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.