Buy the Book: Arthur Crump warns of the many obstacles, behavioral and otherwise, speculators face in the markets. The 1874 classic sits as another example that speculating has been a difficult endeavor for a very long time.
The Notes
- Calamitosus est animus futuri anxius. — Seneca (translation: the mind that is anxious about the future is miserable.)
- “Our object in writing this book is to endeavor to show to persons who may contemplate trying their hand at Stock Exchange speculation, the improbability of their hopes being realized. Much mischief and trouble would be avoided, and a deal of money saved if, before entering upon such a dangerous career under the most favorable circumstances as that of a speculator, a study were made of the difficulties such an occupation involves, and also of the chances against the operator, considered as one individual versus the stock markets.”
- On learning from others: “It seems to be in the nature of things that numbers of people must come to grief in their early struggles, through an obstinate determination to trust complacently in their own ingenuity, in preference to profiting by the experience of others.”
- “Those who are new to the business see only the glittering surſace and hear only of the fortunes made by stockbrokers. People seldom tell of their losses.”
- “Individuals who are tempted, not only by curiosity, but by a love of excitement, and more than all in this case by the love of gain, go into the markets and lose their money, and quit the place with much the same feelings as the man who paid a penny to see a horse with his tail where his head ought to be.”
- “The question which a sensible speculator will ask himself before he begins to operate is, what are the risks incurred of losing his all at one stroke?”
- “The public are very seldom indeed bears. It goes against the grain. Speculation with the public, as a body, is a fair-weather game. When the most potent influences are affecting the stock markets downwards, ordinary people hold aloof.”
- “Those with whom outside speculators deal in the stock markets get all the profit also in the long run, much upon the same system that professional bettors on horse racing always win in the long run by backing the field.”
- On over-optimism: “Until a Stock Exchange speculator has been roughly undeceived, his understanding gets entangled so that what he sees clearly only at first, is what is in his favor, because his first interest is to discover that. What is against him, he disregards until he discovers it has undermined him, and all goes together.”
- On luck: “As at cards so at Stock Exchange speculation, there must be two kinds of luck, ill-luck and good-luck, as the changes of fortune which are worthwhile taking account of.”
- Invest like the House: “If the manager of gaming tables secures to himself a mathematical advantage only sufficient to cover the expenses, he will infallibly be ruined at last… But he provides adequately against this, and in the long run those who play with him must be ruined. So it is with Stock Exchange speculators.”
- “Each new era of prosperity requires and generally witnesses a new set of ingenious devices to throw dust in the eyes of investors, while the new race of Autolycuses are going through all the old tricks.”
- On the best opportunity: “A bull speculator should know that his great opportunity occurs after securities generally have been driven down in price by a severe commercial crisis, which has compelled holders of stocks upon a large scale to realize. In other words, when prosperity is beginning to revive after a prolonged stagnation, and the prices of stocks are very low, the bull speculator’s great chance occurs. When the great industries of a nation seem to rise as from the grave, and where lifelessness and inactivity ruled before the blows of the hammer resound and the blast furnace roars, a new life springs through the arteries of the commercial system, and the result is a rise in public securities.”
- On cutting losses: “‘Any jackass can take a profit, but it requires a devilish clever fellow to cut a loss,’ is a well-worn expression in the city of London, but there was never a truer one.”
- “A man who wins by haphazard speculation, who chances to operate successfully until he has filled his pockets, and retires with his gains from so fascinating an arena, is one in a hundred. Anyone who knows anything of Stock Exchange speculation will confirm the statement that, to the ordinary run of men, the game is not worth the candle.”
- On behavior: “A method of proceeding, that has been formed by a careful judgment which has provided for all contingencies, once adopted, should be adhered to as a rule. To be able to follow this advice it is necessary that a speculator should possess a coolness that is not affected by the excitement into which others are thrown by unexpected events; that he should cultivate the art of concealing the dissatisfaction felt on sustaining a loss, which is read at once in the face of a nervous or excitable man; and that he should have the power of calling forth emotions which are the opposite of those commonly manifested under given circumstances.”
- On impatience: “There is nothing like unsystematic speculation to destroy the cool temperament of a man. A loss incurred through hasty ill-matured operations renders him impatient to recover it, which probably leads to its being doubled. If he chance to recover the loss, instead of pausing to reflect upon the surprise created in himself by a result only feverishly hoped for, he goes on blindly tempting fortune, only to experience ups and downs which unsettle his judgment more and more, until he begins to ‘plunge,’ when all is soon over.”
- On market manias: “Prosperity brings wealth in its train, and people put by at first their gains until a taste for the excitement of dabbling in the markets grows into a thirst, and from that into a mania, which is generally the frontier to be repassed with empty money-bags, and a sad heart, by a wiser, if not a better man.”
- “The man who makes a study and business of speculating, investigating every detail that it seems necessary to probe until he has adapted it to the rest of his machinery, will be found to be a hard-grained man, sailing very close to the wind, while your persistently haphazard man is mostly a person of flabby character, and no less flabby mind, as easily frightened off a line that he has set himself to follow, in the innocence of a heart that expands with a delusive consciousness of possessing power, as a stray rabbit. Such a class of man is to be found by hundreds in the haunts of the stock markets, and they are always fidgetting in and out, first as little bulls, and then as little bears, disappearing after a sharp panic like flies from a joint of meat that is rudely disturbed by the shop-boy, with the important difference that whereas the flies always get something, the speculators invariably drop their money.”
- On the downside of early success: “The greatest misfortune that can happen to the haphazard speculator is for him to make money the first two or three ‘accounts.’ He will, in such a case, in the first place believe himself to possess some uncommon luck or a shrewdness for selecting a security that was about to move in the direction he had reckoned upon. The operations of the most stupid speculator are frequently attended with such results, just as they might also be on his first essay at pitch-and-toss. Such incipient luck…builds up in him a false estimate of his powers. Early success associates his mind with the gains and not with the losses, and the latter are incurred subsequently with a light heart, as a sort of accident that will be sponged out by the results of the next throw… But when two or three losses have been incurred the confidence becomes somewhat shaken, especially after a large operation has been attempted, so as to recover the losses on several smaller ones at one coup, and has failed. Then some sort of a system will be tried, but the bad judgment which has landed the haphazard speculator so far without his having perceived the necessity of machinery and a system will prevent his adhering to any set purpose.”
- “His attention, as a rule, will be drawn to a stock by, we will say, its upward movement. He thinks to himself, ‘That stock has been getting up, why shouldn’t I have some of it?’ and he buys, allured as are many others who wait to buy of those who have rigged the market up to a certain price, and then send the ‘tip’ round to buy. The haphazard man thus assists probably the professional and systematic speculator to unload. He has got in at the top, and only sees his mistake by getting out at the bottom.”
- On greed: “Then there is the fatal blunder made by almost every inexperienced speculator, of never being satisfied with a moderate profit… Like the dog, in attempting to grasp the shadow of his bone, he loses all. This is of daily occurrence in numerous instances and is one of the fatal weaknesses bound up in the frailty of human nature, from which only the strongest and coolest temperaments are able to emancipate themselves.”
- On avoiding losses: “Speculators never set sufficient value upon the importance of avoiding a loss: they think only of the profits. As it is with our money affairs, when we say, Look after the pence, the pounds will take care of themselves; so it is with speculation, look after the losses, the profits will take care of themselves.”
- “Do not listen to what other people have to recommend… It is at all times consequently idle to put any other construction upon advice to buy a certain stock, tendered apparently, with the most benevolent motives, than that it is to serve directly, or indirectly, the purpose of him who recommends the purchase. In business every one is for himself, and, as the saying is, ‘the devil take the hindmost.'”
- “A man who takes to speculating, and has not enough stability of character to lay down certain principles for his guidance, to be rigidly adhered to as a rule, or is possessed of an excitable temperament, had, better flee from the thought of engaging in so dangerous a vocation, for his ventures will assuredly result in the speedy dissipation of his inheritance, be it large or small.”
- On the cycle of speculation: “At every rise and fall in a country’s prosperity, there is a flow and ebb in the tide of speculation, not only in stocks and shares but in all markets.”
- “One of the great evils which follow upon the increase of speculation is the demoralization it brings in its train. Money easily made is very often as easily lost… Money that cost but little trouble to procure is generally carelessly spent, which, as a rule, does more harm than good to him that gained it.”
- History: “The commencement of a new era in speculation dates from November 13th, 1851, when a telegraph cable was successfully laid across the Straits of Dover, and the opening and closing prices of the funds in Paris were known at the London Stock Exchange within business hours. From that day one European bourse after another has joined hands, and the political shock which affects one market, henceforth acts through the electric wires, more or less upon all, according to the extent to which the same securities are dealt in at the different cities.”
- “Speculation is a disease of the mind, and like diseases of the body which arise from indulgence, carelessness, and neglect, it in the same way comes to a crisis at places where greed of money, folly, and commercial debauchery hurry people into extravagances and luxury that are sure to result in a general eruption.”
- On cutting losses: “One of the great faults which characterize all speculators, with very few exceptions is that they cannot summon courage to ‘cut a loss at once.'”
- On buying high and selling low: “With such tenacity do speculators hold on to a stock, hoping for a recovery when they have made a loss, that they will leave it as a man drops into the sea from a burning ship, only when he is singed by the flames. Many speculators on discovering they are on the wrong tack gather themselves up pour mieux sauter, and turn round and sell for the fall, believing they shall be quick enough to catch it and swim with the downward stream before it is spent. In the greater number of cases, such speculators watch the fall far enough to be sure they are right in their view of the way the price is going, and then they ‘get in.’ What is the usual result? Hesitation in the second operation has caused them to miss the mark, and the account is closed with a loss on both transactions; the speculator having bought at or near the top, and sold at or near the bottom.”
- On impatience: “The bane of nearly all speculators of the soft-grained type — by which we mean men whose will and judgment bends this way and that, like a reed that nods allegiance to any quarter of the world according to the blow of the wind — is, that they are forever on the itch to do something. There is no getting them to wait for an opportunity.”
- “The man who can wait for extremes is the one who will have the best chance of making extreme profits, provided he can be fairly sure of a good grasp of the duration of passing influences. One kind of opportunity is after a sharp fall in prices.”
- On following the crowd: “It is out of the public that successful speculators make their money, and consequently there must be the greater chance of losing by following the lead of the public.”
- “It must be obvious to every reflecting mind, that so dangerous a game as Stock Exchange speculation, or speculation which partakes of the same nature, in another commodity, entered into, if it be only partly to satisfy a craving for some sort of excitement, is a very unwholesome pastime.”
- On avoiding losses: “Every step a speculator takes should be, as far as possible, as deliberate as if he knew perfectly well that the slightest miscalculation would certainly involve him in loss.”
- “In engaging in speculative commitments, the great difficulty that presents itself is not so much what to buy or sell, as what not to buy or sell. When to do something, and when to do nothing.”
- “A speculator will do well to make it one of his maxims to put no trust in anyone when he is engaged in a business in which it is the object of everybody with whom he comes in contact to make something out of him.”
- On diversification: “There is an old saying that it is unadvisable to have all your eggs in one basket, a saw that is constantly quoted among both bonâ fide investors, as well as among speculators.”
- “The general public as speculators, are bulls by nature. Bear operations seem to go against the grain of the average man who acquires a first taste for speculation, probably by possessing some amount of stock which improves in price after he has bought. Money thus easily made, as it seems to be, out of nothing, encourages other purchases with a view to resale before the settling day arrives. Thus small figures grow to large ones; and small profits, in frequent attempts to multiply them, usually end in large losses.”
- On cash positions: “A supply of ready money is essential to the speculator in all markets, and it is marvelous that there can be so many persons who have to grope their way by the aid of bitter experience through the thick darkness of their ignorance to such a shining light of truth as this. And the full realization of this truth is, in most cases, only obtained at an expense which renders it impossible to repeat the experiment.”
- On the opportunity after a crash: “After a severe commercial collapse, like that of 1866 for instance, all securities are low in price, holders of them having been compelled to realize through the débâcle which has for the time destroyed credit, turned profits into losses, and frightened everybody into hoarding the precious metals. When things are beginning to mend, and a resurrection of industries takes place, the tide of the national profits begins to turn, and, rippling back into innumerable channels where securities of all sorts have laid high and dry and neglected, again floats them into notice. Just as when there is no use for the plough the oxen are idle, so when the great industries of a nation are stagnant, floating capital lies idle, and is cheap. In such times the speculator of good judgment…can make money without much risk if he is satisfied to watch the general recovery of prices up to a certain level, and then realize.”
- On tips: “A fool and his money are soon parted, is an old saw, and it is in a high degree applicable to the inexperienced speculator who operates in the markets on a friendly ‘tip.’ It is marvelous to think how many persons daily and hourly are misled by the same snare and delusion.”
- On learning from others: “The most accomplished professional speculators make it their business to study the peculiar tendencies of people who have any money over and above what they immediately require for necessities.”
- “During a season of great prosperity the promotion of new companies is sure to be largely overdone, and great will be the losses suffered; but there is sure to be more good done in the world by the dissemination of capital in new parts of the earth that would otherwise lie for the most part unproductive, than there is harm done through the misapplication or loss of a part of it.”
- On knowing what you own: “Ordinary people go to market and make an elaborate fuss over a joint of meat before paying their money, seeing that it is to a Shylockian nicety of weight, but when they invest a hundred pounds in a mine, there have been cases in which they hardly knew where the property was, –or even if it existed at all. It is very wonderful that such an incomprehensible degree of confidence is placed in concocters of companies, and it is the knowledge that the general public is so ludicrously gullible that encourages the formation of joint-stock concerns upon often the most flimsy bases.”
- On rumors: “The maxim which is adopted by all prudent speculators in the markets…is to sell when things are dear, and buy when they are cheap and pay no attention at all to reports. Men who have had years of experience, know how to estimate at their just value the on dits that are forever floating about their ears. Right or wrong, there is no money in them in the long run, and it is with the long run that operators should have to do.”
- “Speculation is carried on in all markets upon a large scale; and the extent of it fluctuates, according to circumstances, between the stagnation point as one extreme, and the rampant activity which is itself the primary cause of panics, as the other.”
- On risk and uncertainty: “There is an infinite number of circumstances which may occur to upset the best arrangements and the most accurate foresight of those engaged in commerce, which is compensated for by the large profits realized by such as are fortunate enough and skillful enough to weather the storms… In fact, none but those who have shared in the anxious responsibility involved in the discharge of such duties can form any idea at all of the severity of the call that is made upon both the physical and mental powers.”
