My task, as I should have known after my early reverses at Fullerton’s, was very simple: To look at speculation from another angle. But I didn’t know that there was much more to the game than I could possibly learn in the bucket shops. There I thought I was beating the game when in reality I was only beating the shop. At the same time the tape-reading ability that trading in bucket-shops developed in me and the training of my memory have been extremely valuable. Both of these things came easy to me. I owe my early success as a trader to them and not to my brains or knowledge, because my mind was untrained and my ignorance was colossal. The game taught me the game. And it didn’t spare the rod while teaching.
I remember my very first day in New York. I told you how the bucket shops, by refusing to take my business, drove me to seek a reputable commission house. One of the boys in the office where I got my first job was working for Harding Brothers, members of the New York Stock Exchange. I arrived in this city in the morning, and before one o’clock that same day I had opened an account with the firm and was ready to trade.
I didn’t explain to you how natural it was for me to trade there exactly as I had done in the bucket shops, where all I did was to bet on fluctuations and catch small but sure changes in prices. Nobody offered to point out the essential differences or set me right. 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.
They were having some pretty lively times those days and the market was very active. That always cheers up a fellow. I felt at home right away. There was the old familiar quotation board in front of me, talking a language that I had learned before I was fifteen years old. There was a boy doing exactly the same thing I used to do in the first office I ever worked in. There were the customers--same old bunch--looking at the board or standing by the ticket calling out the prices and talking about the market. The machinery was to all appearances the same machinery that I was used to. The atmosphere was the atmosphere I had breathed since I had made my first stock-market money--$3.12 in Burlington. The same kind of ticker and the same kind of traders, therefore the same kind of game. And remember, I was only twenty-two. I suppose I thought I knew the game from A to Z. Why shouldn’t I?
I watched the board and saw something that looked good to me. It was behaving right. I bought a hundred at 84. I got out at 85 in less than a half hour. Then I saw something else I liked, and I did the same thing; took three-quarters of a point net within a very short time. I began well, didn’t I?
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.
It didn’t worry me, because I couldn’t see where there was anything wrong with me. My moves, also, were right enough, and if I had been trading in the old Cosmopolitan shop I’d have broken better than even. That the machine wasn’t as it ought to be, my eleven hundred vanished dollars plainly told me. But as long as the machinist was all right there was no need to stew. Ignorance at twenty-two isn’t a structural defect.
After a few days I said to myself, “I can’t trade this way here. The ticker doesn’t help as it should!” But I let it go at that without getting down to bed rock. I kept it up, having good days and bad days, until I was cleaned out. I went to old Fullerton and got him to stake me to five hundred dollars. And I came back from St. Louis, as I told you, with money I took out of the bucket shops there--a game I could always beat.
I played more carefully and did better for a while. As soon as I was in easy circumstances I began to live pretty well. I made friends and had a good time. I was not quite twenty-three, remember; all alone in New York with easy money in my pockets and the belief in my heart that I was beginning to understand the new machine.
I was making allowances for the actual execution of my orders on the floor of the Exchange, and moving more cautiously. But I was still sticking to the tape--that is, I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game.
We ran into the big boom of 1901 and I made a great deal of money--that is, for a boy. You remember those times? The prosperity of the country was unprecedented. We not only ran into an era of industrial consolidations and combinations of capital that beat anything we had had up to that time, but the public went stock mad. In previous flush times, I have heard, Wall Street used to brag of two-hundred-and-fifty-thousand-share days, when securities of a par value of twenty-five million dollars changed hands. But in 1901 we had a three-million-share day. Everybody was making money. The steel crowd came to town, a horde of millionaires with no more regard for money than drunken sailors. The only game that satisfied them was the stock market. We had some of the biggest high rollers the Street ever saw: John W. Gates, of ‘Bet-you-a-million’ fame, and his friends, like John A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore crowd, who sold part of their steel holdings and with the proceeds bought in the open market the actual majority of the stock of the great Rock Island system; and Schwab and Frick and Phipps and the Pittsburg coterie; to say nothing of scores of men who were lost in the shuffle but would have been called great plungers at any other time. A fellow could buy and sell all the stock there was. Keene made a market for the U.S. Steel shares. A broker sold one hundred thousand shares in a few minutes. A wonderful time! And there were some wonderful winnings. And no taxes to pay on stock sales! And no day of reckoning in sight.
Of course, after a while, I heard a lot of calamity howling and the old stagers said everybody--except themselves--had gone crazy. But everybody except themselves was making money. I knew, of course, there must be a limit to the advances and an end to the crazy buying of A.O.T.--Any Old Thing--and I got bearish. But every time I sold I lost money, and if it hadn’t been that I ran darn quick I’d have lost a heap more. I looked for a break, but I was playing safe--making money when I bought and chipping it out when I sold short--so that I wasn’t profiting by the boom as much as you’d think when you consider how heavily I used to trade, even as a boy.
There was one stock that I wasn’t short of, and that was Northern Pacific. My tape reading came in handy. I thought most stocks had been bought to a standstill, but Little Nipper behaved as if it were going still higher. We know now that both the common and the preferred were being steadily absorbed by the Kuhn-Loeb-Harriman combination. 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.
If you remember, the Harriman crowd notified Morgan and Hill of their intention to be represented in the Burlington-Great Northern-Northern Pacific combination, and then the Morgan people at first instructed Keene to buy fifty thousand shares of N.P. to keep the control in their possession. I have heard that Keene told Robert Bacon to make the order one hundred and fifty thousand shares and the bankers did. At all events, Keene sent one of his brokers, Eddie Norton, into the N.P. crowd and he bought one hundred thousand shares of the stock. This was followed by another order, I think, of fifty thousand shares additional, and the famous corner followed. After the market closed on May 8, 1901, the whole world knew that a battle of financial giants was on. No two such combinations of capital had ever opposed each other in this country. Harriman against Morgan; an irresistible force meeting an immovable object.
There I was on the morning of May ninth with nearly fifty thousand dollars in cash and no stocks. As I told you, I had been very bearish for some days, and here was my chance at last. I knew what would happen--an awful break and then some wonderful bargains. There would be a quick recovery and big profits--for those who had picked up the bargains. It didn’t take Sherlock Holmes to figure this out. We were going to have an opportunity to catch them coming and going, not only for big money but for sure money.