Chapter 8

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

The Union Pacific incident in Saratoga in the summer of 1906 made me more independent than ever of tips and talk. I no longer relied on other people’s opinions, guesses, or suspicions, however friendly or capable they might be. Events, not vanity, proved that I could read the tape more accurately than most people around me. I was also better equipped than the average Harding Brothers customer because I was completely free of speculative prejudices. The bear side appeals to me no more than the bull side, and the bull side appeals no more than the bear side. My one firm 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.

Even as a boy, I always drew my own conclusions from the facts I observed. That is the only way facts mean anything to me. I cannot draw the conclusions someone else tells me to draw. They are my facts, don’t you see? If I believe something, you can be sure it is because I simply have to. When I hold stocks, it is because my reading of conditions has made me bullish. But many people who are considered intelligent are bullish because they own stocks. I do not let my possessions or my preconceptions do my thinking for me. That is why I keep saying that I never argue with the tape. Getting angry at the market because it moves against you unexpectedly or even illogically is like getting angry at your lungs because you have pneumonia.

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

I had gradually come to realize how much more there was to stock speculation than tape reading. Old man Partridge insisted that staying bullish throughout a bull market was vital. This doubtless led me to think about how important it was to identify the kind of market I was trading in. That mattered more than anything else. I began to realize that the big money had to be in the big swing. Whatever seemed to start a big swing, its continuation depended on basic conditions. It was not the result of manipulation by pools or tricks by financiers. And no matter who opposed the swing, it had to run as far and as fast and for as long as the forces driving it dictated.

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

After Saratoga, I began to see things more clearly, or perhaps more maturely. Since the entire list of stocks moves with the main market trend, I had less need to study individual plays or the behavior of particular stocks than I had imagined. Thinking about the market’s swing also meant a trader was not limited in what he could trade. He could buy or sell the entire list. In certain stocks, a short position becomes dangerous once a man sells more than a certain percentage of the company’s shares. The percentage depends on how, where, and by whom the shares are held. But he could sell a million shares across the general list, if he had the money, without risking a squeeze. In the old days, insiders periodically made a great deal of money from short sellers. The insiders carefully encouraged their 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.

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 understand that basic principle before I saw what it meant in practice. It meant anticipating what was likely to happen. It took me a long time to learn to trade that way. But to be fair to myself, I must remind you that I had never had enough money to speculate that way before. A big market swing can mean big money if you have a large position. But to trade a large position, you need a large balance in your brokerage account.

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.

I always had to earn my living from the stock market, or at least I felt I did. This made it harder to build up the money I needed to trade on market swings. That method was more profitable but slower, and therefore more expensive in the short term.

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

My confidence in myself grew stronger. My brokers also stopped thinking of me as a Boy Plunger who only got lucky now and then. They had made a lot of money from my commissions. But now I was on my way to becoming their star customer. As such, I would be valuable to them beyond the commissions from my trading. A customer who makes money is an asset to any broker’s office.

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

Once I was no longer satisfied with just studying the stock ticker tape, I stopped focusing exclusively on daily fluctuations in individual stocks. So I had to study the game from a different angle. I worked backward from stock quotes to first principles, and from price fluctuations to underlying conditions.

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

Of course, I had been reading the daily market reports regularly for a long time. All traders do. But much of the material was gossip, some was deliberately false, and the rest was merely the writers’ personal opinions. Even the respected weekly reviews were not entirely satisfactory when they discussed underlying conditions. Financial editors usually saw things differently than I did. For them, gathering the facts and drawing conclusions from them was not vital. For me, it was. We also differed greatly in how we judged the importance of timing. The analysis of the past week mattered less to me than the forecast for the weeks ahead.

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.

For years, my inexperience, youth, and lack of capital had worked against me. But now I felt the thrill of a discoverer. My new outlook on the game explained why I had repeatedly failed to make big money in New York. Now I had enough capital, experience, and confidence. But I was so eager to try my new key that I missed another lock on the door: a time lock! It was a perfectly natural oversight. I had to pay the usual tuition, a hefty price for every step forward.

I studied the situation in 1906 and I thought that the money outlook was particularly serious. Much actual wealth the world over had been destroyed. Everybody must sooner or later feel the pinch, and therefore nobody would be in position to help anybody. It would not be the kind of hard times that comes from the swapping of a house worth ten thousand dollars for a carload of race horses worth eight thousand dollars. It was the complete destruction of the house by fire and of most of the horses by a railroad wreck. It was good hard cash that went up in cannon smoke in the Boer War, and the millions spent for feeding nonproducing soldiers in South Africa meant no help from British investors as in the past. Also, the earthquake and the fire in San Francisco and other disasters touched everybody—manufacturers, farmers, merchants, labourers and millionaires. The railroads must suffer greatly. I figured that nothing could stave off one peach of a smash. Such being the case there was but one thing to do—sell stocks!

I studied the situation in 1906 and thought the money outlook was particularly serious. A great deal of actual wealth had been destroyed around the world. Everyone would feel the pinch sooner or later, so no one would be in a position to help anyone else. This would not be the kind of hard times that comes from trading a $10,000 house for a carload of racehorses worth $8,000. It was as if the house had burned down and most of the horses had died in a railroad wreck. Good hard cash had gone up in cannon smoke in the Boer War. Millions more had been spent feeding soldiers in South Africa who produced nothing. That meant British investors would not be able to help as they had in the past. The earthquake and fire in San Francisco and other disasters also affected everyone: manufacturers, farmers, merchants, laborers, and millionaires. The railroads would suffer greatly. I figured nothing could prevent one hell of a crash. Since that was the case, there was only one thing to do: sell stocks!

I told you I had already observed that my initial transaction, after I made up my mind which way I was going to trade, was apt to show me a profit. And now when I decided to sell I plunged. Since we undoubtedly were entering upon a genuine bear market I was sure I should make the biggest killing of my career.

I told you I had already noticed that my first trade tended to show a profit once I had decided which way to trade. So when I decided to sell, I went all in. We were undoubtedly entering a genuine bear market, so I was sure I would make the biggest killing of my career.

The market went off. Then it came back. It shaded off and then it began to advance steadily. My paper profits vanished and paper losses grew. One day it looked as if not a bear would be left to tell the tale of the strictly genuine bear market. I couldn’t stand the gaff. I covered. It was just as well. If I hadn’t I wouldn’t have had enough to buy a postal card. I lost most of my fur, but it was better to live to fight another day.

The market fell. Then it recovered. It slipped again and then began to rise steadily. My paper profits vanished, and my paper losses grew. One day, it looked as if no bear would be left to tell the tale of the truly genuine bear market. I couldn’t take the pressure. I covered my short position. It was just as well. If I hadn’t, I wouldn’t have had enough money to buy a postcard. I lost most of my fur, but it was better to live to fight another day.

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. Another big bite out of yours truly! So I read the tape and covered and waited. In due course I sold again—and again they went down promisingly and then they rudely rallied.

I had made a mistake. But where? I expected prices to fall in a falling market. That was wise. I had sold stocks short. That was the right thing to do. I had sold them too soon. That was costly. My position was right, but my timing was wrong. Still, every day brought the market closer to the inevitable crash. So I waited. When the rally began to weaken and pause, I sold short as much stock as my sadly reduced margin allowed. I was right this time, for exactly one whole day. The next day brought another rally. Another big bite out of yours truly! So I read the ticker tape, bought back the stock to cover my short positions, and waited. Eventually, I sold short again. Again, the stocks fell promisingly, then rudely rallied.

It looked as if the market were doing its best to make me go back to my old and simple ways of bucket-shop trading. 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.

It seemed as if the market was doing its best to send me back to my old, simple ways of bucket-shop trading. For the first time, I had made a clear plan for the whole market, not just one or two stocks. I figured I had to win if I held out. Of course, back then I hadn't developed my system for placing bets. If I had, I would have built my short position as the market fell, as I explained last time. Then I wouldn't have lost so much of my margin. I would have been wrong but not hurt. You see, I had noticed certain facts, but I hadn't learned to connect them. My incomplete observations didn't just fail to help me. They actually held me back.

I have always found it profitable to study my mistakes. Thus I eventually discovered that it was all very well not to lose your bear position in a bear market, but that at all times the tape should be read to determine the propitiousness of the time for operating. If you begin right you will not see your profitable position seriously menaced; and then you will find no trouble in sitting tight.

I have always found it profitable to study my mistakes. Eventually, I learned that holding on to a short position in a bear market was a good idea. But I also learned to always read the tape to decide whether the time was right to trade. If you get in at the right time, your profitable position will not be seriously threatened. Then you will have no trouble holding on.

Of course to-day I have greater confidence in the accuracy of my observations—in which neither hopes nor hobbies play any part—and also I have greater facilities for verifying my facts as well as for variously testing the correctness of my views. But in 1906 the succession of rallies dangerously impaired my margins.

Of course, today I have greater confidence in the accuracy of my observations. Neither hopes nor pet theories play any part in them. I also have better means of verifying my facts and of testing the correctness of my views in various ways. But in 1906 the string of rallies dangerously depleted my margins.

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 was nearly twenty-seven years old. I had been trading for twelve years. But the first time I traded because of a coming crisis, I found that I had been looking through a telescope. The time between my first glimpse of the storm cloud and the chance to profit from the big market break was apparently much longer than I had thought. So I began to wonder whether I really saw what I thought I saw so clearly. We had seen many warnings and dramatic spikes in call-money rates. Still, some of the great financiers spoke hopefully, at least to newspaper reporters. And the market rallies that followed seemed to prove the doom-mongers wrong. Was I fundamentally wrong to be bearish, or just temporarily wrong because I had started selling 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 level.

I decided I had started too soon, but I really couldn’t help it. Then the market began to fall. That was my chance. I sold all I could, and then stocks rose again, reaching a fairly high level.

It cleaned me out.

It wiped me out.

There I was—right and busted!

There I was, right and broke!

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.

I tell you, it was remarkable. Here is what happened: I looked ahead and saw a big pile of dollars. A sign stuck out of the pile. It said “Help yourself,” in huge letters. Beside the pile stood a cart with “Lawrence Livingston Trucking Corporation” painted on its side. I had a brand-new shovel in my hand. There was no one else in sight, so I had no competition shoveling up the gold. That is one beauty of seeing the pile of dollars before everyone else. Other people might have seen it if they had stopped to look. Instead, they were watching baseball games, driving around, or buying houses. They would pay for those houses with the very dollars I saw. That was the first time I had seen big money ahead, and naturally I ran toward it. Before I could reach the pile of dollars, I ran out of breath and fell to the ground. The pile of dollars was still there, but I had lost the shovel, and the cart was gone. So much for sprinting too soon! I was too eager to prove to myself that I had seen real dollars, not a mirage. I saw them, and I knew I saw them. I was thinking about the reward for my excellent eyesight. That kept me from considering how far away the pile of dollars was. I should have walked, 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.

That is what happened. I didn’t wait to see whether it was the right time to make a big bet on falling prices. The one time I should have relied on my tape-reading, I didn’t. That’s how I learned that even when you are right to expect prices to fall at the very start of a bear market, it’s best not to sell in large amounts until there’s no danger of the engine backfiring.

I had traded in a good many thousands of shares at Harding’s office in all those years, and, moreover, the firm had confidence in me and our relations were of the pleasantest. I think they felt that I was bound to be right again very shortly and they knew that with my habit of pushing my luck all I needed was a start and I’d more than recover what I had lost. They had made a great deal of money out of my trading and they would make more. So there was no trouble about my being able to trade there again as long as my credit stood high.

Over the years, I had traded many thousands of shares at Harding’s office. The firm had confidence in me, and we got along very well. I think they felt I was bound to be right again very soon. They knew I had a habit of pushing my luck. All I needed was a start, and I would more than recover what I had lost. They had made a great deal of money from my trading, and they would make more. So I had no trouble trading there again, as long as my credit remained good.

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.

The string of beatings I had taken made me less aggressively overconfident. Perhaps I should say less careless, since of course I knew I was that much closer to the crash. All I could do was wait and watch, as I should have done before jumping in. This 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 made no mistakes, he would own the world in a month. But if he didn't learn from his mistakes, he wouldn't own a darn 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.

Well, sir, one fine morning I came downtown feeling sure of myself again. This time I had no doubts. I had seen an advertisement in the financial pages of all the newspapers. It was the signal I hadn’t had the sense to wait for before jumping in. The Northern Pacific and Great Northern railroads were issuing new stock. For the stockholders’ convenience, they could pay in installments. That kind of consideration was new on 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!

For years, the announcement of another “melon” to be cut had always been good news for Great Northern preferred stock. The “melon” was the lucky stockholders’ right to buy shares in a new Great Northern stock issue at par value. These rights were valuable because the market price was always far above par. But now the money market was so tight that the country’s most powerful banking houses were unsure stockholders could pay cash for the bargain. And Great Northern preferred was selling at about 330!

As soon as I got to the office I told Ed Harding, “The time to sell is right now. This is when I should have begun. Just look at that ad, will you?”

As soon as I got to the office, I told Ed Harding, “Now is the time to sell. I should have started selling now. Just look at that ad, will you?”

He had seen it. I pointed out what the bankers’ confession amounted to in my opinion, but he couldn’t quite see the big break right on top of us. He thought it better to wait before putting out a very big short line by reason of the market’s habit of having big rallies. If I waited prices might be lower, but the operation would be safer.

He had seen it. I explained what I thought the bankers’ confession meant, but he couldn’t quite see that a major market drop was imminent. He thought it better to wait before taking a very large short position because the market often had big rallies. If I waited, prices might be lower, but the trade would be safer.

“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.”

“Ed,” I said, “the longer the delay before the decline starts, the sharper it will be. That ad is a signed confession by the bankers. What they fear is what I hope for. The ad is our signal to bet on a falling market. It’s all we needed. If I had ten million dollars, I’d stake every cent of it right now.”

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.

I had to talk and argue some more. He wasn’t satisfied with the conclusions any sane person would draw from that amazing advertisement. Those conclusions were enough for me, but not for most people in the office. I sold a little, but not nearly enough.

A few days later St. Paul very kindly came out with an announcement of an issue of its own; either stocks 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 other two 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?

A few days later, St. Paul kindly announced an issue of its own. I forget whether it was stock or notes. But that doesn’t matter. What mattered then was something I noticed as soon as I read the announcement. St. Paul had set its payment date before the payment dates for Great Northern and Northern Pacific, announced earlier. Grand old St. Paul might as well have shouted through a megaphone. It was trying to beat the other two railroads to what little money was available on Wall Street. St. Paul’s bankers clearly feared there wasn’t enough money for all three. They weren’t saying, “After you, my dear Alphonse!” If money was already that scarce, and you can bet the bankers knew, what would it be like later? The railroads desperately needed money. 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.

Sell them! Of course! The public kept their eyes on the stock market but saw little that week. The wise stock traders saw a lot 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.

For me, that ended all doubt and hesitation. I made up my mind for good, right then and there. That same morning, I began what was really my first campaign using the approach I have followed ever since. I told Harding what I thought and where I stood. He had no objection to my selling Great Northern preferred at around 330 and other stocks at high prices. I learned from my earlier, costly mistakes and sold more intelligently.

My reputation and my credit were reestablished 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 skillful reading of the tape, but as a 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?

My reputation and credit were restored in no time. That’s the beauty of being right in a broker’s office, even by accident. But this time I was right because I had carefully analyzed the conditions affecting the stock market as a whole. It wasn’t a hunch or skillful reading of the ticker tape. I wasn’t guessing. I was anticipating the inevitable. It took no courage to sell stocks. I simply couldn’t see prices going anywhere but down. I had to act on that, 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 counsellors. I wouldn’t even argue, because then they would have thought that I wasn’t grateful for the warnings.

The whole market was soft as mush. Soon there was a rally, and people came to warn me that the decline was over. The big players knew that many investors had bet heavily on falling prices. So they had decided to squeeze the stuffing out of the bears, and so on. The squeeze would cost us pessimists a few million. The big players were sure to show no mercy. I used to thank these kind advisers. I wouldn’t even argue, because then they would have thought I wasn’t grateful for their warnings.

The friend who had been in Atlantic City with me was in agony. He could understand the hunch that was followed by the earthquake. He couldn’t disbelieve in such agencies, since I had made a quarter of a million by intelligently obeying my blind impulse to sell Union Pacific. He even said it was Providence working in its mysterious way to make me sell stocks when he himself was bullish. And he could understand my second UP. trade in Saratoga because he could understand any deal that involved one stock, on which the tip definitely fixed the movement in advance, either up or down. But this thing of predicting that all stocks were bound to go down used to exasperate him. What did that kind of dope do anybody? How in blazes could a gentleman tell what to do?

The friend who had been with me in Atlantic City was in agony. He could understand my hunch, which was followed by the earthquake. He couldn’t dismiss such forces, since I had made a quarter of a million dollars by wisely following my blind impulse to sell Union Pacific. He even said Providence had worked in its mysterious way to make me sell stocks when he himself was bullish. He could also understand my second Union Pacific trade in Saratoga. He could understand any deal involving one stock, where a tip predicted in advance whether the price would go up or down. But predicting that all stocks were bound to go down exasperated him. What good was that kind of information to anyone? How in blazes was a gentleman supposed to know what to do?

I recalled old Partridge’s favourite remark—“Well, this is a bull market, you know”—as though that were tip enough for anybody who was wise enough; as in truth it was. It was very curious how, after suffering tremendous losses from a break of fifteen or twenty points, people who were still hanging on, welcomed a three-point rally and were certain the bottom had been reached and complete recovery begun.

I remembered old Partridge’s favorite remark: “Well, this is a bull market, you know.” He said it as if that were enough of a tip for anyone wise enough to understand. And in fact, it was. I found it very curious how people who were still holding on reacted after a drop of fifteen or twenty points had caused them tremendous losses. They welcomed a three-point rally and were sure the market had bottomed out and a full recovery had begun.

One day my friend came to me and asked me, “Have you covered?”

One day, my friend came to me and asked, “Have you covered?”

“Why should I?” I said.

“Why should I?” I said.

“For the best reason in the world.”

“For the best reason in the world.”

“What reason is that?”

“What reason is that?”

“To make money. They’ve touched bottom and what goes down must come up. Isn’t that so?”

“To make money. They’ve hit bottom, and what goes down must come up. Isn’t that right?”

“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.”

“Yes,” I answered. “First they sink to the bottom. Then they come back up, but not right away. They have to be good and dead for a couple of days. It’s not time for these corpses to rise to the surface. They’re not quite dead yet.”

An old-timer heard me. He was one of those chaps that are always reminded of something. He said that William R. Travers, who was bearish, once met a friend who was bullish. They exchanged market views and the friend said, “Mr. Travers, how can you be bearish with the market so stiff?” and Travers retorted, “Yes! Th-the s-s-stiffness of d-death!” It was Travers who went to the office of a company and asked to be allowed to see the books. The clerk asked him, “Have you an interest in this company?” and Travers answered, “I sh-should s-say I had! I’m sh-short t-t-twenty thousand sh-shares of the stock!”

An old-timer overheard me. He was one of those fellows who are always reminded of something. He said that William R. Travers, who was bearish, once met a friend who was bullish. They swapped views on the market, and the friend said, “Mr. Travers, how can you be bearish with the market so stiff?” Travers shot back, “Yes! Th-the s-s-stiffness of d-death!” It was also Travers who went to a company’s office and asked to see the books. The clerk asked him, “Do you have an interest in this company?” Travers answered, “I sh-should s-say I do! I’m sh-short t-t-twenty thousand sh-shares of the stock!”

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.

Well, the rallies grew weaker and weaker. I was pushing my luck as far as I could. Every time I sold a few thousand shares of Great Northern preferred, the price fell several points. I looked for weak spots elsewhere and sold a few shares there too. All of them fell, with one striking exception: Reading.

When everything else hit the toboggan slide Reading stood like the Rock of Gibraltar. Everybody said the stock was cornered. It certainly acted like it. They used to tell me it was plain suicide to sell Reading short. There were people in the office who were now as bearish on everything as I was. But when anybody hinted at selling Reading they shrieked for help. I myself had sold some short and was standing pat on it. At the same time I naturally preferred to seek and hit the soft spots instead of attacking the more strongly protected specialties. My tape reading found easier money for me in other stocks.

When everything else plunged, Reading stood like the Rock of Gibraltar. Everyone said the stock was cornered. It certainly acted that way. People used to tell me that selling Reading short was pure suicide. Some people in the office were now as bearish on everything as I was. But whenever anyone hinted at selling Reading, they shrieked for help. I had sold some Reading short myself and was holding my position. At the same time, I naturally preferred to find and strike at weak spots rather than attack the better-protected stocks. By reading the ticker tape, I found easier money in other stocks.

I heard a great deal about the Reading bull pool. It was a mighty strong pool. To begin with they had a lot of low-priced stock, so that their average was actually below the prevailing level, according to friends who told me. Moreover, the principal members of the pool had close connections of the friendliest character with the banks whose money they were using to carry their huge holdings of Reading. As long as the price stayed up the bankers’ friendship was staunch and steadfast. One pool member’s paper profit was upward of three millions. That allowed for some decline without causing fatalities. No wonder the stock stood up and defied the bears. Every now and then the room traders looked at the price, smacked their lips and proceeded to test it with a thousand shares or two. They could not dislodge a share, so they covered and went looking elsewhere for easier money. Whenever I looked at it I also sold a little more—just enough to convince myself that I was true to my new trading principles and wasn’t playing favourites.

I heard a lot about the Reading bull pool. It was a very strong pool. For one thing, its members had bought a lot of stock at low prices. Friends told me their average cost was actually below the current price. The pool’s leading members also had very friendly relationships with the banks lending them money to hold their huge positions in Reading. As long as the price stayed up, the bankers remained loyal friends. One pool member’s paper profit was over three million dollars. That left room for some decline without anyone getting wiped out. No wonder the stock held its ground and defied the bears. Now and then, the room traders would look at the price, smack their lips, and test the stock by selling a thousand shares or two. They couldn’t shake a single share loose, so they covered their short positions and went elsewhere looking for easier money. Whenever I looked at the stock, I sold a little more too. I sold just enough to convince myself that I was sticking to my new trading principles and not playing favorites.

In the old days the strength of Reading might have fooled me. The tape kept on saying, “Leave it alone!” But my reason told me differently. I was anticipating a general break, and there were not going to be any exceptions, pool or no pool.

In the past, Reading’s strength might have fooled me. The tape kept saying, “Leave it alone!” But my own judgment told me otherwise. I expected the whole market to fall. There would be no exceptions, whether a stock had a pool behind it or not.

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 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.

I have always worked alone. I started that way in the bucket shops and have kept it up. That is how my mind works. I have to see and think for myself. But after the market began to move in my favor, I felt for the first time that I had allies. They were the strongest and truest allies in the world: underlying conditions. They were helping me with all their might. Perhaps they were a little slow at times to bring up the reserves. But they were dependable, as long as I did not get too impatient. I was not relying on my skill at reading the tape or my hunches to beat chance. The unstoppable 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 was 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.

The important thing was to be right, to know I was right, and to act on it. General conditions, my true allies, said “Down!” But Reading ignored the command. It was an insult to us. It began to annoy me that Reading held firm, as if everything were fine. It should have been the best stock to sell short on the entire list because it had not fallen. The pool also held a lot of stock it would not be able to carry when money became even tighter. Someday the bankers’ friends would fare no better than the friendless public. Reading had to fall along with the other stocks. If Reading didn’t fall, 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.

I figured the price held steady because Wall Street was afraid to sell the stock. So one day, I gave two brokers orders at the same time. I told each to sell 4,000 shares.

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.

You should have seen that cornered stock plunge when the competing orders hit it. Shorting the stock was supposed to be certain suicide. I sold them a few thousand more shares. The price was 111 when I started selling. Within a few minutes, I covered my entire short position 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 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.

I had a wonderful time after that, and in February of 1907 I cashed in. 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 cashed in was that I figured the decline had discounted the immediate future. I expected a fair recovery, but I wasn’t bullish enough to play for a turn. I wasn’t going to lose all the ground I had gained. The market would not be right for me to trade in for a while. I had lost the first ten thousand I made in the bucket shops. I lost it because I traded in season and out, 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. I had seen this break too soon and started selling before it was time. Now that I had a big profit, I wanted to cash in so 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, and I could get both down there. Besides, there are direct wires between Wall Street and Palm Beach.