The Project Gutenberg eBook of The psychology of speculation
    
This ebook is for the use of anyone anywhere in the United States and
most other parts of the world at no cost and with almost no restrictions
whatsoever. You may copy it, give it away or re-use it under the terms
of the Project Gutenberg License included with this ebook or online
at www.gutenberg.org. If you are not located in the United States,
you will have to check the laws of the country where you are located
before using this eBook.

Title: The psychology of speculation
        The human element in stock market transactions

Author: Henry Howard Harper

Illustrator: Haydon Jones

Release date: May 18, 2024 [eBook #73647]

Language: English

Original publication: Boston: privately printed

Credits: Tim Lindell, Craig Kirkwood, and the Online Distributed Proofreading Team at https://www.pgdp.net (This book was produced from images made available by the HathiTrust Digital Library.)


*** START OF THE PROJECT GUTENBERG EBOOK THE PSYCHOLOGY OF SPECULATION ***


Transcriber’s Notes:

Text enclosed by underscores is in italics (_italics_).

Additional Transcriber’s Notes are at the end.

       *       *       *       *       *

THE PSYCHOLOGY OF SPECULATION

       *       *       *       *       *

[Illustration]




THE PSYCHOLOGY OF SPECULATION


  THE HUMAN ELEMENT IN STOCK MARKET
  TRANSACTIONS

  BY
  HENRY HOWARD HARPER

  WITH
  ILLUSTRATIONS BY HAYDON JONES

  PRIVATELY PRINTED

  BOSTON--MDCDXXVI

       *       *       *       *       *

  COPYRIGHT 1926 BY
  HENRY HOWARD HARPER
  _All rights reserved_

       *       *       *       *       *

BOOKS BY THE SAME AUTHOR

  Booklovers, Bibliomaniacs and Book Clubs
  Bob Hardwick
  A Journey in South-eastern Mexico
  The Stumbling Block
  Random Verses
  The Codicil
  The Unexpected Hodgkins
  The Story of a Manuscript
  Byron’s Malach Hamoves
  The Tides of Fate
  The Devils’ Nest
  Library Essays
  Highlights of Foreign Travel

(_All of the above are out of print_)

  The Torch Press
  CEDAR RAPIDS, IOWA




THE PURPOSE OF THIS BOOK


There are many persons who, although knowing a great deal about the
stock market, do not realize that the reason why they cannot “beat” it,
is that they know too little about themselves. There are others who
know their limitations well enough to let this monster problem alone.
As it is important that one should learn to swim before plunging into
deep water, so it is well to know some of the dangers of the stock
market before delving into it.

It is not the purpose of this book to dissuade anyone from buying and
selling securities, but merely to point out some of the stumbling
blocks and handicapping influences that speculators, and even
investors, are sure to encounter.

H. H. H.

       *       *       *       *       *

THE PSYCHOLOGY OF SPECULATION




THE HUMAN ELEMENT IN STOCK MARKET TRANSACTIONS


The stock market literature of the past thirty years would make a vast
library in itself--one that would provide reading for a lifetime.
Perhaps there is no other subject, apart from the eternal topic of
love, in which more people are vitally concerned, either directly
or indirectly. Since most of the country’s wealth and commerce is
controlled by corporations whose securities are listed on the various
stock exchanges, the price fluctuations, which often reach the daily
aggregate of hundreds of millions of dollars, either in loss or
enhancement of value, are necessarily a matter of general concern.
In 1925 the stock transactions on the New York Stock Exchange alone
amounted to the stupendous and unprecedented total of well over
452,000,000 shares, while the sales of listed bonds totaled more than
$3,398,000,000. These figures, of course, do not include the unknown
billions of dollars worth of securities bought and sold on a dozen or
more other exchanges and through private channels.

[Illustration]

In addition to the large daily grist of “Market Opinions,” many books
and pamphlets are written which purport to be “Guides to Traders,”
or up-to-date recipes for “Beating Wall Street.” They set forth an
exhaustive array of statistics, instructions and warnings; they
furnish elaborately charted plans indicating many of the pitfalls of
speculation; they tell how to avoid these, how to buy, what to buy,
when to buy and how to make money; but while the theories advanced are
oftentimes sound and easily comprehended, very few people profit by
them, because when once caught in the maelstrom of stock speculation
the average man becomes more or less mesmerized, and at critical
moments his conservatism, his resolutions and his theories all take
flight. Under the discomposing influence of a rapid succession of
changing values and alternating impulses he loses his perspective, is
incapable of calm reasoning, and is likely to do precisely the opposite
of what he had intended doing. Like a piece of driftwood in a swirling
stream, his actions are controlled less by personal instigation than
by the currents about him. Therefore to write, however intelligently,
or to read, however studiously, about how to make money in the stock
market is largely wasted effort in imparting, also in acquiring,
information that does not adequately inform. Not that the instructor’s
premises are faulty, or that the reader is deficient in understanding;
but that the difficulties which necessarily attend the application of
the scheme of operations subsisting in the mind of the author are so
perplexing and disconcerting that the disciple becomes incapable of
adhering to sound basic principles. And it must be perfectly obvious
to anyone that even the teacher himself is not a master, but merely
an expounder, of his own principles; for otherwise he would be a
capitalist instead of a professional scribbler. Notwithstanding the
many excellent books which have been written on the subject, the real
secret of stock market success still remains (and probably always will
remain) locked up in the bosoms of a few who are too busy to write, and
too rich to feel the need of writing.




THE PERNICIOUS INFLUENCE OF THE STOCK TICKER


The individual who trades or invests in stocks will do well to keep
away from the stock ticker; for the victim of “tickeritis” is no more
capable of reasonable and self-composed action than one who is in the
delirium of typhoid fever. The gyroscopic action of the prices recorded
on the ticker-tape produces a sort of mental intoxication, which
foreshortens the vision by involuntary submissiveness to momentary
influences. It also produces on some minds an effect somewhat similar
to that which one feels after standing for a considerable time intently
watching the water as it flows over Niagara Falls. Dozens of people,
without any suicidal intentions, have been drawn into this current and
dashed on the rocks below. And thousands daily are influenced by the
stock ticker to commit the most fatuous blunders.

[Illustration]

As a camera fails to record a true picture if placed in too close
juxtaposition to the object, so in studying the ticker-tape one is
restricted to a close-up view of conditions, resulting in a distorted
gauge of values; for the figures recorded often mislead and confuse
the attentive observer; in fact it frequently happens that the
price fluctuations result from a wave of hysteria among a coterie
of traders, and bear but little analogy to the true value of the
stocks. To illustrate this point more explicitly, the stock of almost
any conservatively capitalized and well managed concern paying six
dollars annually in dividends has an investment value of from $85 to
$100 a share; but in the ups and downs of the market the stock gets
buffeted about on the exchange in obedience to the varying sentiments
of traders, sometimes selling as low as $50, and at other times as
high as $150, without any change whatever in the company’s earnings,
its prospects, or its management. (These matters will be dealt with a
little farther on, and exemplified by showing their effects upon the
mentalities of various types of speculators.) It does not follow that
one who keeps in touch with the stock market by telephone, or through
the daily papers, will find his path free from thorns and snares; but
he will at least have a more open perspective than one who submits to
the influence of the ticker.

Any intelligent trader may reason out exactly what he ought to do under
certain specific conditions; but in the quickly shifting and uncertain
process of determining values he loses his mental poise; and experience
proves that anyone whose reasoning faculties become confounded is apt
to be affected by some form of hysteria, and will frequently do the
opposite of what he would do under normal conditions.

The most copious and the most unreliable financial writers are the
market “tipsters” who write daily letters of advice to an army of
subscribers, and claim to have more or less positive knowledge of
what certain stocks or groups of stocks are going to do marketwise.
They often profess to have definite “inside information,” which any
subscriber may receive at a stated price, ranging anywhere from $10
a month upward. These false financial prophets, who lead a horde of
blind followers, should not be confused with reputable bureaus and
statistical experts who base their opinions and their advice to clients
upon a logical analysis of general conditions.

[Illustration]

Henry Fielding wrote a whole essay to prove that a man can write
more informingly on topics of which he has some knowledge than on
matters that he knows nothing about. He believed also that mankind
is more agreeably entertained by example than by precept; therefore
it is not the purpose of this discourse to teach anybody anything,
unless perchance something may be gained by example or suggestion.
There are four subjects on which advice, however good, is generally
wasted,--politics, stock speculation, religion, and love; for in these
matters grown-ups rarely follow the advice of others, and when they do,
if they profit by it they take all the credit to themselves, whereas if
they lose they always blame the adviser. Such are the inexorable and
universal laws of human nature.

Anyone may relate his own stock market experiences, or those of
others--perhaps to the surprise or enlightenment of his audience. He
may even venture his opinions on the subject; but for anybody to assume
that he can continuously operate an unfailing system of making money
on stock or grain exchanges would be equivalent to asserting that he
could invert the fundamental laws of psychology, or that he could beat
the game at Monte Carlo by scientific methods. Many have tried both, to
their sorrow.

And still, hundreds of thousands of people continue to play at gambling
tables, and hundreds of thousands speculate in stocks. There are many
persons who gamble moderately all their lives, just as some drink
moderately all their lives, with no resultant harm; while with others
both of these inhibited practices become fixed and ruinous vices. Since
trading in stocks has the appearance of being an easy way of making
money, it is one of the most alluring pursuits of modern times; and
from this very fact, although legalized for all, it is susceptible
of becoming one of the most dangerous habits known. It is dangerous
for the confirmed addict not only because he is apt to lose, but for
the reason that it distracts his attention from business in daytime
and frequently destroys his rest at night. But as it would be folly to
advise people not to embark in commercial pursuits because statistics
show that upwards of ninety per cent. of business ventures result in
failure, so it would be useless to caution people not to trade in
stocks because it is a hazardous undertaking in which a peculiar sort
of sagacity and self-control are the only safeguards against certain
disaster.

Most people of sturdy mentality are unwilling to admit that they could
be made easy subjects of hypnotic influences, and would scout the idea
that mere business transactions in securities could effect any undue
subversion of their equipoise. The average human mind is, however,
incapable of maintaining its equilibrium under the strain of great
excitement; and no amount of knowledge, either inherent or acquired,
no amount of experience, however dearly bought, will enable one
always to think intelligently or act wisely under highly nerve-racking
conditions. It is said that persons who become disoriented in a forest
will almost invariably go in the wrong direction (I have done so myself
on two different occasions); and that in an effort to salvage goods
from a burning house they will throw mirrors and other fragile articles
out a third-story window and carry pillows downstairs.




THE DISCONCERTING EFFECT OF SUDDEN LOSSES AND GAINS


There are but few things more unbalancing to the mind than the act
of suddenly winning or losing large sums of money. A few years ago
at Monte Carlo I was in company with a friend, a well known man of
affairs who while there played at roulette nearly every day, merely as
a pastime. He was of mature age, naturally methodical, conservative,
temperate and cool-headed. He made it an unalterable rule to limit
his losses to $200 at any one sitting, and on losing this amount he
always stopped playing. His bets were usually limited to two dollars
on the numbers, and never doubled except for one turn of the wheel
when his number won. He generally played three numbers at a time; never
more than four. For ten consecutive sittings luck was against him and
each time he had lost his stake of $200. I saw him get up and leave
the room, apparently in a state of disgust. An hour or so later I
discovered him at a roulette table in another room stacking his chips
in piles on a dozen or more numbers. Now and again when he exceeded the
limit the watchful croupier reduced his bets and pushed a few disks
back to him. In addition to betting on the numbers he was staking a
thousand franc note on one of the three columns, another thousand on
the colors, and a like amount on the center dozen. In one run he lost
seventeen consecutive bets on red, of a thousand francs each. His eyes
were bloodshot, his fingers twitched, and plainly he was under the
strain of great agitation. He continued to play for three hours or so,
when all of a sudden he got up, stood for a moment looking dazedly
about, then left the table. He afterwards told me that he lost twenty
thousand dollars; and that he hadn’t the slightest recollection of
anything that happened during the play, nor did he realize the amount
he was betting. In this connection, it is a fact not generally known,
that many rich men sign printed cards of instructions to the proprietor
of a certain well known gambling club in the South, directing him
to stop their play and refuse them further credit beyond a certain
specified sum on any one day or evening of play, and refusing to become
responsible beyond that amount. If men who trade in the stock market
were to impose like restrictions upon their transactions the losses
would in many cases be greatly minimized.




RETIRED BUSINESS MEN IN THE STOCK MARKET


Retired business men suffering from _ennui_, have often had recourse to
the stock market as a means of stimulating their emotions and expanding
their fortunes; with the result, in the first of these purposes they
have usually succeeded beyond their expectations, while in the second
they have met with uncharted obstacles. Some years ago when many of
the great trusts were in process of formation a well known Pittsburgh
magnate sold out his business to the United States Steel Corporation
and later bought a home in New York and turned his attention to
stock speculation. After plunging into a boiling market and buying
thousands of shares at top prices, the trend eventually changed and he
found himself on the crest of a tobogganing market with more than a
hundred thousand shares of speculative stocks. At length when the pace
threatened both his fortune and his peace of mind, in a fit of disgust
he dumped his holdings overboard and proceeded to damn the market, the
broker and everything else, including himself for being such an unlucky
simpleton.

[Illustration]

“My dear Mr. Blank,” said his broker, “you are possibly quite justified
in all your abuse, except that of yourself, to whom you really should
apologize, since you do yourself a great injustice. You have had six
months’ experience in this game at an expense of a little less than
two millions of dollars, whereas at the pace you began you were due to
lose at least five times that amount but for your rare judgment and
cool-headedness.”

“But why in hell didn’t you tell me all this before?” inquired
the irate customer. To which the broker calmly replied, “It’s my
business to _take_ orders; not to give directions to a man of your
understanding.”

When the American Hide and Leather Company was formed a number of years
ago, a prominent Boston leather merchant of my acquaintance, sold
his business to the new organization for a round million dollars in
preferred stock and bonds, and in the course of the next few years of
more or less restless inoccupation he devoted himself to a systematic
study of investment securities and general stock market conditions. The
panic of 1907, when values were almost entirely lost sight of in the
mad scramble to liquidate stocks, afforded a rare opportunity to view
the follies of reckless speculation, and our astute leather merchant
was quick to observe the importance of this salutary lesson. The
recovery that followed was almost magical, and many who bought stocks
at the low prices doubled their money in a few months. Then following
this sharp recovery there was the natural setback when speculators
undertook to convert their new wealth into cash. And this too proved a
wholesome lesson to our new apprentice in the game of high finance. For
some years he had held to the conservative practice of investing only
in non-speculative bonds, but this proved to be a slow and monotonous
process of enlarging his fortune; furthermore it was devoid of the
exciting thrills experienced by those who make fortunes overnight. He
thought the funds of widows and orphans ought properly to be invested
in gilt edge bonds and mortgages, but for a man of his business
sagacity, in the prime of life, to content himself with merely cashing
his coupons every six months was to decline into a state of innocuous
desuetude--a condition into which he was determined not to retrograde.
To launch one’s bark into the rapidly shifting currents of fortune in
the stock market and attempt to steer an even course is one of the
surest preventives of _ennui_, and after deliberately weighing and
analysing conditions from every conceivable angle our erstwhile leather
merchant concluded that cutting a few coupons now and then was too
tame an occupation for a man of his acumen and ambition. He informed
his friends that after years of careful study of the “game,” he was
convinced that the reason why people lost, was that while in theory
they all had the right ideas, they all used wrong formulas in practice.
He declared that the “public,” so-called, always “bought at the top and
sold at the bottom”--a commonplace in stock market parlance, though not
necessarily true. Also that the inclination of all speculators is to
venture out beyond their depth, i. e., to buy more stocks than they
can pay for, or protect by ample margin. This indiscretion he thought
to be especially characteristic of those with but small capital, whose
eagerness for large gains outstripped their conservatism and exposed
them to the perils of abrupt and unexpected reactions and panics. He
had never bought more hides and leather than he could pay for, either
with his own funds or with money easily borrowed from banks; he would
never buy more stocks or bonds than he could pay for, or protect with
sufficient margin to carry them through the severest depression.

He was a self-made man; he had entered his firm as errand boy, and by
sheer force of perseverance, ambition and intellect he rose steadily
in usefulness and power until he became sole proprietor of the whole
establishment. His prestige and the bulk of his fortune had been made
in buying and storing goods when the markets were glutted and prices
were low, and holding them till the markets were bare and prices were
high. After accumulating large stores it sometimes required a year or
more of patient waiting for the readjustment of trade conditions;
but never had there been a time when during a given cycle, prices had
not been abnormally low and also abnormally high. He reckoned his
twenty-five years of this sort of training as a singularly qualifying
element of success in buying and selling stocks. This undertaking,
like dealing in hides and leather, required forethought, discretion,
patience and courage. There was scarcely a two-year period in any
decade wherein stocks in general could not be bought reasonably cheap;
nor was there a similar period when at some time during the twenty-four
months they could not be sold at fairly high prices. Statistics proved
this to be almost infallibly true; statistics likewise proved that
the preponderance of failures in his own line of business could be
traced to injudicious purchases of large stores of merchandise at high
prices, with resultant inventory losses. As a merchant he had learned
that buying and selling leather and hides at a profit was a matter of
forecasting future conditions in the light of past events; and as a
student of stock market conditions he learned that a recovery of values
_always_ follows a prolonged slump in the price of stocks, and that
sure success awaits those who pick the right psychological moments to
buy and sell.

[Illustration]

In due time this retired merchant secured a desk in a brokerage office
and undertook to study the stock market systematically at close range,
and to reduce some of his theories to actual practice. He did not
launch into this new venture as one would plunge into a cold bath;
he patiently watched the action of the market from day to day, until
stocks declined to a point where it seemed safe to begin buying on a
scale down. Meanwhile he continued to study stock market charts and
conditions--charts with double bottoms, double tops, pyramids and all
such enlightening information--about past performances. At length he
bought a few hundred shares of selected stocks, depositing bonds as
margin--ample margin of fifty points or more. Prices reacted a little
further, and in keeping with his motto, which was--“Buy on the decline,
when the public is getting out, and sell on the rise when the public
is getting in,” he increased his holdings at every two or three points
decline. In the course of time the market faced about, stocks began
to recover, and in a few weeks he had the satisfaction of seeing his
plans work out successfully in experiment, with a net gain of enough to
cover interest on his investment for more than four years. According
to precedent a temporary reaction was due; therefore, like most wary
beginners, he sold out and cashed in his profits. In his exhaustive
study of stock market psychology he had learned that while it is the
practice of inexperienced traders to take small profits on stocks in
a rising market, it is also their custom to buy the stocks back again
at much higher figures, instead of waiting for prices to decline. This
was one of the danger pits charted on his course of action; one of the
many against which he had built up mental fortifications, strong enough
in seasons of peace and calm, but in most people easily destructible by
the baffling influences of stock market speculation.

Although a beginner in practice, he was a veteran in theory, for prior
to entering the financial arena he had made hundreds of imaginary
purchases and sales, nearly always at a profit. Moreover he had
discovered that one may play both sides of the market, apparently with
equal safety, and that the biggest “killings” are said to be made on
the “short” side. By selling “short” on bulges and “covering” (i. e.,
buying the stock in to cover the sale) on reactions, it was possible
not only to make money both ways, but also to avoid the tedium of
waiting inertly for opportune occasions to buy at bargain-prices.
From the experience of others he derived a valuable lesson, namely,
that investors and traders are always too eager to keep their capital
constantly employed; that they are prone to hold stubbornly to one
position, either long or short; and that the wellnigh irresistible
impulse to get back into the market after selling out, whether at a
profit or a loss, has probably been the ruination of more speculators
than any other one cause. Playing the market both ways seemed a sure
means of forestalling this error.




STOCK MARKET TRANSACTIONS APART FROM GAMBLING


The thought of becoming a stock “gambler” was farthest from this man’s
mind; for gambling in any form was contrary to his code of ethics. But
buying and selling legitimate commodities could not be construed as
gambling; therefore stocks and bonds, being legitimate commodities,
could be bought and sold without doing violence to the most sensitive
conscience. In order to gamble, one must “risk or stake something on
an uncertain event;” which is popularly regarded as a vice, and is
made legally wrong because it is said to be injurious to the public
morals. It also is morally wrong to gamble, because if you win you
deprive your fellow-being of something without giving any adequate
return. Our friend contended that stocks bought at figures below their
intrinsic value are so sure to advance, that the transaction does not
come within the given definition of the word _gamble_; also that the
same rule applies to stocks sold at prices far above their worth, no
matter whether for long or short account. He reasoned that if he gained
by selling a stock short, although someone was apt to be the loser, he
had no means of knowing who that someone was, therefore he assumed no
moral responsibility in prudently acquiring money in a businesslike
way, even at the expense of some indefinite person who had been foolish
enough to risk it. If the act of selling stocks which one does not own
is regarded by some as being unethical in the strictest sense, it is
at least sanctioned by general custom. All sorts of goods are sold for
future delivery, even before they are manufactured; and our erstwhile
merchant had often sold leather for forward delivery, while it was
still in process of tanning; hence he had no scruples against selling
stocks in anticipation of being able to buy and deliver them later.

It is generally conceded that the public is always arrayed on the
“long” side (that is, the buying side) of the market; it is also
universally admitted, at least by those who know, that the so-called
“public” always bears the brunt of stock market losses; therefore our
friend decided that he would act the part of wisdom and go “short” of
the same number of shares that he had previously bought and sold,--the
idea being that before selling his long stock he convinced himself that
approximately the top prices had been reached, in which case the market
would naturally react. But for some inexplicable reason it failed to
run true to his expectations; that is, the probable course deducible
from charts and precedents. Per contra, the prices continued stubbornly
to rise. When he had lost all his profits he backed his judgment by
his actions, and doubled his short sales; and at five points higher
he doubled again, for a break was long overdue. Being short upwards
of three thousand shares in a rapidly rising market is a tremendous
mental strain, even for a seasoned trader; and naturally our novice
became somewhat nervous. Some stock market wiseacre--one or more of
which class are usually to be found lounging about every brokerage
office--consolingly remarked that while stocks have a certain fixed
bottom, they have no top; which increased his anxiety.

After studying charts and various compilations of figures and facts
about earnings and past market performances, he concluded that
Bethlehem Steel, selling at $45 a share, was not worth half that price;
also that Studebaker at $35 was much too high. After an extended
inquiry into the past and prospective earnings of these two companies
he sold short a thousand shares of each; but instead of reacting they
steadily maintained their upward course with the rest of the list. His
broker called for more margin, and he put up another hundred thousand
in bonds. He was advised to “cover” and go “long,” but he stood firmly
by his convictions--and the charts.

“That’s why the public all lose,” he declared; “they get ‘cold feet’
and shift positions at the wrong time.” From a personal friend who was
a director of the new General Motors Corporation he got an “inside
tip” that that stock, selling at $82, was too high, so he added a
few hundred shares of it to his short account. Meantime the country’s
commerce and the entire group of stocks, moved forward with the steady
even tread of an army on parade.




THE STOCK MARKET PRODUCES A NEW PHENOMENON--TURNS WORLD-WIDE DISASTER
INTO LOCAL PROSPERITY


At this time (1915) the major portion of the civilized world was
embroiled in a mad turmoil, employing every known device and resource
in destroying human life and every form of physical property. With the
very foundations of civilization thus disrupted, and our own country
on the verge of being drawn into a deadly combat in which the most
humane and enlightened nations of the earth were reverting to the
practices of ancient barbarism, it is not strange that our merchant
friend should have argued that it was a most unpromising situation upon
which to construct investment values and business prosperity. It was
inconsistent, inconceivable and seemingly impossible that stocks, even
good stocks, could continue to advance in the face of such demoralizing
conditions. When war was first declared, even before England became
involved, the stock market was thrown into such a violent state of
panic that it became necessary to close the stock exchange for several
months; yet now when the clouds of disaster were at their darkest and
hung menacingly over the whole of civilization this country alone was
indulging in a riotous exhibition of prosperity such as had never been
dreamed of. The market tipsters, the financial editors of newspapers,
the brokers’ letters and all stock market literature, with but few
exceptions, were crowing loud and boastfully for still higher prices,
and after the whole group of stocks had risen in unison for a time,
some individual stock was singled out every day or so, pushed into the
forefront and skyrocketed to dizzying heights. The brokers and all the
customers were delirious with joy and excitement. The stock brokers
were all bulls, the traders were bulls, the tipsters and rumor-mongers
were bulls--even the office boys who called the quotations from
the tickers were bulls, and shouted vociferously when some special
stock jumped a point or more from the previous quotation; and it
seemed to our trader that in calling out the advancing prices special
emphasis was always given to the particular stocks he was short of.
He was literally beset with bullish exultation and bullish news from
everywhere. The noisy enthusiasm in the board-room rankled in his ears
and rasped on his over-wrought nerves. He felt as one could imagine a
tiny lone bear would feel in the center of a great arena, surrounded by
a cordon of cavorting bulls. To him it seemed that he was the only bear
on earth. There might be others, but they were too cleverly sequestered
to admit of sharing his misery with them.

[Illustration]




NOBODY LOVES A BEAR


In a bear market a discouraged bull is at least not despised; he may
find a sympathetic sufferer; but in a bull market no one ever wastes
any compassion on a bear, or admits sympathetic kinship with him. He is
popularly regarded as a pessimist, a destroyer of values, a discordant
note, an uninvited guest at a banquet. If it be a true saying that
“misery loves company,” it must follow that wretchedness is accentuated
by noncommunion with fellow-sufferers; in which case it may be said
that the situation of a bear in a rousing bull market represents the
_ne plus ultra_ of hopeless desolation.

At length it became a mooted question whether to “sit tight” and wait
for the boisterous storm to blow over, or cover his shorts, buy more
stocks and go with the tide. Heretofore he had maintained a stolid
attitude, born of self-confidence, inspired by a triumphant business
career, and supported by precedent and every reasonable prophecy. The
traders had simply gone mad and were rushing headlong to their ruin,
as they had often done before. History was merely repeating itself.
It was a time for sound cool-headed judgment, and he stood firm in
the determination not to lose his head and join in any such reckless
carousal. But the more he reasoned and studied the charts, the more
unprecedented and obstinate the market became. One thing he failed
to consider was, that the favorite caprice of the stock market is to
violate precedent, and to do the thing least to be expected of it.
The newspapers gave front page double-column headings to business
improvement and stock market news--the enormous demand for textiles,
increased prices for all commodities, easy money conditions, all labor
disputes amicably adjusted, and the stage all set for the greatest era
of prosperity the world had ever known. The financial columns of the
newspapers literally teemed with bullish interviews with financiers and
bullish reports in all lines of trade and finance. There was scarcely
a discordant note in the rush and rhythm of progress; and when one was
faintly sounded the general din instantly smothered it. Even the great
cataclysm in Europe was now construed as an additional bull point,
because our factories were all running night and day to supply the
armies with equipment and provisions. It was argued that the more they
fought the more supplies they would need, and the more money we would
make in furnishing them; also that the more ships the Germans torpedoed
the greater demand there would be upon our shipyards to replace them.
The nation had indeed gone prosperity mad, while the rest of the
world was going to destruction--certainly an irregular and puzzling
phenomenon. Occasionally when some veteran writer piped a note of
warning to stock speculators, it was met with a new outburst of bullish
demonstration, and the market swept on like a conflagration in a city
built of tinderwood. Stocks that had lain dormant for months suddenly
came to life and became the favorites of powerful cliques; corporations
that had never earned their fixed charges were said to be piling up
enormous surpluses, the railroads and steamship lines were glutted with
traffic, the factories, steel foundries and ammunition plants were
running night shifts, banks and millionaires were said to be buying
everything for control, whole fleets of grain-laden ships were going
abroad and the farmers were simply wallowing in wealth; the retail
stores were jammed with eager customers, labor was all employed at high
wages, and Big Business was rushing with all the force of an avalanche
along Prosperity Highway, without a danger signal in sight.

Gradually, though manifestly, it became evident that to resist such
a tremendous momentum was as expensive as it was exasperating; and
his hitherto fond illusions of greater wealth were dispelled by a
terrifying reality. But a man who has been right all his life is
not easily convinced that he is wrong in a market position that
seems justified by common sense and fundamental conditions. And yet,
however steadfast human resolution may be, it is wellnigh impossible
to maintain a fixed attitude in opposition to such a cumulative and
overwhelming force. The sensation of being short in a rampant bull
market has been pictured as similar to that of being chained by the
heels to a rising balloon, without any idea of the height to which
the gas will carry it--not a cheery picture for the contemplation of
one who is bearishly disposed. It is therefore easy to understand
how likely one is under these “third degree” operations to lose his
mental bearings, his nerve--and his money. A trader who is long of
stocks knows to a certainty how much he can lose on any given number of
shares; but on the short side there is no limit to what one may lose,
even on a few hundred shares. The loss of a definite sum, whatever the
amount may be, can be borne with equanimity by a man of nerve; but to
maintain a short position in a bull market gives one about as uneasy a
feeling as it would to have a number of outstanding promissory notes
with the amounts left blank for some unknown person to fill in. It
keeps one in a constant state of fear, and fear knows no limitations;
it contemplates and magnifies every baneful possibility.

[Illustration]

However, this man of iron nerve, this erstwhile dominant figure in the
leather trade who had ridden for a quarter of a century with his feet
firmly in the stirrups, was not to be easily unhorsed. At the close of
a turbulent day he took account of stock and decided to “cover” (buy
in) all the dividend paying stocks he was short of, and to sell an
equal number of additional shares in the non-dividend paying issues,
such as Bethlehem Steel, General Motors and Studebaker. The reckoning
showed a paper loss of a quarter of his million dollar capital, but he
bore it courageously, determined to recover it by adopting the safer
course of “shorting” only such stocks as had never paid dividends,
and perhaps never would. Therefore he sold more Bethlehem Steel, at
$80, $90, $100, $150 and $200 a share. He sold Studebaker again at
$75, $100 and $150, and more General Motors at $100, $150, $200; and
a hundred shares at every fifty points advance until it reached $500.
Those who knew him in the board room said that throughout this ordeal
he maintained the most inflexible nerve they had ever known; but at the
close of the market on that memorable day in 1915 when Bethlehem Steel
touched $600 a share he collapsed in a state of nervous prostration
and was taken home in an ambulance. He did not live to see General
Motors sell at $850 a share (on October 25, 1916) and Bethlehem Steel
at $700 a share (on November 18, 1916). Long before these figures were
reached his million dollar capital had vanished and he had crossed
the bar into the Great Beyond. His widow was left almost penniless and
he was buried at the expense of his Lodge. Shortly before passing away
he remarked sorrowfully to a friend at the bedside,--“In the past year
I’ve suffered every torment known to the demons of hell. My only grain
of comfort is that it’s all over now and I have nothing more to lose.”

From this tragic experience it is obvious that there is but little
comfort or profit to be gained on the short side of a protracted bull
market; and the natural inference must be that the “long” side of
such a market is as felicitous and profitable for bulls as the short
side is discomforting and unprofitable for bears. In theory it is,
but in practice there are comparatively few who make large gains, and
fewer still who “get away” with them. It has been authoritatively
stated by the head of the world’s largest gambling emporium that it
is impossible for any human being to beat the roulette wheel for any
considerable length of time; and that human nature is so constituted
that nearly all of those who make large winnings continue to play
until they have lost all their gains, and perhaps more. In the first
place, there are thirty-six numbers, with a single and double zero,[1]
on the wheel; if a player places a dollar on each of these he stakes
$38. He must inevitably win on some one of the numbers or one of the
zeros, whereupon he collects $35, together with the dollar risked on
the successful number, making a sure loss of two dollars, which is the
house’s fixed percentage. If a player wagers a dollar on one number,
with an even break of luck he is due to win $35 (and also to get his
dollar back) once in thirty-eight plays. At this rate, for every $3800
risked he is due to lose $200. Players often stake as high as two to
three thousand dollars, or even more, on every spin of the wheel; from
which it will be seen that with average luck, at this rate of play
one will lose more than a thousand dollars an hour. It is said to be
a proven fact that the chances are so much against the player, that a
roulette wheel can be run at a profit, even if the percentage in favor
of the house is entirely eliminated. This is due to the fact that the
excitement of play causes a certain confusion of mind, and players are
prone to do the wrong thing; for instance, double their bets when in an
adverse run of luck and “pinch” them when luck is running favorably.
Or, on the other hand, players who have pressed their advantage and
doubled in a run of favorable luck will continue stubbornly to plunge
long after their luck has changed. Precisely the same psychology
applies to trading in stocks.


FOOTNOTE:

[1] At Monte Carlo the roulette wheels have only one cipher, but at the
end of each turn of the wheel the person (or persons) playing on the
winning number usually contributes a disk (or one thirty-fifth of the
amount won) to the croupier’s “box,” which amounts to about the same
thing as having two ciphers, without this customary gratuity. It is
said that one-half of the amount of these voluntary contributions goes
to the corporation, and the other half pays for the entire upkeep of
the establishment, including the salaries of the croupiers and other
attaches. The same disks are used by all players, and a winner who
persistently ignores the “box” is not apt to be favored by the croupier
when another player claims his winning bet, as often happens.




FRENZIED SPECULATION IS THE RANKEST FORM OF GAMBLING; IT IS A PERILOUS
INDULGENCE


An enormous percentage of stock market speculators become victims of
over-confidence after a series of successful trades. Their buoyant
spirits increase with every new success, until at length they throw
discretion to the winds, extend their risks far beyond the margin of
safety, and at the infallible turn of the market they find themselves
in difficulty, like foolish fishes that get stranded on the beach at
high tide. It is a fact, as inexplicable as it is true, that men with
a fair amount of gray matter in their heads, who would flout the idea
of paying $50 a share for a particular stock, will later borrow money
from a broker at from six to eight per cent. to buy the same stock all
the way up from $100 to $150 a share on the slenderest permissible
margin; and, instead of proportioning the margin of safety to the
increased carrying risk they narrow it by continuing to buy as the
prices advance. Also there are many who after selling their stocks
at a handsome profit will buy them back at twenty, fifty, eighty, or
a hundred points higher, and with much less timidity than they felt
when they first bought them at low figures. Prosperity in the stock
market seems to encourage optimism, rashness and impatience in about
the same degree that adversity discourages enterprise and aspiration.
But there is far greater danger in excessive optimism than in excessive
pessimism, for the reason that optimists are inclined to back their
hopeful views by indiscriminate purchases of stocks at high prices,
while pessimists are seldom disposed to back their views at all. The
risks incurred in buying stocks on a “thin” margin are so manifest that
it seems almost as platitudinous to mention them as it would be to
remark that children endanger their lives when they congregate on thin
ice.




THE DANGERS OF INVERTED PYRAMIDS


[Illustration]

It was a wise custom of the ancients to build their pyramids with
the big end on the ground; but modern builders of pyramids in the
stock market have reversed this time-honored practice, and most of
them build their stock pyramids with the heavy end up; therefore they
invariably topple over after reaching a certain height. For example,
when a certain stock known as Lake Copper was selling at $5 a share a
trader bought five hundred shares, expecting to double his money on it,
as the stock was “tipped” to go up to $10. When it reached that figure,
instead of selling he bought another hundred, and put in an order
to sell the whole lot at $15 a share. Before it reached his selling
price he cancelled the order and raised it to $25; again cancelling
it and buying another hundred at $25. By this time he was convinced
that it would go to $50. He bought five hundred more at $40, then the
stock dropped back, and fearing he might lose all his gains he sold a
thousand shares at $30. Although he had lost $5000 on the last five
hundred shares he still had a profit of $4500, less commission, after
deducting the full cost of the two hundred shares still remaining. The
stock recovered to $50, and encouraged by the “street” gossip about
rich ore bodies being uncovered, with accompanying reports that the
stock would be cheap at $75, he bought back at $50 the thousand shares
he had sold at $30. At $60 he sold five hundred shares, which he
afterwards repurchased, with five hundred more, at $75. By this time
the speculators had discovered that the mine was one of the richest
prospects in the Lake region; it was rumored that the company’s stock
was being bought for control by a large mining company whose property
it joined, and the stock was “tipped” for $150. Many surmised it to be
another Calumet & Hecla, which had sold at $12 a share, and afterwards
at $1000. From here on up he “pyramided,” buying a hundred shares at
every point advance, and wisely protecting his profits with “stop loss”
orders a few points under the market price. Once the market reacted
and five hundred shares of his stock were sold on “stop,” after which
the price quickly recovered, and being assured that the stock had been
hammered down for the sole purpose of “shaking him out,” he bought back
the five hundred shares at five points higher than he had sold it.
To prevent another similar _coup_ he cancelled all stop loss orders
and took his chances in the open market, confident that he could
not be beaten as long as he was trading on “velvet” with an original
investment risk of only $2500. When the stock reached $85 someone half
convinced him that it was time to cash in his profits, and he put in
an order to sell the whole lot at $90, including the additional shares
he should buy on the scale order up to that point. When the price
approached $90 he cancelled the selling order and put it in at $100.
Later the price reached $94.50, and he had thirty-two hundred shares,
on which he could have cashed in a fortune. But what was the use
cashing in then, when he was in a fair way to making half a million, or
even more? After reaching $94.50 the stock began to decline, and here
the top-heaviness of the pyramid commenced to manifest itself, for with
every downward point he was losing $3200. When the price got down to
$75 his broker demanded that he either put up more margin or lighten
his load by selling a thousand shares or so. The stock continued to go
down, and again the broker called on him for more margin. Soon after
putting up all the money he had, and all he could borrow, the broker
was obliged to close out the account to protect himself. The stock
afterwards went down to ninety cents a share.




THE LURE OF THE COPPER BOOM--AND BOGUS SECURITIES


Of course the speculator who buys stock in a new copper mine is simply
taking a gambler’s chance that ore will be found in paying quantities.
Most of those who have submitted to this enticement in the past thirty
years do not need to be reminded of the hazards attending such risks.
I recall that about twenty-five years ago, when the “copper fever”
was raging throughout the country--and in Boston especially it was
highly infectious--a half-page advertisement appeared in one of the
leading Boston newspapers, relating in graphic terms the discovery
of the most remarkable copper mining prospect that had ever come to
light. The chief mining engineer of one of the largest and best known
copper mines in the United States--a man of wide experience and vast
knowledge in the mining business--while prospecting somewhere in the
West came upon what seemed to him the richest deposits of copper ore
he had ever seen. These ore bodies were said to be located in a large
mountain, conveniently near a railroad, and by tunneling into the
side of the mountain the ore could be trammed out, dumped onto the
cars and hauled to a smelter a few miles away. The mining engineer
(whose full name was given) had immediately resigned his position,
organized a stock company, known as the Occidental Copper Mining
Company--into which he admitted a number of personal friends--bought
the property, and began tunneling operations on his own capital and
what he had raised among his friends through the sale of stock in the
new corporation. Having exhausted their funds and desiring to continue
exploration work--which became more and more promising--the directors
had sold a block of treasury stock, the par value of which was one
dollar a share. The latest reports showed that the work was progressing
satisfactorily under the personal direction of the engineer who had
discovered the mine, and that stockholders might expect dividend
returns inside of a year or so. The advertisement was inserted, not
by a stock-jobbing firm or underwriting syndicate, but by a well
known wholesale and retail grocery and provision company, who claimed
that after fully investigating matters they had bought a large block
of the stock, twenty thousand shares of which they would distribute
among their customers at the par value of one dollar per share. I
called on the president of the grocery company, who said his firm
thought so well of the prospect that they had bought twenty thousand
shares as a speculative investment, and a like amount to distribute
among their customers. He represented that although the shares were
easily worth $5 each he considered it good advertising for his company
to sell them at par, $1; and with a view to extending the benefits
as widely as possible he preferred to dispose of the stock in small
lots. He cheerfully gave me the names and addresses of the directors
of the new mining company and suggested that, if interested, I might
write to them. One was a physician of good repute, another was general
auditor of the Chicago, Milwaukee & St. Paul Railway Co., another
was a western lawyer of prominence, and so on. I wrote to each of
these three, telling them of my interest in the matter, also asking
for a candid expression of their opinions about the property. Each of
them sent me a personally written reply, substantially corroborating
what information I already had, and saying that they had given their
names and their financial support to the company solely upon the
recommendation of the mining engineer, whom they knew personally and
trusted implicitly. Further than that they knew nothing, but were
willing to take a gamble on his judgment. After receiving the second
of these three letters I hurried to the office of the grocery and
provision company, and to my great disappointment, found that they had
only a few hundred shares left. When I told the president that I would
take the entire lot at his price, one dollar per share, he shook his
head. He said the stock was going rapidly in five, ten, and twenty
share lots, and that in justice to their other customers and friends he
did not think it fair to let me have more than one hundred shares at
most. But finally he yielded to my persuasive argument, that inasmuch
as he had only a few hundred shares left he might as well let me have
them all and thus finish the whole transaction at once, saving himself
the bother of peddling them out piecemeal.

Nothing further transpired until, some months later, I received
a circular from the mining company reporting good progress with
development work; also stating that owing to further need of funds to
continue this work the directors had concluded to make another offering
of treasury stock at the same reduced price at which they had sold the
previous block, namely, _at five cents a share_! In the aggregate the
advertising feature was probably more advantageous to the customers
than it was to the grocery company (which soon afterwards went
bankrupt); for although the purchasers, including myself, lost every
dollar of their investment, it doubtless served as a warning (which in
my case it certainly did) that prevented much greater losses in other
swindling schemes.

The task of preparing the prospectuses of the thousands of fake copper
mining propositions and oil schemes that have been foisted on the
public in the past twenty-five years, and made to appear especially
attractive by a price of from five cents to one dollar a share, has
developed some of the most remarkable inventive geniuses of modern
times. Their advertisements and arguments have been so convincing that
the contrary persuasions of bankers and brokers have been absolutely
unavailing with friends and customers who have given orders to buy the
stocks; and against their enticements there is positively no remedy
short of experience. The tempting baits of every imaginable variety
offered by the promoters and dispensers of these bogus stocks have been
the means of filching hundreds of millions of hard-earned money from
credulous people, who are misled to suppose they are getting in on the
“ground floor” of a modern Aladdin’s Cave before it is opened to the
public. But it always has been so, and probably it always will be. It
would be as useless to warn the general public, or even particular
individuals, against these alluring ground-floor propositions as it
would be to warn a flock of goslins to keep out of a mud puddle. It’s
like admonishing a boy against a hundred kinds of mischief; he will
surely find some act of deviltry not included in the list, and his
defence will be that you didn’t tell him not to do _that_. And this
argument is the more unanswerable because you well remember having used
the same stratagem yourself.

[Illustration]




THE PERILS OF OVER-ACQUISITIVENESS--THE HUMAN ELEMENT IN SPECULATION


Reverting again to the characteristic bent of speculators who trade
on the constructive side of the market, some years ago a man of
my acquaintance bought a hundred shares of Union Pacific at $120
a share, just for “a turn of a few points,” as he expressed it.
Within a few days he sold it at $125, making a net gain of $500,
less commission,--equal to more than five years’ interest at six per
cent. on the $1500 he put up as margin. Someone afterwards convinced
him that he was silly to have sold out at $125, because the stock
was sure to go to $150; therefore he bought it back at $130, and at
$135 he took on another hundred. The stock dropped back to $125, and
on hearing from someone else that it was likely to go down to par he
sold the two hundred shares at a net loss of $1500 and commissions.
About that time somebody discovered that the Company was likely to
distribute its large surplus, consisting of Baltimore & Ohio stock and
other securities, and the stock rebounded to $135, at which figure my
friend repurchased the two hundred shares he had sold at $125. At $139
he bought two hundred more, which, in a spasm of fright, he sold when
the price suddenly dipped down to $133. Later, at $140, he recovered
his nerve, also the last two hundred shares he had sold at a loss. At
$160 the stock looked cheaper than it had at $120, and having a safe
margin of profit to trade on he bought five hundred more. At $170 it
was reported that Harriman (who controlled the road) was buying the
stock, and encouraged by the entry of such distinguished company my
friend plunged in and bought a thousand shares more. When the stock got
to about $190 it was noised about that the great railroad magnate had
completed his purchases, so the price went down a few points, again
frightening our trader into taking a loss on three hundred shares he
had bought at $189. But concurrently some wise tipster had discovered
that the price had been depressed purposely, to enable other “inside
interests” to accumulate a large line, and in a short time the price
climbed to $200. By this time my affluent friend was becoming somewhat
disturbed and confused, but lured by the prospect of greater gains he
managed to regain his composure, and bought five hundred shares more;
figuring that as long as he was trading on profits he had everything to
gain, and nothing to lose. From here on the stock maintained a fairly
steady upward course, and not to be outdone by the greedy “insiders”
he bought three hundred shares at every point advance until the price
reached $212, when he had accumulated fifty-one hundred shares. The
net paper profit of well over $100,000 looked exceedingly tempting,
and acting upon his own judgment, seconded by the good advice of his
broker, he wisely closed out the entire lot, invested the net proceeds
in government bonds, bade good-bye to the market, and planned a three
months’ excursion to Europe. So far, so good; but--

“U. P.” (along with other stocks) continued its upward course,
accompanied by much excitement and jubilation among the “longs” with an
equal measure of apprehension and despondency among the hard-squeezed
“shorts.” When our trader was preparing for his departure he happened
to read a review by some stock market wizard who reported that
according to “late inside information” a dividend of $100 a share in
securities would be declared on Union Pacific, and that the stock would
pay $10 a share in annual dividends; consequently at $250 a share it
would be cheap. Whereupon my friend, who occupied the uncomfortable
position of a “sold out bull,” became wretchedly aware that he had
dropped out of the race long before the course was completed, and
by doing so he had thrown away a grand opportunity of making nearly
$200,000 more.

It may here be explained that the mental attitude of a “sold out bull”
toward a rising market is much the same as that of a bulldog chained
in his kennel while a dog fight is going on outside. A speculator may
stand by and view with unruffled complacency the most enormous profits
of others in securities that he never owned, but if one of his own pet
stocks continues to advance after he has sold out, it not only reflects
the error of his judgment, but the remorse he suffers in contemplating
the additional sum he _might_ have made dampens all the pleasure of
reflecting upon the profit he actually _did_ make.

Reluctant to admit such a costly blunder in judgment, determined not to
be surpassed by his fellow-traders, and flushed with the victory of his
recent exploit, when Union Pacific was selling at about $215 this “sold
out bull” put in an unlimited order to buy five thousand shares. When
his broker on the floor of the exchange began bidding for this amount
of stock the crowd instantly surmised that some big operator was being
“squeezed” on the short side, and before the purchase was completed
the price had jumped to $219, the highest point it ever reached. After
steadying itself for a while at around this figure it took a downward
plunge, and a few weeks later our trader who had retired from the
market with upwards of $100,000 profit, closed out the last hundred
shares, saving a little less than the $1500 he originally put up as
margin. His escape from utter financial ruin was largely due to the
insistent advice of his broker that he should steadily lighten his load
on the way down, rather than try to protect the whole lot by putting up
additional margin.

The man who made this play in Union Pacific was a college graduate,
and a veteran trader, with twenty years of hard-bought experience and
a good family name behind him. While his experience, together with the
advice of his broker, saved him from a heavy loss it might easily be
supposed that the former alone would have prevented him from falling
into the common error of novices. From which it may be observed that
in stock speculation, as in other pursuits, wisdom and the ability
to master one’s own impulses are sometimes late in arriving at full
maturity. Indeed a broker who for upwards of thirty years has held a
position of outstanding prominence on the floor of the New York Stock
Exchange--a man who often handles a hundred thousand shares or more in
a single day--once admitted to me that while he generally made money
for clients who entrusted him with optional orders, yet he regularly
lost more than half his enormous commissions trading on his own
account. Which calls to mind a wise saying of the old Greek philosopher
Heraclitus, five hundred years B.C.--“Many men have no wisdom regarding
those things with which they come in contact; nor do they learn by
experience.”

The man who made the splurge in Lake Copper was a daring young
Lochinvar who came out of the West, with only a moderate sum of money,
but an ample store of ambition; and although enjoying a large practice
in an honorable profession, he occasionally took what he called a
“flyer” in the market. For some years he was kept pretty busy clearing
up the results of his miscalculations in this adventure, which I
imagine was his last “flyer.” I have remarked that “experience” might
reasonably have been counted upon to safeguard the man in the Union
Pacific deal against the error of over-acquisitiveness; and seeing it
did not, it would seem that the very _in_experience of our other trader
should have made him less daring. From which we may conclude that in
stock trading, all speculators, whether experienced or inexperienced,
are subject to those inscrutable laws of psychology which Nature
herself seems to have designed for the discomfiture of those who play
at the wheel of Fortune.




THEY ALL RESOLVE, BUT THEY ALL GO BACK


One often hears the stock trader’s sad lament,--“If I ever get even,
I’ll get out and _stay_ out!” But I never knew one of this class who
ever got “out even” and I never heard of one who stayed out if he did
get out even. If they get out, leaving a dollar in, they go back after
it; if they get out a few dollars ahead, they go back for more; in
any case they all go back. They wouldn’t be content to stay out of
the market any more than a little shorn lamb would be content to stand
overnight uncomplainingly in a blustering March storm, outside the open
gateway to a sheepfold where his brother lambs were snugly housed.

[Illustration]




A NEW KNIGHT-ERRANT IN SPECULATION


Another incident occurs to me, which is so typical of those who become
infected with the stock market microbe that it seems worth relating.
A few years ago a young friend appealed to me for advice as to the
best method of investing about $10,000 surplus which he had taken out
of his business the previous year with a view to placing it out at
interest. I recommended several preferred industrial and railroad
securities which seemed reasonably safe as a business man’s investment,
and suggested that he put about twenty per cent. of the amount in each
of five different stocks. He knew nothing about buying securities, so
I introduced him to a reputable firm of bankers and brokers, and in
addition to warning him to buy no more than he could pay for in full, I
cautioned the head of the firm not to encourage, or even to permit, him
to speculate on margin. He bought twenty shares each of five investment
stocks, and a few weeks later he informed me, quite excitedly, that
already his purchases showed a profit of more than six hundred dollars;
also that inasmuch as the market was “going higher” he thought he ought
to double his holdings. The mistake I had made in advising him to buy
stocks, instead of non-speculative bonds, was now plainly evident; but
I could do no more than caution him to stick to his own business and
leave the stock market to others. He insisted that he could see no
harm in buying a few more shares and margining them fifty points or
more with the stocks he then owned; that it would not distract him in
the least from his business, nor would it subject him to any risk or
anxiety. My counter argument that stocks, having already advanced to a
high average level, were as likely to decline as they were to advance
further, was totally unconvincing. My young friend had caught the
speculative infection; which, like typhoid fever and smallpox, must run
its course. It can be treated, and sometimes mitigated, but not cured;
in some cases not even by bankruptcy.

About four months later, on returning home after a few weeks’ absence,
I received a telephone call from the head of the brokerage firm,
informing me that the young man had sold out all his investment
securities, and was in a raging fever of speculation; that he was
buying and selling all sorts of highly speculative stocks in lots of
from a hundred to five hundred shares, and that he spent two or three
hours a day watching the ticker. He paid no heed to repeated warnings,
and threatened to take his account to some other office if his orders
were not executed as given. “What am I to do?” the broker asked in
despair. “This young daredevil will probably be in bankruptcy in less
than six months.”

On the losing side there are at least three distinct classes to be
found at all times in stock market circles: one class who know nothing
about the market, except what they read or hear; they are guided by
floating rumors, the advice of well-meaning friends, and the spumous
counsel of market tipsters. There is another class who arbitrarily
suppose they have learned everything there is to know about the
market; they possess a large store of cynicism and skepticism, and
their market maneuvers are guided by a monumental self-sufficiency
that would be a valuable asset in trading but for the fact that it
is worthless. There is a third class who, although they really know
the practices, theories, precedents and possibilities of the game,
are not temperamentally qualified to utilize this knowledge in their
transactions.

Of course every banking and brokerage firm has a few customers
who go into the market and buy stocks and bonds during seasons of
depression and afterwards pay no attention to the daily or weekly
fluctuations until prices reach a stage where it seems advisable to
sell out; then they dispose of their holdings and leave the market to
the traders until bargain day comes round again. But the foregoing
examples symbolize the mental attitude and customary procedure of an
overwhelming majority of the trading public. This being true, one may
draw from them some idea of how important a part psychology plays
in the destinies of those who speculate. It would be erroneous to
suppose that the characters who play these rôles are shallow-brained
dolts because their actions (judged by results) appear nonsensical
to the rational and composed mind. On the contrary, the speculative
element represents for the most part men of uncommon shrewdness and
foresight; men of studious and analytical minds; men who are, or have
been, masters of every situation in their own professions or commercial
vocations, even though most of them act like children when they get
tangled up in the meshes of stock speculation.

Nor should it be imagined that the stock market is primarily a guessing
game, or a game of chance; or even an unbeatable game; or that it is
run by a gang of swindlers or mountebanks. Gamesters and swindlers
may play at it, but the game itself is as straight and legitimate as
any business pursuit. As a matter of fact it is one of the fairest and
most open games ever played; a game in which every participant, man
or woman, rich or poor, old or young, has an equal chance. The fact
that most people resort to mere guessing and gambling in their stock
transactions does not make it necessary to qualify this statement;
neither is the truth of the assertion altered by the fact that certain
individuals and organized cliques of traders manipulate stocks, both
up and down, with utter disregard of basic values, and in this way set
cleverly baited traps for other traders who imagine themselves wise
enough to pluck the bait and get away without springing the trap. A
trader or investor in stocks is not obliged to participate in these
machinations, any more than one who goes to a circus is obliged to
bet on the shell games and other tricky money-making devices that are
sometimes run in conjunction with traveling menageries, but are no part
of the main performance.

[Illustration]

A person who buys a piece of improved real estate for less than half
of its actual worth is reasonably sure he has a bargain; but if he
afterwards sells it at a fair price, and later buys it back again at a
much higher figure, he is gambling that for some reason or other it is
going to be worth more, either actually or fictitiously. Nor is it ever
unsafe to buy good stocks at figures away below their intrinsic worth.
The element of gambling does not enter the undertaking until the market
price has risen above the investment value; then if the owner refuses
to sell, or buys more (as the speculator usually does) he is gambling
on the uncertain event that some individual or clique is going to pay
him more than the stock is worth. When one buys a stock, either for
investment or speculation, its value cannot be permanently affected by
the action of other traders, and no individual or group of individuals
can euchre an investor out of his stock except by his own free will.
The man with a hundred dollars has the same relative chance for making
money as the man with a million; but the difficulty is that the one
with the smaller amount is ambitious to make equally as much as the one
with the million; therefore he resorts to gambling on thin margins; and
not being content with ordinary risks he plays a long chance shot. If
he wins, instead of withdrawing the original capital, with perhaps a
little more, he usually stakes the whole amount on every venture until
it is lost.

Viewing the stock market calmly in the perspective, it is not a
question whether stocks will rise or fall; of that there is not the
slightest doubt. They rise and decline with the same certainty that the
sun rises and sets, though of course with less regularity. The only
question is, how _far_ they will go in either direction.

[Illustration]

The action of the stock market much resembles that of a troubled sea,
which is always uneasy, rolling and tumbling about as if undermined by
some volcanic force. The prices of stocks are periodically rising and
falling, and one might as well undertake to fight the ocean tide as
to contest the course of the stock market when once in full swing in
either direction; for the market, unlike the tide, has no prescribed
boundaries. There are times--indeed most of the time--when it is much
wiser to sit by in the capacity of an interested observer, than to
plunge in and become a struggling participant, with the chance of being
carried out beyond one’s depth. Theoretically, there seems to be no
reason why the stock market should not move along at a fairly even
pace, except in case of some unexpected crisis; but practically, it is
either abnormally high or unreasonably low most of the time. Stocks,
like food, clothing and all human necessities, are more or less subject
to the laws of supply and demand; and when the traders and investors
throughout the country become convinced that it is time to buy stocks,
a bull market is sure to ensue; then when everybody has acquired all
they want--and some of them more--and they make up their minds to sell,
it is only natural that values should recede; which they do, usually
to somewhere near the low point from where they began to rise. This
process of sliding up and down the scale is repeated year after year,
and age after age.

No one has ever been able satisfactorily to explain why the prices
of all stocks, both good and poor, and even gilt edge bonds, keep an
almost even pace in the backward and forward swings, but they do;
and thousands of people who have placed their savings in securities
that are as sound and safe as a savings bank have viewed with alarm
the crumbling market values of their investments, wondering what has
happened to their particular stocks or bonds, and if the slumping
prices foreshadow a reduction in dividends, or if interest will be
defaulted on coupons. Investors who own bonds or good dividend paying
stocks need not be troubled over these capricious changes; but others
of a more venturesome or speculative bent are forever wondering when
they ought to get in or out. Of this latter class it is the best
guessers who win.




SOME SIGNS ARE COMPREHENDIBLE; OTHERS ARE HARD TO INTERPRET


It has been wisely observed by one who is more famous for the wisdom of
his writings than for the amount of money he has made in speculation,
that when a market reaches the top there is no visible sign to indicate
it; that on the contrary, at this critical point, everything seems to
indicate much higher prices. Also the majority of traders, tipsters,
financial editors, and even the brokers themselves, are apt to be most
bearishly disposed when the market is at its lowest point. This same
authority declares that when the “cats and dogs,” that is, the poorest
and most neglected stocks in the list, begin to advance it is time
for holders of securities to cash in their profits. It might be further
observed that when plums get ripe and the melon season is on, it is a
sure indication that summer is well advanced; likewise when, after a
long season of bullish anticipation, the stock market “plums” are being
distributed, and the “melon-cutting” process is in full swing--when the
favorite “mystery” stocks have disgorged their “hidden assets,” and
begin to sell ex-rights, ex-dividend, ex-merger and ex-mystery, it is a
pretty sure sign that the “bulls” are running short of provender, and
that the “bears” are about due for their inning. A man who accumulates
large paper profits in speculation and fails to “cash in” until a large
part, or all, of his gains have been dissipated in the process of
deflation which inevitably follows every boom, is comparable to one who
plants a field of grain and refuses to harvest it at maturity, hoping
that the ripened kernels will get a little larger. Many a speculator
has been brought to grief by an insatiate greed for that coveted
topmost point, instead of being content to sell at a good profit and
leave the possibility of a small gain to the individual who buys his
stock.

[Illustration: _Chorus of the bears_:--

  When the plums are gone and the bulls go hence,
  We’ll sharpen our claws and jump the fence.

]




NONE ARE SO BLIND AS THOSE WHO REFUSE TO SEE--NONE SO FOOLISH AS THOSE
WHO SCOFF AT WISE COUNSEL


While there are various danger signals which indicate the culmination
of a bull market, just as there are others which mark the final stages
of a bear market, it must not be supposed that these signals stand out
like so many red lights placed in front of a ditch at the roadside;
on the contrary they are of the most deceptive and decoying nature to
all except experienced and dispassionate observers. And even the best
judges are frequently deceived. On this point one of the most reliable
financial writers in the country says: “Not all of the economic indicia
ever turn together at any peak or bottom in the securities markets.
Always the case is that some of the indicia disclose the change, while
others do not. The public usually keeps on expecting a bull movement
to continue, no matter how unreasonably high stocks may sell. This
persistence of bullish sentiment greatly facilitates distribution by
wealthy holders.” This timely note of warning was written early in
January of the present year, when a great bull market after running
about two years was at the boiling-over point; but very few bullish
traders ever pay any attention to such counsel; nor would they if the
danger signals stood out like beacon lights along a treacherous shore.
A few days later the following bit of good advice was issued by a
Boston broker:

“For fifteen months this country has enjoyed clear skies, politically,
economically and financially. Washington Irving begins his essay on
the Mississippi Bubble with the phrase, ‘There was not a cloud on the
horizon,’ and then goes on to state that the prudent mariner takes
cognizance of such ideal conditions and prepares for the inevitable
change. Today, after fifteen months of national sunshine and cloudless
skies in all directions, we believe it behooves a man of affairs to
take counsel with himself relative to his investment and speculative
position. Many business men who should have learned better by past
experience, still take the business situation as a guide to their
stock market operations in spite of the fact that all stock exchange
history shows that the market turns up long before a period of business
depression has run its course and likewise turns down six months or
more before prosperity comes to a pause.”

Speculators can usually find an abundance of literary food suited
to their particular tastes, as witness the following, issued by a
prominent market forecaster simultaneously with the above: “We wish
you to keep in mind that the biggest speculation yet witnessed in the
present bull market is still to come. Now that the reactionary trend
in the market has been definitely halted, you can look with assurance
for higher prices in many issues in the near future. Continue to pick
up our favorites as outlined in our letters, as we expect them to prove
features.” Most of the “favorites” were then selling at figures far
above their intrinsic worth, and many of them have since fulfilled the
prediction that they would “prove features,” for soon afterwards they
declined anywhere from ten to fifty points.

The active participants in a market that has run a long course in
either direction are wont to become so intoxicated with affluence,
or downcast with adversity--depending on which side they have been
operating--that they give little heed to the matter of interpreting
signs which forecast future events, particularly if these signs
controvert their own opinions. A man driving an automobile at a
sixty-mile-an-hour pace does not stop to read signs by the roadway;
and no more does a trader bother with warnings when a prolonged series
of stock market victories has blurred his vision to everything but
prosperity. As every unfamiliar noise or object tends to aggravate fear
in those who are frightened in the dark, so every concurrent happening
stimulates courage and recklessness in those who become emboldened by
stock market success. Paradoxical though it may seem, many things which
are construed bearishly in a falling market are regarded as bullish in
a rising market; and signs which portend higher prices in the mind of a
bull are equally significant of lower prices to the mind of a bear. In
other words, both bulls and bears often derive their opposing opinions
from the same identical hypothesis. These strange anomalies are not
mere theories, they are attested stock market facts.

For example, in a bear market some years ago the stock of the
Amalgamated Copper Company was depressed several points in one day on
the report that the dividend was to be reduced. Next day the report
was denied and upon supposedly good authority it was stated that the
regular dividend had been earned and would be declared. Whereupon the
traders--who were mostly bearish--argued that a declaration of the
regular dividend would be a bear argument, because it ought to be
reduced and if the usual amount were declared it would be only for
the purpose of furnishing artificial market support to the stock;
consequently it was again depressed a dozen points or more. Later when
the trend of prices had turned upward this stock advanced sharply on
the report that the dividend was to be increased. Although the report
met with prompt denial, the stock was nevertheless bid up several
points more on the theory that if the dividend were not increased it at
least ought to be, and if only the regular declaration were made, that
would be evidence of a commendable policy of conservatism.




EVEN THE STOCK MARKET HAS ITS FARCICAL SIDE


Some of the stock market philosophies and inventions are quite amusing
to the unsophisticated onlooker. When the Amalgamated Copper Company
and the Anaconda Copper Company were under separate management a clique
of traders became interested in advancing the market price of the
latter stock, and forthwith the tipsters and rumor-mongers circulated
a report that Amalgamated was buying Anaconda for control. This device
proved a profitable asset for the pool members, who were thereby
enabled to sell out their holdings at much higher prices. When this was
accomplished and the story had become threadbare, another ingenious
story was circulated, to the effect that the Anaconda Company was now
seeking control of Amalgamated, whereupon that stock in its turn became
the favorite of traders, who succeeded in lifting the price high enough
to let the pool unload its holdings at a handsome profit. While these
two monster companies were performing the act of trying to swallow
each other the traders greatly enjoyed the comedy, in consideration of
which they contributed generously toward swelling the purses of the
promoters. The final outcome was that the great Anaconda succeeded
in devouring its competitor, which appears still to be in process of
digestion--or rather indigestion,--judging from the internal agonies
expressed in the market action of the stock.

[Illustration]




SPECULATORS ARE SLAVES OF SENTIMENT


When the whole country becomes pervaded with an epidemic of bullishness
the action of speculators is always directed by sentiment rather than
judgment; and a market that is swept along by excited emotions is
always dangerous,--dangerous to go short of and dangerous to be long
of. Hysterical “bulls” care nothing whatever about the earnings or
dividend returns on a stock; the only note to which they attune their
actions is the optimistic slogan, “It’s going up!” and the higher it
goes the more they buy, and the more their ranks are swelled by new
recruits. A herd of stampeded cattle (cows no less than bulls) will
rush blindly into a river, or butt their brains out against stone
walls, trees or other obstructions; they also stampede every critter
that happens along their path; and anyone who has ever witnessed a
panic in a theater or auditorium, or in the stock market, need not be
told that under such circumstances men are but little saner than cattle.

And speaking of sentiment, it is remarkable to what extent the combined
business and financial structures of the country are swayed to and fro
by this giant motive power. Like the biblical wind that bloweth where
it listeth, and man heareth the sound thereof but knoweth not whence it
cometh or whither it goeth, sentiment springs up from comparatively
trifling or unknown sources and after playing its havoc, vanishes as
suddenly and mysteriously as it came. In a bear market a train wreck,
or the death of some financier, or an earthquake in Europe, will put
the market off to the aggregate extent of hundreds of millions; whereas
one of the greatest bull markets in history found its chief impetus in
the most universally devastating war the world has ever known.




THERE IS BUT ONE WAY TO BEAT THE STOCK MARKET; THERE ARE MANY WAYS OF
BEING BEATEN BY IT


It is admitted by the most sagacious financiers that the only sure
way of making money trading in the stock market is to get in and out
at opportune times, and to stay out most of the time. As against this
there are numerous ways of losing money. Among these, one method in
particular is quite popular among a class of traders who although too
clever and conservative to buy stocks at “top” prices, have not the
patience to wait for “bottom” prices. When values begin to crumble
after the top has been reached in a bull market there must be a set
of “carriers,” or supports, onto which stocks can be dumped on the
way down. The market does not collapse like a ten-story card house;
it generally goes down gradually for a while, one or two flights at a
time, and finds steadying props every now and then which sustain it
for brief periods. For instance, a certain stock paying $5 a share
annually has been hoisted by degrees from $75 up to $150 a share.
When it descends to $140 a few wise traders who have been impatiently
waiting for a reaction will buy it because it looks cheap at $140
after having sold at $150; then at $130 another lot of traders who are
a little wiser and more patient than the first lot buy it because it
looks much cheaper than it did even at $140; and so on down it finds
these temporary supports, until at length it gets back to $75, or
perhaps lower, where it is accumulated by a few shrewd investors and
bargain hunters whose attention has been attracted to the market by
front page newspaper headlines announcing that the stock market is in a
state of complete prostration. They go on about their business and pay
no particular attention to the market until the price has recovered
to a point where the stock, returning $5 a share, is no longer “paying
its board,” when they sell out at a good profit, and _stay_ out while
the speculators carry it on up as far as they like. When the stock was
at the bottom price those who bought it on a scale from $140 down were
either so overloaded or pessimistic--probably both--that they were
unable to buy more and thus reduce their average to a reasonable cost.




THE STOCK EXCHANGE IS A MONUMENT OF BUSINESS INTEGRITY


It is a popular belief with many people that the stock exchanges are
highly prejudicial to the public interest and to public safety; as if
they actually manufacture stocks, fix their price, and sell them to the
public. It is also believed by many persons--even by men with enough
brains to buy and sell securities--that whatever they lose on their
transactions is gained by the stock exchange or the broker through
whom they trade; and that the brokers on the floor of the exchange
plan out each day’s campaign and manipulate the stocks with utter
disregard of the outside world. Furthermore, it is commonly supposed
by a certain class of uninformed people that stock exchanges create
panics and financial depressions; that they are licensed evils, feeding
and fattening upon the credulity of an innocent public. Nothing could
be farther from the truth; nothing could disclose a more profound
ignorance of existent facts than for one to adhere to any or all of
these fallacious beliefs. The stock exchange itself has no more control
over the price of securities than it has over the ocean tides. It is
merely an auction room where anyone may send in orders to sell stocks
and bonds, either at a certain asking price, or “at market” to the
highest bidder. On the other hand anyone may put in either a limited
or “at market” bid for whatever securities he wants, provided they are
on the list admitted for trading; and no securities are so admitted
without being passed upon by a committee of competent judges whose
duty it is thoroughly to investigate every company before admitting
its securities to the board. The great value of this service to both
traders and investors is plainly evident. The people who run the
exchange have no other privileges, prerogatives or authority than to
buy and sell securities on their own account, or to act as buying and
selling agents for the public, and to execute their orders precisely
in accordance with given directions. The interests of the public are
safeguarded by every known precautionary device, and if a broker makes
a mistake he stands the loss, regardless of what the amount may be. In
this connection, those who have stood in the visitors’ gallery of the
New York Stock Exchange on a busy day have been induced to wonder how
it is possible for the brokers to avoid errors under such seemingly
chaotic conditions as exist there. To the onlooker it resembles a
riotous mob scene in a modern cinema, and one might easily mistake it
for a place where a lot of frantic men are trying to buy insurance on
a sinking ship, instead of dealing in gilt edge securities which are
not immediately perishable. A benevolent sweet-natured old lady who
stood for a time looking down upon this wild confusion was asked what
she thought of it. “I think it’s all very interesting,” she said. Then
after some reflection she added: “But my husband never told me that we
are in a financial panic. And even so, why should the men get so angry
with one another?”

No matter what anyone may say or think to the contrary, there is no
business or profession on earth in which a higher degree of honor and
business integrity prevails than among the brokers on the floor of
the New York Stock Exchange; and there is no business or profession
in which sharp and unethical practices among its members are more
quickly detected, or more promptly and summarily dealt with. And by
way of passing comment it may be remarked that the going price of
$150,000 for a membership on the New York Stock Exchange would seem
to imply that the brokerage business is no less profitable than it
is honorable. In its certificates of membership the New York Stock
Exchange declares itself to be “An institution whose history dates back
to 1792, and whose rules and regulations have been formulated for the
purpose of maintaining high standards of honor among its members, and
for promoting and inculcating just and equitable principles of trade.”
And it is required of every member that in every particular he live
up to these principles. It is a place where a nod of the head or a
lifted finger consummates transactions involving millions of dollars.
In ordinary business affairs a deal wherein only a few dollars are
concerned is signed, sealed, witnessed and sworn to before a notary;
but here contracts involving millions are ratified by a mere gesture,
and never questioned by either party.

Every buyer or seller of stocks is a free agent to do as he pleases,
and if he gets hoodwinked through the stock exchange it is generally
because in trying to outwit or undo somebody else he overreaches
himself and falls into his own snare. The only percentage against him
is what he pays in commissions and taxes on his trades; and the only
chances against him are his own blunders in judgment; these, indeed,
are likely to prove a sufficient handicap. Every corporation whose
securities are listed on the stock exchange is obliged to make a full
and comprehensive report to the exchange at least once a year, and
these reports can be found in any brokerage office; they are always
open to public inspection, and no one need buy any stock or bond
without first satisfying himself regarding the nature of the industry,
capitalization, earnings, management and other details. Moreover, if
at any time a purchaser becomes dissatisfied with his investment and
wishes to get his money back or change into something else, there is
always a ready market for the stock. It may be more, or it may be less,
than he paid for it, but in either case it can be quickly converted
into cash.

The investor in stock market securities may equip himself, free of
cost, with full information concerning every listed security; what the
company’s earnings have been over a period of years, how much stock and
how many bonds are outstanding, the highest and lowest prices at which
the stock has ever sold, and all such matters in the fullest detail. He
therefore enters “the game,” as the stock market is oftentimes called,
with his eyes open, and the cards all faced up on the table. But if he
deviates from sound principles and resorts to dabbling in stocks that
he knows nothing about, except from hearsay among traders and market
tipsters, and undertakes to guess the maneuvers of cliques who are
manipulating them, he has no one to blame but himself for indulging in
such an expensive folly.




BOOKS TEACH WISDOM, BUT EXPERIENCE IS A MORE PRACTICAL INSTRUCTOR


It may be set down as an axiomatic truth that no one can learn the art
of making money in the stock market by reading statistics, charts,
precedents, theoretical disquisitions and instructions. Of course it is
not needful, nor would it be any more practicable than it is necessary,
to set forth any fixed rules or maxims governing one’s procedure in
any other line of business or any other profession, since no one
could use them advantageously without the requisite qualifications,
such as adaptability, shrewdness and practice. Hundreds of different
combinations of cards are laid out in books of instructions on auction
bridge, with explicit directions as to how to bid and play the hands,
yet nobody ever heard of a good bridge player being made solely from
book instruction. One reason is that there are actually millions of
combinations of cards. Also in stock trading there is an indefinite
number of needful “don’ts” which the most resourceful person can
neither contemplate nor anticipate. Every stock market cycle shatters
some precedent; every era produces new phenomena. Everyone who has ever
studied a book of instructions on how to play golf knows how impossible
it is to take up any golf club and make it perform according to
schedule. A firm stance, feet well apart, body under full control, the
right knee stiff, the left arm almost rigid as it follows the right in
a low backward swing; and most important of all, the eye firmly fixed
on the ball, while the club whips through the air, and after lifting
the ball, follows on through, carrying both arms forward to their
full length, and many other things which I never could do, and cannot
now recall; all these directions the would-be player will learn as he
knows his A, B, C’s; but in his intense eagerness to swat the ball he
disregards most, or all, of the stated essentials, and at the moment
of impact, while his club is ploughing up the sod two or three inches
behind the ball, his eyes are cast heavenward in fervent anticipation
of watching its flight. Likewise the speculator figures his profits
long before they materialize. The most important thing in golf, and the
hardest thing to learn, is to keep the eye on the ball while in the
act of hitting it; and the hardest thing to learn in stock trading is
to keep the eye _off_ the market, hold firmly and patiently to good
resolutions, _and not try to get rich too quickly_. Both look to be
easy, but--

[Illustration]

Reducing the whole problem to its simplest form, the stock exchange
is a well-organized and honestly conducted market-place where anyone
may sell or buy investment or speculative securities, at whatever
price anybody else is willing to pay or accept for them. There is no
more mysticism about the exchange itself than there is about a book
auction room, or any other auction room where articles of merchandise
are offered at an upset price, or auctioned off to the highest bidder.
A man who buys stocks or bonds for investment is not gambling with
anybody that they will go up or down; he buys them because he wants
to invest his money and get interest or dividends on it. If a stock
bought at $100 a share, paying seven per cent. annually in dividends,
should increase in market value to $150 it is obvious that the rate
of interest on the total capital is correspondingly reduced, and that
whereas his original $10,000 brought a return of seven per cent., the
capital of $15,000 is earning a net return of only four and six tenths
per cent. Under such conditions it is oftentimes wise to sell out and
reinvest the money in other securities which bring a larger net return;
or if stocks in general are too high, put the money in the bank and
wait for lower prices. The $5000 gain in capital will surely more than
cover interest on the original $10,000 investment during the time one
has to wait for good buying opportunities.

This reminds me that some years ago, when Calumet & Hecla Mining stock
was selling at $850 a share, on which amount it netted only a small
dividend return, I asked a friend (who owned a large amount of the
stock) why he didn’t sell it and reinvest in other securities. My
argument was that the stock having already declined from $1000 a share,
would probably go much lower, considering that the earning capacity
of the mine was in all probability as great as it ever would be;
therefore the chances were more in favor of a decrease than an increase
in earnings and dividends. To all of which he readily assented, but
in view of the fact that he had bought the stock at $50 a share it
was paying a very high rate of interest on his original investment;
and for sentimental reasons he preferred to keep it,--which he did.
Such instances are not at all uncommon; nor is it uncommon to hear
intelligent business men remark that they know they ought to sell
certain investment securities, because the market price has risen out
of all proportion to the income yield, but other good securities are
all so high that they really don’t know what to put their money in. The
chances are probably a hundred to one that if the money were put in the
bank and allowed to rest a while at three per cent. interest, it could
within a few months be reinvested in the same securities, or other
equally good ones, at a net gain of three to five years’ interest, or
even more. This is not stock gambling; it is merely business prudence.




WHIMS AND FALLACIES IN SPECULATION


Traders and investors too often become stubbornly insistent on
recouping their stock market losses in the same identical securities
in which they lost their money. After having lost a large sum of money
there is undoubtedly a special gratification in seeing it return
by the same channel through which it escaped, but the enjoyment of
this peculiar satisfaction is hardly commensurate with the risk that
many people run in attaining it. In discussing this point some years
ago with a friend who owned a thousand shares of stock in a bankrupt
railway company which had cost him $50 a share, and was then selling
at $15 a share, with a fifty to one chance that the road would go into
receivership, I argued that while the loss of $35,000 was a large
and bitter pill to swallow, the chances were that it would not be
made smaller or more palatable by the inevitable receivership, and
that he might as well salvage what he could from the wreckage of his
investment. After all, there were dozens of really _good_ stocks that
had declined more than $35 a share; stocks that would eventually “come
back” when the market turned about; whereas with his stock there was
a probable assessment of $10 to $15 a share staring him in the face,
and after paying that, the stock was likely to sell at a figure less
than the assessment to be paid, judging by past performance of the
stocks of other companies in receivership. The road was tremendously
over-bonded, over-capitalized, encumbered with every conceivable
sort of debt, and not earning its fixed charges. He vehemently
declared,--“No, I’ll be damned if I’ll allow those thieves to do me out
of that money; they shall pay it all back, and more with it!” He held
tenaciously to his resolution, the road fell into receivership, and a
few months later he could have bought the stock in the open market at
two dollars a share less than he had paid in on the assessment.

A favorite and amusing pastime with a multitude of traders is to
cajole themselves into believing that when some stock they own becomes
increasingly active after a considerable advance, the renewed activity
is a sure indication that “bankers and insiders” are accumulating it
for a still further advance. It is well to remember, however, that
bankers and insiders do most of their accumulating before the rise
begins, and while the outside public is doing its accumulating the
bankers and insiders are quietly supplying the stocks. It is quite
clear that if the insiders pursued the same tactics as the public they
would soon be relegated to the ranks of the outsiders.

It is a common saying, even among veteran traders, that such and such
a stock “is a good buy, but you must watch it closely.” To _watch_ a
stock after buying it is about the most foolish thing one can do. To
watch it go down is certainly no pleasure, and if it goes up it doesn’t
need watching. The time to watch it is before buying. In order to limit
one’s loss on a purchase it is a simple matter to put in an “open stop
loss” order somewhere under the cost price; and no amount of diligent
“watching” will prevent it from going down. On the other hand, to
insure one’s profit, if the price goes up, nothing more is required
than to put in a “G. T. C.” (good till cancelled), selling order at
whatever figure above the cost price the purchaser is willing to accept
as his profit.

There is probably no more popular fallacy among traders than the
one which presupposes that great “pools” and combinations formed to
manipulate certain stocks are either made up of officers and directors
of the corporations concerned, or else that such pools base their
operations upon valuable inside information from some head official.
This may be true in rare instances; but generally speaking the
directors and officers of the companies know nothing whatever of the
pool operations in their stocks, and when they do know they usually
frown on such schemes. Anyone who stops to consider knows that the
market prices of the company’s securities are of far less concern to
the officials than the matter of conducting their business operations
at a profit. If the company’s earnings are good, it is clear that this
fact will soon enough manifest itself in the demand for the securities,
without any abortive or clandestine efforts; and if the earnings are
poor, it would obviously be beneath the dignity of the officials to
deceive the public through pool operations or pool affiliations. A more
simple plan would be to utilize their “inside information” by quietly
selling the stock.

I recall a particular instance, a few years ago, when there were some
tremendous pool operations in the common stock of one of America’s
largest industrial corporations, and after the stock had been bid up
ten or a dozen points it was reported that a “managing director”
of the company had assured one of the pool members that it had been
tacitly agreed among the directors to declare a fifty per cent. stock
dividend at the next board meeting. The public instantly took the bit
in its teeth, and inside of a week the stock advanced fifteen points
more, which doubtless afforded the clique an auspicious occasion for
unloading its holdings, bought at much lower figures. About that
time I happened to be in New York, and while lunching one day with
the chairman of the board of directors at his club he told me that
the matter of a stock dividend had not even been discussed among the
directors, and that in his opinion there was no likelihood of any
change in the dividend policy for at least a year,--which proved to be
true.




PROBLEMS DEFYING PRESENT SOLUTION ARE BETTER DEFERRED TO THE FUTURE


A matter of present and future importance in connection with many
investment and speculative stocks, involving as it does questions on
which there is a wide diversity of opinion, is the modern practice of
increasing the outstanding shares of corporations by splitting them up
into fractions, or by declaring liberal stock dividends. Many of the
large companies have recently doubled and quadrupled their shares, and
some have issued as high as nine new shares for one, on somewhat the
same principle as the Government will issue ten one dollar notes in
exchange for a ten dollar bill. And in several instances the fractional
shares have been split a second, and even a third time. In past years
when there were only a few listed securities it was possible for any
well informed person in financial circles to tell the par value and
the approximate book value of all the leading stocks, but the good
old-fashioned methods are no longer in vogue; there are now 1,045
stocks listed on the New York Stock Exchange alone, representing almost
every imaginable industry, from steam locomotives to lunch counters,
and under the new capital readjustment process it takes a professional
statistician to keep up with the changes and determine what stocks are
actually worth. But whatever their value may be, it is at least certain
that there is not enough money in the world to cash them all in at
anywhere near their present market price. Nowadays it is not unusual
for industrial companies to have from five to ten million or more
shares outstanding. The lately devised and much over-worked practice of
splitting stocks up into small fractions, avowedly for the convenience
of traders, savors strongly of the old worn-out custom of “baiting” the
public with low-priced issues, ranging from $1 a share upward. As long
as we are riding on the crest of the wave of prosperity there appears
to be no imminent danger in such inflation, but when business slackens,
as it always has periodically in the past---- However, the optimists
contend that these problems are too far in the future to worry about.
Furthermore it is not the design of this article to criticise abuses,
or to prognosticate future difficulties that seem likely to grow out
of them. It is true that some of the companies, notwithstanding the
tremendous increase in their capital structures, have not weakened
their resources by increasing their cash disbursements. In 1921 the
stock of the Standard Oil Company of New Jersey was paying $5 a year
in dividends and selling at $124.50 per share. In 1922 it was boosted
up to $250.50 a share on the report that shareholders were to receive
four new shares for one. After this split-up was accomplished and the
authorized common stock increased to 25,000,000 shares,--not dollars,
but _shares_!--more than 20,000,000 of which have been issued, in
addition to $200,000,000 of preferred stock, the same conservative
dividend policy was continued, and the new stock received, and still
receives, only one dollar a share annually in dividends. The market
price of the new stock went down to a fraction below $31, whence it
afterwards recovered to about $46, at which figure it pays a trifle
over 2%, or about one half the net return on U. S. Government bonds;
and the only visible change in the stockholder’s position is that if
he wishes to sell his stock it costs about five times what it did
before; in other words, to buy and sell the equivalent of one hundred
shares of the old stock it now costs $154 in commission and tax--more
than eighteen months’ income on a hundred shares of the present stock.
Possibly there are mathematicians who can figure out some sort of
compensating advantage to the stockholder, but I never could.

       *       *       *       *       *

To sum up the whole situation in a word, those who would make money
speculating in the stock market should first understand that it
requires as much caution and business acumen as any other money-making
enterprise, plus some knowledge of the psychological handicaps; also
plus the rare faculty of maintaining a complete mastery over one’s
impulses, emotions and ambitions under the most heroic tests of
human endurance. All speculations, and even the most conservative
investments, have some slight element of risk; all lines of business
are more or less a gamble; marriage is a gamble; political preferment
is a gamble; in fact nearly everything in life, including our very
existence, is an uncertainty; yet people are not thereby discouraged
from entering into any and all of these ventures. Those who look only
for certainties have far to search and little to find in this world.

       *       *       *       *       *

Transcriber’s Notes:

The one footnote has been moved to the end of its chapter.

Illustrations have been moved to paragraph breaks near related content,
except for the frontispiece.

Variations in spelling and hyphenation were retained as they appear in
the original publication, except that obvious typographical errors have
been corrected.





*** END OF THE PROJECT GUTENBERG EBOOK THE PSYCHOLOGY OF SPECULATION ***


    

Updated editions will replace the previous one—the old editions will
be renamed.

Creating the works from print editions not protected by U.S. copyright
law means that no one owns a United States copyright in these works,
so the Foundation (and you!) can copy and distribute it in the United
States without permission and without paying copyright
royalties. Special rules, set forth in the General Terms of Use part
of this license, apply to copying and distributing Project
Gutenberg™ electronic works to protect the PROJECT GUTENBERG™
concept and trademark. Project Gutenberg is a registered trademark,
and may not be used if you charge for an eBook, except by following
the terms of the trademark license, including paying royalties for use
of the Project Gutenberg trademark. If you do not charge anything for
copies of this eBook, complying with the trademark license is very
easy. You may use this eBook for nearly any purpose such as creation
of derivative works, reports, performances and research. Project
Gutenberg eBooks may be modified and printed and given away—you may
do practically ANYTHING in the United States with eBooks not protected
by U.S. copyright law. Redistribution is subject to the trademark
license, especially commercial redistribution.


START: FULL LICENSE

THE FULL PROJECT GUTENBERG LICENSE

PLEASE READ THIS BEFORE YOU DISTRIBUTE OR USE THIS WORK

To protect the Project Gutenberg™ mission of promoting the free
distribution of electronic works, by using or distributing this work
(or any other work associated in any way with the phrase “Project
Gutenberg”), you agree to comply with all the terms of the Full
Project Gutenberg™ License available with this file or online at
www.gutenberg.org/license.

Section 1. General Terms of Use and Redistributing Project Gutenberg™
electronic works

1.A. By reading or using any part of this Project Gutenberg™
electronic work, you indicate that you have read, understand, agree to
and accept all the terms of this license and intellectual property
(trademark/copyright) agreement. If you do not agree to abide by all
the terms of this agreement, you must cease using and return or
destroy all copies of Project Gutenberg™ electronic works in your
possession. If you paid a fee for obtaining a copy of or access to a
Project Gutenberg™ electronic work and you do not agree to be bound
by the terms of this agreement, you may obtain a refund from the person
or entity to whom you paid the fee as set forth in paragraph 1.E.8.

1.B. “Project Gutenberg” is a registered trademark. It may only be
used on or associated in any way with an electronic work by people who
agree to be bound by the terms of this agreement. There are a few
things that you can do with most Project Gutenberg™ electronic works
even without complying with the full terms of this agreement. See
paragraph 1.C below. There are a lot of things you can do with Project
Gutenberg™ electronic works if you follow the terms of this
agreement and help preserve free future access to Project Gutenberg™
electronic works. See paragraph 1.E below.

1.C. The Project Gutenberg Literary Archive Foundation (“the
Foundation” or PGLAF), owns a compilation copyright in the collection
of Project Gutenberg™ electronic works. Nearly all the individual
works in the collection are in the public domain in the United
States. If an individual work is unprotected by copyright law in the
United States and you are located in the United States, we do not
claim a right to prevent you from copying, distributing, performing,
displaying or creating derivative works based on the work as long as
all references to Project Gutenberg are removed. Of course, we hope
that you will support the Project Gutenberg™ mission of promoting
free access to electronic works by freely sharing Project Gutenberg™
works in compliance with the terms of this agreement for keeping the
Project Gutenberg™ name associated with the work. You can easily
comply with the terms of this agreement by keeping this work in the
same format with its attached full Project Gutenberg™ License when
you share it without charge with others.

1.D. The copyright laws of the place where you are located also govern
what you can do with this work. Copyright laws in most countries are
in a constant state of change. If you are outside the United States,
check the laws of your country in addition to the terms of this
agreement before downloading, copying, displaying, performing,
distributing or creating derivative works based on this work or any
other Project Gutenberg™ work. The Foundation makes no
representations concerning the copyright status of any work in any
country other than the United States.

1.E. Unless you have removed all references to Project Gutenberg:

1.E.1. The following sentence, with active links to, or other
immediate access to, the full Project Gutenberg™ License must appear
prominently whenever any copy of a Project Gutenberg™ work (any work
on which the phrase “Project Gutenberg” appears, or with which the
phrase “Project Gutenberg” is associated) is accessed, displayed,
performed, viewed, copied or distributed:

    This eBook is for the use of anyone anywhere in the United States and most
    other parts of the world at no cost and with almost no restrictions
    whatsoever. You may copy it, give it away or re-use it under the terms
    of the Project Gutenberg License included with this eBook or online
    at www.gutenberg.org. If you
    are not located in the United States, you will have to check the laws
    of the country where you are located before using this eBook.
  
1.E.2. If an individual Project Gutenberg™ electronic work is
derived from texts not protected by U.S. copyright law (does not
contain a notice indicating that it is posted with permission of the
copyright holder), the work can be copied and distributed to anyone in
the United States without paying any fees or charges. If you are
redistributing or providing access to a work with the phrase “Project
Gutenberg” associated with or appearing on the work, you must comply
either with the requirements of paragraphs 1.E.1 through 1.E.7 or
obtain permission for the use of the work and the Project Gutenberg™
trademark as set forth in paragraphs 1.E.8 or 1.E.9.

1.E.3. If an individual Project Gutenberg™ electronic work is posted
with the permission of the copyright holder, your use and distribution
must comply with both paragraphs 1.E.1 through 1.E.7 and any
additional terms imposed by the copyright holder. Additional terms
will be linked to the Project Gutenberg™ License for all works
posted with the permission of the copyright holder found at the
beginning of this work.

1.E.4. Do not unlink or detach or remove the full Project Gutenberg™
License terms from this work, or any files containing a part of this
work or any other work associated with Project Gutenberg™.

1.E.5. Do not copy, display, perform, distribute or redistribute this
electronic work, or any part of this electronic work, without
prominently displaying the sentence set forth in paragraph 1.E.1 with
active links or immediate access to the full terms of the Project
Gutenberg™ License.

1.E.6. You may convert to and distribute this work in any binary,
compressed, marked up, nonproprietary or proprietary form, including
any word processing or hypertext form. However, if you provide access
to or distribute copies of a Project Gutenberg™ work in a format
other than “Plain Vanilla ASCII” or other format used in the official
version posted on the official Project Gutenberg™ website
(www.gutenberg.org), you must, at no additional cost, fee or expense
to the user, provide a copy, a means of exporting a copy, or a means
of obtaining a copy upon request, of the work in its original “Plain
Vanilla ASCII” or other form. Any alternate format must include the
full Project Gutenberg™ License as specified in paragraph 1.E.1.

1.E.7. Do not charge a fee for access to, viewing, displaying,
performing, copying or distributing any Project Gutenberg™ works
unless you comply with paragraph 1.E.8 or 1.E.9.

1.E.8. You may charge a reasonable fee for copies of or providing
access to or distributing Project Gutenberg™ electronic works
provided that:

    • You pay a royalty fee of 20% of the gross profits you derive from
        the use of Project Gutenberg™ works calculated using the method
        you already use to calculate your applicable taxes. The fee is owed
        to the owner of the Project Gutenberg™ trademark, but he has
        agreed to donate royalties under this paragraph to the Project
        Gutenberg Literary Archive Foundation. Royalty payments must be paid
        within 60 days following each date on which you prepare (or are
        legally required to prepare) your periodic tax returns. Royalty
        payments should be clearly marked as such and sent to the Project
        Gutenberg Literary Archive Foundation at the address specified in
        Section 4, “Information about donations to the Project Gutenberg
        Literary Archive Foundation.”
    
    • You provide a full refund of any money paid by a user who notifies
        you in writing (or by e-mail) within 30 days of receipt that s/he
        does not agree to the terms of the full Project Gutenberg™
        License. You must require such a user to return or destroy all
        copies of the works possessed in a physical medium and discontinue
        all use of and all access to other copies of Project Gutenberg™
        works.
    
    • You provide, in accordance with paragraph 1.F.3, a full refund of
        any money paid for a work or a replacement copy, if a defect in the
        electronic work is discovered and reported to you within 90 days of
        receipt of the work.
    
    • You comply with all other terms of this agreement for free
        distribution of Project Gutenberg™ works.
    

1.E.9. If you wish to charge a fee or distribute a Project
Gutenberg™ electronic work or group of works on different terms than
are set forth in this agreement, you must obtain permission in writing
from the Project Gutenberg Literary Archive Foundation, the manager of
the Project Gutenberg™ trademark. Contact the Foundation as set
forth in Section 3 below.

1.F.

1.F.1. Project Gutenberg volunteers and employees expend considerable
effort to identify, do copyright research on, transcribe and proofread
works not protected by U.S. copyright law in creating the Project
Gutenberg™ collection. Despite these efforts, Project Gutenberg™
electronic works, and the medium on which they may be stored, may
contain “Defects,” such as, but not limited to, incomplete, inaccurate
or corrupt data, transcription errors, a copyright or other
intellectual property infringement, a defective or damaged disk or
other medium, a computer virus, or computer codes that damage or
cannot be read by your equipment.

1.F.2. LIMITED WARRANTY, DISCLAIMER OF DAMAGES - Except for the “Right
of Replacement or Refund” described in paragraph 1.F.3, the Project
Gutenberg Literary Archive Foundation, the owner of the Project
Gutenberg™ trademark, and any other party distributing a Project
Gutenberg™ electronic work under this agreement, disclaim all
liability to you for damages, costs and expenses, including legal
fees. YOU AGREE THAT YOU HAVE NO REMEDIES FOR NEGLIGENCE, STRICT
LIABILITY, BREACH OF WARRANTY OR BREACH OF CONTRACT EXCEPT THOSE
PROVIDED IN PARAGRAPH 1.F.3. YOU AGREE THAT THE FOUNDATION, THE
TRADEMARK OWNER, AND ANY DISTRIBUTOR UNDER THIS AGREEMENT WILL NOT BE
LIABLE TO YOU FOR ACTUAL, DIRECT, INDIRECT, CONSEQUENTIAL, PUNITIVE OR
INCIDENTAL DAMAGES EVEN IF YOU GIVE NOTICE OF THE POSSIBILITY OF SUCH
DAMAGE.

1.F.3. LIMITED RIGHT OF REPLACEMENT OR REFUND - If you discover a
defect in this electronic work within 90 days of receiving it, you can
receive a refund of the money (if any) you paid for it by sending a
written explanation to the person you received the work from. If you
received the work on a physical medium, you must return the medium
with your written explanation. The person or entity that provided you
with the defective work may elect to provide a replacement copy in
lieu of a refund. If you received the work electronically, the person
or entity providing it to you may choose to give you a second
opportunity to receive the work electronically in lieu of a refund. If
the second copy is also defective, you may demand a refund in writing
without further opportunities to fix the problem.

1.F.4. Except for the limited right of replacement or refund set forth
in paragraph 1.F.3, this work is provided to you ‘AS-IS’, WITH NO
OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE.

1.F.5. Some states do not allow disclaimers of certain implied
warranties or the exclusion or limitation of certain types of
damages. If any disclaimer or limitation set forth in this agreement
violates the law of the state applicable to this agreement, the
agreement shall be interpreted to make the maximum disclaimer or
limitation permitted by the applicable state law. The invalidity or
unenforceability of any provision of this agreement shall not void the
remaining provisions.

1.F.6. INDEMNITY - You agree to indemnify and hold the Foundation, the
trademark owner, any agent or employee of the Foundation, anyone
providing copies of Project Gutenberg™ electronic works in
accordance with this agreement, and any volunteers associated with the
production, promotion and distribution of Project Gutenberg™
electronic works, harmless from all liability, costs and expenses,
including legal fees, that arise directly or indirectly from any of
the following which you do or cause to occur: (a) distribution of this
or any Project Gutenberg™ work, (b) alteration, modification, or
additions or deletions to any Project Gutenberg™ work, and (c) any
Defect you cause.

Section 2. Information about the Mission of Project Gutenberg™

Project Gutenberg™ is synonymous with the free distribution of
electronic works in formats readable by the widest variety of
computers including obsolete, old, middle-aged and new computers. It
exists because of the efforts of hundreds of volunteers and donations
from people in all walks of life.

Volunteers and financial support to provide volunteers with the
assistance they need are critical to reaching Project Gutenberg™’s
goals and ensuring that the Project Gutenberg™ collection will
remain freely available for generations to come. In 2001, the Project
Gutenberg Literary Archive Foundation was created to provide a secure
and permanent future for Project Gutenberg™ and future
generations. To learn more about the Project Gutenberg Literary
Archive Foundation and how your efforts and donations can help, see
Sections 3 and 4 and the Foundation information page at www.gutenberg.org.

Section 3. Information about the Project Gutenberg Literary Archive Foundation

The Project Gutenberg Literary Archive Foundation is a non-profit
501(c)(3) educational corporation organized under the laws of the
state of Mississippi and granted tax exempt status by the Internal
Revenue Service. The Foundation’s EIN or federal tax identification
number is 64-6221541. Contributions to the Project Gutenberg Literary
Archive Foundation are tax deductible to the full extent permitted by
U.S. federal laws and your state’s laws.

The Foundation’s business office is located at 809 North 1500 West,
Salt Lake City, UT 84116, (801) 596-1887. Email contact links and up
to date contact information can be found at the Foundation’s website
and official page at www.gutenberg.org/contact

Section 4. Information about Donations to the Project Gutenberg
Literary Archive Foundation

Project Gutenberg™ depends upon and cannot survive without widespread
public support and donations to carry out its mission of
increasing the number of public domain and licensed works that can be
freely distributed in machine-readable form accessible by the widest
array of equipment including outdated equipment. Many small donations
($1 to $5,000) are particularly important to maintaining tax exempt
status with the IRS.

The Foundation is committed to complying with the laws regulating
charities and charitable donations in all 50 states of the United
States. Compliance requirements are not uniform and it takes a
considerable effort, much paperwork and many fees to meet and keep up
with these requirements. We do not solicit donations in locations
where we have not received written confirmation of compliance. To SEND
DONATIONS or determine the status of compliance for any particular state
visit www.gutenberg.org/donate.

While we cannot and do not solicit contributions from states where we
have not met the solicitation requirements, we know of no prohibition
against accepting unsolicited donations from donors in such states who
approach us with offers to donate.

International donations are gratefully accepted, but we cannot make
any statements concerning tax treatment of donations received from
outside the United States. U.S. laws alone swamp our small staff.

Please check the Project Gutenberg web pages for current donation
methods and addresses. Donations are accepted in a number of other
ways including checks, online payments and credit card donations. To
donate, please visit: www.gutenberg.org/donate.

Section 5. General Information About Project Gutenberg™ electronic works

Professor Michael S. Hart was the originator of the Project
Gutenberg™ concept of a library of electronic works that could be
freely shared with anyone. For forty years, he produced and
distributed Project Gutenberg™ eBooks with only a loose network of
volunteer support.

Project Gutenberg™ eBooks are often created from several printed
editions, all of which are confirmed as not protected by copyright in
the U.S. unless a copyright notice is included. Thus, we do not
necessarily keep eBooks in compliance with any particular paper
edition.

Most people start at our website which has the main PG search
facility: www.gutenberg.org.

This website includes information about Project Gutenberg™,
including how to make donations to the Project Gutenberg Literary
Archive Foundation, how to help produce our new eBooks, and how to
subscribe to our email newsletter to hear about new eBooks.