“To-morrow you’ll be buying it back.”
“Buying what back?” I said. I hadn’t told a soul except the telegraph
operator.
“Anaconda,” he said. “You’ll be paying 320 for it. That wasn’t a good
move of yours, Larry.” And he smiled again.
“What wasn’t?” And I looked innocent.
“Selling your eight thousand Anaconda at the market; in fact, insisting
on it,” said Ollie Black.
I knew that he was supposed to be very clever and always traded on
inside news. But how he knew my business so accurately was beyond me. I
was sure the office hadn’t given me away.
“Ollie, how do you know that?” I asked him.
He laughed and told me: “I got it from Charlie Kratzer.” That was the
telegraph operator.
“But he never budged from his place,” I said.
“I couldn’t hear you and him whispering,” he chuckled. “But I heard
every word of the message he sent to the New York office for you. I
learned telegraphy years ago after I had a big row over a mistake in a
message. Since then when I do what you did just now--give an order by
word of mouth to an operator--I want to be sure the operator sends the
message as I give it to him. I know what he sends in my name. But you
will be sorry you sold that Anaconda. It’s going to 500.”
“Not this trip, Ollie,” I said.
He stared at me and said, “You’re pretty cocky about it.”
“Not I; the tape,” I said. There wasn’t any ticker there so there
wasn’t any tape. But he knew what I meant.
“I’ve heard of those birds,” he said, “who look at the tape and instead
of seeing prices they see a railroad time-table of the arrival and
departure of stocks. But they were in padded cells where they couldn’t
hurt themselves.”
I didn’t answer him anything because about that time the boy brought me
a memorandum. They had sold five thousand shares at 299¾. I knew our
quotations were a little behind the market. The price on the board at
Palm Beach when I gave the operator the order to sell was 301. I felt
so certain that at that very moment the price at which the stock was
actually selling on the Stock Exchange in New York was less, that if
anybody had offered to take the stock off my hands at 296 I’d have been
tickled to death to accept. What happened shows you that I am right in
never trading at limits. Suppose I had limited my selling price to 300?
I’d never have got it off. No, sir! _When you want to get out, get out._
Now, my stock cost me about 300. They got off five hundred shares--full
shares, of course--at 299¾. The next thousand they sold at 299⅝. Then
a hundred at ½; two hundred at ⅜ and two hundred at ¼. The last of
my stock went at 298¾. It took Harding’s cleverest floor man fifteen
minutes to get rid of that last one hundred shares. They didn’t want to
crack it wide open.
The moment I got the report of the sale of the last of my long stock
I started to do what I had really come ashore to do--that is, to sell
stocks. I simply had to. There was the market after its outrageous
rally, begging to be sold. Why, people were beginning to talk bullish
again. The course of the market, however, told me that the rally had
run its course. It was safe to sell them. It did not require reflection.
The next day Anaconda opened below 296. Oliver Black, who was waiting
for a further rally, had come down early to be Johnny-on-the-spot when
the stock crossed 320. I don’t know how much of it he was long of or
whether he was long of it all. But he didn’t laugh when he saw the
opening prices, nor later in the day when the stock broke still more
and the report came back to us in Palm Beach that there was no market
for it at all.
Of course that was all the confirmation any man needed. My growing
paper profit kept reminding me that I was right, hour by hour.
Naturally I sold some more stocks. Everything! It was a bear market.
They were all going down. The next day was Friday, Washington’s
Birthday. I couldn’t stay in Florida and fish because I had put out a
very fair short line, for me. I was needed in New York. Who needed me?
I did! Palm Beach was too far, too remote. Too much valuable time was
lost telegraphing back and forth.
I left Palm Beach for New York. On Monday I had to lie in St. Augustine
three hours, waiting for a train. There was a broker’s office there,
and naturally I had to see how the market was acting while I was
waiting. Anaconda had broken several points since the last trading day.
As a matter of fact, it didn’t stop going down until the big break that
fall.
I got to New York and traded on the bear side for about four months.
The market had frequent rallies as before, and I kept covering and
putting them out again. I didn’t, strictly speaking, sit tight.
Remember, I had lost every cent of the three hundred thousand dollars
I made out of the San Francisco earthquake break. I had been right,
and nevertheless had gone broke. I was now playing safe--because after
being down a man enjoys being up, even if he doesn’t quite make the
top. _The way to make money is to make it. The way to make big money is
to be right at exactly the right time._ In this business a man has to
think of both theory and practice. A speculator must not be merely a
student, he must be both a student and a speculator.
I did pretty well, even if I can now see where my campaign was
tactically inadequate. When summer came the market got dull. It was
a cinch that there would be nothing doing in a big way until well
along in the fall. Everybody I knew had gone or was going to Europe.
I thought that would be a good move for me. So I cleaned up. When I
sailed for Europe I was a trifle more than three-quarters of a million
to the good. To me that looked like some balance.
I was in Aix-les-Bains enjoying myself. I had earned my vacation. It
was good to be in a place like that with plenty of money and friends
and acquaintances and everybody intent upon having a good time. Not
much trouble about having that, in Aix. Wall Street was so far away
that I never thought about it, and that is more than I could say of any
resort in the United States. I didn’t have to listen to talk about the
stock market. I didn’t need to trade. I had enough to last me quite a
long time, and besides, when I got back I knew what to do to make much
more than I could spend in Europe that summer.
One day I saw in the Paris _Herald_ a dispatch from New York that
Smelters had declared an extra dividend. They had run the price of the
stock and the entire market had come back quite strong. Of course that
changed everything for me in Aix. The news simply meant that the bull
cliques were still fighting desperately against conditions--against
common sense and against common honesty, for they knew what was coming
and were resorting to such schemes to put up the market in order to
unload stocks before the storm struck them. It is possible they really
did not believe the danger was as serious or as close at hand as I
thought. _The big men of the Street are as prone to be wishful thinkers
as the politicians or the plain suckers. I myself can’t work that way._
In a speculator such an attitude is fatal. Perhaps a manufacturer of
securities or a promoter of new enterprises can afford to indulge in
hope-jags.
At all events, I knew that all bull manipulation was foredoomed to
failure in that bear market. The instant I read the dispatch I knew
there was only one thing to do to be comfortable, and that was to sell
Smelters short. Why, the insiders as much as begged me on their knees
to do it, when they increased the dividend rate on the verge of a money
panic. It was as infuriating as the old “dares” of your boyhood. They
dared me to sell that particular stock short.
I cabled some selling orders in Smelter and advised my friends in New
York to go short of it. When I got my report from the brokers I saw the
price they got was six points below the quotations I had seen in the
Paris Herald. It shows you what the situation was.
My plans had been to return to Paris at the end of the month and about
three weeks later sail for New York, but as soon as I received the
cabled reports from my brokers I went back to Paris. The same day I
arrived I called at the steamship offices and found there was a fast
boat leaving for New York the next day. I took it.
There I was, back in New York, almost a month ahead of my original
plans, because it was the most comfortable place to be short of the
market in. I had well over half a million in cash available for
margins. My return was not due to my being bearish but to my being
logical.
I sold more stocks. _As money got tighter call-money rates went higher
and prices of stocks lower._ I had foreseen it. At first, my foresight
broke me. But now I was right and prospering. However, the real joy was
in the consciousness that as a trader I was at last on the right track.
I still had much to learn but I knew what to do. No more floundering,
no more half-right methods. _Tape reading was an important part of
the game; so was beginning at the right time; so was sticking to your
position. But my greatest discovery was that a man must study general
conditions, to size them so as to be able to anticipate probabilities._
In short, I had learned that I had to work for my money. I was no
longer betting blindly or concerned with mastering the technic of the
game, but with earning my successes by hard study and clear thinking. I
also found out that nobody was immune from the danger of making sucker
plays. And for a sucker play a man gets sucker pay; for the paymaster
is on the job and never loses the pay envelope that is coming to you.
Our office made a great deal of money. My own operations were so
successful that they began to be talked about and, of course, were
greatly exaggerated. I was credited with starting the breaks in various
stocks. People I didn’t know by name used to come and congratulate me.
They all thought the most wonderful thing was the money I had made.
They did not say a word about the time when I first talked bearish to
them and they thought I was a crazy bear with a stock-market loser’s
vindictive grouch. That I had foreseen the money troubles was nothing.
That my brokers’ bookkeeper had used a third of a drop of ink on the
credit side of the ledger under my name was a marvellous achievement to
them.
Friends used to tell me that in various offices the Boy Plunger in
Harding Brothers’ office was quoted as making all sorts of threats
against the bull cliques that had tried to mark up prices of various
stocks long after it was plain that the market was bound to seek a much
lower level. To this day they talk of my raids.
From the latter part of September on, the money market was megaphoning
warnings to the entire world. But a belief in miracles kept people from
selling what remained of their speculative holdings. Why a broker told
me a story the first week of October that made me feel almost ashamed
of my moderation.
You remember that money loans used to be made on the floor of the
Exchange around the Money Post. Those brokers who had received notice
from their banks to pay call loans knew in a general way how much
money they would have to borrow afresh. And of course the banks knew
their position so far as loanable funds were concerned, and those
which had money to loan would send it to the Exchange. This bank money
was handled by a few brokers whose principal business was time loans.
At about noon the renewal rate for the day was posted. Usually this
represented a fair average of the loans made up to that time. Business
was as a rule transacted openly by bids and offers, so that everyone
knew what was going on. Between noon and about two o’clock there
was ordinarily not much business done in money, but after delivery
time--namely, 2:15 P.M.--brokers would know exactly what their cash
position for the day would be, and they were able either to go to the
Money Post and lend the balances that they had over or to borrow what
they required. This business also was done openly.
Well, sometime early in October the broker I was telling you about came
to me and told me that brokers were getting so they didn’t go to the
Money Post when they had money to loan. The reason was that members of
a couple of well-known commission houses were on watch there, ready to
snap up any offerings of money. Of course no lender who offered money
publicly could refuse to lend to these firms. They were solvent and the
collateral was good enough. But the trouble was that once these firms
borrowed money on call there was no prospect of the lender getting that
money back. They simply said they couldn’t pay it back and the lender
would willy-nilly have to renew the loan. So any Stock Exchange house
that had money to loan to its fellows used to send its men about the
floor instead of to the Post, and they would whisper to good friends,
“Want a hundred?” meaning, “Do you wish to borrow a hundred thousand
dollars?” The money brokers who acted for the banks presently adopted
the same plan, and it was a dismal sight to watch the Money Post. Think
of it!
Why, he also told me that it was a matter of Stock Exchange etiquette
in those October days for the borrower to make his own rate of
interest. You see, it fluctuated between 100 and 150 per cent per
annum. I suppose by letting the borrower fix the rate the lender in
some strange way didn’t feel so much like a usurer. But you bet he got
as much as the rest. The lender naturally did not dream of not paying
a high rate. He played fair and paid whatever the others did. What he
needed was the money and was glad to get it.
Things got worse and worse. _Finally there came the awful day of
reckoning for the bulls and the optimists and the wishful thinkers
and those vast hordes that, dreading the pain of a small loss at
the beginning, were now about to suffer total amputation--without
anaesthetics._ A day I shall never forget, October 24, 1907.
Reports from the money crowd early indicated that borrowers would have
to pay whatever the lenders saw fit to ask. There wouldn’t be enough
to go around. That day the money crowd was much larger than usual.
When delivery time came that afternoon there must have been a hundred
brokers around the Money Post, each hoping to borrow the money that his
firm urgently needed. Without money they must sell what stocks they
were carrying on margin--sell at any price they could get in a market
where buyers were as scarce as money--and just then there was not a
dollar in sight.
My friend’s partner was as bearish as I was. The firm therefore did not
have to borrow, but my friend, the broker I told you about, fresh from
seeing the haggard faces around the Money Post, came to me. He knew I
was heavily short of the entire market.
He said, “My God, Larry! I don’t know what’s going to happen. I never
saw anything like it. It can’t go on. Something has got to give. It
looks to me as if everybody is busted right now. You can’t sell stocks,
and there is absolutely no money in there.”
“How do you mean?” I asked.
But what he answered was, “Did you ever hear of the classroom
experiment of the mouse in a glass-bell when they begin to pump the air
out of the bell? You can see the poor mouse breathe faster and faster,
its sides heaving like over-worked bellows, trying to get enough oxygen
out of the decreasing supply in the bell. You watch it suffocate till
its eyes almost pop out of their sockets, gasping, dying. Well, that
is what I think of when I see the crowd at the Money Post! No money
anywhere, and you can’t liquidate stocks because there is nobody to buy
them. The whole Street is broke at this very moment, if you ask me!”
It made me think. I had seen a smash coming, but not, I admit, the
worst panic in our history. It might not be profitable to anybody--if
it went much further.
Finally it became plain that there was no use in waiting at the Post
for money. There wasn’t going to be any. Then hell broke loose.
The president of the Stock Exchange, Mr. R. H. Thomas, so I heard later
in the day, knowing that every house in the Street was headed for
disaster, went out in search of succour. He called on James Stillman,
president of the National City Bank, the richest bank in the United
States. Its boast was that it never loaned money at a higher rate than
6 per cent.
Stillman heard what the president of the New York Stock Exchange had
to say. Then he said, “Mr. Thomas, we’ll have to go and see Mr. Morgan
about this.”
The two men, hoping to stave off the most disastrous panic in our
financial history, went together to the office of J. P. Morgan & Co.
and saw Mr. Morgan, Mr. Thomas laid the case before him. The moment he
got through speaking Mr. Morgan said, “Go back to the Exchange and tell
them that there will be money for them.”
“Where?”
“At the banks!”
So strong was the faith of all men in Mr. Morgan in those critical
times that Thomas didn’t wait for further details but rushed back
to the floor of the Exchange to announce the reprieve to his
death-sentenced fellow members.
Then, before half past two in the afternoon, J. P. Morgan sent John
T. Atterbury, of Van Emburgh & Atterbury, who was known to have close
relations with J. P. Morgan & Co., into the money crowd. My friend said
that the old broker walked quickly to the Money Post. He raised his
hand like an exhorter at a revival meeting. The crowd, that at first
had been calmed down somewhat by President Thomas’ announcement, was
beginning to fear that the relief plans had miscarried and the worst
was still to come. But when they looked at Mr. Atterbury’s face and saw
him raise his hand they promptly petrified themselves.
In the dead silence that followed, Mr. Atterbury said, “I am authorized
to lend ten million dollars. Take it easy! There will be enough for
everybody!”
Then he began. Instead of giving to each borrower the name of the
lender he simply jotted down the name of the borrower and the amount
of the loan and told the borrower, “You will be told where your money
is.” He meant the name of the bank from which the borrower would get
the money later.
I heard a day or two later that Mr. Morgan simply sent word to the
frightened bankers of New York that they must provide the money the
Stock Exchange needed.
“But we haven’t got any. We’re loaned up to the hilt,” the banks
protested.
“You’ve got your reserves,” snapped J. P.
“But we’re already below the legal limit,” they howled.
“Use them! That’s what reserves are for!” And the banks obeyed and
invaded the reserves to the extent of about twenty million dollars. It
saved the stock market. The bank panic didn’t come until the following
week. He was a man, J. P. Morgan was. They don’t come much bigger.
That was the day I remember most vividly of all the days of my life as
a stock operator. It was the day when my winnings exceeded one million
dollars. It marked the successful ending of my first deliberately
planned trading campaign. What I had foreseen had come to pass. But
more than all these things was this: a wild dream of mine had been
realised. I had been king for a day!
I’ll explain, of course. After I had been in New York a couple of years
I used to cudgel my brains trying to determine the exact reason why I
couldn’t beat in a Stock Exchange house in New York the game that I
had beaten as a kid of fifteen in a bucket shop in Boston. I knew that
some day I would find out what was wrong and I would stop being wrong.
I would then have not alone the will to be right but the knowledge to
insure my being right. And that would mean power.
Please do not misunderstand me. It was not a deliberate dream of
grandeur or a futile desire born of overweening vanity. It was rather
a sort of feeling that the same old stock market that so baffled me in
Fullerton’s office and in Harding’s would one day eat out of my hand.
I just felt that such a day would come. And it did--October 24, 1907.
The reason why I say it is this: That morning a broker who had done
a lot of business for my brokers and knew that I had been plunging
on the bear side rode down in the company of one of the partners of
the foremost banking house in the Street. My friend told the banker
how heavily I had been trading, for I certainly pushed my luck to the
limit. What is the use of being right unless you get all the good
possible out of it.
Perhaps the broker exaggerated to make his story sound important.
Perhaps I had more of a following than I knew. Perhaps the banker knew
far better than I how critical the situation was. At all events, my
friend said to me: “He listened with great interest to what I told him
you said the market was going to do when the real selling began, after
another push or two. When I got through he said he might have something
for me to do later in the day.”
When the commission houses found out there was not a cent to be had at
any price I knew the time had come. I sent brokers into the various
crowds. Why, at one time there wasn’t a single bid for Union Pacific.
Not at any price! Think of it! And in other stocks the same thing. No
money to hold stocks and nobody to buy them.
I had enormous paper profits and the certainty that all that I had
to do to smash prices still more was to send in orders to sell ten
thousand shares each of Union Pacific and of a half dozen other good
dividend-paying stocks and what would follow would be simply hell. It
seemed to me that the panic that would be precipitated would be of such
an intensity and character that the board of governors would deem it
advisable to close the Exchange, as was done in August, 1914, when the
World War broke out.
It would mean greatly increased profits on paper. It might also mean
an inability to convert those profits into actual cash. But there were
other things to consider, and one was that a further break would
retard the recovery that I was beginning to figure on, the compensating
improvement after all that blood-letting. Such a panic would do much
harm to the country generally.
I made up my mind that since it was unwise and unpleasant to continue
actively bearish it was illogical for me to stay short. So I turned and
began to buy.
It wasn’t long after my brokers began to buy in for me--and, by the
way, I got bottom prices--that the banker sent for my friend.
“I have sent for you,” he said, “because I want you to go instantly to
your friend Livingston and say to him that we hope he will not sell
any more stocks to-day. The market can’t stand much more pressure. As
it is, it will be an immensely difficult task to avert a devastating
panic. Appeal to your friend’s patriotism. This is a case where a man
has to work for the benefit of all. Let me know at once what he says.”
My friend came right over and told me. He was very tactful. I suppose
he thought that having planned to smash the market I would consider his
request as equivalent to throwing away the chance to make about ten
million dollars. He knew I was sore on some of the big guns for the way
they had acted trying to land the public with a lot of stock when they
knew as well as I did what was coming.
As a matter of fact, the big men were big sufferers and lots of the
stocks I bought at the very bottom were in famous financial names. I
didn’t know it at the time, but it did not matter. I had practically
covered all my shorts and it seemed to me there was a chance to buy
stocks cheap and help the needed recovery in prices at the same
time--if nobody hammered the market.
So I told my friend, “Go back and tell Mr. Blank that I agree with them
and that I fully realised the gravity of the situation even before he
sent for you. I not only will not sell any more stocks to-day, but I am
going in and buy as much as I can carry.” And I kept my word. I bought
one hundred thousand shares that day, for the long account. I did not
sell another stock short for nine months.
That is why I said to friends that my dream had come true and that
I had been king for a moment. The stock market at one time that day
certainly was at the mercy of anybody who wanted to hammer it. I do not
suffer from delusions of grandeur; in fact you know how I feel about
being accused of raiding the market and about the way my operations are
exaggerated by the gossip of the Street.
I came out of it in fine shape. The newspapers said that Larry
Livingston, the Boy Plunger, had made several millions. Well, I was
worth over one million after the close of business that day. But my
biggest winnings were not in dollars but in the intangibles: I had been
right, I had looked ahead and followed a clear-cut plan. I had learned
what a man must do in order to make big money; I was permanently out of
the gambler class; I had at last learned to trade intelligently in a
big way. It was a day of days for me.
_X_
The recognition of our own mistakes should not benefit us any more
than the study of our successes. But there is a natural tendency in
all men to avoid punishment. When you associate certain mistakes with
a licking, you do not hanker for a second dose, and, of course, all
stock-market mistakes wound you in two tender spots--your pocketbook
and your vanity. But I will tell you something curious: A stock
speculator sometimes makes mistakes and knows that he is making them.
And after he makes them he will ask himself why he made them; and
after thinking over it cold-bloodedly a long time after the pain of
punishment is over he may learn how he came to make them, and when, and
at what particular point of his trade; but not why. And then he simply
calls himself names and lets it go at that.
Of course, if a man is both wise and lucky, he will not make the same
mistake twice. But he will make any one of the ten thousand brothers or
cousins of the original. The Mistake family is so large that there is
always one of them around when you want to see what you can do in the
fool-play line.
To tell you about the first of my million-dollar mistakes I shall have
to go back to this time when I first became a millionaire, right after
the big break of October, 1907. As far as my trading went, having a
million merely meant more reserves. Money does not give a trader more
comfort, because, rich or poor, he can make mistakes and it is never
comfortable to be wrong. And when a millionaire is right his money
is merely one of his several servants. Losing money is the least of
my troubles. _A loss never bothers me after I take it. I forget it
overnight. But being wrong--not taking the loss--that is what does the
damage to the pocketbook and to the soul._ You remember Dickson G.
Watts’ story about the man who was so nervous that a friend asked him
what was the matter.
“I can’t sleep,” answered the nervous one.
“Why not?” asked the friend.
“I am carrying so much cotton that I can’t sleep thinking about it. It
is wearing me out. What can I do?”
“Sell down to the sleeping point,” answered the friend.
As a rule a man adapts himself to conditions so quickly that he loses
the perspective. He does not feel the difference much--that is, he
does not vividly remember how it felt not to be a millionaire. He only
remembers that there were things he could not do that he can do now. It
does not take a reasonably young and normal man very long to lose the
habit of being poor. It requires a little longer to forget that he used
to be rich. I suppose that is because money creates needs or encourages
their multiplication. I mean that after a man makes money in the stock
market he very quickly loses the habit of not spending. But after he
loses his money it takes him a long time to lose the habit of spending.
After I took in my shorts and went long in October, 1907, I decided to
take it easy for a while. I bought a yacht and planned to go off on a
cruise in Southern waters. I am crazy about fishing and I was due to
have the time of my life. I looked forward to it and expected to go any
day. But I did not. The market wouldn’t let me.
_I always have traded in commodities as well as in stocks._ I began as
a youngster in the bucket shops. I studied those markets for years,
though perhaps not so assiduously as the stock market. As a matter
of fact, _I would rather play commodities than stocks_. There is no
question about their greater legitimacy, as it were. It partakes more
of the nature of a commercial venture than trading in stocks does.
A man can approach it as he might any mercantile problem. It may be
possible to use fictitious arguments for or against a certain trend in
a commodity market; but success will be only temporary, _for in the
end the facts are bound to prevail_, so that a trader gets dividends
on study and observation, as he does in a regular business. He can
watch and weigh conditions and he knows as much about it as anyone
else. He need not guard against inside cliques. Dividends are not
unexpectedly passed or increased overnight in the cotton market or in
wheat or corn. _In the long run commodity prices are governed but by
one law--the economic law of demand and supply._ The business of the
trader in commodities is simply to get facts about the demand and the
supply, present and prospective. He does not indulge in guesses about a
dozen things as he does in stocks. It always appealed to me--trading in
commodities.
Of course the same things happen in all speculative markets. The
message of the tape is the same. That will be perfectly plain to
anyone who will take the trouble to think. He will find if he asks
himself questions and considers conditions, that the answers will
supply themselves directly. But people never take the trouble to
ask questions, leave alone seeking answers. The average American is
from Missouri everywhere and at all times except when he goes to
the brokers’ offices and looks at the tape, whether it is stocks or
commodities. The one game of all games that really requires study
before making a play is the one he goes into without his usual highly
intelligent preliminary and precautionary doubts. _He will risk half
his fortune in the stock market with less reflection than he devotes to
the selection of a medium-priced automobile._
This matter of tape reading is not so complicated as it appears. Of
course you need experience. But it is even more important to keep
certain fundamentals in mind. To read the tape is not to have your
fortune told. The tape does not tell you how much you will surely be
worth next Thursday at 1:35 P.M. The object of reading the tape is to
ascertain, first, how and, next, when to trade--that is, whether it is
wiser to buy than to sell. It works exactly the same for stocks as for
cotton or wheat or corn or oats.
You watch the market--that is, the course of prices as recorded by the
tape--with one object: to determine the direction--that is, the price
tendency. Prices, we know, will move either up or down according to the
resistance they encounter. For purposes of easy explanation we will
say that _prices, like everything else, move along the line of least
resistance_. They will do whatever comes easiest, therefore they will
go up if there is less resistance to an advance than to a decline; and
vice versa.
Nobody should be puzzled as to whether a market is a bull market or a
bear market after it fairly starts. The trend is evident to a man who
has an open mind and reasonably clear sight, for it is never wise for a
speculator to fit his facts to his theories. Such a man will, or ought
to, know whether it is a bull or a bear market, and if he knows that he
knows whether to buy or to sell. It is therefore at the very inception
of the movement that a man needs to know whether to buy or to sell.
Let us say, for example, that the market, as it usually does in those
between-swings times, fluctuates within a range of ten points; up to
130 and down to 120. It may look very weak at the bottom; or, on the
way up, after a rise of eight or ten points, it may look as strong as
anything. A man ought not to be led into trading by tokens. _He should
wait until the tape tells him that the time is ripe. As a matter of
fact, millions upon millions of dollars have been lost by men who
bought stocks because they looked cheap or sold them because they
looked dear. The speculator is not an investor. His object is not to
secure a steady return on his money at a good rate of interest, but to
profit by either a rise or a fall in the price of whatever he may be
speculating in. Therefore the thing to determine is the speculative
line of least resistance at the moment of trading; and what he should
wait for is the moment when that line defines itself, because that is
his signal to get busy._
Reading the tape merely enables him to see that at 130 the selling had
been stronger than the buying and a reaction in the price logically
followed. Up to the point where the selling prevailed over the buying,
superficial students of the tape may conclude that the price is not
going to stop short of 150, and they buy. But after the reaction
begins to hold on, or sell out at a small loss, or they go short and
talk bearish. But at 120 there is stronger resistance to the decline.
The buying prevails over the selling, there is a rally and the shorts
cover. The public is so often whipsawed that one marvels at their
persistence in not learning their lesson.
Eventually something happens that increases the power of either the
upward or the downward force and the point of greatest resistance moves
up or down--that is, the buying at 130 will for the first time be
stronger than the selling, or the selling at 120 be stronger than the
buying. The price will break through the old barrier or movement-limit
and go on. As a rule, there is always a crowd of traders who are short
at 120 because it looked so weak, or long at 130 because it looked so
strong, and, when the market goes against them they are forced, after a
while, either to change their minds and turn or to close out. In either
event they help to define even more clearly the price line of least
resistance. Thus the intelligent trader who has patiently waited to
determine this line will enlist the aid of fundamental trade conditions
and also of the force of the trading of that part of the community that
happened to guess wrong and must now rectify mistakes. Such corrections
tend to push prices along the line of least resistance.
And right here I will say that, though I do not give it as a
mathematical certainty or as an axiom of speculation, my experience
has been that accidents--that is, the unexpected or unforeseen--have
always helped me in my market position whenever the latter has been
based upon my determination of the line of least resistance. Do you
remember that Union Pacific episode at Saratoga that I told you about?
Well, I was long because I found out that the line of least resistance
was upward. I should have stayed long instead of letting my broker tell
me that insiders were selling stocks. It didn’t make any difference
what was going on in the directors’ minds. That was something I
couldn’t possibly know. But I could and did know that the tape said:
“Going up!” And then came the unexpected raising of the dividend rate
and the thirty-point rise in the stock. At 164 prices looked mighty
high, but as I told you before, _stocks are never too high to buy
or too low to sell_. _The price_, per se, _has nothing to do with
establishing my line of least resistance._
You will find in actual practice that if you trade as I have indicated
any important piece of news given out between the closing of one market
and the opening of another is usually in harmony with the line of
least resistance. _The trend has been established before the news is
published, and in bull markets bear items are ignored and bull news
exaggerated, and vice versa._ Before the war broke out the market was
in a very weak condition. There came the proclamation of Germany’s
submarine policy. I was short one hundred and fifty thousand shares of
stock, not because I knew the news was coming, but because I was going
along the line of least resistance. What happened came out of a clear
sky, as far as my play was concerned. Of course I took advantage of the
situation and I covered my shorts that day.
It sounds very easy to say that all you have to do is to watch the
tape, establish your resistance points and be ready to trade along the
line of least resistance as soon as you have determined it. _But in
actual practice a man has to guard against many things, and most of all
against himself_--that is, against human nature. That is the reason
why I say that the man who is right always has two forces working in
his favor--_basic conditions and the men who are wrong_. _In a bull
market bear factors are ignored._ That is human nature, and yet human
beings profess astonishment at it. People will tell you that the wheat
crop has gone to pot because there has been bad weather in one or two
sections and some farmers have been ruined. When the entire crop is
gathered and all the farmers in all the wheat-growing sections begin
to take their wheat to the elevators the bulls are surprised at the
smallness of the damage. They discover that they merely have helped the
bears.
When a man makes his play in a commodity market he must not permit
himself set opinions. He must have an open mind and flexibility. _It
is not wise to disregard the message of the tape, no matter what
your opinion of crop conditions or of the probable demand may be._
I recall how I missed a big play just by trying to anticipate the
starting signal. I felt so sure of conditions that I thought it was not
necessary to wait for the line of least resistance to define itself. I
even thought I might help it arrive, because it looked as if it merely
needed a little assistance.
I was very bullish on cotton. It was hanging around twelve cents,
running up and down within a moderate range. It was in one of those
in-between places and I could see it. I knew I really ought to wait.
But I got to thinking that if I gave it a little push it would go
beyond the upper resistance point.
I bought fifty thousand bales. Sure enough, it moved up. And sure
enough, as soon as I stopped buying it stopped going up. Then it began
to settle back to where it was when I began buying it. I got out and
it stopped going down. I thought I was now much nearer the starting
signal, and presently I thought I’d start it myself again. I did.
The same thing happened. I bid it up, only to see it go down when I
stopped. I did this four or five times until I finally quit in disgust.
It cost me about two hundred thousand dollars. I was done with it. It
wasn’t very long after that when it began to go up and never stopped
till it got to a price that would have meant a killing for me--if I
hadn’t been in such a great hurry to start.
This experience has been the experience of so many traders so many
times that I can give this rule: _In a narrow market, when prices
are not getting anywhere to speak of but move within a narrow range,
there is no sense in trying to anticipate what the next big movement
is going to be--up or down._ The thing to do is to watch the market,
read the tape to determine the limits of the get-nowhere prices, and
make up your mind that you will not take an interest until the price
breaks through the limit in either direction. A speculator must concern
himself with making money out of the market and not with insisting that
the tape must agree with him. Never argue with it or ask it for reasons
or explanations. _Stock-market post-mortems don’t pay dividends._
Not so long ago I was with a party of friends. They got to talking
wheat. Some of them were bullish and others bearish. Finally they asked
me what I thought. Well, I had been studying the market for some time.
I knew they did not want any statistics or analyses of conditions. So I
said: “If you want to make some money out of wheat I can tell you how
to do it.”
They all said they did and I told them, “If you are sure you wish to
make money in wheat just you watch it. Wait. The moment it crosses
$1.20 buy it and you will get a nice quick play in it!”
“Why not buy it now, at $1,14?” one of the party asked.
“Because I don’t know yet that it is going up at all.”
“Then why buy it at $1.20? It seems a mighty high price.”
“Do you wish to gamble blindly in the hope of getting a great big
profit or do you wish to speculate intelligently and get a smaller but
much more probable profit?”
They all said they wanted the smaller but surer profit, so I said,
“Then do as I tell you. If it crosses $1.20 buy.”
As I told you, I had watched it a long time. For months it sold between
$1.10 and $1.20, getting nowhere in particular. Well, sir, one day it
closed at above $1.19. I got ready for it. Sure enough the next day it
opened at $1.20½, and I bought. It went to $1.21, to $1.22, to $1.23,
to $1.25, and I went with it.
Now I couldn’t have told you at the time just what was going on. I
didn’t get any explanations about its behaviour during the course of
the limited fluctuations. I couldn’t tell whether the breaking through
the limit would be up through $1.20 or down through $1.10, though I
suspected it would be up because there was not enough wheat in the
world for a big break in prices.
As a matter of fact, it seems Europe had been buying quietly and a lot
of traders had gone short of it at around $1.19. Owing to the European
purchases and other causes, a lot of wheat had been taken out of the
market, so that finally the big movement got started. The price went
beyond the $1.20 mark. That was all the point I had and it was all
I needed. I knew that when it crossed $1.20 it would be because the
upward movement at last had gathered force to push it over the limit
and something had to happen. In other words, by crossing $1.20 the line
of least resistance of wheat prices was established. It was a different
story then.
I remember that one day was a holiday with us and all our markets were
closed. Well, in Winnipeg wheat opened up six cents a bushel. When our
market opened on the following day, it also was up six cents a bushel.
The price just went along the line of least resistance.
What I have told you gives you the essence of my trading system as
based on studying the tape. I merely learn the way prices are most
probably going to move. I check up my own trading by additional tests,
to determine the psychological moment. _I do that by watching the way
the price acts after I begin._
It is surprising how many experienced traders there are who look
incredulous when I tell them that when I buy stocks for a rise I like
to pay top prices and when I sell I must sell low or not at all. It
would not be so difficult to make money if a trader always stuck to his
speculative guns--that is, waited for the line of least resistance to
define itself and began buying only when the tape said up or selling
only when it said down. _He should accumulate his line on the way up._
Let him buy one-fifth of his full line. If that does not show him a
profit he must not increase his holdings because he has obviously begun
wrong; he is wrong temporarily and there is no profit in being wrong
at any time. The same tape that said UP did not necessarily lie merely
because it is now saying NOT YET.
In cotton I was very successful in my trading for a long time. I had my
theory about it and I absolutely lived up to it. Suppose I had decided
that my line would be forty to fifty thousand bales. Well, I would
study the tape as I told you, watching for an opportunity either to
buy or to sell. Suppose the line of least resistance indicated a bull
movement. Well, I would buy ten thousand bales. After I got through
buying that, if the market _went up ten points over my initial purchase
price, I would take on another ten thousand bales_. Same thing. Then,
if I could get twenty points’ profit, or one dollar a bale, I would
buy twenty thousand more. That would give me my line--my basis for my
trading. But if after buying the first ten or twenty thousand bales,
it showed me a loss, out I’d go. I was wrong. It might be I was only
temporarily wrong. But as I have said before _it doesn’t pay to start
wrong in anything_.
What I accomplished by sticking to my system was that I always had a
line of cotton in every real movement. In the course of accumulating
my full line I might chip out fifty or sixty thousand dollars in these
feeling-out plays of mine. This looks like a very expensive testing,
but it wasn’t. After the real movement started, how long would it take
me to make up the fifty thousand dollars I had dropped in order to
make sure that I began to load up at exactly the right time? No time at
all! _It always pays a man to be right at the right time._
As I think I also said before, this describes what I may call my system
for placing my bets. It is simple arithmetic to prove that it is a wise
thing to have the big bet down only when you win, and when you lose to
lose only a small exploratory bet, as it were. If a man trades in the
way I have described, he will always be in the profitable position of
being able to cash in on the big bet.
Professional traders have always had some system or other based
upon their experience and governed either by their attitude toward
speculation or by their desires. I remember I met an old gentleman in
Palm Beach whose name I did not catch or did not at once identify. I
knew he had been in the Street for years, way back in Civil War times,
and somebody told me that he was a very wise old codger who had gone
through so many booms and panics that he was always saying there was
nothing new under the sun and least of all in the stock market.
The old fellow asked me a lot of questions. When I got through telling
him about my usual practice in trading he nodded and said, “Yes! Yes!
You’re right. The way you’re built, the way your mind runs, makes your
system a good system for you. It comes easy for you to practice what
you preach, because the money you bet is the least of your cares. I
recollect Pat Hearne. Ever hear of him? Well, he was a very well-known
sporting man and he had an account with us. Clever chap and nervy. He
made money in stocks, and that made people ask him for advice. He would
never give any. If they asked him point-blank for his opinion about
the wisdom of their commitments he used a favorite race-track maxim of
his: ‘You can’t tell till you bet.’ He traded in our office. He would
buy one hundred shares of some active stock and when, or if, it went up
1 per cent he would buy another hundred. On another point’s advance,
another hundred shares; and so on. He used to say he wasn’t playing the
game to make money for others and therefore he would put in a stop-loss
order one point below the price of his last purchase. When the price
kept going up he simply moved up his stop with it. On a 1 per cent
reaction he was stopped out. He declared he did not see any sense in
losing more than one point, whether it came out of his original margin
or out of his paper profits.
“You know, a professional gambler is not looking for long shots,
but for sure money. Of course long shots are fine when they come
in. In the stock market Pat wasn’t after tips or playing to catch
twenty-points-a-week advances, but sure money in sufficient quantity
to provide him with a good living. Of all the thousands of outsiders
that I have run across in Wall Street, Pat Hearne was the only one who
saw in stock speculation merely a game of chance like faro or roulette,
but, nevertheless, had the sense to stick to a relatively sound betting
method.
“After Hearne’s death one of our customers who had always traded with
Pat and used his system made over one hundred thousand dollars in
Lackawanna. Then he switched over to some other stock and because he
had made a big stake he thought he need not stick to Pat’s way. When a
reaction came, instead of cutting short his losses he let them run--as
though they were profits. Of course every cent went. When he finally
quit he owed us several thousand dollars.
“He hung around for two or three years. He kept the fever long after
the cash had gone; but we did not object as long as he behaved himself.
I remember that he used to admit freely that he had been ten thousand
kinds of an ass not to stick to Pat Hearne’s style of play. Well, one
day he came to me greatly excited and asked me to let him sell some
stock short in our office. He was a nice enough chap who had been a
good customer in his day and I told him I personally would guarantee
his account for one hundred shares.
“He sold short one hundred shares of Lake Shore. That was the time Bill
Travers hammered the market, in 1875. My friend Roberts put out that
Lake Shore at exactly the right time and kept selling it on the way
down as he had been wont to do in the old successful days before he
forsook Pat Hearne’s system and instead listened to hope’s whispers.
“Well, sir, in four days of successful pyramiding, Roberts’ account
showed him a profit of fifteen thousand dollars. Observing that he had
not put in a stop-loss order I spoke to him about it and he told me
that the break hadn’t fairly begun and he wasn’t going to be shaken
out by any one-point reaction. This was in August. Before the middle
of September he borrowed ten dollars from me for a baby carriage--his
fourth. He did not stick to his own proved system. That’s the trouble
with most of them,” and the old fellow shook his head at me.
And he was right. I sometimes think that speculation must be an
unnatural sort of business, because I find that the average speculator
has arrayed against him his own nature. The weaknesses that all men
are prone to are fatal to success in speculation--usually those very
weaknesses that make him likable to his fellows or that he himself
particularly guards against in those other ventures of his where
they are not nearly so dangerous as when he is trading in stocks or
commodities.
_The speculator’s chief enemies are always boring from within. It is
inseparable from human nature to hope and to fear._ In speculation when
the market goes against you you hope that every day will be the last
day--and you lose more than you should had you not listened to hope--to
the same ally that is so potent a success-bringer to empire builders
and pioneers, big and little. And when the market goes your way you
become fearful that the next day will take away your profit, and you
get out--too soon. _Fear keeps you from making as much money as you
ought to._ The successful trader has to fight these two deep-seated
instincts. He has to reverse what you might call his natural impulses.
_Instead of hoping he must fear; instead of fearing he must hope._ He
must fear that his loss may develop into a much bigger loss, and hope
that his profit may become a big profit. _It is absolutely wrong to
gamble in stocks the way the average man does._
I have been in the speculative game ever since I was fourteen. It is
all I have ever done. I think I know what I am talking about. And the
conclusion that I have reached after nearly thirty years of constant
trading, both on a shoestring and with millions of dollars back of
me, is this: A man may beat a stock or a group at a certain time, but
no man living can beat the stock market! A man may make money out of
individual deals in cotton or grain, but no man can beat the cotton
market or the grain market. It’s like the track. A man may beat a horse
race, but he cannot beat horse racing.
If I knew how to make these statements stronger or more emphatic I
certainly would. It does not make any difference what anybody says to
the contrary. I know I am right in saying these are incontrovertible
statements.
_XI_
And now I’ll get back to October, 1907. I bought a yacht and made all
preparations to leave New York for a cruise in Southern waters. I am
really daffy about fishing and this was the time when I was going to
fish to my heart’s content from my own yacht, going wherever I wished
whenever I felt like it. Everything was ready. I had made a killing in
stocks, but at the last moment corn held me back.
I must explain that before the money panic which gave me my first
million I had been trading in grain at Chicago. I was short ten million
bushels of wheat and ten million bushels of corn. I had studied the
grain markets for a long time and was as bearish on corn and wheat as I
had been on stocks.
Well, they both started down, but while wheat kept on declining the
biggest of all the Chicago operators--I’ll call him Stratton--took it
into his head to run a corner in corn. After I cleaned up in stocks
and was ready to go South on my yacht I found that wheat showed me a
handsome profit, but in corn Stratton had run up the price and I had
quite a loss.
I knew there was much more corn in the country than the price
indicated. The law of demand and supply worked as always. But the
demand came chiefly from Stratton and the supply was not coming at
all, because there was an acute congestion in the movement of corn. I
remember that I used to pray for a cold spell that would freeze the
impassable roads and enable the farmers to bring their corn into the
market. But no such luck.
There I was, waiting to go on my joyously planned fishing trip and that
loss in corn holding me back. I couldn’t go away with the market as it
was. Of course Stratton kept pretty close tabs on the short interest.
He knew he had me, and I knew it quite as well as he did. But, as I
said, I was hoping I might convince the weather that it ought to get
busy and help me. Perceiving that neither the weather nor any other
kindly wonder-worker was paying any attention to my needs I studied how
I might work out of my difficulty by my own efforts.
I closed out my line of wheat at a good profit. But the problem in corn
was infinitely more difficult. If I could have covered my ten million
bushels at the prevailing prices I instantly and gladly would have done
so, large though the loss would have been. But, of course, the moment I
started to buy in my corn Stratton would be on the job as squeezer in
chief, and I no more relished running up the price on myself by reason
of my own purchases than cutting my own throat with my own knife.
Strong though corn was, my desire to go fishing was even stronger, so
it was up to me to find a way out at once. I must conduct a strategic
retreat. I must buy back the ten million bushels I was short of and in
so doing keep down my loss as much as I possibly could.
It so happened that Stratton at that time was also running a deal in
oats and had the market pretty well sewed up. I had kept track of all
the grain markets in the way of crop news and pit gossip, and I heard
that the powerful Armour interests were not friendly, marketwise, to
Stratton. Of course I knew that Stratton would not let me have the
corn I needed except at his own price, but the moment I heard the
rumors about Armour being against Stratton it occurred to me that I
might look to the Chicago traders for aid. The only way in which they
could possibly help me was for them to sell me the corn that Stratton
wouldn’t. The rest was easy.
First, I put in orders to buy five hundred thousand bushels of corn
every eighth of a cent down. After these orders were in I gave to each
of four houses an order to sell simultaneously fifty thousand bushels
of oats at the market. That, I figured, ought to make a quick break in
oats. Knowing how the traders’ minds worked, it was a cinch that they
would instantly think that Armour was gunning for Stratton. Seeing the
attack opened in oats they would logically conclude that the next break
would be in corn and they would start to sell it. If that corner in
corn was busted, the pickings would be fabulous.
My dope on the psychology of the Chicago traders was absolutely
correct. When they saw oats breaking on the scattered selling they
promptly jumped on corn and sold it with great enthusiasm. I was
able to buy six million bushels of corn in the next ten minutes. The
moment I found that their selling of corn ceased I simply bought in
the other four million bushels at the market. Of course that made
the price go up again, but the net result of my manœuvre was that I
covered the entire line of ten million bushels within one-half cent of
the price prevailing at the time I started to cover on the traders’
selling. The two hundred thousand bushels of oats that I sold short
to start the traders’ selling of corn I covered at a loss of only
three thousand dollars. That was pretty cheap bear bait. The profits I
had made in wheat offset so much of my deficit in corn that my total
loss on all my grain trades that time was only twenty-five thousand
dollars. Afterwards corn went up twenty-five cents a bushel. Stratton
undoubtedly had me at his mercy. If I had set about buying my ten
million bushels of corn without bothering to think of the price there
is no telling what I would have had to pay.
A man can’t spend years at one thing and not acquire a habitual
attitude towards it quite unlike that of the average beginner. The
difference distinguishes the professional from the amateur. It is the
way a man looks at things that makes or loses money for him in the
speculative markets. The public has the dilettante’s point of view
toward his own effort. The ego obtrudes itself unduly and the thinking
therefore is not deep or exhaustive. The professional concerns himself
with doing the right thing rather than with making money, knowing that
the profit takes care of itself if the other things are attended to.
A trader gets to play the game as the professional billiard player
does--that is, he looks far ahead instead of considering the particular
shot before him. It gets to be an instinct to play for position.
I remember hearing a story about Addison Cammack that illustrates very
nicely what I wish to point out. From all I have heard, I am inclined
to think that _Cammack_ was one of the ablest stock traders the Street
ever saw. He was not a chronic bear as many believe, but he felt the
greater appeal of trading on the bear side, of utilizing in his behalf
the two great human factors of hope and fear. He is credited with
coining the warning: “Don’t sell stocks when the sap is running up the
trees!” and the old-timers tell me that his biggest winnings were made
on the bull side, so that it is plain he did not play prejudices but
conditions. At all events, he was a consummate trader. It seems that
once--this was way back at the tag end of a bull market--Cammack was
bearish, and J. Arthur Joseph, the financial writer and raconteur,
knew it. The market, however, was not only strong but still rising,
in response to prodding by the bull leaders and optimistic reports by
the newspapers. Knowing what use a trader like Cammack could make of
bearish information, Joseph rushed to Cammack’s office one day with
glad tidings.
“Mr. Cammack, I have a very good friend who is a transfer clerk in the
St. Paul office and he has just told me something which I think you
ought to know.”
“What is it?” asked Cammack listlessly.
“You’ve turned, haven’t you? You are bearish now?” asked Joseph,
to make sure. If Cammack wasn’t interested he wasn’t going to waste
precious ammunition.
“Yes. What’s the wonderful information?”
“I went around to the St. Paul office to-day, as I do in my
news-gathering rounds two or three times a week, and my friend
there said to me: ‘The Old Man is selling stock.’ He meant William
Rockefeller. ‘Is he really, Jimmy?’ I said to him, and he answered,
‘Yes; he is selling fifteen hundred shares every three-eighths of a
point up. I’ve been transferring the stock for two or three days now.’
I didn’t lose any time, but came right over to tell you.”
Cammack was not easily excited, and, moreover, was so accustomed to
having all manner of people rush madly into his office with all manner
of news, gossip, rumors, tips and lies that he had grown distrustful of
them all. He merely said now, “Are you sure you heard right, Joseph?”
“Am I sure? Certainly I am sure! Do you think I am deaf?” said Joseph.
“Are you sure of your man?”
“Absolutely!” declared Joseph. “I’ve known him for years. He has never
lied to me. He wouldn’t! No object! I know he is absolutely reliable
and I’d stake my life on what he tells me. I know him as well as I know
anybody in this world--a great deal better than you seem to know me,
after all these years.”
“Sure of him, eh?” And Cammack again looked at Joseph. Then he said,
“Well, you ought to know.” He called his broker, W. B. Wheeler. Joseph
expected to hear him give an order to sell at least fifty thousand
shares of St. Paul. William Rockefeller was disposing of his holdings
in St. Paul, taking advantage of the strength of the market. Whether it
was investment stock or speculative holdings was irrelevant. The one
important fact was that the best stock trader of the Standard Oil crowd
was getting out of St. Paul. What would the average man have done if he
had received the news from a trustworthy source? No need to ask.
But Cammack, the ablest bear operator of his day, who was bearish on
the market just then, said to his broker, “Billy, go over to the board
and buy fifteen hundred St. Paul every three-eighths up.” The stock was
then in the nineties.
“Don’t you mean sell?” interjected Joseph hastily. He was no novice in
Wall Street, but he was thinking of the market from the point of view
of the newspaper man and, incidentally, of the general public. The
price certainly ought to go down on the news of inside selling. And
there was no better inside selling than Mr. William Rockefeller’s. The
Standard Oil getting out and Cammack buying! It couldn’t be!
“No,” said Cammack; “I mean buy!”
“Don’t you believe me?”
“Yes!”
“Don’t you believe my information?”
“Yes.”
“Aren’t you bearish?”
“Yes.”
“Well, then?”
“That’s why I’m buying. Listen to me now: You keep in touch with that
reliable friend of yours and the moment the scaled selling stops, let
me know. Instantly! Do you understand?”
“Yes,” said Joseph, and went away, not quite sure he could fathom
Cammack’s motives in buying William Rockefeller’s stock. It was the
knowledge that Cammack was bearish on the entire market that made his
manœuvre so difficult to explain. However, Joseph saw his friend the
transfer clerk and told him he wanted to be tipped off when the Old Man
got through selling. Regularly twice a day Joseph called on his friend
to inquire.
One day the transfer clerk told him, “There isn’t any more stock coming
from the Old Man.” Joseph thanked him and ran to Cammack’s office with
the information.
Cammack listened attentively, turned to Wheeler and asked, “Billy,
how much St. Paul have we got in the office?” Wheeler looked it up and
reported that they had accumulated about sixty thousand shares.
Cammack, being bearish, had been putting out short lines in the other
Grangers as well as in various other stocks, even before he began to
buy St. Paul. He was now heavily short of the market. He promptly
ordered Wheeler to sell the sixty thousand shares of St. Paul that
they were long of, and more besides. He used his long holdings of St.
Paul as a lever to depress the general list and greatly benefit his
operations for a decline.
St. Paul didn’t stop on that move until it reached forty-four and
Cammack made a killing in it. He played his cards with consummate
skill and profited accordingly. The point I would make is his habitual
attitude toward trading. He didn’t have to reflect. He saw instantly
what was far more important to him than his profit on that one stock.
He saw that he had providentially been offered an opportunity to begin
his big bear operations not only at the proper time but with a proper
initial push. The St. Paul tip made him buy instead of sell because he
saw at once that it gave him a vast supply of the best ammunition for
his bear campaign.
To get back to myself. After I closed my trade in wheat and corn I went
South in my yacht. I cruised about in Florida waters, having a grand
old time. The fishing was great. Everything was lovely. I didn’t have a
care in the world and I wasn’t looking for any.
One day I went ashore at Palm Beach. I met a lot of Wall Street friends
and others. They were all talking about the most picturesque cotton
speculator of the day. A report from New York had it that Percy Thomas
had lost every cent. It wasn’t a commercial bankruptcy; merely the
rumor of the world-famous operator’s second Waterloo in the cotton
market.
I had always felt a great admiration for him. The first I ever heard of
him was through the newspapers at the time of the failure of the Stock
Exchange house of Sheldon & Thomas, when Thomas tried to corner cotton.
Sheldon, who did not have the vision or the courage of his partner, got
cold feet on the very verge of success. At least, so the Street said
at the time. At all events, instead of making a killing they made one
of the most sensational failures in years. I forget how many millions.
The firm was wound up and Thomas went to work alone. He devoted himself
exclusively to cotton and it was not long before he was on his feet
again. He paid off his creditors in full with interest--debts he was
not legally obliged to discharge--and withal had a million dollars
left to himself. His comeback in the cotton market was in its way as
remarkable as Deacon S. V. White’s famous stock-market exploit of
paying off one million dollars in one year. Thomas’ pluck and brains
made me admire him immensely.
Everybody in Palm Beach was talking about the collapse of Thomas’ deal
in March cotton. You know how the talk goes--and grows; the amount of
misinformation and exaggeration and improvements that you hear. Why,
I’ve seen a rumor about myself grow so that the fellow who started it
did not recognize it when it came back to him in less than twenty-four
hours, swollen with new and picturesque details.
The news of Percy Thomas’ latest misadventure turned my mind from the
fishing to the cotton market. I got files of the trade papers and read
them to get a line on conditions. When I got back to New York I gave
myself up to studying the market. Everybody was bearish and everybody
was selling July cotton. You know how people are. I suppose it is the
contagion of example that makes a man do something because everybody
around him is doing the same thing. Perhaps it is some phase or variety
in the herd instinct. In any case it was, in the opinion of hundreds
of traders, the wise and proper thing to sell July cotton--and so safe
too! You couldn’t call that general selling reckless; the word is too
conservative. The traders simply saw one side to the market and a great
big profit. They certainly expected a collapse in prices.
I saw all this, of course, and it struck me that the chaps who were
short didn’t have a terrible lot of time to cover in. The more I
studied the situation the clearer I saw this, until I finally decided
to buy July cotton. I went to work and quickly bought one hundred
thousand bales. I experienced no trouble in getting it because it
came from so many sellers. It seemed to me that I could have offered
a reward of one million dollars for the capture, dead or alive, of a
single trader who was not selling July cotton and nobody would have
claimed it.
I should say this was in the latter part of May. I kept buying more
and they kept on selling it to me until I had picked up all the
floating contracts and I had one hundred and twenty thousand bales. A
couple of days after I had bought the last of it it began to go up.
Once it started the market was kind enough to keep on doing very well
indeed--that is, it went up from forty to fifty points a day.
One Saturday--this was about ten days after I began operations--the
price began to creep up. I did not know whether there was any more July
cotton for sale. It was up to me to find out, so I waited until the
last ten minutes. At that time, I knew, it was usual for those fellows
to be short and if the market closed up for the day they would be
safely hooked. So I sent in four different orders to buy five thousand
bales each, at the market, at the same time. That ran the price up
thirty points and the shorts were doing their best to wriggle away. The
market closed at the top. All I did, remember, was to buy that last
twenty thousand bales.
The next day was Sunday. But on Monday, Liverpool was due to open up
twenty points to be on a parity with the advance in New York. Instead,
it came fifty points higher. That meant that Liverpool had exceeded
our advance by 100 per cent. I had nothing to do with the rise in that
market. This showed me that my deductions had been sound and that I
was trading along the line of least resistance. At the same time I was
not losing sight of the fact that I had a whopping big line to dispose
of. A market may advance sharply or rise gradually and yet not possess
the power to absorb more than a certain amount of selling.
Of course the Liverpool cables made our own market wild. But I noticed
the higher it went the scarcer July cotton seemed to be. I wasn’t
letting go any of mine. Altogether that Monday was an exciting and not
very cheerful day for the bears; but for all that, I could detect no
signs of impending bear panic; no beginnings of a blind stampede to
cover. And I had one hundred and forty thousand bales for which I must
find a market.
On Tuesday morning as I was walking to my office I met a friend at the
entrance of the building.
“That was quite a story in the _World_ this morning,” he said with a
smile.
“What story?” I asked.
“What? Do you mean to tell me you haven’t seen it?”
“I never see the _World_,” I said. “What is the story?”
“Why, it’s all about you. It says you’ve got July cotton cornered.”
“I haven’t seen it,” I told him and left him. I don’t know whether he
believed me or not. He probably thought it was highly inconsiderate of
me not to tell him whether it was true or not.
When I got to the office I sent out for a copy of the paper. Sure
enough, there it was, on the front page, in big headlines: