Reminiscences of a Stock Operator
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 comfortable, 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 Smelter 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 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 100 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 money--and 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 classroom
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 over-worked 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, if 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 profitable 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