At the beginning of the bull market I thought well of the outlook in both the Steel trade and the Copper market and I therefore felt bullish on stocks of both groups. So I started to accumulate some of them. I began by buying 5000 shares of Utah Copper and stopped because it didn’t act right. That is, it did not behave as it should have behaved to make me feel I was wise in buying it. I think the price was around 114. I also started to buy United States Steel at almost the same price. I bought in all 20,000 shares the first day because it did act right. I followed the method I have described before.
Steel continued to act right and I therefore continued to accumulate it until I was carrying 72,000 shares of it in all. But my holdings of Utah Copper consisted of my initial purchase. I never got above the 5000 shares. Its behaviour did not encourage me to do more with it.
Everybody knows what happened. We had a big bull movement. I knew the market was going up. General conditions were favourable. Even after stocks had gone up extensively and my paper profit was not to be sneezed at, the tape kept trumpeting: _Not yet! Not yet!_ When I arrived in Washington the tape was still saying that to me. Of course, I had no intention of increasing my line at that late day, even though I was still bullish. At the same time, the market was plainly going my way and there was no occasion for me to sit in front of a quotation board all day, in hourly expectation of getting a tip to get out. Before the clarion call to retreat came--barring an utterly unexpected catastrophe, of course--the market would hesitate or otherwise prepare me for a reversal of the speculative situation. That was the reason why I went blithely about my business with my Congressman.
At the same time, prices kept going up and that meant that the end of the bull market was drawing nearer. I did not look for the end on any fixed date. That was something quite beyond my power to determine. But I needn’t tell you that I was on the watch for the tip-off. I always am, anyhow. It has become a matter of business habit with me.
I cannot swear to it but I rather suspect that the day before I sold out, seeing the high prices made me think of the magnitude of my paper profit as well as of the line I was carrying and, later on, of my vain efforts to induce our legislators to deal fairly and intelligently by Wall Street. That was probably the way and the time the seed was sown within me. The subconscious mind worked on it all night. In the morning I thought of the market and began to wonder how it would act that day. When I went down to the office I saw not so much that prices were still higher and that I had a satisfying profit but that there was a great big market with a tremendous power of absorption. I could sell any amount of stock in that market; and, of course, when a man is carrying his full line of stocks, he must be on the watch for an opportunity to change his paper profit into actual cash. He should try to lose as little of the profit as possible in the swapping. Experience has taught me that a man can always find an opportunity to make his profits real and that this opportunity usually comes at the end of the move. That isn’t tape-reading or a hunch.
Of course, when I found that morning a market in which I could sell out all my stocks without any trouble I did so. When you are selling out it is no wiser or braver to sell fifty shares than fifty thousand; but fifty shares you can sell in the dullest market without breaking the price and fifty thousand shares of a single stock is a different proposition. I had seventy-two thousand shares of U.S. Steel. This may not seem a colossal line, but you can’t always sell that much without losing some of that profit that looks so nice on paper when you figure it out and that hurts as much to lose as if you actually had it safe in the bank.
I had a total profit of about $1,500,000 and I grabbed it while the grabbing was good. But that wasn’t the principal reason for thinking that I did the right thing in selling out when I did. The market proved it for me and that was indeed a source of satisfaction for me. It was this way: I succeeded in selling my entire line of seventy-two thousand shares of U.S. Steel at a price which averaged me just one point from the top of the day and of the movement. It proved that I was right, to the minute. But when, on the very same hour of the very same day I came to sell my 5000 shares of Utah Copper, the price broke five points. Please recall that I began buying both stocks at the same time and that I acted wisely in increasing my line of U.S. Steel from twenty thousand shares to seventy-two thousand, and equally wisely in not increasing my line of Utah from the original 5000 shares. The reason why I didn’t sell out my Utah Copper before was that I was bullish on the copper trade and it was a bull market in stocks and I didn’t think that Utah would hurt me much even if I didn’t make a killing in it. But as for hunches, there weren’t any.
The training of a stock trader is like a medical education. The physician has to spend long years learning anatomy, physiology, materia medica and collateral subjects by the dozen. He learns the theory and then proceeds to devote his life to the practice. He observes and classifies all sorts of pathological phenomena. He learns to diagnose. If his diagnosis is correct--and that depends upon the accuracy of his observation--he ought to do pretty well in his prognosis, always keeping in mind, of course, that human fallibility and the utterly unforeseen will keep him from scoring 100 per cent of bull’s-eyes. And then, as he gains in experience, he learns not only to do the right thing but to do it instantly, so that many people will think he does it instinctively. It really isn’t automatism. It is that he has diagnosed the case according to his observations of such cases during a period of many years; and, naturally, after he has diagnosed it, he can only treat it in the way that experience has taught him is the proper treatment. You can transmit knowledge--that is, your particular collection of card-indexed facts--but not your experience. _A man may know what to do and lose money--if he doesn’t do it quickly enough._
Observation, experience, memory and mathematics--these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed. He cannot bet on the unreasonable or on the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities--that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.
A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses _the experience and the memory_. And then, like the physician who keeps up with the advances of science, _the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets_. After years at the game it becomes a habit to keep posted. He acts almost automatically. He requires the invaluable professional attitude and that enables him to beat the game--at times! This difference between the professional and the amateur or occasional trader cannot be overemphasised. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, _it makes its money by dealing with facts and figures_.
When I said that a trader has to keep posted to the minute and that he must take a purely professional attitude toward all markets and all developments, I merely meant to emphasise again that hunches and the mysterious ticker-sense haven’t so much to do with success. Of course, it often happens that an experienced trader acts so quickly that he hasn’t time to give all his reasons in advance--but nevertheless they are good and sufficient reasons, because they are based on facts collected by him in his years of working and thinking and seeing things from the angle of the professional, to whom everything that comes to his mill is grist. Let me illustrate what I mean by professional attitude.
I keep track of the commodities markets, always. It is a habit of years. As you know, the Government reports indicated a winter wheat crop about the same as last year and a bigger spring wheat crop than in 1921. The condition was much better and we probably would have an earlier harvest than usual. When I got the figures of condition and I saw what we might expect in the way of yield--mathematics--I also thought at once of the coal miner’s strike and the railroad shopmen’s strike. I couldn’t help thinking of them because my mind always thinks of all developments that have a bearing on the markets. It instantly struck me that the strike which had already affected the movement of freight everywhere must affect wheat prices adversely. I figured this way: There was bound to be considerable delay in moving winter wheat to market by reason of the strike-crippled transportation facilities, and by the time those improved the spring wheat crop would be ready to move. That meant that when the railroads were able to move wheat in quantity they would be bringing in both crops together--the delayed winter and the early spring wheat--and that would mean a vast quantity of wheat pouring into the market at one fell swoop. Such being the facts of the case--the obvious probabilities--the traders, who would know and figure as I did, would not bull wheat for a while. They would not feel like buying it unless the price declined to such figures as made the purchase of wheat a good investment. With no buying power in the market, the price ought to go down. Thinking the way I did I must find whether I was right or not. As old Pat Hearne used to remark, “You can’t tell till you bet.” Between being bearish and selling there is no need to waste time.