It is a popular belief with many people that the stock exchanges are
highly prejudicial to the public interest and to public safety; as if
they actually manufacture stocks, fix their price, and sell them to the
public. It is also believed by many persons--even by men with enough
brains to buy and sell securities--that whatever they lose on their
transactions is gained by the stock exchange or the broker through
whom they trade; and that the brokers on the floor of the exchange
plan out each day’s campaign and manipulate the stocks with utter
disregard of the outside world. Furthermore, it is commonly supposed
by a certain class of uninformed people that stock exchanges create
panics and financial depressions; that they are licensed evils, feeding
and fattening upon the credulity of an innocent public. Nothing could
be farther from the truth; nothing could disclose a more profound
ignorance of existent facts than for one to adhere to any or all of
these fallacious beliefs. The stock exchange itself has no more control
over the price of securities than it has over the ocean tides. It is
merely an auction room where anyone may send in orders to sell stocks
and bonds, either at a certain asking price, or “at market” to the
highest bidder. On the other hand anyone may put in either a limited
or “at market” bid for whatever securities he wants, provided they are
on the list admitted for trading; and no securities are so admitted
without being passed upon by a committee of competent judges whose
duty it is thoroughly to investigate every company before admitting
its securities to the board. The great value of this service to both
traders and investors is plainly evident. The people who run the
exchange have no other privileges, prerogatives or authority than to
buy and sell securities on their own account, or to act as buying and
selling agents for the public, and to execute their orders precisely
in accordance with given directions. The interests of the public are
safeguarded by every known precautionary device, and if a broker makes
a mistake he stands the loss, regardless of what the amount may be. In
this connection, those who have stood in the visitors’ gallery of the
New York Stock Exchange on a busy day have been induced to wonder how
it is possible for the brokers to avoid errors under such seemingly
chaotic conditions as exist there. To the onlooker it resembles a
riotous mob scene in a modern cinema, and one might easily mistake it
for a place where a lot of frantic men are trying to buy insurance on
a sinking ship, instead of dealing in gilt edge securities which are
not immediately perishable. A benevolent sweet-natured old lady who
stood for a time looking down upon this wild confusion was asked what
she thought of it. “I think it’s all very interesting,” she said. Then
after some reflection she added: “But my husband never told me that we
are in a financial panic. And even so, why should the men get so angry
with one another?”
No matter what anyone may say or think to the contrary, there is no
business or profession on earth in which a higher degree of honor and
business integrity prevails than among the brokers on the floor of
the New York Stock Exchange; and there is no business or profession
in which sharp and unethical practices among its members are more
quickly detected, or more promptly and summarily dealt with. And by
way of passing comment it may be remarked that the going price of
$150,000 for a membership on the New York Stock Exchange would seem
to imply that the brokerage business is no less profitable than it
is honorable. In its certificates of membership the New York Stock
Exchange declares itself to be “An institution whose history dates back
to 1792, and whose rules and regulations have been formulated for the
purpose of maintaining high standards of honor among its members, and
for promoting and inculcating just and equitable principles of trade.”
And it is required of every member that in every particular he live
up to these principles. It is a place where a nod of the head or a
lifted finger consummates transactions involving millions of dollars.
In ordinary business affairs a deal wherein only a few dollars are
concerned is signed, sealed, witnessed and sworn to before a notary;
but here contracts involving millions are ratified by a mere gesture,
and never questioned by either party.
Every buyer or seller of stocks is a free agent to do as he pleases,
and if he gets hoodwinked through the stock exchange it is generally
because in trying to outwit or undo somebody else he overreaches
himself and falls into his own snare. The only percentage against him
is what he pays in commissions and taxes on his trades; and the only
chances against him are his own blunders in judgment; these, indeed,
are likely to prove a sufficient handicap. Every corporation whose
securities are listed on the stock exchange is obliged to make a full
and comprehensive report to the exchange at least once a year, and
these reports can be found in any brokerage office; they are always
open to public inspection, and no one need buy any stock or bond
without first satisfying himself regarding the nature of the industry,
capitalization, earnings, management and other details. Moreover, if
at any time a purchaser becomes dissatisfied with his investment and
wishes to get his money back or change into something else, there is
always a ready market for the stock. It may be more, or it may be less,
than he paid for it, but in either case it can be quickly converted
into cash.
The investor in stock market securities may equip himself, free of
cost, with full information concerning every listed security; what the
company’s earnings have been over a period of years, how much stock and
how many bonds are outstanding, the highest and lowest prices at which
the stock has ever sold, and all such matters in the fullest detail. He
therefore enters “the game,” as the stock market is oftentimes called,
with his eyes open, and the cards all faced up on the table. But if he
deviates from sound principles and resorts to dabbling in stocks that
he knows nothing about, except from hearsay among traders and market
tipsters, and undertakes to guess the maneuvers of cliques who are
manipulating them, he has no one to blame but himself for indulging in
such an expensive folly.