Reminiscences of a Stock Operator
regular dividends and had a good property. I bought all the D.L.&W.
stock I could. Since that time the capital stock has been doubled
and quadrupled. My annual dividends amount to as much as my original
investment. I still have my D.L.&W. And Atchison went into the hands of
a receiver a few months after I saw the president throwing sheet after
sheet of linen paper with engraved letterheads in two colors into the
waste-basket to prove to me with figures that he was not extravagant.”
And the beauty of that story is that it is true and that no other stock
that the Pennsylvania Dutchman could have bought would have proved to
be so good an investment as D.L.&W.
_XVII_
One of my most intimate friends is very fond of telling stories about
what he calls my hunches. He is forever ascribing to me powers that
defy analysis. He declares I merely follow blindly certain mysterious
impulses and thereby get out of the stock market at precisely the
right time. His pet yarn is about a black cat that told me, at his
breakfast-table, to sell a lot of stock I was carrying, and that after
I got the pussy’s message I was grouchy and nervous until I sold every
share I was long of. I got practically the top prices of the movement,
which of course strengthened the hunch theory of my hard-headed friend.
I had gone to Washington to endeavor to convince a few Congressmen that
there was no wisdom in taxing us to death and I wasn’t paying much
attention to the stock market. My decision to sell out my line came
suddenly, hence my friend’s yarn.
I admit that I do get irresistible impulses at times to do certain
things in the market. It doesn’t matter whether I am long or short of
stocks. I must get out. I am uncomfortable until I do. I myself think
that what happens is that I see a lot of warning-signals. Perhaps not
a single one may be sufficiently clear or powerful to afford me a
positive, definite reason for doing what I suddenly feel like doing.
Probably that is all there is to what they call “ticker-sense” that
old traders say James R. Keene had so strongly developed and other
operators before him. Usually, I confess, the warning turns out to be
not only sound but timed to the minute. But in this particular instance
there was no hunch. The black cat had nothing to do with it. What he
tells everybody about my getting up so grumpy that morning I suppose
can be explained--if I in truth was grouchy--by my disappointment. I
knew I was not convincing the Congressman I talked to and the Committee
did not view the problem of taxing Wall Street as I did. I wasn’t
trying to arrest or evade taxation on stock transactions but to suggest
a tax that I as an experienced stock operator felt was neither unfair
nor unintelligent. I didn’t want Uncle Sam to kill the goose that
could lay so many golden eggs with fair treatment. Possibly my lack of
success not only irritated me but made me pessimistic over the future
of an unfairly taxed business. But I’ll tell you exactly what happened.
At the beginning of the bull market I thought well of the outlook in
both the Steel trade and the Copper market and I therefore felt bullish
on stocks of both groups. So I started to accumulate some of them.
I began by buying 5000 shares of Utah Copper and stopped because it
didn’t act right. That is, it did not behave as it should have behaved
to make me feel I was wise in buying it. I think the price was around
114. I also started to buy United States Steel at almost the same
price. I bought in all 20,000 shares the first day because it did act
right. I followed the method I have described before.
Steel continued to act right and I therefore continued to accumulate
it until I was carrying 72,000 shares of it in all. But my holdings of
Utah Copper consisted of my initial purchase. I never got above the
5000 shares. Its behaviour did not encourage me to do more with it.
Everybody knows what happened. We had a big bull movement. I knew
the market was going up. General conditions were favourable. Even
after stocks had gone up extensively and my paper profit was not to
be sneezed at, the tape kept trumpeting: _Not yet! Not yet!_ When I
arrived in Washington the tape was still saying that to me. Of course,
I had no intention of increasing my line at that late day, even though
I was still bullish. At the same time, the market was plainly going my
way and there was no occasion for me to sit in front of a quotation
board all day, in hourly expectation of getting a tip to get out.
Before the clarion call to retreat came--barring an utterly unexpected
catastrophe, of course--the market would hesitate or otherwise prepare
me for a reversal of the speculative situation. That was the reason why
I went blithely about my business with my Congressman.
At the same time, prices kept going up and that meant that the end of
the bull market was drawing nearer. I did not look for the end on any
fixed date. That was something quite beyond my power to determine. But
I needn’t tell you that I was on the watch for the tip-off. I always
am, anyhow. It has become a matter of business habit with me.
I cannot swear to it but I rather suspect that the day before I sold
out, seeing the high prices made me think of the magnitude of my
paper profit as well as of the line I was carrying and, later on, of my
vain efforts to induce our legislators to deal fairly and intelligently
by Wall Street. That was probably the way and the time the seed was
sown within me. The subconscious mind worked on it all night. In the
morning I thought of the market and began to wonder how it would act
that day. When I went down to the office I saw not so much that prices
were still higher and that I had a satisfying profit but that there
was a great big market with a tremendous power of absorption. I could
sell any amount of stock in that market; and, of course, when a man
is carrying his full line of stocks, he must be on the watch for an
opportunity to change his paper profit into actual cash. He should try
to lose as little of the profit as possible in the swapping. Experience
has taught me that a man can always find an opportunity to make his
profits real and that this opportunity usually comes at the end of the
move. That isn’t tape-reading or a hunch.
Of course, when I found that morning a market in which I could sell
out all my stocks without any trouble I did so. When you are selling
out it is no wiser or braver to sell fifty shares than fifty thousand;
but fifty shares you can sell in the dullest market without breaking
the price and fifty thousand shares of a single stock is a different
proposition. I had seventy-two thousand shares of U.S. Steel. This may
not seem a colossal line, but you can’t always sell that much without
losing some of that profit that looks so nice on paper when you figure
it out and that hurts as much to lose as if you actually had it safe in
the bank.
I had a total profit of about $1,500,000 and I grabbed it while the
grabbing was good. But that wasn’t the principal reason for thinking
that I did the right thing in selling out when I did. The market proved
it for me and that was indeed a source of satisfaction for me. It was
this way: I succeeded in selling my entire line of seventy-two thousand
shares of U.S. Steel at a price which averaged me just one point from
the top of the day and of the movement. It proved that I was right, to
the minute. But when, on the very same hour of the very same day I came
to sell my 5000 shares of Utah Copper, the price broke five points.
Please recall that I began buying both stocks at the same time and that
I acted wisely in increasing my line of U.S. Steel from twenty thousand
shares to seventy-two thousand, and equally wisely in not increasing
my line of Utah from the original 5000 shares. The reason why I didn’t
sell out my Utah Copper before was that I was bullish on the copper
trade and it was a bull market in stocks and I didn’t think that Utah
would hurt me much even if I didn’t make a killing in it. But as for
hunches, there weren’t any.
The training of a stock trader is like a medical education. The
physician has to spend long years learning anatomy, physiology, materia
medica and collateral subjects by the dozen. He learns the theory
and then proceeds to devote his life to the practice. He observes and
classifies all sorts of pathological phenomena. He learns to diagnose.
If his diagnosis is correct--and that depends upon the accuracy of
his observation--he ought to do pretty well in his prognosis, always
keeping in mind, of course, that human fallibility and the utterly
unforeseen will keep him from scoring 100 per cent of bull’s-eyes.
And then, as he gains in experience, he learns not only to do the
right thing but to do it instantly, so that many people will think he
does it instinctively. It really isn’t automatism. It is that he has
diagnosed the case according to his observations of such cases during
a period of many years; and, naturally, after he has diagnosed it, he
can only treat it in the way that experience has taught him is the
proper treatment. You can transmit knowledge--that is, your particular
collection of card-indexed facts--but not your experience. _A man may
know what to do and lose money--if he doesn’t do it quickly enough._
Observation, experience, memory and mathematics--these are what the
successful trader must depend on. He must not only observe accurately
but remember at all times what he has observed. He cannot bet on
the unreasonable or on the unexpected, however strong his personal
convictions may be about man’s unreasonableness or however certain
he may feel that the unexpected happens very frequently. He must bet
always on probabilities--that is, try to anticipate them. Years of
practice at the game, of constant study, of always remembering, enable
the trader to act on the instant when the unexpected happens as well as
when the expected comes to pass.
A man can have great mathematical ability and an unusual power of
accurate observation and yet fail in speculation unless he also
possesses _the experience and the memory_. And then, like the physician
who keeps up with the advances of science, _the wise trader never
ceases to study general conditions, to keep track of developments
everywhere that are likely to affect or influence the course of the
various markets_. After years at the game it becomes a habit to keep
posted. He acts almost automatically. He requires the invaluable
professional attitude and that enables him to beat the game--at times!
This difference between the professional and the amateur or occasional
trader cannot be overemphasised. I find, for instance, that memory
and mathematics help me very much. Wall Street makes its money on a
mathematical basis. I mean, _it makes its money by dealing with facts
and figures_.
When I said that a trader has to keep posted to the minute and that he
must take a purely professional attitude toward all markets and all
developments, I merely meant to emphasise again that hunches and the
mysterious ticker-sense haven’t so much to do with success. Of course,
it often happens that an experienced trader acts so quickly that he
hasn’t time to give all his reasons in advance--but nevertheless they
are good and sufficient reasons, because they are based on facts
collected by him in his years of working and thinking and seeing things
from the angle of the professional, to whom everything that comes
to his mill is grist. Let me illustrate what I mean by professional
attitude.
I keep track of the commodities markets, always. It is a habit of
years. As you know, the Government reports indicated a winter wheat
crop about the same as last year and a bigger spring wheat crop than