There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn! After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is; they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance. The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. You need not only the courage of convictions but the intelligent patience to sit tight. Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see or if you prefer, until you think you see the turn of the market; the beginning of a reversal of general conditions. You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. One of the most helpful things that anybody can learn is to give up trying to catch the last eighth or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent. Without faith in his own judgment no man can go very far in this game. That is about all I have learned to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary. I have been short one hundred thousand shares and I have seen a big rally coming. I have figured and figured correctly that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits. And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again on the rally. I knew that if I did I might lose my position and with it the certainty of a big killing. It is the big swing that makes the big money for you. People don't seem to grasp easily the fundamentals of stock trading. I have often said that to buy on a rising market is the most comfortable way of buying stocks. Now, the point is not so much to buy as cheap as possible or go short at top prices, but to buy or sell at the right time. When I am bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don't buy long stock on a scale down, I buy on a scale up. Let us suppose, for example, that I am buying some stock. I'll buy two thousand shares at no. If the stock goes up to ill after I buy it I am, at least temporarily, right in my operation, because it is a point higher; it shows me a profit. Well, because I am right I go in and buy another two thousand shares. If the market is still rising I buy a third lot of two thousand shares. Say the price goes to 114. I think it is enough for the time being. I now have a trading basis to work from. I am long six thousand shares at an average of in%, and the stock is selling at 114. I won't buy any more just then. I wait and see. I figure that at some stage of the rise there is going to be a reaction. I want to see how the market takes care of itself after that reaction. It will probably react to where I got my third lot. Say that after going higher it falls back to H2J4, and then rallies. Well, just as it goes back to 113% I shoot an order to buy four thousand at the market of course. Well, if I get that fouf thousand at 113% I know something is wrong and I'll give a testing order that is, I'll sell one thousand shares to see how the market takes it. But suppose that of the order to buy the four thousand shares that I put in when the price was 113^4 I get two thousand at 114 and five hundred at 114^ and the rest on the way up so that for the last five hundred I pay 115^. Then I know I am right. It is the way I get the four thousand shares that tells me whether I am right in buying that particular stock at that particular time for of course I am working on the assumption that I have checked up general conditions pretty well and they are bullish. I never want to buy stocks too cheap or too easily. I remember a story I heard about Deacon S. V. White. I looked ahead and saw a big pile of dollars. Out of it stuck a sign. It had "Help yourself," on it, in huge letters. Beside it stood a cart with "Lawrence Livingston Trucking Corporation" painted on its side. I had a brand-new shovel in my hand. There was not another soul in sight, so I had no competition in the gold-shoveling, which is one beauty of seeing the dollar-heap ahead of others. The people who might have seen it if they had stopped to look were just then looking at baseball games instead, or motoring or buying houses to be paid for with the very dollars that I saw. That was the first time that I had seen big money ahead, and I naturally started toward it on the run. Before I could reach the dollar-pile my wind went back on me and I fell to the ground. The pile of dollars was still there, but I had lost the shovel, and the wagon was gone. So much for sprinting too soon! I was too eager to prove to myself that I had seen real dollars and not a mirage. I saw, and knew that I saw. Thinking about the reward for my excellent sight kept me from considering the distance to the dollar-heap. I should have walked and not sprinted. That is what happened. I didn't wait to determine whether or not the time was right for plunging on the bear side. On the one occasion when I should have invoked the aid of my stock-reading I didn't do it. That is how I came to learn that even when one is properly bearish at the very beginning of a bear market it is well not to begin selling in bulk until there is no danger of the engine back-firing. The succession of spankings I had received made me less aggressively cocksure; perhaps I should say less careless, for of course I knew I was just so much nearer to the smash. All I could do was wait watchfully, as I should have done before plunging. It wasn't a case of locking the stable after the horse was stolen. I simply had to be sure, the next time I tried. If a man didn't make mistakes he'd own the world in a month. But if he didn't profit by his mistakes he wouldn't own a blessed thing. Moderate rallies from time to time were reasonable. But the bear market was not over; and here was Wall Street or the fool public or desperate bull interests disregarding monetary conditions and marking up prices beyond reason or letting somebody else do it. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities. In short, I had learned that I had to work for my money. I was no longer betting blindly or concerned with mastering the techniques of the game, but with earning my successes by hard study and clear thinking and immune from the danger of making sucker plays. The recognition of our own mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a licking, you do not hanker for a second dose, and, of course, all stock-market mistakes wound you in two tender spots your pocketbook and your vanity. But I will tell you something curious: A stock speculator sometimes makes mistakes and knows that he is making them. And after he makes them he will ask himself why he made them; and after thinking over it cold-bloodedly a long time after the pain of punishment is over he may learn how he came to make them, and when, and at what particular point of his trade ; but not why. And then he simply calls himself names and lets it go at that. Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line. Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong. And when a millionaire is right his money is merely one of his several servants. Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it Overnight. But being wrong not taking the loss that is what does the damage to the pocketbook and to the soul. You remember Dickson G. Watts' story about the man who was so nervous that a friend asked him what the matter was. "I can't sleep," answered the nervous one. "Why not?" asked the friend. "I am carrying so much cotton that I can't sleep thinking about it. It is wearing me out. What can I do?" "Sell down to the sleeping point," answered the friend. As a rule a man adapts himself to conditions so quickly that he loses the perspective. He does not feel the difference much that is, he does not vividly remember how it felt not to be a millionaire. He only remembers that there were things he could not do that he can do now. It does not take a reasonably young and normal man very long to lose the habit of being poor. It requires a little longer to forget that he used to be rich. I suppose that is because money creates needs or encourages their multiplication. I mean that after a man makes money in the stock market he very quickly loses the habit of not spending. But after he loses his money it takes him a long time to lose the habit of spending. I would rather play commodities than stocks. There is no question about their greater legitimacy, as it were. It partakes more of the nature of a commercial venture than trading in stocks does. A man can approach it as he might any mercantile problem. It may be possible to use fictitious arguments for or against a certain trend in a commodity market; but success will be only temporary, for in the end the facts are bound to prevail, so that a trader gets dividends on study and observation, as he does in a regular business. He can watch and weigh conditions and he knows as much about it as anyone else. He need not guard against inside cliques. Dividends are not unexpectedly passed or increased overnight in the cotton market or in wheat or corn. In the long run commodity prices are governed but by one law the economic law of demand and supply. The business of the trader in commodities is simply to get facts about the demand and the supply, present and prospective. He does not indulge in guesses about a dozen things as he does in stocks. Of course the same things happen in all speculative markets. The message of the trend is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions that the answers will supply themselves directly. But people never take the trouble to ask questions, leave alone seeking answers. The average American is from Missouri everywhere and at all times except when he goes to the brokers' offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile. This matter of stock movement is not as complicated as it appears. Of course you need experience. But it is even more important to keep certain fundamentals in mind. To read the tape is not to have your fortune told. The tape does not tell you how much you will surely be worth next Thursday at 1:35 p.m. The object of reading the tape is to ascertain, first, how and, next, when to trade that is, whether it is wiser to buy than to sell. It works exactly the same for stocks as for cotton or wheat or corn or oats. You watch the market that is, the course of prices as recorded by the tape with one object: to determine the direction that is, the price tendency. Prices, we know, will move either up or down according to the resistance they encounter. For purposes of easy explanation we will say that prices, like everything else, move along the line of least resistance. They will do whatever comes easiest; therefore they will go up if there is less resistance to an advance than to a decline; and vice versa. Nobody should be puzzled as to whether a market is a bull or a bear market after it fairly starts. The trend is evident to a man who has an open mind and reasonably clear sight, for it is never wise for a speculator to fit his facts to his theories. Such a man will, or ought to, know whether it is a bull or a bear market, and if he knows that he knows whether to buy or to sell. It is therefore at the very inception of the movement that a man needs to know whether to buy or to sell. Let us say, for example, that the market, as it usually does in those between-swings times, fluctuates within a range of ten points; up to 130 and down to 120. It may look very weak at the bottom; or, on the way up, after a rise of eight or ten points, it may look as strong as anything. A man ought not to be led into trading by tokens. He should wait until the tape tells him that the time is ripe. As a matter of fact, millions upon millions of dollars have been lost by men who bought stocks because they looked cheap or sold them because they looked dear. The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is his signal to get busy. Reading the tape merely enables him to see that at 130 the selling had been stronger than the buying and a reaction in the price logically followed. Up to the point where the selling prevailed over the buying, superficial students of the tape may conclude that the price is not going to stop short of 150, and they buy. But after the reaction begins they hold on, or sell out at a small loss, or they go short and talk bearish. But at 120 there is stronger resistance to the decline. The buying prevails over the selling, there is a rally and the shorts cover. The public is so often whipsawed that one marvels at their persistence in not learning their lesson. Eventually something happens that increases the power of either the upward or the downward force and the point of greatest resistance moves up or down that is, the buying at 130 will for the first time be stronger than the selling, or the selling at 120 be stronger than the buying. The price will break through the old barrier or movement-limit and go on. As a rule, there is always a crowd of traders who are short at 120 because it looked so weak, or long at 130 because it looked so strong, and, when the market goes against them they are forced, after a while, either to change their minds and turn or to close out, In either event they help to define even more clearly the price line of least resistance. Thus the intelligent trader who has patiently waited to determine this line will enlist the aid of fundamental trade conditions and also of the force of the trading of that part of the community that happened to guess wrong and must now rectify mistakes. Such corrections tend to push prices along the line of least resistance. And right here I will say that, though I do not give it as a mathematical certainty or as an axiom of speculation, my experience has been that accidents that is, the unexpected or unforeseen have always helped me in my market position whenever the latter has been based upon my determination of the line of least resistance. I was long once because I found out that the line of least resistance was upward. I should have stayed long instead of letting my broker tell me that insiders were selling stocks. It didn't make any difference what was going on in the directors' minds. That was something I couldn't possibly know. But I could and did know that the tape said: "Going up!" And then came the unexpected raising of the dividend rate and the thirty-point rise in the stock. At 164 prices looked mighty high, but as I told you before, stocks are never too high to buy or too low to sell. The price, per se, has nothing to do with establishing my line of least resistance. You will find in actual practice that if you trade as I have indicated any important piece of news given out between the closing of one market and the opening of another is usually in harmony with the line of least resistance. The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa. Before the First World War broke out the market was in a very weak condition. There came the proclamation of Germany's submarine policy. I was short one Hundred and fifty thousand shares of stock, not because I knew the news was coming, but because I was going along the line of least resistance. What happened came out of a clear sky, as far as my play was concerned. Of course I took advantage of the situation and I covered my shorts that day. It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it. But in actual practice a man has to guard against many things, and most of all against himself that is, against human nature. That is the reason why I say that the man who is right always has two forces working in his favor basic conditions and the men who are wrong. In a bull market bear factors are ignored. That is human nature, and yet human beings profess astonishment at it. People will tell you that the wheat crop has gone to pot because there has been bad weather in one or two sections and some farmers have been ruined. When the entire crop is gathered and all the farmers in all the wheat-growing sections begin to take their wheat to the elevators the bulls are surprised at the smallness of the damage. They discover that they merely have helped the bears. When a man makes his play in a commodity market he must not permit himself set opinions. He must have an open mind and flexibility. It is not wise to disregard the message of the tape, no matter what your opinion of crop conditions or of the probable demand may be. I recall how I missed a big play just by trying to anticipate the starting signal. I felt so sure of conditions that I thought it was not necessary to wait for the line of least resistance to define itself. I even thought I might help it arrive, because it looked as if it merely needed a little assistance. I was very bullish on cotton. It was hanging around twelve cents, running up and down within a moderate range. It was in one of those in-between places and I could see it. I knew I really ought to wait. But I got to thinking that if I gave it a little push it would go beyond the upper resistance point. I bought fifty thousand bales. Sure enough, it moved up. And sure enough, as soon as I stopped buying it stopped going up. Then it began to settle back to where it was when I began buying it. I got out and it stopped going down. I thought I was now much nearer the starting signal, and presently I thought I'd start it myself again. I did. The same thing happened. I bid it up, only to see it go down when I stopped. I did this four or five time until I finally quit in disgust. It cost me about two hundred thousand dollars. I was done with it. It wasn't very long after that when it began to go up and never stopped till it got to a price that would have meant a killing for me if I hadn't been in such a great hurry to start. This experience has been the experience of so many traders so many times that I can give this rule: In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be up or down. The thing to do is to watch the market, read the tape to determine the limits of the get-nowhere prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction. A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations. Stock-market postmortems don't pay dividends. Not so long ago I was with a party of friends. They got to talking wheat. Some of them were bullish and others bearish. Finally they asked me what I thought. Well, I had been studying the market for some time. I knew they did not want any statistics or analyses of conditions. So I said: "If you want to make some money out of wheat I can tell you how to do it. They all said they did and I told them, "If you are sure you wish to make money in wheat just you watch it. Wait. The moment it crosses $1.20 buy it and you will get a nice quick play in it!" "Why not buy it now, at $1.14?" one of the parties asked. "Because I don't know yet that it is going up at all." "Then why buy it at $1.20? It seems a mighty high price." "Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate intelligently and get a smaller but much more probable profit?" They all said they wanted the smaller but surer profit, so I said, "Then do as I tell you. If it crosses $1.20 buy." As I told you, I had watched it a long time. For months it sold between $1.10 and $1.20, getting nowhere in particular. Well, sir, one day it closed at above $1.19. I got ready for it, Sure enough the next day it opened at $1.20-1/2, and I bought. It went to $1.21, to $1.22, to $1.23, to $1.25, and I went with it. Now I couldn't have told you at the time just what was going on. I didn't get any explanations about its behaviour during the course of the limited fluctuations. I couldn't tell whether the breaking through the limit would be up through $1.20 or down through $1.10, though I suspected it would be up because there was not enough wheat in the world for a big break in prices. As a matter of fact, it seems Europe had been buying quietly and a lot of traders had gone short of it at around $1.19. Owing to the European purchases and other causes, a lot of wheat had been taken out of the market, so that finally the big movement got started. The price went beyond the $1.20 mark. That was all the point I had and it was all I needed. I knew that when it crossed $1.20 it would be because the upward movement at last had gathered force to push it over the limit and something had to happen. In other words, by crossing $1.20 the line of least resistance of wheat prices was established. It was a different story then. I remember that one day was a holiday with us and all our markets were closed. Well, in Winnipeg wheat opened up six cents a bushel. When our market opened on the following day, it also was up six cents a bushel. The price just went along the line of least resistance. What I have told you give you the essence of my trading system as based on studying the tape. I merely learn the way prices are most probably going to move. I check up my own trading by additional tests, to determine the psychological moment. I do that by watching the way the price acts after I begin. It is surprising how many experienced traders there are who look incredulous when I tell them that when I buy stocks for a rise I like to pay top prices and when I sell I must sell low or not at all. It would not be so difficult to make money if a trader always stuck to his speculative guns that is, waited for the line of least resistance to define itself and began buying only when the tape said up or selling only when it said down. He should accumulate his line on the way up. Let him buy one-fifth of his full line. If that does not show him a profit he must not increase his holdings because he has obviously begun wrong; he is wrong temporarily and there is no profit in being wrong at any time. The same tape that said UP did not necessarily lie merely because it is now saying NOT YET. In cotton I was very successful in my trading for a long time. I had my theory about it and I absolutely lived up to it. Suppose I had decided that my line would be forty to fifty thousand bales. Well, I would study the tape as I told you, watching for an opportunity either to buy or to sell. Suppose the line of least resistance indicated a bull movement. Well, I would buy ten thousand bales. After I got through buying that, if the market went up ten points over my initial purchase price, I would take on another ten thousand bales. Same thing. Then, if I could get twenty points' profit, or one dollar a bale, I would buy twenty thousand more. That would give me my line my basis for my trading. But if after buying the first ten or twenty thousand bales, it showed me a loss, out I'd go. I was wrong. It might be I was only temporarily wrong. But as I have said before it doesn't pay to start wrong in anything. What I accomplished by sticking to my system was that I always had a line of cotton in every real movement. In the course of accumulating my full line I might chip out fifty or sixty thousand dollars in these feeling-out plays of mine. This looks like a very expensive testing, but it wasn't. After the real movement started, how long would it take me to make up the fifty thousand dollars I had dropped in order to make sure that I began to load up at exactly the right time? No time at all! It always pays a man to be right at the right time. As I think I also said before, this describes what I may call my system for placing my bets. It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet. Professional traders have always had some system or other based upon their experience and governed either by their attitude toward speculation or by their desires. I remember I met an old gentleman in Palm Beach whose name I did not catch or did not at once identify. I knew he had been in the Street for years, way back in Civil War times, and somebody told me that he was a very wise old codger who had gone through so many booms and panics that he was always saying there was nothing new under the sun and least of all in the stock market. The old fellow asked me a lot of questions. When I got through telling him about my usual practice in trading he nodded and said, "Yes! Yes! You're right. The way you're built, the way your mind runs, makes your system a good system for you. It comes easy for you to practice what you preach, because the money you bet is the least of your cares. I recollect Pat Hearne. Ever hear of him? Well, he was a very well-known sporting man and he had an account with us. Clever chap and nervy. He made money in stocks, and that made people ask him for advice. He would never give any. If they asked him point-blank for his opinion about the wisdom of their commitments he used a favorite race-track maxim of his: "You can't tell till you bet." He traded in our office. He would buy one hundred shares of some active stock and when, or if, it went up I per cent he would buy another hundred. On another point's advance, another hundred shares; and so on. He used to say he wasn't playing the game to make money for others and therefore he would put in a stop-loss order one point below the price of his last purchase. When the price kept going tip he simply moved up his stop with it. On an I per cent reaction he was stopped out. He declared he did not see any sense in losing more than one point, whether it came out of his original margin or out of his paper profits. "You know, a professional gambler is not looking for long shots, but for sure money. Of course long shots are fine when they come in. In the stock market Pat wasn't after tips or playing to catch twenty-points-a-week advances, but sure money in sufficient quantity to provide him with a good living. Of all the thousands of outsiders that I have run across in Wall Street, Pat Hearne was the only one who saw in stock speculation merely a game of chance like faro or roulette, but, nevertheless, had the sense to stick to a relatively sound betting method. I sometimes think that speculation must be an unnatural sort of business, because I find that the average speculator has arrayed against him his own nature. The weaknesses that all men are prone to are fatal to success in speculation usually those very weaknesses that make him likable to his fellows or that he himself particularly guards against in those other ventures of his where they are not nearly so dangerous as when he is trading in stocks or commodities. The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you hope that every day will be the last day and you lose more than you should had you not listened to hope to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does. I have been in the speculative game ever since I was fourteen. It is all I have ever done. I think I know what I am talking about. And the conclusion that I have reached after nearly thirty years of constant trading, both on a shoestring and with millions of dollars back of me, is this: A man may beat a stock or a group at a certain time, but no man living can beat the stock market! A man may make money out of individual deals in cotton or grain, but no man can beat the cotton market or the grain market. It's like the track. A man may beat a horse race, but he cannot beat horse racing. If I knew how to make these statements stronger or more emphatic I certainly would. It does not make any difference what anybody says to the contrary. I know I am right in saying these are incontrovertible statements. A man can't spend years at one thing and not acquire a habitual attitude towards it quite unlike that of the average beginner. The difference distinguishes the professional from the amateur. It is the way a man looks at things that makes or loses money for him in the speculative markets. The public has the dilettante's point of view toward his own effort. The ego obtrudes itself unduly and the thinking therefore is not deep or exhaustive. The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. A trader gets to play the game as the professional billiard player does that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position. "Don't sell stocks when the sap is running up the trees!" and the old-timers tell me that biggest winnings were made on the bull side, so that it is plain not play prejudices but conditions. Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. There is no mind so machinelike that you can depend upon it to function with equal efficiency at all times. I now learned that I could not trust myself to remain equally unaffected by men and misfortunes at all times. Money losses have never worried me in the slightest. But other troubles could and did. I studied my disaster in detail and of course found no difficulty in seeing just where I had been silly. I spotted the exact time and place. A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable of in the line of folly was a long educational step. I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head. A great many smashes by brilliant men can be traced directly to the swelled head an expensive disease everywhere to everybody, but particularly in Wall Street to a speculator. I always let the other man have his say in full before I do any talking. Somebody told me that the late James Stillman, president of the National City Bank who, by the way, was an intimate friend of Williamson's made it his practice to listen in silence, with an impassive face, to anybody who brought a proposition to him. After the man got through Mr. Stillman continued to look at him, as though the man had not finished. So the man, feeling urged to say something more, did so. Simply by looking and listening Stillman often made the man offer terms much more advantageous to the bank than he had meant to offer when he began to speak. I don't keep silent just to induce people to offer a better bargain, but because I like to know all the facts of the case. By letting a man have his say in full you are able to decide at once. It is a great time-saver. It averts debates and prolonged discussions that get nowhere. Nearly every business proposition that is brought to me can be settled, as far as my participation in it is concerned, by my saying yes or no. But I cannot say yes or no right off unless I have the complete proposition before me. I am so constituted that I don't like to owe money or favors. I can pay the money back with money, but the favours and kindnesses I must pay back in kind and you are apt to find these moral obligations mighty high priced at times. Moreover there is no statute of limitations. There were times when my feelings again won over my judgment and I gave in. To subordinate my judgment to his desires was the undoing of me. Gratitude is something a decent man can't help feeling, but it is for a fellow to keep it from completely tying him up. Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee. A man has to have experience and he has to pay for it. It was improper and unwise for me as a speculator to allow myself to be influenced by any consideration to act against my own judgment. Noblesse oblige but not in the stock market, because the tape is not chivalrous and moreover does not reward loyalty. We ran smack into a long moneyless period; four mighty lean years. There was not a penny to be made. As Billy Hen-riquez once said, "It was the kind of market in which not even a skunk could make a scent." I have told you it has been my experience that whenever a stock crosses 100 or 200 or 300 for the first time, it nearly always keeps going up for 30 to 50 points and after 300 faster than after 100 or 200. One of my first big coups was in Anaconda, which I bought when it crossed 200 and sold a day later at 260. My practice of buying a stock just after it crossed par dated back to my early bucket-shop days. It is an old trading principle. I never have felt that I was, wedded indissolubly to one or the other side of the market. That a bull market has added to my bank account or a bear market has been particularly generous I do not consider sufficient reason for sticking to the bull or the bear side after I receive the get-out warning. A man does not swear eternal allegiance to either the bull or the bear side. His concern lies with being right. And there is another thing to remember, and that is that a market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal of form. A market can and does often cease to be a bull market long before prices generally begin to break. My long expected warning came to me when I noticed that, one after another, those stocks which had been the leaders of the market reacted several points from the top and for the first time in many months did not come back. Their race evidently was run, and that clearly necessitated a change in my trading tactics. It was simple enough. In a bull market the trend of prices, of course, is decidedly and definitely upward. Therefore whenever a stock goes against the general trend you are justified in assuming that there is something wrong with that particular stock. It is enough for the experienced trader to perceive that something is wrong. He must not expect the tape to become a lecturer. His job is to listen for it to say "Get out!" and not wait for it to submit a legal brief for approval. As I said before, I noticed that stocks which had been the leaders of the wonderful advance had ceased to advance. They dropped six or seven points and stayed there. At the same time the rest of the market kept on advancing under new standard bearers. Since nothing wrong had developed with the companies themselves, the reason had to be sought elsewhere. Those stocks had gone with the current for months. When they ceased to do so, though the bull tide was still running strong, it meant that for those particular stocks the bull market was over. For the rest of the list the tendency was still decidedly upward. There was no need to be perplexed into inactivity, for there were really no cross currents. I did not turn bearish on the market then, because the tape didn't tell me to do so. The end of the bull market had not come, though it was within hailing distance. Pending its arrival there was still bull money to be made. Such being the case, I merely turned bearish on the stocks which had stopped advancing and as the rest of the market had rising power behind it I both bought and sold. The leaders that had ceased to lead I sold. I put out a short line of five thousand shares in each of them; and then I went long of the new leaders. The stocks I was short of didn't do much, but my long stocks kept on rising. When finally these in turn ceased to advance I sold them out and went short five thousand shares of each. By this time I was more bearish than bullish, because obviously the next big money was going to be made on the down side. While I felt certain that the bear market had really begun before the bull market had really ended, I knew the time for being a rampant bear was not yet. There was no sense in being more royalist than the king; especially in being so too soon. The tape merely said that patrolling parties from the main bear army had dashed by. Time to get ready Never try to sell at the top. It isn't wise. Sell after a reaction if there is no rally. Among the hazards of speculation the happening of the unexpected I might even say of the unexpectable ranks high. There are certain chances that the most prudent man is justified in taking chances that he must take if he wishes to be more than a mercantile mollusk. Normal business hazards are no worse than the risks a man runs when he goes out of his house into the street or sets out on a railroad journey. When I lose money by reason of some development which nobody could foresee I think no more vindictively of it than I do of an inconveniently timed storm. Life itself from the cradle to the grave is a gamble and what happens to me because I do not possess the gift of second sight I can bear undisturbed. But there have been times in my career as a speculator when I have both been right and played square and nevertheless I have been cheated out of my earnings by the sordid unfairness of unsportsmanlike opponents. Against misdeeds by crooks, cowards and crowds a quick-thinking or far-sighted business man can protect himself. I have never gone up against downright dishonesty except in a bucket shop or two because even there honesty was the best policy; the big money was in being square and not in welshing. I have never thought it good business to play any game in any place where it was necessary to keep an eye on the dealer because he was likely to cheat if unwatched. But against the whining welsher the decent man is powerless. Fair play is fair play. I could tell you a dozen instances where I have been the victim of my own belief in the sacredness of the pledged word or of the inviolability of a gentlemen's agreement. I shall not do so because no useful purpose can be served thereby. Fiction writers, clergymen and women are fond of alluding to the floor of the. Stock Exchange as a boodlers' battlefield and to Wall Street's daily business as a fight. It is quite dramatic but utterly misleading. I do not think that my business is strife and contest. I never fight either individuals or speculative cliques. I merely differ in opinion that is, in my reading of basic conditions. What playwrights call battles of business are not fights between human beings. They are merely tests of business vision. I try to stick to facts and facts only, and govern my actions accordingly. That is Bernard M. Baruch's recipe for success in wealth-winning. Sometimes I do not see the facts all the facts clearly enough or early enough; or else I do not reason logically. Whenever any of these things happen I lose. I am wrong. And it always costs me money to be wrong. No reasonable man objects to paying for his mistakes. There are no preferred creditors in mistake-making and no exceptions or exemptions. But I object to losing money when I am right. I do not mean, either, those deals that have cost me money because of sudden changes in the rules of some particular exchange. I have in mind certain hazards of speculation that from time to time remind a man that no profit should be counted safe until it is deposited in your bank to your credit. Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip seeker is not really after good tips, but after any tip. If it makes good, fine! If it doesn't, better luck with the next. I am thinking of the average customer of the average commission house. There is a type of promoter or manipulator that believes in tips first, last and all the time. A good flow of tips is considered by him as a sort of sublimated publicity work, the best merchandising dope in the world, for, since tip-seekers and tip takers are invariably tip-passers, tip-broadcasting becomes a sort of endless-chain advertising. The tipster-promoter labours under the delusion that no human being breathes who can resist a tip if properly delivered. He studies the art of handing them out artistically. I get tips by the hundreds everyday. There are some who can't resist the craving and always look forward to those jags which they consider indispensable to their happiness. It is so easy to open your ears and let the tip in. To be told precisely what to do to be happy in such a manner that you can easily obey is the next nicest thing to being happy which is a mighty long first step toward the fulfillment of your heart's desire. It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to do any thinking. And it is not only among the outside public that you find inveterate tip-takers. The professional trader on the floor of the New York Stock Exchange is quite as bad. I am definitely aware that no end of them cherish mistaken notions of me because I never give anybody tips. If I told the average man, "Sell yourself five thousand Steel!" he would do it on the spot. But if I tell him I am quite bearish on the entire market and give him my reasons in detail, he finds trouble in listening and after I'm done talking he will glare at me for wasting his time expressing my views on general conditions instead of giving him a direct and specific tip, like a real philanthropist of the type that is so abundant in Wall Street the sort who loves to put millions into the pockets of friends, acquaintances and utter strangers alike. The belief in miracles that all men cherish is born of immoderate indulgence in hope. There are people who go on hope sprees periodically and we all know the chronic hope drunkard that is held up before us as an exemplary optimist. Tip-takers are all they really are. I have an acquaintance, a member of the New York Stock Exchange, who was one of those who thought I was a selfish, cold-blooded pig because I never gave tips or put friends into things. One day this was some years ago he was talking to a newspaper man who casually mentioned that he had had it from a good source that G. O. H. was going up. My broker friend promptly bought a thousand shares and saw the price decline so quickly that he was out thirty-five hundred dollars before he could stop his loss. "I have found an easy way and I stick to it. I simply cannot help making money. I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon." Observation, experience, memory and mathematics these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed. He cannot bet on the unreasonable or on the unexpected, however strong his personal convictions may be about man's unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass. A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years at the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude and that enables him to beat the game at times! This difference between the professional and the amateur or occasional trader cannot be over emphasised. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, it makes its money by dealing with facts and figures. I never buy a stock even in a bull market; if it doesn't act as it ought to act in that kind of market. I have sometimes bought a stock during an undoubted bull market and found out that other stocks in the same group were not acting bullishly and I have sold out my stock. Why? Experience tells me that it is not wise to buck against what I may call the manifest group-tendency. I cannot expect to play certainties only. I must reckon on probabilities and anticipate them. An old broker once said to me: "If I am walking along a railroad track and I see a train coming toward me at sixty miles an hour; do I keep on walking on the ties? Friend, I sidestep. And I do not even pat myself on the back for being so wise and prudent." Last year, after the general bull movement was well under way, I noticed that one stock in a certain group was not going with the rest of the group, though the group with that one exception was going with the rest of the market. I was long a very fair amount of Blackwood Motors. Everybody knew that the company was doing a very big business. The price was rising from one to three points a day and the public was coming in more and more. This naturally centered attention on the group and all the various motor stocks began to go up. One of them, however, persistently held back and that was Chester. It lagged behind the others so that it was not long before it made people talk. The low price of Chester and its apathy was contrasted with the strength and activity in Black-wood and other motor stocks and the public logically enough listened to the touts and tipsters and wiseacres and began to buy Chester on the theory that it must presently move up with the rest of the group. Instead of going up on this moderate public buying, Chester actually declined. Now, it would have been no job to put it up in that bull market, considering that Blackwood, a stock of the same group, was one of the sensational leaders of the general advance and we were hearing nothing but the wonderful improvement in the demand for automobiles of all kinds and the record output. It was thus plain that the inside clique in Chester were not doing any of the things that inside cliques invariably do in a bull market. For this failure to do the usual thing there might be two reasons. Perhaps the insiders did not put it up because they wished to accumulate more stock before advancing the price. But this was an untenable theory if you analyzed the volume and character of the trading in Chester. The other reason was that they did not put it up because they were afraid of getting stock if they tried to. When the men who ought to want a stock don't want it, why should I want it? I figured that no matter how prosperous other automobile companies might be, it was a cinch to sell Chester short. Experiences had taught me to beware of buying a stock that refuses to follow the group-leader. I easily established the fact that not only there was no inside buying but that there was actually inside selling. There were other symptomatic warnings against buying Chester, though all I required was its inconsistent market behaviour. It was again the tape that tipped me off and that was why I sold Chester short. One day, not very long afterward, the stock broke wide open. Later on we learned officially, as it were that insiders had indeed been selling it, knowing full well that the condition of the company was not good. The reason, as usual, was disclosed after the break. But the warning came before the break. I don't look out for the breaks; I look out for the warnings. I didn't know what the trouble with Chester was; neither did I follow a hunch. I merely knew that something must be wrong. There is no question that advertising is an art, and manipulation is the art of advertising through the medium of the tape. The tape should tell the story the manipulator wishes its readers to see. The truer the story the more convincing it is bound to be, and the more convincing it is the better the advertising is. A manipulator to-day, for instance, has not only to make a stock look strong but also to make it be strong. Manipulation therefore must be based on sound trading principles. As a rule the men who are at the head of big corporations may act in the market upon their inside knowledge, but they don't actually tell lies. They merely say nothing, for they have discovered that there are times when silence is golden. I have said many times and cannot say it too often that the experience of years as a stock operator has convinced me that no man can consistently and continuously beat the stock market though he may make money in individual stocks on certain occasions. No matter how experienced a trader is the possibility of his making losing plays is always present because speculation cannot be made 100 per cent safe. Wall Street professionals know that acting on "inside" tips will break a man more quickly than famine, pestilence, crop failures, political readjustments or what might be called normal accidents. There is no asphalt boulevard to success in Wall Street or anywhere else. Why additionally block traffic? ………………………………………… About Jesse Livermore - a great story…. Thanks to BOB Brumell for this. Subscribe: Geoshares publishes the Geoshares Report. It was created to help retail investors find suitable investment and speculative opportunities. Discover information and opportunities not found anywhere else. Notes from the editor. Sunday, August 30th Notes from the editor. Many people on various forums fancy themselves as traders. Well perhaps. But to learn about one of the best, read an autobiography by one of the best. It is no longer under copyright so we are happy to offer it here. Jesse was an interesting character who always tried to learn from his mistakes. I'm sure as you read it; you'll find you have made many of the same ones he did. I sure did and sometimes continue doing so. It's a great read and as relevant today as it was 70 years ago. You can find it in the PDF section shown in left column or by clicking here. (Note: large file 1.7 megs) Enjoy it!