Reminiscences of a Stock Operator

by Edwin Lefevre

Of course, the chances are that I know about the stock and what it represents. It is my business to know. That is how I make my living. My visitor tells me what he and his associates wish to do, and asks me to undertake the deal.

It is then my turn to talk. I ask for whatever information I deem necessary to give me a clear understanding of what I am asked to undertake. I determine the value and estimate the market possibilities of that stock. That and my reading of current conditions in turn help me to gauge the likelihood of success for the proposed operation.

If my information inclines me to a favourable view I accept the proposition and tell him then and there what my terms will be for my services. If he in turn accepts my terms—the honorarium and the conditions—I begin my work at once.

I generally ask and receive calls on a block of stock. I insist upon graduated calls as the fairest to all concerned. The price of the call begins at a little below the prevailing market price and goes up; say, for example, that I get calls on one hundred thousand shares and the stock is quoted at 40. I begin with a call for some thousands of shares at 35, another at 37, another at 40, and at 45 and 50, and so on up to 75 or 80.

If as the result of my professional work—my manipulation—the price goes up, and if at the highest level there is a good demand for the stock so that I can sell fair-sized blocks of it I of course call the stock. I am making money; but so are my clients making money. This is as it should be. If my skill is what they are paying for they ought to get value. Of course, there are times when a pool may be wound up at a loss, but that is seldom, for I do not undertake the work unless I see my way clear to a profit. This year I was not so fortunate in one or two deals, and I did not make a profit. There are reasons, but that is another story, to be told later—perhaps.

The first step in a bull movement in a stock is to advertise the fact that there is a bull movement on. Sounds silly, doesn’t it? Well, think a moment. It isn’t as silly as it sounded, is it? The most effective way to advertise what, in effect, are your honourable intentions is to make the stock active and strong. After all is said and done, the greatest publicity agent in the wide world is the ticker, and by far the best advertising medium is the tape. I do not need to put out any literature for my clients. I do not have to inform the daily press as to the value of the stock or to work the financial reviews for notices about the company’s prospects. Neither do I have to get a following. I accomplish all these highly desirable things by merely making the stock active. When there is activity there is a synchronous demand for explanations; and that means, of course, that the necessary reasons—for publication—supply themselves without the slightest aid from me.

Activity is all that the floor traders ask. They will buy or sell any stock at any level if only there is a free market for it. They will deal in thousands of shares wherever they see activity, and their aggregate capacity is considerable. It necessarily happens that they constitute the manipulator’s first crop of buyers. They will follow you all the way up and they thus are a great help at all the stages of the operation. I understand that James R. Keene used habitually to employ the most active of the room traders, both to conceal the source of the manipulation and also because he knew that they were by far the best business-spreaders and tip-distributors. He often gave calls to them—verbal calls—above the market, so that they might do some helpful work before they could cash in. He made them earn their profit. To get a professional following I myself have never had to do more than to make a stock active. Traders don’t ask for more. It is well, of course, to remember that these professionals on the floor of the Exchange buy stocks with the intention of selling them at a profit. They do not insist on its being a big profit; but it must be a quick profit.

I make the stock active in order to draw the attention of speculators to it, for the reasons I have given. I buy it and I sell it and the traders follow suit. The selling pressure is not apt to be strong where a man has as much speculatively held stock sewed up—in calls—as I insist on having. The buying, therefore, prevails over the selling, and the public follows the lead not so much of the manipulator as of the room traders. It comes in as a buyer. This highly desirable demand I fill—that is, I sell stock on balance. If the demand is what it ought to be it will absorb more than the amount of stock I was compelled to accumulate in the earlier stages of the manipulation; and when this happens I sell the stock short—that is, technically. In other words, I sell more stock than I actually hold. It is perfectly safe for me to do so since I am really selling against my calls. Of course, when the demand from the public slackens, the stock ceases to advance. Then I wait.

Say, then, that the stock has ceased to advance. There comes a weak day. The entire market may develop a reactionary tendency or some sharp-eyed trader may perceive that there are no buying orders to speak of in my stock, and he sells it, and his fellows follow. Whatever the reason may be, my stock starts to go down. Well, I begin to buy it. I give it the support that a stock ought to have if it is in good odour with its own sponsors. And more: I am able to support it without accumulating it—that is, without increasing the amount I shall have to sell later on. Observe that I do this without decreasing my financial resources. Of course what I am really doing is covering stock I sold short at higher prices when the demand from the public or from the traders or from both enabled me to do it. It is always well to make it plain to the traders—and to the public, also—that there is a demand for the stock on the way down. That tends to check both reckless short selling by the professionals and liquidation by frightened holders—which is the selling you usually see when a stock gets weaker and weaker, which in turn is what a stock does when it is not supported. These covering purchases of mine constitute what I call the stabilising process.

As the market broadens I of course sell stock on the way up, but never enough to check the rise. This is in strict accordance with my stabilising plans. It is obvious that the more stock I sell on a reasonable and orderly advance the more I encourage the conservative speculators, who are more numerous than the reckless room traders; and in addition the more support I shall be able to give to the stock on the inevitable weak days. By always being short I always am in a position to support the stock without danger to myself. As a rule I begin my selling at a price that will show me a profit. But I often sell without having a profit, simply to create or to increase what I may call my riskless buying power. My business is not alone to put up the price or to sell a big block of stock for a client but to make money for myself. That is why I do not ask my clients to finance my operations. My fee is contingent upon my success.