Part 6

I think it was a long step forward in my 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 was always 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 saving 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 the 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. But at the same time I was faring pretty comfortably and was very young, so that I made up in other ways. Most of my winnings were still made in part through my tape reading because the kind of markets we were having lent themselves fairly well to my method. I was not losing either as often or as irritatingly as in the beginning of my New York experiences. It wasn’t anything to be proud of, when you think that I had been broke three times in less than two years. And as I told you, being broke is a very efficient educational agency.

I was not increasing my stake very fast because I lived up to the handle all the time. I did not deprive myself of many of the things that a fellow of my age and tastes would want. I had my own automobile and I could not see any sense in skimping on living when I was taking it out of the market. The ticker only stopped Sundays and holidays, which was as it should be. 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. And the nicest way to capitalize my increasing assets was by not cutting down on my living expenses. Of course I had some amusing experiences and some that were not so amusing, but if I told them all in detail I’d never finish. As a matter of fact, the only incidents that I remember without special effort are those that taught me something of definite value to me in my trading; something that added to my store of knowledge of the game--and of myself!

_VI_

In the spring of 1906 I was in Atlantic City for a short vacation. I was out of stocks and was thinking only of having a change of air and a nice rest. By the way, I had gone back to my first brokers, Harding Brothers, and my account had got to be pretty active. I could swing three or four thousand shares. That wasn’t much more than I had done in the old Cosmopolitan shop when I was barely twenty years of age. But there was some difference between my one-point margin in the bucket shop and the margin required by brokers who actually bought or sold stocks for my account on the New York Stock Exchange.

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 want to tell you only about one of them because of what it did for me. It happened when I was having that little vacation in Atlantic City in the spring of 1906. I had a friend with me who also was a customer of Harding Brothers. I had no interest in the market one way or another and was enjoying my rest. I can always give up trading to play, unless of course it is an exceptionally active market in which my commitments are rather heavy. It was a bull market, as I remember it. The outlook was favorable for general business and the stock market had slowed down but the tone was firm and all indications pointed to higher prices.

One morning after we had breakfasted and had finished reading all the New York morning papers, and had got tired of watching the sea gulls picking up clams and flying up with them twenty feet in the air and dropping them on the hard wet sand to open them for their breakfast, my friend and I started up the Boardwalk. That was the most exciting thing we did in the daytime.

It was not noon yet, and we walked up slowly to kill time and breathe the salt air. Harding Brothers had a branch office on the Boardwalk and we used to drop in every morning and see how they’d opened. It was more force of habit than anything else, for I wasn’t doing anything.

The market, we found, was strong and active. My friend, who was quite bullish, was carrying a moderate line purchased several points lower. He began to tell me what an obviously wise thing it was to hold stocks for much higher prices. I wasn’t paying enough attention to him to take the trouble to agree with him. 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.

I stared at the last price on the board until I couldn’t see any figures or any board or anything else, for that matter. All I knew was that I wanted to sell Union Pacific and I couldn’t find out why I wanted to.

I must have looked queer, for my friend, who was standing alongside of me, suddenly nudged me and asked, “Hey, what’s the matter?”

“I don’t know,” I answered.

“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.

I walked over to a table where there were some blank order pads. My friend followed me. I wrote out an order to sell a thousand Union Pacific at the market and handed it to the manager. He was smiling when I wrote it and when he took it. But when he read the order he stopped smiling and looked at me.

“Is this right?” he asked me. But I just looked at him and he rushed it over to the operator.

“What are you doing?” asked my friend.

“I’m selling it!” I told him.

“Selling what?” he yelled at me. If he was a bull how could I be a bear? Something was wrong.

“A thousand UP.,” I said.

“Why?” he asked me in great excitement.

I shook my head, meaning I had no reason. But he must have thought I’d got a tip, because he took me by the arm and led me outside into the hall, where we could be out of sight and hearing of the other customers and rubbering chairwarmers.

“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.”

I walked back into the office and gave an order to sell a second thousand. If I was right in selling the first thousand I ought to have out a little more.

“What could possibly happen?” persisted my friend, who couldn’t make up his mind to follow my lead. If I’d told him that I had heard UP. was going down he’d have sold it without asking me from whom I’d heard it or why. “What could possibly happen?” he asked again.

“A million things could happen. But I can’t promise you that any of them will. I can’t give you any reasons and I can’t tell fortunes,” I told him.

“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.

That was too much for my friend. He grabbed me by the arm and said, “Here! Let’s get out of this place before you sell the entire capital stock.”

I had sold as much as I needed to satisfy my feeling, so I followed him without waiting for a report on the last two thousand shares. It was a pretty good jag of stock for me to sell even with the best of reasons. It seemed more than enough to be short of without any reason whatever, particularly when the entire market was so strong and there was nothing in sight to make anybody think of the bear side. But I remembered that on previous occasions when I had the same urge to sell and didn’t do it I always had reasons to regret it.

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.

I wanted to know what price they’d got for my last two thousand shares. So after luncheon we walked up to the office. I had the pleasure of seeing that the general market was strong and Union Pacific higher.

“I see your finish,” said my friend. You could see he was glad he hadn’t sold any.

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 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. That was as much as I could sell in Harding’s office with the margin I had up. It was too much stock for me to be short of, on a vacation; so I gave up the vacation and returned to New York that very night. There was no telling what might happen and I thought I’d better be Johnny-on-the-spot. There I could move quickly if I had to.

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 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 was short five thousand shares. The blow had fallen, but my stock hadn’t. My hunch was of the first water, but my bank account wasn’t growing; not even on paper. The friend who had been in Atlantic City with me when I put out my short line in UP. was glad and sad about it.

He told me: “That was some hunch, kid. But, say, when the talent and the money are all on the bull side what’s the use of bucking against them? They are bound to win out.”

“Give them time,” I said. I meant prices. 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._

“Give ’em time and your skin will be where all the other bear hides are stretched out in the sun, drying,” he assured me.

“What would you do?” I asked him. “Buy UP. on the strength of the millions of dollars of damage suffered by the Southern Pacific and other lines? Where are the earnings for dividends going to come from after they pay for all they’ve lost? The best you can say is that the trouble may not be as bad as it is painted. But is that a reason for buying the stocks of the roads chiefly affected? Answer me that.”

But all my friend said was: “Yes, that listens fine. But I tell you, the market doesn’t agree with you. The tape doesn’t lie, does it?”

“_It doesn’t always tell the truth on the instant_,” _I said._

“Listen. A man was talking to Jim Fisk a little before Black Friday, giving ten good reasons why gold ought to go down for keeps. He got so encouraged by his own words that he ended by telling Fisk that he was going to sell a few million. And Jim Fisk just looked at him and said, “Go ahead! Do! Sell it short and invite me to your funeral.”

“Yes,” I said; “and if that chap had sold it short, look at the killing he would have made! Sell some UP. yourself.”

“Not I! I’m the kind that thrives best on not rowing against wind and tide.”

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 despatches 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.

That summer I went to Saratoga Springs. It was supposed to be a vacation for me, but I kept an eye on the market. To begin with, I wasn’t so tired that it bothered me to think about it. And then, everybody I knew up there had or had had an active interest in it. We naturally talked about it. I have noticed that there is quite a difference between talking and trading. Some of these chaps remind you of the bold clerk who talks to his cantankerous employer as to a yellow dog--when he tells you about it.

Harding Brothers had a branch office in Saratoga. Many of their customers were there. But the real reason, I suppose, was the advertising value. Having a branch office in a resort is simply high-class billboard advertising. I used to drop in and sit around with the rest of the crowd. The manager was a very nice chap from the New York office who was there to give the glad hand to friends and strangers and, if possible, to get business. It was a wonderful place for tips--all kinds of tips, horse-race, stock-market, and waiters’. The office knew I didn’t take any, so the manager didn’t come and whisper confidentially in my ear what he’d just got on the q. t. from the New York office. He simply passed over the telegrams, saying, “This is what they’re sending out,” or something of the kind.

Of course I watched the market. With me, to look at the quotation board and to read the signs is one process. My good friend Union Pacific, I noticed, looked like going up. _The price was high, but the stock acted as if it were being accumulated._ I watched it a couple of days without trading in it, and the more I watched it the more convinced I became that it was being bought on balance by somebody who was no piker, somebody who not only had a big bank roll but knew what was what. Very clever accumulation, I thought.

As soon as I was sure of this I naturally began to buy it, at about 160. It kept on acting all hunky, and so I kept on buying it, five hundred shares at a clip. _The more I bought the stronger it got, without any spurt, and I was feeling very comfortable._ I couldn’t see any reason why that stock shouldn’t go up a great deal more; not with what I read on the tape.

All of a sudden the manager came to me and said they’d got a message from New York--they had a direct wire of course--asking if I was in the office, and when they answered yes, another came saying: “Keep him there. Tell him Mr. Harding wants to speak to him.”

I said I’d wait, and bought five hundred shares more of UP. I couldn’t imagine what Harding could have to say to me. I didn’t think it was anything about business. My margin was more than ample for what I was buying. Pretty soon the manager came and told me that Mr. Harding wanted me on the long-distance telephone.

“Hello, Ed,” I said.

But he said, “What the devil’s the matter with you? Are you crazy?”

“Are you?” I said.

“What are you doing?” he asked.

“What do you mean?”

“Buying all that stock.”

“Why, isn’t my margin all right?”

“It isn’t a case of margin, but of being a plain sucker.”

“I don’t get you.”

“Why are you buying all that Union Pacific?”

“It’s going up,” I said.

“Going up, hell! Don’t you know that the insiders are feeding it out to you? You’re just about the easiest mark up there. You’d have more fun losing it on the ponies. Don’t let them kid you.”

“Nobody is kidding me,” I told him. “I haven’t talked to a soul about it.”