Yale boys. I didn't tell him we weren't. He didn't give me a chance,
but began delivering a speech. He was very glad to see us. Would we have
a comfortable seat? The market, we would find, was philanthropically
inclined that morning; in fact, clamoring to increase the supply of
collegiate pocket money, of which no intelligent undergraduate ever had a
sufficiency since the dawn of historic time. But here and now, by the
beneficence of the ticker, a small initial investment would return
thousands. More pocket money than anybody could spend was what the stock
market yearned to yield.
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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.
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I began to trade, very conservatively, but increasing the line as I won. My friend followed me.
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We stayed overnight in New Haven
and the next morning found us at the hospitable shop at five minutes to
ten. The orator was glad to see us, thinking his turn would cony day.
But I cleaned up within a few dollars of fifteen hundred. The next
morning when we dropped in on the great orator, and handed him an order
to sell five hundred Sugar he hesitated, but finally accepted it—in
silence! The stock broke over a point and I closed out and gave him the
ticket. There was exactly five hundred dollars coming to me in profits,
and my five hundred dollar margin. He took twenty fifties from the safe,
counted them three times very slowly, then he counted them again in
front of me. It looked as if his fingers were sweating mucilage the way
the notes seemed to stick to him, but finally he handed the money to me.
He folded his arms, bit his lower lip, kept it bit, and stared at the
top of a window behind me.
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I told him I'd like to sell two
hundred Steel. But he never stirred. He didn't hear me. I repeated my
wish, only I made it three hundred shares. He turned his head. I waited
for the speech. But all he did was to look at me. Then he smacked his
lips and swallowed—as if he was going to start an attack on fifty years
of political misrule by the unspeakable grafters of the opposition.
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Finally he waved his hand toward the yellow-backs in my hand and said, "Take away that bauble!"
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"Take away what?" I said. I hadn't quite understood what he was driving at.
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"Where are you going, student?" He spoke very impressively.
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"New York," I told him.
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"That's right," he said, nodding
about twenty times. "That is ex-actly right. You are going away from
here all right, because now I know two things—two, student! I know what
you are not, and I know what you are. Yes! Yes! Yes!"
.
"Is that so?" I said very politely.
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"Yes. You two—" He paused; and
then he stopped being in Congress and snarled: "You two are the biggest
sharks in the United States of America! Students? Ye-eh! You must be
Freshmen! Ye-eh!"
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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.
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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!.
Chapter Three - Table of Contents - Chapter Five
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