The Theory of Stock Exchange Speculation

by Arthur Crump

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 first month 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 are usually 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 to come, 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 considerable importance. 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.