Jesse Livermore 2

business ethics of the firm. I told you I felt sore on the

Teller concern and how it tickled me to get even with them. But

I didn't have any such feeling about this firm. They might be

crooks or they might not be as black as they were painted. I did

not propose to let them do any trading for me, or follow their

tips or believe their lies. My one concern was with getting

together a stake and returning to New York to trade in fair

amounts in an office where you did not have to be afraid the

police would raid the joint, as they did the bucket shops, or

see the postal authorities swoop down and tie up your money so

that you'd be lucky to get eight cents on the dollar a year and

a half later.

Anyhow, I made up my mind that I would see what trading

advantages of this firm offered over what you might call the

legitimate brokers. I didn't have much money to put up as

margin, and firms that bucketed orders were naturally much more

liberal in that respect, so that a few hundred dollars went much

further in their offices.

I went down to their place and had a talk with the manager

himself. When he found out that I was an old trader and had

formerly had accounts in New York with Stock Exchange houses and

that I had lost all I took with me he stopped promising to make

a million a minute for me if I let them invest my savings. He

figured that I was a permanent sucker, the ticker-hound kind

that always plays and always loses; a steady income provider for

brokers, whether they were the kind that bucket your orders or

modestly content themselves with the commissions.

I just told the manager that what I was looking for was

decent execution, because I always traded at the market and I

didn't want to get reports that showed a difference of a half or

a whole point from the ticker price.

He assured me on his word of honor that they would do

whatever I thought was right. They wanted my business because

they wanted to show me what high-class brokering was. They had

in their employ the best talent in the business. In fact, they

were famous for their execution. If there was any difference

between the ticker price and the report it was always in favor

of the customer, though of course they didn't guarantee that. If

I opened an account with them I could buy and sell at the price,

which came over the wire, they were so confident of their

brokers.

Naturally that meant that I could trade there to all

intents and purposes as though I were in a bucket shop -- that

is, they'd let me trade at the next quotation. I didn't want to

appear too anxious, so I shook my head and told him I guessed I

wouldn't open an account that day, but I'd let him know. He

urged me strongly to begin right away, as it was a good market

to make money in. It was for them; a dull market with prices

seesawing slightly, just the kind to get customers in and then

wipe them out with a sharp drive in the tipped stock. I had some

trouble in getting away.

I had given him my name and address, and that very same day

I began to get prepaid telegrams and letters urging me to get

aboard of some stock or other in which they said they knew an

inside pool was operating for a fifty-point rise.

I was busy going around and finding out all I could about

several other brokerage concerns of the same bucketing kind. It

seemed to me that if I could be sure of getting my winnings out

of their clutches the only way of my getting together some real

money was to trade in these near bucket-shops.

When I had learned all I could I opened accounts with three

firms. I had taken a small office and had direct wires run to

the three brokers.

I traded in a small way so they wouldn't get frightened off

at the very start. I made money on balance and they were not

slow in telling me that they expected real business from

customers who had direct wires to their offices. They did not

hanker for pikers. They figured that the more I did the more I'd

lose, and the more quickly I was wiped out the more they'd make.

It was a sound enough theory when you consider that these people

necessarily dealt with averages and the average customer was

never long-lived, financially speaking. A busted customer can't

trade. A half-crippled customer can whine, insinuate things, and

make trouble of one or another kind that hurts business.

I also established a connection with a local firm that had

a direct wire to its New York correspondent, who were also

members of the New York Stock Exchange. I had a stock ticker put

in and I began to trade conservatively. As I told you, it was

pretty much like trading in bucket shops; only it was a little

slower.

It was a game that I could beat, and I did. I never got it

down to such a fine point that I could win ten times out of ten;

but I won on balance, taking it week in and week out. I was

again living pretty well, but always saving something, to

increase the stake that I was to take back to Wall Street. I got

a couple of wires into two more of these bucketing brokerage

houses, making five in all and, of course, my good firm.

There were times when my plans went wrong and my stocks did

not run true to form, but did the opposite of what they should

have done if they had kept up their regard for precedent. But

they did not hit me very hard

-- they couldn't, with my

shoestring margins. My relations with my brokers were friendly

enough. Their accounts and records did not always agree with

mine, and the differences uniformly happened to be against me.

Curious coincidence not! But I fought for my own and usually had

my way in the end. They always had the hope of getting away from

me what I had taken from them. They regarded my winnings as

temporary loans, I think.

They really were not sporty, being in the business to make

money by hook or by crook instead of being content with the

house percentage. Since suckers always lose money when they

gamble in stocks -- they never really speculate -- you'd think

these fellows would run what you might call a legitimate

illegitimate business. But they didn't. "Copper your customers

and grow rich" is an old and true adage, but they did not seem

ever to have heard of it and didn't stop at plain bucketing.

Several times they tried to double-cross me with the old tricks.

They caught me a couple of times because I wasn't looking. They

always did that when I had taken no more than my usual line. I

accused them of being short sports or worse, but they denied it

and it ended by my going back to trading as usual. The beauty of

doing business with a crook is that he always forgives you for

catching him, so long as you don't stop doing business with him.

It's all right as far as he is concerned. He is willing to meet

you more than halfway. Magnanimous souls!

Well, I made up my mind that I couldn't afford to have the

normal rate of increase of my stake impaired by crooks' tricks,

so I decided to teach them a lesson. I picked out some stock

that after having been a speculative favorite had become in-

active. Water-logged. If I had taken one that never had been

active they would have suspected my play. I gave out buying

orders on this stock to my five bucketeering brokers. When the

orders were taken and they were waiting for the next quotation

to come out on the tape I sent in an order through my Stock

Exchange house to sell a hundred shares of that particular stock

at the market. I urgently asked for quick action. Well, you can

imagine what happened when the selling order got to the floor of

the Exchange; a dull inactive stock that a commission house with

out-of-town connections wanted to sell in a hurry. Somebody got

cheap stock. But the transaction as it would be printed on the

tape was the price that I would pay on my five buying orders. I

was long on balance four hundred shares of that stock at a low

figure. The wire house asked me what I'd heard, and I said I had

a tip on it. Just before the close of the market I sent an order

to my reputable house to buy back that hundred shares, and not

waste any time; that I didn't want to be short under any

circumstances; and I didn't care what they paid. So they wired

to New York and the order to buy that hundred quick resulted in

a sharp advance. I of course had put in selling orders for the

five hundred shares that my friends had bucketed. It worked very

satisfactorily.

Still, they didn't mend their ways, and so I worked that

trick on them several times. I did not dare punish them as

severely as they deserved, seldom more than a point or two on a

hundred shares. But it helped to swell my little hoard that I

was saving for my next Wall Street venture. I sometimes varied

the process by selling some stock short, without overdoing it. I

was satisfied with my six or eight hundred clear for each crack.

One day the stunt worked so well that it went far beyond all

calculations for a ten-point swing. I wasn't looking for it. As

a matter of fact it so happened that I had two hundred shares

instead of my usual hundred at one broker's, though only a

hundred in the four other shops. That was too much of a good

thing for them. They were sore as pups about it and they began

to say things over the wires. So I went and saw the manager, the

same man who had been so anxious to get my account, and so

forgiving every time I caught him trying to put something over

on me. He talked pretty big for a man in his position.

"That was a fictitious market for that stock, and we won't

pay you a damned cent!" he swore.

"It wasn't a fictitious market when you accepted my order

to buy. You let me in then, all right, and now you've got to let

me out. You can't get around that for fairness, can you?"

"Yes, I can!" he yelled. "I can prove that somebody put up

a job."

"Who put up a job?" I asked.

:'Somebody!"

"Who did they put it up on?" I asked.

"Some friends of yours were in it as sure as pop," he said.

But I told him, "You know very well that I play a lone

hand. Everybody in this town knows that. They've known it ever

since I started trading in stocks. Now I want to give you some

friendly advice: you just send and get that money for me. I

don't want to be disagreeable. Just do what I tell you."

"I won't pay it. It was a rigged-up transaction," he

yelled.

I got tired of his talk. So I told him: "You'll pay it to me

right now and here."

Well, he blustered a little more and accused me flatly of

being the guilty thimble rigger; but he finally forked over the

cash. The others were not so rambunctious. In one office the

manager had been studying these inactive stock plays of mine and

when he got my order he actually bought the stock for me and

then some for himself in the Little Board, and he made some

money. These fellows didn't mind being sued by customers on

charges of fraud, as they generally had a good technical legal

defense ready. But they were afraid I'd attach the furniture --

the money in the bank I couldn't because they took care not to

have any funds exposed to that danger. It would not hurt them to

be known as pretty sharp, but to get a reputation for welshing

was fatal. For a customer to lose money at his broker's is no

rare event. But for a customer to make money and then not get it

is the worst crime on the speculators' statute books.

I got my money from all; but that ten-point jump put an end

to the pleasing pastime of skinning skinners. They were on the

lookout for the little trick that they themselves had used to

defraud hundreds of poor customers. I went back to my regular

trading; but the market wasn't always right for my system --

that is, limited as I was by the size of the orders they would

take, I couldn't make a killing.

I had been at it over a year, during which I used every

device that I could think of to make money trading in those wire

houses. I had lived very comfortably, bought an automobile and

didn't limit myself about my expenses. I had to make a stake,

but I also had to live while I was doing it. If my position on

the market was right I couldn't spend as much as I made, so that

I'd always be saving some. If I was wrong I didn't make any

money and therefore couldn't spend. As I said, I had saved up a

fair-sized roll, and there wasn't so much money to be made in

the five wire houses; so I decided to return to New York.

I had my own automobile and I invited a friend of mine who

also was a trader to motor to New York with me. He accepted and

we started. We stopped at New Haven for dinner. At the hotel I

met an old trading acquaintance, and among other things he told

me there was a shop in town that had a wire and was doing a

pretty good business.

We left the hotel on our way to New York, but I drove by

the street where the bucket shop was to see what the outside

looked like. We found it and couldn't resist the temptation to

stop and have a look at the inside. It wasn't very sumptuous,

but the old blackboard was there, and the customers, and the

game was on.

The manager was a chap who looked as if he had been an

actor or a stump speaker. He was very impressive. He'd say good

morning as though he had discovered the morning's goodness after

ten years of searching for it with a microscope and was making

you a present of the discovery as well as of the sky, the sun

and the firm's bankroll. He saw us come up in the sporty-looking

automobile, and as both of us were young and careless -- I don't

suppose I looked twenty -- he naturally concluded we were a

couple of Yale boys. I didn't tell him we weren't. He didn't

give me a chance, but began delivering a speech. He was very

glad to see us. Would we have a comfortable seat? The market, we

would find, was philanthropically inclined that morning; in

fact, clamoring to increase the supply of collegiate pocket

money, of which no intelligent undergraduate ever had a

sufficiency since the dawn of historic time. But here and now,

by the beneficence of the ticker, a small initial investment

would return thousands. More pocket money than anybody could

spend was what the stock market yearned to yield.

Well, I thought it would be a pity not to do as the nice

man of the bucket shop was so anxious to have us do, so I told

him I would do as he wished, because I had heard that lots of

people made lots of money in the stock market.

I began to trade, very conservatively, but increasing the

line as I won. My friend followed me.

We stayed overnight in New Haven and the next morning found

us at the hospitable shop at five minutes to ten. The orator was

glad to see us, thinking his turn would come that day. But I

cleaned up within a few dollars of fifteen hundred. The next

morning when we dropped in on the great orator, and handed him

an order to sell five hundred Sugar he hesitated, but finally

accepted it in silence! The stock broke over a point and I

closed out and gave him the ticket. There was exactly five

hundred dollars coming to me in profits, and my five hundred

dollar margin. He took twenty fifties from the safe, counted

them three times very slowly, then he counted them again in

front of me. It looked as if his fingers were sweating mucilage

the way the notes seemed to stick to him, but finally he handed

the money to me. He folded his arms, bit his lower lip, kept it

bit, and stared at the top of a window behind me.

I told him I'd like to sell 200 Steel. But he never

stirred. He didn't hear me. I repeated my wish, only I made it

three hundred shares. He turned his head. I waited for the

speech. But all he did was to look at me. Then he smacked his

lips and swallowed as if he was going to start an attack on

fifty years of political misrule by the unspeakable grafters of

the opposition.

Finally he waved his hand toward the yellow-backs in my

hand and said, "Take away that bauble!"

"Take away what?" I said. I hadn't quite understood what he

was driving at. “Where are you going, student?" He spoke very

impressively.

"New York," I told him.

"That's right," he said, nodding about twenty times. "That

is exactly right. You are going away from here all right,

because now I know two things – two student! I know what

you are not, and I know what you are. Yes! Yes! Yes!"

"Is that so?" I said very politely.

"Yes. You two" He paused; and then he stopped being in

Congress and snarled: "You two are the biggest sharks in the

United States of America l Students? Ye-eh! You must be freshmen

Ye-eh!"

We left him talking to himself. He probably didn't mind the

money so much. No professional gambler does. It's all in the

game and the luck's bound to turn. It was his being fooled in us

that hurt his pride.

That is how I came back to Wall Street for a third attempt.

I had been studying, of course, trying to locate the exact

trouble with my system that had been responsible for my defeats

in A. R. Fullerton & Co.'s office. I was twenty when I made my

first ten thousand, and I lost that. But I knew how and why,

because I traded out of season all the time; because when I

couldn't play according to my system, which was based on study

and experience, I went in and gambled. I hoped to win, instead

of knowing that I ought to win on form. When I was about

twenty-two I ran up my stake to fifty thousand dollars; I lost

it on May ninth. But I knew exactly why and how. It was the

laggard tape and the unprecedented violence of the movements

that awful day. But I didn't know why I had lost after my return

from St. Louis or after the May ninth panic. I had theories --

that is, remedies for some of the faults that I thought I found

in my play. But I needed actual practice.

There is nothing like losing all you have in the world for

teaching you what not to do. And when you know what not to do in

order not to lose money, you begin to learn what to do in order

to win. Did you get that? You begin to learn!

CHAPTER V

THE average ticker hound or as they used to call him, tape-worm

goes wrong, I suspect, as much from over specialization as from

anything else. It means a highly expensive inelasticity. After

all, the game of speculation isn't all mathematics or set rules,

however rigid the main laws may be.

Even in my tape reading

something enters that is more than mere arithmetic. There is

what I call the behavior of a stock, actions that enable you to

judge whether or not it is going to proceed in accordance with

the precedents that your observation has noted. If a stock

doesn't act right don't touch it; because, being unable to tell

precisely what is wrong, you cannot tell which way it is going.

No diagnosis, no prognosis. No prognosis, no profit.

It is a very old thing, this of noting the behavior of a

stock and studying its past performances. When I first came to

New York there was a broker's office where a Frenchman used to

talk about his chart. At first I thought he was a sort of pet

freak kept by the firm because they were good-natured. Then I

learned that he was a persuasive and most impressive talker. He

said that the only thing that didn't lie because it simply

couldn't was mathematics. By means of his curves he could

forecast market movements. Also he could analyse them, and tell,

for instance, why Keene did the right thing in his famous

Atchison preferred bull manipulation, and later why he went

wrong in his Southern Pacific pool. At various times one or

another of the professional traders tried the Frenchman's system

and then went back to their old unscientific methods of making a

living. Their hit-or-miss system was cheaper, they said. I heard

that the Frenchman said Keene admitted that the chart was 100

per cent right but claimed that the method was too slow for

practical use in an active market. Then there was one office

where a chart of the daily movement of prices was kept. It

showed at a glance just what each stock had done for months. By

comparing individual curves with the general market curve and

keeping in mind certain rules the customers could tell whether

the stock on which they got an unscientific tip to buy was

fairly entitled to a rise. They used the chart as a sort of

complementary tipster. Today there are scores of commission

houses when you find trading charts. They come ready-made from

the offices of statistical experts and include not only stocks

but also commodities.

"I should say that a chart helps those who can read it or

rather who can assimilate what they read. The average chart

reader, however, is apt to become obsessed with the notion that

the dips and peaks and primary and secondary movements are all

there is to stock speculation. If he pushes his confidence to

its logical limit he is bound to go broke. There is an extremely

able man, a former partner of a well-known Stock Exchange house,

who is really a trained mathematician. He is a graduate of a

famous technical school. He devised charts based upon a very

careful and minute study of the behavior of prices in many

markets -- stocks, bonds, grain, cotton, money, and so on. He

went back years and years and traced the correlations and

seasonal movements on everything. He used his charts in his

stock trading for years. What he really did was to take

advantage of some highly intelligent averaging. They tell me he

won regularly until the World War knocked all precedents into a

cocked hat. I heard that he and his large following lost

millions before they desisted. But not even a world war can keep

the stock market from being a bull market when conditions are

bullish, or a bear market when conditions are bearish. And all a

man needs to know to make money is to appraise conditions.

I didn't mean to get off the track like that, but I can't

help it when I think of my first few years in Wall Street. I

know now what I did not know then, and I think of the mistakes

of my ignorance because those are the very mistakes that the

average

stock

speculator

makes

year

in

and

year

out.

After I got back to New York to try for the third time to beat

the market in a Stock Exchange house I traded quite actively. I

didn't expect to do as well as I did in the bucket shops, but I

thought that after a while I would do much better because I

would be able to swing a much heavier line. Yet, I can see now

that my main trouble was my failure to grasp the vital

difference between stock gambling and stock speculation. Still,

by reason of my seven years' experience in reading the tape and

a certain natural aptitude for the game, my stake was earning

not indeed a fortune but a very high rate of interest. I won and

lost as before, but I was winning on balance. The more I made

the more I spent. This is the usual experience with most men.

No, not necessarily with easy-money pickers, but with every

human being who is not a slave of the hoarding instinct. Some

men, like old Russell Sage, have the money-making and the

money-hoarding instinct equally well developed, and of course

they die disgustingly rich.

The game of beating the market exclusively interested me

from ten to three every day, and after three, the game of living

my life. Don't misunderstand me. I never allowed pleasure to

interfere with business. When I lost it was because I was wrong

and not because I was suffering from dissipation or excesses.

There never were any shattered nerves or rum-shaken limbs to

spoil my game. I couldn't afford anything that kept me from

feeling physically and mentally fit. Even now I am usually in

bed by ten. As a young man I never kept late hours, because I

could not do business properly on insufficient sleep. I was

doing better than breaking even and that is why I didn't think

there was any need to deprive myself of the good things of life.

The market was always there to supply them. I was acquiring the

confidence

that

comes

to

a

man

from

a

professionally

dispassionate attitude toward his own method of providing bread

and butter for himself.

The first change I made in my play was in the matter of

time. I couldn't wait for the sure thing to come along and then

take a point or two out of it as I could in the bucket shops. I

had to start much earlier if I wanted to catch the move in

Fullerton's office. In other words, I had to study what was

going to happen to anticipate stock movements. That sounds

asininely commonplace, but you know what I mean. It was the

change in my own attitude toward the game that was of supreme

importance to me. It taught me, little by little, the essential

difference between betting on fluctuations and anticipating

inevitable

advances

and

declines,

between

gambling

and

speculating.

I had to go further back than an hour in my studies of the

market which was something I never would have learned to do in

the biggest bucket shop in the world. I interested myself in

trade reports, railroad earnings, and financial and commercial

statistic. Of course I loved to trade heavily and they called me

the Boy Plunger; but I also liked to study the moves. I never

thought that anything was irksome if it helped me to trade more

intelligently. Before I can solve a problem I must state it to

myself. When I think I have found the solution I must prove I am

right. I know of only one way to prove it; and that is, with my

own money.

Slow as my progress seems now, I suppose I learned as fast

as I possibly could, considering that I was making money on

balance. If I had lost oftener perhaps it might have spurred me

too more continuous study. I certainly would have had more

mistakes to spot. But I am not sure of the exact value of

losing, for if I had lost more I would have lacked the money to

test out the improvements in my methods of trading.

Studying my winning plays in Fullerton's office I discovered

that although I often was 100 per cent right on the market that

is, in my diagnosis of conditions and general trend -- I was not

making as much money as my market "rightness" entitled me to.

Why wasn't I?

There was as much to learn from partial victory as from

defeat.

For instance, I had been bullish from the very start of a

bull market, and I had backed my opinion by buying stocks. An

advance followed, as I had clearly foreseen. So far, all very

well. But what else did I do? Why, I listened to the elder

statesmen and curbed my youthful impetuousness. I made up my

mind to be wise and play carefully, conservatively. Everybody

knew that the way to do that was to take profits and buy back

your stocks on reactions. And that is precisely what I did, or

rather what I tried to do; for I often took profits and waited

for a reaction that never came. And I saw my stock go kiting up

ten points more and I sitting there with my four-point profit

safe in my conservative pocket. They say you never grow poor

taking profits. No, you don't. But neither do you grow rich

taking a four-point profit in a bull market.

Where I should have made twenty thousand dollars I made two

thousand. That was what my conservatism did for me. About the

time I discovered what a small percentage of what I should have

made I was getting I discovered something else, and that is that

suckers differ among themselves according to the degree of

experience.

The tyro knows nothing, and everybody, including himself,

knows it. But the next, or second, grade thinks he knows a great

deal and makes others feel that way too. He is the experienced

sucker, who has studied not the market itself but a few remarks

about the market made by a still higher grade of suckers. The

second-grade sucker knows how to keep from losing his money in

some of the ways that get the raw beginner. It is this

semisucker rather than the 100 per cent article who is the real

all-the-year-round support of the commission houses. He lasts

about three and a half years on an average, as compared with a

single season of from three to thirty weeks, which is the usual

Wall Street life of a first offender. It is naturally the

semisucker who is always quoting the famous trading aphorisms

and the various rules of the game. He knows all the don'ts that

ever fell from the oracular lips of the old stagers excepting

the principal one, which is: Don't be a sucker!

This semisucker type that thinks he has cut his wisdom

teeth because he loves to buy on declines. He waits for them. He

measures his bargains by the number of points it has sold off

from the top. In big bull markets the plain un

This semisucker is the type that thinks he has cut his

wisdom teeth because he loves to buy on declines. He waits for

them. He measures his bargains by the number of points it has

sold off from the top.

In big bull markets the plain

unadulterated sucker, utterly ignorant of rules and precedents,

buys blindly because he hopes blindly. He makes most of the

money until one of the healthy reactions takes it away from him

at one fell swoop. But the Careful Mike sucker does what I did

when I thought I was playing the game intelligently according to

the intelligence of others. I knew I needed to change my

bucket-shop methods and I thought I was solving my problem with

any change, particularly one that assayed high gold values

according to the experienced traders among the customers.

Most let us call'em customers -- are alike. You find very

few who can truthfully say that Wall Street doesn't owe them

money. In Fullerton's there were the usual crowd. All grades!

Well, there was one old chap who was not like the others. To

begin with, he was a much older man. Another thing was that he

never volunteered advice and never bragged of his winnings. He

was a great hand for listening very attentively to the others.

He did not seem very keen to get tips -- that is, he never asked

the talkers what they'd heard or what they knew. But when

somebody gave him one he always thanked the tipster very

politely. Sometimes he thanked the tipster again -- when the tip

turned out O.K. But if it went wrong he never whined, so that

nobody could tell whether he followed it or let it slide by. It

was a legend of the office that the old jigger was rich and

could swing quite a line. But he wasn't donating much to the

firm in the way of commissions; at least not that anyone could

see. His name was Partridge, but they nicknamed him Turkey

behind his back, because he was so thick-chested and had a habit

of strutting about the various rooms, with the point of his chin

resting on his breast.

The customers, who were all eager to be shoved and forced

into doing things so as to lay the blame for failure on others,

used to go to old Partridge and tell him what some friend of a

friend of an insider had advised them to do in a certain stock.

They would tell him what they had not done with the tip so he

would tell them what they ought to do. But whether the tip they

had was to buy or to sell, the old chap's answer was always the

same.

The customer would finish the tale of his perplexity and

then ask: "What do you think I ought to do?"

Old Turkey would cock his head to one side, contemplate his

fellow customer with a fatherly smile, and finally he would say

very impressively, "You know, it's a bull market!"

Time and again I heard him say, "Well, this is a bull market,

you know!" as though he were giving to you a priceless talisman

wrapped up in a million-dollar accident-insurance policy. And of

course I did not get his meaning.

One day a fellow named Elmer Harwood rushed into the

office, wrote out an order and gave it to the clerk. Then he

rushed over to where Mr. Partridge was listening politely to

John Fanning's story of the time he overheard Keene give an

order to one of his brokers and all that John made was a measly

three points on a hundred shares and of course the stock had to

go up twenty-four points in three days right after John sold

out. It was at least the fourth time that John had told him that

tale of woe, but old Turkey was smiling as sympathetically as if

it was the first time he heard it.

Well, Elmer made for the old man and, without a word of

apology to John Fanning, told Turkey, "Mr. Partridge, I have

just sold my Climax Motors. My people say the market is entitled

to a reaction and that I'll be able to buy it back cheaper. So

you'd better do likewise. That is, if you've still got yours."

Elmer looked suspiciously at the man to whom he had given the

original tip to buy. The amateur, or gratuitous, tipster always

thinks he owns the receiver of his tip body and soul, even

before he knows how the tip is going to turn out.

"Yes, Mr. Harwood, I still have it. Of course!" said Turkey

gratefully. It was nice of Elmer to think of the old chap.

"Well, now is the time to take your profit and get in again on

the next dip," said Elmer, as if he had just made out the

deposit slip for the old man. Failing to perceive enthusiastic

gratitude in the beneficiary's face Elmer went on: "I have just

sold every share I owned!"

From his voice and manner you would have conservatively

estimated it at ten thousand shares.

But Mr. Partridge shook his head regretfully and whined, "No!

No! I can't do that!"

:'What?" yelled Elmer.

"I simply can't!" said Mr. Partridge. He was in great

trouble.

"Didn't I give you the tip to buy it?"

"You did, Mr. Harwood, and I am very grateful to you.

Indeed, I am, sir. But --"

"Hold on! Let me talk! And didn't that stock go up seven

points in ten days? Didn't it?"

"It did, and I am much obliged to you, my dear boy. But I

couldn't think of selling that stock."

"You couldn't?" asked Elmer, beginning to look doubtful

himself. It is a habit with most tip givers to be tip takers.

"No, I couldn't."

"Why not?" And Elmer drew nearer.

"Why, this is a bull market!" The old fellow said it as

though he had given a long and detailed explanation.

"That's all right," said Elmer, looking angry because of

his disappointment. "I know this is a bull market as well as you

do. But you'd better slip them that stock of yours and buy it

back on the reaction. You might as well reduce the cost to

yourself."

"My dear boy," said old Partridge, in great distress "my

dear boy, if I sold that stock now I'd lose my position; and

then where would I be?"

Elmer Harwood threw up his hands, shook his head and walked

over to me to get sympathy: "Can you beat it?" he asked me in a

stage whisper. "I ask you!"

I didn't say anything. So he went on: "I give him a tip on

Climax Motors. He buys five hundred shares. He's got seven

points' profit and I advise him to get out and buy 'em back on

the reaction that's overdue even now. And what does he say when

I tell him? He says that if he sells he'll lose his job. What do

you know about that?"

"I beg your pardon, Mr. Harwood; I didn't say I'd lose my

job," cut in old Turkey. "I said I'd lose my position. And when

you are as old as I am and you've been through as many booms and

panics as I have, you'll know that to lose your position is

something nobody can afford; not even John D. Rockefeller. I

hope the stock reacts and that you will be able to repurchase

your line at a substantial concession, sir. But I myself can

only trade in accordance with the experience of many years. I

paid a high price for it and I don't feel like throwing away a

second tuition fee. But I am as much obliged to you as if I had

the money in the bank. It's a bull market, you know." And he

strutted away, leaving Elmer dazed.

What old Mr. Partridge said did not mean much to me until I

began to think about my own numerous failures to make as much

money as I ought to when I was so right on the general market.

The more I studied the more I realized how wise that old chap

was. He had evidently suffered from the same defect in his young

days and knew his own human weaknesses. He would not lay himself

open to a temptation that experience had taught him was hard to

resist and had always proved expensive to him, as it was to me.

I think it was a long step forward in my trading education

when I realized at last that when old Mr. Partridge kept on

telling the other customers, "Well, you know this is a bull

market!" he really meant to tell them that the big money was not

in the individual fluctuations but in the main movements that

is, not in reading the tape but in sizing up the entire market

and its trend.

And right here let me say one thing: After spending many

years in Wall Street and after making and losing millions of

dollars I want to tell you this: It never was my thinking that

made the big money for me. It always was my sitting. Got that?

My sitting tight! It is no trick at all to be right on the

market. You always find lots of early bulls in bull markets and

early bears in bear markets. I've known many men who were right

at exactly the right time, and began buying or selling stocks

when prices were at the very level, which should show the

greatest profit. And their experience invariably matched mine --

that is, they made no real money out of it. Men who can both be

right and sit tight are uncommon. I found it one of the hardest

things to learn. But it is only after a stock operator has

firmly grasped this that he can make big money. It is literally

true that millions come easier to a trader after he knows how to

trade than hundreds did in the days of his ignorance.

The reason is that a man may see straight and clearly and

yet become impatient or doubtful when the market takes its time

about doing as he figured it must do. That is why so many men in

Wall Street, who are not at all in the sucker class, not even in

the third grade, nevertheless lose money. The market does not

beat them. They beat themselves, because though they have brains

they cannot sit tight. Old Turkey was dead right in doing and

saying what he did. He had not only the courage of his

convictions but the intelligent patience to sit tight.

Disregarding the big swing and trying to jump in and out

was fatal to me. Nobody can catch all the fluctuations. In a

bull market your game is to buy and hold until you believe that

the bull market is near its end. To do this you must study

general conditions and not tips or special factors affecting

individual stocks. Then get out of all your stocks; get out for

keeps! Wait until you see -- or if you prefer, until you think

you see the turn of the market; the beginning of a reversal of

general conditions. You have to use your brains and your vision

to do this; otherwise my advice would be as idiotic as to tell

you to buy cheap and sell dear. One of the most helpful things

that anybody can learn is to give up trying to catch the last

eighth or the first. These two are the most expensive eighths in

the world. They have cost stock traders, in the aggregate,

enough millions of dollars to build a concrete highway across

the continent.

Another thing I noticed in studying my plays in Fullerton's

office after I began to trade less unintelligently was that my

initial operations seldom showed me a loss. That naturally made

me decide to start big. It gave me confidence in my own judgment

before I allowed it to be vitiated by the advice of others or

even by my own impatience at times. Without faith in his own

judgment no man can go very far in this game. That is about all

I have learned to study general conditions, to take a position

and stick to it. I can wait without a twinge of impatience. I

can see a setback without being shaken, knowing that it is only

temporary. I have been short one hundred thousand shares and I

have seen a big rally coming. I have figured and figured

correctly -- that such a rally as I felt was inevitable, and

even wholesome, would make a difference of one million dollars

in my paper profits. And I nevertheless have stood pat and seen

half my paper profit wiped out, without once considering the

advisability of covering my shorts to put them out again on the

rally. I knew that if I did I might lose my position and with it

the certainty of a big killing. It is the big swing that makes

the big money for you.

If I learned all this so slowly it was because I learned by

my mistakes, and some time always elapses between making a

mistake and realizing it, and more time between realizing it and

exactly determining it. But at the same time I was faring pretty

comfortably and was very young, so that I made up in other ways.

Most of my winnings were still made in part through my tape

reading because the kind of markets we were having lent

themselves fairly well to my method. I was not losing either as

often or as irritatingly as in the beginning of my New York

experiences. It wasn't anything to be proud of, when you think

that I had been broke three times in less than two years. And as

I told you, being broke is a very efficient educational agency.

I was not increasing my stake very fast because I lived up

to the handle all the time. I did not deprive myself of many of

the things that a fellow of my age and tastes would want. I had

my own automobile and I could not see any sense in skimping on

living when I was taking it out of the market. The ticker only

stopped Sundays and holidays, which was as it should be. Every

time I found the reason for a loss or the why and how of another

mistake, I added a brand-new Don’t to my schedule of assets. And

the nicest way to capitalize my increasing assets was by not

cutting down on my living expenses. Of course I had some amusing

experiences and some that were not so amusing, but if I told

them all in detail I'd never finish. As a matter of fact, the

only incidents that I remember without special effort are those

that taught me something of definite value to me in my trading;

something that added to my store of knowledge of the game and of

myself!

IN the spring of 1906 I was in Atlantic City for a short vaca-

tion. I was out of stocks and was thinking only of having a

change of air and a nice rest. By the way, I had gone back to my

first brokers, Harding Brothers, and my account had got to be

pretty active. I could swing three or four thousand shares. That

wasn't much more than I had done in the old Cosmopolitan shop

when I was barely twenty years of age. But there was some

difference between my one-point margin in the bucket shop and

the margin required by brokers who actually bought or sold

stocks for my account on the New York Stock Exchange.

You may remember the story I told you about that time when

I was short thirty-five hundred Sugar in the Cosmopolitan and I

had a hunch something was wrong and I'd better close the trade?

Well, I have often had that curious feeling. As a rule, I yield

to it. But at times I have pooh-poohed the idea and have told

myself that it was simply asinine to follow any of these sudden

blind impulses to reverse my position. I have ascribed my hunch

to a state of nerves resulting from too many cigars or

insufficient sleep or a torpid liver or something of that kind.

When I have argued myself into disregarding my impulse and have

stood pat I have always had cause to regret it. A dozen

instances occur to me when I did not sell as per hunch, and the

next day I'd go downtown and the market would be strong, or

perhaps even advance, and I'd tell myself how silly it would

have been to obey the blind impulse to sell. But on the

following day there would be a pretty bad drop. Something had

broken loose somewhere and I'd have made money by not being so

wise and logical. The reason plainly was not physiological but

psychological.

I want to tell you only about one of them because of what

it did for me. It happened when I was having that little

vacation in Atlantic City in the spring of i9o6. I had a friend

with me who also was a customer of Harding Brothers. I had no

interest in the market one way or another and was enjoying my

rest. I can always give up trading to play, unless of course it

is an exceptionally active market in which my commitments are

rather heavy. It was a bull market, as I remember it. The

outlook was favorable for general business and the stock market

had slowed down but the tone was firm and all indications

pointed to higher prices.

One morning after we had breakfasted and had finished

reading all the New York morning papers, and had got tired of

watching the sea gulls picking up clams and flying up with them

twenty feet in the air and dropping them on the hard wet sand to

open them for their breakfast, my friend and I started up the

Boardwalk. That was the most exciting thing we did in the

daytime.

It was not noon yet, and we walked up slowly to kill time

and breathe the salt air. Harding Brothers had a branch office

on the Boardwalk and we used to drop in every morning and see

how they'd opened. It was more force of habit than anything

else, for I wasn't doing anything.

The market, we found, was strong and active. My friend, who

was quite bullish, was carrying a moderate line purchased

several points lower. He began to tell me what an obviously wise

thing it was to hold stocks for much higher prices. I wasn't

paying enough attention to him to take the trouble to agree with

him. I was looking-over the quotation board, noting the changes

they were mostly advances until I came to Union Pacific. I got a

feeling that I ought to sell it. I can't tell you more. I just

felt like selling it. I asked myself why I should feel like

that, and I couldn't find any reason whatever for going short of

UP.

I stared at the last price on the board until I couldn't

see any figures or any board or anything else, for that matter.

All I knew was that I wanted to sell Union Pacific and I

couldn't find out why I wanted to.

I must have looked queer, for my friend, who was standing

alongside of me, suddenly nudged me and asked, "Hey, what's the

matter?"

"I don't know," I answered.

"Going to sleep?" he said.

"No," I said. "I am not going to sleep. What I am going to

do is to sell that stock." I had always made money following my

hunches.

I walked over to a table where there were some blank order

pads. My friend followed me. I wrote out an order to sell a

thousand Union Pacific at the market and handed it to the

manager. He was smiling when I wrote it and when he took it. But

when he read the order he stopped smiling and looked at me.

"Is this right?" he asked me. But I just looked at him and

he rushed it over to the operator.

"What are you doing?" asked my friend.

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

"Selling what?" he yelled at me. I f he was a bull how

could I be a bear? Something was wrong.

"A thousand UP," I said.

"Why?" he asked me in great excitement.

I shook my head, meaning I had no reason. But he must have

thought I'd got a tip, because he took me by the arm and led me

outside into the hall, where we could be out of sight and

hearing of the other customers and rubbering chairwarmers.

"What did you bear?" he asked me.

He was quite excited. UP. was one of his pets and he was

bullish on it because of its earnings and its prospects. But he

was willing to take a bear tip on it at second hand.

"Nothing 1" I said.

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

"I didn't hear a thing."

"Then why in blazes are you selling?"

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

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

He knew it was my habit to know why I traded. I had sold a

thousand shares of Union Pacific. I must have a very good reason

to sell that much stock in the face of the strong market.

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

going to happen."

"What's going to happen?"

"I don't know. I can't give you any reason. All I know is

that I want to sell that stock. And I'm going to let 'em have

another thousand."

I walked back into the office and gave an order to sell a

second thousand. If I was right in selling the first thousand I

ought to have out a little more.

"What could possibly happen?" persisted my friend, who

couldn't make up his mind to follow my lead. If I'd told him

that I had heard UP. was going down he'd have sold it without

asking me from whom I'd heard it or why. "What could possibly

happen?" he asked again.

"A million things could happen. But I can't promise you

that any of them will. I can't give you any reasons and I can't

tell fortunes," I told him.

"Then you're crazy," he said. "Stark crazy, selling that

stock without rime or reason. You don't know why you want to

sell it?"

"I don't know why I want to sell it. I only know I do want

to," I said. "I want to, like everything." The urge was so

strong that I sold another thousand.

That was too much for my friend. He grabbed me by the arm

and said, "Here! Let's get out of this place before you sell the

entire capital stock."

I had sold as much as I needed to satisfy my feeling, so I

followed him without waiting for a report on the last two

thousand shares. It was a pretty good jag of stock for me to

sell even with the best of reasons. It seemed more than enough

to be short of without any reason whatever, particularly when

the entire market was so strong and there was nothing in sight

to make anybody think of the bear side. But I remembered that on

previous occasions when I had the same urge to sell and didn't

do it I always had reasons to regret it.

I have told some of these stories to friends, and some of

them tell me it isn't a hunch but the subconscious mind, which

is the creative mind, at work. That is the mind which makes

artists do things without their knowing how they came to do

them. Perhaps with me it was the cumulative effect of a lot of

little things individually insignificant but collectively power-

ful. Possibly my friend's unintelligent bullishness aroused a

spirit of contradiction and I picked on UP. because it had been

touted so much. I can't tell you what the cause or motive for

hunches may be. All I know is that I went out of the Atlantic

City branch office of Harding Brothers short three thousand

Union Pacific in a rising market, and I wasn't worried a bit.

I wanted to know what price they'd got for my last two

thousand shares. So after luncheon we walked up to the office. I

had the pleasure of seeing that the general market was strong

and Union Pacific higher.

"I see your finish," said my friend. You could see he was

glad he hadn't sold any.

The next day the general market went up some more and I

heard nothing but cheerful remarks from my friend. But I felt

sure I had done right to sell UP, and I never get impatient when

I feel I am right. What's the sense? That afternoon Union

Pacific stopped climbing, and toward the end of the day it began

to go off. Pretty soon it got down to a point below the level of

the average of my three thousand shares. I felt more positive

than ever that I was on the right side, and since I felt that

way I naturally had to sell some more. So, toward the close, I

sold an additional two thousand shares.

There I was, short five thousand shares of UP. On a hunch.

That was as much as I could sell in Harding's office with the

margin I had up. It was too much stock for me to be short of, on

a vacation; so I gave up the vacation and returned to New York

that very night. There was no telling what might happen and I

thought I'd better be Johnny-on-the-spot. There I could move

quickly if I had to.

The next day we got the news of the San Francisco earth-

quake. It was an awful disaster. But the market opened down only

a couple of points. The bull forces were at work, and the public

never is independently responsive to news. You

see that all

the time. If there is a solid bull foundation, for instance,

whether or not what the papers call bull manipulation is going

on at the same time, certain news items fail to have the effect

they would have if the Street was bearish. It is all in the

state of sentiment at the time. In this case the Street

did

not appraise the extent of the catastrophe because it didn't

wish to. Before the day was over prices came back. I was short

five thousand shares. The blow had fallen, but my stock hadn't.

My hunch was of the first water, but my bank account wasn't

growing; not even on paper. The friend who had been in Atlantic

City with me when I put out my short line in UP. Was glad and

sad about it.

He told me: "That was some hunch, kid. But, say, when the

talent and the money are all on the bull side what's the use of

bucking against them? They are bound to win out."

"Give them time," I said. I meant prices. I wouldn't cover

because I knew the damage was enormous and the Union Pacific

would be one of the worst sufferers. But it was exasperating to

see the blindness of the Street.

"Give 'em time and your skin will be where all the other

bear hides are stretched out in the sun, drying," he assured me.

"What would you do?" I asked him. "Buy UP. On the strength

of the millions of dollars of damage suffered by the Southern

Pacific and other lines? Where are the earnings for dividends

going to come from after they pay for all they've lost? The best

you can say is that the trouble may not be as bad as it is

painted. But is that a reason for buying the stocks of the roads

chiefly affected? Answer me that."

But all my friend said was: "Yes, that listens fine. But I

tell you, the market doesn't agree with you. The tape doesn't

lie, does it?"

"It doesn't always tell the truth on the instant," I said.

"Listen. A man was talking to Jim Fisk a little before

Black Friday, giving ten good reasons why gold ought to go down

for keeps. He got so encouraged by his own words that he ended

by telling Fisk that he was going to sell a few million. And Jim

Fisk just looked at him and said, "Go ahead! Do! Sell it short

and invite me to your funeral."'

"Yes," I said; "and if that chap had sold it short, look at

the killing he would have made l Sell some UP. yourself."

"Not I! I'm the kind that thrives best on not rowing

against wind and tide."

On the following day, when fuller reports came in, the

market began to slide off, but even then not as violently as it

should. Knowing that nothing under the sun could stave off a

substantial break I doubled up and sold five thousand shares.

Oh, by that time it was plain to most people, and my brokers

were willing enough. It wasn't reckless of them or of me, not

the way I sized up the market. On the day following, the market

began to go for fair. There was the dickens to pay. Of course I

pushed my luck for all it was worth. I doubled up again and sold

ten thousand shares more. It was the only play possible.

I wasn't thinking of anything except that I was right 100

per cent right and that this was a heaven-sent opportunity. It

was up to me to take advantage of it. I sold more. Did I think

that with such a big line of shorts out, it wouldn't take much

of a rally to wipe out my paper profits and possibly my

principal? I don't know whether I thought of that or not, but if

I did it didn't carry much weight with me. I wasn't plunging

recklessly. I was really playing conservatively. There was

nothing that anybody could do to undo the earthquake, was there?

They couldn't restore the crumpled buildings overnight, free,

gratis, for nothing, could they? All the money in the world

couldn't help much in the next few hours, could it?

I was not betting blindly. I wasn't a crazy bear. I wasn't

drunk with success or thinking that because Frisco was pretty

well wiped off the map the entire country was headed for the

scrap heap. No, indeed! I didn't look for a panic. Well, the

next day I cleaned up. I made two hundred and fifty thousand

dollars. It was my biggest winnings up to that time. It was all

made in a few days. The Street paid no attention to the

earthquake the first day or two. They'll tell you that it was

because the first dispatches were not so alarm ring, but I think

it was because it took so long to change the point of view of

the public toward the securities markets. Even the professional

traders for the most part were slow and shortsighted.

I have no explanation to give you, either scientific or

childish. I am telling you what I did, and why, and what came of

it. I was much less concerned with the mystery of the hunch than

with the fact that I got a quarter of a million out of it. It

meant that I could now swing a much bigger line than ever, if or

when the time came for it.

That summer I went to Saratoga Springs. It was supposed to

be a vacation for me, but I kept an eye on the market.

To

begin with, I wasn't so tired that it bothered me to think

about it. And then, everybody I knew up there had or had

had an active interest in it. We naturally talked about it. I

have noticed that there is quite a difference between talking

and trading. Some of these chaps remind you of the bold clerk

who talks to his cantankerous employer as to a yellow dog when

he tells you about it.

Harding Brothers had a branch office in Saratoga. Many of

their customers were there. But the real reason, I

suppose,

was the advertising value. Having a branch office in a resort is

simply high-class billboard advertising. I used to drop in and

sit around with the rest of the crowd. The manager was a very

nice chap from the New York office who was there to give the

glad hand to friends and strangers and, if possible, to get

business. It was a wonderful place for tips -- all kinds of

tips, horse-race, stock-market, and waiters'. The office knew I

'didn't take any, so the manager didn't come and whisper

confidentially in my ear what he'd just got on the q. t. from

the New York office. He simply passed over the telegrams,

saying, "This is what they're sending out," or something of the

kind.

Of course I watched the market. With me, to look at the

quotation board and to read the signs is one process. My good

friend Union Pacific, I noticed, looked like going up. The price

was high, but the stock acted as if it were being accumulated. I

watched it a couple of days without trading in it, and the more

I watched it the more convinced I became that it was being

bought on balance by somebody who was no piker, somebody who not

only had a big bank roll but knew what was what. Very clever

accumulation, I thought.

As soon as I was sure of this I naturally began to buy it,

at about i6o. It kept on acting all hunky, and so I kept on

buying it, five hundred shares at a clip. The more I bought the

stronger it got, without any spurt, and I was feeling very

comfortable. I couldn't see any reason why that stock shouldn't

go up a great deal more; not with what I read on the tape.

All of a sudden the manager came to me and said they'd got

a message from New York they had a direct wire of course --

asking if I was in the office, and when they answered yes,

another came saying: "Keep him there. Tell him Mr.

Harding wants to speak to him."

I said I'd wait, and bought five hundred shares more of UP.

I couldn't imagine what Harding could have to say to me. I

didn't think it was anything about business. My margin was more

than ample for what I was buying. Pretty soon the manager came

and told me that Mr. Ed Harding wanted me on the long-distance

telephone.

"Hello, Ed," I said.

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

crazy?"

"Are you?" I said.

"What are you doing?" he asked.

"What do you mean?"

"Buying all that stock."'

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

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

"I don't get you."

"Why are you buying all that Union Pacific?"

"It's going up," I said.

"Going up, hell! Don't you know that the insiders are

feeding it out to you? You're just about the easiest mark up

there. You'd have more fun losing it on the ponies. Don't let

them kid you."

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

soul about it."

But he came back at me: "You can't expect a miracle to save

you every time you plunge in that stock. Get out while you've

still got a chance," he said. "It's a crime to be long of that

stock at this level-when these highbinders are shoveling it out

by the ton."

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

"Larry, I got heart disease when your orders began to come

in. For the love of Mike, don't be a sucker. Get out! Right

away. It's liable to bust wide open any minute. I've done my

duty. Good-by!" And he hung up.

Ed Harding was a very clever chap, unusually well-informed

and a real friend, disinterested and kind-hearted. And what was

even more, I knew he was in position to hear things. All I had

to go by in my purchases of UP., was my years of studying the

behaviour of stocks and my perception of certain symptoms which

experience had taught me usually accompanied a substantial rise.

I don't know what happened to me, but I suppose I must have

concluded that my tape reading told me the stock was being

absorbed simply because very clever manipulation by the insiders

made the tape tell a story that wasn't true. Possibly I was

impressed by the pains Ed Harding took to stop me from making

what he was so sure would be a colossal mistake on my part.

Neither his brains nor his motives were to be questioned.

Whatever it was that made me decide to follow his advice, I

cannot tell you; but follow it, I did.

I sold out all my Union Pacific. Of course if it was unwise

to be long of it was equally unwise not to be short of it. So

after I got rid of my long stock I sold four thousand shares

short. I put out most of it around 162.

The next day the directors of the Union Pacific Company

declared a to per cent dividend on the stock. At first nobody in

Wall Street believed it. It was too much like the desperate

maneuver of cornered gamblers. All the newspapers jumped on the

directors. But while the Wall Street talent hesitated to act the

market boiled over. Union Pacific led, and on huge transactions

made a hew high-record price. Some of the room traders made

fortunes in an hour and I remember later hearing about a rather

dull-witted specialist who made a mistake that put three hundred

and fifty thousand dollars in his pocket. He sold his seat the

following week and became a gentleman farmer the following

month.

Of course I realised, the moment I heard the news of the

declaration of that unprecedented to per cent dividend, that I

got what I deserved for disregarding the voice of experience and

listening to the voice of a tipster. My own convictions I had

set aside for the suspicions of a friend, simply because he was

disinterested and as a rule knew what he was doing.

As soon as I saw Union Pacific making new high records I

said to myself, "This is no stock for me to be short of."

All I had in the world was up as margin in Harding's

office. I was neither cheered nor made stubborn by the knowledge

of that fact. What was plain was that I had read the tape

accurately and that I had been a ninny to let Ed Harding shake

my own resolution. There was no sense in recriminations, because

I had no time to lose; and besides, what's done is done. So I

gave an order to take in my shorts. The stock was around i65

when I sent in that order to buy in the four thousand UP. at the

market. I had a three-point loss on it at that figure. Well, my

brokers paid 172 and 17¢ for some of it before they were

through. I found when I got my reports that Ed Harding's kindly

intentioned interference cost me forty thousand dollars. A low

price for a man to pay for not having the courage of his own

convictions! It was a cheap lesson.

I wasn't worried, because the tape said still higher

prices. It was an unusual move and there were no precedents for

the action of the directors, but I did this time what I thought

I ought to do. As soon as I had given the first order to buy

four thousand shares to cover my shorts I decided to profit by

what the tape indicated and so I went along. I bought four

thousand shares and held that stock until the next morning. Then

I got out. I not only made up the forty thousand dollars I had

lost but about fifteen thousand besides. If Ed Harding hadn't

tried to save me money I'd have made a killing. But he did me a

very great service, for it was the lesson of that episode that,

I firmly believe, completed my education as a trader.

It was not that all I needed to learn was not to take tips

but follow my own inclination. It was that I gained confidence

in myself and I was able finally to shake off the old method of

trading. That Saratoga experience was my last haphazard,

hit-or-miss operation. From then on I began to think of basic

conditions instead of individual stocks. I promoted myself to a

higher grade in the hard school of speculation. It was a long

and difficult step to take.

CHAPTER VII

I NEVER hesitate to tell a man that I am bullish or bearish. But

I do not tell people to buy or sell any particular stock. In a

bear market all stocks go down and in a bull market they go up.

I don't mean of course that in a bear market caused by a war,

ammunition shares do not go up. I speak in a general sense. But

the average man doesn't wish to be told that it is a bull or a

bear market. What he desires is to be told specifically which

particular stock to buy or sell. He wants to get something for

nothing. He does not wish to work. He doesn't even wish to have

to think. It is too much bother to have to count the money that

he picks up from the ground.

Well, I wasn't that lazy, but I found it easier to think of

individual stocks than of the general market and therefore of

individual fluctuations rather than of general movements. I had

to change and I did.

People don't seem to grasp easily the fundamentals of stock

trading. I have often said that to buy on a rising market is the

most comfortable way of buying stocks. Now, the point is not so

much to buy as cheap as possible or go short at top prices, but

to buy or sell at the right time. When I am bearish and I sell a

stock, each sale must be at a lower level than the previous

sale. When I am buying, the reverse is true. I must buy on a

rising scale. I don't buy long stock on a scale down, I buy on a

scale up.

Let us suppose, for example, that I am buying some stock.

I'll buy two thousand shares at 110. If the stock goes up to 111

after I buy it I am, at least temporarily, right in my

operation, because it is a point higher; it shows me a profit.

Well, because I am right I go in and buy another two thousand

shares. If the market is still rising I buy a third lot of two

thousand shares. Say the price goes to 114. I think it is enough

for the time being. I now have a trading basis to work from. I

am long six thousand shares at an average of 111-3/4 and the

stock is selling at 114. I won't buy any more just then. I wait

and see. I figure that at some stage of the rise there is going

to be a reaction. I want to see how the market takes care of

itself after that reaction. It will probably react to where I

got my third lot. Say that after going higher it falls back to

112-1/4, and then rallies. Well, just as it goes back to 113-3/4

I shoot an order to buy four thousand at the market of course.

Well, if I get that four thousand at 113-3/4 I know something is

wrong and I'll give a testing order that is, I'll sell one

thousand shares to see how the market takes it. But suppose that

of the order to buy the four thousand shares that I put in when

the price was 113-3/4 I get two thousand at 114 and five hundred

at 114-1/2 and the rest on the way up so that for the last five

hundred I pay 115-1/2. Then I know I am right. It is the way I

get the four thousand shares that tells me whether I am right in

buying that particular stock at that particular time for of

course I am working on the assumption that I have checked up

general conditions pretty well and they are bullish. I never

want to buy stocks too cheap or too easily.

I remember a story I heard about Deacon S. V. White when he

was one of the big operators of the Street. He was a very fine

old man, clever as they make them, and brave. He did some

wonderful things in his day, from all I've heard.

It was in the old days when Sugar was one of the most

continuous purveyors of fireworks in the market. H. O.

Havemeyer, president of the company, was in the heyday of his

power. I gather from talks with the old-timers that H. O. and

his following had all the resources of cash and cleverness

necessary to put through successfully any deal in their own

stock. They tell me that Havemeyer trimmed more small

professional traders in that stock than any other insider in any

other stock. As a rule, the floor traders are more likely to

thwart the insiders' game than help it.

One day a man who knew Deacon White rushed into the office

all excited and said, "Deacon, you told me if I ever got any

good information to come to you at once with it and if used it

you'd carry me for a few hundred shares." He paused for breath

and for confirmation.

The deacon looked at him in that meditative way he had and

said, "I don't know whether I ever told you exactly that or not,

but I am willing to pay for information that I can use."

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

"Now, that's nice," said the deacon, so mildly that the man

with the info swelled up and said, "Yes, sir, deacon." Then he

came closer so nobody else would hear and said, "H. O. Havemeyer

is buying Sugar."

"Is he?" asked the deacon quite calmly.

It peeved the informant, who said impressively: "Yes, sir.

Buying all he can get, deacon."

"My friend, are you sure?" asked old S. V.

"Deacon, I know it for a positive fact. The old inside gang

are buying all they can lay their hands on. It's got something

to do with the tariff and there's going to be a killing in the

common. It will cross the preferred. And that means a sure

thirty points for a starter."

"D' you really think so?" And the old man looked at him

over the top of the old-fashioned silver-rimmed spectacles that

he had put on to look at the tape.

"Do I think so? No, I don't think so; I know so. Abso-

lutely! Why, deacon, when H. O. Havemeyer and his friends buy

Sugar as they're doing now they're never satisfied with anything

less than forty points net. I shouldn't be surprised to see the

market get away from them any minute and shoot up before they've

got their full lines. There ain't as much of it kicking around

the brokers' offices as there was a month ago."

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

"Buying it? Why, he's scooping it in as fast as he can

without putting up the price on himself."

"So?" said the deacon. That was all.

But it was enough to nettle the tipster, and he said, "Yes,

sir-reel And I call that very good information. Why, it's

absolutely straight."

"Is it?"

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

to use it?"

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

"When?" asked the information bringer suspiciously.

"Right away." And the deacon called:.”Frank!" It was the

first name of his shrewdest broker, who was then in the

adjoining room.

"Yes, sir," said Frank.

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

Sugar."

"Sell?" yelled the tipster. There was such suffering in his

voice that Frank, who had started out at a run, halted in his

tracks.

"Why, yes," said the deacon mildly.

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

"I know you did, my friend," said the deacon calmly; and

turning to the broker: "Make haste, Frank!"

The broker rushed out to execute the order and the tipster

turned red.

"I came in here," he said furiously, "with the best

information I ever had. I brought it to you because I thought

you were my friend, and square. I expected you to act on it."

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

tranquillizing voice.

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

"That's right. I heard you."

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

"Yes, buying! That is what I understood you to say," the

deacon assured him. He was standing by the ticker, looking at

the tape.

"But you are selling it."

"Yes; ten thousand shares." And the deacon nodded. "Selling

it, of course."

He stopped talking to concentrate on the tape and the

tipster approached to see what the deacon saw, for the old man

was very foxy. While he was looking over the deacon's shoulder a

clerk came in with a slip, obviously the report from Frank. The

deacon barely glanced at it. He had seen on the tape how his

order had been executed.

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

thousand Sugar."

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

stock 1"

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

"Of course not! He never tells anybody anything. He would not

bat an eyelid to help his best friend make a nickel. But I know

this is true."

"Do not allow yourself to become excited, my friend." And

the deacon held up a hand. He was looking at the tape. The

tip-bringer said, bitterly "If I had known you were going to do

the opposite of what I expected I'd never have wasted your time

or mine. But I am not going to feel glad when you cover that

stock at an awful loss. I'm sorry for you, deacon. Honest l if

you'll excuse me I'll go elsewhere and act on my own

information."

"I'm acting on it. I think I know a little about the

market; not as much, perhaps, as you and your friend H. O. Have-

meyer, but still a little. What I am doing is what my experience

tells me is the wise thing to do with the information you

brought me. After a man has been in Wall Street as long as I

have he is grateful for anybody who feels sorry for him. Remain

calm, my friend."

The man just stared at the deacon, for whose judgment and

nerve he had great respect.

Pretty soon the clerk came in again and handed a report to

the deacon, who looked at it and said: "Now tell him to buy

thirty thousand Sugar. Thirty thousand 1"

The clerk hurried away and the tipster just grunted and

looked at the old gray fox.

"My friend," the deacon explained kindly, "I did not doubt

that you were telling me the truth as you saw it. But even if I

had heard H. O. Havemeyer tell you himself, I still would have

acted as I did. For there was only one way to find out if

anybody was buying the stock in the way you said H. O. Havemeyer

and his friends were buying it, and that was to do what I did.

The first ten thousand shares went fairly easily. It was not

quite conclusive. But the second ten thousand was absorbed by a

market that did not stop rising. The way the twenty thousand

shares were taken by somebody proved to me that somebody was in

truth willing to take all the stock that was offered. It doesn't

particularly matter at this point who that particular somebody

may be. So I have covered my shorts and am long ten thousand

shares, and I think that your information was good as far as it

went."

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

"You have five hundred shares in this office at the average

price of the ten thousand shares," said the deacon. "Good day,

my friend. Be calm the next time."

"Say, deacon," said the tipster, "won't you please sell

mine when you sell yours? I don't know as much as I thought I

did."

That's the theory. That is why I never buy stocks cheap. Of

course I always try to buy effectively in such a way as to help

my side of the market. When it comes to selling stocks, it is

plain that nobody can sell unless somebody wants those stocks.

If you operate on a large scale you will have to bear that

in mind all the time. A man studies conditions, plans his

operations carefully and proceeds to act. He swings a pretty

fair line and he accumulates a big profit on paper. Well, that

man can't sell at will. You can't expect the market to absorb

fifty thousand shares of one stock as easily as it does one

hundred. He will have to wait until he has a market there to

take it. There comes the time when he thinks the requisite

buying power is there. When that opportunity comes he must seize

it. As a rule he will have been waiting for it. He has to sell

when he can, not when he wants to. To learn the time, he has to

watch and test. It is no trick to tell when the market can take

what you give it. But in starting a movement it is unwise to

take on your full line unless you are convinced that conditions

are exactly right. Remember that stocks are never too high for

you to begin buying or too low to begin selling. But after the

initial transaction, don't make a second unless the first shows

you a profit. Wait and watch. That is where your tape reading

comes into enable you to decide as to the proper time for

beginning. Much depends upon beginning at exactly the right

time. It took me years to realize the importance of this. It

also cost me some hundreds of thousands of dollars.

I don't mean to be understood as advising persistent pyra-

miding. A man can pyramid and make big money that he couldn't

make if he didn't pyramid; of course. But what I meant to say

was this: Suppose a man's line is five hundred shares of stock.

I say that he ought not to buy it all at once; not if he is

speculating. If he is merely gambling the only advice I have to

give him is, don't!

Suppose he buys his first hundred, and that promptly shows

him a loss. Why should he go to work and get more stock? He

ought to see at once that he is in wrong; at least temporarily.

CHAPTER VIII

THE Union Pacific incident in Saratoga in the summer of 1906

made me more independent than ever of tips and talk that is, of

the opinions and surmises and suspicions of other people,

however friendly or however able they might be personally.

Events, not vanity, proved for me that I could read the tape

more accurately than most of the people about me. I also was

better equipped than the average customer of Harding Brothers in

that I was utterly free from speculative prejudices. The bear

side doesn't appeal to me any more than the bull side, or vice

versa. My one steadfast prejudice is against being wrong.

Even as a lad I always got my own meanings out of such

facts as I observed. It is the only way in which the meaning

reaches me. I cannot get out of facts what somebody tells me to

get. They are my facts, don't you see? If I believe something

you can be sure it is because I simply must. When I am long of

stocks it is because my reading of conditions has made me

bullish. But you find many people, reputed to be intelligent,

who are bullish because they have stocks. I do not allow my

possessions or my prepossessions either to do any thinking for

me. That is why I repeat that I never argue with the tape. To be

angry at the market because it unexpectedly or even illogically

goes against you is like getting mad at your lungs because you

have pneumonia.

I had been gradually approaching the full realization of

how much more than tape reading there was to stock speculation.

Old man Partridge's insistence on the vital importance of being

continuously bullish in a bull market doubtless made my mind

dwell on the need above all other things of determining the kind

of market a man is trading in. I began to realize that the big

money must necessarily be in the big swing. Whatever might seem

to give a big swing, initial impulse, the fact is that its

continuance is not the result of manipulation by pools or

artifice by financiers, but depends upon basic conditions. And

no matter who opposes it, the swing must inevitably run as far

and as fast and as long as the impelling forces determine.

After Saratoga I began to see more clearly perhaps I should

say more maturely that since the entire list moves in accordance

with the main current there was not so much need as I had

imagined to study individual plays or the behaviour of this or

the other stock. Also, by thinking of the swing a man was not

limited in his trading. He could buy or sell the entire list. In

certain stocks a short line is dangerous after a man sells more

than a certain percentage of the capital stock, the amount

depending upon how, where and by whom the stock is held. But he

could sell a million shares of the general list if he had the

price without the danger of being squeezed. A great deal of

money used to be made periodically by insiders in the old days

out of the shorts and their carefully fostered fears of corners

and squeezes.

Obviously the thing to do was to be bullish in a bull

market and bearish in a bear market. Sounds silly, doesn't it?

But I had to grasp that general principle firmly before I saw

that to put it into practice really meant to anticipate

probabilities. It took me a long time to learn to trade on those

lines. But in justice to myself I must remind you that up to

then I had never had a big enough stake to speculate that way. A

big swing will mean big money if your line is big, and to be

able to swing a big line you need a big balance at your

broker's.

I always had or felt that I had to make my daily bread out

of the stock market. It interfered with my efforts to increase

the stake available for the more profitable but slower and

therefore more immediately expensive method of trading on

swings.

But now not only did my confidence in myself grow stronger

but my brokers ceased to think of me as a sporadically lucky Boy

Plunger. They had made a great deal out of me in commissions,

but now I was in a fair way to become their star customer and as

such to have a value beyond the actual volume of my trading. A

customer who makes money is an asset to any broker's office.

The moment I ceased to be satisfied with merely studying

the tape I ceased to concern myself exclusively with the daily

fluctuations in specific stocks, and when that happened I simply

had to study the game from a different angle. I worked back from

the quotation to first principles; from price fluctuations to

basic conditions.

Of course I had been reading the daily dope regularly for a

long time. All traders do. But much of it was gossip, some of it

deliberately false, and the rest merely the personal opinion of

the writers. The reputable weekly reviews when they touched upon

underlying conditions were not entirely satisfactory to me. The

point of view of the financial editors was not mine as a rule.

It was not a vital matter for them to marshal their facts and

draw their conclusions from them, but it was for me. Also there

was a vast difference in our appraisal of the element of time.

The analysis of the week that had passed was less important to

me than the forecast of the weeks that were to come.

For years I had been the victim of an unfortunate

combination of inexperience, youth and insufficient capital. But

now I felt the elation of a discoverer. My new attitude toward

the game explained my repeated failures to make big money in New

York.

But

now

with

adequate

resources,

experience

and

confidence, I was in such a hurry to try the new key that I did

not notice that there was another lock on the door time lock! It

was a perfectly natural oversight. I had to pay the usual

tuition a good whack per each step forward.

I studied the situation in 1906 and I thought that the

money outlook was particularly serious. Much actual wealth the

world over had been destroyed. Everybody must sooner or later

feel the pinch, and therefore nobody would be in position to

help anybody. It would not be the kind of hard times that comes

from the swapping of a house worth ten thousand dollars for a

carload of racehorses worth eight thousand dollars. It was the

complete destruction of the house by fire and of most of the

horses by a railroad wreck. It was good hard cash that went up

in cannon smoke in the Boer War, and the millions spent for

feeding nonproducing soldiery in South Africa meant no help from

British investors as in the past. Also, the earthquake and the

fire in San Francisco and other disasters touched everybody --

manufacturers, farmers, merchants, labourers and millionaires.

The railroads must suffer greatly. I figured that nothing could

stave off one peach of a smash. Such being the case there was

but one thing to do sell stocks!

I told you I had already observed that my initial

transaction, after I made up my mind which way I was going to

trade, was apt to show me a profit. And now when I decided to

sell I plunged. Since we undoubtedly were entering upon a

genuine bear market I was sure I should make the biggest killing

of my career.

The market went off. Then it came back. It shaded off and

then it began to advance steadily. My paper profits vanished and

my paper losses grew. One day it looked as if not a bear would

be left to tell the tale of the strictly genuine bear market. I

couldn't stand the gaff. I covered. It was just as well. If I

hadn't I wouldn't have had enough left to buy a postal card. I

lost most of my fur, but it was better to live to fight another

day.

I had made a mistake. But where? I was bearish in a bear

market. That was wise. I had sold stocks short. That was proper.

I had sold them too soon. That was costly. My position was right

but my play was wrong. However, every day brought the market

nearer to the inevitable smash. So I waited and when the rally

began to falter and pause I let them have as much stock as my

sadly diminished margins permitted. I was right this time for

exactly one whole day, for on the next there was another rally.

Another big bite out of yours truly! So I read the tape and

covered and waited. In due course I sold again and again they

went down promisingly and then they rudely rallied.

It looked as if the market were doing its best to make me

go back to my old and simple ways of bucket-shop trading. It was

the first time I had worked with a definite forward looking plan

embracing the entire market instead of one or two stocks. I

figured that I must win if I held out. Of course at that time I

had not developed my system of placing my bets or I would have

put out my short line on a declining market, as I explained to

you the last time. I would not then have lost so much of my

margin. I would have been wrong but not hurt. You see, I had

observed certain facts but had not learned to co-ordinate them.

My incomplete observation not only did not help but actually

hindered.

I have always found it profitable to study my mistakes.

Thus I eventually discovered that it was all very well not to

lose your bear position in a bear market, but that at all times

the tape should be read to determine the propitiousness of the

time for operating. If you begin right you will not see your

profitable position seriously menaced; and then you will find no

trouble in sitting tight.

Of course today I have greater confidence in the accuracy

of my observations in which neither hopes nor hobbies play any

part and also I have greater facilities for verifying my facts

as well as 'for variously testing the correctness of my views.

But in i9o6 the succession of rallies dangerously impaired my

margins.

I was nearly twenty-seven years old. I had been at the game

twelve years. But the first time I traded because of a crisis

that was still to come I found that I had been using a

telescope. Between my first glimpse of the storm cloud and the

time for cashing in on the big break the stretch was evidently

so much greater than I had thought that I began to wonder

whether I really saw what I thought I saw so clearly. We had had

many warnings and sensational ascensions in call money rates.

Still some of the great financiers talked hopefully at least to

newspaper reporters and the ensuing rallies in the stock market

gave the lie to the calamity howlers. Was I fundamentally wrong

in being bearish or merely temporarily wrong in having begun to

sell short too soon?

I decided that I began too soon, but that I really couldn't

help it. Then the market began to sell off. That was my

opportunity. I sold all I could, and then stocks rallied again,

to quite a high level.

It cleaned me out.

There I was -- right and busted!

I tell you it was remarkable. What happened was this I

looked ahead and saw a big pile of dollars. Out of it stuck a

sign. It had "Help yourself," on it, in huge letters. Beside it

stood a cart with "Lawrence Livermore Trucking Corporation"

painted on its side. I had a brand-new shovel in my hand. There

was not another soul in sight, so I had no competition in the

gold-shoveling, which is one beauty of seeing the dollar-heap

ahead of others. The people who might have seen it if they had

stopped to look were just then looking at baseball games

instead, or motoring or buying houses to be paid for with the

very dollars that I saw. That was the first time that I had seen

big money ahead, and I naturally started toward it on the run.

Before I could reach the dollar-pile my wind went back on me and

I fell to the ground. The pile of dollars was still there, but I

had lost the shovel, and the wagon was gone. So much for

sprinting too soon ! I was too eager to prove to myself that I

had seen real dollars and not a mirage. I saw, and knew that I

saw. Thinking about the reward for my excellent sight kept me

from considering the distance to the dollar-heap. I should have

walked and not sprinted.

That is what happened. I didn't wait to determine whether or not

the time was right for plunging on the bear side. On the one

occasion when I should have invoked the aid of my tape-reading I

didn't do it. That is how I came to learn that even when one is

properly bearish at the very beginning of a bear market it is

well not to begin selling in bulk until there is no danger of

the engine back-firing.

I had traded in a good many thousands of shares at Hard-

ing's

office

in

all

those years, and,

moreover, the firm had

confidence in me

and our relations were

of

the

pleasantest. I think they felt that I was bound to be right

again very shortly and they knew that with my habit of pushing

my luck all I needed was a start and I'd more than recover what

I had lost

They had made a great deal of money out of my trading and

they would make more. So there was no trouble about my being

able to trade there again as long as my credit stood high.

The succession of spankings I had received made me less

aggressively cocksure; perhaps I should say less careless, for

of course I knew I was just so much nearer to the smash. All I

could do was wait watchfully, as I should have done before

plunging. It wasn't a case of locking the stable after the horse

was stolen. I simply had to be sure, the next time I tried. If a

man didn't make mistakes he'd own the world in a month. But if

he didn't profit by his mistakes he wouldn't own a blessed

thing.

Well, sir, one fine morning I came downtown feeling cock-

sure once more. There wasn't any doubt this time. I had read an

advertisement in the financial pages of all the newspapers that

was the high sign I hadn't had the sense to wait for before

plunging. It was the announcement of a new issue of stock by the

Northern Pacific and Great Northern roads. The payments were to

be made on the installment plan for the convenience of the

stockholders. This consideration was something new in Wall

Street. It struck me as more than ominous.

For years the unfailing bull item on Great Northern pre-

ferred had been the announcement that another melon was to be

cut, said melon consisting of the right of the lucky

stockholders to subscribe at par to a new issue of Great

Northern stock. These rights were valuable, since the market

price was always way above par. But now the money market was

such that the most powerful banking houses in the country were

none too sure the stockholders would be able to pay cash for the

bargain. And Great Northern preferred was selling at about 330!

As soon as I got to the office I told Ed Harding, "The time

to sell is right now. This is when I should have begun. Just

look at that ad, will you?"

He had seen it. I pointed out what the bankers' confession

amounted to in my opinion, but he couldn't quite see the big

break right on top of us. He thought it better to wait before

putting out a very big short line by reason of the market's

habit of having big rallies. If I waited prices might be lower,

but the operation would be safer.

"Ed," I said to him, "the longer the delay in starting the

sharper the break will be when it does start. That ad is a

signed confession on the part of the bankers. What they fear is

what I hope. This is a sign for us to get aboard the bear wagon.

It is all we needed. If I had ten million dollars I'd stake

every cent of it this minute."

I had to do some more talking and arguing. He wasn't

content with the only inferences a sane man could draw from that

amazing advertisement. It was enough for me, but not for most of

the people in the office. I sold a little; too little.

A few days later St. Paul very kindly came out with an

announcement of an issue of its own; either stock or notes, I

forget which. But that doesn't matter. What mattered then was

that I noticed the moment I read it that the date of payment was

set ahead of the Great Northern and Northern Pacific payments,

which had been announced earlier. It was as plain as though they

had used a megaphone that grand old St. Paul was trying to beat

the two other railroads to what little money there was floating

around in Wall Street. The St. Paul's bankers quite obviously

feared that there wasn't enough for all three and they were not

saying, "After you, my dear Alphonse!" If money already was that

scarce and you bet the bankers knew-what would it be later? The

railroads needed it desperately. It wasn't there. What was the

answer?

Sell 'em! Of course! The public, with their eyes fixed on

the stock market, saw little that week. The wise stock operators

saw much that year. That was the difference.

For me, that was the end of doubt and hesitation. I made up

my mind for keeps then and there. That same morning I began what

really was my first campaign along the lines that I have since

followed. I told Harding what I thought and how I stood, and he

made no objections to my selling Great Northern preferred at

around 330, and other stocks at high prices. I profited by my

earlier and costly mistakes and sold more intelligently.

My reputation and my credit were reestablished in a jiffy.

That is the beauty of being right in a broker's office, whether

by accident or not. But this time I was cold-bloodedly right,

not because of a hunch or from skilful reading of the tape, but

as the result of my analysis of conditions affecting the stock

market in general. I wasn't guessing. I was anticipating the

inevitable. It did not call for any courage to sell stocks. I

simply could not see anything but lower prices, and I had to act

on it, didn't I? What else could I do?

The whole list was soft as mush. Presently there was a

rally and people came to me to warn me that the end of the

decline had been reached. The big fellows, knowing the short

interest to be enormous, had decided to squeeze the stuffing out

of the bears, and so forth. It would set us pessimists back a

few millions. It was a cinch that the big fellows would have no

mercy. I used to thank these kindly counselors. I wouldn't even

argue, because then they would have thought that I wasn't

grateful for the warnings.

The friend who had been in Atlantic City with me was in

agony. He could understand the hunch that was followed by the

earthquake. He couldn't disbelieve in such agencies, since I had

made a quarter of a million by intelligently obeying my blind

impulse to sell Union Pacific. He even said it was Providence

working in its mysterious way to make me sell stocks when he

himself was bullish. And he could understand my second UP. trade

in Saratoga because he could understand any deal that involved

one stock, on which the tip definitely fixed the movement in

advance, either up or down. But this thing of predicting that

all stocks were bound to go down used to exasperate him. What

good did that kind of dope do anybody? How in blazes could a

gentleman tell what to do?

I recalled old Partridge's favourite remark -- "Well, this

is a bull market, you know" -- as though that were tip enough

for anybody who was wise enough; as in truth it was. It was very

curious how, after suffering tremendous losses from a break of

fifteen or twenty points, people who were still hanging on,

welcomed a three-point rally and were certain the bottom had

been reached and complete recovery begun.

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

covered?"

"Why should I?" I said

"For the best reason in the world."

"What reason is that?"

"To make money. They've touched bottom and what goes down

must come up. Isn't that so?"

"Yes," I answered. "First they sink to the bottom. Then

they come up; but not right away. They've got to be good and

dead a couple of days. It isn't time for these corpses to rise

to the surface. They are not quite dead yet."

An old-timer heard me. He was one of those chaps that are

always reminded of something. He said that William R. Travers,

who was bearish, once met a friend who was bullish. They

exchanged market views and the friend said, "Mr. Travers, how

can you be bearish with the market so stiff?" and Travers

retorted, "Yes! Th-the s-s-stiffness of d-death!" It was Travers

who went to the office of a company and asked to be allowed to

see the booxs. The clerk asked him, "Have you an interest in

this company?" and Travers answered, "I sh-should s-say I had!

I'm sh-short t-t-twenty thousand sh-shares of the stock !"

Well, the rallies grew feebler and feebler. I was pushing

my luck for all I was worth. Every time I sold a few thousand

shares of Great Northern preferred the price broke several

points. I felt out weak spots elsewhere and let 'em have a few.

All yielded, with one impressive exception; and that was

Reading.

When everything else hit the toboggan slide Reading stood

like the Rock of Gibraltar. Everybody said the stock was

cornered. It certainly acted like it. They used to tell me it

was plain suicide to sell Reading short. There were people in

the office who were now as bearish on everything as I was. But

when anybody hinted at selling Reading they shrieked for help. I

myself had sold some short and was standing pat on it. At the

same time I naturally preferred to

seek and hit the soft spots instead of attacking the more

strongly protected specialties. My tape reading found easier

money for me in other stocks.

I heard a great deal about the Reading bull pool. It was a

mighty strong pool. To begin with they had a lot of low-priced

stock, so that their average was actually below the prevailing

level, according to friends who told me. Moreover, the principal

members of the pool had close connections of the friendliest

character with the banks whose money they were using to carry

their huge holdings of Reading. As long as the price stayed up

the bankers' friendship was staunch and steadfast. One pool

member's paper profit was upward of three millions. That allowed

for some decline without causing fatalities. No wonder the stock

stood up and defied the bears. Every now and then the room

traders looked at the price, smacked their lips and proceeded to

test it with a thousand shares or two. They could not dislodge a

share, so they covered and went looking elsewhere for easier

money. Whenever I looked at it, I also sold a little more --

just enough to convince myself that I was true to my new trading

principles and wasn't playing favourites.

In the old days the strength of Reading might have fooled

me. The tape kept on saying, "Leave it alone!" But my reason

told me differently. I was anticipating a general break, and

there were not going to be any exceptions, pool or no pool.

I have always played a lone hand. I began that way in the

bucket shops and have kept it up. It is the way my mind works. I

have to do my own seeing and my own thinking. But I can tell you

after the market began to go my way I felt for the first time in

my life that I had allies -- the strongest and truest in the

world: underlying conditions. They were helping me with all

their might. Perhaps they were a trifle slow at times in

bringing up the reserves, but they were dependable, provided I

did not get too impatient. I was not pitting my tape-reading

knack or my hunches against chance. The inexorable logic of

events was making money for me.

The thing was to be right; to know it and to act

accordingly. General conditions, my true allies, said "Down!"

and Reading disregarded the command. It was an insult to us. It

began to annoy me to see Reading holding firmly, as though

everything were serene. It ought to be the best short sale in

the entire list because it had not gone down and the pool was

carrying a lot of stock that it would not be able to carry when

the money stringency grew more pronounced. Some day the bankers'

friends would fare no better than the friendless public. The

stock must go with the others. If Reading didn't decline, then

my theory was wrong; I was wrong; facts were wrong; logic was

wrong.

I figured that the price held because the Street was afraid

to sell it. So one day I gave to two brokers each an order to

sell four thousand shares, at the same time.

You ought to have seen that cornered stock, that it was sure

suicide to go short of, take a headlong dive when those com-

petitive orders struck it. I let 'em have a few thousand more.

The price was 111 when I started selling it. Within a few

minutes I took in my entire short line at 92.

I had a wonderful time after that, and in February of 1907 I

cleaned up. Great Northern preferred had gone down sixty or

seventy points, and other stocks in proportion. I had made a

good bit, but the reason I cleaned up was that I figured that

the decline had discounted the immediate future. I looked for a

fair recovery, but I wasn't bullish enough to play for a turn. I

wasn't going to lose my position entirely. The market would not

be right for me to trade in for a while. The first ten thousand

dollars I made in the bucket shops I lost because I traded in

and out of season, every day, whether or not conditions were

right. I wasn't making that mistake twice. Also, don't forget

that I had gone broke a little while before because I had seen

this break too soon and started selling before it was time. Now

when I had a big profit I wanted to cash in so that I could feel

I had been right. The rallies had broken me before. I wasn't

going to let the next rally wipe me out. Instead of sitting

tight I went to Florida. I love fishing and I needed a rest. I

could get both down there. And besides, there are direct wires

between Wall Street and Palm Beach.

CHAPTER IX

CRUISED off the coast of Florida. The fishing was good. I was

out of stocks. My mind was easy. I was having a fine time. One

day off Palm Beach some friends came alongside in a motor boat.

One of them brought a newspaper with him. I hadn't looked at one

in some days and had not felt any desire to see one. I was not

interested in any news it might print. But I glanced over the

one my friend brought to the yacht, and I saw that the market

had had a big rally; ten points and more.

I told my friends that I would go ashore with them. Mod-

erate rallies from time to time were reasonable. But the bear

market was not over; and here was Wall Street or the fool public

or desperate bull interests disregarding monetary conditions and

marking up prices beyond reason or letting somebody else do it.

It was too much for me. I simply had to take a look at the

market. I didn't know what I might or might not do. But I knew

that my pressing need was the sight of the quotation board.

My brokers, Harding Brothers, had a branch office in Palm

Beach. When I walked in I found there a lot of chaps I knew.

Most of them were talking bullish. They were of the type that

trade on the tape and want quick action. Such traders don't care

to look ahead very far because they don't need to with their

style of play. I told you how I'd got to be known in the New

York office as the Boy Plunger. Of course people always magnify

a fellow's winnings and the size of the line he swings. The

fellows in the office had heard that I had made a killing in New

York on the bear side and they now expected that I again would

plunge on the short side. They themselves thought the rally

would go to a good deal further, but they rather considered it

my duty to fight it.

I had come down to Florida on a fishing trip. I had been

under a pretty severe strain and I needed my holiday. But the

moment I saw how far the recovery in prices had gone I no longer

felt the need of a vacation. I had not thought of just what I

was going to do when I came ashore. But now I knew I must sell

stocks. I was right, and I must prove it in my old and only way

by saying it with money. To sell the general list would be a

proper, prudent, profitable and even patriotic action.

The first thing I saw on the quotation board was that

Anaconda was on the point of crossing 300. It had been going. up

by leaps and bounds and there was apparently an aggressive bull

party in it. It was an old trading theory of mine that when a

stock crosses 100 or 200 or 300 for the first time the price

does not stop at the even figure but goes a good deal higher, so

that if you buy it as soon as it crosses the line it is almost

certain to show you a profit. Timid people don't like to buy a

stock at a new high record. But I had the history of such

movements to guide me.

Anaconda was only quarter stock -- that is, the par of the

shares was only twenty-five dollars. It took four hundred shares

of it to equal the usual one hundred shares of other stocks, the

par value of which was one hundred dollars. I figured that when

it crossed 300 it ought to keep on going and probably touch 340

in a jiffy.

I was bearish, remember, but I was also a tape-reading

trader. I knew Anaconda, if it went the way I figured, would

move very quickly. Whatever moves fast always appeals to me. I

have learned patience and how to sit tight, but my personal

preference is for fleet movements, and Anaconda certainly was no

sluggard. My buying it because it crossed 300 was prompted by

the desire, always strong in me, of confirming my observations.

Just then the tape was saying that the buying was stronger

than the selling, and therefore the general rally might easily

go a bit further. It would be prudent to wait before going

short. Still I might as well pay myself wages for waiting. This

would be accomplished by taking a quick thirty points out of

Anaconda. Bearish on the entire market and bullish on that one

stock! So I bought thirty-two thousand shares of Anaconda --

that is, eight thousand full shares. It was a nice little flyer

but I was sure of my premises and I figured that the profit

would help to swell the margin available for bear operations

later on.

On the next day the telegraph wires were down on account of

a storm up North or something of the sort. I was in Harding's

office waiting for news. The crowd was chewing the rag and

wondering all sorts of things, as stock traders will when they

can't trade. Then we got a quotation, the only one that day:

Anaconda, 292.

There was a chap with me, a broker I had met in New York.

He knew I was long eight thousand full shares and I suspect that

he had some of his own, for when we got that one quotation he

certainly had a fit. He couldn't tell whether the stock at that

very moment had gone off another ten points or not. The way

Anaconda had gone up it wouldn't have been anything unusual for

it to break twenty points. But I said to him, "Don't you worry,

John. It will be all right tomorrow." That was really the way I

felt. But he looked at me and shook his head. He knew better. He

was that kind. So I laughed, and I waited in the office in case

some quotation trickled through. But no, sir. That one was all

we got: Anaconda, 292. It meant a paper loss to me of nearly one

hundred thousand dollars. I had wanted quick action. Well, I was

getting it.

The next day the wires were working and we got the

quotations as usual. Anaconda opened at 298 and went up to

3ozY4, but pretty soon it began to fade away. Also, the rest of

the market was not acting just right for a further rally. I made

up my mind that if Anaconda went back to 301 I must consider the

whole thing a fake movement. On a legitimate advance the price

should have gone to 310 without stopping. If instead it reacted

it meant that precedents had failed me and I was wrong; and the

only thing to do when a man is wrong is to be right by ceasing

to be wrong. I had bought eight thousand full shares in

expectation of a thirty or forty point rise. It would not be my

first mistake; nor my last.

Sure enough, Anaconda fell back to 301. The moment it

touched that figure I sneaked over to the telegraph operator -

they had a direct wire to the New York office and I said to him,

"Sell all my Anaconda, eight thousand full shares." I said it in

a low voice. I didn't want anybody else to know what I was

doing.

He looked up at me almost in horror. But I nodded and said,

"All I've got!"

"Surely, Mr. Livermore, you don't meant at the market?" and

he looked as if he was going to lose a couple of millions of his

own through bum execution by a careless broker. But I just told

him, "Sell it! Don't argue about it!"

The two Black boys, Jim and Ollie, were in the office, out

of hearing of the operator and myself. They were big traders who

had come originally from Chicago, where they had been famous

plungers in wheat, and were now heavy traders on the New York

Stock Exchange. They were very wealthy and were high rollers for

fair.

As I left the telegraph operator to go back to my seat in

front of the quotation board Oliver Black nodded to me and

smiled.

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

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

"Tomorrow you'll be buying it back."

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

telegraph operator.

"Anaconda," he said. "You'll be paying 320 for it. That

wasn't a good move of yours, Larry." And he smiled again.

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

"Selling your eight thousand Anaconda at the market; in

fact, insisting on it," said Ollie Black.

I knew that he was supposed to be very clever and always

traded on inside news. But how he knew my business so accurately

was beyond me. I was sure the office hadn't given me away.

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

He laughed and told me: "I got it from Charlie Kratzer."

That was the telegraph operator.

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

"I couldn't hear you and him whispering," he chuckled. "But

I heard every word of the message he sent to the New York office

for you. I learned telegraphy years ago after I had a big row

over a mistake in a message. Since then when I do what you did

just now -- give an order by word of mouth to an operator -- I

want to be sure the operator sends the message as I give it to

him. I know what he sends in my name. But you will be sorry you

sold that Anaconda. It's going to 500."

"Not this trip, Ollie," I said.

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

"Not I ; the tape," I said. There wasn't any ticker there

so there wasn't any tape. But he knew what I meant.

"I've heard of those birds," he said, "who look at the tape

and instead of seeing prices they see a railroad timetable of

the arrival and departure of stocks. But they were in padded

cells where they couldn't hurt themselves."

I didn't answer him anything because about that time the

boy brought me a memorandum. They had sold five thousand shares

at 299Y4. I knew our quotations were a little behind the market.

The price on the board at Palm Beach when I gave the operator

the order to sell was 30 1 - I felt so certain that at that very

moment the price at which the stock was actually selling on the

Stock Exchange in New York was less, that if anybody had offered

to take the stock off my hands at 296 I'd have been tickled to

death to accept. What happened shows you that I am right in

never trading at limits. Suppose I had limited my selling price

to 300? I'd never have got it off. No, sir! When you want to get

out, get out.

Now, my stock cost me about 300. They got off five hundred

shares -- full shares, of course, at 299-3/4. The next thousand

they sold at 299-5/8. Then a hundred at 1/2; two hundred at 3/8

and two hundred at 1/4. The last of my stock went at 298-3/4. It

took Harding's cleverest floor man fifteen minutes to get rid of

that last one hundred shares. They didn't want to crack it wide

open.

The moment I got the report of the sale of the last of my

long stock I started to do what I had really come ashore to do -

that is, to sell stocks. I simply had to. There was the market

after its outrageous rally, begging to be sold. Why, people were

beginning to talk bullish again. The course of the market,

however, told me that the rally had run its course. It was safe

to sell them. It did not require reflection.

The next day Anaconda opened below 296. Oliver Black, who

was waiting for a further rally, had come down early to be

Johnny-on-the-spot when the stock crossed 320. I don't know how

much of it he was long of or whether he was long of it at all.

But he didn't laugh when he saw the opening prices, nor later in

the day when the stock broke still more and the report came back

to us in Palm Beach that there was no market for it at all.

Of course that was all the confirmation any man needed. My

growing paper profit kept reminding me that I was right, hour by

hour. Naturally I sold some more stocks. Everything! It was a

bear market. They were all going down. The next day was Friday,

Washington's Birthday. I couldn't stay in Florida and fish

because I had put out a very fair short line, for me. I was

needed in New York. Who needed me? I did! Palm Beach was too

far, too remote. Too much valuable time was lost telegraphing

back and forth.

I left Palm Beach for New York. On Monday I had to lie in

St. Augustine three hours, waiting for a train. There was a

broker's office there, and naturally I had to see how the market

was acting while I was waiting. Anaconda had broken several

points since the last trading day. As a matter of fact, it

didn't stop going down until the big break that fall.

I got to New York and traded on the bear side for about

four months. The market had frequent rallies as before, and I

kept covering and putting them out again. I didn't, strictly

speaking, sit tight. Remember, I had lost every cent of the

three hundred thousand dollars I made out of the San Francisco

earthquake break. I had been right, and nevertheless had gone

broke. I was now playing safe, because after being down a man

enjoys being up, even if he doesn't quite make the top. The way

to make money is to make it. The way to make big money is to be

right at exactly the right time. In this business a man has to

think of both theory and practice. A speculator must not be

merely a student, he must be both a student and a speculator.

I did pretty well, even if I can now see where my campaign

was tactically inadequate. When summer came the market got dull.

It was a cinch that there would be nothing doing in a big way

until well along in the fall. Everybody I knew had gone or was

going to Europe. I though that would be a good move for me. So I

cleaned up. When I sailed for Europe I was a trifle more than

three-quarters of a million to the good. To me that looked like

some balance.

I was in Aix-les-Bains enjoying myself. I had earned my

vacation. It was good to be in a place like that with plenty of

money and friends and acquaintances and everybody intent upon

having a good time. Not much trouble about having that, in Aix.

Wall Street was so far away that I never thought about it, and

that is more than I could say of any resort in the United

States. I didn't have to listen to talk about the stock market.

I didn't need to trade. I had enough to last me quite a long

time, and besides, when I got back I knew what to do to make

much more than I could spend in Europe that summer.

One day I saw in the Paris Herald a dispatch from New York

that Smelters had declared an extra dividend. They had run up

the price of the stock and the entire market had come back quite

strong. Of course that changed everything for me in Aix. The

news simply meant that the bull cliques were still fighting

desperately against conditions -- against common sense and

against common honesty, for they knew what was coming and were

resorting to such schemes to put up the market in order to

unload stocks before the storm struck them. It is possible they

really did not believe the danger was as serious or as close at

hand as I thought. The big men of the Street are as prone to be

wishful thinkers as the politicians or the plain suckers. I

myself can't work that way. In a speculator such an attitude is

fatal. Perhaps a manufacturer of securities or a promoter of new

enterprises can afford to indulge in hope-jags.

At all events, I knew that all bull manipulation was '

foredoomed to failure in that bear market. The instant I read

the dispatch I knew there was only one thing to do to be com-

fortable, and that was to sell Smelters short. Why, the insiders

as much as begged me on their knees to do it, when they

increased the dividend rate on the verge of a money panic. It

was as infuriating as the old "dares" of your boyhood. They

dared me to sell that particular stock short.

I cabled some selling orders in Smelters and advised my

friends in New York to go short of it. When I got my report from

the brokers I saw the price they got was six points below the

quotations I had seen in the Paris Herald. It shows you what the

situation was.

My plans had been to return to Paris at the end of the

month and about three weeks later sail for New York, but as soon

as I received the cabled reports from my brokers I went back to

Paris. The same day I arrived I called at the steamship offices

and found there was a fast boat leaving for New York the next

day. I took it.

There I was, back in New York, almost a month ahead of my

original plans, because it was the most comfortable place to be

short of the market in. I had well over half a million in cash

available for margins. My return was not due to my being bearish

but to my being logical.

I sold more stocks. As money got tighter call-money rates

went higher and prices of stocks lower. I had foreseen it. At

first, my foresight broke me. But now I was right and

prospering. However, the real joy was in the consciousness that

as a trader I was at last on the right track. I still had much

to learn but I knew what to do. No more floundering, no more

half-right methods. Tape reading was an important part of the

game; so was beginning at the right time; so was sticking to

your position. But my greatest discovery was that a man must

study general conditions, to size them so as to be able to

anticipate probabilities. In short, I had learned that I had to

work for my money. I was no longer betting blindly or concerned

with mastering the technic of the game, but with earning my

successes by hard study and clear thinking. I also had found out

that nobody was immune from the danger of making sucker plays.

And for a sucker play a man gets sucker pay; for the paymaster

is on the job and never loses the pay envelope that is coming to

you.

Our office made a great deal of money. My own operations

were so successful that they began to be talked about and, of

course, were greatly exaggerated. i was credited with starting

the breaks in various stocks. People I didn't know by name used

to come and congratulate me. They all thought the most wonderful

thing was the money I had made. They did not say a word about

the time when I first talked bearish to them and they thought I

was a crazy bear with a stock-market loser's vindictive grouch.

That I had foreseen the money troubles was nothing. That my

brokers' bookkeeper had used a third of a drop of ink on the

credit side of the ledger under my name was a marvellous

achievement to them.

Friends used to tell me that in various offices the Boy Plunger

in Harding Brothers' office was quoted as making all sorts of

threats against the bull cliques that had tried to mark up

prices of various stocks long after it was plain that the market

was bound to seek a much lower level. To this day they talk of

my raids.

From the latter part of September on, the money market was

megaphoning warnings to the entire world. But a belief in

miracles kept people from selling what remained of their

speculative holdings. Why, a broker told me a story the first

week of October that made me feel almost ashamed of my.

moderation.

You remember that money loans used to be made on the floor

of the Exchange around the Money Post. Those brokers who had

received notice from their banks to pay call loans knew in a

general way how much money they would have to borrow afresh. And

of course the banks knew their position so far as loanable funds

were concerned, and those which had money to loan would send it

to the Exchange. This bank money was handled by a few brokers

whose principal business was time loans. At about noon the

renewal rate for the day was posted. Usually this represented a

fair average of the loans made up to that time. Business was as

a rule transacted openly by bids and offers, so that everyone

knew what was going on. Between noon and about two o'clock there

was ordinarily not much business done in money, but after

delivery time -- namely, 2:15 P.M. -- brokers would know exactly

what their cash position for the day would be, and they were

able either to go to the Money Post and lend the balances that

they had over or to borrow what they required. This business

also was done openly.

Well, sometime early in October the broker I was telling

you about came to me and told me that brokers were getting so

they didn't go to the Money Post when they had money to loan.

The reason was that members of a couple of well-known commission

houses were on watch there, ready to snap up any offerings of

money. Of course no lender who offered money publicly could

refuse to lend to these firms. They were solvent and the

collateral was good enough. But the trouble was that once these

firms borrowed money on call there was no prospect of the lender

getting that money back. They simply said they couldn't pay it

back and the lender would willy-nilly have to renew the loan. So

any Stock Exchange house that had money to loan to its fellows

used to send its men about the floor instead of to the Post, and

they would whisper to good friends, "Want a hundred?" meaning,

"Do you wish to borrow a hundred thousand dollars?" The money

brokers who acted for the banks presently adopted the same plan,

and it was a dismal sight to watch the Money Post. Think of it.

Why, he also told me that it was a matter of Stock Exchange

etiquette in those October days for the borrower to make his own

rate of interest. You see, it fluctuated between ioo and 150 per

cent per annum. I suppose by letting the borrower fix the rate

the lender in some strange way didn't feel so much like a

usurer. But you bet he got as much as the rest. The lender

naturally did not dream of not paying a high rate. He played

fair and paid whatever the others did. What he needed was the

money and was glad to get it.

Things got worse and worse. Finally there came the awful

day of reckoning for the bulls and the optimists and the wishful

thinkers and those vast hordes that, dreading the pain of a

small loss at the beginning, were now about to suffer total

amputation -- without anaesthetics. A day I shall never forget,

October 24, 1907.

Reports from the money crowd early indicated that borrowers

would have to pay whatever the lenders saw fit to ask. There

wouldn't be enough to go around. That day the money crowd was

much larger than usual. When delivery time came that afternoon

there must have been a hundred brokers around the Money Post,

each hoping to borrow the money that his firm urgently needed.

Without money they must sell what stocks they were carrying on

margin-sell at any price they could get in a market where buyers

were as scarce as moneyand just then there was not a dollar in

sight.

My friend's partner was as bearish as I was. The firm

therefore did not have to borrow, but my friend, the broker I

told you about, fresh from seeing the haggard faces around the

Money Post, came to me. He knew I was heavily short of the

entire market.

He said, "My God, Larry! I don't know what's going to happen. I

never saw anything like it. It can't go on. Something has got to

give. It looks to me as if everybody is busted right now. You

can't sell stocks, and there is absolutely no money in there."

"How do you mean?" I asked.

But what he answered was, "Did you ever hear of the class-

room experiment of the mouse in a glass-bell when they begin to

pump the air out of the bell? You can see the poor mouse breathe

faster and faster, its sides heaving like overworked bellows,

trying to get enough oxygen out of the decreasing supply in the

bell. You watch it suffocate till its eyes almost pop out of

their sockets, gasping, dying. Well, that is what I think of

when I see the crowd at the Money Post! No money anywhere, and

you can't liquidate stocks because there is nobody to buy them.

The whole Street is broke at this very moment, i f you ask me!"

It made me think. I had seen a smash coming, but not, I

admit, the worst panic in our history. It might not be profit-

able to anybody if it went much further.

Finally it became plain that there was no use in waiting at the

Post for money. There wasn't going to be any. Then hell broke

loose.

The president of the Stock Exchange, Mr. R. H. Thomas, so I

heard later in the day, knowing that every house in the Street

was headed for disaster, went out in search of succour. He

called on James Stillman, president of the National City Bank,

the richest bank in the United States. Its boast was that it

never loaned money at a higher rate than 6 per cent.

Stillman heard what the president of the New York Stock

Exchange had to say. Then he said, "Mr. Thomas, we'll have to go

and see Mr. Morgan about this."

The two men, hoping to stave off the most disastrous panic

in our financial history, went together to the office of J. P.

Morgan & Co. and saw Mr. Morgan. Mr. Thomas laid the case before

him. The moment he got through speaking Mr. Morgan said, "Go

back to the Exchange and tell them that there will be money for

them."

"Where?"

"At the banks!"

So strong was the faith of all men in Mr. Morgan in those

critical times that Thomas didn't wait for further details but

rushed back to the floor of the Exchange to announce the

reprieve to his death-sentenced fellow members.

Then, before half past two in the afternoon, J. P. Morgan

sent John T. Atterbury, of Van Emburgh & Atterbury, who was

known to have close relations with J. P. Morgan & Co., into the

money crowd. My friend said that the old broker walked quickly

to the Money Post. He raised his hand like an exhorter at a

revival meeting. The crowd, that at first had been calmed down

somewhat by President Thomas' announcement, was beginning to

fear that the relief plans had miscarried and the worst was

still to come. But when they looked at Mr. Atterbury's face and

saw him raise his hand they promptly petrified themselves.

In the dead silence that followed, Mr. Atterbury said, "I

am authorized to lend ten million dollars. Take it easy ! There

will be enough for everybody!"

Then he began. Instead of giving to each borrower the name

of the lender he simply jotted down the name of the borrower and

the amount of the loan and told the borrower, "You will be told

where your money is." He meant the name of the bank from which

the borrower would get the money later.

I heard a day or two later that Mr. Morgan simply sent word

to the frightened bankers of New York that they must provide the

money the Stock Exchange needed.

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

banks protested.

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

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

"Use them! That's what reserves are for!" And the banks

obeyed and invaded the reserves to the extent of about twenty

million dollars. It saved the stock market. The bank panic

didn't come until the following week. He was a man, J. P. Morgan

was. They don't come much bigger.

That was the day I remember most vividly of all the days of

my life as a stock operator. It was the day when my winnings

exceeded one million dollars. It marked the successful ending of

my first deliberately planned trading campaign. What I had

foreseen had come to pass. But more than all these things was

this: a wild dream of mine had been realised. I had been king

for a day!

I'll explain, of course. After I had been in New York a

couple of years I used to cudgel my brains trying to determine

the exact reason why I couldn't beat in a Stock Exchange house

in New York the game that I had beaten as a kid of fifteen in a

bucket shop in Boston. I knew that some day I would find out

what was wrong and I would stop being wrong. I would then have

not alone the will to be right but the knowledge to insure my

being right. And that would mean power.

Please do not misunderstand me. It was not a deliberate

dream of grandeur or a futile desire born of overweening vanity.

It was rather a sort of feeling that the same old stock market

that so baffled me in Fullerton's office and in Harding's would

one day eat out of my hand. I just felt that such a day would

come. And it did October 24, 1907.

The reason why I say it is this: That morning a broker who

had done a lot of business for my brokers and knew that I had

been plunging on the bear side rode down in the company of one

of the partners of the foremost banking house in the Street. My

friend told the banker how heavily I had been trading, for I

certainly pushed my luck to the limit. What is the use of being

right unless you get all the good possible i out of it?

Perhaps the broker exaggerated to make his story sound

important. Perhaps I had more of a following than I knew.

Perhaps the banker knew far better than I how critical the

situation was. At all events, my friend said to me: "He listened

with great interest to what I told him you said the market was

going to do when the real selling began, after another push or

two. When I got through he said he might have something for me

to do later in the day."

When the commission houses found out there was not a cent to be

had at any price I knew the time had come. I sent brokers into

the various crowds. Why, at one time there wasn't a single bid

for Union Pacific. Not at any price! Think of it! And in other

stocks the same thing. No money to hold stocks and nobody to buy

them.

I had enormous paper profits and the certainty that all

that I had to do to smash prices still more was to send in

orders to sell ten thousand shares each of Union Pacific and of

a half dozen other good dividend-paying stocks and what would

follow would be simply hell. It seemed to me that the panic that

would be precipitated would be of such an intensity and char-

acter that the board of governors would deem it advisable to

close the Exchange, as was done in August, 1914, when the World

War broke out.

It would mean greatly increased profits on paper. It also

mean an inability to convert those profits into actual cash. But

there were other things to consider, and one was that a further

break would retard the recovery that I was beginning to figure

on, the compensating improvement after all that bloodletting.

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

I made up my mind that since it was unwise and unpleasant

to continue actively bearish it was illogical for me to stay

short. So I turned and began to buy.

It wasn't long after my brokers began to buy in for meand,

by the way, I got bottom prices that the banker sent for my

friend.

"I have sent for you," he said, "because I want you to go

instantly to your friend Livermore and say to him that we hope

he will not sell any more stocks today. The market can't stand

much more pressure. As it is, it will be an immensely difficult

task to avert a devastating panic. Appeal to your friend's

patriotism. This is a case where a man has to work for the

benefit of all. Let me know at once what he says."

My friend came right over and told me. He was very tactful.

I suppose he thought that having planned to smash the market I

would consider his request as equivalent to throwing away the

chance to make about ten million dollars. He knew I was sore on

some of the big guns for the way they had acted trying to land

the public with a lot of stock when they knew as well as I did

what was coming.

As a matter of fact, the big men were big sufferers and

lots of the stocks I bought at the very bottom were in famous

financial names. I didn't know it at the time, but it did not

matter. I had practically covered all my shorts and it seemed to

me there was a chance to buy stocks cheap and help the needed

recovery in prices at the same time if nobody hammered the

market.

So I told my friend, "Go back and tell Mr. Blank that I

agree with them and that I fully realised the gravity of the

situation even before he sent for you. I not only will not sell

any more stocks today, but I am going in and buy as much as I

can carry." And I kept my word. I bought one hundred thousand

shares that day, for the long account. I did not sell another

stock short for nine months.

That is why I said to friends that my dream had come true

and that I had been king for a moment. The stock market at one

time that day certainly was at the mercy of anybody who wanted

to hammer it. I do not suffer from delusions of grandeur; in

fact you know how I feel about being accused of raiding the

market and about the way my operations are exaggerated by the

gossip of the Street.

I came out of it in fine shape. The newspapers said that

Larry Livermore, the Boy Plunger, had made several millions.

Well, I was worth over one million after the close of business

that day. But my biggest winnings were not in dollars but in the

intangibles: I had been right, I had looked ahead and followed a

clear-cut plan. I had learned what a man must do in order to

make big money; I was permanently out of the gambler class; I

had at last learned to trade intelligently in a big way. It was

a day of days for me.

CHAPTER X

THE recognition of our own mistakes should not benefit us any

more than the study of our successes. But there is a natural

tendency in all men to avoid punishment. When you associate

certain mistakes with a licking, you do not hanker for a second

dose, and, of course, all stock-market mistakes wound you in two

tender spots -- your pocketbook and your vanity. But I will tell

you something curious: A stock speculator sometimes makes

mistakes and knows that he is making them. And after he makes

them he will ask himself why he made them; and after thinking

over it cold-bloodedly a long time after the pain of punishment

is over he may learn how he came to make them, and when, and at

what particular point of his trade; but not why. And then he

simply calls himself names and lets it go at that.

Of course, if a man is both wise and lucky, he will not

make the same mistake twice. But he will make any one of the ten

thousand brothers or cousins of the original. The Mistake family

is so large that there is always one of them around when you

want to see what you can do in the fool-play line.

To tell you about the first of my million-dollar mistakes I

shall have to go back to this time when I first became a

millionaire, right after the big break of October, 1907. As far

as my trading went, having a million merely meant more reserves.

Money does not give a trader more comfort, because, rich or

poor, he can make mistakes and it is never comfortable to be

wrong. And when a millionaire is right his money is merely one

of his several servants. Losing money is the least of my

trcubles. A loss never bothers me after I take it. I forget it

overnight. But being wrong -- not taking the loss that is what

does the damage to the pocketbook and to the soul. You remember

Dickson G. Watts' story about the man who was so nervous that a

friend asked him what was the matter.

"I can't sleep," answered the nervous one.

"Why not?" asked the friend.

"I am carrying so much cotton that I can't sleep thinking

about it. It is wearing me out. What can I do?"

"Sell down to the sleeping point," answered the friend.

As a rule a man adapts himself to conditions so quickly

that he loses the perspective. He does not feel the difference

much that is, he does not vividly remember how it felt not to be

a millionaire. He only remembers that there were things he could

not do that he can do now. It does not take a reasonably young

and normal man very long to lose the habit of being poor. It

requires a little longer to forget that he used to be rich. I

suppose that is because money creates needs or encourages their

multiplication. I mean that after a man makes money in the stock

market he very quickly loses the habit of not spending. But

after he loses his money it takes him a long time to lose the

habit of spending.

After I took in my shorts and went long in October, 1907, I

decided to take it easy for a while. I bought a yacht and

planned to go off on a cruise in Southern waters. I am crazy

about fishing and I was due to have the time of my life. I

looked forward to it and expected to go any day. But I did not.

The market wouldn't let me.

I always have traded in commodities as well as in stocks. I

began as a youngster in the bucket shops. I studied those

markets for years, though perhaps not so assiduously as the

stock market. As a matter of fact, I would rather play com-

modities than stocks. There is no question about their greater

legitimacy, as it were. It partakes more of the nature of a

commercial venture than trading in stocks does. A man can

approach it as he might any mercantile problem. It may be

possible to use fictitious arguments for or against a certain

trend in a commodity market; but success will be only temporary,

for in the end the facts are bound to prevail, so that a trader

gets dividends on study and observation, as he does in a regular

business. He can watch and weigh conditions and he knows as much

about it as anyone else. He need not guard against inside

cliques. Dividends are not unexpectedly passed or increased

overnight in the cotton market or in wheat or corn. In the long

run commodity prices are governed but by one law -- the economic

law of demand and supply. The business of the trader in

commodities is simply to get facts about the demand and the

supply, present and prospective. He does not indulge in guesses

about a dozen things as he does in stocks. It always appealed to

me trading in commodities.

Of course the same things happen in all speculative

markets. The message of the tape is the same. That will be

perfectly plain to anyone who will take the trouble to think. He

will find if he asks himself questions and considers conditions,

that the answers will supply themselves directly. But people

never take the trouble to ask questions, leave alone seeking

answers. The average American is from Missouri everywhere and at

all times except when he goes to the brokers' offices and looks

at the tape, whether it is stocks or commodities. The one game

of all games that really requires study before making a play is

the one he goes into without his usual highly intelligent pre-

liminary and precautionary doubts. He will risk half his fortune

in the stock market with less reflection than he devotes to the

selection of a medium-priced automobile.

This matter of tape reading is not so complicated as it

appears. Of course you need experience. But it is even more

important to keep certain fundamentals in mind. To read the tape

is not to have your fortune told. The tape does not tell you how

much you will surely be worth next Thursday at 1:35 P.m. The

object of reading the tape is to ascertain, first, how and,

next, when to trade -- that is, whether it is wiser to buy than

to sell. It works exactly the same for stocks as for cotton or

wheat or corn or oats.

You watch the market -- that is, the course of prices as

recorded by the tape with one object: to determine the direction

-- that is, the price tendency. Prices, we know, will move

either up or down according to the resistance they encounter.

For purposes of easy explanation we will say that prices, like

everything else, move along the line of least resistance. They

will do whatever comes easiest, therefore they will go up if

there is less resistance to an advance than to a decline; and

vice versa.

Nobody should be puzzled as to whether a market is a bull

or a bear market after it fairly starts. The trend is evident to

a man who has an open mind and reasonably clear sight, for it is

never wise for a speculator to fit his facts to his theories.

Such a man will, or ought to, know whether it is a bull or a

bear market, and if he knows that he knows whether to buy or to

sell. It is therefore at the very inception of the movement that

a man needs to know whether to buy or to sell.

Let us say, for example, that the market, as it usually

does in those between swings times, fluctuates within a range of

ten points; up to 13o and down to 120. It may look very weak at

the bottom; or, on the way up, after a rise of eight or ten

points, it may look as strong as anything. A man ought not to be

led into trading by tokens. He should wait until the tape tells

him that the time is ripe. As a matter of fact, millions upon

millions of dollars have been lost by men who bought stocks

because they looked cheap or sold them because they looked dear.

The speculator is not an investor. His object is not to secure a

steady return on his money at a good rate of interest, but to

profit by either a rise or a fall in the price of whatever he

may be speculating in. Therefore the thing to determine is the

speculative line of least resistance at the moment of trading;

and what he should wait for is the moment when that line defines

itself, because that is his signal to get busy.

Reading the tape merely enables him to see that at 130 the

selling had been stronger than the buying and a reaction in the

price logically followed. Up to the point where the selling

prevailed over the buying, superficial students of the tape may

conclude that the price is not going to stop short of 1 So, and

they buy. But after the reaction begins they hold on, or sell

out at a small loss, or they go short and talk bearish. But at

120 there is stronger resistance to the decline. The buying

prevails over the selling, there is a rally and the shorts

cover.

The public is so often whipsawed that one marvels at their

persistence in not learning their lesson.

Eventually something happens that increases the power of

either the upward or the downward force and the point of

greatest resistance moves up or clown -- that is, the buying at

130 will for the first time be stronger than the selling, or the

selling at 12o be stronger than the buying. The price will break

through the old barrier or movement-limit and so on. As a rule,

there is always a crowd of traders who are short at 12o because

it looked so weak, or long at 13o because it looked so strong,

and, when the market goes against them they are forced, after a

while, either to change their minds and turn or to close out. In

either event they help to define even more clearly the price

line of least resistance. Thus the intelligent trader who has

patiently waited to determine this line will enlist the aid of

fundamental trade conditions and also of the force of the

trading of that part of the community that happened to guess

wrong and must now rectify mistakes. Such corrections tend to

push prices along the line of least resistance.

And right here I will say that, though I do not give it as

a mathematical certainty or as an axiom of speculation, my

experience has been that accidents -- that is, the unexpected or

unforeseen have always helped me in my market position whenever

the latter has been based upon my determination of the line of

least resistance. Do you remember that Union Pacific episode at

Saratoga that I told you about? Well, I was long because I found

out that the line of least resistance was upward. I should have

stayed long instead of letting my broker tell me that insiders

were selling stocks. It didn't make any difference what was

going on in the directors' minds. That was something I couldn't

possibly know. But I could and did know that the tape said:

"Going up!" And then came the unexpected raising of the dividend

rate and the thirty point rise in the stock. At 164 prices

looked mighty high, but as I told you before, stocks are never

too high to buy or too low to sell. The price, per se, has

nothing to do with estab lishing my line of least resistance.

You will find in actual practice that if you trade as I

have indicated any important piece of news given out between the

closing of one market and the opening of another is usually in

harmony with the line of least resistance. The trend has been

established before the news is published, and in bull markets

bear items are ignored and bull news exaggerated, and vice

versa. Before the war broke out the market was in a very weak

condition. There came the proclamation of Germany's submarine

policy. I was short one hundred and fifty thousand shares of

stock, not because I knew the news was coming, but because I was

going along the line of least resistance. What happened came out

of a clear sky, as far as my play was concerned. Of course I

took advantage of the situation and I covered my shorts that

day.

It sounds very easy to say that all you have to do is to

watch the tape, establish your resistance points and be ready to

trade along the line of least resistance as soon as you have

determined it. But in actual practice a man has to guard against

many things, and most of all against himself -- that is, against

human nature. That is the reason why I say that the man who is

right always has two forces working in his favorbasic conditions

and the men who are wrong. In a bull market bear factors are

ignored. That is human nature, and yet human beings profess

astonishment at it. People will tell you that the wheat crop has

gone to pot because there has been bad weather in one or two

sections and some farmers have been ruined. When the entire crop

is gathered and all the farmers in all the wheat growing

sections begin to take their wheat to the elevators the bulls

are surprised at the smallness of the damage. They discover that

they merely have helped the bears.

When a man makes his play in a commodity market he must not

permit himself set opinions. He must have an open mind and

flexibility. It is not wise to disregard the message of the

tape, no matter what your opinion of crop conditions or of the

probable demand may be. I recall how I missed a big play just by

trying to anticipate the starting signal. I felt so sure of

conditions that I thought it was not necessary to wait for the

line of least resistance to define itself. I even thought I

might help it arrive, because it looked as if it merely needed a

little assistance.

I was very bullish on cotton. It was hanging around twelve

cents, running up and down within a moderate range. It was in

one of those in-between places and I could see it. I knew I

really ought to wait. But I got to thinking that if I gave it a

little push it would go beyond the upper resistance point.

I bought fifty thousand bales. Sure enough, it moved up.

And sure enough, as soon as I stopped buying it stopped going

up. Then it began to settle back to where it was when I began

buying it. I got out and it stopped going down. I thought I was

now much nearer the starting signal, and presently I thought I'd

start it myself again. I did. The same thing happened. I bid it

up, only to see it go down when I stopped. I did this four or

five times until I finally quit in disgust. It cost me about two

hundred thousand dollars. I was done with it. It wasn't very

long after that when it began to go up and never stopped till it

got to a price that would have meant a killing for me -- if I

hadn't been in such a great hurry to start.

This experience has been the experience of so many traders

so many times that I can give this rule: In a narrow market,

when prices are not getting anywhere to speak of but move within

a narrow range, there is no sense in trying to anticipate what

the next big movement is going to be up or down. The thing to do

is to watch the market, read the tape to determine the limits of

the get-nowhere prices, and make up your mind that you will not

take an interest until the price breaks through the limit in

either direction. A speculator must concern himself with making

money out of the market and not with insisting that the tape

must agree with him. Never argue with it or ask it for reasons

or explanations. Stock-market post-mortems don't pay dividends.

Not so long ago I was with a party of friends. They got to

talking wheat. Some of them were bullish and others bearish.

Finally they asked me what I thought. Well, I had been studying

the market for some time. I knew they did not want any

statistics or analyses of conditions. So I said:

"If you want to make some money out of wheat I can tell you

how to do it."

They all said they did and I told them, "If you are sure

you wish to make money in wheat just you watch it. Wait. The

moment it crosses $I.20 buy it and you will get a nice quick

play in it!"

"Why not buy it now, at $I.I4?" one of the party asked.

"Because I don't know yet that it is going up at all."

"Then why buy it at $1.20? It seems a mighty high price."

"Do you wish to gamble blindly in the hope of getting a

great big profit or do you wish to speculate intelligently and

get a smaller but much more probable profit?"

They all said they wanted the smaller but surer profit, so

I said, "Then do as I tell you. If it crosses $1.20 buy."

As I told you, I had watched it a long time. For months it

sold between $1.10 and $1.20, getting nowhere in particular.

Well, sir, one day it closed at above $1.I9. I got ready for it.

Sure enough the next day it opened at $1.20-1/2, and I bought.

It went to $1.21, to $1.22, to $1.23, to $1.25, and I went with

it.

Now I couldn't have told you at the time just what was

going on. I didn't get any explanations about its behaviour

during the course of the limited fluctuations. I couldn't tell

whether the breaking through the limit would be up through $1.20

or down through $1.10 though I suspected it would be up because

there was not enough wheat in the world for a big break in

prices.

As a matter of fact, it seems Europe had been buying

quietly and a lot of traders had gone short of it at around

$I.I9. Owing to the European purchases and other causes, a lot

of wheat had been taken out of the market, so that finally the

big movement got started. The price went beyond the $1.20 mark.

That was all the point I had and it was all I needed. I knew

that when it crossed $1.20 it would be because the upward

movement at last had gathered force to push it over the limit

and something had to happen. In other words, by crossing $1.20

the line of least resistance of wheat prices was established. It

was a different story then.

I remember that one day was a holiday with us and all our

markets were closed. Well, in Winnipeg wheat opened up six cents

a bushel. When our market opened on the following day, it also

was up six cents a bushel. The price just went along the line of

least resistance.

What I have told you gives you the essence of my trading

system as based on studying the tape. I merely learn the way

prices are most probably going to move. I check up my own

trading by additional tests, to determine the psychological

moment. I do that by watching the way the price acts after I

begin.

It is surprising how many experienced traders there are who

look incredulous when I tell them that when I buy stocks for a

rise I like to pay top prices and when I sell I must sell low or

not at all. It would not be so difficult to make money if a

trader always stuck to his speculative guns -- that is, waited

for the line of least resistance to define itself and began

buying only when the tape said up or selling only when it said

down. He should accumulate his line on the way up. Let him buy

one-fifth of his full line. If that does not show him a profit

he must not increase his holdings because he has obviously begun

wrong; he is wrong temporarily and there is no profit in being

wrong at any time. The same tape that said up did not

necessarily lie merely because it is now saying NOT YET.

In cotton I was very successful in my trading for a long

time. I had my theory about it and I absolutely lived up to it.

Suppose I had decided that my line would be forty to fifty

thousand bales. Well, I would study the tape as I told you,

watching for an opportunity either to buy or to sell. Suppose

the line of least resistance indicated a bull movement. Well, I

would buy ten thousand bales. After I got through buying that,

if the market went up ten points over my initial purchase price,

I would take on another ten thousand bales. Same thing. Then, if

I could get twenty points' profit, or one dollar a bale, I would

buy twenty thousand more. That would give me my line -- my basis

for my trading. But if after buying the first ten or twenty

thousand bales, it showed me a loss, out I'd go. I was wrong. It

might be I was only temporarily wrong.

But as I have said before it doesn't pay to start wrong in

anything.

What I accomplished by sticking to my system was that I

always had a line of cotton in every real movement. In the

course of accumulating my full line I might chip out fifty or

sixty thousand dollars in these feeling-out plays of mine. This

looks like a very expensive testing, but it wasn't. After the

real movement started, how long would it take me to make up the

fifty thousand dollars I had dropped in order to make sure that

I began to load up at exactly the right time? No time at all! It

always pays a man to be right at the right time.

As I think I also said before, this describes what I may

call my system for placing my bets. It is simple arithmetic to

prove that it is a wise thing to have the big bet down only when

you win, and when you lose to lose only a small exploratory bet,

as it were. If a man trades in the way I have described, he will

always be in the profitable position of being able to cash in on

the big bet.

Professional traders have always had some system or other

based upon their experience and governed either by their atti-

tude toward speculation or by their desires. I remember I met an

old gentleman in Palm Beach whose name I did not catch or did

not at once identify. I knew he had been in the Street for

years, way back in Civil War times, and somebody told me that he

was a very wise old codger who had gone through so many booms

and panics that he was always saying there was nothing new under

the sun and least of all in the stock market.

The old fellow asked me a lot of questions. When I got

through telling him about my usual practice in trading he nodded

and said, "Yes! Yes! You're right. The way you're built, the way

your mind runs, makes your system a good system for you. It

comes easy for you to practice what you preach, because the

money you bet is the least of your cares. I recollect Pat

Hearne. Ever hear of him? Well, he was a very well-known

sporting man and he had an account with us. Clever chap and

nervy. He made money in stocks, and that made people ask him for

advice. He would never give any. If they asked him point-blank

for his opinion about the wisdom of their commitments he used a

favourite race-track maxim of his: "You can't tell till you

bet." He traded in our office. He would buy one hundred shares

of some active stock and when, or if, it went up i per cent he

would buy another hundred. On another point's advance, another

hundred shares; and so on. He used to say he wasn't playing the

game to make money for others and therefore he would put in a

stoploss order one point below the price of his last purchase.

When the price kept going up he simply moved up his stop with

it. On a 1 per cent reaction he was stopped out. He declared he

did not see any sense in losing more than one point, whether it

came out of his original margin or out of his paper profits.

"You know, a professional gambler is not looking for long

shots, but for sure money. Of course long shots are fine when

they come in. In the stock market Pat wasn't after tips or

playing to catch twenty-points-a-week advances, but sure money

in sufficient quantity to provide him with a good living. Of all

the thousands of outsiders that I have run across in Wall

Street, Pat Hearne was the only one who saw in stock speculation

merely a game of chance like faro or roulette, but, never-

theless, had the sense to stick to a relatively sound betting

method.

"After Hearne's death one of our customers who had always

traded with Pat and used his system made over one hundred

thousand dollars in Lackawanna. Then he switched over to some

other stock and because he had made a big stake he thought he

need not stick to Pat's way. When a reaction came, instead of

cutting short his losses he let them run as though they were

profits. Of course every cent went. When he finally quit he owed

us several thousand dollars.

"He hung around for two or three years. He kept the fever

long after the cash had gone; but we did not object as long as

he behaved himself. I remember that he used to admit freely that

he, had been ten thousand kinds of an ass not to stick to Pat

Hearne's style of play. Well, one day he came to me greatly

excited and asked me to let him sell some stock short in our

office. He was a nice enough chap who had been a good customer

in his day and I told him I personally would guarantee his

account for one hundred shares.

"He sold short one hundred shares of Lake Shore. That was

the time Bill Travers hammered the market, in 1875. My friend

Roberts put out that Lake Shore at exactly the right time and

kept selling it on the way down as he had been wont to do in the

old successful days before he forsook Pat Hearne's system and

instead listened to hope's whispers.

"Well, sir, in four days of successful pyramiding, Roberts'

account showed him a profit of fifteen thousand dollars. Ob-

serving that he had not put in a stop-loss order I spoke to him

about it and he told me that the break hadn't fairly begun and

he wasn't going to be shaken out by any one-point reaction. This

was in August. Before the middle of September he borrowed ten

dollars from me for a baby carriage -- his fourth. He did not

stick to his own proved system. That's the trouble with most of

them," and the old fellow shook his head at me.

And he was right. I sometimes think that speculation must

be an unnatural sort of business, because I find that the

average speculator has arrayed against him his own nature. The

weaknesses that all men are prone to are fatal to success in

speculation -- usually those very weaknesses that make him

likable to his fellows or that he himself particularly guards

against in those other ventures of his where they are not nearly

so dangerous as when he is trading in stocks or commodities.

The speculator's chief enemies are always boring from

within. It is inseparable from human nature to hope and to fear.

In speculation when the market goes against you -- you hope that

every day will be the last day and you lose more than you should

had you not listened to hope -- to the same ally that is so

potent a success-bringer to empire builders and pioneers, big

and little. And when the market goes your way you become fearful

that the next day will take away your profit, and you get out

too soon. Fear keeps you from making as much money as you ought

to. The successful trader has to fight these two deep-seated

instincts. He has to reverse what you might call his natural

impulses. Instead of hoping he must fear; instead of fearing he

must hope. He must fear that his loss may develop into a much

bigger loss, and hope that his profit may become a big profit.

It is absolutely wrong to gamble in stocks the way the average

man does.

I have been in the speculative game ever since I was four-

teen. It is all I have ever done. I think I know what I am

talking about. And the conclusion that I have reached after

nearly thirty years of constant trading, both on a shoestring

and with millions of dollars back of me, is this: A man may beat

a stock or a group at a certain time, but no man living can beat

the stock market! A man may make money out of individual deals

in cotton or grain, but no man can beat the cotton market or the

grain market. It's like the track. A man may beat a horse race,

but he cannot beat horse racing.

If I knew how to make these statements stronger or more

emphatic I certainly would. It does not make any difference what

anybody says to the contrary. I know I am right in saying these

are incontrovertible statements.

CHAPER XI

AND now I'll get back to October, 1907. I bought a yacht

and made all preparations to leave New York for a cruise in

Southern waters. I am really daffy about fishing and this was

the time when I was going to fish to my heart's content from my

own yacht, going wherever I wished whenever I felt like it.

Everything was ready. I had made a killing in stocks, but at the

last moment corn held me back.

I must explain that before the money panic which gave me my

first million I had been trading in grain at Chicago. I was

short ten million bushels of wheat and ten million bushels of

corn. I had studied the grain markets for a long time and was as

bearish on corn and wheat as I had been on stocks.

Well, they both started down, but while wheat kept on de-

clining the biggest of all the Chicago operators -- I'll call

him Stratton -- took it into his head to run a corner in corn.

After I cleaned up in stocks and was ready to go South on my

yacht I found that wheat showed me a handsome, profit, but in

corn Stratton had run up the price and I had quite a loss.

I knew there was much more corn in the country than the

price indicated. The law of demand and supply worked as always.

But the demand came chiefly from Stratton and the supply was not

coming at all, because there was an acute congestion in the

movement of corn. I remember that I used to pray for a cold

spell that would freeze the impassable roads and enable the

farmers to bring their corn into the market. But no such luck.

There I was, waiting to go on my joyously planned fishing

trip and that loss in corn holding me back. I couldn't go away

with the market as it was. Of course Stratton kept pretty close

tabs on the short interest. He knew he had me, and I knew it

quite as well as he did. But, as I said, I was hoping I might

convince the weather that it ought to get busy and help me.

Perceiving that neither the weather nor any other kindly

wonder-worker was paying any attention to my needs I studied how

I might work out of my difficulty by my own efforts.

I closed out my line of wheat at a good profit. But the

problem in corn was infinitely more difficult. If I could have

covered my ten million bushels at the prevailing prices I in-

stantly and gladly would have done so, large though the loss

would have been. But, of course, the moment I started to buy in

my corn Stratton would be on the job as squeezer in chief, and I

no more relished running up the price on myself by reason of my

own purchases than cutting my own throat with my own knife.

Strong though corn was, my desire to go fishing was even

stronger, so it was up to me to find a way out at once. I must

conduct a strategic retreat. I must buy back the ten million

bushels I was short of and in so doing keep down my loss as much

as I possibly could.

It so happened that Stratton at that time was also running

a deal in oats and had the market pretty well sewed up. I had

kept track of all the grain markets in the way of crop news and

pit gossip, and I heard that the powerful Armour interests were

not friendly, marketwise, to Stratton. Of course I knew that

Stratton would not let me have the corn I needed except at his

own price, but the moment I heard the rumors about Armour being

against Stratton it occurred to me that I might look to the

Chicago traders for aid. The only way in which they could

possibly help me was for them to sell me the corn that Stratton

wouldn't. The rest was easy.

First, I put in orders to buy five hundred thousand bushels

of corn every eighth of a cent down. After these orders were in

I gave to each of four houses an order to sell simultaneously

fifty thousand bushels of oats at the market. That, I figured,

ought to make a quick break in oats. Knowing how the traders'

minds worked, it was a cinch that they would instantly think

that Armour was gunning for Stratton. Seeing the attack opened

in oats they would logically conclude that the next break would

be in corn and they would start to sell it. If that corner in

corn was busted, the pickings would be fabulous.

My dope on the psychology of the Chicago traders was

absolutely correct. When they saw oats breaking on the scattered

selling they promptly jumped on corn and sold it with great

enthusiasm. I was able to buy six million bushels of corn in the

next ten minutes. The moment I found that their selling of corn

ceased I simply bought in the other four million bushels at the

market. Of course that made the price go up again, but the net

result of my manoeuvre was that I covered the entire line of ten

million bushels within one-half cent of the price prevailing at

the time I started to cover on the traders' selling. The two

hundred thousand bushels of oats that I sold short to start the

traders' selling of corn I covered at a loss of only three

thousand dollars. That was pretty cheap bear bait. The profits I

had made in wheat offset so much of my deficit in corn that my

total loss on all my grain trades that time was only twenty-five

thousand dollars. Afterwards corn went up twenty-five cents a

bushed. Stratton undoubtedly had me at his mercy. If I had set

about buying my ten million bushels of corn without bothering to

think of the price there is no telling what I would have had to

pay.

A man can't spend years at one thing and not acquire a

habitual attitude towards it quite unlike that of the average

beginner. The difference distinguishes the professional from the

amateur. It is the way a man looks at things that makes or loses

money for him in the speculative markets. The public has the

dilettante's point of view toward his own effort. The ego

obtrudes itself unduly and the thinking therefore is not deep or

exhaustive. The professional concerns himself with doing the

right thing rather than with making money, knowing that the

profit takes care of itself if the other things are attended to.

A trader gets to play the game as the professional billiard

player does -- that is, he looks far ahead instead of

considering the particular shot before him. It gets to be an

instinct to play for position.

I remember hearing a story about Addison Cammack that

illustrates very nicely what I wish to point out. From all I

have heard, I am inclined to think that Cammack was one of the

ablest stock traders the Street ever saw. He was not a chronic

bear as many believe, but he felt the greater appeal of trading

on the bear side, of utilising in his behalf the two great human

factors of hope and fear. He is credited with coining the

warning: "Don't sell stocks when the sap is running up the

trees!" and the old-timers tell me that his biggest winnings

were made on the bull side, so that it is plain he did not play

prejudices but conditions. At all events, he was a consummate

trader. It seems that once this was way back at the tag end of a

bull market -- Cammack was bearish and J. Arthur Joseph, the

financial writer and raconteur, knew it. The market, however,

was not only strong but still rising, in response to prodding by

the bull leaders and optimistic reports by the newspapers.

Knowing what use a trader like Cammack could make of bearish

information, Joseph rushed to Cammack's office one day with glad

tidings.

"Mr. Cammack, I have a very good friend who is a transfer

clerk in the St. Paul office and he has just told me something

which I think you ought to know."

"What is it?" asked Cammack listlessly.

"You've turned, haven't you? You are bearish now?" asked

Joseph, to make sure. If Cammack wasn't interested he wasn't

going to waste precious ammunition.

"Yes. What's the wonderful information?"

"I went around to the St. Paul office today, as I do in my

news-gathering rounds two or three times a week, and my friend

there said to me: `The Old Man is selling stock.' He meant

William Rockefeller. `Is he really, Jimmy?' I said to him, and

he answered, `Yes; he is selling fifteen hundred shares every

three-eighths of a point up. I've been transferring the stock

for two or three days now.' I didn't lose any time, but carne

right over to tell you."

Cammack was not easily excited, and, moreover, was so

accustomed to having all manner of people rush madly into his

office with all manner of news, gossip, rumors, tips and lies

that he had grown distrustful of them all. He merely said now,

"Are you sure you heard right, Joseph?"

"Am I sure? Certainly I am sure! Do you think I am deaf?"

said Joseph.

"Are you sure of your man?"

"Absolutely!" declared Joseph. "I've known him for years.

He has never lied to me. He wouldn't! No object! I know he is

absolutely reliable and I'd stake my life on what he tells me. I

know him as well as I know anybody in this world a great deal

better than you seem to know me, after all these years."

"Sure of him, eh?" And Cammack again looked at Joseph. Then

he said, "Well, you ought to know." He called his broker, W. B.

Wheeler. Joseph expected to hear him give an order to sell at

least fifty thousand shares of St. Paul. William Rockefeller was

disposing of his holdings in St. Paul, taking advantage of the

strength of the market. Whether it was investment stock or

speculative holdings was irrelevant. The one important fact was

that the best stock trader of the Standard Oil crowd was getting

out of St. Paul. What would the average man have done if he had

received the news from a trustworthy source? No need to ask.

But Cammack, the ablest bear operator of his day, who was

bearish on the market just then, said to his broker, "Billy, go

over to the board and buy fifteen hundred St. Paul every

three-eighths up." The stock was then in the nineties.

"Don't you mean sell?" interjected Joseph hastily. He was

no novice in Wall Street, but he was thinking of the market from

the point of view of the newspaper man and, incidentally, of the

general public. The price certainly ought to go down on the news

of inside selling. And there was no better inside selling than

Mr. William Rockefeller's. The Standard Oil getting out and

Cammack buying! It couldn't bet

"No," said Cammack; "I mean buy!"

"Don't you believe me?"

"Yes !»

"Don't you believe my information?"

"Yes."

"Aren't you bearish?"

"Yes."

"Well, then?"

"That's why I'm buying. Listen to me now: You keep in touch

with that reliable friend of yours and the moment the scaled

selling stops, let me know. Instantly! Do you understand?"

"Yes," said Joseph, and went away, not quite sure he could

fathom Cammack's motives in buying William Rockefeller's stock.

It was the knowledge that Cammack was bearish on the entire

market that made his manoeuvre so difficult to explain. However,

Joseph saw his friend the transfer clerk and told him he wanted

to be tipped off when the Old Man got through selling. Regularly

twice a day Joseph called on his friend to inquire.

One day the transfer clerk told him, "There isn't any more

stock coming from the Old Man." Joseph thanked him and ran to

Cammack's office with the information.

Cammack listened attentively, turned to Wheeler and asked,

"Billy, how much St. Paul have we got in the office?" Wheeler

looked it up and reported that they had accumulated about sixty

thousand shares.

Cammack, being bearish, had been putting out short lines in

the other Grangers as well as in various other stocks, even be-

fore he began to buy St. Paul. He was now heavily short of the

market. He promptly ordered Wheeler to sell the sixty thousand

shares of St. Paul that they were long of, and more besides. He

used his long holdings of St. Paul as a lever to depress the

general list and greatly benefit his operations for a decline.

St. Paul didn't stop on that move until it reached forty-

four and Cammack made a killing in it. He played his cards with

consummate skill and profited accordingly. The point I would

make is his habitual attitude toward trading. He didn't have to

reflect. He saw instantly what was far more important to him

than his profit on that one stock. He saw that he had

providentially been offered an opportunity to begin his big bear

operations not only at the proper time but with a proper initial

push. The St. Paul tip made him buy instead of sell because he

saw at once that it gave him a vast supply of the best

ammunition for his bear campaign.

To get back to myself. After I closed my trade in

wheat and corn I went South in my yacht. I cruised about in

Florida waters, having a grand old time. The fishing was great.

Everything was lovely. I didn't have a care in the world

and I wasn't looking for any.

One day I went ashore at Palm Beach. I met a lot of Wall

Street friends and others. They were all talking about the most

picturesque cotton speculator of the day. A report from New York

had it that Percy Thomas had lost every cent. It wasn't a

commercial bankruptcy; merely the rumor of the world-famous

operator's second Waterloo in the cotton market.

I had always felt a great admiration for him. The first I

ever heard of him was through the newspapers at the time of the

failure of the Stock Exchange house of Sheldon & Thomas, when

Thomas tried to corner cotton. Sheldon, who did not have the

vision or the courage of his partner, got cold feet on the very

verge of success. At least, so the Street said at the time. At

all events, instead of making a killing they made one of the

most sensational failures in years. I forget how many millions.

The firm was wound up and Thomas went to work alone. He devoted

himself exclusively to cotton and it was not long before he was

on his feet again. He paid off his creditors in full with

interest -- debts he was not legally obliged to discharge and

withal had a million dollars left for himself. His comeback in

the cotton market was in its way as remarkable as Deacon S. V.

White's famous stock-market exploit of paying off one million

dollars in one year. Thomas' pluck and brains made me admire him

immensely.

Everybody in Palm Beach was talking about the collapse of

Thomas' deal in March cotton. You know how the talk goes and

grows; the amount of misinformation and exaggeration and

improvements that you hear. Why, I've seen a rumor about myself

grow so that the fellow who started it did not recognise it when

it came back to him in less than twenty four hours, swollen with

new and picturesque details.

The news of Percy Thomas' latest misadventure turned my

mind from the fishing to the cotton market. I got files of the

trade papers and read them to get a line on conditions. When I

got back to New York I gave myself up to studying the market.

Everybody was bearish and everybody was selling July cotton. You

know how people are. I suppose it is the contagion of example

that makes a man do something because everybody around him is

doing the same thing. Perhaps it is some phase or variety of the

herd instinct. In any case it was, in the opinion of hundreds of

traders, the wise and proper thing to sell July cotton and so

safe too! You couldn't call that general selling reckless; the

word is too conservative. The traders simply saw one side to the

market and a great big profit. They certainly expected a

collapse in prices.

I saw all this, of course, and it struck me that the chaps

who were short didn't have a terrible lot of time to cover in.

The more I studied the situation the clearer I saw this, until I

finally decided to buy July cotton. I went to work and quickly

bought one hundred thousand bales. I experienced no trouble in

getting it because it came from so many sellers. It seemed to me

that I could have offered a reward of one million dollars for

the capture, dead or alive, of a single trader who was not

selling July cotton and nobody would have claimed it.

I should say this was in the latter part of May. I kept

buying more and they kept on selling it to me until I had picked

up all the floating contracts and I had one hundred and twenty

thousand bales. A couple of days after I had bought the last of

it it began to go up. Once it started the market was kind enough

to keep on doing very well indeed -- that is, it went up from

forty to fifty points a day.

One Saturday this was about ten days after I began

operations -- the price began to creep up. I did not know

whether there was any more July cotton for sale. It was up to me

to find out, so I waited until the last ten minutes. At that

time, I knew, it was usual for those fellows to be short and if

the market closed up for the day they would be safely hooked. So

I sent in four different orders to buy five thousand bales each,

at the market, at the same time. That ran the price up thirty

points and the shorts were doing their best to wriggle away. The

market closed at the top. All I did, remember, was to buy that

last twenty thousand bales.

The next day was Sunday. But on Monday, Liverpool was due

to open up twenty points to be on a parity with the advance in

New York. Instead, it came fifty points higher. That meant that

Liverpool had exceeded our advance by 100 per cent. I had

nothing to do with the rise in that market. This showed me that

my deductions had been sound and that I was trading along the

line of least resistance. At the same time I was not losing

sight of the fact that I had a whopping big line to dispose of.

A market may advance sharply or rise gradually and yet not

possess the power to absorb more than a certain amount of

selling.

Of course the Liverpool cables made our own market wild.

But I noticed the higher it went the scarcer July cotton seemed

to be. I wasn't letting go any of mine. Altogether that Monday

was an exciting and not very cheerful day for the bears; but for

all that, I could detect no signs of an impending bear panic; no

beginnings of a blind stampede to. cover. And I had one hundred

and forty thousand bales for which I must find a market.

On Tuesday morning as I was walking to my office I met a

friend at the entrance of the building.

"That was quite a story in the World this morning," he said

with a smile.

"What story?" I asked.

"What? Do you mean to tell me you haven't seen it?"

"I never see the World," I said. "What is the story?"

"Why, it's all about you. It says you've got July cotton

cornered."

"I haven't seen it," I told him and left him. I don't know

whether he believed me or not. He probably thought it was highly

inconsiderate of me not to tell him whether it was true or not.

When I got to the office I sent out for a copy of the

paper. Sure enough, there it was, on the front page, in big

headlines:

JULY COTTON CORNERED BY LARRY LIVERMORE

Of course I knew at once that the article would play the

dickens with the market. If I had deliberately studied ways and

means of disposing of my one hundred and forty thousand bales to

the best advantage I couldn't have hit upon a better plan. It

would not have been possible to find one. That article at that

very moment was being read all over the country either in the

World or in other papers quoting it. It had been cabled to

Europe. That was plain from the Liverpool prices. That market

was simply wild. No wonder, with such news.

Of course I knew what New York would do, and what I ought

to do. The market here opened at ten o'clock. At ten minutes

after ten I did not own any cotton. I let them have every one of

my one hundred and forty thousand bales. For most of my line I

received what proved to be the top prices of the day. The

traders made the market for me. All I really did was to see a

heaven-sent opportunity to get rid of my cotton. I grasped it

because I couldn't help it. What else could I do?

The problem that I knew would take a great deal of hard

thinking to solve was thus solved for me by an accident. If the

World had not published that article I never would have been

able to dispose of my line without sacrificing the greater

portion of my paper profits. Selling one hundred and forty

thousand bales of July cotton without sending the price down was

a trick beyond my powers. But the World story turned it for me

very nicely.

Why the World published it I cannot tell you. I never knew.

I suppose the writer was tipped off by some friend in the cotton

market and he thought he was printing a scoop. I didn't see him

or anybody from the World. I didn't know it was printed that

morning until after nine o'clock; and if it had not been for my

friend calling my attention to it I would not have known it

then.

Without it I wouldn't have had a market big enough to

unload in. That is one trouble about trading on a large scale.

You cannot sneak out as you can when you pike along. You cannot

always sell out when you wish or when you think it wise. You

have to get out when you can; when you have a market that will

absorb your entire line. Failure to grasp the opportunity to get

out may cost you millions. You cannot hesitate. I f you do you

are lost. Neither can you try stunts like running up the price

on the bears by means of competitive buying, for you may thereby

reduce the absorbing capacity. And I want to tell you that

perceiving your opportunity is not as easy as it sounds. A man

must be on the lookout so alertly that when his chance sticks in

its head at his door he must grab it.

Of course not everybody knew about my fortunate accident.

In Wall Street, and, for that matter, everywhere else, any

accident that makes big money for a man is regarded with sus-

picion. When the accident is unprofitable it is never considered

an accident but the logical outcome of your hoggishness or of

the swelled head. But when there is a profit they call it loot

and talk about how well unscrupulousness fares, and how ill

conservatism and decency.

It was not only the evil-minded shorts smarting under pun-

ishment brought about by their own recklessness who accused me

of having deliberately planned the coup. Other people thought

the same thing.

One of the biggest men in cotton in the entire world met me

a day or two later and said, "That was certainly the slickest

deal you ever put over, Livermore. I was wondering how much you

were going to lose when you came to market that line of yours.

You knew this market was not big enough to take more than fifty

or sixty thousand bales without selling off, and how you were

going to work off the rest and not lose all your paper profits

was beginning to interest me. I didn't think of your scheme. It

certainly was slick."

"I had nothing to do with it," I assured him as earnestly

as I could.

But all he did was to repeat: "Mighty slick, my boy. Mighty

slick! Don't be so modest!"

It was after that deal that some of the papers referred to

me as the Cotton King. But, as I said, I really was not entitled

to that crown. It is not necessary to tell you that there is not

enough money in the United States to buy the columns of the New

York World or enough personal pull to secure the publication of

a story like that. It gave me an utterly unearned reputation

that time.

But I have not told this story to moralize on the crowns

that are sometimes pressed down upon the brows of undeserving

traders or to emphasize the need of seizing the opportunity, no

matter when or how it comes. My object merely was to account for

the vast amount of newspaper notoriety that came to me as the

result of my deal in July cotton. If it hadn't been for the

newspapers I never would have met that remarkable man, Percy

Thomas.

CHAPTER XII

NOT long after I closed my July cotton deal more success-

fully than I had expected I received by mail a request for an

interview. The letter was signed by Percy Thomas. Of course I

immediately answered that I'd be glad to see him at my office at

any time he cared to call. The next day he came.

I had long admired him. His name was a household word

wherever men took an interest in growing or buying or selling

cotton. In Europe as well as all over this country people quoted

Percy Thomas' opinions to me. I remember once at a Swiss resort

talking to a Cairo banker who was interested in cotton growing

in Egypt in association with the late Sir Ernest Cassel. When he

heard I was from New York he immediately asked me about Percy

Thomas, whose market reports he received and read with unfailing

regularity.

Thomas, I always thought, went about his business scien-

tifically. He was a true speculator, a thinker with the vision

of a dreamer and the courage of a fighting man -- an unusually

well-informed man, who knew both the theory and the practice of

trading in cotton. He loved to hear and to express ideas and

theories and abstractions, and at the same time there was mighty

little about the practical side of the cotton market or the

psychology of cotton traders that he did not know, for he had

been trading for years and had made and lost vast sums.

After the failure of his old Stock Exchange firm of Sheldon

& Thomas he went it alone. Inside of two years he came back,

almost spectacularly. I remember reading in the Sun that the

first thing he did when he got on his feet financially was to

pay off his old creditors in full, and the next was to hire an

expert to study and determine for him how he had best invest a

million dollars. This expert examined the properties and

analysed the reports of several companies and then recommended

the purchase of Delaware & Hudson stock.

Well, after having failed for millions and having come back

with more millions, Thomas was cleaned out as the result of his

deal in March cotton. There wasn't much time wasted after he

came to see me. He proposed that we form a working alliance.

Whatever information he got he would immediately turn over to me

before passing it on to the public. My part would be to do the

actual trading, for which he said I had a special genius and he

hadn't.

That did not appeal to me for a number of reasons. I told

him frankly that I did not think I could run in double harness

and wasn't keen about trying to learn. But he insisted that it

would be an ideal combination until I said flatly that I did not

want to have anything to do with influencing other people to

trade.

"If I fool myself," I told him, "I alone suffer and I pay

the bill at once. There are no drawn-out payments or unexpected

annoyances. I play a lone hand by choice and also because it is

the wisest and cheapest way to trade. I get my pleasure out of

matching my brains against the brains of other traders-men whom

I have never seen and never talked to and never advised to buy

or sell and never expect to meet or know. When I make money I

make it backing my own opinions. I don't sell them or capitalise

them. If I made money in any other way I would imagine I had not

earned it. Your proposition does not interest me because I am

interested in the game only as I play it for myself and in my

own way."

He said he was sorry I felt the way I did, and tried to

convince me that I was wrong in rejecting his plan. But I stuck

to my views. The rest was a pleasant talk. I told him I knew he

would "come back" and that I would consider it a privilege if he

would allow me to be of financial assistance to him. But he said

he could not accept any loans from me. Then he asked me about my

July deal and I told him all about it; how I had gone into it

and how much cotton I bought and the price and other details. We

chatted a little more and then he went away.

When I said to you some time ago that a speculator has a

host of enemies, many of whom successfully bore from within, I

had in mind my many mistakes. I have learned that a man may

possess an original mind and a lifelong habit of independent

thinking and withal be vulnerable to attacks by a persuasive

personality. I am fairly immune from the commoner speculative

ailments, such as greed and fear and hope. But being an ordinary

man I find I can err with great ease.

I ought to have been on my guard at this particular time

because not long before that I had had an experience that proved

how easily a man may be talked into doing something against his

judgment and even against his wishes. It happened in Harding's

office. I had a sort of private office -- a room that they let

me occupy by myself and nobody was supposed to get to me during

market hours without my consent. I didn't wish to be bothered

and, as I was trading on a very large scale and my account was

fairly profitable, I was pretty well guarded.

One day just after the market closed I heard somebody say,

"Good afternon, Mr. Livermore."

I turned and saw an utter stranger -- a chap of about

thirty or thirty-five. I could not understand how he'd got in,

but there he was. I concluded his business with me had passed

him. But I didn't say anything. I just looked at him and pretty

soon he said, "I caine to see you about that Walter Scott," and

he was off.

He was a book agent. Now, he was not particularly pleasing

of manner or skillful of speech. Neither was he especially

attractive to look at. But he certainly had personality. He

talked and I thought I listened. But I do not know what he said.

I don't think I ever knew, not even at the time. When he

finished his monologue he handed me first his fountain pen and

then a blank form, which I signed. It was a contract to take a

set of Scott's works for five hundred dollars.

The moment I signed I came to. But he had the contract safe

in his pocket. I did not want the books. I had no place for

them. They weren't of any use whatever to me. I had nobody to

give them to. Yet I had agreed to buy them for five hundred

dollars.

I am so accustomed to losing money that I never think first

of that phase of my mistakes. It is always the play itself, the

reason why. In the first place I wish to know my own limitations

and habits of thought. Another reason is that I do not wish to

make the same mistake a second time. A man can excuse his

mistakes only by capitalising them to his subsequent profit.

Well, having made a five-hundred dollar mistake but not yet

having localised the trouble, I just looked at the fellow to

size him up as a first step. I'll be hanged if he didn't

actually smile at me -- an understanding little smile! He seemed

to read my thoughts. I somehow knew that I did not have to

explain anything to him; he knew it without my telling him. So I

skipped the explanations and the preliminaries and asked him,

"How much commission will you get on that five hundred dollar

order?"

He promptly shook his head and said, "I can't do it!

Sorry!"

"How much do you get?" I persisted.

"A third. But I can't do it!" he said.

"A third of five hundred dollars is one hundred and sixty-

six dollars and sixty-six cents. I'll give you two hundred

dollars cash if you give me back that signed contract." And to

prove it I took the money out of my pocket.

"I told you I couldn't do it," he said.

"Do all your customers make the same offer to you?" I

asked.

"No," he answered.

"Then why were you so sure that I was going to make it?"

"It is what your type of sport would do. You are a first-

class loser and that makes you a first-class businessman. I am

much obliged to you, but I can't do it."

"Now tell me why you do not wish to make more than your

commission?"

"It isn't that, exactly," he said. "I am not working just

for the commission."

"What are you working for then?"

"For the commission and the record," he answered.

"What record?"

"Mine."

"What are you driving at?"

"Do you work for money alone?" he asked me.

"Yes," I said.

"No." And he shook his head. "No, you don't. You wouldn't

get enough fun out of it. You certainly do not work merely to

add a few more dollars to your bank account and you are not in

Wall Street because you like easy money. You get your fun some

other way. Well, same here."

I did not argue but asked him, "And how do you get your

fun?"

"Well," he confessed, "we've all got a weak spot."

"And what's yours?"

"Vanity," he said.

"Well," I told him, "you succeeded in getting me to sign

on. Now I want to sign off, and I am paying you two hundred

dollars for ten minutes' work. Isn't that enough for your pride

?"

"No," he answered. "You see, all the rest of the bunch have

been working Wall Street for months and failed to make expenses.

They said it was the fault of the goods and the territory. So

the office sent for me to prove that the fault was with their

salesmanship and not with the books or the place. They were

working on a 25 per cent commission. I was in Cleveland, where I

sold eighty-two sets in two weeks. I am here to sell a certain

number of sets not only to people who did not buy from the other

agents but to people they couldn't even get to see. That's why

they give me 33A per cent."

"I can't quite figure out how you sold me that set."

"Why," he said consolingly, "I sold J. P. Morgan a set."

"No, you didn't," I said.

He wasn't angry. He simply said, "Honest, I did!"

"A set of Walter Scott to J. P. Morgan, who not only has

some fine editions but probably the original manuscripts of some

of the novels as well?"

"Well, here's his John Hancock." And he promptly flashed on

me a contract signed by J. P. Morgan himself. It might not have

been Mr. Morgan's signature, but it did not occur to me to doubt

it at the time. Didn't he have mine in his pocket? All I felt

was curiosity. So I asked him, "How did you get past the

librarian?"

"I didn't see any librarian. I saw the Old Man himself. In

his office."

"That's too much!" I said. Everybody knew that it was much

harder to get into Mr. Morgan's private office empty handed than

into the White House with a parcel that ticked like an alarm

clock.

But he declared, "I did."

"But how did you get into his office?"

"How did I get into yours?" he retorted.

"I don't know. You tell me," I said.

"Well, the way I got into Morgan's office and the way I got

into yours are the same. I just talked to the fellow at the door

whose business it was not to let me in. And the way I got Morgan

to sign was the same way I got you to sign. You weren't signing

a contract for a set of books. You just took the fountain pen I

gave you and did what I asked you to do with it. No difference.

Same as you."

"And is that really Morgan's signature?" I asked him, about

three minutes late with my skepticism.

"Sure! He learned how to write his name when he was a boy."

"And that's all there's to it?"

"That's all," he answered. "I know exactly what I am doing.

That's all the secret there is. I am much obliged to you. Good

day, Mr. Livermore." And he started to go out.

"Hold on," I said. "I'm bound to have you make an even two

hundred dollars out of me." And I handed him thirty-five

dollars.

He shook his head. Then: "No," he said. "I can't do that.

But I can do this!" And he took the contract from his pocket,

tore it in two and gave me the pieces.

I counted two hundred dollars and held the money before

him, but he again shook his head.

"Isn't that what you meant?" I said.

"No."

"Then, why did you tear up the contract?"

"Because you did not whine, but took it as I would have

taken it myself had I been in your place."

"But I offered you the two hundred dollars of my own

accord," I said.

"I know; but money isn't everything."

Something in his voice made me say, "You're right; it

isn't. And now what do you really want me to do for you?"

"You're quick, aren't you?" he said. "Do you really want to

do something for me?"

"Yes," I told him, "I do. But whether I will or not depends

what it is you have in mind."

"Take me with you into Mr. Ed Harding's office and tell him

to let me talk to him three minutes by the clock. Then leave me

alone with him."

I shook my head and said, "He is a good friend of mine."

"He's fifty years old and a stock broker," said the book

agent.

That was perfectly true, so I took him into Ed's office. I

did not hear anything more from or about that book agent. But

one evening some weeks later when I was going uptown I ran

across him in a Sixth Avenue L train. He raised his hat very

politely and I nodded back. He came over and asked me, "How do

you do, Mr. Livermore? And how is Mr. Harding?"

"He's well. Why do you ask?" I felt he was holding back a

story.

"I sold him two thousand dollars' worth of books that day

you took me in to see him."

"He never said a word to me about it," I said.

"No; that kind doesn't talk about it."

"What kind doesn't talk?"

"The kind that never makes mistakes on account of its being

bad business to make them. That kind always knows what he wants

and nobody can tell him different. That is the kind that's

educating my children and keeps my wife in good humor. You did

me a good turn, Mr. Livermore. I expected it when I gave up the

two hundred dollars you were so anxious to present to me."

"And if Mr. Harding hadn't given you an order?"

"Oh, but I knew he would. I had found out what kind of man

he was. He was a cinch."

"Yes. But if he hadn't bought any books?" I persisted.

"I'd have come back to you and sold you something. Good

day, Mr. Livermore. I am going to see the mayor." And he got up

as we pulled up at Park Place.

"I hope you sell him ten sets," I said. His Honor was a

Tammany man.

"I'M' a Republican, too," he said, and went out, not

hastily, but leisurely, confident that the train would wait. And

it did.

I have told you this story in such detail because it con-

cerned a remarkable man who made me buy what I did not wish to

buy. He was the first man who did that to me. There never should

have been a second, but there was. You can never bank on there

being but one remarkable salesman in the world or on complete

immunization from the influence of personality.

When Percy Thomas left my office, after I had pleasantly

but definitely declined to enter into a working alliance with

him, I would have sworn that our business paths would never

cross. I was not sure I'd ever even see him again. But on the

very next day he wrote me a letter thanking me for my offers of

help and inviting me to come and see him. I answered that I

would. He wrote again. I called.

I got to see a great deal of him. It was always a pleasure

for me to listen to him, he knew so much and he expressed his

knowledge so interestingly. I think he is the most magnetic man

I ever met.

We talked of many things, for he is a widely read man with

an amazing grasp of many subjects and a remarkable gift for

interesting generalization. The wisdom of his speech is

impressive; and as for plausibility, he hasn't an equal. I have

heard many people accuse Percy Thomas of many things, including

insincerity,

but

I

sometimes

wonder

if

his

remarkable

plausibility does not come from the fact that he first convinces

himself so thoroughly as to acquire thereby a greatly increased

power to convince others.

Of course we talked about market matters at great length. I

was not bullish on cotton, but he was. I could not see the bull

side at all, but he did. He brought up so many facts and figures

that I ought to have been overwhelmed, but I wasn't. I couldn't

disprove them because I could not deny their authenticity, but

they did not shake my belief in what I read for myself. But he

kept at it until I no longer felt sure of my own information as

gathered from the trade papers and the dailies. That meant I

couldn't see the market with my own eyes. A man cannot be

convinced against his own convictions, but he can be talked into

a state of uncertainty and indecision, which is even worse, for

that means that he cannot trade with confidence and comfort.

I cannot say that I got all mixed up, exactly, but I lost

my poise; or rather, I ceased to do my own thinking. I cannot

give you in detail the various steps by which I reached the

state of mind that was to prove so costly to me. I think it teas

his assurances of the accuracy of his figures, which were

exclusively his, and the undependability of mine, which were not

exclusively mine, but public property. He harped on the utter

reliability, as proved time and again, of all his ten thousand

correspondents throughout the South. In the end I came to read

conditions as he himself read thembecause we were both reading

from the same page of the same book, held by him before my eyes.

He has a logical mind. Once I accepted his facts it was a cinch

that my own conclusions, derived from his facts, would agree

with his own.

When he began his talks with me about the cotton situation

I not only was bearish but I was short of the market. Gradually,

as I began to accept his facts and figures, I began to fear I

had been basing my previous position on misinformation. Of

course I could not feel that way and not cover. And once I had

covered because Thomas made me think I was wrong, I simply had

to go long. It is the way my mind works. You know, I have done

nothing in my life but trade in stocks and commodities. I

naturally think that if it is wrong to be bearish it must be

right to be a bull. And if it is right to be a bull it is

imperative to buy. As my old Palm Beach friend said Pat Hearne

used to say, "You can't tell till you bet!" I must prove whether

I am right on the market or not; and the proofs are to be read

only in my brokers' statements at the end of the month.

I started in to buy cotton and in a jiffy I had my usual

line, about sixty thousand bales. It was the most asinine play

of my career. Instead of standing or falling by my own observa-

tion and deductions I was merely playing another man's game. It

was eminently fitting that my silly plays should not end with

that. I not only bought when I had no business to be bullish but

I didn't accumulate my line in accordance with the promptings of

experience. I wasn't trading right. Having listened, I was lost.

The market was not going my way. I am never afraid or

impatient when I am sure of my position. But the market didn't

act the way it should have acted had Thomas been right. Having

taken the first wrong step I took the second and the third, and

of course it muddled me all up. I allowed myself to be persuaded

not only into not taking my loss but into holding up the market.

That is a style of play foreign to my nature and contrary to my

trading principles and theories. Even as a boy in the bucket

shops I had known better. But I was not myself. I was another

man -- a Thomasized person.

I not only was long of cotton but I was carrying a heavy

line of wheat. That was doing famously and showed me a handsome

profit. My fool efforts to bolster up cotton had increased my

line to about one hundred and fifty thousand bales. I may tell

you that about this time I was not feeling very well. I don't

say this to furnish an excuse for my blunders, but merely to

state a pertinent fact. I remember I went to Bayshore for a

rest.

While there I did some thinking. It seemed to me that my

speculative commitments were overlarge. I am not timid as a

rule, but I got to feeling nervous and that made me decide to

lighten my load. To do this I must clean up either the cotton or

the wheat.

It seems incredible that knowing the game as well as I did

and with an experience of twelve or fourteen years of

speculating in stocks and commodities I did precisely the wrong

thing. The cotton showed me a loss and I kept it. The wheat

showed me a profit and I sold it out. It was an utterly foolish

play, but all I can say in extenuation is that it wasn't really

my deal, but Thomas'. Of all speculative blunders there are few

greater than trying to average a losing game. My cotton deal

proved it to the hilt a little later. Always sell what shows you

a loss and keep what shows you a profit. That was so obviously

the wise thing to do and was so well known to me that even now I

marvel at myself for doing the reverse.

And so I sold my wheat, deliberately cut short my profit in

it. After I got out of it the price went up twenty cents a

bushel without stopping. If I had kept it I might have taken a

profit of about eight million dollars. And having decided to

keep on with the losing proposition I bought more cotton

I remember very clearly how every day I would buy cotton,

more cotton. And why do you think I bought it? To keep the price

from going down! If that isn't a supersucker play, what is? I

simply kept on putting up more and more moneymore money to lose

eventually. My brokers and my intimate friends could not

understand it; and they don't to this day. Of course if the deal

had turned out differently I would have been a wonder. More than

once I was warned against placing too much reliance on Percy

Thomas' brilliant analyses. To this I paid no heed, but kept on

buying cotton to keep it from going down. I was even buying it

in Liverpool. I accumulated four hundred and forty thousand

bales before I realised what I was doing. And then it was too

late. So I sold out my line.

I lost nearly all that I had made out of all my other deals

in stocks and commodities. I was not completely cleaned out, but

I had left fewer hundreds of thousands than I had millions

before I met my brilliant friend Percy Thomas. For me of all men

to violate all the laws that experience had taught me to observe

in order to prosper was more than asinine.

To learn that a man can make foolish plays for no reason

whatever was a valuable lesson. It cost me millions to learn

that another dangerous enemy to a trader is his susceptibility

to the urgings of a magnetic personality when plausibly

expressed by a brilliant mind. It has always seemed to me,

however, that I might have learned my lesson quite as well if

the cost had been only one million. But Fate does not always let

you fix the tuition fee. She delivers the educational wallop and

presents her own bill, knowing you have to pay it, no matter

what the amount may be. Having learned what folly I was capable

of I closed that particular incident. Percy Thomas went out of

my life.

There I was, with more than nine-tenths of my stake, as Jim

Fisk used to say, gone where the woodbine twineth-up the spout.

I had been a millionaire rather less than a year. My millions I

had made by using brains, helped by luck. I had lost them by

reversing the process. I sold my two yachts and was decidedly

less extravagant in my manner of living.

But that one blow wasn't enough. Luck was against me. I ran

up first against illness and then against the urgent need of two

hundred thousand dollars in cash. A few months before that sum

would have been nothing at all; but now it meant almost the

entire remnant of my fleet-winged fortune. I had to supply the

money and the question was: Where could I get it? I didn't want

to take it out of the balance I kept at my brokers' because if I

did I wouldn't have much of a margin left for my own trading;

and I needed trading facilities more than ever if I was to win

back my millions quickly. There was only one alternative that I

could see, and that was to take it out of the stock market!

Just think of it! If you know much about the average

customer of the average commission house you will agree with me

that the hope of making the stock market pay your bill is one of

the most prolific sources of loss in Wall Street. You will chip

out all you have if you adhere to your determination.

Why, in Harding's office one winter a little bunch of high

flyers spent thirty or forty thousand dollars for an overcoat -

and not one of them lived to wear it. It so happened that a

prominent floor trader who since has become world-famous as one

of the dollar-a-year men-came down to the Exchange wearing a fur

overcoat lined with sea otter. In those days, before furs went

up sky high, that coat was valued at only ten thousand dollars.

Well, one of the chaps in Harding's office, Bob Keown, decided

to get a coat lined with Russian sable. He priced one uptown.

The cost was about the same, ten thousand dollars.

"That's the devil of a lot of money," objected one of the

fellows.

"Oh, fair! Fair!" admitted Bob Keown amiably. "About a

week's wages -- unless you guys promise to present it to me as a

slight but sincere token of the esteem in which you hold the

nicest man in the office. Do I hear the presentation speech? No?

Very well. I shall let the stock market buy it for me!"

"Why do you want a sable coat?" asked Ed Harding.

"It would look particularly well on a man of my inches,"

replied Bob, drawing himself up.

"And how did you say you were going to pay for it?" asked

Jim Murphy, who was the star tip-chaser of the office.

"By a judicious investment of a temporary character, James.

That's how," answered Bob, who knew that Murphy merely wanted a

tip.

Sure enough, Jimmy asked, "What stock are you going to

buy?"

"Wrong as usual, friend. This is no time to buy anything. I

propose to sell five thousand Steel. It ought to go down ten

points at the least. I'll just take two and a half points net.

That is conservative, isn't it?"

"What do you hear about it?" asked Murphy eagerly. He was a

tall thin man with black hair and a hungry look, due to his

never going out to lunch for fear of missing something on the

tape.

"I hear that coat's the most becoming I ever planned to

get." He turned to Harding and said, "Ed, sell five thousand U.

S. Steel common at the market. Today, darling!"

He was a plunger, Bob was, and liked to indulge in humorous

talk. It was his way of letting the world know that he had an

iron nerve. He sold five thousand Steel, and the stock promptly

went up. Not being half as big an ass as he seemed when he

talked, Bob stopped his loss at one and a half points and

confided to the office that the New York climate was too benign

for fur coats. They were unhealthy and ostentatious. The rest of

the fellows jeered. But it was not long before one of them

bought some Union Pacific to pay for the coat. He lost eighteen

hundred dollars and said sables were all right for the outside

of a woman's wrap, but not for the inside of a garment intended

to be worn by a modest and intelligent man.

After that, one after another of the fellows tried to coax

the market to pay for that coat. One day I said I would buy it

to keep the office from going broke. But they all said that it

wasn't a sporting thing to do; that i f I wanted the coat for

myself I ought to let the market give it to me. But Ed Hard-

ingstrongly approved of my intention and that same afternoon I

went to the furrier's to buy it. I found out that a man from

Chicago had bought it the week before.

That was only one case. There isn't a man in Wall Street

who has not lost money trying to make the market pay for an

automobile or a bracelet or a motor boat or a painting. I could

build a huge hospital with the birthday presents that the

tight-fisted stock market has refused to pay for. In fact, of

all hoodoos in Wall Street I think the resolve to induce the

stock market to act as a fairy godmother is the busiest and most

persistent.

Like all well-authenticated hoodoos this has its reason for

being. What does a man do when he sets out to make the stock

market pay for a sudden need? Why, he merely hopes. He gambles.

He therefore runs much greater risks than he would if he were

speculating intelligently, in accordance with opinions or

beliefs logically arrived at after a dispassionate study of

underlying conditions. To begin with, he is after an immediate

profit. He cannot afford to wait. The market must be nice to him

at once if at all. He flatters himself that he is not asking

more than to place an even-money bet. Because he is prepared to

run quick -- say, stop his loss at two points when all he hopes

to make is two points -- he hugs the fallacy that he is merely

taking a fifty-fifty chance. Why, I've known men to lose

thousands of dollars on such trades, particularly on purchases

made at the height of a bull market just before a moderate

reaction. It certainly is no way to trade.

Well, that crowning folly of my career as a stock operator

was the last straw. It beat me. I lost what little my cotton

deal had left me. It did even more harm, for I kept on trading

and losing. I persisted in thinking that the stock market must

perforce make money for me in the end. But the only end in sight

was the end of my resources. I went into debt, not only to my

principal brokers but to other houses that accepted business

from me without my putting up an adequate margin. I not only got

in debt but I stayed in debt from then on.

CHAPTER XIII

THERE I was, once more broke, which was bad, and dead wrong

in my trading, which was a sight worse. I was sick, nervous,

upset and unable to reason calmly. That is, I was in the frame

of mind in which no speculator should be when he is trading.

Everything went wrong with me. Indeed, I began to think that I

could not recover my departed sense of proportion. Having grown

accustomed to swinging a big line -- say, more than a hundred

thousand shares of stock -- I feared I would not show good

judgment trading in a small way. It scarcely seemed worthwhile

being right when all you carried was a hundred shares of stock.

After the habit of taking a big profit on a big line I wasn't

sure I would know when to take my profit on a small line. I

can't describe to you how weaponless I felt.

Broke again and incapable of assuming the offensive vigor-

ously. In debt and wrong! After all those long years of

successes, tempered by mistakes that really served to pave the

way for greater successes, I was now worse off than when I began

in the bucket shops. I had learned a great deal about the game

of stock speculation, but I had not learned quite so much about

the play of human weaknesses. There is no mind so machinelike

that you can depend upon it to function with equal efficiency at

all times. I now learned that I could not trust myself to remain

equally unaffected by men and misfortunes at all times.

Money losses have never worried me in the slightest. But

other troubles could and did. I studied my disaster in detail

and of course found no difficulty in seeing just where I had

been silly. I spotted the exact time and place. A man must know

himself thoroughly if he is going to make a good job out of

trading in the speculative markets. To know what I was capable

of in the line of folly was a long educational step. I sometimes

think that no price is too high for a speculator to pay to learn

that which will keep him from getting the swelled head. A great

many smashes by brilliant men can be traced directly to the

swelled head -- an expensive disease everywhere to everybody,

but particularly in Wall Street to a speculator.

I was not happy in New York, feeling the way I did. I

didn't want to trade, because I wasn't in good trading trim. I

decided to go away and seek a stake elsewhere. The change of

scene could help me to find myself again, I thought. So once

more I left New York, beaten by the game of speculation. I was

worse than broke, since I owed over one hundred thousand dollars

spread among various brokers.

I went to Chicago and there found a stake. It was not a

very substantial stake, but that merely meant that I would need

a little more time to win back my fortune. A house that I once

had done business with had faith in my ability as a trader and

they were willing to prove it by allowing me to trade in their

office in a small way.

I began very conservatively. I don't know how I might have

fared had I stayed there. But one of the most remarkable

experiences in my career cut short my stay in Chicago. It is an

almost incredible story.

One day I got a telegram from Lucius Tucker. I had known

him when he was the office manager of a Stock Exchange firm that

I had at times given some business to, but I had lost track of

him. The telegram read

Come to New York at once.

L. TUCKER.

I knew that he knew from mutual friends how I was fixed and

therefore it was certain he had something up his sleeve. At the

same time I had no money to throw away on an unnecessary trip to

New York; so instead of doing what he asked me to do I got him

on the long distance.

"I got your telegram," I said. "What does it mean?"

"It means that a big banker in New York wants to see you,"

he answered.

"Who is it?" I asked. I couldn't imagine who it could be.

"I'll tell you when you get to New York. No use otherwise."

"You say he wants to see me?"

"He does."

"What about?"

"He'll tell you that in person if you give him a chance,"

said Lucius.

"Can't you write me?"

"No."

"Then tell me more plainly," I said.

"I don't want to."

"Look here, Lucius," I said, "just tell me this much: Is

this a fool trip?"

"Certainly not. It will be to your advantage to come."

"Can't you give me an inkling?"

"No," he said. "It wouldn't be fair to him. And besides, I

don't know just how much he wants to do for you. But take my

advice: Come, and come quick."

"Are you sure it is I that he wishes to see?"

"Nobody else but you will do. Better come, I tell you.

Telegraph me what train you take and I'll meet you at the

station."

"Very well," I said, and hung up.

I didn't like quite so much mystery, but I knew that Lucius

was friendly and that he must have a good reason for talking the

way he did. I wasn't faring so sumptuously in Chicago that it

would break my heart to leave it. At the rate I was trading it

would be a long time before I could get together enough money to

operate on the old scale.

I came back to New York, not knowing what would happen.

Indeed, more than once during the trip I feared nothing at all

would happen and that I'd be out my railroad fare and my time. I

could not guess that I was about to have the most curious

experience of my entire life.

Lucius met me at the station and did not waste any time in

telling me that he had sent for me at the urgent request of Mr.

Daniel Williamson, of the well-known Stock Exchange house of

Williamson & Brown. Mr. Williamson told Lucius to tell me that

he had a business proposition to make to me that he was sure I

would accept since it would be very profitable for me. Lucius

swore he didn't know what the proposition was. The character of

the firm was a guaranty that nothing improper would be demanded

of me.

Dan Williamson was the senior member of the firm, which was

founded by Egbert Williamson way back in the '7o's. There was no

Brown and hadn't been one in the firm for years. The house had

been very prominent in Dan's father's time and Dan had inherited

a considerable fortune and didn't go after much outside

business. They had one customer who was worth a hundred average

customers

and

that

was

Alvin

Marquand,

Williamson's

brother-in-law, who in addition to being a director in a dozen

banks and trust companies was the president of the great

Chesapeake and Atlantic Railroad system. He was the most

picturesque personality in the railroad world after James J.

Hill, and was the spokesman and dominant member of the powerful

banking coterie known as the Fort Dawson gang. He was worth from

fifty million to five hundred million dollars, the estimate

depending upon the state of the speaker's liver. When he died

they found out that he was worth two hundred and fifty million

dollars, all made in Wail Street. So you see he was some

customer.

Lucius told me lie had just accepted a position with

Williamson & Brown -- one that was made for him. He was supposed

to be a sort of circulating general business getter. The firm

was after a general commission business and Lucius had induced

Mr. Williamson to open a couple of branch offices, one in one of

the big hotels uptown and the other in Chicago. I rather

gathered that I was going to be offered a position in the latter

place, possibly as office manager, which was something I would

not accept. I didn't jump on Lucius because I thought I'd better

wait until the offer was made before I refused it.

Lucius took me into Mr. Williamson's private office, intro-

duced me to his chief and left the room in a hurry, as though he

wished to avoid being called as witness in a case in which he

knew both parties. I prepared to listen and then to say no. Mr.

Williamson was very pleasant. He was a thorough gentleman, with

polished manners and a kindly smile. I could see that he made

friends easily and kept them. Why not? He was healthy and

therefore good-humored. He had slathers of money and therefore

could not be suspected of sordid motives. These things, together

with his education and social training, made it easy for him to

be not only polite but friendly, and not only friendly but

helpful.

I said nothing. I had nothing to say and, besides, I always

let the other man have his say in full before I do any talking.

Somebody told me that the late James Stillman, president of the

National City Bank -- who, by the way, was an intimate friend of

Williamson's made it his practice to listen in silence, with an

impassive face, to anybody who brought a proposition to him.

After the man got through Mr. Stillman continued to look at him,

as though the man had not finished. So the man, feeling urged to

say something more, did so. Simply by looking and listening

Stillman often made the man offer terms much more advantageous

to the bank than he had meant to offer when he began to speak.

I don't keep silent just to induce people to offer a better

bargain, but because I like to know all the facts of the case.

By letting a man have his say in full you are able to decide at

once. It is a great time-saver. It averts debates and prolonged

discussions that get nowhere. Nearly every business proposition

that is brought to me can be settled, as far as my participation

in it is concerned, by my saying yes or no. But I cannot say yes

or no right off unless I have the complete proposition before

me.

Dan Williamson did the talking and I did the listening. He

told me he had heard a great deal about my operations in the

stock market and how he regretted that I had gone outside of my

bailiwick and come a cropper in cotton. Still it was to my bad

luck that he owed the pleasure of that interview with me. He

thought my forte was the stock market, that I was born for it

and that I should not stray from it.

"And that is the reason, Mr. Livermore," he concluded

pleasantly, "why we wish to do business with you."

"Do business how!?" I asked him.

"Be your brokers," he said. "My firm would like to do your

stock business."

"I'd like to give it to you," I said, "but I can't."

"Why not?" he asked.

"I haven't any money," I answered.

"That part is all right," he said with a friendly smile.

"I'll furnish it." He took out a pocket check book, wrote out a

check for twenty-five thousand dollars to my order, and gave it

to me.

"What's this for?" I asked.

"For you to deposit in your own bank. You will draw your

own checks. I want you to do your trading in our office. I don't

care whether you win or lose. If that money goes I will give you

another personal check. So you don't have to be so very careful

with this one. See?"

I knew that the firm was too rich and prosperous to need

anybody's business, much less to give a fellow the money to put

up as margin. And then he was so nice about it! Instead of

giving me a credit with the house lie gave me the actual cash,

so that he alone knew where it came from, the only string being

that if I traded I should do so through his firm. And then the

promise that there would be more i f that went

Still, there must be a reason.

"What's the idea?" I asked him.

"The idea is simply that we want to have a customer in this

office who is known as a big active trader. Everybody knows that

you swing a big line on the short side, which is what I

particularly like about you. You are known as a plunger."

"I still don't get it," I said.

"I'll be frank with you, Mr. Livermore. We have two or

three very wealthy customers who buy and sell stocks in a big

way. I don't want the Street to suspect them of selling long

stock every time we sell ten or twenty thousand shares of any

stock. If the Street knows that you are trading in our office it

will not know whether it is your short selling or the other

customers' long stock that is coming on the market."

I understood at once. He wanted to cover up his brother-

in-law's operations with my reputation as a plunger! It so

happened that I had made my biggest killing on the bear side a

year and a half before, and, of course, the Street gossips and

the stupid rumor mongers had acquired the habit of blaming me

for every decline in prices. To this day when the market is very

weak they say I am raiding it.

I didn't have to reflect. I saw at a glance that Dan

Williamson was offering me a chance to come back and come back

quickly. I took the check, banked it, opened an account with his

firm and began trading. It was a good active market, broad

enough for a man not to have to stick to one or two specialties.

I had begun to fear, as I told you, that I had lost the knack of

hitting it right. But it seems I hadn't. In three weeks' time I

had made a profit of one hundred and twelve thousand dollars out

of the twenty-five thousand that Dan Williamson lent me.

I went to him and said, "I've come to pay you back that

twenty-five thousand dollars."

"No, no!" he said and waved me away exactly as if I had

offered him a castor-oil cocktail. "No, no, my boy. Wait until

your account amounts to something. Don't think about it yet.

You've only got chicken feed there."

There is where I made the mistake that I have regretted

more than any other I ever made in my Wall Street career. It was

responsible for long and dreary years of suffering. I should

have insisted on his taking the money. I was on my way to a

bigger fortune than I had lost and walking pretty fast. For

three weeks my average profit was 150 per cent per week. From

then on my trading would be on a steadily increasing scale. But

instead of freeing myself from all obligation I let him have his

way and did not compel him to accept the twenty-five thousand

dollars. Of course, since he didn't draw out the twenty-five

thousand dollars he had advanced me I felt I could not very well

draw out my profit. I was very grateful to him, but I am so

constituted that I don't like to owe money or favours. I tan pay

the money back with money, but the favours and kindnesses I must

pay back in kind and you are apt to find these moral obligations

mighty high priced at times. Moreover there is no statute of

limitations.

I left the money undisturbed and resumed my trading. I was

getting on very nicely. I was recovering my poise and I was sure

it would not be very long before I should get back into my 1907

stride. Once I did that, all I'd ask for would be for the market

to hold out a little while and I'd more than make up my losses.

But making or not making the money was not bothering me much.