Reminiscences of a Stock Operator

“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 skillful reading of the tape, but as a 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 counsellors. 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 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 books. 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 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 was 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 competitive 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 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. _IX_ I 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. Moderate 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