Reminiscences of a Stock Operator
a boy doing exactly the same thing I used to do in the first office
I ever worked in. There were the customers--same old bunch--looking
at the board or standing by the ticket calling out the prices and
talking about the market. The machinery was to all appearances the
same machinery that I was used to. The atmosphere was the atmosphere
I had breathed since I had made my first stock-market money--$3.12
in Burlington. The same kind of ticker and the same kind of traders,
therefore the same kind of game. And remember, I was only twenty-two. I
suppose I thought I knew the game from A to Z. Why shouldn’t I?
I watched the board and saw something that looked good to me. It was
behaving right. I bought a hundred at 84. I got out at 85 in less than
a half hour. Then I saw something else I liked, and I did the same
thing; took three-quarters of a point net within a very short time. I
began well, didn’t I?
Now mark this: On that, my first day as a customer of a reputable Stock
Exchange house, and only two hours of it at that, I traded in eleven
hundred shares of stock, jumping in and out. And the net result of the
day’s operations was that I lost exactly eleven hundred dollars. That
is to say, on my first attempt, nearly one-half of my stake went up the
flue. And remember, some of the trades showed me a profit. But I quit
eleven hundred dollars minus for the day.
It didn’t worry me, because I couldn’t see where there was anything
wrong with me. My moves, also, were right enough, and if I had been
trading in the old Cosmopolitan shop I’d have broken better than even.
That the machine wasn’t as it ought to be, my eleven hundred vanished
dollars plainly told me. But as long as the machinist was all right
there was no need to stew. Ignorance at twenty-two isn’t a structural
defect.
After a few days I said to myself, “I can’t trade this way here. The
ticker doesn’t help as it should!” But I let it go at that without
getting down to bed rock. I kept it up, having good days and bad days,
until I was cleaned out. I went to old Fullerton and got him to stake
me to five hundred dollars. And I came back from St. Louis, as I told
you, with money I took out of the bucket shops there--a game I could
always beat.
I played more carefully and did better for a while. As soon as I was in
easy circumstances I began to live pretty well. I made friends and had
a good time. I was not quite twenty-three, remember; all alone in New
York with easy money in my pockets and the belief in my heart that I
was beginning to understand the new machine.
I was making allowances for the actual execution of my orders on the
floor of the Exchange, and moving more cautiously. But I was still
sticking to the tape--that is, I was still ignoring general principles;
and as long as I did that I could not spot the exact trouble with my
game.
We ran into the big boom of 1901 and I made a great deal of
money--that is, for a boy. You remember those times? The prosperity
of the country was unprecedented. We not only ran into an era of
industrial consolidations and combinations of capital that beat
anything we had had up to that time, but the public went stock mad.
In previous flush times, I have heard, Wall Street used to brag of
two-hundred-and-fifty-thousand-share days, when securities of a par
value of twenty-five million dollars changed hands. But in 1901 we had
a three-million-share day. Everybody was making money. The steel crowd
came to town, a horde of millionaires with no more regard for money
than drunken sailors. The only game that satisfied them was the stock
market. We had some of the biggest high rollers the Street ever saw:
John W. Gates, of ‘Bet-you-a-million’ fame, and his friends, like John
A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore crowd, who
sold part of their steel holdings and with the proceeds bought in the
open market the actual majority of the stock of the great Rock Island
system; and Schwab and Frick and Phipps and the Pittsburg coterie; to
say nothing of scores of men who were lost in the shuffle but would
have been called great plungers at any other time. A fellow could
buy and sell all the stock there was. Keene made a market for the
U.S. Steel shares. A broker sold one hundred thousand shares in a few
minutes. A wonderful time! And there were some wonderful winnings. And
no taxes to pay on stock sales! And no day of reckoning in sight.
Of course, after a while, I heard a lot of calamity howling and the
old stagers said everybody--except themselves--had gone crazy. But
everybody except themselves was making money. I knew, of course, there
must be a limit to the advances and an end to the crazy buying of
A.O.T.--Any Old Thing--and I got bearish. But every time I sold I lost
money, and if it hadn’t been that I ran darn quick I’d have lost a
heap more. I looked for a break, but I was playing safe--making money
when I bought and chipping it out when I sold short--so that I wasn’t
profiting by the boom as much as you’d think when you consider how
heavily I used to trade, even as a boy.
There was one stock that I wasn’t short of, and that was Northern
Pacific. My tape reading came in handy. I thought most stocks had been
bought to a standstill, but Little Nipper behaved as if it were going
still higher. We know now that both the common and the preferred were
being steadily absorbed by the Kuhn-Loeb-Harriman combination. Well,
I was long a thousand shares of Northern Pacific common, and held it
against the advice of everybody in the office. When it got to about 110
I had thirty points profit, and I grabbed it. It made my balance at my
brokers’ nearly fifty thousand dollars, the greatest amount of money
I had been able to accumulate up to that time. It wasn’t so bad for
a chap who had lost every cent trading in that selfsame office a few
months before.
If you remember, the Harriman crowd notified Morgan and Hill of their
intention to be represented in the Burlington-Great Northern-Northern
Pacific combination, and then the Morgan people at first instructed
Keene to buy fifty thousand shares of N.P. to keep the control in
their possession. I have heard that Keene told Robert Bacon to make
the order one hundred and fifty thousand shares and the bankers did.
At all events, Keene sent one of his brokers, Eddie Norton, into the
N.P. crowd and he bought one hundred thousand shares of the stock.
This was followed by another order, I think, of fifty thousand shares
additional, and the famous corner followed. After the market closed on
May 8, 1901, the whole world knew that a battle of financial giants was
on. No two such combinations of capital had ever opposed each other in
this country. Harriman against Morgan; an irresistible force meeting an
immovable object.
There I was on the morning of May ninth with nearly fifty thousand
dollars in cash and no stocks. As I told you, I had been very bearish
for some days, and here was my chance at last. I knew what would
happen--an awful break and then some wonderful bargains. There would
be a quick recovery and big profits--for those who had picked up the
bargains. It didn’t take Sherlock Holmes to figure this out. We were
going to have an opportunity to catch them coming and going, not only
for big money but for sure money.
Everything happened as I had foreseen. I was dead right and--I lost
every cent I had! I was wiped out by something that was unusual. If
the unusual never happened there would be no difference in people and
then there wouldn’t be any fun in life. The game would become merely
a matter of addition and subtraction. It would make of us a race of
bookkeepers with plodding minds. It’s the guessing that develops a
man’s brain power. Just consider what you have to do to guess right.
The market fairly boiled, as I had expected. The transactions were
enormous and the fluctuations unprecedented in extent. I put in a lot
of selling orders at the market. When I saw the opening prices I had a
fit, the breaks were so awful. My brokers were on the job. They were
as competent and conscientious as any; but by the time they executed
my orders the stocks had broken twenty points more. The tape was way
behind the market and reports were slow in coming in by reason of the
awful rush of business. When I found out that the stocks I had ordered
sold when the tape said the price was, say, 100 and they got mine
off at 80, making a total decline of thirty or forty points from the
previous night’s close, it seemed to me that I was putting out shorts
at a level that made the stocks I sold the very bargains I had planned
to buy. The market was not going to drop right through to China. So I
decided instantly to cover my shorts and go long.
My brokers bought; not at the level that had made me turn, but at the
prices prevailing in the Stock Exchange when their floor man got my
orders. They paid an average of fifteen points more than I had figured
on. A loss of thirty-five points in one day was more than anybody could
stand.
The ticker beat me by lagging so far behind the market. I was
accustomed to regarding the tape as the best little friend I had
because I bet according to what it told me. But this time the tape
double-crossed me. The divergence between the printed and the actual
prices undid me. It was the sublimation of my previous unsuccess, the
selfsame thing that had beaten me before. It seems so obvious now that
tape reading is not enough, irrespective of the brokers’ execution,
that I wonder why I didn’t then see both my trouble and the remedy for
it.
I did worse than not see it; I kept on trading, in and out, regardless
of the execution. You see, I never could trade with a limit. I must
take my chances with the market. That is what I am trying to beat--the
market, not the particular price. When I think I should sell, I sell.
When I think stocks will go up, I buy. My adherence to that general
principle of speculation saved me. To have traded at limited prices
simply would have been my old bucket-shop method inefficiently adapted
for use in a reputable commission broker’s office. I would never have
learned to know what stock speculation is, but would have kept on
betting on what a limited experience told me was a sure thing.
Whenever I did try to limit the prices in order to minimize the
disadvantages of trading at the market when the ticker lagged, I simply
found that the market got away from me. This happened so often that I
stopped trying. I can’t tell you how it came to take me so many years
to learn that instead of placing piking bets on what the next few
quotations were going to be, my game was to anticipate what was going
to happen in a big way.
After my May ninth mishap I plugged along, using a modified but still
defective method. If I hadn’t made money some of the time I might have
acquired market wisdom quicker. But I was making enough to enable me
to live well. I liked friends and a good time. I was living down the
Jersey Coast that summer, like hundreds of prosperous Wall Street men.
My winnings were not quite enough to offset both my losses and my
living expenses.
I didn’t keep on trading the way I did through stubbornness. I simply
wasn’t able to state my own problem to myself, and, of course, it was
utterly hopeless to try to solve it. I harp on this topic so much to
show what I had to go through before I got to where I could really make
money. My old shotgun and BB shot could not do the work of a high-power
repeating rifle against big game.
Early that fall I not only was cleaned out again but I was so sick
of the game I could no longer beat that I decided to leave New York
and try something else some other place. I had been trading since my
fourteenth year. I had made my first thousand dollars when I was a kid