Any intelligent trader may reason out exactly what he ought to do under certain specific conditions; but in the quickly shifting and uncertain process of determining values he loses his mental poise; and experience proves that anyone whose reasoning faculties become confounded is apt to be affected by some form of hysteria, and will frequently do the opposite of what he would do under normal conditions.
The most copious and the most unreliable financial writers are the market “tipsters” who write daily letters of advice to an army of subscribers, and claim to have more or less positive knowledge of what certain stocks or groups of stocks are going to do marketwise. They often profess to have definite “inside information,” which any subscriber may receive at a stated price, ranging anywhere from $10 a month upward. These false financial prophets, who lead a horde of blind followers, should not be confused with reputable bureaus and statistical experts who base their opinions and their advice to clients upon a logical analysis of general conditions.
Henry Fielding wrote a whole essay to prove that a man can write more informingly on topics of which he has some knowledge than on matters that he knows nothing about. He believed also that mankind is more agreeably entertained by example than by precept; therefore it is not the purpose of this discourse to teach anybody anything, unless perchance something may be gained by example or suggestion. There are four subjects on which advice, however good, is generally wasted,—politics, stock speculation, religion, and love; for in these matters grown-ups rarely follow the advice of others, and when they do, if they profit by it they take all the credit to themselves, whereas if they lose they always blame the adviser. Such are the inexorable and universal laws of human nature.
Anyone may relate his own stock market experiences, or those of others—perhaps to the surprise or enlightenment of his audience. He may even venture his opinions on the subject; but for anybody to assume that he can continuously operate an unfailing system of making money on stock or grain exchanges would be equivalent to asserting that he could invert the fundamental laws of psychology, or that he could beat the game at Monte Carlo by scientific methods. Many have tried both, to their sorrow.
And still, hundreds of thousands of people continue to play at gambling tables, and hundreds of thousands speculate in stocks. There are many persons who gamble moderately all their lives, just as some drink moderately all their lives, with no resultant harm; while with others both of these inhibited practices become fixed and ruinous vices. Since trading in stocks has the appearance of being an easy way of making money, it is one of the most alluring pursuits of modern times; and from this very fact, although legalized for all, it is susceptible of becoming one of the most dangerous habits known. It is dangerous for the confirmed addict not only because he is apt to lose, but for the reason that it distracts his attention from business in daytime and frequently destroys his rest at night. But as it would be folly to advise people not to embark in commercial pursuits because statistics show that upwards of ninety per cent. of business ventures result in failure, so it would be useless to caution people not to trade in stocks because it is a hazardous undertaking in which a peculiar sort of sagacity and self-control are the only safeguards against certain disaster.
Most people of sturdy mentality are unwilling to admit that they could be made easy subjects of hypnotic influences, and would scout the idea that mere business transactions in securities could effect any undue subversion of their equipoise. The average human mind is, however, incapable of maintaining its equilibrium under the strain of great excitement; and no amount of knowledge, either inherent or acquired, no amount of experience, however dearly bought, will enable one always to think intelligently or act wisely under highly nerve-racking conditions. It is said that persons who become disoriented in a forest will almost invariably go in the wrong direction (I have done so myself on two different occasions); and that in an effort to salvage goods from a burning house they will throw mirrors and other fragile articles out a third-story window and carry pillows downstairs.
THE DISCONCERTING EFFECT OF SUDDEN
LOSSES AND GAINS
There are but few things more unbalancing to the mind than the act of suddenly winning or losing large sums of money. A few years ago at Monte Carlo I was in company with a friend, a well known man of affairs who while there played at roulette nearly every day, merely as a pastime. He was of mature age, naturally methodical, conservative, temperate and cool-headed. He made it an unalterable rule to limit his losses to $200 at any one sitting, and on losing this amount he always stopped playing. His bets were usually limited to two dollars on the numbers, and never doubled except for one turn of the wheel when his number won. He generally played three numbers at a time; never more than four. For ten consecutive sittings luck was against him and each time he had lost his stake of $200. I saw him get up and leave the room, apparently in a state of disgust. An hour or so later I discovered him at a roulette table in another room stacking his chips in piles on a dozen or more numbers. Now and again when he exceeded the limit the watchful croupier reduced his bets and pushed a few disks back to him. In addition to betting on the numbers he was staking a thousand franc note on one of the three columns, another thousand on the colors, and a like amount on the center dozen. In one run he lost seventeen consecutive bets on red, of a thousand francs each. His eyes were bloodshot, his fingers twitched, and plainly he was under the strain of great agitation. He continued to play for three hours or so, when all of a sudden he got up, stood for a moment looking dazedly about, then left the table. He afterwards told me that he lost twenty thousand dollars; and that he hadn’t the slightest recollection of anything that happened during the play, nor did he realize the amount he was betting. In this connection, it is a fact not generally known, that many rich men sign printed cards of instructions to the proprietor of a certain well known gambling club in the South, directing him to stop their play and refuse them further credit beyond a certain specified sum on any one day or evening of play, and refusing to become responsible beyond that amount. If men who trade in the stock market were to impose like restrictions upon their transactions the losses would in many cases be greatly minimized.