Reminiscences of a Stock Operator
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
160. 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. 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 into 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, 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 10
per cent dividend on the stock. At first nobody in Wall Street believed
it. It was too much like the desperate manœuvre 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 new 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 the unprecedented 10 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
165 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 174 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.
_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 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 up 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 111¾, 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 112¼, and then rallies. Well,
just as it goes back to 113¾ I shoot an order to buy four thousand--at
the market of course. Well, if I get that four thousand at 113¾ 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 113¾ I get two thousand at 114 and five hundred at 114½ and the
rest on the way up so that for the last five hundred I pay 115½. 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 you 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