Reminiscences of a Stock Operator
That was what the Cosmopolitan did to get me and Henry Williams and the
other Sugar shorts. Their brokers in New York ran up the price to 108.
Of course it fell right back, but Henry and a lot of others were wiped
out. Whenever there was an unexplained sharp drop which was followed
by instant recovery, the newspapers in those days used to call it a
bucket-shop drive.
And the funniest thing was that not later than ten days after the
Cosmopolitan people tried to double-cross me a New York operator did
them out of over seventy thousand dollars. This man, who was quite a
market factor in his day and a member of the New York Stock Exchange,
made a great name for himself as a bear during the Bryan panic of
’96. He was forever running up against Stock Exchange rules that
kept him from carrying out some of his plans at the expense of his
fellow members. One day he figured that there would be no complaints
from either the Exchange or the police authorities if he took from
the bucket shops of the land some of their ill-gotten gains. In the
instance I speak of he sent thirty-five men to act as customers. They
went to the main office and to the bigger branches. On a certain day
at a fixed hour the agents all bought as much of a certain stock as
the managers would let them. They had instructions to sneak out at a
certain profit. Of course what he did was to distribute bull tips on
that stock among his cronies and then he went in to the floor of the
Stock Exchange and bid up the price, helped by the room traders, who
thought he was a good sport. Being careful to pick out the right stock
for that work, there was no trouble in putting up the price three or
four points. His agents at the bucket shops cashed in as prearranged.
A fellow told me the originator cleaned up seventy thousand dollars
net, and his agents made their expenses and their pay besides. He
played that game several times all over the country, punishing the
bigger bucket shops of New York, Boston, Philadelphia, Chicago,
Cincinnati and St. Louis. One of his favorite stocks was Western Union,
because it was so easy to move a semiactive stock like that a few
points up or down. His agents bought it at a certain figure, sold at
two points profit, went short and took three points more. By the way, I
read the other day that that man died, poor and obscure. If he had died
in 1896 he would have got at least a column on the first page of every
New York paper. As it was he got two lines on the fifth.
_II_
Between the discovery that the Cosmopolitan Stock Brokerage Company was
ready to beat me by foul means if the killing handicap of a three-point
margin and a point-and-a-half premium didn’t do it, and hints that they
didn’t want my business anyhow, I soon made up my mind to go to New
York, where I could trade in the office of some member of the New York
Stock Exchange. I didn’t want any Boston branch, where the quotations
had to be telegraphed. I wanted to be close to the original source.
I came to New York at the age of 21, bringing with me all I had,
twenty-five hundred dollars.
I told you I had ten thousand dollars when I was twenty, and my margin
on that Sugar deal was over ten thousand. But I didn’t always win. My
plan of trading was sound enough and won oftener than it lost. If I
had stuck to it I’d have been right perhaps as often as seven out of
ten times. _In fact, I always made money when I was sure I was right
before I began. What beat me was not having brains enough to stick to
my own game--that is, to play the market only when I was satisfied
that precedents favored my play._ There is a time for all things, but
I didn’t know it. And that is precisely what beats so many men in Wall
Street who are very far from being in the main sucker class. There is
the plain fool, who does the wrong thing at all times everywhere, but
there is the Wall Street fool, who thinks he must trade all the time.
No man can always have adequate reasons for buying or selling stocks
daily--or sufficient knowledge to make his play an intelligent play.
I proved it. Whenever I read the tape by the light of experience I
made money, but when I made a plain fool play I had to lose. I was no
exception, was I? There was the huge quotation board staring me in
the face, and the ticker going on, and people trading and watching
their tickets turn into cash or into waste paper. Of course I let the
craving for excitement get the better of my judgment. In a bucket
shop where your margin is a shoestring you don’t play for long pulls.
You are wiped too easily and quickly. The desire for constant action
irrespective of underlying conditions is responsible for many losses
in Wall Street even among the professionals, who feel that they must
take home some money every day, as though they were working for regular
wages. I was only a kid, remember. [I did not know then what I learned
later, what made me fifteen years later, wait two long weeks and see
a stock on which I was very bullish go up thirty points before I felt
that it was safe to buy it. I was broke and was trying to get back,
and I couldn’t afford to play recklessly. I had to be right, and so I
waited.] That was in 1915. It’s a long story. I’ll tell it later in its
proper place. Now let’s go on from where after years of practice at
beating them I let the bucket shops take away most of my winnings.
And with my eyes wide open, to boot! And it wasn’t the only period of
my life when I did it, either. A stock operator has to fight a lot
of expensive enemies within himself. Anyhow, I came to New York with
twenty-five hundred dollars. There were no bucket shops here that a
fellow could trust. The Stock Exchange and the police between them
had succeeded in closing them up pretty tight. Besides, I wanted to
find a place where the only limit to my trading would be the size of
my stake. I didn’t have much of one, but I didn’t expect it to stay
little forever. The main thing at the start was to find a place where
I wouldn’t have to worry about getting a square deal. So I went to
a New York Stock Exchange house that had a branch at home where I
knew some of the clerks. They have long since gone out of business. I
wasn’t there long, didn’t like one of the partners, and then I went
to A. R. Fullerton & Co. Somebody must have told them about my early
experiences, because it was not long before they all got to calling me
the Boy Trader. I’ve always looked young. It was a handicap in some
ways but it compelled me to fight for my own because so many tried to
take advantage of my youth. The chaps at the bucket shops seeing what a
kid I was, always thought I was a fool for luck and that was the only
reason why I beat them so often.
Well, it wasn’t six months before I was broke. I was a pretty active
trader and had a sort of reputation as a winner. I guess my commissions
amounted to something. I ran up my account quite a little, but, of
course, in the end I lost. I played carefully; but I had to lose. I’ll
tell you the reason: it was my remarkable success in the bucket shops!
I could beat the game my way only in a bucket shop, where I was betting
on fluctuations. My tape reading had to do with that exclusively. When
I bought the price was there on the quotation board, right in front
of me. Even before I bought I knew exactly the price I’d have to pay
for my stock. And I always could sell on the instant. I could scalp
successfully, because I could move like lightning. [I could follow up
my luck or cut my loss in a second.] Sometimes, for instance, I was
certain a stock would move at least a point. Well, I didn’t have to
hog it, I could put up a point margin and double my money in a jiffy;
or I’d take half a point. On one or two hundred shares a day, that
wouldn’t be bad at the end of the month, what?
The practical trouble with that arrangement, of course, was that even
if the bucket shop had the resources to stand a big steady loss, they
wouldn’t do it. They wouldn’t have a customer around the place who had
the bad taste to win all the time.
At all events, what was a perfect system for trading in bucket shops
didn’t work in Fullerton’s office. There I was actually buying and
selling stocks. The price of Sugar on the tape might be 105 and I could
see a three-point drop coming. As a matter of fact, at the very moment
the ticker was printing 105 on the tape the real price on the floor
of the Exchange might be 104 or 103. By the time my order to sell a
thousand shares got to Fullerton’s floor man to execute, the price
might be still lower. I couldn’t tell at what price I had put out my
thousand shares until I got a report from the clerk. When I surely
would have made three thousand on the same transaction in a bucket shop
I might not make a cent in a Stock Exchange house. Of course, I have
taken an extreme case, but the fact remains that in A. R. Fullerton’s
office the tape always talked ancient history to me, as far as my
system of trading went, and I didn’t realise it.
And then, too, if my order was fairly big my own sale would tend
further to depress the price. In the bucket shop I didn’t have to
figure on the effect of my own trading. I lost in New York because the
game was altogether different. It was not that I now was playing it
legitimately that made me lose, but that I was playing it ignorantly.
I have been told that I am a good reader of the tape. But reading
the tape like an expert did not save me. I might have made out a
great deal better if I had been on the floor myself, a room trader.
In a particular crowd perhaps I might have adapted my system to the
conditions immediately before me. But, of course, if I had got to
operating on such a scale as I do now, for instance, the system would
have equally failed me, on account of the effect of my own trading on
prices.
In short, I did not know the game of stock speculation. I knew a part
of it, a rather important part, which has been very valuable to me at
all times. But if with all I had I still lost, what chance does the
green outsider have of winning, or, rather, of cashing in?
It didn’t take me long to realise that there was something wrong with
my play, but I couldn’t spot the exact trouble. There were times when
my system worked beautifully, and then, all of a sudden, nothing but
one swat after another. I was only twenty-two, remember; not that I
was so stuck on myself that I didn’t want to know just where I was at
fault, but that at that age nobody knows much of anything.
The people in the office were very nice to me. I couldn’t plunge as I
wanted to because of their margin requirements, but old A. R. Fullerton
and the rest of the firm were so kind to me that after six months of
active trading I not only lost all I had brought and all that I had
made there but I even owed the firm a few hundreds.
There I was, a mere kid, who had never before been away from home,
flat broke; but I knew there wasn’t anything wrong with me; only with
my play. I don’t know whether I make myself plain, but I never lose my
temper over the stock market. I never argue with the tape. Getting sore
at the market doesn’t get you anywhere.
I was so anxious to resume trading that I didn’t lose a minute, but
went to old man Fullerton and said to him, “Say, A. R., lend me five
hundred dollars.”
“What for?” says he.
“I’ve got to have some money.”
“What for?” he says again.
“For margin, of course,” I said.
“Five hundred dollars?” he said, and frowned. “You know they’d expect
you to keep up a 10 per cent margin, and that means one thousand
dollars on one hundred shares. Much better to give you a credit----”
“No,” I said, “I don’t want a credit here. I already owe the firm
something. What I want is for you to lend me five hundred dollars so I