Reverting again to the characteristic bent of speculators who trade
on the constructive side of the market, some years ago a man of
my acquaintance bought a hundred shares of Union Pacific at $120
a share, just for “a turn of a few points,” as he expressed it.
Within a few days he sold it at $125, making a net gain of $500,
less commission,--equal to more than five years’ interest at six per
cent. on the $1500 he put up as margin. Someone afterwards convinced
him that he was silly to have sold out at $125, because the stock
was sure to go to $150; therefore he bought it back at $130, and at
$135 he took on another hundred. The stock dropped back to $125, and
on hearing from someone else that it was likely to go down to par he
sold the two hundred shares at a net loss of $1500 and commissions.
About that time somebody discovered that the Company was likely to
distribute its large surplus, consisting of Baltimore & Ohio stock and
other securities, and the stock rebounded to $135, at which figure my
friend repurchased the two hundred shares he had sold at $125. At $139
he bought two hundred more, which, in a spasm of fright, he sold when
the price suddenly dipped down to $133. Later, at $140, he recovered
his nerve, also the last two hundred shares he had sold at a loss. At
$160 the stock looked cheaper than it had at $120, and having a safe
margin of profit to trade on he bought five hundred more. At $170 it
was reported that Harriman (who controlled the road) was buying the
stock, and encouraged by the entry of such distinguished company my
friend plunged in and bought a thousand shares more. When the stock got
to about $190 it was noised about that the great railroad magnate had
completed his purchases, so the price went down a few points, again
frightening our trader into taking a loss on three hundred shares he
had bought at $189. But concurrently some wise tipster had discovered
that the price had been depressed purposely, to enable other “inside
interests” to accumulate a large line, and in a short time the price
climbed to $200. By this time my affluent friend was becoming somewhat
disturbed and confused, but lured by the prospect of greater gains he
managed to regain his composure, and bought five hundred shares more;
figuring that as long as he was trading on profits he had everything to
gain, and nothing to lose. From here on the stock maintained a fairly
steady upward course, and not to be outdone by the greedy “insiders”
he bought three hundred shares at every point advance until the price
reached $212, when he had accumulated fifty-one hundred shares. The
net paper profit of well over $100,000 looked exceedingly tempting,
and acting upon his own judgment, seconded by the good advice of his
broker, he wisely closed out the entire lot, invested the net proceeds
in government bonds, bade good-bye to the market, and planned a three
months’ excursion to Europe. So far, so good; but--
“U. P.” (along with other stocks) continued its upward course,
accompanied by much excitement and jubilation among the “longs” with an
equal measure of apprehension and despondency among the hard-squeezed
“shorts.” When our trader was preparing for his departure he happened
to read a review by some stock market wizard who reported that
according to “late inside information” a dividend of $100 a share in
securities would be declared on Union Pacific, and that the stock would
pay $10 a share in annual dividends; consequently at $250 a share it
would be cheap. Whereupon my friend, who occupied the uncomfortable
position of a “sold out bull,” became wretchedly aware that he had
dropped out of the race long before the course was completed, and
by doing so he had thrown away a grand opportunity of making nearly
$200,000 more.
It may here be explained that the mental attitude of a “sold out bull”
toward a rising market is much the same as that of a bulldog chained
in his kennel while a dog fight is going on outside. A speculator may
stand by and view with unruffled complacency the most enormous profits
of others in securities that he never owned, but if one of his own pet
stocks continues to advance after he has sold out, it not only reflects
the error of his judgment, but the remorse he suffers in contemplating
the additional sum he _might_ have made dampens all the pleasure of
reflecting upon the profit he actually _did_ make.
Reluctant to admit such a costly blunder in judgment, determined not to
be surpassed by his fellow-traders, and flushed with the victory of his
recent exploit, when Union Pacific was selling at about $215 this “sold
out bull” put in an unlimited order to buy five thousand shares. When
his broker on the floor of the exchange began bidding for this amount
of stock the crowd instantly surmised that some big operator was being
“squeezed” on the short side, and before the purchase was completed
the price had jumped to $219, the highest point it ever reached. After
steadying itself for a while at around this figure it took a downward
plunge, and a few weeks later our trader who had retired from the
market with upwards of $100,000 profit, closed out the last hundred
shares, saving a little less than the $1500 he originally put up as
margin. His escape from utter financial ruin was largely due to the
insistent advice of his broker that he should steadily lighten his load
on the way down, rather than try to protect the whole lot by putting up
additional margin.
The man who made this play in Union Pacific was a college graduate,
and a veteran trader, with twenty years of hard-bought experience and
a good family name behind him. While his experience, together with the
advice of his broker, saved him from a heavy loss it might easily be
supposed that the former alone would have prevented him from falling
into the common error of novices. From which it may be observed that
in stock speculation, as in other pursuits, wisdom and the ability
to master one’s own impulses are sometimes late in arriving at full
maturity. Indeed a broker who for upwards of thirty years has held a
position of outstanding prominence on the floor of the New York Stock
Exchange--a man who often handles a hundred thousand shares or more in
a single day--once admitted to me that while he generally made money
for clients who entrusted him with optional orders, yet he regularly
lost more than half his enormous commissions trading on his own
account. Which calls to mind a wise saying of the old Greek philosopher
Heraclitus, five hundred years B.C.--“Many men have no wisdom regarding
those things with which they come in contact; nor do they learn by
experience.”
The man who made the splurge in Lake Copper was a daring young
Lochinvar who came out of the West, with only a moderate sum of money,
but an ample store of ambition; and although enjoying a large practice
in an honorable profession, he occasionally took what he called a
“flyer” in the market. For some years he was kept pretty busy clearing
up the results of his miscalculations in this adventure, which I
imagine was his last “flyer.” I have remarked that “experience” might
reasonably have been counted upon to safeguard the man in the Union
Pacific deal against the error of over-acquisitiveness; and seeing it
did not, it would seem that the very _in_experience of our other trader
should have made him less daring. From which we may conclude that in
stock trading, all speculators, whether experienced or inexperienced,
are subject to those inscrutable laws of psychology which Nature
herself seems to have designed for the discomfiture of those who play
at the wheel of Fortune.