Reminiscences of a Stock Operator
NOT long after I closed my
July cotton deal more successfully
than I had expected I
received by mail a request for an
interview. The letter was
signed by Percy Thomas. Of course I
immediately answered that
I'd be glad to see him at my office at
any time he cared to call.
The next day he came.
I had long admired him. His
name was a household word
wherever men took an
interest in growing or buying or selling
cotton. In Europe as well
as all over this country people quoted
Percy Thomas' opinions to
me. I remember once at a Swiss resort
talking to a Cairo banker
who was interested in cotton growing
in Egypt in association
with the late Sir Ernest Cassel. When he
heard I was from New York
he immediately asked me about Percy
Thomas, whose market
reports he received and read with unfailing
regularity.
Thomas, I always thought,
went about his business scientifically.
He was a true speculator, a
thinker with the vision
of a dreamer and the
courage of a fighting man -- an unusually
well-informed man, who knew
both the theory and the practice of
trading in cotton. He loved
to hear and to express ideas and
theories and abstractions,
and at the same time there was mighty
little about the practical
side of the cotton market or the
psychology of cotton
traders that he did not know, for he had
been trading for years and
had made and lost vast sums.
After the failure of his
old Stock Exchange firm of Sheldon
& Thomas he went it
alone. Inside of two years he came back,
almost spectacularly. I
remember reading in the Sun that the
first thing he did when he
got on his feet financially was to
pay off his old creditors
in full, and the next was to hire an
expert to study and
determine for him how he had best invest a
million dollars. This
expert examined the properties and
analysed the reports of
several companies and then recommended
the purchase of Delaware
& Hudson stock.
Well, after having failed
for millions and having come back
with more millions, Thomas
was cleaned out as the result of his
deal in March cotton. There
wasn't much time wasted after he
came to see me. He proposed
that we form a working alliance.
Whatever information he got
he would immediately turn over to me
before passing it on to the
public. My part would be to do the
actual trading, for which
he said I had a special genius and he
hadn't.
That did not appeal to me
for a number of reasons. I told
him frankly that I did not
think I could run in double harness
and wasn't keen about
trying to learn. But he insisted that it
would be an ideal
combination until I said flatly that I did not
want to have anything to do
with influencing other people to
trade.
"If I fool myself," I told
him, "I alone suffer and I pay
the bill at once. There are
no drawn-out payments or unexpected
annoyances. I play a lone
hand by choice and also because it is
the wisest and cheapest way
to trade. I get my pleasure out of
matching my brains against
the brains of other traders-men whom
I have never seen and never
talked to and never advised to buy
or sell and never expect to
meet or know. When I make money I
make it backing my own
opinions. I don't sell them or capitalise
them. If I made money in
any other way I would imagine I had not
earned it. Your proposition
does not interest me because I am
interested in the game only
as I play it for myself and in my
own way."
He said he was sorry I felt
the way I did, and tried to
convince me that I was
wrong in rejecting his plan. But I stuck
to my views. The rest was a
pleasant talk. I told him I knew he
would "come back" and that
I would consider it a privilege if he
would allow me to be of
financial assistance to him. But he said
he could not accept any
loans from me. Then he asked me about my
July deal and I told him
all about it; how I had gone into it
and how much cotton I
bought and the price and other details. We
chatted a little more and
then he went away.
When I said to you some
time ago that a speculator has a
host of enemies, many of
whom successfully bore from within, I
had in mind my many
mistakes. I have learned that a man may
possess an original mind
and a lifelong habit of independent
thinking and withal be
vulnerable to attacks by a persuasive
personality. I am fairly
immune from the commoner speculative
ailments, such as greed and
fear and hope. But being an ordinary
man I find I can err with
great ease.
I ought to have been on my
guard at this particular time
because not long before
that I had had an experience that proved
how easily a man may be
talked into doing something against his
judgment and even against
his wishes. It happened in Harding's
office. I had a sort of
private office -- a room that they let
me occupy by myself and
nobody was supposed to get to me during
market hours without my
consent. I didn't wish to be bothered
and, as I was trading on a
very large scale and my account was
fairly profitable, I was
pretty well guarded.
One day just after the
market closed I heard somebody say,
"Good afternon, Mr.
Livermore."
I turned and saw an utter
stranger -- a chap of about
thirty or thirty-five. I
could not understand how he'd got in,
but there he was. I
concluded his business with me had passed
him. But I didn't say
anything. I just looked at him and pretty
soon he said, "I caine to
see you about that Walter Scott," and
he was off.
He was a book agent. Now,
he was not particularly pleasing
of manner or skillful of
speech. Neither was he especially
attractive to look at. But
he certainly had personality. He
talked and I thought I
listened. But I do not know what he said.
I don't think I ever knew,
not even at the time. When he
finished his monologue he
handed me first his fountain pen and
then a blank form, which I
signed. It was a contract to take a
set of Scott's works for
five hundred dollars.
The moment I signed I came
to. But he had the contract safe
in his pocket. I did not
want the books. I had no place for
them. They weren't of any
use whatever to me. I had nobody to
give them to. Yet I had
agreed to buy them for five hundred
dollars.
I am so accustomed to
losing money that I never think first
of that phase of my
mistakes. It is always the play itself, the
reason why. In the first
place I wish to know my own limitations
and habits of thought.
Another reason is that I do not wish to
make the same mistake a
second time. A man can excuse his
mistakes only by
capitalising them to his subsequent profit.
Well, having made a
five-hundred dollar mistake but not yet
having localised the
trouble, I just looked at the fellow to
size him up as a first
step. I'll be hanged if he didn't
actually smile at me -- an
understanding little smile! He seemed
to read my thoughts. I
somehow knew that I did not have to
explain anything to him; he
knew it without my telling him. So I
skipped the explanations
and the preliminaries and asked him,
"How much commission will
you get on that five hundred dollar
order?"
He promptly shook his head
and said, "I can't do it!
Sorry!"
"How much do you get?" I
persisted.
"A third. But I can't do
it!" he said.
"A third of five hundred
dollars is one hundred and sixtysix
dollars and sixty-six
cents. I'll give you two hundred
dollars cash if you give me
back that signed contract." And to
prove it I took the money
out of my pocket.
"I told you I couldn't do
it," he said.
"Do all your customers make
the same offer to you?" I
asked.
"No," he
answered.
"Then why were you so sure
that I was going to make it?"
"It is what your type of
sport would do. You are a firstclass
loser and that makes you a
first-class businessman. I am
much obliged to you, but I
can't do it."
"Now tell me why you do not
wish to make more than your
commission?"
"It isn't that, exactly,"
he said. "I am not working just
for the
commission."
"What are you working for
then?"
"For the commission and the
record," he answered.
"What record?"
"Mine."
"What are you driving
at?"
"Do you work for money
alone?" he asked me.
"Yes," I said.
"No." And he shook his
head. "No, you don't. You wouldn't
get enough fun out of it.
You certainly do not work merely to
add a few more dollars to
your bank account and you are not in
Wall Street because you
like easy money. You get your fun some
other way. Well, same
here."
I did not argue but asked
him, "And how do you get your
fun?"
"Well," he confessed,
"we've all got a weak spot."
"And what's
yours?"
"Vanity," he
said.
"Well," I told him, "you
succeeded in getting me to sign
on. Now I want to sign off,
and I am paying you two hundred
dollars for ten minutes'
work. Isn't that enough for your pride
?"
"No," he answered. "You
see, all the rest of the bunch have
been working Wall Street
for months and failed to make expenses.
They said it was the fault
of the goods and the territory. So
the office sent for me to
prove that the fault was with their
salesmanship and not with
the books or the place. They were
working on a 25 per cent
commission. I was in Cleveland, where I
sold eighty-two sets in two
weeks. I am here to sell a certain
number of sets not only to
people who did not buy from the other
agents but to people they
couldn't even get to see. That's why
they give me 33A per
cent."
"I can't quite figure out
how you sold me that set."
"Why," he said consolingly,
"I sold J. P. Morgan a set."
"No, you didn't," I
said.
He wasn't angry. He simply
said, "Honest, I did!"
"A set of Walter Scott to
J. P. Morgan, who not only has
some fine editions but
probably the original manuscripts of some
of the novels as
well?"
"Well, here's his John
Hancock." And he promptly flashed on
me a contract signed by J.
P. Morgan himself. It might not have
been Mr. Morgan's
signature, but it did not occur to me to doubt
it at the time. Didn't he
have mine in his pocket? All I felt
was curiosity. So I asked
him, "How did you get past the
librarian?"
"I didn't see any
librarian. I saw the Old Man himself. In
his office."
"That's too much!" I said.
Everybody knew that it was much
harder to get into Mr.
Morgan's private office empty handed than
into the White House with a
parcel that ticked like an alarm
clock.
But he declared, "I
did."
"But how did you get into
his office?"
"How did I get into yours?"
he retorted.
"I don't know. You tell
me," I said.
"Well, the way I got into
Morgan's office and the way I got
into yours are the same. I
just talked to the fellow at the door
whose business it was not
to let me in. And the way I got Morgan
to sign was the same way I
got you to sign. You weren't signing
a contract for a set of
books. You just took the fountain pen I
gave you and did what I
asked you to do with it. No difference.
Same as you."
"And is that really
Morgan's signature?" I asked him, about
three minutes late with my
skepticism.
"Sure! He learned how to
write his name when he was a boy."
"And that's all there's to
it?"
"That's all," he answered.
"I know exactly what I am doing.
That's all the secret there
is. I am much obliged to you. Good
day, Mr. Livermore." And he
started to go out.
"Hold on," I said. "I'm
bound to have you make an even two
hundred dollars out of me."
And I handed him thirty-five
dollars.
He shook his head. Then:
"No," he said. "I can't do that.
But I can do this!" And he
took the contract from his pocket,
tore it in two and gave me
the pieces.
I counted two hundred
dollars and held the money before
him, but he again shook his
head.
"Isn't that what you
meant?" I said.
"No."
"Then, why did you tear up
the contract?"
"Because you did not whine,
but took it as I would have
taken it myself had I been
in your place."
"But I offered you the two
hundred dollars of my own
accord," I said.
"I know; but money isn't
everything."
Something in his voice made
me say, "You're right; it
isn't. And now what do you
really want me to do for you?"
"You're quick, aren't you?"
he said. "Do you really want to
do something for
me?"
"Yes," I told him, "I do.
But whether I will or not depends
what it is you have in
mind."
"Take me with you into Mr.
Ed Harding's office and tell him
to let me talk to him three
minutes by the clock. Then leave me
alone with him."
I shook my head and said,
"He is a good friend of mine."
"He's fifty years old and a
stock broker," said the book
agent.
That was perfectly true, so
I took him into Ed's office. I
did not hear anything more
from or about that book agent. But
one evening some weeks
later when I was going uptown I ran
across him in a Sixth
Avenue L train. He raised his hat very
politely and I nodded back.
He came over and asked me, "How do
you do, Mr. Livermore? And
how is Mr. Harding?"
"He's well. Why do you
ask?" I felt he was holding back a
story.
"I sold him two thousand
dollars' worth of books that day
you took me in to see
him."
"He never said a word to me
about it," I said.
"No; that kind doesn't talk
about it."
"What kind doesn't
talk?"
"The kind that never makes
mistakes on account of its being
bad business to make them.
That kind always knows what he wants
and nobody can tell him
different. That is the kind that's
educating my children and
keeps my wife in good humor. You did
me a good turn, Mr.
Livermore. I expected it when I gave up the
two hundred dollars you
were so anxious to present to me."
"And if Mr. Harding hadn't
given you an order?"
"Oh, but I knew he would. I
had found out what kind of man
he was. He was a
cinch."
"Yes. But if he hadn't
bought any books?" I persisted.
"I'd have come back to you
and sold you something. Good
day, Mr. Livermore. I am
going to see the mayor." And he got up
as we pulled up at Park
Place.
"I hope you sell him ten
sets," I said. His Honor was a
Tammany man.
"I'M' a Republican, too,"
he said, and went out, not
hastily, but leisurely,
confident that the train would wait. And
it did.
I have told you this story
in such detail because it concerned
a remarkable man who made
me buy what I did not wish to
buy. He was the first man
who did that to me. There never should
have been a second, but
there was. You can never bank on there
being but one remarkable
salesman in the world or on complete
immunization from the
influence of personality.
When Percy Thomas left my
office, after I had pleasantly
but definitely declined to
enter into a working alliance with
him, I would have sworn
that our business paths would never
cross. I was not sure I'd
ever even see him again. But on the
very next day he wrote me a
letter thanking me for my offers of
help and inviting me to
come and see him. I answered that I
would. He wrote again. I
called.
I got to see a great deal
of him. It was always a pleasure
for me to listen to him, he
knew so much and he expressed his
knowledge so interestingly.
I think he is the most magnetic man
I ever met.
We talked of many things,
for he is a widely read man with
an amazing grasp of many
subjects and a remarkable gift for
interesting generalization.
The wisdom of his speech is
impressive; and as for
plausibility, he hasn't an equal. I have
heard many people accuse
Percy Thomas of many things, including
insincerity, but I
sometimes wonder if his remarkable
plausibility does not come
from the fact that he first convinces
himself so thoroughly as to
acquire thereby a greatly increased
power to convince
others.
Of course we talked about
market matters at great length. I
was not bullish on cotton,
but he was. I could not see the bull
side at all, but he did. He
brought up so many facts and figures
that I ought to have been
overwhelmed, but I wasn't. I couldn't
disprove them because I
could not deny their authenticity, but
they did not shake my
belief in what I read for myself. But he
kept at it until I no
longer felt sure of my own information as
gathered from the trade
papers and the dailies. That meant I
couldn't see the market
with my own eyes. A man cannot be
convinced against his own
convictions, but he can be talked into
a state of uncertainty and
indecision, which is even worse, for
that means that he cannot
trade with confidence and comfort.
I cannot say that I got all
mixed up, exactly, but I lost
my poise; or rather, I
ceased to do my own thinking. I cannot
give you in detail the
various steps by which I reached the
state of mind that was to
prove so costly to me. I think it teas
his assurances of the
accuracy of his figures, which were
exclusively his, and the
undependability of mine, which were not
exclusively mine, but
public property. He harped on the utter
reliability, as proved time
and again, of all his ten thousand
correspondents throughout
the South. In the end I came to read
conditions as he himself
read thembecause we were both reading
from the same page of the
same book, held by him before my eyes.
He has a logical mind. Once
I accepted his facts it was a cinch
that my own conclusions,
derived from his facts, would agree
with his own.
When he began his talks
with me about the cotton situation
I not only was bearish but
I was short of the market. Gradually,
as I began to accept his
facts and figures, I began to fear I
had been basing my previous
position on misinformation. Of
course I could not feel
that way and not cover. And once I had
covered because Thomas made
me think I was wrong, I simply had
to go long. It is the way
my mind works. You know, I have done
nothing in my life but
trade in stocks and commodities. I
naturally think that if it
is wrong to be bearish it must be
right to be a bull. And if
it is right to be a bull it is
imperative to buy. As my
old Palm Beach friend said Pat Hearne
used to say, "You can't
tell till you bet!" I must prove whether
I am right on the market or
not; and the proofs are to be read
only in my brokers'
statements at the end of the month.
I started in to buy cotton
and in a jiffy I had my usual
line, about sixty thousand
bales. It was the most asinine play
of my career. Instead of
standing or falling by my own observation
and deductions I was merely
playing another man's game. It
was eminently fitting that
my silly plays should not end with
that. I not only bought
when I had no business to be bullish but
I didn't accumulate my line
in accordance with the promptings of
experience. I wasn't
trading right. Having listened, I was lost.
The market was not going my
way. I am never afraid or
impatient when I am sure of
my position. But the market didn't
act the way it should have
acted had Thomas been right. Having
taken the first wrong step
I took the second and the third, and
of course it muddled me all
up. I allowed myself to be persuaded
not only into not taking my
loss but into holding up the market.
That is a style of play
foreign to my nature and contrary to my
trading principles and
theories. Even as a boy in the bucket
shops I had known better.
But I was not myself. I was another
man -- a Thomasized
person.
I not only was long of
cotton but I was carrying a heavy
line of wheat. That was
doing famously and showed me a handsome
profit. My fool efforts to
bolster up cotton had increased my
line to about one hundred
and fifty thousand bales. I may tell
you that about this time I
was not feeling very well. I don't
say this to furnish an
excuse for my blunders, but merely to
state a pertinent fact. I
remember I went to Bayshore for a
rest.
While there I did some
thinking. It seemed to me that my
speculative commitments
were overlarge. I am not timid as a
rule, but I got to feeling
nervous and that made me decide to
lighten my load. To do this
I must clean up either the cotton or
the wheat.
It seems incredible that
knowing the game as well as I did
and with an experience of
twelve or fourteen years of
speculating in stocks and
commodities I did precisely the wrong
thing. The cotton showed me
a loss and I kept it. The wheat
showed me a profit and I
sold it out. It was an utterly foolish
play, but all I can say in
extenuation is that it wasn't really
my deal, but Thomas'. Of
all speculative blunders there are few
greater than trying to
average a losing game. My cotton deal
proved it to the hilt a
little later. 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 that even now I
marvel at myself for doing
the revers e.
And so I sold my wheat,
deliberately cut short my profit in
it. After I got out of it
the price went up twenty cents a
bushel without stopping. If
I had kept it I might have taken a
profit of about eight
million dollars. And having decided to
keep on with the losing
proposition I bought more cotton
I remember very clearly how
every day I would buy cotton,
more cotton. And why do you
think I bought it? To keep the price
from going down! If that
isn't a supersucker play, what is? I
simply kept on putting up
more and more moneymore money to lose
eventually. My brokers and
my intimate friends could not
understand it; and they
don't to this day. Of course if the deal
had turned out differently
I would have been a wonder. More than
once I was warned against
placing too much reliance on Percy
Thomas' brilliant analyses.
To this I paid no heed, but kept on
buying cotton to keep it
from going down. I was even buying it
in Liverpool. I accumulated
four hundred and forty thousand
bales before I realised
what I was doing. And then it was too
late. So I sold out my
line.
I lost nearly all that I
had made out of all my other deals
in stocks and commodities.
I was not completely cleaned out, but
I had left fewer hundreds
of thousands than I had millions
before I met my brilliant
friend Percy Thomas. For me of all men
to violate all the laws
that experience had taught me to observe
in order to prosper was
more than asinine.
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.
Having learned what folly I was capable
of I closed that particular
incident. Percy Thomas went out of
my life.
There I was, with more than
nine-tenths of my stake, as Jim
Fisk used to say, gone
where the woodbine twineth-up the spout.
I had been a millionaire
rather less than a year. My millions I
had made by using brains,
helped by luck. I had lost them by
r evers ing the process. I
sold my two yachts and was decidedly
less extravagant in my
manner of living.
But that one blow wasn't
enough. Luck was against me. I ran
up first against illness
and then against the urgent need of two
hundred thousand dollars in
cash. A few months before that sum
would have been nothing at
all; but now it meant almost the
entire remnant of my
fleet-winged fortune. I had to supply the
money and the question was:
Where could I get it? I didn't want
to take it out of the
balance I kept at my brokers' because if I
did I wouldn't have much of
a margin left for my own trading;
and I needed trading
facilities more than ever if I was to win
back my millions quickly.
There was only one alternative that I
could see, and that was to
take it out of the stock market!
Just think of it! If you
know much about the average
customer of the average
commission house you will agree with me
that the hope of making the
stock market pay your bill is one of
the most prolific sources
of loss in Wall Street. You will chip
out all you have if you
adhere to your determination.
Why, in Harding's office
one winter a little bunch of high
flyers spent thirty or
forty thousand dollars for an overcoat -
and not one of them lived
to wear it. It so happened that a
prominent floor trader who
since has become world-famous as one
of the dollar-a-year
men-came down to the Exchange wearing a fur
overcoat lined with sea
otter. In those days, before furs went
up sky high, that coat was
valued at only ten thousand dollars.
Well, one of the chaps in
Harding's office, Bob Keown, decided
to get a coat lined with
Russian sable. He priced one uptown.
The cost was about the
same, ten thousand dollars.
"That's the devil of a lot
of money," objected one of the
fellows.
"Oh, fair! Fair!" admitted
Bob Keown amiably. "About a
week's wages -- unless you
guys promise to present it to me as a
slight but sincere token of
the esteem in which you hold the
nicest man in the office.
Do I hear the presentation speech? No?
Very well. I shall let the
stock market buy it for me!"
"Why do you want a sable
coat?" asked Ed Harding.
"It would look particularly
well on a man of my inches,"
replied Bob, drawing
himself up.
"And how did you say you
were going to pay for it?" asked
Jim Murphy, who was the
star tip-chaser of the office.
"By a judicious investment
of a temporary character, James.
That's how," answered Bob,
who knew that Murphy merely wanted a
tip.
Sure enough, Jimmy asked,
"What stock are you going to
buy?"
"Wrong as usual, friend.
This is no time to buy anything. I
propose to sell five
thousand Steel. It ought to go down ten
points at the least. I'll
just take two and a half points net.
That is conservative, isn't
it?"
"What do you hear about
it?" asked Murphy eagerly. He was a
tall thin man with black
hair and a hungry look, due to his
never going out to lunch
for fear of missing something on the
tape.
"I hear that coat's the
most becoming I ever planned to
get." He turned to Harding
and said, "Ed, sell five thousand U.
S. Steel common at the
market. Today, darling!"
He was a plunger, Bob was,
and liked to indulge in humorous
talk. It was his way of
letting the world know that he had an
iron nerve. He sold five
thousand Steel, and the stock promptly
went up. Not being half as
big an ass as he seemed when he
talked, Bob stopped his
loss at one and a half points and
confided to the office that
the New York climate was too benign
for fur coats. They were
unhealthy and ostentatious. The rest of
the fellows jeered. But it
was not long before one of them
bought some Union Pacific
to pay for the coat. He lost eighteen
hundred dollars and said
sables were all right for the outside
of a woman's wrap, but not
for the inside of a garment intended
to be worn by a modest and
intelligent man.
After that, one after
another of the fellows tried to coax
the market to pay for that
coat. One day I said I would buy it
to keep the office from
going broke. But they all said that it
wasn't a sporting thing to
do; that i f I wanted the coat for
myself I ought to let the
market give it to me. But Ed Hardingstrongly
approved of my intention
and that same afternoon I
went to the furrier's to
buy it. I found out that a man from
Chicago had bought it the
week before.
That was only one case.
There isn't a man in Wall Street
who has not lost money
trying to make the market pay for an
automobile or a bracelet or
a motor boat or a painting. I could
build a huge hospital with
the birthday presents that the
tight-fisted stock market
has refused to pay for. In fact, of
all hoodoos in Wall Street
I think the resolve to induce the
stock market to act as a
fairy godmother is the busiest and most
persistent.
Like all well-authenticated
hoodoos this has its reason for
being. What does a man do
when he sets out to make the stock
market pay for a sudden
need? Why, he merely hopes. He gambles.
He therefore runs much
greater risks than he would if he were
speculating intelligently,
in accordance with opinions or
beliefs logically arrived
at after a dispassionate study of
underlying conditions. To
begin with, he is after an immediate
profit. He cannot afford to
wait. The market must be nice to him
at once if at all. He
flatters himself that he is not asking
more than to place an
even-money bet. Because he is prepared to
run quick -- say, stop his
loss at two points when all he hopes
to make is two points -- he
hugs the fallacy that he is merely
taking a fifty-fifty
chance. Why, I've known men to lose
thousands of dollars on
such trades, particularly on purchases
made at the height of a
bull market just before a moderate
reaction. It certainly is
no way to trade.
Well, that crowning folly
of my career as a stock operator
was the last straw. It beat
me. I lost what little my cotton
deal had left me. It did
even more harm, for I kept on trading
and losing. I persisted in
thinking that the stock market must
perforce make money for me
in the end. But the only end in sight
was the end of my
resources. I went into debt, not only to my
principal brokers but to
other houses that accepted business
from me without my putting
up an adequate margin. I not only got
in debt but I stayed in
debt from then on.
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