The thought of becoming a stock “gambler” was farthest from this man’s
mind; for gambling in any form was contrary to his code of ethics. But
buying and selling legitimate commodities could not be construed as
gambling; therefore stocks and bonds, being legitimate commodities,
could be bought and sold without doing violence to the most sensitive
conscience. In order to gamble, one must “risk or stake something on
an uncertain event;” which is popularly regarded as a vice, and is
made legally wrong because it is said to be injurious to the public
morals. It also is morally wrong to gamble, because if you win you
deprive your fellow-being of something without giving any adequate
return. Our friend contended that stocks bought at figures below their
intrinsic value are so sure to advance, that the transaction does not
come within the given definition of the word _gamble_; also that the
same rule applies to stocks sold at prices far above their worth, no
matter whether for long or short account. He reasoned that if he gained
by selling a stock short, although someone was apt to be the loser, he
had no means of knowing who that someone was, therefore he assumed no
moral responsibility in prudently acquiring money in a businesslike
way, even at the expense of some indefinite person who had been foolish
enough to risk it. If the act of selling stocks which one does not own
is regarded by some as being unethical in the strictest sense, it is
at least sanctioned by general custom. All sorts of goods are sold for
future delivery, even before they are manufactured; and our erstwhile
merchant had often sold leather for forward delivery, while it was
still in process of tanning; hence he had no scruples against selling
stocks in anticipation of being able to buy and deliver them later.
It is generally conceded that the public is always arrayed on the
“long” side (that is, the buying side) of the market; it is also
universally admitted, at least by those who know, that the so-called
“public” always bears the brunt of stock market losses; therefore our
friend decided that he would act the part of wisdom and go “short” of
the same number of shares that he had previously bought and sold,--the
idea being that before selling his long stock he convinced himself that
approximately the top prices had been reached, in which case the market
would naturally react. But for some inexplicable reason it failed to
run true to his expectations; that is, the probable course deducible
from charts and precedents. Per contra, the prices continued stubbornly
to rise. When he had lost all his profits he backed his judgment by
his actions, and doubled his short sales; and at five points higher
he doubled again, for a break was long overdue. Being short upwards
of three thousand shares in a rapidly rising market is a tremendous
mental strain, even for a seasoned trader; and naturally our novice
became somewhat nervous. Some stock market wiseacre--one or more of
which class are usually to be found lounging about every brokerage
office--consolingly remarked that while stocks have a certain fixed
bottom, they have no top; which increased his anxiety.
After studying charts and various compilations of figures and facts
about earnings and past market performances, he concluded that
Bethlehem Steel, selling at $45 a share, was not worth half that price;
also that Studebaker at $35 was much too high. After an extended
inquiry into the past and prospective earnings of these two companies
he sold short a thousand shares of each; but instead of reacting they
steadily maintained their upward course with the rest of the list. His
broker called for more margin, and he put up another hundred thousand
in bonds. He was advised to “cover” and go “long,” but he stood firmly
by his convictions--and the charts.
“That’s why the public all lose,” he declared; “they get ‘cold feet’
and shift positions at the wrong time.” From a personal friend who was
a director of the new General Motors Corporation he got an “inside
tip” that that stock, selling at $82, was too high, so he added a
few hundred shares of it to his short account. Meantime the country’s
commerce and the entire group of stocks, moved forward with the steady
even tread of an army on parade.
THE STOCK MARKET PRODUCES A NEW PHENOMENON--TURNS WORLD-WIDE DISASTER
INTO LOCAL PROSPERITY
At this time (1915) the major portion of the civilized world was
embroiled in a mad turmoil, employing every known device and resource
in destroying human life and every form of physical property. With the
very foundations of civilization thus disrupted, and our own country
on the verge of being drawn into a deadly combat in which the most
humane and enlightened nations of the earth were reverting to the
practices of ancient barbarism, it is not strange that our merchant
friend should have argued that it was a most unpromising situation upon
which to construct investment values and business prosperity. It was
inconsistent, inconceivable and seemingly impossible that stocks, even
good stocks, could continue to advance in the face of such demoralizing
conditions. When war was first declared, even before England became
involved, the stock market was thrown into such a violent state of
panic that it became necessary to close the stock exchange for several
months; yet now when the clouds of disaster were at their darkest and
hung menacingly over the whole of civilization this country alone was
indulging in a riotous exhibition of prosperity such as had never been
dreamed of. The market tipsters, the financial editors of newspapers,
the brokers’ letters and all stock market literature, with but few
exceptions, were crowing loud and boastfully for still higher prices,
and after the whole group of stocks had risen in unison for a time,
some individual stock was singled out every day or so, pushed into the
forefront and skyrocketed to dizzying heights. The brokers and all the
customers were delirious with joy and excitement. The stock brokers
were all bulls, the traders were bulls, the tipsters and rumor-mongers
were bulls--even the office boys who called the quotations from
the tickers were bulls, and shouted vociferously when some special
stock jumped a point or more from the previous quotation; and it
seemed to our trader that in calling out the advancing prices special
emphasis was always given to the particular stocks he was short of.
He was literally beset with bullish exultation and bullish news from
everywhere. The noisy enthusiasm in the board-room rankled in his ears
and rasped on his over-wrought nerves. He felt as one could imagine a
tiny lone bear would feel in the center of a great arena, surrounded by
a cordon of cavorting bulls. To him it seemed that he was the only bear
on earth. There might be others, but they were too cleverly sequestered
to admit of sharing his misery with them.
[Illustration]