All I had in the world was up as margin in Harding’s office. I was neither cheered nor made stubborn by the knowledge of that fact. What was plain was that I had read the tape accurately and that I had been a ninny to let Ed Harding shake my own resolution. There was no sense in recriminations, because I had no time to lose; and besides, what’s done is done. So I gave an order to take in my shorts. The stock was around 165 when I sent in that order to buy in the four thousand UP. at the market. I had a three-point loss on it at that figure. Well, my brokers paid 172 and 174 for some of it before they were through. I found when I got my reports that Ed Harding’s kindly intentioned interference cost me forty thousand dollars. A low price for a man to pay for not having the courage of his own convictions! It was a cheap lesson.
I wasn’t worried, because the tape said still higher prices. It was an unusual move and there were no precedents for the action of the directors, but I did this time what I thought I ought to do. As soon as I had given the first order to buy four thousand shares to cover my shorts I decided to profit by what the tape indicated and so I went along. I bought four thousand shares and held that stock until the next morning. Then I got out. I not only made up the forty thousand dollars I had lost but about fifteen thousand besides. If Ed Harding hadn’t tried to save me money I’d have made a killing. But he did me a very great service, for it was the lesson of that episode that, I firmly believe, completed my education as a trader.
It was not that all I needed to learn was not to take tips but follow my own inclination. It was that I gained confidence in myself and I was able finally to shake off the old method of trading. That Saratoga experience was my last haphazard, hit-or-miss operation. From then on I began to think of basic conditions instead of individual stocks. I promoted myself to a higher grade in the hard school of speculation. It was a long and difficult step to take.
VII
I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up. I don’t mean of course that in a bear market caused by a war, ammunition shares do not go up. I speak in a general sense. But the average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.
Well, I wasn’t that lazy, but I found it easier to think of individual stocks than of the general market and therefore of individual fluctuations rather than of general movements. I had to change and I did.
People don’t seem to grasp easily the fundamentals of stock trading. I have often said that to buy on a rising market is the most comfortable way of buying stocks. Now, the point is not so much to buy as cheap as possible or go short at top prices, but to buy or sell at the right time. When I am bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on rising scale. I don’t buy long stock on a scale down, I buy on a scale up.
Let us suppose, for example, that I am buying some stock. I’ll buy two thousand shares at 110. If the stock goes up to 111 after I buy it I am, at least temporarily, right in my operation, because it is a point higher; it shows me a profit. Well, because I am right I go in and buy another two thousand shares. If the market is still rising I buy a third lot of two thousand shares. Say the price goes up to 114. I think it is enough for the time being. I now have a trading basis to work from. I am long six thousand shares at an average of 111¾, and the stock is selling at 114. I won’t buy any more just then. I wait and see. I figure that at some stage of the rise there is going to be a reaction. I want to see how the market takes care of itself after that reaction. It will probably react to where I got my third lot. Say that after going higher it falls back to 112¼, and then rallies. Well, just as it goes back to 113¾ I shoot an order to buy four thousand—at the market of course. Well, if I get that four thousand at 113¾ I know something is wrong and I’ll give a testing order—that is, I’ll sell one thousand shares to see how the market takes it. But suppose that of the order to buy the four thousand shares that I put in when the price was 113¾ I get two thousand at 114 and five hundred at 114½ and the rest on the way up so that for the last five hundred I pay 115½. Then I know I am right. It is the way I get the four thousand shares that tells me whether I am right in buying that particular stock at that particular time—for of course I am working on the assumption that I have checked up general conditions pretty well and they are bullish. I never want to buy stocks too cheap or too easily.
I remember a story I heard about Deacon S. V. White when he was one of the big operators of the Street. He was a very fine old man, clever as they make them, and brave. He did some wonderful things in his day, from all I’ve heard.