Chapter Two - Table of Contents - Chapter Four
.
It takes a man a long time to learn
all the lessons of all his mistakes. They say there are two sides to
everything. But there is only one side to the stock market; and it is
not the bull side or the bear side, but the right side. It took me
longer to get that general principle fixed firmly in my mind than it did
most of the more technical phases of the game of stock speculation.
.
I have heard of people who amuse
themselves conducting imaginary operations in the stock market to prove
with imaginary dollars how right they are. Sometimes these ghost
gamblers make millions. It is very easy to be a plunger that way. It is
like the old story of the man who was going to fight a duel the next
day.
.
His second asked him, "Are you a good shot?"
.
"Well," said the duelist, "I can snap the stem of a wineglass at twenty paces," and he looked modest.
.
"That's all very well," said the
unimpressed second. "But can you snap the stem of the wineglass while
the wineglass is pointing a loaded pistol straight at your heart?"
.
With me I must back my opinions
with my money. My losses have taught me that I must not begin to advance
until I am sure I shall not have to retreat. But if I cannot advance I
do not move at all. I do not mean by this that a man should not limit
his losses when he is wrong. He should. But that should not breed
indecision. All my life I have made mistakes, but in losing money I have
gained experience and accumulated a lot of valuable don'ts. I have been
flat broke several times, but my loss has never been a total loss.
Otherwise, I wouldn't be here now. I always knew I would have another
chance and that I would not make the same mistake a second time. I
believed in myself.
.
A man must believe in himself
and his judgment if he expects to make a living at this game. That is
why I don't believe in tips. If I buy stocks on Smith's tip I must sell
those same stocks on Smith's tip. I am depending on him. Suppose Smith
is away on a holiday when the selling time comes around? No, sir, nobody
can make big money on what someone else tells him to do. I know from
experience that nobody can give me a tip or a series of tips that will
make more money for me than my own judgment. It took me five years to
learn to play the game intelligently enough to make big money when I was
right.
.
I didn't have as many
interesting experiences as you might imagine. I mean, the process of
learning how to speculate does not seem very dramatic at this distance. I
went broke several times, and that is never pleasant, but the way I
lost money is the way everybody loses money who loses money in Wall
Street.
.
Speculation is a hard and trying business, and a speculator must be on the job all the time or he'll soon have no job to be on.
.
My task, as I should have known
after my early reverses at Fullerton's, was very simple: To look at
speculation from another angle. But I didn't know that there was much
more to the game than I could possibly learn in the bucket shops. There I
thought I was beating the game when in reality I was only beating the
shop. At the same time the tape-reading ability that trading in bucket
shops developed in me and the training of my memory have been extremely
valuable. Both of these things came easy to me. I owe my early success
as a trader to them and not to brains or knowledge, because my mind was
untrained and my ignorance was colossal. The game taught me the game.
And it didn't spare the rod while teaching.
.
I remember my very first day in
New York. I told you how the bucket shops, by refusing to take my
business, drove me to seek a reputable commission house. One of the boys
in the office where I got my first job was working for Harding
Brothers, members of the New York Stock Exchange. I arrived in this city
in the morning, and before one o'clock that same day I had opened an
account with the firm and was ready to trade.
.
I didn't explain to you how
natural it was for me to trade there exactly as I had done in the bucket
shops, where all I did was to bet on fluctuations and catch small but
sure changes in prices. Nobody offered to point out the essential
differences or set me right. If somebody had told me my method would not
work I nevertheless would have tried it out to make sure for myself,
for when I am wrong only one thing convinces me of it, and that is, to
lose money. And I am only right when I make money. That is speculating.
.
They were having some pretty
lively times those days and the market was very active. That always
cheers up a fellow. I felt at home right away. There was the old
familiar quotation board in front of me, talking a language that I had
learned before I was fifteen years old. There was a boy doing exactly
the same thing I used to do in the first office I ever worked in. There
were the customers—same old bunch—looking at the board or standing by
the ticket calling out the prices and talking about the market. The
machinery was to all appearances the same machinery that I was used to.
The atmosphere was the atmosphere I had breathed since I had made my
first stock-market money—$3.12 in Burlington. The same kind of ticker
and the same kind of traders, therefore the same kind of game. And
remember, I was only twenty-two. I suppose I thought I knew the game
from A to Z. Why shouldn't I?
.
I watched the board and saw
something that looked good to me. It was behaving right. I bought a
hundred at 84. I got out at 85 in less than a half hour. Then I saw
something else I liked, and I did the same thing; took three-quarters of
a point net within a very short time. I began well, didn't I?
.
Now mark this: On that, my first
day as a customer of a reputable Stock Exchange house, and only two
hours of it at that, I traded in eleven hundred shares of stock, jumping
in and out. And the net result of the day's operations was that I lost
exactly eleven hundred dollars. That is to say, on my first attempt,
nearly one-half of my stake went up the flue. And remember, some of the
trades showed me a profit. But I quit eleven hundred dollars minus for
the day.
.
It didn't worry me, because I
couldn't see where there was anything wrong with me. My moves, also,
were right enough, and if I had been trading in the old Cosmopolitan
shop I'd have broken better than even. That the machine wasn't as it
ought to be, my eleven hundred vanished dollars plainly told me. But as
long as the machinist was all right there was no need to stew. Ignorance
at twenty-two isn't a structural defect.
.
After a few days I said to
myself, "I can't trade this way here. The ticker doesn't help as it
should!" But I let it go at that without getting down to bed rock. I
kept it up, having good days and bad days, until I was cleaned out. I
went to old Fullerton and got him to stake me to five hundred dollars.
And I came back from St. Louis, as I told you, with money I took out of
the bucket shops there—a game I could always beat.
.
I played more carefully and did
better for a while. As soon as I was in easy circumstances I began to
live pretty well. I made friends and had a good time. I was not quite
twenty-three, remember; all alone in New York with easy money in my
pockets and the belief in my heart that I was beginning to understand
the new machine.
.
I was making allowances for the
actual execution of my orders on the floor of the Exchange, and moving
more cautiously. But I was still sticking to the tape—that is, I was
still ignoring general principles; and as long as I did that I could not
spot the exact trouble with my game.
.
We ran into the big boom of 1901
and I made a great deal of money—that is, for a boy. You remember those
times? The prosperity of the country was unprecedented. We not only ran
into an era of industrial consolidations and combinations of capital
that beat anything we had had up to that time, but the public went stock
mad. In previous flush times, I have heard, Wall Street used to brag of
two-hundred-and-fifty-thousand-share days, when securities of a par
value of twenty-five million dollars changed hands. But in 1901 we had a
three-million-share day. Everybody was making money. The steel crowd
came to town, a horde of millionaires with no more regard for money than
drunken sailors. The only game that satisfied them was the stock
market. We had some of the biggest high rollers the Street ever saw:
John W. Gates, of 'Bet-you-a-million' fame, and his friends, like John
A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore crowd, who
sold part of their Steel holdings and with the proceeds bought in the
open market the actual majority of the stock of the great Rock Island
system; and Schwab and Frick and Phipps and the Pittsburgh coterie; to
say nothing of scores of men who were lost in the shuffle but would have
been called great plungers at any other time. A fellow could buy and
sell all the stock there was.
.
Keene made a market for the U.
S. Steel shares. A broker sold one hundred thousand shares in a few
minutes. A wonderful time! And there were some wonderful winnings. And
no taxes to pay on stock sales! And no day of reckoning in sight.
.
Of course, after a while, I
heard a lot of calamity howling and the old stagers said
everybody—except themselves—had gone crazy. But everybody except
themselves was making money. I knew, of course, there must be a limit to
the advances and an end to the crazy buying of A. O. T.—Any Old
Thing—and I got bearish. But every time I sold I lost money, and if it
hadn't been that I ran darn quick I'd have lost a heap more. I looked
for a break, but I was playing safe—making money when I bought and
chipping it out when I sold short—so that I wasn't profiting by the boom
as much as you'd think when you consider how heavily I used to trade,
even as a boy.
.
There was one stock that I wasn't short of, and that was Northern Pacific. My tape reading came in handy.
.
I thought most stocks had been
bought to a standstill, but Little Nipper behaved as if it were going
still higher. We know now that both the common and the preferred were
being steadily absorbed by the Kuhn-Loeb-Harriman combination. Well, I
was long a thousand shares of Northern Pacific common, and held it
against the advice of everybody in the office. When it got to about 110 I
had thirty points profit, and I grabbed it. It made my balance at my
brokers' nearly fifty thousand dollars, the greatest amount of money I
had been able to accumulate up to that time. It wasn't so bad for a chap
who had lost every cent trading in that selfsame office a few months
before.
.
If you remember, the Harriman
crowd notified Morgan and Hill of their intention to be represented in
the Burlington-Great Northern-Northern Pacific combination, and then the
Morgan people at first instructed Keene to buy fifty thousand shares of
N. P. to keep the control in their possession. I have heard that Keene
told Robert Bacon to make the order one hundred and fifty thousand
shares and the bankers did.
.
At all events, Keene sent one of
his brokers, Eddie Norton, into the N. P. crowd and he bought one
hundred thousand shares of the stock. This was followed by another
order, I think, of fifty thousand shares additional, and the famous
corner followed. After the market closed on May 8, 1901, the whole world
knew that a battle of financial giants was on. No two such combinations
of capital had ever opposed each other in this country. Harriman
against Morgan; an irresistible force meeting an immovable object.
.
There I was on the morning of
May ninth with nearly fifty thousand dollars in cash and no stocks. As I
told you, I had been very bearish for some days, and here was my chance
at last. I knew what would happen—an awful break and then some
wonderful bargains. There would be a quick recovery and big profits—for
those who had picked up the bargains. It didn't take a Sherlock Holmes
to figure this out. We were going to have an opportunity to catch them
coming and going, not only for big money but for sure money.
.
Everything happened as I had
foreseen. I was dead right and—I lost every cent I had! I was wiped out
by something that was unusual. If the unusual never happened there would
be no difference in people and then there wouldn't be any fun in life.
The game would become merely a matter of addition and subtraction. It
would make of us a race of bookkeepers with plodding minds. It's the
guessing that develops a man's brain power. Just consider what you have
to do to guess right.
.
The market fairly boiled, as I
had expected. The transactions were enormous and the fluctuations
unprecedented in extent. I put in a lot of selling orders at the market.
When I saw the opening prices I had a fit, the breaks were so awful. My
brokers were on the job. They were as competent and conscientious as
any; but by the time they executed my orders the stocks had broken
twenty points more. The tape was way behind the market and reports were
slow in coming in by reason of the awful rush of business. When I found
out that the stocks I had ordered sold when the tape said the price was,
say, 100 and they got mine off at 80, making a total decline of thirty
or forty points from the previous night's close, it seemed to me that I
was putting out shorts at a level that made the stocks I sold the very
bargains I had planned to buy.
.
The market was not going to drop right through to China. So I decided instantly to cover my shorts and go long.
.
My brokers bought; not at the level that had made me turn, but at the prices prevailing in the Stock
Exchange when their floor man
got my orders. They paid an average of fifteen points more than I had
figured on. A loss of thirty-five points in one day was more than
anybody could stand.
.
The ticker beat me by lagging so
far behind the market. I was accustomed to regarding the tape as the
best little friend I had because I bet according to what it told me. But
this time the tape double-crossed me. The divergence between the
printed and the actual prices undid me. It was the sublimation of my
previous unsuccess, the selfsame thing that had beaten me before. It
seems so obvious now that tape reading is not enough, irrespective of
the brokers' execution, that I wonder why I didn't then see both my
trouble and the remedy for it.
.
I did worse than not see it; I
kept on trading, in and out, regardless of the execution. You see, I
never could trade with a limit. I must take my chances with the market.
That is what I am trying to beat—the market, not the particular price.
When I think I should sell, I sell. When I think stocks will go up, I
buy.
.
My adherence to that general
principle of speculation saved me. To have traded at limited prices
simply would have been my old bucket-shop method inefficiently adapted
for use in a reputable commission broker's office. I would never have
learned to know what stock speculation is, but would have kept on
betting on what a limited experience told me was a sure thing.
.
Whenever I did try to limit the
prices in order to minimize the disadvantages of trading at the market
when the ticker lagged, I simply found that the market got away from me.
This happened so often that I stopped trying. I can't tell you how it
came to take me so many years to learn that instead of placing piking
bets on what the next few quotations were going to be, my game was to
anticipate what was going to happen in a big way.
.
After my May ninth mishap I
plugged along, using a modified but still defective method. If I hadn't
made money some of the time I might have acquired market wisdom quicker.
But I was making enough to enable me to live well. I liked friends and a
good time. I was living down the Jersey Coast that summer, like
hundreds of prosperous Wall Street men. My winnings were not quite
enough to offset both my losses and my living expenses.
.
I didn't keep on trading the way
I did through stubbornness. I simply wasn't able to state my own
problem to myself, and, of course, it was utterly hopeless to try to
solve it. I harp on this topic so much to show what I had to go through
before I got to where I could really make money. My old shotgun and BB
shot could not do the work of a high-power repeating rifle against big
game.
.
Early that fall I not only was
cleaned out again but I was so sick of the game I could no longer beat
that I decided to leave New York and try something else some other
place. I had been trading since my fourteenth year. I had made my first
thousand dollars when I was a kid of fifteen, and my first*en thousand
before I was twenty-one. I had made and lost a ten-thousand-dollar stake
more than once. In New York I had made thousands and lost them. I got
up to fifty thousand dollars and two days later that went. I had no
other business and knew no other game. After several years I was back
where I began.
.
No—worse, for I had acquired
habits and a style of living that required money; though that part
didn't bother me as much as being wrong so consistently..
Chapter Two - Table of Contents - Chapter Four
.
No comments:
Post a Comment