EVEN THE STOCK MARKET HAS ITS
FARCICAL SIDE
Some of the stock market philosophies and inventions are quite amusing to the unsophisticated onlooker. When the Amalgamated Copper Company and the Anaconda Copper Company were under separate management a clique of traders became interested in advancing the market price of the latter stock, and forthwith the tipsters and rumor-mongers circulated a report that Amalgamated was buying Anaconda for control. This device proved a profitable asset for the pool members, who were thereby enabled to sell out their holdings at much higher prices. When this was accomplished and the story had become threadbare, another ingenious story was circulated, to the effect that the Anaconda Company was now seeking control of Amalgamated, whereupon that stock in its turn became the favorite of traders, who succeeded in lifting the price high enough to let the pool unload its holdings at a handsome profit. While these two monster companies were performing the act of trying to swallow each other the traders greatly enjoyed the comedy, in consideration of which they contributed generously toward swelling the purses of the promoters. The final outcome was that the great Anaconda succeeded in devouring its competitor, which appears still to be in process of digestion—or rather indigestion,—judging from the internal agonies expressed in the market action of the stock.
SPECULATORS ARE SLAVES OF SENTIMENT
When the whole country becomes pervaded with an epidemic of bullishness the action of speculators is always directed by sentiment rather than judgment; and a market that is swept along by excited emotions is always dangerous,—dangerous to go short of and dangerous to be long of. Hysterical “bulls” care nothing whatever about the earnings or dividend returns on a stock; the only note to which they attune their actions is the optimistic slogan, “It’s going up!” and the higher it goes the more they buy, and the more their ranks are swelled by new recruits. A herd of stampeded cattle (cows no less than bulls) will rush blindly into a river, or butt their brains out against stone walls, trees or other obstructions; they also stampede every critter that happens along their path; and anyone who has ever witnessed a panic in a theater or auditorium, or in the stock market, need not be told that under such circumstances men are but little saner than cattle.
And speaking of sentiment, it is remarkable to what extent the combined business and financial structures of the country are swayed to and fro by this giant motive power. Like the biblical wind that bloweth where it listeth, and man heareth the sound thereof but knoweth not whence it cometh or whither it goeth, sentiment springs up from comparatively trifling or unknown sources and after playing its havoc, vanishes as suddenly and mysteriously as it came. In a bear market a train wreck, or the death of some financier, or an earthquake in Europe, will put the market off to the aggregate extent of hundreds of millions; whereas one of the greatest bull markets in history found its chief impetus in the most universally devastating war the world has ever known.
THERE IS BUT ONE WAY TO BEAT THE STOCK
MARKET; THERE ARE MANY WAYS OF
BEING BEATEN BY IT
It is admitted by the most sagacious financiers that the only sure way of making money trading in the stock market is to get in and out at opportune times, and to stay out most of the time. As against this there are numerous ways of losing money. Among these, one method in particular is quite popular among a class of traders who although too clever and conservative to buy stocks at “top” prices, have not the patience to wait for “bottom” prices. When values begin to crumble after the top has been reached in a bull market there must be a set of “carriers,” or supports, onto which stocks can be dumped on the way down. The market does not collapse like a ten-story card house; it generally goes down gradually for a while, one or two flights at a time, and finds steadying props every now and then which sustain it for brief periods. For instance, a certain stock paying $5 a share annually has been hoisted by degrees from $75 up to $150 a share. When it descends to $140 a few wise traders who have been impatiently waiting for a reaction will buy it because it looks cheap at $140 after having sold at $150; then at $130 another lot of traders who are a little wiser and more patient than the first lot buy it because it looks much cheaper than it did even at $140; and so on down it finds these temporary supports, until at length it gets back to $75, or perhaps lower, where it is accumulated by a few shrewd investors and bargain hunters whose attention has been attracted to the market by front page newspaper headlines announcing that the stock market is in a state of complete prostration. They go on about their business and pay no particular attention to the market until the price has recovered to a point where the stock, returning $5 a share, is no longer “paying its board,” when they sell out at a good profit, and stay out while the speculators carry it on up as far as they like. When the stock was at the bottom price those who bought it on a scale from $140 down were either so overloaded or pessimistic—probably both—that they were unable to buy more and thus reduce their average to a reasonable cost.
THE STOCK EXCHANGE IS A MONUMENT OF
BUSINESS INTEGRITY
It is a popular belief with many people that the stock exchanges are highly prejudicial to the public interest and to public safety; as if they actually manufacture stocks, fix their price, and sell them to the public. It is also believed by many persons—even by men with enough brains to buy and sell securities—that whatever they lose on their transactions is gained by the stock exchange or the broker through whom they trade; and that the brokers on the floor of the exchange plan out each day’s campaign and manipulate the stocks with utter disregard of the outside world. Furthermore, it is commonly supposed by a certain class of uninformed people that stock exchanges create panics and financial depressions; that they are licensed evils, feeding and fattening upon the credulity of an innocent public. Nothing could be farther from the truth; nothing could disclose a more profound ignorance of existent facts than for one to adhere to any or all of these fallacious beliefs. The stock exchange itself has no more control over the price of securities than it has over the ocean tides. It is merely an auction room where anyone may send in orders to sell stocks and bonds, either at a certain asking price, or “at market” to the highest bidder. On the other hand anyone may put in either a limited or “at market” bid for whatever securities he wants, provided they are on the list admitted for trading; and no securities are so admitted without being passed upon by a committee of competent judges whose duty it is thoroughly to investigate every company before admitting its securities to the board. The great value of this service to both traders and investors is plainly evident. The people who run the exchange have no other privileges, prerogatives or authority than to buy and sell securities on their own account, or to act as buying and selling agents for the public, and to execute their orders precisely in accordance with given directions. The interests of the public are safeguarded by every known precautionary device, and if a broker makes a mistake he stands the loss, regardless of what the amount may be. In this connection, those who have stood in the visitors’ gallery of the New York Stock Exchange on a busy day have been induced to wonder how it is possible for the brokers to avoid errors under such seemingly chaotic conditions as exist there. To the onlooker it resembles a riotous mob scene in a modern cinema, and one might easily mistake it for a place where a lot of frantic men are trying to buy insurance on a sinking ship, instead of dealing in gilt edge securities which are not immediately perishable. A benevolent sweet-natured old lady who stood for a time looking down upon this wild confusion was asked what she thought of it. “I think it’s all very interesting,” she said. Then after some reflection she added: “But my husband never told me that we are in a financial panic. And even so, why should the men get so angry with one another?”