Reminiscences of a Stock Operator
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 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 character 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 might 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 blood-letting. 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 me--and, 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 Livingston and say to him that we hope he will not sell
any more stocks to-day. 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 to-day, 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
Livingston, 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.
_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 troubles. _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 commodities 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 preliminary 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