A Fixed Line of Action.
The times are very much changed since the head of a great financial establishment, long since gone to his rest, set sail from the shores of France as soon as he was well assured that Wellington was over-powering the legions of Napoleon in 1815, hastened to London, and bought up all the Consols he could lay his hands on, and thereby realised a considerable fortune for himself and his heirs at onecoup. Here is a memorable case in point as illustrating the necessity of laying down a systematic plan of operations and by sheer hard work, and at the risk of life and limb, carrying it outto a successful issue. The ordinary speculator is not to be found with these qualities of dogged perseverance in elaborating a plan of operations, and keeping to strict principles of action from the outset, never allowing his mind to be diverted from his system except under certain special circumstances, for which a margin has been allowed. The electric wire has changed matters very materially in this respect. There is more ease in these times as regards individual locomotion for the operator who has keenly to watch the fluctuations in all markets; he has silent, but at the same time gigantic forces, at his disposal, which he can exercise in pretty nearly any quarter of the globe where there is need for them; but it cuts both ways—he can make a fortune in an hour, or less time, and lose it with the same rapidity, beyond hope of recall should the second line of judgment condemn the action of the first.
Closer uniformity of Values in all Markets through the Development of the Telegraph System.
A Speculator cannot hope to succeed in any Degree unless his Arrangements are as Complete as those of a Man engaged in Bona Fide Business.
All the markets of the world are regulated to a greater nicety as regards value since the more complete development of railroads and of the telegraph system. Each great article of commerce has its head quarters in its respective country, and value from that point is regulated at all the minor stations where it is dealt in, to use a metaphor, in the same way that the right time is flashed through the electric wire to the principal clocks in England at one o’clock from the Observatory at Greenwich. It is the custom consequently for all the leading merchants and dealers to be supplied by telegram with the prices current of those articles dealt in in all other markets, in which they are mainly interested. To compete with thosewho make a steady profit by buying and selling in obedience tobona fideorders, a speculator must at least have his arrangements on a par with the non-speculator, if even then he can expect to hold his own without a still more elaborate and costly system of obtaining information, as his necessary profits can in most cases only be secured by his being in a position to anticipate a coming change.
The Diminution of Gluts in all Markets.
Modern Conditions render it more difficult than formerly for Small Mercantile Houses to Succeed.
Whatever be the operations of speculators who employ little or no capital of their own, or the nature of the transactions of those who risk what they have belonging to them by consigning goods of various descriptions to distant markets in the future, there can never be the same gluts that have characterized the trading of former times. It would, indeed, seem that the commerce of the world must by degrees be carried on more and more by a smaller number of powerful merchants, relatively to the increase of populations and the growth of commerce, and less and less by a greater number of small weak houses. The nature of the system which is growing up under the new order of things will preclude from serious competition any but those who can afford from the commencement to start upon somewhat the same principles of action as those who already carry on and regulate the trade of the world. What chance, for instance, can a man have who starts in the Manchester goods trade, with a view to shipments to the great foreign and colonial markets, unless he can be in a position, by means of his telegraphic information from all the necessary quarters, not only to avoid sending from Manchester, goodsto any particular quarter where the market is unfavourable, but also to divert a shipment already on the passage from its intended destination to some other point where, in the meantime, prices have risen?
As the system by which the interchange of commodities is effected becomes more and more perfected, and as the division of labour settles itself down into a well-defined science by the good and skilful workmen concentrating their efforts, and by the bad and unfit labourers being forced to abandon what they are unsuited for, so will the demand for all the great luxuries and necessities of life be supplied more completely on the joint stock principle. We see this in all directions growing up under our eyes. Wherever a large demand exists for any service, such, for instance, as transport, or for any article of use or consumption, there will the means of supplying both be organized. We have seen it in armies, in fleets, and in the government of countries for centuries; and we have been watching it for forty years in, perhaps, the most astonishing instance there is, viz., in railways. Formerly everybody drove in his own coach about the country, now nobody does. We have seen it for years past in banking, which, from the nature of the business, would be the most easily reformed upon the joint stock principle. It has also been working and making inroads upon commercial houses with a force which in the end will be irresistible, and which from year to year makes it more difficult for small firms with small capitals, to hold their own against the larger organisations, just as it is out of the question for any private person now to start a bank.
Every Commercial Revulsion destroys Houses of a Speculative Character, and throws the Good Business into the Hands of the Large, Sound Establishments.
The incalculable mischief that is caused in commercial affairs at certain periods, arises for the most part from the operations of comparatively small houses, which have insufficient capital to enable them to lay down the necessary machinery for duly informing themselves upon all the needful points about which they should be accurately posted with untiring continuity. In a great commercial city a thoroughly experienced banker or money-lender can say very nearly by heart the names of the merchant houses who are known to be beyond all question good for any amount for which they may write their signature. Starting from this nucleus, circles may be drawn defining the various degrees of credit which may be allowed to commercial houses, until a supposed outermost and largest ring of all is reached, which includes the shaky, struggling, poor establishments. Those whose knowledge and experience in such matters is very great could so classify all traders. Now, it must be evident that when the chaos which follows a violent commercial revulsion begins to be transformed into order, the business which the withdrawal of confidence is sure to throw as much as possible upon the centre or nucleus of firms which are comparatively unaffected by any revulsion, will commence gradually to work outwards again, overflowing ring after ring of the supposed lines which we suggest as defining the degrees of stability. This ebb and flow of the tide of credit, so to speak, is the result of competition, and of the fluctuations in commercial affairs, and must always recur with greater or less force and rapidity. It is an automatic workingof the laws of commercial affairs which characterizes all markets. As the nature of a large proportion of mercantile business must partake more and more of the speculative character to keep pace with the keener competition of greater capitals employed by a larger number of first-class firms, so must the machinery requisite for each individual firm under the altered circumstances through which prices are affected in all markets become more elaborate. If this view be correct it would seem to follow that the important business of the world must be more and more settling itself into the hands of large capitalists; and that although new houses in all departments of trade will always be starting in proportion to the aggregate growth of the commerce of the world, the large and strong firms will increase in a greater ratio, and the number of the small ones will tend to diminish.
Before the invention of the telegraph, a house of straw could paint up its name, make a show with a few thousand pounds, and enter into very large commitments for good or for bad, as it might turn out. Shipments to a large extent could be made, and if all turned out well, a house might thus, by a stroke of luck, be established to occupy, perhaps, an eminent position. On the other hand, if the first operations resulted in ruin, it was worth the risk, and a fresh start was made probably somewhere else under a new title. Such instances being multiplied in all the great commercial centres, it is easy to understand how markets could be glutted, prices raised to a fictitious level, and all the links forged into the chain which snaps at once, when the tension upon credit has gone beyond a certain point. Matters howeverare changed in this respect, and are changing from day to day. So small is the expense of obtaining information, compared with the risk of signing a contract with a house of straw, or of doubtful respectability, that the electric wire serves accurately enough for the purpose of ascertaining the position of a new customer who may present himself at a large establishment to do business. A most salutary effect is thus in process of being worked out. The great thing in commercial affairs is to keep out the weak speculative element, and to drive them into subordinate positions to work their way up in a legitimate manner, to become principals. The means of obtaining information now is so considerable, that if a man signally fails, almost the only hope for him is to change his name. In some instances this has been done, and followed by astonishing success, although the way it was achieved would, perhaps, hardly bear close investigation.
So far, we have referred more particularly to the altered character of modern influences upon commercial markets, and we have done so because the changed conditions which affect the value of one commodity in the markets of the world more or less affect all; but, as we are specially writing with reference to Stock markets, we only propose to touch upon other markets in passing.
The Extension of Long Wire Telegraphy.
The net work of telegraphic communication, in Europe at least, is now, in the year 1874, so far complete that, when a pressure of business is felt by the sub-marine telegraphic companies, the complaints of delay are not frequent. The long wires are also multiplying rapidly. The progress that has been made in telegraphy was made known to manyfor the first time by the circumstances being published, that the Shah of Persia’s first minister at Teheran was aroused out of his sleep early one morning, during the visit of his royal master to England, to reply to a message which, to the minister’s astonishment, he discovered had a few minutes previously been dispatched by Dr. Siemens, an operator who had been expressly established for the use of the Shah in Buckingham Palace.
Money Famines should henceforth be as improbable of Occurrence as Corn Famines.
Advantages derived from Opening Up Communications with the Corn-growing Provinces of Russia.
We are of opinion that the complete communication that is now established between the commercial and monetary markets of Europe will tend gradually, if not rapidly, which is very probable, to diminish the effects of what we understand by commercial crises. The opinion embodied in this sentence which was written before the American financial crisis of 1873 broke out, has been corroborated by the great assistance afforded by the Atlantic cable in mitigating the immediate effects of the first symptoms upon the public mind, and in at once confining the disorder within limits which would probably have been impossible in the absence of telegraphic communication. The main reason why we have suffered from monetary panics so severely during the first three quarters of the present century has been from the absence of rapid communication with other monetary and commercial centres, as well as from the absence of large auxiliary monetary centres holding a good average supply of cash, to be lent out on good security to the highest bidder for the time. The facilities which now exist for applying the over-plus of grain at one centre of population to satisfy the deficiency at another, has done away with famines.The late exception of Persia proves the rule. Corn is a commodity, and money is a commodity. What applies to one, as regards demand and supply, applies also to the other. A strange nervousness still exists in some quarters about the amount of the Bank reserve, fears being entertained that it will be found too small when the time of pressure comes. Persons who are so loud in their protests at reductions in the Bank rate can never have been buyers of money themselves, or, in other words, sellers of bills. To keep the value of money the smallest fraction above what is actually necessary at the time, by the capricious exercise of a brief authority, is to commit an act of unwarrantable injustice, and to rob the needy. We say if the Bank directors maintain a higher rate of discount than is necessary, they rob the needy, and compel holders of bills to pay an illegitimately high rate of discount. It is urged in defence of this nervousness, that the attractive power of a higher rate is slow, and that the till may be exhausted before the required supply arrives. As and when it may be necessary the Bank should raise or lower its rate, maintaining a reserve which is sufficient at all times if it be about one-third of the liabilities. To speculate upon the future, is to attempt to discount influences which may never be felt. To maintain for a day a higher rate than is necessary, is to tax the public for private ends, to reinstate Protection, and to disregard sound economic principles. To illustrate what we mean, take the case of bread famines. Almost the only nation that has suffered from the worst kind of bread famine of late years, has been one altogether outside the pale of civilization. At the period referred to, the telegraph was only seen in Persia,because it was necessary to use the territory for putting up telegraph-poles to carry a through wire to India. As we write, there is not a steam-whistle to be heard in that country, which is somewhat astonishing, considering that it is so near to us and that it is twice as big as France; although it must be said, in justice to His Majesty the Shah, that he has already seen the benefits to be derived from coming out of his dominions himself, and by letting civilizers in, withcarte blanchepowers, to transform his dominions from a condition, as regards production, which may well shame the representative of an ancient line of kings. With the exception of countries situated as Persia is, with reference to obtaining supplies from other nations, no considerable centre of population need suffer from bread famine in our time, unless under circumstances which no human foresight can prevent. This very important fact was recognized when the first great foreign railway loans were offered for subscription in England. It was seen that by enabling Russia to make railways from the great corn-growing districts of her Baltic provinces to ports to which vessels could gain access during the winter, we should, in case of need, be able to supply ourselves from this source. We have not yet had special occasion to prove the inestimable value of those lines of railway, but one thing is quite certain that, whatever some authorities may say as to the impolicy of lending largely to foreign powers to assist them in constructing strategic railways, for reasons beyond the one given, England never made a better business than by lending Russia some of hersurplus capital. Whether or not we have now lent sufficient is another matter.
A hunger crisis arises from a scarcity of bread, and a monetary crisis from a scarcity of money, or what represents it perhaps too largely at some centres, credit. There are stores of corn kept in larger or smaller quantities by all civilized nations, and famines have arisen in former times, not only from the absence of sufficiently rapid communication making the surplus supply of one centre available for the deficiency of another, but from the failure of production. It is tolerably certain, however, that at all times while human beings have existed there has always been enough food grown for every living creature, if it could have been distributed according to the varying wants of different populations. Now that this can be effectually done, famines are unknown except in lands whose people are such lie-a-bed tories that they prefer to sit in the sackcloth and ashes of barbarism and want, to humanising the body and soul by the regenerating influence of modern civilization.
Money is as much a necessity as bread in the world. Indeed, it is of more; for bread alone carries a man a very little way, according to modern notions, whereas money is the lever that lifts every obstacle from the path. It would seem quite reasonable, therefore, to infer that when the same means have been established for making the surplus at one monetary centre available to supply the deficiency at another, with the rapidity which is proportioned to the more sudden pecuniary requirements that are developed than is the case with corn, the very serious and prolonged disturbances which have been experiencedin the past from such a cause would gradually be prevented in the future.
The Growth of Wealthy Monetary Centres.
Apart from the single question of rapid telegraphic communication, there is another matter deserving of as much consideration, which is the increase in the number of large monetary and commercial centres. Of late years the growth of wealthy centres has been rapid, and the reservoirs of unemployed money have thus been increased so that a deficiency at one could be supplied from another at a price. Diseases of the body break out here and there in the world at different periods, and other centres of population get warning, and by quarantine and strict sanitary measures, its spread, as in the case of cholera, is checked. Speculation is a disease of the mind, and like diseases of the body which arise from indulgence, carelessness, and neglect, it in the same way comes to a crisis at places where greed of money, folly, and commercial debauchery hurry people into extravagances and luxury that are sure to result in a general eruption. The growing wealth of continental states is an important feature in the altering character of Europe, from a financial point of view, as we near the last quarter of the nineteenth century. As monetary centres, both Berlin and Vienna have been taking a much more prominent part since the Franco-German war than there was any prospect of their doing before the transfer of so much wealth to Germany by the war indemnity payments. At the same time, London has risen higher, and to a level of still greater importance even than she had occupied before as a trade centre. In proportion as other such centres are growing in influence with their reserves of floatingcapital and credit is London shored-up, so to speak, against the violence of a commercial crisis by the growth of subsidiary monetary centres, which form the second line of defence. Such a second line of defence against a sudden collapse of credit, such as we have experienced several times during this century, is of the utmost importance to a centre like London, where the existence of an elaborate system of book-credits causes such an economy of the currency.
Private Cipher Telegrams as Exterior Influences upon Priors.
Among exterior modern influences is the rapidity with which the large professional speculators obtain cipher telegrams, informing them of important events that transpire abroad which are calculated to influence prices in all markets. The effect of the rapidity with which such events are thus made known is that, whatever influence they may be calculated to exercise upon certain values, it will almost always have been discounted before the ordinary haphazard speculator gets to know anything about it. Close observers will be able to confirm this by having remarked that all political information is, as a rule, known sooner at the Stock Exchange than anywhere else.[32]So it is with all news that is likely to affect prices that are quoted in the public prints. Many a man has gone quietly up to the city some morning after studying his newspaper telegrams and bought or sold some stock on speculation, under the impression he was stealing into the enemy’s camp while the foe was asleep. On looking closer into the matter—of course when it is too late—he discovers that the informationhe has been so cunningly operating upon is already, for many hours, perhaps half a day, a matter of history.
The Altered Character of Interior Influences upon Prices.
The Creation of Securities to Meet the Demand.
Getting Behind the Scenes.
The Difficulty of “Cutting” a Loss.
What is the altered character of the interior influences? One, and perhaps the most, important, is, that syndicates of powerful speculators act in conjunction with the dealers in the markets. There are distinct markets for certain stocks and certain classes of stocks, and the jobbers confine themselves more or less to dealing in a few descriptions. In a wealthy community there will probably always be a large number who cannot control a restless desire to be operating in the markets, who must now and again try their hands at speculation, as circumstances seem to present favourable opportunities. There are periods in the prosperity of every community when individuals are known to have made profits in their business, and in the natural course of things seek investments for their gains. Securities at such times are created on a great scale to suit the taste and appetite of the public. In the first stages of the creation of new securities considerable profits are made bybona fideinvestors, which in course of time attracts the attention of speculators without means, who think that they have but to venture and they also will gain. After a time inflation sets in; and we may here ask the speculator if it ever occurs to his mind that understandings exist between the syndicates of professional speculators and the dealers, whereby the former get to know to what extent the public have bought by seeing the jobbers’ books? It is easy to see the power a syndicate with large means may exercise bysuch a system as this, even in a large market, supposing they could get to see the books only of the larger jobbers. We will suppose, for instance, the public can be induced to buy a certain stock largely on some fictitious information. If, at the close of each of three or four days buying for the rise, it was ascertained by an examination of the jobbers’ books that accounts were open in a stock to the extent of half a-million of money by over a hundred different purchasers, it becomes evident that there is a tree of ripe fruit grown as it were by magic, and the syndicate has nothing to do but to pluck it. Out of a hundred buyers at least a third would probably rush out and take their loss at the first indication of their being on the wrong scent. One of the great faults which characterises all speculators, with very few exceptions, is that they cannot summon courage to “cut a loss” at once. The object of buying was to gain, and the mind is associated with a profit in connection with a rise on the transaction, and it is very difficult to change about, and gain, in a negative sense, by not losing more. It is upon this weakness of speculators individually, in not being able to “cut a loss,” that bands of marble-hearted riggers lure the public into holes, and squeeze their purses before they let them out. With such tenacity do speculators hold on to a stock, hoping for a recovery when they have made a loss, that they will leave it as a man drops into the sea from a burning ship, only when he is singed by the flames. Many speculators on discovering they are on the wrong tack gather themselves uppour mieux sauter, and turn round and sell for the fall, believing they shall be quickenough to catch it and swim with the downward stream before it is spent. In the greater number of cases, such speculators watch the fall far enough to be sure they are right in their view of the way the price is going, and then they “get in.” What is the usual result? Hesitation in the second operation has caused them to miss the mark, and the account is closed with a loss on both transactions; the speculator having bought at or near the top, and sold at or near the bottom.
Waiting for Extremes.
Reaction generally more Rapid after a Sharp Rise.
The bane of nearly all speculators of the soft-grained type—by which we mean men whose will and judgment bends this way and that, like a reed that nods allegiance to any quarter of the world according to the blow of the wind—is, that they are for ever on the itch to do something. There is no getting them to wait for an opportunity. There are two sorts of opportunities, and the distinction between them is important. The speculator feels much more at home in availing himself of one than of the other. The man who can wait for extremes is the one who will have the best chance of making extreme profits, provided he can be fairly sure of a good grasp of the duration of passing influences. One kind of opportunity is after a sharp fall in prices. As we have before remarked, most speculators feel more at ease in operating for the rise, and consequently know best what they are about after a fall in prices, and they make themselves bulls. The other kind is after a well sustained rise. But it has been generally observed that speculators sell bears of stock with more timidity than they buy bulls. One reason, no doubt, beyond that referred tois, that they have a feeling in their own minds that in selling for the fall they are going against the current, which on the surface seems to be a rash proceeding. But in being able to combat this feeling lies one of the main elements of success. It is out of the public that successful speculators make their money, and consequently there must be the greater chance of losing by following the lead of the public. Of the two opportunities therefore of which a speculator can avail himself with the most advantage, that of looking on at a rise and opening a bear account at the new prices is, under ordinary circumstances, the most worth his attention, as the reaction is generally more rapid after a sharp rise than after a fall, owing to there being more new interests engaged in causing it. A rapid rise is promoted largely by speculators whose operations for purposes of enticing the public to buy, may be compared to the exertions of a horse in a great race that is entered to make the running for the favourite. Those speculators are more anxious, as a rule, to realize their profits as bulls, off high figures, than they are to close bear accounts; for, when a panic has driven prices down, some time will elapse before confidence revives, and in the meantime it may be renewed.
A person who cannot withstand the itching desire to have an interest in something or other, is almost sure to be a man of that soft texture of character that yields to influences that are unworthy of serious attention, and he will consequently be led into error and loss probably oftener than not, and his operations will end in failure. It must be obvious to every reflecting mind, that so dangerous a game as StockExchange speculation, or speculation which partakes of the same nature, in another commodity, entered into, if it be only partly to satisfy a craving for some sort of excitement, is a very unwholesome pastime.[33]
Of all occupations Stock Exchange Speculation is the last to be thought of as an amusement for the man who wishes for some light kind of business that can be done with an off-hand air, and without any of the drudgery that is the real power in money-making. And yet there is no doubt that a large proportion who feed the ever copiously flowing stream of profits that the members of the Stock Exchange are diligently gathering from day to day, are persons who, having nothing better to do, are drawn by an insatiable desire for some occupation into the ranks of the haphazard speculators. Once fairly entangled in the meshes of loss, the struggles to recover it are usually attended by worse disasters.
It may also be shown that a desire to satisfy a craving for a class of excitement which partakes somewhat of the nature of sober business, in its earlier stages at least, allows admission to the mind of an element which makes havoc with the judgment, and consequently forms an ingredient in the nature of a speculator, which is almost sure to bring him sooner or later to grief. Before a man enters upon the business of speculation, he ought, if he is to have a fair chance, to clear his reasoning powers from any such unwholesome encumbrances as even the faintest desire for excitement. Every step a speculator takes should be, as far as possible, as deliberateas if he knew perfectly well that the slightest miscalculation would certainly involve him in loss.
What Not to Do.
In engaging in speculative commitments, the great difficulty that presents itself is not so much what to buy or sell, as what not to buy or sell. When to do something, and when to do nothing. Here lies a problem, the solution of which costs such a number of speculators their money and their peace of mind afterwards, to say nothing of the chronic dyspepsia that afflicts them until they are forced to quit the field.
Special Information.
Much Money only Obtainable as a Certainty by Hard Work.
If the time a man spends in finding out the mistake he has made in selecting this or that stock haphazard for speculative purposes, were devoted to obtaining some special information about one particular stock which he might have good reason for believing was worth attention, his chances of making money would much improve.[34]This plan is adopted by the more sensible speculators who sufficiently understand the difficulties of the business to recognize the importance of laying down certain principles of action. Money cannot be made for a continuance with any degree of certainty without hard work. When this proposition is demonstrated, which it undoubtedly can be, the whole question of speculation as an occupation, a pastime, or a business, call it what we will, resolves itself into this, that unless a man devotes the same hard work to it that is necessary to earn a fortune in any other calling, plus the possession of an intellect of a special order and considerably above the average, he must be a fool to speculate at all.
An Average Instance of Haphazard Speculation.
In order to bring more forcibly home to the mind of a man who may know nothing of Stock Exchange matters, the wisdom of imprinting upon his understanding the uselessness, in the long run, of playing at what is nothing better than pitch-and-toss, we will just sketch a case in point as an instance:—Supposing a speculator to enter the office of a stock broker. He has, perhaps, some hazy ideas about the future financial condition of Spain, for example. He has noticed the stock has fallen to 19¾, and this seems to be very low for a country which has so far struggled against the corruption of its rulers, and the laziness and apathy of its population as a body, and has managed for a long time, by hook or by crook, to meet the exterior coupons by paying them in other people’s cash. The probabilities certainly must be, he thinks, in favour of their paying another half-year’s interest, if after that the deluge of national insolvency should flood the land. He contents himself with gathering to a focus the intelligence that stands from morning to morning in the telegram columns, and comes to the conclusion that something will turn up to supply the exchequer with another loan to meet the next dividend, and in that case the stock must at once jump up to 22 at least, perhaps to 25, as there would then be six months to turn round in. Now, what we submit is, that to speculate deliberately upon such a system as this, is not far removed from insanity; and yet it will be acknowledged by those conversant with the modus operandi of the haphazard speculator, that his plan of attack is based, for the most part, upon this absurd system of guess work, no serious trouble being taken to estimate the extent of the forces opposed.Some fanatical faith is placed in the doctrine of chances that the fluctuation wished for will occur, and he shuts his eyes and waits. To sit at home and guess at what the present or future financial condition of any country may be, and to risk your money under such conditions, is worse than reckless.
Supposing, on the other hand, the hypothetical speculator, instead of acting upon the impression made on his mind, by superficial influences, were to start for Spain and take the trouble to get behind the stock, so to speak. In one week, if he occupied a position in life sufficiently high to enable him to get trustworthy information, he would be in a position almost certainly to know whether there was a chance of such an event coming off, as for instance, the next coupon being paid. This would be at least a business-like way of setting out on a speculating expedition, a method of proceeding such as is pursued by a syndicate of speculators who propose to purchase a foreign mining property, for example. A man of sense who buys anything, the value of which depends upon a set of circumstances operating at a distant spot, naturally proceeds thither, or satisfies himself through some trusty agent that such circumstances exist, or that they do not. If he be contented to buy twenty thousand Spanish Stock at twenty, on the chances of the power that is, or may be, from one week to another, being able to pay the dividend, because so far they have just managed to do so, he would be deserving of no sympathy if he found himself in a couple of weeks with his stock at 17, and his banker’s balance less by six hundred pounds.
The reason why so much money is lost by this loose mode of proceeding is, because haphazard speculationpossesses a peculiar charm for certain loose natures, which are roused into a pleasureful excitement by running risks. They defend the viciousness of their lazy amusement by saying to themselves that the chances must at least be as muchforthem asagainstthem, inasmuch as there are but two ways for the price to go—up and down. Many a man who has fed and encouraged this itching sensation, which can only be appeased by having passed through the excitement of running a certain risk, finds himself so bound by its spell that in very many cases nothing short of absolute ruin succeeds in quenching his thirst for such excitement.
Hidden Forces Opposed to the Speculator.
There are perhaps very few speculators of the haphazard type who take the trouble to find out the extent and power of the hidden forces that are arrayed against them in the markets. Every stock, it should be remembered, has either a small or large market to itself. In some stocks it is possible any time of the day to deal at ⅟₁₆ price,[35]while in others there may be a difference of 1, 2, 3, or even 5 per cent. under certain circumstances, between the buying and the selling price. A speculator operating in a stock in which he can always deal at a close price is able to undo his bargain with only a trifling loss probably, if he finds out at once that he has operated under some misapprehension; but if he has bought a stock the purchase price of which is say 35, and if he wants to sell he can only get 34, he has incurred a loss of 1 per cent., besides the commission, before he can cancel the bargain. This belongs obviously to the alphabet of the business, but the haphazard speculator seldom learns his alphabet until the use of it is no longer of any value.
The “Turn.”
A broker, it may be said, should warn his client before putting him into a stock the price of which is wide; but unfortunately such warnings do not increase the number of commissions, and, apart from that, if a speculator does not take the trouble to inform himself accurately upon such a point, placing no reliance upon the advice of any one, he deserves to lose his money. Some markets are so small that a speculator once in, is what is called “roasted” before he is let out again. A particular man very often is the only dealer in the market in a certain stock of which perhaps the supply is also very limited. Under such circumstances a haphazard speculator who may chance to have observed some rather violent fluctuations thinks there is a good opportunity to make some money, and he sells a little bear of a couple of thousand pounds nominal of stock. The round sum, and the channel through which the sale comes, helps the jobber to read the operation. The decoy-duck in the shape of the fluctuations in price, lures two or three more sportsmen on to the dangerous ground, and when they want to get out the price is put up against them, and they are quietly mulcted of £50 each, without a chance of getting even a sight of their enemy, or any value for their money but experience.
The Danger of Taking Advice.
A speculator who consults a not over-scrupulous broker as to the best thing to buy for the rise, runs the risk of taking some stock off the broker’s hands that he is desirous to get rid of. It is far better that a broker should not be exposed to such a temptation, and a speculator will do well to make it one of his maxims to put no trust in any one when he is engaged in a business in which it is theobject of everybody with whom he comes in contact to make something out of him.
A Disinterested Opinion.
Supposing a broker is not directly interested in any particular stock when a client who is in doubt what to do consults him; it does not then follow that the client can depend upon getting absolutely disinterested opinions. The broker may have just put some other clients into a certain stock, and with a view to his own advantage, by helping to make money for them, he will lean probably to some extent in the direction of advising others to purchase the same stock.
All the Eggs in one Basket.
There is an old saying that it is unadvisable to have all your eggs in one basket, a saw that is constantly quoted among bothbona fideinvestors, as well as among speculators. A broker is not desirous that his clients who speculate should be interested very largely in one stock. He prefers to have the liability spread over the market, for obvious reasons. If a client fancies a particular stock, or has good reasons for believing it is about to improve, and he goes to his broker with a view to increase his stake, he will not receive the same encouragement as if he selected something else. The influence thus brought to bear arises from selfish motives, and proves again that the client should keep his own counsel. If he have no decided views himself, it is certain he had better do nothing, for speculation thus entered upon is doubly and childishly haphazard.
Traps for The Public.
The Public as Speculators are Bulls by nature.
A Case of Roasting the Bulls.
A Cut off the Loaf and Pass it on.
The more organized methods of speculation which prevail in these times, cause the public to be mulcted of their money in a much more wholesale manner than was the case formerly. They are now drivenlike sheep, or rather enticed into a pen, and there mercilessly squeezed until they are glad, like some of the players at Homberg have been, to have their third-class fare paid home. A number of brokers or jobbers, or both, in the markets will be instructed to run a stock up, after a goodly number of bears have been decoyed in by a gently falling price from day to day, seasoned with unfavourable reports. Those who are able to command a sight of the jobber’s books, know of course exactly the position of affairs, and the price is rigged until the weak speculators for the fall are simply frightened in. This is done upon even a more extensive scale in the opposite direction, for the simple reason that the general public as speculators, are bulls by nature. Bear operations seem to go against the grain of the average man who acquires a first taste for speculation, probably by possessing some amount of stock which improves in price after he has bought. Money thus easily made, as it seems to be, out of nothing, encourages other purchases with a view to resale before the settling day arrives. Thus small figures grow to large ones; and small profits, in frequent attempts to multiply them, usually end in large losses. A good stock, or the shares of a good company, that has long been discredited from a cause which may be suddenly removed, has frequently been used for literally flaying the public when they have rushed in as bulls. A memorable case in point was the rigging of the shares of the Erie Railway Company. Upon the occasion of the assassination of Fisk, jun., the shares were run up and the public enticed in by daily advancing figures far above the actual merits of theshares, from a dividend point of view. Numbers of persons were induced to believe the price would range high from that moment. The quotation subsequently declined, and one by one the unhappy bulls were disgusted into taking their losses, whilst those who had rigged the market were following them down as bears, and making a fine thing out of the affair. The same game was played with the public when Jay Gould was ousted from the presidency of the Company, when the price was run up to 57½, and gradually went back, even as low at one time as to 28, afterwards recovering to about 50. As compared with the professional tricksters who manage these riggings of the markets, even the best of the outside speculators, who have had long experience and think they can stand on one side and profit by the gullibility of the public, discover themselves frequently the wrong way, when the course of the market for some time at length reveals unmistakably the drift of the experts behind the scenes. The man who must speculate should be early in, and early out, being contented with a cut off the loaf and pass it on; for it is the profits missed that ruin the speculator.