In a bear market a discouraged bull is at least not despised; he may
find a sympathetic sufferer; but in a bull market no one ever wastes
any compassion on a bear, or admits sympathetic kinship with him. He is
popularly regarded as a pessimist, a destroyer of values, a discordant
note, an uninvited guest at a banquet. If it be a true saying that
“misery loves company,” it must follow that wretchedness is accentuated
by noncommunion with fellow-sufferers; in which case it may be said
that the situation of a bear in a rousing bull market represents the
_ne plus ultra_ of hopeless desolation.
At length it became a mooted question whether to “sit tight” and wait
for the boisterous storm to blow over, or cover his shorts, buy more
stocks and go with the tide. Heretofore he had maintained a stolid
attitude, born of self-confidence, inspired by a triumphant business
career, and supported by precedent and every reasonable prophecy. The
traders had simply gone mad and were rushing headlong to their ruin,
as they had often done before. History was merely repeating itself.
It was a time for sound cool-headed judgment, and he stood firm in
the determination not to lose his head and join in any such reckless
carousal. But the more he reasoned and studied the charts, the more
unprecedented and obstinate the market became. One thing he failed
to consider was, that the favorite caprice of the stock market is to
violate precedent, and to do the thing least to be expected of it.
The newspapers gave front page double-column headings to business
improvement and stock market news--the enormous demand for textiles,
increased prices for all commodities, easy money conditions, all labor
disputes amicably adjusted, and the stage all set for the greatest era
of prosperity the world had ever known. The financial columns of the
newspapers literally teemed with bullish interviews with financiers and
bullish reports in all lines of trade and finance. There was scarcely
a discordant note in the rush and rhythm of progress; and when one was
faintly sounded the general din instantly smothered it. Even the great
cataclysm in Europe was now construed as an additional bull point,
because our factories were all running night and day to supply the
armies with equipment and provisions. It was argued that the more they
fought the more supplies they would need, and the more money we would
make in furnishing them; also that the more ships the Germans torpedoed
the greater demand there would be upon our shipyards to replace them.
The nation had indeed gone prosperity mad, while the rest of the
world was going to destruction--certainly an irregular and puzzling
phenomenon. Occasionally when some veteran writer piped a note of
warning to stock speculators, it was met with a new outburst of bullish
demonstration, and the market swept on like a conflagration in a city
built of tinderwood. Stocks that had lain dormant for months suddenly
came to life and became the favorites of powerful cliques; corporations
that had never earned their fixed charges were said to be piling up
enormous surpluses, the railroads and steamship lines were glutted with
traffic, the factories, steel foundries and ammunition plants were
running night shifts, banks and millionaires were said to be buying
everything for control, whole fleets of grain-laden ships were going
abroad and the farmers were simply wallowing in wealth; the retail
stores were jammed with eager customers, labor was all employed at high
wages, and Big Business was rushing with all the force of an avalanche
along Prosperity Highway, without a danger signal in sight.
Gradually, though manifestly, it became evident that to resist such
a tremendous momentum was as expensive as it was exasperating; and
his hitherto fond illusions of greater wealth were dispelled by a
terrifying reality. But a man who has been right all his life is
not easily convinced that he is wrong in a market position that
seems justified by common sense and fundamental conditions. And yet,
however steadfast human resolution may be, it is wellnigh impossible
to maintain a fixed attitude in opposition to such a cumulative and
overwhelming force. The sensation of being short in a rampant bull
market has been pictured as similar to that of being chained by the
heels to a rising balloon, without any idea of the height to which
the gas will carry it--not a cheery picture for the contemplation of
one who is bearishly disposed. It is therefore easy to understand
how likely one is under these “third degree” operations to lose his
mental bearings, his nerve--and his money. A trader who is long of
stocks knows to a certainty how much he can lose on any given number of
shares; but on the short side there is no limit to what one may lose,
even on a few hundred shares. The loss of a definite sum, whatever the
amount may be, can be borne with equanimity by a man of nerve; but to
maintain a short position in a bull market gives one about as uneasy a
feeling as it would to have a number of outstanding promissory notes
with the amounts left blank for some unknown person to fill in. It
keeps one in a constant state of fear, and fear knows no limitations;
it contemplates and magnifies every baneful possibility.
[Illustration]
However, this man of iron nerve, this erstwhile dominant figure in the
leather trade who had ridden for a quarter of a century with his feet
firmly in the stirrups, was not to be easily unhorsed. At the close of
a turbulent day he took account of stock and decided to “cover” (buy
in) all the dividend paying stocks he was short of, and to sell an
equal number of additional shares in the non-dividend paying issues,
such as Bethlehem Steel, General Motors and Studebaker. The reckoning
showed a paper loss of a quarter of his million dollar capital, but he
bore it courageously, determined to recover it by adopting the safer
course of “shorting” only such stocks as had never paid dividends,
and perhaps never would. Therefore he sold more Bethlehem Steel, at
$80, $90, $100, $150 and $200 a share. He sold Studebaker again at
$75, $100 and $150, and more General Motors at $100, $150, $200; and
a hundred shares at every fifty points advance until it reached $500.
Those who knew him in the board room said that throughout this ordeal
he maintained the most inflexible nerve they had ever known; but at the
close of the market on that memorable day in 1915 when Bethlehem Steel
touched $600 a share he collapsed in a state of nervous prostration
and was taken home in an ambulance. He did not live to see General
Motors sell at $850 a share (on October 25, 1916) and Bethlehem Steel
at $700 a share (on November 18, 1916). Long before these figures were
reached his million dollar capital had vanished and he had crossed
the bar into the Great Beyond. His widow was left almost penniless and
he was buried at the expense of his Lodge. Shortly before passing away
he remarked sorrowfully to a friend at the bedside,--“In the past year
I’ve suffered every torment known to the demons of hell. My only grain
of comfort is that it’s all over now and I have nothing more to lose.”
From this tragic experience it is obvious that there is but little
comfort or profit to be gained on the short side of a protracted bull
market; and the natural inference must be that the “long” side of
such a market is as felicitous and profitable for bulls as the short
side is discomforting and unprofitable for bears. In theory it is,
but in practice there are comparatively few who make large gains, and
fewer still who “get away” with them. It has been authoritatively
stated by the head of the world’s largest gambling emporium that it
is impossible for any human being to beat the roulette wheel for any
considerable length of time; and that human nature is so constituted
that nearly all of those who make large winnings continue to play
until they have lost all their gains, and perhaps more. In the first
place, there are thirty-six numbers, with a single and double zero,[1]
on the wheel; if a player places a dollar on each of these he stakes
$38. He must inevitably win on some one of the numbers or one of the
zeros, whereupon he collects $35, together with the dollar risked on
the successful number, making a sure loss of two dollars, which is the
house’s fixed percentage. If a player wagers a dollar on one number,
with an even break of luck he is due to win $35 (and also to get his
dollar back) once in thirty-eight plays. At this rate, for every $3800
risked he is due to lose $200. Players often stake as high as two to
three thousand dollars, or even more, on every spin of the wheel; from
which it will be seen that with average luck, at this rate of play
one will lose more than a thousand dollars an hour. It is said to be
a proven fact that the chances are so much against the player, that a
roulette wheel can be run at a profit, even if the percentage in favor
of the house is entirely eliminated. This is due to the fact that the
excitement of play causes a certain confusion of mind, and players are
prone to do the wrong thing; for instance, double their bets when in an
adverse run of luck and “pinch” them when luck is running favorably.
Or, on the other hand, players who have pressed their advantage and
doubled in a run of favorable luck will continue stubbornly to plunge
long after their luck has changed. Precisely the same psychology
applies to trading in stocks.