That is why I said to friends that my dream had come true and that I had been king for a moment. The stock market at one time that day certainly was at the mercy of anybody who wanted to hammer it. I do not suffer from delusions of grandeur; in fact you know how I feel about being accused of raiding the market and about the way my operations are exaggerated by the gossip of the Street.
I came out of it in fine shape. The newspapers said that Larry Livingston, the Boy Plunger, had made several millions. Well, I was worth over one million after the close of business that day. But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at last learned to trade intelligently in a big way. It was a day of days for me.
_X_
The recognition of our own mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a licking, you do not hanker for a second dose, and, of course, all stock-market mistakes wound you in two tender spots--your pocketbook and your vanity. But I will tell you something curious: A stock speculator sometimes makes mistakes and knows that he is making them. And after he makes them he will ask himself why he made them; and after thinking over it cold-bloodedly a long time after the pain of punishment is over he may learn how he came to make them, and when, and at what particular point of his trade; but not why. And then he simply calls himself names and lets it go at that.
Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.
To tell you about the first of my million-dollar mistakes I shall have to go back to this time when I first became a millionaire, right after the big break of October, 1907. As far as my trading went, having a million merely meant more reserves. Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong. And when a millionaire is right his money is merely one of his several servants. Losing money is the least of my troubles. _A loss never bothers me after I take it. I forget it overnight. But being wrong--not taking the loss--that is what does the damage to the pocketbook and to the soul._ You remember Dickson G. Watts’ story about the man who was so nervous that a friend asked him what was the matter.
“I can’t sleep,” answered the nervous one.
“Why not?” asked the friend.
“I am carrying so much cotton that I can’t sleep thinking about it. It is wearing me out. What can I do?”
“Sell down to the sleeping point,” answered the friend.
As a rule a man adapts himself to conditions so quickly that he loses the perspective. He does not feel the difference much--that is, he does not vividly remember how it felt not to be a millionaire. He only remembers that there were things he could not do that he can do now. It does not take a reasonably young and normal man very long to lose the habit of being poor. It requires a little longer to forget that he used to be rich. I suppose that is because money creates needs or encourages their multiplication. I mean that after a man makes money in the stock market he very quickly loses the habit of not spending. But after he loses his money it takes him a long time to lose the habit of spending.
After I took in my shorts and went long in October, 1907, I decided to take it easy for a while. I bought a yacht and planned to go off on a cruise in Southern waters. I am crazy about fishing and I was due to have the time of my life. I looked forward to it and expected to go any day. But I did not. The market wouldn’t let me.
_I always have traded in commodities as well as in stocks._ I began as a youngster in the bucket shops. I studied those markets for years, though perhaps not so assiduously as the stock market. As a matter of fact, _I would rather play commodities than stocks_. There is no question about their greater legitimacy, as it were. It partakes more of the nature of a commercial venture than trading in stocks does. A man can approach it as he might any mercantile problem. It may be possible to use fictitious arguments for or against a certain trend in a commodity market; but success will be only temporary, _for in the end the facts are bound to prevail_, so that a trader gets dividends on study and observation, as he does in a regular business. He can watch and weigh conditions and he knows as much about it as anyone else. He need not guard against inside cliques. Dividends are not unexpectedly passed or increased overnight in the cotton market or in wheat or corn. _In the long run commodity prices are governed but by one law--the economic law of demand and supply._ The business of the trader in commodities is simply to get facts about the demand and the supply, present and prospective. He does not indulge in guesses about a dozen things as he does in stocks. It always appealed to me--trading in commodities.
Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions, that the answers will supply themselves directly. But people never take the trouble to ask questions, leave alone seeking answers. The average American is from Missouri everywhere and at all times except when he goes to the brokers’ offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. _He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile._
This matter of tape reading is not so complicated as it appears. Of course you need experience. But it is even more important to keep certain fundamentals in mind. To read the tape is not to have your fortune told. The tape does not tell you how much you will surely be worth next Thursday at 1:35 P.M. The object of reading the tape is to ascertain, first, how and, next, when to trade--that is, whether it is wiser to buy than to sell. It works exactly the same for stocks as for cotton or wheat or corn or oats.
You watch the market--that is, the course of prices as recorded by the tape--with one object: to determine the direction--that is, the price tendency. Prices, we know, will move either up or down according to the resistance they encounter. For purposes of easy explanation we will say that _prices, like everything else, move along the line of least resistance_. They will do whatever comes easiest, therefore they will go up if there is less resistance to an advance than to a decline; and vice versa.
Nobody should be puzzled as to whether a market is a bull market or a bear market after it fairly starts. The trend is evident to a man who has an open mind and reasonably clear sight, for it is never wise for a speculator to fit his facts to his theories. Such a man will, or ought to, know whether it is a bull or a bear market, and if he knows that he knows whether to buy or to sell. It is therefore at the very inception of the movement that a man needs to know whether to buy or to sell.
Let us say, for example, that the market, as it usually does in those between-swings times, fluctuates within a range of ten points; up to 130 and down to 120. It may look very weak at the bottom; or, on the way up, after a rise of eight or ten points, it may look as strong as anything. A man ought not to be led into trading by tokens. _He should wait until the tape tells him that the time is ripe. As a matter of fact, millions upon millions of dollars have been lost by men who bought stocks because they looked cheap or sold them because they looked dear. The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is his signal to get busy._
Reading the tape merely enables him to see that at 130 the selling had been stronger than the buying and a reaction in the price logically followed. Up to the point where the selling prevailed over the buying, superficial students of the tape may conclude that the price is not going to stop short of 150, and they buy. But after the reaction begins to hold on, or sell out at a small loss, or they go short and talk bearish. But at 120 there is stronger resistance to the decline. The buying prevails over the selling, there is a rally and the shorts cover. The public is so often whipsawed that one marvels at their persistence in not learning their lesson.