I 1
II 14
III 30
IV 39
V 55
VI 67
VII 80
VIII 87
IX 100
X 117
XI 131
XII 144
XIII 160
XIV 173
XV 190
XVI 199
XVII 215
XVIII 230
XIX 238
XX 245
XXI 257
XXII 273
XXIII 293
XXIV 304
_I_
I went to work when I was just out of grammar school. I got a job
as quotation-board boy in a stock-brokerage office. I was quick at
figures. At school I did three years of arithmetic in one. I was
particularly good at mental arithmetic. As quotation-board boy I
posted the numbers on the big board in the customers’ room. One of the
customers usually sat by the ticker and called out the prices. They
couldn’t come too fast for me. I have always remembered figures. No
trouble at all.
There were plenty of other employes in that office. Of course I made
friends with the other fellows, but the work I did, if the market was
active, kept me too busy from ten A.M. to three P.M. to let me do much
talking. I don’t care for it, anyhow, during business hours.
But a busy market did not keep me from thinking about the work. Those
quotations did not represent prices of stocks to me, so many dollars
per share. They were numbers. Of course, they meant something. They
were always changing. It was all I had to be interested in--the
changes. Why did they change? I didn’t know. I didn’t care. I didn’t
think about that. I simply saw that they changed. That was all I had to
think about five hours every day and two on Saturdays: that they were
always changing.
That is how I first came to be interested in the behaviour of prices.
I had a very good memory for figures. I could remember in detail how
the prices had acted on the previous day, just before they went up or
down. My fondness for mental arithmetic came in very handy.
I noticed that in advances as well as declines, stock prices were apt
to show certain habits, so to speak. There was no end of parallel cases
and these made precedents to guide me. I was only fourteen, but after
I had taken hundreds of observations in my mind I found myself testing
their accuracy, comparing the behaviour of stocks to-day with other
days. It was not long before I was anticipating movements in prices. My
only guide, as I say, was their past performances. I carried the “dope
sheets” in my mind. I looked for stock prices to run on form. I had
“clocked” them. You know what I mean.
You can spot, for instance, where the buying is only a trifle better
than the selling. A battle goes on in the stock market and the tape is
your telescope. You can depend upon it seven out of ten cases.
Another lesson I learned early is that there is nothing new in Wall
Street. There can’t be because speculation is as old as the hills.
Whatever happens in the stock market to-day has happened before and
will happen again. I’ve never forgotten that. I suppose I really manage
to remember when and how it happened. The fact that I remember that way
is my way of capitalizing experience.
I got so interested in my game and so anxious to anticipate advances
and declines in all the active stocks that I got a little book. I
put down my observations in it. It was not a record of imaginary
transactions such as so many people keep merely to make or lose
millions of dollars without getting the swelled head or going to the
poorhouse. It was rather a sort of record of my hits and misses, and
next to the determination of probable movements I was most interested
in verifying whether I had observed accurately; in other words, whether
I was right.
Say that after studying every fluctuation of the day in an active stock
I would conclude that it was behaving as it always did before it broke
eight or ten points. Well, I would jot down the stock and the price
on Monday, and remembering past performances I would write down what
it ought to do on Tuesday and Wednesday. Later I would check up with
actual transcriptions from the tape.
That is how I first came to take an interest in the message of the
tape. The fluctuations were from the first associated in my mind with
upward or downward movements. Of course there is always a reason for
fluctuations, but the tape does not concern itself with the why and
wherefore. It doesn’t go into explanations. I didn’t ask the tape why
when I was fourteen, and I don’t ask it to-day, at forty. The reason
for what a certain stock does to-day may not be known for two or three
days, or weeks, or months. But what the dickens does that matter? Your
business with the tape is now--not to-morrow. The reason can wait. But
you must act instantly or be left. Time and again I see this happen.
You’ll remember that Hollow Tube went down three points the other day
while the rest of the market rallied sharply. That was the fact. On the
following Monday you saw that the directors passed the dividend. That
was the reason. They knew what they were going to do, and even if they
didn’t sell the stock themselves they at least didn’t buy it. There was
no inside buying; no reason why it should not break.
Well, I kept up my little memorandum book perhaps six months. Instead
of leaving for home the moment I was through with my work, I’d jot down
the figures I wanted and would study the changes, always looking for
the repetitions and parallelisms of behaviour--learning to read the
tape, although I was not aware of it at the time.
One day one of the office boys--he was older than I--came to me where I
was eating my lunch and asked me on the quiet if I had any money.
“Why do you want to know?” I said.
“Well,” he said, “I’ve got a dandy tip on Burlington. I’m going to play
it if I can get somebody to go in with me.”
“How do you mean, play it?” I asked. To me the only people who
played or could play tips were the customers--old jiggers with oodles
of dough. Why, it cost hundreds, even thousands of dollars, to get
into the game. It was like owning your private carriage and having a
coachman who wore a silk hat.
“That’s what I mean; play it!” he said. “How much you got?”
“How much you need?”
“Well, I can trade in five shares by putting up $5.”
“How are you going to play it?”
“I’m going to buy all the Burlington the bucket shop will let me carry
with the money I give him for margin,” he said. “It’s going up sure.
It’s like picking up money. We’ll double ours in a jiffy.”
“Hold on!” I said to him, and pulled out my little dope book.
I wasn’t interested in doubling my money, but in his saying that
Burlington was going up. If it was, my note-book ought to show it.
I looked. Sure enough, Burlington, according to my figuring, was
acting as it usually did before it went up. I had never bought or sold
anything in my life, and I never gambled with the other boys. But all I
could see was that this was a grand chance to test the accuracy of my
work, of my hobby. It struck me at once that if my dope didn’t work in
practice there was nothing in the theory of it to interest anybody. So
I gave him all I had, and with our pooled resources he went to one of
the near-by bucket shops and bought some Burlington. Two days later we
cashed in. I made a profit of $3.12.
After that first trade, I got to speculating on my own hook in the
bucket shops. I’d go during my lunch hour and buy or sell--it never
made any difference to me. I was playing a system and not a favorite
stock or backing opinions. All I knew was the arithmetic of it. As a
matter of fact, mine was the ideal way to operate in a bucket shop,
where all that a trader does is to bet on fluctuations as they are
printed by the ticker on the tape.
It was not long before I was taking much more money out of the bucket
shops than I was pulling down from my job in the brokerage office. So I
gave up my position. My folks objected, but they couldn’t say much when
they saw what I was making. I was only a kid and office-boy wages were
not very high. I did mighty well on my own hook.
I was fifteen when I had my first thousand and laid the cash in front
of my mother--all made in the bucket shops in a few months, besides
what I had taken home. My mother carried on something awful. She wanted
me to put it away in the savings bank out of reach of temptation. She
said it was more money than she ever heard any boy of fifteen had made,
starting with nothing. She didn’t quite believe it was real money. She
used to worry and fret about it. But I didn’t think of anything except
that I could keep on proving my figuring was right. That’s all the fun
there is--being right by using your head. If I was right when I tested
my convictions with ten shares I would be ten times more right if I
traded in a hundred shares. That is all that having more margin meant
to me--I was right more emphatically. More courage? No! No difference!
If all I have is ten dollars and I risk it, I am much braver than when
I risk a million, if I have another million salted away.
Anyhow, at fifteen I was making a good living out of the stock market.
I began in the smaller bucket shops, where the man who traded in twenty
shares at a clip was suspected of being John W. Gates in disguise or
J. P. Morgan traveling incognito. Bucket shops in those days seldom
lay down on their customers. They didn’t have to. There were other
ways of parting customers from their money, even when they guessed
right. The business was tremendously profitable. When it was conducted
legitimately--I mean straight, as far as the bucket shop went--the
fluctuations took care of the shoestrings. It doesn’t take much of a
reaction to wipe out a margin of only three quarters of a point. Also,
no welsher could ever get back in the game. Wouldn’t have any trade.
I didn’t have a following. I kept my business to myself. It was a
one-man business, anyhow. It was my head, wasn’t it? Prices either
were going the way I doped them out, without any help from friends
or partners, or they were going the other way, and nobody could stop
them out of kindness to me. I couldn’t see where I needed to tell my
business to anybody else. I’ve got friends, of course, but my business
has always been the same--a one-man affair. That is why I have always
played a lone hand.
As it was, it didn’t take long for the bucket shops to get sore on me
for beating them. I’d walk in and plank down my margin, but they’d
look at it without making a move to grab it. They’d tell me there
was nothing doing. That was the time they got to calling me the Boy
Plunger. I had to be changing brokers all the time, going from one
bucket shop to another. It got so that I had to give a fictitious name.
I’d begin light, only fifteen or twenty shares. At times, when they got
suspicious, I’d lose on purpose at first and then sting them proper.
Of course after a while they’d find me too expensive and they’d tell
me to take myself and my business elsewhere and not interfere with the
owners’ dividends.
Once, when the big concern I’d been trading with for months shut down
on me I made up my mind to take a little more of their money away
from them. That bucket shop had branches all over the city, in hotel
lobbies, and in near-by towns. I went to one of the hotel branches
and asked the manager a few questions and finally got to trading. But
as soon as I played an active stock my especial way he began to get
messages from the head office asking who it was that was operating. The
manager told me what they asked him and I told him my name was Edward
Robinson, of Cambridge. He telephoned the glad news to the big chief.
But the other end wanted to know what I looked like. When the manager
told me that I said to him, “Tell him I am a short fat man with dark
hair and a bushy beard!” But he described me instead, and then he
listened and his face got red and he hung up and told me to beat it.
“What did they say to you?” I asked him politely.
“They said, ‘You blankety-blank fool, didn’t we tell you to take no
business from Larry Livingston? And you deliberately let him trim us
out of $700!’” He didn’t say what else they told him.
I tried the other branches one after another, but they all got to know
me, and my money wasn’t any good in any of their offices. I couldn’t
even go in to look at the quotations without some of the clerks making
cracks at me. I tried to get them to let me trade at long intervals by
dividing my visits among them all. But that didn’t work.
Finally there was only one left to me and that was the biggest and
richest of all--the Cosmopolitan Stock Brokerage Company.
The Cosmopolitan was rated as A-1 and did an enormous business. It
had branches in every manufacturing town in New England. They took
my trading all right, and I bought and sold stocks and made and lost
money for months, but in the end it happened with them as usual. They
didn’t refuse my business point-blank, as the small concerns had. Oh,
not because it wasn’t sportsmanship, but because they knew it would
give them a black eye to publish the news that they wouldn’t take a
fellow’s business just because that fellow happened to make a little
money. But they did the next worse thing--that is, they made me put
up a three-point margin and compelled me to pay a premium at first
of a half point, then a point, and finally, a point and a half. Some
handicap, that! How? Easy! Suppose Steel was selling at 90 and you
bought it. Your ticket read, normally: “_Bot ten Steel at 90⅛._” If you
put up a point margin it meant that if it broke 89¼ you were wiped out
automatically. In a bucket shop the customer is not importuned for more
margin or put to the painful necessity of telling his broker to sell
for anything he can get.
But when the Cosmopolitan tacked on that premium they were hitting
below the belt. It meant that if the price was 90 when I bought,
instead of making my ticket: “_Bot Steel at 90⅛_,” it read: “_Bot
Steel at 91⅛_.” Why, that stock could advance a point and a quarter
after I bought it and I’d still be losing money if I closed the trade.
And by also insisting that I put up a three-point margin at the very
start they reduced my trading capacity by two-thirds. Still, that was
the only bucket shop that would take my business at all, and I had to
accept their terms or quit trading.
Of course I had my ups and downs, but was a winner on balance. However,
the Cosmopolitan people were not satisfied with the awful handicap they
had tacked on me, which should have been enough to beat anybody. They
tried to double-cross me. They didn’t get me. I escaped because of one
of my hunches.
The Cosmopolitan, as I said, was my last resort. It was the richest
bucket shop in New England, and as a rule they put no limit on a trade.
I think I was the heaviest individual trader they had--that is, of the
steady, every-day customers. They had a fine office and the largest and
completest quotation board I have ever seen anywhere. It ran along the
whole length of the big room and every imaginable thing was quoted.
I mean stocks dealt in on the New York and Boston Stock Exchanges,
cotton, wheat, provisions, metals--everything that was bought and sold
in New York, Chicago, Boston and Liverpool.
You know how they traded in bucket shops. You gave your money to a
clerk and told him what you wished to buy or sell. He looked at the
tape or the quotation board and took the price from there--the last
one, of course. He also put down the time on the ticket so that it
almost read like a regular broker’s report--that is, that they had
bought or sold for you so many shares of such a stock at such a price
at such a time on such a day and how much money they received from
you. When you wished to close your trade you went to the clerk--the
same or another, it depended on the shop--and you told him. He took the
last price or if the stock had not been active he waited for the next
quotation that came out on the tape. He wrote that price and the time
on your ticket, O.K.’d it and gave it back to you, and then you went to
the cashier and got whatever cash it called for. Of course, when the
market went against you and the price went beyond the limit set by your
margin, your trade automatically closed itself and your ticket became
one more scrap of paper.
In the humbler bucket shops, where people were allowed to trade in as
little as five shares, the tickets were little slips--different colors
for buying and selling--and at times, as for instance in boiling bull
markets, the shops would be hard hit because all the customers were
bulls and happened to be right. Then the bucket shop would deduct both
buying and selling commissions and if you bought a stock at 20 the
ticket would read 20¼. You thus had only ¾, of a point’s run for your
money.
But the Cosmopolitan was the finest in New England. It had thousands
of patrons and I really think I was the only man they were afraid of.
Neither the killing premium nor the three-point margin they made me put
up reduced my trading much. I kept on buying and selling as much as
they’d let me. I sometimes had a line of 5000 shares.
Well, on the day the thing happened that I am going to tell you, I was
short thirty-five hundred shares of Sugar. I had seven big pink tickets
for five hundred shares each. The Cosmopolitan used big slips with a
blank space on them where they could write down additional margin. Of
course, the bucket shops never ask for more margin. The thinner the
shoestring the better for them, for their profit lies in your being
wiped. In the smaller shops if you wanted to margin your trade still
further they’d make out a new ticket, so they could charge you the
buying commission and only give you a run of ¾ of a point on each
point’s decline, for they figured the selling commission also exactly
as if it were a new trade.
Well, this day I remember I had up over $10,000 in margins.
I was only twenty when I first accumulated ten thousand dollars in
cash. And you ought to have heard my mother. You’d have thought that
ten thousand dollars in cash was more than anybody carried around
except old John D., and she used to tell me to be satisfied and go into
some regular business. I had a hard time convincing her that I was not
gambling, but making money by figuring. But all she could see was that
ten thousand dollars was a lot of money and all I could see was more
margin.
I had put out my 3500 shares of Sugar at 105¼. There was another fellow
in the room, Henry Williams, who was short 2500 shares. I used to sit
by the ticker and call out the quotations for the board boy. The price
behaved as I thought it would. It promptly went down a couple of points
and paused a little to get its breath before taking another dip. The
general market was pretty soft and everything looked promising. Then
all of a sudden I didn’t like the way Sugar was doing its hesitating.
I began to feel uncomfortable. I thought I ought to get out of the
market. Then it sold at 103--that was low for the day--but instead of
feeling more confident I felt more uncertain. I knew something was
wrong somewhere, but I couldn’t spot it exactly. But if something was
coming and I didn’t know where from, I couldn’t be on my guard against
it. That being the case I’d better be out of the market.
You know, I don’t do things blindly. I don’t like to. I never did.
Even as a kid I had to know why I should do certain things. But this
time I had no definite reason to give to myself, and yet I was so
uncomfortable that I couldn’t stand it. I called to a fellow I knew,
Dave Wyman, and said to him: “Dave, you take my place here. I want you
to do something for me. Wait a little before you call out the next
price of Sugar, will you?”
He said he would, and I got up and gave him my place by the ticker so
he could call out the prices for the boy. I took my seven Sugar tickets
out of my pocket and walked over to the counter, to where the clerk was
who marked the tickets when you closed your trades. But I didn’t really
know why I should get out of the market, so I just stood there, leaning
against the counter, my tickets in my hand so that the clerk couldn’t
see them. Pretty soon I heard the clicking of a telegraph instrument
and I saw Tom Burnham, the clerk, turn his head quickly and listen.
Then I felt that something crooked was hatching, and I decided not to
wait any longer. Just then Dave Wyman by the ticker, began: “Su--”
and quick as a flash I slapped my tickets on the counter in front of
the clerk and yelled, “Close Sugar!” before Dave had finished calling
the price. So, of course, the house had to close my Sugar at the last
quotation. What Dave called turned out to be 103 again.
According to my dope Sugar should have broken 103 by now. The engine
wasn’t hitting right. I had the feeling that there was a trap in the
neighbourhood. At all events, the telegraph instrument was now going
like mad and I noticed that Tom Burnham, the clerk, had left my tickets
unmarked where I laid them, and was listening to the clicking as if he
were waiting for something. So I yelled at him: “Hey, Tom, what in hell
are you waiting for? Mark the price on these tickets--103! Get a gait
on!”
Everybody in the room heard me and began to look toward us and ask what
was the trouble, for, you see, while the Cosmopolitan had never laid
down, there was no telling, and a run on a bucket shop can start like a
run on a bank. If one customer gets suspicious the others follow suit.
So Tom looked sulky, but came over and marked my tickets “Closed at
103” and shoved the seven of them over toward me. He sure had a sour
face.
Say, the distance from Tom’s place to the cashier’s cage wasn’t over
eight feet. But I hadn’t got to the cashier to get my money when Dave
Wyman by the ticker yelled excitedly: “Gosh! Sugar, 108!” But it was
too late; so I just laughed and called over to Tom, “It didn’t work
that time, did it, old boy?”
Of course, it was a put-up job. Henry Williams and I together were
short six thousand shares of Sugar. That bucket shop had my margin and
Henry’s, and there may have been a lot of other Sugar shorts in the
office; possibly eight or ten thousand shares in all. Suppose they had
$20,000 in Sugar margins. That was enough to pay the shop to thimblerig
the market on the New York Stock Exchange and wipe us out. In the old
days whenever a bucket shop found itself loaded with too many bulls on
a certain stock it was a common practice to get some broker to wash
down the price of that particular stock far enough to wipe out all
the customers that were long of it. This seldom cost the bucket shop
more than a couple of points on a few hundred shares, and they made
thousands of dollars.
That was what the Cosmopolitan did to get me and Henry Williams and the
other Sugar shorts. Their brokers in New York ran up the price to 108.
Of course it fell right back, but Henry and a lot of others were wiped
out. Whenever there was an unexplained sharp drop which was followed
by instant recovery, the newspapers in those days used to call it a
bucket-shop drive.
And the funniest thing was that not later than ten days after the
Cosmopolitan people tried to double-cross me a New York operator did
them out of over seventy thousand dollars. This man, who was quite a
market factor in his day and a member of the New York Stock Exchange,
made a great name for himself as a bear during the Bryan panic of
’96. He was forever running up against Stock Exchange rules that
kept him from carrying out some of his plans at the expense of his
fellow members. One day he figured that there would be no complaints
from either the Exchange or the police authorities if he took from
the bucket shops of the land some of their ill-gotten gains. In the
instance I speak of he sent thirty-five men to act as customers. They
went to the main office and to the bigger branches. On a certain day
at a fixed hour the agents all bought as much of a certain stock as
the managers would let them. They had instructions to sneak out at a
certain profit. Of course what he did was to distribute bull tips on
that stock among his cronies and then he went in to the floor of the
Stock Exchange and bid up the price, helped by the room traders, who
thought he was a good sport. Being careful to pick out the right stock
for that work, there was no trouble in putting up the price three or
four points. His agents at the bucket shops cashed in as prearranged.
A fellow told me the originator cleaned up seventy thousand dollars
net, and his agents made their expenses and their pay besides. He
played that game several times all over the country, punishing the
bigger bucket shops of New York, Boston, Philadelphia, Chicago,
Cincinnati and St. Louis. One of his favorite stocks was Western Union,
because it was so easy to move a semiactive stock like that a few
points up or down. His agents bought it at a certain figure, sold at
two points profit, went short and took three points more. By the way, I
read the other day that that man died, poor and obscure. If he had died
in 1896 he would have got at least a column on the first page of every
New York paper. As it was he got two lines on the fifth.
_II_
Between the discovery that the Cosmopolitan Stock Brokerage Company was
ready to beat me by foul means if the killing handicap of a three-point
margin and a point-and-a-half premium didn’t do it, and hints that they
didn’t want my business anyhow, I soon made up my mind to go to New
York, where I could trade in the office of some member of the New York
Stock Exchange. I didn’t want any Boston branch, where the quotations
had to be telegraphed. I wanted to be close to the original source.
I came to New York at the age of 21, bringing with me all I had,
twenty-five hundred dollars.
I told you I had ten thousand dollars when I was twenty, and my margin
on that Sugar deal was over ten thousand. But I didn’t always win. My
plan of trading was sound enough and won oftener than it lost. If I
had stuck to it I’d have been right perhaps as often as seven out of
ten times. _In fact, I always made money when I was sure I was right
before I began. What beat me was not having brains enough to stick to
my own game--that is, to play the market only when I was satisfied
that precedents favored my play._ There is a time for all things, but
I didn’t know it. And that is precisely what beats so many men in Wall
Street who are very far from being in the main sucker class. There is
the plain fool, who does the wrong thing at all times everywhere, but
there is the Wall Street fool, who thinks he must trade all the time.
No man can always have adequate reasons for buying or selling stocks
daily--or sufficient knowledge to make his play an intelligent play.
I proved it. Whenever I read the tape by the light of experience I
made money, but when I made a plain fool play I had to lose. I was no
exception, was I? There was the huge quotation board staring me in
the face, and the ticker going on, and people trading and watching
their tickets turn into cash or into waste paper. Of course I let the
craving for excitement get the better of my judgment. In a bucket
shop where your margin is a shoestring you don’t play for long pulls.
You are wiped too easily and quickly. The desire for constant action
irrespective of underlying conditions is responsible for many losses
in Wall Street even among the professionals, who feel that they must
take home some money every day, as though they were working for regular
wages. I was only a kid, remember. [I did not know then what I learned
later, what made me fifteen years later, wait two long weeks and see
a stock on which I was very bullish go up thirty points before I felt
that it was safe to buy it. I was broke and was trying to get back,
and I couldn’t afford to play recklessly. I had to be right, and so I
waited.] That was in 1915. It’s a long story. I’ll tell it later in its
proper place. Now let’s go on from where after years of practice at
beating them I let the bucket shops take away most of my winnings.
And with my eyes wide open, to boot! And it wasn’t the only period of
my life when I did it, either. A stock operator has to fight a lot
of expensive enemies within himself. Anyhow, I came to New York with
twenty-five hundred dollars. There were no bucket shops here that a
fellow could trust. The Stock Exchange and the police between them
had succeeded in closing them up pretty tight. Besides, I wanted to
find a place where the only limit to my trading would be the size of
my stake. I didn’t have much of one, but I didn’t expect it to stay
little forever. The main thing at the start was to find a place where
I wouldn’t have to worry about getting a square deal. So I went to
a New York Stock Exchange house that had a branch at home where I
knew some of the clerks. They have long since gone out of business. I
wasn’t there long, didn’t like one of the partners, and then I went
to A. R. Fullerton & Co. Somebody must have told them about my early
experiences, because it was not long before they all got to calling me
the Boy Trader. I’ve always looked young. It was a handicap in some
ways but it compelled me to fight for my own because so many tried to
take advantage of my youth. The chaps at the bucket shops seeing what a
kid I was, always thought I was a fool for luck and that was the only
reason why I beat them so often.
Well, it wasn’t six months before I was broke. I was a pretty active
trader and had a sort of reputation as a winner. I guess my commissions
amounted to something. I ran up my account quite a little, but, of
course, in the end I lost. I played carefully; but I had to lose. I’ll
tell you the reason: it was my remarkable success in the bucket shops!
I could beat the game my way only in a bucket shop, where I was betting
on fluctuations. My tape reading had to do with that exclusively. When
I bought the price was there on the quotation board, right in front
of me. Even before I bought I knew exactly the price I’d have to pay
for my stock. And I always could sell on the instant. I could scalp
successfully, because I could move like lightning. [I could follow up
my luck or cut my loss in a second.] Sometimes, for instance, I was
certain a stock would move at least a point. Well, I didn’t have to
hog it, I could put up a point margin and double my money in a jiffy;
or I’d take half a point. On one or two hundred shares a day, that
wouldn’t be bad at the end of the month, what?
The practical trouble with that arrangement, of course, was that even
if the bucket shop had the resources to stand a big steady loss, they
wouldn’t do it. They wouldn’t have a customer around the place who had
the bad taste to win all the time.
At all events, what was a perfect system for trading in bucket shops
didn’t work in Fullerton’s office. There I was actually buying and
selling stocks. The price of Sugar on the tape might be 105 and I could
see a three-point drop coming. As a matter of fact, at the very moment
the ticker was printing 105 on the tape the real price on the floor
of the Exchange might be 104 or 103. By the time my order to sell a
thousand shares got to Fullerton’s floor man to execute, the price
might be still lower. I couldn’t tell at what price I had put out my
thousand shares until I got a report from the clerk. When I surely
would have made three thousand on the same transaction in a bucket shop
I might not make a cent in a Stock Exchange house. Of course, I have
taken an extreme case, but the fact remains that in A. R. Fullerton’s
office the tape always talked ancient history to me, as far as my
system of trading went, and I didn’t realise it.
And then, too, if my order was fairly big my own sale would tend
further to depress the price. In the bucket shop I didn’t have to
figure on the effect of my own trading. I lost in New York because the
game was altogether different. It was not that I now was playing it
legitimately that made me lose, but that I was playing it ignorantly.
I have been told that I am a good reader of the tape. But reading
the tape like an expert did not save me. I might have made out a
great deal better if I had been on the floor myself, a room trader.
In a particular crowd perhaps I might have adapted my system to the
conditions immediately before me. But, of course, if I had got to
operating on such a scale as I do now, for instance, the system would
have equally failed me, on account of the effect of my own trading on
prices.
In short, I did not know the game of stock speculation. I knew a part
of it, a rather important part, which has been very valuable to me at
all times. But if with all I had I still lost, what chance does the
green outsider have of winning, or, rather, of cashing in?
It didn’t take me long to realise that there was something wrong with
my play, but I couldn’t spot the exact trouble. There were times when
my system worked beautifully, and then, all of a sudden, nothing but
one swat after another. I was only twenty-two, remember; not that I
was so stuck on myself that I didn’t want to know just where I was at
fault, but that at that age nobody knows much of anything.
The people in the office were very nice to me. I couldn’t plunge as I
wanted to because of their margin requirements, but old A. R. Fullerton
and the rest of the firm were so kind to me that after six months of
active trading I not only lost all I had brought and all that I had
made there but I even owed the firm a few hundreds.
There I was, a mere kid, who had never before been away from home,
flat broke; but I knew there wasn’t anything wrong with me; only with
my play. I don’t know whether I make myself plain, but I never lose my
temper over the stock market. I never argue with the tape. Getting sore
at the market doesn’t get you anywhere.
I was so anxious to resume trading that I didn’t lose a minute, but
went to old man Fullerton and said to him, “Say, A. R., lend me five
hundred dollars.”
“What for?” says he.
“I’ve got to have some money.”
“What for?” he says again.
“For margin, of course,” I said.
“Five hundred dollars?” he said, and frowned. “You know they’d expect
you to keep up a 10 per cent margin, and that means one thousand
dollars on one hundred shares. Much better to give you a credit----”
“No,” I said, “I don’t want a credit here. I already owe the firm
something. What I want is for you to lend me five hundred dollars so I
can go out and get a roll and come back.”
“How are you going to do it?” asked old A. R.
“I’ll go and trade in a bucket shop,” I told him.
“Trade here,” he said.
“No,” I said. “I’m not sure yet I can beat the game in this office, but
I am sure I can take money out of the bucket shops. I know that game. I
have a notion that I know just where I went wrong here.”
He let me have it, and I went out of that office where the Boy Terror
of the Bucket Shops, as they called him, had lost his pile. I couldn’t
go back home because the shops there would not take my business. New
York was out of the question; there weren’t any doing business at that
time. They tell me that in the 90’s Broad Street and New Street were
full of them. But there weren’t any when I needed them in my business.
So after some thinking I decided to go to St. Louis. I had heard of two
concerns there that did an enormous business all through the Middle
West. Their profits must have been huge. They had branch offices in
dozens of towns. In fact I had been told that there were no concerns in
the East to compare with them for volume of business. They ran openly
and the best people traded there without any qualms. A fellow even told
me that the owner of one of the concerns was a vice-president of the
Chamber of Commerce but that couldn’t have been in St. Louis. At any
rate, that is where I went with my five hundred dollars to bring back a
stake to use as margin in the office of A. R. Fullerton & Co., members
of the New York Stock Exchange.
When I got to St. Louis I went to the hotel, washed up and went out to
find the bucket shops. One was the J. G. Dolan Company, and the other
was H. S. Teller & Co. I knew I could beat them. I was going to play
dead safe--carefully and conservatively. My one fear was that somebody
might recognize me and give me away, because the bucket shops all over
the country had heard of the Boy Trader. They are like gambling houses
and get all the gossip of the profesh.
Dolan was nearer than Teller, and I went there first. I was hoping I
might be allowed to do business a few days before they told me to take
my trade somewhere else. I walked in. It was a whopping big place and
there must have been at least a couple of hundred people there staring
at the quotations. I was glad, because in such a crowd I stood a better
chance of being unnoticed. I stood and watched the board and looked
them over carefully until I picked out the stock for my initial play.
I looked around and saw the order-clerk at the window where you put
down your money and get your ticket. He was looking at me so I walked
up to him and asked, “Is this where you trade in cotton and wheat?”
“Yes, sonny,” says he.
“Can I buy stocks too?”
“You can if you have the cash,” he said.
“Oh, I got that all right, all right,” I said like a boasting boy.
“You have, have you?” he says with a smile.
“How much stock can I buy for one hundred dollars?” I asked,
peeved-like.
“One hundred; if you got the hundred.”
“I got the hundred. Yes; and two hundred too!” I told him.
“Oh, my!” he said.
“Just you buy me two hundred shares,” I said sharply.
“Two hundred what?” he asked, serious now. It was business.
I looked at the board again as if to guess wisely and told him, “Two
hundred Omaha.”
“All right!” he said. He took my money, counted it and wrote out the
ticket.
“What’s your name?” he asked me, and I answered, “Horace Kent.”
He gave me the ticket and I went away and sat down among the customers
to wait for the roll to grow. I got quick action and I traded several
times that day. On the next day too. In two days I made twenty-eight
hundred dollars, and I was hoping they’d let me finish the week out.
At the rate I was going, that wouldn’t be so bad. Then I’d tackle the
other shop, and if I had similar luck there I’d go back to New York
with a wad I could do something with.
On the morning of the third day, when I went to the window,
bashful-like, to buy five hundred B.R.T. the clerk said to me, “Say,
Mr. Kent, the boss wants to see you.”
I knew the game was up. But I asked him, “What does he want to see me
about?”
“I don’t know.”
“Where is he?”
“In his private office. Go in that way.” And he pointed to a door.
I went in. Dolan was sitting at his desk. He swung around and said,
“Sit down, Livingston.”
He pointed to a chair. My last hope vanished. I don’t know how he
discovered who I was; perhaps from the hotel register.
“What do you want to see me about?” I asked him.
“Listen, kid. I ain’t got nothin’ agin yeh, see? Nothin’ at all. See?”
“No, I don’t see,” I said.
He got up from his swivel chair. He was a whopping big guy. He said to
me, “Just come over here, Livingston, will yeh?” and he walked to the
door. He opened it and then he pointed to the customers in the big room.
“D’yeh see them?” he asked me.
“See what?”
“Them guys. Take a look at ’em, kid. There’s three hundred of ’em!
Three hundred suckers! They feed me and my family. See? Three hundred
suckers! Then yeh come in, and in two days yeh cop more than I get out
of the three hundred in two weeks. That ain’t business, kid--not for
me! I ain’t got nothin’ agin yeh. Yer welcome to what ye’ve got. But
yeh don’t any more. There ain’t any here for yeh!”
“Why, I----”
“That’s all. I seen yeh come in day before yesterday, and I didn’t
like yer looks. On the level, I didn’t. I spotted yeh for a ringer. I
called in that jackass there”--he pointed to the guilty clerk--“and
asked what you’d done; and when he told me I said to him: ‘I don’t
like that guy’s looks. He’s a ringer!’ And that piece of cheese says:
‘Ringer my eye, boss! His name is Horace Kent, and he’s a rah-rah boy
playing at being used to long pants. He’s all right!’ Well, I let him
have his way. That blankety-blank cost me twenty-eight hundred dollars.
I don’t grudge it yeh, my boy. But the safe is locked for yeh.”
“Look here--” I began.
“You look here, Livingston,” he said. “I’ve heard all about yeh. I make
my money coppering suckers’ bets, and yeh don’t belong here. I aim to
be a sport and yer welcome to what yeh pried off’n us. But more of that
would make me a sucker, now that I know who yeh are. So toddle along,
sonny!”
I left Dolan’s place with my twenty-eight hundred dollars’ profit.
Teller’s place was in the same block. I had found out that Teller was
a very rich man who also ran up a lot of pool rooms. I decided to
go to his bucket shop. I wondered whether it would be wise to start
moderately and work up to a thousand shares or to begin with a plunge,
on the theory that I might not be able to trade more than one day. They
get wise mighty quick when they’re losing and I did want to buy one
thousand B.R.T. I was sure I could take four or five points out of it.
But if they got suspicious or if too many customers were long of that
stock they might not let me trade at all. I thought perhaps I’d better
scatter my trades at first and begin small.
It wasn’t as big a place as Dolan’s, but the fixtures were nicer and
evidently the crowd was of a better class. This suited me down to the
ground and I decided to buy my one thousand B.R.T. So I stepped up to
the proper window and said to the clerk, “I’d like to buy some B.R.T.
What’s the limit?”
“There’s no limit,” said the clerk. “You can buy all you please--if
you’ve got the money.”
“Buy fifteen hundred shares,” I says, and took my roll from my pocket
while the clerk starts to write the ticket.
Then I saw a red-headed man just shove that clerk away from the
counter. He leaned across and said to me, “Say, Livingston, you go back
to Dolan’s. We don’t want your business.”
“Wait until I get my ticket,” I said. “I just bought a little B.R.T.”
“You get no ticket here,” he said. By this time other clerks had got
behind him and were looking at me. “Don’t ever come here to trade. We
don’t take your business. Understand?”
There was no sense in getting mad or trying to argue, so I went back
to the hotel, paid my bill and took the first train back to New York.
It was tough. I wanted to take back some real money and that Teller
wouldn’t let me make even one trade.
I got back to New York, paid Fullerton his five hundred, and started
trading again with the St. Louis money. I had good and bad spells, but
I was doing better than breaking even. After all, I didn’t have much to
unlearn; only to grasp the one fact that there was more to the game of
stock speculation than I had considered before I went to Fullerton’s
office to trade. I was like one of those puzzle fans, doing the
crossword puzzles in the Sunday supplement. He isn’t satisfied until he
gets it. Well, I certainly wanted to find the solution to my puzzle. I
thought I was done with trading in bucket shops. But I was mistaken.
About a couple of months after I got back to New York an old jigger
came into Fullerton’s office. He knew A.R. Somebody said they’d once
owned a string of race horses together. It was plain he’d seen better
days. I was introduced to old McDevitt. He was telling the crowd about
a bunch of Western race-track crooks who had just pulled off some skin
game out in St. Louis. The head devil, he said, was a pool-room owner
by the name of Teller.
“What Teller?” I asked him.
“Hi Teller; H. S. Teller.”
“I know that bird,” I said.
“He’s no good,” said McDevitt.
“He’s worse than that,” I said, “and I have a little matter to settle
with him.”
“Meaning how?”
“The only way I can hit any of the short sports is through their
pocketbook. I can’t touch him in St. Louis just now, but some day I
will.” And I told McDevitt my grievance.
“Well,” says old Mac, “he tried to connect here in New York and
couldn’t make it, so he’s opened a place in Hoboken. The word’s gone
out that there is no limit to the play and that the house roll has got
the Rock of Gibraltar faded to the shadow of a bantam flea.”
“What sort of a place?” I thought he meant pool room.
“Bucket shop,” said McDevitt.
“Are you sure it’s open?”
“Yes; I’ve seen several fellows who’ve told me about it.”
“That’s only hearsay,” I said. “Can you find out positively if it’s
running, and also how heavy they’ll really let a man trade?”
“Sure, sonny,” said McDevitt. “I’ll go myself to-morrow morning, and
come back and tell you.”
He did. It seems Teller was already doing a big business and would
take all he could get. This was on Friday. The market had been going
up all that week--this was twenty years ago, remember--and it was a
cinch the bank statement on Saturday would show a big decrease in the
surplus reserve. That would give the conventional excuse to the big
room traders to jump on the market and try to shake out some of the
weak commission-house accounts. There would be the usual reactions in
the last half hour of the trading, particularly in stocks in which the
public had been the most active. Those, of course, also would be the
very stocks that Teller’s customers would be most heavily long of,
and the shop might be glad to see some short selling in them. There
is nothing so nice as catching the suckers both ways; and nothing so
easy--with one-point margins.
That Saturday morning I chased over to Hoboken to the Teller place.
They had fitted up a big customers’ room with a dandy quotation board
and a full force of clerks and a special policeman in gray. There were
about twenty-five customers.
I got talking to the manager. He asked me what he could do for me and
I told him nothing; that a fellow could make much more money at the
track on account of the odds and the freedom to bet your whole roll and
stand to win thousands in minutes instead of piking for chicken feed in
stocks and having to wait days, perhaps. He began to tell me how much
safer the stock-market game was, and how much some of their customers
made--you’d have sworn it was a regular broker who actually bought and
sold your stocks on the Exchange--and how if a man only traded heavy he
could make enough to satisfy anybody. He must have thought I was headed
for some pool room and he wanted a whack at my roll before the ponies
nibbled it away, for he said I ought to hurry up as the market closed
at twelve o’clock on Saturdays. That would leave me free to devote the
entire afternoon to other pursuits. I might have a bigger roll to carry
to the track with me--if I picked the right stocks.
I looked as if I didn’t believe him, and he kept on buzzing me. I was
watching the clock. At 11:15 I said, “All right,” and I began to give
him selling orders in various stocks. I put up two thousand dollars in
cash, and he was very glad to get it. He told me he thought I’d make a
lot of money and hoped I’d come in often.
It happened just as I figured. _The traders hammered the stocks in
which they figured they would uncover the most stops, and, sure enough,
prices slid off. I closed out my trades just before the rally of the
last five minutes on the usual traders’ covering._
There was fifty-one hundred dollars coming to me. I went to cash in.
“I’m glad I dropped in,” I said to the manager, and gave him my tickets.
“Say,” he says to me, “I can’t give you all of it. I wasn’t looking for
such a run. I’ll have it here for you Monday morning, sure as blazes.”
“All right. But first I’ll take all you have in the house,” I said.
“You’ve got to let me pay off the little fellows,” he said. “I’ll give
you back what you put up, and anything that’s left. Wait till I cash
the other tickets.” So I waited while he paid off the winners. Oh, I
knew my money was safe. Teller wouldn’t welsh with the office doing
such a good business. And if he did, what else could I do better than
to take all he had then and there? I got my own two thousand dollars
and about eight hundred dollars besides, which was all he had in the
office. I told him I’d be there Monday morning. He swore the money
would be waiting for me.
I got to Hoboken a little before twelve on Monday. I saw a fellow
talking to the manager that I had seen in the St. Louis office the day
Teller told me to go back to Dolan. I knew at once that the manager had
telegraphed to the home office and they’d sent up one of their men to
investigate the story. Crooks don’t trust anybody.
“I came for the balance of my money,” I said to the manager.
“Is this the man?” asked the St. Louis chap.
“Yes,” said the manager, and took a bunch of yellow backs from his
pocket.
“Hold on!” said the St. Louis fellow to him and then turns to me, “Say,
Livingston, didn’t we tell you we didn’t want your business?”
“Give me my money first,” I said to the manager, and he forked over
two thousands, four five-hundreds and three hundreds.
“What did you say?” I said to St. Louis.
“We told you we didn’t want you to trade in our place.”
“Yes,” I said; “that’s why I came.”
“Well, don’t come any more. Keep away!” he snarled at me. The private
policeman in gray came over, casual-like. St. Louis shook his fist
at the manager and yelled: “You ought to’ve known better, you poor
boob, than to let this guy get into you. He’s Livingston. You had your
orders.”
“Listen, you,” I said to the St. Louis man. “This isn’t St. Louis. You
can’t pull off any trick here, like your boss did with Belfast Boy.”
“You keep away from this office! You can’t trade here!” he yells.
“If I can’t trade here nobody else is going to,” I told him. “You can’t
get away with that sort of stuff here.”
Well, St. Louis changed his tune at once.
“Look here, old boy,” he said, all fussed up, “do us a favor. Be
reasonable! You know we can’t stand this every day. The old man’s going
to hit the ceiling when he hears who it was. Have a heart, Livingston!”
“I’ll go easy,” I promised.
“Listen to reason, won’t you? For the love of Pete, keep away! Give us
a chance to get a good start. We’re new here. Will you?”
“I don’t want any of this high-and-mighty business the next time I
come,” I said, and left him talking to the manager at the rate of a
million a minute. I’d got some money out of them for the way they
treated me in St. Louis. There wasn’t any sense in my getting hot or
trying to close them up. I went back to Fullerton’s office and told
McDevitt what had happened. Then I told him that if it was agreeable
to him I’d like to have him go to Teller’s place and begin trading in
twenty or thirty share lots, to get them used to him. Then, the moment
I saw a good chance to clean up big, I’d telephone him and he could
plunge.
I gave McDevitt a thousand dollars and he went to Hoboken and did as I
told him. He got to be one of the regulars. Then one day when I thought
I saw a break impending I slipped Mac the word and he sold all they’d
let him. I cleared twenty-eight hundred dollars that day, after giving
Mac his rake-off and paying expenses, and I suspect Mac put down a
little bet of his own besides. Less than a month after that, Teller
closed his Hoboken branch. The police got busy. And, anyhow, it didn’t
pay, though I only traded twice. We ran into a crazy bull market when
stocks didn’t react enough to wipe out even the one-point margins, and,
of course, all the customers were bulls and winning and pyramiding. No
end of bucket shops busted all over the country.
Their game has changed. Trading in the old-fashioned bucket shop had
some decided advantages over speculating in a reputable broker’s
office. For one thing the automatic closing out of your trade when the
margin reached the exhaustion point was the best kind of stop-loss
order. You couldn’t get stung for more than you had put up and there
was no danger of rotten execution of orders, and so on. In New York
the shops never were as liberal with their patrons as I’ve heard they
were in the West. Here they used to limit the possible profit on
certain stocks of the football order to two points. Sugar and Tennessee
Coal and Iron were among these. No matter if they moved ten points in
ten minutes you could only make two on one ticket. They figured that
otherwise the customer was getting too big odds; he stood to lose one
dollar and to make ten. And then there were times when all the shops,
including the biggest, refused to take orders on certain stocks. In
1900, on the day before Election Day, when it was foregone conclusion
that McKinley would win, not a shop in the land let its customers buy
stocks. The election odds were 3 to 1 on McKinley. By buying stocks
on Monday you stood to make from three to six points or more. A man
could bet on Bryan and buy stocks and make sure money. The bucket shops
refused orders all that day.
If it hadn’t been for their refusing to take my business I never would
have stopped trading with them. And then I never would have learned
that there was much more to the game of stock speculation than to play
for fluctuations of a few points.
_III_
It takes a man a long time to learn all the lessons of all his
mistakes. They say there are two sides to everything. But there is
only one side to the stock market; and it is not the bull side or
the bear side, but the right side. It took me longer to get that
general principle fixed firmly in my mind than it did most of the more
technical phases of the game of stock speculation.
I have heard of people who amuse themselves conducting imaginary
operations in the stock market to prove with imaginary dollars how
right they are. Sometimes these ghost gamblers make millions. It is
very easy to be a plunger that way. It is like the old story of the man
who was going to fight a duel the next day.
His second asked him, “Are you a good shot?”
“Well,” said the duelist, “I can snap the stem of a wineglass at twenty
paces,” and he looked modest.
“That’s all very well,” said the unimpressed second. “But can you snap
the stem of the wineglass while the wineglass is pointing a loaded
pistol straight at your heart?”
With me I must back my opinions with my money. My losses have taught me
that I must not begin to advance until I am sure I shall not have to
retreat. But if I cannot advance I do not move at all. I do not mean
by this that a man should not limit his losses when he is wrong. He
should. But that should not breed indecision. All my life I have made
mistakes, but in losing money I have gained experience and accumulated
a lot of valuable don’ts. I have been flat broke several times, but my
loss has never been a total loss. Otherwise, I wouldn’t be here now. I
always knew I would have another chance and that I would not make the
same mistake a second time. I believed in myself.
A man must believe in himself and his judgment if he expects to make
a living at this game. That is why I don’t believe in tips. If I buy
stocks on Smith’s tip I must sell those same stocks on Smith’s tip.
I am depending on him. Suppose Smith is away on a holiday when the
selling time comes around? No, sir, nobody can make big money on what
someone else tells him to do. _I know from experience that nobody can
give me a tip or a series of tips that will make more money for me
than my own judgment. It took me five years to learn to play the game
intelligently enough to make big money when I was right._
I didn’t have as many interesting experiences as you might imagine.
I mean, the process of learning how to speculate does not seem very
dramatic at this distance. I went broke several times, and that is
never pleasant, but the way I lost money is the way everybody loses
money who loses money in Wall Street. Speculation is a hard and trying
business, and a speculator must be on the job all the time or he’ll
soon have no job to be on.
My task, as I should have known after my early reverses at Fullerton’s,
was very simple: To look at speculation from another angle. But I
didn’t know that there was much more to the game than I could possibly
learn in the bucket shops. There I thought I was beating the game
when in reality I was only beating the shop. At the same time the
tape-reading ability that trading in bucket-shops developed in me and
the training of my memory have been extremely valuable. Both of these
things came easy to me. I owe my early success as a trader to them and
not to my brains or knowledge, because my mind was untrained and my
ignorance was colossal. The game taught me the game. And it didn’t
spare the rod while teaching.
I remember my very first day in New York. I told you how the bucket
shops, by refusing to take my business, drove me to seek a reputable
commission house. One of the boys in the office where I got my first
job was working for Harding Brothers, members of the New York Stock
Exchange. I arrived in this city in the morning, and before one o’clock
that same day I had opened an account with the firm and was ready to
trade.
I didn’t explain to you how natural it was for me to trade there
exactly as I had done in the bucket shops, where all I did was to bet
on fluctuations and catch small but sure changes in prices. Nobody
offered to point out the essential differences or set me right. If
somebody had told me my method would not work I nevertheless would have
tried it out to make sure for myself, for when I am wrong only one
thing convinces me of it, and that is, to lose money. And I am only
right when I make money. That is speculating.
They were having some pretty lively times those days and the market was
very active. That always cheers up a fellow. I felt at home right away.
There was the old familiar quotation board in front of me, talking a
language that I had learned before I was fifteen years old. There was
a boy doing exactly the same thing I used to do in the first office
I ever worked in. There were the customers--same old bunch--looking
at the board or standing by the ticket calling out the prices and
talking about the market. The machinery was to all appearances the
same machinery that I was used to. The atmosphere was the atmosphere
I had breathed since I had made my first stock-market money--$3.12
in Burlington. The same kind of ticker and the same kind of traders,
therefore the same kind of game. And remember, I was only twenty-two. I
suppose I thought I knew the game from A to Z. Why shouldn’t I?
I watched the board and saw something that looked good to me. It was
behaving right. I bought a hundred at 84. I got out at 85 in less than
a half hour. Then I saw something else I liked, and I did the same
thing; took three-quarters of a point net within a very short time. I
began well, didn’t I?
Now mark this: On that, my first day as a customer of a reputable Stock
Exchange house, and only two hours of it at that, I traded in eleven
hundred shares of stock, jumping in and out. And the net result of the
day’s operations was that I lost exactly eleven hundred dollars. That
is to say, on my first attempt, nearly one-half of my stake went up the
flue. And remember, some of the trades showed me a profit. But I quit
eleven hundred dollars minus for the day.
It didn’t worry me, because I couldn’t see where there was anything
wrong with me. My moves, also, were right enough, and if I had been
trading in the old Cosmopolitan shop I’d have broken better than even.
That the machine wasn’t as it ought to be, my eleven hundred vanished
dollars plainly told me. But as long as the machinist was all right
there was no need to stew. Ignorance at twenty-two isn’t a structural
defect.
After a few days I said to myself, “I can’t trade this way here. The
ticker doesn’t help as it should!” But I let it go at that without
getting down to bed rock. I kept it up, having good days and bad days,
until I was cleaned out. I went to old Fullerton and got him to stake
me to five hundred dollars. And I came back from St. Louis, as I told
you, with money I took out of the bucket shops there--a game I could
always beat.
I played more carefully and did better for a while. As soon as I was in
easy circumstances I began to live pretty well. I made friends and had
a good time. I was not quite twenty-three, remember; all alone in New
York with easy money in my pockets and the belief in my heart that I
was beginning to understand the new machine.
I was making allowances for the actual execution of my orders on the
floor of the Exchange, and moving more cautiously. But I was still
sticking to the tape--that is, I was still ignoring general principles;
and as long as I did that I could not spot the exact trouble with my
game.
We ran into the big boom of 1901 and I made a great deal of
money--that is, for a boy. You remember those times? The prosperity
of the country was unprecedented. We not only ran into an era of
industrial consolidations and combinations of capital that beat
anything we had had up to that time, but the public went stock mad.
In previous flush times, I have heard, Wall Street used to brag of
two-hundred-and-fifty-thousand-share days, when securities of a par
value of twenty-five million dollars changed hands. But in 1901 we had
a three-million-share day. Everybody was making money. The steel crowd
came to town, a horde of millionaires with no more regard for money
than drunken sailors. The only game that satisfied them was the stock
market. We had some of the biggest high rollers the Street ever saw:
John W. Gates, of ‘Bet-you-a-million’ fame, and his friends, like John
A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore crowd, who
sold part of their steel holdings and with the proceeds bought in the
open market the actual majority of the stock of the great Rock Island
system; and Schwab and Frick and Phipps and the Pittsburg coterie; to
say nothing of scores of men who were lost in the shuffle but would
have been called great plungers at any other time. A fellow could
buy and sell all the stock there was. Keene made a market for the
U.S. Steel shares. A broker sold one hundred thousand shares in a few
minutes. A wonderful time! And there were some wonderful winnings. And
no taxes to pay on stock sales! And no day of reckoning in sight.
Of course, after a while, I heard a lot of calamity howling and the
old stagers said everybody--except themselves--had gone crazy. But
everybody except themselves was making money. I knew, of course, there
must be a limit to the advances and an end to the crazy buying of
A.O.T.--Any Old Thing--and I got bearish. But every time I sold I lost
money, and if it hadn’t been that I ran darn quick I’d have lost a
heap more. I looked for a break, but I was playing safe--making money
when I bought and chipping it out when I sold short--so that I wasn’t
profiting by the boom as much as you’d think when you consider how
heavily I used to trade, even as a boy.
There was one stock that I wasn’t short of, and that was Northern
Pacific. My tape reading came in handy. I thought most stocks had been
bought to a standstill, but Little Nipper behaved as if it were going
still higher. We know now that both the common and the preferred were
being steadily absorbed by the Kuhn-Loeb-Harriman combination. Well,
I was long a thousand shares of Northern Pacific common, and held it
against the advice of everybody in the office. When it got to about 110
I had thirty points profit, and I grabbed it. It made my balance at my
brokers’ nearly fifty thousand dollars, the greatest amount of money
I had been able to accumulate up to that time. It wasn’t so bad for
a chap who had lost every cent trading in that selfsame office a few
months before.
If you remember, the Harriman crowd notified Morgan and Hill of their
intention to be represented in the Burlington-Great Northern-Northern
Pacific combination, and then the Morgan people at first instructed
Keene to buy fifty thousand shares of N.P. to keep the control in
their possession. I have heard that Keene told Robert Bacon to make
the order one hundred and fifty thousand shares and the bankers did.
At all events, Keene sent one of his brokers, Eddie Norton, into the
N.P. crowd and he bought one hundred thousand shares of the stock.
This was followed by another order, I think, of fifty thousand shares
additional, and the famous corner followed. After the market closed on
May 8, 1901, the whole world knew that a battle of financial giants was
on. No two such combinations of capital had ever opposed each other in
this country. Harriman against Morgan; an irresistible force meeting an
immovable object.
There I was on the morning of May ninth with nearly fifty thousand
dollars in cash and no stocks. As I told you, I had been very bearish
for some days, and here was my chance at last. I knew what would
happen--an awful break and then some wonderful bargains. There would
be a quick recovery and big profits--for those who had picked up the
bargains. It didn’t take Sherlock Holmes to figure this out. We were
going to have an opportunity to catch them coming and going, not only
for big money but for sure money.
Everything happened as I had foreseen. I was dead right and--I lost
every cent I had! I was wiped out by something that was unusual. If
the unusual never happened there would be no difference in people and
then there wouldn’t be any fun in life. The game would become merely
a matter of addition and subtraction. It would make of us a race of
bookkeepers with plodding minds. It’s the guessing that develops a
man’s brain power. Just consider what you have to do to guess right.
The market fairly boiled, as I had expected. The transactions were
enormous and the fluctuations unprecedented in extent. I put in a lot
of selling orders at the market. When I saw the opening prices I had a
fit, the breaks were so awful. My brokers were on the job. They were
as competent and conscientious as any; but by the time they executed
my orders the stocks had broken twenty points more. The tape was way
behind the market and reports were slow in coming in by reason of the
awful rush of business. When I found out that the stocks I had ordered
sold when the tape said the price was, say, 100 and they got mine
off at 80, making a total decline of thirty or forty points from the
previous night’s close, it seemed to me that I was putting out shorts
at a level that made the stocks I sold the very bargains I had planned
to buy. The market was not going to drop right through to China. So I
decided instantly to cover my shorts and go long.
My brokers bought; not at the level that had made me turn, but at the
prices prevailing in the Stock Exchange when their floor man got my
orders. They paid an average of fifteen points more than I had figured
on. A loss of thirty-five points in one day was more than anybody could
stand.
The ticker beat me by lagging so far behind the market. I was
accustomed to regarding the tape as the best little friend I had
because I bet according to what it told me. But this time the tape
double-crossed me. The divergence between the printed and the actual
prices undid me. It was the sublimation of my previous unsuccess, the
selfsame thing that had beaten me before. It seems so obvious now that
tape reading is not enough, irrespective of the brokers’ execution,
that I wonder why I didn’t then see both my trouble and the remedy for
it.
I did worse than not see it; I kept on trading, in and out, regardless
of the execution. You see, I never could trade with a limit. I must
take my chances with the market. That is what I am trying to beat--the
market, not the particular price. When I think I should sell, I sell.
When I think stocks will go up, I buy. My adherence to that general
principle of speculation saved me. To have traded at limited prices
simply would have been my old bucket-shop method inefficiently adapted
for use in a reputable commission broker’s office. I would never have
learned to know what stock speculation is, but would have kept on
betting on what a limited experience told me was a sure thing.
Whenever I did try to limit the prices in order to minimize the
disadvantages of trading at the market when the ticker lagged, I simply
found that the market got away from me. This happened so often that I
stopped trying. I can’t tell you how it came to take me so many years
to learn that instead of placing piking bets on what the next few
quotations were going to be, my game was to anticipate what was going
to happen in a big way.
After my May ninth mishap I plugged along, using a modified but still
defective method. If I hadn’t made money some of the time I might have
acquired market wisdom quicker. But I was making enough to enable me
to live well. I liked friends and a good time. I was living down the
Jersey Coast that summer, like hundreds of prosperous Wall Street men.
My winnings were not quite enough to offset both my losses and my
living expenses.
I didn’t keep on trading the way I did through stubbornness. I simply
wasn’t able to state my own problem to myself, and, of course, it was
utterly hopeless to try to solve it. I harp on this topic so much to
show what I had to go through before I got to where I could really make
money. My old shotgun and BB shot could not do the work of a high-power
repeating rifle against big game.
Early that fall I not only was cleaned out again but I was so sick
of the game I could no longer beat that I decided to leave New York
and try something else some other place. I had been trading since my
fourteenth year. I had made my first thousand dollars when I was a kid
of fifteen, and my first ten thousand before I was twenty-one. I had
made and lost a ten-thousand-dollar stake more than once. In New York
I had made thousands and lost them. I got up to fifty thousand dollars
and two days later that went. I had no other business and knew no other
game. After several years I was back where I began. No--worse, for I
had acquired habits and a style of living that required money; though
that part didn’t bother me as much as being wrong so consistently.
_IV_
Well, I went home. But the moment I was back I knew that I had but one
mission in life and that was to get a stake and go back to Wall Street.
That was the only place in the country where I could trade heavily.
Some day, when my game was all right, I’d need such a place. When a man
is right he wants to get all that is coming to him for being right.
I didn’t have much hope, but, of course, I tried to get into the bucket
shops again. There were fewer of them and some of them were run by
strangers. Those who remembered me wouldn’t give me a chance to show
them whether I had gone back as a trader or not. I told them the truth,
that I had lost in New York whatever I had made at home; that I didn’t
know as much as I used to think I did; and that there was no reason why
it should not now be good business for them to let me trade with them.
But they wouldn’t. And the new places were unreliable. Their owners
thought twenty shares was as much as a gentleman ought to buy if he had
any reason to suspect he was going to guess right.
I needed the money and the bigger shops were taking in plenty of it
from their regular customers. I got a friend of mine to go into a
certain office and trade. I just sauntered in to look them over. I
again tried to coax the order clerk to accept a small order, even if
it was only fifty shares. Of course he said no. I had rigged up a code
with this friend so that he would buy or sell when and what I told him.
But that only made me chicken feed. Then the office began to grumble
about taking my friend’s orders. Finally one day he tried to sell a
hundred St. Paul and they shut down on him.
We learned afterward that one of the customers saw us talking together
outside and went in and told the office, and when my friend went up to
the order clerk to sell that hundred St. Paul the guy said:
“We’re not taking any selling orders in St. Paul, not from you.”
“Why, what’s the matter, Joe?” asked my friend.
“Nothing doing, that’s all,” answered Joe.
“Isn’t that money any good? Look it over. It’s all there.” And my
friend passed over the hundred--my hundred--in tens. He tried to
look indignant and I was looking unconcerned; but most of the other
customers were getting close to the combatants, as they always did when
there was loud talking or the slightest semblance of a scrap between
the shop and any customer. They wanted to get a line on the merits of
the case in order to get a line on the solvency of the concern.
The clerk, Joe, who was a sort of assistant manager, came out from
behind his cage, walked up to my friend, looked at him and then looked
at me.
“It’s funny,” he said slowly--“it’s damned funny that you never do a
single thing here when your friend Livingston isn’t around. You just
sit and look at the board by the hour. Never a peep. But after he comes
in you get busy all of a sudden. Maybe you are acting for yourself; but
not in this office any more. We don’t fall for Livingston tipping you
off.”
Well, that stopped my board money. But I had made a few hundred more
than I had spent and I wondered how I could use them, for the need of
making enough money to go back to New York with was more urgent than
ever. I felt that I would do better the next time. I had had time to
think calmly of some of my foolish plays; and then, one can see the
whole better when one sees it from a little distance. The immediate
problem was to make the new stake.
One day I was in a hotel lobby, talking to some fellows I knew, who
were pretty steady traders. Everybody was talking stock market. I made
the remark that nobody could beat the game on account of the rotten
execution he got from his brokers, especially when he traded at the
market, as I did.
A fellow piped up and asked me what particular brokers I meant.
I said, “The best in the land,” and he asked who might they be. I could
see he wasn’t going to believe I ever dealt with first-class houses.
But I said, “I mean, any member of the New York Stock Exchange. It
isn’t that they are crooked or careless, but when a man gives an order
to buy at the market he never knows what that stock is going to cost
him until he gets a report from the brokers. There are more moves of
one or two points than of ten and fifteen. But the outside trader can’t
catch the small rises or drops because of the execution. I’d rather
trade in a bucket shop any day in the week, if they’d only let a fellow
trade big.”
The man who had spoken to me I had never seen before. His name was
Roberts. He seemed very friendly disposed. He took me aside and asked
me if I had ever traded in any of the other exchanges, and I said no.
He said he knew some houses that were members of the Cotton Exchange
and the Produce Exchange and the smaller stock exchanges. These firms
were very careful and paid special attention to the execution. He said
that they had confidential connections with the biggest and smartest
houses on the New York Stock Exchange and through their personal pull
and by guaranteeing a business of hundreds of thousands of shares a
month they got much better service than an individual customer could
get.
“They really cater to the small customer,” he said. “They make a
specialty of out-of-town business and they take just as much pains
with a ten-share order as they do with one for ten thousand. They are
very competent and honest.”
“Yes. But if they pay the Stock Exchange house the regular eighth
commission, where do they come in?”
“Well, they are supposed to pay the eighth. But--you know!” He winked
at me.
“Yes,” I said. “But the one thing a Stock Exchange firm will not do is
to split commissions. The governors would rather a member committed
murder, arson and bigamy than to do business for outsiders for less
than a kosher eighth. The very life of the Stock Exchange depends upon
their not violating that one rule.”
He must have seen that I had talked with Stock Exchange people, for he
said, “Listen! Every now and then one of those pious Stock Exchange
houses is suspended for a year for violating that rule, isn’t it? There
are ways and ways of rebating so nobody can squeal.” He probably saw
unbelief in my face, for he went on: “And besides, on certain kinds of
business we--I mean, these wire houses--charge a thirty-second extra,
in addition to the eighth commission. They are very nice about it. They
never charge the extra commission except in unusual cases, and then
only if the customer has an inactive account. It wouldn’t pay them, you
know, otherwise. They aren’t in business exclusively for their health.”
By that time I knew he was touting for some phony brokers.
“Do you know any reliable house of that kind?” I asked him.
“I know the biggest brokerage firm in the United States,” he said.
“I trade there myself. They have branches in seventy-eight cities in
the United States and Canada. They do an enormous business. And they
couldn’t very well do it year in and year out if they weren’t strictly
on the level, could they?”
“Certainly not,” I agreed. “Do they trade in the same stocks that are
dealt in on the New York Stock Exchange?”
“Of course; and on the curb and on any other exchange in this country,
or Europe. They deal in wheat, cotton, provisions; anything you
want. They have correspondents everywhere and memberships in all the
exchanges, either in their own name or on the quiet.”