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REMINISCENCES OF A STOCK OPERATOR
CHAPTER I
I WENT to work when I was just out of grammar school. I got
a job as quotation-board boy in a stock-brokerage office. I was
quick at figures. At school I did three years of arithmetic in
one. I was particularly good at mental arithmetic. As
quotation-board boy I posted the numbers on the big board in the
customers' room. One of the customers usually sat by the ticker
and called out the prices. They couldn't come too fast for me. I
have always remembered figures. No trouble at all.
There were plenty of other employees in that office. Of
course I made friends with the other fellows, but the work I
did, if the market was active, kept me too busy from ten A.M. to
three P.M. to let me do much talking. I don't care for it,
anyhow, during business hours.
But a busy market did not keep me from thinking about the
work. Those quotations did not represent prices of stocks to'
me, so many dollars per share. They were numbers. Of course,
they meant something. They were always changing. It was all I
had to be interested in the changes. Why did they change? I
didn't know. I didn't care. I didn't think about that. I simply
saw that they changed. That was all I had to think about five
hours every day and two on Saturdays: that they were always
changing.
That is how I first came to be interested in the behaviour
of prices. I had a very good memory for figures. I could
remember in detail how the prices had acted on the previous day,
just before they went up or down. My fondness for mental
arithmetic came in very handy.
I noticed that in advances as well as declines, stock
prices were apt to show certain habits, so to speak. There was
no end of parallel cases and these made precedents to guide me.
I was only fourteen, but after I had taken hundreds of
observations in my mind I found myself testing their accuracy,
comparing the behaviour of stocks today with other days. It was
not long before I was anticipating movements in prices. My only
guide, as I say, was their past performances. I carried the
"dope sheets" in my mind. I looked for stock prices to run on
form. I had "clocked" them. You know what I mean.
You can spot, for instance, where the buying is only a
trifle better than the selling. A battle goes on in the stock
market and the tape is your telescope. You can depend upon it
seven out of ten cases.
Another lesson I learned early is that there is nothing new
in Wall Street. There can't be because speculation is as old as
the hills. Whatever happens in the stock market today has
happened before and will happen again. I've never forgotten
that. I suppose I really manage to remember when and how it
happened. The fact that I remember that way is my way of
capitalizing experience.
I got so interested in my game and so anxious to anticipate
advances and declines in all the active stocks that I got a
little book. I put down my observations in it. It was not a
record of imaginary transactions such as so many people keep
merely to make or lose millions of dollars without getting the
swelled head or going to the poorhouse. It was rather a sort of
record of my hits and misses, and next to the determination of
probable movements I was most interested in verifying whether I
had observed accurately; in other words, whether I was right.
Say that after studying every fluctuation of the day in an
active stock I would conclude that it was behaving as it always
did before it broke eight or ten points. Well, I would jot down
the stock and the price on Monday, and remembering past
performances I would write down what it ought to do on Tuesday
and Wednesday. Later I would check up with actual transcriptions
from the tape.
That is how I first came to take an interest in the message
of the tape. The fluctuations were from the first associated in
my mind with upward or downward movements. Of course there is
always a reason for fluctuations, but the tape does not concern
itself with the why and wherefore. It doesn't go into
explanations. I didn't ask the tape why when I was fourteen, and
I don't ask it today, at forty. The reason for what a certain
stock does today may not be known for two or three days, or
weeks, or months. But what the dickens does that matter? Your
business with the tape is now -- not tomorrow. The reason can
wait. But you must act instantly or be left. Time and again I
see this happen. You'll remember that Hollow Tube went down
three points the other day while the rest of the market rallied
sharply. That was the fact. On the following Monday you saw that
the directors passed the dividend. That was the reason. They
knew what they were going to do, and even if they didn't sell
the stock themselves they at least didn't buy it. There was no
inside buying; no reason why it should not break.
Well, I kept up my little memorandum book perhaps six
months. Instead of leaving for home the moment I was through
with my work, I'd jot down the figures I wanted and would study
the changes, always looking for the repetitions and parallelisms
of behaviour learning to read the tape, although I was not aware
of it at the time.
One day one of the office boys -- he was older than I came
to me where I was eating my lunch and asked me on the quiet if I
had any money.
"Why do you want to know?" I said.
"Well," he said, "I've got a dandy tip on Burlington. I'm
going to play it if I can get somebody to go in with me."
"How do you mean, play it?" I asked. To me the only people
who played or could play tips were the customers old jiggers
with oodles of dough. Why, it cost hundreds, even thousands of
dollars, to get into the game. It was like owning your private
carriage and having a coachman who wore a silk hat.
"That's what I mean; play it 1" he said. "How much you got.
"How much you need?"
"Well, I can trade in five shares by putting up $5."
"How are you going to play it?"
"I'm going to buy all the Burlington the bucket shop will
let me carry with the money I give him for margin," he said.
"It's going up sure. It's like picking up money. We'll double
ours in a jiffy."
"Hold on!" I said to him, and pulled out my little dope
book.
I wasn't interested in doubling my money, but in his saying
that Burlington was going up. If it was, my notebook ought to
show it. I looked. Sure enough, Burlington, according to my
figuring, was acting as it usually did before it went up. I had
never bought or sold anything in my life, and I never gambled
with the other boys. But all I could see was that this was a
grand chance to test the accuracy of my work, of my hobby. It
struck me at once that if my dope didn't work in practice there
was nothing in the theory of it to interest anybody. So I gave
him all I had, and with our pooled resources he went to one of
the nearby bucket shops and bought some Burlington. Two days
later we cashed in. I made a profit Of $3.12.
After that first trade, I got to speculating on my own hook
in the bucket shops. I'd go during my lunch hour and buy or sell
-- it never made any difference to me. I was playing a system
and not a favorite stock or backing opinions. All I knew was the
arithmetic of it. As a matter of fact, mine was the ideal way to
operate in a bucket shop, where all that a trader does is to bet
on fluctuations as they are printed by the ticker on the tape.
It was not long before I was taking much more money out of
the bucket shops than I was pulling down from my job in the
brokerage office. So I gave up my position. My folks objected,
but they couldn't say much when they saw what I was making. I
was only a kid and office-boy wages were not very high. I did
mighty well on my own hook.
I was fifteen when I had my first thousand and laid the
cash in front of my mother -- all made in the bucket shops in a
few months, besides what I had taken home. My mother carried on
something awful. She wanted me to put it away in the savings
bank out of reach of temptation. She said it was more money than
she ever heard any boy of fifteen had made, starting with
nothing. She didn't quite believe it was real money. She used to
worry and fret about it. But I didn't think of anything except
that I could keep on proving my figuring was right. That's all
the fun there is being right by using your head. If I was right
when I tested my convictions with ten shares I would be ten
times more right if I traded in a hundred shares. That is all
that having more margin meant to me -- I was right more
emphatically. More courage? No! No difference! If all I have is
ten dollars and I risk it, I am much braver than when I risk a
million, if I have another million salted away.
Anyhow, at fifteen I was making a good living out of the
stock market. I began in the smaller bucket shops, where the man
who traded in twenty shares at a clip was suspected of being
John W. Gates in disguise or J. P. Morgan traveling incognito.
Bucket shops in those days seldom lay down on their customers.
They didn't have to. There were other ways of parting customers
from their money, even when they guessed right. The business was
tremendously profitable. When it was conducted legitimately -- I
mean straight, as far as the bucket shop went the fluctuations
took care of the shoestrings. It doesn't take much of a reaction
to wipe out a margin of only three quarters of a point. Also, no
welsher could ever get back in the game. Wouldn't have any
trade.
I didn't have a following. I kept my business to myself. It
was a one-man business, anyhow. It was my head, wasn't it?
Prices either were going the way I doped them out, without any
help from friends or partners, or they were going the other way,
and nobody could stop them out of kindness to me. I couldn't see
where I needed to tell my business to anybody else. I've got
friends, of course, but my business has always been the same --
a one-man affair. That is why I have always played a lone hand.
As it was, it didn't take long for the bucket shops to get
sore on me for beating them. I'd walk in and plank down my
margin, but they'd look at it without making a move to grab it.
They'd tell me there was nothing doing. That was the time they
got to calling me the Boy Plunger. I had to be changing brokers
all the time, going from one bucket shop to another. It got so
that I had to give a fictitious name. I'd begin light, only
fifteen or twenty shares. At times, when they got suspicious,
I'd lose on purpose at first and then sting them proper. Of
course after a little while they'd find me too expensive and
they'd tell me to take myself and my business elsewhere and not
interfere with the owners' dividends.
Once, when the big concern I'd been trading with for months
shut down on me I made up my mind to take a little more of their
money away from them. That bucket shop had branches all over the
city, in hotel lobbies, and in nearby towns. I went to one of
the hotel branches and asked the manager a few questions and
finally got to trading. But as soon as I played an active stock
my especial way he began to get messages from the head office
asking who it was that was operating. The manager told me what
they asked him and I told him my name was Edward Robinson, of
Cambridge. He telephoned the glad news to the big chief. But the
other end wanted to know what I looked like. When the manager
told me that I said to him, "Tell him I am a short fat man with
dark hair and a bushy beard 1" But he described me instead, and
then he listened and his face got red and he hung up and told me
to beat it.
"What did they say to you?" I asked him politely.
"They said, `You blankety-blank fool, didn't we tell you to
take no business from Larry Livermore? And you deliberately let
him trim us out of $700!" He didn't say what else they told him.
I tried the other branches one after another, but they all
got to know me, and my money wasn't any good in any of their
offices. I couldn't even go in to look at the quotations without
some of the clerks making cracks at me. I tried to get
them to let me trade at long intervals by dividing my visits
among them all. But that didn't work.
Finally there was only one left to me and that was the
biggest and richest of all the Cosmopolitan Stock Brokerage
Company.
The Cosmopolitan was rated as A-1 and did an enormous
business. It had branches in every manufacturing town in New
England. They took my trading all right, and I bought and sold
stocks and made and lost money for months, but in the end it
happened with them as usual. They didn't refuse my business
point-blank, as the small concerns had. Oh, not because it
wasn't sportsmanship, but because they knew it would give them a
black eye to publish the news that they wouldn't take a fellow's
business just because that fellow happened to make a little
money. But they did the next worse thing that is, they made me
put up a three-point margin and compelled me to pay a premium at
first of a half point, then a point, and finally, a point and a
half. Some handicap, that! How? Easy! Suppose Steel was selling
at 90 and you bought it. Your ticket read, normally: "Bot ten
Steel at 90-1/8." If you put up a point margin it meant that if
it broke 89-1/4 you were wiped out automatically. In a bucket
shop the customer is not importuned for more margin or put to
the painful necessity of telling his broker to sell for anything
he can get.
But when the Cosmopolitan tacked on that premium they were
hitting below the belt. It meant that if the price was 90 when I
bought, instead of making my ticket: "Bot Steel at 90-1/8," it
read: "Bot Steel at 90-1/8." Why, that stock could advance a
point and a quarter after I bought it and I'd still be losing
money if I closed the trade. And by also insisting that I put up
a three-point margin at the very start they reduced my trading
capacity by two thirds. Still, that was the only bucket shop
that would take my business at all, and I had to accept their
terms or quit trading.
Of course I had my ups and downs, but was a winner on
balance. However, the Cosmopolitan people were not satisfied
with the awful handicap they had tacked on me, which should have
been enough to beat anybody. They tried to doublecross me. They
didn't get me. I escaped because of one of my hunches.
The Cosmopolitan, as I said, was my last resort. It was the
richest bucket shop in New England, and as a rule they put no
limit on a trade. I think I was the heaviest individual trader
they had -- that is, of the steady, everyday customers. They had
a fine office and the largest and completest quotation board I
have ever seen anywhere. It ran along the whole length of the
big room and every imaginable thing was quoted. I mean stocks
dealt in on the New York and Boston Stock Exchanges, cotton,
wheat, provisions, metals -- everything that was bought and sold
in New York, Chicago, Boston and Liverpool.
You know how they traded in bucket shops. You gave your
money to a clerk and told him what you wished to buy or sell He
looked at the tape or the quotation board and took the price
from there -- the last one, of course. He also put down the time
on the ticket so that it almost read like a regular broker's
report -- that is, that they had bought or sold for you so many
shares of such a stock at such a price at such a time on such a
day and how much money they received from you. When you wished
to close your trade you went to the clerk -- the same or
another, it depended on the shop and you told him. He took the
last price or if the stock had not been active he waited for the
next quotation that came out on the tape. He wrote that price
and the time on your ticket, O.K.'d it and gave it back to you,
and then you went to the cashier and got whatever cash it called
for. Of course, when the market went against you and the price
went beyond the limit set by your margin, your trade
automatically closed itself and your ticket became one more
scrap of paper.
In the humbler bucket shops, where people were allowed to
trade in as little as five shares, the tickets were little slips
commissions and if you bought a stock at 20 the ticket would
read 20%. You thus had only Y4 of a point's run for your money.
But the Cosmopolitan was the finest in New England. It had
thousands of patrons and I really think I was the only man they
were afraid of. Neither the killing premium nor the three-point
margin they made me put up reduced my trading much. I kept on
buying and selling as much as they'd let me. I sometimes had a
line of 5,000 shares.
Well, on the day the thing happened that I am going to tell
you, I was short thirty-five hundred shares of Sugar. I had
seven big pink tickets for five hundred shares each. The
Cosmopolitan used big slips with a blank space on them where
they could write down additional margin. Of course, the bucket
shops never ask for more margin. The thinner the shoestring the
better for them, for their profit lies in your being wiped. In
the smaller shops if you wanted to margin your trade still
further they'd make out a new ticket, so they could charge you
the buying commission and only give you a run of 1/4 of a point
on each point's decline, for they figured the selling commission
also exactly as if it were a new trade.
Well, this day I remember I had up over $10,000 in margins.
I was only twenty when I first accumulated ten thousand
dollars in cash. And you ought to have heard my mother. You'd
have thought that ten thousand dollars in cash was more than
anybody carried around except old John D., and she used to tell
me to be satisfied and go into some regular business. I had a
hard time convincing her that I was not gambling, but making
money by figuring. But all she could see was that ten thousand
dollars was a lot of money and all I could see was more margin.
I had put out my 3500 shares of Sugar at 105-1/4. There was
another fellow in the room, Henry Williams, who was short 2500
shares. I used to sit by the ticker and call out the quotations
for the board boy. The price behaved as I thought it would. It
promptly went down a couple of points and paused a little to get
its breath before taking another dip. The general market was
pretty soft and everything looked promising. Then all of a
sudden I didn't like the way Sugar was doing its hesitating. I
began to feel uncomfortable. I thought I ought to get out of the
market. Then it sold at 103 -- that was low for the day, but
instead of feeling more confident I felt more uncertain. I knew
something was wrong somewhere, but I couldn't spot it exactly.
But if something was coming and I didn't know where from, I
couldn't be on my guard against it. That being the case I'd
better be out of the market.
You know, I don't do things blindly. I don't like to. I
never did. Even as a kid I had to know why I should do certain
things. But this time I had no definite reason to give to
myself, and yet I was so uncomfortable that I couldn't stand it.
I called to a fellow I knew, Dave Wyman, and said to him "Dave,
you take my place here. I want you to do something for me. Wait
a little before you call out the next price of Sugar, will you?"
He said he would, and I got up and gave him my place by the
ticker so he could call out the prices for the boy. I took my
seven Sugar tickets out of my pocket and walked over to the
counter, to where the clerk was who marked the tickets when you
closed your trades. But I didn't really know why I should get
out of the market, so I just stood there, leaning against the
counter, my tickets in my hand so that the clerk couldn't see
them. Pretty soon I heard the clicking of a telegraph instrument
and I saw Tom Burnham, the clerk, turn his head quickly and
listen. Then I felt that something crooked was hatching, and I
decided not to wait any longer. Just then Dave Wyman by the
ticker, began: "Su" and quick as a flash I slapped my tickets on
the counter in front of the clerk and yelled, "Close Sugar!"
before Dave had finished calling the price. So, of course, the
house had to close my Sugar at the last quotation. What Dave
called turned out to be 103 again.
According to my dope Sugar should have broken 103 by now.
The engine wasn't hitting right. I had the feeling that there
was a trap in the neighbourhood. At all events, the telegraph
instrument was now going like mad and I noticed that
Tom Burnham, the clerk, had left my tickets unmarked where I
laid them, and was listening to the clicking as if he were
waiting for something. So I yelled at him: "Hey, Tom, what in
hell are you waiting for? Mark the price on these tickets
--
103! Get a gait on!"
Everybody in the room heard me and began to look toward us
and ask what was the trouble, for, you see, while the
Cosmopolitan had never laid down, there was no telling, and a
run on a bucket shop can start like a run on a bank. If one
customer gets suspicious the others follow suit. So Tom looked
sulky, but came over and marked my tickets "Closed at 103" and
shoved the seven of them over toward me. He sure had a sour
face.
Say, the distance from Tom's place to the cashier's cage
wasn't over eight feet. But I hadn't got to the cashier to get
my money when Dave Wyman by the ticker yelled excitedly
"Gosh! Sugar, 108!" But it was too late; so I just laughed and
called over to Tom, "It didn't work that time, did it, old boy?"
Of course, it was a put-up job. Henry Williams and I to-
gether were short six thousand shares of Sugar. That bucket shop
had my margin and Henry's, and there may have been a lot of
other Sugar shorts in the office; possibly eight or ten thousand
shares in all. Suppose they had $20,000 in Sugar margins. That
was enough to pay the shop to thimblerig the market on the New
York Stock Exchange and wipe us out. In the old days whenever a
bucket shop found itself loaded with too many bulls on a certain
stock it was a common practice to get some broker to wash down
the price of that particular stock far enough to wipe out all
the customers that were long of it. This seldom cost the bucket
shop more than a couple of points on a few hundred shares, and
they made thousands of dollars.
That was what the Cosmopolitan did to get me and Henry
Williams and the other Sugar shorts. Their brokers in New York
ran up the price to io8. Of course it fell right back, but Henry
and a lot of others were wiped out. Whenever there was an
unexplained sharp drop which was followed by instant recovery,
the newspapers in those days used to call it a bucket-shop
drive.
And the funniest thing was that not later than ten days
after the Cosmopolitan people tried to doublecross me a New York
operator did them out of over seventy thousand dollars. This
man, who was quite a market factor in his day and a member of
the New York Stock Exchange, made a great name for himself as a
bear during the Bryan panic of '96. He was forever running up
against Stock Exchange rules that kept him from carrying out
some of his plans at the expense of his fellow members. One day
he figured that there would be no complaints from either the
Exchange or the police authorities if he took from the bucket
shops of the land some of their ill-gotten gains. In the
instance I speak of he sent thirty-five men to act as customers.
They went to the main office and to the bigger branches. On a
certain day at a fixed hour the agents all bought as much of a
certain stock as the managers would let them. They had
instructions to sneak out at a certain profit. Of course what he
did was to distribute bull tips on that stock among his cronies
and then he went in to the floor of the Stock Exchange and bid
up the price, helped by the room traders, who thought he was a
good sport. Being careful to pick out the right stock for that
work, there was no trouble in putting up the price three or four
points. His agents at the bucket shops cashed in as prearranged.
A fellow told me the originator cleaned up seventy thousand
dollars net, and his agents made their expenses and their pay
besides. He played that game several times all over the country,
punishing the bigger bucket shops of New York, Boston,
Philadelphia, Chicago, Cincinnati and St. Louis. One of his
favorite stocks was Western Union, because it was so easy to
move a semiactive stock like that a few points up or down. His
agents bought it at a certain figure, sold at two points profit,
went short and took three points more. By the way, I read the
other day that that man died, poor and obscure. I f he had died
in 1896 he would have got at least a column on the first page of
every New York paper. As it was he got two lines on the fifth.
CHAPTER II
BETWEEN the discovery that the Cosmopolitan Stock Brokerage
Company was ready to beat me by foul means if the killing
handicap of a three-point margin and a point-and-a-half premium
didn't do it, and hints that they didn't want my business
anyhow, I soon made up my mind to go to New York, where I could
trade in the office of some member of the New York Stock
Exchange. I didn't want any Boston branch, where the quotations
had to be telegraphed. I wanted to be close to the original
source. I came to New York at the age of 21, bringing with me
all I had, twenty-five hundred dollars.
I told you I had ten thousand dollars when I was twenty,
and my margin on that Sugar deal was over ten thousand. But I
didn't always win. My plan of trading was sound enough and won
oftener than it lost. If I had stuck to it I'd have been right
perhaps as often as seven out of ten times. In fact, I always
made money when I was sure I was right before I began. What beat
me was not having brains enough to stick to my own game -- that
is, to play the market only when I was satisfied that precedents
favored my play. There is a time for all things, but I didn't
know it. And that is precisely what beats so many men in Wall
Street who are very far from being in the main sucker class.
There is the plain fool, who does the wrong thing at all times
everywhere, but there is the Wall Street fool, who thinks he
must trade all the time. No man can always have adequate reasons
for buying or selling stocks daily or sufficient knowledge to
make his. play an intelligent play.
I proved it. Whenever I read the tape by the light of
experience I made money, but when I made a plain fool play I had
to lose. I was no exception, was I? There was the huge quotation
board staring me in the face, and the ticker going on, and
people trading and watching their tickets turn into cash or into
waste paper. Of course I let the craving for excitement get the
better of my judgment. In a bucket shop where your margin is a
shoestring you don't play for long pulls. You are wiped too
easily and quickly. The desire for constant action irrespective
of underlying conditions is responsible for many losses in Wall
Street even among the professionals, who feel that they must
take home some money every day, as though they were working for
regular wages. I was only a kid, remember. I did not know then
what I learned later, what made me fifteen years later, wait two
long weeks and see a stock on which I was very bullish go up
thirty points before I felt that it was safe to buy it. I was
broke and was trying to get back, and I couldn't afford to play
recklessly. I had to be right, and so I waited. That was in
1915. It's a long story. I'll tell it later in its proper place.
Now let's go on from where after years of practice at beating
them I let the bucket shops take away most of my winnings.
And with my eyes wide open, to boot! And it wasn't the only
period of my life when I did it, either. A stock operator has to
fight a lot of expensive enemies within himself. Anyhow, I came
to New York with twenty-five hundred dollars. There were no
bucket shops here that a fellow could trust. The Stock Exchange
and the police between them had succeeded in closing them up
pretty tight. Besides, I wanted to find a place where the only
limit to my trading would be the size of my stake. I didn't have
much of one, but I didn't expect it to stay little forever. The
main thing at the start was to find a place where I wouldn't
have to worry about getting a square deal. So I went to a New
York Stock Exchange house that had a branch at home where I knew
some of the clerks. They have long since gone out of business. I
wasn't there long, didn't like one of the partners, and then I
went to A. R. Fullerton & Co. Somebody must have told them about
my early experiences, because it was not long before they all
got to calling me the Boy Trader. I've always looked young. It
was a handicap in some ways but it compelled me to fight for my
own because so, many tried to take advantage of my youth. The
chaps at the bucket shops seeing what a kid I was, always
thought I was a fool for luck and that that was the only reason
why I beat them so often.
Well, it wasn't six months before I was broke. I was a
pretty active trader and had a sort of reputation as a winner. I
guess my commissions amounted to something. I ran up my account
quite a little, but, of course, in the end I lost. I played
carefully; but I had to lose. I'll tell you the reason: it was
my remarkable success in the bucket shops!
I could beat the game my way only in a bucket shop; where I
was betting on fluctuations. My tape reading had to do with that
exclusively. When I bought the price was there on the quotation
board, right in front of me. Even before I bought I knew exactly
the price I'd have to pay for my stock. And I always could sell
on the instant. I could scalp successfully, because I could move
like lightning. I could follow up my luck or cut my loss in a
second. Sometimes, for instance, I was certain a stock would
move at least a point. Well, I didn't have to hog it, I could
put up a point margin and double my money in a jiffy; or I'd
take half a point. On one or two hundred shares a day, that
wouldn't be bad at the end of the month, what?
The practical trouble with that arrangement, of course, was
that even if the bucket shop had the resources to stand a big
steady loss, they wouldn't do it. They wouldn't have a customer
around the place who had the bad taste to win all the time.
At all events, what was a perfect system for trading in
bucket shops didn't work in Fullerton's office. There I was
actually buying and selling stocks. The price of Sugar on the
tape might be 105 and I could see a three-point drop coming. As
a matter of fact, at the very moment the ticker was printing 105
on the tape the real price on the floor of the Exchange might be
io4 or 103. By the time my order to sell a thousand shares got
to Fullerton's floor man to execute, the price might be still
lower. I couldn't tell at what price I had put out my thousand
shares until I got a report from the clerk. When I surely would
have made three thousand on the same transaction in a bucket
shop I might not make a cent in a Stock Exchange house. Of
course, I have taken an extreme case, but the fact remains that
in A. R. Fullerton's office the tape always talked ancient
history to me, as far as my system of trading went, and I didn't
realize it.
And then, too, if my order was fairly big my own sale would
tend further to depress the price. In the bucket shop I didn't
have to figure on the effect of my own trading. I lost in New
York because the game was altogether different. It was not that
I now was playing it legitimately that made me lose, but that I
was playing it ignorantly. I have been told that I am a good
reader of the tape. But reading the tape like an expert did not
save me. I might have made out a great deal blrtter if I had
been on the floor myself, a room trader. In a particular crowd
perhaps I might have adapted my system to the conditions
immediately before me. But, of course, if I had got to operating
on such a scale as I do now, for instance, the system would have
equally failed me, on account of the effect of my own trading on
prices.
In short, I did not know the game of stock speculation. I
knew a part of it, a rather important part, which has been very
valuable to me at all times. But if with all I had I still lost,
what chance does the green outsider have of winning, or, rather,
of cashing in?
It didn't take me long to realise that there was something
wrong with my play, but I couldn't spot the exact trouble. There
were times when my system worked beautifully, and then, all of a
sudden, nothing but one swat after another. I was only
twenty-two, remember; not that I was so stuck on myself that I
didn't want to know just where I was at fault, but that at that
age nobody knows much of anything.
The people in the office were very nice to me. I couldn't
plunge as I wanted to because of their margin requirements, but
old A. R. Fullerton and the rest of the firm were so kind to me
that after six months of active trading I not only lost all I
had brought and all that I had made there but I even owed the
firm a few hundreds.
There I was, a mere kid, who had never before been away
from home, flat broke; but I knew there wasn't anything wrong
with me; only with my play. I don't know whether I make myself
plain, but I never lose my temper over the stock market. I never
argue with the tape. Getting sore at the market doesn't get you
anywhere.
I was so anxious to resume trading that I didn't lose a
minute, but went to old man Fullerton and said to him, "Say, A.
R., lend me five hundred dollars."
"What for?" says he.
"I've got to have some money."
"What for?" he says again.
"For margin, of course," I said.
"Five hundred dollars?" he said, and frowned. "You know
they'd expect you to keep up a 10 per cent margin, and that
means one thousand dollars on one hundred shares. Much better to
give you a credit --"
"No," I said, "I don't want a credit here. I already owe
the firm something. What I want is for you to lend me five
hundred dollars so I can go out and get a roll and come back."
"How are you going to do it?" asked old A. R.
"I'll go and trade in a bucket shop," I told him.
"Trade here," he said.
"No," I said. "I'm not sure yet I can beat the game in this
office, but I am sure I can take money out of the bucket shops.
I know that game. I have a notion that I know just where I went
wrong here."
He let me have it, and I went out of that office where the
Boy Terror of the Bucket Shops, as they called him, had lost his
pile. I couldn't go back home because the shops there would not
take my business. New York was out of the question; there
weren't any doing business at that time. They tell me that in
the 90's Broad Street and New Street were full of them. But
there weren't any when I needed them in my business. So after
some thinking I decided to go to St. Louis. I had heard of two
concerns there that did an enormous business all through the
Middle West. Their profits must have been huge. They had branch
offices in dozens of towns. In fact I had been told that there
were no concerns in the East to compare with them for volume of
business. They ran openly and the best people traded there
without any qualms. A fellow even told me that the owner of one
of the concerns was a vice-president of the Chamber of Commerce
but that couldn't have been in St. Louis. At any rate, that is
where I went with my five hundred dollars to bring back a stake
to use as margin in the office of A. R. Fullerton & Co., members
of the New York Stock Exchange.
When I got to St. Louis I went to the hotel, washed up and
went out to find the bucket shops. One was the J. G. Dolan
Company, and the other was H. S. Teller & Co. I knew I could
beat them. I was going to play dead safe -- carefully and
conservatively. My one fear was that somebody might recognise me
and give me away, because the bucket shops all over the country
had heard of the Boy Trader. They are like gambling houses and
get all the gossip of the profesh.
Dolan was nearer than Teller, and I went there first. I was
hoping I might be allowed to do business a few days before they
told me to take my trade somewhere else. I walked in. It was a
whopping big place and there must have been at least a couple of
hundred people there staring at the quotations. I was glad,
because in such a crowd I stood a better chance of being
unnoticed. I stood and watched the board and looked them over
carefully until I picked out the stock for my initial play.
I looked around and saw the order-clerk at the window where
you put down your money and get your ticket. He was looking at
me so I walked up to him and asked, "Is this where you trade in
cotton and wheat?"
"Yes, sonny," says he.
"Can I buy stocks too?"
"You can if you have the cash," he said.
"Oh, I got that all right, all right," I said like a
boasting boy.
"You have, have you?" he says with a smile.
"How much stock can I buy for one hundred dollars?" I
asked, peeved-like.
"One hundred; if you got the hundred."
"I got the hundred. Yes; and two hundred too!" I told him.
"Oh, my!" he said.
"Just you buy me two hundred shares," I said sharply.
"Two hundred what?" he asked, serious now. It was
business.
I looked at the board again as if to guess wisely and told
him, "Two hundred Omaha."
"All right!" he said. He took my money, counted it and
wrote out the ticket.
"What's your name?" he asked me, and I answered, "Horace
Kent."
He gave me the ticket and I went away and sat down among
the customers to wait for the roll to grow. I got quick action
and I traded several times that day. On the next day too. In two
days I made twenty-eight hundred dollars, and I was hoping
they'd let me finish the week out. At the rate I was going, that
wouldn't be so bad. Then I'd tackle the other shop, and if I had
similar luck there I'd go back to New York with a wad I could do
something with.
On the morning of the third day, when I went to the window,
bashful -- like, to buy five hundred B. R. T. the clerk said to
me, "Say, Mr. Kent, the boss wants to see you."
I knew the game was up. But I asked him, "What does he want
to see me about?"
"I don't know."
"Where is he?"
"In his private office. Go in that way." And he pointed to
a door.
I went in. Dolan was sitting at his desk. He swung around
and said, "Sit down, Livermore."
He pointed to a chair. My last hope vanished. I don't know
how he discovered who I was; perhaps from the hotel register.
"What do you want to see me about?" I asked him.
"Listen, kid. I ain't got nothin' agin yeh, see? Nothin' at
all. See?"
"No, I don't see," I said.
He got up from his swivel chair. He was a whopping big guy.
He said to me, "Just come over here, Livermore, will yeh?" and
he walked to the door. He opened it and then he pointed to the
customers in the big room.
"D' yeh see them?" he asked.
"See what?"
"Them guys. Take a look at 'em, kid. There's three hundred
of em! Three hundred suckers! They feed me and my family. See?
Three hundred suckers! Then yeh come in, and in two days yeh cop
more than I get out of the three hundred in two weeks. That
ain't business, kid-not for me 1 I ain't got nothin' agin yeh.
Yer welcome to what ye've got. But yeh don't get any more. There
ain't any here for yeh!"
“Why, I –“
"That's all. I seen yeh come in day before yesterday, and I
didn't like yer looks. On the level, I didn't. I spotted yeh for
a ringer. I called in that jackass there"-- he pointed to the
guilty clerk"and asked what you'd done; and when he told me I
said to him: 'I don't like that guy's looks. He's a ringer!' And
that piece of cheese says: 'Ringer my eye, boss! His name is
Horace Kent, and he's a rah-rah boy playing at being used to
long pants. He's all right!' Well, I let him have his way. That
blankety-blank cost me twenty-eight hundred dollars. I don't
grudge it yeh, my boy. But the safe is locked for yeh."
"Look here" I began.
"You look here, Livermore," he said. "I've heard all about
yeh. I make my money coppering suckers' bets, and yeh don't
belong here. I aim to be a sport and yer welcome to what yeh
pried off 'n us. But more of that would make me a sucker, now
that I know who yeh are. So toddle along, sonny!"
I left Dolan's place with my twenty-eight hundred dollars'
profit. Teller's place was in the same block. I had found out
that Teller was a very rich man who also ran up a lot of pool
rooms. I decided to go to his bucket shop. I wondered whether it
would be wise to start moderately and work up to a thousand
shares or to begin with a plunge, on the theory that I might not
be able to trade more than one day. They get wise mighty quick
when they're losing and I did want to buy one thousand B. R. T.
I was sure I could take four or five points out of it. But if
they got suspicious or if too many customers were long of that
stock they might not let me trade at all. I thought perhaps I'd
better scatter my trades at first and begin small.
It wasn't as big a place as Dolan's, but the fixtures were
nicer and evidently the crowd was of a better class. This suited
me down to the ground and I decided to buy my one thousand B. R.
T. So I stepped up to the proper window and said to the clerk,
"I'd like to buy some B. R. T. What's the limit?"
"There's no limit," said the clerk. "You can buy all you
please -- if you've got the money."
"Buy fifteen hundred shares," I says, and took my roll from
my pocket while the clerk starts to write the ticket.
Then I saw a red-headed man just shove that clerk away from
the counter. He leaned across and said to me, `Say, Livermore,
you go back to Dolan's. We don't want your business."
"Wait until I get my ticket," I said. "I just bought a
little B. R. T."
"You get no ticket here," he said. By this time other
clerks had got behind him and were looking at me. "Don't ever
come here to trade. We don't take your business. Understand?"
There was no sense in getting mad or trying to argue, so I
went back to the hotel, paid my bill and took the first train
back to New York. It was tough. I wanted to take back some real
money and that Teller wouldn't let me make even one trade.
I got back to New York, paid Fullerton his five hundred,
and started trading again with the St. Louis money. I had good
and bad spells, but I was doing better than breaking even. After
all, I didn't have much to unlearn; only to grasp the one fact
that there was more to the game of stock speculation than I had
considered before I went to Fullerton's office to trade. I was
like one of those puzzle fans, doing the crossword puzzles in
the Sunday supplement. He isn't satisfied until he gets it.
Well, I certainly wanted to find the solution to my puzzle. I
thought I was done with trading in bucket shops. But I was
mistaken.
About a couple of months after I got back to New York an
old jigger came into Fullerton's office. He knew A. R. Somebody
said they'd once owned a string of race horses together. It was
plain he'd seen better days. I was introduced to old McDevitt.
He was telling the crowd about a bunch of Western racetrack
crooks who had just pulled off some skin game out in St. Louis.
The head devil, he said, was a poolroom owner by the name of
Teller.
"What Teller?" I asked him.
"Hi Teller; H. S. Teller."
"I know that bird," I said.
"He's no good," said McDevitt.
"He's worse than that," I said, "and I have a little matter
to settle with him."
"Meaning how?"
"The only way I can hit any of these short sports is
through their pocketbook. I can't touch him in St. Louis just
now, but some day I will." And I told McDevitt my grievance.
"Well," says old Mac, "he tried to connect here in New York
and couldn't make it, so he's opened a place in Hoboken. The
word's gone out that there is no limit to the play and that the
house roll has got the Rock of Gibraltar faded to the shadow of
a bantam flea."
"What sort of a place?" I thought he meant pool room.
"Bucket shop," said McDevitt.
"Are you sure it's open?"
"Yes; I've seen several fellows who've told me about it."
"That's only hearsay," I said. "Can you find out positively
if it's running, and also how heavy they'll really let a man
trade?"
"Sure, sonny," said McDevitt. "I'll go myself tomorrow
morning, and come back here and tell you."
He did. It seems Teller was already doing a big business
and would take all he could get. This was on a Friday. The
market had been going up all that week -- this was twenty years
ago, remember -- and it was a cinch the bank statement on
Saturday would show a big decrease in the surplus reserve.
That would give the conventional excuse to the big
room traders to jump on the market and try to shake out some of
the weak commission-house accounts. There would be the usual
reactions in the last half hour of the trading, particularly in
stocks in which the public had been the most active. Those, of
course, also would be the very stocks that Teller's customers
would be most heavily long of, and the shop might be glad to see
some short selling in them. There is nothing so nice as if
catching the suckers both ways; and nothing so easy with
one-point margins.
That Saturday morning I chased over to Hoboken to the
Teller place. They had fitted up a big customers' room with a
dandy quotation board and a full force of clerks and a special
policeman in gray. There were about twenty-five
customers.
I got talking to the manager. He asked me what he could do
for me and I told him nothing; that a fellow could make much
more money at the track on account of the odds and the freedom
to bet your whole roll and stand to win thousands in minutes
instead of piking for chicken feed in stocks and having to wait
days, perhaps. He began to tell me how
much
safer
the
stock-market game was, and how much some of their customers made
-- you'd have sworn it was a regular
broker
who
actually
bought and sold your stocks on the Exchange and how if a man
only traded heavy he could make enough to satisfy anybody. He
must have thought I was headed for some pool room and he wanted
a whack at my roll before the ponies nibbled it away, for he
said I ought to hurry up as the market closed at twelve o'clock
on Saturdays. That would leave me free to devote the entire
afternoon to other pursuits. I might have a bigger roll to carry
to the track with -- if I picked the right stocks.
I looked as if I didn't believe him, and he kept on buzzing
me. I was watching the clock. At 11:15 I said, "All right," and
I began to give him selling orders in various stocks. I put up
two thousand dollars in cash, and he was very glad to get it. He
told me he thought I'd make a lot of money and hoped I'd come in
often.
It happened just as I figured. The traders hammered the
stocks in which they figured they would uncover the most stops,
and, sure enough, prices slid off. I closed out my trades just
before the rally of the last five minutes on the usual traders'
covering.
There was fifty-one hundred dollars coming to me. I went to
cash in.
"I am glad I dropped in," I said to the manager, and gave
him my tickets.
"Say," he says to me, "I can't give you all of it. I wasn't
looking for such a run. I'll have it here for you Monday
morning, sure as blazes."
"All right. But first I'll take all you have in the house,"
I said.
"You've got to let me pay off the little fellows," he said.
"I'll give you back what you put up, and anything that's left.
Wait till I cash the other tickets." So I waited while he paid
off the other winners. Oh, I knew my money was safe. Teller
wouldn't welsh with the office doing such a good business. And
if he did, what else could I do better than to take all he had
then and there? I got my own two thousand dollars and about
eight hundred dollars besides, which was all he had in the
office. I told him I'd be there Monday morning. He swore the
money would be waiting for me.
I got to Hoboken a little before twelve on Monday. I saw a
fellow talking to the manager that I had seen in the St. Louis
office the day Teller told me to go back to Dolan. I knew at
once that the manager had telegraphed to the home office and
they'd sent up one of their men to investigate the story.
Crooks don't trust anybody.
_
"I came for the balance of my money," I said to the
manager.
"Is this the man?" asked the St. Louis chap.
"Hold on!" said the St. Louis fellow to him and then turns
to me, "Say, Livermore, didn't we tell you we didn't want your
business?"
"Give me my money first," I said to the manager, and he
forked over two thousands, four five-hundreds and three
hundreds.
"What did you say?" I said to St. Louis.
"We told you we didn't want you to trade in our place."
"Yes," I said; "that's why I came."
"Well, don't come any more. Keep away!" he snarled at me.
The private policeman in gray came over, casual-like. St. Louis
shook his fist at the manager and yelled: "You ought to've known
better, you poor boob, than to let this guy get into you. He's
Livermore. You had your orders."
"Listen, you," I said to the St. Louis man. "This isn't St.
Louis. You can't pull off any trick here, like your boss did
with Belfast Boy."
"You keep away from this office! You can't trade here!" he
yells.
"If I can't trade here nobody else is going to," I told
him. "You can't get away with that sort of stuff here."
Well, St. Louis changed his tune at once.
"Look here, old boy," he said, all fussed up, "do us a
favor. Be reasonable ! You know we can't stand this every day.
The old man's going to hit the ceiling when he hears who it was.
Have a heart, Livermore !"
"I'll go easy," I promised.
"Listen to reason, won't you? For the love of Pete, keep
away! Give us a chance to get a good start. We're new here. Will
you?"
"Yes," said the manager, and took a bunch of yellow backs
from his pocket.
"I don't want any of this high-and-mighty business the next
time I come," I said, and left him talking to the manager at the
rate of a million a minute. I'd got some money out of them for
the way they treated me in St. Louis. There wasn't any sense in
my getting hot or trying to close them up. I went back to
Fullerton's office and told McDevitt what had happened. Then I
told him that if it was agreeable to him I'd like to have him go
to Teller's place and begin trading in twenty or thirty share
lots, to get them used to him. Then, the moment I saw a good
chance to clean up big, I'd telephone him and he could plunge.
I gave McDevitt a thousand dollars and he went to Hoboken
and did as I told him. He got to be one of the regulars. Then
one day when I thought I saw a break impending I slipped Mac the
word and he sold all they'd let him. I cleared twenty-eight
hundred dollars that day, after giving Mac his rake-off and
paying expenses, and I suspect Mac put down a little bet of his
own besides. Less than a month after that, Teller closed his
Hoboken branch. The police got busy. And, anyhow, it didn't pay,
though I only traded there twice. We ran into a crazy bull
market when stocks didn't react enough to wipe out even the
one-point margins, and, of course, all the customers were bulls
and winning and pyramiding. No end of bucket shops busted all
over the country.
Their game has changed. Trading in the old-fashioned bucket
shop had some decided advantages over speculating in a reputable
broker's office. For one thing, the automatic closing out of
your trade when the margin reached the exhaustion point was the
best kind of stop-loss order. You couldn't get stung for more
than you had put up, and there was no danger of rotten execution
of orders, and so on. In New York the shops never were as
liberal with their patrons as I've heard they were in the West.
Here they used to limit the possible profit on certain stocks
of. the football order to two points. Sugar and Tennessee Coal
and Iron were among these. No matter if they moved ten points in
ten minutes you could only make two on one ticket. They figured
that otherwise the customer was getting too big odds; he stood
to lose one dollar and to make ten. And then there were times
when all the shops, including the biggest, refused to take
orders on certain stocks. In igoo, on the day before Election
Day, when it was a foregone conclusion that McKinley would win,
not a shop in the land let its customers buy stocks. The
election odds were 3 to t on McKinley. By buying stocks on
Monday you stood to make from three to six points or more. A man
could bet on Bryan and buy stocks and make sure money. The
bucket shops refused orders that day.
If it hadn't been for their refusing to take my business I
never would have stopped trading in them. And then I never would
have learned that there was much more to the game of stock
speculation than to play for fluctuations of a few points.
CHAPTER III
It takes a man a long time to learn all the lessons of all
his mistakes. They say there are two sides to everything. But
there is only one side to the stock market; and it is not the
bull side or the bear side, but the right side. It took me
longer to get that general principle fixed firmly in my mind
than it did most of the more technical phases of the game of
stock speculation.
I have heard of people who amuse themselves conducting
imaginary operations in the stock market to prove with imaginary
dollars how right they are. Sometimes these ghost gamblers make
millions. It is very easy to be a plunger that way. It is like
the old story of the man who was going to fight a duel the next
day.
His second asked him, "Are you a good shot?"
"Well," said the duelist, "I can snap the stem of a wine-
glass at twenty paces," and he looked modest.
"That's all very well," said the unimpressed second. "But
can you snap the stem of the wineglass while the wineglass is
pointing a loaded pistol straight at your heart?"
With me I must back my opinions with my money. My losses
have taught me that I must not begin to advance until I am sure
I shall not have to retreat. But if I cannot advance I do not
move at all. I do not mean by this that a man should not limit
his losses when he is wrong. He should. But that should not
breed indecision. All my life I have made mistakes, but in
losing money I have gained experience and accumulated a lot of
valuable don'ts. I have been flat broke several times, but my
loss has never been a total loss. Otherwise, I wouldn't be here
now. I always knew I would have another chance and that I would
not make the same mistake a second time. I believed in myself.
A man must believe in himself and his judgment if he ex
peas to make a living at this game. That is why I don't believe
in tips. If I buy stocks on Smith’s tip I must sell those same
stocks on Smith's tip. I am depending on him. Suppose Smith is
away on a holiday when the selling time comes around? No, sir,
nobody can make big money on what someone else tells him to do.
I know from experience that nobody can give me a tip or a series
of tips that will make more money for me than my own judgment.
It took me five years to learn to play the game intelligently
enough to make big money when I was right.
I didn't have as many interesting experiences as you might
imagine. I mean, the process of learning how to speculate does
not seem very dramatic at this distance. I went broke several
times, and that is never pleasant, but the way I lost money is
the way everybody loses money who loses money in Wall Street.
Speculation is a hard and trying business, and a speculator must
be on the job all the time or he'll soon have no job to be on.
My task, as I should have known after my early reverses at
Fullerton's, was very simple: To look at speculation from
another angle. But I didn't know that there was much more to the
game than I could possibly learn in the bucket shops. There I
thought I was beating the game when in reality I was only
beating the shop. At the same time the tape-reading ability that
trading in bucket shops developed in me and the training of my
memory have been extremely valuable. Both of these things came
easy to me. I owe my early success as a trader to them and not
to brains or knowledge, because my mind was untrained and my
ignorance was colossal. The game taught me the game. And it
didn't spare the rod while teaching.
I remember my very first day in New York. I told you how
the bucket shops, by refusing to take my business, drove me to
seek a reputable commission house. One of the boys in the office
where I got my first job was working for Harding Brothers,
members of the New York Stock Exchange. I arrived in this city
in the morning, and before one o'clock that same day I had
opened an account with the firm and was ready to trade.
I didn't explain to you how natural it was for me to trade
there exactly as I had done in the bucket shops, where all I did
was to bet on fluctuations and catch small but sure changes in
prices. Nobody offered to point out the essential differences or
set me right. If somebody had told me my method would not work I
nevertheless would have tried it out to make sure for myself,
for when I am wrong only one thing convinces me of it, and that
is, to lose money. And I am only right when I make money. That
is speculating.
They were having some pretty lively times those days and
the market was very active. That always cheers up a fellow. I
felt at home right away. There was the old familiar quotation
board in front of me, talking a language that I had learned
before I was fifteen years old. There was a boy doing exactly
the same thing I used to do in the first office I ever worked
in. There were the customers -- same old bunch -- looking at the
board or standing by the ticket calling out the prices and
talking about the market. The machinery was to all appearances
the same machinery that I was used to. The atmosphere was the
atmosphere I had breathed since I had made my first stock-market
money -- $3.12 in Burlington. The same kind of ticker and the
same kind of traders, therefore the same kind of game. And
remember, I was only twenty-two. I suppose I thought I knew the
game from A to Z. Why shouldn't I?
I watched the board and saw something that looked good to
me. It was behaving right. I bought a hundred at 84. I got out
at 85 in less than a half hour. Then I saw something else I
liked, and I did the same thing; took three-quarters of a point
net within a very short time. I began well, didn't I?
Now mark this: On that, my first day as a customer of a
reputable Stock Exchange house, and only two hours of it at
that, I traded in eleven hundred shares of stock, jumping in and
out. And the net result of the day's operations was that I lost
exactly eleven hundred dollars. That is to say, on my first
attempt, nearly one-half of my stake went up the flue.
And remember, some of the trades showed me a profit. But I
quit eleven hundred dollars minus for the day.
It didn't worry me, because I couldn't see where there was
anything wrong with me. My moves, also, were right enough, and
if I had been trading in the old Cosmopolitan shop I'd have
broken better than even. That the machine wasn’t, as it ought to
be, my eleven hundred vanished dollars plainly told me. But as
long as the machinist was all right there was no need to stew.
Ignorance at twenty-two isn't a structural defect.
After a few days I said to myself, "I can't trade this way
here. The ticker doesn't help as it should!" But I let it go at
that without getting down to bedrock. I kept it up, having good
days and bad days, until I was cleaned out. I went to old
Fullerton and got him to stake me to five hundred dollars. And I
came back from St. Louis, as I told you, with money I took out
of the bucket shops there -- a game I could always beat.
I played more carefully and did better for a while. As soon
as I was in easy circumstances I began to live pretty well. I
made friends and had a good time. I was not quite twenty-three,
remember; all alone in New York with easy money in my pockets
and the belief in my heart that I was beginning to understand
the new machine.
I was making allowances for the actual execution of my
orders on the floor of the Exchange, and moving more cautiously.
But I was still sticking to the tape -- that is, I was still
ignoring general principles; and as long as I did that I could
not spot the exact trouble with my game.
We ran into the big boom of t9oi and I made a great deal of
money -- that is, for a boy. You remember those times? The
prosperity of the country was unprecedented. We not only ran
into an era of industrial consolidations and combinations of
capital that beat anything we had had up to that time, but the
public went stock mad. In previous flush times, I have heard,
Wall Street used to brag of two-hundred-and-fifty-thousand-share
days, when securities of a par value of twenty-five million
dollars changed hands. But in 1901 we had a three-million-share
day. Everybody was making money. The steel crowd came to town, a
horde of millionaires with no more regard for money than drunken
sailors. The only game that satisfied them was the stock market.
We had some of the biggest high rollers the Street ever saw:
John W. Gates, of `Bet-you-a-million' fame, and his friends,
like
John
A.
Drake,
Loyal
Smith,
and
the
rest;
the
Reid-Leeds-Moore crowd, who sold part of their Steel holdings
and with the proceeds bought in the open market the actual
majority of the stock of the great Rock Island system; and
Schwab and Frick and Phipps and the Pittsburgh coterie; to say
nothing of scores of men who were lost in the shuffle but would
have been called great plungers at any other time. A fellow
could buy and sell all the stock there was. Keene made a market
for the U. S. Steel shares. A broker sold one hundred thousand
shares in a few minutes. A wonderful time! And there were some
wonderful winnings. And no taxes to pay on stock sales! And no
day of reckoning in sight.
Of course, after a while, I heard a lot of calamity howling
and the old stagers said everybody -- except themselves -- had
gone crazy: But everybody except themselves was making money. I
knew, of course, there must be a limit to the advances and an
end to the crazy buying of A. O. T.-- Any Old Thing and I got
bearish. But every time I sold I lost money, and if it hadn't
been that I ran darn quick I'd have lost a heap more. I looked
for a break, but I was playing safe -- making money when I
bought and chipping it out when I sold short so that I wasn't
profiting by the boom as much as you'd think when you consider
how heavily I used to trade, even as a boy.
There was one stock that I wasn't short of, and that was
Northern Pacific. My tape reading came in handy. I thought most
stocks had been bought to a standstill, but Little Nipper
behaved as if it were going still higher. We know now that both
the common and the preferred were being steadily absorbed by the
Kuhn-Loeb-Harriman combination. Well, I was long a thousand
shares of Northern Pacific common, and held it against the
advice of everybody in the office. When it got to about 110 I
had thirty points profit, and I grabbed it. It made my balance
at my brokers' nearly fifty thousand dollars, the greatest
amount of money I had been able to accumulate up to that time.
It wasn't so bad for a chap who had lost every cent trading in
that selfsame office a few months before.
If you remember, the Harriman crowd notified Morgan and
Hill of their intention to be represented in the Burlington-
Great Northern-Northern Pacific combination, and then the Morgan
people at first instructed Keene to buy fifty thousand shares of
N. P. to keep the control in their possession. I have heard that
Keene told Robert Bacon to make the order one hundred and fifty
thousand shares and the bankers did. At all events, Keene sent
one of his brokers, Eddie Norton, into the N. P, crowd and he
bought one hundred thousand shares of the stock. This was
followed by another order, I think, of fifty thousand shares
additional, and the famous corner followed. After the market
closed on May 8, 1901, the whole world knew that a battle of
financial giants was on. No two such combinations of capital had
ever opposed each other in this country. Harriman against
Morgan; an irresistible force meeting an immovable object.
There I was on the morning of May ninth with nearly fifty
thousand dollars in cash and no stocks. As I told you, I had
been very bearish for some days, and here was my chance at last.
I knew what would happen -- an awful break and then some
wonderful bargains. There would be a quick recovery and big
profits for those who had picked up the bargains. It didn't take
a Sherlock Holmes to figure this out. We were going to have an
opportunity to catch them coming and going, not only for big
money but for sure money.
Everything happened as I had foreseen. I was dead right and
I lost every cent I had! I was wiped out by something that was
unusual. If the unusual never happened there would be no
difference in people and then there wouldn't be any fun in life.
The game would become merely a matter of addition and
subtraction. It would make of us a race of bookkeepers with
plodding minds. It's the guessing that develops a man's
brainpower. Just consider what you have to do to guess right.
The market fairly boiled, as I had expected. The
transactions were enormous and the fluctuations unprecedented in
extent. I put in a lot of selling orders at the market. When I
saw the opening prices I had a fit, the breaks were so awful. My
brokers
were
on
the
job.
They
were
as
competent
and
conscientious as any; but by the time they executed my orders
the stocks had broken twenty points more. The tape was way
behind the market and reports were slow in coming in by reason
of the awful rush of business. When I found out that the stocks
I had ordered sold when the tape said the price was, say, zoo
and they got mine off at 80, making a total decline of thirty or
forty points from the previous night's close, it seemed to me
that I was putting out shorts at a level that made the stocks I
sold the very bargains I had planned to buy. The market was not
going to drop right through to China. So I decided instantly to
cover my shorts and go long.
My brokers bought; not at the level that had made me turn,
but at the prices prevailing in the Stock Exchange when their
floor man got my orders. They paid an average of fifteen points
more than I had figured on. A loss of thirty-five points in one
day was more than anybody could stand.
The ticker beat me by lagging so far behind the market. I
was accustomed to regarding the tape as the best little friend I
had because I bet according to what it told me. But this time
the tape double-crossed me. The divergence between the printed
and the actual prices undid me. It was the sublimation of my
previous unsuccess, the selfsame thing that had beaten me
before. It seems so obvious now that tape reading is not enough,
irrespective of the brokers' execution, that I wonder why I
didn't then see both my trouble and the remedy for it.
I did worse than not see it; I kept on trading, in and out,
regardless of the execution. You see, I never could trade with a
limit. I must take my chances with the market. That is what I am
trying to beat the market, not the particular price. When I
think I should sell, I sell. When I think stocks will go up, I
buy.
My
adherence
to
that
general
principle of speculation saved me. To have traded at limited
prices simply would have been my old bucket-shop method
inefficiently adapted for use in a reputable commission broker's
office. I would never have learned to know what stock
speculation is, but would have kept on betting on what a limited
experience told me was a sure thing.
Whenever I did try to limit the prices in order to minimize
the disadvantages of trading at the market when the ticker
lagged, I simply found that the market got away from me. This
happened so often that I stopped trying. I can't tell you how it
came to take me so many years to learn that instead of placing
piking bets on what the next few quotations were going to be, my
game was to anticipate what was going to happen in a big way.
After my May ninth mishap I plugged along, using a modified
but still defective method. If I hadn't made money some of the
time I might have acquired market wisdom quicker. But I was
making enough to enable me to live well. I liked friends and a
good time. I was living down the Jersey Coast that summer, like
hundreds of prosperous Wall Street men. My winnings were not
quite enough to offset both my losses and my living expenses.
I
didn't
keep
on
trading
the
way
I
did
through
stubbornness. I simply wasn't able to state my own problem to
myself, and, of course, it was utterly hopeless to try to solve
it. I harp on this topic so much to show what I had to go
through before I got to where I could really make money. My old
shotgun and BB shot could not do the work of a high-power
repeating rifle against big game.
Early that fall I not only was cleaned out again but I was
so sick of the game I could no longer beat that I decided to
leave New York and try something else some other place. I had
been trading since my fourteenth year. I had made my first
thousand dollars when I was a kid of fifteen, and my first ten
thousand before I was twenty-one. I had made and lost a
ten-thousand-dollar stake more than once. In New York I had made
thousands and lost them. I got up to fifty thousand dollars and
two days later that went. I had no other business and knew no
other game. After several years I was back where I began. No
worse, for I had acquired habits and a style of living that
required money; though that part didn't bother me as much as
being wrong so consistently.
CHAPTER IV
WELL, I went home. But the moment I was back I knew that I
had but one mission in life and that was to get a stake and go
back to Wall Street. That was the only place in the country
where I could trade heavily. Some day, when my game was all
right, I'd need such a place. When a man is right he wants to
get all that is coming to him for being right.
I didn't have much hope, but, of course, I tried to get
into the bucket shops again. There were fewer of them and some
of them were run by strangers. Those who remembered me wouldn't
give me a chance to show them whether I had gone back as a
trader or not. I told them the truth, that I had lost in New
York whatever I had made at home; that I didn't know as much as
I used to think I did; and that there was no reason why it
should not now be good business for them to let me trade with
them. But they wouldn't. And the new places were unreliable.
Their owners thought twenty shares was as much as a gentleman
ought to buy if he had any reason to suspect he was going to
guess right.
I needed the money and the bigger shops were taking in
plenty of it from their regular customers. I got a friend of
mine to go into a certain office and trade. I just sauntered in
to look them over. I again tried to coax the order clerk to ac-
cept a small order, even if it was only fifty shares. Of course
he said no. I had rigged up a code with this friend so that he
would buy or sell when and what I told him. But that only made
me chicken feed. Then the office began to grumble about taking
my friend's orders. Finally one day he tried to sell a hundred
St. Paul and they shut down on him.
We learned afterward that one of the customers saw us
talking together outside and went in and told the office, and
when my friend went up to the order clerk to sell that hundred
St. Paul the guy said
"We're not taking any selling orders in St. Paul, not from
you."
"Why, what's the matter, Joe?" asked my friend.
"Nothing doing, that's all," answered Joe.
"Isn't that money any good? Look it over. It's all there."
And my friend passed over the hundred -- my hundred in tens. He
tried to look indignant and I was looking unconcerned; but most
of the other customers were getting close to the combatants, as
they always did when there was loud talking or the slightest
semblance of a scrap between the shop and any customer. They
wanted to get a line on the merits of the case in order to get a
line on the solvency of the concern.
The clerk, Joe, who was a sort of assistant manager, came
out from behind his cage, walked up to my friend, looked at him
and then looked at me.
"It's funny," he said slowly"it's damned funny that you
never do a single thing here when your friend Livermore isn't
around. You just sit and look at the board by the hour. Never a
peep. But after he comes in you get busy all of a sudden. Maybe
you are acting for yourself; but not in this office any more. We
don't fall for Livermore tipping you off."
Well, that stopped my board money. But I had made a few
hundred more than I had spent and I wondered how I could use
them, for the need of making enough money to go back to New York
with was more urgent than ever. I felt that I would do better
the next time. I had had time to think calmly of some of my
foolish plays; and then, one can see the whole better when one
sees it from a little distance. The immediate problem was to
make the new stake.
One day I was in a hotel lobby, talking to some fellows I
knew, who were pretty steady traders. Everybody was talking
stock market. I made the remark that nobody could beat the game
on account of the rotten execution he got from his brokers,
especially when he traded at the market, as I did.
A fellow piped up and asked me what particular brokers I
meant.
I said, "The best in the land," and he asked who might they
be. I could see he wasn't going to believe I ever dealt with
first-class houses.
But I said, "I mean; any member of the New York Stock
Exchange. It isn't that they are crooked or careless, but when a
man gives an order to buy at the market he never knows what that
stock is going to cost him until he gets a report from the
brokers. There are more moves of one or two points than of ten
or fifteen. But the outside trader can't catch the small rises
or drops because of the execution. I'd rather trade in a bucket
shop any day in the week, if they'd only let a fellow trade
big."
The man who had spoken to me I had never seen before. His
name was Roberts. He seemed very friendly disposed. He took me
aside and asked me if I had ever traded in any of the other
exchanges, and I sand no. He said he knew some houses that were
members of the Cotton Exchange and the Produce Exchange and the
smaller stock exchanges. These firms were very careful and paid
special attention to the execution. He said that they had
confidential connections with the biggest and smartest houses on
the New York Stock Exchange and through their personal pull and
by guaranteeing a business of hundreds of thousands of shares a
month they got much better service than an individual customer
could get.
"They really cater to the small customer," he said. "They make
a specialty of out-of-town business and they take just as much
pains with a ten-share order as they do with one for ten
thousand. They are very competent and honest."
"Yes. But if they pay the Stock Exchange house the regular
eighth commission, where do they come in?"
"Well, they are supposed to pay the eighth. But you know!" He
winked at me.
"Yes," I said. "But the one thing a Stock Exchange firm
will not do is to split commissions. The governors would rather
a member committed murder, arson and bigamy than to do business
for outsiders for less than a kosher eighth. The very life of
the Stock Exchange depends upon their not violating that one
rule."
He must have seen that I had talked with Stock Exchange
people, for he said, "Listen! Every now and then one of those
pious Stock Exchange houses is suspended for a year for vio-
lating that rule, isn't it? There are ways and ways of rebating
so nobody can squeal." He probably saw unbelief in my face, for
he went on: "And besides, on certain kind of business we -- I
mean, these wire houses-charge a thirty-second extra, in
addition to the eighth commission. They are very nice about it.
They never charge the extra commission except in unusual cases,
and then only if the customer has an inactive account. It
wouldn't pay them, you know, otherwise. They aren't in business
exclusively for their health."
By that time I knew he was touting for some phony brokers.
"Do you know any reliable house of that kind?" I asked him.
"I know the biggest brokerage firm in the United States,"
he said. "I trade there myself. They have branches in seventy-
eight cities in the United States and Canada. They do an
enormous business. And they couldn't very well do it year in and
year out if they weren't strictly on the level, could they?"
"Certainly not," I agreed. "Do they trade in the same
stocks that are dealt in on the New York Stock Exchange?"
"Of course; and on the curb and on any other exchange in
this country, or Europe. They deal in wheat, cotton, provisions;
anything you want. They have correspondents everywhere and
memberships in all the exchanges, either in their own name or on
the quiet."
I knew by that time, but I thought I'd lead him on.
"Yes," I said, "but that does not alter the fact that the
orders have to be executed by somebody, and nobody living can
guarantee how the market will be or how close the ticker's
prices are to the actual prices on the floor of the Exchange. By
the time a man gets the quotation here, he hands in an order,
and it's telegraphed to New York, some valuable time has gone. I
might better go back to New York and lose my money there in
respectable company."
"I don't know anything about losing money; our customers
don't acquire that habit. They make money. We take care of
that."
"Your customers?"
"Well, I take an interest in the firm, and if I can turn
some business their way I do so because they've always treated
me white and I've made a good deal of money through them. If you
wish I'll introduce you to the manager."
"What's the name of the firm?" I asked him.
He told me. I had heard about them. They ran ads in all the
papers, calling attention to the great profits made by those
customers who followed their inside information on active
stocks. That was the firm's great specialty. They were not a
regular bucket shop, but bucketeers, alleged brokers who
bucketed their orders but nevertheless went through an elaborate
camouflage to convince the world that they were regular brokers
engaged in a legitimate business. They were one of the oldest of
that class of firms.
They were the prototype at that time of the same sort of
brokers that went broke this year by the dozen. The general
principles and methods were the same, though the particular
devices for fleecing the public differed somewhat, certain
details having been changed when the old tricks became too well
known.
These people used to send out tips to buy or sell a certain
stock -- hundreds of telegrams advising the instant purchase of
a certain stock and hundreds recommending other customers to
sell the same stock, on the old racing-tipster plan. Then orders
to buy and sell would come in. The firm would buy and sell, say,
a thousand of that stock through a reputable Stock Exchange firm
and get a regular report on it. This report they would show to
any doubting Thomas who was impolite enough to speak about
bucketing customers' orders.
They also used to form discretionary pools in the office
and as a great favor allowed their customers to authorize them,
in writing, to trade with the customer's money and in the cus-
tomer's name, as they in their judgment deemed best. That way
the most cantankerous customer had no legal redress when his
money disappeared. They'd bull a stock, on paper, and put the
customers in and then they'd execute one of the oldfashioned
bucket-shop drives and wipe out hundreds of shoe-string margins.
They did not spare anyone, women, schoolteachers and old men
being their best bet.
"I'm sore on all brokers," I told the tout. "I'll have to
think this over," and I left him so he wouldn't talk any more to
me.
I inquired about this firm. I learned that they had
hundreds of customers and although there were the usual stories
I did not find any case of a customer not getting his money from
them if he won any. The difficulty was in finding anybody who
had ever won in that office; but I did. Things seemed to be
going their way just then, and that meant that they probably
would not welsh if a trade went against them. Of course most
concerns of that kind eventually go broke. There are times when
there are regular epidemics of bucketeering bankruptcies, like
the old-fashioned runs on several banks after one of them goes
up. The customers of the others get frightened and they run to
take their money out. But there are plenty of retired
bucket-shop keepers in this country.
Well, I heard nothing alarming about the tout's firm except
that they were on the make, first, last and all the time, and
that they were not always truthful. Their specialty was trimming
suckers who wanted to get rich quick. But they always asked
their customers' permission, in writing, to take their rolls
away from them.
One chap I met did tell me a story about seeing six hundred
telegrams go out one day advising customers to get aboard a
certain stock and six hundred telegrams to other customers
strongly urging them to sell that same stock, at once.
"Yes, I know the trick," I said to the chap who was telling
me.
"Yes," he said. "But the next day they sent telegrams to
the same people advising them to close out their interest in
everything and buy or sell another stock. I asked the senior
partner, who was in the office, `Why do you do that? The first
part I understand. Some of your customers are bound to make
money on paper for a while, even if they and the others
eventually lose. But by sending out telegrams like this you
simply kill them all. What's the big idea?'"
"Well,' he said, `the customers are bound to lose their
money anyhow, no matter what they buy, or how or where or when.
When they lose their money I lose the customers. Well, I might
as well get as much of their money as I can and then look for a
new crop.'"
Well, I admit frankly that I wasn't concerned with the
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