Part 8

All I had in the world was up as margin in Harding’s office. I was neither cheered nor made stubborn by the knowledge of that fact. What was plain was that I had read the tape accurately and that I had been a ninny to let Ed Harding shake my own resolution. There was no sense in recriminations, because I had no time to lose; and besides, what’s done is done. So I gave an order to take in my shorts. The stock was around 165 when I sent in that order to buy in the four thousand UP. at the market. I had a three-point loss on it at that figure. Well, my brokers paid 172 and 174 for some of it before they were through. I found when I got my reports that Ed Harding’s kindly intentioned interference cost me forty thousand dollars. _A low price for a man to pay for not having the courage of his own convictions! It was a cheap lesson._

I wasn’t worried, because the tape said still higher prices. It was an unusual move and there were no precedents for the action of the directors, but I did this time what I thought I ought to do. As soon as I had given the first order to buy four thousand shares to cover my shorts I decided to profit by what the tape indicated and so I went along. I bought four thousand shares and held that stock until the next morning. Then I got out. I not only made up the forty thousand dollars I had lost but about fifteen thousand besides. If Ed Harding hadn’t tried to save me money I’d have made a killing. But he did me a very great service, for it was the lesson of that episode that, I firmly believe, _completed_ my education as a trader.

It was not that all I needed to learn was not to take tips but follow my own inclination. _It was that I gained confidence in myself and I was able finally to shake off the old method of trading._ That Saratoga experience was my last haphazard, hit-or-miss operation. From then on I began to think of basic conditions instead of individual stocks. I promoted myself to a higher grade in the hard school of speculation. It was a long and difficult step to take.

_VII_

I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up. I don’t mean of course that in a bear market caused by a war, ammunition shares do not go up. I speak in a general sense. But the average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.

Well, I wasn’t that lazy, but I found it easier to think of individual stocks than of the general market and therefore of individual fluctuations rather than of general movements. _I had to change and I did._

_People don’t seem to grasp easily the fundamentals of stock trading. I have often said that to buy on a rising market is the most comfortable way of buying stocks. Now, the point is not so much to buy as cheap as possible or go short at top prices, but to buy or sell at the right time. When I am bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on rising scale. I don’t buy long stock on a scale down, I buy on a scale up._

Let us suppose, for example, that I am buying some stock. _I’ll buy two thousand shares at 110. If the stock goes up to 111 after I buy it I am, at least temporarily, right in my operation, because it is a point higher; it shows me a profit. Well, because I am right I go in and buy another two thousand shares._ If the market is still rising I buy a third lot of two thousand shares. Say the price goes up to 114. I think it is enough for the time being. I now have a trading basis to work from. I am long six thousand shares at an average of 111¾, and the stock is selling at 114. I won’t buy any more just then. I wait and see. I figure that at some stage of the rise there is going to be a reaction. I want to see how the market takes care of itself after that reaction. It will probably react to where I got my third lot. Say that after going higher it falls back to 112¼, and then rallies. Well, just as it goes back to 113¾ I shoot an order to buy four thousand--at the market of course. Well, if I get that four thousand at 113¾ I know something is wrong and I’ll give a testing order--that is, I’ll sell one thousand shares to see how the market takes it. But suppose that of the order to buy the four thousand shares that I put in when the price was 113¾ I get two thousand at 114 and five hundred at 114½ and the rest on the way up so that for the last five hundred I pay 115½. Then I know I am right. It is the way I get the four thousand shares that tells me whether I am right in buying that particular stock at that

## particular time--_for of course I am working on the assumption that I

have checked up general conditions pretty well and they are bullish. I never want to buy stocks too cheap or too easily._

I remember a story I heard about Deacon S. V. White when he was one of the big operators of the Street. He was a very fine old man, clever as they make them, and brave. He did some wonderful things in his day, from all I’ve heard.

It was in the old days when Sugar was one of the most continuous purveyors of fireworks in the market. H. O. Havemeyer, president of the company, was in the heyday of his power. I gather from talks with the old-timers that H.O. and his following had all the resources of cash and cleverness necessary to put through successfully any deal in their own stock. They tell me that Havemeyer trimmed more small professional traders in that stock than any other insider in any other stock. As a rule, the floor traders are more likely to thwart the insiders’ game than help it.

One day a man who knew Deacon White rushed into the office all excited and said, “Deacon, you told me if I ever got any good information to come to you at once with it and if you used it you’d carry me for a few hundred shares.” He paused for breath and for confirmation.

The deacon looked at him in that meditative way he had and said, “I don’t know whether I ever told you exactly that or not, but I am willing to pay for information that I can use.”

“Well, I’ve got it for you.”

“Now, that’s nice,” said the deacon, so mildly that the man with the info swelled up and said, “Yes, sir, deacon.” Then he came closer so nobody else would hear and said, “H. O. Havemeyer is buying Sugar.”

“Is he?” asked the deacon quite calmly.

It peeved the informant, who said impressively: “Yes, sir. Buying all he can get, deacon.”

“My friend, are you sure?” asked old S.V.

“Deacon, I know it for a positive fact. The old inside gang are buying all they can lay their hands on. It’s got something to do with the tariff and there’s going to be a killing in the common. It will cross the preferred. And that means a sure thirty points for a starter.”

“D’you really think so?” And the old man looked at him over the top of the old-fashioned silver-rimmed spectacles that he had put on to look at the tape.

“Do I think so? No, I don’t think so; I know so. Absolutely! Why, deacon, when H. O. Havemeyer and his friends buy Sugar as they’re doing now they’re never satisfied with anything less than forty points net. I shouldn’t be surprised to see the market get away from them any minute and shoot up before they’ve got their full lines. There ain’t as much of it kicking around the brokers’ offices as there was a month ago.”

“He’s buying Sugar, eh?” repeated the deacon absently.

“Buying it? Why, he’s scooping it in as fast as he can without putting up the price on himself.”

“So?” said the deacon. That was all.

But it was enough to nettle the tipster, and he said, “Yes, sir-ree! And I call that very good information. Why, it’s absolutely straight.”

“Is it?”

“Yes; and it ought to be worth a whole lot. Are you going to use it?”

“Oh, yes. I’m going to use it.”

“When?” asked the information bringer suspiciously.

“Right away.” And the deacon called: “Frank!” It was the first name of his shrewdest broker, who was then in the adjoining room.

“Yes, sir,” said Frank.

“I wish you’d go over to the Board and sell ten thousand Sugar.”

“Sell?” yelled the tipster. There was such suffering in his voice that Frank, who had started out at a run, halted in his tracks.

“Why, yes,” said the deacon mildly.

“But I told you H. O. Havemeyer was buying it!”

“I know you did, my friend,” said the deacon calmly; and turning to the broker: “Make haste, Frank!”

The broker rushed out to execute the order and the tipster turned red.

“I came in here,” he said furiously, “with the best information I ever had. I brought it to you because I thought you were my friend, and square. I expected you to act on it--”

“I am acting on it,” interrupted the deacon in a tranquillising voice.

“But I told you H.O. and his gang were buying!”

“That’s right. I heard you.”

“Buying! Buying! I said buying!” shrieked the tipster.

“Yes, buying! That is what I understood you to say,” the deacon assured him. He was standing by the ticker, looking at the tape.

“But you are selling it.”

“Yes; ten thousand shares.” And the deacon nodded. “Selling it, of course.”

He stopped talking to concentrate on the tape and the tipster approached to see what the deacon saw, for the old man was very foxy. While he was looking over the deacon’s shoulder a clerk came in with a slip, obviously the report from Frank. The deacon barely glanced at it. He had seen on the tape how his order had been executed.

It made him say to the clerk, “Tell him to sell another ten thousand Sugar.”

“Deacon, I swear to you that they really are buying the stock!”

“Did Mr. Havemeyer tell you?” asked the deacon quietly.

“Of course not! He never tells anybody anything. He would not bat an eyelid to help his best friend make a nickel. But I know this is true.”

“Do not allow yourself to become excited, my friend.” And the deacon held up a hand. He was looking at the tape. The tip-bringer said, bitterly:

“If I had known you were going to do the opposite of what I expected I’d never have wasted your time or mine. But I am not going to feel glad when you cover that stock at an awful loss. I’m sorry for you, deacon. Honest! If you’ll excuse me I’ll go elsewhere and act on my own information.”

“I’m acting on it. I think I know a little about the market; not as much, perhaps, as you and your friend H. O. Havemeyer, but still a little. What I am doing is what my experience tells me is the wise thing to do with that information you brought me. After a man has been in Wall Street as long as I have he is grateful for anybody who feels sorry for him. Remain calm, my friend.”

The man just stared at the deacon, for whose judgment and nerve he had great respect.

Pretty soon the clerk came in again and handed a report to the deacon, who looked at it and said: “Now tell him to buy thirty thousand Sugar. Thirty thousand!”

The clerk hurried away and the tipster just grunted and looked at the old gray fox.

“My friend,” the deacon explained kindly, “I did not doubt that you were telling me the truth as you saw it. But even if I had heard H. O. Havemeyer tell you himself, I still would have acted as I did. For there was only one way to find out if anybody was buying the stock in the way you said H. O. Havemeyer and his friends were buying it, and that was to do what I did. The first ten thousand shares went fairly easily. It was not quite conclusive. But the second ten thousand was absorbed by a market that did not stop rising. The way the twenty thousand shares were taken by somebody proved to me that somebody was in truth willing to take all the stock that was offered. It doesn’t

## particularly matter at this point who that particular somebody may be.

So I have covered my shorts and am long ten thousand shares, and I think that your information was good as far as it went.”

“And how far does it go?” asked the tipster.

“You have five hundred shares in this office at the average price of the ten thousand shares,” said the deacon. “Good day, my friend. Be calm the next time.”

“Say, deacon,” said the tipster, “won’t you please sell mine when you sell yours? I don’t know as much as I thought I did.”

That’s the theory. _That is why I never buy stocks cheap._ Of course I always try to buy effectively--in such a way as to help my side of the market. When it comes to selling stocks, it is plain that nobody can sell unless somebody wants those stocks.

If you operate on a large scale you will have to bear that in mind all the time. A man studies conditions, plans his operations carefully and proceeds to act. He swings a pretty fair line and he accumulates a big profit--on paper. Well, that man can’t sell at will. You can’t expect the market to absorb fifty thousand shares of one stock as easily as it does one hundred. He will have to wait until he has a market there to take it. There comes the time when he thinks the requisite buying power is there. When that opportunity comes he must seize it. As a rule he will have been waiting for it. _He has to sell when he can, not when he wants to._ To learn the time, he has to watch and test. It is no trick to tell when the market can take what you give it. But in starting a movement it is unwise to take on your full line unless you are convinced that conditions are exactly right. _Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first shows you a profit. Wait and watch._ That is where your tape reading comes in--to enable you to decide as to the proper time for beginning. _Much depends upon beginning at exactly the right time._ It took me years to realize the importance of this. It also cost me some hundreds of thousands of dollars.

I don’t mean to be understood as advising persistent pyramiding. _A man can pyramid and make big money that he couldn’t make if he didn’t pyramid; of course._ But what I meant to say was this: Suppose a man’s line is five hundred shares of stock. I say that he ought not to buy it all at once; not if he is speculating. If he is merely gambling the only advice I have to give him is, don’t!

Suppose he buys his first hundred, and that promptly shows him a loss. Why should he go to work and get more stock? He ought to see at once that he is in wrong; at least temporarily.

_VIII_

The Union Pacific incident in Saratoga in the summer of 1906 made me more independent than ever of tips and talk--that is, of the opinions and surmises and suspicions of other people, however friendly or however able they might be personally. Events, not vanity, proved for me that I could read the tape more accurately than most of the people about me. I also was better equipped than the average customer of Harding Brothers in that I was utterly free from speculative prejudices. The bear side doesn’t appeal to me any more than the bull side, or vice versa. My one steadfast prejudice is against being wrong.

Even as a lad I always got my own meanings out of such facts as I observed. It is the only way in which the meaning reaches me. I cannot get out of facts what somebody tells me to get. They are my facts, don’t you see? If I believe something you can be sure it is because I simply must. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions--or my prepossessions either--to do any thinking for me. That is why I repeat that I never argue with the tape. To be angry at the market because it unexpectedly or even illogically goes against you is like getting mad at your lungs because you have pneumonia.

I had been gradually approaching the full realization of how much more than tape reading there was to stock speculation. Old man Partridge’s insistence on the vital importance of being continuously bullish in a bull market doubtless made my mind dwell on the need above all other things of determining the kind of market a man is trading in. _I began to realize that the big money must necessarily be in the big swing. Whatever might seem to give a big swing its initial impulse, the fact is that its continuance is not the result of manipulations by pools or artifice by financiers, but depends upon basic conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and as long as the impelling forces determine._

After Saratoga I began to see more clearly--perhaps I should say more maturely--that since the entire list moves in accordance with the main current there was not so much need as I had imagined to study individual plays or the behaviour of this or the other stock. Also, by thinking of the swing a man was not limited in his trading. He could buy or sell the entire list. In certain stocks a short line is dangerous after a man sells more than a certain percentage of the capital stock, the amount depending on how, where and by whom the stock is held. But he could sell a million shares of the general list--if he had the price--without the danger of being squeezed. A great deal of money used to be made periodically by insiders in the old days out of the shorts and their carefully fostered fears of corners and squeezes.

_Obviously the thing to do was to be bullish in a bull market and bearish in a bear market._ Sounds silly, doesn’t it? But I had to grasp that general principle firmly before I saw that to put it into practice really meant to anticipate probabilities. It took me a long time to learn to trade on those lines. But in justice to myself I must remind you that up to then I had never had a big enough stake to speculate that way. A big swing will mean big money if your line is big, and to be able to swing a big line you need a big balance at your broker’s.

I always had--or felt that I had--to make my daily bread out of the stock market. It interfered with my efforts to increase the stake available for the more profitable but slower and therefore more immediately expensive method of trading on swings.

But not only did my confidence in myself grow stronger but my brokers ceased to think of me as a sporadically lucky Boy Plunger. They had made a great deal out of me in commissions, but now I was in a fair way to become their star customer and as such to have a value beyond the actual volume of my trading. _A customer who makes money is an asset to any broker’s office._

The moment I ceased to be satisfied with merely studying the tape I ceased to concern myself exclusively with the daily fluctuations in specific stocks, and when that happened I simply had to study the game from a different angle. I worked back from the quotation to first principles; from price-fluctuations to basic conditions.

Of course I had been reading the daily dope regularly for a long time. All traders do. But much of it was gossip, some of it deliberately false, and the rest merely the personal opinion of the writers. The reputable weekly reviews when they touched upon underlying conditions were not entirely satisfactory to me. The point of view of the financial editors was not mine as a rule. It was not a vital matter for them to marshal their facts and draw their conclusions from them, but it was for me. Also there was a vast difference in our appraisal of the element of time. _The analysis of the week that had passed was less important to me than the forecast of the weeks that were to come._

For years I had been the victim of an unfortunate combination of inexperience, youth and insufficient capital. But now I felt the elation of a discoverer. My new attitude toward the game explained my repeated failures to make big money in New York. But now with adequate resources, experience and confidence, I was in such a hurry to try the new key that I did not notice that there was another lock on the door--_a time lock!_ It was a perfectly natural oversight. I had to pay the usual tuition--a good whack per each step forward.