Chapter X: Part 10

Now, however, the reason that had made me cover at a big loss was no longer a good reason since there had not been the usual prompt and vigorous rally. So I sold 10,000 bales and waited. Pretty soon the market went off 50 points. I waited a little while longer. There was no rally. I had got pretty hungry by now, so I went into the dining-room and ordered my luncheon. Before the waiter could serve it, I jumped up, went to the broker’s office, I saw that there had been no rally and so I sold 10,000 bales more. I waited a little and had the pleasure of seeing the price decline 40 points more. That showed me I was trading correctly so I returned to the dining-room ate my luncheon and went back to the broker’s. There was no rally in cotton that day. That very night I left Hot Springs.

It was all very well to play golf but I had been wrong in cotton in selling when I did and in covering when I did. So I simply had to get back on the job and be where I could trade in comfort. The way the market took my first ten thousand bales made me sell the second ten thousand, and the way the market took the second made me certain the turn had come. It was the difference in behaviour.

Well, I reached Washington and went to my brokers’ office there, which was in charge of my old friend Tucker. While I was there the market went down some more. I was more confident of being right now than I had been of being wrong before. So I sold 40,000 bales and the market went off 75 points. It showed that there was no support there. That night the market closed still lower. The old buying power was plainly gone. There was no telling at what level that power would again develop, but I felt confident of the wisdom of my position. The next morning I left Washington for New York by motor. There was no need to hurry.

When we got to Philadelphia I drove to a broker’s office. I saw that there was the very dickens to pay in the cotton market. Prices had broken badly and there was a small-sized panic on. I didn’t wait to get to New York. I called up my brokers on the long distance and I covered my shorts. As soon as I got my reports and found that I had practically made up my previous loss, I motored on to New York without having to stop en route to see any more quotations.

Some friends who were with me in Hot Springs talk to this day of the way I jumped up from the luncheon table to sell that second lot of 10,000 bales. But again that clearly was not a hunch. It was an impulse that came from the conviction that the time to sell cotton had now come, however great my previous mistake had been. I had to take advantage of it. It was my chance. The subconscious mind probably went on working, reaching conclusions for me. The decision to sell in Washington was the result of my observation. My years of experience in trading told me that the line of least resistance had changed from up to down.

I bore the cotton market no grudge for taking a million dollars out of me and I did not hate myself for making a mistake of that calibre any more than I felt proud for covering in Philadelphia and making up my loss. My trading mind concerns itself with trading problems and I think I am justified in asserting that I made up my first loss because I had the experience and the memory.

_XVIII_

History repeats itself all the time in Wall Street. Do you remember a story I told you about covering my shorts at the time Stratton had corn cornered? Well, another time I used practically the same tactics in the stock market. The stock was Tropical Trading. I have made money bulling it and also bearing it. It always was an active stock and a favourite with adventurous traders. The inside coterie has been accused time and again by the newspapers of being more concerned over the fluctuations in the stock than with encouraging permanent investment in it. The other day one of the ablest brokers I know asserted that not even Daniel Drew in Erie or H. O. Havemeyer in Sugar developed so perfect a method for milking the market for a stock as President Mulligan and his friends have done in Tropical Trading. Many times they have encouraged the bears to sell TT short and then have proceeded to squeeze them with business-like thoroughness. There was no more vindictiveness about the process than is felt by a hydraulic press--or no more squeamishness, either.

Of course, there have been people who have spoken about certain “unsavory incidents” in the market career of TT stock. But I dare say these critics were suffering from the squeezing. Why do the room traders, who have suffered so often from the loaded dice of the insiders, continue to go up against the game? Well, for one thing they like action and they certainly get it in Tropical Trading. No prolonged spells of dullness. No reasons asked or given. No time wasted. No patience strained by waiting for the tipped movement to begin. Always enough stock to go around--except when the short interest is big enough to make the scarcity worthwhile. One born every minute!

It so happened some time ago that I was in Florida on my usual winter vacation. I was fishing and enjoying myself without any thought of the markets excepting when we received a batch of newspapers. One morning when the semi-weekly mail came in I looked at the stock quotations and saw that Tropical Trading was selling at 155. The last time I’d seen a quotation in it, I think, was around 140. My opinion was that we were going into a bear market and I was biding my time before going short of stocks. But there was no mad rush. That was why I was fishing and out of hearing of the ticker. I knew that I’d be back home when the real call came. In the meanwhile nothing that I did or failed to do would hurry matters a bit.

The behaviour of Tropical Trading was the outstanding feature of the market, according to the newspapers I got that morning. It served to crystallise my general bearishness because I thought it particularly asinine for the insiders to run up the price of TT in the face of the heaviness of the general list. There are times when the milking process must be suspended. What is abnormal is seldom a desirable factor in a trader’s calculations and it looked to me as if the marking up of that stock were a capital blunder. Nobody can make blunders of that magnitude with impunity; not in the stock market.

After I got through reading the newspapers I went back to my fishing but I kept thinking of what the insiders in Tropical Trading were trying to do. That they were bound to fail was as certain as that a man is bound to smash himself if he jumps from the roof of a twenty-story building without a parachute. I couldn’t think of anything else and finally I gave up trying to fish and sent off a telegram to my brokers to sell 2000 shares of TT at the market. After that I was able to go back to my fishing. I did pretty well.

That afternoon I received the reply to my telegram by special courier. My brokers reported that they had sold the 2000 shares of Tropical Trading at 153. So far so good. I was selling short on a declining market, which was as it should be. But I could not fish any more. I was too far away from a quotation board. I discovered this after I began to think of all the reasons why Tropical Trading should go down with the rest of the market instead of going up on inside manipulation. I therefore left my fishing camp and returned to Palm Beach; or, rather, to the direct wire to New York.

The moment I got to Palm Beach and saw what the misguided insiders were still trying to do, I let them have a second lot of 2000 TT. Back came the report and I sold another 2000 shares. The market behaved excellently. That is, it declined on my selling. Everything being satisfactory I went out and had a chair ride. But I wasn’t happy. The more I thought the unhappier it made me to think that I hadn’t sold more. So back I went to the broker’s office and sold another 2000 shares.

I was happy only when I was selling that stock. Presently I was short 10,000 shares. Then I decided to return to New York. I had business to do now. My fishing I would do some other time.

When I arrived in New York I made it a point to get a line on the company’s business, actual and prospective. What I learned strengthened my conviction that the insiders had been worse than reckless in jacking up the price at a time when such an advance was not justified either by the tone of the general market or by the company’s earnings.

The rise, illogical and ill-timed though it was, had developed some public following and this doubtless encouraged the insiders to pursue their unwise tactics. Therefore I sold more stock. The insiders ceased their folly. So I tested the market again and again, in accordance with my trading methods, until finally I was short 30,000 shares of the stock of the Tropical Trading Company. By then the price was 133.

I had been warned that the TT insiders knew the exact whereabouts of every stock certificate in the Street and the precise dimensions and identity of the short interest as well as other facts of tactical importance. They were able men and shrewd traders. Altogether it was a dangerous combination to go up against. But facts are facts and the strongest of all allies are conditions.

Of course, on the way down from 153 to 133 the short interest had grown and the public that buys on reactions began to argue as usual: That stock had been considered a good purchase at 153 and higher. Now 20 points lower, it was necessarily a much better purchase. Same stock; same dividend rate; same officers; same business. Great bargain!

The public’s purchases reduced the floating supply and the insiders, knowing that a lot of room traders were short, thought the time propitious for a squeezing. The price was duly run up to 150. I daresay there was plenty of covering but I stayed pat. Why shouldn’t I? The insiders might know that a short line of 30,000 shares had not been taken in but why should that frighten me? The reasons that had impelled me to begin selling at 153 and keep at it on the way down to 133, not only still existed but were stronger than ever. The insiders might desire to force me to cover but they adduced no convincing arguments. Fundamental conditions were fighting for me. It was not difficult to be both fearless and patient. A speculator must have faith in himself and in his judgment. The late Dickson G. Watts, ex-President of the New York Cotton Exchange and famous author of “Speculation as a Fine Art,” says that courage in a speculator is merely confidence to act on the decision of his mind. With me, I cannot fear to be wrong because I never think I am wrong until I am proven wrong. In fact, I am uncomfortable unless I am capitalising my experience. The course of the market at a given time does not necessarily prove me wrong. It is the character of the advance--or of the decline--that determines for me the correctness or the fallacy of my market position. I can only rise by knowledge. If I fall it must be by my own blunders.

There was nothing in the character of the rally from 133 to 150 to frighten me into covering and presently the stock, as was to be expected, started down again. It broke 140 before the inside clique began to give it support. Their buying was coincident with a flood of bull rumors about the stock. The company, we heard, was making perfectly fabulous profits, and the earnings justified an increase in the regular dividend rate. Also, the short interest was said to be perfectly huge and the squeeze of the century was about to be inflicted on the bear party in general and in particular on a certain operator who was more than over-extended. I couldn’t begin to tell you all I heard as they ran the price up ten points.

The manipulation did not seem particularly dangerous to me but when the price touched 149 I decided that it was not wise to let the Street accept as true all the bull statements that were floating around. Of course, there was nothing that I or any other rank outsider could say that would carry conviction either to the frightened shorts or to those credulous customers of commission houses that trade on hearsay tips. The most effective retort courteous is that which the tape alone can print. People will believe that when they will not believe an affidavit from any living man, much less one from a chap who is short 30,000 shares. So I used the same tactics that I did at the time of the Stratton corner in corn, when I sold oats to make the traders bearish on corn. Experience and memory again.

When the insiders jacked up the price of Tropical Trading with a view to frightening the shorts I didn’t try to check the rise by selling that stock. I was already short 30,000 shares of it which was as big a percentage of the floating supply as I thought wise to be short of. I did not propose to put my head into the noose so obligingly held open for me--the second rally was really an urgent invitation. What I did when TT touched 149 was to sell about 10,000 shares of Equatorial Commercial Corporation. This company owned a large block of Tropical Trading.

Equatorial Commercial, which was not as active a stock as TT, broke badly on my selling, as I had foreseen; and, of course, my purpose was achieved. When the traders--and the customers of the commission houses who had listened to the uncontradicted bull dope on TT--saw that the rise in Tropical synchronised with heavy selling and a sharp break in Equatorial, they naturally concluded that the strength of TT was merely a smoke-screen--a manipulated advance obviously designed to facilitate inside liquidation in Equatorial Commercial, which was largest holder of TT stock. It must be both long stock and inside stock in Equatorial, because no outsider would dream of selling so much short stock at the very moment when Tropical Trading was so very strong. So they sold Tropical Trading and checked the rise in that stock, the insiders very properly not wishing to take all the stock that was pressed for sale. The moment the insiders took away their support the price of TT declined. The traders and principal commission houses now sold some Equatorial also and I took in my short line in that at a small profit. I hadn’t sold it to make money out of the operation but to check the rise in TT.

Time and again the Tropical Trading insiders and their hard-working publicity man flooded the Street with all manner of bull items and tried to put up the price. And every time they did I sold Equatorial Commercial short and covered it with TT reacted and carried EC with it. It took the wind out of the manipulators’ sails. The price of TT finally went down to 125 and the short interest really grew so big that the insiders were enabled to run it up 20 or 25 points. This time it was a legitimate enough drive against an over-extended short interest; but while I foresaw the rally I did not cover, not wishing to lose my position. Before Equatorial Commercial could advance in sympathy with the rise in TT I sold a raft of it short--with the usual results. This gave the lie to the bull talk in TT which had got quite boisterous after the latest sensational rise.

By this time the general market had grown quite weak. As I told you, it was the conviction that we were in a bear market that started me selling TT short in the fishing-camp in Florida. I was short of quite a few other stocks but TT was my pet. Finally, general conditions proved too much for the inside clique to defy and TT hit the toboggan slide. It went below 120 for the first time in years; then below 110; below par; and still I did not cover. One day when the entire market was extremely weak Tropical Trading broke 90 and on the demoralisation I covered. Same old reason! I had the opportunity--the big market and the weakness and the excess of sellers over buyers. I may tell you, even at the risk of appearing to be monotonously bragging of my cleverness, that I took in my 30,000 shares of TT at practically the lowest prices of the movement. But I wasn’t thinking of covering at the bottom. I was intent on turning my paper profits into cash without losing much of the profit in the changing.

I stood pat throughout because I knew my position was sound. I wasn’t bucking the trend of the market or going against basic conditions but the reverse, and that was what made me so sure of the failure of an over-confident inside clique. What they tried to do others had tried before and it had always failed. The frequent rallies, even when I knew as well as anybody that they were due, could not frighten me. I knew I’d do much better in the end by staying pat than by trying to cover to put out a new short line at a higher price. By sticking to the position that I felt was right I made over a million dollars. I was not indebted to hunches or to skillful tape reading or to stubborn courage. It was a dividend declared by my faith in my judgment and not by my cleverness or by my vanity. Knowledge is power and power need not fear lies--not even when the tape prints them. The retraction follows pretty quickly.

A year later, TT was jacked up again to 150 and hung around there for a couple of weeks. The entire market was entitled to a good reaction for it had risen uninterruptedly and it did not bull any longer. I know because I tested it. Now, the group to which TT belonged had been suffering from very poor business and I couldn’t see anything to bull those stocks on anyhow, even if the rest of the market were due for a rise, which it wasn’t. So I began to sell Tropical Trading. I intended to put out 10,000 shares in all. The price broke on my selling. I couldn’t see that there was any support whatever. Then suddenly, the character of the buying changed.

I am not trying to make myself out a wizard when I assure you that I could tell the moment support came in. It instantly struck me that if the insiders in that stock, who never felt a moral obligation to keep the price up, were now buying the stock in the face of a declining general market there must be a reason. They were not ignorant asses nor philanthropists nor yet bankers concerned with keeping the price up to sell more securities over the counter. The price rose notwithstanding my selling and the selling of others. At 153 I covered my 10,000 shares and at 156 I actually went long because by that time the tape told me the line of least resistance was upward. I was bearish on the general market but I was confronted by a trading condition in a certain stock and not by a speculative theory in general. The price went out of sight, above 200. It was the sensation of the year. I was flattered by reports spoken and printed that I had been squeezed out of eight or nine millions of dollars. As a matter of fact, instead of being short I was long of TT all the way up. In fact, I held on a little too long and let some of my paper profits get away. Do you wish to know why I did? Because I thought the TT insiders would naturally do what I would have done had I been in their place. But that was something I had no business to think because my business is to trade--that is, to stick to the facts before me and not to what I think other people ought to do.

_XIX_

I do not know when or by whom the word “manipulation” was first used in connection with what really are no more than common merchandising processes applied to the sale in bulk of securities on the Stock Exchange. Rigging the market to facilitate cheap purchases of a stock which it is desired to accumulate is also manipulation. But it is different. It may not be necessary to stoop to illegal practices, but it would be difficult to avoid doing what some would think illegitimate. How are you going to buy a big block of a stock in a bull market without putting up the price on yourself? That would be the problem. How can it be solved? It depends upon so many things that you can’t give a general solution unless you say: possibly by means of very adroit manipulation. For instance? Well, it would depend upon conditions. You can’t give any closer answer than that.

I am profoundly interested in all phases of my business, and of course I learn from the experience of others as well as from my own. But it is very difficult to learn how to manipulate stocks to-day from such yarns as are told of an afternoon in the brokers’ offices after the close. Most of the tricks, devices and expedients of bygone days are obsolete and futile; or illegal and impracticable. Stock Exchange rules and conditions have changed, and the story--even the accurately detailed story--of what Daniel Drew or Jacob Little or Jay Gould could do fifty or seventy-five years ago is scarcely worth listening to. The manipulator to-day has no more need to consider what they did and how they did it than a cadet at West Point need study archery as practiced by the ancients in order to increase his working knowledge of ballistics.

On the other hand there is profit in studying the human factors--the ease with which human beings believe what it pleases them to believe; and how they allow themselves--indeed, urge themselves--to be influenced by their cupidity or by the dollar-cost of the average man’s carelessness. Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was. Weapons change, but strategy remains strategy, on the New York Stock Exchange as on the battlefield. I think the clearest summing up of the whole thing was expressed by Thomas F. Woodlock when he declared: “The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.”

In booms, which is when the public is in the market in the greatest numbers, there is never any need of subtlety, so there is no sense of wasting time discussing either manipulation or speculation during such times; it would be like trying to find the difference in raindrops that are falling synchronously on the same roof across the street. The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth. At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860’s and ’70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.

When I first came to New York there was a great fuss made about wash sales and matched orders, for all that such practices were forbidden by the Stock Exchange. At times the washing was too crude to deceive anyone. The brokers had no hesitation in saying that “the laundry was active” whenever anybody tried to wash up some stock or other, and, as I have said before, more than once they had what were frankly referred to as “bucket-shop drives,” when a stock was offered down two or three points in a jiffy just to establish the decline on the tape and wipe up the myriad shoe-string traders who were long of the stock in the bucket shops. As for matched orders, they were always used with some misgivings by reason of the difficulty of coordinating and synchronising operations by brokers, all such business being against Stock Exchange rules. A few years ago a famous operator canceled the selling but not the buying part of his matched orders, and the result was that an innocent broker ran up the price twenty-five points or so in a few minutes, only to see it break with equal celerity as soon as his buying ceased. The original intention was to create an appearance of activity. Bad business, playing with such unreliable weapons. You see, you can’t take your best brokers into your confidence--not if you want them to remain members of the New York Stock Exchange. Then also, the taxes have made all practices involving fictitious transactions much more expensive than they used to be in the old times.

The dictionary definition of manipulation includes corners. Now, a corner might be the result of manipulation or it might be the result of competitive buying, as, for instance, the Northern Pacific corner on May 9, 1901, which certainly was not manipulation. The Stutz corner was expensive to everybody concerned, both in money and in prestige. And it was not a deliberately engineered corner, at that.

As a matter of fact very few of the great corners were profitable to the engineers of them. Both Commodore Vanderbilt’s Harlem corners paid big, but the old chap deserved the millions he made out of a lot of short sports, crooked legislators and aldermen who tried to double-cross him. On the other hand, Jay Gould lost in his Northwestern corner. Deacon S. V. White made a million in his Lackawanna corner, but Jim Keene dropped a million in the Hannibal & St. Joe deal. The financial success of a corner of course depends upon the marketing of the accumulated holdings at higher than cost, and the short interest has to be of some magnitude for that to happen easily.

I used to wonder why corners were so popular among the big operators of a half-century ago. They were men of ability and experience, wide-awake and not prone to childlike trust in the philanthropy of their fellow traders. Yet they used to get stung with an astonishing frequency. A wise old broker told me that all the big operators of the ’60’s and ’70’s had one ambition, and that was to work a corner. In many cases this was the offspring of vanity; in others, of the desire for revenge. At all events, to be pointed out as the man who had successfully cornered this or the other stock was in reality recognition of brains, boldness and boodle. It gave the cornerer the right to be haughty. He accepted the plaudits of his fellows as fully earned. It was more than the prospective money profit that prompted the engineers of corners to do their damnedest. It was the vanity complex asserting itself among cold-blooded operators.

Dog certainly ate dog in those days with relish and ease. I think I told you before that I have managed to escape being squeezed more than once, not because of the possession of a mysterious ticker-sense but because I can generally tell the moment the character of the buying in the stock makes it imprudent for me to be short of it. This I do by common-sense tests, which must have been tried in the old times also. Old Daniel Drew used to squeeze the boys with some frequency and make them pay high prices for the Erie “sheers” they had sold short to him. He was himself squeezed by Commodore Vanderbilt in Erie, and when old Drew begged for mercy the Commodore grimly quoted the Great Bear’s own deathless distich:

_He that sells what isn’t hisn
Must buy it back or go to prisn._

Wall Street remembers very little of an operator who for more than a generation was one of its Titans. His chief claim to immortality seems to be the phrase “watering stock.”

Addison G. Jerome was the acknowledged king of the Public Board in the spring of 1863. His market tips, they tell me, were considered as good as cash in bank. From all accounts he was a great trader and made millions. He was liberal, to the point of extravagance and had a great following in the Street--until Henry Keep, known as William the Silent, squeezed him out of all his millions in the Old Southern corner. Keep, by the way, was the brother-in-law of Gov. Roswell P. Flower.

In most of the old corners the manipulation consisted chiefly of not letting the other man know that you were cornering the stock which he was variously invited to sell short. It therefore was aimed chiefly at fellow professionals, for the general public does not take kindly to the short side of the account. The reasons that prompted these wise professionals to put out short lines in such stocks were pretty much the same as prompts them to do the same thing to-day. Apart from the selling by faith-breaking politicians in the Harlem corner of the Commodore, I gather from the stories I have read that the professional traders sold the stock because it was too high. And the reason they thought it was too high was that it never before had sold so high; and that made it too high to buy; and if it was too high to buy it was just right to sell. That sounds pretty modern, doesn’t it? They were thinking of the price, and the Commodore was thinking of the value! And so, for years afterwards, old-timers tell me that people used to say, “He went short of Harlem!” whenever they wished to describe abject poverty.

Many years ago I happened to be speaking to one of Jay Gould’s old brokers. He assured me earnestly that Mr. Gould not only was a most unusual man--it was of him that old Daniel Drew shiveringly remarked, “His touch is Death!”--but that he was head and shoulders above all other manipulators past and present. He must have been a financial wizard indeed to have done what he did; there can be no question of that. Even at this distance I can see that he had an amazing knack for adapting himself to new conditions, and that is valuable in a trader. He varied his methods of attack and defense without a pang because he was more concerned with the manipulation of properties than with stock speculation. He manipulated for investment rather than for a market turn. He early saw that the big money was in owning the railroads instead of rigging their securities on the floor of the Stock Exchange. He utilised the stock market of course. But I suspect it was because that was the quickest and easiest way to quick and easy money and he needed many millions, just as old Collis P. Huntington was always hard up because he always needed twenty or thirty millions more than the bankers were willing to lend him. Vision without money means heartaches; with money, it means achievement; and that means power; and that means money; and that means achievement; and so on, over and over and over.

Of course manipulation was not confined to the great figures of those days. There were scores of minor manipulators. I remember a story an old broker told me about the manners and morals of the early ’60’s. He said:

“The earliest recollection I have of Wall Street is of my first visit to the financial district. My father had some business to attend to there and for some reason or other took me with him. We came down Broadway and I remember turning off at Wall Street. We walked down Wall and just as we came to Broad or, rather, Nassau Street, to the corner where the Bankers’ Trust Company’s building now stands, I saw a crowd following two men. The first was walking eastward, trying to look unconcerned. He was followed by the other, a red-faced man who was wildly waving his hat with one hand and shaking the other fist in the air. He was yelling to beat the band: ‘Shylock! Shylock! What’s the price of money? Shylock! Shylock!’ I could see heads sticking out of windows. They didn’t have skyscrapers in those days, but I was sure the second- and third-story rubbernecks would tumble out. My father asked what was the matter, and somebody answered something I didn’t hear. I was too busy keeping a death clutch on my father’s hand so that the jostling wouldn’t separate us. The crowd was growing, as street crowds do, and I wasn’t comfortable. Wild-eyed men came running down from Nassau Street and up from Broad as well as east and west on Wall Street. After we finally got out of the jam my father explained to me that the man who was shouting ‘Shylock’ was So-and-So. I have forgotten the name, but he was the biggest operator in clique stocks in the city and was understood to have made--and lost--more money than any other man in Wall Street with the exception of Jacob Little. I remember Jacob Little’s name because I thought it was a funny name for a man to have. The other man, the Shylock, was a notorious locker-up of money. His name has also gone from me. But I remember he was tall and thin and pale. In those days the cliques used to lock up money by borrowing it or, rather, by reducing the amount available to Stock Exchange borrowers. They would borrow it and get a certified check. They wouldn’t actually take the money out and use it. Of course that was rigging. It was a form of manipulation, I think.”

I agree with the old chap. It was a phase of manipulation that we don’t have nowadays.

_XX_

I myself never spoke to any of the great stock manipulators that the Street still talks about. I don’t mean leaders; I mean manipulators. They were all before my time, although when I first came to New York, _James R. Keene, greatest of them all_, was in his prime. But I was a mere youngster then, exclusively concerned with duplicating, in a reputable broker’s office, the success I had enjoyed in the bucket shops of my native city. And, then, too, at the time Keene was busy with the U.S. Steel stocks--his manipulative masterpiece--I had no experience with manipulation, no real knowledge of it or of its value or meaning, and, for that matter, no great need of such knowledge. If I thought about it at all I suppose I must have regarded it as a well-dressed form of thimble-rigging, of which the lowbrow form was such tricks as had been tried on me in the bucket shops. Such talk as I since have heard on the subject has consisted in great part of surmises and suspicions; of guesses rather than intelligent analyses.

More than one man who knew him well has told me that Keene was the boldest and most brilliant operator that ever worked in Wall Street. That is saying a great deal, for there have been some great traders. Their names are now all but forgotten, but nevertheless they were kings in their day--for a day! They were pulled up out of obscurity into the sunlight of financial fame by the ticker tape--and the little paper ribbon didn’t prove strong enough to keep them suspended there long enough for them to become historical fixtures. At all events Keene was by all odds the best manipulator of his day--and it was a long and exciting day.

He capitalized his knowledge of the game, his experience as an operator and his talents when he sold his services to the Havemeyer brothers, who wanted him to develop a market for the Sugar stocks. He was broke at the time or he would have continued to trade on his own hook; and he was some plunger! He was successful with Sugar; made the shares trading favourites, and that made them easily vendible. After that, he was asked time and again to take charge of pools. I am told that in these pool operations he never asked nor accepted a fee, but paid for his share like the other members of the pool. The market conduct of the stock, of course, was exclusively in his charge. Often there was talk of treachery--on both sides. His feud with the Whitney-Ryan clique arose from such accusations. It is not difficult for a manipulator to be misunderstood by his associates. They don’t see his needs as he himself does. I know this from my own experience.

It is a matter of regret that Keene did not leave an accurate record of his greatest exploit--the successful manipulation of the U.S. Steel shares in the spring of 1901. As I understand it, Keene never had an interview with J. P. Morgan about it. Morgan’s firm dealt with or through Talbot J. Taylor & Co., at whose office Keene made his headquarters. Talbot Taylor was Keene’s son-in-law. I am assured that Keene’s fee for his work consisted of the pleasure he derived from the work. That he made millions trading in the market he helped to put up that spring is well known. He told a friend of mine that in the course of a few weeks he sold in the open market for the underwriters’ syndicate more than seven hundred and fifty thousand shares. Not bad when you consider two things: That they were new and untried stocks of a corporation whose capitalization was greater than the entire debt of the United States at that time; and second, that men like D. G. Reid, W. B. Leeds, the Moore brothers, Henry Phipps, H. C. Frick and the other Steel magnates also sold hundreds of thousands of shares to the public at the same time in the same market that Keene helped to create.

Of course, general conditions favoured him. Not only actual business but sentiment and his unlimited financial backing made possible his success. What we had was not merely a big bull market but a boom and a state of mind not likely to be seen again. The undigested-securities panic came later, when Steel common, which Keene had marked up to 55 in 1901, sold at 10 in 1903 and at 8⅞ in 1904.

We can’t analyse Keene’s manipulative campaigns. His books are not available; the adequately detailed record is nonexistent. For example, it would be interesting to see how he worked in Amalgamated Copper. H. H. Rogers and William Rockefeller had tried to dispose of their surplus stock in the market and had failed. Finally they asked Keene to market their line, and he agreed. Bear in mind that H. H. Rogers was one of the ablest business men of his day in Wall Street and that William Rockefeller was the boldest speculator of the entire Standard Oil coterie. They had practically unlimited resources and vast prestige as well as years of experience in the stock-market game. And yet they had to go to Keene. I mention this to show you that there are some tasks which it requires a specialist to perform. Here was a widely touted stock, sponsored by America’s greatest capitalists, that could not be sold except at a great sacrifice of money and prestige. Rogers and Rockefeller were intelligent enough to decide that Keene alone might help them.

Keene began to work at once. He had a bull market to work in and sold two hundred and twenty thousand shares of Amalgamated at around par. After he disposed of the insiders’ line the public kept on buying and the price went ten points higher. Indeed the insiders got bullish on the stock they had sold when they saw how eagerly the public was taking it. There was a story that Rogers actually advised Keene to go long of Amalgamated. It is scarcely credible that Rogers meant to unload on Keene. He was too shrewd a man not to know that Keene was no bleating lamb. Keene worked as he always did--that is, _doing his big selling on the way down after the big rise_. Of course his tactical moves were directed by his needs and by the minor currents that changed from day to day. In the stock market, as in warfare, it is well to keep in mind the difference between strategy and tactics.

One of Keene’s confidential men--he is the best fly fisherman I know--told me only the other day that during the Amalgamated campaign Keene would find himself almost out of stock one day--that is, out of the stock he had been forced to take in marking up the price; and on the next day he would buy back thousands of shares. On the day after that, he would sell on balance. Then he would leave the market absolutely alone, to see how it would take care of itself and also to accustom it to do so. When it came to the actual marketing of the line he did what I told you: he sold it on the way down. The trading public is always looking for a rally, and, besides, there is the covering by the shorts.

The man who was closest to Keene during that deal told me that after Keene sold the Rogers-Rockefeller line for something like twenty or twenty-five million dollars in cash Rogers sent him a check for two hundred thousand. This reminds you of the millionaire’s wife who gave the Metropolitan Opera House scrub-woman fifty cents reward for finding the one-hundred-thousand-dollar pearl necklace. Keene sent the check back with a polite note saying he was not a stock broker and that he was glad to have been of some service to them. They kept the check and wrote him that they would be glad to work with him again. Shortly after that it was that H. H. Rogers gave Keene the friendly tip to buy Amalgamated at around 130!

A brilliant operator, James R. Keene! His private secretary told me that when the market was going his way Mr. Keene was irascible; and those who knew him say his irascibility was expressed in sardonic phrases that lingered long in the memory of his hearers. But when he was losing he was in the best of humour, a polished man of the world, agreeable, epigrammatic, interesting.

He had in superlative degree the qualities of mind that are associated with successful speculators anywhere. That he did not argue with the tape is plain. He was utterly fearless but never reckless. He could and did turn in a twinkling, if he found he was wrong.

Since his day there have been so many changes in Stock Exchange rules and so much more rigorous enforcement of old rules, so many new taxes on stock sales and profits, and so on, that the game seems different. Devices that Keene could use with skill and profit can no longer be utilised. Also, we are assured, the business morality of Wall Street is on a higher plane. Nevertheless it is fair to say that in any period of our financial history Keene would have been a great manipulator because he was a great stock operator and knew the game of speculation from the ground up. He achieved what he did because conditions at the time permitted him to do so. He would have been as successful in his undertakings in 1922 as he was in 1901 or in 1876, when he first came to New York from California and made nine million dollars in two years. There are men whose gait is far quicker than the mob’s. They are bound to lead--no matter how much the mob changes.

As a matter of fact, the change is by no means as radical as you’d imagine. The rewards are not so great, for it is no longer pioneer work and therefore it is not pioneer’s pay. But in certain respects manipulation is easier than it was; in other ways much harder than in Keene’s day.

There is no question that advertising is an art, and manipulation is the art of advertising through the medium of the tape. The tape should tell the story the manipulator wishes its readers to see. The truer the story the more convincing it is bound to be, and the more convincing it is the better the advertising is. A manipulator to-day, for instance, has not only to make a stock look strong but also to make it be strong. Manipulation therefore must be based on sound trading principles. That is what made Keene such a marvellous manipulator; he was a consummate trader to begin with.

The word “manipulation” has come to have an ugly sound. It needs an alias. I do not think there is anything so very mysterious or crooked about the process itself when it has for an object the selling of a stock in bulk, provided, of course, that such operations are not accompanied by misrepresentation. There is little question that a manipulator necessarily seeks his buyers among speculators. He turns to men who are looking for big returns on their capital and are therefore willing to run a greater than normal business risk. I can’t have much sympathy for the man who, knowing this, nevertheless blames others for his own failure to make easy money. He is a devil of a clever fellow when he wins. But when he loses money the other fellow was a crook; a manipulator! In such moments and from such lips the word connotes the use of marked cards. But this is not so.

Usually the object of manipulation is to develop marketability--that is, the ability to dispose of fair-sized blocks at some price at any time. Of course a pool, by reason of a reversal of general market conditions, may find itself unable to sell except at a sacrifice too great to be pleasing. They then may decide to employ a professional, believing that his skill and experience will enable him to conduct an orderly retreat instead of suffering an appalling rout.

You will notice that I do not speak of manipulation designed to permit considerable accumulation of a stock as cheaply as possible, as, for instance, in buying for control, because this does not happen often nowadays.

When Jay Gould wished to cinch his control of Western Union and decided to buy a big block of the stock, Washington E. Connor, who had not been seen on the floor of the Stock Exchange for years, suddenly showed up in person at the Western Union Post. He began to bid for Western Union. The traders to a man laughed--at his stupidity in thinking them so simple--and they cheerfully sold him all the stock he wanted to buy. It was too raw a trick, to think he could put up the price by acting as though Mr. Gould wanted to buy Western Union. Was that manipulation? I think I can only answer that by saying “No; and yes!”

In the majority of cases the object of manipulation is, as I said, to sell stock to the public at the best possible price. It is not alone a question of selling but of distributing. It is obviously better in every way for a stock to be held by a thousand people than by one man--better for the market in it. So it is not alone the sale at a good price but the character of the distribution that a manipulator must consider.

There is no sense in marking up the price to a very high level if you cannot induce the public to take it off your hands later. Whenever inexperienced manipulators try to unload at the top and fail, old-timers look mighty wise and tell you that you can lead a horse to water but you cannot make him drink. Original devils! As a matter of fact, it is well to remember a rule of manipulation, a rule that Keene and his able predecessors well knew. It is this: _Stocks are manipulated to the highest point possible and then sold to the public on the way down_.

Let me begin at the beginning. Assume that there is some one--an underwriting syndicate or a pool or an individual--that has a block of stock which it is desired to sell at the best price possible. It is a stock duly listed on the New York Stock Exchange. The best place for selling it ought to be the open market, and the best buyer ought to be the general public. The negotiations for the sale are in charge of a man. He--or some present or former associate--has tried to sell the stock on the Stock Exchange and has not succeeded. He is--or soon becomes--sufficiently familiar with stock-market operations to realise that more experience and greater aptitude for the work are needed than he possesses. He knows personally or by hearsay several men who have been successful in their handling of similar deals, and he decides to avail himself of their professional skill. He seeks one of them as he would seek a physician if he were ill or an engineer if he needed that kind of expert.

Suppose he has heard of me as a man who knows the game. Well, I take it that he tries to find out all he can about me. He then arranges for an interview, and in due time calls at my office.

Of course, the chances are that I know about the stock and what it represents. It is my business to know. That is how I make my living. My visitor tells me what he and his associates wish to do, and asks me to undertake the deal.

It is then my turn to talk. I ask for whatever information I deem necessary to give me a clear understanding of what I am asked to undertake. I determine the value and estimate the market possibilities of that stock. That and my reading of current conditions in turn help me to gauge the likelihood of success for the proposed operation.

If my information inclines me to a favourable view I accept the proposition and tell him then and there what my terms will be for my services. If he in turn accepts my terms--the honorarium and the conditions--I begin my work at once.

I generally ask and receive calls on a block of stock. I insist upon graduated calls as the fairest to all concerned. The price of the call begins at a little below the prevailing market price and goes up; say, for example, that I get calls on one hundred thousand shares and the stock is quoted at 40. I begin with a call for some thousands of shares at 35, another at 37, another at 40, and at 45 and 50, and so on up to 75 or 80.

If as the result of my professional work--my manipulation--the price goes up, and if at the highest level there is a good demand for the stock so that I can sell fair-sized blocks of it I of course call the stock. I am making money; but so are my clients making money. This is as it should be. If my skill is what they are paying for they ought to get value. Of course, there are times when a pool may be wound up at a loss, but that is seldom, for I do not undertake the work unless I see my way clear to a profit. This year I was not so fortunate in one or two deals, and I did not make a profit. There are reasons, but that is another story, to be told later--perhaps.