Fiction writers, clergymen and women are fond of alluding to the floor of the Stock Exchange as a boodlers’ battlefield and to Wall Street’s daily business as a fight. It is quite dramatic but utterly misleading. I do not think that my business is strife and contest. I never fight either individuals or speculative cliques. I merely differ in opinion—that is, in my reading of basic conditions. What playwrights call battles of business are not fights between human beings. They are merely tests of business vision. I try to stick to facts and facts only, and govern my actions accordingly. That is Bernard M. Baruch’s recipe for success in wealth-winning. Sometimes I do not see the facts—all the facts—clearly enough or early enough; or else I do not reason logically. Whenever any of these things happen I lose. I am wrong. And it always costs me money to be wrong.
No reasonable man objects to paying for his mistakes. There are no preferred creditors in mistake-making and no exceptions or exemptions. But I object to losing money when I am right. I do not mean, either, those deals that have cost me money because of sudden changes in the rules of some particular exchange. I have in mind certain hazards of speculation that from time to time remind a man that no profit should be counted safe until it is deposited in your bank to your credit.
After the Great War broke out in Europe there began the rise in the prices of commodities that was to be expected. It was as easy to foresee that as to foresee war inflation. Of course the general advance continued as the war prolonged itself. As you may remember, I was busy “coming back” in 1915. The boom in stocks was there and it was my duty to utilise it. My safest, easiest and quickest big play was in the stock market, and I was lucky, as you know.
By July, 1917, I not only had been able to pay off all my debts but was quite a little to the good besides. This meant that I now had the time, the money and the inclination to consider trading in commodities as well as in stocks. For many years I have made it my practice to study all the markets. The advance in commodity prices over the pre-war level ranged from 100 to 400 per cent. There was only one exception, and that was coffee. Of course there was a reason for this. The breaking out of the war meant the closing up of European markets and huge cargoes were sent to this country, which was the one big market. That led in time to an enormous surplus of raw coffee here, and that, in turn, kept the price low. Why, when I first began to consider its speculative possibilities coffee was actually selling below pre-war prices. If the reasons for this anomaly were plain, no less plain was it that the active and increasingly efficient operation by the German and Austrian submarines must mean an appalling reduction in the number of ships available for commercial purposes. This eventually in turn must lead to dwindling imports of coffee. With reduced receipts and an unchanged consumption the surplus stocks must be absorbed, and when that happened the price of coffee must do what the prices of all other commodities had done, which was, go way up.
It didn’t require a Sherlock Holmes to size up the situation. Why everybody did not buy coffee I cannot tell you. When I decided to buy it I did not consider it a speculation. It was much more of an investment. I knew it would take time to cash in, but I knew also that it was bound to yield a good profit. That made it a conservative investment operation—a banker’s act rather than a gambler’s play.
I started my buying operations in the winter of 1917. I took quite a lot of coffee. The market, however, did nothing to speak of. It continued inactive and as for the price, it did not go up as I had expected. The outcome of it all was that I simply carried my line to no purpose for nine long months. My contracts expired then and I sold out all my options. I took a whopping big loss on that deal and yet I was sure my views were sound. I had been clearly wrong in the matter of time, but I was confident that coffee must advance as all commodities had done, so that no sooner had I sold out my line than I started in to buy again. I bought three times as much coffee as I had so unprofitably carried during those nine disappointing months. Of course I bought deferred options—for as long a time as I could get.
I was not so wrong now. As soon as I had taken on my trebled line the market began to go up. People everywhere seemed to realise all of a sudden what was bound to happen in the coffee market. It began to look as if my investment was going to return me a mighty good rate of interest.
The sellers of the contracts I held were roasters, mostly of German names and affiliations, who had bought the coffee in Brazil confidently expecting to bring it to this country. But there were no ships to bring it, and presently they found themselves in the uncomfortable position of having no end of coffee down there and being heavily short of it to me up here.
Please bear in mind that I first became bullish on coffee while the price was practically at a pre-war level, and don’t forget that after I bought it I carried it the greater part of a year and then took a big loss on it. The punishment for being wrong is to lose money. The reward for being right is to make money. Being clearly right and carrying a big line, I was justified in expecting to make a killing. It would not take much of an advance to make my profit satisfactory to me, for I was carrying several hundred thousand bags. I don’t like to talk about my operations in figures because sometimes they sound rather formidable and people might think I was boasting. As a matter of fact I trade in accordance to my means and always leave myself an ample margin of safety. In this instance I was conservative enough. The reason I bought options so freely was because I couldn’t see how I could lose. Conditions were in my favour. I had been made to wait a year, but now I was going to be paid both for my waiting and for being right. I could see the profit coming—fast. There wasn’t any cleverness about it. It was simply that I wasn’t blind.
Coming sure and fast, that profit of millions! But it never reached me. No; it wasn’t side-tracked by a sudden change in conditions. The market did not experience an abrupt reversal of form. Coffee did not pour into the country. What happened? The unexpectable! What had never happened in anybody’s experience; what I therefore had no reason to guard against. I added a new one to the long list of hazards of speculation that I must always keep before me. It was simply that the fellows who had sold me the coffee, the shorts, knew what was in store for them, and in their efforts to squirm out of the position into which they had sold themselves, devised a new way of welshing. They rushed to Washington for help, and got it.