Jobbers and Brokers
The members of the Stock Exchange are of two descriptions, jobbers and brokers. The jobber[9]deals in stocks and shares, either as a buyer or seller, at the market prices. The broker deals with the jobber, and is paid a commission by his principal for transacting the business between the two.
The Bull.
A bull is a speculator who buys for the settlement[10]with a view of selling at some future date at a higher price, and gaining by the difference.
The Bear.
A bear is a speculator who hopes to gain by the reverse operation. He sells for the settlement, hoping to buy back at a cheaper price, and gain by the difference.
Contango.
Contango[11]means continuation charge; for instance: if a bull operator has £2,000 Brighton railwaystock open for the account, of which there are two in a month, one in the middle and one at the end, and the settlement which is to take place, say in the middle of the month, is approaching without the price having advanced as much as he supposed it would at the time when he bought, he wishes to carry over or keep the stock open for another fortnight. For this accommodation he must pay the jobber in the House of whom the stock has been bought, a certain rate per cent. to allow the speculator to continue a bull of the stock, instead of paying the money and taking it off the market. The contango rates depend upon different circumstances. Sometimes, instead of having to pay any contango, a bull will get something paid to him. If the stock is very scarce, and the jobber finds it difficult to deliver to purchasers, he will be glad to carry over a bull account for nothing, and may be he will pay a consideration to postpone delivery for a fortnight.[12]On the other hand, if the stock is very plentiful when the settling day arrives, if the sellers have been numerous, and the deliveries are large, the jobber will prefer delivering the stock to the bull speculator to continuing it to the next account, because he wants money to pay those who have sent their stock to market. Under these circumstances the contango rate may be ¼ per cent. on the money price of £20,000 nominal stock for the fortnight, or it may reach a much higher figure, even exceeding one per cent. for the fortnight, but such a rate is seldom charged.
The contango rates depend very much upon the state of the money market, and hence the fluctuationin the price of public securities in sympathy with the rise and fall in the value of money.
It has become more of a custom with bankers to lend money to the Stock Exchange than was the case formerly; one reason being that, through the more enlightened management of the Bank of England of late years, the changes in the rate of discount are made more in obedience to the varying condition of the money market as a whole, as reflected in the Bank return, than was the case in former years, when the directors would come down to the City some Thursday afternoon to put up their terms when there was very little available money left upon which to obtain the increased charge. In other words, the value of money changes more frequently than it used to, and bankers, desiring to act at all times in view of contingencies, find it very convenient to lend their surplus balances for a fortnight upon easily convertible securities with a good margin. Moreover the risks attending bills of exchange are avoided. The contango rates at the settlement may rise suddenly through unexpected demands upon bankers arising out of a bullion drain, and a fall in the foreign exchanges, which compels them to refuse to continue their loans upon stock. Such stock must then be turned out upon the market, and, if there happen simultaneously to be more deliveries than there is stock taken off the market, the contango rates will rule high.
It may be here observed that the contango charge is an item in the cost of speculation which the haphazard operator seldom takes into account at all; yet, if speculation be engaged in upon a large scale, the item of contango charges may become a formidable one, and, when added to the commission charged by thebroker, takes so much out of the possible advance in price which may take place in the period of, say, two accounts, or the space of one month, that it requires no great experience to show that the game is not worth the candle, taking one operation with another.
Take a case in point:—A speculator buys £5,000 Turkish 5% ’65 stock at £50, for which he engages to pay £2,500 on the settling day, which is the last of the three account days. He pays ⅛ commission to the broker, or £6 5s.When the settlement arrives, we will suppose he has been very lucky, and has got a rise of ½ per cent. in the price, which is a good advance for a class of stock which investors do not like, but nevertheless is speculated in a good deal. How does the account to be rendered to him stand, with 6 per cent. contango for carrying over the transaction?
The operation so far is successful, and the speculator, taking courage from his success, awaits a further advance. He is not disappointed, we will suppose, and the stock continues to rise, to give him the favourable start which is so frequently the cause of his future troubles and losses. During the next account the stock gains a further ¼ per cent., and he credits himself mentally with an additional £12 10s.Here is a gain of £37 10s.minus the selling commission, which is generally charged when the stock is not bought and sold in the same account, and also minus thecontango. This second commission, which is usually charged when a speculative account is kept open for a month, is frequently left out of the calculation by novices. Supposing, then, towards the close of the second account, there occurs a relapse of ⅝ per cent., making the price really ⅜ lower, which is a very reasonable hypothesis, as stocks do not always move in one direction,—how does the account to be rendered at the next settlement stand? We have—
It becomes apparent, in examining this account, the extreme danger the speculator was in just at the period immediately preceding the relapse, and forcibly demonstrates the importance of acting upon the soundest of maxims in “time bargain” operations, which is,never to refuse a profit. We have been supposing the speculator to have been “running the stock,” as the saying is, for nearly a month, during which period it had been advancing in price. At the same time he had been incurring expense to have the chance of making a profit by such advance. After carrying over the transaction, he had incurred the certain loss in any case of the two commissions and the contango charge, which make together the sum of £18 14s.6d.It seems almost incredible that, under such circumstances, he should still hold on when he could closewith a profit of £18 15s.; instead of which he closes with a loss of £12 9s.6d., after having commenced to operate with just as reasonable a prospect of a fall of ½ per cent., and another on the top of it of ¼. On the other hand, everything went as well as can ever be expected on a series of operations, and yet he finishes with a loss. The charges, to begin with, kill the profit, to say nothing of the “turns” of the dealers, and the risks of the fluctuations in price.
Backwardation.
Backwardation[13]is the term for the charge paid by the speculator for the fall. The word itself implies that the charge is for holding back a transaction, as directly opposed to that for which a contango is paid. The one is to carry forward, and the other to carry backward. A speculator who sells for the fall, and thereby makes himself a bear, must pay something if he wishes to keep the transaction open; just as the bull must, unless exceptional circumstances are influencing the market. When the settlement arrives, a bear must either deliver what he has sold, or pay the backwardation demanded for postponing delivery; which, in other words, is the price paid for obtaining the stock elsewhere. If the supply of stock should chance to be large, he will find it very easy to continue his bear account, because the stock he has sold is not wanted. Under such circumstances, the position of the bear speculator comes to be the exact antithesis of that in which the bull finds himself at the settlement when the stock he has bought is scarce. In both cases the charges recede until either the transactionsare carried over “even,”[14]that is to say, for nothing, or it may be the speculator receives a consideration. As in all other markets, it is a question of paying or receiving, and the one or the other depends upon the relation which the demand bears to the supply. As we shall have occasion farther on to speak more minutely upon bear speculations, we shall not pursue the subject at any length here; suffice it to say that the public, as speculators, do not understand selling for the fall. It goes against the grain. Speculating at all is associated, in the minds of nearly all people, with fine sunshiny weather, and a settled state of the political atmospheres of one’s own and neighbouring states. The time to speculate for the fall is when growling despatches are being exchanged between nations whose prosperity has reached a zenith where nothing more is to be had, except by quarreling; when the exchanges are adversing, and there is a drain of gold setting in and the biting winds and sleet of chill October fill everybody with pessimist views; when the reports of shipwrecks and hurricanes at sea fill the minds of Oriental merchants with alarm for the safety of their galleons, and there is an uneasy general impression creeping over the public mind that it is perhaps prudent, under the circumstances, to hold less in securities, and to have a larger balance at the bank. Yet, when the very air seems to whisper coming difficulties and disturbances, and the time is ripe for speculating for the fall, such is the weakness of the human character that the opportunity presented is seldom discerned until the return of sunshine, and the blowing overof the storm has shown the inutility of being wise after the event.
Options.
The “Put and Call” Option.
Speculation by “options” is of all methods of speculating the most prudent, as it is the most sensible, for all parties concerned. It resembles in some degree the lottery-ticket mode of gambling. The indefinite mischief that is caused by speculation which allows the operator to incur unlimited risk on credit is prevented by the system of options, inasmuch as a fixed payment must be made by the speculator at the time the option account is opened. There are three kinds of options. First, is the “put and call,”[15]which means to take or to deliver stock at a fixed price at a future date, for which a certain sum is paid on the day the bargain is entered into.
The “Put” Option.
The second is the “put,” which means the option of delivering a specified amount of stock at a fixed date, the price and the day of delivery being agreed upon at the time the money is paid.
The “Call” Option.
The third description of option is the “call,” which means an operation exactly the opposite of the “put.” It is the option of claiming a specified amount of stock at a future fixed date, such date, together with the price, to be agreed upon at the time the option money is paid. The sum of money that is paid for options fluctuates in sympathy with the changes in the value of public securities, and also depends upon the amount of business doing. An option may be done from day to day, or from accountto account. The option money is paid by the principal to the broker at the time the transaction is effected. When the option expires, the person who has paid the money declares whether he buys, sells, or does nothing.[16]
Years of experience of this mode of speculating have only shown, as with other kinds of speculation, that the option money once paid is hardly ever recovered. We have taken the trouble to inquire of those who have been for as many as thirty years in the markets, and such is their experience.[17]
The Fortnightly Settlement.
The Stock Exchange settling days are in the middle and at the end of each month. Each fortnightly settlement occupies three days; the first is the carrying over or contango day, the second is the name or ticket-day, and the third is the day for paying the differences, or the amount of money for stock or shares to be taken off the market. The settlement in Consols is monthly, and near the commencement. The extent of the business transacted in the Stock markets has been very accurately measured since the establishment of the Clearing House. All transactions being settled by cheques, the increase in the Clearing House totals on a Stock Exchange settling day correctly indicates the amount of money which has passed between buyers and sellers.[18]
Speculation by Members of the House.
Speculation inside the Stock Exchange by membersof the House does not present many features which entitle it to comment apart from the speculation as it is practised by the public outside. It is natural to suppose that members of the Stock Exchange are better able to operate in stocks and shares, with a view to profit by speculation than the public who, as a rule, are ignorant of the art they endeavour to practise until all they have left is some bitter experience. Those whose daily business it is to be in the Stock markets must of course know that the outside public are always dropping their money, and in this respect the conviction comes nearer home to them that the play is not worth the candle. There are speculators who are members of the Stock Exchange, but we believe it is but a very small minority that troubles itself with speculation as the principal means by which the profits are made. As a rule, it may be laid down that a dealer who goes out of his market to speculate is just as likely to lose his money as an outside haphazard speculator. Each stock, and each description of shares, has its history, and is influenced more or less by special causes, as well as by general causes. Each stock, therefore, requires to be constantly watched, after it has been studied, and its peculiar characteristics well ascertained. When it is said that these stocks and shares are numbered not by tens, or by hundreds, but by thousands, it is easy to understand that no one man can master the special knowledge concerning each, which however every jobber who understands his business should do, within the limit of those in which he usually deals. Consequently, a jobber devotes himself to a few descriptions which circumstances or inclination may cause him to select.He confines himself to a particular market, where he is to be found; and if he speculates now and then, apart from the necessities of his business, and to satisfy a desire for a little excitement, or because some special view of the course of events encourages him to try his luck, it is, as a rule, in the stocks in which he is accustomed to deal.
It may be of interest to some persons to contrast the terms used in England with those employed by stock-brokers and jobbers across the Atlantic, and we append those in use on the New York Stock Exchange, with explanations. The inventive resource which is so characteristic of the American, crops up in the terms used in their Stock markets, as in the case of the “put and call” option with us, which the Yankee cannot be satisfied with, but must invent the vulgar synonym of “straddles,” which is certainly expressive of the pair of operations in one. The mania for getting rich by making short cuts and royal roads engenders apparently an impatience of terms which contain a single syllable or letter that is unnecessary, however hallowed by time, and hence, “put and call” is superseded by “straddles.”[19]The “put” is a contract by which, during a fixed time, usually thirty days, a seller for a consideration agrees to take from a buyer of a “put” a stock at a given price, generally several per cent below the market value.
The “call” is an operation of a directly opposite nature, being a contract by which for a consideration a seller of a “call” undertakes to deliver to a buyer a certain stock at a given price, generally several per cent. above the market value.
To “put up a margin” signifies to deposit with your brokers a sum of money, as a rule 10 per cent. of the par value of a stock, as security against failure to meet losses.
To buy “long” is the equivalent of our term “bull.”
To sell “short” is the equivalent of our term “bear.”
To “corner” a stock is to purchase all that can be obtained and make it very scarce, and also more than can be obtained, in order to run the price up, and “roast,” as the saying is in the London market, the speculative sellers; but the “cornering,” as we understand the meaning of the word, would seem to apply more to the speculative sellers who are “roasted” than to the stock which may be selected for the operation.
“Clique,” “pool,” or “ring” are less expressive, and in consequence of other associations, are less happy terms than our equivalent syndicate, which in English financial circles can be mistaken for nothing else than a combination of speculative capitalists which is formed either to divide a loan amongst them and unload their portions upon the public as opportunities may occur, or to “wash” a stock up and down, getting what they can out of the unwary public during the operation. Gold “rings” on the other side of the Atlantic, and foreign loan syndicates on this, must by this time almost have had their day. Each newera of prosperity requires and generally witnesses a new set of ingenious devices to throw dust in the eyes of investors, while the new race of Autolycuses are going through all the old tricks.
In London, settlements take place twice a month, but in Broad Street sales are made for either cash or “regular.” In the first case purchases have to be settled the same day before 2.15P.M., and in the second on the following day. Time contracts correspond to our time bargains, and have about the same conditions attaching to them, with the exception that the rate of interest charged, answering to our contango, is generally 6 per cent., unless otherwise stipulated, and is not influenced by a varying standard such as our Bank rate.
The word “shrinkage” for depreciation is a neat term with which the small catalogue may be euphoniously terminated.
The Temper of the Public.
If a speculator has not closely studied the special causes that influence the Stock markets at regularly recurring intervals, he has not learned the alphabet of his business. We shall endeavour to pass in review some of these. First of all, there is the temper of the public. Many persons have puzzled over the causes which will at one time combine to produce activity among buyers of stocks, and at another dead stagnation; and it is a very interesting study, albeit somewhat difficult of correct analysis.
Meteorological Influences.
There are periods of the year when the temper of investors tends to sulkiness, in sympathy with a fall of the mercury. Dull and disagreeable weather, as a rule, adversely affects the Stock markets more or less, according to the extent of counteracting influences. If we take the beginning of a year, in January investors will usually be found in a conservative frame of mind, with which speculators will sympathise as they perceive it; for it may safely be said that unless the public can be calculated upon to follow their lead, it is useless for professional speculators to stir up the markets. In the firstmonth of the year capitalists are in more or less of a stay-at-home mood; and now so many buyers of securities live on a line of railway, they take as many holidays as they can well find excuse for.[20]
A speculator should have a good aneroid barometer, that has a good big indicator, hung up in his hall, and he would not be very far wrong if he were to buy and sell according to the indications given by this instrument that it was going to be good or bad weather. Most people are like any one you may chance to single out of a crowd, from a physical point of view.[21]The change from fair to foul weather will have the same effect upon a crowd as upon that one man. Foggy, wet, and cheerless weather sends people to their homes with a contented mind, if they feel they can hold their own until the return of sunshine; just as a storm causes navigators to run for a harbour, or seek the nearest shelter from its fury. When buyers keep away from the markets, prices droop with their own weight, and, from the mere absence of any buying at all, will often fall as regards value, out of all proportion to the extent of the sales. Such a period is a very good one to turn round and buy, as there is sure to be a nearly corresponding recovery with a favourable change in the weather.
A Favourable Period of the Year.
Unless there are special causes at work, during the first month of the year the Stock markets areusually as hard and inelastic as the frozen earth outside. At Christmas-time people make up their accounts for the year, and most of them, having gained less than the total pictured by their imagination, are more or less out of humour, and disinclined to enter upon commitments outside the limits of their business proper. At such a period, therefore, a speculator may look for fluctuations which as a rule will not occur. As February creeps on, if circumstances are generally favourable for trade, so that the newspapers can dish up their daily fare with sauces that encourage their readers to look on the future with hopefulness, losses that are written off will begin to assume less harrowing proportions, and the old inclination to launch out will come to the front.[22]The professional speculative element in the community sniffs this movement on the part of the public with the accuracy of a pointer that has found his bird, and they commence to draw the credulous by fictitious prices, now and then unloading to be ready when the relapse comes, to commence anew when another favourable opportunity offers. As the spring comes in, with its delights and young verdure, and cheering early sun-rays, which draw the notes of the lark and the linnet, the disposition becomes more general to disregard those strict lines of prudence which the bleak winds of autumn and the shorter days of an aging year, mark out so prominently for observation. At a period of the year when spring is merging in early summer, with all its pleasant prospects of pleasure tocome, it is quite natural to suppose that a desire should arise to make money, by which everything could be made smooth and delightful during the most enjoyable part of the year. Then again, as the half-year wears on, there are the dividends to look forward to, which is always an inducement to buyers; the great cities are filling with pleasure seekers, the import and export trade with foreign climes is in full activity after the liberation of whole fleets of vessels which have lain frozen up in northern parts during the winter. The young corn is beginning to clothe the naked furrow, and the various fruits of the earth are appearing, which only to read and hear of is to fill the eye with a sense of plenty that half converts a Tory Stock Exchange operator into an ultra-radical speculator. Under fairly favourable circumstances, the course of general business during the first half of the year is more active than during the second six months. The Parliamentary session is in full swing, and large numbers of people congregate in the capital towns of all European states to transact business, no small part of which is the investment of their surplus profits in public securities. When a new year is fairly on its legs, say in March, if war or such like causes do not interfere with the natural course of events, between that month and the end of June, a speculator for the rise should find, on an average, his greatest opportunities. In the London market more especially is it so, on account of the effect produced on the money market by the collection of the revenue, which always keeps the Bank of England’s reserve at a comparatively higher figure during the period named, a circumstance of considerableimportance. In the first half of the year also there is more floating capital spread out, and more disposition to extend credit to catch the profits that are to be gathered when the nations of the earth are enticed into activity and movement, both for business and pleasure, by genial weather and long days.
Causes affecting the Value of English Railway Stocks.
As regards some stocks, there will be no need to make a special study of causes which affect the dividend; but this is not the case with railway stocks. A speculator in railway stocks must watch the course of trade, the colonial produce, the Manchester and Liverpool markets, and note the character of the business doing in the great staples of Industry. Upon the profitable nature of these trades depend very much the traffic receipts of railways. A speculator devoting his attention especially to railway stocks will, of course, analyze the reports of the various companies, carefully noting the weekly published traffic receipts. Then, again, there are the northern iron and coal districts, the operations in which affect the price of railway stocks in two ways which are obvious. A speculator who operates solely in railway stocks should be posted from hour to hour in such matters, or he will be assuredly “hung up,” as the saying is, with stock on which he has made a loss.
The Course to pursue at the Turn of the Half-year.
Whether there be any more rise or not left in public securities as a body after the turn of the half-year,—we are speaking from a bull point of view, as that is the way in which the public, in ninety-nine cases out of a hundred, operate,—we should always recommend a speculator to pack up his traps and go right away, whether he has won or lost on balance. If he has lost, which will probablybe the case, there is all the more reason for not continuing, for he is as certain then as the day dawns, to increase it by going in heavily, or “plunging,” as it is termed. If he retires from the scene, and permits his nerves to recover, he will return to be “cleaned” out in a more wholesome frame of mind, which will enable him finally to quit such haunts without probably resorting to such desperate measures as might have been adopted, had his coffers been emptied all at once under a July sun.
At all events, the most methodical and prudent speculator, who manages to amuse himself, and by extreme care, like good whist players, leaves off at the end of six months about even, would not dispute the wisdom of closing his book when all the world was going away for their holidays.
Second Half of the Year more Favourable for Bear Operations.
As the first half of the year is favourable for the bull speculator, so the second half is more likely to favour the operations of the bear. When people have had their outing and spent their money, they return to business, and to think of the necessity of prudently providing the comforts needful in the chilly autumn and cold winter. Business begins to slacken in many important branches with the approach of that period of the year when the days and nights come to be of equal length all over the earth, except just under the pole. There may be a good deal of money about at such periods, and yet very little investment business going on in the stock markets. It should be remembered that large extra accumulations of money at the great centres very often mean, in fact, generally, an unprofitable state of trade; and when the foreign shipments leave no profit, from the great merchantprinces down through every link in the chain to the labourer at thirty shillings a week, the effect is felt, and there being no profits, there is obviously nothing in the shape of surplus gain to invest. On the contrary, most people wish to sell. In the later months of the year locomotion for nearly all purposes begins to diminish both as regards business and pleasure, which affects the receipts of the railway companies. If there should have been a bountiful harvest, an important favourable influence may thus be exercised; but even as regards this, it has been evident for many years past that the harvest question in England is of comparatively diminishing importance, and there is every prospect that much of the land now under corn will return by degrees to its primitive state, and will pay better as pasture for fattening beasts.[23]
As we spoke of the Bank of England becoming temporarily rich, by the accumulation of revenue early in the year, so it becomes, as a rule, poor in the autumn. People are getting more used to this ebb and flow in Threadneedle Street, and the trouble it caused when Mr. Lowe first begun experimenting is not now experienced to the same extent; but still it is one of the elements which is disadvantageous, and to be kept in view by the speculator as a regularly recurring adverse influence.
It is, of course, of the last importance to keep a watch over the foreign exchanges, as these are affected more or less at certain periods when the imports and exports of special kinds of produce and manufactures are active.
Other influences which occur with machine-likeregularity will be referred to as occasion may require, and we now proceed to go more into detail.
Activity among Buyers.
The Bull Speculator’s Great Chance.
The great Importance of being now and again altogether clear of the Markets.
The Movement of Prices near the Settlements.
We will take activity among buyers:—It is clear that active buying in any market arises from a strong demand from persons who desire to purchase for reasons known to themselves. A strongbona fidedemand for securities means that the public is making money, as they do not enter the Stock markets asbona fidepurchasers, unless they have surplus monies which they desire to invest and put by in the form of savings. Now, a speculator who is watching for an opportunity to buy should keep in view one set of circumstances as favourable to his operations in the same way that a seller should watch for an opposite combination of causes as favourable for speculative sales. A bull speculator should know that his great opportunity occurs after securities generally have been driven down in price by a severe commercial crisis, which has compelled holders of stocks upon a large scale to realize. In other words, when prosperity is beginning to revive after a prolonged stagnation, and the prices of stocks are very low, the bull speculator’s great chance occurs. When the great industries of a nation seem to rise as from the grave, and where lifelessness and inactivity ruled before the blows of the hammer resound and the blast furnace roars, a new life springs through the arteries of the commercial system, and the result is a rise in public securities. The solid rise in the price of stocks is that caused by the hard money-buying by a public that is well to do. At such a time the bull speculator should be in the van, for then the golden harvest prepared for his special sickle invitesthe reaper. Every trade gets its turn to a certainty. We will say, during a period of prosperity, a general recovery of the sounder stocks to a level at which they yield on the money invested 4½ per cent. per annum, takes two years from the time the advance had fairly set in. During that two years is the bull speculator’s opportunity. If he does not make money then, he never will. Now we come more to the minutiæ: “Any jackass can take a profit, but it requires a devilish clever fellow to cut a loss,” is a well-worn expression in the city of London, but there never was a truer one. During the two years of recovery in prices to which we have referred, there will be a great number of small periods of time when the bull speculator should be out of the markets altogether. To decide when those periods are to be is hispons asinorum. After he has once realized the importance of having his accounts open ready for the periodical waves to carry him in and land his profit, the difficulty is to get him to realize the importance of keeping out while the water sweeps back, carrying with it the greedy speculators, who were not content to take their profits. After every great rise comes a fall, and the secret of such success as is possible lies in the buyer getting out at or near the top and in again at the bottom. It is obvious that a speculator must watch for the ever-changing circumstances to reveal themselves and act accordingly. We will suppose nothing extraordinary happens, such as a war, famine, or pestilence, but that the influences during the two years are of the ordinary type. There are the settlements. As a fortnightly settlement approaches, prices as a rule move more or less in anopposite direction to that which they have taken for some days previous, the extent being in proportion to the foregoing movement. For instance, if for the first week of an account prices have fallen heavily for some reason, such as a sharp bullion drain and a sudden rise in the value of money, there will almost to a certainty be a recovery, because a heavy fall is generally occasioned largely by bear speculators, who will begin to buy back as the account approaches, causing a recovery in values. If a speculator, therefore, is out of the markets when a fall is taking place, he is almost sure to make money by buying at the reduced figures as an account approaches.[24]
Then among minor influences, which are regularly recurring, are the “drawings” attached to most foreign stocks, and to all that have been issued for many years past. When a drawing approaches, other things not being unfavourable, there will probably be some buying for the chance of getting a bond or two drawn, and the price will improve.[25]
A man who wins by haphazard speculation, who chances to operate successfully until he has filled his pockets, and retires with his gains from so fascinating an arena, is one in a hundred. Any one who knows anything of Stock Exchange speculation will confirm the statement that, to the ordinary run of men, the game is not worth the candle. There are, however, conditions under which speculation, in a market where ten or fifty thousand pounds can be lost in half-an-hour, may, under given conditions, be systematically practised profitably. First, and most important perhaps of all these conditions, is the temperament of the speculator, upon which we propose to speak in this chapter.
Cool-headedness an Indispensable Condition of Success.
A man who is excitable and easily led away from a set purpose will, if he go deep into speculation, be soon involved in hopeless ruin. A method of proceeding that has been formed by a careful judgment which has provided for all contingencies, once adopted, should be adhered to as a rule. To be able to followthis advice it is necessary that a speculator should possess a coolness that is not affected by the excitement into which others are thrown by unexpected events; that he should cultivate the art of concealing the dissatisfaction felt on sustaining a loss, which is read at once in the face of a nervous or excitable man; and that he should have the power of calling forth emotions which are the opposite of those commonly manifested under given circumstances. In speaking of the conditions under which speculation may be successfully pursued as a business, it must be understood that we are referring to the one man in the hundred—the professional operator—who will frequently in the elaboration of his arrangements find it necessary to be in the markets himself, gaining what advantage he can by personally dealing either as a jobber or a broker. It is obvious that, when a man enters a market with a view to doing business, his object is to transact it upon the most favourable terms for himself. He confronts those who are prepared to deal with him either way, that is, to buy or to sell. According as he “opens” to the dealers, or, in other words, indicates what he wants to do, the dealers will make their prices. If he be a buyer, they will try to get him to pay as high price as possible andvice versa. His business therefore, if he be really a buyer, is to try to look as if he were a seller. He may enter the market under a variety of influences. He may know from private sources, for certain, that a stock is about to improve much, and he may intend to buy as much as he can get at a fixed limit as regards price. If he is anxious to operate largely, and possess but a poor control over his countenance, theprobabilities are that he will be read at once, and the market be immediately raised above his limit if he attempt to buy any considerable sum. In the same way, if being a broker, he is instructed to get a client out of a large amount of stock for any particular reason, the suspicion of which he is not able to conceal, the price will be lowered to him in an instant, unless it be an easy market to deal in, or by chance an opposite influence springs up at the moment to improve the price.
Ninety-nine men out of a hundred when they are made stock-brokers are comparatively young, who make a start for themselves after having been many years clerks. These men are eager for profit, and commence at once to go through a course of training which daily saps from their physical powers the very element upon which a cool temperament rests. The hurry-scurry, wear and tear strain upon the nerves which is involved in running from one client to another for orders, deprives a man by degrees of those qualities, if he ever possessed them, which are indispensable to the professional speculator. A man whose daily bread for his wife and family depends upon the execution of a certain amount of business, must of necessity manifest some degree of eagerness to do the business intrusted to him, and that eagerness keeps up a strain upon the nerves, and through them upon his physical powers, which weakens the capacity of forming very rapidly a correct judgment, and renders the intelligence liable to become confused under circumstances when to lose the head for a moment may involve a certain loss of money. Professional speculators are consequently very seldom men engaged in the business of dealingin stocks and shares for others, as the kind of labour is incompatible with the maintenance of the cool temperament which is necessary to success.