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.