Buy the Book: John Ferguson Hume warns readers on many ways to lose money investing and speculating. The book represents a historical glimpse into Wall Street of the late 1800s and the timeless lessons of investor behavior.
The Notes
Investing
- “People having idle money often find it difficult to decide whether they had better invest it securely, content with the amount they have and the revenue to be derived as interest, or seek to add to the principal by ventures necessarily more or less uncertain. The temptations to the latter course that are held out by our stock and other exchanges are very dazzling — sometimes quite irresistible.”
- “It would seem, when reference is had to the many securities, both bonds and shares, that are offered, often at temptingly low prices, to be a question very easily answered. The truth is, that there is none more difficult.”
- “If it is difficult to make money — a proposition about which there will not be much diversity of opinion –it is in most cases even more difficult to keep it profitably employed. Men of prudence and skill in the acquisition of capital often show astonishing recklessness in the disposition they make of it. The strangest caprices take possession of them when it comes to the critical moment that calls for a choice of investments.”
- “There never was a time when it was so easy to invest money — and to lose it… Hence the very natural inference that whatever art there may be in the matter of investing is to be exercised chiefly in the avoidance of unworthy offerings, and it is to that point that a profitable discussion of the subject must be mainly directed.”
- “The fact is that comparatively few unprofessional bond and share purchasers ever carefully examine the instruments they acquire. They look at the headings, those parts that are in big letters, and take the rest for granted. It is a most unwise practice.”
- “For the losses they have sustained, investors, as a rule, have themselves chiefly to blame… In addition to their money’s worth, they have endeavored to get something for nothing, with the result most generally of getting nothing for something. It is remarkable how blind are people, ordinarily sagacious enough to make money, to the fact that property can not pay a revenue beyond its producing capacity.”
- “By what rule or rules is the investor to govern himself? No formula can guarantee him absolute safety.”
- “The first and main thing to be studied is safety. And yet there is such a thing as going too far in the matter of prudence. The investor may pay too dearly for safety. There are securities which, compared with others that are to be had, sell at prices much above their real value. The reason is that everybody knows them to be good, and investors who don’t want to take the trouble to investigate…are willing to pay extra prices for them. But there are plenty of others that may be had at lower figures, which are just as good.”
- “By far the greater number of losses to investors has been in securities purchased exclusively on the recommendation of interested commission men.”
- “Stock-exchange quotations, as a rule, are unsafe guides to buyers. They represent not so much the value of the property as the pitch of speculation at the time. When securities are converted into foot-balls for gamblers to play with, they are pretty certain to be either too high or too low. The only advantage they can have is a readier marketability in case of an urgent need to sell; but it is at the times when such need is likely to exist that they are pretty certain to be at the lowest point.”
- “Securities, in the long run, must stand upon their merits, and purchasers have merely to follow business principles as taught by the canons of common sense.”
- “It is during periods and seasons of depression, when securities are forced upon the market, often to be sacrificed — and they are certain to come if waited for long enough — that the shrewd investor finds his richest harvest. That, however, can not be said of the ordinary investor. He usually buys when securities are up and confidence is unimpaired, and becoming frightened as market values go down sells when they are at the bottom, and holds his money to reinvest in something else no better, and probably not as good, when the tide has turned.”
- “As a rule, the best time to invest is when others are unloading. In money matters it is never safe to follow ‘the crowd.’ Nor is it safe (which, however, is little more than the expression of the same idea in another form) to purchase a security when it is on the ‘boom.'”
- “One thing the investor would do well never to forget, viz., that there is always plenty of good securities in the market. No one with money need ever fear that others will get all the solid investments, and, in the apprehension that there will not be enough of that sort to go round, put up with an inferior article… Something good always comes to him who waits with money in his hand.”
- “The old adage about putting all the eggs in one basket applies with peculiar force to investments. The tendency with those having but moderate sums to place at usury, and who need to be the most circumspect, is to make up their minds in favor of a single line of securities and put everything there. Of course, a failure in that quarter is particularly disastrous… It is well enough to scatter in kind as well as in locality.”
- “Investors are altogether too prone to accept present realizations as evidences of future profits.”
- “It may be taken as a rule that, in this age of plentiful money, no legitimate business that is open to public competition will long pay exceptionally well. The greater its earnings at first, the stronger will be the competition in the end.”
- “When corporations enjoy monopolies by virtue of patent rights, their earnings have often been very great, and early investors have made splendid fortunes. Those who come later, however, take chances that are too frequently under estimated. There is always the danger of new discovery.”
- “In handling shares the highest art is in selling rather than in buying. That is something that most of investors do not understand. They hold on too long. When they have a good thing, they infer that it will always remain so, and accordingly retain it until its value has departed or greatly deteriorated. Stocks require constant watching.”
Speculating
- Hume compares Wall Street to a monster devilfish or squid, with its tentacles reaching everywhere. It’s an apt description warning of the seedier side of the Street:
- “A not overdrawn description would picture it as an enormous devilfish with a hundred thousand arms reaching into all parts of the country, and all equipped with suckers more or less powerful, and busy every one of them, in extracting nourishment for the monster to which it belongs. The trouble is that its tentacles are rarely seen. They work in the dark; they have the gift of invisibility. But, oh, how many victims they have crushed!”
- “It is said of the cuttle-fish that it discharges a fluid which darkens the water all about it, and so blinds its prey that they are helpless against its attacks. The Wall Street monster — the comparison still holds good — by the example of its few conspicuous successes and its general demoralization, so impregnates the atmosphere of the whole country with the speculative mania, that thousands and thousands can not resist it.”
- “New York has no more entertaining public exhibition than its Stock Exchange. It is one of the show-places of the city. The visitor who, for the first time, looks down from a gallery upon its members in the act of transacting business, is astonished at the apparent confusion he witnesses. He seems to have entered a mad-house. The idea that the market values of our leading securities should be determined by what appears to him to be a howling mob of incurable lunatics, is incomprehensible.”
- “The Exchange, while having a share of legitimate business, is chiefly an immense gambling establishment.”
- “Through the exercise of superior native wits or the accident of extraordinary luck, [speculators] flourish marvelously for a time; but only, as a rule, to lose their heads and their balance at last, and go down — often through a single disastrous transaction — faster than they went up.”
- “Of the ordinary Wall Street speculator, however clever or however favored for a time, it is perfectly safe to say that, if he lives long enough and sticks to the business, he will finally come to grief.”
- “Wide and sudden fluctuations are necessary results of the Exchange’s methods. Its members are supposed to be divided between ‘bulls’ and ‘bears’ — those who try to advance prices and those who try to depress them; but all are as likely as not at one time to be bulls and at another bears. They have their stampedes.”
- “It is the theory of experienced operators, and undoubtedly a correct one, that the outside speculator rarely comes into the market until prices are up, and he can look back and see what he has lost by not venturing earlier; and is never so ready to sell as when prices are down, and he can look back and see what he has lost by not getting out sooner.”
- “When a financial storm threatens the country, the Exchange is almost certain to be the center of disturbance. No other institution is so sensitive. It exaggerates all the symptoms of trouble… Looking at it as the barometer of values, the timid naturally conclude that everything is lost, and thus the evil is unduly magnified. Wall Street is as much the natural field for panics as the prairie is for tornadoes.”
- “That Wall Street should continue to attract fresh patrons and victims, in view of the numerous warnings they have received, would be unaccountable were it not for that feverish desire for sudden riches which pervades the whole country, and which ‘the street’ has been mainly instrumental in producing.”
- “In theory, it is so easy to win by speculation! To buy at a low figure and sell at a higher, or to sell at a high figure and afterward buy at a lower, seems such a simple operation! It almost looks as if you could go into Wall Street and pick up money from the sidewalks. Those who have made the attempt, however, have found the practice very different from the theory… A loss, however, is usually incurred before the real difficulties of the situation are realized, and then, in nine cases in ten, there exists on the part of speculators, out of sheer desperation or from the fascination that attends the game, the determination to try another chance, and in that way good money is thrown after bad until ruin is reached… They lose because they want to make money, are not particular how they make it, and flatter themselves that they are sharp enough to win where others have failed. They are their own victims.”
