Part 17

Well, I wasn’t that lazy, but I found it easier to think of individual stocks than of the general market and therefore of individual fluctuations rather than of general movements. I had to change and I did.

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 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 110. If the stock goes up to 111 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 up 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 111¾, 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 112¼, and then rallies. Well, just as it goes back to 113¾ I shoot an order to buy four thousand--at the market of course. Well, if I get that four thousand at 113¾ 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 113¾ I get two thousand at 114 and five hundred at 114½ and the rest on the way up so that for the last five hundred I pay 115½. 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 when he was one of the big operators of the Street. He was a very fine old man, clever as they make them, and brave. He did some wonderful things in his day, from all I’ve heard.

It was in the old days when Sugar was one of the most continuous purveyors of fireworks in the market. H. O. Havemeyer, president of the company, was in the heyday of his power. I gather from talks with the old-timers that H.O. and his following had all the resources of cash and cleverness necessary to put through successfully any deal in their own stock. They tell me that Havemeyer trimmed more small professional traders in that stock than any other insider in any other stock. As a rule, the floor traders are more likely to thwart the insiders’ game than help it.

One day a man who knew Deacon White rushed into the office all excited and said, “Deacon, you told me if I ever got any good information to come to you at once with it and if you used it you’d carry me for a few hundred shares.” He paused for breath and for confirmation.

The deacon looked at him in that meditative way he had and said, “I don’t know whether I ever told you exactly that or not, but I am willing to pay for information that I can use.”

“Well, I’ve got it for you.”

“Now, that’s nice,” said the deacon, so mildly that the man with the info swelled up and said, “Yes, sir, deacon.” Then he came closer so nobody else would hear and said, “H. O. Havemeyer is buying Sugar.”

“Is he?” asked the deacon quite calmly.

It peeved the informant, who said impressively: “Yes, sir. Buying all he can get, deacon.”

“My friend, are you sure?” asked old S.V.

“Deacon, I know it for a positive fact. The old inside gang are buying all they can lay their hands on. It’s got something to do with the tariff and there’s going to be a killing in the common. It will cross the preferred. And that means a sure thirty points for a starter.”

“D’you really think so?” And the old man looked at him over the top of the old-fashioned silver-rimmed spectacles that he had put on to look at the tape.

“Do I think so? No, I don’t think so; I know so. Absolutely! Why, deacon, when H. O. Havemeyer and his friends buy Sugar as they’re doing now they’re never satisfied with anything less than forty points net. I shouldn’t be surprised to see the market get away from them any minute and shoot up before they’ve got their full lines. There ain’t as much of it kicking around the brokers’ offices as there was a month ago.”

“He’s buying Sugar, eh?” repeated the deacon absently.

“Buying it? Why, he’s scooping it in as fast as he can without putting up the price on himself.”

“So?” said the deacon. That was all.

But it was enough to nettle the tipster, and he said, “Yes, sir-ree! And I call that very good information. Why, it’s absolutely straight.”

“Is it?”

“Yes; and it ought to be worth a whole lot. Are you going to use it?”

“Oh, yes. I’m going to use it.”

“When?” asked the information bringer suspiciously.

“Right away.” And the deacon called: “Frank!” It was the first name of his shrewdest broker, who was then in the adjoining room.

“Yes, sir,” said Frank.

“I wish you’d go over to the Board and sell ten thousand Sugar.”

“Sell?” yelled the tipster. There was such suffering in his voice that Frank, who had started out at a run, halted in his tracks.

“Why, yes,” said the deacon mildly.