Fifty years in Wall Street
deliveries show that large holders connected with the management are
unloading on the foreign market upon knowledge of facts damaging to the
prospects of the property; the late buyers then rush to realize, and
pocket a loss instead of a profit. Every day furnishes new instances of
speculations undertaken on this incomplete kind of information, and
which end disastrously because the operators did not wait to be informed
on all sides of the case, but were satisfied to take a pound of
assumption with but an ounce of fact.
One of the strongest anomalies of speculation is in the facility with
which men are induced to take large risks on false information and
manufactured “points.” Considering the readiness with which a numerous
class of “outside” operators buy or sell on sensational rumors, it is
not surprising that the professional operators should keep the market
well supplied with such decoys; and it is not easy to say which most
deserves condemnation—the heedless credulity of the dupes, or the
deliberate lies of the canard-makers. There is, however, a third party
not less blameable than either of the foregoing. I refer to those who
make it a part of their business to circulate false information.
Principal among these caterers are the financial news agencies and the
morning Wall Street news sheet, both specially devoted to the
speculative interests that centre at the Stock Exchange. The object of
these agencies is a useful one; but the public have a right to expect
that when they subscribe for information upon which immense transactions
may be undertaken, the utmost caution, scrutiny and fidelity should be
exercised in the procurement and publication of the news. Anything that
falls short of this is something worse than bad service and bad faith
with subscribers; it is dishonest and mischievous. And yet it cannot be
denied that much of the so-called news that reaches the public through
these instrumentalities must come under this condemnation. The “points,”
the “puffs,” the alarms and the canards, put out expressly to deceive
and mislead, find a wide circulation through these mediums, with an ease
which admits of no possible justification. How far these lapses are due
to the haste inseparable from the compilation of news of such a
character, how far to a lack of proper sifting and caution, and how far
to less culpable reasons, I do not pretend to decide; but this will be
admitted by every observer, that the circulation of pseudo news is the
frequent cause of incalculable losses. Nor is it alone in the matter of
circulating false information that these news vendors are at fault. The
habit of retailing “points” in the interest of cliques, the volunteering
of advice as to what people should buy and what they should sell, the
strong speculative bias that runs through their editorial opinions,
these things appear to most people a revolting abuse of the true
functions of journalism. But patent as these things are to those
educated in the ways of Wall Street, there is a large class who accept
such effusions as gospel, and are easily led by them into the clutches
of the sharks. It is but just, however, to acknowledge that with these
very serious drawbacks, both these classes of news agencies render
valuable service to Wall Street interests, and it is to be hoped that
experience will convince them that their enterprises would attain a
higher success through emulating a higher standard.
Another source of losses in speculation lies in the speculator not
holding back a cash reserve sufficient to protect him against an adverse
course of prices. Ordinarily, the man who speculates is of a sanguine
temperament, and apt to take risks without sufficient provision against
contingencies. Hence, it is common with inexperienced operators to use
all their available resources in their original margin. The result is
that, if prices go against them, they are liable to be closed out and
saddled with a loss they can ill afford. Such persons should never
pledge more than one-half of their available means at the beginning of a
transaction; the remaining half should be kept as a guarantee against
their being “sold out,” or to enable them to duplicate the transaction
at the changed price, so as to make an average likely to yield a profit.
The violation of this rule creates a class of weak holders, who offer a
constant inducement to “room-traders” to raid the market; knowing, as
they do, that when they have impaired these unsupported margins, there
is sure to be a rush of selling orders calculated to break down prices.
It is safe to say that if better provisions were made for keeping
margins good, the power of the “bears” and the wreckers would be broken;
one-half of the losses of “outside” operators would be obviated, and
one-half the risks of speculation would be obliterated.
Another class especially exposed to losses are those who always operate
in the same direction. Wall Street has its optimists and pessimists;
they are such from a constitutional bent; and they are “bull” or “bear”
in season and out of season. As a rule, those that follow a natural
disposition, rather than the course of the market and the conditions
that mould it, are sure to bankrupt themselves sooner or later. I do not
mean to maintain that there is no chance for an operator who clings
continuously to one side of the market; for in times when conditions
favor higher prices there is always some profitable work to be done by
the “bear” in checking excesses of a rise; and, when events favor
decline, the “bull” may find his chances in intervals of excessive
decline. But the man who can thus successfully steer his craft against
the winds and the tides must be a thoroughly trained navigator, cool in
temperament, capable of reining his natural proclivities, and above all,
the possessor of means large enough to control, if necessary, the course
of the market by sheer money power. It is needless to say that
nine-tenths of this stereotyped class are devoid of these requisites to
success. One cannot but pity the man with sallow face and sluggish gait
so suggestive of the blue pill, who, when everybody else is feeling the
happy impulse of a common prosperity, persists in believing that the
country is going to the dogs, and steadily sells stocks while everybody
else is buying them. He is simply ruining himself through
unconsciousness that he views everything through bilious spectacles.
Equally is the man to be commiserated who, from a constitutional
intoxication of hope, keeps on buying and holding when it is manifest
that the country has passed the summit of an era of prosperity and is
destined to a general reaction in trade and values. Of course, such men
never remain long in Wall Street; their pockets are soon emptied, and
they retire to reflect on the folly of refusing to appreciate and to
follow the natural drift of the conditions that regulate values.
A minor source of losses lies in operating at times when the market is
so evenly balanced between opposing forces that there is no chance for
making profits. At such times, operators get disgusted at the
sluggishness of the market; they change their holdings from day to day,
with no advantage except to their broker; and their monthly statement
shows a heavy list of charges for interest and commissions, with no
offset of profits. These intervals of stagnancy sometimes run for weeks,
sometimes for months; and at such times a wise speculator would take
care to keep out of the market and hold himself in readiness for
anything that may turn up.
It is necessary to the avoidance of loss that the operator should
maintain an intelligent watch upon the influences that control the
market. Those influences are two-fold—such as are intrinsic to the
market, and such as are external to it. Of the former class are those
that relate to the spirit and tone of the market; the position and
disposition of the cliques; the action of the large operators; the
overloaded or over-sold state of the market, as indicated by the loaning
rates for stocks; the influence exerted by the upward or downward
movements in stocks which at the moment are specially active; the
possibility of closing out holders on “stop orders” or on the impairment
of margins; the unloading of influential cliques and the covering of
important lines of short sales, &c., &c. Influences of this kind are
very frequently sufficient of themselves to control the market for a
considerable period in direct opposition to the tendency indicated by
external conditions. It is, however, no easy matter to form a correct
conclusion as to the drift resulting from this set of factors. They are
so concealed and so changeful, and the symptoms are so vague, that it
requires long experience, added to unusual sagacity, to determine what
may be the tendency resulting from the complex action and counteraction
of this set of conditions. Some exceptional operators enjoy an
instinctive faculty for weighing these shadowy indications with almost
unerring certainty. Such men usually care little about outside
influences, except so far as they may affect the market for the moment.
From the nature of the case, their transactions are apt to be brief
ones, and follow quickly the momentary course of the market They are
reckoned among the most sagacious speculators, and are usually very
successful. But their success is the result of a special natural gift,
and therefore cannot be won by others.
The second class of influences above alluded to as external to the
market are of a very broad and varied character. They embrace almost
everything that affects the welfare of the country. Those, however,
which are most potent are, the state of the crops; the condition of
manufacturing industries; the state and prospects of trade; the earnings
of the transportation companies; the course of the imports and exports;
the attitude of the foreign markets towards American securities; the
movements of the precious metals; the condition of the London and
Continental money markets; the position of the New York banks and the
course of currency movements; the action of Congress, of the
Legislatures and of the Courts on matters affecting the value of
investments; the acts of labor unions and the drift of labor agitations,
and the course of political and social issues. This may be considered a
rather startling list of topics for a man to keep himself well informed
upon, but there is not one of them which may not any day become a
controlling factor in the condition of the stock market. For a man,
therefore, who aims to keep his knowledge abreast with his business, it
is necessary that he should be a close observer of events. Undoubtedly
few possess this breadth of information, and most men think it
sufficient to get their knowledge as best they may when the events
happen. The misfortune in such cases is, that those better informed
utilize the event while the others are “getting posted.” Considering how
many half-informed or wholly ignorant persons engage in speculation with
more or less success, it cannot be pretended that to keep informed on
the foregoing set of conditions is essential to a fair degree of
success. But it must be maintained that such knowledge is of
incalculable value and that a man who has it is in a position to act
with more intelligence, assurance and success than one without it. To
those who desire to turn to account all coming changes, and to stand
always prepared for the good or evil events of the future, this
intelligent comprehension of the status of all the forces that make or
unmake values is absolutely indispensable. And yet it is one thing to
possess this information; another to know how to draw correct
conclusions from it, and yet another to know how best to use it in the