[Illustration]
It was a wise custom of the ancients to build their pyramids with
the big end on the ground; but modern builders of pyramids in the
stock market have reversed this time-honored practice, and most of
them build their stock pyramids with the heavy end up; therefore they
invariably topple over after reaching a certain height. For example,
when a certain stock known as Lake Copper was selling at $5 a share a
trader bought five hundred shares, expecting to double his money on it,
as the stock was “tipped” to go up to $10. When it reached that figure,
instead of selling he bought another hundred, and put in an order
to sell the whole lot at $15 a share. Before it reached his selling
price he cancelled the order and raised it to $25; again cancelling
it and buying another hundred at $25. By this time he was convinced
that it would go to $50. He bought five hundred more at $40, then the
stock dropped back, and fearing he might lose all his gains he sold a
thousand shares at $30. Although he had lost $5000 on the last five
hundred shares he still had a profit of $4500, less commission, after
deducting the full cost of the two hundred shares still remaining. The
stock recovered to $50, and encouraged by the “street” gossip about
rich ore bodies being uncovered, with accompanying reports that the
stock would be cheap at $75, he bought back at $50 the thousand shares
he had sold at $30. At $60 he sold five hundred shares, which he
afterwards repurchased, with five hundred more, at $75. By this time
the speculators had discovered that the mine was one of the richest
prospects in the Lake region; it was rumored that the company’s stock
was being bought for control by a large mining company whose property
it joined, and the stock was “tipped” for $150. Many surmised it to be
another Calumet & Hecla, which had sold at $12 a share, and afterwards
at $1000. From here on up he “pyramided,” buying a hundred shares at
every point advance, and wisely protecting his profits with “stop loss”
orders a few points under the market price. Once the market reacted
and five hundred shares of his stock were sold on “stop,” after which
the price quickly recovered, and being assured that the stock had been
hammered down for the sole purpose of “shaking him out,” he bought back
the five hundred shares at five points higher than he had sold it.
To prevent another similar _coup_ he cancelled all stop loss orders
and took his chances in the open market, confident that he could
not be beaten as long as he was trading on “velvet” with an original
investment risk of only $2500. When the stock reached $85 someone half
convinced him that it was time to cash in his profits, and he put in
an order to sell the whole lot at $90, including the additional shares
he should buy on the scale order up to that point. When the price
approached $90 he cancelled the selling order and put it in at $100.
Later the price reached $94.50, and he had thirty-two hundred shares,
on which he could have cashed in a fortune. But what was the use
cashing in then, when he was in a fair way to making half a million, or
even more? After reaching $94.50 the stock began to decline, and here
the top-heaviness of the pyramid commenced to manifest itself, for with
every downward point he was losing $3200. When the price got down to
$75 his broker demanded that he either put up more margin or lighten
his load by selling a thousand shares or so. The stock continued to go
down, and again the broker called on him for more margin. Soon after
putting up all the money he had, and all he could borrow, the broker
was obliged to close out the account to protect himself. The stock
afterwards went down to ninety cents a share.