Part 11

But what he answered was, “Did you ever hear of the classroom experiment of the mouse in a glass-bell when they begin to pump the air out of the bell? You can see the poor mouse breathe faster and faster, its sides heaving like over-worked bellows, trying to get enough oxygen out of the decreasing supply in the bell. You watch it suffocate till its eyes almost pop out of their sockets, gasping, dying. Well, that is what I think of when I see the crowd at the Money Post! No money anywhere, and you can’t liquidate stocks because there is nobody to buy them. The whole Street is broke at this very moment, if you ask me!”

It made me think. I had seen a smash coming, but not, I admit, the worst panic in our history. It might not be profitable to anybody--if it went much further.

Finally it became plain that there was no use in waiting at the Post for money. There wasn’t going to be any. Then hell broke loose.

The president of the Stock Exchange, Mr. R. H. Thomas, so I heard later in the day, knowing that every house in the Street was headed for disaster, went out in search of succour. He called on James Stillman, president of the National City Bank, the richest bank in the United States. Its boast was that it never loaned money at a higher rate than 6 per cent.

Stillman heard what the president of the New York Stock Exchange had to say. Then he said, “Mr. Thomas, we’ll have to go and see Mr. Morgan about this.”

The two men, hoping to stave off the most disastrous panic in our financial history, went together to the office of J. P. Morgan & Co. and saw Mr. Morgan, Mr. Thomas laid the case before him. The moment he got through speaking Mr. Morgan said, “Go back to the Exchange and tell them that there will be money for them.”

“Where?”

“At the banks!”

So strong was the faith of all men in Mr. Morgan in those critical times that Thomas didn’t wait for further details but rushed back to the floor of the Exchange to announce the reprieve to his death-sentenced fellow members.

Then, before half past two in the afternoon, J. P. Morgan sent John T. Atterbury, of Van Emburgh & Atterbury, who was known to have close relations with J. P. Morgan & Co., into the money crowd. My friend said that the old broker walked quickly to the Money Post. He raised his hand like an exhorter at a revival meeting. The crowd, that at first had been calmed down somewhat by President Thomas’ announcement, was beginning to fear that the relief plans had miscarried and the worst was still to come. But when they looked at Mr. Atterbury’s face and saw him raise his hand they promptly petrified themselves.

In the dead silence that followed, Mr. Atterbury said, “I am authorized to lend ten million dollars. Take it easy! There will be enough for everybody!”

Then he began. Instead of giving to each borrower the name of the lender he simply jotted down the name of the borrower and the amount of the loan and told the borrower, “You will be told where your money is.” He meant the name of the bank from which the borrower would get the money later.

I heard a day or two later that Mr. Morgan simply sent word to the frightened bankers of New York that they must provide the money the Stock Exchange needed.

“But we haven’t got any. We’re loaned up to the hilt,” the banks protested.

“You’ve got your reserves,” snapped J. P.

“But we’re already below the legal limit,” they howled.

“Use them! That’s what reserves are for!” And the banks obeyed and invaded the reserves to the extent of about twenty million dollars. It saved the stock market. The bank panic didn’t come until the following week. He was a man, J. P. Morgan was. They don’t come much bigger.

That was the day I remember most vividly of all the days of my life as a stock operator. It was the day when my winnings exceeded one million dollars. It marked the successful ending of my first deliberately planned trading campaign. What I had foreseen had come to pass. But more than all these things was this: a wild dream of mine had been realised. I had been king for a day!

I’ll explain, of course. After I had been in New York a couple of years I used to cudgel my brains trying to determine the exact reason why I couldn’t beat in a Stock Exchange house in New York the game that I had beaten as a kid of fifteen in a bucket shop in Boston. I knew that some day I would find out what was wrong and I would stop being wrong. I would then have not alone the will to be right but the knowledge to insure my being right. And that would mean power.

Please do not misunderstand me. It was not a deliberate dream of grandeur or a futile desire born of overweening vanity. It was rather a sort of feeling that the same old stock market that so baffled me in Fullerton’s office and in Harding’s would one day eat out of my hand. I just felt that such a day would come. And it did--October 24, 1907.

The reason why I say it is this: That morning a broker who had done a lot of business for my brokers and knew that I had been plunging on the bear side rode down in the company of one of the partners of the foremost banking house in the Street. My friend told the banker how heavily I had been trading, for I certainly pushed my luck to the limit. What is the use of being right unless you get all the good possible out of it.

Perhaps the broker exaggerated to make his story sound important. Perhaps I had more of a following than I knew. Perhaps the banker knew far better than I how critical the situation was. At all events, my friend said to me: “He listened with great interest to what I told him you said the market was going to do when the real selling began, after another push or two. When I got through he said he might have something for me to do later in the day.”

When the commission houses found out there was not a cent to be had at any price I knew the time had come. I sent brokers into the various crowds. Why, at one time there wasn’t a single bid for Union Pacific. Not at any price! Think of it! And in other stocks the same thing. No money to hold stocks and nobody to buy them.

I had enormous paper profits and the certainty that all that I had to do to smash prices still more was to send in orders to sell ten thousand shares each of Union Pacific and of a half dozen other good dividend-paying stocks and what would follow would be simply hell. It seemed to me that the panic that would be precipitated would be of such an intensity and character that the board of governors would deem it advisable to close the Exchange, as was done in August, 1914, when the World War broke out.

It would mean greatly increased profits on paper. It might also mean an inability to convert those profits into actual cash. But there were other things to consider, and one was that a further break would retard the recovery that I was beginning to figure on, the compensating improvement after all that blood-letting. Such a panic would do much harm to the country generally.

I made up my mind that since it was unwise and unpleasant to continue

## actively bearish it was illogical for me to stay short. So I turned and

began to buy.

It wasn’t long after my brokers began to buy in for me--and, by the way, I got bottom prices--that the banker sent for my friend.

“I have sent for you,” he said, “because I want you to go instantly to your friend Livingston and say to him that we hope he will not sell any more stocks to-day. The market can’t stand much more pressure. As it is, it will be an immensely difficult task to avert a devastating panic. Appeal to your friend’s patriotism. This is a case where a man has to work for the benefit of all. Let me know at once what he says.”

My friend came right over and told me. He was very tactful. I suppose he thought that having planned to smash the market I would consider his request as equivalent to throwing away the chance to make about ten million dollars. He knew I was sore on some of the big guns for the way they had acted trying to land the public with a lot of stock when they knew as well as I did what was coming.

As a matter of fact, the big men were big sufferers and lots of the stocks I bought at the very bottom were in famous financial names. I didn’t know it at the time, but it did not matter. I had practically covered all my shorts and it seemed to me there was a chance to buy stocks cheap and help the needed recovery in prices at the same time--if nobody hammered the market.

So I told my friend, “Go back and tell Mr. Blank that I agree with them and that I fully realised the gravity of the situation even before he sent for you. I not only will not sell any more stocks to-day, but I am going in and buy as much as I can carry.” And I kept my word. I bought one hundred thousand shares that day, for the long account. I did not sell another stock short for nine months.

That is why I said to friends that my dream had come true and that I had been king for a moment. The stock market at one time that day certainly was at the mercy of anybody who wanted to hammer it. I do not suffer from delusions of grandeur; in fact you know how I feel about being accused of raiding the market and about the way my operations are exaggerated by the gossip of the Street.

I came out of it in fine shape. The newspapers said that Larry Livingston, the Boy Plunger, had made several millions. Well, I was worth over one million after the close of business that day. But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at last learned to trade intelligently in a big way. It was a day of days for me.

_X_

The recognition of our own mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a licking, you do not hanker for a second dose, and, of course, all stock-market mistakes wound you in two tender spots--your pocketbook and your vanity. But I will tell you something curious: A stock speculator sometimes makes mistakes and knows that he is making them. And after he makes them he will ask himself why he made them; and after thinking over it cold-bloodedly a long time after the pain of punishment is over he may learn how he came to make them, and when, and at what particular point of his trade; but not why. And then he simply calls himself names and lets it go at that.

Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.

To tell you about the first of my million-dollar mistakes I shall have to go back to this time when I first became a millionaire, right after the big break of October, 1907. As far as my trading went, having a million merely meant more reserves. Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong. And when a millionaire is right his money is merely one of his several servants. Losing money is the least of my troubles. _A loss never bothers me after I take it. I forget it overnight. But being wrong--not taking the loss--that is what does the damage to the pocketbook and to the soul._ You remember Dickson G. Watts’ story about the man who was so nervous that a friend asked him what was the matter.

“I can’t sleep,” answered the nervous one.

“Why not?” asked the friend.

“I am carrying so much cotton that I can’t sleep thinking about it. It is wearing me out. What can I do?”

“Sell down to the sleeping point,” answered the friend.

As a rule a man adapts himself to conditions so quickly that he loses the perspective. He does not feel the difference much--that is, he does not vividly remember how it felt not to be a millionaire. He only remembers that there were things he could not do that he can do now. It does not take a reasonably young and normal man very long to lose the habit of being poor. It requires a little longer to forget that he used to be rich. I suppose that is because money creates needs or encourages their multiplication. I mean that after a man makes money in the stock market he very quickly loses the habit of not spending. But after he loses his money it takes him a long time to lose the habit of spending.

After I took in my shorts and went long in October, 1907, I decided to take it easy for a while. I bought a yacht and planned to go off on a cruise in Southern waters. I am crazy about fishing and I was due to have the time of my life. I looked forward to it and expected to go any day. But I did not. The market wouldn’t let me.

_I always have traded in commodities as well as in stocks._ I began as a youngster in the bucket shops. I studied those markets for years, though perhaps not so assiduously as the stock market. As a matter of fact, _I would rather play commodities than stocks_. There is no question about their greater legitimacy, as it were. It partakes more of the nature of a commercial venture than trading in stocks does. A man can approach it as he might any mercantile problem. It may be possible to use fictitious arguments for or against a certain trend in a commodity market; but success will be only temporary, _for in the end the facts are bound to prevail_, so that a trader gets dividends on study and observation, as he does in a regular business. He can watch and weigh conditions and he knows as much about it as anyone else. He need not guard against inside cliques. Dividends are not unexpectedly passed or increased overnight in the cotton market or in wheat or corn. _In the long run commodity prices are governed but by one law--the economic law of demand and supply._ The business of the trader in commodities is simply to get facts about the demand and the supply, present and prospective. He does not indulge in guesses about a dozen things as he does in stocks. It always appealed to me--trading in commodities.

Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions, that the answers will supply themselves directly. But people never take the trouble to ask questions, leave alone seeking answers. The average American is from Missouri everywhere and at all times except when he goes to the brokers’ offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. _He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile._

This matter of tape reading is not so complicated as it appears. Of course you need experience. But it is even more important to keep certain fundamentals in mind. To read the tape is not to have your fortune told. The tape does not tell you how much you will surely be worth next Thursday at 1:35 P.M. The object of reading the tape is to ascertain, first, how and, next, when to trade--that is, whether it is wiser to buy than to sell. It works exactly the same for stocks as for cotton or wheat or corn or oats.

You watch the market--that is, the course of prices as recorded by the tape--with one object: to determine the direction--that is, the price tendency. Prices, we know, will move either up or down according to the resistance they encounter. For purposes of easy explanation we will say that _prices, like everything else, move along the line of least resistance_. They will do whatever comes easiest, therefore they will go up if there is less resistance to an advance than to a decline; and vice versa.

Nobody should be puzzled as to whether a market is a bull market or a bear market after it fairly starts. The trend is evident to a man who has an open mind and reasonably clear sight, for it is never wise for a speculator to fit his facts to his theories. Such a man will, or ought to, know whether it is a bull or a bear market, and if he knows that he knows whether to buy or to sell. It is therefore at the very inception of the movement that a man needs to know whether to buy or to sell.

Let us say, for example, that the market, as it usually does in those between-swings times, fluctuates within a range of ten points; up to 130 and down to 120. It may look very weak at the bottom; or, on the way up, after a rise of eight or ten points, it may look as strong as anything. A man ought not to be led into trading by tokens. _He should wait until the tape tells him that the time is ripe. As a matter of fact, millions upon millions of dollars have been lost by men who bought stocks because they looked cheap or sold them because they looked dear. The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is his signal to get busy._

Reading the tape merely enables him to see that at 130 the selling had been stronger than the buying and a reaction in the price logically followed. Up to the point where the selling prevailed over the buying, superficial students of the tape may conclude that the price is not going to stop short of 150, and they buy. But after the reaction begins to hold on, or sell out at a small loss, or they go short and talk bearish. But at 120 there is stronger resistance to the decline. The buying prevails over the selling, there is a rally and the shorts cover. The public is so often whipsawed that one marvels at their persistence in not learning their lesson.

Eventually something happens that increases the power of either the upward or the downward force and the point of greatest resistance moves up or down--that is, the buying at 130 will for the first time be stronger than the selling, or the selling at 120 be stronger than the buying. The price will break through the old barrier or movement-limit and go on. As a rule, there is always a crowd of traders who are short at 120 because it looked so weak, or long at 130 because it looked so strong, and, when the market goes against them they are forced, after a while, either to change their minds and turn or to close out. In either event they help to define even more clearly the price line of least resistance. Thus the intelligent trader who has patiently waited to determine this line will enlist the aid of fundamental trade conditions and also of the force of the trading of that part of the community that happened to guess wrong and must now rectify mistakes. Such corrections tend to push prices along the line of least resistance.

And right here I will say that, though I do not give it as a mathematical certainty or as an axiom of speculation, my experience has been that accidents--that is, the unexpected or unforeseen--have always helped me in my market position whenever the latter has been based upon my determination of the line of least resistance. Do you remember that Union Pacific episode at Saratoga that I told you about? Well, I was long because I found out that the line of least resistance was upward. I should have stayed long instead of letting my broker tell me that insiders were selling stocks. It didn’t make any difference what was going on in the directors’ minds. That was something I couldn’t possibly know. But I could and did know that the tape said: “Going up!” And then came the unexpected raising of the dividend rate and the thirty-point rise in the stock. At 164 prices looked mighty high, but as I told you before, _stocks are never too high to buy or too low to sell_. _The price_, per se, _has nothing to do with establishing my line of least resistance._

You will find in actual practice that if you trade as I have indicated any important piece of news given out between the closing of one market and the opening of another is usually in harmony with the line of least resistance. _The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa._ Before the war broke out the market was in a very weak condition. There came the proclamation of Germany’s submarine policy. I was short one hundred and fifty thousand shares of stock, not because I knew the news was coming, but because I was going along the line of least resistance. What happened came out of a clear sky, as far as my play was concerned. Of course I took advantage of the situation and I covered my shorts that day.