But stocks still go down.[down.] Then it is said that some big dealer is “unloading” and there is talk of a “crash.” Still our men who started in but to make a “fair profit” do not feel like taking thousands, when they might a short time before have taken tens of thousands of dollars. They still hold on, saying that even though one or two big dealers are unloading, the big men among the bulls will “stand in” and take all the stocks that are offered. Also, they will have some points from a friend “on the inside” and developments are about to be made in one or two of the mines that will make all who have sold “very sick” particularly those bloodless demons who have “sold short.” The “shorts” will have a merry time of it when they come to “fill.”
Thus matters stand, when suddenly there comes what looks very much like the beginning of a “crash.” The “bears” are all diligently crying, “stand from under.” Many persons become frightened, and throw their stocks upon the market. Down go prices and soon “soft” is no name for it. The masses—the tinker and tailor, the preacher and the teacher, the hostler and the waiter—rush in to try to “save themselves” and there is seen a grand and unmistakeable crash. Brokers are calling on all sides for “margins” to be “made good,” and men are rushing about trying to raise money to “put up” in order to prevent their stocks being sold at less than cost.
They perhaps raise the money required, and for a few days breathe again, when there is a further decline in stocks, and the brokers are again sending notes to their customers telling them that if they do not put up more money they will be sold out. Sooner or later there comes a time when the customer can raise no more money, and his stocks are thrown into the market by the broker—in whose hands they remain—and are sold. Thus ends the grand speculation.
Our men, who at the start were resolved to be content with a fair profit are generally found among the number of those who are sold out, when they are heard to say that if they ever have another such chance to make money they will not hold on for the last cent. They have said the same thing year after year ever since the opening of the Comstock mines. But whenever there is a grand upward movement in stocks they never fail to become excited and try to buy about ten times as much stock as they can pay for. In this way they lose all except what they may have happened to purchase at a fair price in a mine of real merit.
Persons who purchase mining-stocks on a “margin” pay their broker, as a rule, one-half the market value of the stock so bought. The other half is advanced by the broker, the customer paying him interest on the amount at the rate of two per cent. per month. The broker also receives one per cent commission on all sales and purchases made for the customer. Stocks are nearly always bought and sold in the San Francisco Stock Board, the broker in Virginia City telegraphing to his agent “at the Bay” to buy or sell such a number of shares of a certain stock, and the bill for this telegraphing is paid by the customer.
In case of a decline in the price of the stock purchased, the customer must pay in to the broker enough money to make him secure for the amount he has advanced, taking into account the current price of the stock. Should there be a further[further] and continued decline, the customer must continue to put up money, in order to make his broker safe. If he is unable to do this his broker sells him out—i. e. takes care of “number one.”
From this it will be seen that the broker who does a strictly commission business—who is not himself a dabbler in stocks—makes a very soft thing out of it. Sometimes, however, stocks drop so rapidly that the broker cannot sell in time to save himself. This is generally when the customer has been allowed to buy stock on the presumed value of the stocks he already has in the hands of his broker, putting up stocks that have advanced at their current value as a margin on which to purchase still other stocks, and so running his purchases up on the compound-interest principle.
When a broker calls for money to make margins good, “mud” is the slang word used among dealers in stocks, by which to designate the money so demanded. One frequently hears a man who is a dabbler in stocks cursing his luck, the condition of the market, and all else, concluding with: “And here is my broker calling for more mud!” When the reports of the sales of stocks are received from San Francisco and prices are a “little off,” one hears some person who has read the news sing out: “More mud, boys!”
The demand for “mud” often causes very long faces to be seen on the streets—to many it means ruin. Yet men will continue to buy on margins, taking all the chances, and stretching what ready-money they have as far as the broker will allow them to go. Provided men buy on a margin at a time when stocks are very low and then shortly after comes a grand excitement, they are liable to make a little fortune with a very small amount of capital, but to buy in this way at a time when everything is high is dangerous business and the demands for “mud” are likely to be very numerous.
The following letter received in Virginia City, from a Frenchman, in San Francisco, shows how he first became acquainted with this dreadful word, “mud” and how he relished the thing itself: