Part 20

Well, sir, one fine morning I came downtown feeling cocksure once more. There wasn’t any doubt this time. I had read an advertisement in the financial pages of all the newspapers that was the high sign I hadn’t had the sense to wait for before plunging. It was the announcement of a new issue of stock by the Northern Pacific and Great Northern roads. The payments were to be made on the installment plan for the convenience of the stockholders. This consideration was something new in Wall Street. It struck me as more than ominous.

For years the unfailing bull item on Great Northern preferred had been the announcement that another melon was to be cut, said melon consisting of the right of the lucky stockholders to subscribe at par to a new issue of Great Northern stock. These rights were valuable, since the market price was always way above par. But now the money market was such that the most powerful banking houses in the country were none too sure the stockholders would be able to pay cash for the bargain. And Great Northern preferred was selling at about 330!

As soon as I got to the office I told Ed Harding, “The time to sell is right now. This is when I should have begun. Just look at that ad, will you?”

He had seen it. I pointed out what the bankers’ confession amounted to in my opinion, but he couldn’t quite see the big break right on top of us. He thought it better to wait before putting out a very big short line by reason of the market’s habit of having big rallies. If I waited prices might be lower, but the operation would be safer.

“Ed,” I said to him, “the longer the delay in starting the sharper the break will be when it does start. That ad is a signed confession on the part of the bankers. What they fear is what I hope. This is a sign for us to get aboard the bear wagon. It is all we needed. If I had ten million dollars I’d stake every cent of it this minute.”

I had to do some more talking and arguing. He wasn’t content with the only inferences a sane man could draw from that amazing advertisement. It was enough for me, but not for most of the people in the office. I sold a little; too little.

A few days later St. Paul very kindly came out with an announcement of an issue of its own; either stocks or notes, I forget which. But that doesn’t matter. What mattered then was that I noticed the moment I read it that the date of payment was set ahead of the Great Northern and Northern Pacific payments, which had been announced earlier. It was as plain as though they had used a megaphone that grand old St. Paul was trying to beat the other two railroads to what little money there was floating around in Wall Street. The St. Paul’s bankers quite obviously feared that there wasn’t enough for all three and they were not saying, “After you, my dear Alphonse!” If money already was that scarce--and you bet the bankers knew--what would it be later? The railroads needed it desperately. It wasn’t there. What was the answer?

Sell ’em! Of course! The public, with their eyes fixed on the stock market, saw little--that week. The wise stock operators saw much--that year. That was the difference.

For me, that was the end of doubt and hesitation. I made up my mind for keeps then and there. That same morning I began what really was my first campaign along the lines that I have since followed. I told Harding what I thought and how I stood, and he made no objections to my selling Great Northern preferred at around 330, and other stocks at high prices. I profited by my earlier and costly mistakes and sold more intelligently.

My reputation and my credit were reestablished in a jiffy. That is the beauty of being right in a broker’s office, whether by accident or not. But this time I was cold-bloodedly right, not because of a hunch or from skillful reading of the tape, but as a result of my analysis of conditions affecting the stock market in general. I wasn’t guessing. I was anticipating the inevitable. It did not call for any courage to sell stocks. I simply could not see anything but lower prices, and I had to act on it, didn’t I? What else could I do?

The whole list was soft as mush. Presently there was a rally and people came to me to warn me that the end of the decline had been reached. The big fellows, knowing the short interest to be enormous, had decided to squeeze the stuffing out of the bears, and so forth. It would set us pessimists back a few millions. It was a cinch that the big fellows would have no mercy. I used to thank these kindly counsellors. I wouldn’t even argue, because then they would have thought that I wasn’t grateful for the warnings.

The friend who had been in Atlantic City with me was in agony. He could understand the hunch that was followed by the earthquake. He couldn’t disbelieve in such agencies, since I had made a quarter of a million by intelligently obeying my blind impulse to sell Union Pacific. He even said it was Providence working in its mysterious way to make me sell stocks when he himself was bullish. And he could understand my second UP. trade in Saratoga because he could understand any deal that involved one stock, on which the tip definitely fixed the movement in advance, either up or down. But this thing of predicting that all stocks were bound to go down used to exasperate him. What did that kind of dope do anybody? How in blazes could a gentleman tell what to do?

I recalled old Partridge’s favourite remark--“Well, this is a bull market, you know”--as though that were tip enough for anybody who was wise enough; as in truth it was. It was very curious how, after suffering tremendous losses from a break of fifteen or twenty points, people who were still hanging on, welcomed a three-point rally and were certain the bottom had been reached and complete recovery begun.

One day my friend came to me and asked me, “Have you covered?”

“Why should I?” I said.

“For the best reason in the world.”

“What reason is that?”

“To make money. They’ve touched bottom and what goes down must come up. Isn’t that so?”

“Yes,” I answered. “First they sink to the bottom. Then they come up; but not right away. They’ve got to be good and dead a couple of days. It isn’t time for these corpses to rise to the surface. They are not quite dead yet.”

An old-timer heard me. He was one of those chaps that are always reminded of something. He said that William R. Travers, who was bearish, once met a friend who was bullish. They exchanged market views and the friend said, “Mr. Travers, how can you be bearish with the market so stiff?” and Travers retorted, “Yes! Th-the s-s-stiffness of d-death!” It was Travers who went to the office of a company and asked to be allowed to see the books. The clerk asked him, “Have you an interest in this company?” and Travers answered, “I sh-should s-say I had! I’m sh-short t-t-twenty thousand sh-shares of the stock!”

Well, the rallies grew feebler and feebler. I was pushing my luck for all I was worth. Every time I sold a few thousand shares of Great Northern preferred the price broke several points. I felt out weak spots elsewhere and let ’em have a few. All yielded, with one impressive exception; and that was Reading.

When everything else hit the toboggan slide Reading stood like the Rock of Gibraltar. Everybody said the stock was cornered. It certainly acted like it. They used to tell me it was plain suicide to sell Reading short. There were people in the office who were now as bearish on everything as I was. But when anybody hinted at selling Reading they shrieked for help. I myself had sold some short and was standing pat on it. At the same time I naturally preferred to seek and hit the soft spots instead of attacking the more strongly protected specialties. My tape reading found easier money for me in other stocks.

I heard a great deal about the Reading bull pool. It was a mighty strong pool. To begin with they had a lot of low-priced stock, so that their average was actually below the prevailing level, according to friends who told me. Moreover, the principal members of the pool had close connections of the friendliest character with the banks whose money they were using to carry their huge holdings of Reading. As long as the price stayed up the bankers’ friendship was staunch and steadfast. One pool member’s paper profit was upward of three millions. That allowed for some decline without causing fatalities. No wonder the stock stood up and defied the bears. Every now and then the room traders looked at the price, smacked their lips and proceeded to test it with a thousand shares or two. They could not dislodge a share, so they covered and went looking elsewhere for easier money. Whenever I looked at it I also sold a little more--just enough to convince myself that I was true to my new trading principles and wasn’t playing favourites.

In the old days the strength of Reading might have fooled me. The tape kept on saying, “Leave it alone!” But my reason told me differently. I was anticipating a general break, and there were not going to be any exceptions, pool or no pool.

I have always played a lone hand. I began that way in the bucket shops and have kept it up. It is the way my mind works. I have to do my own seeing and my own thinking. But I can tell you after the market began to go my way I felt for the first time in my life that I had allies--the strongest and truest in the world: underlying conditions. They were helping me with all their might. Perhaps they were a trifle slow at times bringing up the reserves, but they were dependable, provided I did not get too impatient. I was not pitting my tape-reading knack or my hunches against chance. The inexorable logic of events was making money for me.

The thing was to be right; to know it and to act accordingly. General conditions, my true allies, said “Down!” and Reading disregarded the command. It was an insult to us. It began to annoy me to see Reading holding firmly, as though everything was serene. It ought to be the best short sale in the entire list because it had not gone down and the pool was carrying a lot of stock that it would not be able to carry when the money stringency grew more pronounced. Some day the bankers’ friends would fare no better than the friendless public. The stock must go with the others. If Reading didn’t decline, then my theory was wrong; I was wrong; facts were wrong; logic was wrong.

I figured that the price held because the Street was afraid to sell it. So one day I gave to two brokers each an order to sell four thousand shares, at the same time.

You ought to have seen that cornered stock, that it was sure suicide to go short of, take a headlong dive when those competitive orders struck it. I let ’em have a few thousand more. The price was 111 when I started selling it. Within a few minutes I took in my entire short line at 92.