Chapter IX: Part 9

He was very earnest about it and succeeded in so impressing her that she began to think she had found an excellent use for the five hundred dollars I had given her that afternoon. That money hadn’t cost me anything and was outside of her allowance. In other words, it was easy money to lose if the luck went against her. But he had said she would surely win. It would be nice to make money on her own hook--and tell me all about it afterwards.

Well, sir, the very next morning before the market opened she went into Harding’s office and said to the manager:

“Mr. Haley, I want to buy some stock, but I don’t want it to go in my regular account because I don’t wish my husband to know anything about it until I’ve made some money. Can you fix it for me?”

Haley, the manager, said, “Oh, yes. We can make it a special account. What’s the stock and how much of it do you want to buy?”

She gave him the five hundred dollars and told him, “Listen, please. I do not wish to lose more than this money. If that goes I don’t want to owe you anything; and remember, I don’t want Mr. Livingston to know anything about this. Buy me as much Borneo Tin as you can for the money, at the opening.”

Haley took the money and told her he’d never say a word to a soul, and bought her a hundred shares at the opening. I think she got it at 108. The stock was very active that day and closed at an advance of three points. Mrs. Livingston was so delighted with her exploit that it was all she could do to keep from telling me all about it.

It so happened that I had been getting more and more bearish on the general market. The unusual activity in Borneo Tin drew my attention to it. I didn’t think the time was right for any stock to advance, much less one like that. I had decided to begin my bear operations that very day, and I started by selling about ten thousand shares of Borneo. If I had not I rather think the stock would have gone up five or six points instead of three.

On the very next day I sold two thousand shares at the opening and two thousand shares just before the close, and the stock broke to 102.

Haley, the manager of Harding Brothers’ Palm Beach Branch, was waiting for Mrs. Livingston to call there on the third morning. She usually strolled in about eleven to see how things were, if I was doing anything.

Haley took her aside and said, “Mrs. Livingston, if you want me to carry that hundred shares of Borneo Tin for you you will have to give me more margin.”

“But I haven’t any more,” she told him.

“I can transfer it to your regular account,” he said.

“No,” she objected, “because that way L.L. would learn about it.”

“But the account already shows a loss of--” he began.

“But I told you distinctly I didn’t want to lose more than the five hundred dollars. I didn’t even want to lose that,” she said.

“I know, Mrs. Livingston, but I didn’t want to sell it without consulting you, and now unless you authorise me to hold it I’ll have to let it go.”

“But it did so nicely the day I bought it,” she said, “that I didn’t believe it would act this way so soon. Did you?”

“No,” answered Haley, “I didn’t.” They have to be diplomatic in brokers’ offices.

“What’s gone wrong with it, Mr. Haley?”

Haley knew, but he could not tell her without giving me away, and a customer’s business is sacred. So he said, “I don’t hear anything special about it, one way or the other. There she goes! That’s low for the move!” and he pointed to the quotation board.

Mrs. Livingston gazed at the sinking stock and cried: “Oh, Mr. Haley! I don’t want to lose my five hundred dollars! What shall I do?”

“I don’t know, Mrs. Livingston, but if I were you I’d ask Mr. Livingston.”

“Oh, no! He doesn’t want me to speculate on my own hook. He told me so. He’ll buy or sell stock for me, if I ask him, but I’ve never before done trading that he did not know all about. I wouldn’t dare tell him.”

“That’s all right,” said Haley soothingly. “He is a wonderful trader and he’ll know just what to do.” Seeing her shake her head violently he added devilishly: “Or else you put up a thousand or two to take care of your Borneo.”

The alternative decided her then and there. She hung about the office, but as the market got weaker and weaker she came over to where I sat watching the board and told me she wanted to speak to me. We went into the private office and she told me the whole story. So I just said to her: “You foolish little girl, you keep your hands off this deal.”

She promised that she would, and so I gave her back her five hundred dollars and she went away happy. The stock was par by that time.

I saw what had happened. Wisenstein was an astute person. He figured that Mrs. Livingston would tell me what he had told her and I’d study the stock. He knew that activity always attracted me and I was known to swing a pretty fair line. I suppose he thought I’d buy ten or twenty thousand shares.

It was one of the most cleverly planned and artistically propelled tips I’ve ever heard of. But it went wrong. It had to. In the first place, the lady had that very day received an unearned five hundred dollars and was therefore in a much more venturesome mood than usual. She wished to make some money all by herself, and womanlike dramatised the temptation so attractively that it was irresistible. She knew how I felt about stock speculation as practised by outsiders, and she didn’t dare mention the matter to me. Wisenstein didn’t size up her psychology right.

He also was utterly wrong in his guess about the kind of trader I was. I never take tips and I was bearish on the entire market. The tactics that he thought would prove effective in inducing me to buy Borneo--that is, the activity and the three-point rise--were precisely what made me pick Borneo as a starter when I decided to sell the entire market.

After I heard Mrs. Livingston’s story I was keener than ever to sell Borneo. Every morning at the opening and every afternoon just before closing I let him have some stock regularly, until I saw a chance to take in my shorts at a handsome profit.

It has always seemed to me the height of damfoolishness to trade on tips. I suppose I am not built the way a tip-taker is. I sometimes think that tip-takers are like drunkards. There are some who can’t resist the craving and always look forward to those jags which they consider indispensable to their happiness. It is so easy to open your ears and let the tip in. To be told precisely what to do to be happy in such a manner that you can easily obey is the next nicest thing to being happy--which is a mighty long first step toward the fulfilment of your heart’s desire. It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to do any thinking.

And it is not only among the outside public that you find inveterate tip-takers. The professional trader on the floor of the New York Stock Exchange is quite as bad. I am definitely aware that no end of them cherish mistaken notions of me because I never give anybody tips. If I told the average man, “Sell yourself five thousand Steel!” he would do it on the spot. But if I tell him I am quite bearish on the entire market and give him my reasons in detail, he finds trouble in listening and after I’m done talking he will glare at me for wasting his time expressing my views on general conditions instead of giving him a direct and specific tip, like a real philanthropist of the type that is so abundant in Wall Street--the sort who loves to put millions into the pockets of friends, acquaintances and utter strangers alike.

The belief in miracles that all men cherish is born of immoderate indulgence in hope. There are people who go on hope sprees periodically and we all know the chronic hope drunkard that is held up before us as an exemplary optimist. Tip-takers are all they really are.

I have an acquaintance, a member of the New York Stock Exchange, who was one of those who thought I was a selfish, cold-blooded pig because I never gave tips or put friends into things. One day--this was some years ago--he was talking to a newspaper man who casually mentioned that he had had it from a good source that G.O.H. was going up. My broker friend promptly bought a thousand shares and saw the price decline so quickly that he was out thirty-five hundred dollars before he could stop his loss. He met the newspaper man a day or two later, while he was still sore.

“That was a hell of a tip you gave me,” he complained.

“What tip was that?” asked the reporter, who did not remember.

“About G.O.H. You said you had it from a good source.”

“So I did. A director of the company who is a member of the finance committee told me.”

“Which of them was it?” asked the broker vindictively.

“If you must know,” answered the newspaper man, “it was your own father-in-law, Mr. Westlake.”

“Why in Hades didn’t you tell me you meant him!” yelled the broker. “You cost me thirty-five hundred dollars!” He didn’t believe in family tips. The farther away the source the purer the tip.

Old Westlake was a rich and successful banker and promoter. He ran across John W. Gates one day. Gates asked him what he knew. “If you will act on it I’ll give you a tip. If you won’t I’ll save my breath,” answered old Westlake grumpily.

“Of course I’ll act on it,” promised Gates cheerfully.

“Sell Reading! There is a sure twenty-five points in it, and possibly more. But twenty-five absolutely certain,” said Westlake impressively.

“I’m much obliged to you,” and Bet-you-a-million Gates shook hands warmly and went away in the direction of his broker’s office.

Westlake had specialized on Reading. He knew all about the company and stood in with the insiders so that the market for the stock was an open book to him and everybody knew it. Now he was advising the Western plunger to go short of it.

Well, Reading never stopped going up. It rose something like one hundred points in a few weeks. One day old Westlake ran smack up against John W. in the Street, but he made out he hadn’t seen him and was walking on. John W. Gates caught up with him, his face all smiles and held out his hand. Old Westlake shook it dazedly.

“I want to thank you for that tip you gave me on Reading,” said Gates.

“I didn’t give you any tip,” said Westlake, frowning.

“Sure you did. And it was a Jim Hickey of a tip too. I made sixty thousand dollars.”

“Made sixty thousand dollars?”

“Sure! Don’t you remember? You told me to sell Reading; so I bought it! I’ve always made money coppering your tips, Westlake,” said John W. Gates pleasantly. “Always!”

Old Westlake looked at the bluff Westerner and presently remarked admiringly, “Gates, what a rich man I’d be if I had your brains!”

The other day I met Mr. W. A. Rogers, the famous cartoonist, whose Wall Street drawings brokers so greatly admire. His daily cartoons in the New York _Herald_ for years gave pleasure to thousands. Well, he told me a story. It was just before we went to war with Spain. He was spending an evening with a broker friend. When he left he picked up his derby hat from the rack, at least he thought it was his hat, for it was the same shape and fitted him perfectly.

The Street at that time was thinking and talking of nothing but war with Spain. Was there to be one or not? If it was to be war the market would go down; not so much on our own selling as on pressure from European holders of our securities. If peace, it would be a cinch to buy stocks, as there had been considerable declines prompted by the sensational clamorings of the yellow papers. Mr. Rogers told me the rest of the story as follows:

“My friend, the broker, at whose house I had been the night before, stood in the Exchange the next day anxiously debating in his mind which side of the market to play. He went over the pros and cons, but it was impossible to distinguish which were rumors and which were facts. There was no authentic news to guide him. At one moment he thought war was inevitable, and on the next he almost convinced himself that it was utterly unlikely. His perplexity must have caused a rise in his temperature, for he took off his derby to wipe his fevered brow. He couldn’t tell whether he should buy or sell.

“He happened to look inside of his hat. There in gold letters was the word WAR. That was all the hunch he needed. Was it not a tip from Providence via my hat? So he sold a raft of stock, war was duly declared, he covered on the break and made a killing.” And then W. A. Rogers finished, “I never got back that hat!”

But the prize tip story of my collection concerns one of the most popular members of the New York Stock Exchange, J. T. Hood. One day another floor trader, Bert Walker, told him that he had done a good turn to a prominent director of the Atlantic & Southern. In return the grateful insider told him to buy all the A. & S. he could carry. The directors were going to do something that would put the stock up at least twenty-five points. All the directors were not in the deal, but the majority would be sure to vote as wanted.

Bert Walker concluded that the dividend rate was going to be raised. He told his friend Hood and they each bought a couple of thousand shares of A. & S. The stock was very weak, before and after they bought, but Hood said that was obviously intended to facilitate accumulation by the inside clique, headed by Bert’s grateful friend.

On the following Thursday, after the market closed, the directors of the Atlantic & Southern met and passed the dividend. The stock broke six points in the first six minutes of trading Friday morning.

Bert Walker was sore as a pup. He called on the grateful director, who was broken-hearted about it and very penitent. He said that he had forgotten that he had told Walker to buy. That was the reason he had neglected to call him up to tell him of a change in the plans of the dominant faction in the board. The remorseful director was so anxious to make up that he gave Bert another tip. He kindly explained that a couple of his colleagues wanted to get cheap stock and against his judgment resorted to coarse work. He had to yield to win their votes. But now that they all had accumulated their full lines there was nothing to stop the advance. It was a double-riveted, lead-pipe cinch to buy A. & S. now.

Bert not only forgave him but shook hands warmly with the high financier. Naturally he hastened to find his friend and fellow-victim, Hood, to impart the glad tidings to him. They were going to make a killing. The stock had been tipped for a rise before and they bought. But now it was fifteen points lower. That made it a cinch. So they bought five thousand shares, joint account.

As if they had rung a bell to start it, the stock broke badly on what quite obviously was inside selling. Two specialists cheerfully confirmed the suspicion. Hood sold out their five thousand shares. When he got through Bert Walker said to him, “If that blankety-blank blanker hadn’t gone to Florida day before yesterday I’d lick the stuffing out of him. Yes, I would. But you come with me.”

“Where to?” asked Hood.

“To the telegraph office. I want to send that skunk a telegram that he’ll never forget. Come on.”

Hood went on. Bert led the way to the telegraph office. There, carried away by his feelings--they had taken quite a loss on the five thousand shares--he composed a masterpiece of vituperation. He read it to Hood and finished, “That will come pretty near to showing him what I think of him.”

He was about to slide it toward the waiting clerk when Hood said, “Hold on, Bert!”

“What’s the matter?”

“I wouldn’t send it,” advised Hood earnestly.

“Why not?” snapped Bert.

“It will make him sore as the dickens.”

“That’s what we want, isn’t it?” said Bert, looking at Hood in surprise.

But Hood shook his head disapprovingly and said in all seriousness, “We’ll never get another tip from him if you send that telegram!”

A professional trader actually said that. Now what’s the use of talking about sucker tip-takers? Men do not take tips because they are bally asses but because they like those hope cocktails I spoke of. Old Baron Rothschild’s recipe for wealth winning applies with greater force than ever to speculation. Somebody asked him if making money in the Bourse was not a very difficult matter, and he replied that, on the contrary, he thought it was very easy.

“That is because you are so rich,” objected the interviewer.

“Not at all. I have found an easy way and I stick to it. I simply cannot help making money. I will tell you my secret if you wish. It is this: _I never buy at the bottom and I always sell too soon_.”

Investors are a different breed of cats. Most of them go in strong for inventories and statistics of earnings and all sorts of mathematical data, as though that meant facts and certainties. _The human factor is minimised as a rule._ Very few people like to buy into a one-man business. But the wisest investor I ever knew was a man who began by being a Pennsylvania Dutchman and followed it up by coming to Wall Street and seeing a great deal of Russell Sage.

He was a great investigator, an indefatigable Missourian. He believed in asking his own questions and in doing his seeing with his own eyes. He had no use for another man’s spectacles. This was years ago. It seems he held quite a little Atchison. Presently he began to hear disquieting reports about the company and its management. He was told that Mr. Reinhart, the president, instead of being the marvel he was credited with being, in reality was a most extravagant manager whose recklessness was fast pushing the company into a mess. There would be the deuce to pay on the inevitable day of reckoning.

This was precisely the kind of news that was as the breath of life to the Pennsylvania Dutchman. He hurried over to Boston to interview Mr. Reinhart and ask him a few questions. The questions consisted of repeating the accusations he had heard and then asking the president of the Atchison, Topeka & Santa Fe Railroad if they were true.

Mr. Reinhart not only denied the allegations emphatically but said even more: He proceeded to prove by figures that the allegators were malicious liars. The Pennsylvania Dutchman had asked for exact information and the president gave it to him, showing him what the company was doing and how it stood financially, to a cent.

The Pennsylvania Dutchman thanked President Reinhart, returned to New York and promptly sold all his Atchison holdings. A week or so later he used his idle funds to buy a big lot of Delaware, Lackawanna & Western.

Years afterward we were talking of lucky swaps and he cited his own case. He explained what prompted him to make it.

“You see,” he said, “I noticed that President Reinhart, when he wrote down figures, took sheets of letter paper from a pigeonhole in his mahogany roll-top desk. It was fine heavy linen paper with beautifully engraved letterheads in two colors. It was not only very expensive but worse--it was unnecessarily expensive. He would write a few figures on a sheet to show me exactly what the company was earning on certain divisions or to prove how they were cutting down expenses or reducing operating costs, and then he would crumple up the sheet of the expensive paper and throw it in the waste-basket. Pretty soon he would want to impress me with the economies they were introducing and he would reach for a fresh sheet of the beautiful notepaper with the engraved letterheads in two colors. A few figures--and bingo, into the waste-basket! More money wasted without a thought. It struck me that if the president was that kind of a man he would scarcely be likely to insist upon having or rewarding economical assistants. I therefore decided to believe the people who had told me the management was extravagant instead of accepting the president’s version and I sold what Atchison stock I held.

“It so happened that I had occasion to go to the offices of the Delaware, Lackawanna & Western a few days later. Old Sam Sloan was the president. His office was the nearest to the entrance and his door was wide open. It was always open. Nobody could walk into the general offices of the D.L.&W. in those days and not see the president of the company seated at his desk. Any man could walk in and do business with him right off, if he had any business to do. The financial reporters used to tell me that they never had to beat around the bush with old Sam Sloan, but would ask their questions and get a straight yes or no from him, no matter what the stock-market exigencies of the other directors might be.

“When I walked in I saw the old man was busy. I thought at first that he was opening his mail, but after I got inside close to the desk I saw what he was doing. I learned afterwards that it was his daily custom to do it. After the mail was sorted and open, instead of throwing away the empty envelopes he had them gathered up and taken to his office. In his leisure moments he would rip the envelope all around. That gave him two bits of paper, each with one clean blank side. He would pile these up and then he would have them distributed about, to be used in lieu of scratch pads for such figuring as Reinhart had done for me on engraved notepaper. No waste of empty envelopes and no waste of the president’s idle moments. Everything utilised.

“It struck me that if that was the kind of man the D.L.&W. had for president, the company was managed economically in all departments. The president would see to that! Of course I knew the company was paying regular dividends and had a good property. I bought all the D.L.&W. stock I could. Since that time the capital stock has been doubled and quadrupled. My annual dividends amount to as much as my original investment. I still have my D.L.&W. And Atchison went into the hands of a receiver a few months after I saw the president throwing sheet after sheet of linen paper with engraved letterheads in two colors into the waste-basket to prove to me with figures that he was not extravagant.”

And the beauty of that story is that it is true and that no other stock that the Pennsylvania Dutchman could have bought would have proved to be so good an investment as D.L.&W.

_XVII_

One of my most intimate friends is very fond of telling stories about what he calls my hunches. He is forever ascribing to me powers that defy analysis. He declares I merely follow blindly certain mysterious impulses and thereby get out of the stock market at precisely the right time. His pet yarn is about a black cat that told me, at his breakfast-table, to sell a lot of stock I was carrying, and that after I got the pussy’s message I was grouchy and nervous until I sold every share I was long of. I got practically the top prices of the movement, which of course strengthened the hunch theory of my hard-headed friend.

I had gone to Washington to endeavor to convince a few Congressmen that there was no wisdom in taxing us to death and I wasn’t paying much attention to the stock market. My decision to sell out my line came suddenly, hence my friend’s yarn.

I admit that I do get irresistible impulses at times to do certain things in the market. It doesn’t matter whether I am long or short of stocks. I must get out. I am uncomfortable until I do. I myself think that what happens is that I see a lot of warning-signals. Perhaps not a single one may be sufficiently clear or powerful to afford me a positive, definite reason for doing what I suddenly feel like doing. Probably that is all there is to what they call “ticker-sense” that old traders say James R. Keene had so strongly developed and other operators before him. Usually, I confess, the warning turns out to be not only sound but timed to the minute. But in this particular instance there was no hunch. The black cat had nothing to do with it. What he tells everybody about my getting up so grumpy that morning I suppose can be explained--if I in truth was grouchy--by my disappointment. I knew I was not convincing the Congressman I talked to and the Committee did not view the problem of taxing Wall Street as I did. I wasn’t trying to arrest or evade taxation on stock transactions but to suggest a tax that I as an experienced stock operator felt was neither unfair nor unintelligent. I didn’t want Uncle Sam to kill the goose that could lay so many golden eggs with fair treatment. Possibly my lack of success not only irritated me but made me pessimistic over the future of an unfairly taxed business. But I’ll tell you exactly what happened.

At the beginning of the bull market I thought well of the outlook in both the Steel trade and the Copper market and I therefore felt bullish on stocks of both groups. So I started to accumulate some of them. I began by buying 5000 shares of Utah Copper and stopped because it didn’t act right. That is, it did not behave as it should have behaved to make me feel I was wise in buying it. I think the price was around 114. I also started to buy United States Steel at almost the same price. I bought in all 20,000 shares the first day because it did act right. I followed the method I have described before.

Steel continued to act right and I therefore continued to accumulate it until I was carrying 72,000 shares of it in all. But my holdings of Utah Copper consisted of my initial purchase. I never got above the 5000 shares. Its behaviour did not encourage me to do more with it.

Everybody knows what happened. We had a big bull movement. I knew the market was going up. General conditions were favourable. Even after stocks had gone up extensively and my paper profit was not to be sneezed at, the tape kept trumpeting: _Not yet! Not yet!_ When I arrived in Washington the tape was still saying that to me. Of course, I had no intention of increasing my line at that late day, even though I was still bullish. At the same time, the market was plainly going my way and there was no occasion for me to sit in front of a quotation board all day, in hourly expectation of getting a tip to get out. Before the clarion call to retreat came--barring an utterly unexpected catastrophe, of course--the market would hesitate or otherwise prepare me for a reversal of the speculative situation. That was the reason why I went blithely about my business with my Congressman.

At the same time, prices kept going up and that meant that the end of the bull market was drawing nearer. I did not look for the end on any fixed date. That was something quite beyond my power to determine. But I needn’t tell you that I was on the watch for the tip-off. I always am, anyhow. It has become a matter of business habit with me.

I cannot swear to it but I rather suspect that the day before I sold out, seeing the high prices made me think of the magnitude of my paper profit as well as of the line I was carrying and, later on, of my vain efforts to induce our legislators to deal fairly and intelligently by Wall Street. That was probably the way and the time the seed was sown within me. The subconscious mind worked on it all night. In the morning I thought of the market and began to wonder how it would act that day. When I went down to the office I saw not so much that prices were still higher and that I had a satisfying profit but that there was a great big market with a tremendous power of absorption. I could sell any amount of stock in that market; and, of course, when a man is carrying his full line of stocks, he must be on the watch for an opportunity to change his paper profit into actual cash. He should try to lose as little of the profit as possible in the swapping. Experience has taught me that a man can always find an opportunity to make his profits real and that this opportunity usually comes at the end of the move. That isn’t tape-reading or a hunch.

Of course, when I found that morning a market in which I could sell out all my stocks without any trouble I did so. When you are selling out it is no wiser or braver to sell fifty shares than fifty thousand; but fifty shares you can sell in the dullest market without breaking the price and fifty thousand shares of a single stock is a different proposition. I had seventy-two thousand shares of U.S. Steel. This may not seem a colossal line, but you can’t always sell that much without losing some of that profit that looks so nice on paper when you figure it out and that hurts as much to lose as if you actually had it safe in the bank.

I had a total profit of about $1,500,000 and I grabbed it while the grabbing was good. But that wasn’t the principal reason for thinking that I did the right thing in selling out when I did. The market proved it for me and that was indeed a source of satisfaction for me. It was this way: I succeeded in selling my entire line of seventy-two thousand shares of U.S. Steel at a price which averaged me just one point from the top of the day and of the movement. It proved that I was right, to the minute. But when, on the very same hour of the very same day I came to sell my 5000 shares of Utah Copper, the price broke five points. Please recall that I began buying both stocks at the same time and that I acted wisely in increasing my line of U.S. Steel from twenty thousand shares to seventy-two thousand, and equally wisely in not increasing my line of Utah from the original 5000 shares. The reason why I didn’t sell out my Utah Copper before was that I was bullish on the copper trade and it was a bull market in stocks and I didn’t think that Utah would hurt me much even if I didn’t make a killing in it. But as for hunches, there weren’t any.

The training of a stock trader is like a medical education. The physician has to spend long years learning anatomy, physiology, materia medica and collateral subjects by the dozen. He learns the theory and then proceeds to devote his life to the practice. He observes and classifies all sorts of pathological phenomena. He learns to diagnose. If his diagnosis is correct--and that depends upon the accuracy of his observation--he ought to do pretty well in his prognosis, always keeping in mind, of course, that human fallibility and the utterly unforeseen will keep him from scoring 100 per cent of bull’s-eyes. And then, as he gains in experience, he learns not only to do the right thing but to do it instantly, so that many people will think he does it instinctively. It really isn’t automatism. It is that he has diagnosed the case according to his observations of such cases during a period of many years; and, naturally, after he has diagnosed it, he can only treat it in the way that experience has taught him is the proper treatment. You can transmit knowledge--that is, your particular collection of card-indexed facts--but not your experience. _A man may know what to do and lose money--if he doesn’t do it quickly enough._

Observation, experience, memory and mathematics--these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed. He cannot bet on the unreasonable or on the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities--that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses _the experience and the memory_. And then, like the physician who keeps up with the advances of science, _the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets_. After years at the game it becomes a habit to keep posted. He acts almost automatically. He requires the invaluable professional attitude and that enables him to beat the game--at times! This difference between the professional and the amateur or occasional trader cannot be overemphasised. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, _it makes its money by dealing with facts and figures_.

When I said that a trader has to keep posted to the minute and that he must take a purely professional attitude toward all markets and all developments, I merely meant to emphasise again that hunches and the mysterious ticker-sense haven’t so much to do with success. Of course, it often happens that an experienced trader acts so quickly that he hasn’t time to give all his reasons in advance--but nevertheless they are good and sufficient reasons, because they are based on facts collected by him in his years of working and thinking and seeing things from the angle of the professional, to whom everything that comes to his mill is grist. Let me illustrate what I mean by professional attitude.

I keep track of the commodities markets, always. It is a habit of years. As you know, the Government reports indicated a winter wheat crop about the same as last year and a bigger spring wheat crop than in 1921. The condition was much better and we probably would have an earlier harvest than usual. When I got the figures of condition and I saw what we might expect in the way of yield--mathematics--I also thought at once of the coal miner’s strike and the railroad shopmen’s strike. I couldn’t help thinking of them because my mind always thinks of all developments that have a bearing on the markets. It instantly struck me that the strike which had already affected the movement of freight everywhere must affect wheat prices adversely. I figured this way: There was bound to be considerable delay in moving winter wheat to market by reason of the strike-crippled transportation facilities, and by the time those improved the spring wheat crop would be ready to move. That meant that when the railroads were able to move wheat in quantity they would be bringing in both crops together--the delayed winter and the early spring wheat--and that would mean a vast quantity of wheat pouring into the market at one fell swoop. Such being the facts of the case--the obvious probabilities--the traders, who would know and figure as I did, would not bull wheat for a while. They would not feel like buying it unless the price declined to such figures as made the purchase of wheat a good investment. With no buying power in the market, the price ought to go down. Thinking the way I did I must find whether I was right or not. As old Pat Hearne used to remark, “You can’t tell till you bet.” Between being bearish and selling there is no need to waste time.

_Experience has taught me that the way a market behaves is an excellent guide for an operator to follow. It is like taking a patient’s temperature and pulse or noting the colour of the eyeballs and the coating of the tongue._

Now, ordinarily a man ought to be able to buy or sell a million bushels of wheat within a range of ¼ cent. On this day when I sold the 250,000 bushels to test the market for timeliness, the price went down ¼ cent. Then, since the reaction did not definitely tell me all I wished to know, I sold another quarter of a million bushels. I noticed that it was taken in driblets; that is, the buying was in lots of 10,000 or 15,000 bushels instead of being taken in two or three transactions which would have been the normal way. In addition to the homeopathic buying the price went down 1¼ cents on my selling. Now, I need not waste my time pointing out that the way in which the market took my wheat and the disproportionate decline on my selling told me that there was no buying power there. Such being the case, what was the only thing to do? Of course, to sell a lot more. Following the dictates of experience may possibly fool you, now and then. But not following them invariably makes an ass of you. So I sold 2,000,000 bushels and the price went down some more. A few days later the market’s behaviour practically compelled me to sell an additional 2,000,000 bushels and the price declined further still; a few days later wheat started to break badly and slumped off 6 cents a bushel. And it didn’t stop there. It has been going down, with short-lived rallies.

Now, I didn’t follow a hunch. Nobody gave me a tip. It was my habitual or professional mental attitude toward the commodities markets that gave me the profit and that attitude came from my years at this business. I study because my business is to trade. The moment the tape told me that I was on the right track my business duty was to increase my line. I did. That is all there is to it.

I have found that experience is apt to be a steady dividend payer in this game and that observation gives you the best tips of all. The behaviour of a certain stock is all you need at times. You observe it. Then experience shows you how to profit by variations from the usual, that is, from the probable. For example, we know _that all stocks do not move one way together but that all the stocks of a group will move up in a bull market and down in a bear market_. This is a common-place of speculation. It is the commonest of all self-given tips and the commission houses are well aware of it and pass it on to any customer who has not thought of it himself; I mean, the advice to trade in those stocks which have lagged behind other stocks of the same group. Thus, if U.S. Steel goes up, it is logically assumed that it is only a matter of time when Crucible or Republic or Bethlehem will follow suit. Trade conditions and prospects should work alike with all stocks of a group and the prosperity should be shared by all. On the theory, corroborated by experience times without number, that every dog has his day in the market, the public will buy A.B. Steel because it has not advanced while C.D. Steel and X.Y. Steel have gone up.

I never buy a stock even in a bull market, if it doesn’t act as it ought to act in that kind of market. I have sometimes bought a stock during an undoubted bull market and found out that other stocks in the same group were not acting bullishly and I have sold out my stock. Why? _Experience tells me that it is not wise to buck against what I may call the manifest group-tendency._ I cannot expect to play certainties only. I must reckon on probabilities--and anticipate them. An old broker once said to me: “If I am walking along a railroad track and I see a train coming toward me at sixty miles an hour, do I keep on walking on the ties? Friend, I sidestep. And I don’t even pat myself on the back for being so wise and prudent.”

Last year, after the general bull movement was well under way, I noticed that one stock in a certain group was not going with the rest of the group, though the group with that one exception was going with the rest of the market. I was long a very fair amount of Blackwood Motors. Everybody knew that the company was doing a very big business. The price was rising from one to three points a day and the public was coming in more and more. This naturally centered attention on the group and all the various motor stocks began to go up. One of them, however, persistently held back and that was Chester. It lagged behind the others so that it was not long before it made people talk. The low price of Chester and its apathy was contrasted with the strength and activity in Blackwood and other motor stocks and the public logically enough listened to the touts and tipsters and wise-acres and began to buy Chester on the theory that it must presently move up with the rest of the group.

Instead of going on this moderate public buying, Chester actually declined. Now, it would have been no job to put it up in that bull market, considering that Blackwood, a stock of the same group, was one of the sensational leaders of the general advance and we were hearing nothing but the wonderful improvement in the demand for automobiles of all kinds and the record output.

It was thus plain that the inside clique in Chester were not doing any of the things that inside cliques invariably do in a bull market. For this failure to do the usual thing there might be two reasons. Perhaps the insiders did not put it up because they wished to accumulate more stock before advancing the price. But this was an untenable theory if you analysed the volume and character of the trading in Chester. The other reason was that they did not put it up because they were afraid of getting stock if they tried to.

When the men who ought to want a stock don’t want it, why should I want it? I figured that no matter how prosperous other automobile companies might be, it was a cinch to sell Chester short. _Experiences had taught me to beware of buying a stock that refuses to follow the group-leader._

I easily established the fact that not only there was no inside buying but that there was actually inside selling. There were other symptomatic warnings against buying Chester, though all I required was its inconsistent market behaviour. It was again the tape that tipped me off and that was why I sold Chester short. One day, not very long afterward, the stock broke wide open. Later on we learned--officially, as it were--that insiders had indeed been selling it, knowing full well that the condition of the company was not good. The reason, as usual, was disclosed after the break. But the warning came before the break. _I don’t look out for the breaks; I look out for the warnings._ I didn’t know what was the trouble with Chester; neither did I follow a hunch. I merely knew that something must be wrong.

Only the other day we had what the newspapers called a sensational movement in Guiana Gold. After selling on the Curb at 50 or close to it, it was listed on the Stock Exchange. It started there at around 35, began to go down and finally broke 20.

Now, I’d never have called that break sensational because it was fully to be expected. If you had asked you could have learned the history of the company. No end of people knew it. It was told to me as follows: A syndicate was formed consisting of a half dozen extremely well-known capitalists and a prominent banking house. One of the members was the head of the Belle Isle Exploration Company, which advanced Guiana over $10,000,000 cash and received in return bonds and 250,000 shares out of a total of one million shares of the Guiana Gold Mining Company. The stock went on a dividend basis and it was mighty well advertised. The Belle Isle people thought it well to cash in and they gave a call on their 250,000 shares to the bankers, who arranged to try to market that stock and some of their own holdings as well. They thought of entrusting the market manipulation to a professional whose fee was to be one third of the profits from the sale of the 250,000 shares above 36. I understand that the agreement was drawn up and ready to be signed but at the last moment the bankers decided to undertake the marketing themselves and save the fee. So they organized an inside pool. The bankers had a call on the Belle Isle holdings of 250,000 at 36. They put this in at 41. That is, insiders paid their own banking colleagues a 5-point profit to start with. I don’t know whether they knew it or not.

It is perfectly plain that to the bankers the operation had every semblance of a cinch. We had run into a bull market and the stocks of the group to which Guiana Gold belonged were among the market leaders. The company was making big profits and paying regular dividends. This together with the high character of the sponsors made the public regard Guiana almost as an investment stock. I was told that about 400,000 shares were sold to the public all the way up to 47.

The gold group was very strong. But presently Guiana began to sag. It declined ten points. That was all right if the pool was marketing stock. But pretty soon the Street began to hear that things were not altogether satisfactory and the property was not bearing out the high expectations of the promoters. Then, of course, the reason for the decline became plain. But before the reason was known I had the warning and had taken steps to test the market for Guiana. The stock was acting pretty much as Chester Motors did. I sold Guiana. The price went down. I sold more. The price went still lower. The stock was repeating the performance of Chester and of a dozen other stocks whose clinical history I remembered. The tape plainly told me that there was something wrong--something that kept insiders from buying it--insiders who knew exactly why they should not buy their own stock in a bull market. On the other hand, outsiders, who did not know, were now buying because having sold at 45 and higher the stock looked cheap at 35 and lower. The dividend was still being paid. The stock was a bargain.

Then the news came. It reached me, as important market news often does, before it reached the public. But the confirmation of the reports of striking barren rock instead of rich ore merely gave me the reason for the earlier inside selling. I myself didn’t sell on the news. I had sold long before, on the stock’s behaviour. My concern with it was not philosophical. I am a trader and therefore looked for one sign: Inside buying. There wasn’t any. I didn’t have to know why the insiders did not think enough of their own stock to buy it on the decline. It was enough that their market plans plainly did not include further manipulation for the rise. That made it a cinch to sell the stock short. The public had bought almost a half million shares and the only change in ownership possible was from one set of ignorant outsiders who would sell in the hope of stopping losses to another set of ignorant outsiders who might buy in the hope of making money.

I am not telling you this to moralise on the public’s losses through their buying of Guiana or on my profit through my selling of it, but to emphasise how important the study of group-behaviourism is and how its lessons are disregarded by inadequately equipped traders, big and little. And it is not only in the stock market that the tape warns you. It blows the whistle quite as loudly in commodities.

I had an interesting experience in cotton. I was bearish on stocks and put out a moderate short line. At the same time I sold cotton short; 50,000 bales. My stock deal proved profitable and I neglected my cotton. The first thing I knew I had a loss of $250,000 on my 50,000 bales. As I said, my stock deal was so interesting and I was doing so well in it that I did not wish to take my mind off it. Whenever I thought of cotton I just said to myself: “I’ll wait for a reaction and cover.” The price would react a little but before I could decide to take my loss and cover, the price would rally again, and go higher than ever. So I’d decide again to wait a little and I’d go back to my stock deal and confine my attention to that. Finally I closed out my stocks at a very handsome profit and went away to Hot Springs for a rest and a holiday.

That really was the first time that I had my mind free to deal with the problem of my losing deal in cotton. The trade had gone against me. There were times when it almost looked as if I might win out. I noticed that whenever anybody sold heavily there was a good reaction. But almost instantly the price would rally and make a new high for the move.

Finally, by the time I had been in Hot Springs a few days, I was a million to the bad and no let up in the rising tendency. I thought over all I had done and had not done and I said to myself: “I must be wrong!” With me to feel that I am wrong and to decide to get out are practically one process. So I covered, at a loss of about one million.

The next morning I was playing golf and not thinking of anything else. I had made my play in cotton. I had been wrong. I had paid for being wrong and the receipted bill was in my pocket. I had no more concern with the cotton market than I have at this moment. When I went back to the hotel for luncheon I stopped at the broker’s office and took a look at the quotations. I saw that cotton had gone off 50 points. That wasn’t anything. But I also noticed that it had not rallied as it had been in the habit of doing for weeks, as soon as the pressure of the particular selling that had depressed it eased up. This had indicated that the line of least resistance was upward and it had cost me a million to shut my eyes to it.