Reminiscences of a Stock Operator

and am as keen as anybody against the profiteer in the necessaries of life, but at the time the Price Fixing Committee made their ruling on coffee, all other commodities were selling at from 250 to 400 per cent above pre-war prices while raw coffee was actually below the average prevailing for some years before the war. I can’t see that it made any real difference who held the coffee. The price was bound to advance; and the reason for that was not the operations of conscienceless speculators, but the dwindling surplus for which the diminishing importations were responsible, and they in turn were affected exclusively by the appalling destruction of the world’s ships by the German submarines. The committee did not wait for coffee to start; they clamped on the brakes. As a matter of policy and of expediency it was a mistake to force the Coffee Exchange to close just then. If the committee had let coffee alone the price undoubtedly would have risen for the reasons I have already stated, which had nothing to do with any alleged corner. But the high price--which need not have been exorbitant--would have been an incentive to attract supplies to this market. I have heard Mr. Bernard M. Baruch say that the War Industries Board took into consideration this factor--the insuring of a supply--in fixing prices, and for that reason some of the complaints about the high limit on certain commodities were unjust. When the Coffee Exchange resumed business, later on, coffee sold at twenty-three cents. The American people paid that price because of the small supply, and the supply was small because the price had been fixed too low, at the suggestion of philanthropic shorts, to make it possible to pay the high ocean freights and thus insure continued importations. I have always thought that my coffee deal was the most legitimate of all my trades in commodities. I considered it more of an investment than a speculation. I was in it over a year. If there was any gambling it was done by the patriotic roasters with German names and ancestry. They had coffee in Brazil and they sold it to me in New York. The Price Fixing Committee fixed the price of the only commodity that had not advanced. They protected the public against profiteering before it started, but not against the inevitable higher prices that followed. Not only that, but even when green coffee hung around nine cents a pound, roasted coffee went up with everything else. It was only the roasters who benefited. If the price of green coffee had gone up two or three cents a pound it would have meant several millions for me. And it wouldn’t have cost the public as much as the later advance did. Post-mortems in speculation are a waste of time. They get you nowhere. But this particular deal has a certain educational value. It was as pretty as any I ever went into. The rise was so sure, so logical, that I figured that I simply couldn’t help making several millions of dollars. But I didn’t. On two other occasions I have suffered from the action of exchange committees making rulings that changed trading rules without warning. But in those cases my own position, while technically right, was not quite so sound commercially as in my coffee trade. You cannot be dead sure of anything in a speculative operation. It was the experience I have just told you that made me add the unexpectable to the unexpected in my list of hazards. After the coffee episode I was so successful in other commodities and on the short side of the stock market, that I began to suffer from silly gossip. The professionals in Wall Street and the newspaper writers got the habit of blaming me and my alleged raids for the inevitable breaks in prices. At times my selling was called unpatriotic--whether I was really selling or not. The reason for exaggerating the magnitude and the effect of my operations, I suppose, was the need to satisfy the public’s insatiable demand for reasons for each and every price movement. As I have said a thousand times, no manipulation can put stocks down and keep them down. There is nothing mysterious about this. The reason is plain to everybody who will take the trouble to think about it half a minute. Suppose an operator raided a stock--that is, put the price down to a level below its real value--what would inevitably happen? Why, the raider would at once be up against the best kind of inside buying. The people who know what a stock is worth will always buy it when it is selling at bargain prices. _If the insiders are not able to buy, it will be because general conditions are against their free command of their own resources, and such conditions are not bull conditions._ When people speak about raids the inference is that the raids are unjustified; almost criminal. But selling a stock down to a price much below what it is worth is mighty dangerous business. It is well to bear in mind that a raided stock that fails to rally is not getting much inside buying and where there is a raid--that is, unjustified short selling--there is usually apt to be inside buying; and when there is that, the price does not stay down. I should say that in ninety-nine cases out of a hundred, so-called raids are really legitimate declines, accelerated at times but not primarily caused by the operations of a professional trader, however big a line he may be able to swing. The theory that most of the sudden declines or particular sharp breaks are the results of some plunger’s operations probably was invented as an easy way of supplying reasons to those speculators who, being nothing but blind gamblers, will believe anything that is told them rather than do a little thinking. The raid excuse for losses that unfortunate speculators so often receive from brokers and financial gossipers is really an inverted tip. The difference lies in this: A bear tip is distinct, positive advice to sell short. But the inverted tip--that is, the explanation that does not explain--serves merely to keep you from wisely selling short. _The natural tendency when a stock breaks badly is to sell it. There is a reason--an unknown reason but a good reason; therefore, get out._ But it is not wise to get out when the break is the result of a raid by an operator, because the moment he stops the price must rebound. Inverted tips! _XVI_ Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but after any tip. If it makes good, fine! If it doesn’t, better luck with the next. I am thinking of the average customer of the average commission house. There is a type of promoter or manipulator that believes in tips first, last and all the time. A good flow of tips is considered by him as a sort of sublimated publicity work, the best merchandising dope in the world, for, since tip-seekers and tip-takers are invariably tip-passers, tip-broadcasting becomes a sort of endless-chain advertising. The tipster-promoter labours under the delusion that no human being breathes who can resist a tip if properly delivered. He studies the art of handing them out artistically. I get tips by the hundreds every day from all sorts of people. I’ll tell you a story about Borneo Tin. You remember when the stock was brought out? It was at the height of the boom. The promoter’s pool had taken the advice of a very clever banker and decided to float the new company in the open market at once instead of letting an underwriting syndicate take its time about it. It was good advice. The only mistake the members of the pool made came from inexperience. They did not know what the stock market was capable of doing during a crazy boom and at the same time they were not intelligently liberal. They were agreed on the need of marking up the price in order to market the stock, but they started the trading at a figure at which the traders and the speculative pioneers could not buy it without misgivings. By rights the promoters ought to have got stuck with it, but in the wild bull market their hoggishness turned out to be rank conservatism. The public was buying anything that was adequately tipped. Investments were not wanted. The demand was for easy money; for the sure gambling profit. Gold was pouring into this country through the huge purchases of war material. They tell me that the promoters, while making their plans for bringing out Borneo stock, marked up the opening price three different times before their first transaction was officially recorded for the benefit of the public. I had been approached to join the pool and I had looked into it but I didn’t accept the offer because if there is any market manoeuvring to do, I like to do it myself. I trade on my own information and follow my own methods. When Borneo Tin was brought out, knowing what the pool’s resources were and what they had planned to do, and also knowing what the public was capable of, I bought ten thousand shares during the first hour of the first day. Its market début was successful at least to that extent. As a matter of fact the promoters found the demand so active that they decided it would be a mistake to lose so much stock so soon. They found out that I had acquired my ten thousand shares about at the same time that they found out that they would probably be able to sell every share they owned if they merely marked up the price twenty-five or thirty points. They therefore concluded that the profit on my ten thousand shares would take too big a chunk out of the millions they felt were already as good as banked. So they actually ceased their bull operations and tried to shake me out. But I simply sat tight. They gave me up as a bad job because they didn’t want the market to get away from them, and then they began to put up the price, without losing any more stock than they could help. They saw the crazy height that other stocks rose to and they began to think in billions. Well, when Borneo Tin got up to 120 I let them have my ten thousand shares. It checked the rise and the pool managers let up on their jacking-up process. On the next general rally they again tried to make an active market for it and disposed of quite a little, but the merchandising proved to be rather expensive. Finally they marked it up to 150. But the bloom was off the bull market for keeps, so the pool was compelled to market what stock it could on the way down to those people who love to buy after a good reaction, on the fallacy that a stock that has once sold at 150 must be cheap at 130 and a great bargain at 120. Also, they passed the tip to the floor traders, who often are able to make a temporary market, and later to the commission houses. Every little helped and the pool was using every device known. The trouble was that the time for bulling stocks had passed. The suckers had swallowed other hooks. The Borneo bunch didn’t or wouldn’t see it. I was down in Palm Beach with my wife. One day I made a little money at Gridley’s and when I got home I gave Mrs. Livingston a five-hundred-dollar bill out of it. It was a curious coincidence, but that same night she met at a dinner the president of the Borneo Tin Company, a Mr. Wisenstein, who had become the manager of the stock pool. We didn’t learn until some time afterward that this Wisenstein deliberately manœuvred so that he sat next to Mrs. Livingston at dinner. He laid himself out to be particularly nice to her and talked most entertainingly. In the end he told her, very confidentially, “Mrs. Livingston, I’m going to do something I’ve never done before. I am very