In my younger days I would go to considerable pains to explain all the
difficulties faced by the one who simply wishes to take quick and easy money
out of the market; or through courteous evasiveness I would work my way out
of the snare.
In later years my answer has been a blunt "I don't know."
It is difficult to exercise patience with such people. In the first place,
the inquiry is not a compliment to the man who has made a scientific study
of investment and speculation. It would be as fair for the layman to ask an
attorney or a surgeon:
"How can I make
some quick money in law or surgery?"
I have come to the conviction, however, that larger numbers of people
interested in stock market investment and speculation would be willing to
work and study to attain sensible results, if they had a guide or signpost
pointing the right direction. And it is for them that this book is written.
It is my purpose to include some of the highlights of a lifetime of
speculative experience—a record of some of the failures and successes and
the lessons that each has taught. Out of it all emerges my theory of “time
element” in trading, which I regard as the most important factor in
But before we go further, let me warn you that the fruits of your success
will be in direct ratio to the honesty and sincerity of your own effort in
keeping your own records, doing your own thinking, and reaching your own
You cannot wisely read a book on "How to keep fit" and leave the physical
exercises to another. Nor can you delegate to another the task of keeping
your records, if you are to follow faithfully my formula for combining
Timing, Money Management, and Emotional Control, as set forth in subsequent
pages. I can only light the way, and I shall be happy, if through my
guidance, you are able to take more money out of the stock market than you
In this book, I present to that portion of the public, which at times may be
speculatively inclined, some points and ideas which have been garnered
during my many years as an investor and speculator. Anyone who is inclined
to speculate should look at speculation as a “business” and treat it as such
and not regard it as a pure gamble as so many people are apt to do.
If I am correct in the premise that speculation is a business in itself,
those engaging in that business should determine to learn and understand it
to the best of their ability with informative data available. In the forty
years, which I have devoted to making speculation a successful business
venture, I have discovered and still am discovering new rules to apply to
On many occasions I have gone to bed wondering why I had not been able to
foresee a certain imminent move, and awakened in the early hours of the
ensuing morning with a new idea formulated. I was impatient for the morning
to arrive in order to start checking over my records of past movements to
determine whether the new idea had merit. In most cases it was far from
being 100% right, but what good there was in it was stored away in my
subconscious mind. Perhaps, later, another idea would take form and I would
immediately set to work checking it over.
In time these various ideas began to crystallize and I was able to develop a
concrete method of keeping records in such a form that I could use them as a
My theory and practical application have proved to my satisfaction that
nothing new ever occurs in the business of speculating or investing in
securities or commodities. There are times when one should speculate, and
just as surely there are times when one should not speculate.
There is a very true adage: "You can beat a horse race, but you can't beat
the races.” So it is with market operations. There are times when money can
be made investing and speculating in stocks, but money cannot consistently
be made trading every day or every week during the year. Only the foolhardy
will try it. It just is not in the cards and cannot be done.
To invest or speculate successfully, one must form an opinion as to what the
next move of importance will be in a given stock. Speculation is nothing
more than anticipating coming movements. In order to anticipate correctly,
one must have a definite basis for that anticipation, but one has to be
careful because people are often not predictable-they are full of
emotion-and the markets is made up of people. The good speculators always
wait and have patience, waiting for the market to confirm their judgment.
For instance, analyze in your own mind the effect, marketwise, that a
certain piece of news which has been made public may have in relation to the
market. Try to anticipate the psychological effect of this particular item
on the market. If you believe it likely to have a definite bullish or
bearish effect marketwise, don’t back your judgment “UNTIL THE ACTION OF THE
MARKET ITSELF CONFIRMS YOUR OPINION.” The effect marketwise may not be as
pronounced as you are inclined to believe it should be. Do not anticipate
and move without market confirmation–being a little late in your trade is
your insurance that you are right or wrong.
To illustrate further: After the market has been in a definite trend for a
given period, a bullish or bearish piece of news may not have the slightest
effect on the market, or it may have a temporary effect.. The market itself
at the time may be in an overbought or oversold condition, in which case the
effect of that particular news would certainly be ignored. At such times the
recording value of past performances under similar conditions becomes of
inestimable value to the investor or speculator.
At such times you must “entirely ignore personal opinion and apply strict
attention to the action of the market itself
“Markets are never wrong —opinions often are.”
The latter are of no value to the investor or speculator unless the market
acts in accordance with his ideas.
Timing--No one man, or group of men, can make or break a market today. One
may form an opinion regarding a certain stock and believe that it is going
to have a pronounced move, either up or down, and eventually be correct in
his opinion but will lose money by presuming or acting on his opinion too
soon. Believing it to be right, he acts immediately, only to find that after
he has made his commitment, the stock goes the other way. The market becomes
narrow; he becomes tired and goes out. Perhaps a few days later it begins to
look all right, and in he goes again, but no sooner has he re entered it
than it turns against him once more. Once more he begins to doubt his
opinion and sells out. Finally the move starts up. Having been too hasty and
having made two erroneous commitments, he loses courage. It is also likely
that he has made other commitments and is not in a position to assume more.
Thus, by the time the real move in the stock he jumped into prematurely is
on, he is out of it.
The point I would here emphasize is that after forming an opinion with
respect to a certain stock —do not be too anxious to get into it. Wait and
watch the action of that stock for confirmation to buy. Have a fundamental
basis to be guided by.
Say, for instance, a stock is selling around $25.00 and has been
consolidating within a range of $22.00 to $28.00 for a considerable period.
Assuming that you believe that the stock should eventually sell at $50.00,
and it is $25.00 at the time, have patience and wait until the stock becomes
active, until it makes a new high, say around $30.00. You will then know
that marketwise you have been justified. The stock must have gone into a
very strong position, or it would not have broken out. Having done so, it is
altogether likely that it is starting a very definite advance—the move is
on. That is the time for you to back your opinion. Don't let the fact that
you did not buy at $25.00 cause you any aggravation. The chances are if you
had, you would have become tired of waiting and would have been out of it
when the move started, because having once gotten out at a lower price, you
would have become disgruntled and would not have gone back in when you
Experience has proved to me that the real money made in speculating has
been: “IN COMMITMENTS IN A STOCK OR COMMODITY SHOWING
A PROFIT RIGHT FROM THE START”
Later on, when some examples of my trading operations are given, you will
notice I made my first trade at the psychological time that is, at a time
where the force of the movement was so strong that it simply had to carry
through. Not on my operation but because the force was so strong behind that
particular stock. It simply had to and did go. There have been many times
when I, like many other speculators, have not had the patience to await the
sure thing. I wanted to have an interest at all times.
You may say: "With all your experience, why
did you allow yourself to do so?" The answer to that is that I am human and
subject to human weakness. Like all speculators, I permitted impatience to
out maneuver good judgment.
Speculation is very similar to playing a game of cards, whether it be poker,
bridge or any similar game. Each of us is possessed with the common weakness
of wanting to have an interest in every pot, and we certainly would like to
play every hand at bridge. It is this human frailty which we all possess in
some degree that becomes the investor's and speculators greatest enemy and
will eventually, if not safeguarded, bring about his downfall.
It is a human trait to be “HOPEFUL”and equally so to be “FEARFUL”, but when
you inject hope and fear into the business of speculation, you are faced
with a very formidable hazard, because you are apt to get the two confused
and in reverse positions.
As an illustration: You buy a stock at $30.00. The next day it has a quick
run up to $32.00 or $32.50. You immediately become fearful that if you don't
take the profit, the next day you may see it fade away—so out you go with a
small profit, when that is the very time you should entertain all the hope
in the world. Why should you worry about losing two points' profit which you
did not have the previous day? If you can make two points' profit in one
day, you might make two or three the ext, and perhaps five more the next
As long as a stock is acting right, and the market is right, do not be in a
hurry to take a profit. You know you are right, because if you were not, you
would have no profit at all. Let it ride and ride along with it. It may grow
into a very large profit, and as long as the “action of the market does not
give you any cause to worry”, have the courage of your convictions and stay
On the other hand, suppose you buy a stock at $30.00, and the next day it
goes to $28.00, showing a two point loss. You would not be fearful that the
next day would possibly see a three point loss or more. No, you would regard
it merely as a temporary reaction, feeling certain that the next day it
would recover its loss. But that is the time that you should be worried.
That two-point loss could be followed by two points the next day, or
possibly five or ten within the next week or two. That is when you should be
fearful, because ii you do not get out, you might be forced to take a much
greater loss later on. That is the time you should protect yourself by
selling your stock before the loss assumes larger proportions.
“Profits always take care of themselves but losses never do.” The speculator
has to insure himself against considerable losses by taking the first small
loss. In so doing, he keeps his account in order so that at some future
time, when he has a constructive idea, he will be in a position to go into
another deal, taking on the same amount of stock as he had when he was
The speculator has to be his own insurance broker, and the only way he can
continue in business is to guard his capital account and never permit
himself to lose enough to jeopardize his operations at some future date when
his market judgment is correct.
While I believe that the successful investor or speculator must have well
advanced reasons for making commitments on either side of the market, I feel
he must also be able through some form of a specific guide to determine when
to make his first commitments.
Let me repeat, there are definitely certain times when a movement really
gets under way, and I firmly believe that anyone who has the instinct of a
speculator and has the patience, can devise a specific method to be used as
a guide which will permit him to judge correctly when to make his initial
commitment. Successful speculation is not a mere guess.
To be consistently successful, an investor or speculator must have rules to
guide him. Certain guides that I utilize may be of no value to anyone else.
Why is that so? If they are of inestimable value to me, why should they not
serve you equally well? The answer to that is: “No guide can be 100% right.”
If I use a certain guide, my own pet one, I know what should be the result.
If my stock does not act as I anticipated, I immediately determine the time
is not yet ripe- so I close out my commitment.
Perhaps a few days later my guide indicates I should get in again, so back I
go, and probably this time it is 100% correct. I believe anyone who will
take the time and trouble to study price movement should in time be able to
develop a guide, which will aid him in future operations or investments. In
this book I present some points which I have found valuable in my own
A great many traders keep charts or records of averages. They chase them
around, up and down, and there is no question that these charts of averages
do point out a definite trend at times. Personally, charts have never
appealed to me. I think they are altogether too confusing. Nevertheless, I
am just as much of a fanatic in keeping records as other people are in
maintaining charts. They may be right, and I may be wrong.
My preference for records is due to the fact that my recording method gives
me a clear picture of what is happening. But it was not until I began to
take into consideration the time element that my records really became
useful in helping me to anticipate coming movements of importance. I believe
that by keeping proper records and taking the time element into
consideration-and I shall explain this in detail later- “one can with a fair
degree of accuracy forecast coming movements of importance.” But it takes
patience to do so.
Familiarize yourself with a stock, or different groups of stocks, and if you
figure the timing element correctly in conjunction with your records, sooner
or later you will be able to determine when a major move is due. If you read
your records correctly, you can pick the leading stock in any group. You
must, I repeat, keep your own records. You must put down your own figures.
Don’t let anyone else do it for you. You will be surprised how many new
ideas you will formulate in so doing; ideas which no one else could give
you, because they are your discovery, your secret, and you should
keep them your secret.
I offer in this book some DON’TS” for investors and speculators. One of the
primary “DON’TS” is--one should never permit speculative ventures to run
into investments. Don’t become an “Involuntary Investor.” Investors often
take tremendous losses for no other reason that that their stocks are bought
and paid for.
How often have you heard an investor say: “I don’t have to worry about
fluctuations or margin calls. I never speculate. When I buy stocks, I buy
them for an investment, and if they go down, eventually they will come
But unhappily for such investors many stocks bought at a time when they were
deemed good investments have later met with drastically changed conditions.
Hence such so-called “investment stocks” frequently become purely
speculative. Some go out of existence altogether. The original “investment”
evaporates into thin air along with the capital of the investor. This
occurrence is due to the failure to realize that so-called “investments” may
be called upon in the future to face a new set of conditions that would
jeopardize the earning capacity of the stock, originally bought for a
Before the investor learns of this changed situation, the value of his
investment is already greatly depreciated. Therefore the investor must guard
his capital account just as the successful speculator does in his
speculative ventures. If this were done, those who like to call themselves
“investors” would not be forced to become unwilling speculators of the
future-nor would trust fund accounts depreciate so much in their value.
You will recall not so many years ago it was considered safer to have your
money invested in the New York, New Haven & Hartford Railroad than to have
it in a bank. On April 28, 1902, New Haven was selling at $255 a share. In
December of 1906, Chicago, Milwaukee & St. Paul sold at $199.62. In January
of that same year Chicago Northwestern sold at $240 a share. On February 9
of that year Great Northern Railway sold at $348 a share. All were paying
Look at those “investments” today: On January 2, 1940, they were quoted at
the following prices: New York, New Haven & Hartford Railroad $.50 per
share; Chicago Northwestern at 5/16, which is about $0.31 per share. On
January 2, 1940, there was no quotation for Chicago, Milwaukee & St.
Paul-but on January 5, 1940, it was quoted at $.25 per share.
It would be simple to run down the list of hundreds of stocks which, in my
time, have been considered gilt edge investments, and which today are worth
little or nothing. Thus, great investments tumble, and with them the
fortunes of so called conservative investors in the continuous distribution
Speculators in stock markets have lost money. But I believe it is a safe
statement that the money lost by speculation alone is small compared with
the gigantic sums lost by so called investors who have let their investments
From my viewpoint, the investors are the big gamblers. They make a bet, stay
with it, and if it goes wrong, they lose it all. The speculator might buy at
the same time. But if he is an intelligent speculator, he will recognize—if
he keeps records— the danger signal warning him all is not well. He will, by
acting promptly, hold his losses to a minimum and await a more favorable
opportunity to reenter the market.
When a stock starts sliding downward, no one can tell how far it will go.
Nor can anyone guess the ultimate top on a stock in a broad upward movement.
A few thoughts should be kept uppermost in mind.
One should never sell a stock, because it seems high priced. You may watch
the stock go from 10 to 50 and decide that it is selling at too high a
level. That is the time to determine what is to prevent it from starting at
50 and going to 150 under favorable earning conditions and good corporate
management. Many have lost their capital funds by selling a stock short
after a long upward movement, when it "seemed too high."
Conversely, never buy a stock because it has had a big decline from its
previous high. The likelihood is that the decline is based on a very good
reason. That stock may still be selling at an extremely high price relative
to its value—even if the current level seems low.
Try to forget its past high range and study it on the basis of the formula
that combines timing and price.
It may surprise many to know that in my method of trading, when I see by my
records that an upward trend is in progress, I become a buyer as soon as a
stock makes a “new high on its movement, after having had a normal
The same applies whenever I take the short side. Why? Because I am following
the trend at the time. My records signal me to go ahead!
I never buy on reactions or go short on
One other point: “It is foolhardy to make a second trade, if your first
trade shows you a loss.”
“Never average losses.” Let that thought be written indelibly upon your
End of Chapter 1
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