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Part 1/4: The Origin Story (chapters 1-6)
[00:00:00] BOOK 1/4: THE ORIGIN STORY[00:00:00] Starting Young: My First Job in a Brokerage Office
[00:00:00]
[00:00:05] ONE: On the discovery of my game
[00:00:05] 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.
[00:00:35] I Have Always Remembered Figures
[00:00:35] There were plenty of other employees 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.
[00:00:52] But a busy market did not keep me from thinking about the work. Those quotations did not represent prices of stocks to me, so [00:01:00] 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.
[00:01:24] Discovering Patterns: The Birth of a Trading System
[00:01:24] 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.
[00:01:41] 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 [00:02:00] 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.
[00:02:19] 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.
[00:02:32] 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.
[00:02:57] My Little Dope Book and The Message of the Tape[00:02:57] First Trades: Testing My Theories
[00:02:57] I got so interested in my game and [00:03:00] 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.
[00:03:32] 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.
[00:03:57] That is how I first came to take an [00:04:00] 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 [00:05:00] no inside buying; no reason why it should not break.
[00:05:06] 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.
[00:05:28] 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.
[00:05:37] “Why do you want to know?” I said.
[00:05:39] “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.”
[00:05:47] “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 [00:06:00] get into the game. It was like owning your private carriage and having a coachman who wore a silk hat.
[00:06:06] “That’s what I mean; play it!” he said. “How much you got?”
[00:06:10] “How much you need?”
[00:06:12] “Well, I can trade in five shares by putting up $5.”
[00:06:16] “How are you going to play it?”
[00:06:18] “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.”
[00:06:31] “Hold on!” I said to him, and pulled out my little dope book.
[00:06:35] 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, [00:07:00] 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.
[00:07:22] Bucket Shop Success: Early Wins and Challenges
[00:07:22] 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.
[00:07:50] My First Thousand At Fifteen
[00:07:50] 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. [00:08:00] 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.
[00:08:11] 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 [00:09:00] 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.
[00:09:13] 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 [00:10:00] trade.
[00:10:00] 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.
[00:10:32] How the Bucket Shops Got To Calling Me Boy Plunger[00:10:32] Facing Resistance: The Boy Plunger's Reputation
[00:10:32] 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. [00:11:00] 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.
[00:11:17] 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 [00:12:00] 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.
[00:12:13] “What did they say to you?” I asked him politely.
[00:12:17] “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.
[00:12:30] 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.
[00:12:51] Finally there was only one left to me and that was the biggest and richest of all--the Cosmopolitan Stock Brokerage [00:13:00] Company.
[00:13:00] Anatomy of a Trade and Mathematics of a Premium
[00:13:00] 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 [00:14:00] 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.
[00:14:24] 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 [00:15:00] was the only bucket shop that would take my business at all, and I had to accept their terms or quit trading.
[00:15:08] 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.
[00:15:27] 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, [00:16:00] metals--everything that was bought and sold in New York, Chicago, Boston and Liverpool.
[00:16:05] 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 [00:17:00] 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.
[00:17:13] 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.
[00:17:45] 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 [00:18:00] trading much. I kept on buying and selling as much as they’d let me. I sometimes had a line of 5000 shares.
[00:18:07] When the Cosmopolitan Tried to Pull a Put-Up Job on the Sugar Shorts
[00:18:07] 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.
[00:18:53] Well, this day I remember I had up over $10,000 in margins.
[00:18:58] I was only twenty when I [00:19:00] 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.
[00:19:29] 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 [00:20:00] 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.
[00:20:29] 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?”
[00:20:56] He said he would, and I got up and gave him my [00:21:00] 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.
[00:21:57] According to my dope Sugar should have broken [00:22:00] 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!”
[00:22:29] 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.
[00:22:57] Say, the distance from Tom’s place to the [00:23:00] 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?”
[00:23:17] 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. [00:24:00] This seldom cost the bucket shop more than a couple of points on a few hundred shares, and they made thousands of dollars.
[00:24:08] 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.
[00:24:32] The New York Operator's Punishing Bucket Shop Play
[00:24:32] 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 [00:25:00] 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.
[00:25:59] A [00:26:00] 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.
[00:26:47] TWO
[00:26:47]
[00:26:52] New York Dreams: Transitioning to the Big League
[00:26:52] Between the discovery that the Cosmopolitan Stock Brokerage Company was ready to beat me by foul means if [00:27:00] 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.
[00:27:36] 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 [00:28:00] 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.
[00:28:37] 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 [00:29:00] 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 [00:30:00] winnings.
[00:30:00] 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 [00:31:00] 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.
[00:31:24] 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!
[00:31:46] 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. [00:32:00] 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?
[00:32:33] 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.
[00:32:49] 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. [00:33:00] 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.
[00:33:50] 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 [00:34:00] 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.
[00:34:42] 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?
[00:34:59] It [00:35:00] 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.
[00:35:25] 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.
[00:35:46] 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 [00:36:00] stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.
[00:36:06] 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.”
[00:36:16] “What for?” says he.
[00:36:18] “I’ve got to have some money.”
[00:36:20] “What for?” he says again.
[00:36:22] “For margin, of course,” I said.
[00:36:25] “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----”
[00:36:38] “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.”
[00:36:50] “How are you going to do it?” asked old A. R.
[00:36:53] “I’ll go and trade in a bucket shop,” I told him.
[00:36:56] “Trade here,” he said.
[00:36:58] “No,” I said. “I’m [00:37:00] 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.”
[00:37:11] 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.
[00:37:37] St. Louis Adventure: Beating the Bucket Shops
[00:37:37] 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.
[00:38:24] 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.
[00:38:53] Dolan was nearer than Teller, and I went there first. I was hoping I might be allowed to do [00:39:00] 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.
[00:39:25] 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?”
[00:39:38] “Yes, sonny,” says he.
[00:39:40] “Can I buy stocks too?”
[00:39:42] “You can if you have the cash,” he said.
[00:39:45] “Oh, I got that all right, all right,” I said like a boasting boy.
[00:39:49] “You have, have you?” he says with a smile.
[00:39:52] “How much stock can I buy for one hundred dollars?” I asked, peeved-like.
[00:39:57] “One hundred; if you got the [00:40:00] hundred.”
[00:40:00] “I got the hundred. Yes; and two hundred too!” I told him.
[00:40:04] “Oh, my!” he said.
[00:40:06] “Just you buy me two hundred shares,” I said sharply.
[00:40:10] “Two hundred what?” he asked, serious now. It was business.
[00:40:14] I looked at the board again as if to guess wisely and told him, “Two hundred Omaha.”
[00:40:19] “All right!” he said. He took my money, counted it and wrote out the ticket.
[00:40:25] “What’s your name?” he asked me, and I answered, “Horace Kent.”
[00:40:29] 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.
[00:40:58] On the morning of the third day, [00:41:00] 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.”
[00:41:08] I knew the game was up. But I asked him, “What does he want to see me about?”
[00:41:14] “I don’t know.”
[00:41:15] “Where is he?”
[00:41:17] “In his private office. Go in that way.” And he pointed to a door.
[00:41:21] I went in. Dolan was sitting at his desk. He swung around and said, “Sit down, Livingston.”
[00:41:27] He pointed to a chair. My last hope vanished. I don’t know how he discovered who I was; perhaps from the hotel register.
[00:41:35] “What do you want to see me about?” I asked him.
[00:41:39] “Listen, kid. I ain’t got nothin’ agin yeh, see? Nothin’ at all. See?”
[00:41:43] “No, I don’t see,” I said.
[00:41:45] 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.
[00:41:59] “D’yeh see them?” [00:42:00] he asked me.
[00:42:01] “See what?”
[00:42:02] “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!”
[00:42:27] “Why, I----”
[00:42:28] “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 [00:43:00] cost me twenty-eight hundred dollars. I don’t grudge it yeh, my boy. But the safe is locked for yeh.”
[00:43:06] “Look here--” I began.
[00:43:08] “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!”
[00:43:26] 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 [00:44:00] 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.
[00:44:13] 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?”
[00:44:32] “There’s no limit,” said the clerk. “You can buy all you please--if you’ve got the money.”
[00:44:38] “Buy fifteen hundred shares,” I says, and took my roll from my pocket while the clerk starts to write the ticket.
[00:44:46] 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.”
[00:44:58] “Wait until I get my ticket,” I said. “I just [00:45:00] bought a little B.R.T.”
[00:45:02] “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?”
[00:45:14] 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.
[00:45:29] 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 [00:46:00] 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.
[00:46:09] 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.
[00:46:37] “What Teller?” I asked him.
[00:46:39] “Hi Teller; H. S. Teller.”
[00:46:41] “I know that bird,” I said.
[00:46:43] “He’s no good,” said McDevitt.
[00:46:46] “He’s worse than that,” I said, “and I have a little matter to settle with him.”
[00:46:51] “Meaning how?”
[00:46:52] “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.” [00:47:00] And I told McDevitt my grievance.
[00:47:04] “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.”
[00:47:21] “What sort of a place?” I thought he meant pool room.
[00:47:25] “Bucket shop,” said McDevitt.
[00:47:27] “Are you sure it’s open?”
[00:47:29] “Yes; I’ve seen several fellows who’ve told me about it.”
[00:47:33] “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?”
[00:47:42] “Sure, sonny,” said McDevitt. “I’ll go myself to-morrow morning, and come back and tell you.”
[00:47:48] 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, [00:48:00] 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.
[00:48:42] 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.
[00:48:57] I got talking to the manager. [00:49:00] 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.
[00:49:59] I [00:50:00] 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.
[00:50:20] 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._
[00:50:37] There was fifty-one hundred dollars coming to me. I went to cash in.
[00:50:42] Collecting Winnings and Confrontations
[00:50:42] “I’m glad I dropped in,” I said to the manager, and gave him my tickets.
[00:50:47] “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.”
[00:50:56] “All right. But first I’ll take all you have in the house,” I [00:51:00] said.
[00:51:00] “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.
[00:51:37] 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.
[00:51:58] “I came for the balance of my [00:52:00] money,” I said to the manager.
[00:52:02] “Is this the man?” asked the St. Louis chap.
[00:52:05] “Yes,” said the manager, and took a bunch of yellow backs from his pocket.
[00:52:10] “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?”
[00:52:19] “Give me my money first,” I said to the manager, and he forked over two thousands, four five-hundreds and three hundreds.
[00:52:27] “What did you say?” I said to St. Louis.
[00:52:30] “We told you we didn’t want you to trade in our place.”
[00:52:34] “Yes,” I said; “that’s why I came.”
[00:52:36] “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.”
[00:52:54] “Listen, you,” I said to the St. Louis man. “This isn’t St. Louis. You can’t pull off any trick here, [00:53:00] like your boss did with Belfast Boy.”
[00:53:03] “You keep away from this office! You can’t trade here!” he yells.
[00:53:07] “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.”
[00:53:15] Well, St. Louis changed his tune at once.
[00:53:18] “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!”
[00:53:31] “I’ll go easy,” I promised.
[00:53:33] “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?”
[00:53:41] “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.
[00:53:59] Strategic Moves and Market Manipulations
[00:53:59] 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.
[00:54:21] 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 [00:55:00] margins, and, of course, all the customers were bulls and winning and pyramiding. No end of bucket shops busted all over the country.
[00:55:08] 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 [00:56:00] 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.
[00:56:34] Lessons from the Bucket Shops
[00:56:34] 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.
[00:56:50]
[00:56:55] (Maps to 3)
[00:56:55] It takes a Man a long time to learn all the lessons of all his mistakes. They [00:57:00] 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.
[00:57:19] 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.
[00:57:40] His second asked him, “Are you a good shot?”
[00:57:43] “Well,” said the duelist, “I can snap the stem of a wineglass at twenty paces,” and he looked modest.
[00:57:50] “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 [00:58:00] heart?”
[00:58:00] 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.
[00:58:43] 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 [00:59:00] 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.
[00:59:15] The Realities of Stock Speculation
[00:59:15] It took me five years to learn to play the game intelligently enough to make big money when I was right._
[00:59:22] 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.
[00:59:50] 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 [01:00:00] 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.
[01:00:35] 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 [01:01:00] firm and was ready to trade.
[01:01:02] 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.
[01:01:35] 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 [01:02:00] 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.
[01:02:28] The Struggles of a Young Trader
[01:02:28] I suppose I thought I knew the game from A to Z. Why shouldn’t I?
[01:02:32] 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?
[01:02:52] Now mark this: On that, my first day as a customer of a reputable Stock Exchange house, and only two hours of it at [01:03:00] 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.
[01:03:21] 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.
[01:03:48] 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 [01:04:00] 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.
[01:04:15] 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.
[01:04:36] 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.
[01:04:55] The Boom of 1901 and Market Dynamics
[01:04:55] We ran into the big boom of 1901 and I made a great deal of [01:05:00] 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 [01:06:00] 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.
[01:06:34] 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 [01:07:00] 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.
[01:07:16] The Northern Pacific Corner
[01:07:16] 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 [01:08:00] bad for a chap who had lost every cent trading in that selfsame office a few months before.
[01:08:06] 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 [01:09:00] irresistible force meeting an immovable object.
[01:09:05] 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.
[01:09:37] Everything happened as I had foreseen.
[01:09:41] The Aftermath and Lessons Learned
[01:09:41] 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.
[01:10:08] 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 [01:11:00] 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.
[01:11:09] 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.
[01:11:27] 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 [01:12:00] trouble and the remedy for it.
[01:12:02] 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.
[01:12:45] 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 [01:13:00] 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.
[01:13:14] 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.
[01:13:41] 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 [01:14:00] shotgun and BB shot could not do the work of a high-power repeating rifle against big game.
[01:14:06] Returning to the Bucket Shops
[01:14:06] 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.
[01:14:54] Marker
[01:14:54] Well, I went home. But the moment I was back I knew that I had but [01:15:00] 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.
[01:15:17] 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 [01:16:00] right.
[01:16:00] 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.
[01:16:38] 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:
[01:16:51] “We’re not taking any selling orders in St. Paul, not from you.”
[01:16:56] “Why, what’s the matter, Joe?” asked my friend.
[01:16:59] “Nothing [01:17:00] doing, that’s all,” answered Joe.
[01:17:02] “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.
[01:17:32] 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.
[01:17:42] “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. [01:18:00] We don’t fall for Livingston tipping you off.”
[01:18:04] 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.
[01:18:33] One day I was in a hotel lobby, talking to some fellows I knew, who were pretty steady traders.
[01:18:39] Navigating the World of Phony Brokers
[01:18:39] 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.
[01:18:52] A fellow piped up and asked me what particular brokers I meant.
[01:18:56] I said, “The best in the land,” and he asked who might they [01:19:00] be. I could see he wasn’t going to believe I ever dealt with first-class houses.
[01:19:05] 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.”
[01:19:37] 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 [01:20:00] 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.
[01:20:22] “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.”
[01:20:37] “Yes. But if they pay the Stock Exchange house the regular eighth commission, where do they come in?”
[01:20:44] “Well, they are supposed to pay the eighth. But--you know!” He winked at me.
[01:20:49] “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 [01:21:00] outsiders for less than a kosher eighth. The very life of the Stock Exchange depends upon their not violating that one rule.”
[01:21:09] 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.”
[01:21:53] By that time I knew he was touting for some phony brokers.
[01:21:57] “Do you know any reliable house of that [01:22:00] kind?” I asked him.
[01:22:01] “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?”
[01:22:21] “Certainly not,” I agreed. “Do they trade in the same stocks that are dealt in on the New York Stock Exchange?”
[01:22:28] “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.”
[01:22:45] I knew by that time, but I thought I’d lead him on.
[01:22:48] “Yes,” I said, “but that does not alter the fact that the orders have to be executed by somebody, and nobody living can guarantee how the market will be or how close the ticker’s prices are to the [01:23:00] actual prices on the floor of the Exchange. By the time a man gets the quotation here and he hands in an order and it’s telegraphed to New York, some valuable time has gone. I might better go back to New York and lose my money there in respectable company.”
[01:23:17] “I don’t know anything about losing money; our customers don’t acquire that habit. They make money. We take care of that.”
[01:23:25] “Your customers?”
[01:23:27] “Well, I take an interest in the firm, and if I can turn some business their way I do so because they’ve always treated me white and I’ve made a good deal of money through them. If you wish I’ll introduce you to the manager.”
[01:23:42] “What’s the name of the firm?” I asked him.
[01:23:45] He told me. I had heard about them. They ran ads in all the papers, calling attention to the great profits made by those customers who followed their inside information on active stocks. That was the firm’s great specialty. [01:24:00] They were not a regular bucket shop, but bucketeers, alleged brokers who bucketed their orders but nevertheless went through an elaborate camouflage to convince the world that they were regular brokers engaged in a legitimate business. They were one of the oldest of that class firms.
[01:24:17] They were the prototype at that time of the same sort of brokers that went broke this year by the dozen. The general principles and methods were the same, though the particular devices for fleecing the public differed somewhat, certain details having been changed when the old tricks became too well known.
[01:24:37] These people used to send out tips to buy or sell a certain stock--hundreds of telegrams advising the instant purchase of a certain stock and hundreds recommending other customers to sell the same stock, on the old racing-tipster plan. Then orders to buy and sell would come in. The firm would buy and sell, say, a thousand of that stock through a [01:25:00] reputable Stock Exchange firm and get a regular report on it. This report they would show to any doubting Thomas who was impolite enough to speak about bucketing customers’ orders.
[01:25:11] They also used to form discretionary pools in the office and as a great favor allowed their customers to authorize them, in writing, to trade with the customer’s money and in the customer’s name, as they in their judgment deemed best. That way the most cantankerous customer had no legal redress when the money disappeared. They’d bull a stock, on paper, and put the customers in and then they’d execute one of the old-fashioned bucket-shop drives and wipe out hundreds of shoe-string margins. They did not spare anyone, women, school-teachers and old men being their best bet.
[01:25:48] “I’m sore on all brokers,” I told the tout. “I’ll have to think this over,” and I left him so he wouldn’t talk any more to me.
[01:25:56] I inquired about this firm. I learned that they had [01:26:00] hundreds of customers and although there were the usual stories I did not find any case of a customer not getting his money from them if he won any. The difficulty was in finding anybody who had ever won in that office; but I did. Things seemed to be going their way just then, and that meant that they probably would not welsh if a trade went against them. Of course most concerns of that kind eventually go broke. There are times when there are regular epidemics of bucketeering bankruptcies, like the old-fashioned runs on several banks after one of them goes up. The customers of the others get frightened and they run to take their money out. But there are plenty of retired bucket-shop keepers in this country.
[01:26:45] Well, I heard nothing alarming about the tout’s firm except that they were on the make, first, last and all the time, and that they were not always truthful. Their specialty was trimming suckers who wanted to get rich quick. But they [01:27:00] always asked their customers’ permission, in writing, to take their rolls away from them.
[01:27:05] One chap I met did tell me a story about seeing six hundred telegrams go out one day advising customers to get aboard a certain stock and six hundred telegrams to other customers strongly urging them to sell that same stock, at once.
[01:27:21] “Yes, I know the trick,” I said to the chap who was telling me.
[01:27:25] “Yes,” he said. “But the next day they sent telegrams to the same people advising them to close out their interest in everything and buy--or sell--another stock. I asked the senior partner, who was in the office, ‘Why do you do that? The first part I understand. Some of your customers are bound to make money on paper for a while, even if they and the others eventually lose. But by sending out telegrams like this you simply kill them all. What’s the big idea?’
[01:27:55] “‘Well,’ he said, ‘the customers are bound to lose their money anyhow, no matter [01:28:00] what they buy, or how or where or when. When they lose their money I lose the customers. Well, I might as well get as much of their money as I can--and then look for a new crop.’”
[01:28:11] Well, I admit frankly that I wasn’t concerned with the business ethics of the firm. I told you I felt sore on the Teller concern and how it tickled me to get even with them. But I didn’t have any such feeling about this firm. They might be crooks or they might not be as black as they were painted. I did not propose to let them do any trading for me, or follow their tips or believe their lies. My one concern was with getting together a stake and returning to New York to trade in fair amounts in an office where you did not have to be afraid the police would raid the joint, as they did the bucket shops, or see the postal authorities swoop down and tie up your money so that you’d be lucky to get eight cents on the dollar a year and a half later.
[01:28:59] [01:29:00] Anyhow, I made up my mind that I would see what trading advantages of this firm offered over what you might call the legitimate brokers. I didn’t have much money to put up as margin, and firms that bucketed orders were naturally much more liberal in that respect, so that a few hundred dollars went much further in their offices.
[01:29:20] I went down to their place and had a talk with the manager himself. When he found out that I was an old trader and had formerly had accounts in New York with Stock Exchange houses and that I had lost all I took with me he stopped promising to make a million a minute for me if I let them invest my savings. He figured that I was a permanent sucker, the ticker-hound kind that always plays and always loses; a steady-income provider for brokers, whether they were the kind that bucket your orders or modestly content themselves with the commissions.
[01:29:55] I just told the manager that what I was looking for was decent [01:30:00] execution, because I always traded at the market and I didn’t want to get reports that showed a difference of a half or a whole point from the ticker price.
[01:30:10] He assured me on his word of honor that they would do whatever I thought was right. They wanted my business because they wanted to show me what high-class brokering was. They had in their employ the best talent in the business. In fact, they were famous for their execution. If there was any difference between the ticker price and the report it was always in favor of the customer, though of course they didn’t guarantee that. If I opened an account with them I could buy and sell at the price which came over the wire, they were so confident of their brokers.
[01:30:46] Naturally that meant that I could trade there to all intents and purposes as though I were in a bucket shop--that is, they’d let me trade at the next quotation. I didn’t want to appear too anxious, so I shook my head and told him I guessed I [01:31:00] wouldn’t open an account that day, but I’d let him know. He urged me strongly to begin right way as it was a good market to make money in. It was--for them; a dull market with prices seesawing slightly, just the kind to get customers in and then wipe them out with a sharp drive in the tipped stock. I had some trouble in getting away.
[01:31:22] I had given him my name and address, and that very same day I began to get prepaid telegrams and letters urging me to get aboard of some stock or other in which they said they knew an inside pool was operating for a fifty-point rise.
[01:31:38] I was busy going around and finding out all I could about several other brokerage concerns of the same bucketing kind. It seemed to me that if I could be sure of getting my winnings out of their clutches the only way of my getting together some real money was to trade in these near bucket shops.
[01:31:57] When I had learned all I could I [01:32:00] opened accounts with three firms. I had taken a small office and had direct wires run to the three brokers.
[01:32:07] I traded in a small way so they wouldn’t get frightened off at the very start. I made money on balance and they were not slow in telling me that they expected real business from customers who had direct wires to their offices. They did not hanker for pikers. They figured that the more I did the more I’d lose, and the more quickly I was wiped out the more they’d make. It was a sound enough theory when you consider that these people necessarily dealt with averages and the average customer was never long-lived, financially speaking. A busted customer can’t trade. A half-crippled customer can whine and insinuate things and make trouble of one or another kind that hurts business.
[01:32:50] I also established a connection with a local firm that had a direct wire to its New York correspondent, who were also members of the New York Stock Exchange. I had a [01:33:00] stock ticker put in and I began to trade conservatively. As I told you, it was pretty much like trading in bucket shops, only it was a little slower.
[01:33:11] It was a game that I could beat, and I did. I never got it down to such a fine point that I could win ten times out of ten; but I won on balance, taking it week in and week out. I was again living pretty well, but always saving something, to increase the stake that I was to take back to Wall Street. I got a couple of wires into two more of these bucketing brokerage houses, making five in all--and, of course, my good firm.
[01:33:37] There were times when my plans went wrong and my stocks did not run true to form, but they did the opposite of what they should have done if they had kept up their regard for precedent. But they did not hit me very hard--they couldn’t, with my shoestring margins. My relations with my brokers were friendly enough. Their accounts and records did not always agree with [01:34:00] mine, and the differences uniformly happened to be against me. Curious coincidence--not! But I fought for my own and usually had my way in the end. They always had the hope of getting away from me what I had taken from them. They regarded my winnings as temporary loans, I think.
[01:34:19] They really were not sporty, being in the business to make money by hook or by crook instead of being content with the house percentage. Since suckers always lose money when they gamble in stocks--they never really speculate--you’d think these fellows would run what you might call a legitimate illegitimate business. But they didn’t. “Copper your customers and grow rich” is an old and true adage, but they did not seem ever to have heard of it and didn’t stop at plain bucketing.
[01:34:49] Several times they tried to double-cross me with the old tricks. They caught me a couple of times because I wasn’t looking. They always did that when I had taken no more than my [01:35:00] usual line. I accused them of being short sports or worse, but they denied it and it ended by my going back to trading as usual. The beauty of doing business with a crook is that he always forgives you for catching him, so long as you don’t stop doing business with him. It’s all right as far as he is concerned. He is willing to meet you more than half-way. Magnanimous souls!
[01:35:25] Exploiting the System and Teaching Lessons
[01:35:25] Well, I made up my mind that I couldn’t afford to have the normal rate of increase of my stake impaired by crooks’ tricks, so I decided to teach them a lesson. I picked out some stock that after having been a speculative favorite had become inactive. Water-logged. If I had taken one that never had been active they would have suspected my play. I gave out buying orders on this stock to my five bucketeering brokers. When the orders were taken and they were waiting for the next quotation to come out on the tape I sent in an order through my Stock Exchange house to sell a hundred [01:36:00] shares of that particular stock at the market. I urgently asked for quick action. Well, you can imagine what happened when the selling order got to the floor of the Exchange; a dull inactive stock that a commission house with out-of-town connections wanted to sell in a hurry. Somebody got cheap stock. But the transaction as it would be printed on the tape was the price that I would pay on my five buying orders. I was long on balance four hundred shares of that stock at a low figure. The wire house asked me what I’d heard, and I said I had a tip on it. Just before the close of the market I sent an order to my reputable house to buy back that hundred shares, and not waste any time; that I didn’t want to be short under any circumstances; and I didn’t care what they paid. So they wired to New York and the order to buy that hundred quick resulted in a sharp advance. I of course had put in selling orders for the five hundred [01:37:00] shares that my friends had bucketed. It worked very satisfactorily.
[01:37:05] Still, they didn’t mend their ways, and so I worked that trick on them several times. I did not dare punish them as severely as they deserved, seldom more than a point or two on a hundred shares. But it helped to swell my little hoard that I was saving for my next Wall Street venture. I sometimes varied the process by selling some stock short, without overdoing it. I was satisfied with my six or eight hundred clear for each crack.
[01:37:32] One day the stunt worked so well that it went far beyond all calculations for a ten-point swing. I wasn’t looking for it. As a matter of fact it so happened that I had two hundred shares instead of my usual hundred at one broker’s, though only a hundred in the four other shops. That was too much of a good thing--for them. They were sore as pups about it and they began to say things over the wires. So I went and saw the manager, [01:38:00] the same man who had been so anxious to get my account, and so forgiving every time I caught him trying to put something over on me. He talked pretty big for a man in his position.
[01:38:11] “That was a fictitious market for that stock, and we won’t pay you a damned cent!” he swore.
[01:38:18] “It wasn’t a fictitious market when you accepted my order to buy. You let me in then, all right, and now you’ve got to let me out. You can’t get around that for fairness, can you?”
[01:38:29] “Yes, I can!” he yelled. “I can prove that somebody put up a job.”
[01:38:34] “Who put up a job?” I asked.
[01:38:36] “Somebody!”
[01:38:37] “Who did they put it up on?” I asked.
[01:38:40] “Some friends of yours were in it as sure as pop,” he said.
[01:38:44] But I told him, “You know very well that I play a lone hand. Everybody in this town knows that. They’ve known it ever since I started trading in stocks. Now I want to give you some friendly advice: you just send and get that money for me. I don’t want to [01:39:00] be disagreeable. Just do what I tell you.”
[01:39:03] “I won’t pay it. It was a rigged-up transaction,” he yelled.
[01:39:07] I got tired of his talk. So I told him: “You’ll pay it to me right now and here.”
[01:39:13] Well, he blustered a little more and accused me flatly of being the guilty thimblerigger; but he finally forked over the cash. The others were not so rambunctious. In one office the manager had been studying these inactive-stock plays of mine and when he got my order he actually bought the stock for me and then some for himself in the Little Board, and he made some money. These fellows didn’t mind being sued by customers on charges of fraud, as they generally had a good technical legal defense ready. But they were afraid I’d attach the furniture--the money in the bank I couldn’t because they took care not to have any funds exposed to that danger. It would not hurt them to be known as pretty sharp, but to get a reputation for welshing was [01:40:00] fatal. For a customer to lose money at his broker’s is no rare event. But for a customer to make money and then not get it is the worst crime on the speculators’ statute books.
[01:40:11] I got my money from all; but that ten-point jump put an end to the pleasing pastime of skinning skinners. They were on the lookout for the little trick that they themselves had used to defraud hundreds of poor customers. I went back to my regular trading; but the market wasn’t always right for my system--that is, limited as I was by the size of the orders they would take, I couldn’t make a killing.
[01:40:37] I had been at it over a year, during which I used every device that I could think of to make money trading in those wire houses. I had lived very comfortably, bought an automobile and didn’t limit myself about my expenses. I had to make a stake, but I also had to live while I was doing it. If my position on the market was right I couldn’t spend as [01:41:00] much as I made, so that I’d always be saving some. If I was wrong I didn’t make any money and therefore couldn’t spend. As I said, I had saved up a fair-sized roll, and there wasn’t so much money to be made in the five wire houses; so I decided to return to New York.
[01:41:16] A New Strategy in New Haven
[01:41:16] I had my own automobile and I invited a friend of mine who also was a trader to motor to New York with me. He accepted and we started. We stopped at New Haven for dinner. At the hotel I met an old trading acquaintance, and among other things he told me there was a shop in town that had a wire and was doing a pretty good business.
[01:41:38] We left the hotel on our way to New York, but I drove by the street where the bucket shop was to see what the outside looked like. We found it and couldn’t resist the temptation to stop and have a look at the inside. It wasn’t very sumptuous, but the old blackboard was there, and the customers, and the game was on.
[01:41:58] The manager was a chap [01:42:00] who looked as if he had been an actor or a stump speaker. He was very impressive. He’d say good morning as though he had discovered the morning’s goodness after ten years of searching for it with a microscope and was making you a present of the discovery as well as of the sky, the sun and the firm’s bank roll. He saw us come up in the sporty-looking automobile, and as both of us were young and careless--I don’t suppose I looked twenty--he naturally concluded we were a couple of Yale boys. I didn’t tell him we weren’t. He didn’t give me a chance, but began delivering a speech. He was very glad to see us. Would we have a comfortable seat? The market, we would find, was philanthropically inclined that morning; in fact, clamoring to increase the supply of collegiate pocket money, of which no intelligent undergraduate ever had a sufficiency since the dawn of historic time. But here and now, by the beneficence of the ticker, a small initial investment would [01:43:00] return thousands. More pocket money than anybody could spend was what the stock market yearned to yield.
[01:43:07] Well, I thought it would be a pity not to do as the nice man of the bucket shop was so anxious to have us do, so I told him I would do as he wished, because I had heard that lots of people made lots of money in the stock market.
[01:43:22] I began to trade, very conservatively, but increasing the line as I won. My friend followed me.
[01:43:28] We stayed overnight in New Haven and the next morning found us at the hospitable shop at five minutes to ten. The orator was glad to see us, thinking his turn would come that day. But I cleaned up within a few dollars of fifteen hundred. The next morning when we dropped in on the great orator, and handed him an order to sell five hundred Sugar he hesitated, but finally accepted it--in silence! The stock broke over a point and I closed out and gave him the ticket. There was exactly five hundred dollars [01:44:00] coming to me in profits, and my five hundred dollar margin. He took twenty fifties from the safe, counted them three times very slowly, then he counted them again in front of me. It looked as if his fingers were sweating mucilage the way the notes seemed to stick to him, but finally he handed the money to me. He folded his arms, bit his lower lip, kept it bit, and stared at the top of a window behind me.
[01:44:26] I told him I’d like to sell two hundred Steel. But he never stirred. He didn’t hear me. I repeated my wish, only I made it three hundred shares. He turned his head. I waited for the speech. But all he did was to look at me.
[01:44:40] Confrontation with the Political Opponent
[01:44:40] Then he smacked his lips and swallowed--as if he was going to start an attack on fifty years of political misrule by the unspeakable grafters of the opposition.
[01:44:50] Finally he waved his hand toward the yellow-backs in my hand and said, “Take away that bauble!”
[01:44:57] “Take away what?” I said. I hadn’t quite [01:45:00] understood what he was driving at.
[01:45:02] “Where are you going, student?” He spoke very impressively.
[01:45:06] “New York,” I told him.
[01:45:08] “That’s right,” he said, nodding about twenty times. “That is ex-actly right. You are going away from here all right, because now I know two things--two, student! I know what you are not, and I know what you are. Yes! Yes! Yes!”
[01:45:22] “Is that so?” I said very politely.
[01:45:25] “Yes. You two--” He paused; and then he stopped being in Congress and snarled: “You two are the biggest sharks in the United States of America! Students? Ye-eh! You must be Freshmen! Ye-eh!”
[01:45:37] We left him talking to himself. He probably didn’t mind the money so much. No professional gambler does. It’s all in the game and the luck’s bound to turn. It was his being fooled in us that hurt his pride.
[01:45:50] Lessons from Wall Street Failures
[01:45:50] That is how I came back to Wall Street for a third attempt. I had been studying, of course, trying to locate the exact trouble with my system that had been [01:46:00] responsible for my defeats in A. R. Fullerton & Co.’s office. I was twenty when I made my first ten thousand, and I lost that. But I knew how and why--because I traded out of season all the time; because when I couldn’t play according to my system, which was based on study and experience, I went in and gambled. I hoped to win, instead of knowing that I ought to win on form. When I was about twenty-two I ran up my stake to fifty thousand dollars; I lost it on May ninth. But I knew exactly why and how. It was the laggard tape and the unprecedented violence of the movements that awful day. But I didn’t know why I had lost after my return from St. Louis or after the May ninth panic. I had theories--that is, remedies for some of the faults that I thought I found in my play. But I needed actual practice.
[01:46:51] There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order [01:47:00] not to lose money, you begin to learn what to do in order to win. Did you get that? _You begin to learn!
[01:47:11] (maps to 5)[01:47:11] The Importance of Stock Behavior
[01:47:11] The average ticker hound--or, as they used to call him, tape-worm--goes wrong, I suspect, as much from over-specialization as from anything else. It means a highly expensive inelasticity. After all, the game of speculation isn’t all mathematics or set rules, however rigid the main laws may be. Even in my tape reading something enters that is more than mere arithmetic. There is what I call the behavior of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. [01:48:00] No diagnosis, no prognosis. No prognosis, no profit.
[01:48:02] It is a very old thing, this of noting the behavior of a stock and studying its past performances. When I first came to New York there was a broker’s office where a Frenchman used to talk about his chart. At first I thought he was a sort of pet freak kept by the firm because they were good-natured. Then I learned that he was a persuasive and most impressive talker. He said that the only thing that didn’t lie because it simply couldn’t was mathematics. By means of his curves he could forecast market movements. Also he could analyse them, and tell, for instance, why Keene did the right thing in his famous Atchison preferred bull manipulation, and later why he went wrong in his Southern Pacific pool. At various times one or another of the professional traders tried the Frenchman’s [01:49:00] system--and then went back to their old unscientific methods of making a living. Their hit-or-miss system was cheaper, they said. I heard that the Frenchman said Keene admitted that the chart was 100 per cent right but claimed that the method was too slow for practical use in an active market.
[01:49:20] Then there was one office where a chart of the daily movement of prices was kept. It showed at a glance just what each stock had done for months. By comparing individual curves with the general market curve and keeping in mind certain rules the customers could tell whether the stock on which they got an unscientific tip to buy was fairly entitled to a rise. They used the chart as a sort of complementary tipster. To-day there are scores of commission houses where you find trading charts. They come ready-made from the offices of statistical experts and include [01:50:00] not only stocks but commodities.
[01:50:01] I should say that a chart helps those who can read it or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke. There is an extremely able man, a former partner of a well-known Stock Exchange house, who is really a trained mathematician. He is a graduate of a famous technical school. He devised charts based upon a very careful and minute study of the behaviour of prices in many markets--stocks, bonds, grain, cotton, money, and so on. He went back years and years and traced the correlations and seasonal movements--oh, everything. He used his charts in his stock trading for years. [01:51:00] What he really did was to take advantage of some highly intelligent averaging. They tell me he won regularly--until the World War knocked all precedents into a cocked hat. I heard that he and his large following lost millions before they desisted. But not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions.
[01:51:33] I didn’t mean to get off the track like that, but I can’t help it when I think of my first few years in Wall Street. I know now what I did not know then, and I think of the mistakes of my ignorance because those are the very mistakes that the average stock speculator makes year in and year out.
[01:51:57] After I got back to [01:52:00] New York to try for the third time to beat the market in a Stock Exchange house I traded quite actively. I didn’t expect to do as well as I did in the bucket shops, but I thought that after a while I would do much better because I would be able to swing a much heavier line. Yet, I can see now that my main trouble was my failure to grasp the vital difference between stock gambling and stock speculation. Still, by reason of my seven years’ experience in reading the tape and a certain natural aptitude for the game, my stake was earning not indeed a fortune but a very high rate of interest. I won and lost as before, but I was winning on balance. The more I made the more I spent. This is the usual experience with most men. No, not necessarily with easy-money pickers, [01:53:00] but with every human being who is not a slave of the hoarding instinct. Some men, like old Russell Sage, have the money-making and the money-hoarding instinct equally well developed, and of course they die disgustingly rich.
[01:53:14] The game of beating the market exclusively interested me from ten to three every day, and after three, the game of living my life. Don’t misunderstand me. I never allowed pleasure to interfere with business. When I lost it was because I was wrong and not because I was suffering from dissipation or excesses. There never were any shattered nerves or rum-shaken limbs to spoil my game. I couldn’t afford anything that kept me from feeling physically and mentally fit. Even now I am usually in bed by ten. As a young man I never kept late hours, because I could not do business properly on insufficient sleep. I was doing better than [01:54:00] breaking even and that is why I didn’t think there was any need to deprive myself of the good things of life. The market was always there to supply them. I was acquiring the confidence that comes to a man from a professionally dispassionate attitude toward his own method of providing bread and butter for himself.
[01:54:22] The first change I made in my play was in the matter of time. I couldn’t wait for the sure thing to come along and then take a point or two out of it as I could in the bucket shops. I had to start much earlier if I wanted to catch the move in Fullerton’s office. In other words, I had to study what was going to happen; to anticipate stock movements. That sounds asininely commonplace, but you know what I mean. It was the change in my own attitude toward the game [01:55:00] that was of supreme importance to me. It taught me, little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating.
[01:55:11] I had to go further back than an hour in my studies of the market--which was something I never would have learned to do in the biggest bucket shop in the world. I interested myself in trade reports and railroad earnings and financial and commercial statistics. Of course I loved to trade heavily and they called me the Boy Plunger; but I also liked to study the moves. I never thought that anything was irksome if it helped me to trade more intelligently. Before I can solve a problem I must state it to myself. When I think I have found the solution I must prove I am right. I know of only one way to prove it; and that [01:56:00] is, with my own money.
[01:56:01] Slow as my progress seems now, I suppose I learned as fast as I possibly could, considering that I was making money on balance. If I had lost oftener perhaps it might have spurred me to more continuous study. I certainly would have had more mistakes to spot. But I am not sure of the exact value of losing, for if I had lost more I would have lacked the money to test out the improvements in my methods of trading.
[01:56:34] Studying my winning plays in Fullerton’s office I discovered that although I often was 100 per cent right on the market--that is, in my diagnosis of conditions and general trend--I was not making as much money as my market “rightness” entitled me to. Why wasn’t I?
[01:56:52] There was as much to learn from partial victory as from defeat.
[01:56:57] For instance, I had been bullish [01:57:00] from the very start of a bull market, and I had backed my opinion by buying stocks. An advance followed, as I had clearly foreseen. So far, all very well. But what else did I do? Why, I listened to the elder statesmen and curbed my youthful impetuousness. I made up my mind to be wise and play carefully, conservatively. Everybody knew that the way to do that was to take profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried to do; for I often took profits and waited for a reaction that never came. And I saw my stock go kiting up ten points more and I sitting there with my four-point profit safe in my conservative pocket. _They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point [01:58:00] profit in a bull market._
[01:58:01] Where I should have made twenty thousand dollars I made two thousand. That was what my conservatism did for me. About the time I discovered what a small percentage of what I should have made I was getting I discovered something else, and that is that suckers differ among themselves according to the degree of experience.
[01:58:24] The tyro knows nothing, and everybody, including himself, knows it. But the next, or second, grade thinks he knows a great deal and makes others feel that way too. He is the experienced sucker, who has studied--not the market itself but a few remarks about the market made by a still higher grade of suckers. The second-grade sucker knows how to keep from losing his money in some of the ways that get the raw beginner. It is this semisucker rather than the 100 per cent article who is [01:59:00] the real all-the-year-round support of the commission houses. He lasts about three and a half years on an average, as compared with a single season of from three to thirty weeks, which is the usual Wall Street life of a first offender. It is naturally the semisucker who is always quoting the famous trading aphorisms and the various rules of the game. _He knows all the don’ts that ever fell from the oracular lips of the old stagers--excepting the principal one, which is: Don’t be a sucker!_
[01:59:34] _This semisucker is the type that thinks he has cut his wisdom teeth because he loves to buy on declines._ He waits for them. He measures his bargains by the number of points it has sold off from the top. In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly. He makes most [02:00:00] of the money--until one of the healthy reactions takes it away from him at one fell swoop. But the Careful Mike sucker does what I did when I thought I was playing the game intelligently--according to the intelligence of others. I knew I needed to change my bucket-shop methods and I thought I was solving my problem with any change, particularly one that assayed high gold values according to the experienced traders among the customers.
[02:00:29] Most--let us call ’em customers--are alike. You find very few who can truthfully say that Wall Street doesn’t owe them money. In Fullerton’s there were the usual crowd. All grades!
[01:48:02] The Wisdom of Old Mr. Partridge
[01:48:02] Well, there was one old chap who was not like the others. To begin with, he was a much older man. Another thing was that he never volunteered advice and never bragged of his winnings. He was a great hand for listening very attentively to the others. He did not seem very keen to get tips--that is, he never asked the talkers what they’d heard or what they knew. But when somebody gave him one he always thanked the tipster very politely. Sometimes he thanked the tipster again--when the tip turned out O.K. But if it went wrong he never whined, so that nobody could tell whether he followed it or let it slide by. It was a legend of the office that the old jigger was rich and could swing quite a line. But he wasn’t donating much to the firm in the way of commissions; at least not that anyone could see. His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast.
[02:01:58] The customers, who were [02:02:00] all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap’s answer was always the same.
[02:02:35] The customer would finish the tale of his perplexity and then ask: “What do you think I ought to do?”
[02:02:43] Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, “You know, it’s a bull market!”
[02:02:55] Time and again I heard him say, “Well, this is a [02:03:00] bull market, you know!” as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And of course I did not get his meaning.
[02:03:11] One day a fellow named Elmer Harwood rushed into the office, wrote out an order and gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to John Fanning’s story of the time he overheard Keene give an order to one of his brokers and all that John made was a measly three points on a hundred shares and of course the stock had to go up twenty-four points in three days right after John sold out. It was at least the fourth time that John had told him that tale of woe, but old Turkey was smiling as sympathetically as if it was the first time he heard it.
[02:03:58] Well, Elmer made for [02:04:00] the old man and, without a word of apology to John Fanning, told Turkey, “Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I’ll be able to buy it back cheaper. So you’d better do likewise. That is, if you’ve still got yours.”
[02:04:21] Elmer looked suspiciously at the man to whom he had given the original tip to buy. The amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out.
[02:04:39] “Yes, Mr. Harwood, I still have it. Of course!” said Turkey gratefully. It was nice of Elmer to think of the old chap.
[02:04:48] “Well, now is the time to take your profit and get in again on the next dip,” said Elmer, as if he had just made out the [02:05:00] deposit slip for the old man. Failing to perceive enthusiastic gratitude in the beneficiary’s face, Elmer went on: “I have just sold every share I owned!”
[02:05:10] From his voice and manner you would have conservatively estimated it at ten thousand shares.
[02:05:16] But Mr. Partridge shook his head regretfully and whined, “No! No! I can’t do that!”
[02:05:22] “What?” yelled Elmer.
[02:05:23] “I simply can’t!” said Mr. Partridge. He was in great trouble.
[02:05:27] “Didn’t I give you the tip to buy it?”
[02:05:31] “You did, Mr. Harwood, and I am very grateful to you. Indeed, I am, sir. But----”
[02:05:37] “Hold on! Let me talk! And didn’t that stock go up seven points in ten days? Didn’t it?”
[02:05:44] “It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that stock.”
[02:05:52] “You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers [02:06:00] to be tip takers.
[02:06:01] “No, I couldn’t.”
[02:06:02] “Why not?” And Elmer drew nearer.
[02:06:04] “Why, this is a bull market!” The old fellow said it as though he had given a long and detailed explanation.
[02:06:13] “That’s all right,” said Elmer, looking angry because of his disappointment. “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”
[02:06:32] “My dear boy,” said old Partridge, in great distress--“my dear boy, _if I sold that stock now I’d lose my position; and then where would I be_?”
[02:06:43] Elmer Harwood threw up his hands, shook his head and walked over to me to get sympathy: “Can you beat it?” he asked me in a stage whisper. “I ask you!”
[02:06:55] I didn’t say anything. So he went on: “I give [02:07:00] him a tip on Climax Motors. He buys five hundred shares. He’s got seven points’ profit and I advise him to get out and buy ’em back on the reaction that’s overdue even now. And what does he say when I tell him? He says that if he sells he’ll lose his job. What do you know about that?”
[02:07:23] “I beg your pardon, Mr. Harwood; I didn’t say I’d lose my job,” cut in old Turkey. “I said I’d lose my position. And when you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the [02:08:00] experience of many years. I paid a high price for it and I don’t feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It’s a bull market, you know.” And he strutted away, leaving Elmer dazed.
[02:08:20] What old Mr. Partridge said did not mean much to me until I began to think about my own numerous failures to make as much money as I ought to when I was so right on the general market. The more I studied the more I realized how wise that old chap was. He had evidently suffered from the same defect in his young days and knew his own human weaknesses. He would not lay himself open to a temptation that experience had taught him was hard to resist and had always proved expensive to him, as it [02:09:00] was to me.
[02:09:00] I think it was a long step forward in my education when I realized at last that when old Mr. Partridge kept on telling the other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements--that is, not in reading the tape but in sizing up the entire market and its trend.
[01:48:02] The Value of Sitting Tight
[02:09:29] And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: _It never was my thinking that_ made the big money for me. _It was always my sitting._ Got that? My sitting tight! _It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early [02:10:00] bears in bear markets._ I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.
[02:10:45] The reason is that a man may see straight and clearly and yet become impatient or doubtful _when the market takes its time about doing as he figured it must do_. That is why so [02:11:00] many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains _they cannot sit tight_. Old Turkey was dead right in doing and saving what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.
[02:11:27] Disregarding the big swing and trying to jump in and out was fatal to me. _Nobody can catch all the fluctuations._ In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study the general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see--or if you prefer, until you [02:12:00] think you see--the turn of the market; the beginning of a reversal of general conditions. You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. _One of the most helpful things that anybody can learn is to give up trying to catch the last eighth--or the first. These two are the most_ expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.
[02:12:38] Another thing I noticed in studying my plays in Fullerton’s office after I began to trade less unintelligently was that my initial operations seldom showed me a loss. That naturally made me decide to start big. It gave me confidence in my own judgment before I allowed it to be vitiated by the advice [02:13:00] of others or even by my own impatience at times. Without faith in his own judgment no man can go very far in this game. That is about all I have learned--to study general conditions, _to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary._ I have been short one hundred thousand shares and I have seen a big rally coming. I have figured--and figured correctly--that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits. And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again on the rally. I knew that if I did I might lose my [02:14:00] position and with it the certainty of a big killing. It is the big swing that makes the big money for you.
[02:14:08] If I learned all this so slowly it was because I learned by my mistakes, _and some time always elapses between making a mistake and realizing it_, and more time between realizing it and exactly determining it. But at the same time I was faring pretty comfortably and was very young, so that I made up in other ways. Most of my winnings were still made in part through my tape reading because the kind of markets we were having lent themselves fairly well to my method. I was not losing either as often or as irritatingly as in the beginning of my New York experiences. It wasn’t anything to be proud of, when you think that I had been broke three times in less than two years. [02:15:00] And as I told you, being broke is a very efficient educational agency.
[02:15:04] I was not increasing my stake very fast because I lived up to the handle all the time. I did not deprive myself of many of the things that a fellow of my age and tastes would want. I had my own automobile and I could not see any sense in skimping on living when I was taking it out of the market. The ticker only stopped Sundays and holidays, which was as it should be. Every time I found the reason for a loss or the why and how of another mistake, I added a brand-new _Don’t!_ to my schedule of assets. And the nicest way to capitalize my increasing assets was by not cutting down on my living expenses. Of course I had some amusing experiences and some that were not so amusing, but if [02:16:00] I told them all in detail I’d never finish. As a matter of fact, the only incidents that I remember without special effort are those that taught me something of definite value to me in my trading; something that added to my store of knowledge of the game--and of myself!
[02:16:24] (maps to 6)[02:16:24] The Hunch in Atlantic City
[02:16:24] In the spring of 1906 I was in Atlantic City for a short vacation. I was out of stocks and was thinking only of having a change of air and a nice rest. By the way, I had gone back to my first brokers, Harding Brothers, and my account had got to be pretty active. I could swing three or four thousand shares. That wasn’t much more than I had done in the old Cosmopolitan shop when I was barely twenty years of age. But there was some [02:17:00] difference between my one-point margin in the bucket shop and the margin required by brokers who actually bought or sold stocks for my account on the New York Stock Exchange.
[02:17:11] You may remember the story I told you about that time when I was short thirty-five hundred Sugar in the Cosmopolitan and I had a hunch something was wrong and I’d better close the trade? Well, I have often had that curious feeling. As a rule, I yield to it. But at times I have pooh-poohed the idea and have told myself that it was simply asinine to follow any of these sudden blind impulses to reverse my position. I have ascribed my hunch to a state of nerves resulting from too many cigars or insufficient sleep or a torpid liver or something of that kind. When I have argued myself into disregarding my impulse and have stood pat I [02:18:00] have always had cause to regret it. A dozen instances occur to me when I did not sell as per hunch, and the next day I’d go downtown and the market would be strong, or perhaps even advance, and I’d tell myself how silly it would have been to obey the blind impulse to sell. But on the following day there would be a pretty bad drop. Something had broken loose somewhere and I’d have made money by not being so wise and logical. The reason plainly was not physiological but psychological.
[02:18:36] I want to tell you only about one of them because of what it did for me. It happened when I was having that little vacation in Atlantic City in the spring of 1906. I had a friend with me who also was a customer of Harding Brothers. I had no interest in the market one way or [02:19:00] another and was enjoying my rest. I can always give up trading to play, unless of course it is an exceptionally active market in which my commitments are rather heavy. It was a bull market, as I remember it. The outlook was favorable for general business and the stock market had slowed down but the tone was firm and all indications pointed to higher prices.
[02:19:25] One morning after we had breakfasted and had finished reading all the New York morning papers, and had got tired of watching the sea gulls picking up clams and flying up with them twenty feet in the air and dropping them on the hard wet sand to open them for their breakfast, my friend and I started up the Boardwalk. That was the most exciting thing we did in the daytime.
[02:19:54] It was not noon yet, and we walked up slowly to kill time and [02:20:00] breathe the salt air. Harding Brothers had a branch office on the Boardwalk and we used to drop in every morning and see how they’d opened. It was more force of habit than anything else, for I wasn’t doing anything.
[02:20:15] The market, we found, was strong and active. My friend, who was quite bullish, was carrying a moderate line purchased several points lower. He began to tell me what an obviously wise thing it was to hold stocks for much higher prices. I wasn’t paying enough attention to him to take the trouble to agree with him. I was looking over the quotation board, noting the changes--they were mostly advances--until I came to Union Pacific. I got a feeling that I ought to sell it. I can’t tell you more. I just felt like selling it. I asked myself why I should feel like that, and I couldn’t find any [02:21:00] reason whatever for going short of UP.
[02:21:02] I stared at the last price on the board until I couldn’t see any figures or any board or anything else, for that matter. All I knew was that I wanted to sell Union Pacific and I couldn’t find out why I wanted to.
[02:21:20] I must have looked queer, for my friend, who was standing alongside of me, suddenly nudged me and asked, “Hey, what’s the matter?”
[02:21:29] “I don’t know,” I answered.
[02:21:31] “Going to sleep?” he said.
[02:21:33] “No,” I said. “I am not going to sleep. What I am going to do is to sell that stock.” I had always made money following my hunches.
[02:21:44] I walked over to a table where there were some blank order pads. My friend followed me. I wrote out an order to sell a thousand Union Pacific at the market and handed it to the manager. He [02:22:00] was smiling when I wrote it and when he took it. But when he read the order he stopped smiling and looked at me.
[02:22:09] “Is this right?” he asked me. But I just looked at him and he rushed it over to the operator.
[02:22:17] “What are you doing?” asked my friend.
[02:22:20] “I’m selling it!” I told him.
[02:22:22] “Selling what?” he yelled at me. If he was a bull how could I be a bear? Something was wrong.
[02:22:30] “A thousand UP.,” I said.
[02:22:32] “Why?” he asked me in great excitement.
[02:22:35] I shook my head, meaning I had no reason. But he must have thought I’d got a tip, because he took me by the arm and led me outside into the hall, where we could be out of sight and hearing of the other customers and rubbering chairwarmers.
[02:22:54] “What did you hear?” he asked me.
[02:22:57] He was quite excited. UP. was [02:23:00] one of his pets and he was bullish on it because of its earnings and its prospects. But he was willing to take a bear tip on it at second hand.
[02:23:12] “Nothing!” I said.
[02:23:13] “You didn’t?” He was skeptical and showed it plainly.
[02:23:17] “I didn’t hear a thing.”
[02:23:19] “Then why in blazes are you selling?”
[02:23:21] “I don’t know,” I told him. I spoke gospel truth.
[02:23:25] “Oh, come across, Larry,” he said.
[02:23:28] He knew it was my habit to know why I traded. I had sold a thousand shares of Union Pacific. I must have a very good reason to sell that much stock in the face of the strong market.
[02:23:43] “I don’t know,” I repeated. “I just feel that something is going to happen.”
[02:23:49] “What’s going to happen?”
[02:23:51] “I don’t know. I can’t give you any reason. All I know is that I want to sell that stock. And I’m [02:24:00] going to let ’em have another thousand.”
[02:24:02] I walked back into the office and gave an order to sell a second thousand. If I was right in selling the first thousand I ought to have out a little more.
[02:24:15] “What could possibly happen?” persisted my friend, who couldn’t make up his mind to follow my lead. If I’d told him that I had heard UP. was going down he’d have sold it without asking me from whom I’d heard it or why. “What could possibly happen?” he asked again.
[02:24:35] “A million things could happen. But I can’t promise you that any of them will. I can’t give you any reasons and I can’t tell fortunes,” I told him.
[02:24:47] “Then you’re crazy,” he said. “Stark crazy, selling that stock without rime or reason. You don’t know why you want to sell it?”
[02:24:56] “I don’t know why I want to sell it. [02:25:00] I only know I do want to,” I said. “I want to, like everything.” The urge was so strong that I sold another thousand.
[02:25:09] That was too much for my friend. He grabbed me by the arm and said, “Here! Let’s get out of this place before you sell the entire capital stock.”
[02:25:21] I had sold as much as I needed to satisfy my feeling, so I followed him without waiting for a report on the last two thousand shares. It was a pretty good jag of stock for me to sell even with the best of reasons. It seemed more than enough to be short of without any reason whatever, particularly when the entire market was so strong and there was nothing in sight to make anybody think of the bear side. But I remembered that on previous occasions when I had the same urge to sell and didn’t [02:26:00] do it I always had reasons to regret it.
[02:26:03] I have told some of these stories to friends, and some of them tell me it isn’t a hunch but the subconscious mind, which is the creative mind, at work. That is the mind which makes artists do things without their knowing how they came to do them. Perhaps with me it was the cumulative effect of a lot of little things individually insignificant but collectively powerful. Possibly my friend’s unintelligent bullishness aroused a spirit of contradiction and I picked on UP. because it had been touted so much. I can’t tell you what the cause or motive for hunches may be. All I know is that I went out of the Atlantic City branch office of Harding Brothers short three thousand Union Pacific in a rising market, and I wasn’t worried a bit.
[02:26:57] I wanted to know what price they’d [02:27:00] got for my last two thousand shares. So after luncheon we walked up to the office. I had the pleasure of seeing that the general market was strong and Union Pacific higher.
[02:27:12] “I see your finish,” said my friend. You could see he was glad he hadn’t sold any.
[02:27:19] The next day the general market went up some more and I heard nothing but cheerful remarks from my friend. But I felt sure I had done right to sell UP., and I never get impatient when I feel I am right. What’s the sense? That afternoon Union Pacific stopped climbing, and toward the end of the day began to go off. Pretty soon it got down to a point below the level of the average of my three thousand shares. I felt more positive than ever that I was on the right side, and since I felt that way I [02:28:00] naturally had to sell some more. So, toward the close, I sold an additional two thousand shares.
[02:28:06] There I was, short five thousand shares of UP. on a hunch. That was as much as I could sell in Harding’s office with the margin I had up. It was too much stock for me to be short of, on a vacation; so I gave up the vacation and returned to New York that very night. There was no telling what might happen and I thought I’d better be Johnny-on-the-spot. There I could move quickly if I had to.
[02:28:38] The next day we got the news of the San Francisco earthquake. It was an awful disaster. But the market opened down only a couple of points. _The bull forces were at work, and the public never is independently responsive to news. You see that all the time. If there is a solid [02:29:00] bull foundation, for instance, whether or not what the papers call bull manipulation is going on the same time, certain news items fail to have the effect they would have if the Street was bearish._ It is all in the state of sentiment at the time. In this case the Street did not appraise the extent of the catastrophe because it didn’t wish to. Before the day was over prices came back.
[02:29:28] I was short five thousand shares. The blow had fallen, but my stock hadn’t. My hunch was of the first water, but my bank account wasn’t growing; not even on paper. The friend who had been in Atlantic City with me when I put out my short line in UP. was glad and sad about it.
[02:29:51] He told me: “That was some hunch, kid. But, say, when the talent and the money are all on the bull side [02:30:00] what’s the use of bucking against them? They are bound to win out.”
[02:30:05] “Give them time,” I said. I meant prices. I wouldn’t cover because I knew the damage was enormous and the Union Pacific would be one of the worst sufferers. _But it was exasperating to see the blindness of the Street._
[02:30:21] “Give ’em time and your skin will be where all the other bear hides are stretched out in the sun, drying,” he assured me.
[02:30:30] “What would you do?” I asked him. “Buy UP. on the strength of the millions of dollars of damage suffered by the Southern Pacific and other lines? Where are the earnings for dividends going to come from after they pay for all they’ve lost? The best you can say is that the trouble may not be as bad as it is painted. But is that a reason for buying the stocks of the [02:31:00] roads chiefly affected? Answer me that.”
[02:31:02] But all my friend said was: “Yes, that listens fine. But I tell you, the market doesn’t agree with you. The tape doesn’t lie, does it?”
[02:31:12] “_It doesn’t always tell the truth on the instant_,” _I said._
[02:31:17] “Listen. A man was talking to Jim Fisk a little before Black Friday, giving ten good reasons why gold ought to go down for keeps. He got so encouraged by his own words that he ended by telling Fisk that he was going to sell a few million. And Jim Fisk just looked at him and said, “Go ahead! Do! Sell it short and invite me to your funeral.”
[02:31:44] “Yes,” I said; “and if that chap had sold it short, look at the killing he would have made! Sell some UP. yourself.”
[02:31:53] “Not I! I’m the kind that thrives best on not rowing against wind and tide.”
[02:31:59] [02:32:00] On the following day, when fuller reports came in, the market began to slide off, but even then not as violently as it should. Knowing that nothing under the sun could stave off a substantial break I doubled up and sold five thousand shares. Oh, by that time it was plain to most people, and my brokers were willing enough. It wasn’t reckless of them or of me, not the way I sized up the market. On the day following, the market began to go for fair. There was the dickens to pay. Of course I pushed my luck for all it was worth. I doubled up again and sold ten thousand shares more. It was the only play possible.
[02:32:47] I wasn’t thinking of anything except that I was right--100 per cent right--and that this was a heaven-sent opportunity. It was up to me to take advantage of it. I [02:33:00] sold more. Did I think that with such a big line of shorts out, it wouldn’t take much of a rally to wipe out my paper profits and possibly my principal? I don’t know whether I thought of that or not, but if I did it didn’t carry much weight with me. I wasn’t plunging recklessly. I was really playing conservatively. There was nothing that anybody could do to undo the earthquake, was there? They couldn’t restore the crumpled buildings overnight, free, gratis, for nothing, could they? All the money in the world couldn’t help much in the next few hours, could it?
[02:33:41] I was not betting blindly. I wasn’t a crazy bear. I wasn’t drunk with success or thinking that because Frisco was pretty well wiped off the map the entire country was headed for the scrap heap. No, indeed! I didn’t look for a panic. Well, the next [02:34:00] day I cleaned up. I made two hundred and fifty thousand dollars. It was my biggest winnings up to that time. It was all made in a few days. The Street paid no attention to the earthquake the first day or two. They’ll tell you that it was because the first despatches were not so alarming, but I think it was because it took so long to change the point of view of the public toward the securities markets. Even the professional traders for the most part were slow and shortsighted.
[02:34:36] I have no explanation to give you, either scientific or childish. I am telling you what I did, and why, and what came of it. I was much less concerned with the mystery of the hunch than with the fact that I got a quarter of a million out of it. It meant that I could now swing a [02:35:00] much bigger line than ever, if or when the time came for it.
[02:17:11] The Saratoga Experience
[02:35:05] That summer I went to Saratoga Springs. It was supposed to be a vacation for me, but I kept an eye on the market. To begin with, I wasn’t so tired that it bothered me to think about it. And then, everybody I knew up there had or had had an active interest in it. We naturally talked about it. I have noticed that there is quite a difference between talking and trading. Some of these chaps remind you of the bold clerk who talks to his cantankerous employer as to a yellow dog--when he tells you about it.
[02:35:44] Harding Brothers had a branch office in Saratoga. Many of their customers were there. But the real reason, I suppose, was the advertising value. Having a branch office in a resort is simply high-class billboard advertising. I used [02:36:00] to drop in and sit around with the rest of the crowd. The manager was a very nice chap from the New York office who was there to give the glad hand to friends and strangers and, if possible, to get business. It was a wonderful place for tips--all kinds of tips, horse-race, stock-market, and waiters’. The office knew I didn’t take any, so the manager didn’t come and whisper confidentially in my ear what he’d just got on the q. t. from the New York office. He simply passed over the telegrams, saying, “This is what they’re sending out,” or something of the kind.
[02:36:41] Of course I watched the market. With me, to look at the quotation board and to read the signs is one process. My good friend Union Pacific, I noticed, looked like going up. _The price was high, but the stock acted as if it were [02:37:00] being accumulated._ I watched it a couple of days without trading in it, and the more I watched it the more convinced I became that it was being bought on balance by somebody who was no piker, somebody who not only had a big bank roll but knew what was what. Very clever accumulation, I thought.
[02:37:22] As soon as I was sure of this I naturally began to buy it, at about 160. It kept on acting all hunky, and so I kept on buying it, five hundred shares at a clip. _The more I bought the stronger it got, without any spurt, and I was feeling very comfortable._ I couldn’t see any reason why that stock shouldn’t go up a great deal more; not with what I read on the tape.
[02:37:52] All of a sudden the manager came to me and said they’d got a message from New York--they [02:38:00] had a direct wire of course--asking if I was in the office, and when they answered yes, another came saying: “Keep him there. Tell him Mr. Harding wants to speak to him.”
[02:38:12] I said I’d wait, and bought five hundred shares more of UP. I couldn’t imagine what Harding could have to say to me. I didn’t think it was anything about business. My margin was more than ample for what I was buying. Pretty soon the manager came and told me that Mr. Harding wanted me on the long-distance telephone.
[02:38:36] “Hello, Ed,” I said.
[02:38:37] But he said, “What the devil’s the matter with you? Are you crazy?”
[02:38:43] “Are you?” I said.
[02:38:44] “What are you doing?” he asked.
[02:38:47] “What do you mean?”
[02:38:48] “Buying all that stock.”
[02:38:50] “Why, isn’t my margin all right?”
[02:38:52] “It isn’t a case of margin, but of being a plain sucker.”
[02:38:57] “I don’t get you.”
[02:38:59] “Why are [02:39:00] you buying all that Union Pacific?”
[02:39:02] “It’s going up,” I said.
[02:39:04] “Going up, hell! Don’t you know that the insiders are feeding it out to you? You’re just about the easiest mark up there. You’d have more fun losing it on the ponies. Don’t let them kid you.”
[02:39:19] “Nobody is kidding me,” I told him. “I haven’t talked to a soul about it.”
[02:39:25] But he came back at me: “You can’t expect a miracle to save you every time you plunge into that stock. Get out while you’ve still got a chance,” he said. “It’s a crime to be long of that stock at this level--when these highbinders are shoveling it out by the ton.”
[02:39:45] “The tape says they’re buying it,” I insisted.
[02:39:49] “Larry, I got heart disease when your orders began to come in. For the love of Mike, don’t be a sucker. Get out! Right away. It’s liable [02:40:00] to bust wide open any minute. I’ve done my duty. Good-by!” And he hung up.
[02:40:05] Ed Harding was a very clever chap, unusually well-informed and a real friend, disinterested and kind-hearted. And what was even more, I knew he was in position to hear things. All I had to go by, in my purchases of UP., was my years of studying the behaviour of stocks and my perception of certain symptoms which experience had taught me usually accompanied a substantial rise. _I don’t know what happened to me, but I suppose I must have concluded that my tape reading told me the stock was being absorbed simply because very clever manipulation by the insiders made the tape tell a story that wasn’t true._ Possibly I was impressed by the pains Ed Harding took to stop me from making what he was so sure would be a colossal mistake on my [02:41:00] part. Neither his brains nor his motives were to be questioned. Whatever it was that made me decide to follow his advice, I cannot tell you; but follow it, I did.
[02:41:12] I sold out all my Union Pacific. _Of course if it was unwise to be long of it, it was equally unwise not to be short of it. So after I got rid of my long stock I sold four thousand shares short. I put out most of it around 162._
[02:41:32] The next day the directors of the Union Pacific Company declared a 10 per cent dividend on the stock. At first nobody in Wall Street believed it. It was too much like the desperate manœuvre of cornered gamblers. All the newspapers jumped on the directors. But while the Wall Street talent hesitated to act the market boiled over. Union Pacific led, and on huge transactions made a new [02:42:00] high-record price. Some of the room traders made fortunes in an hour and I remember later hearing about a rather dull-witted specialist who made a mistake that put three hundred and fifty thousand dollars in his pocket. He sold his seat the following week and became a gentleman farmer the following month.
[02:42:20] Of course I realised, the moment I heard the news of the declaration of the unprecedented 10 per cent dividend, that I got what I deserved for disregarding the voice of experience and listening to the voice of a tipster. _My own convictions I had set aside for the suspicions of a friend, simply because he was disinterested and as a rule knew what he was doing._
[02:42:47] As soon as I saw Union Pacific making new high records I said to myself, “This is no stock for me to be short of.”
[02:42:57] All I had in the world [02:43:00] was up as margin in Harding’s office. I was neither cheered nor made stubborn by the knowledge of that fact. What was plain was that I had read the tape accurately and that I had been a ninny to let Ed Harding shake my own resolution. There was no sense in recriminations, because I had no time to lose; and besides, what’s done is done. So I gave an order to take in my shorts. The stock was around 165 when I sent in that order to buy in the four thousand UP. at the market. I had a three-point loss on it at that figure. Well, my brokers paid 172 and 174 for some of it before they were through. I found when I got my reports that Ed Harding’s kindly intentioned interference cost me forty thousand dollars. _A low price for a man to pay for not having [02:44:00] the courage of his own convictions! It was a cheap lesson._
[02:44:04] I wasn’t worried, because the tape said still higher prices. It was an unusual move and there were no precedents for the action of the directors, but I did this time what I thought I ought to do. As soon as I had given the first order to buy four thousand shares to cover my shorts I decided to profit by what the tape indicated and so I went along. I bought four thousand shares and held that stock until the next morning. Then I got out. I not only made up the forty thousand dollars I had lost but about fifteen thousand besides. If Ed Harding hadn’t tried to save me money I’d have made a killing. But he did me a very great service, for it was the lesson of that episode that, I firmly believe, _completed_ [02:45:00] my education as a trader.
[02:45:01] It was not that all I needed to learn was not to take tips but follow my own inclination. _It was that I gained confidence in myself and I was able finally to shake off the old method of trading._ That Saratoga experience was my last haphazard, hit-or-miss operation. From then on I began to think of basic conditions instead of individual stocks. I promoted myself to a higher grade in the hard school of speculation. It was a long and difficult step to take.