It has been wisely observed by one who is more famous for the wisdom of
his writings than for the amount of money he has made in speculation,
that when a market reaches the top there is no visible sign to indicate
it; that on the contrary, at this critical point, everything seems to
indicate much higher prices. Also the majority of traders, tipsters,
financial editors, and even the brokers themselves, are apt to be most
bearishly disposed when the market is at its lowest point. This same
authority declares that when the “cats and dogs,” that is, the poorest
and most neglected stocks in the list, begin to advance it is time
for holders of securities to cash in their profits. It might be further
observed that when plums get ripe and the melon season is on, it is a
sure indication that summer is well advanced; likewise when, after a
long season of bullish anticipation, the stock market “plums” are being
distributed, and the “melon-cutting” process is in full swing--when the
favorite “mystery” stocks have disgorged their “hidden assets,” and
begin to sell ex-rights, ex-dividend, ex-merger and ex-mystery, it is a
pretty sure sign that the “bulls” are running short of provender, and
that the “bears” are about due for their inning. A man who accumulates
large paper profits in speculation and fails to “cash in” until a large
part, or all, of his gains have been dissipated in the process of
deflation which inevitably follows every boom, is comparable to one who
plants a field of grain and refuses to harvest it at maturity, hoping
that the ripened kernels will get a little larger. Many a speculator
has been brought to grief by an insatiate greed for that coveted
topmost point, instead of being content to sell at a good profit and
leave the possibility of a small gain to the individual who buys his
stock.
[Illustration: _Chorus of the bears_:--
When the plums are gone and the bulls go hence,
We’ll sharpen our claws and jump the fence.
]
NONE ARE SO BLIND AS THOSE WHO REFUSE TO SEE--NONE SO FOOLISH AS THOSE
WHO SCOFF AT WISE COUNSEL
While there are various danger signals which indicate the culmination
of a bull market, just as there are others which mark the final stages
of a bear market, it must not be supposed that these signals stand out
like so many red lights placed in front of a ditch at the roadside;
on the contrary they are of the most deceptive and decoying nature to
all except experienced and dispassionate observers. And even the best
judges are frequently deceived. On this point one of the most reliable
financial writers in the country says: “Not all of the economic indicia
ever turn together at any peak or bottom in the securities markets.
Always the case is that some of the indicia disclose the change, while
others do not. The public usually keeps on expecting a bull movement
to continue, no matter how unreasonably high stocks may sell. This
persistence of bullish sentiment greatly facilitates distribution by
wealthy holders.” This timely note of warning was written early in
January of the present year, when a great bull market after running
about two years was at the boiling-over point; but very few bullish
traders ever pay any attention to such counsel; nor would they if the
danger signals stood out like beacon lights along a treacherous shore.
A few days later the following bit of good advice was issued by a
Boston broker:
“For fifteen months this country has enjoyed clear skies, politically,
economically and financially. Washington Irving begins his essay on
the Mississippi Bubble with the phrase, ‘There was not a cloud on the
horizon,’ and then goes on to state that the prudent mariner takes
cognizance of such ideal conditions and prepares for the inevitable
change. Today, after fifteen months of national sunshine and cloudless
skies in all directions, we believe it behooves a man of affairs to
take counsel with himself relative to his investment and speculative
position. Many business men who should have learned better by past
experience, still take the business situation as a guide to their
stock market operations in spite of the fact that all stock exchange
history shows that the market turns up long before a period of business
depression has run its course and likewise turns down six months or
more before prosperity comes to a pause.”
Speculators can usually find an abundance of literary food suited
to their particular tastes, as witness the following, issued by a
prominent market forecaster simultaneously with the above: “We wish
you to keep in mind that the biggest speculation yet witnessed in the
present bull market is still to come. Now that the reactionary trend
in the market has been definitely halted, you can look with assurance
for higher prices in many issues in the near future. Continue to pick
up our favorites as outlined in our letters, as we expect them to prove
features.” Most of the “favorites” were then selling at figures far
above their intrinsic worth, and many of them have since fulfilled the
prediction that they would “prove features,” for soon afterwards they
declined anywhere from ten to fifty points.
The active participants in a market that has run a long course in
either direction are wont to become so intoxicated with affluence,
or downcast with adversity--depending on which side they have been
operating--that they give little heed to the matter of interpreting
signs which forecast future events, particularly if these signs
controvert their own opinions. A man driving an automobile at a
sixty-mile-an-hour pace does not stop to read signs by the roadway;
and no more does a trader bother with warnings when a prolonged series
of stock market victories has blurred his vision to everything but
prosperity. As every unfamiliar noise or object tends to aggravate fear
in those who are frightened in the dark, so every concurrent happening
stimulates courage and recklessness in those who become emboldened by
stock market success. Paradoxical though it may seem, many things which
are construed bearishly in a falling market are regarded as bullish in
a rising market; and signs which portend higher prices in the mind of a
bull are equally significant of lower prices to the mind of a bear. In
other words, both bulls and bears often derive their opposing opinions
from the same identical hypothesis. These strange anomalies are not
mere theories, they are attested stock market facts.
For example, in a bear market some years ago the stock of the
Amalgamated Copper Company was depressed several points in one day on
the report that the dividend was to be reduced. Next day the report
was denied and upon supposedly good authority it was stated that the
regular dividend had been earned and would be declared. Whereupon the
traders--who were mostly bearish--argued that a declaration of the
regular dividend would be a bear argument, because it ought to be
reduced and if the usual amount were declared it would be only for
the purpose of furnishing artificial market support to the stock;
consequently it was again depressed a dozen points or more. Later when
the trend of prices had turned upward this stock advanced sharply on
the report that the dividend was to be increased. Although the report
met with prompt denial, the stock was nevertheless bid up several
points more on the theory that if the dividend were not increased it at
least ought to be, and if only the regular declaration were made, that
would be evidence of a commendable policy of conservatism.