Reminiscences of a Stock Operator

by Edwin Lefevre

All this was so evident from the first that little or no manipulation for the rise was needed. That was the reason why the preliminary work was so much less than in other bull markets. And not only was the war-bride boom more naturally developed than all others but it proved unprecedentedly profitable for the general public. That is, the stock-market winnings during 1915 were more widely distributed than in any other boom in the history of Wall Street. That the public did not turn all their paper profits into good hard cash or that they did not long keep what profits they actually took was merely history repeating itself. Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.

I went along with the rise in 1916. I was as bullish as the next man, but of course I kept my eyes open. I knew, as everybody did, that there must be an end, and I was on the watch for warning signals. I wasn’t particularly interested in guessing from which quarter the tip would come and so I didn’t stare at just one spot. I was not, and I never have felt that I was, wedded indissolubly to one or the other side of the market. That a bull market has added to my bank account or a bear market has been particularly generous I do not consider sufficient reason for sticking to the bull or the bear side after I receive the get-out warning. A man does not swear eternal allegiance to either the bull or the bear side. His concern lies with being right.

And there is another thing to remember, and that is that a market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal of form. A market can and does often cease to be a bull market long before prices generally begin to break. My long expected warning came to me when I noticed that, one after another, those stocks which had been the leaders of the market reacted several points from the top and—for the first time in many months—did not come back. Their race evidently was run, and that clearly necessitated a change in my trading tactics.

It was simple enough. In a bull market the trend of prices, of course, is decidedly and definitely upward. Therefore whenever a stock goes against the general trend you are justified in assuming that there is something wrong with that particular stock. It is enough for the experienced trader to perceive that something is wrong. He must not expect the tape to become a lecturer. His job is to listen for it to say “Get out!” and not wait for it to submit a legal brief for approval.

As I said before, I noticed that stocks which had been the leaders of the wonderful advance had ceased to advance. They dropped six or seven points and stayed there. At the same time the rest of the market kept on advancing under new standard bearers. Since nothing wrong had developed with the companies themselves, the reason had to be sought elsewhere. Those stocks had gone with the current for months. When they ceased to do so, though the bull tide was still running strong, it meant that for those particular stocks the bull market was over. For the rest of the list the tendency was still decidedly upward.

There was no need to be perplexed into inactivity, for there were really no cross currents. I did not turn bearish on the market then, because the tape didn’t tell me to do so. The end of the bull market had not come, though it was within hailing distance. Pending its arrival there was still bull money to be made. Such being the case, I merely turned bearish on the stocks which had stopped advancing and as the rest of the market had rising power behind it I both bought and sold.

The leaders that had ceased to lead I sold. I put out a short line of five thousand shares in each of them; and then I went long of the new leaders. The stocks I was short of didn’t do much, but my long stocks kept on rising. When finally these in turn ceased to advance I sold them out and went short—five thousand shares of each. By this time I was more bearish than bullish, because obviously the next big money was going to be made on the down side. While I felt certain that the bear market had really begun before the bull market had really ended, I knew the time for being a rampant bear was not yet. There was no sense in being more royalist than the king; especially in being so too soon. The tape merely said that patrolling parties from the main bear army had dashed by. Time to get ready.

I kept on both buying and selling until after about a month’s trading I had out a short line of sixty thousand shares—five thousand shares each in a dozen different stocks which earlier in the year had been the public’s favourites because they had been the leaders of the great bull market. It was not a very heavy line; but don’t forget that neither was the market definitely bearish.

Then one day the entire market became quite weak and prices of all stocks began to fall. When I had a profit of at least four points in each and every one of the twelve stocks that I was short of, I knew that I was right. The tape told me it was now safe to be bearish, so I promptly doubled up.

I had my position. I was short of stocks in a market that now was plainly a bear market. There wasn’t any need for me to push things along. The market was bound to go my way, and, knowing that, I could afford to wait. After I doubled up I didn’t make another trade for a long time. About seven weeks after I put out my full line, we had the famous “leak,” and stocks broke badly. It was said that somebody had advance news from Washington that President Wilson was going to issue a message that would bring back the dove of peace to Europe in a hurry. Of course the war-bride boom was started and kept up by the World War, and peace was a bear item. When one of the cleverest traders on the floor was accused of profiting by advance information he simply said he had sold stocks not on any news but because he considered that the bull market was overripe. I myself had doubled my line of shorts seven weeks before.