Reminiscences of a Stock Operator
releases positively refused to accept it. The man I paid off the last
of all was the chap I owed the eight hundred dollars to, who had made
my life a burden and had upset me until I couldn’t trade. I let him
wait until he heard that I had paid off all the others. Then he got his
money. I wanted to teach him to be considerate the next time somebody
owed him a few hundreds.
And that is how I came back.
After I paid off my debts in full I put a pretty fair amount into
annuities. I made up my mind I wasn’t going to be strapped and
uncomfortable and minus a stake ever again. Of course, after I married
I put some money in trust for my wife. And after the boy came I put
some in trust for him.
The reason I did this was not alone the fear that the stock market
might take it away from me, but because I knew that a man will spend
anything he can lay his hands on. By doing what I did my wife and child
are safe from me.
More than one man I know has done the same thing, but has coaxed his
wife to sign off when he needed the money, and he has lost it. But I
have fixed it up so that no matter what I want or what my wife wants,
that trust holds. It is absolutely safe from all attacks by either of
us; safe from my market needs; safe even from a devoted wife’s love.
I’m taking no chances!
_XV_
Among the hazards of speculation the happening of the unexpected--I
might even say of the unexpectable--ranks high. _There are certain
chances that the most prudent man is justified in taking--chances
that he must take if he wishes to be more than a mercantile mollusk._
Normal business hazards are no worse than the risks a man runs when
he goes out of his house into the street or sets out on a railroad
journey. When I lose money by reason of some development which nobody
could foresee I think no more vindictively of it than I do of an
inconveniently timed storm. Life itself from the cradle to the grave is
a gamble and what happens to me because I do not possess the gift of
second sight I can bear undisturbed. But there have been times in my
career as a speculator when I have both been right and played square
and nevertheless I have been cheated out of my earnings by the sordid
unfairness of unsportsmanlike opponents.
Against misdeeds by crooks, cowards and crowds a quick-thinking or
far-sighted businessman can protect himself. I have never gone up
against downright dishonesty except in a bucket shop or two because
even there honesty was the best policy; the big money was in being
square and not in welshing. I have never thought it good business to
play any game in any place where it was necessary to keep an eye on
the dealer because he was likely to cheat if unwatched. But against
the whining welsher the decent man is powerless. Fair play is fair
play. I could tell you a dozen instances where I have been the victim
of my own belief in the sacredness of the pledged word or of the
inviolability of a gentlemen’s agreement. I shall not do so because no
useful purpose can be served thereby.
Fiction writers, clergymen and women are fond of alluding to the floor
of the Stock Exchange as a boodlers’ battlefield and to Wall Street’s
daily business as a fight. It is quite dramatic but utterly misleading.
I do not think that my business is strife and contest. I never
fight either individuals or speculative cliques. I merely differ in
opinion--that is, in my reading of basic conditions. What playwrights
call battles of business are not fights between human beings. They are
merely tests of business vision. _I try to stick to facts and facts
only, and govern my actions accordingly. That is Bernard M. Baruch’s
recipe for success in wealth-winning._ Sometimes I do not see the
facts--all the facts--clearly enough or early enough; or else I do not
reason logically. Whenever any of these things happen I lose. I am
wrong. And it always costs me money to be wrong.
No reasonable man objects to paying for his mistakes. There are no
preferred creditors in mistake-making and no exceptions or exemptions.
But I object to losing money when I am right. I do not mean, either,
those deals that have cost me money because of sudden changes in the
rules of some particular exchange. I have in mind certain hazards of
speculation that from time to time remind a man that no profit should
be counted safe until it is deposited in your bank to your credit.
After the Great War broke out in Europe there began the rise in the
prices of commodities that was to be expected. It was as easy to
foresee that as to foresee war inflation. Of course the general advance
continued as the war prolonged itself. As you may remember, I was busy
“coming back” in 1915. The boom in stocks was there and it was my duty
to utilise it. My safest, easiest and quickest big play was in the
stock market, and I was lucky, as you know.
By July, 1917, I not only had been able to pay off all my debts but was
quite a little to the good besides. This meant that I now had the time,
the money and the inclination to consider trading in commodities as
well as in stocks. For many years I have made it my practice to study
all the markets. The advance in commodity prices over the pre-war level
ranged from 100 to 400 per cent. There was only one exception, and that
was coffee. Of course there was a reason for this. The breaking out
of the war meant the closing up of European markets and huge cargoes
were sent to this country, which was the one big market. That led in
time to an enormous surplus of raw coffee here, and that, in turn, kept
the price low. Why, when I first began to consider its speculative
possibilities coffee was actually selling below pre-war prices. If the
reasons for this anomaly were plain, no less plain was it that the
active and increasingly efficient operation by the German and Austrian
submarines must mean an appalling reduction in the number of ships
available for commercial purposes. This eventually in turn must lead
to dwindling imports of coffee. With reduced receipts and an unchanged
consumption the surplus stocks must be absorbed, and when that happened
the price of coffee must do what the prices of all other commodities
had done, which was, go way up.
It didn’t require a Sherlock Holmes to size up the situation. Why
everybody did not buy coffee I cannot tell you. When I decided to
buy it I did not consider it a speculation. It was much more of an
investment. I knew it would take time to cash in, but I knew also
that it was bound to yield a good profit. That made it a conservative
investment operation--a banker’s act rather than a gambler’s play.
I started my buying operations in the winter of 1917. I took quite
a lot of coffee. The market, however, did nothing to speak of. It
continued inactive and as for the price, it did not go up as I had
expected. The outcome of it all was that I simply carried my line to
no purpose for nine long months. My contracts expired then and I sold
out all my options. I took a whopping big loss on that deal and yet I
was sure my views were sound. I had been clearly wrong in the matter of
time, but I was confident that coffee must advance as all commodities
had done, so that no sooner had I sold out my line than I started in to
buy again. I bought three times as much coffee as I had so unprofitably
carried during those nine disappointing months. Of course I bought
deferred options--for as long a time as I could get.
I was not so wrong now. As soon as I had taken on my trebled line the
market began to go up. People everywhere seemed to realise all of a
sudden what was bound to happen in the coffee market. It began to
look as if my investment was going to return me a mighty good rate of
interest.
The sellers of the contracts I held were roasters, mostly of German
names and affiliations, who had bought the coffee in Brazil confidently
expecting to bring it to this country. But there were no ships to bring
it, and presently they found themselves in the uncomfortable position
of having no end of coffee down there and being heavily short of it to
me up here.
Please bear in mind that I first became bullish on coffee while the
price was practically at a pre-war level, and don’t forget that after I
bought it I carried it the greater part of a year and then took a big
loss on it. The punishment for being wrong is to lose money. The reward
for being right is to make money. Being clearly right and carrying a
big line, I was justified in expecting to make a killing. It would not
take much of an advance to make my profit satisfactory to me, for I was
carrying several hundred thousand bags. I don’t like to talk about my
operations in figures because sometimes they sound rather formidable
and people might think I was boasting. As a matter of fact I trade
in accordance to my means and always leave myself an ample margin
of safety. In this instance I was conservative enough. The reason I
bought options so freely was because I couldn’t see how I could lose.
Conditions were in my favour. I had been made to wait a year, but now I
was going to be paid both for my waiting and for being right. I could
see the profit coming--fast. There wasn’t any cleverness about it. It
was simply that I wasn’t blind.
Coming sure and fast, that profit of millions! But it never reached
me. No; it wasn’t side-tracked by a sudden change in conditions. The
market did not experience an abrupt reversal of form. Coffee did not
pour into the country. What happened? The unexpectable! What had never
happened in anybody’s experience; what I therefore had no reason
to guard against. I added a new one to the long list of hazards of
speculation that I must always keep before me. It was simply that the
fellows who had sold me the coffee, the shorts, knew what was in store
for them, and in their efforts to squirm out of the position into which
they had sold themselves, devised a new way of welshing. They rushed to
Washington for help, and got it.
Perhaps you remember that the Government had evolved various plans
for preventing further profiteering in necessities. You know how
most of them worked. Well, the philanthropic coffee shorts appeared
before the Price Fixing Committee of the War Industries Board--I
think that was the official designation--and made a patriotic appeal
to that body to protect the American breakfaster. They asserted that
a professional speculator, one Lawrence Livingston, had cornered,
or was about to corner, coffee. If his speculative plans were not
brought to naught he would take advantage of the conditions created
by the war and the American people would be forced to pay exorbitant
prices for their daily coffee. It was unthinkable to the patriots who
had sold me cargoes of coffee they couldn’t find ships for, that one
hundred millions of Americans, more or less, should pay tribute to
conscienceless speculators. They represented the coffee trade, not the
coffee gamblers, and they were willing to help the Government curb
profiteering actual or prospective.
Now I have a horror of whiners and I do not mean to intimate that
the Price Fixing Committee was not doing its honest best to curb
profiteering and wastefulness. But that need not stop me from
expressing the opinion that the committee could not have gone very
deeply into the particular problem of the coffee market. They fixed
on a maximum price for raw coffee and also fixed a time limit for
closing out all existing contracts. This decision meant, of course,
that the Coffee Exchange would have to go out of business. There was
only one thing for me to do and I did it, and that was to sell out my
contracts. Those profits of millions that I had deemed as certain to
come my way as any I ever made failed completely to materialise. I was