Reminiscences of a Stock Operator: It Was Always My Sitting

The average ticker hound—or, as they used to call him, tape-worm—goes wrong, I suspect, as much from over-specialization as from anything else. It means a highly expensive inelasticity. After all, the game of speculation isn’t all mathematics or set rules, however rigid the main laws may be. Even in my tape reading something enters that is more than mere arithmetic. There is what I call the behavior of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.

It is a very old thing, this of noting the behavior of a stock and studying its past performances. When I first came to New York there was a broker’s office where a Frenchman used to talk about his chart. At first I thought he was a sort of pet freak kept by the firm because they were good-natured. Then I learned that he was a persuasive and most impressive talker. He said that the only thing that didn’t lie because it simply couldn’t was mathematics. By means of his curves he could forecast market movements. Also he could analyse them, and tell, for instance, why Keene did the right thing in his famous Atchison preferred bull manipulation, and later why he went wrong in his Southern Pacific pool. At various times one or another of the professional traders tried the Frenchman’s system—and then went back to their old unscientific methods of making a living. Their hit-or-miss system was cheaper, they said. I heard that the Frenchman said Keene admitted that the chart was 100 per cent right but claimed that the method was too slow for practical use in an active market.

Then there was one office where a chart of the daily movement of prices was kept. It showed at a glance just what each stock had done for months. By comparing individual curves with the general market curve and keeping in mind certain rules the customers could tell whether the stock on which they got an unscientific tip to buy was fairly entitled to a rise. They used the chart as a sort of complementary tipster. To-day there are scores of commission houses where you find trading charts. They come ready-made from the offices of statistical experts and include not only stocks but commodities.

I should say that a chart helps those who can read it or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke. There is an extremely able man, a former partner of a well-known Stock Exchange house, who is really a trained mathematician. He is a graduate of a famous technical school. He devised charts based upon a very careful and minute study of the behaviour of prices in many markets—stocks, bonds, grain, cotton, money, and so on. He went back years and years and traced the correlations and seasonal movements—oh, everything. He used his charts in his stock trading for years. What he really did was to take advantage of some highly intelligent averaging. They tell me he won regularly—until the World War knocked all precedents into a cocked hat. I heard that he and his large following lost millions before they desisted. But not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions.