Reminiscences of a Stock Operator
before it reached the public. But the confirmation of the reports of
striking barren rock instead of rich ore merely gave me the reason for
the earlier inside selling. I myself didn’t sell on the news. I had
sold long before, on the stock’s behaviour. My concern with it was
not philosophical. I am a trader and therefore looked for one sign:
Inside buying. There wasn’t any. I didn’t have to know why the insiders
did not think enough of their own stock to buy it on the decline. It
was enough that their market plans plainly did not include further
manipulation for the rise. That made it a cinch to sell the stock
short. The public had bought almost a half million shares and the only
change in ownership possible was from one set of ignorant outsiders who
would sell in the hope of stopping losses to another set of ignorant
outsiders who might buy in the hope of making money.
I am not telling you this to moralise on the public’s losses through
their buying of Guiana or on my profit through my selling of it, but
to emphasise how important the study of group-behaviourism is and how
its lessons are disregarded by inadequately equipped traders, big and
little. And it is not only in the stock market that the tape warns you.
It blows the whistle quite as loudly in commodities.
I had an interesting experience in cotton. I was bearish on stocks and
put out a moderate short line. At the same time I sold cotton short;
50,000 bales. My stock deal proved profitable and I neglected my
cotton. The first thing I knew I had a loss of $250,000 on my 50,000
bales. As I said, my stock deal was so interesting and I was doing
so well in it that I did not wish to take my mind off it. Whenever I
thought of cotton I just said to myself: “I’ll wait for a reaction and
cover.” The price would react a little but before I could decide to
take my loss and cover, the price would rally again, and go higher than
ever. So I’d decide again to wait a little and I’d go back to my stock
deal and confine my attention to that. Finally I closed out my stocks
at a very handsome profit and went away to Hot Springs for a rest and a
holiday.
That really was the first time that I had my mind free to deal with the
problem of my losing deal in cotton. The trade had gone against me.
There were times when it almost looked as if I might win out. I noticed
that whenever anybody sold heavily there was a good reaction. But
almost instantly the price would rally and make a new high for the move.
Finally, by the time I had been in Hot Springs a few days, I was a
million to the bad and no let up in the rising tendency. I thought
over all I had done and had not done and I said to myself: “I must be
wrong!” With me to feel that I am wrong and to decide to get out are
practically one process. So I covered, at a loss of about one million.
The next morning I was playing golf and not thinking of anything else.
I had made my play in cotton. I had been wrong. I had paid for being
wrong and the receipted bill was in my pocket. I had no more concern
with the cotton market than I have at this moment. When I went back
to the hotel for luncheon I stopped at the broker’s office and took a
look at the quotations. I saw that cotton had gone off 50 points. That
wasn’t anything. But I also noticed that it had not rallied as it had
been in the habit of doing for weeks, as soon as the pressure of the
particular selling that had depressed it eased up. This had indicated
that the line of least resistance was upward and it had cost me a
million to shut my eyes to it.
Now, however, the reason that had made me cover at a big loss was no
longer a good reason since there had not been the usual prompt and
vigorous rally. So I sold 10,000 bales and waited. Pretty soon the
market went off 50 points. I waited a little while longer. There was no
rally. I had got pretty hungry by now, so I went into the dining-room
and ordered my luncheon. Before the waiter could serve it, I jumped up,
went to the broker’s office, I saw that there had been no rally and so
I sold 10,000 bales more. I waited a little and had the pleasure of
seeing the price decline 40 points more. That showed me I was trading
correctly so I returned to the dining-room ate my luncheon and went
back to the broker’s. There was no rally in cotton that day. That very
night I left Hot Springs.
It was all very well to play golf but I had been wrong in cotton in
selling when I did and in covering when I did. So I simply had to get
back on the job and be where I could trade in comfort. The way the
market took my first ten thousand bales made me sell the second ten
thousand, and the way the market took the second made me certain the
turn had come. It was the difference in behaviour.
Well, I reached Washington and went to my brokers’ office there, which
was in charge of my old friend Tucker. While I was there the market
went down some more. I was more confident of being right now than I had
been of being wrong before. So I sold 40,000 bales and the market went
off 75 points. It showed that there was no support there. That night
the market closed still lower. The old buying power was plainly gone.
There was no telling at what level that power would again develop, but
I felt confident of the wisdom of my position. The next morning I left
Washington for New York by motor. There was no need to hurry.
When we got to Philadelphia I drove to a broker’s office. I saw that
there was the very dickens to pay in the cotton market. Prices had
broken badly and there was a small-sized panic on. I didn’t wait to get
to New York. I called up my brokers on the long distance and I covered
my shorts. As soon as I got my reports and found that I had practically
made up my previous loss, I motored on to New York without having to
stop en route to see any more quotations.
Some friends who were with me in Hot Springs talk to this day of
the way I jumped up from the luncheon table to sell that second lot
of 10,000 bales. But again that clearly was not a hunch. It was an
impulse that came from the conviction that the time to sell cotton
had now come, however great my previous mistake had been. I had to
take advantage of it. It was my chance. The subconscious mind probably
went on working, reaching conclusions for me. The decision to sell in
Washington was the result of my observation. My years of experience in
trading told me that the line of least resistance had changed from up
to down.
I bore the cotton market no grudge for taking a million dollars out of
me and I did not hate myself for making a mistake of that calibre any
more than I felt proud for covering in Philadelphia and making up my
loss. My trading mind concerns itself with trading problems and I think
I am justified in asserting that I made up my first loss because I had
the experience and the memory.
_XVIII_
History repeats itself all the time in Wall Street. Do you remember a
story I told you about covering my shorts at the time Stratton had corn
cornered? Well, another time I used practically the same tactics in the
stock market. The stock was Tropical Trading. I have made money bulling
it and also bearing it. It always was an active stock and a favourite
with adventurous traders. The inside coterie has been accused time and
again by the newspapers of being more concerned over the fluctuations
in the stock than with encouraging permanent investment in it. The
other day one of the ablest brokers I know asserted that not even
Daniel Drew in Erie or H. O. Havemeyer in Sugar developed so perfect a
method for milking the market for a stock as President Mulligan and his
friends have done in Tropical Trading. Many times they have encouraged
the bears to sell TT short and then have proceeded to squeeze them with
business-like thoroughness. There was no more vindictiveness about the
process than is felt by a hydraulic press--or no more squeamishness,
either.
Of course, there have been people who have spoken about certain
“unsavory incidents” in the market career of TT stock. But I dare
say these critics were suffering from the squeezing. Why do the room
traders, who have suffered so often from the loaded dice of the
insiders, continue to go up against the game? Well, for one thing they
like action and they certainly get it in Tropical Trading. No prolonged
spells of dullness. No reasons asked or given. No time wasted. No
patience strained by waiting for the tipped movement to begin. Always
enough stock to go around--except when the short interest is big enough
to make the scarcity worthwhile. One born every minute!
It so happened some time ago that I was in Florida on my usual winter
vacation. I was fishing and enjoying myself without any thought of the
markets excepting when we received a batch of newspapers. One morning
when the semi-weekly mail came in I looked at the stock quotations and
saw that Tropical Trading was selling at 155. The last time I’d seen a
quotation in it, I think, was around 140. My opinion was that we were
going into a bear market and I was biding my time before going short of
stocks. But there was no mad rush. That was why I was fishing and out
of hearing of the ticker. I knew that I’d be back home when the real
call came. In the meanwhile nothing that I did or failed to do would
hurry matters a bit.
The behaviour of Tropical Trading was the outstanding feature of the
market, according to the newspapers I got that morning. It served to
crystallise my general bearishness because I thought it particularly
asinine for the insiders to run up the price of TT in the face of the
heaviness of the general list. There are times when the milking process
must be suspended. What is abnormal is seldom a desirable factor in
a trader’s calculations and it looked to me as if the marking up of
that stock were a capital blunder. Nobody can make blunders of that
magnitude with impunity; not in the stock market.
After I got through reading the newspapers I went back to my fishing
but I kept thinking of what the insiders in Tropical Trading were
trying to do. That they were bound to fail was as certain as that a man
is bound to smash himself if he jumps from the roof of a twenty-story
building without a parachute. I couldn’t think of anything else and
finally I gave up trying to fish and sent off a telegram to my brokers
to sell 2000 shares of TT at the market. After that I was able to go
back to my fishing. I did pretty well.
That afternoon I received the reply to my telegram by special courier.
My brokers reported that they had sold the 2000 shares of Tropical
Trading at 153. So far so good. I was selling short on a declining
market, which was as it should be. But I could not fish any more. I was
too far away from a quotation board. I discovered this after I began
to think of all the reasons why Tropical Trading should go down with
the rest of the market instead of going up on inside manipulation. I
therefore left my fishing camp and returned to Palm Beach; or, rather,
to the direct wire to New York.
The moment I got to Palm Beach and saw what the misguided insiders
were still trying to do, I let them have a second lot of 2000 TT. Back
came the report and I sold another 2000 shares. The market behaved
excellently. That is, it declined on my selling. Everything being
satisfactory I went out and had a chair ride. But I wasn’t happy. The
more I thought the unhappier it made me to think that I hadn’t sold
more. So back I went to the broker’s office and sold another 2000
shares.
I was happy only when I was selling that stock. Presently I was short
10,000 shares. Then I decided to return to New York. I had business to
do now. My fishing I would do some other time.
When I arrived in New York I made it a point to get a line on the