Jesse Livermore 3

What made me happy was that I was losing the habit of being

wrong, of not being myself. It had played havoc with me for

months but I had learned my lesson.

Just about that time I turned bear and I began to sell

short several railroad stocks. Among them was Chesapeake &

Atlantic. I think I put out a short line in it; about eight

thousand shares.

One morning when I got downtown Dan Williamson called me

into his private office before the market opened and said to me:

"Larry, don't do anything in Chesapeake & Atlantic just now.

That was a bad play of yours, selling eight thousand short. I

covered it for you this morning in London and went long."

I was sure Chesapeake & Atlantic was going down. The tape

told it to me quite plainly; and besides I was bearish on the

whole market, not violently or insanely bearish, but enough to

feel comfortable with a moderate short line out. I said to

Williamson, "What did you do that for? I am bearish on the whole

market and they are all going lower."

But he just shook his head and said, "I did it because I

happen to know something about Chesapeake & Atlantic that you

couldn't know. My advice to you is not to sell that stock short

until I tell you it is safe to do so."

What could I do? That wasn't an asinine tip. It was advice

that came from the brother-in-law of the chairman of the board

of directors. Dan was not only Alvin Marquand's closest friend

but he had been kind and generous to me. He had shown his faith

in me and confidence in my word. I couldn't do less than to

thank him. And so my feelings again won over my judgment and I

gave in. To subordinate my judgment to his desires was the

undoing of me. Gratitude is something a decent man can't help

feeling, but it is for a fellow to keep it from completely tying

him up. The first thing I knew I not only had lost all my profit

but I owed the firm one hundred and fifty thousand dollars

besides. I felt pretty badly about it, but Dan told me not to

worry.

"I'll get you out of this hole," he promised. "I know I

will. But I can only do it if you let me. You will have to stop

doing business on your own hook. I can't be working for you and

then have you completely undo all my work in your behalf. Just

you lay off the market and give me a chance to make some money

for you. Won't you, Larry?"

Again I ask you: What could I do? I thought of his kindli-

ness and I could not do anything that might be construed as

lacking in appreciation. I had grown to like him. He was very

pleasant and friendly. I remember that all I got from him was

encouragement. He kept on assuring me that everything would come

out O.K. One day, perhaps six months later, he came to me with a

pleased smile and gave me some credit slips.

"I told you I would pull you out of that hole," he said,

"and I have." And then I discovered that not only had he wiped

out the debt entirely but I had a small credit balance besides.

I think I could have run that up without much trouble, for

the market was right, but he said to me, "I have bought you ten

thousand shares of Southern Atlantic." That was another road

controlled by his brother-in-law, Alvin Marquand, who also ruled

the market destinies of the stock.

When a man does for you what Dan Williamson did for me you

can't say anything but "Thank you" -- no matter what your market

views may be. You may be sure you're right, but as Pat Hearne

used to say: "You can't tell till you bet!" and Dan Williamson

had bet for me with his money.

Well, Southern Atlantic went down and stayed down and I

lost, I forget how much, on my ten thousand shares before Dan

sold me out. I owed him more than ever. But you never saw a

nicer or less importunate creditor in your life. Never a whimper

from him. Instead, encouraging words and admonitions not to

worry about it. In the end the loss was made up for me in the

same generous but mysterious way.

He gave no details whatever. They were all numbered

accounts. Dan Williamson would just say to me, "We made up your

Southern Atlantic loss with profits on this other deal," and

he'd tell me how he had sold seventy-five hundred shares of some

other stock and made a nice thing out of it. I can truthfully

say that I never knew a blessed thing about those trades of mine

until I was told that the indebtedness was wiped out.

After that happened several times I began to think, and I

got to look at my case from a different angle. Finally I

tumbled. It was plain that I had been used by Dan Williamson. It

made me angry to think it, but still angrier that I had not

tumbled to it quicker. As soon as I had gone over the whole

thing in my mind I went to Dan Williamson, told him I was

through with the firm, and I quit the office of Williamson &

Brown. I had no words with him or any of his partners. What good

would that have done me? But I will admit that I was sore at

myself quite as much as at Williamson & Brown.

The loss of the money didn't bother me. Whenever I have

lost money in the stock market I have always considered that I

have learned something; that if I have lost money I have gained

experience, so that the money really went for a tuition fee. A

man has to have experience and he has to pay for it. But there

was something that hurt a whole lot in that experience of mine

in Dan Williamson's office, and that was the loss of a great

opportunity. The money a man loses is nothing; he can make it

up. But opportunities such as I had then do not come every day.

The market, you see, had been a fine trading market. I was

right; I mean, I was reading it accurately. The opportunity to

make millions was there. But I allowed my gratitude to interfere

with my play. I tied my own hands. I had to do what Dan

Williamson in his kindness wished done. Altogether it was more

unsatisfactory than doing business with a relative. Bad

business!

And that wasn't the worst thing about it. It was that after

that there was practically no opportunity for me to make big

money. The market flattened out. Things drifted from bad to

worse. I not only lost all I had but got into debt again -- more

heavily than ever. Those were long lean years, 1911, 1912, 1913

and 1914. There was no money to be made. The opportunity simply

wasn't there and so I was worse off than ever.

It isn't uncomfortable to lose when the loss is not accom-

panied by a poignant vision of what might have been. That was

precisely what I could not keep my mind from dwelling on, and of

course it unsettled me further. I learned that the weaknesses to

which a speculator is prone are almost numberless. It was proper

for me as a man to act the way I did in Dan Williamson's office,

but it was improper and unwise for me as a speculator to allow

myself to be influenced by any consideration to act against my

own judgment. Noblesse oblige, but not in the stock market,

because the tape is not chivalrous and moreover does not reward

loyalty. I realise that I couldn't have acted differently. I

couldn't make myself over just because I wished to trade in the

stock market. But business is business always, and my business

as a speculator is to back my own judgment always.

It was a very curious experience. I'll tell you what I

think happened. Dan Williamson was perfectly sincere in what he

told me when he first saw me. Every time his firm did a few

thousand shares in any one stock the Street jumped at the

conclusion that Alvin Marquand was buying or selling. He was the

big trader of the office, to be sure, and he gave this firm all

his business; and he was one of the best and biggest traders

they have ever had in Wall Street. Well, I was to be used as a

smoke screen, particularly for Marquand's selling.

Alvin Marquand fell sick shortly after I went in. His ail-

ment was early diagnosed as incurable, and Dan Williamson of

course knew it long before :Marquand himself did. That is why

Dan covered my Chesapeake & Atlantic stock. He had begun to

liquidate some of his brother-in-law's speculative holdings of

that and other stocks.

Of course when Marquand died the estate had to liquidate

his speculative and semispeculative lines, and by that time we

had run into a bear market. By tying me up the way he did, Dan

was helping the estate a whole lot. I do not speak boastfully

when I say that I was a very heavy trader and that I was dead

right in my views on the stock market. I know that Williamson

remembered my successful operations in the bear market of 1907

and he couldn't afford to run the risk of having me at large.

Why, i f I had kept on the way I was going I'd have made so much

money that by the time he was trying to liquidate part of Alvin

Marquand's estate I would have been trading in hundreds of

thousands of shares. As an active bear I would have done damage

running into the millions of dollars to the Marquand heirs, for

Alvin left only a little over a couple of hundred millions.

It was much cheaper for them to let me get into debt and

then to pay off the debt than to have me in some other office

operating actively on the bear side. That is precisely what I

would have been doing but for my feeling that I must not be

outdone in decency by Dan Williamson.

I have always considered this the most interesting and most

unfortunate of all my experiences as a stock operator. As a

lesson it cost me a disproportionately high price. It put off

the time of my recovery several years. I was young enough to

wait with patience for the strayed millions to come back. But

five years is a long time for a man to be poor. Young or old, it

is not to be relished. I could do without the yachts a great

deal easier than I could without a market to come back on. The

greatest opportunity of a lifetime was holding before my very

nose the purse I had lost. I could not put out my hand and reach

for it. A very shrewd boy, that Dan Williamson; as slick as they

make them; farsighted, ingenious, daring. He is a thinker, has

imagination, detects the vulnerable spot in any man and can plan

cold-bloodedly to hit it. He did his own sizing up and soon

doped out just what to do to me in order to reduce me to

complete inoffensiveness in the market. He did not actually do

me out of any money. On the contrary, he was to all appearances

extremely nice about it. He loved his sister, Mrs. Marquand, and

he did his duty toward her as he saw it.

CHAPTER XIV

IT has always rankled in my mind that after I left William-

son & Brown's office the cream was off the market. We ran smack

into a long moneyless period; four mighty lean years. There was

not a penny to be made. As Billy Henriquez once said, "It was

the kind of market in which not even a skunk could make a

scent."

It looked to me as though I was in Dutch with destiny. It

might have been the plan of Providence to chasten me, but really

I had not been filled with such pride as called for a fall. I

had not committed any of those speculative sins which a trader

must expiate on the debtor side of the account. I was not guilty

of a typical sucker play. What I had done, or, rather, what I

had left undone, was something for which I would have received

praise and not blame north of Forty-second Street. In Wall

Street it was absurd and costly. But by far the worst thing

about it was the tendency it had to make a man a little less

inclined to permit himself human feelings in the ticker

district.

I left Williamson's and tried other brokers' offices. In

every one of them I lost money. It served me right, because I

was trying to force the market into giving me what it didn't

have to give to wit, opportunities for making money. I did not

find any trouble in getting credit, because those who knew me

had faith in me. You can get an idea of how strong their

confidence was when I tell you that when I finally stopped trad-

ing on credit I owed well over one million dollars.

The trouble was not that I had lost my grip but that during

those four wretched years the opportunities for making money

simply didn't exist. Still I plugged along, trying to make a

stake and succeeding only in increasing my indebtedness. After I

ceased trading on my own hook because I wouldn't owe my friends

any more money I made a living handling accounts for people who

believed I knew the game well enough to beat it even in a dull

market. For my services I received a percentage of the profits

when there were any. That is how I lived. Well, say that is how

I sustained life.

Of course, I didn't always lose, but I never made enough to

allow me materially to reduce what I owed. Finally, as things

got worse, I felt the beginnings of discouragement for the first

time in my life.

Everything seemed to have gone wrong with me. I did not go

about bewailing the descent from millions and yachts to debts

and the simple life. I didn't enjoy the situation, but I did not

fill up with self-pity. I did not propose to wait patiently for

time and Providence to bring about the cessation of my

discomforts. I therefore studied my problem. It was plain that

the only way out of my troubles was by making money. To make

money I needed merely to trade successfully. I had so traded

before and I must do so once more. More than once in the past I

had run up a shoe string into hundreds of thousands. Sooner or

later the market would offer me an opportunity.

I convinced myself that whatever was wrong was wrong with

me and not with the market. Now what could be the trouble with

me? I asked myself that question in the same spirit in which I

always study the various phases of my trading problems. I

thought about it calmly and came to, the conclusion that my main

trouble came from worrying over the money I owed. I was never

free from the mental discomfort of it. I must explain to you

that it was not the mere consciousness of my indebtedness. Any

business man contracts debts in the course of his regular

business. Most of my debts were really nothing but business

debts, due to what were unfavourable business conditions for me,

and no worse than a merchant suffers from, for instance, when

there is an unusually prolonged spell of unseasonable weather.

Of course as time went on and I could not pay I began to

feel less philosophical about my debts. I'll explain: I owed

over a million dollars -- all of it stock-market losses,

remember. Most of my creditors were very nice and didn't bother

me; but there were two who did bedevil me. They used to follow

me around. Every time I made a winning each of them was

Johnny-on-the-spot, wanting to know all about it and insisting

on getting theirs right off. One of them, to whom I owed eight

hundred dollars, threatened to sue me, seize my furniture, and

so forth. I can't conceive why he thought I was concealing

assets, unless it was that I didn't quite look like a stage hobo

about to die of destitution.

As I studied the problem I saw that it wasn't a case that

called for reading the tape but for reading my own self. I quite

cold-bloodedly reached the conclusion that I would never be able

to accomplish anything useful so long as I was worried, and it

was equally plain that I should be worried so long as I owed

money. I mean, as long as any creditor had the power to vex me

or to interfere with my coming back by insisting upon being paid

before I could get a decent stake together. This was all so

obviously true that I said to myself, "I must go through

bankruptcy." What else could relieve my mind?

It sounds both easy and sensible, doesn't it? But it was

more than unpleasant, I can tell you. I hated to do it. I hated

to put myself in a position to be misunderstood or misjudged. I

myself never cared much for money. I never thought enough of it

to consider it worth while lying for. But I knew that everybody

didn't feel that way. Of course I also knew that if I got on my

feet again I'd pay everybody off, for the obligation remained.

But unless I was able to trade in the old way I'd never be able

to pay back that million.

I nerved myself and went to see my creditors. It was a

mighty difficult thing for me to do, for all that most of them

were personal friends or old acquaintances.

I explained the situation quite frankly to them. I said

"I am not going to take this step because I don't wish to

pay you but because, in justice to both myself and you, I must

put myself in a position to make money. I have been thinking of

this solution off and on for over two years, but I simply didn't

have the nerve to come out and say so frankly to you. It would

have been infinitely better for all of us i f I had. It all

simmers down to this: I positively cannot be my old self while I

am harassed or upset by these debts. I have decided to do now

what I should have done a year ago. I have no other reason than

the one I have just given you."

What the first man said was to all intents and purposes

what all of them said. He spoke for his firm.

"Livermore," he said, "we understand. We realise your

position perfectly. I'll tell you what we'll do: we'll just give

you a release. Have your lawyer prepare any kind of paper you

wish, and we'll sign it."

That was in substance what all my big creditors said. That

is one side of Wall Street for you. It wasn't merely careless

good nature or sportsmanship. It was also a mighty intelligent

decision, for it was clearly good business. I appreciated both

the good will and the business gumption.

These creditors gave me a release on debts amounting to

over a million dollars. But there were the two minor creditors

who wouldn't sign off. One of them was the eight hundred-dollar

man I told you about. I also owed sixty thousand dollars to a

brokerage firm which had gone into bankruptcy, and the

receivers, who didn't know me from Adam, were on my neck early

and late. Even if they had been disposed to follow the example

set by my largest creditors I don't suppose the court would have

let them sign off. At all events my schedule of bankruptcy

amounted to only about one hundred thousand dollars; though, as

I said, I owed well over a million.

It was extremely disagreeable to see the story in the news-

papers. I had always paid my debts in full and this new

experience was most mortifying to me. I knew I'd pay off

everybody some day if I lived, but everybody who read the

article wouldn't know it. I was ashamed to go out after I saw

the report in the newspapers. But it all wore off presently and

I cannot tell you how intense was my feeling of relief to know

that I wasn't going to be harried any more by people who didn't

understand how a man must give his entire mind to his business,

if he wishes to succeed in stock speculation.

My mind now being free to take up trading with some

prospect of success, unvexed by debts, the next step was to get

another stake. The Stock Exchange had been closed from July

thirty-first to the middle of December 1914, and Wall Street was

in the dumps. There hadn't been any business whatever in a long

time. I owed all my friends. I couldn't very well ask them to

help me again just because they had been so pleasant and

friendly to me, when I knew that nobody was in a position to do

much for anybody.

It was a mighty difficult task, getting a decent stake, for

with the closing of the Stock Exchange there was nothing that I

could ask any broker to do for me. I tried in a couple of

places. No use.

Finally I went to see Dan Williamson. This was in February,

1915. I told him that I had rid myself of the mental incubus of

debt and I was ready to trade as of old. You will recall that

when he needed me he offered me the use of twenty-five thousand

dollars without my asking him.

Now that I needed him he said, "When you see something that

looks good to you and you want to buy five hundred shares go

ahead and it will be all right."

I thanked him and went away. He had kept me from making a

great deal of money and the office had made a lot in commissions

from me. I admit I was a little sore to think that Williamson &

Brown didn't give me a decent stake. I intended to trade

conservatively at first. It would make my financial recovery

easier and quicker if I could begin with a line a little better

than five hundred shares. But, anyhow, I realised that, such as

it was, there was my chance to come back.

I left Dan Williamson's office and studied the situation in

general and my own problem in particular. It was a bull market.

That was as plain to me as it was to thousands of traders. But

my stake consisted merely of an offer to carry five hundred

shares for me. That is, I had no leeway, limited as I was. I

couldn't afford even a slight setback at the beginning. I must

build up my stake with my very first play. That initial purchase

of mine of five hundred shares must be profitable. I had to make

real money. I knew that unless I had sufficient trading capital

I would not be able to use good judgment. Without adequate

margins it would be impossible to take the cold-blooded,

dispassionate attitude toward the game that comes from the

ability to afford a few minor losses such as I often incurred in

testing the market before putting down the big bet.

I think now that I found myself then at the most critical

period of my career as a speculator. If I failed this time there

was no telling where or when, if ever, I might get another stake

for another try. It was very clear that I simply must wait for

the exact psychological moment.

I didn't go near Williamson & Brown's. I mean, I purposely

kept away from them for six long weeks of steady tape reading. I

was afraid that if I went to the office, knowing that I could

buy five hundred shares, I might be tempted into trading at the

wrong time or in the wrong stock. A trader, in addition to

studying basic conditions, remembering market precedents and

keeping in mind the psychology of the outside public as well as

the limitations of his brokers, must also know himself and

provide against his own weaknesses. There is no need to feel

anger over being human. I have come to feel that it is as

necessary to know how to read myself as to know how to read the

tape. I have studied and reckoned on my own reactions to given

impulses or to the inevitable temptations of an active market,

quite in the same mood and spirit as I have considered crop

conditions or analysed reports of earnings.

So day after day, broke and anxious to resume trading, I

sat in front of a quotation-board in another broker's office

where I couldn't buy or sell as much as one share of stock,

studying the market, not missing a single transaction on the

tape, watching for the psychological moment to ring the full-

speed-ahead bell.

By reason of conditions known to the whole world the stock

I was most bullish on in those critical days of early 1915 was

Bethlehem Steel. I was morally certain it was going way up, but

in order to make sure that I would win on my very first play, as

I must, I decided to wait until it crossed par.

I think I have told you it has been my experience that

whenever a stock crosses 100 or 200 or 300 for the first time,

it nearly always keeps going up for 30 to 50 points and after

300 faster than after 100 or 200. One of my first big coups was

in Anaconda, which I bought when it crossed 200 and sold a day

later at 260. My practice of buying a stock just after it

crossed par dated back to my early bucket-shop days. It is an

old trading principle.

You can imagine how keen I was to get back to trading on my

old scale. I was so eager to begin that I could not think of

anything else; but I held myself in leash. I saw Bethlehem Steel

climb, every day, higher and higher, as I was sure it would, and

yet there I was checking my impulse to run over to Williamson &

Brown's office and buy five hundred shares. I knew I simply had

to make my initial operation as nearly a cinch as was humanly

possible.

Every point that stock went up meant five hundred dollars I

had not made. The first ten points' advance meant that I would

have been able to pyramid, and instead of five hundred shares I

might now be carrying one thousand shares that would be earning

for me one thousand dollars a point. But I sat tight and instead

of listening to my loud-mouthed hopes or to my clamorous beliefs

I heeded only the level voice of my experience and the counsel

of common sense. Once I got a decent stake together I could

afford to take chances. But without a stake, taking chances,

even slight chances, was a luxury utterly beyond my reach. Six

weeks of patience, but in the end, a victory for common sense

over greed and hope!

I really began to waver and sweat blood when the stock got

up to go. Think of what I had not made by not buying, when I was

so bullish. Well, when it got to 98 I said to myself, "Bethlehem

is going through too, and when it does the roof is going to blow

clean off!" The tape said the same thing more than plainly. In

fact, it used a megaphone. I tell you, I saw 100 on the tape

when the ticker was only printing 98. And I knew that wasn't the

voice of my hope or the sight of my desire, but the assertion of

my tape-reading instinct. So I said to myself, "I can't wait

until it gets through 100. I have to get it now. It is as good

as gone through par."

I rushed to Williamson & Brown's office and put in an order

to buy five hundred shares of Bethlehem Steel. The market was

then 98. I got five hundred shares at 98 to 99. After that she

shot right up, and closed that night, I think, at 114 or 115. I

bought five hundred shares more.

The next day Bethlehem Steel was 145 and I had my stake.

But I earned it. Those six weeks of waiting for the right moment

were the most strenuous and wearing six weeks I ever put in. But

it paid me, for I now had enough capital to trade in fair-sized

lots. I never would have got anywhere just on five hundred

shares of stock.

There is a great deal in starting right, whatever the

enterprise may be, and I did very well after my Bethlehem deal

so well, indeed, that you would not have believed it was the

selfsame man trading. As a matter of fact I wasn't the same man,

for where I had been harassed and wrong I was now at ease and

right. There were no creditors to annoy and no lack of funds to

interfere with my thinking or with my listening to the truthful

voice of experience, and so I was winning right along.

All of a sudden, as I was on my way to a sure fortune, we

had the Lusitania break. Every once in a while a man gets a

crack like that in the solar plexus, probably that he may be

reminded of the sad fact that no human being can be so uniformly

right on the market as to be beyond the reach of unprofitable

accidents. I have heard people say that no professional

speculator need have been hit very hard by the news of the

torpedoing of the Lusitania, and they go on to tell how they had

it long before the Street did. I was not clever enough to escape

by means of advance information, and all I can tell you is that

on account of what I lost through the Lusitania break and one or

two other reverses that I wasn't wise enough to foresee, I found

myself at the end of 1915 with a balance at my brokers' of about

one hundred and forty thousand dollars. That was all I actually

made, though I was consistently right on the market throughout

the greater part of the year.

I did much better during the following year. I was very

lucky. I was rampantly bullish in a wild bull market. Things

were certainly coming my way so that there wasn't anything to do

but to make money. It made me remember a saying of the late H.

H. Rogers, of the Standard Oil Company, to the effect that there

were times when a man could no more help making money than he

could help getting wet if he went out in a rainstorm without an

umbrella. It was the most clearly defined bull market we ever

had. It was plain to everybody that the Allied purchases of all

kinds of supplies here made the United States the most

prosperous nation in the world. We had all the things that no

one else had for sale, and we were fast getting all the cash in

the world. I mean that the wide world's gold was pouring into

this country in torrents. Inflation was inevitable, and, of

course, that meant rising prices for everything.

All this was so evident from the first that little or no

manipulation for the rise was needed. That was the reason why

the preliminary work was so much less than in other bull

markets. And not only was the war-bride boom more naturally

developed than all others but it proved unprecedentedly

profitable for the general public. That is, the stock-market

winnings during 1915 were more widely distributed than in any

other boom in the history of Wall Street. That the public (lid

not turn all their paper profits into good hard cash or that

they did not long keep what profits they actually took was

merely history repeating itself. Nowhere does history indulge in

repetitions so often or so uniformly as in Wall Street. When you

read contemporary accounts of booms or panics the one thing that

strikes you most forcibly is how little either stock speculation

or stock speculators today differ from yesterday. The game does

not change and neither does human nature.

I went along with the rise in 1916. I was as bullish as the

next man, but of course I kept my eyes open. I knew, as

everybody did, that there must be an end, and I was on the watch

for warning signals. I wasn't particularly interested in

guessing from which quarter the tip would come and so I didn't

stare at just one spot. I was not, and I never have felt that I

was, wedded indissolubly to one or the other side of the market.

That a bull market has added to my bank account or a bear market

has been particularly generous I do not consider sufficient

reason for sticking to the bull or the bear side after I receive

the get-out warning. A man does not swear eternal allegiance to

either the bull or the bear side. His concern lies with being

right.

And there is another thing to remember, and that is that a

market does not culminate in one grand blaze of glory. Neither

does it end with a sudden reversal of form. A market can and

does often cease to be a bull market long before prices

generally begin to break. My long expected warning came to me

when I noticed that, one after another, those stocks which had

been the leaders of the market reacted several points from the

top and for the first time in many months -- did not come back.

Their race evidently was run, and that clearly necessitated a

change in my trading tactics.

It was simple enough. In a bull market the trend of prices,

of couxse, is decidedly and definitely upward. Therefore

whenever a stock goes against the general trend you are justi-

fied in assuming that there is something wrong with that

particular stock. It is enough for the experienced trader to

perceive that something is wrong. He must not expect the tape to

become a lecturer. His job is to listen for it to say "Get out!"

and not wait for it to submit a legal brief for approval.

As I said before, I noticed that stocks which had been the

leaders of the wonderful advance had ceased to advance. They

dropped six or seven points and stayed there. At the same time

the rest of the market kept on advancing under new standard

bearers. Since nothing wrong had developed with the companies

themselves, the reason had to be sought elsewhere. Those stocks

had gone with the current for months. When they ceased to do so,

though the bull tide was still running strong, it meant that for

those particular stocks the bull market was over. For the rest

of the list the tendency was still decidedly upward.

There was no need to be perplexed into inactivity, for

there were really no cross currents. I did not turn bearish on

the market then, because the tape didn't tell me to do so. The

end of the bull market had not come, though it was within

hailing distance. Pending its arrival there was still bull money

to be made. Such being the case, I merely turned bearish on the

stocks which had stopped advancing and as the rest of the market

had rising power behind it I both bought and sold.

The leaders that had ceased to lead I sold. I put out a

short line of five thousand shares in each of them; and then I

went long of the new leaders. The stocks I was short of didn't

do much, but my long stocks kept on rising. When finally these

in turn ceased to advance I sold them out and went short five

thousand shares of each. By this time I was more bearish than

bullish, because obviously the next big money was going to be

made on the down side. While I felt certain that the bear market

had really begun before the bull market had really ended, I knew

the time for being a rampant bear was not yet. There was no

sense in being more royalist than the king; especially in being

so too soon. The tape merely said that patrolling parties from

the main bear army had dashed by. Time to get ready.

I kept on both buying and selling until after about a

month's trading I had out a short line of sixty thousand shares

-- five thousand shares each in a dozen different stocks which

earlier in the year had been the public's favourites because

they had been the leaders of the great bull market. It was not a

very heavy line; but don't forget that neither was the market

definitely bearish.

Then one day the entire market became quite weak and prices

of all stocks began to fall. When I had a profit of at least

four points in each and every one of the twelve stocks that I

was short of, I knew that I was right. The tape told me it was

now safe to be bearish, so I promptly doubled up.

I had my position. I was short of stocks in a market that

now was plainly a bear market. There wasn't any need for me to

push things along. The market was bound to go my way, and,

knowing that, I could afford to wait. After I doubled up I

didn't make another trade for a long time. About seven weeks

after I put out my full line, we had the famous "leak," and

stocks broke badly. It was said that somebody had advance news

from Washington that President Wilson was going to issue a

message that would bring back the dove of peace to Europe in a

hurry. Of course the war-bride boom was started and kept up by

the World War, and peace was a bear item. When one of the

cleverest traders on the floor was accused of profiting by

advance information he simply said he had sold stocks not on any

news but because he considered that the bull market was

overripe. I myself had doubled my line of shorts seven weeks

before.

On the news the market broke badly and I naturally covered.

It was the only play possible. When something happens on which

you did not count when you made your plans it behooves you to

utilise the opportunity that a kindly fate offers you. For one

thing, on a bad break like that you have a big market, one that

you can turn around in, and that is the time to turn your paper

profits into real money. Even in a bear market a man cannot

always cover one hundred and twenty thousand shares of stock

without putting up the price on himself. He must wait for the

market that will allow him to buy that much at no damage to his

profit as it stands him on paper.

I should like to point out that I was not counting on that

particular break at that particular time for that particular

reason. But, as I have told you before, my experience of thirty

years as a trader is that such accidents are usually along the

line of least resistance on which I base my position in the

market. Another thing to bear in mind is this: Never try to sell

at the top. It isn't wise. Sell after a reaction if there is no

rally.

I cleared about three million dollars in 1916 by being

bullish as long as the bull market lasted and then by being

bearish when the bear market started. As I said before, a man

does not have to marry one side of the market till death do them

part.

That winter I went South, to Palm Beach, as I usually do

for a vacation, because I am very fond of salt-water fishing. I

was short of stocks and wheat, and both lines showed me a

handsome profit. There wasn't anything to annoy me and I was

having a good time. Of course tjnless I go to Europe I cannot

really be out of touch with the stock or commodities markets.

For instance, in the Adirondacks I have a direct wire from my

broker's office to my house.

In Palm Beach I used to go to my broker's branch office

regularly. I noticed that cotton, in which I had no interest,

was strong and rising. About that time this was in 1917 -- I

heard a great deal about the efforts that President Wilson was

making to bring about peace. The reports came from Washington,

both in the shape of press dispatches and private advices to

friends in Palm Beach. That is the reason why one day I got the

notion that the course of the various markets reflected

confidence in Mr. Wilson's success. With peace supposedly close

at hand, stocks and wheat ought to go down and cotton up. I was

all set as far as stocks and wheat went, but I had not done

anything in cotton in some time.

At 2:20 that afternoon I did not own a single bale, but at

2:25 my belief that peace was impending made me buy fifteen

thousand bales as a starter. I proposed to follow my old system

of trading -- that is, of buying my full line, which I have

already described to you.

That very afternoon, after the market closed, we got the

Unrestricted Warfare note. There wasn't anything to do except to

wait for the market to open the next day. I recall that at

Gridley's that night one of the greatest captains of industry in

the country was offering to sell any amount of United States

Steel at five points below the closing price that afternoon.

There were several Pittsburgh millionaires within hearing.

Nobody took the big man's offer. They knew there was bound to be

a whopping big break at the opening.

Sure enough, the next morning the stock and commodity

markets were in an uproar, as you can imagine. Some stocks

opened eight points below the previous night's close. To me that

meant a heaven-sent opportunity to cover all my shorts

profitably. As I said before, in a bear market it is always wise

to cover if complete demoralisation suddenly develops. That is

the only way, if you swing a good-sized line, of turning a big

paper profit into real money both quickly and without

regrettable reductions. For instance, I was short fifty thousand

shares of United States Steel alone. Of course I was short of

other stocks, and when I saw I had the market to cover in, I

(lid. My profits amounted to about one and a half million

dollars. It was not a chance to disregard.

Cotton, of which I was long fifteen thousand bales, bought

in the last half hour of the trading the previous afternoon,

opened down five hundred points. Some break! It meant an

overnight loss of three hundred and seventy-five thousand

dollars. While it was perfectly clear that the only wise play in

stocks and wheat was to cover on the break I was not so clear as

to what I ought to do in cotton. There were various things to

consider, and while I always take my loss the moment I am

convinced I am wrong, I did not like to take that loss that

morning. Then I reflected that I had gone South to have a good

tune fishing instead of perplexing myself over the course of the

cotton market. And, moreover, I had taken such big profits in my

wheat and in stocks that I decided to take my loss in cotton. I

would figure that my profit had been a little more than one

million instead of over a million and a half. It was all a

matter of bookkeeping, as promoters are apt to tell you when you

ask too many questions.

If I hadn't bought that cotton just before the market

closed the day before, I would have saved that four hundred

thousand dollars. It shows you how quickly a man may lose big

money on a moderate line. My main position was absolutely

correct and I benefited by an accident of a nature diametrically

opposite to the considerations that led me to take the position

I did in stocks and wheat. Observe, please, that the speculative

line of least resistance again demonstrated its value to a

trader.

Prices

went

as

I

expected,

notwithstanding

the

unexpected market factor introduced by the German note. If

things had turned out as I had figured I would have been ioo per

cent right in all three of my lines, for with peace stocks and

wheat would have gone down and cotton would have gone kiting up.

I would have cleaned up in all three. Irrespective of peace or

war, I was right in my position on the stock market and in wheat

and that is why the unlooked for event helped. In cotton I based

my play on something that might happen outside of the market --

that is, I bet on Mr. Wilson's success in his peace

negotiations. It was the German military leaders who made me

lose the cotton bet.

When I returned to New York early in 1917 I paid back all

the money I owed, which was over a million dollars. If was a

great pleasure to me to pay my debts. I might have paid it back

a few months earlier, but I didn't for a very simple reason. I

was trading actively and successfully and I needed all the

capital I had. I owed it to myself as well as to the men I

considered my creditors to take every advantage of the wonderful

markets we had in 1915 and 1916. I knew that I would make a

great deal of money and I wasn't worrying because I was letting

them wait a few months longer for money many of them never

expected to get back. I did not wish to pay off my obligations

in driblets or to one man at a time, but in full to all at once.

So as long as the market was doing all it could for me I just

kept on trading on as big a scale as my resources permitted.

I wished to pay interest, but all those creditors who had

signed releases positively refused to accept it. The man I paid

off the last of all was the chap I owed the eight hundred

dollars to, who had made my life a burden and had upset me until

I couldn't trade. I let him wait until he heard that I had paid

off all the others. Then he got his money. I wanted to teach him

to be considerate the next time somebody owed him a few

hundreds.

And that is how I came back.

After I paid off my debts in full I put a pretty fair

amount into annuities. I made up my mind I wasn't going to be

strapped and uncomfortable and minus a stake ever again. Of

course, after I married I put some money in trust for my wife.

And after the boy came I put some in trust for him.

The reason I did this was not alone the fear that the stock

market might take it away from me, but because I knew that a man

will spend anything he can lay his hands on. By doing what I did

my wife and child are safe from me.

More than one man I know has done the same thing, but has

coaxed his wife to sign off when he needed the money, and he has

lost it. But I have fixed it up so that no matter what I want or

what my wife wants, that trust holds. It is absolutely safe from

all attacks by either of us; safe from my market needs; safe

even from a devoted wife's love. I'm taking no chances!

CHAPTER XV

AMONG the hazards of speculation the happening of the

unexpected, I might even say of the unexpectable ranks high.

There are certain chances that the most prudent man is justified

in taking chances that he must take if he wishes to be more than

a mercantile mollusk. Normal business hazards are no worse than

the risks a man runs when he goes out of his house into the

street or sets out on a railroad journey. When I lose money by

reason of some development which nobody could foresee I think no

more vindictively of it than I do of an inconveniently timed

storm. Life itself from the cradle to the grave is a gamble and

what happens to me because I do not possess the gift of second

sight I can bear undisturbed. But there have been times in my

career as a speculator when I have both been right and played

square and nevertheless I have been cheated out of my earnings

by the sordid unfairness of unsportsmanlike opponents.

Against misdeeds by crooks, cowards and crowds a quick-

thinking or far-sighted business man can protect himself. I have

never gone up against downright dishonesty except in a bucket

shop or two because even there honesty was the best policy; the

big money was in being square and not in welshing. I have never

thought it good business to play any game in any place where it

was necessary to keep an eye on the dealer because he was likely

to cheat if unwatched. But against the whining welsher the

decent man is powerless. Fair play is fair play. I could tell

you a dozen instances where I have been the victim of my own

belief in the sacredness of the pledged word or of the

inviolability of a gentlemen's agreement. I shall not do so

because no useful purpose can be served thereby.

Fiction writers, clergymen and women are fond of alluding

to the floor of the Stock Exchange as a boodlers' battlefield

and to Wall Street's daily business as a fight. It is quite

dramatic but utterly misleading. I do not think that my business

is strife and contest. I never fight either individuals or

speculative cliques. I merely differ in opinion -- that is, in

my reading of basic conditions. What playwrights call battles of

business are not fights between human beings. They are merely

tests of business vision. I try to stick to facts and facts

only, and govern my actions accordingly. That is Bernard M.

Baruch's recipe for success in wealth-winning. Sometimes I do

not see the facts, all the facts clearly enough or early enough;

or else I do not reason logically. Whenever any of these things

happen I lose. I am wrong. And it always costs me money to be

wrong.

No reasonable man objects to paying for his mistakes. There

are no preferred creditors in mistake-making and no exceptions

or exemptions. But I object to losing money when I am right. I

do not mean, either, those deals that have cost me money because

of sudden changes in the rules of some particular exchange. I

have in mind certain hazards of speculation that from time to

time remind a man that no profit should be counted safe until it

is deposited in your bank to your credit.

After the Great War broke out in Europe there began the

rise in the prices of commodities that was to be expected. It

was as easy to foresee that as to foresee war inflation. Of

course the general advance continued as the war prolonged

itself. As you may remember, I was busy "coming back" in 1915.

The boom in stocks was there and it was my duty to utilise it.

My safest, easiest and quickest big play was in the stock

market, and I was lucky, as you know.

By July, 1917, I not only had been able to pay off all my

debts but was quite a little to the good besides. This meant

that I now had the time, the money and the inclination to con-

sider trading in commodities as well as in stocks. For many

years I have made it my practice to study all the markets. The

advance in commodity prices over the prewar level ranged from

ioo to 4oo per cent. There was only one exception, and that was

coffee. Of course there was a reason for this. The breaking out

of the war meant the closing up of European markets and huge

cargoes were sent to this country, which was the one big market.

That led in time to an enormous surplus of raw coffee here, and

that, in turn, kept the price low. Why, when I first began to

consider its speculative possibilities coffee was actually

selling below prewar prices. If the reasons for this anomaly

were plain, no less plain was it that the active and

increasingly efficient operation by the German and Austrian

submarines must mean an appalling reduction in the number of

ships available for commercial purposes. This eventually in turn

must lead to dwindling imports of coffee. With reduced receipts

and an unchanged consumption the surplus stocks must be

absorbed, and when that happened the price of coffee must do

what the prices of all other commodities had done, which was, go

way up.

It didn't require a Sherlock Holmes to size up the

situation. Why everybody did not buy coffee I cannot tell you.

When I decided to buy it I did not consider it a speculation. It

was much more of an investment. I knew it would take time to

cash in, but I knew also that it was bound to yield a good

profit. That made it a conservative investment operation -- a

banker's act rather than a gambler's play.

I started my buying operations in the winter of 1917. I

took quite a lot of coffee. The market, however, did nothing to

speak of. It continued inactive and as for the price, it did not

go up as I had expected. The outcome of it all was that I simply

carried my line to no purpose for nine long months. My contracts

expired then and I sold out all my options. I took a whopping

big loss on that deal and yet I was sure my views were sound. I

had been clearly wrong in the matter of time, but I was

confident that coffee must advance as all commodities had done,

so that no sooner had I sold out my line than I started in to

buy again. I bought three times as much coffee as I had so

unprofitably carried during those nine disappointing months. Of

course I bought deferred options for as long a time as I could

get.

I was not so wrong now. As soon as I had taken on my

trebled line the market began to go up. People everywhere seemed

to realise all of a sudden what was bound to happen in the

coffee market. It began to look as if my investment was going to

return me a mighty good rate of interest.

The sellers of the contracts I held were roasters, mostly

of German names and affiliations, who had bought the coffee in

Brazil confidently expecting to bring it to this country. But

there were no ships to bring it, and presently they found

themselves in the uncomfortable position of having no end of

coffee down there and being heavily short of it to me up here.

Please bear in mind that I first became bullish on coffee

while the price was practically at a pre-war level, and don't

forget that after I bought it I carried it the greater part of a

year and then took a big loss on it. The punishment for being

wrong is to lose money. The reward for being right is to make

money. Being clearly right and carrying a big line, I was

justified in expecting to make a killing. It would not take much

of an advance to make my profit satisfactory to me, for I was

carrying several hundred thousand bags. I don't like to talk

about my operations in figures because sometimes they sound

rather formidable and people might think I was boasting. As a

matter of fact I trade in accordance to my means and always

leave myself an ample margin of safety. In this instance I was

conservative enough. The reason I bought options so freely was

because I couldn't see how I could lose. Conditions were in my

favour. I had been made to wait a year, but now I was going to

be paid both for my waiting and for being right. I could see the

profit coming fast. There wasn't any cleverness about it. It was

simply that I wasn't blind.

Coming sure and fast, that profit of millions! But it never

reached me. No,it wasn't side-tracked by a sudden change in

conditions. The market did not experience an abrupt reversal of

form. Coffee did not pour into the country. What happened? The

unexpectable! What had never happened in anybody's experience;

what I therefore had no reason to guard against. I added a new

one to the long list of hazards of speculation that I must

always keep before me. It was simply that the fellows who had

sold me the coffee, the shorts, knew what was in store for them,

and in their efforts to squirm out of the position into which

they had sold themselves, devised a new way of welshing. They

rushed to Washington for help, and got it.

Perhaps you remember that the Government had evolved

various

plans

for

preventing

further

profiteering

in

necessities. You know how most of them worked. Well, the

philanthropic coffee shorts appeared before the Price Fixing

Committee of the War Industries Board, I think that was the

official designation and made a patriotic appeal to that body to

protect

the

American

breakfaster.

They

asserted

that

a

professional speculator, one Lawrence Livermore, had cornered,

or was about to corner, coffee. If his speculative plans were

not brought to naught he would take advantage of the conditions

created by the war and the American people would be forced to

pay exorbitant prices for their daily coffee. It was unthinkable

to the patriots who had sold me cargoes of coffee they couldn't

find ships for, that one hundred millions of Americans, more or

less, should pay tribute to conscienceless speculators. They

represented the coffee trade, not the coffee gamblers, and they

were willing to help the Government curb profiteering actual or

prospective.

Now I have a horror of whiners and I do not mean to

intimate that the Price Fixing Committee was not doing its

honest best to curb profiteering and wastefulness. But that need

not stop me from expressing the opinion that the committee could

not have gone very deeply into the particular problem of the

coffee market. They fixed on a maximum price for raw coffee and

also fixed a time limit for closing out all existing contracts.

This decision meant, of course, that the Coffee Exchange would

have to go out of business. There was only one thing for me to

do and I did it, and that was to sell out all my contracts.

Those profits of millions that I had deemed as certain to come

my way as any I ever made failed completely to materialise. I

was and am as keen as anybody against the profiteer in the

necessaries of life, but at the time the Price Fixing Committee

made their ruling on coffee, all other commodities were selling

at from 250 to 400 per cent above pre-war prices while raw

coffee was actually below the average prevailing for some years

before the war. I can't see that it made any real difference who

held the coffee. The price was bound to advance; and the reason

for that was not the operations of conscienceless speculators,

but the dwindling surplus for which the diminishing importations

were responsible, and they in turn were affected exclusively by

the appalling destruction of the world's ships by the German

submarines. The committee did not wait for coffee to start; they

clamped on the brakes.

As a matter of policy and of expediency it was a mistake to

force the Coffee Exchange to close just then. If the committee

had let coffee alone the price undoubtedly would have risen for

the reasons I have already stated, which had nothing to do with

any alleged corner. But the high price, which need not have been

exorbitant would have been an incentive to attract supplies to

this market. I have heard Mr. Bernard M. Baruch say that the War

Industries Board took into consideration this factor -- the

insuring of a supply-in fixing prices, and for that reason some

of the complaints about the high limit on certain commodities

were unjust. When the Coffee Exchange resumed business, later

on, coffee sold at twenty-three cents. The American people paid

that price because of the small supply, and the supply was small

because the price had been fixed too low, at the suggestion of

philanthropic shorts, to make it possible to pay the high ocean

freights and thus insure continued importations.

I have always thought that my coffee deal was the most

legitimate of all my trades in commodities. I considered it more

of an investment than a speculation. I was in it over a year. If

there was any gambling it was done by the patriotic roasters

with German names and ancestry. They had coffee in Brazil and

they sold it to me in New York. The Price Fixing Committee fixed

the price of the only commodity that had not advanced. They

protected the public against profiteering before it started, but

not against the inevitable higher prices that followed. Not only

that, but even when green coffee hung around nine cents a pound,

roasted coffee went up with everything else. It was only the

roasters who benefited. If the price of green coffee had gone up

two or three cents a pound it would have meant several millions

for me. And it wouldn't have cost the public as much as the

later advance did.

Post-mortems in speculation are a waste of time. They get

you nowhere. But this particular deal has a certain educational

value. It was as pretty as any I ever went into. The rise was so

sure, so logical, that I figured that I simply couldn't help

making several millions of dollars. But I didn't.

On two other occasions I have suffered from the action of

exchange committees making rulings that changed trading rules

without warning. But in those cases my own position, while

technically right, was not quite so sound commercially as in my

coffee trade. You cannot be dead sure of anything in a

speculative operation. It was the experience I have just told

you that made me add the unexpectable to the unexpected in my

list of hazards.

After the coffee episode I was so successful in other com-

modities and on the short side of the stock market, that I began

to suffer from silly gossip. The professionals in Wall Street

and the newspaper writers got the habit of blaming me and my

alleged raids for the inevitable breaks in prices. At times my

selling was called unpatriotic -- whether I was really selling

or not. The reason for exaggerating the magnitude and the effect

of my operations, I suppose, was the need to satisfy the

public's insatiable demand for reasons for each and every price

movement.

As I have said a thousand times, no manipulation can put

stocks down and keep them down. There is nothing mysterious

about this. The reason is plain to everybody who will take the

trouble to think about it half a minute. Suppose an operator

raided a stock -- that is, put the price down to a level below

its real value -- what would inevitably happen? Why, the raider

would at once be up against the best kind of inside buying. The

people who know what a stock is worth will always buy it when it

is selling at bargain prices. If the insiders are not able to

buy, it will be because general conditions are against their

free command of their own resources, and such conditions are not

bull conditions. When people speak about raids the inference is

that the raids are unjustified; almost criminal. But selling a

stock down to a price much below what it is worth is mighty

dangerous business. It is well to bear in mind that a raided

stock that fails to rally is not getting much inside buying and

where there is a raid, that is unjustified short selling --

there is usually apt to be inside buying; and when there is

that, the price does not stay down. I should say that in

ninety-nine cases out of a hundred, so-called raids are really

legitimate declines, accelerated at times but not primarily

caused by the operations of a professional trader, however big a

line he may be able to swing.

The theory that most of the sudden declines or particular

sharp breaks are the results of some plunger's operations

probably was invented as an easy way of supplying reasons to

those speculators who, being nothing but blind gamblers, will

believe anything that is told them rather than do a little

thinking.

The

raid

excuse

for

losses

that

unfortunate

speculators so often receive from brokers and financial

gossipers is really an inverted tip. The difference lies in

this: A bear tip is distinct, positive advice to sell short. But

the inverted tip -- that is, the explanation that does not

explain -- serves merely to keep you from wisely selling short.

The natural tendency when a stock breaks badly is to sell it.

There is a reason -- an unknown reason but a good reason;

therefore get out. But it is not wise to get out when the break

is the result of a raid by an operator, because the moment he

stops the price must rebound. Inverted tips!

CHAPTER XVI

TIPS! How people want tips! They crave not only to get them

but to give them. There is greed involved, and vanity. It is

very amusing, at times, to watch really intelligent people fish

for them. And the tip-giver need not hesitate about the quality,

for the tip-seeker is not really after good tips, but after any

tip. If it makes good, fine! If it doesn't, better luck with the

next. I am thinking of the average customer of the average

commission house. There is a type of promoter or manipulator

that believes in tips first, last and all the time. A good flow

of tips is considered by him as a sort of sublimated publicity

work, the best merchandising dope in the world, for, since

tip-seekers

and

tip-takers

are

invariably

tip-passers,

tip-broadcasting becomes a sort of endless chain advertising.

The tipster-promoter labours under the delusion that no human

being breathes who can resist a tip if properly delivered. He

studies the art of handing them out artistically.

I get tips by the hundreds every day from all sorts of

people. I'll tell you a story about Borneo Tin. You remember

when the stock was brought out? It was at the height of the

boom. The promoter's pool had taken the advice of a very clever

banker and decided to float the new company in the open market

at once instead of letting an underwriting syndicate take its

time about it. It was good advice. The only mistake the members

of the pool made came from inexperience. They did not know what

the stock market was capable of doing during a crazy boom and at

the same time they were not intelligently liberal. They were

agreed on the need of marking up the price in order to market

the stock, but they started the trading at a figure at which the

traders and the speculative pioneers could not buy it without

misgivings.

By rights the promoters ought to have got stuck with it,

but in the wild bull market their hoggishness turned out to be

rank conservatism. The public was buying anything that was

adequately tipped. Investments were not wanted. The demand was

for easy money; for the sure gambling profit. Gold was pouring

into this country through the huge purchases of war material.

They tell me that the promoters, while making their plans for

bringing out Borneo stock, marked up the opening price three

different times before their first transaction was officially

recorded for the benefit of the public.

I had been approached to join the pool and I had looked

into it but I didn't accept the offer because if there is any

market manoeuvring to do, I like to do it myself. I trade on my

own information and follow my own methods. When Borneo Tin was

brought out, knowing what the pool's resources were and what

they had planned to do, and also knowing what the public was

capable of, I bought teo thousand shares during the first hour

of the first day. Its market debut was successful at least to

that extent. As a matter of fact the promoters found the demand

so active that they decided it would be a mistake to lose so

much stock so soon. They found out that I had acquired my ten

thousand shares about at the same time that they found out that

they would probably be able to sell every share they owned if

they merely marked up the price twenty-five or thirty points.

They therefore concluded that the profit on my ten thousand

shares would take too big a chunk out of the millions they felt

were already as good as banked. So they actually ceased their

bull operations and tried to shake me out. But I simply sat

tight. They gave me up as a bad job because they didn't want the

market to get away from them, and then they began to put up the

price, without losing any more stock than they could help.

They saw the crazy height that other stocks rose to and

they began to think in billions. Well, when Borneo 'rill got up

to 120 I let them have my ten thousand shares. It checked the

rise and the pool managers let up on their jacking-up process.

On the next general rally they again tried to make an active

market for it and disposed of quite a little. but the

merchandising proved to be rather expensive. Finally they marked

it up to 15o. But the bloom was off the bull market for keeps,

so the pool was compelled to market what stock it could on the

way down to those people who love to buy after a good reaction,

on the fallacy that a stock that has once sold at 150 must be

cheap at IV and a great bargain at 120. Also, they passed the

tip first to the floor traders, who often are able to make a

temporary market, and later to the commission houses. Every

little helped and the pool was using every device known. The

trouble was that the time for bulling stocks had passed. The

suckers had swallowed other hooks. The Borneo bunch didn't or

wouldn't see it.

I was down in Palm Beach with my wife. One day I made a

little money at Gridley's and when I got home I gave Mrs.

Livermore a five-hundred-dollar bill out of it. It was a curious

coincidence, but that same night she met at a dinner the presi-

dent of the Borneo Tin Company, a Mr. Wisenstein, who had become

the manager of the stock pool. We didn't learn until some time

afterward that this Wisenstein deliberately manceuvred so that

he sat next to Mrs. Livermore at dinner.

He laid himself out to be particularly nice to her and

talked most entertainingly. In the end he told her, very con-

fidentially, "Mrs. Livermore, I'm going to do something I've

never done before. I am very glad to do it because you know

exactly what it means." He stopped and looked at Mrs. Livermore

anxiously, to make sure she was not only wise but discreet. She

could read it on his face, plain as print. But all she said was,

"Yes."

"Yes, Mrs. Livermore. It has been a very great pleasure to

meet you and your husband, and I want to prove that I am sincere

in saying this because I hope to see a great deal of both of

you. I am sure I don't have to tell you that what I am going to

say is strictly confidential!" Then he whispered, "If you will

buy some Borneo Tin you will make a great deal of money."

"Do you think so?" she asked.

"Just before I left the hotel," he said, "I received some

cables with news that won't be known to the public for several

days at least. I am going to gather in as much of the stock as I

can. If you get some at the opening tomorrow you will be buying

it at the same time and at the same price as 1. I give you my

word that Borneo Tin will surely advance. You are the only

person that I have told this to. Absolutely the only one !"

She thanked him and then she told him that she didn't know

anything about speculating in stocks. But he assured her it

wasn't necessary for her to know any more than he had told her.

To make sure she heard it correctly he repeated his advice to

her

"All you have to do is to buy as much Borneo Tin as you

wish. I can give you my word that if you do you will not lose a

cent. I've never before told a woman or a man, for that matter

to buy anything in my life. But I am so sure the stock won't

stop this side of Zoo that I'd like you to make some money. I

can't buy all the stock myself, you know, and if somebody

besides myself is going to benefit by the rise I'd rather it.

was you than some stranger. Much rather! I've told you in

confidence because I know you won't talk about it. Take my word

for it, Mrs. Livermore, and buy Borneo Tin!"

He was very earnest about it and succeeded in so impressing

her that she began to think she had found an excellent use for

the five hundred dollars I had given her that afternoon. That

money hadn't cost me anything and was outside of her allowance.

In other words, it was easy money to lose if the luck went

against her. But he had said she would surely win. It would be

nice to make money on her own hook and tell me all about it

afterwards.

Well, sir, the very next morning before the market opened

she went into Harding's office and said to the manager

"Mr. Haley, I want to buy some stock, but I don't want it

to go in my regular account because I don't wish my husband to

know anything about it until I've made some money. Can you fix

it for me?"

Haley, the manager, said, "Oh, yes. We can make it a

special account. What's the stock and how much of it do you want

to buy?"

She gave him the five hundred dollars and told him,

"Listen, please. I do not wish to lose more than this money. If

that goes I don't want to owe you anything; and remember, I

don't want Mr. Livermore to know anything about this. Buy me as

much Borneo Tin as you can for the money, at the opening."

Haley tool; the money and told her he'd never say a word to

a soul, and bought her a hundred shares at the opening. I think

she got it at io8. The stock was very active that day and closed

at an advance of three points. Mrs. Livermore was so delighted

with her exploit that it was all she could do to keep from

telling me all about it.

It so happened that I had been getting more and more bear-

ish on the general market. The unusual activity in Borneo Tin

drew my attention to it. I didn't think the time was right for

any stock to advance, much less one like that. I had decided to

begin my bear operations that very day, and I started by selling

about ten thousand shares of Borneo. If I had not I rather think

the stock would have gone up five or six points instead of

three.

On the very next day I sold two thousand shares at the

opening and two thousand shares just before the close, and the

stock broke t0 102.

Haley, the manager of Harding Brothers' Palm Beach Branch,

was waiting for Mrs. Livermore to call there on the third

morning. She usually strolled in about eleven to see how things

were, if I was doing anything.

Haley took her aside and said, "Mrs. Livermore, if you want

me to carry that hundred shares of Borneo Tin for you you will

have to give me more margin."

"But I haven't any more," she told him.

"I can transfer it to your regular account," he said.

"No," she objected, "because that way L. L. would learn

about it."

"But the account already shows a loss of" he began.

"But I told you distinctly I didn't want to lose more than

the five hundred dollars. I didn't even want to lose that," she

said.

"I know, Mrs. Livermore, but I didn't want to sell it with-

out consulting you, and now unless you authorise me to hold it

I'll have to let it go."

"But it did so nicely the day I bought it," she said, "that

I didn't believe it would act this way so soon. Did you?"

"No," answered Haley, "I didn't." They have to be diplomatic in

brokers' offices.

"What's gone wrong with it, Mr. Haley?"

Haley knew, but he could not tell her without giving me

away, and a customer's business is sacred. So he said, "I don't

hear anything special about it, one way or another. There she

goes! That's low for the move!" and he pointed to the quotation

board.

Mrs. Livermore gazed at the sinking stock and cried: "Oh,

Mr. Haley! I didn't want to lose my five hundred dollars! What

shall I do?"

"I don't know, Mrs. Livermore, but if I were you I'd ask

Mr. Livermore."

"Oh, no! He doesn't want me to speculate on my own hook.

He's told me so. He'll buy or sell stock for me, if I ask him,

but I've never before done trading that he did not know all

about. I wouldn't dare tell him."

"That's all right," said Haley soothingly. "He is a

wonderful trader and he'll know just what to do." Seeing her

shake her head violently he added devilishly: "Or else you put

up a thousand or two to take care of your Borneo."

The alternative decided her then and there. She hung about

the office, but as the market got weaker and weaker she came

over to where I sat watching the board and told me she wanted to

speak to me. We went into the private office and she told me the

whole story. So I just said to her: "You foolish little girl,

you keep your hands off this deal."

She promised that she would, and so I gave her back her

five hundred dollars and she went away happy. The stock was par

by that time.

I saw what had happened. Wisenstein was an astute person.

He figured that Mrs. Livermore would tell one what he had told

her and I'd study the stock. He knew that activity always

attracted me and I was known to swing a pretty fair line. I

suppose he thought I'd buy ten or twenty thousand shares.

It was one of the most cleverly planned and artistically

propelled tips I've ever heard of. But it went wrong. It had to.

In the first place, the lady had that very day received an

unearned five hundred dollars and was therefore in a much more

venturesome mood than usual. She wished to make some money all

by

herself,

and

womanlike

dramatised

the

temptation

so

attractively that it was irresistible. She knew how I felt about

stock speculation as practised by outsiders, and she didn't dare

mention the matter to me. Wisenstein didn't size up her

psychology right.

He also was utterly wrong in his guess about the kind of

trader I was. I never take tips and I was bearish on the entire

market. The tactics that he thought would prove effective in

inducing me to buy Borneo -- that is, the activity and the three

point rise were precisely what made me pick Borneo as a starter

when I decided to sell the entire market.'

After I heard Mrs. Livermore's story I was keener than ever

to sell Borneo. Every morning at the opening and every afternoon

just before closing I let him have some stock regularly, until I

saw a chance to take in my shorts at a handsome profit.

It has always seemed to me the height of dam foolishness to

trade on tips. I suppose I am not built the way a tip-taker is.

I sometimes think that tip-takers are like drunkards. There are

some who can't resist the craving and always look forward to

those jags which they consider indispensable to their happiness.

It is so easy to open your ears and let the tip in. To be told

precisely what to do to be happy in such a manner that you can

eagily obey is the next nicest thing to being happy which is a

mighty long first step toward the fulfilment of your heart's

desire. It is not so much greed made blind by eagerness as it is

hope bandaged by the unwillingness to do any thinking.

And it is not only among the outside public that you find

inveterate tip-takers. The professional trader on the floor of

the New York Stock Exchange is quite as bad. I am definitely

aware that no end of them cherish mistaken notions of me because

I never give anybody tips. If I told the average man, "Sell

yourself five thousand Steel!" he would do it on the. spot. But

if I tell him I am quite bearish on the entire market and give

him my reasons in detail, he finds trouble in listening and

after I'm done talking he will glare at me for wasting his time

expressing my views on general conditions instead of giving him

a direct and specific tip, like a real philanthropist of the

type that is so abundant in Wall Streetthe sort who loves to put

millions into the pockets of friends, acquaintances and utter

strangers alike.

The belief in miracles that all men cherish is born of im-

moderate indulgence in hope. There are people who go on hope

sprees periodically and we all know the chronic hope drunkard

that is held up before us as an exemplary optimist. Tip-takers

are all they really are.

I have an acquaintance, a member of the New York Stock

Exchange, who was one of those who thought I was a selfish,

cold-blooded pig because I never gave tips or put friends into

things. One day-this was some years ago he was talking to a

newspaper man who casually mentioned that he had had it from a

good source that G. O. H. was going up. My broker friend

promptly bought a thousand shares and saw the price decline so

quickly that he was out thirty-five hundred dollars before he

could stop his loss. He met the newspaper man a day or two

later, while he still was sore.

"That was a hell of a tip you gave me," he complained.

"What tip was that?" asked the reporter, who did not

remember.

"About G. O. H. You said you had it from a good source."

"So I did. A director of the company who is a member of the

finance committee told me."

"Which of them was it?" asked the broker vindictively.

"If you must know," answered the newspaper man, "it was

your own father-in-law, Mr. Westlake."

"Why in Hades didn't you tell me you meant him!" yelled the

broker. "You cost me thirty-five hundred dollars!" He didn't

believe in family tips. The farther away the source the purer

the tip.

Old Westlake was a rich and successful banker and promoter.

He ran across John W. Gates one day. Gates asked him what he

knew. "If you will act on it I'll give you a tip. If you won't

I'll save my breath," answered old Westlake grumpily.

"Of course I'll act on it," promised Gates cheerfully.

"Sell Reading! There is a sure twenty-five points in it,

and possibly more. But twenty-five absolutely certain," said

Westlake impressively.

"I'm much obliged to you," and Bet-you-a-million Gates

shook hands warmly and went away in the direction of his

broker's office.

Westlake had specialized on Reading. He knew all about the

company and stood in with the insiders so that the market for

the stock was an open book to him and everybody knew it. Now he

was advising the Western plunger to go short of it.

Well, Reading never stopped going up. It rose something

like one hundred points in a few weeks. One day old Westlake ran

smack up against John W. in the Street, but he made out he

hadn't seen him and was walking on. John W. Gates caught up with

him, his face all smiles and held out his hand. Old Westlake

shook it dazedly.

"I want to thank you for that tip you gave me on Reading,"

said Gates.

"I didn't give you any tip," said Westlake, frowning.

"Sure you did. And it was a Jim Hickey of a tip too. I made

sixty thousand dollars."

"Made sixty thousand dollars?"

"Sure! Don't you remember? You told me to sell Reading; so

I bought it! I've always made money coppering your tips,

Westlake," said John W. Gates pleasantly. "Always!"

Old Westlake looked at the bluff Westerner and presently

remarked admiringly, "Gates, what a rich man I'd be if I had

your brains!"

The other day I met Mr. W. A. Rogers, the famous car-

toonist, whose Wall Street drawings brokers so greatly admire.

His daily cartoons in the New York Herald for years gave

pleasure to thousands. Well, he told me a story. It was just

before we went to war with Spain. He was spending an evening

with a broker friend. When he left he picked up his 'ederby hat

from the rack, at least he thought it was his hat,for it was the

same shape and fitted him perfectly.

The Street at that time was thinking and talking of nothing

but war with Spain. Was there to be one or not? If it was to be

war the market would go down; not so much on our own selling as

on pressure from European holders of our securities. If peace,

it would be a cinch to buy stocks, as there had been

considerable declines prompted by the sensational clamorings of

the yellow papers. Mr. Rogers told me the rest of the story as

follows

`

"My friend, the broker, at whose house I had been the

night before, stood in the Exchange the next day anxiously

debating in his mind which side of the market to play. He

went

over the pros and cons, but it was impossible to distinguish

which were rumours and which were facts. There

was

no

authentic news to guide him. At one moment he

thought

war

was inevitable, and on the next he almost con

vinced himself

that it was utterly unlikely. His perplexity

must

have

caused a rise in his temperature, for he took off

his derby

to wipe his fevered brow. He couldn't tell whether

he should

buy or sell.

"He happened to look inside of his hat. There in

gold

letters was the word WAR. That was all the hunch he

needed. Was it not a tip from Providence via my hat? So he sold

a raft of stock, war was duly declared, he covered on

the break

and made a killing." And then W. A. Rogers

finished, "I never got back that hat!"

But the prize tip story of my collection concerns

one of the most popular members of the New York Stock Exchange,

J. T. Hood. One day another floor trader, Bert Walker, told

him that he had done a good turn to a prominent director of

the Atlantic & Southern. In return the grateful insider

told him to buy all the A. & S. he could carry. The directors

were going to do something that would put the stock up at least

twenty-five points. All the directors were not in the deal, but

the majority would be sure to vote as wanted.

^

Bert Walker concluded that the dividend rate was going

to be raised. He told his friend Hood and they each bought a

couple of thousand shares of A. & S. The stock was very weak,

before and after they bought, but Hood said that was obviously

intended to facilitate accumulation by the inside clique, headed

by Bert's grateful friend.

On the following Thursday, after the market closed, the

directors of the Atlantic & Southern met and passed the

dividend. The stock broke six points in the first six minutes of

trading Friday morning.

Bert Walker was sore as a pup. He called on the grateful

director, who was broken-hearted about it and very penitent. He

said that he had forgotten that he had told Walker to buy. That

was the reason he had neglected to call him up to tell him of a

change in the plans of the dominant faction in the board. The

remorseful director was so anxious to make up that he gave Bert

another tip. He kindly explained that a couple of his colleagues

wanted to get cheap stock and against his judgment resorted to

coarse work. He had to yield to win their votes. But now that

they all had accumulated their full lines there was nothing to

stop the advance. It was a doubleriveted, lead-pipe cinch to buy

A. & S. now.

Bert not only forgave him but shook hands warmly with the

high financier. Naturally he hastened to find his friend and

fellow victim, Hood, to impart the glad tidings to him. They

were going to make a killing. The stock had been tipped for a

rise before and they bought. But now it was fifteen points

lower. That made it a cinch. So they bought five thousand

shares, joint account.

As if they had rung a bell to start it, the stock broke

badly on what quite obviously was inside selling. Two

specialists cheerfully confirmed the suspicion. Hood sold out

their five thousand shares. When he got through Bert Walker said

to him, "If that blankety-blank blanker hadn't gone to Florida

day before yesterday I'd lick the stuffing out of him. Yes, I

would. But you come with me."

"Where to?" asked Hood.

"To the telegraph office. I want to send that skunk a

telegram that he'll never forget. Come on."

Hood went on. Bert led the way to the telegraph office.

There, carried away by his feelings they had taken quite a loss

on the five thousand shares he composed a masterpiece of

vituperation. He read it to Hood and finished, "That will come

pretty near to showing him what I think of him."

He was about to slide it toward the waiting clerk when Hood

said, "Hold on, Bert!"

"What's the matter?"

"I wouldn't send it," advised Hood earnestly.

"Why not?" snapped Bert.

"It will make him sore as the dickens."

"That's what we want, isn't it?" said Bert, looking at Hood

in surprise.

But Hood shook his head disapprovingly and said in all

seriousness, "We'll never get another tip from him if you send

that telegram!"

A professional trader actually said that. Now what's the

use of talking about sucker tip-takers? Men do not take tips

because they are bally asses but because they like those hope

cocktails I spoke of. Old Baron Rothschild's recipe for wealth

winning applies with greater force than ever to speculation.

Somebody asked him if making money in the Bourse was not a very

difficult matter, and he replied that, on the contrary, he

thought it was very easy.

"That

is

because

you

are

so

rich,"

objected

the

interviewer.

"Not at all. I have found an easy way and I stick to it. I

simply cannot help making money. I will tell you my secret if

you wish. It is this: I never buy at the bottom and I always

sell too soon."

Investors are a different breed of cats. Most of them go in

strong for inventories and statistics of earnings and all sorts

of

mathematical

data,

as

though

that

meant

facts

and

certainties. The human factor is minimised as a rule. Very few

people like to buy into a one-man business. But the wisest

investor I ever knew was a man who began by being a Pennsylvania

Dutchman and followed it up by coming to Wall Street and seeing

a great deal of Russell Sage.

He was a great investigator, an indefatigable Missourian.

He believed in asking his own questions and in doing his

seeing with his own eyes. He had no use for another man's

spectacles. This was years ago. It seems he held quite a little

Atchison. Presently he began to hear disquieting reports about

the company and its management. He was told that Mr. Reinhart,

the president, instead of being the marvel he was credited with

being, in reality was a most extravagant manager whose

recklessness was fast pushing the company into a mess. There

would be the deuce to pay on the inevitable day of reckoning.

This was precisely the kind of news that was as the breath

of life to the Pennsylvania Dutchman. He hurried over to Boston

to interview Mr. Reinhart and ask him a few questions. The

questions consisted of repeating the accusations he had heard

and then asking the president of the Atchison, Topeka & Santa Fe

Railroad if they were true.

Mr. Reinhart not only denied the allegations emphatically

but said even more: He proceeded to prove by figures that the

allegators were malicious liars. The Pennsylvania Dutchman had

asked for exact information and the president gave it to him,

showing him what the company was doing and how it stood

financially, to a cent.

The Pennsylvania Dutchman thanked President Reinhart,

returned to New York and promptly sold all his Atchison

holdings. A week or so later he used his idle funds to buy a big

lot of Delaware, Lackawanna & Western.

Years afterward we were talking of lucky swaps and he cited

his own case. He explained what prompted him to make it.

"You see," he said, "I noticed that President Reinhart,

when he wrote down figures, took sheets of letter paper from a

pigeonhole in his mahogany roll-top desk. It was fine heavy

linen paper with beautifully engraved letterheads in two colors.

It was not only very expensive but worse -- it was unnecessarily

expensive. He would write a few figures on a sheet to show me

exactly what the company was earning on certain divisions or to

prove how they were cutting down expenses or reducing operating

costs, and then he would crumple up the sheet of the expensive

paper and throw it in the wastebasket. Pretty soon he would want

to impress me with the economies they were introducing and he

would reach for a fresh sheet of the beautiful notepaper with

the. engraved letterheads in two colors. A few figures and

bingo, into the wastebasket! More money wasted without a

thought. It struck me that if the president was that kind of a

man he would scarcely be likely to insist upon having or

rewarding economical assistants. I therefore decided to believe

the people who had told me the management was extravagant

instead of accepting the president's version and I sold what

Atchison stock I held.

"It so happened that I had occasion to go to the offices of

the Delaware, Lackawanna & Western a few days later. Old Sam

Sloan was the president. His office was the nearest to the

entrance and his door was wide open. It was always open. Nobody

could walk into the general offices of the D. L. & W. in those

days and not see the president of the company seated at his

desk. Any man could walk in and do business with him right off,

if he had any business to do. The financial reporters used to

tell me that they never had to beat about the bush with old Sam

Sloan, but would ask their questions and get a straight yes or

no from him, no matter what the stock-market exigencies of the

other directors might be.

"When I walked in I saw the old man was busy. I thought at

first that he was opening his mail, but after I got inside close

to the desk I saw what he was doing. I learned afterwards that

it was his daily custom to do it. After the mail was sorted and

opened, instead of throwing away the empty envelopes he had them

gathered up and taken to his office. In his leisure moments he

would rip the envelope all around. That gave him two bits of

paper, each with one clean blank side. He would pile these up

and then he would have them distributed about, to be used in

lieu of scratch pads for such figuring as Reinhart had done for

me on engraved notepaper. No waste of empty envelopes and no

waste of the president's idle moments. Everything utilised.

"It struck me that if that was the kind of man the D. L. &

W. had for president, the company was managed economically in

all departments. The president would see to that! Of course I

knew the company was paying regular dividends and had a good

property. I bought all the D. L. & W. stock I could. Since that

time the capital stock has been doubled and quadrupled. My

annual dividends amount to as much as my original investment. I

still have my D. L. & W. And Atchison went into the hands of a

receiver a few months after I saw the president throwing sheet

after sheet of linen paper with engraved letterheads in two

colors into the wastebasket to prove to me with figures that he

was not extravagant."

And the beauty of that story is that it is true and that no

other stock that the Pennsylvania Dutchman could have bought

would have proved to be so good an investment as D. L. & W.

CHAPTER XVII

0NE of my most intimate friends is very fond of telling

stories about what he calls my hunches. He is forever ascribing

to me powers that defy analysis. Ile declares I merely follow

blindly certain mysterious impulses and thereby get out of the

stock market at precisely the right time. His pet yarn is about

a black cat that told me, at his breakfasttable, to sell a lot

of stock I was carrying, and that after I got the pussy's

message I was grouchy and nervous until I sold every share I was

long of. I got practically the top prices of the movement, which

of course strengthened the hunch theory of my hard-headed

friend.

I had gone to Washington to endeavor to convince a few

Congressmen that there was no wisdom in taxing us to death and I

wasn't paying much attention to the stock market. My decision to

sell out my line came suddenly, hence my friend's yarn.

I admit that I do get irresistible impulses at times to do

certain things in the market. It doesn't matter whether I am

long or short of stocks. I must get out. I am uncomfortable

until I do. I myself think that what happens is that I see a lot

of warning-signals. Perhaps not a single one may be sufficiently

clear or powerful to afford me a positive, definite reason for

doing what I suddenly feel like doing. Probably that is all

there is to what they call "ticker-sense" that old traders say

James R. Keene had so strongly developed and other operators

before him. Usually, I confess, the warning turns out to be not

only sound but timed to the minute. But in this particular

instance there was no hunch. The black cat had nothing to do

with it. What he tells everybody about my getting up so grumpy

that morning I suppose can be explained if I in truth was

grouchy by my disappointment. I knew I was not convincing the

Congressman I talked to and the Committee did not view the

problem of taxing Wall Street as I did. I wasn't trying to

arrest or evade taxation on stock transactions but to suggest a

tax that I as an experienced stock operator felt was neither

unfair nor unintelligent. I didn't want Uncle Sam to kill the

goose that could lay so many golden eggs with fair treatment.

Possibly my lack of success not only irritated me but made me

pessimistic over the future of an unfairly taxed business. But

I'll tell you exactly what happened.

At the beginning of the bull market I thought well of the

outlook in both the Steel trade and the copper market and I

therefore felt bullish on stocks of both groups. So I started to

accumulate some of them. I began by buying Sooo shares of Utah

Copper and stopped because it didn't act right. That is, it did

not behave as it should have behaved to make me feel I was wise

in buying it. I think the price was around II¢. I also started

to buy United States Steel at almost the same price. I bought in

all 20,000 shares the first day because it did act right. I

followed the method I have described before.

Steel continued to act right and I therefore continued to

accumulate it until I was carrying 72,000 shares of it in all.

But my holdings of Utah Copper consisted of my initial purchase.

I never got above the 5000 shares. Its behaviour did not

encourage me to do more with it.

Everybody knows what happened. We had a big bull movement.

I knew the market was going up. General conditions were

favourable. Even after stocks had gone up extensively and my

paper-profit was not to be sneezed at, the tape kept trumpeting:

Not yet! Not yet! When I arrived in Washington the tape was

still saying that to me. Of course, I had no intention of

increasing my line at that late day, even though I was still

bullish. At the same time, the market was plainly going my way

and there was no occasion for me to sit in front of a quotation

board all day, in hourly expectation of getting a tip to get

out. Before the clarion call to retreat camebarring an utterly

unexpected catastrophe, of course, the market would hesitate or

otherwise prepare me for a reversal of the speculative

situation. That was the reason why I went blithely about my

business with my Congressmen.

At the same time, prices kept going up and that meant that

the end of the bull market was drawing nearer. I did not look

for the end on any fixed date. That was something quite beyond

my power to determine. But I needn't tell you that I was on the

watch for the tip-off. I always am, anyhow. It has become a

matter of business habit with me.

I cannot swear to it but I rather suspect that the day

before I sold out, seeing the high prices made me think of the

magnitude of my paper-profit as well as of the line I was

carrying and, later on, of my vain efforts to induce our

legislators to deal fairly and intelligently by Wall Street.

That was probably the way and the time the seed was sown within

me. The subconscious mind worked on it all night. In the morning

I thought of the market and began to wonder how it would act

that day. When I went down to the office I saw not so much that

prices were still higher and that I had a satisfying profit but

that there was a great big market with a tremendous power of

absorption. I could sell any amount o£ stock in that market;

and, of course, when a man is carrying his full line of stocks,

he must be on the watch for an opportunity to change his paper

profit into actual cash. He should try to lose as little of the

profit as possible in the swapping. Experience has taught me

that a man can always find an opportunity to make his profits

real and that this opportunity usually comes at the end of the

move. That isn't tape-reading or a hunch.

Of course, when I found that morning a market in which I

could sell out all my stocks without any trouble I did so. When

you are selling out it is no wiser or braver to sell fifty

shares than fifty thousand; but fifty shares you can sell in the

dullest market without breaking the price and fifty thousand

shares of a single stock is a different proposition. I had

seventy-two thousand shares of U. S. Steel. This may not seem a

colossal line, but you can't always sell that much without

losing some of that profit that looks so nice on paper when you

figure it out and that hurts as much to lose as if you actually

had it safe in bank.

I had a total profit of about $1,500,000 and I grabbed it

while the grabbing was good. But that wasn't the principal

reason for thinking that I did the right thing in selling out

when I did. The market proved it for me and that was indeed a

source of satisfaction to me. It was this way: I succeeded in

selling my entire line of seventy-two thousand shares of U. S.

Steel at a price which averaged me just one point from the top

of the day and of the movement. It proved that I was right, to

the minute. But when, on the very same hour of the very same day

I came to sell my 5000 Utah Copper, the price broke five points.

Please recall that I began buying both stocks at the same time

and that I acted wisely in increasing my line of U. S. Steel

from twenty thousand shares to seventy-two thousand, and equally

wisely in not increasing my line of Utah from the original 5000

shares. The reason why I didn't sell out my Utah Copper before

was that I was bullish on the copper trade and it was a bull

market in stocks and I didn't think that Utah would hurt me much

even if I

didn't make a killing in it. But as for hunches, there

weren't any.

The training of a stock trader is like a medical education.

The physician has to spend long years learning anatomy,

physiology, materia medica and collateral subjects by the dozen.

He learns the theory and then proceeds to devote his life to the

practice. He observes and classifies all sorts of pathological

phenomena. He learns to diagnose. If his diagnosis is correct,

and that depends upon the accuracy of his observation -- he

ought to do pretty well in his prognosis, always keeping in

mind, of course, that human fallibility and the utterly

unforeseen will keep him from scoring 100 per cent of bull's

eyes.

And then, as he gains in experience, he. learns not only to

do the right thing but to do it instantly, so that many people

will think he does it instinctively. It really isn't automatism.

It is that he has diagnosed the case according to his

observations of such cases during a period of many years; and,

naturally, after he has diagnosed it, he can only treat it in

the way that experience has taught him is the proper treatment.

You can transmit knowledge -- that is, your particular

collection of card indexed facts, but not your experience. A man

may know what to do and lose money -- if he doesn't do it

quickly enough.

Observation, experience, memory and mathematics -- these

are what the successful trader must depend on. He must not only

observe accurately but remember at all times what he has

observed. He cannot bet on the unreasonable or on the unex-

pected, however strong his personal convictions may be about

man's unreasonableness or however certain he may feel that the

unexpected happens very frequently. He must bet always on

probabilities -- that is, try to anticipate them. Years of

practice at the game, of constant study, of always remembering,

enable the trader to act on the instant when the unexpected

happens as well as when the expected comes to pass.

A man can have great mathematical ability and an unusual

power of accurate observation and yet fail in speculation unless

he also possesses the experience and the memory. And then, like

the physician who keeps up with the advances of science, the

wise trader never ceases to study general conditions, to keep

track of developments everywhere that are likely to affect or

influence the course of the various markets. After years at the

game it becomes a habit to keep posted. He acts almost

automatically. He acquires the invaluable professional attitude

and that enables him to beat the game at times! This difference

between the professional and the amateur or occasional trader

cannot be overemphasised. I find, for instance, that memory and

mathematics help me very much. Wall Street makes its money on a

mathematical basis. I mean, it makes its money by dealing with

facts and figures.

When I said that a trader has to keep posted to the minute

and that he must take a purely professional attitude toward all

markets and all developments, I merely meant to emphasise again

that hunches and the mysterious ticker-sense haven't so very

much to do with success. Of course, it often happens that an

experienced trader acts so quickly that he hasn't time to give

all his reasons in advance, but nevertheless they are good and

sufficient reasons, because they are based on facts collected by

him in his years of working and thinking and seeing things from

the angle of the professional, to whom everything that comes to

his mill is grist. Let me illustrate what I mean by the

professional attitude.

I keep track of the commodities markets, always. It is a

habit of years. As you know, the Government reports indicated a

winter wheat crop about the same as last year and a bigger

spring wheat crop than in 1921. The condition was much better

and we probably would have an earlier harvest than usual. When I

got the figures of condition and I saw what we might expect in

the way of yield-mathematics, I also thought at once of the coal

miners' strike and the railroad shopmen's strike. I couldn't

help thinking of them because my mind always thinks of all

developments that have a bearing on the markets. It instantly

struck me that the strike which had already affected the

movement of freight everywhere must affect wheat prices

adversely. I figured this way: There was bound to be

considerable delay in moving winter wheat to market by reason of

the strike-crippled transportation facilities, and by the time

those improved the Spring wheat crop would be ready to move.

That meant that when the railroads were able to move wheat in

quantity they would be bringing in both crops together the

delayed winter and the early spring wheat and that would mean a

vast quantity of wheat pouring into the market at one fell

swoop. Such being the facts of the case -- the obvious

probabilities -- the traders, who would know and figure as I

did, would not bull wheat for a while. They would not feel like

buying it unless the price declined to such figures as made the

purchase of wheat a good investment. With no buying power in the

market, the price ought to go down. Thinking the way I did I

must find whether I was right or not. As old Pat Hearne used to

remark, "You can't tell till you bet." Between being bearish and

selling there is no need to waste time.

Experience has taught me that the way a market behaves is

an excellent guide for an operator to follow. It is like taking

a patient's temperature and pulse or noting the colour of the

eyeballs and the coating of the tongue.

Now, ordinarily a man ought to be able to buy or sell a

million bushels of wheat within a range of Y4 cent. On this day

when I sold the 250,000 bushels to test the market for

timeliness, the price went down Y4 cent. Then, since the reac-

tion did not definitely tell me all I wished to know, I sold an-

other quarter of a million bushels. I noticed that it was taken

in driblets; that is, the buying was in lots of io,ooo or 15,000

bushels instead of being taken in two or three transactions

which would have been the normal way. In addition to the

homeopathic buying the price went down i Y4 cents on my selling.

Now, I need not waste time pointing out that the way in which

the market took my wheat and the disproportionate decline on my

selling told me that there was no buying power there. Such being

the case, what was the only thing to do? Of course, to sell a

lot more. Following the dictates of experience may possibly fool

you, now and then. But not following them invariably makes an

ass of you. So I sold 2,000,000 bushels and the price went down

some more. A few days later the market's behaviour practically

compelled me to sell an additional 2,000,000 bushels and the

price declined further still; a few days later wheat started to

break badly and slumped off 6 cents a bushel. And it didn't stop

there. It has been going down, with short-lived rallies.

Now, I didn't follow a hunch. Nobody gave me a tip. It was

my

habitual

or

professional

mental

attitude

toward

the

commodities markets that gave me the profit and that attitude

came from my years at this business. I study because my business

is to trade. The moment the tape told me that I was on the right

track my business duty was to increase my line. I did. That is

all there is to it.

I have found that experience is apt to be steady dividend

payer in this game and that observation gives you the best tips

of all. The behaviour of a certain stock is all you need at

times. You observe it. Then experience shows you how to profit

by variations from the usual, that is, from the probable. For

example, we know that all stocks do not move one way together

but that all the stocks of a group will move up in a bull market

and down in a bear market. This is a commonplace of speculation.

It is the commonest of all self-given tips and the commission

houses are well aware of it and pass it on to any customer who

has not thought of it himself; I mean, the advice to trade in

those stocks which have lagged behind other stocks of the same

group. Thus, if U. S. Steel goes up, it is logically assumed

that it is only a matter of time when Crucible or Republic or

Bethlehem will follow suit. Trade conditions and prospects

should work alike with all stocks of a group and the prosperity

should be shared by all. On the theory, corroborated by

experience times without number, that every dog has his day in

the market, the public will buy A. B. Steel because it has not

advanced while C. D. Steel and X. Y. Steel have gone up.

I never buy a stock even in a bull market, if it doesn't

act as it ought to act in that kind of market. I have sometimes

bought a stock during an undoubted bull market and found out

that other stocks in the same group were not acting bullishly

and I have sold out my stock. Why? Experience tells me that it

is not wise to buck against what I may call the manifest group

tendency. I cannot expect to play certainties only. I must

reckon on probabilities and anticipate them. An old broker once

said to me: "If I am walking along a railroad track and I see a

train coming toward me at sixty miles an hour, do I keep on

walking on the ties? Friend, I sidestep. And I do not even pat

myself on the back for being so wise and prudent."

L~_at year, after the general bull movement was well under

way, I noticed that one stock in a certain group was not going

with the rest of the group, though the group v:rh that one

exception was going with the rest of the marl:ct. I was long a

very fair amount of Blackwood Motors. Evcrybody knew that the

company was doing a very big busines. The price was rising from

one to three points a day and tile public was coming in more and

more. This naturally centered attention on the group and all the

various motor stocks began to go up. One of them, however,

persistently held back and that was Chester. It lagged behind

the others so that it was not long before it made people talk.

The low price of Chester and its apathy was contrasted with the

strength and activity in Blackwood and other motor stocks and

the public logically enough listened to the touts and tipsters

and wiseacres and began to buy Chester on the theory that it

must presently move up with the rest of the group.

Instead of going up on this moderate public buying, Chester

actually decline,. Now, it would have been no job to put it up

in that bull 'Market, considering that Blackwood, a stock of the

same group, was one of the sensational leaders of the general

advance and we were hearing nothing but the wonderful

improvement in the demand for automobiles of all kinds and the

record output.

It was thus plain that the inside clique in Chester were

not doing any of the things that inside cliques invariably do in

a bull market. For this failure to do the usual thing there

might be two reasons. Perhaps the insiders did not put it up

because they wished to accumulate more stock before advancing

the price. But this was an untenable theory if you analysed the

volume and character of the trading in Chester. The other reason

was that they did not put it up because they were afraid of

getting stock if they tried to.

When the men who ought to want a stock don't want it, why

should I want it? I figured that no matter how prosperous other

automobile companies might be, it was a cinch to sell Chester

short. Experiences had taught me to beware of buying a stock

that refuses to follow the group-leader.

I easily established the fact that not only there was no

inside buying but that there was actually inside selling. There

were other symptomatic warnings against buying Chester, though

all I required was its inconsistent market behaviour. It was

again the tape that tipped me off and that was why I sold

Chester short. One day, not very long afterward, the stock broke

wide open. Later on we learned officially, as it were that

insiders had indeed been selling it, knowing full well that the

condition of the company was not good. The reason, as usual, was

disclosed after the break. But the warning came before the

break. I don't look out for the breaks; I look out for the

warnings. I didn't know what was the trouble with Chester;

neither did I follow a hunch. I merely knew that something must

be wrong.

Only the other day w e had what the newspapers called a

sensational movement in Guiana Gold. After selling on the Curb

at 50 or close to it, it was listed on the Stock Exchange. It

started there at around 35, began to go down and finally broke

20.

Now, I'd never have called that break sensational because

it was fully to be expected. If you had asked you could have

learned the history of the company. No end of people knew it. It

was told to me as follows: A syndicate was formed consisting of

a half dozen extremely well-known capitalists and a prominent

banking-house. One of the members was the head of the Belle Isle

Exploration Company, which advanced Guiana over $10,000,000 cash

and received in return bonds and 250,000 shares out of a total

of one million shares of the Guiana Gold Mining Company. The

stock went on a dividend basis and it was mighty well

advertised. The Belle Isle people thought it well to cash in and

they gave a call on their 250,000 shares to the bankers, who

arranged to try to market that stock and some of their own

holdings as well. They thought of entrusting the market

manipulation to a professional whose fee was to be one third of

the profits from the sale of the 250,000 shares above 36. I

understand that the agreement was drawn up and ready to be

signdd but at the last moment the bankers decided to undertake

the marketing themselves and save the fee. So they organized an

inside pool. The bankers had a call on the Belle Isle holdings

of 250,000 at 36. They put this in at 41. That is, insiders paid

their own banking colleagues a 5-point profit to start with. I

don't know whether they knew it or not.

It is perfectly plain that to the bankers the operation had

every semblance of a cinch. We had run into a bull market and

the stocks of the group to which Guiana Gold belonged were among

the market leaders. The company was making big profits and

paying regular dividends. This together with the high character

of the sponsors made the public regard Guiana almost as an

investment stock. I was told that about 400,000 shares were sold

to the public all the way up to 47.

The gold group was very strong. But presently Guiana began

to sag. It declined ten points. That was all right if the pool

was marketing stock. But pretty soon the Street began to hear

that things were not altogether satisfactory and the property

was not bearing out the high expectations of the promoters.

Then, of course, the reason for the decline became plain. But

before the reason was known I had the warning and had taken

steps to test the market for Guiana. The stock was acting pretty

much as Chester Motors did. I sold Guiana. The price went down.

I sold more. The price went still lower. The stock was repeating

the performance of Chester and of a dozen other stocks whose

clinical history I remembered. The tape plainly told me.that

there was something wrong -- something that kept insiders from

buying itinsiders who knew exactly why they should not buy their

own stock in a bull market. On the other hand, outsiders, who

did not know, were now buying because having sold at 45 and

higher the stock looked cheap at 35 and lower. The dividend was

still being paid. The stock was a bargain.

Then the news came. It reached me, as important market news

often does, before it reached the public. But the confirmation

of the reports of striking barren rock instead of rich ore

merely gave me the reason for the earlier inside selling. I

myself didn't sell on the news. I had sold long before, on the

stock's behaviour. My concern with it was not philosophical. I

am a trader and therefore looked for one sign: Inside buying.

There wasn't any. I didn't have to know why the insiders did not

think enough of their own stock to buy it on the decline. It was

enough that their market plans plainly did not include further

manipulation for the rise. That made it a cinch to sell the

stock short. The public had bought almost a half million shares

and the only change in ownership possible was from one set of

ignorant outsiders who would sell in the hope of stopping losses

to another set of ignorant outsiders who might buy in the hope

of making money.

I am not telling you this to moralise on i the public's

losses through their buying of Guiana or on my profit through my

selling of it, but to emphasise how important the study of group

behaviourism is and how its lessons are disregarded by

inadequately equipped traders, big and little. And it is not

only in the stock market that the tape warns you. It blows the

whistle quite as loudly in commodities.

I had an interesting experience in cotton. I was bearish on

stocks and put out a moderate short line. At the same time I

sold cotton short; 50,000 bales. My stock deal proved profitable

and I neglected my cotton. The first thing I knew I had a loss

of $250,000 on my 50,000 bales. As I said, my stock deal was so

interesting and I was doing so well in it that I did not wish to

take my mind off it. Whenever I thought of cotton I just said to

myself: "I'll wait for a reaction and cover." The price would

react a little but before I could decide to take my loss and

cover the price would rally again, and go higher than ever. So

I'd decide again to wait a little and I'd go back to my stock

deal and confine my attention to that. Finally I closed out my

stocks at a very handsome profit and went away to Hot Springs

for a rest and a holiday.

That really was the first time that I had my mind free to

deal with the problem of my losing deal in cotton. The trade had

gone against me. There were times when it almost looked as if I

might win out. I noticed that whenever anybody sold heavily

there was a good reaction. But almost instantly the price would

rally and make a new high for the move.

Finally, by the time I had been in Hot Springs a few days,

I was a million to the bad and no let up in the rising tendency.

I thought over all I had done and had not done and I said to

myself: "I must be wrong!" With me to feel that I am wrong and

to decide to get out are practically one process. So I covered,

at a loss of about one million.

The next morning I was playing golf and not thinking of

anything else. I had made my play in cotton. I had been wrong. I

had paid for being wrong and the receipted bill was in my

pocket. I had no more concern with the cotton market than I have

at this moment. When I went back to the hotel for luncheon I

stopped at the broker's office and took a look at the

quotations. I saw that cotton had gone off 5o points. That

wasn't anything. But I also noticedithat it had not rallied as

it had been in the habit of doing for weeks, as soon as the

pressure of the particular selling that had depressed it eased

up. This had indicated that the line of least resistance was up-

ward and it had cost me a million to shut my eyes to it.

Now, however, the reason that had made me cover at a big

loss was no longer a good reason since there had not been the

usual prompt and vigorous rally. So I sold ro,ooo bales and

waited. Pretty soon the market went off So points. I waited a

little while longer. There was no rally. I had got pretty hungry

by now, so I went into the dining-room and ordered my luncheon.

Before the waiter could serve it, I jumped up, went to the

broker's office, I saw that there had been no rally and so I

sold io,ooo bales more. I waited a little and had the pleasure

of seeing the price decline 40 points more. That showed me I was

trading correctly so I returned to the diningroom, ate my

luncheon and went back to the broker's. There was no rally in

cotton that day. That very night I left Hot Springs.

It was all very well to play golf but I had been wrong in

cotton in selling when I did and in covering when I did. So I

simply had to get back on the job and be where I could trade in

comfort. The way the market took my first ten thousand bales

made me sell the second ten thousand, and the way the market

took the second made me certain the turn had come. It was the

difference in behaviour.

Well, I reached Washington and went to my brokers' office

there, which was in charge of my old friend Tucker. While I was

there the market went down some more. I was more confident of

being right now than I had been of being wrong before. So I sold

40,ooo bales and the market went off 75 points. It showed that

there was no support there. That night the market closed still

lower. The old buying power was plainly gone. There was no

telling at what level that power would again develop, but I felt

confident of the wisdom of my position. The next morning I left

Washington for New York by motor. There was no need to hurry.

When we got to Philadelphia I drove to a broker's office. I

saw that there was the very dickens to pay in the cotton market.

Prices had broken badly and there was a small-sized panic on. I

didn't wait to get to New York. I called up my brokers on the

long distance and I covered my shorts. As soon as I got my

reports and found that I had practically made up my previous

loss, I motored on to New York without having to stop en route

to see any more quotations.

Some friends who were with me in Hot Springs talk to this

day of the way I jumped up from the luncheon table to sell that

second lot of io,ooo bales. But again that clearly was not a

hunch. It was an impulse that came from the conviction that the

time to sell cotton had now come, however great my previous

mistake had been. I had to take advantage of it. It was my

chance. The subconscious mind probably went on working, reaching

conclusions for me. The decision to sell in Washington was the

result of my observation. My years of experience in trading told

me that the line of least resistance had changed from up to

down.

I bore the cotton market no grudge for taking a million

dollars out of me and I did not hate myself for making a mistake

of that calibre any more than I felt proud for covering in

Philadelphia and making up my loss. My trading mind concerns

itself with trading problems and I think I am justified in

asserting that I made up my first loss because I had the

experience and the memory.

CHAPTER XVIII

HISTORY repeats itself all the time in Wall Street. Do you

remember a story I told you about covering my shorts at the time

Stratton had corn cornered? Well, another time I used

practically the same tactics in the stock market. The stock was

Tropical Trading. I have made money bulling it and also bearing

it. It always was an active stock and a favourite with

adventurous traders. The inside coterie has been accused time

and again by the newspapers of being more concerned over the

fluctuations in the stock than with encouraging permanent

investment in it. The other day one of the ablest brokers I know

asserted that not even Daniel Drew in Erie or H. O. Havemeyer in

Sugar developed so perfect a method for milking the market for a

stock as President Mulligan and his friends have done in

Tropical Trading. Many times they have encouraged the bears to

sell TT short and then have proceeded to squeeze them with

business-like thoroughness. There was no more vindictiveness

about the process than is felt by a hydraulic press or no more

squeamishness, either.

Of course, there have been people who have spoken about

certain "unsavory incidents" in the market career of TT stock.

But I dare say these critics were suffering from the squeezing.

Why do the room traders, who have suffered so often from the

loaded dice of the insiders, continue to go up against the game?

Well, for one thing they like action and they certainly get it

in Tropical Trading. No prolonged spells of dulness. No reasons

asked or given. No time wasted. No patience strained by waiting

for the tipped movement to begin. Always enough stock to go

around -- except when the short interest is big enough to make

the scarcity worth while. One born every minute!

It so happened some time ago that I was in Florida on my

usual winter vacation. I was fishing and enjoying myself with

out any thought of the markets excepting when we received a

batch of newspapers. One morning when the semi-weekly mail came

in I looked at the stock quotations and saw that Tropical

Trading was selling at 155. The last time I'd seen a quotation

in it, I think, was around iqo. My opinion was that we were

going into a bear market and I was biding my time before going

short of stocks. But there was no mad rush. That was why I was

fishing and out of hearing of the ticker. I knew that I'd be

back home when the real call came. In the meanwhile nothing that

I did or failed to do would hurry matters a bit.

The behaviour of Tropical Trading was the outstanding

feature of the market, according to the newspapers I got that

morning. It served to crystallise my general bearishness because

I thought it particularly asinine for the insiders to run up the

price of TT in the face of the heaviness of the general list.

There are times when the milking process must be suspended. What

is abnormal is seldom a desirable factor in a trader's

calculations and it looked to me as if the marking up of that

stock were a capital blunder. Nobody can make blunders of that

magnitude with impunity; not in the stock market.

After I got through reading the newspapers I went back to

my fishing but I kept thinking of what the insiders in Tropical

Trading were trying to do. That they were bound to fail was as

certain as that a man is bound to smash himself if he jumps from

the roof 9f a twenty-story building without a parachute. I

couldn't think of anything else and finally I gave up trying to

fish and sent off a telegram to my brokers to sell 2000 shares

of TT at the market. After that I was able to go back to my

fishing. I did pretty well.

the rest of the market instead of going up on inside manipula-

tion. I therefore left my fishing camp and returned to Palm

Beach; or, rather, to the direct wire to New York.

The moment I got to Palm Beach and saw what the misguided

insiders were still trying to do, I let them have a second lot

of aooo TT. Back came the report and I sold another 2000 shares.

The market behaved excellently. That is, it declined on my

selling. Everything being satisfactory I went out and had a

chair ride. But I wasn't happy. The more I thought the unhappier

it made me to think that I hadn't sold more. So back I went to

the broker's office and sold another 2000 shares.

I was happy only when I was selling that stock. Presently I

was short io,ooo shares. Then I decided to return to New York. I

had business to do now. My fishing I would do some other time.

When I arrived in New York I made it a point to get a line

on the company's business, actual and prospective. What I

learned strengthened my conviction that the insiders had been

worse than reckless in jacking up the price at a time when such

an advance was not justified either by~the tone of the general

market or by the company's earnings.

The rise, illogical and ill-timed though it was, had

developed some public following and this doubtless encouraged

the insiders to pursue their unwise tactics. Therefore I sold

more stock. The insiders ceased their folly. So I tested the

market again and again, in accordance with my trading methods,

until finally I was short 30,000 shares of the stock of the

Tropical Trading Company. By then the price was 133.

I had been warned that the TT insiders knew the exact

whereabouts of every stock certificate in the Street and the

precise dimensions and identity of the short interest as well as

other facts of tactical importance. They were able men and

shrewd traders. Altogether it was a dangerous combination to go

up against. But facts are facts and the strongest of all allies

are conditions.

Of course, on the way down from 153 to 133 the short

interest had grown and the public that buys on reactions began

to argue as usual: That stock had been considered a good

purchase at 153 and higher. Now 20 points lower, it was

necessarily a much better purchase. Same stock; same dividend

rate; same officers; same business. Great bargain l

The public's purchases reduced the floating supply and the

insiders, knowing that a lot of room traders were short, thought

the time propitious for a squeezing. The price was duly run up

to i5o. I daresay there was plenty of covering but I stayed pat.

Why shouldn't I ? The insiders might know that a short line of

30,000 shares had not been taken in but why should that frighten

me? The reasons that had impelled me to begin selling at 153 and

keep at it on the way down to 133, not only still existed but

were stronger than ever. The insiders might desire to force me

to cover but they adduced no convincing arguments. Fundamental

conditions were fighting for me. It was not difficult to be both

fearless and patient. A speculator must have faith in himself

and in his judgment. The late Dickson G. Watts, ex-President of

the New York Cotton Exchange and famous author of "Speculation

as a Fine Art," says that courage in a speculator is merely

confidence to act on the decision of his mind. With me, I cannot

fear to be wrong because I never think I am wrong until I am

proven wrong. In fact, I am uncomfortable unless I am

capitalising my experience. The course of the market at a given

time does not necessarily prove me wrong. It is the character of

the advance or of the decline that determines for me the

correctness or the fallacy of my market position. I can only

rise by knowledge. If I fall it must be by my own blunders.

There was nothing in the character of the rally from 133 to

150 to frighten me into covering and presently the stock, as was

to be expected, started down again. It broke 140 before the

inside clique began to give it support. Their buying was

coincident with a flood of bull rumors about the stock. The

company, we heard, was making perfectly fabulous profits, and

the earnings justified an increase in the regular dividend rate.

Also, the short interest was said to be perfectly huge and the

squeeze of the century was about to be inflicted on the bear

party in general and in particular on a certain operator who was

more than over-extended. I couldn't begin to tell you all I

heard as they ran the price up ten points.

The manipulation did not seem particularly dangerous to me

but when the price touched 149 I decided that it was not wise to

let the Street accept as true all the bull statements that were

floating around. Of course, there was nothing that I or any

other rank outsider could say that would carry conviction either

to the frightened shorts or to those credulous customers of

commission houses that trade on hearsay tips. The most effective

retort courteous is that which the tape alone can print. People

will believe that when they will not believe an affidavit from

any living man, much less, one from a chap who is short 30,000

shares. So I used the same tactics that I did at the time of the

Stratton corner in corn, when I sold oats to make the traders

bearish on corn. Experience and memory again.

When the insiders jacked up the price of Tropical Trading

with a view to frightening the shorts I didn't fry to check the

rise by selling that stock. I was already short 30,000 shares of

it which was as big a percentage of the floating supply as I

thought wise to be short of. I did not propose to put my head

into the noose so obligingly held open for me -- the second

rally was really an urgent invitation. What I did when TT

touched i49 was to sell about 10,000 shares of Equatorial

Commercial Corporation. This company owned a large block of

Tropical Trading.

Equatorial Commercial, which was not as active a stock as

TT, broke badly on my selling, as I had foreseen; and, of

course, my purpose was achieved. When the traders and the

customers of the commission houses who had listened to the

uncontradicted bull dope on TT-saw that the rise in Tropical

synchronised with heavy selling and a sharp break in Equatorial,

they naturally concluded that the strength of TT was merely a

smoke-screen -- a manipulated advance obviously designed to

facilitate inside liquidation in Equatorial Commercial, which

was largest holder of TT stock. It must be both long stock and

inside stock in Equatorial, because no outsider would dream of

selling so much short stock at the very moment when Tropical

Trading was so very strong. So they sold Tropical Trading and

checked the rise in that stock, the insiders very properly not

wishing to take all the stock that was pressed for sale. The

moment the insiders took away their support the price of TT

declined. The traders and principal commission houses now sold

some Equatorial also and I took in my short line in that at a

small profit. I hadn't sold it to make money out o f the

operation but to check the rise in TT.

Time and again the Tropical Trading insiders and their

hard-working publicity man flooded the Street with all manner of

bull items and tried to put up the price. And every time they

did I sold Equatorial Commercial short and covered it with TT

reacted and carried E C with it. It took the wind out of the

manipulators' sails. The price of TT finally went down to 125

and the short interest really grew so big that the insiders were

enabled to run it up 2o or 25 points. This time it was a

legitimate enough drive against an over-extended short interest;

but while I foresaw the rally I did not cover, not wishing to

lose my position. Before Equatorial Commercial could advance in

sympathy with the rise in TT I sold a raft of it short with the

usual results. This gave the lie to the bull talk in TT which

had got quite boisterous after the latest sensational rise.

By this time the general market had grown quite weak. As I

told you, it was the conviction that we were in a bear market

that started me selling TT short in the fishing-camp in Florida.

I was short of quite a few other stocks but TT was my pet.

Finally, general conditions proved too much for the inside

clique to defy and TT hit the toboggan slide. It went below 120

for the first time in years; then below iio; below par; and

still I did not cover. One day when the entire market was

extremely weak Tropical Trading broke go and on the de-

moralisation I covered. Same old reason! I had the opportunity -

- the big market and the weakness and the excess of sellers over

buyers. I may tell you, even at the risk of appearing to be

monotonously bragging of my cleverness, that I took in my 30,000

shares of TT at practically the lowest prices of the movement.

But I wasn't thinking of covering at the bottom. I was intent on

turning my paper profits into cash without losing much of the

profit in the changing.

I stood pat throughout because I knew my position was

sound. I wasn't bucking the trend of the market or going against

basic conditions but the reverse, and that was what made me so

sure of the failure of an over-confident inside clique. What

they tried to do others had tried before and it had always

failed. The frequent rallies, even when I knew as well as

anybody that they were due, could not frighten me. I knew I'd do

much better in the end by staying pat than by trying to cover to

put out a new short line at a higher price. By sticking to the

position that I felt was right I made over a million dollars. I

was not indebted to hunches or to skilful tape reading or to

stubborn courage. It was a dividend declared by my faith in my

judgment and not by my cleverness or by my vanity. Knowledge is

power and power need not fear lies -- not even when the tape

prints them. The retraction follows pretty quickly.

A year later, TT was jacked up again to i 5o and hung

around there for a couple of weeks. The entire market was

entitled to a good reaction for it had risen uninterruptedly and

it did not bull any longer. I know because I tested it. Now, the

group to which TT belonged had been suffering from very poor

business and I couldn't see anything to bull those stocks on

anyhow, even if the rest of the market were due for a rise,

which it wasn't. So I began to sell Tropical Trading. I intended

to put out io,ooo shares in all. The price broke on my selling.

I couldn't see that there was any support whatever. Then

suddenly, the character of the buying changed.

I am not trying to make myself out a wizard when I assure

you that I could tell the moment support came in. Ft instantly

struck me that if the insiders in that stock, who never felt a

moral obligation to keep the price up, were now buying the stock

in the face of a declining general market there must be a

reason. They were not ignorant asses nor philanthropists nor yet

bankers concerned with keeping the price up to sell more

securities over the counter. The price rose notwithstanding my

selling and the selling of others. At 153 I covered my 10,000

shares and at 156 I actually went long because by that time the

tape told me the line of least resistance was upward. I was

bearish on the general market but I was confronted by a trading

condition in a certain stock and not by a speculative theory in

general. The price went out of sight, above 200. It was the

sensation of the year. I was flattered by reports spoken and

printed that I had been squeezed out of eight or nine millions

of dollars. As a matter of fact, instead of being short I was

long of TT all the way up. In fact, I held on a little too long

and let some of my paper profits get away. Do you wish to know

why I did? Because I thought the TT insiders would naturally do

what I would have done had I been in their place. But that was

something I had no business to think because my business is to

trade -- that is, to stick to the facts before me and not to

what I think other people ought to do.

CHAPTER XIX

DO not know when or by whom the word "manipulation"

was first used in connection with what really are no more

than common merchandising processes applied to the sale in bulk

of securities on the Stock Exchange. Rigging the market to

facilitate cheap purchases of a stock which it is desired to

accumulate is also manipulation. But it is different. It may not

be necessary to stoop to illegal practices, but it would be

difficult to avoid doing what some would think illegitimate. How

are you going to buy a big block of a stock in a bull market

without putting up the price on yourself? That would be the

problem. How can it be solved? It depends upon so many things

that you can't give a general solution unless you say: possibly

by means of very adroit manipulation. For instance? Well, it

would depend upon conditions. You can't give any closer answer

than that.

I am profoundly interested in all phases of my business,

and of course I learn from the experience of others as well as

from my own. But it is very difficult to learn how to manipulate

stocks today from such yarns as are told of an afternoon in the

brokers' offices after the close. Most of the tricks, devices

and expedients of bygone days are obsolete and futile; or

illegal and impracticable. Stock Exchange rules and conditions

have changed, and the story -- even the accurately detailed

story of what Daniel Drew or Jacob Little or Jay Gould could do

fifty or seventy-five years ago is scarcely worth listening to.

The manipulator today has no more need to consider what they did

and how they did it than a cadet at West Point need study

archery as practiced by the ancients in order to increase his

working knowledge of ballistics.

On the other hand there is profit in studying the human

factors, the ease with which human beings believe what it

pleases them to believe; and how they allow themselves indeed,

urge themselves to be influenced by their cupidity or by the

dollar-cost of the average man's carelessness. Fear and hope

remain the same; therefore the study of the psychology of

speculators is as valuable as it ever was. Weapons change, but

strategy remains strategy, on the New York Stock Exchange as on

the battlefield. I think the clearest summing up of the whole

thing was expressed by Thomas F. Woodlock when he declared: "The

principles of successful stock speculation are based on the

supposition that people will continue in the future to make the

mistakes that they have made in the past."

In booms, which is when the public is in the market in the

greatest numbers, there is never any need of subtlety, so there

is no sense of. wasting time: discussing either manipulation or

speculation during such times; it would be like trying to find

the difference in raindrops that are falling synchronously on

the same roof across the street. The sucker has always tried to

get something for nothing, and the appeal in all booms is always

frankly to the gambling instinct aroused by cupidity and spurred

by a pervasive prosperity. People who look for easy money

invariably pay for the privilege of proving conclusively that it

cannot be found on this sordid earth. At first, when I listened

to the accounts of old-time deals and devices I used to think

that people were more gullible in the i86o's and '7o's than in

the igoo's. But I was sure to read in the newspapers that very

day or the next something about the latest Ponzi or the bust-up

of some bucketing broker and about the millions of sucker money

gone to join the,silent majority of vanished savings.

When I first came to New York there was a great fuss made

about wash sales and matched orders, for all that such practices

were forbidden by the Stock Exchange. At times the washing was

too crude to deceive anyone. The brokers had no hesitation in

saying that "the laundry was active" whenever anybody tried to

wash up some stock or other, and, as I have said before, more

than once they had what were frankly referred to as "bucket-shop

drives," when a stock was offered down two or three points in a

jiffy just to establish the decline on the tape and wipe up the

myriad shoe-string traders who were long of the stock in the

bucket shops. As for matched orders, they were always used with

some misgivings by reason of the difficulty of coordinating and

synchronising operations by brokers, all such business being

against Stock Exchange rules. A few years ago a famous operator

canceled the selling but not the buying part of his matched

orders, and the result was that an innocent broker ran up the

price twentyfive points or so in a few minutes, only to see it

break with equal celerity as soon as his buying ceased. The

original intention was to create an appearance of activity. Bad

business, playing with such unreliable weapons. You see, you

can't take your best brokers into your confidence -- not if you

want them to remain members of the New York Stock Exchange. Then

also, the taxes have made all practices involving fictitious

transactions much more expensive than they used to be in the old

times.

The dictionary definition of manipulation includes corners.

Now, a corner might be the result of manipulation or it might

ibe the result of competitive buying, as, for instance, the

Northern Pacific corner on May 9, igoi, which certainly was not

manipulation. The Stutz corner was expensive to every body

concerned, both in money and in prestige. And it wasnot a

deliberately engineered corner, at that.

As a matter of fact very few of the great corners were

profitable to the engineers of them. Both Commodore Vanderbilt's

Harlem corners paid big, but the old chap deserved the millions

he made out of a lot of short sports, crooked legislators and

aldermen who tried to double-cross him. On the other hand, Jay

Gould lost in his Northwestern corner. Deacon S. V. White made a

million in his Lackawanna corner, but Jim Keene dropped a

million in the Hannibal & St. Joe deal. The financial success of

a corner of course depends upon the marketing of the accumulated

holdings at higher than cost, and the short interest has to be

of some magnitude for that to happen easily.

I used to wonder why corners were so popular among the big

operators of a half-century ago. They were men of ability and

experience, wide-awake and not prone to childlike trust in the

philanthropy of their fellow traders. Yet they used to get stung

with an astonishing frequency. A wise old broker told me that

all the big operators of the '60's and 'do's had one ambition,

and that was to work a corner. In many cases this was the

offspring of vanity: in others, of the desire for revenge. At

all events, to be pointed out as the man who had successfully

cornered this or the other stock was in reality recognition of

brains, boldness and boodle. It gave the cornerer the right to

be haughty. He accepted the plaudits of his fellows as fully

earned. It was more than the prospective money profit that

prompted the engineers of corners to do their damnedest. It was

the

vanity

complex

asserting

itself

among

cold-blooded

operators.

Dog certainly ate dog in those days with relish and

ease.

I think I told you before that I have managed to escape

being squeezed more than once, not because of the possession of

a

mysterious ticker-sense but because I can generally tell the

moment the character of the buying in the stock makes it

imprudent for me to be short of it. This I do by common-sense

tests, which must have been tried in the old times also. Old

Daniel Drew used to squeeze the boys with some frequency and

make them pay high prices for the Erie "sheers" they had sold

short to him. He was himself squeezed by Commodore Vanderbilt in

Erie, and when old Drew begged for mercy the Commodore grimly

quoted the Great Bear's own deathless distich

He that sells what isn't hisn

Must buy it back or go to prim.

Wall Street remembers very little of an operator who for

more than a generation was one of its Titans. His chief claim to

immortality seems to be the phrase "watering stock."

Addison G. Jerome was the acknowledged king of the Public

Board in the spring of 1863. His market tips, they tell me, were

considered as good as cash in bank. From all accounts he was a

great trader and made millions. He was liberal to the point of

extravagance and had a great following in the Street until Henry

Keep, known as William the Silent, squeezed him out of all his

millions in the Old Southern corner. Keep, by the way, was the

brother-in-law of Gov. Roswell P. Flower.

In most of the old corners the manipulation consisted

chiefly of not letting the other man know that you were

cornering the stock which he was variously invited to sell

short. It therefore was aimed chiefly at fellow professionals,

for the general public does not take kindly to the short side of

the account. The reasons that prompted these wise professionals

to put out short lines in such stocks were pretty much the same

as prompts them to do the same thing today. Apart from the

selling by faith breaking politicians in the Harlem corner of

the Commodore, I gather from the stories I have read that the

professional traders sold the stock because it was too high. And

the reason they thought it was too high was that it never before

had sold so high; and that made it too high to buy; and if it

was too high to buy it was just right to sell. That sounds

pretty modern, doesn't it? They were thinking of the price, and

the Commodore was thinking of the value! And so, for years

afterwards, old-timers tell me that people used to say, "He went

short of Harlem!" whenever they wished to describe abject

poverty.

Many years ago I happened to be speaking to one of Jay

Gould's old brokers. He assured me earnestly that Mr. Gould not

only was a most unusual man -- it was of him that old Daniel

Drew shiveringly remarked, "His touch is Death 1"but that he was

head and shoulders above all other manipulators past and

present. He must have been a financial wizard indeed to have

done what he did; there can be no question of that. Even at this

distance I can see that he had an amazing knack for adapting

himself to new conditions, and that is valuable in a trader. He

varied his methods of attack and defense without a pang because

he was more concerned with the manipulation of properties than

with stock speculation. He manipulated for investment rather

than for a market turn. He early saw that the big money was in

owning the railroads instead of rigging their securities on the

floor of the Stock Exchange.

He utilised the stock market of course. But I suspect it

was because that was the quickest and easiest way to quick and

easy money and he needed many millions, just as old Collis P.

Huntington was always hard up because he always needed twenty or

thirty millions more than the bankers were willing to lend him.

Vision without money means heartaches; with money, it means

achievement; and that means power; and that means money; and

that means achievement; and so on, over and over and over.

Of course manipulation was not confined to the great

figures of those days. There were scores of minor manipulators.

I remember a story an old broker told me about the manners and

morals of the early '60's. He said

"The earliest recollection I have of Wall Street is of my

first visit to the financial district. My father had some

business to attend to there and for some reason or other took me

with him. We came down Broadway and I remember turning off at

Wall Street. We walked down Wall and just as we came to Broad

or, rather, Nassau Street, to the corner where the Bankers'

Trust Company's: building now stands, I saw a crowd following

two men. The first was walking eastward, trying to look

unconcerned. He was followed by the other, a redfaced man who

was wildly waving his hat with one hand and shaking the other

fist in the air. He was yelling to beat the band: `Shylock !

Shylock ! What's the price of money? Shylock ! Shylock !' I

could see heads sticking out of windows. They didn't have

skyscrapers in those days, but I was sure the second and

third-story rubbernecks would tumble out. My father asked what

was the matter, and somebody answered something I didn't hear. I

was too busy keeping a death clutch on my father's hand so that

the jostling wouldn't separate us. The crowd was growing, as

street crowds do, and I wasn't comfortable. Wild-eyed men came

running down from Nassau Street and up from Broad as well as

east and west on Wall Street. After we finally got out of the

jam my father explained to me that the man who was shouting

`Shylock !' was So-and-So. I have forgotten the name, but he was

the biggest operator in clique stocks in the city and was

understood to have made and lost more money than any other man

in Wall Street with the exception of Jacob Little. I remember

Jacob Little's name because I thought it was a funny name for a

man to have. The other man, the Shylock, was a notorious locker-

up of money. His name has also gone from me. But I remember he

was tall and thin and pale. In those days the cliques used to

lock up money by borrowing it or, rather, by reducing the amount

available to Stock Exchange borrowers. They would borrow it and

get a certified check. They wouldn't actually take the money out

and use it. Of course that was rigging. It was a form of

manipulation, I think."

I agree with the old chap. It was a phase of manipulation

that we don't have nowadays.

MYSELF never spoke to any of the great stock manipulators

that the Street still talks about. I don't mean leaders; I mean

manipulators. They were all before my time, although when I

first came to New York, James R. Keene, greatest of them all,

was in his prime. But I was a mere youngster then, exclusively

concerned with duplicating, in a reputable broker's office, the

success I had enjoyed in the bucket shops of my native city.

And, then, too, at the time Keene was busy with the U. S. Steel

stocks, his manipulative masterpiece -- I had no experience with

manipulation, no real knowledge of it or of its value or

meaning, and, for that matter, no great need of such knowledge.

If I thought about it at all I suppose I must have regarded it

as a well-dressed form of thimblerigging, of which the lowbrow

form was such tricks as had been tried on me in the bucket

shops. Such talk as I since have heard on the subject has

consisted in great part of surmises and suspicions; of guesses

rather than intelligent analyses.

More than one man who knew him well has told me that Keene

was the boldest and most brilliant operator that ever worked in

Wall Street. That is saying a great deal, for there have been

some great traders. Their names are now all but forgotten, but

nevertheless they were kings in their day -- for a day! They

were pulled up out of obscurity into the sunlight of financial

fame by the ticker tape and the little paper ribbon didn't prove

strong enough to keep them suspended there long enough for them

to become historical fixtures. At all events Keene was by all

odds the best manipulator of his day and it was a long and

exciting day.

He capitalized his knowledge of the game, his experience as

an operator and his talents when he sold his services to the

Havemeyer brothers, who wanted him to develop a market for the

Sugar stocks. He was broke at the time or he would have

continued to trade on his own hook; and he was some plunger! He

was successful with Sugar; made the shares trading favourites,

and that made them easily vendible. After that, he was asked

time and again to take charge of pools. I am told that in these

pool operations he never asked or accepted a fee, but paid for

his share like the other members of the pool. The market conduct

of the stock, of course, was exclusively in his charge. Often

there was talk of treachery on both sides. His feud with the

Whitney-Ryan clique arose from such accusations. It is not

difficult for a manipulator to be misunderstood by his

associates. They don't see his needs as he himself does. I know

this from my own experience.

It is a matter of regret that Keene did not leave an

accurate record of his greatest exploit -- the successful

manipulation of the U. S. Steel shares in the spring of igoi. As

I understand it, Keene never had an interview with J. P. Morgan

about it. Morgan's firm dealt with or through Talbot J. Taylor &

Co., at whose office Keene made his headquarters. Talbot Taylor

was Keene's son-in-law. I am assured that Keene's fee for his

Work consisted of the pleasure he derived from the work. That he

made millions trading in the market he helped to put up that

spring is well known. He told a friend of mine that in the

course of a few weeks he sold in the open market for the

underwriters' syndicate more than seven hundred and fifty

thousand shares. Not bad when you consider two things

That they were new and untried stocks of a corporation

whose capitalization was greater than the entire debt of the

United States at that time; and second, that men -- like D. G.

Reid, W. B. Leeds, the Moore brothers, Henry Phipps, H. C. Frick

and the other Steel magnates also sold hundreds of thousands of

shares to the public at the same time in the same market that

Keene helped to create.

Of course, general conditions favoured him. Not only actual

business but sentiment and his unlimited financial backing made

possible his success. What we had was not merely a big bull

market but a boom and a state of mind not likely to. be seen

again. The undigested securities panic came later, when Steel

common, which Keene had marked up to 55 in 1901, sold at io in

1903 and at 8Y8 in 1904.

We can't analyse Keene's manipulative campaigns. His books

are

not

available;

the

adequately

detailed

record

is

nonexistent. For example, it would be interesting to see how he

worked in Amalgamated Copper. H. H. Rogers and William

Rockefeller had tried to dispose of their surplus stock in the

market and had failed. Finally they asked Keene to market their

line, and he agreed. Bear in mind that H. H. Rogers was one of

the ablest business men of his day in Wall Street and that

William Rockefeller was the boldest speculator of the entire

Standard Oil coterie. They had practically unlimited resources

and vast prestige as well as years of experience in the

stock-market game. And yet they had to go to Keene. I mention

this to show you that there are some tasks which it requires a

specialist to perform. Here was a widely touted stock, sponsored

by America's greatest capitalists, that could not be sold except

at a great sacrifice of money and prestige. Rogers and

Rockefeller were intelligent enough to decide that Keene alone

might help them.

Keene began to work at once. He had a bull market to work

in and sold two hundred and twenty thousand shares of

Amalgamated at around par. After he disposed of the insiders'

line the public kept on buying and the price went ten points

higher. Indeed the insiders got bullish on the stock they had

sold when they saw how eagerly the public was taking it. There

was a story that Rogers actually advised Keene to go long of

Amalgamated. II is scarcely credible that Rogers meant to unload

on Keene. He was too shrewd a man not to know that Keene was no

bleating lamb. Keene worked as he always did -- that is, doing

his big selling on the way down after the big rise. Of course

his tactical moves were directed by his needs and by the minor

currents that changed from day to day. In the stock market, as

in warfare, it is well to keep in mind the difference between

strategy and tactics.

One of Keene's confidential men he is the best fly

fisherman I know -- told me only the other day that during the

Amal?amated campaign Keene would find himself almost out of

stock one day -- that is, out of the stock he had been forced to

take in marking up the price; and on the next day he would buy

back thousands of shares. On the day after that, he would sell

on balance. Then he would leave the market absolutely alone, to

see how it would take care of itself and also to accustom it to

do so. When it came to the actual marketing of the line he did

what I told you: he sold it on the way down. The trading public

is always looking for a rally, and, besides, there is the

covering by the shorts.

The man who was closest to Keene during that deal told me

that after Keene sold the Rogers-Rockefeller line for something

like twenty or twenty-five million dollars in cash Rogers sent

him a check for two hundred thousand. This reminds you of the

millionaire's wife who gave the Metropolitan Opera House

scrub-woman

fifty

cents

reward

for

finding

the

one-

hundred-thousand-dollar pearl necklace. Keene sent the check

back with a polite note saying he was not a stock broker and

that he was glad to have been of some service to them. They kept

the check and wrote him that they would be glad to work with him

again. Shortly after that it was that H. H. Rogers gave Keene

the friendly tip to buy Amalgamated at around 130!

A brilliant operator, James R. Keene! His private secretary

told me that when the market was going his way Mr. Keene was

irascible; and those who knew him say his irascibility was

expressed in sardonic phrases that lingered long in the memory

of his hearers. But when he was losing he was in the best of

humour, a polished man of the world, agreeable, epigrammatic,

interesting.

He had in superlative degree the qualities of mind that are

associated with successful speculators anywhere. That he did not

argue with the tape is plain. He was utterly fearless but never

reckless. He could and did turn in a twinkling, if he found he

was wrong.

Since his day there have been so many changes in Stock

Exchange rules and so much more rigorous enforcement of old

rules, so many new taxes on stock sales and profits, and so on,

that the game seems different. Devices that Keene could use with

skill and profit can no longer be utilised. Also, we are

assured, the business morality of Wall Street is on a higher

plane. Nevertheless it is fair to say that in any period of our

financial history Keene would have been a great manipulator

because he was a great stock operator and knew the game of

speculation from the ground up. He achieved what he did because

conditions at the time permitted him to do so. He would have

been as successful in his undertakings in 1922 as he was in igoi

or in 1876, when he first came to New York from California and

made nine million dollars in two years. There are men whose gait

is far quicker than the mob's. They are bound to lead no matter

how much the mob changes.

As a matter of fact, the change is by no means as radical

as you'd imagine. The rewards are not so great, for it is no

longer pioneer work and therefore it is not pioneer's pay. But

in certain respects manipulation is easier than it was; in other

ways much harder than in Keene's day.

There is no question that advertising is an art, and

manipulation is the art of advertising through the medium of the

tape. The tape should tell the story the manipulator wishes its

readers to see. The truer the story the more convincing it is

bound to be, and the more convincing it is the better the

advertising is. A manipulator today, for instance, has not only

to make a stock look strong but also to make it be strong.

Manipulation therefore must be based on sound trading princi-

ples. That is what made Keene such a marvellous manipulator; he

was a consummate trader to begin with.

The word "manipulation" has come to have an ugly sound. It

needs an alias. I do not think there is anything so very

mysterious or crooked about the process itself when it has for

an object the selling of a stock in bulk, provided, of course,

that such operations are not accompanied by misrepresentation.

There is little question that a manipulator necessarily seeks

his buyers among speculators. He turns to men who are looking

for big returns cn their capital and are therefore willing to

run a greater than normal business risk. I can't have much

sympathy for the man who, knowing this, nevertheless blames

others for his own failure to make easy money. He is a devil of

a clever fellow when he wins. But when he loses money the other

fellow was a crook; a manipulator! In such moments and from such

lips the word connotes the use of marked cards. But this is not

so.

Usually the object of manipulation is to develop market-

ability -- that is, the ability to dispose of fair-sized blocks

at some price at any time. Of course a pool, by reason of a

reversal of general market conditions, may find itself unable to

sell except at a sacrifice too great to be pleasing. They then

may decide to employ a professional, believing that his skill

and experience will enable him to conduct an orderly retreat

instead of suffering an appalling rout.

You will notice that I do not speak of manipulation

designed to permit considerable accumulation of a stock as

cheaply as possible, as, for instance, in buying for control,

because this does not happen often nowadays.

When Jay Gould wished to cinch his control of Western Union

and decided to buy a big block of the stock, Washington E.

Connor, who had not been seen on the floor of the Stock Exchange

for years, suddenly showed up in person at the Western Union

post. He began to bid for Western Union. The traders to a man

laughed at his stupidity in thinking them so simple and they

cheerfully sold him all the stock he wanted to buy. It was too

raw a trick, to think he could put up the price by acting as

though Mr. Gould wanted to buy Western Union. Was that

manipulation? I think I can only answer that by saying "No; and

yes!"

In the majority of cases the object of manipulation is, as

I said, to sell stock to the public at the best possible price.

It is not alone a question of selling but of distributing. It is

obviously better in every way for a stock to be had by a

thousand people than by one man better for the market in it. So

it is not alone the sale at a good price but the character of

the distribution that a manipulator must consider.

There is no sense in marking up the price to a very high

level if you cannot induce the public to take it off your hands

later. Whenever inexperienced manipulators try to unload at the

top and fail, old-timers look mighty wise and tell you that you

can lead a horse to water but you cannot make him drink.

Original devils! As a matter of fact, it is well to

remember a rule of manipulation, a rule that Keene and his able

predecessors well knew. It is this: Stocks are manipulated to

the highest point possible and then sold to the public on the

way down.

Let me begin at the beginning. Assume that there is some

one -- an underwriting syndicate or a pool or an individualthat

has a block of stock which it is desired to sell at the best

price possible. It is a stock duly listed on the New York Stock

Exchange. The best place for selling it ought to be the open

market, and the best buyer ought to be the general public. The

negotiations for the sale are in charge of a man. He or some

present or former associate has tried to sell the stock on the

Stock Exchange and has not succeeded. He is or soon becomes

sufficiently familiar with stock-market operations to realise

that more experience and greater aptitude for the work are

needed than he possesses. He knows personally or by hearsay

several men who have been successful in their handling of

similar deals, and he decides to avail himself of their

professional skill. He seeks one of them as he would seek a

physician if he were ill or an engineer if he needed that kind

of expert.

Suppose he has heard of me as a man who knows the game.

Well, I take it that he tries to find out all he can about me.

He then arranges for an interview, and in due time calls at my

office.

Of course, the chances are that I know about the stock and

what it represents. It is my business to know. That is how I

make my living. My visitor tells me what he and his associates

wish to do, and asks me to undertake the deal.

It is then my turn to talk. I ask for whatever information

I deem necessary to give me a clear understanding of what I am

asked to undertake. I determine the value and estimate the

market possibilities of that stock. That and my reading of

current conditions in turn help me to gauge the likelihood of

success for the proposed operation.

If my information inclines me to a favourable view I accept

the proposition and tell him then and there what my terms will

be for my services. I f he in turn accepts my terms the

honorarium and the conditions -- I begin my work at once.

I generally ask and receive calls on a block of stock. I

insist upon graduated calls as the fairest to all concerned. The

price of the call begins at a little below the prevailing market

price and goes up; say, for example, that I get calls on one

hundred thousand shares and the stock is quoted at 40. I begin

with a call for some thousands of shares at 35, another at 37,

another at 40, and at 45 and 50, and so on up to 75 or 80.

If as the result of my professional work my manipulation --

the price goes up, and if at the highest level there is a good

demand for the stock so that I can sell fair-sized blocks of it

I of course call the stock. I am making money; but so are my

clients making money. This is as it should be. If my skill is

what they are paying for they ought to get value. Of course,

there are times when a pool may be wound up at a loss, but that

is seldom, for I do not undertake the work unless I see my way

clear to a profit. This year I was not so fortunate in one or

two deals, and I did not make a profit. There are reasons, but

that is another story, to be told later perhaps.

The first step in a bull movement in a stock is to

advertise the fact that there is a bull movement on. Sounds

silly, doesn't it? Well, think a moment. It isn't as silly as it

sounded, is it? The most effective way to advertise what, in

effect, are your honourable intentions is to make the stock

active and strong. After all is said and done, the greatest

publicity agent in the wide world is the ticker, and by far the

best advertising medium is the tape. I do not need to put out

any literature for my clients. I do not have to inform the daily

press as to the value of the stock or to work the financial

reviews for notices about the company's prospects. Neither do I

have to get a following. I accomplish all these highly desirable

things by merely making the stock active. When there is activity

there is a synchronous demand for explanations; and that means,

of course, that the necessary reasons for publication supply

themselves without the slightest aid from me.

Activity is all that the floor traders ask. They will buy

or sell any stock at any level if only there is a free market

for it. They will deal in thousands of shares wherever they see

activity, and their aggregate capacity is considerable. It

necessarily happens that they constitute the manipulator's first

crop of buyers. They will follow you all the way up and they

thus are a great help at all the stages of the operation. I

understand that James R.' Keene used habitually to employ the

most active of the room traders, both to conceal the source of

the manipulation and also because he knew that they were by far

the best business-spreaders and tip-distributors. He often gave

calls to them verbal calls above the market, so that they might

do some helpful work before they could cash in. He made them

earn their profit. To get a professional following I myself have

never had to do more than to make a stock active. Traders don't

ask for more. It is well, of course, to remember that these

professionals on the floor of the Exchange buy stocks with the

intention of selling them at a profit They do not insist on its

being a big profit; but it must be a quick profit.

I make the stock active in order to draw the attention of

speculators to it, for the reasons I have given. I buy it and I

sell it and the traders follow suit. The selling pressure is not

apt to be strong where a man has as much speculatively held

stock sewed up in calls -- as I insist on having. The buying,

therefore, prevails over the selling, and the public follows the

lead not so much of the manipulator as of the room traders. It

comes in as a buyer. This highly desirable demand I fill -- that

is, I sell stock on balance. If the demand is what it ought to

be it will absorb more than the amount of stock I was compelled

to accumulate in the earlier stages of the manipulation; and

when this happens I sell the stock shortthat is, technically. In

other words, I sell more stock than I actually hold. It is

perfectly safe for me to do so since I am really selling against

my calls. Of course, when the demand from the public slackens,

the stock ceases to advance. Then I wait.

Say, then, that the stock has ceased to advance. There

comes a weak day. The entire market may develop a reactionary

tendency or some sharp-eyed trader my perceive that there are no

buying orders to speak of in my stock, and he sells it, and his

fellows follow. Whatever the reason may be, my stock starts to

go down. Well, I begin to buy it. I give it the support that a

stock ought to have if it is in good odour with its own

sponsors. And more: I am able to support it without accumulating

it -- that is, without increasing the amount I shall have to

sell later on. Observe that I do this without decreasing my

financial resources. Of course what I am really doing is

covering stock I sold short at higher prices when the demand

from the public or from the traders or from both enabled me to

do it. It is always well to make it plain to the traders and to

the public, also that there is a demand for the stock on the way

down. That tends to check both reckless short selling by the

professionals and liquidation by frightened holders which is the

selling you usually see when a stock gets weaker and weaker,

which in turn is what a stock does when it is not supported.

These covering purchases of mine constitute what I call the

stabilising process.

As the market broadens I of course sell stock on the way

up, but never enough to check the rise. This is in strict

accordance with my stabilising plans. It is obvious that the

more stock I sell on a reasonable and orderly advance the more I

encourage the conservative speculators, who are more numerous

than the reckless room traders; and in addition the more support

I shall be able to give to the stock on the inevitable weak

days. By always being short 'I always am in a position to

support the stock without danger to myself. As a rule I begin my

selling at a price that will show me a profit. But I often sell

without having a profit, simply to create or to increase what I

may call my riskless buying power. My business is not alone to

put up the price or to sell a big block of stock for a client

but to make money for myself. That is why I do not ask any

clients to finance my operations. My fee is contingent upon my

success.

Of course what I have described is not my invariable

practice. I neither have nor adhere to an inflexible system. I

modify my terms and conditions according to circumstances. A

stock which it is desired to distribute should be manipulated to

the highest possible point and then sold. I repeat this both

because it is fundamental and because the public apparently

believes that the selling is all done at the top. Sometimes a

stock gets waterlogged, as it were; it doesn't go up. That is

the time to sell. The price naturally will go down on your

selling rather further than you wish, but you can generally

nurse it back. As long as a stock that I am manipulating goes up

on my buying I know I am all hunky, and if need be I buy it with

confidence and use my own money without fear precisely as I

would any other stock that acts the same way. It is the line of

least resistance. You remember my trading theories about that

line, don't you? Well, when the price line of least resistance

is established I follow it, not because I am manipulating that

particular stock at that particular moment but because I am a

stock operator at all times.

When my buying does not put the stock up I stop buying and

then proceed to sell it down; and that also is exactly what I

would do with that same stock if I did not happen to be

manipulating it. The principal marketing of the stock, as you

know, is done on the way down. It is perfectly astonishing how

much stock a man can get rid of on a decline.

I repeat that at no time during the manipulation do I

forget to be a stock trader. My problems as a manipulator, after

all, are the same that confront me as an operator. All manipu-

lation comes to an end when the manipulator cannot make a stock

do what he wants it to do. When the stock you are manipulating

doesn't act as it should, quit. Don't argue with the tape. Do

not seek to lure the profit back. Quit while the quitting is

good and cheap.

CHAPTER XXI

AM well aware that all these generalities do not sound

especially impressive. Generalities seldom do. Possibly I may

succeed better if I give a concrete example. I'll tell you how I

marked up the price of a stock 30 points, and in so doing

accumulated only seven thousand shares and developed a market

that would absorb almost any amount of stock.

It was Imperial Steel. The stock had been brought out by

reputable people and it had been fairly well tipped as a

property of value. About 30 per cent of the capital stock was

placed with the general public through various Wall Street

houses, but there had been no significant activity in the shares

after they were listed. From time to time somebody would ask

about it and one or another insider -- members of the original

underwriting syndicate would say that the company's

earnings

were better than expected and the prospects more than

encouraging. This was true enough and very good as far as.

It went, but not exactly thrilling. The speculative appeal

was absent, and from the investor's point of view the price

stability and dividend permanency of the stock were not yet

demonstrated. It was a stock that never behaved sensationally.

It was so gentlemanly that no corroborative rise ever

followed the insiders' eminently truthful reports. On the other

hand,

neither did the price decline.

Imperial Steel remained unhonoured and unsung and untipped,

content to be one of those stocks that don't go down because

nobody sells and that nobody sells because nobody likes to go

short of a stock that is not well distributed; the seller is too

much at the mercy of the loaded-up inside clique.

Similarly, there is no inducement to buy such a stock. To

the investor Imperial Steel therefore remained a speculation. To

the speculator it was a dead one -- the kind that makes an

investor of you against your will by the simple expedient of

falling into a trance the moment you go long of it. The chap who

is compelled to lug a corpse a year or two always loses more

than the original cost of the deceased; he is sure to find

himself tied up with it when some really good things come his

way.

One day the foremost member of the Imperial Steel

syndicate, acting for himself and associates, came to see me.

They wished to create a market for the stock, of which they

controlled the undistributed 70 per cent. They wanted me to

dispose of their holdings at better prices than they thought

they would obtain if they tried to sell in the open market. They

wanted to know on what terms I would undertake the job.

I told him that I would let him know in a few days. Then I

looked into the property. I had experts go over the various

departments of the company -- industrial, commercial and finan-

cial. They made reports to me which were unbiased. I wasn't

looking for the good or the bad points, but for the facts, such,

as they were.

The reports showed that it was a valuable property. The

prospects justified purchases of the stock at the prevailing

market price if the investor were willing to wait a little.

Under the circumstances an advance in the price would in reality

be the commonest and most legitimate of all market movements to

wit, the process of discounting the future. There was therefore

no reason that I could see why I should not conscientiously and

confidently undertake the bull manpulation of Imperial Steel.

I let my man know my mind and he called at my office to

talk the deal over in detail. I told him what my terms were. For

my services I asked no cash, but calls on one hundred thousand

shares of the Imperial Steel stock. The price of the calls ran

up from 70 to 100. That may seem like a big fee to some. But

they should consider that the insiders were certain they

themselves could not sell one hundred thousand shares, or even

fifty thousand shares, at 70. There was no market for the stock.

All the talk about wonderful earnings and excellent; prospects

had not brought in buyers, not to any great extent.

In addition, I could not get my fee in cash without my

clients first making some millions of dollars. What I stood to

make was not an exorbitant selling commission. It was a fair

contingent fee.

Knowing that the stock had real value and that general

market

conditions were bullish and therefore favourable for an advance

in all good stocks, I figured that I ought to do pretty well. My

clients were encouraged by the opinions I expressed, agreed to

my terms at once, and the deal began with pleasant feelings all

around.

I proceeded to protect myself as thoroughly as I could. The

syndicate owned or controlled about 70 per cent of the out

standing stock. I had them deposit their' 7o per cent under a

trust agreement. I didn't propose to be used as a dumping ground

for the big holders. With the majority holdings thus securely

tied up, I still had 30 per cent of scattered holdings to

consider, but that was a risk I had to take. Experienced

speculators do not expect ever to engage in utterly riskless

ventures. As a matter of fact, it was not much more likely that

all the untrusteed stock would be thrown on the market at one

fell swoop than that all the policyholders of a life insurance

company would die at the same hour, the same day. There are

unprinted actuarial tables of stock-market risks as well as of

human mortality.

Having protected myself from some of the avoidable dangers

of a stock-market deal of that sort, I was ready to begin my

campaign. Its objective was to make my calls valuable.

To do this I must put up the price and develop a market in

which I could sell one hundred thousand shares -- the stock in

which I held options.

The first thing I did was to find out how much stock was likely

to come on the market on an advance. This was easily done

through my brokers, who had no trouble in ascertaining what

stock was for sale at or a little above the market. I don't know

whether the specialists told them what orders they had 'on their

books or not. The price was nominally 70, but I could not have

sold one thousand shares at that price. I had no evidence of

even a moderate demand at that figure or even a few points

lower. I had to go by what my brokers found out. But it was

enough to show me how much stock there was for sale

and

how

little was wanted.

As soon as I had a line on these points I quietly took all

the stock that was for sale at 7o and higher. When I say "I" you

will understand that I mean my brokers. The sales were for

account of some of the minority holders because my clients

naturally had cancelled whatever selling orders they might have

given out before they tied up their stock.

I didn't have to buy very much stock. Moreover, I knew that

the right kind of advance would bring in other buying a orders

and, of course, selling orders also.

I didn't give bull tips on Impdrial Steel to anybody. I

didn't have to. My job was to seek directly to influence

sentiment by the best possible kind of publicity. I do not say

that there should never be bull propaganda. It is as legitimate

and indeed as desirable to advertise the value of a new stock as

to advertise the value of woolens or shoes or automobiles.

Accurate and reliable information should be given by the public.

But what I meant was that the tape did all that was. needed for

my purpose. As I said before, the reputable newspapers always

try to print explanations for market movements. It is news.

Their readers demand to know not only what happens in the stock

market but why it happens. Therefore without the manipulator

lifting a finger the financial writers will print all the

available information and gossip, and also analyse the reports

of earnings, trade condition and outlook; in short, whatever may

throw light on the advance. Whenever a news paperman or an

acquaintance asks my opinion of a stock and I have one I do not

hesitate to express it. I do not volunteer advice and I never

give tips, but I have nothing to gain in my operations from

secrecy. At the same time I realise that the best of all

tipsters, the most persuasive of all salesmen, is the tape.

When I had absorbed all the stock that was for sale at 70

and a little higher I relieved the market of that pressure, and

naturally that made clear for trading purposes the line of least

resistance in Imperial Steel. It was manifestly upward. The

moment that fact was perceived by the observant traders on the

floor they logically assumed that the stock was in for an

advance the extent of which they could not know; but they knew

enough to begin buying. Their demand for Imperial Steel,created

exclusively by the obviousness of the stock's rising tendency --

the tape's infallible bull tip 1 -- I promptly filled. I sold to

the traders the stock that I had bought from the tired-out

holders at the beginning.

Of

course

this

selling

was

judiciously done; I contented myself with supplying the demand.

I was not forcing my stock on the market and I did not want

too rapid an advance.

It wouldn't have been good business to

sell out the half of my one hundred thousand shares at that

stage of the proceedings.

My job was to make a market on

which I might sell my entire line. But even though I

sold only

as much as the traders were anxious to buy, the market was

temporarily deprived of my own buying power, which I had

hitherto exerted steadily. In due course the traders' purchases

ceased and the price stopped rising.

As soon as that happened

there began the selling by disappointed bulls or by those

traders whose reasons for buying disappeared the instant the

rising tendency was checked.

But I was ready for this selling, and on the way down I

bought back the stock I had sold to the traders a couple of

points higher. This buying of stock I knew was bound to be sold

in turn checked the downward course; and when the price stopped

going down the selling orders stopped coming in.

I then began all over again. I took all the stock that was

for sale on the way up -- it wasn't very much and the price

began to rise a second time; from a higher starting point than

you. Don't forget that on the way down there are many holders

who wish to heaven they had sold theirs but won't do it three or

four points from the top. Such speculators always vow they will

surely sell out if there is a rally. They put in their orders to

sell on the way up, and then they change their minds with the

change in the stock's price-trend. Of course,there is always

profit taking from safe-playing quick runners to whom a profit

is always a profit to be taken.

All I had to do after that was to repeat the process;

alternately buying and selling; but always working higher.

Sometimes, after you have taken all the stock that is for

sale, it pays to rush up the price sharply, to have what might

be

called

little

bull

flurries

in

the

stock

you

are

manipulating. It is excellent advertising, because it makes talk

and also brings in both the professional traders and that

portion of the speculating public that likes action. It is, I

think, a large portion. I did that in Imperial Steel, and

whatever demand was created by those spurts I supplied. My

selling always kept the upward movement within bounds both as to

extent and as to speed. In buying on the way down and selling on

the way up I was doing more than marking up the price: I was

developing the marketability of Imperial Steel.

After I began my operations in it there never was a time

when a man could not buy or sell the stock freely; I mean by

this, buy or sell a reasonable amount without causing over

violent fluctuations in the price. The fear of being left high

and dry if he bought, or squeezed to death if he sold, was gone.

The gradual spread among the professionals and the public of a

belief in the permanence of the market for Imperial Steel had

much to do with creating confidence in the movement; and,of

course, the activity also put an end to a lot of other

objections. The result was that after buying and selling a good

many thousands of shares I succeeded in making the stocks sell

at par. At one hundred dollars a share everybody wanted to buy

Imperial Steel. Why not? Everybody now knew that it was a good

stock; that it had been and still was a bargain. The proof was

the rise. A stock that could go thirty points from 70 could go

up thirty more from par. That is the way a good many argued.

In the course of marking up the price those thirty points I

accumulated only seven thousand shares. The price on this line

averaged me almost exactly 85. That meant a profit of fifteen

points on it; but, of course, my entire profit, still on the

paper, was much more. It was a safe enough profit, for I had a

market for all I wanted to sell. The stock would sell higher;on

judicious manipulation and I had graduated calls on one hundred

thousand shares beginning at 70 and ending at 100.

Circumstances prevented me from carrying out certain plans

of mine for converting my paper-profits into good hard cash. It

had been, if I do say so myself, ~a beautiful piece of manipu-

lation, strictly legitimate and deservedly successful. The prop-

erty of the company was valuable and the stock was not dear at

the higher price. One of the members of the original syndicate

developed a desire to secure the control of the property-a

prominent banking house with ample resources. The control of a

prosperous

and

growing

concern

like

the

Imperial

Steel

Corporation is possibly more valuable to a banking firm than to

individual investors. At all events, this firm made me an offer

for all my options on the stock. It meant an enormous profit for

me, and I instantly took it. I am always willing to sell out

when I can do so in a lump at a good profit. I was quite content

with what I made out of it.

Before I disposed of my calls on the hundred thousand

shares I learned that these bankers had employed more experts to

make a still more thorough examination of the property. Their

reports showed enough to bring me in the offer I got. I kept

several thousand shares of the stock for investment. I believe

in it.

There wasn't anything about my manipulation of Imperial

Steel that wasn't normal and sound. As long as the price went up

on my buying I knew I was O.K. The stock never got waterlogged,

as a stock sometimes does. When you find that it fails to

respond adequately to your buying you don't need any better tip

to sell. You know that if there is any value to a stock and

general market conditions are right you can always nurse it back

after a decline, no matter if it's twenty points. But I never

had to do anything like that in Imperial Steel.

In my manipulation of stocks I never lose sight of basic trading

principles. Perhaps you wonder why I repeat this or why I keep

on harping on the fact that I never argue with the tape or lose

my temper at the market because of its behaviour. You would

think -- wouldn't you? -- that shrewd men who have made millions

in their own business and in addition have successfully operated

in Wall Street at times would realise the wisdom of playing the

game dispassionately. Well, you would be surprised at the

frequency with which some of our most successful promoters

behave like peevish women because the market does not act the

way thoy wish it to act. They seem to take it as a personal

slight, and they proceed to lose money by first losing their

temper.

There has been much gossip about a disagreement between

John Prentiss and myself. People have been led to expect a

dramatic narrative of a stock-market deal that went wrong or

some double-crossing that cost me or him -- millions; or

something of that sort. Well, it wasn't.

Prentiss and I had been friendly for years. He had given me

at various times information that I was able to utilise

profitably, and I had given him advice which he may or may not

have followed. If he did he saved money.

He was largely instrumental in the organisation and

promotion of the Petroleum Products Company. After a more or

less successful market debut general conditions changed for the

worse and the new stock did not fare as well as Prentiss and his

associates had hoped. When basic conditions took a turn for the

better Prentiss formed a pool and began operations in Pete

Products.

I cannot tell you anything about his technique. He didn't

tell me how he worked and I didn't ask him. But it was plain

that notwithstanding his Wall Street experience and his

undoubted cleverness, whatever it was he did proved of little

value and it didn't take the pool long to find out that they

couldn't get rid of much stock. He must have tried everything he

knew, because a pool manager does not ask to be superseded by an

outsider unless he feels unequal to the task, and that is the

last thing the average man likes to admit. At all events he came

to me and after some friendly preliminaries he said he wanted me

to take charge of the market for Pete Products and dispose of

the pool's holdings, which amounted to a little over one hundred

thousand shares. The stock was selling at 102 to 103.

The thing looked dubious to me and I declined his

proposition with thanks. But he insisted that I accept. He put

it on personal grounds, so that in the end I consented. I

constitutionally dislike to identify myself With enterprises in

the success of which I cannot feel confidence, but I also think

a man owes something to his friends and acquaintances. I said Id

do my best, but I told him I did not feel very cocky about it

and I enumerated the adverse factors that I would have to

contend with. But all Prentiss said to that was that he wasn't

asking me to guarantee millions in profits to the pool. He was

sure that i f I took hold I'd make out well enough to satisfy

any reasonable being.

Well, there I was, engaged in doing something against my

own judgment. I found, as I feared, a pretty tough state of

affairs, due in great measure to Prentiss' own mistakes while he

was manipulating the stock for account of the pool. But the

chief factor against me was time. I was convinced that we were

rapidly approaching the end of a bull swing and therefore that

the improvement in the market, which had so encouraged Prentiss,

would prove to be merely a short-lived rally. I feared that the

market would turn definitely bearish before I could accomplish

much with Pete Products. However, I had given my promise and I

decided to work as hard as I knew how.

I started to put up the price. I had moderate success. I

think I ran it up to ion or thereabouts, which was pretty fair,

and I was even able to sell a little stock on balance. It wasn't

much, but I was glad not to have increased the pool's holdings.

There were a lot of people not in the pool who were just waiting

for a small rise to dump their stock, and I was a godsend to

them. Had general conditions been better I also would have done

better. It was too bad that I wasn't called in earlier. All I

could do now, I felt, was to get out with as little loss as

possible to the pool.

I sent for Prentiss and told him my views. But he started

to object. I then explained to him why I took the position I

did. I said: "Prentiss, I can feel very plainly the pulse of the

market. There is no follow-up in your stock. It is no trick to

see just what the public's reaction is to my manipulation.

Listen: When Pete Products is made as attractive to

traders

as possible and you give it all the support needed at all times

and notwithstanding all that you find that the public leaves it

alone you may be sure that there is something wrong, not with

the stock but with the market. There is absolutely no use in

trying to force matters. You are bound to lose if you do. A pool

manager should be willing to buy his own stock when he has

company. But when he is the only buyer in the market he'd be an

ass to buy it. For every five thousand shares I buy the public

ought to be willing or able to buy five thousand more. But I

certainly am not going to do all the buying. If I did, all I

would succeed in doing would be to get soaked with a lot of long

stock that I don't want. There is only one thing to do, and that

is to sell. And the only way to sell is to sell."

"You mean, sell for what you can get?" asked Prentiss.

"Right!" I said. I could see he was getting ready to

object.

“If I am to sell the pool's stock at all you can make up

your mind that the price is going to break through par and"

"Oh, no! Never !" he yelled. You'd have imagined I was

asking him to join a suicide club.

"Prentiss," I said to him, "it is a cardinal principle of

stock manipulation to put up a stock in order to sell it. But

you

don't sell in bulk on the advance. You can't. The big selling is

done on the way down from the top. I cannot put up your stock to

125 or 130. I'd like to, but it can't be done. So you will have

to begin your selling from this level. In my opinion all stocks

are going down, and Petroleum Products isn't going to be the one

exception. It is better for it to go down now on the pool's

selling than for it to break next month on selling by some one

else. It will go down anyhow."

I can't see that I said anything harrowing, but you could

have heard his howls in China. He simply wouldn't listen to such

a thing. It would never do. It would play the dickens with the

stock's record, to say nothing of inconvenient possibilities at

the banks where the stock was held as collateral on loans, and

so on.

I told him again that in my judgment nothing in the world

could prevent Pete Products from breaking fifteen or twenty

points, because the entire market was headed that way, and I

once more said it was absurd to expect his stock to be a

dazzling exception. But again my talk went for nothing. He

insisted that I support the stock.

Here was a shrewd business man, one of the most successful

promoters of the day, who had made millions in Wall Street deals

and knew much more than the average man about the game of

speculation, actually insisting on supporting a stock in an

incipient bear market. It was his stock, to be sure, but it was

nevertheless bad business. So much so that it went against the

grain and I again began to argue with him. But it was no use. He

insisted on putting in supporting orders.

Of course when the general market got weak and the decline

began in earnest Pete Products went with the rest. Instead of

selling I actually bought stock for the insiders' pool by

Prentiss' orders.

The only explanation is that Prentiss did not believe the

bear market was right on top of us. I myself was confident that

the bull market was over. I had verified my first surmise by

tests not alone in Pete Products but in other stocks as well. I

didn't wait for the bear market to announce its safe arrival

before I started selling. Of course I didn't sell a share of

Pete Products, though I was short of other stocks.

The Pete Products pool, as I expected, was hung up with all

they held to begin with and with all they had to take in their

futile effort to hold up the price. In the end they did

liquidate; but at much lower figures than they would have got if

Prentiss had let me sell when and as I wished. It could not be

otherwise. But Prentiss still thinks he was right or says he

does. I understand he says the reason I. gave him the advice I

did was that I was short of other stocks and the general market

was going up. It implies, of course, that the break in Pete

Products that would have resulted from selling out the pool's

Th

i

l t

il

fi d

hi

i

holdings at any price would have helped my bear position in

other stocks.

That is all tommyrot. I was not bearish because I was short

of stocks. I was bearish because that was the way I sized up the

situation, and I sold stocks short only after I turned bearish.

There never is much money in doing things wrong end to; not in

the stock market. My plan for selling the pool's stock was based

on what the experience of twenty years told me alone was

feasible and therefore wise. Prentiss'ought to have been enough

of a trader to see it as plainly as I did. It was too late to

try to do anything else.

I suppose Prentiss shares the delusion of thousands of

outsiders who think a manipulator can do anything. He can't. The

biggest thing Keene did was his manipulation of U. S. Steel

common and preferred in the spring of yoi. He succeeded not

because he was clever and resourceful and not because he had a

syndicate of the richest men in the country back of him. He

succeeded partly because of those reasons but chiefly because

the general market was right and the publies state of mind was

right.

It isn't good business for a man to act against the

teachings of experience and against common sense. But the

suckers in Walt Street are not all outsiders. Prentiss'

grievance against me is what I have just told you. He feels sore

because I did my manipulation not as I wanted to but as he asked

me to.

There isn't anything mysterious or underhanded or crooked

about manipulation designed to sell a stock in bulk provided

such operations are not accompanied by deliberate misrepre-

sentations. Sound manipulation must be based on sound trading

principles. People lay great stress on old-time practices, such

as wash sales. But I can assure you that the mere mechanics of

deception count for very little. The difference between

stock-market manipulation and the over-the-counter sale of

stocks and bonds is in the character of the clientele rather

than in the character of the appeal. J. P. Morgan & Co. sell an

issue of bonds to the public -- that is, to investors. A

manipulator disposes of a block of stock to the public -- that

is, to speculators. An investor looks for safety, for permanence

of the interest return on the capital he invests. The speculator

looks for a quick profit

to get a big return on their capital. I myself never have

believed in blind gambling. I may plunge or I may buy one

hundred shares. But in either case I must have a reason for what

I do.

distinctly

remember

how

I

got

into

the

game

of

manipulation that is, in the marketing of stocks for others. It

gives me pleasure to recall it because it shows so beautifully

the professional Wall Street attitude toward stock-market

operations. It happened after I had "come back"-- that is, after

my Bethlehem Steel trade in igi5 started me on the road to

financial recovery.

I traded pretty steadily and had very good luck. I have

never sought newspaper publicity, but neither have I gone out of

my way to hide myself. At the same time, you know that

professional Wall Street exaggerates both the successes and the

failures of whichever operator happens to be actwe; and, of

course, the newspapers hear about him and print rumors. I have

been broke so many times, according to the gossips,or have made

so many millions, according to the same authorities, that my

only reaction to such reports is to wonder how and where they

are born. And how they grow! I have had broker friend after

broker friend bring the same story to me, a little changed each

time, improved, more circumstantial.

All this preface is to tell you how I first came to

undertake the manipulation of a stock for someone else. The

stories the newspapers printed of how I had paid back in full

the millions I owed did the trick. My plungings and my winnings

were so magnified by the newspapers that I was talked about in

Wall Street. The day was past when an operator swinging a line

of two hundred thousand shares of stock could dominate the

market. But, as you know, the public always desires to find

successors to the old leaders. It was Mr. Keene's reputation as

a skilful stock operator, a winner of millions on his own hook,

that made promoters and banking houses apply to him for selling

large blocks of securities. In short, his services as

manipulator were in demand because of the stories the Street had

heard about his previous successes as a trader.

264 REMINISCENCES OF

But Keene was gone -- passed on to that heaven where he once

said he wouldn't stay a moment unless he found Sysonby there

waiting for him. Two or three other men who made stock-market

history for a few months had relapsed into the obscurity of

prolonged inactivity. I refer particularly to certain of those

plunging Westerners who came to Wall Street in 1901 and after

making many millions out of their Steel holdings remained in

Wall Street. They were in reality super promoters rather than

operators of the Keene type. But they were extremely able,

extremely rich and extremely successful in the securities of the

companies which they and their friends controlled. They were not

really great manipulators, like Keene or Governor Flower. Still,

the Street found in them plenty to gossip about and they

certainly had a following among the professionals and the

sportier commission houses After they ceased to trade actively

the Street found itself without manipulators; at least, it

couldn't read about them in the newspapers.

You remember the big bull market that began when the Stock

Exchange resumed business in 1915. As the market broadened and

the Allies' purchases in this country mounted into billions we

ran into a boom. As far as manipulation went, it wasn't

necessary for anybody to lift a finger to create an unlimited

market for a war bride. Scores of men made millions by

capitalizing contracts or even promises of contracts. They

became successful promoters, either with the aid of friendly

bankers or by bringing out their companies on the Curb market.

The public bought anything that was adequately touted.

When the bloom wore off the boom, some of these promoters

found themselves in need of help from experts in stock

salesmanship. When the public is hung up with all kinds of

securities, some of them purchased at higher prices, it is not

an easy task to dispose of untried stocks. After a boom the

public is positive that nothing is going up. It isn't that

buyers become more discriminating, but that the blind buying is

over. 1t is the state of mind that has changed. Prices don't

even have to go down to make people pessimistic. It is enough if

the market gets dull and stays dull for a time.

In every boom companies are formed primarily if not

exclusively to take advantage of the public's appetite for all

kinds of stocks. Also there are belated promotions. The reason

why promoters make that mistake is that being human they are

unwilling to see the end of the boom. More over, it is good

business to take chances when the possible profit is big enough.

The top is never in sight when the vision is vitiated by hope.

The average man sees a stock that nobody wanted at twelve

dollars or fourteen dollars a share suddenly advance to thirty -

- which surely is the top until it rises to fifty. That is

absolutely the end of the rise. Then it goes to sixty; to

seventy; to seventy-five. It then becomes a certainty that this

stock, which a few weeks ago was selling for less than fifteen,

can't go any higher. But it goes to eighty; and to eighty-five.

Whereupon the average man, who never thinks of values but of

prices, and is not governed in his actions by conditions but by

fears, takes the easiest way he stops thinking that there must

be a limit to the advances. That is why those outsiders who are

wise enough not to buy at the top make up for it by not taking

profits. The big money in booms is always made first by the

public-on-paper. And it remains on paper.

CHAPTER XXII

ONE day Jim Barnes, who not only was one of my principal

brokers but an intimate friend as well, called on me. He said he

wanted me to do him a great favour. He never before had talked

that way, and so I asked him to tell me what the favour was,

hoping it was something I could do, for I certainly wished to

oblige him. He then told me that his firm was interested in a

certain stock; in fact, they had been the principal promoters of

the company and had placed the greater part of the stock.

Circumstances had arisen that made it imperative for them to

market a rather large block. Jim wanted me to undertake to do

the marketing for him. The stock was Consolidated Stove.

I did not wish to have anything to do with it for various

reasons. But Barnes, to whom I was under some obligations,

insisted on the personal favour phase of the matter, which alone

could overcome my objections. He was a good fellow, a friend,

and his firm, I gathered, was pretty heavily involved, so in the

end I consented to do what I could.

It has always seemed to me that the most picturesque point

of difference between the war boom and other booms was the part

that was played by a type new in stock-market affairsthe boy

banker.

The boom was stupendous and its origins and causes were

plainly to be grasped by all. But at the same time the greatest

banks and trust companies in the country certainly did all they

could to help make millionaires overnight of all sorts and

conditions of promoters and munition makers. It got so that all

a man had to do was to say that he had a friend who was a friend

of a member of one of the Allied commissions and he would be

offered all the capital needed to carry out the contracts he had

not yet secured. I used to hear incredible stories of clerks

becoming presidents of companies doing a business of millions of

dollars on money borrowed from trusting trust companies, and of

contracts that left a trail of profits as they passed from man

to man. A flood of gold was pouring into this country from

Europe and the banks had to find ways of impounding it.

The way business was done might have been regarded with

misgivings by the old, but there didn't seem to be so many of

them about. The fashion for gray-haired presidents of banks was

all very well in tranquil times, but youth was the chief

qualification in these strenuous times. The banks certainly did

make enormous profits.

Jim Barnes and his associates, enjoying the friendship and

confidence of the youthful president of the Marshall National

Bank, decided to consolidate three well-known stove compames and

sell the stock of the new company to the public that for months

had been buying any old thing in the way of engraved stock

certificates.

One trouble was that the stove business was so prosperous

that all three companies were actually earning dividends on

their common stock for the first time in their history. Their

principal stockholders did not wish to part with the control.

There was a good market for their stocks on the Curb; and they

had sold as much as they cared to part with and they were

content

with

things

as

they

were.

Their

individual

capitalisation was too small to justify big market movements,

and that is where Jim Barnes' firm came in. It pointed out that

the colidated company must be big enough to list on the Stock

Exchange, where the new shares could be made more valuable than

the old ones. It is an old device in Wall Street to change the

colour of the certificates in order to make them more valuable.

Say a stock ceases to be easily vendible at par. Well, sometimes

by quadrupling the stock you may make the new shares sell at 30

or 35. This is equivalent to 120 or 140 for the old stock a

figure it never could have reached.

It seems that Barnes and his associates succeeded in

inducing some of their friends who held speculatively some

blocks of Gray Stove Company, a large concern to come into the

consolidation on the basis of four shares of Consolidated for

each share of Gray. Then the Midland and the Western followed

their big sister and came in on the basis of share for share.

Theirs had been quoted on the Curb at around 25 to 3o, and the

Gray, which was better known and paid dividends, hung around

125.

In order to raise the money to buy out those holders who

insisted upon selling for cash, and also to provide additional

working capital for improvements and promotion expenses, it

became necessary to raise a few millions. So Barnes saw the

president of his bank, who kindly lent his syndicate three

million five hundred thousand dollars. The collateral was one

hundred thousand shares of the newly organised corporation. The

syndicate assured the president, or so I was told, that the

price would not go below 50. It would be a very profitable deal

as there was big value there.

The promoters' first mistake was in the matter of

timeliness.

The saturation point for new stock issues had

been reached by the market, and they should have seen it. But

even then they might have made a fair profit after all if they

had not tried to duplicate the unreasonable killings which other

protmoters had made at the very height of the boom.

Now you must not run away with the notion that Jim Barnes

and his associates were fools or inexperienced kids.They were

shrewd men. All of them were familiar with a, Wall Street

methods and some of them were exceptionally successful stock

traders. But they did rather more than merely overestimate the

public's buying capacity. After all, that capacity was something

that they could determine only by actual tests. Where they erred

more expensively was in expecting the bull market to last longer

than it did. I suppose the reason was that these same men had

met with such great and particularly with such quick success

that they didn't doubt they'd be all through with the deal

before the bull market turned. They were all well known and had

a considerable following among the professional traders and the

wire houses.

The deal was extremely well advertised. The newspapers

certainly were generous with their space. The older concerns

awere identified with the stove industry of America and their

product was known the world over. It was a patriotic

amalgamation and there was a heap of literature in the daily

papers about the world conquests. The markets of Asia, Africa

and South America were as good as cinched.

The directors of the company were all men whose names were

familiar to all readers of the financial pages. The publicity

work was so well handled and the promises of unnamed insiders as

to what the price was going to do were so definite and

convincing that a great demand for the new stock was created.

The result was that when the books were closed it was found that

the stock which was offered to the public at fifty dollars a

share had been oversubscribed by 25 per cent.

Think of it! The best the promoters should have expected

was to succeed in selling the new stock at that price after

weeks of work and after putting up the price to 75 or higher in

order to average 50. At that, it meant an advance of about 100

per cent in the old prices of the stocks of the constituent

companies. That was the crisis and they did not meet it as it

should have been met. It shows you that every business has its

own needs. General wisdom is less valuable than specific savvy.

The promoters, delighted by the unexpected oversubscription,

concluded that the public was ready to pay any price for any

quantity of that stock. And they actually were stupid enough to

underallot the stock. After the promoters made up their minds to

be hoggish they should have tried to be intelligently hoggish.

What they should have done, of course, was to allot the

stock in full. That would have made them short to the extent of

25 per cent of the total amount offered for subscription to the

public, and that, of course, would have enabled them to support

the stock when necessary and at no cost to themselves. Without

any effort on their part they would have been in the strong

strategic position that I always try to find myself in when I am

manipulating a stock. They could have kept the price from

sagging, thereby inspiring confidence in the new stock's price

stability and in the underwriting syndicate back of it. They

should have remembered that their work was not over when they

sold the stock offered to the public. That was only a part of

what they had to market.

hey thought they had been very successful, but it was not

long before the consequences of their two capital blunders

became apparent. The public did not buy any more of the new

stock,

because

the

entire

market

developed

reactionary

tendencies. The insiders got cold feet and did not support

Consolidated Stove; and if insiders don't buy their own stock on

recessions, who should? The absence of inside support is

generally accepted as a pretty good bear tip.

There is no need to go into statistical details. The price

of Consolidated Stove fluctuated with the rest of the market,

but it never went above the initial market quotations, which

were only a fraction above So. Barnes and his friends in the end

had to come in as buyers in order to keep it above ¢o. Not to

have supported that stock at the outset of its market career was

regrettable. But not to have sold all the stock the public

subscribed for was much worse.

At all events, the stock was duly listed on the New York

Stock Exchange and the price of it duly kept sagging until it

nominally stood at 37. And it stood there because Jim Barnes and

his associates had to keep it there because their bank had

loaned them thirty-five dollars a share on one hundred thousand

shares. If the bank ever tried to liquidate that loan there was

no telling what the price would break to. The public that had

been eager to buy it at 50, now didn't care for it at 37, and

probably wouldn't want it at 27.

As time went on the banks' excesses in the matter of ex-

tensions of credits made people think. The day of the boy banker

was over. The banking business appeared to be on the ragged edge

of suddenly relapsing into conservatism. Intimate friends were

now asked to pay off loans, for all the world as though they had

never played golf with the president.

There was no need to threaten on the lender's part or to

plead for more time on the borrower's. The situation was highly

uncomfortable for both. The bank, for example, with which my

friend Jim Barnes did business, was still kindly

disposed. But it was a case of "For heaven's sake take up that

loan or we'll all be in a dickens of a mess!"

The character of the mess and its explosive possibilities

were enough to make Jim Barnes come to me to ask me to sell the

one hundred thousand shares for enough to pay off the

bank's

three-million-five-hundred-thousand-dollar loan. Jim did not now

expect to make a profit on that stock. If the syndicate only

made a small loss on it they would be more than grateful.

It seemed a hopeless task. The general market was neither

active nor strong, though at times there were rallies, when

everybody perked up and tried to believe the bull swing was

about to resume.

The answer I gave Barnes was that I'd look into the matter

and let him know under what conditions I'd undertake the work.

Well, I did look into it. I didn't analyse the company's last

annual report. My studies were confined to the stock market

phases of the problem. I was not going to tout the stock for a

rise on its earnings or its prospects, but to dispose of that

block in the open market. All I considered was what should,

could or might help or hinder me in that task.

I discovered for one thing that there was too much stock

held by too few people -- that is, too much for safety and far

too much for comfort. Clifton P. Kane & Co., bankers and

brokers, members of the New York Stock Exchange, were carrying

seventy thousand shares. They were intimate friends of Barnes

and had been influential in effecting the consolidation, as they

had made a specialty of stove stocks for years.

Their

customers had been let into the good thing. Ex-Senator Samuel

Gordon, who was the special partner in his nephews' firm, Gordon

Bros., was the owner of a second block of seventy thousand

shares; and the famous Joshua Wolff had sixty thousand shares.

This made a total of two hundred thousand shares of Consolidated

Stove held by this handful of veteran Wall Street professionals.

They did not need any kind person to tell them when to sell

their stock. If I did anything in the manipulating line

calculated to bring in public buying that is to say, if I made

the stock strong and active I could see Kane and Gordon and

Wolff unloading, and not in homeopatQ doses either. The vision

of their two hundred thousand shares Niagaraing into the market

was not exactly entrancing. Don't forget that the cream was off

the bull movement and that no overwhelming demand was going to

be manufactured by my operations, however skilfully conducted

they might be. Jim Barnes had no illusions about the job he was

modestly sidestepping in my favour. He had given me a

waterlogged stock to sell on a bull market that was about to

breathe its last. Of course there was no talk in the newspapers

about the ending of the bull market, but I knew it, and Jim

Barnes knew it, and you bet the bank knew it.

Still, I had given Jim my word, so I sent for Kane, Gordon

and Wolff. Their two hundred thousand shares was the sword of

Damocles. I thought I'd like to substitute a steel chain for the

hair. The easiest way, it seemed to me, was by some sort of

reciprocity agreement. If they helped me passively by holding

off while I sold the bank's one hundred thousand shares,

I

would help them actively by trying to make a market for all of

us to unload on. As things were, they couldn't sell one-tenth of

their holdings without having Consolidated Stove break wide

open, and they knew it so well that they had never dreamed of

trying. All I asked of them was judgment in timing the selling

and

an

intelligent

unselfishness

in

order

not

to

be

unintelligently selfish. It never pays to be a dog in the manger

in Wall Street or anywhere else. I desired to convince them that

premature or ill-considered unloading would prevent complete

unloading. Time urged.

I hoped my proposition would appeal to them because they

were experiencd Wall Street men and had no illusions about the

actual demand for Consolidated Stove. Clifton P. Kane was the

head of a prosperous commission house with branches in eleven

cities and customers by the hundreds. His firm had acted as

managers for more than one pool in the past.

Senator Gordon, who held seventy thousand shares, was an

exceedingly wealthy man. His name was as familiar to the

v

readers of the metropolitan press as though he had been

sued for breach of promise by a sixteen-year-old manicurist

possassing a five-thousand-dollar mink coat and one hundred and

thirty-two letters from the defendant. He had started his

nephews in business as brokers and he was a special partner in

their firm. He had been in dozens of pools. He had in herited a

large interest in the Midland Stove Company and he got one

hundred thousand shares of Consolidated Stove for it. He had

been carrying enough to disregard Jim Barnes'wild bull tips and

had cashed in on thirty thousand shares before the market

petered out on him. He told a friend later that he would have

sold more only the other big holders, who were old and intimate

friends, pleaded with him not to sell any more, and out of

regard for them he stopped. Besides which, as I said, he had no

market to unload on.

The third man was Joshua Wolff. He was probably the best

known of all the traders. For twenty years everybody had known

him as one of the plungers on the floor. In bidding up stocks or

offering them down he had few equals, for ten or twenty thousand

shares meant no more to him than two or three hundred. Before I

came to New York I had heard of him as a plunger. He was then

trailing with a sporting coterie that played a no limit game,

whether on the race track or in the stock market.

They used to accuse him of being nothing but a gambler, but

he had real ability and a strongly developed aptitude for the

speculative game. At the same time his reputed indiffer ence to

highbrow pursuits made him the hero of numberless anecdotes. One

of the most widely circulated of the yarns was that Joshua was a

guest at what he called a swell dinner and by some oversight of

the hostess several of the other guests began to discuss

literature before they could be stopped.

A girl who sat next to Josh and had not heard him use his

mouth except for masticating purposes, turned to him and looking

anxious to hear the great financier's opinion asked him, "Oh,

Mr. Wolff, what do you think of Balzac?"

Josh politely ceased to masticate, swallowed and answered,

"I never trade in them Curb stocks!"

Such

were

the

three

largest

individual

holders

of

Consolidated Stove. When they came over to see me I told them

that if they formed a syndicate to put up some cash and gave me

a call on their stock at a little above the market I would do

what I could to make a market. They promptly asked me how much

money would be required.

I answered, "You've had that stock a long time and you can't do

a thing with it. Between the three of you you've got two hundred

thousand shares, and you know very well that you haven't the

slightest chance of getting rid of it unless you make a market

for it. It's got to be some market to absorb what you've got to

give it, and it will be wise to have enough cash to pay for

whatever stock it may be necessary to buy at first. It's no use

to begin and then have to stop because there isn't enough money.

I suggest that you form a syndicate and raise six millions in

cash. Then give the syndicate a call on your two hundred

thousand shares at 40 and put all your stock in escrow. If

everything goes well you chaps will get rid of your dead pet and

the syndicate will make some money."

As I told you before, there had been all sorts of rumours

about my stock-market winnings. I suppose that helped, for

nothing succeeds like success. At all events, I didn't have to

do much explaining to these chaps. They knew exactly how far

they'd get if they tried to play a lone hand. They thought mine

was a good plan. When they went away they said they would form

the syndicate at once.

They didn't have much trouble in inducing a lot of their

friends to join them. I suppose they spoke with more assurance

than I had of the syndicate's profits. From all I heard they

really believed it, so theirs were no conscienceless tips. At

all events the syndicate was formed in a couple of days. Kane,

Gordon and Wolff gave calls on the two hundred thousand shares

at 4o and I saw to it that the stock itself was put in escrow,

so that none of it would come out on the market if I

should

put up the price. I had to protect myself. More than one

promising deal has failed to pan out as expected because the

members of the pool or clique failed to keep faith with one

another. Dog has no foolish prejudices against eating dog in

Wall Street. At the time the second American Steel and Wire

Company was brought out the insiders accused one another of

breach of faith and trying to unload. There had been a

gentlemen's agreement between John W. Gates and his pals and the

Seligmans and their banking associates. Well, I heard somebody

in a broker's office reciting this quatrain, which was said to

have been composed by John W. Gates:

The tarantula jumped on the centipede's back

And chortled with ghoulish glee:

"I'll poison this murderous son o f a gun.

If I don't he'll poison me!"

Mind you, I do not mean for one moment to imply that any of

my friends in Wall Street would even dream of doublecrossing me

in a stock deal. But on general principles it is just as well to

provide for any and all contingencies. It's plain sense,

After Wolff and Kane and Gordon told me that they had

formed their syndicate to put up six millions in cash there was

nothing for me to do but wait for the money to come in. I had

urged the vital need of haste. Nevertheless the money came in

driblets. I think it took four or five installments. I don't

know what the reason was, but I remember that I had to send out

an S O S call to Wolff and Kane and Gordon.

That afternoon I got some big checks that brought the cash

in my possession to about four million dollars and the promise

of the rest in a day or two. It began at last to look as though

the syndicate might do something before the bull market passed

away. At best it would be no cinch, and the sooner I began work

the better. The public had not been particularly keen about new

market movements in inactive stocks. But a man could do a great

deal to arouse interest in any stock with four millions in cash.

It was enough to absorb all the probable offerings. If time

urged, as I had said, there was no sense in waiting for the

other two millions. The sooner the stock got up to 50 the better

for the syndicate. That was obvious.

The next morning at the opening I was surprised to see that

there were unusually heavy dealings in Consolidated Stove. As I

told you before, the stock had been waterlogged for months. The

price had been pegged at 37, Jim Barnes taking good care not to

let it go any lower on account of the big bank loan at 35. But

as for going any higher, he'd as soon expect to see the Rock of

Gibraltar shimmying across the Strait as to see Consolidated

Stove do any climbing on the tape.

Well, sir, this morning there was quite a demand for the

stock, and the price went up to 39. In the first hour of the

trading the transactions were heavier than for the whole pre-

vious half year. It was the sensation of the day and affected

bullishly the entire market. I heard afterwards that nothing

else was talked about in the customers' rooms of the commission

houses.

I didn't know what it meant, but it didn't hurt my feelings

any to see Consolidated Stove perk up. As a rule I do not have

to ask about any unusual movement in any stock because my

friends on the floor-brokers who do business for me, as well as

personal friends among the room traders -- keep me posted. They

assume I'd like to know and they telephone me any news or gossip

they pick up. On this day all I heard was that there was

unmistakable inside buying in Consolidated Stove. There wasn't

any washing. It was all genuine. The purchasers took all the

offerings from 37 to 39 and when importuned for reasons or

begged for a tip, flatly refused to give any. This made the wily

and watchful traders conclude that there was something doing;

something big. When a stock goes up on buying by insiders who

refuse to encourage the world at large to follow suit the ticker

hounds begin to wonder aloud when the official notice will be

given out.

I didn't do anything myself. I watched and wondered and

kept track of the transactions. But on the next day the buying

was not only greater in volume but more aggressive in character.

The selling orders that had been on the specialists' books for

months at above the pegged price of 37 were absorbed without any

trouble, and not enough new selling orders came in to check the

rise. Naturally, up went the price. It crossed qo. Presently it

touched 42.

The moment it touched that figure I felt that I was

justified in starting to sell the stock the bank held as

collateral. Of course I figured that the price would go down on

my selling, but if my average on the entire line was 37 I'd have

no fault to find. I knew what the stock was worth and I had

gathered some idea of the vendibility from the months of

inactivity. Well, sir, I let them have stock carefully until I

had got rid of thirty thousand shares. And the advance was not

checked!

That afternoon I was told the reason for that opportune but

mystifying rise. It seems that the floor traders had been tipped

off after the close the night before and also the next morning

before the opening, that I was bullish as blazes on Consolidated

Stove and was going to rush the price right up fifteen or twenty

points without a reaction, as was my custom—that is, my custom

according to people who never kept my books. The

tipster

in

chief was no less a personage than Joshua Wolff. It was his own

inside buying that started the rise of the

day

before.

His

cronies among the floor traders were only too willing to follow

his tip, for he knew too much to give wrong steers to his

fellows.

As a matter of fact, there was not so much stock pressing

on the market as had been feared. Consider that I had tied up

three hundred thousand shares and you will realise that the old

fears had been well founded. It now proved less of a job than I

had anticipated to put up the stock. After all, Governor Flower

was right. Whenever he was accused of manipulating his firm's

specialties, like Chicago Gas, Federal Steel or B. R. T., he

used to say: "The only way I know of making a stock go up is to

buy it." That also was the floor traders' only way, and the

price responded.

On the next day, before breakfast, I read in the morning

papers what was read by thousands and what undoubtedly was sent

over the wires to hundreds of branches and out-of-town offices,

and that was that Larry Livermore was about to begin active bull

operations in Consolidated Stove. The additional details

differed. One version had it that I had formed an insiders' pool

and was going to punish the overextended short interest. Another

hinted at dividend announcements in the near future. Another

reminded the world that what I usually did to a stock I was

bullish on was something to remember. Still another accused the

company of concealing its assets in order to permit accumulation

by insiders. And all of them agreed that the rise hadn't fairly

started.

By the time I reached my office and read my mail before the

market opened I was made aware that the Street was flooded with

red-hot tips to buy Consolidated Stove at once. My telephone

bell kept ringing and the clerk who answered the calls heard the

same question asked in one form or another a hundred times that

morning: Was it true that Consolidated Stove was going up? I

must say that Joshua Wolff and Kane and Gordon and possibly Jim

Barnes handled that little tipping job mighty well.

I had no idea that I had such a following. Why, that morn-

ing the buying orders came in from all over the countryorders to

buy thousands of shares of a stock that nobody wanted at any

price three days before. And don't forget that, as a matter of

fact, all that the public had to go by was my newspaper

reputation as a successful plunger; something for which I had to

thank an imaginative reporter or two.

Well, sir, on that, the third day of the rise, I sold

Consolidated Stove; and on the fourth day and the fifth; and the

first thing I knew I had sold for Jim Barnes the one hundred

thousand shares of stock which the Marshall National Bank held

as collateral on the three-million-five-hundred-thousand-dollar

loan that needed paying off. If the most successful manipulation

consists of that in which the desired end is gained at the least

possible cost to the manipulator, the consolidated Stove deal is

by all means the most successful of my Wall Street career. Why,

at no time did I have to take any stock. I didn't have to buy

first in order to sell the more easily later on. I did not put

up the price to the highest possible point and then begin my

real selling. I didn't even do my principal selling on the way

down, but on the way up. It was like a dream of Paradise to find

an adequate buying power created for you without your stirring a

finger to bring it about, particularly when you were in a hurry.

I once heard a friend of Governor Flower's say that in one of

the great bull-leader's operations for the account of a pool in

B. R. T. the pool sold fifty thousand shares of the stock at a

profit, but Flower & Co. got commissions on more than two

hundred and fifty thousand shares and W. P. Hamilton says that

to distribute two hundred and twenty thousand shares of

Amalgamated Copper, James R. Keene must have traded in at least

seven hundred thousand shares of the stock during the necessary

manipulation. Some commission bill! Think of that and then

consider that the only commissions that I had to pay were the

commissions on the one hundred thousand shares I actually sold

for Jim Barnes. I call that some saving.

Having sold what I had engaged to sell for my friend Jim,

and all the money the syndicate had agreed to raise not having

been sent in, and feeling no desire to buy back any of the stock

I had sold, I rather think I went away somewhere for a short

vacation. I do not remember exactly. But I do remember very well

that I let the stock alone and that it was not long before the

price began to sag. One day, when the entire market was weak,

some disappointed bull wanted to get rid of his Consolidated

Stove in a hurry, and on his offerings the stock broke

below

the call price, which was qo. Nobody seemed to want any of it.

As I told you before, I wasn't bullish on the general situation

and that made me more grateful than ever for the miracle that

had enabled me to dispose of the one hundred thousand shares

without having to put the price up twenty or thirty points in a

week, as the kindly tipsters had prophesied.

Finding no support, the price developed a habit of

declining regularly until one day it broke rather badly and

touched 32. That was the lowest that had ever been recorded for

it, for as you will remember, Jim Barnes and the original

syndicate had pegged it at 37 in order not to have their one

hundred thousand shares dumped on the market by the bank.

I was in my office that day peacefully studying the tape

when Joshua Wolff was announced. I said I would see him. He

rushed in. He is not a very large man, but he certainly seemed

all swelled up with anger, as I instantly discovered.

He ran to where I stood by the ticker and yelled, "Hey? I

What the devil's the matter?"

"Have a chair, Mr. Wolff," I said politely and sat down

myself to encourage him to talk calmly. t .

"I don't want any chair! I want to know what it means!" he

cried at the top of his voice.

"What does what mean?"

"What in hell

are you doing to it?"

"What

am

I

doing to what?"

"That

stock!

That stock!"

"What stock?" I asked him.

But that only made him see red, for he shouted,

"Consolidated Stove! What are you doing to it?"

"Nothing! Absolutely nothing. What's wrong?" I said.

He stared at me fully five seconds before he exploded:

"Look at the price! Look at it!"

He certainly was angry. So I got up and looked at the tape.

said, "The price of it is now 3 i A."

Yeh ! Thirty-one and a quarter, and I've got a raft of it."

I know you have sixty thousand shares. You have had it a

long time, because when you originally bought your Gray Stove

But he didn't let me finish. He said, "But I bought a lot

more. Some of it cost me as high as 40! And I've got it yet!"

He was glaring at me so hostilely that I said, "I didn't

tell you to buy it."

"You didn't what?"

"I didn't tell you to load up with it."

"I didn't say you did. But you were going to put it up"

"Why was I?" I interrupted.

He looked at me, unable to speak for anger. When he found

his voice again, he said, "You were going to put it up. You had

the money to buy it."

"Yes. But I didn't buy a share," I told him.

That was the last straw.

"You didn't buy a share, and you had over four millions in

cash to buy with? You didn't buy any?"

"Not a share!" I repeated.

He was so mad by now that he couldn't talk plainly. Finally

he managed to say, "What kind of a game do you call that?"

He was inwardly accusing me of all sorts of unspeakable

crimes. I sure could see a long list of them in his eyes. It

made me say to him: "What you really mean to ask me, Wolff, is,

why I didn't buy from you above 50 the stock you bought below

40. Isn't that it?"

"No, it isn't. You had a call at 40 and four millions in

crib to put up the price with."

"Yes, but I didn't touch the money and the syndicate has

not lost a cent by my operations."

"Look here, Livermore" he began.

But I didn't let him say any more.

"You listen to me, Wolff. You knew that the two hundred

thousand shares you and Gordon and Kane held were tied up, and

that there wouldn't be an awful lot of floating stock to come on

the market if I put up the price, as I'd have to do for two

reasons: The first to make a market for the stock; and the

second to make a profit out of the call at q.o. But you weren't

satisfied to get 4o for the sixty thousand shares you'd been

lugging for months or with your share of the syndicate profits,

if any; so you decided to take on a lot of stock under 40 to

unload on me when h put the price up with the syndicate's money,

as you were sure I meant to do. You'd buy before I did and you'd

unload before I did; in all probability I'd be the one to unload

on. I suspect you figured on my having to put the price up to.

60. It was such a cinch that you probably bought ten thousand

shares strictly for unloading

purposes, and to make sure

somebody held the bag if I didn't, you tipped off everybody in

the United States, Canada and Mexico without thinking of my

added difficulties. All your friends knew what I was supposed to

do. Between their buying and mine you were going to be all

hunky. Well, your intimate friends to whom you gave the tip

passed it on to their friends after they had bought their lines,

and the third stratum of tip-takers planned to supply the

fourth, fifth and possibly sixth strata of suckers, so that when

I finally came to do some selling I'd find myself anticipated by

a few thousands of wise speculators. It was a friendly thought,

that notion of yours, Wolff. You can't imagine how surprised I

was when Consolidated Stove began to go up before I even thought

of buying a single share; or how grateful, either, when the

underwriting syndicate sold one hundred thousand shares around

40 to the people who were going to sell those same shares to me

at 50 or 60. I sure was a sucker not to use the four millions to

make money for them, wasn't I? The cash was supplied to buy

stock with, but only if I thought it necessary to do so. Well,I

didn't."

Joshua had been in Wall Street long enough not to let anger

interfere with business. He cooled off as he heard me, and when

I was through talking he said in a friendly tone of voice, "Look

here, Larry, old chap, what shall we do?"

"Do whatever you please."

"Aw, be a sport. What would you do if you were in our

place?”

`If I were in your place," I said solemnly, "do you know

what I'd do?"

“ What ?”

"I'd sell out !" I told him.

He looked at me a moment, and without another word turned

on his heel and walked out of my office. He's never been in z

it since.

Not long after that, Senator Gordon. also called. He, too,

was quite peevish and blamed me for their troubles. Then Kane

joined the anvil chorus. They forgot that their stock had been

unsalable in bulk when they formed the syndicate. All they could

remember was that I didn't sell their holdings when I had the

syndicate's millions and the stock was active at 44, and that

now it was 3o and dull as dishwater. To their way of thinking I

should have sold out at a good fat profit.

Of course they also cooled down in due time. The syndicate

wasn't out a cent and the main problem remained unchanged to

sell their stock. A day or two later they came back and asked me

to help them out. Gordon was particularly insistent, and in the

end I made them put in their pooled stock at 25-1/2.

My fee for my services was to be one-half of whatever I got

above that figure. The last sale had been at about 30.

There I was with their stock to liquidate. Given general

market conditions and specifically the behaviour of Consolidated

Stove, there was only one way to do it, and that was, of course,

to sell on the way down and without first trying to put up the

price, and I certainly would have got stock by the ream on the

way up. But on the way down I could reach those buyers who

always argue that a stock is cheap when it sells fifteen or

twenty points below the top of the movement, particularly when

that top is a matter of recent history. A rally

is

due,

in

their opinion. After seeing Consolidated Stove sell up to close

to 44 it sure looked like a good thing below 30.

It worked out as always. Bargain hunters bought it in

sufficient volume to enable me to liquidate the pool's holdings.

But do you think that Gordon or Wolff or Kane felt any

gratitude? Not a bit of it. They are still sore at me, or so

their friends tell me. They often tell people how I did them.

They cannot forgive me for not putting up the price on myself,

as they expected.

As a matter of fact I never would have been able to sell

the bank's hundred thousand shares i f Wolff and the rest had

not passed around those red-hot bull tips of theirs. If I had

worked as I usually do -- that is, in a logical natural way I

would have had to take whatever price I could get. I told

you

we ran into a declining market. The only way to sell on such a

market is to sell not necessarily recklessly but really

regardless of price. No other way was possible, but I suppose

they do not believe this. They are still angry. I am not.

Getting angry doesn't get a man anywhere. More than once it has

been borne in on me that a speculator who loses his temper is a

goner. In this case there was no aftermath to the grouches.

But I'll tell you something curious. One day Mrs. Livermore

went to a dressmaker who had been warmly recommended to her. The

woman was competent and obliging and had a very pleasing

personality. At the third or fourth visit, when the dressmaker

felt less like a stranger, she said to Mrs. Livermore: "I hope

Mr. Livermore puts up Consolidated Stove soon. We have some that

we bought because we were told he was going to put it up, and

we'd always heard that he was very successful in all his deals."

I tell you it isn't pleasant to think that innocent people

may have lost money following a tip of that sort. Perhaps you

understand why I never give any myself. That dressmaker made me

feel that in the matter of grievances I had a real one against

Wolf.

CHAPTER XXIII

SPECULATION in stocks will never disappear. It isn't

desirable that it should. It cannot be checked by warnings as to

its dangers. You cannot prevent people from guessing wrong no

matter how able or how experienced they may be. Carefully laid

plans will miscarry because the unexpected and even the

unexpectable will happen. Disaster may come from a convulsion of

nature or from the weather, from your own greed or from some

man's vanity; from fear or from uncontrolled hope. But apart

from what one might call his natural foes, a speculator in

stocks has to contend with certain practices or abuses that are

indefensible morally as well as commercially.

As I look back and consider what were the common practices

twenty-five years ago when I first came to Wall Street, I have

to admit that there have been many changes for the better. The

old-fashioned bucket shops are gone, though bucketeering

"brokerage" houses still prosper at the expense of men and women

who persist in playing the game of getting rich quick. The Stock

Exchange is doing excellent work not only in getting after these

out-and-out swindlers but in insisting upon strict adherence to

its rules by its own members. Many wholesome regulations and

restrictions are now strictly enforced but there is still room

for improvement. The ingrained conservatism of

Wall

Street

rather than ethical callousness is to blame for the persistence

of certain abuses.

Difficult as profitable stock speculation always has been

it is becoming even more difficult every day. It was not so long

ago when a real trader could have a good working knowledge of

practically every stock on the list. In i9oi, when J. P. Morgan

brought out the United States Steel Corporation, which was

merely a consolidation of lesser consolidations most of which

were less than two years old, the Stock Exchange had 275 stocks

on its list and about zoo in its "unlisted department"; and this

included a lot that a chap didn't have to know anything about

because they were small issues, or inactive by reason of being

minority

or

guaranteed

stocks

and

therefore

lacking

in

speculative attractions. In fact, an overwhelming majority were

stocks in which there had not been a sale in years. Today there

are about coo stocks on the regular list and in our recent

active markets about 600 separate issues were traded in.

Moreover, the old groups or classes of stocks were easier to

keep track of. They not only were fewer but the capitalization

was smaller and the news a trader had to be on the lookout for

did not cover so wide a field. But today, a man is trading in

everything; almost every industry in the world is represented.

It requires more time and more work to keep posted and to that

extent stock speculation has become much more difficult for

those who operate intelligently.

There are many thousands of people who buy and sell stocks

speculatively but the number of those who speculate profitably

is small. As the public always is "in" the market to some ex-

tent, it follows that there are losses by the public all the

time.

The speculator's deadly enemies are: Ignorance, greed, fear

and hope. All the statute books in the world and all the rules

of all the Exchanges on earth cannot eliminate these from the

human animal. Accidents which knock carefully conceived plans

sky high also are beyond regulation by bodies of cold blooded

economists

or

warm-hearted

philanthropists.

There

remains

another source of loss and that is, deliberate misinformation as

distinguished from straight tips. And because it is apt to come

to a stock trader variously disguised and camouflaged, it is the

more insidious and dangerous.

The average outsider, of course, trades either on tips or

on rumours, spoken or printed, direct or implied. Against

ordinary tips you cannot guard. For instance, a lifelong friend

sincerely desires to make you rich by telling you what he has

done, that is, to buy or sell some stock. His intent is good a

job. If the tip goes wrong what can you do? Also against the

professional or crooked tipster the public is protected to about

the same extent that he is against gold-bricks or wood-alcohol.

But against the typical Wall Street rumours, the speculating

public has neither protection nor redress. Wholesale dealers in

securities, manipulators, pools and individuals resort to

various devices to aid them in disposing of their surplus hold-

ings at the best possible prices. The circulation of bullish

items by the newspapers and the tickers is the most pernicious

of all.

Get the slips of the financial news-agencies any day and it

will surprise you to see how many statements of an implied

semi-official nature they print. The authority is some "leading

insider" or "a prominent director" or "a high official" or

someone "in authority" who presumably knows what he is talking

about. Here are today's slips. I pick an item at random. Listen

to this: "A leading banker says it is too early yet to expect a

declining market."

Did a leading banker really say that and if he said it why

did he say it? Why does he not allow his name to be printed? Is

he afraid that people will believe him if he does?

Here is another one about a company the stock of which has

been active this week. This time the man who makes the statement

is a "prominent director." Now which -- if any -- of the

company's dozen directors is doing the talking? It is plain that

by remaining anonymous nobody can be blamed for any damage that

may be done by the statement.

Quite apart from the intelligent study of speculation every

where the trader in stocks must consider certain facts in

connection with the game in Wall Street. In addition to trying

to determine how to make money one must also try to keep from

losing money. It is almost as important to know what not to do

as to know what should be done. It is therefore well to remember

that manipulation of some sort enters into practically all

advances in individual stocks and that such advances are

engineered by insiders with one object in view and one only and

that is to sell at the best profit possible. However, the

average broker's customer believes himself to be a business man

from Missouri if he insists upon being told why a certain stock

goes up. Naturally, the manipulators "explain" the advance in a

way calculated to facilitate distribution. I am firmly convinced

that the public's losses would be greatly reduced if no

anonymous statements of a bullish nature were allowed to be

printed. I mean statements calculated to make the public buy or

hold stocks.

The overwhelming majority of the bullish articles printed

on the authority of unnamed directors or insiders convey

unreliable and misleading impressions to the public. The public

loses fiany millions of dollars every year by accepting such.

statements as semi-official and therefore trustworthy.

Say for example that a company has gone through a period of

depression in its particular line of business. The stock is

inactive. The quotation represents the general and presumably

accurate belief of its actual value. If the stock were too cheap

at that level somebody would know it and buy it and it would

advance. If too dear somebody would know enough to sell it and

the price would decline. As nothing happens one way or another

nobody talks about it or does anything.

The turn comes in the line of business the company is

engaged in. Who are the first to know it, the insiders or the

public? You can bet it isn't the public. What happens next? Why,

if the improvement continues the earnings will increase and the

company will be in position to resume dividends on the stock;

or, if dividends were not discontinued, to pay a higher rate.

That is, the value of the stock will increase.

Say that the improvement keeps up. Does the management make

public that glad fact? Does the president tell the stockholders?

Does a philanthropic director come out with a signed statement

for the benefit of that part of the public that reads the

financial page in the newspapers and the slips of the news

agencies? Does some modest insider pursuing his usual policy of

anonymity come out with an unsigned statement to the effect that

the company's future is most promising? Not this time. Not a

word is said by anyone and no statement whatever is printed by

newspapers or tickers:

The value-making information is carefully kept from the

public while the now taciturn "prominent insiders" go into the

market and buy all the cheap stock they can lay their hands on

As this well-informed but unostentatious buying keeps on, the

stock rises. The financial reporters, knowing that the insiders

ought to know the reason for the rise, ask questions. The

unanimously anonymous insiders unanimously declare that they

have no news to give out. They do not know that there is any

warrant for the rise. Sometimes they even state that they are

not particularly concerned with the vagaries of the stock market

or the actions of stock speculators.

The rise continues and there comes a happy day when those

who know have all the stock they want or can carry. The Street

at once begins to hear all kinds of bullish rumours. The tickers

tell the traders "on good authority" that the company has

definitely turned the corner. The same modest director who did

not wish his name used when he said he knew no warrant for the

rise in the stock is now quoted, of course, not by name as

saying that the stockholders have every reason to feel greatly

encouraged over the outlook.

Urged by the deluge of bullish news items the public begins

to buy the stock. These purchases help to put the price stilt

higher. In due course the predictions of the uniformly unnamed

directors come true and the company resumes dividend payments or

increases the rate, as the case may be. With that the bullish

items multiply. They not only are more numerous than ever but

much more enthusiastic. A "leading director," asked point blank

for a statement of conditions, informs the world that the

improvement is more than keeping up. A "prominent insider,"

after much coaxing, is finally induced by a news-agency to

confess that the earnings are nothing short of phenomenal. A

"well-known banker," who is affiliated in a business way with

the company, is made to say that the expansion in the volume of

sales is simply unprecedented in the history of the trade. If

not another order came in the company would run night and day

for heaven knows how many months.

A "member of the finance committee," in a double-leaded

manifesto,

expresses

his

astonishment

at

the

public's

astonishment over the stock's rise. The only astonishing thing

is the stock's moderation in the climbing line. Anybody who will

analyse the forthcoming annual report can easily figure how much

more than the market-price the book-value of the stock is. But

in no instance is the name of the communicative philanthropist

given.

As long as the earnings continue good and the insiders do

not discern any sign of a let up in the company's prosperity

they sit on the stock they bought at the low prices. There is

nothing to put the price down, so why should they sell? But the

moment there is a turn for the worse in the company's business,

what happens? Do they come out with statements or warnings or

the faintest of hints? Not much. The trend is now downward. Just

as they bought without any flourish of trumpets when the

company's business' turned for the better, they now silently

sell. On this inside selling the stock naturally declines. Then

the public begins to get the familiar "explanations." A "leading

insider" asserts that everything is O.K. and the decline is

merely the result of selling by bears who are trying to affect

the general market. If on one fine day, after the stock has been

declining for some time, there should be a sharp break, the

demand for "reasons" "explanations" becomes clamorous. Unless

somebody says something the public will fear the worst. So the

news-tickers now print something like this: "When we asked a

prominent director of the company to explain the weakness in the

stock, he replied that the only conclusion he could arrive at

was that the decline today was caused by a bear drive.

Underlying conditions are unchanged. The business of the company

was never better than at present and the probabilities are that

unless something entirely unforeseen happens in the meanwhile,

there will be an increase in the rate at the next dividend

meeting. The bear party in the market has become aggressive and

the weakness in the stock was clearly a raid intended to

dislodge weakly held stock." The news-tickers, wishing to give

good measure, as "likely as not will go on to state that they

are "reliably informed" that most of the stock bought on the

day's decline was taken by inside interests and that the bears

will find that they have sold themselves into a trap. There will

be a day of reckoning.

In addition to the losses sustained by the public through

believing bullish statements and buying stocks, there are the

losses that come through being dissuaded from selling out. The

next best thing to having people buy the stock the "prominent

insider" wishes to sell is to prevent people from selling the

same stock when he does not wish to support or accumulate it.

What is the public to believe after reading the statement of the

"prominent director"? What can the average outsider think? Of

course, that the stock should never have gone down; that it was

forced down by bear-selling and that as soon as the bears stop

the insiders will engineer a punitive advance during which the

shorts will be driven to cover at high prices. The public

properly believes this because it is exactly what would happen

if the decline had in truth been caused by a bear raid.

The stock in question, notwithstanding all the threats or

promises of a tremendous squeeze of the over-extended short

interest, does not rally. It keeps on going down. It can't help

it. There has been too much stock fed to the market from the

inside to be digested.

And this inside stock that lias been sold by the "prominent

directors" and "leading insiders" becomes a football among the

professional traders. It keeps on going down. There seems to be

no bottom for it. The insiders knowing that trade conditions

will adversely affect the company's future earnings do not dare

to support that stock until the next turn for the better in the

company's business. Then there will be inside buying and inside

silence.

I have done my share of trading and have kept fairly well

posted on the stock market for many years and I can say that I

do not recall an instance when a bear raid caused a stock to

decline extensively. What was called bear raiding was nothing

but selling based on accurate knowledge of real conditions. But

it would not do to say that the stock declined on inside selling

or on inside non-buying. Everybody would hasten to sell and when

everybody sells and nobody buys there is the dickens to pay.

The public ought to grasp firmly this one point: That the

real reason for a protracted decline is never bear raiding. When

a stock keeps on going down you can bet there is something wrong

with it, either with the market for it or with the company. If

the decline were unjustified the stock would soon sell below its

real value and that would bring in buying that would check the

decline. As a matter of fact, the only time a bear can make big

money selling a stock is when that stock is too high. And you

can gamble your last cent on the certainty that insiders will

not proclaim that fact to the world.

Of course, the classic example is the New Haven. Everybody

knows today what only a few knew at the time. The stock sold at

255 in 1902 and was the premier railroad investment of New

England. A man in that part of the country measured his

respectability and standing in the community by his holdings of

it. If somebody had said that the company was on the road to

insolvency he would not have been sent to jail for saying it.

They would have clapped him in an insane asylum with other

lunatics. But when a new and aggressive president was placed in

charge by Mr. Morgan and the debacle began, it was not clear

from the first that the new policies would land the road where

it did. But as property after property began to be saddled in

the Consolidated Road at inflated prices, a few clear sighted

observers began to doubt the wisdom of the Mellen policies. A

trolley system was bought for two million and sold to the New

Haven for $10,000,000; whereupon a reckless man or two committed

lese majeste by saying that the management was acting

recklessly. Hinting that not even the New Haven could stand such

extravagance was like impugning the strength of Gibraltar.

Of course, the first to see breakers ahead were the

insiders. They became aware of the real condition of the company

and they reduced their holdings of the stock. On their selling

as well as on their non-support, the price of New England's

giltedged railroad stock began to yield. Questions were asked,

and explanations were demanded as usual; and the usual

explanations were promptly forthcoming. "Prominent insiders"

declared that there was nothing wrong that they knew of and that

the decline was due to reckless bear selling. So the "investors"

of New England kept their holdings of New York, New Haven &

Hartford Stock. Why shouldn't they? Didn't insiders say there

was nothing wrong and cry bear selling? Didn't dividends

continue to be declared and paid?

In the meantime the promised squeeze of the bears did not

come but new low records did. The insider selling became more

urgent and less disguised. Nevertheless public spirited men in

Boston were denounced as stock-jobbers and demagogues for

demanding a genuine explanation for the stock's deplorable

decline that meant appalling losses to everybody in New England

who had wanted a safe investment and a steady dividend payer.

That historic break from $255 to $12 a share never was and

never could have been a bear drive. It was not started and it

was not kept up by bear operations. The insiders sold right

along and always at higher prices than they could have done if

they had told the truth or allowed the truth to be told. It did

not matter whether the price was 250 or 200 or 150 or too or 50

or 25, it still was too high for that stock, and the insiders

knew it and the public did not. The public might profitably

consider the disadvantages under which it labours when it tries

to make money buying and selling the stock of a company

concerning whose affairs only a few men are in position to know

the whole truth.

The stocks which have had the worst breaks in the past 20

years did not decline on bear raiding. But the easy acceptance

of that form of explanation has been responsible for losses by

the public amounting to millions upon millions of dollars. It

has kept people from selling who did not like the way his stock

was acting and would have liquidated if they had not expected

the price to go right back after the bears stopped their

raiding. I used to hear Keene blamed in the old days. Before him

they used to accuse Charley Woerishoffer or Addison Cammack.

Later on I became the stock excuse.

I recall the case of Intervale Oil. There was a pool in it

that put the stock up and found some buyers on the advance. The

manipulators ran the price to 50. There the pool sold and there

was a quick break. The usual demand for explanations followed.

Why was Intervale so weak? Enough people asked this question to

make the answer important news. One of the financial news

tickers called up tire brokers who knew the ost about Intervale

Oil's advance and ought to he equally well posted as to the

decline. What did these brokers, members of the bull pool, say

when the news agency asked them for a reason that could

be.printed and salt broadcast over the country? Why, that Larry

Livermore was raiding the marked And that wasn't enough. They

added that they were going to "get" him. But of course, the

Intervale pool continued to sell. The stock only stood then

about $12 a share and they could sell it down to io or lower and

their average selling price would still be above cost.

It was wise and proper for insiders to sell on the decline.

But for outsiders who had paid 35 or 40, it was a different

matter. Reading what the tickers printed there outsiders held on

and waited for Larry Livermore to get what was coming to him at

the hands of the indignant inside pool.

In a bull market and particularly in booms the public at

first makes money which it later loses simply by overstaying the

bull market. This talk of "bear raids" helps them to overstay.

The public should beware of explanations that explain only what

unnamed insiders wish the public to believe.

CHAPTER XXIV

THE public always wants to be told. That is what makes

tip-giving and tip-taking universal practices. It is proper that

brokers should give their customers trading advice through the

medium of their market letters as well as by word of mouth. But

brokers should not dwell too strongly on actual conditions

because the course of the market is always from six to nine

months ahead of actual conditions. Today's earnings do not

justify brokers in advising their customers to buy stocks unless

there is some assurance that six or nine months from today the

business outlook will warrant the belief that the same rate of

earnings will be maintained. If on looking that far ahead you

can see, reasonably clearly, that conditions are developing

which will change the present actual power, the argument about

stocks being cheap today will disappear. The trader must look'

far ahead, but the broker is concerned with getting commissions

now;.hence the inescapable fallacy of the average market letter.

Brokers make their living out of commissions from the public and

yet they will try to induce the public through their market

letters or by word of mouth to buy the same stocks in which they

have received selling orders from insiders or manipulators.

It often happens that an insider goes to the head of a bro-

kerage concern and says: "I wish you'd make a market in which to

dispose of 50,000 shares of my stock."

The broker asks for further details. Let us say that the

quoted price of that stock is 50. The insider tells him: "I will

give you calls on 5000 shares at 45 and 5000 shares every point

up for the entire fifty thousand shares. I also will give you a

put on 50,000 shares at the market."

Now, this is pretty easy money for the broker, if he has a

large following and of course this is precisely the kind

ofbroker the insider seeks. A house with direct wires to

branches and connections in various parts of the country can

usually

get a large following in a deal of that kind. Remember

that in any event the broker is playing absolutely safe by

reason

of the put. If he can get his public to follow he will

be able to dispose of his entire line at a big profit in

addition to his regular commissions.

I have in mind the exploits of an "insider" who is well

known in Wall Street. He will call up the head customers' man of

a large brokerage house. At times he goes even further and calls

up one of the I junior partners of the firm. He will say

something like this "Say, old man, I want to show you that I

appreciate what you have done for me at various times. I am

going to give you a chance to make some real money. We are

forming a new company to absorb the assets of one of our

companies and we'll take over that stock at a big advance over

present

quotations. I'm going to send in to you 50o

shares of Bantam Shops at $65. The stock is now quoted at 7a."

The grateful insider tells the thing to a dozen of the head

men in various big brokerage houses. Now since these recipients

of the insider's bounty are in Wall Street what are they going

to do when they get that stock that already shows them a profit?

Of course, advise every man and woman they can reach to buy that

stock. The kind donor knew this. They will help to create a

market in which the kind insider can sell his good things at

high prices to the poor public.

There are other devices of stock-selling promoters that

should be barred. The Exchanges should not allow trading in

listed stocks that are offered outside to the public on the

partial payment plan. To have the price officially quoted gives

a sort of sanction to any stock. Moreover, the official evidence

of a free market, and at times the difference in prices, is all

the inducement needed.

Another common selling device that costs the unthinking

public many millions of dollars and sends nobody to jail because

it is perfectly legal, is that of increasing the capital stock

exclusively by reason of market exigencies. The process does not

really amount to much more than changing the color of the stock

certificates.

The juggling whereby s or 4 or even io shares of new stock

are given in exchange for one of the old, is usually prompted by

a desire to make the old merchandise more easily vendible. The

old price was $t per pound package and hard to move. At 25 cents

for a quarter-pound box it might go better; and perhaps at 27 or

30 cents.

Why does not the public ask why the stock is made easy to

buy? It is a case of the Wall Street philanthropist operating

again, but the wise trader bewares of the Greeks bearing gifts.

It is all the warning needed. The public disregards it and loses

millions of dollars annually.

The law punishes whoever originates or circulates rumors

calculated to affect adversely the credit or business of

individuals or corporations, that is, that tend to depress the

values of securities by influencing the public to sell.

Originally, the chief intention may have been to reduce the

danger of panic by punishing anyone who doubted aloud the

solvency of banks in times of stress. But of course, it serves

also to protect the public against selling stocks below their

real value. In other words the law of the land punishes the

disseminator of bearish items of that nature.

How is the public protected against the danger of buying

stocks above their real value? Who punishes the distributor of

unjustified bullish news items? Nobody; and yet, the public

loses more money buying stocks on anonymous inside advice when

they are too high than it does selling out stocks below their

value as a consequence of bearish advice during socalled

"raids."

If a law were passed that would punish bull liars as the

law now punishes bear liars, I believe the public would save

millions.

Naturally, promoters, manipulators and other beneficiaries

of anonymous optimism will tell you that anyone who trades on

rumors and unsigned statements has only himself to blame for his

losses. One might as well argue that any one who is silly enough

to be a drug addict is not entitled to protection

The Stock Exchange should help. It is vitally interested in

protecting the public against unfair practices. If a man in

position to know wishes to make the public accept his statements

of fact or even his opinions, let him sign his name. Signing

bullish items would not necessarily make them true. But it would

make the "insiders" and "directors" more careful.

The public ought always to keep in mind the elementals of

stock trading. When a stock is going up no elaborate explanation

is needed as to why it is going up. It takes continuous to

buying to make a stock keep on going up. As long as it does so,

with only small and natural reactions from time to time, it is a

pretty safe proposition to trail along with it. But if after a

long steady rise a stock turns and gradually begins to go

down,

with only occasional small rallies, it is obvious that the line

of least resistance has changed from upward to downward. Such

being the case why should any one ask for explanations? There

are probably very good reasons why it should go down, but these

reasons are known only to a few people who either keep those

reasons to themselves, or else actually tell the public that the

stock is cheap. The nature of the game as it is played is such

that the public should realise that the truth cannot be told by

the few who know.

Many of the so-called statements attributed to "insiders"

or officials have no basis in fact. Sometimes the insiders are

not even asked to make a statement, anonymous or signed. These

stories are invented by somebody or other who has a large

interest in the market. At a certain stage of an advance in the

market-price of a security the big insiders are not averse to

getting the help of the professional element to trade in that,

stock. But while the insider might tell the big plunger the

right time to buy, you can bet he will never tell when is the

time to sell. That puts .the big professional in the same

position as the public, only he has to have a market big enough

for him to get out on. Then is when you get the most misleading

"information." Of course, there are certain insiders who cannot

be trusted at any stage of the game. As a rule the men who are

at the head of big corporations may act in the market upon their

inside knowledge, but they don't actually tell lies. They merely

say nothing, for they have discovered that there are times when

silence is golden.

have said many times and cannot say it too often that the

experience of years as a stock operator has convinced me that no

man can consistently and continuously beat the stock market

though he may make money in individual stocks on certain

occasions. No matter how experienced a trader is the possibility

of his making losing plays is always present because speculation

cannot be made 100 per cent safe. Wall Street professionals know

that acting on "inside" tips will break a man more quickly than

famine, pestilence, crop failures, political readjustments or

what might be called normal accidents. There is no asphalt

boulevard to success in Wall Street or anywhere else. Why

additionally block traffic?

The End

Note:

Reminiscences of a Stock Operator is a 1923 novel by American author Edwin Lefèvre which is the thinly disguised biography of Jesse Lauriston Livermore. The book began as a series of twelve articles published between 1922 and 1923 in The Saturday Evening Post. It is written as first-person fiction, telling the story of a professional stock trader on Wall Street.

Regarded as one of the smartest books on market trading, it has inspired and educated stock market traders for almost one hundred years now.