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 strong bona fide demand for securities means that the public is making money, as they do not enter the Stock markets as bona fide purchasers, 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 invites the 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 his pons 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 an opposite 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]
CHAPTER III.
THE RIGHT TEMPERAMENT FOR A PROFESSIONAL SPECULATOR.
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 follow this 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 and vice 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, the probabilities 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 dealing in stocks and shares for others, as the kind of labour is incompatible with the maintenance of the cool temperament which is necessary to success.