Reminiscences of a Stock Operator (Jesse Livermore) - by Edwin Lefevre - Chapter Nine

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Chapter Eight - Table of Contents - Chapter Ten

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I cruised off the coast of Florida. The fishing was good. I was out of stocks. My mind was easy. I was having a fine time. One day off Palm Beach some friends came alongside in a motor boat. One of them brought a newspaper with him. I hadn't looked at one in some days and had not felt any desire to see one.

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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.

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I told my friends that I would go ashore with them. Moderate rallies from time to time were reasonable.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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

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The next day the wires were working and we got the quotations as usual. Anaconda opened at 298 and went up to 302^4, but pretty soon it began to fade away. Also, the rest of the market was not acting just right for a further rally. I made up my mind that if Anaconda went back to 301 I must" consider the whole thing a fake movement. On a legitimate advance the price should have gone to 310 without stopping. If instead it reacted it meant that precedents had failed me and I was wrong: and the only thing to do when a man is wrong is to be right by ceasing to be wrong. I had bought eight thousand full shares in expectation of a thirty or forty point rise. It would not be my first mistake; nor my last.

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

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He looked up at me almost in horror. But I nodded and said, "All I've got!"

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

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Don't argue about it!"

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

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

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"You'll be sorry, Larry," he said.

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I stopped and asked him, "What do you mean?"

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"To-morrow you'll be buying it back."

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"Buying what back?" I said. I hadn't told a soul except the telegraph operator.

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

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"What wasn't?" And I looked innocent.

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

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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.

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"Ollie, how did you know that?" I asked him.

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

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"But he never budged from his place," I said.

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"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."

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"Not this trip, Ollie," I said.

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He stared at me and said, "You're pretty cocky about it."

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

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

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I didn't answer him anything because about that time the boy brought me a memorandum. They had sold five thousand shares at 299-3/4. I knew our quotations were a little behind the market. The price on the board at Palm Beach when I gave the operator the order to sell was 301. I felt so certain that at that very moment the price at which the stock was actually selling on the Stock Exchange in New York was less, that if anybody had offered to take the stock off my hands at 296 I'd have been tickled to death to accept.

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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.

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Now, my stock cost me about 300. They got off five hundred shares—full shares, of course—at 299-3/4.

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The next thousand they sold at 299-5/8. Then a hundred at 1/2; two hundred at 3/8 and two hundred at 1/4. The last of my stock went at 298-3/4. It took Harding's cleverest floor man fifteen minutes to get rid of that last one hundred shares. They didn't want to crack it wide open.

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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.

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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.

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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!

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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

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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.

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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.

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From the latter part of September on, the money market was megaphoning warnings to the entire world.

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But a belief in miracles kept people from selling what remained of their speculative holdings. Why, a broker told me a story the first week of October that made me feel almost ashamed of my moderation.

You remember that money loans used to be made on the floor of the Exchange around the Money Post.

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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.

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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.

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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!

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

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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.

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

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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.

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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."

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"How do you mean?" I asked.

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

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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.

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

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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.

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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."

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

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"Where?"

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"At the banks!"

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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.

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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.

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But when they looked at Mr. Atterbury's face and saw him raise his hand they promptly petrified themselves.

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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!"

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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.

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

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"But we haven't got any. We're loaned up to the hilt," the banks protested.

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"You've got your reserves," snapped J. P.

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"But we're already below the legal limit," they howled.

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"Use them! That's what reserves are for!" And the banks obeyed and invaded the reserves to the extent of bout 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.

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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!

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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.

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

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

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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."

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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.

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Not at any price! Think of it! And in other stocks the same thing. No money to hold stocks and nobody to buy them.

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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.

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It would mean greatly increased profits on paper. It might also mean an inability to convert those profits into actual cash. But there were other things to consider, and one was that a further break would retard the recovery that I was beginning to figure on, the compensating improvement after all that bloodletting.

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Such a panic would do much harm to the country generally.

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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.

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

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"I have sent for you," he said, "because I want you to go instantly to your friend Livingston and say to him mat we hope he will not sell any more stocks to-day. The market can't stand much more pressure. As it is, it will be an immensely difficult task to avert a devastating panic. Appeal to your friend's patriotism.

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This is a case where a man has to work for the benefit of all. Let me know at once what he says."

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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.

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

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

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

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

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Reminiscences of a Stock Operator (Jesse Livermore) - by Edwin Lefevre - Chapter Eight

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Chapter Seven - Table of Contents - Chapter Nine

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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.

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Even as a lad I always got my own meanings out of such facts as I observed. It is the only way in which the meaning reaches me. I cannot get out of facts what somebody tells me to get. They are my facts, don't you see? If I believe some thing you can be sure it is because I simply must. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions—or my prepossessions either—to do any thinking for me. That is why I repeat that I never argue with the tape.

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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.

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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.

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Whatever might seem to give a big swing its initial impulse, the fact is that its continuance is not the result of manipulation by pools or artifice by financiers, but depends upon basic conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and as long as the impelling forces determine.

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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.

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

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

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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.

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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.

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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.

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

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I studied the situation in 1906 and I thought that the money outlook was particularly serious. Much actual wealth the world over had been destroyed. Everybody must sooner or later feel the pinch, and therefore nobody would be in position to help anybody. It would not be the kind of hard times that comes from the swapping of a house worth ten thousand dollars for a carload of race horses worth eight thousand dollars.

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It was the complete destruction of the house by fire and of most of the horses by a railroad wreck. It was good hard cash that went up in cannon smoke in the Boer War, and the millions spent for feeding nonproducing soldiers in South Africa meant no help from British investors as in the past. Also, the earthquake and the fire in San Francisco and other disasters touched everybody—manufacturers, farmers, merchants, labourers and millionaires. The railroads must suffer greatly. I figured that nothing could stave off one peach of a smash. Such being the case there was but one thing to do—sell stocks!

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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.

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

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I had made a mistake. But where? I was bearish in a bear market. That was wise. I had sold stocks short.

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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.

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

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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.

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

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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.

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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?

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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.

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It cleaned me out.

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There I was—right and busted!

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I tell you it was remarkable. What happened was this: I looked ahead and saw a big pile of dollars. Out of it stuck a sign. It had "Help yourself," on it, in huge letters. Beside it stood a cart with "Lawrence Livingston Trucking Corporation" painted on its side. I had a brand-new shovel in my hand. There was not another soul in sight, so I had no competition in the gold-shoveling, which is one beauty of seeing the dollar-heap ahead of others. The people who might have seen it if they had stopped to look were just then looking at baseball games instead, or motoring or buying houses to be paid for with the very dollars that I saw. That was the first time that I had seen big money ahead, and I naturally started toward it on the run.

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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.

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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.

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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.

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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.

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

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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.

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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!

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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?"

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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.

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"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."

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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.

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I sold a little; too little.

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

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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.

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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.

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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?

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

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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?

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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.

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

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"Why should I?" I said

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"For the best reason in the world."

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"What reason is that?"

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

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"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."

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

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

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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.

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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.

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In the old days the strength of Reading might have fooled me. The tape kept on saying, "Leave it alone!"

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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.

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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.

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

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I figured that the price held because the Street was afraid to sell it. So on day I gave to two brokers each an order to sell four thousand shares, at the same time. You ought to have seen that cornered stock, that it was sure suicide to go short of, take a headlong dive when those competitive orders struck it. I let 'em have a few thousand more. The price was in when I started selling it. Within a few minutes I took in my entire short line at 92.

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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.

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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 no 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..

Chapter Seven - Table of Contents - Chapter Nine

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Reminiscences of a Stock Operator (Jesse Livermore) - by Edwin Lefevre - Chapter Seven

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Chapter Six - Table of Contents - Chapter Eight

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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.

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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.

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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.

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Let us suppose, for example, that I am buying some stock. I'll buy two thousand shares at no. If the stock goes up to ill after I buy it I am, at least temporarily, right in my operation, because it is a point higher; it shows me a profit. Well, because I am right I go in and buy another two thousand shares. If the market is still rising I buy a third lot of two thousand shares. Say the price goes to 114. I think it is enough for the time being. I now have a trading basis to work from. I am long six thousand shares at an average of in%, and the stock is selling at 114. I won't buy any more just then. I wait and see. I figure that at some stage of the rise there is going to be a reaction. I want to see how the market takes care of itself after that reaction. It will probably react to where I got my third lot. Say that after going higher it falls back to H2J4, and then rallies. Well, just as it goes back to 113% I shoot an order to buy four thousand—at the market of course. Well, if I get that fouf thousand at 113% I know something is wrong and I'll give a testing order—that is, I'll sell one thousand shares to see how the market takes it. But suppose that of the order to buy the four thousand shares that I put in when the price was 113^4 I get two thousand at 114 and five hundred at 114^ and the rest on the way up so that for the last five hundred I pay 115^. Then I know I am right. It is the way I get the four thousand shares that tells me whether I am right in buying that particular stock at that particular time—for of course I am working on the assumption that I have checked up general conditions pretty well and they are bullish. I never want to buy stocks too cheap or too easily.

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I remember a story I heard about Deacon S. V. White when he was one of the big operators of the Street.

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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.

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It was in the old days when Sugar was one of the most continuous purveyors of fireworks in the market.

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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.

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

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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."

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"Well, I've got it for you."

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"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."

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"Is he?" asked the deacon quite calmly.

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

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"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."

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"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.

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"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."

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"He's buying Sugar, eh?" repeated the deacon absently.

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"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.

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But it was enough to nettle the tipster, and he said, "Yes, sir-ree! And I call that very good information.

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Why, it's absolutely straight."

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"Is it?"

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

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"Oh, yes. I'm going to use it."

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"When?" asked the information bringer suspiciously.

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

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"Yes, sir," said Frank.

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"I wish you'd go over to the Board and sell ten thousand Sugar."

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

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"Why, yes," said the deacon mildly.

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

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

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

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"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."

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

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

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"That's right. I heard you."

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"Buying! Buying! I said buying!" shrieked the tipster.

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

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"But you are selling it."

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

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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.

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

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

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"Did Mr. Havemeyer tell you?" asked the deacon quietly.

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"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."

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"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:

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

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"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."

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

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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!"

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

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"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.

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It was not quite conclusive. But the second ten thousand was absorbed by a market that did not stop rising. The way the twenty thousand shares were taken by somebody proved to me that somebody was in truth willing to take all the stock that was offered. It doesn't particularly matter at this point who that particular somebody may be. So I have covered my shorts and am long ten thousand shares, and I think that your information was good as far as it went."

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"And how far does it go?" asked the tipster.

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"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."

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

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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.

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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.

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Wait and watch. That is where your tape reading conies in—to enable you to decide as to the proper time for beginning. Much depends upon beginning at exactly the right time. It took me years to realize the importance of this. It also cost me some hundreds of thousands of dollars.

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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!

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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.
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Chapter Six - Table of Contents - Chapter Eight

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Reminiscences of a Stock Operator (Jesse Livermore) - by Edwin Lefevre - Chapter Six

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Chapter Five - Table of Contents - Chapter Seven

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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.

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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.

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

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

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

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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.

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

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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.

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

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"I don't know," I answered.

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"Going to sleep?" he said.

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

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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.

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

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"What are you doing?" asked my friend.

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"I'm selling it!" I told him.

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

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"A thousand UP," I said.

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"Why?" he asked me in great excitement.

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

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"What did you hear?" he asked me.

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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.

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"Nothing!" I said.

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"You didn't?" He was skeptical and showed it plainly.

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"I didn't hear a thing."

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"Then why in blazes are you selling?"

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"I don't know," I told him. I spoke gospel truth.

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"Oh, come across, Larry," he said.

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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.

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"I don't know," I repeated. "I just feel that something is going to happen."

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"What's going to happen?"

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"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."

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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.

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"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.

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"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.

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"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?"

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"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.

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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."

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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.

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I have told some of these stories to friends, and some of million. And Jim Fisk just looked at him and said, "Go ahead! Do! Sell it short and invite me to your funeral.' "

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

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"Not I! I'm the kind that thrives best on not rowing against wind and tide."

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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.

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

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

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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.

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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.

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

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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.

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

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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:

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"Keep him there. Tell him Mr. Harding wants to speak to him."

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

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"Hello, Ed," I said.

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But he said, "What the devil's the matter with you? Are you crazy?"

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"Are you?" I said.

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"What are you doing?" he asked.

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"What do you mean?"

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"Buying all that stock."

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"Why, isn't my margin all right?"

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"It isn't a case of margin, but of being a plain sucker."

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"I don't get you."

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"Why are you buying all that Union Pacific?"

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"It's going up," I said.

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

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"Nobody is kidding me," I told him. "I haven't talked to a soul about it."

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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."

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"The tape says they're buying it," I insisted.

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"Larry, I got heart disease when your orders began to come in. For the love of Mike, don't be a sucker.

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Get out! Right away. It's liable to bust wide open any minute. I've done my duty. Good-by!" And he hung up.

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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.

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Whatever it was that made me decide to follow his advice, I cannot tell you; but follow it, I did.

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

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

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

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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."

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

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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.

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Then I got out. I not only made up the forty thousand dollars I had lost but about fifteen thousand besides.

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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.

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

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