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.
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 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_.
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.
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!
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?”
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.
“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 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?
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 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?
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 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?