Reminiscences of a Stock Operator
I WENT to work when I was
just out of grammar school. I got a job as quotation-board boy in a
stock-brokerage office. I was quick at figures. At school I did
three years of arithmetic in one. I was particularly good at mental
arithmetic. As quotation-board boy I posted the numbers on the big
board in the customers' room. One of the customers usually sat by
the ticker and called out the prices. They couldn't come too fast
for me. I have always remembered figures. No trouble at all. There
were plenty of other employees in that office. Of course I made
friends with the other fellows, but the work I did, if the market
was active, kept me too busy from ten A.M. to three P.M. to let me
do much talking. I don't care for it, anyhow, during business
hours.
But a busy market did not
keep me from thinking about the work. Those quotations did not
represent prices of stocks to me, so many dollars per share. They
were numbers. Of course, they meant something. They were always
changing. It was all I had to be interested in the changes. Why did
they change? I didn't know. I didn't care. I didn't think about
that. I simply saw that they changed. That was all I had to think
about five hours every day and two on Saturdays: that they were
always changing.
That is how I first came to
be interested in the behavior of prices. I had a very good memory
for figures. I could remember in detail how the prices had acted on
the previous day, just before they went up or down. My fondness for
mental arithmetic came in very handy.
I noticed that in advances
as well as declines, stock prices were apt to show certain habits,
so to speak. There was no end of parallel cases and these made
precedents to guide me. I was only fourteen, but after I had taken
hundreds of observations in my mind I found myself testing their
accuracy, comparing the behavior of stocks today with other days.
It was not long before I was anticipating movements in prices. My
only guide, as I say, was their past performances. I carried the
"dope sheets" in my mind. I looked for stock prices to run on form.
I had "clocked" them. You know what I mean. You can spot, for
instance, where the buying is only a trifle better than the
selling. A battle goes on in the stock market and the tape is your
telescope. You can depend upon it seven out of ten
cases.
Another lesson I learned
early is that there is nothing new in Wall Street. There can't be
because speculation is as old as the hills. Whatever happens in the
stock market today has happened before and will happen again. I've
never forgotten that. I suppose I really manage to remember when
and how it happened. The fact that I remember that way is my way of
capitalizing experience.
I got so interested in my
game and so anxious to anticipate advances and declines in all the
active stocks that I got a little book. I put down my observations
in it. It was not a record of imaginary transactions such as so
many people keep merely to make or lose millions of dollars without
getting the swelled head or going to the poorhouse. It was rather a
sort of record of my hits and misses, and next to the determination
of probable movements I was most interested in verifying whether I
had observed accurately; in other words, whether I was right. Say
that after studying every fluctuation of the day in an active stock
I would conclude that it was behaving as it always did before it
broke eight or ten points. Well, I would jot down the stock and the
price on Monday, and remembering past performances I would write
down what it ought to do on Tuesday and Wednesday. Later I would
check up with actual transcriptions from the tape.
That is how I first came to
take an interest in the message of the tape. The fluctuations were
from the first associated in my mind with upward or downward
movements. Of course there is always a reason for fluctuations, but
the tape does not concern itself with the why and wherefore. It
doesn't go into explanations. I didn't ask the tape why when I was
fourteen, and I don't ask it today, at forty. The reason for what a
certain stock does today may not be known for two or three days, or
weeks, or months. But what the dickens does that matter? Your
business with the tape is now -- not tomorrow. The reason can wait.
But you must act instantly or be left. Time and again I see this
happen. You'll remember that Hollow Tube went down three points the
other day while the rest of the market rallied sharply. That was
the fact. On the following Monday you saw that the directors passed
the dividend. That was the reason. They knew what they were going
to do, and even if they didn't sell the stock themselves they at
least didn't buy it. There was no inside buying; no reason why it
should not break.
Well, I kept up my little
memorandum book perhaps six months. Instead of leaving for home the
moment I was through with my work, I'd jot down the figures I
wanted and would study the changes, always looking for the
repetitions and parallelisms of behavior learning to read the tape,
although I was not aware of it at the time.
One day one of the office
boys -- he was older than I came to me where I was eating my lunch
and asked me on the quiet if I had any money.
"Why do you want to know?"
I said.
"Well," he said, "I've got
a dandy tip on Burlington. I'm going to play it if I can get
somebody to go in with me."
"How do you mean, play it?"
I asked. To me the only people who played or could play tips were
the customers old jiggers with oodles of dough. Why, it cost
hundreds, even thousands of dollars, to get into the game. It was
like owning your private carriage and having a coachman who wore a
silk hat.
"That's what I mean; play
it 1" he said. "How much you got.
"How much you
need?"
"Well, I can trade in five
shares by putting up $5."
"How are you going to play
it?"
"I'm going to buy all the
Burlington the bucket shop will let me carry with the money I give
him for margin," he said. "It's going up sure. It's like picking up
money. We'll double ours in a jiffy."
"Hold on!" I said to him,
and pulled out my little dope book.
I wasn't interested in
doubling my money, but in his saying that Burlington was going up.
If it was, my notebook ought to show it. I looked. Sure enough,
Burlington, according to my figuring, was acting as it usually did
before it went up. I had never bought or sold anything in my life,
and I never gambled with the other boys. But all I could see was
that this was a grand chance to test the accuracy of my work, of my
hobby. It struck me at once that if my dope didn't work in practice
there was nothing in the theory of it to interest anybody. So I
gave him all I had, and with our pooled resources he went to one of
the nearby bucket shops and bought some Burlington. Two days later
we cashed in. I made a profit of $3.12.
After that first trade, I
got to speculating on my own hook in the bucket shops. I'd go
during my lunch hour and buy or sell -- it never made any
difference to me. I was playing a system and not a favorite stock
or backing opinions. All I knew was the arithmetic of it. As a
matter of fact, mine was the ideal way to operate in a bucket shop,
where all that a trader does is to bet on fluctuations as they are
printed by the ticker on the tape. It was not long before I was
taking much more money out of the bucket shops than I was pulling
down from my job in the brokerage office. So I gave up my position.
My folks objected, but they couldn't say much when they saw what I
was making. I was only a kid and office-boy wages were not very
high. I did mighty well on my own hook.
I was fifteen when I had my
first thousand and laid the cash in front of my mother -- all made
in the bucket shops in a few months, besides what I had taken home.
My mother carried on something awful. She wanted me to put it away
in the savings bank out of reach of temptation. She said it was
more money than she ever heard any boy of fifteen had made,
starting with nothing. She didn't quite believe it was real money.
She used to worry and fret about it. But I didn't think of anything
except that I could keep on proving my figuring was right. That's
all the fun there is being right by using your head. If I was right
when I tested my convictions with ten shares I would be ten times
more right if I traded in a hundred shares. That is all that having
more margin meant to me -- I was right more emphatically. More
courage? No! No difference! If all I have is ten dollars and I risk
it, I am much braver than when I risk a million, if I have another
million salted away.
Anyhow, at fifteen I was
making a good living out of the stock market. I began in the
smaller bucket shops, where the man who traded in twenty shares at
a clip was suspected of being John W. Gates in disguise or J. P.
Morgan traveling incognito. Bucket shops in those days seldom lay
down on their customers. They didn't have to. There were other ways
of parting customers from their money, even when they guessed
right. The business was tremendously profitable. When it was
conducted legitimately -- I mean straight, as far as the bucket
shop went the fluctuations took care of the shoestrings. It doesn't
take much of a reaction to wipe out a margin of only three quarters
of a point. Also, no welsher could ever get back in the game.
Wouldn't have any trade.
I didn't have a following.
I kept my business to myself. It was a one-man business, anyhow. It
was my head, wasn't it? Prices either were going the way I doped
them out, without any help from friends or partners, or they were
going the other way, and nobody could stop them out of kindness to
me. I couldn't see where I needed to tell my business to anybody
else. I've got friends, of course, but my business has always been
the same - a one-man affair. That is why I have always played a
lone hand.
As it was, it didn't take
long for the bucket shops to get sore on me for beating them. I'd
walk in and plank down my margin, but they'd look at it without
making a move to grab it. They'd tell me there was nothing doing.
That was the time they got to calling me the Boy Plunger. I had to
be changing brokers all the time, going from one bucket shop to
another. It got so that I had to give a fictitious name. I'd begin
light, only fifteen or twenty shares. At times, when they got
suspicious, I'd lose on purpose at first and then sting them
proper. Of course after a little while they'd find me too expensive
and they'd tell me to take myself and my business elsewhere and not
interfere with the owners' dividends.
Once, when the big concern
I'd been trading with for months shut down on me I made up my mind
to take a little more of their money away from them. That bucket
shop had branches all over the city, in hotel lobbies, and in
nearby towns. I went to one of the hotel branches and asked the
manager a few questions and finally got to trading. But as soon as
I played an active stock my especial way he began to get messages
from the head office asking who it was that was operating. The
manager told me what they asked him and I told him my name was
Edward Robinson, of Cambridge. He telephoned the glad news to the
big chief. But the other end wanted to know what I looked like.
When the manager told me that I said to him, "Tell him I am a short
fat man with dark hair and a bushy beard." But he described me
instead, and then he listened and his face got red and he hung up
and told me to beat it.
"What did they say to you?"
I asked him politely.
"They said, `You
blankety-blank fool, didn't we tell you to take no business from
Larry Livermore? And you deliberately let him trim us out of $700!"
He didn't say what else they told him. I tried the other branches
one after another, but they all got to know me, and my money wasn't
any good in any of their offices. I couldn't even go in to look at
the quotations without some of the clerks making cracks at me. I
tried to get them to let me trade at long intervals by dividing my
visits among them all. But that didn't work. Finally there was only
one left to me and that was the biggest and richest of all the
Cosmopolitan Stock Brokerage Company.
The Cosmopolitan was rated
as A-1 and did an enormous business. It had branches in every
manufacturing town in New England. They took my trading all right,
and I bought and sold stocks and made and lost money for months,
but in the end it happened with them as usual. They didn't refuse
my business point-blank, as the small concerns had. Oh, not because
it wasn't sportsmanship, but because they knew it would give them a
black eye to publish the news that they wouldn't take a fellow's
business just because that fellow happened to make a little money.
But they did the next worse thing that is, they made me put up a
three-point margin and compelled me to pay a premium at first of a
half point, then a point, and finally, a point and a half. Some
handicap, that! How? Easy! Suppose Steel was selling at 90 and you
bought it. Your ticket read, normally: "Bought ten Steel at
90-1/8." If you put up a point margin it meant that if it broke
89-1/4 you were wiped out automatically. In a bucket shop the
customer is not importuned for more margin or put to the painful
necessity of telling his broker to sell for anything he can
get.
But when the Cosmopolitan
tacked on that premium they were hitting below the belt. It meant
that if the price was 90 when I bought, instead of making my
ticket: "Bought Steel at 90-1/8," it read: "Bought Steel at
91-1/8." Why, that stock could advance a point and a quarter after
I bought it and I'd still be losing money if I closed the trade.
And by also insisting that I put up a three-point margin at the
very start they reduced my trading capacity by two thirds. Still,
that was the only bucket shop that would take my business at all,
and I had to accept their terms or quit trading.
Of course I had my ups and
downs, but was a winner on balance. However, the Cosmopolitan
people were not satisfied with the awful handicap they had tacked
on me, which should have been enough to beat anybody. They tried to
double-cross me. They didn't get me. I escaped because of one of my
hunches.
The Cosmopolitan, as I
said, was my last resort. It was the richest bucket shop in New
England, and as a rule they put no limit on a trade. I think I was
the heaviest individual trader they had -- that is, of the steady,
everyday customers. They had a fine office and the largest and
completest quotation board I have ever seen anywhere. It ran along
the whole length of the big room and every imaginable thing was
quoted. I mean stocks dealt in on the New York and Boston Stock
Exchanges, cotton, wheat, provisions, metals -- everything that was
bought and sold in New York, Chicago , Boston and
Liverpool.
You know how they traded in
bucket shops. You gave your money to a clerk and told him what you
wished to buy or sell He looked at the tape or the quotation board
and took the price from there - the last one, of course. He also
put down the time on the ticket so that it almost read like a
regular broker's report - that is, that they had bought or sold for
you so many shares of such a stock at such a price at such a time
on such a day and how much money they received from you. When you
wished to close your trade you went to the clerk -- the same or
another, it depended on the shop and you told him. He took the last
price or if the stock had not been active he waited for the next
quotation that came out on the tape. He wrote that price and the
time on your ticket, O.K.'d it and gave it back to you, and then
you went to the cashier and got whatever cash it called for. Of
course, when the market went against you and the price went beyond
the limit set by your margin, your trade automatically closed
itself and your ticket became one more scrap of paper.
In the humbler bucket
shops, where people were allowed to trade in as little as five
shares, the tickets were little slips— different colors for
buying and selling—and at times, as for instance in boiling
bull markets, the shops would be hard hit because all the customers
were bulls and happened to be right. Then the bucket shop would
deduct both buying and selling commissions and if you bought a
stock at 20 the ticket would read 20-1/4. You thus had only 3/4 of
a point's run for your money.
But the Cosmopolitan was
the finest in New England. It had thousands of patrons and I really
think I was the only man they were afraid of. Neither the killing
premium nor the three-point margin they made me put up reduced my
trading much. I kept on buying and selling as much as they'd let
me. I sometimes had a line of 5,000 shares.
Well, on the day the thing
happened that I am going to tell you, I was short thirty-five
hundred shares of Sugar. I had seven big pink tickets for five
hundred shares each. The Cosmopolitan used big slips with a blank
space on them where they could write down additional margin. Of
course, the bucket shops never ask for more margin. The thinner the
shoestring the better for them, for their profit lies in your being
wiped. In the smaller shops if you wanted to margin your trade
still further they'd make out a new ticket, so they could charge
you the buying commission and only give you a run of 1/4 of a point
on each point's decline, for they figured the selling commission
also exactly as if it were a new trade.
Well, this day I remember I
had up over $10,000 in margins.
I was only twenty when I
first accumulated ten thousand dollars in cash. And you ought to
have heard my mother. You'd have thought that ten thousand dollars
in cash was more than anybody carried around except old John D.,
and she used to tell me to be satisfied and go into some regular
business. I had a hard time convincing her that I was not gambling,
but making money by figuring. But all she could see was that ten
thousand dollars was a lot of money and all I could see was more
margin.
I had put out my 3500
shares of Sugar at 105-1/4. There was another fellow in the room,
Henry Williams, who was short 2500 shares. I used to sit by the
ticker and call out the quotations for the board boy. The price
behaved as I thought it would. It promptly went down a couple of
points and paused a little to get its breath before taking another
dip. The general market was pretty soft and everything looked
promising. Then all of a sudden I didn't like the way Sugar was
doing its hesitating. I began to feel uncomfortable. I thought I
ought to get out of the market. Then it sold at 103 -- that was low
for the day, but instead of feeling more confident I felt more
uncertain. I knew something was wrong somewhere, but I couldn't
spot it exactly. But if something was coming and I didn't know
where from, I couldn't be on my guard against it. That being the
case I'd better be out of the market.
You know, I don't do things
blindly. I don't like to. I never did. Even as a kid I had to know
why I should do certain things. But this time I had no definite
reason to give to myself, and yet I was so uncomfortable that I
couldn't stand it. I called to a fellow I knew, Dave Wyman, and
said to him "Dave, you take my place here. I want you to do
something for me. Wait a little before you call out the next price
of Sugar, will you?" He said he would, and I got up and gave him my
place by the ticker so he could call out the prices for the boy. I
took my seven Sugar tickets out of my pocket and walked over to the
counter, to where the clerk was who marked the tickets when you
closed your trades. But I didn't really know why I should get out
of the market, so I just stood there, leaning against the counter,
my tickets in my hand so that the clerk couldn't see them. Pretty
soon I heard the clicking of a telegraph instrument and I saw Tom
Burnham, the clerk, turn his head quickly and listen. Then I felt
that something crooked was hatching, and I decided not to wait any
longer. Just then Dave Wyman by the ticker, began: "Su" and quick
as a flash I slapped my tickets on the counter in front of the
clerk and yelled, "Close Sugar!" before Dave had finished calling
the price. So, of course, the house had to close my Sugar at the
last quotation. What Dave called turned out to be 103
again.
According to my dope Sugar
should have broken 103 by now. The engine wasn't hitting right. I
had the feeling that there was a trap in the neighborhood. At all
events, the telegraph instrument was now going like mad and I
noticed that Tom Burnham, the clerk, had left my tickets unmarked
where I laid them, and was listening to the clicking as if he were
waiting for something. So I yelled at him: "Hey, Tom, what in hell
are you waiting for? Mark the price on these tickets -103! Get a
gait on!"
Everybody in the room heard
me and began to look toward us and ask what was the trouble, for,
you see, while the Cosmopolitan had never laid down, there was no
telling, and a run on a bucket shop can start like a run on a bank.
If one customer gets suspicious the others follow suit. So Tom
looked sulky, but came over and marked my tickets "Closed at 103"
and shoved the seven of them over toward me. He sure had a sour
face.
Say, the distance from
Tom's place to the cashier's cage wasn't over eight feet. But I
hadn't got to the cashier to get my money when Dave Wyman by the
ticker yelled excitedly "Gosh! Sugar, 108!" But it was too late; so
I just laughed and called over to Tom, "It didn't work that time,
did it, old boy?"
Of course, it was a put-up
job. Henry Williams and I together were short six thousand shares
of Sugar. That bucket shop had my margin and Henry's, and there may
have been a lot of other Sugar shorts in the office; possibly eight
or ten thousand shares in all. Suppose they had $20,000 in Sugar
margins. That was enough to pay the shop to thimblerig the market
on the New York Stock Exchange and wipe us out. In the old days
whenever a bucket shop found itself loaded with too many bulls on a
certain stock it was a common practice to get some broker to wash
down the price of that particular stock far enough to wipe out all
the customers that were long of it. This seldom cost the bucket
shop more than a couple of points on a few hundred shares, and they
made thousands of dollars.
That was what the
Cosmopolitan did to get me and Henry Williams and the other Sugar
shorts. Their brokers in New York ran up the price to 108. Of
course it fell right back, but Henry and a lot of others were wiped
out. Whenever there was an unexplained sharp drop which was
followed by instant recovery, the newspapers in those days used to
call it a bucket-shop drive.
And the funniest thing was
that not later than ten days after the Cosmopolitan people tried to
double-cross me a New York operator did them out of over seventy
thousand dollars. This man, who was quite a market factor in his
day and a member of the New York Stock Exchange, made a great name
for himself as a bear during the Bryan panic of '96. He was forever
running up against Stock Exchange rules that kept him from carrying
out some of his plans at the expense of his fellow members. One day
he figured that there would be no complaints from either the
Exchange or the police authorities if he took from the bucket shops
of the land some of their ill-gotten gains. In the instance I speak
of he sent thirty-five men to act as customers. They went to the
main office and to the bigger branches. On a certain day at a fixed
hour the agents all bought as much of a certain stock as the
managers would let them. They had instructions to sneak out at a
certain profit. Of course what he did was to distribute bull tips
on that stock among his cronies and then he went in to the floor of
the Stock Exchange and bid up the price, helped by the room
traders, who thought he was a good sport. Being careful to pick out
the right stock for that work, there was no trouble in putting up
the price three or four points. His agents at the bucket shops
cashed in as prearranged.
A fellow told me the
originator cleaned up seventy thousand dollars net, and his agents
made their expenses and their pay besides. He played that game
several times all over the country, punishing the bigger bucket
shops of New York, Boston, Philadelphia, Chicago, Cincinnati and
St. Louis. One of his favorite stocks was Western Union, because it
was so easy to move a semi active stock like that a few points up
or down. His agents bought it at a certain figure, sold at two
points profit, went short and took three points more. By the way, I
read the other day that that man died, poor and obscure. If he had
died in 1896 he would have got at least a column on the first page
of every New York paper. As it was he got two lines on the
fifth.
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