CACOETHES OPERANDI.
[Sidenote: WAITING FOR EXTREMES.]
[Sidenote: REACTION GENERALLY MORE RAPID AFTER A SHARP RISE.]
The bane of nearly all speculators of the soft-grained type—by which we
mean men whose will and judgment bends this way and that, like a reed
that nods allegiance to any quarter of the world according to the blow
of the wind—is, that they are for ever on the itch to do something.
There is no getting them to wait for an opportunity. There are two
sorts of opportunities, and the distinction between them is important.
The speculator feels much more at home in availing himself of one than
of the other. The man who can wait for extremes is the one who will
have the best chance of making extreme profits, provided he can be
fairly sure of a good grasp of the duration of passing influences. One
kind of opportunity is after a sharp fall in prices. As we have before
remarked, most speculators feel more at ease in operating for the rise,
and consequently know best what they are about after a fall in prices,
and they make themselves bulls. The other kind is after a well sustained
rise. But it has been generally observed that speculators sell bears
of stock with more timidity than they buy bulls. One reason, no doubt,
beyond that referred to is, that they have a feeling in their own
minds that in selling for the fall they are going against the current,
which on the surface seems to be a rash proceeding. But in being able
to combat this feeling lies one of the main elements of success. It is
out of the public that successful speculators make their money, and
consequently there must be the greater chance of losing by following
the lead of the public. Of the two opportunities therefore of which a
speculator can avail himself with the most advantage, that of looking
on at a rise and opening a bear account at the new prices is, under
ordinary circumstances, the most worth his attention, as the reaction
is generally more rapid after a sharp rise than after a fall, owing to
there being more new interests engaged in causing it. A rapid rise is
promoted largely by speculators whose operations for purposes of enticing
the public to buy, may be compared to the exertions of a horse in a
great race that is entered to make the running for the favourite. Those
speculators are more anxious, as a rule, to realize their profits as
bulls, off high figures, than they are to close bear accounts; for, when
a panic has driven prices down, some time will elapse before confidence
revives, and in the meantime it may be renewed.
A person who cannot withstand the itching desire to have an interest
in something or other, is almost sure to be a man of that soft texture
of character that yields to influences that are unworthy of serious
attention, and he will consequently be led into error and loss probably
oftener than not, and his operations will end in failure. It must be
obvious to every reflecting mind, that so dangerous a game as Stock
Exchange speculation, or speculation which partakes of the same nature,
in another commodity, entered into, if it be only partly to satisfy a
craving for some sort of excitement, is a very unwholesome pastime.[33]
Of all occupations Stock Exchange Speculation is the last to be thought
of as an amusement for the man who wishes for some light kind of business
that can be done with an off-hand air, and without any of the drudgery
that is the real power in money-making. And yet there is no doubt that a
large proportion who feed the ever copiously flowing stream of profits
that the members of the Stock Exchange are diligently gathering from day
to day, are persons who, having nothing better to do, are drawn by an
insatiable desire for some occupation into the ranks of the haphazard
speculators. Once fairly entangled in the meshes of loss, the struggles
to recover it are usually attended by worse disasters.
It may also be shown that a desire to satisfy a craving for a class of
excitement which partakes somewhat of the nature of sober business, in
its earlier stages at least, allows admission to the mind of an element
which makes havoc with the judgment, and consequently forms an ingredient
in the nature of a speculator, which is almost sure to bring him sooner
or later to grief. Before a man enters upon the business of speculation,
he ought, if he is to have a fair chance, to clear his reasoning powers
from any such unwholesome encumbrances as even the faintest desire
for excitement. Every step a speculator takes should be, as far as
possible, as deliberate as if he knew perfectly well that the slightest
miscalculation would certainly involve him in loss.
[Sidenote: WHAT NOT TO DO.]
In engaging in speculative commitments, the great difficulty that
presents itself is not so much what to buy or sell, as what not to buy or
sell. When to do something, and when to do nothing. Here lies a problem,
the solution of which costs such a number of speculators their money and
their peace of mind afterwards, to say nothing of the chronic dyspepsia
that afflicts them until they are forced to quit the field.
[Sidenote: SPECIAL INFORMATION.]
[Sidenote: MUCH MONEY ONLY OBTAINABLE AS A CERTAINTY BY HARD WORK.]
If the time a man spends in finding out the mistake he has made in
selecting this or that stock haphazard for speculative purposes, were
devoted to obtaining some special information about one particular stock
which he might have good reason for believing was worth attention, his
chances of making money would much improve.[34] This plan is adopted
by the more sensible speculators who sufficiently understand the
difficulties of the business to recognize the importance of laying down
certain principles of action. Money cannot be made for a continuance
with any degree of certainty without hard work. When this proposition
is demonstrated, which it undoubtedly can be, the whole question of
speculation as an occupation, a pastime, or a business, call it what we
will, resolves itself into this, that unless a man devotes the same hard
work to it that is necessary to earn a fortune in any other calling, plus
the possession of an intellect of a special order and considerably above
the average, he must be a fool to speculate at all.
[Sidenote: AN AVERAGE INSTANCE OF HAPHAZARD SPECULATION.]
In order to bring more forcibly home to the mind of a man who may know
nothing of Stock Exchange matters, the wisdom of imprinting upon his
understanding the uselessness, in the long run, of playing at what is
nothing better than pitch-and-toss, we will just sketch a case in point
as an instance:—Supposing a speculator to enter the office of a stock
broker. He has, perhaps, some hazy ideas about the future financial
condition of Spain, for example. He has noticed the stock has fallen
to 19¾, and this seems to be very low for a country which has so far
struggled against the corruption of its rulers, and the laziness and
apathy of its population as a body, and has managed for a long time, by
hook or by crook, to meet the exterior coupons by paying them in other
people’s cash. The probabilities certainly must be, he thinks, in favour
of their paying another half-year’s interest, if after that the deluge
of national insolvency should flood the land. He contents himself with
gathering to a focus the intelligence that stands from morning to morning
in the telegram columns, and comes to the conclusion that something
will turn up to supply the exchequer with another loan to meet the next
dividend, and in that case the stock must at once jump up to 22 at least,
perhaps to 25, as there would then be six months to turn round in. Now,
what we submit is, that to speculate deliberately upon such a system as
this, is not far removed from insanity; and yet it will be acknowledged
by those conversant with the modus operandi of the haphazard speculator,
that his plan of attack is based, for the most part, upon this absurd
system of guess work, no serious trouble being taken to estimate the
extent of the forces opposed. Some fanatical faith is placed in the
doctrine of chances that the fluctuation wished for will occur, and he
shuts his eyes and waits. To sit at home and guess at what the present or
future financial condition of any country may be, and to risk your money
under such conditions, is worse than reckless.
Supposing, on the other hand, the hypothetical speculator, instead of
acting upon the impression made on his mind, by superficial influences,
were to start for Spain and take the trouble to get behind the stock, so
to speak. In one week, if he occupied a position in life sufficiently
high to enable him to get trustworthy information, he would be in a
position almost certainly to know whether there was a chance of such
an event coming off, as for instance, the next coupon being paid. This
would be at least a business-like way of setting out on a speculating
expedition, a method of proceeding such as is pursued by a syndicate
of speculators who propose to purchase a foreign mining property, for
example. A man of sense who buys anything, the value of which depends
upon a set of circumstances operating at a distant spot, naturally
proceeds thither, or satisfies himself through some trusty agent that
such circumstances exist, or that they do not. If he be contented to buy
twenty thousand Spanish Stock at twenty, on the chances of the power that
is, or may be, from one week to another, being able to pay the dividend,
because so far they have just managed to do so, he would be deserving of
no sympathy if he found himself in a couple of weeks with his stock at
17, and his banker’s balance less by six hundred pounds.
The reason why so much money is lost by this loose mode of proceeding is,
because haphazard speculation possesses a peculiar charm for certain
loose natures, which are roused into a pleasureful excitement by running
risks. They defend the viciousness of their lazy amusement by saying
to themselves that the chances must at least be as much _for_ them as
_against_ them, inasmuch as there are but two ways for the price to go—up
and down. Many a man who has fed and encouraged this itching sensation,
which can only be appeased by having passed through the excitement of
running a certain risk, finds himself so bound by its spell that in very
many cases nothing short of absolute ruin succeeds in quenching his
thirst for such excitement.