Category: Jesse Livermore

A battle goes on in the stock market and the tape is your telescope. You can depend upon it seven out of ten cases.

Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience.

Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore.

It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it today, at forty.

The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now—not tomorrow. The reason can wait. But you must act instantly or be left.

So I gave up my position. My folks objected, but they couldn’t say much when they saw what I was making. I was only a kid and office-boy wages were not very high. I did mighty well on my own hook.

That’s all the fun there is—being right by using your head. If I was right when I tested my convictions with ten shares I would be ten times more right if I traded in a hundred shares.

That is all that having more margin meant to me—I was right more emphatically. More courage? No! No difference! If all I have is ten dollars and I risk it, I am much braver than when I risk a million, if I have another million salted away.

I’ve got friends, of course, but my business has always been the same—a one-man affair. That is why I have always played a lone hand.

I came to New York at the age of 21, bringing with me all I had, twenty-five hundred dollars.

What beat me was not having brains enough to stick to my own game—that is, to play the market only when I was satisfied that precedents favored my play.

There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily—or sufficient knowledge to make his play an intelligent play.

The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

I was only a kid, remember. I did not know then what I learned later, what made me fifteen years later, wait two long weeks and see a stock on which I was very bullish go up thirty points before I felt that it was safe to buy it. I was broke and was trying to get back, and I couldn’t afford to play recklessly. I had to be right, and so I waited. That was in 1915.

A stock operator has to fight a lot of expensive enemies within himself.

I lost in New York because the game was altogether different. It was not that I now was playing it legitimately that made me lose, but that I was playing it ignorantly. I have been told that I am a good reader of the tape. But reading the tape like an expert did not save me.

There I was, a mere kid, who had never before been away from home, flat broke; but I knew there wasn’t anything wrong with me; only with my play.

I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.

I was like one of those puzzle fans, doing the crossword puzzles in the Sunday supplement. He isn’t satisfied until he gets it. Well, I certainly wanted to find the solution to my puzzle.

It takes a man a long time to learn all the lessons of all his mistakes.

They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.

It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.

With me I must back my opinions with my money. My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision.

All my life I have made mistakes, but in losing money I have gained experience and accumulated a lot of valuable don’ts. I have been flat broke several times, but my loss has never been a total loss. Otherwise, I wouldn’t be here now. I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself.

A man must believe in himself and his judgment if he expects to make a living at this game.

That is why I don’t believe in tips. If I buy stocks on Smith’s tip I must sell those same stocks on Smith’s tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around? No, sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment. It took me five years to learn to play the game intelligently enough to make big money when I was right.

The game taught me the game. And it didn’t spare the rod while teaching.

If somebody had told me my method would not work I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.

Now mark this: On that, my first day as a customer of a reputable Stock Exchange house, and only two hours of it at that, I traded in eleven hundred shares of stock, jumping in and out. And the net result of the day’s operations was that I lost exactly eleven hundred dollars. That is to say, on my first attempt, nearly one-half of my stake went up the flue. And remember, some of the trades showed me a profit. But I quit eleven hundred dollars minus for the day.

Well, I was long a thousand shares of Northern Pacific common, and held it against the advice of everybody in the office. When it got to about 110. I had thirty points profit, and I grabbed it. It made my balance at my brokers’ nearly fifty thousand dollars, the greatest amount of money I had been able to accumulate up to that time. It wasn’t so bad for a chap who had lost every cent trading in that selfsame office a few months before.

Everything happened as I had foreseen. I was dead right and—I lost every cent I had! I was wiped out by something that was unusual. If the unusual never happened there would be no difference in people and then there wouldn’t be any fun in life.

The game would become merely a matter of addition and subtraction. It would make of us a race of bookkeepers with plodding minds. It’s the guessing that develops a man’s brain power. Just consider what you have to do to guess right.

It was the sublimation of my previous unsuccess, the selfsame thing that had beaten me before. It seems so obvious now that tape reading is not enough, irrespective of the brokers’ execution, that I wonder why I didn’t then see both my trouble and the remedy for it.

You see, I never could trade with a limit. I must take my chances with the market. That is what I am trying to beat—the market, not the particular price. When I think I should sell, I sell. When I think stocks will go up, I buy. My adherence to that general principle of speculation saved me.

I can’t tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way.

I didn’t keep on trading the way I did through stubbornness. I simply wasn’t able to state my own problem to myself, and, of course, it was utterly hopeless to try to solve it. I harp on this topic so much to show what I had to go through before I got to where I could really make money. My old shotgun and BB shot could not do the work of a high-power repeating rifle against big game.

Well, I went home. But the moment I was back I knew that I had but one mission in life and that was to get a stake and go back to Wall Street. That was the only place in the country where I could trade heavily. Some day, when my game was all right, I’d need such a place.

When a man is right he wants to get all that is coming to him for being right.

But I knew how and why—because I traded out of season all the time; because when I couldn’t play according to my system, which was based on study and experience, I went in and gambled. I hoped to win, instead of knowing that I ought to win on form.

There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!

There is what I call the behavior of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.

I should say that a chart helps those who can read it or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke.

But not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish.

And all a man needs to know to make money is to appraise conditions.

Yet, I can see now that my main trouble was my failure to grasp the vital difference between stock gambling and stock speculation.

It was the change in my own attitude toward the game that was of supreme importance to me. It taught me, little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating.

Before I can solve a problem I must state it to myself. When I think I have found the solution I must prove I am right. I know of only one way to prove it; and that is, with my own money.

Everybody knew that the way to do that was to take profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried to do;

For I often took profits and waited for a reaction that never came. And I saw my stock go kiting up ten points more and I sitting there with my four-point profit safe in my conservative pocket. They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.

Where I should have made twenty thousand dollars I made two thousand. That was what my conservatism did for me. About the time I discovered what a small percentage of what I should have made I was getting I discovered something else, and that is that suckers differ among themselves according to the degree of experience.

The customer would finish the tale of his perplexity and then ask: “What do you think I ought to do?” Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively,

“You know, it’s a bull market!” Time and again I heard him say, “Well, this is a bull market, you know!” as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And of course I did not get his meaning.

“I beg your pardon, Mr. Harwood; I didn’t say I’d lose my job,” cut in old Turkey. “I said I’d lose my position.

And when you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford; not even John D. Rockefeller.

I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don’t feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It’s a bull market, you know.” And he strutted away, leaving Elmer dazed. What old Mr. Partridge said did not mean much to me until I began to think about my own numerous failures to make as much money as I ought to when I was so right on the general market. The more I studied the more I realized how wise that old chap was. He had evidently suffered from the same defect in his young days and knew his own human weaknesses. He would not lay himself open to a temptation that experience had taught him was hard to resist and had always proved expensive to him, as it was to me.

I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements—that is, not in reading the tape but in sizing up the entire market and its trend.

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!

It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine—that is, they made no real money out of it.

Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn.

But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do.

That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.

Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight. Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations.

In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see—or if you prefer, until you think you see—the turn of the market; the beginning of a reversal of general conditions. You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear.

One of the most helpful things that anybody can learn is to give up trying to catch the last eighth—or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.

Another thing I noticed in studying my plays in Fullerton’s office after I began to trade less unintelligently was that my initial operations seldom showed me a loss. That naturally made me decide to start big. It gave me confidence in my own judgment before I allowed it to be vitiated by the advice of others or even by my own impatience at times.

Without faith in his own judgment no man can go very far in this game.

That is about all I have learned—to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary. I have been short one hundred thousand shares and I have seen a big rally coming. I have figured—and figured correctly—that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits.

And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again on the rally. I knew that if I did I might lose my position and with it the certainty of a big killing. It is the big swing that makes the big money for you.

If I learned all this so slowly it was because I learned by my mistakes, and some time always elapses between making a mistake and realizing it, and more time between realizing it and exactly determining it.

Every time I found the reason for a loss or the why and how of another mistake, I added a brand-new DON’T to my schedule of assets.

You may remember the story I told you about that time when I was short thirty-five hundred Sugar in the Cosmopolitan and I had a hunch something was wrong and I’d better close the trade? Well, I have often had that curious feeling. As a rule, I yield to it. But at times I have pooh-poohed the idea and have told myself that it was simply asinine to follow any of these sudden blind impulses to reverse my position.

I have ascribed my hunch to a state of nerves resulting from too many cigars or insufficient sleep or a torpid liver or something of that kind.

When I have argued myself into disregarding my impulse and have stood pat I have always had cause to regret it.

A dozen instances occur to me when I did not sell as per hunch, and the next day I’d go downtown and the market would be strong, or perhaps even advance, and I’d tell myself how silly it would have been to obey the blind impulse to sell. But on the following day there would be a pretty bad drop. Something had broken loose somewhere and I’d have made money by not being so wise and logical. The reason plainly was not physiological but psychological.

I was looking over the quotation board, noting the changes—they were mostly advances—until I came to Union Pacific. I got a feeling that I ought to sell it. I can’t tell you more. I just felt like selling it. I asked myself why I should feel like that, and I couldn’t find any reason whatever for going short of UP.

“Going to sleep?” he said. “No,” I said. “I am not going to sleep. What I am going to do is to sell that stock.” I had always made money following my hunches.

“What did you hear?” he asked me. He was quite excited. UP was one of his pets and he was bullish on it because of its earnings and its prospects. But he was willing to take a bear tip on it at second hand. “Nothing!” I said. “You didn’t?” He was skeptical and showed it plainly. “I didn’t hear a thing.” “Then why in blazes are you selling?” “I don’t know,” I told him. I spoke gospel truth. “Oh, come across, Larry,” he said. He knew it was my habit to know why I traded. I had sold a thousand shares of Union Pacific. I must have a very good reason to sell that much stock in the face of the strong market. “I don’t know,” I repeated. “I just feel that something is going to happen.” “What’s going to happen?” “I don’t know. I can’t give you any reason. All I know is that I want to sell that stock. And I’m going to let ’em have another thousand.”

“Then you’re crazy,” he said. “Stark crazy, selling that stock without rime or reason. You don’t know why you want to sell it?” “I don’t know why I want to sell it. I only know I do want to,” I said. “I want to, like everything.” The urge was so strong that I sold another thousand.

I have told some of these stories to friends, and some of them tell me it isn’t a hunch but the subconscious mind, which is the creative mind, at work. That is the mind which makes artists do things without their knowing how they came to do them.

Perhaps with me it was the cumulative effect of a lot of little things individually insignificant but collectively powerful. Possibly my friend’s unintelligent bullishness aroused a spirit of contradiction and I picked on UP. because it had been touted so much. I can’t tell you what the cause or motive for hunches may be. All I know is that I went out of the Atlantic City branch office of Harding Brothers short three thousand Union Pacific in a rising market, and I wasn’t worried a bit.

The next day the general market went up some more and I heard nothing but cheerful remarks from my friend.

But I felt sure I had done right to sell UP, and I never get impatient when I feel I am right. What’s the sense?

That afternoon Union Pacific stopped climbing, and toward the end of the day it began to go off. Pretty soon it got down to a point below the level of the average of my three thousand shares. I felt more positive than ever that I was on the right side, and since I felt that way I naturally had to sell some more. So, toward the close, I sold an additional two thousand shares.

There I was, short five thousand shares of UP, on a hunch.

The next day we got the news of the San Francisco earthquake. It was an awful disaster. But the market opened down only a couple of points. The bull forces were at work, and the public never is independently responsive to news. You see that all the time.

If there is a solid bull foundation, for instance, whether or not what the papers call bull manipulation is going on at the same time, certain news items fail to have the effect they would have if the Street was bearish. It is all in the state of sentiment at the time.

In this case the Street did not appraise the extent of the catastrophe because it didn’t wish to. Before the day was over prices came back. I wouldn’t cover because I knew the damage was enormous and the Union Pacific would be one of the worst sufferers. But it was exasperating to see the blindness of the Street.

On the following day, when fuller reports came in, the market began to slide off, but even then not as violently as it should.

Knowing that nothing under the sun could stave off a substantial break I doubled up and sold five thousand shares. Oh, by that time it was plain to most people, and my brokers were willing enough. It wasn’t reckless of them or of me, not the way I sized up the market. On the day following, the market began to go for fair. There was the dickens to pay. Of course I pushed my luck for all it was worth. I doubled up again and sold ten thousand shares more. It was the only play possible. I wasn’t thinking of anything except that I was right— 100 per cent right—and that this was a heaven-sent opportunity. It was up to me to take advantage of it. I sold more.

Did I think that with such a big line of shorts out, it wouldn’t take much of a rally to wipe out my paper profits and possibly my principal? I don’t know whether I thought of that or not, but if I did it didn’t carry much weight with me. I wasn’t plunging recklessly. I was really playing conservatively.

There was nothing that anybody could do to undo the earthquake, was there? They couldn’t restore the crumpled buildings overnight, free, gratis, for nothing, could they? All the money in the world couldn’t help much in the next few hours, could it?

I was not betting blindly. I wasn’t a crazy bear. I wasn’t drunk with success or thinking that because Frisco was pretty well wiped off the map the entire country was headed for the scrap heap. No, indeed! I didn’t look for a panic. Well, the next day I cleaned up. I made two hundred and fifty thousand dollars. It was my biggest winnings up to that time. It was all made in a few days. The Street paid no attention to the earthquake the first day or two. They’ll tell you that it was because the first dispatches were not so alarming, but I think it was because it took so long to change the point of view of the public toward the securities markets. Even the professional traders for the most part were slow and shortsighted.

I have no explanation to give you, either scientific or childish. I am telling you what I did, and why, and what came of it. I was much less concerned with the mystery of the hunch than with the fact that I got a quarter of a million out of it. It meant that I could now swing a much bigger line than ever, if or when the time came for it.

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.

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.

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 a 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 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.

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.

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.

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 manipulation 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 upon 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.

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.

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.

I had made a mistake. But where? I was bearish in a bear market. That was wise. I had sold stocks short. That was proper. I had sold them too soon. That was costly. My position was right but my play was wrong.

However, every day brought the market nearer to the inevitable smash. So I waited and when the rally began to falter and pause I let them have as much stock as my sadly diminished margins permitted. I was right this time—for exactly one whole day, for on the next there was another rally.

It was the first time I had worked with a definite forward-looking plan embracing the entire market instead of one or two stocks. I figured that I must win if I held out. Of course at that time I had not developed my system of placing my bets or I would have put out my short line on a declining market, as I explained to you the last time. I would not then have lost so much of my margin. I would have been wrong but not hurt. You see, I had observed certain facts but had not learned to co-ordinate them. My incomplete observation not only did not help but actually hindered.

Went broke after 12 years at it but still persisted:

I was nearly twenty-seven years old. I had been at the game twelve years. But the first time I traded because of a crisis that was still to come I found that I had been using a telescope. Between my first glimpse of the storm cloud and the time for cashing in on the big break the stretch was evidently so much greater than I had thought that I began to wonder whether I really saw what I thought I saw so clearly. We had had many warnings and sensational ascensions in call-money rates.

Still some of the great financiers talked hopefully—at least to newspaper reporters—and the ensuing rallies in the stock market gave the lie to the calamity howlers. Was I fundamentally wrong in being bearish or merely temporarily wrong in having begun to sell short too soon? I decided that I began too soon, but that I really couldn’t help it. Then the market began to sell off. That was my opportunity. I sold all I could, and then stocks rallied again, to quite a high level. It cleaned me out.

There I was—right and busted! I tell you it was remarkable.

What happened was this: I looked ahead and saw a big pile of dollars. Out of it stuck a sign. It had “Help yourself,” on it, in huge letters. Beside it stood a cart with “Lawrence Livingston Trucking Corporation” painted on its side. I had a brand-new shovel in my hand. There was not another soul in sight, so I had no competition in the gold-shoveling, which is one beauty of seeing the dollar-heap ahead of others.

The people who might have seen it if they had stopped to look were just then looking at baseball games instead, or motoring or buying houses to be paid for with the very dollars that I saw. That was the first time that I had seen big money ahead, and I naturally started toward it on the run. Before I could reach the dollar-pile my wind went back on me and I fell to the ground. The pile of dollars was still there, but I had lost the shovel, and the wagon was gone. So much for sprinting too soon! I was too eager to prove to myself that I had seen real dollars and not a mirage. I saw, and knew that I saw. Thinking about the reward for my excellent sight kept me from considering the distance to the dollar-heap.

I should have walked and not sprinted.

That is what happened. I didn’t wait to determine whether or not the time was right for plunging on the bear side. On the one occasion when I should have invoked the aid of my tape-reading I didn’t do it. That is how I came to learn that even when one is properly bearish at the very beginning of a bear market it is well not to begin selling in bulk until there is no danger of the engine back-firing.

The succession of spankings I had received made me less aggressively cocksure; perhaps I should say less careless, for of course I knew I was just so much nearer to the smash. All I could do was wait watchfully, as I should have done before plunging. It wasn’t a case of locking the stable after the horse was stolen. I simply had to be sure, the next time I tried.

If a man didn’t make mistakes he’d own the world in a month. But if he didn’t profit by his mistakes he wouldn’t own a blessed thing.

Well, sir, one fine morning I came downtown feeling cocksure once more. There wasn’t any doubt this time. I had read an advertisement in the financial pages of all the newspapers that was the high sign I hadn’t had the sense to wait for before plunging. It was the announcement of a new issue of stock by the Northern Pacific and Great Northern roads. The payments were to be made on the installment plan for the convenience of the stockholders. This consideration was something new in Wall Street. It struck me as more than ominous. For years the unfailing bull item on Great Northern preferred had been the announcement that another melon was to be cut, said melon consisting of the right of the lucky stockholders to subscribe at par to a new issue of Great Northern stock. These rights were valuable, since the market price was always way above par. But now the money market was such that the most powerful banking houses in the country were none too sure the stockholders would be able to pay cash for the bargain. And Great Northern preferred was selling at about 330!

“Ed,” I said to him, “the longer the delay in starting the sharper the break will be when it does start. That ad is a signed confession on the part of the bankers. What they fear is what I hope. This is a sign for us to get aboard the bear wagon. It is all we needed. If I had ten million dollars I’d stake every cent of it this minute.” I had to do some more talking and arguing. He wasn’t content with the only inferences a sane man could draw from that amazing advertisement. It was enough for me, but not for most of the people in the office. I sold a little; too little.

A few days later St. Paul very kindly came out with an announcement of an issue of its own; either stock or notes, I forget which. But that doesn’t matter. What mattered then was that I noticed the moment I read it that the date of payment was set ahead of the Great Northern and Northern Pacific payments, which had been announced earlier. It was as plain as though they had used a megaphone that grand old St. Paul was trying to beat the two other railroads to what little money there was floating around in Wall Street. The St. Paul’s bankers quite obviously feared that there wasn’t enough for all three and they were not saying, “After you, my dear Alphonse!” If money already was that scarce—and you bet the bankers knew—what would it be later? The railroads needed it desperately. It wasn’t there. What was the answer? Sell ’em! Of course! The public, with their eyes fixed on the stock market, saw little—that week. The wise stock operators saw much—that year. That was the difference. For me, that was the end of doubt and hesitation. I made up my mind for keeps then and there. That same morning I began what really was my first campaign along the lines that I have since followed. I told Harding what I thought and how I stood, and he made no objections to my selling Great Northern preferred at around 330, and other stocks at high prices. I profited by my earlier and costly mistakes and sold more intelligently.

My reputation and my credit were reëstablished in a jiffy. That is the beauty of being right in a broker’s office, whether by accident or not. But this time I was cold-bloodedly right, not because of a hunch or from skilful reading of the tape, but as the result of my analysis of conditions affecting the stock market in general. I wasn’t guessing. I was anticipating the inevitable. It did not call for any courage to sell stocks. I simply could not see anything but lower prices, and I had to act on it, didn’t I? What else could I do? The whole list was soft as mush.

Presently there was a rally and people came to me to warn me that the end of the decline had been reached. The big fellows, knowing the short interest to be enormous, had decided to squeeze the stuffing out of the bears, and so forth. It would set us pessimists back a few millions. It was a cinch that the big fellows would have no mercy. I used to thank these kindly counselors. I wouldn’t even argue, because then they would have thought that I wasn’t grateful for the warnings.

“What reason is that?” “To make money. They’ve touched bottom and what goes down must come up. Isn’t that so?” “Yes,” I answered. “First they sink to the bottom. Then they come up; but not right away. They’ve got to be good and dead a couple of days. It isn’t time for these corpses to rise to the surface. They are not quite dead yet.”

Well, the rallies grew feebler and feebler. I was pushing my luck for all I was worth. Every time I sold a few thousand shares of Great Northern preferred the price broke several points. I felt out weak spots elsewhere and let ’em have a few. All yielded, with one impressive exception; and that was Reading.

I have always played a lone hand. I began that way in the bucket shops and have kept it up. It is the way my mind works. I have to do my own seeing and my own thinking. But I can tell you after the market began to go my way I felt for the first time in my life that I had allies—the strongest and truest in the world: underlying conditions. They were helping me with all their might.

Perhaps they were a trifle slow at times in bringing up the reserves, but they were dependable, provided I did not get too impatient. I was not pitting my tape-reading knack or my hunches against chance. The inexorable logic of events was making money for me.

The thing was to be right; to know it and to act accordingly. General conditions, my true allies, said “Down!” and Reading disregarded the command. It was an insult to us. It began to annoy me to see Reading holding firmly, as though everything were serene. It ought to be the best short sale in the entire list because it had not gone down and the pool was carrying a lot of stock that it would not be able to carry when the money stringency grew more pronounced. Some day the bankers’ friends would fare no better than the friendless public. The stock must go with the others. If Reading didn’t decline, then my theory was wrong; I was wrong; facts were wrong; logic was wrong. I figured that the price held because the Street was afraid to sell it.

So one day I gave to two brokers each an order to sell four thousand shares, at the same time. You ought to have seen that cornered stock, that it was sure suicide to go short of, take a headlong dive when those competitive orders struck it. I let ’em have a few thousand more. The price was 111 when I started selling it. Within a few minutes I took in my entire short line at 92.

I had a wonderful time after that, and in February of 1907 I cleaned up.

Great Northern preferred had gone down sixty or seventy points, and other stocks in proportion. I had made a good bit, but the reason I cleaned up was that I figured that the decline had discounted the immediate future. I looked for a fair recovery, but I wasn’t bullish enough to play for a turn. I wasn’t going to lose my position entirely. The market would not be right for me to trade in for a while.

The first ten thousand dollars I made in the bucket shops I lost because I traded in and out of season, every day, whether or not conditions were right. I wasn’t making that mistake twice.

Also, don’t forget that I had gone broke a little while before because I had seen this break too soon and started selling before it was time.

Now when I had a big profit I wanted to cash in so that I could feel I had been right. The rallies had broken me before. I wasn’t going to let the next rally wipe me out. Instead of sitting tight I went to Florida. I love fishing and I needed a rest. I could get both down there. And besides, there are direct wires between Wall Street and Palm Beach.

The first thing I saw on the quotation board was that Anaconda was on the point of crossing 300. It had been going up by leaps and bounds and there was apparently an aggressive bull party in it.

It was an old trading theory of mine that when a stock crosses 100 or 200 or 300 for the first time the price does not stop at the even figure but goes a good deal higher, so that if you buy it as soon as it crosses the line it is almost certain to show you a profit.

Timid people don’t like to buy a stock at a new high record. But I had the history of such movements to guide me.

If instead it reacted it meant that precedents had failed me and I was wrong; and the only thing to do when a man is wrong is to be right by ceasing to be wrong.

What happened shows you that I am right in never trading at limits. Suppose I had limited my selling price to 300? I’d never have got it off. No, sir!

When you want to get out, get out.

The way to make money is to make it. The way to make big money is to be right at exactly the right time. In this business a man has to think of both theory and practice. A speculator must not be merely a student, he must be both a student and a speculator.

The news simply meant that the bull cliques were still fighting desperately against conditions—against common sense and against common honesty, for they knew what was coming and were resorting to such schemes to put up the market in order to unload stocks before the storm struck them. It is possible they really did not believe the danger was as serious or as close at hand as I thought. The big men of the Street are as prone to be wishful thinkers as the politicians or the plain suckers. I myself can’t work that way. In a speculator such an attitude is fatal. Perhaps a manufacturer of securities or a promoter of new enterprises can afford to indulge in hope-jags.

I sold more stocks. As money got tighter call-money rates went higher and prices of stocks lower. I had foreseen it. At first, my foresight broke me. But now I was right and prospering. However, the real joy was in the consciousness that as a trader I was at last on the right track. I still had much to learn but I knew what to do. No more floundering, no more half-right methods.

Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position.

But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities.

In short, I had learned that I had to work for my money. I was no longer betting blindly or concerned with mastering the technique of the game, but with earning my successes by hard study and clear thinking. I also had found out that nobody was immune from the danger of making sucker plays.

And for a sucker play a man gets sucker pay; for the paymaster is on the job and never loses the pay envelope that is coming to you.

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 realized. I had been king for a day!

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.

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?

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 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.

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.

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.

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.

***IF YOU HAVE A 401K, BELOW EXCERPT IS IMPORTANT!

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 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 they 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.

When a man makes his play in a commodity market he must not permit himself set opinions. He must have an open mind and flexibility. It is not wise to disregard the message of the tape, no matter what your opinion of crop conditions or of the probable demand may be.

I was very bullish on cotton. It was hanging around twelve cents, running up and down within a moderate range. It was in one of those in-between places and I could see it. I knew I really ought to wait. But I got to thinking that if I gave it a little push it would go beyond the upper resistance point. I bought fifty thousand bales. Sure enough, it moved up. And sure enough, as soon as I stopped buying it stopped going up. Then it began to settle back to where it was when I began buying it. I got out and it stopped going down. I thought I was now much nearer the starting signal, and presently I thought I’d start it myself again. I did. The same thing happened. I bid it up, only to see it go down when I stopped. I did this four or five times until I finally quit in disgust. It cost me about two hundred thousand dollars. I was done with it. It wasn’t very long after that when it began to go up and never stopped till it got to a price that would have meant a killing for me—if I hadn’t been in such a great hurry to start.

This experience has been the experience of so many traders so many times that I can give this rule: In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be—up or down.

The thing to do is to watch the market, read the tape to determine the limits of the get-nowhere prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction. A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations. Stock-market post-mortems don’t pay dividends.

What I have told you gives you the essence of my trading system as based on studying the tape. I merely learn the way prices are most probably going to move. I check up my own trading by additional tests, to determine the psychological moment. I do that by watching the way the price acts after I begin. It is surprising how many experienced traders there are who look incredulous when I tell them that when I buy stocks for a rise I like to pay top prices and when I sell I must sell low or not at all. It would not be so difficult to make money if a trader always stuck to his speculative guns—that is, waited for the line of least resistance to define itself and began buying only when the tape said up or selling only when it said down.

He should accumulate his line on the way up. Let him buy one-fifth of his full line. If that does not show him a profit he must not increase his holdings because he has obviously begun wrong; he is wrong temporarily and there is no profit in being wrong at any time. The same tape that said UP did not necessarily lie merely because it is now saying NOT YET.

In cotton I was very successful in my trading for a long time. I had my theory about it and I absolutely lived up to it. Suppose I had decided that my line would be forty to fifty thousand bales. Well, I would study the tape as I told you, watching for an opportunity either to buy or to sell. Suppose the line of least resistance indicated a bull movement. Well, I would buy ten thousand bales. After I got through buying that, if the market went up ten points over my initial purchase price, I would take on another ten thousand bales. Same thing. Then, if I could get twenty points’ profit, or one dollar a bale, I would buy twenty thousand more. That would give me my line—my basis for my trading. But if after buying the first ten or twenty thousand bales, it showed me a loss, out I’d go. I was wrong. It might be I was only temporarily wrong. But as I have said before it doesn’t pay to start wrong in anything. What I accomplished by sticking to my system was that I always had a line of cotton in every real movement. In the course of accumulating my full line I might chip out fifty or sixty thousand dollars in these feeling-out plays of mine. This looks like a very expensive testing, but it wasn’t. After the real movement started, how long would it take me to make up the fifty thousand dollars I had dropped in order to make sure that I began to load up at exactly the right time? No time at all! It always pays a man to be right at the right time. As I think I also said before, this describes what I may call my system for placing my bets. It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet.

I sometimes think that speculation must be an unnatural sort of business, because I find that the average speculator has arrayed against him his own nature. The weaknesses that all men are prone to are fatal to success in speculation—usually those very weaknesses that make him likable to his fellows or that he himself particularly guards against in those other ventures of his where they are not nearly so dangerous as when he is trading in stocks or commodities.

The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.

In speculation when the market goes against you you hope that every day will be the last day—and you lose more than you should had you not listened to hope—to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon.

Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses.

Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.

It is absolutely wrong to gamble in stocks the way the average man does. I have been in the speculative game ever since I was fourteen. It is all I have ever done. I think I know what I am talking about. And the conclusion that I have reached after nearly thirty years of constant trading, both on a shoestring and with millions of dollars back of me, is this: A man may beat a stock or a group at a certain time, but no man living can beat the stock market! A man may make money out of individual deals in cotton or grain, but no man can beat the cotton market or the grain market. It’s like the track. A man may beat a horse race, but he cannot beat horse racing. If I knew how to make these statements stronger or more emphatic I certainly would. It does not make any difference what anybody says to the contrary. I know I am right in saying these are incontrovertible statements.

It is the way a man looks at things that makes or loses money for him in the speculative markets.

The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. A trader gets to play the game as the professional billiard player does—that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.

“If I fool myself,” I told him, “I alone suffer and I pay the bill at once. There are no drawn-out payments or unexpected annoyances. I play a lone hand by choice and also because it is the wisest and cheapest way to trade. I get my pleasure out of matching my brains against the brains of other traders—men whom I have never seen and never talked to and never advised to buy or sell and never expect to meet or know. When I make money I make it backing my own opinions. I don’t sell them or capitalise them. If I made money in any other way I would imagine I had not earned it. Your proposition does not interest me because I am interested in the game only as I play it for myself and in my own way.”

When I said to you some time ago that a speculator has a host of enemies, many of whom successfully bore from within, I had in mind my many mistakes. I have learned that a man may possess an original mind and a lifelong habit of independent thinking and withal be vulnerable to attacks by a persuasive personality.

I am fairly immune from the commoner speculative ailments, such as greed and fear and hope. But being an ordinary man I find I can err with great ease. I ought to have been on my guard at this particular time because not long before that I had had an experience that proved how easily a man may be talked into doing something against his judgment and even against his wishes.

It is always the play itself, the reason why. In the first place I wish to know my own limitations and habits of thought. Another reason is that I do not wish to make the same mistake a second time. A man can excuse his mistakes only by capitalising them to his subsequent profit.

I have told you this story in such detail because it concerned a remarkable man who made me buy what I did not wish to buy. He was the first man who did that to me. There never should have been a second, but there was. You can never bank on there being but one remarkable salesman in the world or on complete immunization from the influence of personality.

But he kept at it until I no longer felt sure of my own information as gathered from the trade papers and the dailies. That meant I couldn’t see the market with my own eyes. A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.

When he began his talks with me about the cotton situation I not only was bearish but I was short of the market. Gradually, as I began to accept his facts and figures, I began to fear I had been basing my previous position on misinformation. Of course I could not feel that way and not cover. And once I had covered because Thomas made me think I was wrong, I simply had to go long. It is the way my mind works. You know, I have done nothing in my life but trade in stocks and commodities. I naturally think that if it is wrong to be bearish it must be right to be a bull. And if it is right to be a bull it is imperative to buy. As my old Palm Beach friend said Pat Hearne used to say, “You can’t tell till you bet!” I must prove whether I am right on the market or not; and the proofs are to be read only in my brokers’ statements at the end of the month.

I started in to buy cotton and in a jiffy I had my usual line, about sixty thousand bales. It was the most asinine play of my career. Instead of standing or falling by my own observation and deductions I was merely playing another man’s game. It was eminently fitting that my silly plays should not end with that. I not only bought when I had no business to be bullish but I didn’t accumulate my line in accordance with the promptings of experience. I wasn’t trading right. Having listened, I was lost. The market was not going my way. I am never afraid or impatient when I am sure of my position. But the market didn’t act the way it should have acted had Thomas been right. Having taken the first wrong step I took the second and the third, and of course it muddled me all up. I allowed myself to be persuaded not only into not taking my loss but into holding up the market. That is a style of play foreign to my nature and contrary to my trading principles and theories. Even as a boy in the bucket shops I had known better. But I was not myself. I was another man—a Thomasized person.

It seems incredible that knowing the game as well as I did and with an experience of twelve or fourteen years of speculating in stocks and commodities I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. It was an utterly foolish play, but all I can say in extenuation is that it wasn’t really my deal, but Thomas’. Of all speculative blunders there are few greater than trying to average a losing game. My cotton deal proved it to the hilt a little later. Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.

And so I sold my wheat, deliberately cut short my profit in it. After I got out of it the price went up twenty cents a bushel without stopping. If I had kept it I might have taken a profit of about eight million dollars. And having decided to keep on with the losing proposition I bought more cotton! I remember very clearly how every day I would buy cotton, more cotton. And why do you think I bought it? To keep the price from going down! If that isn’t a supersucker play, what is? I simply kept on putting up more and more money—more money to lose eventually. My brokers and my intimate friends could not understand it; and they don’t to this day. Of course if the deal had turned out differently I would have been a wonder. More than once I was warned against placing too much reliance on Percy Thomas’ brilliant analyses. To this I paid no heed, but kept on buying cotton to keep it from going down. I was even buying it in Liverpool. I accumulated four hundred and forty thousand bales before I realised what I was doing. And then it was too late. So I sold out my line. I lost nearly all that I had made out of all my other deals in stocks and commodities. I was not completely cleaned out, but I had left fewer hundreds of thousands than I had millions before I met my brilliant friend Percy Thomas. For me of all men to violate all the laws that experience had taught me to observe in order to prosper was more than asinine. To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. Having learned what folly I was capable of I closed that particular incident. Percy Thomas went out of my life.

There I was, with more than nine-tenths of my stake, as Jim Fisk used to say, gone where the woodbine twineth—up the spout. I had been a millionaire rather less than a year. My millions I had made by using brains, helped by luck. I had lost them by reversing the process. I sold my two yachts and was decidedly less extravagant in my manner of living.

But that one blow wasn’t enough. Luck was against me. I ran up first against illness and then against the urgent need of two hundred thousand dollars in cash. A few months before that sum would have been nothing at all; but now it meant almost the entire remnant of my fleet-winged fortune. I had to supply the money and the question was: Where could I get it? I didn’t want to take it out of the balance I kept at my brokers’ because if I did I wouldn’t have much of a margin left for my own trading; and I needed trading facilities more than ever if I was to win back my millions quickly. There was only one alternative that I could see, and that was to take it out of the stock market!

Just think of it! If you know much about the average customer of the average commission house you will agree with me that the hope of making the stock market pay your bill is one of the most prolific sources of loss in Wall Street. You will chip out all you have if you adhere to your determination. Why, in Harding’s office one winter a little bunch of high flyers spent thirty or forty thousand dollars for an overcoat—and not one of them lived to wear it. It so happened that a prominent floor trader—who since has become world-famous as one of the dollar-a-year men—came down to the Exchange wearing a fur overcoat lined with sea otter. In those days, before furs went up sky high, that coat was valued at only ten thousand dollars. Well, one of the chaps in Harding’s office, Bob Keown, decided to get a coat lined with Russian sable. He priced one uptown. The cost was about the same, ten thousand dollars.

There isn’t a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motor boat or a painting. I could build a huge hospital with the birthday presents that the tight-fisted stock market has refused to pay for.

In fact, of all hoodoos in Wall Street I think the resolve to induce the stock market to act as a fairy godmother is the busiest and most persistent. Like all well-authenticated hoodoos this has its reason for being. What does a man do when he sets out to make the stock market pay for a sudden need? Why, he merely hopes. He gambles. He therefore runs much greater risks than he would if he were speculating intelligently, in accordance with opinions or beliefs logically arrived at after a dispassionate study of underlying conditions. To begin with, he is after an immediate profit. He cannot afford to wait. The market must be nice to him at once if at all. He flatters himself that he is not asking more than to place an even-money bet. Because he is prepared to run quick—say, stop his loss at two points when all he hopes to make is two points—he hugs the fallacy that he is merely taking a fifty-fifty chance. Why, I’ve known men to lose thousands of dollars on such trades, particularly on purchases made at the height of a bull market just before a moderate reaction. It certainly is no way to trade. Well, that crowning folly of my career as a stock operator was the last straw. It beat me. I lost what little my cotton deal had left me. It did even more harm, for I kept on trading—and losing. I persisted in thinking that the stock market must perforce make money for me in the end. But the only end in sight was the end of my resources. I went into debt, not only to my principal brokers but to other houses that accepted business from me without my putting up an adequate margin. I not only got in debt but I stayed in debt from then on.

There I was, once more broke, which was bad, and dead wrong in my trading, which was a sight worse. I was sick, nervous, upset and unable to reason calmly. That is, I was in the frame of mind in which no speculator should be when he is trading. Everything went wrong with me. Indeed, I began to think that I could not recover my departed sense of proportion. Having grown accustomed to swinging a big line—say, more than a hundred thousand shares of stock—I feared I would not show good judgment trading in a small way. It scarcely seemed worth while being right when all you carried was a hundred shares of stock. After the habit of taking a big profit on a big line I wasn’t sure I would know when to take my profit on a small line. I can’t describe to you how weaponless I felt. Broke again and incapable of assuming the offensive vigorously. In debt and wrong! After all those long years of successes, tempered by mistakes that really served to pave the way for greater successes, I was now worse off than when I began in the bucket shops. I had learned a great deal about the game of stock speculation, but I had not learned quite so much about the play of human weaknesses. There is no mind so machinelike that you can depend upon it to function with equal efficiency at all times. I now learned that I could not trust myself to remain equally unaffected by men and misfortunes at all times. Money losses have never worried me in the slightest. But other troubles could and did. I studied my disaster in detail and of course found no difficulty in seeing just where I had been silly. I spotted the exact time and place.

A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable of in the line of folly was a long educational step. I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head. A great many smashes by brilliant men can be traced directly to the swelled head—an expensive disease everywhere to everybody, but particularly in Wall Street to a speculator.

The loss of the money didn’t bother me. Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee. A man has to have experience and he has to pay for it.

But there was something that hurt a whole lot in that experience of mine in Dan Williamson’s office, and that was the loss of a great opportunity. The money a man loses is nothing; he can make it up. But opportunities such as I had then do not come every day. The market, you see, had been a fine trading market. I was right; I mean, I was reading it accurately. The opportunity to make millions was there. But I allowed my gratitude to interfere with my play. I tied my own hands. I had to do what Dan Williamson in his kindness wished done. Altogether it was more unsatisfactory than doing business with a relative. Bad business! And that wasn’t the worst thing about it. It was that after that there was practically no opportunity for me to make big money. The market flattened out. Things drifted from bad to worse. I not only lost all I had but got into debt again—more heavily than ever. Those were long lean years, 1911, 1912, 1913 and 1914. There was no money to be made. The opportunity simply wasn’t there and so I was worse off than ever.

It isn’t uncomfortable to lose when the loss is not accompanied by a poignant vision of what might have been. That was precisely what I could not keep my mind from dwelling on, and of course it unsettled me further. I learned that the weaknesses to which a speculator is prone are almost numberless. It was proper for me as a man to act the way I did in Dan Williamson’s office, but it was improper and unwise for me as a speculator to allow myself to be influenced by any consideration to act against my own judgment. Noblesse oblige—but not in the stock market, because the tape is not chivalrous and moreover does not reward loyalty. I realise that I couldn’t have acted differently. I couldn’t make myself over just because I wished to trade in the stock market. But business is business always, and my business as a speculator is to back my own judgment always.

As I studied the problem I saw that it wasn’t a case that called for reading the tape but for reading my own self. I quite cold-bloodedly reached the conclusion that I would never be able to accomplish anything useful so long as I was worried, and it was equally plain that I should be worried so long as I owed money. I mean, as long as any creditor had the power to vex me or to interfere with my coming back by insisting upon being paid before I could get a decent stake together. This was all so obviously true that I said to myself, “I must go through bankruptcy.” What else could relieve my mind?

But it all wore off presently and I cannot tell you how intense was my feeling of relief to know that I wasn’t going to be harried any more by people who didn’t understand how a man must give his entire mind to his business—if he wishes to succeed in stock speculation.

But my stake consisted merely of an offer to carry five hundred shares for me. That is, I had no leeway, limited as I was. I couldn’t afford even a slight setback at the beginning. I must build up my stake with my very first play. That initial purchase of mine of five hundred shares must be profitable. I had to make real money. I knew that unless I had sufficient trading capital I would not be able to use good judgment. Without adequate margins it would be impossible to take the cold-blooded, dispassionate attitude toward the game that comes from the ability to afford a few minor losses such as I often incurred in testing the market before putting down the big bet. I think now that I found myself then at the most critical period of my career as a speculator. If I failed this time there was no telling where or when, if ever, I might get another stake for another try. It was very clear that I simply must wait for the exact psychological moment.

I didn’t go near Williamson & Brown’s. I mean, I purposely kept away from them for six long weeks of steady tape reading. I was afraid that if I went to the office, knowing that I could buy five hundred shares, I might be tempted into trading at the wrong time or in the wrong stock. A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses. There is no need to feel anger over being human. I have come to feel that it is as necessary to know how to read myself as to know how to read the tape. I have studied and reckoned on my own reactions to given impulses or to the inevitable temptations of an active market, quite in the same mood and spirit as I have considered crop conditions or analysed reports of earnings.

But I sat tight and instead of listening to my loud-mouthed hopes or to my clamorous beliefs I heeded only the level voice of my experience and the counsel of common sense. Once I got a decent stake together I could afford to take chances. But without a stake, taking chances, even slight chances, was a luxury utterly beyond my reach. Six weeks of patience—but, in the end, a victory for common sense over greed and hope!

I rushed to Williamson & Brown’s office and put in an order to buy five hundred shares of Bethlehem Steel. The market was then 98. I got five hundred shares at 98 to 99. After that she shot right up, and closed that night, I think, at 114 or 115. I bought five hundred shares more.

The next day Bethlehem Steel was 145 and I had my stake. But I earned it. Those six weeks of waiting for the right moment were the most strenuous and wearing six weeks I ever put in. But it paid me, for I now had enough capital to trade in fair-sized lots.

I never would have got anywhere just on five hundred shares of stock. There is a great deal in starting right, whatever the enterprise may be, and I did very well after my Bethlehem deal—so well, indeed, that you would not have believed it was the selfsame man trading. As a matter of fact I wasn’t the same man, for where I had been harassed and wrong I was now at ease and right. There were no creditors to annoy and no lack of funds to interfere with my thinking or with my listening to the truthful voice of experience, and so I was winning right along.

I did much better during the following year. I was very lucky. I was rampantly bullish in a wild bull market. Things were certainly coming my way so that there wasn’t anything to do but to make money. It made me remember a saying of the late H. H. Rogers, of the Standard Oil Company, to the effect that there were times when a man could no more help making money than he could help getting wet if he went out in a rainstorm without an umbrella.

Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.

A man does not swear eternal allegiance to either the bull or the bear side. His concern lies with being right.

A market can and does often cease to be a bull market long before prices generally begin to break.

There was no need to be perplexed into inactivity, for there were really no cross currents. I did not turn bearish on the market then, because the tape didn’t tell me to do so. The end of the bull market had not come, though it was within hailing distance. Pending its arrival there was still bull money to be made. Such being the case, I merely turned bearish on the stocks which had stopped advancing and as the rest of the market had rising power behind it I both bought and sold.

On the news the market broke badly and I naturally covered. It was the only play possible. When something happens on which you did not count when you made your plans it behooves you to utilise the opportunity that a kindly fate offers you.

I should like to point out that I was not counting on that particular break at that particular time for that particular reason. But, as I have told you before, my experience of thirty years as a trader is that such accidents are usually along the line of least resistance on which I base my position in the market. Another thing to bear in mind is this: Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.

I cleared about three million dollars in 1916 by being bullish as long as the bull market lasted and then by being bearish when the bear market started. As I said before, a man does not have to marry one side of the market till death do them part.

Sure enough, the next morning the stock and commodity markets were in an uproar, as you can imagine. Some stocks opened eight points below the previous night’s close. To me that meant a heaven-sent opportunity to cover all my shorts profitably. As I said before, in a bear market it is always wise to cover if complete demoralisation suddenly develops.

The reason I did this was not alone the fear that the stock market might take it away from me, but because I knew that a man will spend anything he can lay his hands on. By doing what I did my wife and child are safe from me.

More than one man I know has done the same thing, but has coaxed his wife to sign off when he needed the money, and he has lost it. But I have fixed it up so that no matter what I want or what my wife wants, that trust holds. It is absolutely safe from all attacks by either of us; safe from my market needs; safe even from a devoted wife’s love. I’m taking no chances!

When I lose money by reason of some development which nobody could foresee I think no more vindictively of it than I do of an inconveniently timed storm. Life itself from the cradle to the grave is a gamble and what happens to me because I do not possess the gift of second sight I can bear undisturbed.

As a matter of fact I trade in accordance to my means and always leave myself an ample margin of safety.

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.

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.

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 acquires 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.

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 very 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.

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 eye-balls and the coating of the tongue.

Following the dictates of experience may possibly fool you, now and then. But not following them invariably makes an ass of you.

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 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.

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 side-step. And I do not even pat myself on the back for being so wise and prudent.”

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.

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.

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.

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 skilful 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.

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.

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.

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.

Don’t forget that on the way down there are many holders who wish to heaven they had sold theirs but won’t do it three or four points from the top. Such speculators always vow they will surely sell out if there is a rally. They put in their orders to sell on the way up, and then they change their minds with the change in the stock’s price trend. Of course there is always profit taking from safe-playing quick runners to whom a profit is always a profit to be taken.

In my manipulation of stocks I never lose sight of basic trading principles. Perhaps you wonder why I repeat this or why I keep on harping on the fact that I never argue with the tape or lose my temper at the market because of its behaviour. You would think—wouldn’t you?—that shrewd men who have made millions in their own business and in addition have successfully operated in Wall Street at times would realise the wisdom of playing the game dispassionately. Well, you would be surprised at the frequency with which some of our most successful promoters behave like peevish women because the market does not act the way they wish it to act. They seem to take it as a personal slight, and they proceed to lose money by first losing their temper.

I was not bearish because I was short of stocks. I was bearish because that was the way I sized up the situation, and I sold stocks short only after I turned bearish. There never is much money in doing things wrong end to; not in the stock market.

That is why those outsiders who are wise enough not to buy at the top make up for it by not taking profits. The big money in booms is always made first by the public—on paper. And it remains on paper.

Speculation in stocks will never disappear. It isn’t desirable that it should. It cannot be checked by warnings as to its dangers. You cannot prevent people from guessing wrong no matter how able or how experienced they may be. Carefully laid plans will miscarry because the unexpected and even the unexpectable will happen. Disaster may come from a convulsion of nature or from the weather, from your own greed or from some man’s vanity; from fear or from uncontrolled hope.

There are many thousands of people who buy and sell stocks speculatively but the number of those who speculate profitably is small. As the public always is “in” the market to some extent, it follows that there are losses by the public all the time. The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statute books in the world and all the rules of all the Exchanges on earth cannot eliminate these from the human animal. Accidents which knock carefully conceived plans skyhigh also are beyond regulation by bodies of cold-blooded economists or warmhearted philanthropists. There remains another source of loss and that is, deliberate misinformation as distinguished from straight tips. And because it is apt to come to a stock trader variously disguised and camouflaged, it is the more insidious and dangerous.

Quite apart from the intelligent study of speculation everywhere the trader in stocks must consider certain facts in connection with the game in Wall Street. In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done. It is therefore well to remember that manipulation of some sort enters into practically all advances in individual stocks and that such advances are engineered by insiders with one object in view and one only and that is to sell at the best profit possible.