The Stock Market Barometer 1000058950

THE

STOCK

MARKET

BAROMETER A Study oflts Forecast Charles

H.

Price

Value

Dow's

Theory

Movement.

With

Analysis and

of

the

Its

Based of the an

Market

History

Since

1897

By PETER

WILLIAM Editor

HARPER

of The

Wall

fcf BROTHERS NEW

YORK

HAMILTON Street Journal

PUBLISHERS AND

LONDON

on

THS

BABOMETKB

MARKET

STOCK

1922

Copyright,

By

"

Harper

the

in

Printed

B-A

Ninth

Printing

Brothers

U.

S.

A.

To

Old

My

Friend

BANCROFT

HUGH

without

suggestion

whose

this

Colleague

and

and

encouragement

would

book

have not

been

written

LIST

OF

CONTENTS

PAGE

CHAPTER

I.

CYCLES

II.

WALL

III.

CHARLES

IV.

Dow's

THEORY,

V.

MAJOR

MARKET

VI.

A

VII.

MANIPULATION

VIII.

MECHANICS

IX.

"WATER"

X.

"A

STREET

Dow,

UNIQUE

APPLIED

30 40

FORECAST

49

PROFESSIONAL

TRADING

60

MARKET

THE

73

BAROMETER

THE

LITTLE

FORECASTING

21

SPECULATION

TO

OF

AND

IN

XII.

THEORY

SWINGS

OF

THE

9

His

AND

QUALITY

87

OUT

CLOUD

HAND""

1

RECORDS

MOVIES....

THE

OF

H.

XI.

MARKET

STOCK

AND

SEA,

THE

OF

LIKE

1906 CYCLE

XIV.

1909,

XV.

A

XVI.

AN

EXCEPTION

XVII.

ITS

GREATEST

"LINE"

SECONDARY

OF

SOME

AND

1908-1909

128

"

USES

AND

115

MARKET

BULL

A

NATURE

DEFECTS

AND

SWINGS HISTORY

OF

EXAMPLE"

AN

PROVE

TO

142*

THE

VINDICATION

154

1914

172

RULE

185

1917

196

"

XVIII.

WHAT

XIX.

A

REGULATION STUDY

XX.

SOME

XXI.

RUNNING

XXII.

SOME

DID

TO

OUR

MANIPULATION

IN

RAILROADS

208

1900-1

221

"

CONCLUSIONS

1910-14

237

"

APPENDIX

TRUE THOUGHTS

:

MAN'S 101

UNPUNCTURED

XIII.

A

FORM"

TO

250

SPECULATORS

FOR

RECORD

1922-1925

OF

THE

DOW-JONES

262

AVERAGES

281

PREFACE

preface

A

is

of

explanation book

requires

itself

W.

is

made

for

permission

to

Renken,

here

compiler used

in

of

financial

rade com-

my

Charles

F.

charts

the

for

those

to

old

to

work,

newspaper

and

Co.,

indispensable

the use

averages,

Street

Wall

Clarence

great

and

stock-price in

"

that

explain edgment acknowl-

to

Jones of

This

to

But

manager

service,

Dow-Jones

fails

it

gratefully

Dow,

an

clear.

author.

the

most

of

Cashman,

Joseph

of

that

president

if

and

best

at

or

sufficiently

be

apology,

be

Barron,

news

should

no

must

apology,

an

what

fault

the

often

too

averages,

illustration.

W.

P.

H.

THE

STOCK MARKET BAROMETER

THE STOCK

MARKET

BAROMETER I

Chapter CYCLES

AND

English AJ always

STOCK

economist

made

connection

He

between human

the

then

a

the

on

in its heart

believed

in

if there

care

because

ago

early in

I

said

on

there the in

1905,

while

that

sun.

cycleof panic and were enough spots

a

ment com-

Wall perity, proson

the

is temerarious straight flush. Youth have been irreverent. more Perhaps it would

to

make

polite to proved

say

a

that

nothing,

the like

with

elections

accidental the

exact

leap

Cycles and Many men

entirely mercial ugly com-

of spots

Times

Jevons theory,

it did not

and

York

dence coinci-

is

rather

a

centuries

two

justifyingnumber

in the New

Writing

It

on

beginning

apparent

an

he belittled

spots

the

phenomena.

two

of

from

showing

century,

squeeze

sun

humanity

and

panics

series of dates

a

likable that

and

not

commercial

gave

of the seventeenth

Street

unaffected

whose

him

between

sun.

were

RECORDS

remarkably readable, the late Stanley Jevons, propounded the theory of a

William

the

MARKET

teachers

without

of

periodic association coincidence

Poets

economics,

x

dential presi-

years.

the

pretension even

of

to

and

the

more

many

business

modest

title

2

THE

STOCK

of student, have

cyclein

MARKET

a

profound

the affairsof

men.

BAROMETER

and

reasonable

It does

need

not

faith in an

a

standing under-

to see theory of relativity that the world cannot possiblyprogress in a straight line in its moral development. The movement would be at least more likelyto resemble the journey of our satellite around the sun, which, with all its planetary the constellation of attendants, is moving toward Vega. Certainlythe poets believe in the cycletheory. There is a wonderful in Byron's "Childe passage Harold" should be read from which, to do it justice, the precedingapostrophe to Metella's Tower. This was Byron's cycle:

of

"Here

Einstein

the

is the moral

'Tis but the

of all human

rehearsal of the past ; that fails then glory; when

same

First freedom

tales,

and

Wealth, vice,corruption,barbarism And Hath

with all her volumes history, but one page."

at

last,

vast,

cycleof panicsand of times of prosperity. Anyone with a working knowledge of modern historycould recite our panic dates 1837, 1857, *866 (Overend-Gurney panicin London), 1873, 1884, 1893, 1907, if he might well hesitate to add the able deflation year of 1920. Panics,at least,show a variThere

seems

to

be

a

"

interval between with the intervals

them, from

ten

to

fourteen years,

apparentlytending to grow longer. In a subsequentchapter we shall analyze this cycle theory,to test its possibleusefulness.

CYCLES

AND

STOCK

MARKET

RECORDS

3

Periodicity But

the

pragmatic basis for the theory,a working hypothesisif nothingmore, lies in human nature itself. to excess, and repentance for Prosperitywill drive men the consequence of those excesses will produce a corresponding depression. Following the dark hour of absolute panic,labor will be thankful for what it can slowlyout of smaller wages, while get and will save with small profitsand quick capitalwill be content There will be a period of readjustmentlike returns. that which the reorganizationof most of the saw American railroads after the panic of 1893. ently Preswe

of

wake

up

to

find that

expenditure,that

our

income

is in

excess

cheap, that the spiritof adventure is in the air. We proceed from dull or quiet business times to real activity.This gradually develops into extended speculation,with and other familiar high money rates, inflated wages After a period of years of good times the symptoms. our

strain of the chain

is on

money

is

its weakest

link.

There

is

a

that of 1907, a depressionforeshadowed in the stock market and in the price of commodities,

collapselike followed increase

by extensive unemployment, often an actual in savings-bank deposits,but a complete

absence of money

available for adventure.

Need

Barometer

Byron'slines again and see if the parallel suggestive.What would discussion of business

Read is not

for a

over

4

THE

be worth

STOCK

if

MARKET

could

BAROMETER

bring at least a littleof the crises poet'simaginationinto it? But unfortunately are brought about by too much imagination. What need are soulless barometers, price indexes and we to tell us where we are going and what we averages best, because the most impartial, expect. The may of these barometers, is the remorseless the most recorded of prices in the stock exchange. average With varying constituents and, in earlier years, with a but continuously smaller number of securities, these service for have been kept by the Dow-Jones news thirtyyears or more. There of reading them which has been is a method fruitful of results, sion although the reading has on occadispleasedboth the optimistand the pessimist. A barometer predictsbad weather, without a present cloud in the sky. It is useless to take an axe to it merelybecause a flood of rain will destroythe crop of cabbagesin poor Mrs. Brown's backyard. It has been in print for many lot to discuss these averages my years past, on the tested theory of the late Charles H. It Dow, the founder of The Wall Street Journal. might not be becoming to say how constantlyhelpful of the pricemovement the analysis proved. But one ometer, that discussion, who reads that barwho ventures on learns to keep in mind the natural indignation againsthimself for the destruction of Mrs. Brown's cabbages. Dow's Theory Dow's

we

not

simple. He theory is fundamentally

that there are,

three simultaneously,

showed

movements

in

CYCLES

progress

AND

STOCK

MARKET

in the stock market.

movement,

The

like the bull market

the re-election of

McKinley

RECORDS

5

major is the primary which

set

in with

in 1900 and culminated in but not stopped by the

1902, checked famous stock market panicconsequent on the Northern in 1901; Pacific corner the primary bear market or

September,

which

developed about June-August, 1921. It will be shown

October, 1919,

that this

primary

culminating tends

movement

period of at least a year and is generally of much longer. Coincident with it,or in the course it,is Dow's secondarymovement, representedby sharp and sharp reactions rallies in a primary bear market in a primary bull market. A striking example of the latter would be the break in stocks on May 9, 1901. In like secondary movements the industrial group (taken separatelyfrom the railroads)may recover much more sharplythan the railroads,or the railroads lead, and it need hardly be said that the twenty may active railroad stocks and the twenty industrials, ing movwill not advance pointfor pointwith each together, In the long in the primary movement. other even advance which preceded the bear market beginning October, 1919, the railroads worked lower and were cause comparatively inactive and neglected,obviously beat that time through government they were, of the specuout ownership and guaranty, practically lative normal influence on field and not exercising a Under the resumption of barometer. the speculative privateownership they will tend to regain much of their old significance. to

run

over

a

t

THE

6

STOCK

MARKET

The

BAROMETER

Theory'sImplications

with Concurrently

the

ment primaryand secondarymoveof the market, and constant throughout,there obviouslywas, as Dow pointed out, the underlying fluctuationfrom day to day. It must here be said that in individual the average is deceptive for speculation would have happened to a speculator stocks. What who due in believed that a secondaryreaction was May, 1901, as foreshadowed by the averages, if of all

the stocks to sell short

Pacific?

Northern

that belief he had

on

did, and they were luckyif they covered at sixty-five pointsloss. Dow's tions. implicatheory in practicedevelopsmany

traders

of the best tested of them

One

is that the two

other, and that there is ment, a primary movement, rarelya secondarymoveof the averwhere they do not agree. age Scrutiny will show that there are periodswhere the figures corroborate

averages never

Some

chosen

fluctuationsfor

a

each

number

of weeks

are

within

a

narrow

for instance, where the industrials do not railsell below seventy or above seventy-four, and the roads

range;

as,

seventy-seven or below seventy-three. This is technically called "making a line,"and experience above

shows or

that it indicates a

of accumulation.

tion periodeither of distribu-

When

the two

averages

rise

line,the indication is in a a secondaryrally stronglybullish. It may mean of a bear market; it meant, in 1921, the inauguration primarybull movement, extendinginto 1922. If,however, the two averages break through the above

77

the

high point of

the

THE

8

STOCK

MARKET

affects

which

everything

the

represents Street

the

weather.

The

price

Wall

of

knowledge

aggregate

ment move-

of

knowledge

aggregate

all, its

above

and,

BAROMETER

ing com-

events.

in

Nobody known

what in

crowd,"

the

on

wrong

the

thing

one

thing

to

to

know

Wall

Street

used

to

stock

stocks

Street the

Senator

Journal bloodless

all

Dolliver

once

editorial

in

verdict

act

of

the

that

and it.

upon

knows,

the

market

United

in

another

market lieves, be-

hopes, sifted

knowledge called,

The

quoting States

place.

is

It

together.

years

information"

will

Oil

consistently

Rogers,

everybody

with

anticipates, what

"inside

have how

for

have

"Standard

the

H.

Henry

I

everything.

called

market

everything

represents

to

be

of

days

knows

down

a

Wall

Senate,

WALL

STREET

shall

WE

the

stock

the

price

than

year

interruption in and

the

based

do

rallies,as

or

We

shall the

upon

of the

morality

with and

of

sum

be ;

may

that

than

precession

they

daily

movements

Street's

country;

manipulation

that

secondary

case

all these

Wall

the

less

always present

but

that

see

the

major

from

their

more;

theory

the

extending

or

years

a

over

Dow's

examine

downwards,

or

reactions

of the business to

shall

we

tested of

aid

the

relativelyunimportant

fluctuation. are

With

three

to

MOVIES

barometer,

movement

upwards

a

market

years.

swings

THE

by strict analysis, the fidelityof

prove,

long period of of

OF

knowledge

have

no

of

more

the

noxes, equi-

materially deflect

cannot

the barometer. Movies

But, case

that

to

not

Wall

Street It has

point

to

inhuman, to

be does

do

record

But

the

of my

not

of

the

the

how

into

come

in

with

the

occasional

of

every

market

scandals

proportion of people who The 9

has

clean

aging discour-

least the

almost

nothing which

the

alleged

with

dispassionate,

for

think, overwhelming.

it is

court at

past,

market

the

correspondence, because

argued,

seemed, out

Melodrama

some

even

movement

the

who

judge from

must

hands.

and

ever what-

disfigure

anything

anywhere.

feel

is,to those

only former

are

in such

a

THE

io

STOCK

MARKET

concession

majoritythat as

think

soon

of Greenwich.

To

Cleveland's

Grover

be

must

made

to

though them, al-

apologizefor the stock market. of apologizingfor the meridian

I stilldecline to

I should

BAROMETER

quote useful

of

of the best known

one

it is a condition platitudes,

theory which confronts us. In the popular imaginationthere is a fearful and wonderful pictureof Wall Street something we may call the Wall Street of the movies. the English What and

not

a

"

is

call the cinema

melodrama

substitute for the

modern

our

of

grandfathers.

our

ventional con-

Its characters

the same. Its villains and vampires curiously not like anything in real life;but they behave are as consistent villains or vampires ought to behave if they to satisfycritics who are a never saw specimen of either. Many years ago Jerome K. Jerome wrote a chapteron stage law. He showed that on the English ficate marriage certistage the loss of a three-and-six-penny invalidated the marriage. In the event of death are

the property

of the testator

could

possessionof

died

secure

without

a

on

the stage.

sleuth,and it

a

The

went

detective looked

financier looked to

hurt

Financiers modern

the person who If the rich man to

financier

on

so

like

like

the nearest

like

days lawyers looked

seemed positively

Our

the will.

will the property

villain. In those

to

went

a

a

lawyers gimlet-eyed "

financier that

his face.

of Fiction the

But in the "close-ups." especially

screen

looks like that,

he is no

new

creation.

WALL

STREET

OF

THE

MOVIES

1 1

I remember

readinga magazine story, a score of years ago, of a stock market coup by a great "manipulator," of the type of James R. Keene. The illustrationswere well drawn and even In one of them Keene, thrilling. his prototype, was or depicted bending dramatically Consolidated Stock Exchange ticker! It is over a to be presumed that he was smashing the market with ten-share lots. Only a Keene could do it,and only a Keene

of the movies

at

that.

Doubtless

the author

of

the story, Mr. Edwin Lefevre, who was dissipating his talents in hazy financial paragraphs for the New

York

Globe

at

that

frustrated.

tically time, felt that he had been artis-

perhaps he had himself to thank. Here is his own descriptionof such a manipulator. It is in a short story publishedin 1901, called The Break in Turpentine: But

The art "Now, manipulators of stocks are born, not made. is most for stocks should be manipulated in such wise difficult, that they will not look manipulated. Anybody can buy stocks or

can

sell them. time

same

But

every

one

can

sell stocks and

the impression that he is

convey

that pricestherefore

boldness and stock

not

market

must

inevitably go

at

buying them,

the and

higher. It requires nical techjudgment, knowledge of

consummate

much

conditions,infinite ingenuity and

absolute familiarity with human agility, of the curious psychological phenomena

nature,

of

a

mental

careful

gambling

and

study long

experiencewith the Wall Street public and with the wonderful people; to say nothing of knowing imagination of the American

thoroughlythe limitations and

That true

and

is

various brokers

employed,their capabilities, personaltemperaments; also,their price." to

be

fiction, and, incidentally, more professedly than the product of the, art as respectable

THE

12

STOCK

MARKET

BAROMETER i

melodrama

the

or

It

screen.

lays no

stress

the

on

deeper knowledge of values and business conditions to

necessary

which

alone

makes

manipulation possible. Truth is fiction,and perhaps harder to write,

stranger than

remark

is open

Silk Hats

and

althoughthe

Not

the existence of the kind of market

assure

long

there

ago

to

obvious

an

Strained

appeared

retort.

Faces letter to

a

popular

a

be called the antinotorious for what may newspaper, Wall Street complex. It professedto give,in a series

of gasps, the impressionsof a Western stranger on Wall Street. One of these "flashlights" visiting was, "silk hats have

seen

Mayor

Seth

J-owopened

wear

when

reduced

leather shoes. would

be like

infer,as

Only scandal

to

A an

Street.

the

Stock

new

egg

be

It

I

exact.

when

was

Exchange in

without

there

hurt

in

market

except sell the thing short. was

salt. We

a

patentsilk hat

a

a

was

stock

had

few

wise other-

cannot

egg.

for Soup"

Back

Long Way

true

wore

required,that he is a bad

few years ago a "corner" over no

rags,

financier without

a

for which

and

penury

screen

are

we

"A

to

me

stenographer,bless her honest heart, said real stylish.But financiers of the movies tend silk hats, just as the heroes in melodrama,

it was

even

in Wall

silk hat

a

Let

My

1901.

to

strained faces."

and

severelylocalized called Stutz Motor, a

been

established.

who speculators They paid up without

body Nochose

whin-

WALL

ing.

STREET

it formed

But

OF

an

THE

MOVIES

irresistibletext

for

attack upon Wall Street. One of the New said that the incident was only in "the

Metropolitan Traction

Haven it

wreckers, the Rock

called,with

13

a

popular

York

papers news-

piecewith the New corruptionists, a

Island wreckers, and"

what

free

rendering of history,"the life insurance corruptionists."This was in a newspaper It did not tell its readers that professingto sell news. the last of the Metropolitan Street Railway financing happened twenty years before. Even the foolish and indefensible capitalization of the surface lines of New then called the InterYork, unloaded on what was borough MetropolitanCompany, was fifteen years old. life insurance The which, incidentally, investigation, neither charged nor proved "corruption,"went back Even the last essay in misjudged New sixteen years. Haven a curred financing, comparativelyminor matter, ocfullyeleven years earlier ; that of Rock Island, nineteen before; while that favorite charge years of the Chicago againstWall Street,the recapitalization carried through in 1899 and not a soul " Alton, was I suppose I with it until 1907. saw anything wrong write myself down a hopelessreactionist when I say that,with the fullest knowledge of the facts,I cannot in it now. see anythingreprehensible a

Widows

and

Orphans

spectacularas the Northern Pacific corner, with the purelystock market panicwhich it produced,cannot be pleaded as an example of a kind Even

an

incident

so

THE

14

STOCK

MARKET

BAROMETER

of

manipulationwhich would disable our barometer. That particular of a pripanic occurred in the course mary bull market. It produced merely a severe dary seconresumed reaction,for the upward movement was culminate until sixteen months

and

did not

That

ing, incident of 1901, however, is stillalive and kickfar as the politicians who denounce Wall Street so It is remarkable

concerned.

are

afterwards.

all the

that

stock

affected in these

bygone incidents is alleged to have been held by widows and orphans. I wish somebody that widow and adopt, or even would spank, marry of the the orphan. After depriving their trustees business sense commonest they have no rightto come in this indelicate way and remind There is a lucrative engagement

around

crimes. them

elsewhere

Dow's Let law

be

us

that

us

of

our

waitingfor

in the movies.

"

Theory

True

serious,and

of

get back

to

our

text.

The

of the stock market,

the movement

governs

Stock Market

any

here, would be equallytrue of the London the Berlin Stock Exchange, the Paris Bourse or even The But we Boerse. underlying principles may go further. formulated

law

that and would

come

would

true

if those

Stock

changes Ex-

wiped out of existence. They into operationagain,automaticallyand

ours

with inevitably,

were

the re-establishment

averages

of

a

free market

Capital.So far as I know, a record correspondingto the Dowfinancial kept by any of the London

in securities in any there has not been

Jones

be

great

1

6

THE

STOCK

the

inside.

from market

is

MARKET

Just than

BAROMETER it will be shown

as

that the

the

manipulator,bigger than all the financiers put together,so it is true that the stock market is in a way barometer bigger than the stock market itself. A modern ton, writer,G. K. Chesterhas said that the fact without the truth is sterile, bigger

that the fact without not

until Charles

the

price movement

made

to

elicitand

H.

the truth

Dow that

set

is

even

false.

any

real attempt

had

forth the truth contained Can

for the

brings him into

whose

was

propounded his theory of

fact of the stock market. man

It

business

we

make

it

been

in the

possible

the midst

of that

whirlingmachinery to understand the power which moves it,and even something of the way that is generated? Apparently the only picture power which has hitherto reached the popular retina is the distorted image which we have called the Wall Street of the movies.

Homage

Vice

Pays

to

Virtue

ize swindlingoil-stock promoter circularhis victims from some reputable address in the all sorts of inducements financial district, and use to table get his stock quoted in the financial columns of repuhe do that if metropolitannewspapers? Would the public he addresses, the investor and the speculator, the investor in embryo, reallybelieved that which the country the sink of iniquity Wall Street was the truly the case depicts? If that were politician shady promoter would seek other quarters. But he

Why

"

does the

"

WALL

OF

credit and

for

vice pays

Wall

to as

Indeed, if the financial district

were

use

the

as

demagogues

problem

no

a

for them

All the

were

the

case

be

not

and

charged

subdued

dyer'shand,

theory

rupt cor-

as

be

would

it there

center

its

own

trary yet if the exact conof the stock-market

stillbe valid.

Rhodes

It will

tithe

to

this is true, and

would

movement

himself.

as

one

abuse

would

He

propound. The money States would fall to piecesof

of the United rottenness.

who

risy Hypoc-

virtue. rotten

its

that

knows

he

Street

no

17

the best in the world.

are integrity

is the tribute which have

MOVIES

THE

financial district because

the

uses

STREET

Morgan

that

is like the

trations in,if his illus-

he works

what

to

writer

the

mainly from the financial district. There is a Wall Street engaged upon tasks so tion inclinathat it has neither time nor serious,so exacting, have

to

been

chosen

be crooked.

nobody

If it is true,

influence the stock-market of

have

far

and

lift you

When

not

I

an

end

was

with Cecil

most

obvious

as

any some

who

means

to

larger

in itself.

following my

Africa, a quarter of contact

it is true,

of this scuffleof petty criticism their When they are rich men

the is incidental,

ends, but

time

one

out

recrimination.

wealth

any

that personalexperience, knowledge than others. The men

more

reallyknow

movement,

at

that

seen,

from

record

can

us

have

we

all the facts which

know

can

as

a

John

profession in South in

century ago,

I

Rhodes.

had definiteideas

He

was

thrown

THE

i8

STOCK

MARKET

BAROMETER

and

far above largeconceptions, Money was necessary to money.

his ideas,to

the extension

the the

of white

making of carryingout of

mere

civilization from

the

Cape to Cairo, with a railroad as the outward and visible sign of something of even significance. spiritual In the respect of intuitive intelligence I have met only like him the late J. Pierpont Morgan. It one man was impossibleto follow the rapidityof their mental There was something phenomenal about it, processes. like the performances of mathematicallygifted children who can give you the square root of a number in "

thousands Other

with

a

few

well-known

men

point of view of processes

of Edward

much

like

industryI H.

our

first-ratethinker.

seemed

"

have

have

mental

of the great captains like James J. Hill and

met, had

to

the

Most

own.

Harriman,

calculation.

speaking perhaps from

"

reporter

a

of mental

moments

a

qualityessential

They could eliminate

to

a

the irrelevant.

They could grasp the fundamental fact in a page of verbiage. But Rhodes and Morgan could do more. often startling but sound conclusion to an They could reason before you could state the premises. Not

And

these

men

were

rich,almost fortuitously. They accomplish,and it was necessary

great tasks to that they should have had

achievement heard

a

of them

Indescribable

the financial means

made

the past few years we have "ideals,"and found that most

possible.In

great deal about were

which

half-digested opinions.

But

there is

a

WALL

Wall

STREET

Street with

OF

THE

ideal.

MOVIES

19

usuallybeen, and I hope there always will be, the rightman to take the right objectiveview at the right moment. Not long ago I heard a lecturer settingforth what he called the "indescribable" beauties of the Grand Canyon of the Colorado. he

an

There

In the space

of

that proved conclusively at

Milton

could

least

far

so

he

and

hour

an

beauties

those

as

has

quarter

a

were

concerned.

was

scribable indeBut

them, or the Psalmist. could give you Perhaps any reasonablyintelligent man idea of that natural wonder if he set forth simply an the spiritual truth in the physicalfact before him. have

described

The

Unchangeable

I feel I have read

said before, perhaps in editorials you to-day,and forgetto-morrow, what I am saying

now.

The

problems

human

nature

of

humanity

is what

it has

do

not

been

cause change, beas

far back

"Cycles" are as old as organized humanity. The changes we see are superficial, where sincere and intelligent so men especially legislate that they may the better live together in peace and heart is essential to all proggood will. The human ress. Reform starts there, and not in the halls of legislation. The Bells of Trinity human

record

Facing

the western

as

shadow

from

the

tells.

end

of Wall

settingsun

upon

section of

and

least understood

the

spireof Trinity. We

have

a

Street,castingits the most

criticized

great nation,stands often heard its bells

THE

20

the

ringing

be

It

glory of

bells, the round

about

make

men

is

form

of

of

exalteth

a

government,

truly

governs

We

have

truth

would

remain

United

Wall

Such

a

the

past

righteousness

only as

well

goodness

the

foundation

spirit

parallel,

in

that

that

to

There

its

none

knows

are

in

that

surely if

the

as

and

tice jusall

of

alone

people

a

had

in

of

is

the a

something

letter

become

and

of an

the

sense

their

divine.

Constitution

study

authors

because

of

never

truth

this

which

permanent

writings

arc

in

And

interesting

surviving

is permanent the

studying

are

we

self-evident.

there

the

laws

the

axiomatic,

foundation

element

love

do

can

contented.

that

its critics

and

said

archeologist, classical

laws

is

Street

shine

itself.

States

were

said

because

fundamental,

higher

those

manner

that

There

be

of

hearing

some

more

or

past.

nation.

good

little

seated

to-day, without

not

sacrifice

and

the

the

disinterested

most

is

government in

in

herds shep-

all

again,

that,

be

shall

richer

or

it could

which

Lord

The

hymns.

flocks

well

There

happier

warning,

and

their

may

the

us.

BAROMETER

Christmas

watching

ground.

the

no

familiar

old

will on

MARKET

STOCK

of

the

for

the

day

our

dreamed. has

in it

III

Chapter CHARLES

TO

H.

judge from from

theory of

DOW,

AND

large

number

a

readers the

of

cycles generally,that in the Wall

Street.

It may

resemblance

to

and

H.

financial

of the

Dow

and

service of

December,

1902,

The

once

it bears

of

no

ing beat-

ligence intel-

more

of

one

I read

founder

of

the

them

Street

Journal.

fifty-secondyear.

Bowles,

the

Dow

with

an

a

theory?"

Dow-Jones

New

and

He

died

He

was

early

editor

great

was

his

founder

York, and

reporter,

SpringfieldRepublican.

that

More

and

can

in New

experienced newspaper

in

money

system

or

thing some-

make

this, and

Man,

Wall

be

reply.

where

in his

Samuel

than

the

was

first editor

to

prosperity to

questions show

extended

an

Dow,

news

under

at

Newspaper

was

Charles

said

understanding

A "Who

way

"martingale"

Some

least deserves

at

assumed

sure

be

any

bank.

the

a

Dow's

on

and

panic

on

theory is

of

nature

of letters received

discussions

past and

averages,

THEORY

HIS

an

ing train-

of

the

Englander,

ultra-conservative; and intelligent,self-repressed, almost knew his business. He judiciallycold was the

of

consideration discussion.

*

never

saw

him

of any It would angry

subject,whatever be

;

I

less than

never ai

saw

the

just to him

in

even

he in

fervor

say

that

excited.

BAROMETER

MARKET

STOCK

THE

22

and good perfectintegrity

His

in Wall Street,at confidence of every man few efficient newspaper men there were financial section,and

knowledge on

in an

a

time when

covering the stillfewer with any deep

of these

advantage of some the Stock Exchange.

the

the floor of

a

from

over

Quaker

and

Dublin

years

It

an

to

honor

to

about

came

Wall As

America.

ence experi-

Goodbody,

late Robert

The

rather curious way.

Irishman,

came

a

of finance.

also had

Dow

the

commanded

sense

Street,

the

New

shall Exchange requiresthat every member his became be an American citizen,Charles H. Dow for Robert Goodpartner. During the time necessary change body to naturalize,Dow held a seat in the Stock ExYork

Stock

and executed

orders

body became an American the Exchange and returned

on

the floor.

citizen Dow to

his

more

When

withdrew

Goodfrom

paper congenialnews-

work. Dow's

Knowing

and

Caution,and

His

Theory

I worked in likingDow, with whom the last years of his life,I was of often, with many his friends,exasperated by his overconservatism. It showed itself particularly in his editorials in The Wall Street Journal,to which it is now to allude necessary because they are the only written record of Dow's He would write a theory of the price movement. strong, readable and convincingeditorial, on a public finance and business,and in the last questionaffecting paragraph would add safeguards and saving clauses which not merely took the stingout of it but took the

THE

24

four

to

STOCK

MARKET

BAROMETER

six years," rarelythree years and

oftener less

than two.

for what he said,and always had a reason him those who knew his intellectual honesty assures based It was that it was at least an arguablereason. of financial his profound belief in the recurrence upon by recorded crises,at periodicintervals (as shown than ten years. financial history),of a little more assumed for that period one primary bull market Dow and one primary bear market, and therefore splitthe rather like the little ten-year period in half. It was mitted arctic animals, subten boy who, being asked to name "five seals and five polar bears I" But Dow

Panic

Dates

of Jevons

In the

openingchapterwe spoke of historic panics, of Professor necting StanleyJevons, and of his theory consuch crises with the sun

and

their assumed I said that the

recurrence

influence upon

of spots on the weather

the and

about as good reasoningwas elections with leap years. as associating presidential But here are the dates of commercial crises in England recorded by Jevons, and it is fair to say that as theyare sufficiently impressive.These years are 1701, 1711, 1712, 1731-32, 1742, 1752, 1763, 1772-3, ^S. 1793. 1804-5, 1815, 1825, 1836, 1847, 1857, 1866, and 1873. As Dow editorial quoting these dates, says in an publishedin The Wall Street Journal on July 9, 1902 : crops.

CHARLES

"This

H.

makes

HIS

AND

DOW,

THEORY;

25

good showing for the ten-year theory and is supported,to a considerable extent, by what has occurred in this country during the past century." Dow's

a

very

of the successive crises in this country

account

(he had personalexperienceof three of them 1873, that it so 1884 and 1893) was good and interesting is well worth quoting here. So far as Jevons'sdates are concerned, it is curious to note that he omitted the beginningof his list. That serious crisis near one occurred in 1715, and was precipitated by the Scottish invasion of England in that year to restore the Stuarts It is rather human of Jevons to the English throne. to omit it,if,as I suspect, there were not enough spots the sun in that year to fitthe parallel. on "

Dow is Dow's

Here "The

on

Our

Own

of

account

firstcrisis in the United

own

crises:

States during the nineteenth

precipitatedby the capture of Washington by the British on the 24th of August in that year. York banks suspended payments, The Philadelphia and New The difficulties leading and for a time the crisis was acute. the great fallingoff in foreigntrade to this period were up of 1808, the caused by the embargo and non-intercourse acts of publicexpendituresover and the creapublic receipts, tion excess of state banks taking the place of the of a large number States Bank. old United Many of these state banks lacked capitaland issued currency without sufficient security. century

came

in

1814, and

our

Crises

was

1819, 1825, and "There of

a

was

tremendous

a

near

approach to

a

1837 crisis in

1819

contraction of bank circulation.

as

The

the result

previous

caused

serious fall in the prices of commodities

a

This, however,

estate. causes

European

progress

"The there and

than year

money

real

and

panic as far

as

its

a

diminished

demand

to

lower

reversal of conditions.

1837 brought

commercial

caused

pricesand some money become did not situation,however, of an interruptionto in the nature

more

was

abundant

was

ahead were

a

led

The

stringencyin 1826. serious and

1825

crisis in

productsand

for American

very

purely a

was

tion contrac-

concerned.

were

"The

prompted speculation,the

issues had

increase of bank

BAROMETER

MARKET

STOCK

THE

26

a

cause.

growth, with

of the time.

panic,for which great commercial There had been rapid industrial a

Crops

multitude were

lished estabof enterprises

and breadstuffs deficient,

the refusal of the government to extend States Bank had caused a radical change

imported. The

charter of the United

banking business of the country, while the withdrawal of public depositsand their lodgment with state banks had given the foundation for abnormal speculation. in the

1847, 1857, and

1866

"The

panic in Europe in 1847 exerted but littleinfluence in this country, althoughthere was and the a serious loss in specie, Mexican had some effect in checking enterprises.These war neutralized somewhat however, were effects, by large exports of breadstuffs and later by the discovery of gold in 1848-9. "There was a panic of the firstmagnitude in 1857, following the failure of the Ohio

Life Insurance

and

Trust

Company in August. This panic came unexpectedly,although prices had been fallingfor some months. There had been very large railroad building,and the proportion of specieheld by banks small in proportionto their loans and deposits. One of the features of this period was the great number of failures. The banks generallysuspended payments in October. was

very

"The

London

panic in 1866, precipitatedby the failure of Overend, Gurney " Co., was followed by heavy fall in prices in the Stock Exchange here. In April there had been a corner

CHARLES

H.

Michigan Southern which the relapse was in

HIS

AND

DOW,

THEORY

27

from speculation generally, rampant rather more than normal. and

1873, 1884, and

1893

well as a commercial panic of September, 1873, was of an enormous It was the outcome as a Stock Exchange panic. conversion of floatinginto fixed capital. Business had been expanded on an enormous scale,and the supplyof money became "The

insufficientfor the demands and

made

collapsed,

Credit

it.

upon

the depressionwas

"The

year

extremely serious. 1884 brought a Stock Exchange

crisis. The

commercial Bank

and

smash

failure of the Marine "

Grant

Ward

in May

but

was

accompanied

standard

the outcome

was

had

lasted

of

a

number

of

causes

"

the currency the withdrawal situation, and the fear of radical tariff legislation.

anxiety in regard

was

felt

was

of the factors in this period.

one

uncertaintyin regard to of foreign investments The

a

politan Bank, Metro-

by a large fall in prices and a general check which The Trunk Line war, which throughout the year. for several years, was "The panic of 1893

not

undoubtedlythe

to

the maintenance

of the gold

chief factor,as it bore upon

many

others."

A With

a

caution

New

Weak

Prediction

predictionwhich is not merely almost Scottish,Dow, in a typical in

England but final paragraph, goes

on

to

say

:

the past and by the developments of the last that we six years, it is not unreasonable to suppose get at may least a Stock Exchange flurryin the next few years."

"Judging by

not even being unreasonable, it was It was than a "flurry"in 1907, a daring guess. more the New York five years after,when banks resorted to clearing-housecertificates and the stock market

So

far

from

THE

28

BAROMETER

MARKET

STOCK

panicby a bare five minutes. But the prediction made duringa primary upward swing which was three in September of the year culminated 1902, grazed

a

months

before Dow

died.

five-yearprimary disproved Dow's the assumed ten-year swings,arrived at by splitting cyclein half. There was a primary bear market from A primary September, 1902, lastingnearly a year. bull market originatedin September, 1903, becoming marked definitely by June, 1904, and culminatingin a January, 1907 period of three years and four lowed months; while the primary bear market which folit and covered the period of the crisis of 1907 lasted until the following December a period of Events

soon

"

"

eleven months. Nelson's All

that Dow

Book

on

Speculation

printed is in The Wall Street Journal,and only by search through the preciousfiles of Wall Street's Bible can his theory of the stock market be reconstructed. But at the pricemovement end of 1902 the late S. A. Nelson and published wrote an unpretentiousbook called The A B C of Stock Speculation. It is long out of print,but may occasionally be pickedup from the second-hand booksellers. He tried to persuade Dow to write the book, and, that,he incorporatedin it all that he could find failing of what Dow had said on stock speculationin The Wall Street Journal. Of the thirty-five chapters in the book, fifteen (Chapters V to XIX torials, ediare inclusive) some slightly abridged,from The Wall Street ever

CHARLES

H.

DOW,

covering

Journal,

such

"Methods of

of and

Trading"

Reading

swings

29

'Scientific

tion," Specula"Methods

Market,"

all of

generally

them

"

entire

for

be

will

they

THEORY

as

the

suitable

not

although

here,

HIS

subjects

market

but

interesting

AND

reproduction in

sufficiently quoted

sequent sub-

chapters. Nelson's He

is

was

and

take

not

conscientious

a

loved

we

him

his

lies

copy

of

dying

was

seriously

as

pathetic

died

Wall

but

Street,

it

Theory."

"Dow's which

is

Dow

recognized

it "

in

a

was

practical

was

an

the

Dow way.

in

great who

and

first

His I

and

write,

read

his of from

honorable

traceable

could

himself.

evolved

for

one

"

can

face

he "

away

who

fully entitled;

"

trade

he

was

It

meaning

market

stock

far

man

strained

morality

the

after,

long

not

I

as

"

on

I

as

earnest,

tuberculosis

book.

reporters

took

he me

and

little

young

as

before

figure

discussions He

sensible for

at,

little

sensible

and

and

laughed

autographed see

conscientious

a

if

rather

ventional con-

speculation. beloved

his the

of

name

ascription, many

people in

movements

useful formulated

barometer those

to

had the

of ideas

IV

Chapter DOW'S

have

WE

of

The

market all

going

running from

two

four

led

to

covering

at

least four

been

who

or

he

In

in

says,

of

short

; the

swing,

third

his third

and

less than

much

approximately five

divide into

years

That,

main Dow's

to

attempt

an

is the

in its duration."

years

exaggeration.

a

each

however,

a successfully formulated of the highest value, movements

Dow

after

is the

ments, movenarrow

panic cycle theory

the

of

three

first is the

more

that

also how

and

had

synchronized

came

month

shown

unconscious

had

the

sentences.

having

as

second

a

theory of the market and

The

to

years,

is immaterial.

that

1900,

The

time.

same

day.

to

bull market

an

19,

be considered

to

the

period

ten-year and

December

complete itself in

may

assumed

in three

up

weeks

already

movement

bear

at

day

movement,

It has

always

on

from

movement

the

is

theory

Journal:

Street

Wall

"The

main

be summed

published

editorial

an

of Dow's

price movement

stock-market

the

SPECULATION

in past discussions

seen

of it could

essence

TO

APPLIED

THEORY,

those

him

movements

could

that

so

construct

those

business

a

barometer. The

This

is the

hardly be

Truth

of

essence

said that

Beneath

he

Dow's

did 30

not

Speculation theory, see,

or

and

live

to

it need see,

all

THE

32

BAROMETER

MARKET

STOCK

of

high point a bear period when lower than the previouslow points. It is

the average exceeds that of previoushigh points. It is

"It is a bull periodas long

the low

point becomes

often difficultto because the

as

judge whether

the end of

advance

an

of pricesis that which

movement

tendency had changed. Yet, it may pronounced secondary movement."

one

would

only be

main

has

if the

occur an

come

unusually

both the idea contains,by implication, of "double (which I tops" and "double bottoms" franklyconfess I have not found essential or greatly row useful)and the idea of a "line,"as shown in the narfluctuation of the averages over a recognized either of accumulation tributio disone or period,necessarily This

passage

This service in

showing or

the

movement,

so

movement,

of

has been

found

the further

possibletermination

new

of

the

dary secon-

apt to be mistaken for the initiation I shall,in a later chapter, trend.

major analyze such a "line,"made a

be of the greatest of the main persistence to

in the

stock

in

market

1914. Forecast Successful

In

subsequentdiscussions there will be no difficulty in showing,from the various studies in the pricemovement since 1902, standing for record in the columns of The Wall Street Journal, that the method for a forecast of the main discrimination had

been

market between

movement

that

and

and

for

a

rect cor-

the

secondary theory, and

provided in Dow's that it has been used with surprising accuracy. in Wall prophet, especially Street,takes his life his hands. If his predictions are always of the ros movement

A in

DOW'S

whatever at

worst

THEORY

APPLIED

facts of the situation may be merely called a fool for his the

charge againsthim will be far more that a boom and nas overrun itself, bearish

33

and

right he will

be

be, he will

pains.

The

serious if he

sees

says

so.

If he

is

of

accused

unworthy motives. He will even be held contributoryto the decline which he foresaw, although his motives may have been of the highestand he may have not a penny of interest in the market

either way.

"Recalling"a Prophet Is the American and

Cassandras

It does

not

Colonel

C.

publicso ungratefulto as

like

this?

Yes, indeed, and

unpleasant truths.

McD.

its Micaiahs

Townsend

of

the

more

so.

In

1912, when United States

with a brilliant record then Engineers,an army man and since,was mission, River Compresidentof the Mississippi the height of the water he predicted,from in the upper of the greatest Mississippi rivers,one the cityof New floods. He warned Orleans that the ing flood might be expectedin a month's time, recommendthe most vigorous and immediate steps to lessen zens Orleans grateful? Its citithe calamity. Was New from held an indignationmeeting to demand President Taft the recall of this "calamity howler" tically and "dangerous alarmist." Mr. Taft characterisnot was kept his head, and Colonel Townsend A good deal of property in the Mississippi removed. Valleywas "removed," and it is needless to record that

New

Orleans

did not

escape.

The

railroads and great

MARKET

STOCK

THE

34

BAROMETER

to be affected, theywere likely selves. took the warning seriously, with advantage to themof New The Orleans subsequently mayor rescinded the resolution,with an apology. Anyone

where

industrial concerns,

who

knows

of the ablest and

one

in the United that

previousmass

stand Army will readilyunderand the Townsend regarded the mayor meeting with equal indifference.

It has been to

be

the game. but Dow I

regarded as Any trader

himself

never

testifyfrom many writingthe stock market service

and

The

days, and it was, of thoroughlyunderstand the market

Movement

theory is in no for beating a gambler'ssystem would disregardit at his peril, it in that light,as considered

said before

that Dow's

discussions with him.

can

news

gineers en-

States

Synchronizingthe Price

sense

least advertised

paragraphs of Wall course, so

Street

I

was

Dow-Jones

the

in those

Journal

essential that

I should

scientifica method

of chronizin synin Wall

Many men Street knew Dow and set their experience at his service. His mind was cautious to a fault,but logicaland I did not honest. intellectually always agree with him and he was oftener right than I. When he was it was data such clearlyfrom lack of accurate wrong as

is now

movement.

available.

Necessary Knowledge It would

perhaps be well to point out of knowledge of the major movement

here the

that

a

market,

DOW'S

THEORY

APPLIED

3*

down, is necessary for the successful flotation of any largelycapitalized enterprise.In a future discussion itwill be convenient and highlyinteresting sions, admisfrom James R. Keene's own to illustrate, how he distributed Amalgamated Copper to an oversanguinepublicat a time when the Boston News Bureau, to its everlastinghonor, was warning New England investors to have nothing to do with that property at anything like the pricesasked, or allow whether

or

up

themselves

\Y-2. per

to

cent

retained

was

be deceived

by

and

per

at

a

a

half

time when

openly callingthe showing, as the Boston

was

neither

quarterlydividend of

cent

The

That

extra.

rate

Street Journal

Wall

"blind pool," and a company had shown, that News Bureau

conditions

of

trade nor the copper itself justified the flotation price. But capitalization Keene

the

the

could

never

have

the

distributed

the

stock except

during the known major swing of a great bull market. He had exactlythe same condition to help him in the much tributin more formidable, and creditable,task of disthe enormous of the United capitalization have States Steel Corporation. That stock could never have been been sold, and its sale would tempted, atnever in the subsequentbear market of 1903. An It would

Instructive Editorial

be unfair to

Dow

if the reader

were

not

given the opportunityof extractingfor himself some of his theory,or lighton Dow's own application any

rate

some

idea of his method

at

in the series of

MARKET

STOCK

THE

36

editorials which, as I have

said

before, dealt primarily such and only incidentally

as speculation

stock

with

BAROMETER

with rules for reading the market.

an

rial, edito-

full,publishedon July 20, 1901, only after the panic which the resulted from

weeks

At

Pacific corner.

Northern

is

in

almost ten

Here

the time

he did

he wrote

of a major that it was not a culmination clearly violent secondary reaction in a swing but a peculiarly He speaks first of individual primary bull market. not

see

stocks

:

"There

is what

is called the book

method.

Prices

are

set

down, giving each change of one point as it occurs, forming therebylines having a generalhorizontal direction but running There come into diagonalsas the market moves up and down. stock with a good degree of activitywill stay times when a of prices,say two within a narrow points,until there range has formed quite a long horizontal line of these figures. The formation

of such

accumulated

a

line sometimes

suggests

that stock has been

and this leads other people to buy distributed, sell at the same Records of this kind kept for the time. or last fifteen years seem tion to support the theory that the manipulato acquirestock is oftentimes detected in this way. necessary "Another method is what is called the theory of double tops. Records of tradingshow that in many when cases a stock reaches decline and then go back again to top it will have a moderate the highestfigures.If after such a move, the priceagain near distance. recedes,it is liable to decline some "Those, however, who attempt to trade on this theory alone find a good many times when exceptions and a good many not signals are given. or

Trading "There true

are

that in

a

those who

trade

Averages

on

on

the

theoryof

averages.

considerable period of time the market

It is

has about

DOW'S

days of advance as series of days of advance, balancingdays of decline. as

trouble with

37 If there

it has of decline.

many

"The

APPLIED

THEORY

this system

the

surelycome

there will almost

a

come

is that the small

swings are while the tendency of

always part of the largerswings, and events equallyliable to happen is always toward

it equality,

is

possibleis liable to occur, and there frequentlycome long swings, or, in the case of stock trading,an extraordinarynumber of days of advance or decline which fit properlyinto the theory when regarded on a long scale,but which are calculated to upset any operationsbased on the expectationof a series of short swings. "A much more practicabletheoryis that founded on the law of action and reaction. It seems to be a fact that a primary also

that every

true

in the market

movement

in the

movement.

likelyto

have

If a

hold good

to

of twenty

pointsor

will

ment generallyhave a secondarymoveof the opposite direction of at least three-eighths

primary seems

combination

a

stock advances

relapse of no

pointswill

how

matter not

four

points,it is

ten

points or

The

more.

far the advance

infrequently bring a

goes.

very

law A

decline of

rise

eight

more.

"It is impossibleto tell in advance

the

lengthof

any

primary

but the further it goes, the greater the reaction movement, when hence the more it comes, certaintyof being able to trade on successfully

"A

that reaction.

method

that of

employed by some operators of largeexperience is The theory involved is this: The market is responses.

always under is seekingto

less manipulation. A

largeoperator who advance the market does not buy everythingon the but puts up two three leadingstocks either by legitimate list, or buying or by manipulation. He then watches the effect on the other stocks. If sentiment is bullish,and people are posed disthis rise in two or three stocks to take hold, those who see immediately begin to buy other stocks and the market rises to This is the public response, and is an indication a higher level. that the

more

or

leadingstocks

generalmarket

will be

will follow.

given another

lift and

that the

MARKET

STOCK

THE

38

BAROMETER

"If,however, leading stocks are advanced and others do not follow,it is evidence that the publicis not disposedto buy. As to advance this is clear the attempt pricesis generally as soon is employed more discontinued. This method particularlyby But it can the tape. be read at the close of the day in our record of transactions by seeingwhat stocks were hours and whether the general market put up within specified The best way is to of reading the market followed or not. watch

those who

read a

from

the standpoint of values.

market

balloon plunging hither and thither in the wind.

serious,well-considered

it represents

a

sightedand

well-informed

as

The

exist

or

future.

which

are

men

to

effort

is As

not a

like

whole,

the part of faradjustpricesto such values on

expected to exist in the

not

too

remote

The

thought with great operators is not whether a pricecan be advanced, but whether the value of property which to buy will lead investors and speculatorssix they propose months hence to take stock at figures from ten to twenty points above present prices. "In reading the market, therefore,the main point is to discover what a stock can be expected to be worth three months hence and then to see whether manipulators or investors are advancing the price of that stock toward those figures. It is often possibleto read movements in the market very clearlyin this way. To know values is to comprehend the meaning of movements

There

in the market."

assumptionshere to which modifications It would be might be offered,but there is no need. impossibleto show, except by the research of records coveringat least half a century, that there are as many days of advance as of decline. The information would be valueless if obtained. It amounts to saying that heads and tails will equalizethemselves if a coin is are

of times. spun a sufficientnumber But what may be commended is Dow's

and clarity

MARKET

MAJOR

IT

said, in continuing the

be

may

Charles

of

The

H.

of

Dow

stock

price

it must

be

the and

averages,

devising and

actual

records of

and

even

how

to

The

Averages alone

nation's

prosperity," with of

the

represent

the

sum

immediate

of averages,

of

Dow's

of

and

transactions of all Wall and

future.

the as

some

in

the

a

There

statisticians 4*

the

applied is

no

country's,

theory

sufficient

shows

need

reason.

of

source

not

Street's

remote,

ness busi-

Theory.

the

muddy

need

we

ticker

Themselves

for

"the

actual

lies its great

that

question-begging adjectives.

tendency

past,

In

barometer

called

eter thermom-

essentially the

SufficientIn

been

practical

stock

the

as

value

in this respect,

sciously con-

was

records

world's, business, and

it.

has

it is

predict.

is the

read

Street

just

lies the

that

of the

It stands

Wall

to

market

stock

he

the

the

by

for

thermometer

But

prices.

in

that

between

moment,

barometer

a

value, and The

The

the

at

temperature

shown

as

emphasized,

columns

well-known

now

movement

difference

the

barometer.

a

his

on

in the

scientific barometer

a

Remember

use.

Journal,

of what

discussion

actually published

Street

Wall

theory

SWINGS

concern

The

Stock

selves our-

Exchange

the to

do, elaborate

and

sum

knowledge to

the

add

of the

ing discountto

the

compila-

MARKET

MAJOR

SWINGS

41

ings, commodity price index numbers, bank clearfluctuations in exchange, volume of domestic and foreigntrade or anythingelse. Wall Street considers all these things. It properlyregards them as ence experiof the past, if only of the immediate past, to be used for estimatingthe future. They are merely of the weather creatingcauses predicted. It is a common exemplifiedin the Pujo superstition, Committee's inquiryinto some supposed supercontrol of banking and finance,that "powerful interests" in Wall Street exist which have a sort of monopoly of nefarious ends. knowledge and use it to their own The stock market is bigger than all of them, and the

tions of

financial interests of Wall except 1907.

of the stock market.

combined

seldom

often wrong in their estimate In the days of H. H. Rogers and

are

supposedly all-powerfulactivities

called the group

are

momentarily to stop a panic,as in the crisisof Taken in temporary ance, alliseparately,or even these interests

the

Street

Oil

Standard on

wrong

I have

group,

stocks for

of

months

what

known

and

was

that

even

years

shrewder no together. There was judge of business conditions as affecting than Henry great enterprises H. Rogers, but I have heard him argue seriously that it

not

was

and

the

he

that

sum

wrong

but

the

stock

market

headstrong public. Bigger

In the

was

Than

pricemovements,

of every

scrap

of

Manipulation

any as

Dow

knowledge

correctlysaw, available

to

the

Wall

42

THE

Street is reflected Street

in Wall

as

far ahead

see.

can

BAROMETER

MARKET

STOCK

The

as

the clearest vision

market

is not

the condition of business is

to-day.

will be months

ahead.

that condition

It is

but

sayingwhat saying what

Even

with

nipulation, ma-

several

leading thing, and is stocks, the market is saying the same bigger than the manipulation. The manipulatoronly foresees values which he expects and hopes, sometimes wrongly, the investingpublic will appreciatelater. mary Manipulation for the advance is impossiblein a pribear market. Any great instances of designed occurred manipulation and they are few in number in a primary bull market, necessarily because the so market than the manipulator. A personal more sees experienceof not only Wall Street but other great markets has taught that manipulationin a falling market non-existent. The bear trader carries is practically his own letter of marque, and fights for his own hand. A major bear swing has always been amply justified in 1917, by terrifying as by future events, or for exception, future possibilities. embracing

not

one

"

"

Writing in Startingfeeblynear small volume pitifully before

the

re-election

developedwhich six months.

covered

This

was

a

Bull Market

the end

of

June, 1900, with a of transactions,four months of McKinley, a bull market than twentya periodof more interruptedby the May panic

of 1901,

Pacific corner, arisingout of the Northern proving to be only a secondary downward swing of

a

if violent,kind. typical,

this bull market

freelymade theory. He and

use,

It

that Dow

Street Journal

Wall

SWINGS

MARKET

MAJOR

to

during the

was

of

course

the editorials in The

wrote

which

43

has here

reference

been

they contain the substance of his for practical designed a barometer

because had

it is characteristic of the

he

that

man

ceeded pro-

apply it,to find out if it had the vital quality of dependable forecast. It is a pitythat he could not to

have

lived

which

to

it in the twelve months'

test

followed.

All

subsequentmarket

bear

market

swings,up

or

down, have proved the value of his method. his forecasts were Throughout that bull market remarkably accurate, if necessarilygeneral and not He was stocks or small groups. appliedto particular in the essential matter of the adjustment of correct lished pubpricesto values. His concludingeditorials were In in July, 1902, not long before his death. those he foresaw that priceswere outrunning values, would begin and that within a few months the market in railroad earnings,at least to predicta contraction slower development in the great industrial groups, a and

contraction of trade

Primary It will be well the time

which

Dow

to

wrote

culminated

elsewhere.

Movements

give here to

in 1921.

the

the end

They

major swings from of the bear

are

as

1.

Up.

June,

1900,

to

2.

Down.

Sept.,1902,

to

3.

Up.

to

4.

Down.

Sept.,1903, Jan., 1907,

to

market

follows:

Sept.,1902. Sept.,1903. Jan., Dec.,

1907.

1907.

STOCK

THE

44

on

BAROMETER

1907,

to

Aug., 1909.

1909,

to

1910.

1910,

to

July, Oct.,

1912,

to

Dec.,

1914.

1914,

to

Oct., 1916. Dec., 1917.

5. 6.

Up. Down.

Dec., Aug.,

7.

Up.

July,

8.

Down.

9.

Up.

Oct., Dec.,

10.

Down.

Oct., 1916,

to

11.

Up.

1917,

to

12.

Down.

Dec., Nov.,

1919,

to

13.

Up.

1921,

to

14.

Down.

Aug., Mar.,

1923,

to

15.

Up.

Oct., I9238

to

If the late bull

MARKET

1912.

Oct.-Nov., 1919. June-Aug., 1921. Mar., 1923. Oct., 1923.

J. PierpontMorgan said that he

the United

was

States," this exhibit confirms

"a his

periodof twenty-three years the bull markets lasted rather less than twice as long as the bear The duration of seven markets. major bull average tion months; while the average duraswings is twenty-five of seven major bear swings is fifteen months.

judgment. In

that

It will be noted

from

the

table that

the

longest September 22,

that from major swing upward was The actual top of the 1903, to January 5, 1907. was January 22, 1906, with a subsequent averages and a like irregular months irregulardecline of some all within the year 1906, to a figureclose recovery, to the old high point. This is therefore taken as the end of that primary movement, although t'he secondary swing of 1906 was by far the most extended of which have any record. This exceptional we year, of which the San Francisco earthquakewas the feature,will be fully discussed in a subsequentchapter. The other five bull markets show periodsof from something over nineteen months to a few days less than twenty-seven months.

MARKET

MAJOR

SWINGS

45

Predictions Startling

longestof the six bear markets here illustrated extended to nearly twenty-seven months, includingthe and the hundred ing outbreak of the Great War days'closof the Stock Exchange, culminatingimmediately That was before Christmas, 1914. a black Christmas, of us may as some happen to remember; but it was boom in the followed, in 1915, by the tremendous in a war production of material for the combatants The

America

which

had

a

beginningto year,

grasp

its significance.

of these six bear

Two one

of them

of them less than

material

which

boom

a

"

the greatest accuracy of the country was hardly

the business

time when

entered

predictedwith

the stock market at

then

not

here

did

markets

less than

a

month

fifteen months. to

that

say

last

not

a

and

more,

There

one

cient suffi-

seems

market

bear

quite a

is

mally nor-

appreciablyshorter than a bull market; perhaps as swings in a primary rising secondary downward short and sharp, with a haltingrecovery are average consuming a longer time than the decline. The

Market

Always Right

Is

"

later stage

throughout it was these great market movements possiblefrom valuable barometer the stock market to predict, some distance ahead, the development of the business of the It will be

shown

at

a

that

These discussions would fail in their purpose country. the subjectclear to the unfinanif they did not make

cial layman

"

to interesting

the

man

who

never

bought

MARKET

STOCK

THE

46

BAROMETER

stock in his life. A barometer speculative for all vessels at sea, from the smallest is a necessity as much, coastingschooner to the Aquitania. It means of Kipling's and even to the "Bolivar" ballad, more, "swamping in the sea," watching,in dispair, a

share

of

"Some as

liner's lights go

damned

it does

the

to

by, like a grand hotel"

navigating officers

on

the

liner's

bridge. There is no business so small that it can afford barometer. to disregardthe stock market Certainly there is no business so large that it dare disregardit. Indeed

serious mistakes

the most

of great business have

navigatorsof to

take heed

market

come

from

in the management a

failure of these

of commerce the great liners of the sea disinterested stock when the passionless,

called their attention

"

and

Never

to

bad

weather

ahead.

Thanked

When, in the United States Senate,the late Senator nal, Dolliver,readingan editorial of The Wall Street Joursaid, "Listen to the bloodless,verdict of the market place,"he saw the merciless accuracy of that verdict; because it is,and necessarily must be, based all the evidence,even when givenby unconscious upon and unwillingwitnesses. No wonder the rural politician can so easilymake Wall Street the scapegoat for depressingconditions, his farmer constituents no more than the rest affecting of

Wall

Street is guiltyin their eyes, for they are for a willing enough to hold Wall Street responsible us.

THE

48

when

knew

more

And

sell

farmer

had

but

thinks

he

an

break

to

Chicago

the

ago,

at

her

grain

What

Orleans

New

the

was

who

paid

The

Germans

thing

the

empire, saw,

on

the

it in

advance

learned

have British with

exactly

old

always the that

widest

and of

out to

let

knew, commerce

knowledge.

and

Wall and

self.

man Congress-

grain

the

of

He

is

trade

in

the

cotton

Twenty

years

broke

Germany

legislation.

destructive

plan,

save

system

his

York.

She

to

prejudiced

farmers,

consequence? on

for

her

with

barometer,

barometer

new

of

demand

out,

get

blames

barometers

New

wheat.

barometer.

of

the

and

and

He

the

barometers

the

price

getting

by

break

Minneapolis,

and in

it all

to

axe

and to

and

pound,

a

banking

deluded

own

cents

then

time.

Reserve

change

can

take

to

trying

his

him

for

wheat

cotton

market

yet

was

Federal

the

about

the

at

there

forty

telling

was

he

and

everyone

a

the

while

Street

trade

than

what

himself

He

cotton

his

pooling

for

his

barometer

that

BAROMETER

insanely

was

and

bushel

a

to

farmer

the

$3

MARKET

STOCK

had it

the

was

their free

construct

to

farmers

pockets.

own

alone,

markets

built the

up

a

the

world

est greatever

Chapter A

UNIQUE

THERE is the

QUALITY

Wall

out

of

Wall

Street

of

of

Street

the Wall

Street

characters

no

old-fashioned caricatures

melodrama

revival felt that that

our

have

second

of

militated

market

astonishing

and

moving-picture

of

market

authority

than

intimacy

in

Bourse

with

Wall

and

gold shares, in

1895.

But

that

writer

even

"Between

of

which

the

that

claims

more

no

Stock

of

years

by

tical prac-

Exchange,

wildly speculative market

the

in all that

can

tive authorita-

twenty-six

London

stock

manipulation

Street, preceded

the

to

of the movies.

otherwise

from

come

was

devoted

be

usefulness

the

The

acquaintance with Paris

Street

movements

may

It

Unmanipulated

belief

is the

ligent unintel-

screen.

well

the

those

"

misconceptions, that

against

instructive.

and

stark

Are

greatest most

sational sen-

of

types ago

chapter might

barometer,

falsify stock

the

an

Movements

the

the

fifty years

popular misconception, Wall

One

of

Street

interpretation,whose than

of had

the

on

Major

has

real

more

which

other

popularity-hunting politicians ;

of

of false dramatic

are

Wall

nition defi-

at

The

misconception.

is

them

fact, slowly arriving

fiction;the

newspapers,

of

One

Streets.

of

chaos

a

FORECAST

OF

Wall

two

are

the

VI

Chains,"

in

experience,

burg Johannes-

for

what

it

BAROMETER

MARKET

STOCK

THE

50

singleinstance which depended for its of a major market movement for its genesis,upon manipulation. impetus, or even in vain if they have discussions have been made These and failed to show that all the primary bull markets primary bear market have been vindicated, in every of their development and before their close, the course much overby the facts of generalbusiness,however tended have to speculationor over-liquidation may as they always do, in the last stage of the excess, primary swing. to recall be worth, it is impossible

may

A

This of

is

a

Financial

sweeping

its fundamental

a

Impossibility but

statement,

truth.

When

I

convinced

am

R.

James

Keene

took up the task of marketing two and twenty hundred thousand of Amalgamated shares Copper, for the

people who had

in the at

He

been

not

had

able

to

about

hundred

seven

amalgamation

that

float the stock,it is estimated

of distribution

course

least

brought

he

thousand

have

must

shares

but

that

traded

in

of that stock.

priceto above par to realize a net of for his employers. This was a ninetyto ninety-six small stock capitalization; but let us assume relatively that some syndicate,larger than any that the stock market has ever operation necessarilyinvolvingthe coseen, of all the great banking institutions, took underthe general bull market without to manufacture carried the

which

Keene's

wasted.

afford

Let to

us

efforts would concede

have

that this

ignore the large number

been

worse

than

could super-syndicate of active securities

A

UNIQUE

QUALITY

outside of the

fortyactive

industrial averages opinion. Let us assume and

FORECAST

OF

stocks taken

in

our

51 railroad

defy all trained public for that they had accumulated rise,againstall their previous practiceand conviction, without, by some miracle,arousing suspicion,

the

not

two

but

a

hundred

hundred

Anybody that two

and

and

and

twenty thousand times that number.

who

learned make

two

shares

of stock,

in the littlered school four must

that

see

we

are

house here

leading ourselves into an arithmetical impossibility. with This syndicatewould presumably not be content less than a forty-point and its actual trades, net profit, before it had established a broad generalmarket even equivalentto that Keene established for Amalgamated to something Copper, alone would therefore amount like

one

hundred

taking them

and

at

par,

twenty million shares, which, would involve financingto the

of many billions of dollars so in fact,that the great banks concerned amount

"

much

would

financing, ably presum-

relinquishall their other business and confine themselves to the syndicate operationsalone. Such a syndicatecould not have done this,or a tithe of this, national banking at any time during the existence of our Does anybody think it would be possible system. such a panic-breeding to undertake operation with the Reserve assistance of the Federal system? Manipulation Was

Where

To

state

where

the

corresponding bear operation, of the syndicateis wealthy member

terms

every

of

Possible

a

MARKET

STOCK

THE

52

BAROMETER

necessarilyalready a large holder in stocks, bonds, reduce and industrial production, would real estate mind the whole thing to the wildest absurdity. My it. Keene, in a broad bull refuses even to grasp of shares amounting market, to distribute a number of the common stock alone of the to one-twenty-fifth United States Steel Corporation,had behind him all influence of the powerful Standard the wealth and common

the

he

When

Oil group.

distributed United

preferred he had behind banking influences great Morgan

every

and

group

that

came

into

Steel

States him

not

but

those

only of

steel combination,

that

generalapproval of a publicwhich correctly and even recognized a wonderful unprecedented with But even expansion in production and trade. that backing could he have multipliedhis efforts a The hundredfold? facturer merchant, the banker, the manu-

with the

who reference

studies the stock market

with

barometer

major swings, can dismiss from his mind altogetherthe idea that they are falsified by manipulation. to

the

Roger But here to

W.

Babson's

the idea is widelyheld. arouse

or

of depreciation to Mr.

Babson

is no

intention

controversy, and if I take and his book W. Babson on

example from Roger Business Barometers, he that

There

encourage

an

understand

Theory

it is not

his to

will, I

am

intended

highlysincere work. say, also,that the

sure,

in

readily

criticism

or

It is only fair extract

I

give

A

here

UNIQUE

published in

was

FORECAST

OF

QUALITY

53

(the italics

1909

Mr.

are

Babson's): "A

that the ablest specusuallymeans ulators future a period of depression in near that slowly risingmarket usuallymeans

slowlysaggingmarket the

in

expect

general business

; and

a

business conditions may be expected,unless the decline rise is artificial and caused by manipulation. In fact,if it

prosperous or

not

were

for

could

manipulation,merchants

stock market

almost

the

relyon

barometer, and let these large market stand the expense of collecting the data necessary for operators conditions. determiningfundamental Unfortunately,however, it is impossibleby studying the stock market alone to distinguish between artificialmovements and natural movements ; therefore, alone

although bankers

as

and

a

merchants

watch

may

of the barometers,yet they should one of weight." proportionalamount "

Business

Money

Barometers

by Roger W.

j

Mr.

What to too

make

allowances

short, or

stock

market

for

Babson's

for a

in

give to it only a the

as

fair and

Accumulation

of

Babson; second edition,1910.

of barometer

sort

delicate and

Used

the stock market

Chart

should

we

have

if

we

had

that was of mercury general lack of accuracy in the a

tube

sensitive mechanism barometer

of the aneroid?

The

perfect,or, to put it the adolescent science of reading it is more correctly, far from having attained perfection. But it is not Mr. Babson It here assumes. imperfectin the sense does dischargeits function of prediction, when viewed reasonable over length of time, with almost any Let us take a few examples from uncanny accuracy. Mr. Babson's own picture chart, those composite "plots"above and below a consistently risingline repis

not

MARKET

STOCK

THE

54

BAROMETER

resentingthe steady increase in wealth, and each to

shall

we

see

before

of them

how

growing country's

the stock

Mr.

in the squares To those who

them

draw

a

strikingchart. it may so interesting publication

Babson

had

dicted pre-

the material

of his instructive and are

with

unfamiliar

a

be said that he divides

for each month

his chart with columns

market

of the year

tically, ver-

completes his squares horizontallywith covered lines showing the area numbered by all the factors of business,above or below a graduallyrising the chart representing the growing middle line across and

wealth

of the country.

How

the Stock

It will be observed

they

tend

to

Market

that where

become

broader

Predicted these

areas

in time

are

low shal-

consumed,

is less the complete the area depressionor expansionis deeper or higher,as the case above or below being assumed be, the black areas may of to balance each other, at least approximately. One these black areas of depressionshown in the Babson chart began in 1903, only developing recognizable and

space

where

the time

to

in the latter part

of that year, and continued finally emerging above the line of

throughout 1904, growing wealth in the earlier part of 1905. The stock market of business depression, anticipatedthis area for a primary bear swing began in September, 1902, and ran until the correspondingmonth of 1903. Mr. Babson's area of depressionwas still rulingwhen the market became mildlybullish, in September, 1903, and

STOCK

THE

56

MARKET

To

for the future.

is

barometer

market

use

word

a

BAROMETER

much-abused

unique. You which

takes

word, the stock

will remember

that

tive. qualifyingadjecis not rather unique,or almost Our barometer unique. There is just one of it, unique,or virtually be duplicated. It does predict,as this and it cannot simpleillustrationhas shown, the condition of business tion months ahead, and no other index, or combinamany do that. Our of indices,can to assume highly "unique" is

a

scientificand

go

assumed

radical

It does

not

often

plodes ex-

change pretend

in to

glacialage. It tells us that there have droughts and hard winters before, coming at

back

been

any

conditions.

general weather

Bureau

Weather

competent

fallacyof

the

no

uncertain

to

the

incalculable intervals.

and

When

it attempts

from its immense specific prophecy a singleparticular collection of generals it is merely guessing. Does anybody who happened to be in Washington at the "

"

time

remember

the

"fair

and

warmer"

weather

the Taft inauguration? I went over prophesiedover the PennsylvaniaRailroad on the followingday, when the storm had leveled every telegraphpole between York and Philadelphia. It was said that New even of the special trains had so far missed the parade some that they were in Washington then. Even the not aneroid barometer can only forecast a limited number of hours ahead, accordingto the atmosphericpressure.

Cycles There

are

other

will be University

Overestimated

and compilations,

noticed in

a

more

that of Harvard

appropriateplace.

UNIQUE

A

I

inclined

am

cycle theory,

the

to

H.

Charles

cycle into market

of

does stock

A of

bull

a

1901;

his

that

Mr.

But

expansion but

five years

two

sarily point of time, do not necestops off in a final explosion and that not sion. drop out of his period of depres-

three

in

crisis may

market

near-panic,with

a

that

seen

of

areas

Pacific

radical, may

development

a

in the

occur

middle

in the

occur

market, like the Northern

or

and

have

we

inflation, extending not their

the bottom

as

five-yearbull market.

tell you

less than

blow

much

force

much

too

splittingthe favored ten-year but non-existent five-yearbear

similar

would

or

years

a

all attach

57

in

assumed

an

even

that

very

did

Dow

and

Babson and

think

to

FORECAST

OF

QUALITY

ous seri-

more

of

course

panic of a

major

BabMr. swing in the stock market, as in 1907. followed that the latter was correctlyshows by shadowed business depression that had already been fore-

bear son a

in the If

all

panics

downward

industrial

and could

market

crises

arose

movement.

from

the

predictedwith the suggested rythmical certainty,they would never happen because sounds This thing somealways be foreseen. they would same

and

stock

causes

like

Irish

of the

statement

said that

respect

an

an

that

be

"bull," but it may

fact.

Was

Irish bull differed it

from

an

stand

Irishman

other

stock

market

as

a

who

bulls in the

always pregnant? I do not this question of cycles,because

was

deeply into abundantly clear that the by any such consideration. go

it not

well

here it is

is little moved

MARKET

STOCK

THE

58

Order

BAROMETER

Is Heaven's

First Law

lection general reservoir for the colof liquidcapital, of the country'stinystreams house for all the tinycontributions to it is the clearing

Street is the

If Wall

the be

of truth about the facts of business.

sum

often

too

repeatedthat

the

represents

deductions

the stock market

from

the

It cannot movement

accumulation

of

buildingand real business failures, tions, condiestate, bank clearings, money commodity foreign trade, gold movements, prices,investment markets, crop conditions, railroad factors and social conditions, but all earnings, political that

truth, includingthe facts

of these

with

things,each

an

almost

on

limitless number

having its tiny trickle of

of

stock

other market

effect. It will be made

in

an

seen

from

this how

earlier discussion

was

true

when

the it

postulate was

said

that

nobody in Wall Street knows all the facts,to say nothing of the meaning of all the facts. But the market barometer records them impartial, passionless of mercury records the as certainlyas the column There is nothing fortuitous atmospheric pressure. about shown

the stock market that it

movement,

and

I think I have

be perextent profitable verted be laws to the ends of deception. There must governing these things,and it is our present purpose if we formulate them usefully. Many to see cannot call "What George W. Cable said: we years ago chance may be the operationof a law so vast that we only touch its orbit once or twice in a lifetime." There cannot

to

any

A

is

no

UNIQUE

need

lose

to

Confession

after

thing

is

order in

society, to

in

that

obey

intelligence

the

is

not

by

the

first

Heaven's

law

great

that

law,

Exchange even

enough

if

the to

life shall

we

just

all

elsewhere,

one

nize recogized organ-

will

individual

unaided grasp

is

that

and

or

tion predestina-

Westminster

the

But

59

of

mazes

saying

another.

Stock

FORECAST

reduce

or

absurdity

to

that

tend

ourselves

foreordination,

and

damned

OF

QUALITY

it.

VII

Chapter AND

MANIPULATION

of

able

able

to

ourselves in progress

he

major

case

market.

definite

he said

there

its

within "line"

a

from

narrow

that

examples range

what

"

a

for

of

gaining significanceas the number accumulation days increases,can only mean whether

that

the

subsequent price

the market

with

an

has

become

the

we

have

preceding

swing

is

been

able

article

justifiedby

country's general received

poses purcan

of

ing trada

trading tion, distribushows

movement

rated satu-

or

oversupply. True

But

or

of stocks

bare

our

as

called

have

"

and

sional occa-

We

period

we

"

reaction,

largely negligible,daily fluctuation. satisfyourselves

are

market

downwards;

secondary rally or the incalculable,and

of

satisfied

that

in the

or

have

basis

have

a

be ; and

may

We

been

we

sound

movements

swing, upwards

suspension by the

the

pause

have

we

inference

our on

well

may

much

right when

was

three

of

starting

prove,

that

how

much

how

theory of the stock

Dow's

the

of

count

infer, and

to

been

take

to

TRADING

preceding chapters

READERS here

PROFESSIONAL

Form

to

to

go

alone the

we

It has

The 60

market

than that

see

subsequent

business.

manipulation.

further

this.

major

every

condition

neither

From

of

needed

consequently

the nor

has

PROFESSIONALS

often seemed

only for

what

has

to

the

counter

run

to

61

but business conditions,

fulness. represents its greatest useIt is then fulfilling its true function of diction. preIt is telling what business is to-daybut not us

is

news

ceased

to

instance

of

which

reason

future

the

known

MANIPULATION

AND

of

course

discounted. be

What

market

a

will be.

News

everybody

knows

business

factor,except in the

rare

is conthe stock market fessedly panic, when taken by surprise. these articles appeared in serial form in BarWhen lowing ron's,the national financial weekly,I included the folthe reading of our inference,based upon barometer, on September 18, 1921, the date when the vember written. It appeared on Noquoted paragraph was a

5, 1921. sound from the

change in

"There

is

a

was

no

but

guess,

the main

scientificdeduction

direction of the market.

been

I have

test

in the action of the

challenged to

the predictionvalue of the stock market

offer proof of

barometer.

With

the

finance,the disaster to the the unprincipled crop, the uncertainties produced by deflation, and tax-imposers,all the opportunism of our lawmakers

demoralized cotton

a

correctlyannounced

premises, and

pertinentinstance and

market.

current

It

of

aftermath in coal

condition

war

of European

inflation

mining and

unemployment, railroading with all "

"

the business of the country stock market has acted as if there were

at

uneconomic these

wages

things

hanging over-

the present moment, the better thingsin sight. It

saying that the bear market which set in at the end of October and the beginning of November, 1919, saw its low point on June 20, 1921, at 64.90 for the twenty industrials and has been

65.52 for

the twenty

railroad stocks."

A the

At

it looked

Contemporary Example

beginningof of

the establishment But

remembering

other, The

the last week

if the bear

as

BAROMETER

MARKET

STOCK

THE

62

Wall

of

market

might low pointsin

new

that the averages must Street Journal said,on

August,

1921, be resumed by both

averages.

confirm

each

August 25th:

the averages concerned, they are far from are encouraging to the bull,but they do not yet jointlyindicate a bear movement." definite resumption of the main

"So

far

as

stocks

railroad

The

after

time, and

a

were

technical

forming

a

of

a

break

"line"

at

fraction

that of

a

resumed, and point through on the lower side it was definite resumption of low point,indicating no new a the main bear movement, was given. On September 2

ist, after

a

remarkable

continuance

of

the

line of

firmatory probableaccumulation in the railroad stocks and a conrally in the industrials,The Wall Street Journal's said: "Study in the Price Movement"

"It is beside the point to say that we are facing a hard winter. The stock market is meaningless if it does not look beyond such

contingencies.It better

seems

generalbusiness

stage for

a

to

be forecasting a solid foundation

for

in the

spring. It may well be that the primary bull market is being set."

By that time both the industrials and the railroads had well-developed lines of presumed accumulation, and the former had significantly made a higher point than that of the previousrally. The Wall Street Journal's analysisof October 4th said: "By

the

averages,

well-tried

only a

methods

of

reading the stock decline of eightpointsin the industrial

market average,

64

their backs

well

as

BAROMETER

MARKET

STOCK

THE

their faces.

as

Many

ago

years

not talkingfor Henry H. Rogers, who was said to me : "The sensational newspapers, publication, which are alwaysattacking John D. Rockefeller and his associates for their wealth, have put millions into the Oil Company. You and I treasury of the Standard know that we are not omniscient or all-powerful. But, by editorial innuendo and suggestionin cartoons, the people who hold us up to popular envy and hate have created everybody exactlythat impression. When

the late

who

have

may

advance an

that

business

dictate

can

we

invaluable

do

to

business

with

our

asset."

us

in

assumes

own

terms,

The

same

we

have

agitation

brought about the dissolution of the Standard Oil into its thirty-three constituent companies. That operation trebled

the value

of

Standard

Oil

dentally shares, and, inci-

priceof gasoline. Perhaps these holders of the stock. proprietorswere the

was

before

may

have

the

rich

the

era

assumed

of the Ford that it was

of

owner

a

motor

car, a

That

however, and they

publicservice

car

paper news-

pay

more

to

make

for

his

gasoline. A

Speculator's Reasoning

Assumption of an unfair advantage for the professional is absolutely baseless. The reasoningof a professional like JesseLivermore is merely the reasoning backed presented in this and preceding articles, by a He said on October study of generalconditions. 3, 1921, that he had been buying, and, giving him the credence of ordinarycourtesy for such a voluntary

PROFESSIONALS

it is clear that he

statement, his

mind

own

would

think

This

MANIPULATION

AND

is

what at

trying to shape in public investingand speculating

the

date

a

as

was

far ahead

manipulation.

not

65

he could

as

see.

speculatorsare deceptiveappearance

These

creatingany false market or lure the public into the game, like the of activity to "barker" outside a Midway October On show. 3d of Barwas Jesse Livermore quoted in the columns based ron's as saying that "all market movements are sound on can anticipate reasoning. Unless a man ited." future events is limhis ability to speculate successfully And he went add: to on "Speculationis a It is business. It is neither guesswork nor a gamble. hard work and plentyof it." not

Dow's Let

Dow

in The

Wall

In the editorial of "The

market

Definition

this with the words

compare

us

Clear

is not

of Charles

Street Journal

July 20, like

a

twenty years 1901, he said:

balloon

plunging hither

H.

before.

and thither

ered whole, it represents a serious,well-consideffort on the part of farsightedand well-informed to men adjust pricesto such values as exist or which are expected to As

in the wind.

exist in the

not

a

too

remote

whether

future.

The

thought

with

great be advanced, but whethei

price can ors to buy will lead investthe value of property which they propose hence to take stock at figures and speculatorssix months from ten to twenty points above present prices." operators

is

Observe

not

deftlyexpressedthought nition the more perfectlyshaped defiparallels Dow. Berdetached and dispassionate

how

of Livermore of the

a

the

none

too

66

THE

nard

M.

STOCK

MARKET

Baruch, after the

BAROMETER

war,

gave

evidence before

Congressionalcommittee as to a market operation by which he had largelyprofited.He showed in the that he had merely analyzed a known simplestmanner effect. and foreseen clearlyits probable market cause him would quesHe showed, what nobody who knows tion, a

that he had

"inside information,"

employee

and

that

had

sold the

no

such secrets

no

as

secrets

in

a

called,

Washington department

of his office. Wall

of littlevalue.

so

They

may

Street holds

givean

unfair

advantage so far as individual stocks are concerned, but they could be entirely neglectedwith imperceptible if the secret were worthless not generally loss,even as as

the seller of it.

A What

is there that

Good was

Loser done

"

by James

R. Keene

or

other great maror ket Jay Gould, by Addison Cammack figureof the past, which could not have been done, in the fairest way, by men gence, of equal brains and intelliwillingto pay the price of arduous study for the knowledge necessary is there What to success? that JesseLivermore M. Baruch Bernard do which or is open to criticism? They pay the seller his price, but they do not accept stock sold "with a stringto it." for selling The vendor thinks his reasons as good as theirs for buying what he sells. If he were a jobber in the woolen trade, sellinghis investment in American Woolen United States Steel stock, or a banker selling the devastatingforeigncompetitionwhich common on he thinks he foresees,he would consider his own

PROFESSIONALS

AND

67

of information

sources

better than those of the lators. specutake the same risks that he does. They

They often

are

MANIPULATION

but

wrong,

I have

known

many

heard

them

whine

when

do

they

whimper

not

about

it.

operators of this kind, and I never when they lost,or boast greatly

they won. and

"

a

Bad

the little gambler who

But

One

takes the gutter view

of

pits his wits against trained minds, not merely those of the speculatorsand the professional the floor of the Stock Exchange, but the traders on business requiresthem minds whose of men to study This kind of gambler is a bad business conditions. loser, and is often highly articulate. He, or those dependent upon him, is lucky if he receives such a

Wall

Street

lesson

his first venture

at

relation with Wall

Street

by

him

people like

or

credit of the country, it is not.

Refusing H.

Charles

to

a

denouncing it

we

based values.

his

may

who

tested

sufficient stock

to

the

that

show

bling gamwere

the

Jay

Gould

Jay Gould

knew as

any

his

whether

man

pendence, indeincorruptible

stock market market

well and

newspaper

of his editorials

one

positionin

He

a

everlasting that assume confidently

enjoyed his confidence as much of the time, largelybecause of in

To

him.

PartnershipWith

Dow,

says

as

be all that if the stock market

hell. It would made

confines his future

that he

with there

that

Gould

primarilyon purchases of a was public

BAROMETER

MARKET

STOCK

THE

68

foreseen the public correctly of values which he thought he had recogappreciation nized. what he expectedhe If the response not was would not hesitate to take loss after loss of a point or from a detached so, in order to reconsider his position point of view. Some years ago there was a pathetic derelict in New Street,one of the unlovelyfringeof market, who could truthfully say that any speculative been offered a partnershipby Jay Gould. he had once response

he

ago

years

many

his face in

missed

I have

he had

whether

"

was

a

recent

but not

years,

promising young

great

a

of

member

Exchange. His execution of orders on the floor was ing remarkably good. It is a difficultand exactIt requiresabout that combination task. of instanta judgment and action which would mark a star player in big-leaguebaseball. To this broker a number of Jay Gould's orders were No broker, it is needless to say, saw entrusted. all of them. Gould was so pleasedwith the way his business the Stock

was

done

him

a

it

partnership.To

limited

refused.

was

Gould, I have and

you

That see

at

to a

to

and

man

Gould's

offered

surprise,

actuallysaid:

of your great many make losses than more

"Mr. orders

a

business I want

that his vision

to

share."

restricted

He

profits.

could

not

only one side of many-sided activities. Opportunity knocked

his door

showed

tried

"

that he

administrative as

me

Mr.

broker

The

executed

seem

is not

Gould's

for the young

that he sent

indeed it

was

to

could

kick it in

"

do

only one

to

but

the young

man

thing well. His been worthless,

judgment would have afterwards proved, for he drifted

out

of

PROFESSIONALS the Stock I suppose,

few

AND

Exchange into New Street into oblivion. Truly, many An

for the

69

and

from

are

there,

called but

chosen.

are

Rare

MANIPULATION

IntelligentTrader

talent of any

kind

that it is

reason

the market

great rewards

commands The

rare.

who

amateur

gards re-

He holds gamble starts wrong. he is losingand takes small profits, when on to his continuingregret, when the market is going his way. The speculatorshe envies, those he charges with cogging the dice and marking the cards,exactlyreverse his process.

they run them may

or

as

a

However

strong their conviction may

quicklywhen the market does the inferences they have justify

be, as Gould One

of the

often was,

too

not

agree

drawn.

far ahead

of the

be

with

They ket. mar-

I ever in met men intelligent Wall Street,not long dead, was teacher and a former fine classical scholar,whose a hobby was collecting coins but whose business was rare speculation.He saved no market turns or broker's commissions by partnership in a Stock Exchange house. He was justa before a customers' board or near speculator, sitting And yet that man, a stock ticker. by judgment,study, nerve tempered by caution and, above all,a readiness his error made less than $30,000 to see never quickly, tune fora year ; dying at a good age, leavinga comfortable coins which brought excellent and a collection of rare prices. He would select his stocks on analyzed value and He would buy with constudy the market movement. most

STOCK

THE

70

MARKET

BAROMETER

He would always well within his means. two-pointloss on a thousand shares of stock

fidencc but take

a

hesitation

without

if the

market

did

not

his

move

discouragement happened he said that he could not form correct a judgment unless he view. He had originally got out and took an objective which would have been necessary to about the capital for the education of a doctor or a lawyer, or to pay in business. He gave his undivided but by start them no

that

When

way.

selfish attention

means

He

business.

what

to

had

he

his

made

always long of stocks earlyin its last stages he generallymade

was

a

bull

a trip market, and in He was to Europe to add to his collection of coins. others like him. no solitaryinstance. I could name But I am if he to speculate, not advisingany man even has the moral stamina to comply with the same ing exactrequirements. If you have a business that you like,one which keeps you comfortably with a margin for the unforeseen,why speculatein stocks? I don't.

The

Some

Dial

and intelligent

of

the Boiler

irrelevant

many

questionshave

been put since these discussions which has something of both economic am

not

necessityfor to

be drawn

and I it is and

am

into

stillless into

a

discussion of academic

one

the describing

the great and

is necessary,

the

began, and one of them, qualities, disputesthe professional speculator.I of abstract

stock market

useful service it

to explainits by therefore,

nomics eco-

ethical tions. quesbarometer as

performs.

no

means

com-

It

THE

72

to

that

end

useful

extending

be

would But

altogether. understand

MARKET

STOCK

it.

long

Perhaps

suggestions its

so

to

for

usefulness.

BAROMETER

eliminate

as

in

it

the

it is

exists

so

improving

doing the

Exchange

Stock

we

business

our

may

barometer

to

develop and

Chapter VIII MECHANICS

been

shown

ITmanipulation has

main

the as

OF

that, for

has, and

primary

or

the

But

of

theory,

forces

third

other

is

time, there

in individual

only

or

in

be.

may

it forces

or

This

in evidence

in

a

few

market,

It

the on

and

traders

shows

that

stocks.

There

is

even

a

oil

the

upon

out

cover,

too

special weak

some

the

as

a

case

or

good

reasons.

Gambler

bear, tends

or

say,

many a

for

"

the

the bull side ;

crowd"

but

easily have

may

to

goes

with

groups,

shakes

bears

in

or

professional "scalping" is often

Trader

As

company

the

or

in it, with

account

Every primary market, bull much

market

raid

A

secondary swing

The

itself.

beyond

manipulation,

in small

Petroleum,

of

sort a

bear

or

of Dow's

bear

a

for

or

effect.

striking temporary holders

bear

Mexican

to

market,

and

bull

a

room

stocks,

the

upon

attention

stock

movements

well-recognized leading issue. group,

the

in

effect

(the daily fluctuation)which

movement

all the

on

real

above

corresponding secondary rally in the

no

primary bull

a

are

reaction

secondary

a

In

in the

practicalpurposes,

have,

movement

actuating

manipulation.

all

can

reflected in the averages.

market

MARKET

THE

there

gets

to to

run over-

be

too

conversely, the "loan shorts

premium

for

are

borrowing

lending them,

74

THE

MARKET

STOCK

BAROMETER

is called

correspondingto what

a

in

"backwardation"

is the

He buys chance. professional's in a market which is oversold or, with testingsales, which has been he tries out the strengthof a market bought not wiselybut too well. The small speculator, the small gambler, suffers at the and more particularly hands of the professional.He is a follower of "tips" He has made real study of the and "hunches." no thingsin which he trades. He takes his information ity without discrimination at second hand, lackingthe abilto distinguish good from bad. He has no business in the market, in the firstplace,and it could get along This

London.

well without

very

that it is Stock

him.

he,

or

It is

great mistake to suppose people like him, who keep the a

Every one of these will tell you that their customers are becoming better all the time. informed if ignorantpeople Of course will sit in a game requiringexpert knowledge, against others who understand the game perfectly, they can blame their losses on no but themselves. one They do, in fact,audiblyblame Wall Street. A substantial Exchange

houses

in business.

in probrokers is consumed part of the time of most tecting people from themselves. It is a thankless job. A

fool and

his money

Giving But main

it must current

relation to

the

to

a

are

soon

Dog

a

be obvious of

that

parted. Bad

that this is

speculation.It current

primary market

Name

that the movement.

bears

no

part

about

of the

the

dailyfluctuation There

same

does

are,

of

MECHANICS

OF

MARKET

THE

75

varying degrees of knowledge, but it is a vital mistake to suppose in stocks (for the that speculation rise at least)is a sort of gamble in which no one can win unless there is an equivalent loss by somebody else. course,

There weak

need

be

holders who miss

have

movement,

a

get hurt. So far have

more

blaming Wall

become

a

case

The hanging him. pleadssomething of contracts court

asks him

for He

account.

slow horses,or

actions secondary re-

people who possibilitie

great many

a

tion the culmina-

are

on

to

Street is concerned,it seems

and givinga dog a bad name defaultingbank employee usually the kind.

All his transactions

of record; but how an

says

exact

statement

seldom

and the

of his speculative

nothing about fast

women

and

other devious ways of spending He pleads that he was people'smoney.

other "robbed

in the

The

of

matters

are

bull market.

buying on latent hope that they may unload than themselves, are covetous apt

the

as

out

a

and, in profits;

lost sightof values and

only,with somebody

to

shaken

are

part of their

a

of such

loss in

such

no

the many

in Wall

Street,"and sentimental people take him back to their hearts, registering horror at the whose temptations of the wicked financial district, simplestfunctions they have not been at the pains to understand. A

small

and

unsuccessful

speculator,chagrined at

in the stock market but to make inability money the real reason, picksup a vocabulary to understand failing of technical phraseswhich is apt to delude people

his

who

know

even

less of the stock market

than

himself.

THE

76

MARKET

STOCK

BAROMETER

and the denouncing the "specialist" He classes them with the croupiers "floor trader." of a gambling house, and says that they are not even that because their dealer's chance is as as respectable extortionately larger. To take the floor trader first, it may be pointedout that his small but real advantage only stands him in good stead againstthe novice who is tryingto snatch quickprofits in an active market by the merest guessing. No competent broker encourages the outsider to do anythingof the kind,and the brokers of my fairlyexhaustive acquaintancein Wall Street

is fond

He

of

do

their best to get rid of

be

a

rather liability

than

a

asset, and

an

is apt to

who

customer

is

always

a

nuisance. The

There the

Floor

is

no

Trader

and

intention

here

practiceof Wall

There

Street

Turn

the Market to

and

write

a

textbook

the Stock

on

Exchange.

coveringthat field. All that is necessary clear the mechanics is to make sufficiently of our those thingswhich barometer, and especially be assumed, rightlyor wrongly, to influence it. may It is sufficient to say, therefore,that a "floor trader" of the Stock Exchange, and is is necessarily a member He affectedly unusually a partner in a brokerage house. excellent books

are

operates

for himself.

He

commission, and he is at an advantage of the market speculatorin the matter of course, the difference between The more pricein the market.

closer this

turn

is,but it may

be

the

pays over

himself

no

the outside

turn, which bid

and

asked

active the stock

averaged at

a

is, the

quarter

MECHANICS of

OF

MARKET

THE

77

Assuming that the price of United States steel common is 90% bid and gol/2 asked, the who customer gives an order to sell cannot expect to get better than 90^4, while, if he wishes to buy, he one

must turn

cent.

per

903/2. The floor trader can not, of part of it for himself

often

pay or

He

be able to deal

may

90^

at

this

againsta

course,

"

customer.

save

or

even

to

sell at the asked

he does has its effect price. Whatever in the dailyfluctuation. In practice it means that the floor trader can afford to trade for a quickturn where the outsider cannot. In dailycustom the trader goes home at the close with his book to not hesitating even, take an occasional loss,or glad to come out even.

"Bucketing" It is obvious turn

of

point or

a

tried of

as

odds

on

would of such customers

do

so,

a

have

gamble, him

he

cent

to

do

the broker's each

way

missions com-

against

quarter per cent; so would be bettingheavy a

chance.

establishment all the

of

turn

even-money

encourage an

an

legaleighth per

a

mere an

has

trader,snatchinga tomer advantage. If the cus-

it he would

the market

him, with that,

to

that the floor

then

A

"bucket

that, because

works

on

them time, fleecing

the as

the

shop" keeper

theory of new thoroughlyas

possiblewhile he has the chance. None of his orders self is reallyexecuted in the stock market; so that he himpocketsthis extortionate dealer's chance. But we are consideringthe Stock Exchange itself,and its market as a trade barometer. Bucketingis speculative

THE

78

of

part

no

STOCK

BAROMETER

Stock

Exchange's business, and if they choose. stop it elsewhere

policecan

the

the

"

Old

much

to

and

both

Commission amount

MARKET

Customers Satisfied ways

and

if the customer

the market

do

turn

is

buying on to pay ability

not

values,

for his ample margin, or with the stock outright, togetherwith the tested belief that the stock he has bought bids fair to look attractive at much higher figures. He is the sort of customer the Stock Exchange houses strive to serve. A house in continuous business since 1870 has rewhich was cently It had at least one tomer cuschanged its name. who had been on the books for fifty years, and for twenty years and longer. This does not many look as if the outsider always lost money in Wall

with

Street,or

as

if the conditions

of business

made

losses

inevitable. A to

like any other business,works clients all the time, exactlyas a paper or

brokerage house,

get

new

subscribers. But the experienced get new broker will tell you that while advertising ested will bring the customers, nothingbut disinter-

magazine works methods

to

service will

keep

them.

I have

often

noticed

in Wall Street is curiously reallysuccessful man inarticulate. Experiencehas taught him to keep

that the

his tongue between his teeth,and he is not The unsuccessful seem to be

at

all

municative. com-

unable

keep their losses to themselves,in most cases, is usuallyfound that they are thus articulate

and from

to

it a

THE

8o

STOCK

Transactions

on

MARKET

the

of the passage of witnesses.

without presence

BAROMETER

floor a

written The

of mouth,

by word

are

contract

or

of the

honor

the

even

partiesis

hardly recall a case where it was be occacalled in question. There must sional necessarily but these are referred for misunderstandings, The specialist could not adjustmentin the usual way. I

absolute, and

can

stay in business if he did brokers who employ him agent in

like

a

in business

not as

much

at

position. His very depend upon it.

ProfessionalTrader's

heart

as

Limited

averages? It is negligibleso

far

as

at times, in swings and mainly influential,

stocks

in the least considerable

fluctuation.

the

ing stand-

movement,

trader

on

major secondary particular the daily

the

eter operationsdo not affect our barommember degree worth serious consideration. ReSuch

in any the character and

other

Influence

is concerned, a small factor in the

movement

any

livingand

is the influence of the active bear

What the

the interests of the

have

twenty

of the twenty

industrials used

railroad

in the two

stocks

averages.

Every one of them complieswith the stringentlisting requirementsof the New York Stock Exchange. Each concerned publishes the fullestpossible figures company of its operation, at frequentintervals. There are no "inside secrets,"of market value,which could by any affect more than a singlestock out of forty. possibility It may of them unexpectedlypasses or be that one increases its dividend. The effectupon that particular

MECHANICS

OF

MARKET

THE

in the stock,if there is any real surprise is

recall any

stocks of the

(which spread over I do

group.

same

1

matter

highly doubtful),is negligiblewhen

the other nineteen

8

not

useful illustrative instance; but suppose expected undividend action produced a fluctuation of ten It would

only make a daily difference in the of half a point,which would stantl inbe almost average if the dividend action presaged no recovered broad generalchange in business conditions. If there had been any such change we may be entirely that sure it would have alreadybeen reflected in the stock market, points.

which or

any

would

far

about

more

it than

that,

of directors.

board Short

A

know

SellingNecessary and Useful

discussion

moralityof short sellingwould be utterlyout of place here. It is true that the bear cannot profitexcept where another loses,while the bull at the worst a profitwhich another man reaps might perhaps have made if he had been attending free market But every for to his business. strictly than hurt by traders willing anything is helped far more this liberty to sell short. not If,indeed,there were the result would be a most dangerous market, liable to an unsupported panic break at any stage of its Voltaire

progress.

God

it would

must

have

have

been

became in

on

the

said that if there

had

been

invent

long ago,

the London

Jordan's Coffee invented. was selling

necessary

in the Stock House

to

not

been one.

a

It

ward days when what afterness Exchange did its busioff Cornhill,that bear

THE

82

It that

soon some

BAROMETER

MARKET

STOCK

became

a

patent necessity;and

of the most

serious breaks

it is curious

in the London

occurred, not in the wildly speculative the English law but in bank stocks,where securities, prohibitsshort selling.It was unsupported pressure the Baring bank stocks which helped to make in some market

have

crisis of 1890

serious.

so

There

is

no

such

valuable

bear the uncovered as fallingmarket stance init is absent, as in this particular When account. hastily nothing but a bankers' combination improvisedcan check the devastatingdecline. As the Stock Exchange was London reorganized in 1922 on further government its old basis,without meddling Parliament will repeal this law and and regulation, substitute (as a protectionto bank plete stocks,that comand constant which is always the public's publicity

support

best

for

a

safeguard. Protection

When

Charles

H.

of ListingRequirements Dow

speculationgenerally,and

wrote,

twenty years

of incidentally

his

ago,

of

theory of the market movement, of the industrial stocks, some included in the average and traded in freelyon the floor of the Stock Exchange, were in what then was called the unlisted department. It would be difficult Street Journal speakingto-dayof to imagine The Wall of the industrials in the Dow-Jones average one as a blind pool. But it did not hesitate to apply that to the American epithet,editorially, Sugar of Henry O. Havemeyer's day. The elimination of the New

MECHANICS

York

Stock

the most It

OF

THE

MARKET

83

Exchange'sunlisted department is one

creditable

from

instances of reform

of

within.

conservative members bitterly opposed by some of the Stock Exchange, mainly those who profited largelyby that vicious vested interest. An ex-president of that institution, now dead, took upon himself to berate me loudly,in the presence of his customers, for advocatingthat eminentlynecessary reform. He said that such agitatorswere driving business away from the Wall Street in which they earned their living. was

He the

of his office the newspaper and and am service with which I was

threw

financial

out

news

connected. But

his

own

made

customers

him

reinstate both,

gamated humiliatingcelerity.American Sugar and Amalties Copper and the other formerlyunlisted securistilldealt in on the floor of the Exchange. are that they laid their management Those companies saw under the gravest suspicionby a refusal to comply of publicity with the terms so wholesomely exacted from reputablecompanies. Stock Exchange houses vocated are naturallyinclined to look askance at reforms ad-

with

from of them

even

outside.

But

I have

never

heard

one

suggest the restoration of the unlisted

department. Federal It

was

further

without which

said in

might

an

be done

Incorporation

earlier discussion that for the

the enactment

of any

only embarrass

honest

something protectionof the public, of these "blue-sky"laws enterprisewithout seri-

THE

84

BAROMETER

MARKET

STOCK

operationsof the crook. and set forth the sane discussion I can briefly and method which protects the speculator in Great

Britain.

Under

of

everythingelse

has been

Stock 1908 the London in any security the moment That House, London. until the fullest possible

made.

that the

be, the speculator After that,under caveat

emptor prevails.It is properlyheld

buyer beware buyer can protect himself,as "

and

adventurous

rule of

this statute, the old common-law let the

commissions

However

of the company the purposes may knows all about them from the start.

"

investor

of

contracts,

purposes,

ful success-

panies is there called the Com-

what

(Consolidation)Act Exchange is enabled to deal it is registeredat Somerset be made cannot registration disclosure

In this

the

ously impeding

should,when find out all about the property, its originand he can its present conduct,for the fee of a shilling, set at Somerhe

House. There to

would

doubtless be all sorts

Federal

law enforced in the

and

use

of

ignorantopposition

incorporationof this kind, with the tion the publicprotectedthrough limita-

of the mails.

But

I

am

convinced

that

it

might well be done, and should, of course, be done in a strictly of its non-partisanspirit.To the utmost Stock Exchange protects its York abilitythe New members Curb

and

Market

their

Association

in itself. I have is not

But

customers.

is simplyan no

reason

to

the

New

York

unlisted department believe that its

capableand honest, and I have to say againstits membership. But sooner a word later it is calculated to prove a source of danger government

not or

and

MECHANICS scandal.

If any

OF

of

THE

MARKET

85

its members

imagine that they have something to lose, in the settingforth of the absolute and originalfacts about everythingin which mistake they deal, they are making exactlythe same that ill-advised members made

when

of the New

York

Stock

change Ex-

disagreeabletask of compelling a number of industrial corporations to comply with the listing requirements,on pain of being stricken from the list.they shirked

Real Let

the

Reform from Within

crusaddisclaim,however, the intention of ing, bent toward that blatant and ignorant or any "reform" which has made such costlyexperimentsin In my recent experienceof it the standards years. of the Stock Exchange have steadily improved, to the advantage of the investor and of the small permanent who is,after all,only an investor in embryo. speculator, in Dow's Practices were day which would customary not

me

be

tolerated

In

now.

any

future

bull market

the scale of

James R. Keene, when practic he distributed Amalgamated Copper, would be imthat the publicitynow for the reason of requiredby the Stock Exchange, in the accounts it impossibleto persuade would make such a company, that the prospects reckless privatespeculator the most

manipulationon

of the book

"wash

new

combination

value, on sales"

any were

made

expert

it worth

test.

Even

four

in those

largely a figment of

imagination,and "matched

orders"

were

times its

days the public declined by

THE

86

suspected.

is

transactions not

a

have

Stock

The

obeyed

letter

mere

been

forty

years

of

his

strength.

was

if

repute

Exchange in in

even

industry

American

BAROMETER

of

house

brokerage

any

MARKET

STOCK

rule

spirit those

ago,

only

their

against in

and

days, when

nature

was

fictitious It

word. it

whatever the

infant

awakening

to

was

might

giant ness conscious-

of

THE

88

STOCK

MARKET

BAROMETER

long before the war, very few have not passed due to through a stage of financial reorganization, watered labor in construction, long before rents began The stock market has a short and simple to advance. of dealing with water in stocks. It exists for method of squeezingthat water the purpose The process out. does not involve a receivership. The "water" begs the question. You very word of an call the capitalization industrial flotation may "water" because you do not see the potentialvalues of a great creative organization. But with justice, and better knowledge, the late J. Pierpont Morgan ticipated anmight have called that capitalization intelligently it may be and I shall growth. Whatever give an example from the most strikinginstance,the of the United States Steel Corporation capitalization is forever adjustingprices to the stock market set

in

"

"

values.

The

water

evaporates.

soon

Squeezing Out

the Water

To

are we studyingthe stock market recapitulate, barometer, having established the fact of its known and orderlymovements the long primary swing, the secondary reaction or rally,and the dailyfluctuation; of two and to do this we are taking the averages "

groups

of stocks

"

twenty active industrials and twenty

adjustmentsof the pricesof these stocks individually must primarily be based upon values. the Stock Exchange For all practical purposes is an open market, and the business of such a market active railroads.

All

"WATER"

IN

BAROMETER

THE

89

estimates to a common basis, adjustconflicting is expressed in the price. By manipulation, which James R. Keene advanced the priceof Amalgamated Copper twenty years ago to one hundred and thirty, of financierswhich offered the and obviouslythe group stock at par originally, assumed without success, one is

to

hundred make

as

its

which

value

for it. The

adjustmentsin

a

stock market

day. But,

over

a

brief in retrospect, it knocked one pointsoff the highestfigureAmalgamated seems

attained in

a

generalbull

not

period dred hun-

per Cop-

market.

This is the business of the stock market. consider both basic values and prospects.

of

does

It has to At

the close

ket, mara primary bear major downward movement, priceswill have passed below the line of values. The causes of the liquidation will have been so serious ings that people have been compelled to realize their holdtheir normal at less than worth; less,indeed, of the company's the worth than their book value of productivecapacityand assets, that is,irrespective good will. The pricesof the standard stocks will be affected by the pricesof "cats and dogs" injuriously of them of such a dealt in on the Curb market, many a

"

that any bank would refuse them as collateral the banks are in its loans. When compelled to call

character

loans

made

on

the Exchange securities, propertiescompetentlyand

Stock

of tested worth, of

stocks tably repu-

managed, will be the first to suffer because it is those stocks which are pledged in bank loans. The constantlyrecruited Curb group is highlyspeculative, but tradingthere is always limited, and indeed safe-

THE

90

to

stocks.

Curb

carry

is necessary

large margin which

the

guarded,by

BAROMETER

MARKET

STOCK

Profitsand

Stock

Tax

Income

Conversely,a bull market starts with stocks much below their real value,certain to be helped in anticipation business by the generalimprovement in the country's the stock

which In the and

discounts.

foresees and

market

long advance values will be graduallyovertaken, the close of the

toward

advance

an

uninformed

public,incapableof recognizingthe bargains which were started,is buying offeringwhen the movement on prospects only. Experiencedtraders in Wall Street say that when the elevator boy and the shoeblack are askingfor bull tipson the market it is time to sell and I sailed for Europe earlyin October, go fishing.When 1919,

to

report

on

financial conditions

Germany, the market of a long bull movement. then

in the last

was

The It

curious.

in Britain

and

sanguine stage

inflationbull argument that the

people who had largeprofits would not sell,and could not sell, because in turning those paper profits into cash they would show such a large earning of income for the that the tax-gatherer take a prohibitive would year share of the profits.We in the analyzed this fallacy smoking saloon of the Mauretania, and at least some was

most

of the business with

Uncle

men

Sam.

because itself,

it

bull

account

was

glaringly up

on

The

was

board

argument

picturedthe

that it would to

concluded

be

most

to

divide up

preposterous in vulnerable kind of

was

possibleto conceive.

It

be shot at, and the poorest marks-

"WATER"

IN

THE

BAROMETER

9

could fillit full of holes.

man

five of the Mauretania's apparatus

days

of we

begun

to

that

out

of commission When

voyage.

learned

Rough seas and put lifeboats,

that

in

the wireless

for the last three

we

arrived

the stock market

free the bulls of stocks from of

stove

1

at

bourg Cher-

itself had the

rassment embar-

They had much about in that respect by the end not to worry of the year, for the paper profitshad been rapidly extinguished. paying excessive income

Well-Distributed

tax.

Holdings

permanentlyholdingup artificial One great pricescreated by an overbought market. protectionto the publicis in widely distributed stock in Wall Street owns a single ownership. When group all of the stock in a property like Stutz practically Motor, that group can call the market priceanything it chooses. It will not be the "market" pricebecause Abraham Lincoln pointed there will be no real market. that you could not talk five legs onto a out long ago dog by renaming its tail. All the stocks in the average have shared in the wide and healthy distribution of securities. The holding of Pennsylvania average of any of the (which has the greatest capitalization railroads in our average) or of the five and a half There

is no

million shares near as

the

one

way

of

of United hundred

States Steel

common

shares for each holder.

ing is nothSo

far

publicis concerned, there is,indeed,safetyin

numbers.

92

THE

MARKET

STOCK

"Valuation" To who what

Market

and

Prices

quoted at the beginningof this article, inquirer about water?" well, we asks,"What answer, may the

it?

about

We

averages.

show

cannot

nominal

He

us

any

Commerce

a

water,

the

the a

For

by

state of the Inter-

committee

a

of

month

that he

could be instituted

could

pricesof

normal

tell him

pricesand not at Stock Exchange list.

by

out

in the

water

any

at

Commission

market

us

further and

valuation which

carried

Congress and

taken in

go

in the whole

par,

the

show

cannot

may

the railroads,no

with

BAROMETER

begin to

compare

securities themselves,

normal

year,

with

the

flated pricesnot inflated on overestimated prospects or deby forced liquidation, brought about largelyto not receipts protect unsalable securities and warehouse associated with the railroads

or

the standard

industrial

companies in any way. and knowledge available, Every scrap of intelligence uninfluenced in any real degree by manipulation,has been brought to bear in the adjustment of the stock market prices. Reproductionvalue, real estate value, franchises, rightof way, good will everythingelse have been brought into the free-market estimate in a gress which no valuation committee appointedby Conway "

"

could

ever

Commission's worth

attain.

The

valuation of "

if it has

a

any.

Interstate

railroad As

a

has

before

it is

merely estimate

true

of fixing it were the property, if the method it is just,it is out of date the moment

indeed,months

Commerce

printed.

torical hisof

commonly printed,or,

But

the

Stock

"WATER"

Exchange price records from

month to to

other

any

advance

year

to

day

year,

day,

to

from

bull

bear

civilized country accept that valuation and real money on it,without reference to the

arbitraryestimate

The

It is

from

the value

month, from

$3

of Jevons'scycle market, from one and another; and the bankers of America

market dates

to

BAROMETER

THE

IN

of the Interstate Commerce

Fetish

of

astonishingto what

mission. Com-

Stock

Watered

depths of foolishness

the

fetish of watered

stock has carried this country. The in stocks and bonds of its railroads, capitalization

allegedto represent

water,

is not

one-fifth that of the

railroads of the British Islands,mile for mile.

It is

less per mile than that of any European country or railroad in of any government or privatelyowned I am Britain's self-governing colonies. afraid to not go

on

record

railroads

with

the

statement

that

the American

their on uneconomicallyundercapitalized, real value. The charge of watered stock made against the listed industrial corporationsis equally absurd. than squeezed out the The stock market had far more in that capitalization at the Stock water Exchange pricescurrent in 1921. It had squeezedblood. As this is written,United States Steel common is sellingunder $80 a share. But stringentanalysisof industrial corporationoffering the most exhaustive an in the world givesa book figuresof any like company value

to

are

the

twenty years

common

of its

stock of $261

a

share.

In the

historyit has put upwards of

a

STOCK

THE

94

MARKET

BAROMETER

billion dollars into the property in in the and so littleis this watered

construction, capitalthat this investment out of earningsis representedin propnew erty account by only$275,000,000. The quick assets, largelycash, are over $600,000,000 alone,something like $120 a share with the whole concern scrapped. A is the water? stock capitalof Where common but itis onlyrelatively large. $550,000,000 looks large, Was not Morgan right if he called this intelligentl anticipatedgrowth? If his spiritcould revisit the ished pale glimpsesof the moon, surelyhe would be astonat

And common

of

his

own

new

moderation.

yet the distribution of the United States Steel and preferredstocks,made in the major swing great bull market,

brought about largelyby the most ever stupendous manipulation the market under the direction of the late James R. Keene. saw, And the end of that manipulation? It was what was stock at fifty and the preferredstock to sell the common If the people who bought at those pricesput at par. the stock away after paying for it,would they have at the low market anythingto regret even pricesof August, 1921, attained after a major bear swing of unusuallylong duration? a

was

Buying Probably some

one

on

will

Values

charge me

with

about Steel common, because bull argument simpleillustrationbefore the public. There

have

the

inveterate

writinga I set this

prejudiceagainstWall

again we Street.

1 "

0

t

I

I 9

02

I

1

"

0

3

I

1

"

B

4

I

1

1

0

A

S

1

i

0

t

COMPARISON

1

"

07

1

OF

"

01

THE

1

"

0

9

MOST

11

i

1

0

ACTIVE

1

"

IZ

1CK"

1913

UNITED

It

4

STATES

1"t"

I

1

"1"

I

1

"1

STEEL

t

I

HI

I

1

"

COMMON

1

7

I

1

"

7

I

1

"

I

II

1

1

I

1"11l1"2"

Itlll

1!

'"!""

Ili

ill

It

I

1

Ui

1

"

"

J

"WATER"

IN

facts I have

The

BAROMETER

THE

stated

95

of record, accessible

are

to

well known of the people to some anybody, perfectly Steel common in 1921. But at least who were selling they were sellingthe stock because they needed the at

money,

time

a

when

of

most

When

the Rothschild

before

the result of that battle

British consols he

could

buy

uncertain. consols

at

would

such

money.

days of Waterloo, was

known,

friend a fifty-four,

with

He

of the

needed

us

confidence

him

how

outlook

an

said that if the outlook

buying

was

asked

on

week

a

so

certain

were

be

He knew sellingat fifty-four. that with that uncertainty be selling theymust necessarily below their value. Everybody needed money at the same of the few peoplewho time, and he was one had

not

I suppose will ever know how Russell no one did it,but he could lay his hands upon more real

any.

Sage

panicthan anybody in Wall Street. He believed in quick and liquidassets, short-time paper maturing all the time, call loans and deposits everything in

money

a

"

which but

could

be

buy freelywhen values were selling.

All

sorts

Story of

of stories

Russell

ever

least

saw a

a

miser.

him, when

younger somethingabout

I

to

lost

hoard

sightof

Sage

is not

I call it

would

nor

anythingbut

was

I

use;

not

told of Russell

are

That frugality. extraordinary

I would

had

peoplewho

to

A

into cash,

turned

was

Sage and his exactlythe word

for he miserliness,

I remember a

young

the last time

reporter,

or

at

tryingto find out reporter. I was a railroad property in which he was

with another

dominant

BAROMETER

MARKET

STOCK

THE

96

to

say

that the other financier had

calculated

let

to

deceive

me

riety, noto-

is seldom

which

reputation.Lying is a word (or needed) in Wall Street,-and or

used

wide

financier of nation

it would

be better

given me myself if

mation inforI

was

the idea, therewide-awake. fore, With exceptionally tude of seeing if Mr. Sage's terminologicalinexactihis comrade's, with enough differ from would enable me deduce to to something from significance the pointsupon which the two fairytales did not agree, I went to see over Sage, who was always accessible to not

the newspaper men. He greeted me in the most

friendlyway, as indeed visit had nothing to do with he did anybody whose I put my questionand he rapidly changed money. the subject.He said: "Do anythingabout you know estly suspenders?" I was exasperated,but I repliedmodthat I did any

other

not

know

any

"What

wearer.

do

about

more

think

you

them

than

of these?"

said Uncle

a Russell,handing me over pair certainly inferior to those worn by reporters, who are not, or not at that time, given to undue agance extravwere certainly

in such them?" said

I asked.

Sage; "I I

said

was

the

even :

an

a

poor

"You

Street for

"Well, what

was

do you

"What

about

think of them?"

for those." cents thirty-five littlevindictive,having failed to gave

information

I had

robbed.

You

"I don't believe it,"he said. It

attire.

come

to

haps Persecure

seek.

I

get better in Hester quarter." Sage looked at me doubtfully.

were a

article of

not

the

can

But

he

difference of

was

ten

bled. reallytrou-

cents, and

I

"WATER"

would It

have

not

the

was

IN

sworn

Values

Sage and be

the Hester

to

there you have dealt had value.

and

had

to

by knowing them when apparent to other people that The

$70,000,000.

His

thingsin

it was

than

quotation. judgment of

Averages

it. The He

97

Street

principleof the thing. been impugned.

values had

And

BAROMETER

THE

stock

Russell

which

values,

those

know

they had ceased he died worth market

to

more

barometer

prospectivevalues. It is necessary in reading it to judge whether has a long movement carried the average pricesbelow that line or above it. In lookingback over the various analysesof the stock market as a guide to general business, publishedin shows

The

present and

the

at

Street Journal

Wall end

of

applicationof

1902,

since Charles

I find

a

Dow

typicalinstance

which

the averages

H.

may

died, of the able remark-

seem

although I regard it as the merest There is no one so common sense. unpopular as the is always telling who man you that he "told you so," but the illustration is impersonal. to

the reader,

A No

Cautious test

severer

but

could

Correct

be taken

in what of the averages the transition periodbetween

The 1902,

bear saw

Forecast than

might a

the

almost

bear and

a

tion interpretabe called

bull market.

developed from September, lowing its low pointsin the September of the fol-

market

year,

and

which

it is weeks

or

even

months

after-

THE

98

before

wards

the

BAROMETER

MARKET

STOCK

change

in the

major swing

can

be

asserted. But on December definitely 5, 1903, The tally Wall Street Journal, after a review of the fundamensound tendency of business in then recent years, said:

"Considering the extraordinaryadvance in wealth of the States during that period, considering that railroad United mileage has not increased in anything like the ratio of increase in surplus earnings,and finally considering that the ratio of increase in surplusearnings available for dividends has been at all times in excess of the rise in market pricesand at the present time shows market a larger percentage on price than at any time since the former boom started,the question may well be asked whether is at least

the decline in stocks has not evidence

some

in favor

of

an

culminated. affirmative

answer

There to

that question."

A

Bull

Market

Confirmed

It would have it

was

and

be easy to say that such an opinioncould been given without the help of the averages, but given with the pricemovement clearlyin view

at

a

the main

time when

there

was

an

easy

that possibility

It correctly might be resumed. foresaw the bull market, allowing for the caution in such a predictionand, indeed, for necessary the fact that analysisof the market movement was still in its infancy. The bull market then foreseen minated ran throughout 1904, and can be said to have ternine months only in January, 1907. But some after this editorial analysisof the business situation, judged by the averages, was written, The Wall Street Journal tackled the almost equallydifficultquestionof bear

movement

THE

ioo

for

STOCK

much

how

and the

soon

when been

set

explicit

more

condition

forth.

MARKET

its stock Dow's

prospects. market sound

BAROMETER

of

statements

It

is

sufficient

barometer method

the

proved of

reading

market's

to

record its it

fulness use-

had

X

Chapter "A

LITTLE

CLOUD

OUT

OF

THE

HAND" discussions

IN

such

objectionsand

There

is

nothing hypothesis which that

of

sort

able

seems

the

proved

established

what

movement or

able

stock to

market

that

recognize any

barometer

should

exception

San

The

i'he year

It is the

movement

or

that to

major overrun

Francisco

the bull

way

markets

themselves.

it would oninis.cfcnt

look and If

protect 101

are

we

cocksure, and

too

the

an

to

tion, excep-

rule.

in

interestingproblem

an

problem

you

But

Earthquake

accentuated

an

reading the

rule without

no

reaction

of it have

out

of

method

prove

1906 presents

this way.

to

is

there

has have

We

secondary

the

against being

while

time

after

constituted.

so

of

theory of the price

Dow's

working

a

Out

inadequate.

or

than

arises,which

dogma

its existence

unsound

a

ourselves

guard

pate antici-

well.

and daily,fluctuation"

evolve

to

discrepancies.

too

obstinate

much

major swing,

the

to

together

is called

the

"

rally,and

been

holds

theory

MAN'S

deceptively fascinating

continue

to

it is necessary

explain apparent

more

theory

A

1906

"

these

as

LIKE

SEA,

of

arrested

an

secondary at

it.

the

stock

itself

bull

reaction,

It has

markets

bear

main

cording ac-

been

said

alike

tend

market

against this

were

over-

THE

102

STOCK

BAROMETER

MARKET

it automatically as over-liquidation, tects proit can itself againsteverythingwhich possibly

A

inflation

or

foresee.

(But we

have

concede

for the further

allowed

stock market

must

represents the

about the conditions affect

which what

it

it business^ foresee.

cannot

that,

established

fact that the

the influences

protect itself

cannot

It could

not

foresee

Francisco

earthquake of April 18, 1906, devastatingfire.

If you

we

of all available knowledge

sum

of business and

Call

Tactful to

when

even

it

or

against the San

sequent the sub-

Fire

a

somewhat

strident

yourselfpopular with that individual,the California "native

son," you

will

even

to

want

not

make

allude

earthquake. In California to do anything of the there

is the

admits

of

no

fire.

For

Francisco

San

it is considered sort.

our

argument.

the

to

ners man-

All that is conceded

purpose

Chronic

bad

the

earthquake

California

boosters,

general impression that there might be, for instance, another earthquake in San Francisco as bad as the last. A fire, the other on tractin hand, might occur to any city,anywhere, without defrom those natural advantages of climate and other things of which California is so proud. There is nothing more charming than the naivete of the Los Angeles native,who says "It is a fine day, if I say so myself." But earthquakes are different. and a They put the Pacific coast in a class by itself, however,

class

not

permit

cannot

at

all

to

a

the taste

of

the inhabitants.

As

A LITTLE

CLOUD

OUT

OF

THE

SEA

103

Beau

Brummell, the great Englishdandy of the early

years

of last century, said: accident which could

of

an

but

darn

a

happen to is premeditatedpoverty." Efect

the

But

hole may

"A

be the result

gentleman,

any

the Stock Market

on

Francisco

earthquake came up in ket alreadyreactionarystock mar-

San

clear

a

sky, and took an the clause in the by surprise.You will remember which Lloyds ship insurance policies excepts "the act of God and the King's enemies." This aberration of Nature was an exception,and it went far to explain an exceptional year in the record of the stock-market There

barometer.

was

an

bull market

undoubted

ary, September, 1903, reachinga high point in Janusion; 1906. It did not hold that point without recesbe said that as a generalrule there and it may is often no marked warning line of distribution at the that bull when top of a major bull swing, especially itself,as, for instance,it did in swing has overrun in the springof 1906 was The market declining, 1919. such precipitancy to indicate the bull but with no as from

would

market

not

overbought when remember set

of

how up

a

be resumed, the

or

had

been

even

earthquake occurred.

serious the losses

We The

were.

fire in the ruins of the immense

collapsedhouses

or

those

shaken

to

much must

sion convulnumber

their foundations,

the proportions rapidlyassumed of what the insurance companies call a conflagration. The American companies, without exceptionof conand

this fire

104

THE

STOCK

and

sequence,

MARKET

the

BAROMETER

English companies, paid up sufferers, although they had an the earthquake itself. over

promptly, to help the excellent fightingcase We methods might have learned a little of German from the action of Hamburg companies, who adopted the oppositepolicyand repudiatedtheir liability. It ods methmight have taught us something of the German in the conduct of war and diplomacy, of the German of a contract and of conceptionsof the spirit ance sportsmanship. At least after that time the fire insurlittle insurance in companies of Hamburg wrote America.

Sound When there is The

Prediction

the stock market a

of

Difficulties

is taken

surprise break closely akin to that of a panic. panic,when analyzed, is essentially

violent

basis

Under

a

such

by

a

of be said that the stock market surprise.It cannot But 1906, in the last days of April,got out of hand. The serious. the decline had been sufficiently twenty railroad stocks which sold at 138.36 on January 22, eighteenpoints; 1906, on May 3d had declined over the

twelve

one

hundred

the

industrials

later date. which

records

a

three

and

There obtains

then on

seems

had

used

January I9th to

in breaks

be

from

reacted to

86.45

sort

some

like this.

on

of uniformity

Experience

of part of the panic break, with a slower decline which reallytests much

recovery

subsequent and the strength of Street Journal

the stock market.

of

In

July 6, 1906, called

fact,The attention

Wall to

this

LITTLE

A

OUT

CLOUD

THE

OF

fact,in predictinga general recovery of the averages. "It is a uniform have been of from an

from

105

the showing

It said: the years when such averages panic decline is followed by a sharp rally

experience,over

kept,that cent

40 per

SEA

a

60 per

to

of the movement,

cent

and then

by

irregularsag ultimatelycarrying the price to about

the old

the weak

holders

low

point. It

who

to

seems

helped over

were

the break

the San

on

need

this

to

the panic. Francisco

bale

out

hardly be said that exactlyof the panic

It could

disaster

was

and the market in rallyingrecovered to 131.05 in the case class, of the railroad stocks, which is only 1.61 below the priceat which the earthquake decline started. The rally, however, does represent about 60 per cent of the decline since January 22d, and the since has been curiouslyparallelto the of the market course fair to infer observed after a panic rally. It seems movement of very much that liquidation the same kind as that following a panic has been necessary."

Seriousness At

this distance

serious the San

of

of time

Francisco

Disaster

the

we

easilyforgethow

may

disaster

The

was.

The

loss direct Fire

has been

estimated

Insurance

Company admitted that the conflagration If that was the it the savings of fortyyears.

had

cost

effect United how

at

$600,000,000.

the strongest

on

States,and must

severe

one

have

fire insurance

Aetna

company

in the

of the strongest in the world, been

the

consequences

where. else-

well for the shallow, halfall very made worn taught optimistto say that broken windows It

for

was

you

glaziersand manufacturers something to put in a new

you

spent

on

it would

have

been

of

glass. But it

pane,

and

spent

on

cost

the money

something

THE

io6

BAROMETER

MARKET

STOCK

else,while, as Bastiat said,you would stillhave your of reasoning were If that sort window. good, the all quick road to prosperitywould be to burn down the cities in the United We the

see

States.

that the railroad

industrials,and

stocks suffered

should

than

more

that

remember

they in a higher class,both relatively and positively. were But in a sudden and demoralizingbreak people sell in order market the things for which there is some for which

protect those

to

The

Wall

we

Street

Journal

put it

at

panic is

scare,

and

first decline in

a

slower

is the

decline

is

there

demonstration

confidence;" going on to of the market on July 2d, that the

shock

to

well below were

the line of values

and

market.

no

that the of

time:

As "The

second

and

the

general say, in speaking line of priceswas

that the indications

bullish.

Rally From This

inference which

a

Break

proved

is followed

in

a

Bull

correct, and in these

Market it has

been

the

to consider discussions, which began in September, 1903, the bull market as actuallyterminating and turning to the bear side, in January, 1906, but in December of the same not At the time the bullish inference quoted was year. publishedthe market was making a line which proved, the analystcorrectly as surmised, to be one of accumulation. The forecast was and on August soon verified, Street Journal The Wall 2 ist again discussed the There market from the pointof view of the averages.

custom,

THE

io8

right51

MARKET

STOCK

per

cent

said it. He

must

necessary.

The

BAROMETER

of the time. found

have

balance

I don't believe he much

a

ever

largerpercentage

in his favor

would

have

not

paid operating costs, to say nothing of keeping a racing stable. But the deductions from the evidence of the pricemovement have been right,as the printed record

searching both

the

find

of

no

instance

record a

of

most

and

radical

of the barometer.

meaning its

the

much

proves,

the

time.

conscience

my

After I

of misinterpretation The

can

the

studies based

upon anticipatewhat the

uniformly able to publicwas thinkingabout business before the public its own knew curred, thoughts. The errors, where any ocof were mainly due to the almost impossibility of the market. forecastingthe secondary movement This is reallymuch more difficultthan the interpreting of the major swing,justas it is easier for the Weather than it Bureau for a large area to forecast weather use

were

is to say whether

it will rain in New

York

to-morrow

morning. Initiation Near

in the

1906,

that

Bear

line should

be

had

there

active

twenty

of possibility

Market

a

"line,"especially

stocks, and

that

the

through the lower level of the considered as indicating the warning of

a

break

coming decline. This than to anything more been

been

railroad

forecast did

a

had

a

the top of this bull market The Wall Street It pointed out, on ber uttered a caution. Decem-

Journal 15,

of

a

for three years

not

commit

possiblebear swing in a primary bull market.

itself what It

A

LITTLE

CLOUD

OUT

OF

THE

SEA

109

In altogether too early to call the actual turn. alized the beginning of 1907, large railroad earnings,materiin the case of the spectaculardividend policy for the Harriman announced roads during 1906, were off against high money set soon rates, which, as we the market, and were already beginning to warn saw, business generally,of that severe crisis brought about was

later in the year

when

;

the

of the old national

reserve

to banking system virtuallywent pieces,call money became unobtainable at unparalleledrates, practically and the banks resorted to clearing-housecertificates for the first time since the panic of 1893. In the month of January, 1907, the active professional traders were sellingstocks. Political meddling investors, and before the year was beginning to scare

there

out

was

capital.

The

was

decline

what

amounted

to

a

it is

market

because

that

of

already started, the elapsed time taken swing had replaced the

in stocks

had

interestingto trace that a major bear decide to preceding long-continued bull movement. of prices in January is always disturbing to and

strike

is

a

time

of

year

A

decline

the stock

when,

other

things being equal, the tendency is oftenest bullish. of and the reinvestment It is a time for cheap money, It is a time, morethe profitsof the preceding year. over, it is peculiarlyunpopular to talk bearish when The prophet of evil,as I have already in Wall Street. frequently demonstrated, is totallywithout honor in that part

of the country.

THE

1 10

MARKET

STOCK

Times

Boom

and

BAROMETER

FallingBarometer

a

long bull market there had been an unusually then that the issues,and it was large emission of new late J. Pierpont Morgan originatedthe phrase about loves a good phrase, undigested securities. America Industrial earnings,and and that one caught hold. those of the United States Steel Corporation, especially continued remarkably good. The railroads were making an excellent showing of both gross and net. in January made But the sharp decline in the averages in declining commentator our most cautious, particularly much ing less assume that nothto predicta rally, than a secondary reaction had been established. more It was be positive to altogethertoo soon decline about the major movement. In fact the severe ords kept everybody guessing;but it appears from the recthat early in March the existence of a primary In the

bear

market

like any cheer up

Journal, very all it could

conceded

was

to

Some But the

the market

They

of

were

15,

Bearish

Street

doing

These

1907,

and

a

Influences^

looking at of

bear

all the

some

of them

read

were

given curiouslynow.

arguments

they

facts,and were

:

"i.

Excessive

prosperity.

"2.

High

of

a

was

newspaper,

far-reachingconsequences March

Wall

the

was

reflected in stocks. on

other

The

investor with dispirited features. genuinelysatisfactory

of the

statement

and

cost

due largelyto the effectupon living,

great gold production.

prices

A

"3. "4.

LITTLE

CLOUD

Readjustment of

OUT

values

to

OF

THE

the higher

SEA

rates

1 1 1

of interest.

Speculationin land absorbing liquidcapitalthat might otherwise be available for commercial enterprises. "5. Roosevelt and his policyof government regulationof the corporations. "6. Anti-railroad agitationin the various states. "7. Progress of socialisticsentiment and demagogic attacks on

wealth.

"8.

Harriman

of investigation

exposure

of bad

practicesin

high finance. between "9. War big financial interests. "10. Over-production of securities. "u.

Effect of San Francisco

There

quoted of only momentary in which possiblebear manipulationwas consequence, put last. It has been said already that there never which was not was a bear market justified by the facts subsequentlydisclosed. Are we not entitled to say that an

other

earthquake."

were

of

these

causes

influences became

to permanent, which even could not sibly the stock market extent posforesee,concedingthat it is,at least theoretically, some

of

longer and largervision than any of of events proved, the over-regulation alone was sufficientto justifyinvestors the consequences themselves, whatever market might be. An

Abnormal

Money

most

warnings.

instructive.

I wish

the in to

As

railroads

protecting the

to

me

stock

the most

Street,and perhaps

It is full of lessons

that the scope

after

Market

In retrospect, the year 1907 seems I have ever interesting spent in Wall the

?

us

and

of these discussions

MARKET

STOCK

THE

1 1 2

BAROMETER

of it in greater detail. There is ander better story of it for the student than that of AlexDana Noyes in his Forty Years of American

permitteda no

Finance. Post

treatment

He

financial

was

I remember

that time.

at

of

editor that

of the year, when industrywas and net earnings were gross

the the

at

Evening beginning railroad

booming, when making about

the

best

showing on record, when the stock market was only recedinga little from three years of advance, where at least on prices, moreover, paper, had not overtaken values, he was struck, as I was, by the abnormal money

market.

should

be

That

is the time it

cheap, and

February. The it long before we

of year when money almost painfullytight in

was

meaning of the major bear swing of 1907

stock market

did,as

foresaw

the

showed. No

There face

Bigger Than a

was

comes

up

of Wall

terms

and

his

was

an

of that

before

me

he a

friend.

He

bears

time, since dead, whose

well above

lover of music, and He

performance

The

was

talked

He

average.

much

the

ent rever-

more

speaking to title role

He

me

one

"Elijah" taken by

artist of all time, the late Charles

dramatic of the

of

stock

"their frantic efforts

to

had

appealed to my ered priestsof Baal being "cornElijah controlled," and of

story

talked the

the

in

vivid

were

of Mendelssohn's

heard, with

once

the greatest oratorio

Santley.

Hand

I write.

as

sounded.

had

Man's

Street, but his illustrations

educated

day about that he

broker

was intelligence

than

a

cover

their shorts."

He

was

"3

impressedwith the way Elijahhad, as he expressed it, "joshed" them in their extremity, suggestingthat their god was taking a nap or was, peradventure, "on a a journey." There was phrase that had stuck in his mind which describes the condition at the beginning of 1907: "Behold, there ariseth a little cloud out of lowed the sea, like a man's hand." The "great rain" folin the

autumn

Not

of the year 1907. the collapsein business

only was developed with

It

breath

our

Samuel

Rea,

the now

president of the and

carried

the United

then

suddenness

At

away.

traveling on

a

the

tremendous.

simply

which

close

of

the

year

I

took was

Pennsylvania railroad with Mr. the presidentand then the firstviceroad. The Pennsylvania carries tenth of the railroad freightof a "

"

States.

Mr.

they were only a month load, apparentlyable to

Rea away

said that from

at

the

a

time when

peak

of their

the crop movement and the industrial traffic, both ways, of the Pittsburgh business seemed like a jackknife, to shut up district, count

upon

almost

in could see the empty cars overnight. We the stub-end sidings and yards all along the system between Philadelphiaand Pittsburgh,at a time of year railroads are normally using everythingbut the when cripplesin the repairshops.

The

Deadly

Hand

of

Politics

nothing like it since the collapseof of economic l$93" when that Congressionalmonument Silver Purignoranceand sectional folly,the Sherman There

had

been

1

seemed lean

For

in

to

anything

of

lose foresaw

what

frt

It

country. n

with

my

the

country

stock

market

some

of

may

also

business, the the

that

already

underlying

encouraging.

in

is

or

foreshadowed

of

Congress

by demand

return

some

at

and been

has

past

impending

the

is the

war,

consequences

in

and

fool

present

foreseeing It in

averages

and

in

bonds,

sanity, are

the

that

politics.

shown to

of

matter

improvement the

intelligent un-

wandering

not

what

no

knew

business

the

am

largely

years

investment

foresees

if I

me,

thing any-

who

man

pensive ex-

there

had

who

for

But

year

meddling

do

war

two

further

be

indications

this

now,

for

the

market

would to

the

man

bureaucratic

seems

that

text,

of

Every

1907

highly

that

end

to

around.

dog

Every

terrified.

was

regulation tl e

the

the

into

previous

resumed

who

those

Lord

the

years

fully

capital.

and

of

business

before

and

strike

a

had

they

year

sport, was

the

The almost

the

panic, with

prosperous

quit kicking

had

that

ten

That

lawgivers.

our

fear

the

alizing demor-

most

saw.

railroads

the

finally put

them,

to

the

ever

we

that

of

bankruptcy

politicians. they

lesson

a

followed

which

years

served

been

have

to

universal

panic

far-reaching

and

in

grisly harvest

its

reaped

Act,

chase

BAROMETER

MARKET

STOCK

THE

14

even

anything

if the but

1 1

6

THE

But

the

not

down.

MARKET

STOCK

BAROMETER

theory of the longer rhythmical cycle will It

to

seems

be

almost

an

of my readers and critics. None have analyzed his belief in it in any

many

obsession of them

with seems

searchingway. The general impressionis that there is "something in" the idea; that if it is not proved true it should cate indibe true; that the world's panic dates themselves a that, given such strikingdegree of periodicity; in the past, we periodicity anticipatesomething may like it in the future ; that men will always be as stupid in the conduct of their own business as they seem to have been when judged by the records of history. to

Basis

of

the

Cycle Theory

Probably this unwillingnessto analyze the panic theory arises from the fact that in the eighteenth exactly ten century, accordingto Jevons, there were noteworthy crises at an average of ten years apart. I that the one content am to waive Jevons omitted of 1715, when the Scots invaded England because there were not enough spots on the sun in that year to establish his daring theory of the relation between the two phenomena. We may note that Jevons gave 1793 and 1804"5 as crisis years, while it is of record that our first panic of the nineteenth century was own the British capture of the city of consequent upon Washington in 1814 an event which no cyclecould have predicted,unless we that the cycle to assume are theorycould have predictedthe late war. ing But, count1814, and what Dow calls the "near approach to "

"

"

THE

a

crisis" in 1819, there

the nineteenth

Let word

see

us

between

ten

were

117 crises in

American

century. how

the

approaches the

"

CYCLE

UNPUNCTURED

cyclist if that is the subject. The ten-year

correct

"

the British crisis of

1804-5

and

him

serious and nation wide

crises of 1837 and

at

first.

of

own

our

And

1814 might stimulate

interval

the

really

1857 would

recall He would great deal of confidence. had up the ten-year intervals of Jevons, and that we

give him

a

to

1837 recorded

of

the

at

each

four crises of sorts, in four

decades

greatly share the panic in Europe in 1847, although it was sufficiently serious there to impressitself upon American memory. But when real panic in the cycleenthusiast found a the discovered have now We 1857, ne cried "Aha! There is a twenty-year cycle, secret. with a big crisis now

this

new

century.

end, and

a

We

did

not

littlecrisis in the middle.

confidentlyset about beautiful theory."

humoring

the

We facts

may to

fit

MisfittingDates On

showing there should have been another in first-classpanic, with nation wide consequences, 1877. But apparentlythe machinery slippeda cog, for the panic came in 1873. From the devastatingfolly of overtrading on a greenback basis, it would have in 1872 but for the accident that we had in that come wheat an enormous year crop, which brought splendid pricesin the world market because of the almost total contraction Here, then, was a crop failure in Russia. that

1 1

STOCK

THE

8

MARKET

of the interval between deflated

theory was

great crises.

The

twenty-year

sixteen,and it is hard

to

from

consolation

much

BAROMETER

the

fact that

derive

to

Overend-

the

in 1866 had marked date a Gurney failure in London between don Lonthe two conveniently great crises. The accompanied by a heavy fall panic of 1866 was Stock Exchange. In April of that in pricesin our and there was in Michigan Southern a corner year speculation.The truthful but cautious Dow rampant than says that the relapsefrom this "was rather more normal." But

the three

something

to

twenty-year

revive

The

theorists.

crises of almost

first and

sixteen years crises occurringin 1857 and

fortuitous,or

at

the the

ten

last

and were

wide

reachingconsequences. between

of

magnitude and equallyfarOur cyclists said: "That up slip-

world

in the reduction

confidence

the

1893 did

1873, 1884 and

panicyears

to

least

shall be

we

for

the

1873

was

able

to

interval

merely explainit

only a littlemore the about the laws which govern these things." And are prophesied, saying: "There twenty-year cyclists eter 1873 and 1893. Our baromtwenty years between is gettinginto shape. There will be a minor crisis round about 1903 and a major panic in 1913, or not later than 1914."

when satisfactorily

we

Lost What be made that?

is the

use

deduced

in Transit

of the

the basis for But between

have

at

theory,indeed, least

as

1893 and 1907

much we

have

unless

it can

prophecy an

as

interval

THE

CYCLE

UNPUNCTURED

of fourteen

Has

years.

We

see

that there

ume Indeed, the vol1913. business was not large speculative

"

of the world's make

to

certain

crisis in those

a

that

sufficiently high to What

cannot so

in fact for

make

been

noise when

of all this

as

it topplesover.

that it has any. concessions takes "

that

it

ceases

to

have

constructed

forecast

a

ably reason-

brought about

be

cannot

see

many "

a

It is

years.

speculationhas

is the value I

make

smash

a

edifice of

an

reason slightest by presumably anticipated

the

not

was

for any crisis in the years the cycletheorist or 1903

to

tracted, period con-

the twenty-year

ten-year period expanded, to fourteen Is there any dependable periodicity about the

years? thing?

unless

19

the

or

enough

1

more

The so

ness? for busi-

theory has ing, humor-

much

than

a

value

sweeping conclusions based upon the cycleassumption had to be changed that is reallyuseful again and again. Does much remain? I am anythingbut a sceptic;but this whole of playing the cycleslooks to me method absurdly like cheatingyourselfat solitaire. I can understand rules, stringentrules, arbitraryrules, unreasonable We

record.

see

that

the

in any game. mind fails to grasp But my where you change the rules as you go along.

Are And "action

what

becomes

and

reaction

is little real recorded

human

evidence

a

game

They Equal? of that are

imposing premise that equal?" Are they? There the assumption, in to prove

affairs. Of

course

the holders

of that

BAROMETER

MARKET

STOCK

THE

120

theorymay respond,"Well, if they are not equalthey ought to be." I cannot even see why they ought to be. ity holdinga Christian faith in the perfectibilCertainly, of human see why crises should nature, I do not how be eliminated altogether. It is easy to see not them at least seem the periodsbetween to have grown longer. The interval between 1893 and 1907 was fourteen years, and 1920 was no panicyear. Unless

we

are

force

to

the

construction

of what

panic until we actuallydistort it,we can of 1920 as a hardly regard the deflation liquidation with the typicalcrisis. It could not begin to compare damaging effects of 1893, I873" 1857, or 1837. Ifchad of the earmarks of a panic year. I dare say I none shall believe,in five years'time, that the drastic contraction and deflation were about the best thing that could have happened to us. They should certainly

constitutes

discount

a

all

sorts

A There

of

trouble

Business be

must

future.

Pathology Needed sort

some

in the

of scientificpathology of

business

affairs, or perhaps it might be better to call it morbid psychology. I have suggested in another chapter how utterlyinadequatethe records of history are

in the vital to

it.

of

matter

But

we

commerce are

and

all that

tributes con-

beginning to1 acquire a

scientific knowledge of the symptoms of the diseases which afflictit. In this respect we have probablymade more

advance

all the

years

in the past quarter of a century than in since Carthage sold the purple weaves

THE

of

Tyre

UNPUNCTURED

Rome.

CYCLE

121

velopin hope that we are demethod of diagnosingthe symptoms a scientific of business disease. There was no such method in 1 893, bcause there were such records as we have today. no But why need we that once assume every ten years gent intellior twenty years, or any other period,the most loses its head and forgetsall part of mankind the lessons of the past? One thingis certain about a Are foreseen. if it were occur panic. It could never of knowledge and an not we working toward a sum safe of analysis which will,in a sufficiently accuracy to

foresee

measure,

of God

act

and

The

We

well

may

the

"the

risks

all but the non-insurable

"

King's enemies?"

Federal

Reserve

Safeguard

and many politics, great deal too much defects,in the Federal Reserve banking system. But I

can

see

that system it is hard to imagine a set of which would force the country to resort

under

as certificates, clearing-house

to

more

and

a

1893.

It would

pass

perfectbanking system would

to

one

But

the progress the Federal

to

tremendous has

ever

must

and

what

would

in 1907

devise

to

man

once

a

perfect

seem

utterlyinadequate to another. the old national banking system

appear

from

Reserve

system represents which stride in business practice

the

most

the

try coun-

system itself an factor for the cycletheorist to consider?

seen.

new entirely

It

;

the wit of

it did

ditions con-

not

Is

not

be assumed

crises in the future may

the Reserve

for

a

moment

be dismissed

that

from

possible

considera-

THE

122

STOCK

On

tion.

MARKET

the contrary,

BAROMETER

they are

certain

to

But

come.

hope that, with fuller knowledge, they will be at least in part anticipated and, in their most dangerous effects,radicallymitigated?

may

not

we

Teaching If these studies have

the

shown

Teacher the

takes

who

man

an

if not financial interest in Wall even a intelligent, Street, that knowledge will protect him there as it will anywhere else,the educational design has been largelyaccomplished. Certainlyone of the desirable educative writer movement

himself essence

with

services of this series has been

how

much which

there he

had

was never

about

before

in any useful fashion. The of such a propositionis

it from

the

way

show

to

stock

market

formulated to

get

pragmatic "

the

at to

to

the live

day. The stock market problem, considered in the lightof Dow's Theory, is essentially simple. It can be set forth in a thoroughlyuseful way, provided only that the teacher is neither a crank nor Harvard a quack, a gambler or a crook. University is performing a greatlyneeded service in putting out tabulations and index charts on general business conditions which are above suspicion. The compilershave tied themselves down not to dangerous assumptions. "medial line" of They are not lashed to an assumed national wealth with a constant upward tendency at the same of speed in good times or bad, which rate loses its certaintyin face of the grim facts of war, and hysterically changes its course.

day

to

STOCK

THE

124

MARKET

and

Extent

Certainlythe of the kind.

BAROMETER

Duration

stock market There

is

Incalculable barometer

no

shows

ing noth-

approximation to

the

regularityof the pendulum, either in the arc of the swing or its velocity.We see a bear market declining fortypoints,a bull market advancingfiftypointsover than twice the period,a bear market declining more nearly sixtypoints,a bull market recoveringfortylive points,a bear market decliningless than thirty than points,a major swing upward of not much more advancing nearly sixty twenty points,a bull market pointsin the industrials with a simultaneous advance of less than thirtyin the railroads, and a different period for each successive swing. This, in approximate is the record for a quarter of a century. figures, There such about is, obviously,a rough periodicity But if we movements. begin to twist them into some mathematicallycalculable, regularlyrecurring"cycle," the

next

main

movement,

up

adrift,with nothing to hold and

an

empty

or on

down, will leave to

but

an

empty

us

all

theory

purse.

Sham

Mysteries

dogmatize about this,although I a am scientificall tryingto make what is essentially treated subjectpopularly interesting, if, indeed, sermons are ever popular. One trouble of all teaching, moral and a danger to every teacher, is that the authoritynecessarilyaccorded to the instructor leads him to make something of a mystery of his trade. His I do

not

want

to

UNPUNCTURED

THE

unconscious

CYCLE

desire to eliminate

leads him

125

tion embarrassingcompeti-

exaggeration of the difficultiesto be in acquiringa sound encountered knowledge of the affairs run, there subject. In a brief time, as human will be a sort of cult amplifyingand complicatingan otherwise simple thesis. Every religionbreeds a priesthood,where sacerdotal succession becomes more defended, important,or at least much more jealously than law

to

salvation.

mere

and

the

law

canon

referred

to

into your

house

Both

in the

handicrafts

mysteries. The

as

English common were

plumber

sometimes who

comes

likes you to believe that his elaborate dence and the general mess he makes, are evipreparations, of the

"

a

of the task he has accomplished difficulty as a difficulty layman are entirelyunable to you

measure

bill he

"

and

a

sufficient pretext for the extortionate

renders.

Tipsters and

Insiders

people connected with what are agencies. There is a franklystock-tipping for what they supply,and they are necessarily market excellent judges of human nature. They are never bearish on the stock market. ful They are often successand prosperous that in a bull market, and I suppose the savingsof the fat years support them in the lean ones. They tell the unscientific speculatorwhat he times Somewants to know, but not what he needs to know. the guessingis good, and alwaysthere is the suggestion that there is a mystery about reading the stock I have

known

some

likable

market

If this is true

movement.

generalmarket,

the

on

With

stocks.

it is stillmore

far oftener

were

As

a

are

conduct

They

far

are

always buying.

many

insiders,

speculatorthey

right.

too

of

the real business

busy to spend their

too

vidual indi-

of fact these so-called insiders,the real

matter

who

men

than

wrong

about

true

"insiders"

them

they teach

of what

In my experienceI have known for every purpose of the small

and

are

BAROMETER

MARKET

STOCK

THE

126

time

limited,too

a

corporation,

the stock ticker.

over

restricted

their ticular parof the turn

to

good judges of the market. They are normallybullish on their own property, in the respect that they believe it to be a growing tions with great possibilities. But of the fluctuaconcern of business which will affect their stock, together trade,

with the

rest

and view truth

is

be

in the

same

group

industrial stocks

limited. singularly

to

say

anybody That

to

that

in Wall

is not

all the other

or

in the It is

same

not

mere

road rail-

market, their

cynicismbut

sufficient inside information

can

ruin

Street. but it is an

excellent

thingthat it is true. Of course the executive officers of large corporationsshould have a sound generalknowledge of conditions outside their own sphere. They should be well instructed. They might read this book with advantage,if it only taught them to take a more tive objecview. But even with the basis of a general education, such as is requiredin a good university of the intends afterwards who in law or to man specialize their very occupationunduly affects their surgery, of proportion. sense onlytrue,

,

THE

Our

This

is It

and

to

makes

is

value

Few

of

residue us

be

can

set

necessarily

make

false

stock

claims.

limitations. it has record

But a

It

quality yet

every

devised

of

day

barometer

as

of

his

it

forecast even

"an

uhich

chart.

it is

will

help

life. It and

and

This makes

obvious

honestly no

sible pos-

which

future

human

is, it

bushel

But

his

its

up-to-

can

does.

highly

has

and

the

of

of

prices

pictorial

which

rules

admits

such

in

the

of

good,

conditions

forecast

market

is

Newtons.

or

working that

the

it forth

sifts

estimate

the

industrious

business

real

the

showing

winnowing

most

Keplers

in

man

any

is what

that

and

the

the

general

formulate

must

If

all

resultant

reflects

possible

trading

day's

the

together

is

it

reflects

every

market

before of

student

information

If

prices.

long

the

and

useful,

are

movement

chaff.

the

in lower

protect

no

the

poor,

to

he

market

available,

advance

of

fads.

common

or

they

able. valu-

so

interesting

systems,

or

inferences as

is

barometer

cycles

scrap

The

from

grain

of

127

Guide

market

far

so

other

knowledge

up

all

every

collect.

date

little

them

wheat

stock

well-grounded

uses

with

Trustworthy

the

why

even

It

CYCLE

UNPUNCTURED

other

claim ness busi-

closely approached.

XII

Chapter A

FORECASTING

MARKET

BULL

and, indeed, vital

the

important CONTINUING subject prediction of

the

if

barometer,

theory of stock The

the

market Wall

upon

my

Journal are

they

At

late Sereno

S. Pratt,

have the

a

sterling character man,

The

Street

Wall

of

and

Journal

a

personal

themselves the

1907

year

edge, knowl-

economic

York

New

of

chair

dignified and

the

a

less

Chamber

Commerce.

Apart

from

the fact that

editorials than

have

Editorials

they

less of

far

not

are

any

signed,

paper news-

personal quality

The politiciansassume. or public supposes is, of course, personally responsible for them,

the

editor

only

the

to

criminally

proprietors of

under

checked, when who

the

editorial

the

the

to

Impersonal

not

is

mitted. sub-

here

exceptional ability as

for

of secretary

exacting post

of

of sound

relinquished

newspaper

be

impressed

end

man

Dow's

analyses of the irregularperiods in

1907-8 may of record, and there

memory.

ket mar-

the

in

should

stock

validityof

the

prove

published at

averages

why

reason

to

are

price movement,

These

of the

value

we

Street

1908-1909

"

"cover"

the

law.

necessary,

but

the paper His

editorials

own

by the experts

particularsubjects,and 128

civillyand

what

of

the

arc

paper

they write

A

BULL

is editorially Several

in turn

competent

editorial paper.

but it is not

were

MARKET"

1908-1909

the editor's revision.

subjectto have

persons

it appears, I succeeded Pratt at

and

seen

before

criticized

At

any

well-conducted

any

the

beginningof 1908,

if the impossiblefor me to say, even in some to what degree confidential,

method

unconsciously impress themselves Pratt

rate

of

reading the

inherited from

I

and

Detecting the

of

were

of

mind

one

extent matter

of

a

It will be remembered, from

Bear

an

his staff. in the

the paper its founder.

Dow,

End

upon

a

matter

which

averages

Charles H.

an

in

the editorial discussions of the averages were of individual thought, although the methods editor

129

had

Swing

preceding article, short but severe that there was a major bear swing vember lastingthroughout 1907, reallyculminatingon Nothe

of that year. In the last week the industrial stocks rallied sharply,as 2 1 st

equallyhave bear

in

done

market; and

the

problems,that

of

itself.

On

Journal

a

of November

they might secondaryupward swing in a difficult of all barometer

most

callingthe December

of the market, sented preStreet 5th The Wall

turn

said:

"Since November

2ist, when

the average

priceof twenty

road rail-

81.41, its lowest point, there has been an the record at the close of advance of 7.70 to 89.11, which was During these ten days there have yesterday's strong market. been only two days of decline. This is a very substantial rally, and perhaps it is too rapid,all thingsconsidered, althoughit still stocks touched

130

THE

leaves

priceson

trade contraction

23d

December

there

The

of the week.

been

asserted

than

rather

rash

the

predict,and

to

was

seem

to

discount

in

large

of the future."

incidental reference

an

in the discussion

the averages

to

BAROMETER

would

basis which

a

part the reasonable

On

MARKET

STOCK

of the

writer

opments general develto

seems

change, which

have

it would

felt have

said:

"It will be noticed that there has been quite

a

ment typicalmove-

of the average priceof railroad stocks. It declined twentyIt rallied nine six points from 2ist. July 2Oth to November reacted four points in the next points in the followingfortnight, This is ten days, and has rallied two points in the past week.

swing of the pendulum,

reallythe shortened equilibrium." A

Before

we

about

our

further

go

it is necessary

the

present purposes.

followingthe rallyfrom

the bear

market

the movement

was

to

of

checked

before

thing some-

say

which

this

instance,sufficient that the

It will be observed

reaction

low, and

approaches

Self-CorrectingBarometer

secondary movement paragraph gives a simple,concrete for

it

as

the low

points of

it reached

the old

for purposes of record it may be said that of the twelve industrial stocks then used

in the average

roughly paralleland confirmatory. "in the paragraph quoted is Perhaps the last sentence the most if it were intended to develop illuminating in this article the meaning and function of the secondary swing. It may be said that in that way our barometer of a tends to adjust itself. At the turn bear market there is a chaos of knowledge of all kinds, was

THE

132

STOCK

BAROMETER

MARKET

momentarily active. It is fair to say that he was within his rights entirely and a member of the Exchange. The as a floor trader until market did not begin to gain strength or volume of the presidential weeks the last few campaign. then on the rightside and followed the Wormser was I suspect he even fancied he was market leading up. it. For three days after the election stocks were very convinced so strong that he was strong. They were the bull movement had sufficiently discounted the reelection of McKinley. He turned bearish, and probably lost in a few days all he may the have made on bull side in the precedingfive months. That bull market, until Sepculminate have shown, did not tember, as we of 1902, in spiteof the serious interruption Pacific corner is an the Northern and panic. This excellent example of a speculatorwho saw only one there

of

the

stock which

in any

was

factors

many

them, and who

where

not

was

was

the

content

to

market

saw

all of

the barometer.

trust

It may, indeed,have been that Wormser's prominence in a restricted market, a relatively large frog in a

small means as

puddle, had given him that he alone singular,

he sometimes

had

A

Returning which

The to

to

the

constituted

in the dull

Courageous

Street

foresee, on

said, "We

have

seen

rise.

Prediction

Journal

December

no

the market,

days precedingthe

the bull market

Wall

impression,by

of 1908 and was

1909,

ning evidentlybegin-

paper 25, 1907, that newsthe low price for the

A

MARKET"

BULL

1908-1909

133

in all

probability."On January 10, 1908, when the country was stillquiveringfrom the shock of the cates developments of 1907, when the clearing-housecertifivivid reality, Street Journal, The Wall were a able alone, was manifestlyjudging by the barometer record a significant to rally. Speaking of this preliminary it says that it gives "the impression movement, that it is one of those sharp fluctuations which follow an extreme low point and precede,at greater less distance,a permanent in the tide." That or turn and clear as a prediction, and seems fairlycourageous of exactlythe conservative kind business men one were being led to expect from the generalconsideration of the stock market barometer. Let us keep in mind that Dow's theoryis not a system devised for beating the speculative infallible method of playing an game, the market. The averages, indeed,must be read with a singleheart. They become deceptiveif and when the wish is father to the thought. We have all heard that when the neophyte meddles with the magician's year

wand

he is apt

raise the devil.

to

Reviewing Prediction the

of

was

a

bull market

a

comfortable

which

nobody

task in at

that

less forecast with any degree earlier chapterof this series great

concede, much

certainty.In

stress

Collapse

anything but

was

beginningof

time would

the

laid

on

an

the suddenness

with which

business

Street Journal recalls The Wall collapsedin 1907. the conditions, and the startling change,in its editorial of January 24, 1908:

THE

134

STOCK

BAROMETER

MARKET

"Consider, for instance, the rapiditywith which in this country

of business has swung

prostration. Almost

great

to

from

changed

situation

in

extreme

one

from

the pendulum

extreme

single night the

a

after

Even

another.

to

perity pros-

through Wall Street with terrific force a the fact that high officialof a leading railroad commented upon the traffic of his line had the day before touched high-water Three weeks later the same mark. official reported that the of this business of the line had fallen off abruptly. Anecdotes kind could be multiplied indefinitely. since the panic started in Wall "It is only three months Street,and yet that time has been sufficient to produce what the

panic had

amounts

to

swept

a

revolution

Three months country. the freight. Now move

freightcars

empty

months

in ago

there

there are

its activity.It took only five or and

to

close mills.

reduction

in iron

it would

make

were

not

several

tens

steel trade

If

and

was

were

the very

to

cut

Three

height of

describe

to

perpendicular line, so

a

of

off the demand

steel production in the past

almost

to

of thousands

at

drawn

the

enough

cars

in the terminals.

six weeks

chart

a

of

conditions

economic

the sidingsand

on

the iron and

ago

the

the

weeks,

ten

sudden

and

has been the contraction."

extreme

A These

Bull

Market

Recognized

trasted supplemented by and conwith the uniformly bullish inferences drawn from the stock market barometer during the winter and springof 1908, when the business of the country apparently,in the deepest stage of depression. was, The depressionwas recognized; but the fact that the stock market was acting not upon the things of the

moment see

but upon

them,

will be

could

extracts

seen

was

all the facts,as allowed

never

that

be

The

Wall

to

far ahead become

Street

as

it could

obscure.

Journal

set

It

forth

A

the known

MARKET"

1908-1909

135

facts in the paragraphs

well-known that

at

BULL

chart

showed

time

and

begin its ensuingarea

its

did

not

A quoted above. lowest point of depression

line, to

its medial

cross

expansion,until the following November. But the stock market anticipatedthat record by a clear twelve months, and the faithful barometer predicted the recovery when there was parentl apthe horizon. not a patch of clear sky on

Reprobating Looking back it is sound

matter

Wall he

to

back

in the

is wrong.

can

never

The

me

In

the

be

Recovery

days of earlyresponsibility,

of thankfulness

criticism.

Street

"Frivolous"

the

those

on

theory to

virulent

of

to

me

of

mind

at

had

Dow's

unbelievably the demagogue being rightwhen

face of

forgivenfor

country

have

that

time

full of all

was

agitationfor the curbing,controlling,regulating and general bedevilingof business. Discontent winter of unemployment. a was general,and it was tude of the letters received,in which this bullish attiSome kinds

of

of the unmeasured

stock terms,

market would

was

sound

denounced

funny

in the now,

most

although

anythingbut funny then. We seemed to be they were in the positionof the "coon" at the country fair who puts his head through a hole in a sheet as a target for those willingto pay their nickels for the privilege that of a shot at him. The lightestaccusation was while Rome Wall Street was was burning." "fiddling The general charge took the form that guiltymanipulation by gamblers was in progress.

THE

i36

If you

will refer back

the recorded

would

to

chart twenty-five-year that

an

a market indicating

have

the

earlier discussion you will note sales at that time were the lowest

publishedwith 1904,

BAROMETER

MARKET

STOCK

been

so

wasted

that

narrow

if it had

even

since

manipulation been possible.

charge is always made in a bear market and in the transition period between a major decline and If I had not already its succeeding upward movement. But

that

advanced

so

to

arguments

many

prove

what

an

consid in-

manipulationreallyis,the volume of sales itself would be sufficient to make point. my But these sturdy protestants thought otherwise, and fill my continued wastebasket with revilingsfor to For a time at least,a bull months to come. many market was unpopular. positively factor

Relevance It is worth

of

while

the

to

Volume

note

of Trading

here

that the volume

of

than in a trading is always larger in a bull market bear market. It expands as pricesgo up and contracts as they decline. A moment's thought will reveal the the market has been under long depresWhen reason. sion actuallyand on people have lost money, many and the fund for speculationor speculative paper, investment is correspondingly contracted. On the advance, ally however, many people are making money, actuand on paper, and the wellnighuniversal experience

that in the last stages of a bull market trade in stocks beyond their real resources. This has been

they is uniformly true

of

major

bull

swings,but is subject

A

BULL

MARKET"

great modification

to

sharp reaction

in

in the

of this in the

137 A

secondarymovements.

bull market

a

of business.

the volume

1908-1909

There

stimulate

will often

is a

example picturesque

spectacularreaction of the kind. The monthly sales in May, 1901, have not average been closely than more approached since. They were million eighthundred cludin thousand shares a day, inone Saturdays,when there is only two hours of ern trading,and it was on the 9th of May that the NorthPacific panic took place. There will be an opportunity detail to take up the secondary swing in some in a future discussion, for our and it is not necessary the subjectnow. to expand upon purpose most

An Not

Unbiased

be

tedious,but saying "I told you so," on to

has been use

necessary

to

of the stock

to ex

Mind counter

charge

of

post facto evidence, it

offer these market

the

examples of

barometer.

indeed, little in these predictionsto

excite

the tical pracThere is,

boasting.

student of the averages who has once Any intelligent grasped the principleof the stock market barometer for himself, provided he draw such deductions can An interest bringsto the task a reallyunbiased mind. in the stock market

would

be almost

certain

to

weaken

to foresee what judgment. It is only human you hope and, indeed, what you expectedwhen you bought stocks for the rise or sold them short. But the analyst of the price movement, writing for the guidance of all disinterested. There are others,must be absolutely

his

THE

i38

STOCK

of traps

sorts

MARKET

catch him

to

BAROMETER

if he is not,

if particularly

himself to inferences not previouslycommitted by the premises. Sheer pride of clearly justified ket speculatorsin the stock maropinionhas ruined more than all other causes put together.

he has

An

of the shortest ways of indication by one average

One an

Guess

Unfortunate

clearlyconfirmed

by the

is

going wrong which

has

to

accept been

not

On

other.

May 10, 1921, York American the New ventured into prophecy on To reinforce its prediction caster its financial page. its forepublished a reproductionof the Dow-Jones the chart and the accompanying figures As chart. without taken were acknowledgment, altruists who believe that ill-gotten gains do not prosper will hear with satisfaction that the author article did he

what

had

its limits,a

understand

even

appropriated. industrial

for the

movement

in the

not

of the Hearst

He

the

while

expressedit,"marked

the

time."

railroad was

for the industrials declined

guess,

far

railroads,so

from

nate unfortu-

most

further

a

he

as

teen thir-

June; while marking time, also showed

their

points,making

stocks, a

bull

a

prescribing unsuspected

stocks, even

It

meaning of

announced

degree of prophecy hitherto

barometer;

can Ameri-

new

low

in

the a

substantial reaction.

Averages This a

was

bullish

a

Must

case

indication

where

Confirm the

given

Each

observer

in the

Other was

misled

by

industrial average

THE

I4o

MARKET

STOCK

BAROMETER

been

kept this rule has proved entirely dependable. It is not only true of the major swings of the market but it is approximatelytrue of the secondary have

averages

reactions

rallies.

and dailyfluctuation,

the

far

so

and

it might be

individual stocks

as

of

It would

are

not

be

utterlymisleading

concerned.

singleaverage can, and do, look like the real thing,as I have discovered I find,upon cost; for in that way analysisof written long ago, that I more than once went for the value of

from

came

trustingit too

been

stock

the

recoveries have of

my

1907.

tively seduc-

Our

suggested that

than

to

my

articles wrong.

that

error

much.

too

Text I

should

discuss

the

of major movements market the depressionsin business, the and the allegedor real overexpansion. I of the panic own opinion about the causes

which

causes

barometer

our

little rather

Stickingto It has

cations indi-

The

a

It says much

of

true

related

were

to

the

"

I do

not

agree

with

writers

rated

as

petent com-

myself,who ascribe it to E. H. Harriman railroads and the "overexpansion" of the American from to 1906; who choose to think that the 1901 advance in the Bank of England rate to the sufficiently figureof 7 per cent at the end of 1906 was startling stocks by Mr. a direct result of gambling in railroad And Roosevelt's "malefactors of great wealth." by as

no

stretch of faith a

another

can

I believe

that Harriman

duced pro-

panic in Alexandria, Egypt, in April, 1907; the London in Japan within a month; what

A

BULL

Economist had

MARKET"

called

"the

overtaken

October;

the still

and

1908-1909

financial

biggest

city

since

another

preceding

"

crisis

own

that

me

the

at

the

should

almost

suspended

of

for

be

no

of

freight But

the

all

in

have

been,

history. here

these

a

at

the

the

H. the

ment, develop-

billion-dollar-

in

but

1906,

much

ownership

reciprocal

There

plans. with

there,

to

was

serious

more

Harriman's

public

to

protect

state Inter-

the

through

us

rates.

this

is

beside

not

fourteen

were

E.

railroad

a

Commission

barometer,

queerly

was

our

seemed

has

of

suggested

than

to

menace

Commerce the

Hill

country

stocks

on

gone

entirely,

the

railroad

could

J.

It

paralysis

have

James

rate

matter

October.

subsequent

which

a-year

of

end

in

Hamburg

all

Chile

that

disaster in

1857"

in

141

to

But

about

the

at

where

discussions

to

know

least

the

is

will

who

to

stick

to

might part

review the

who

those

to

extent,

necessary

still

reads

History

facts,

the

about

writing

am

event

modest

a

it

I

weather.

after

years

position

point.

the

text.

even

of

that

history

Chapter XIII NATURE

AND

USES

resuming BEFORE effectiveness

of

been

has

is

there

of have

diagnose

of

the

have

theory

of

in

and,

fluctuation.

investor

than

market

to

the to

of

turn

say

there

when are

no

a

those

market

the

in

that the

this

the a

to

Call

the

Turn

or

secondary

that

movement

insuperable difficulties

the

and

to

will

embryo stock

business.

if it is hard

bull market

14*

market

using the

warning

bear

bull

speculator or

and

once

the

secondary

discussion

guide

at

is

movements

market;

bear

a

;

the

containing

as

down

or

But

by analysis

proved

consider

who

sions discus-

Theory

a

conceded

a

to

more

as

great

be

sideration con-

Previous

reactions in

rallies

How

be

some

incipientstages.

up

by

It may

barometer

It may

for

simultaneous

way,

swing

be addressed

to

seem

a

represented

corresponding

daily

in its

sions, discus-

recent

possible successfullyto

was

We

primary

great

movement,

and

the

distinct

most

our

barometer

postulated in Dow's

matter.

correctness

"

it

movement

different

three

how

major swing

a

market

stock

swing.

secondary

shown

secondary a

the

the

of

demonstration

opportunity here

good

a

historical

subject of

the

SWINGS

SECONDARY

the

the

which

OF

to

call

it is still harder is due,

in the way

although of show-

SECONDARY

ing

the

termination

resumption of dogmatize about

the

duration

of

the

the main the

143

secondary movement market

depth We

extent.

or

SWINGS

of

have

trend. such

We

cannot

in

movements,

from

seen,

and

a

study of

reallya secondary reaction in a bull market aggravated by the San Francisco calamity in 1906, that such a reaction can look deceptively like the real thing the development of a new major swing. It look so vigorous and convincing, in the case of can as Pacific panic of 1901, that even the Northern enced experitraders will rashly assume that the bull market what

was

"

is

over.

Dow

estimated

movement length of a counter at from fortyto sixtydays, but subsequent experience has shown that this longer range is exceedinglyrare be appreciablyless than and that the duration may siderable forty days. The daily fluctuation might be so conto constitute almost as a secondary reaction

if the in itself,

When take

of

secondary as

this.

was

of it were

known

in

over

movements

It is

a

all

we

ing. consider-

were

that the government the end of December,

would 1917,

single day in the railroad have six points. There been true

advance

an

was

average

extent

the railroads,at

over

there

it

the

a

which

did

tried rule,which

not

even

carry

so

far

will

in

help to guide us that the change is abrupt, market

studyingthe secondary movement, in the broad general direction of the is apprewhile the resumption of the major movement ciably latter is frequentlyforetold by a slower. The line of accumulation tribution in

a

bear

in

a

market.

bull market

or

a

line of dis

THE

144

MARKET

STOCK

Meteors

More

is

BAROMETER

foresee

Than

Stars

It seems to sharp break? depend upon a set of causes altogetherdifferent from is the main the adjustment of pricesto values, which intent of the major swing. It reprefunction and sents condition more than a summing a technical market It means, and reflection of general knowledge. up the professionals much pany comas say, that there is too the bull side; or, conversely,that people are on ishing sellinga bear market short, regardlessof the dimindeclined in I have floatingsupply of stocks. than one to speculate. more place to advise any man That virtuous attitude is easy and cheap, but it will if I do not presume to advise acquiremore significance citizen feels where a free American againstspeculating for success he has the qualities and, more ticularly parnecessary

Who

to

if he That

Wall

than

the

is the kind

is the

of

stand

can

of all tests, in other

severest

Street.

who

man

There

have

been

many

sky, but few fixed stars. of the market secondary movement has a real and abiding advantage

cess. suc-

places meteors

in the financial In the

It is

amateur.

experience tells. sense,

and

man

"Tape on

if he has

real

the floor most

aptitudefor

in which There

the are

reading"

amateur

many

can

is

sort

a

feel

over

a

of

change

There

is better in which

he

than seems

sixth ing com-

reader

accomplished tape his work.

the

his technical

in which

emergency

better than the

even

games

the

an

the professional

are

the at

some

fessional pro-

least

SWINGS

SECONDARY

145

good. But in the long run, in nearly all games, the professional will win oftener than the amateur. able He will win more when there is anything consideras

at

stake

and

he

losses

will lose less when

are

inevitable.

Advantage of Some

authorities cards

good

in the game.

win,

and

even

An

80

win

to

bridge cent

per

indifferent

continue

Expert

auction

on

constitute

the

or over

of

estimate

that

the

advantage unsound player can extended period, an

if he holds

than average good hands, enjoysrather more luck and is messed But the with good partners. the vital difference remaining 20 per cent makes between the incurablymediocre player and the expert. sufficient period of time to a Playing constantlyover of chance, the first-class player the element average win. He will win, moreover, without any unfair must advantage. If, indeed, he depended upon collusive information from his partner, for instance,he would be merely a sharper and a never reallyfirst-class player. The advantage of the crook has always been overestimated. His mentalityis at some tive, point defecor a

few

both are

he would

be

crook.

a

few surprisingly the professionaland "

soon

eliminated the

not

"

detected, and

they find

heap. Nemo they amount

to

crooks the

with

their level

repente

I have

in Wall

amateur

their at

fallen in with

the

Street, in

class. sole

They advantage

very

bottom

fitturpissimus;and, in

little.

of

tice, prac-

THE

i46

MARKET

STOCK

BAROMETER

Graduating/Professionals speculatorswho fightfor their own hand, like Hal o' the Wynd, those who, not of the Stock Exchange or partners in being members therefore cede obliged to conany brokerage house, are Of

successful

the many

the broker's sooner

commission

and

the market

turn, all

later become, in every intent,professionals. the business of speculationexactly devote to or

They the jealouslyexclusive attention which man gives to any kind of business. The takes only "an occasional flutter" in the however

successful

outsider who stock market,

be, will may in the secondaryswings,where he is pitted

shrewd

lose money against the

a

and

well

informed

he

recognize the professional.He cannot tude; change in movement quicklyenough to adapt his attifrom taking a he is usually averse constitutionally loss where he has previouslybeen right. The fessional prothe shortest notice,and reactions acts upon ralliesgive littlenotice. or Wall

Street

Normally

Bullish

is on all fours with the amateur intelligent come bull market has reacted and bewhen a professional Street formulated dull. In the old days Wall But

a

the

number

"Never

of maxims sell

a

of these was, It is bad advice in a

for itself, and

dull market."

one

swing, for the market then will become and experiencedtraders will dull after a sharp rally, accordinglyput out their shorts again. But Wall major bear

THE

i48

BAROMETER

MARKET

STOCK

subsequently by his purchases of securities which enjoyed his intimate appreciatedin value. I never acquaintance.It is not unfair,at this distance of time, with responsibilities do not to say that newspaper men cultivate intimacywith largeprofessional speculators. be misconstrued,however innocent Such intimacycan the personalrelations may be, and easilyresults (for Street is reeking with gossip and scandal) in Wall givingthe reporter an undesirable reputationfor being the interested mouthpiece of that particular operator. This, of course, is a condition which no clean newspaper could This

should

or

is not

to

of those

most

say

who

inaccessible suite officein Broad

good

were

at

tolerate.

that the newspaper had the entree to his

for

reasons

not

bandit

ideas of financiers gathered from

had

word, him

and

if he failed

was

to

admiring affection love of ever

did

by no people,with

some

the scarehead

the

even

to

him

a

merciless

keep

to

theirs.

for his

There

was

moving-picturescreen, have attractive qualities, and he was a

or

He

who

likingKeene,

the cold and bloodless

means

highly J. Taylor's

of honor.

men

even

Keene's

Talbot son-in-law,

Street,were

or

men,

supposed. man

those who All

of

papers news-

us

of his

dealt with liked

his

fine horse.

his man's sportsLittle that his enemies

in the stock

market

son

Foxall,and

"

and

that

was

plenty hurt him like the death of his favorite Sysonby, a horse he bred himself and one of the greatest looked that ever three-year-olds through a bridle. could afford to know who men Among the newspaper Keene York Edwin was Lefevre, then on the New "

SECONDARY

Globe.

But

less

was

it is no

than

more

friend than

a

SWINGS

a

justto

connoisseur

149 say that Lefevre

He

of Keene.

him, in a highly amusing way, for use in his cynicalbut effective Wall Street Stones, in Samson Rock of Wall Street,The Golden Flood and other tales of a like character,now of date somewhat out but interesting ent reading for those who knew the differstudied

Wall

Street of twenty Addis

There

is another

on

ago.

years

Cam

mack

why bear operators are credited with more ing" "wreckand market short selling conceived. than they ever performed or even Such an operator can bull stocks and keep himself in the bear side the background, while a campaign on is usuallydramatic, with the principal figurevery much in the spotlight.Addison rather Cammack's era was before my time, but people who knew him well say that his bear campaigns were ful successshort, sometimes and soon

had more

sometimes

ruined not

not, and driven

or

been

reason

an

interested

that he would

into other

big money at

$7

a

environment

been if he

excellent

judge of values, and much in the growth and prosperfinancially ity

of the country than in efforts his

have

to

check

it. He

Pacific, on buying Northern He share. probably had

made

tion, reconstrucmore

real

belief in the greatness of the United States than some of those critics who are so ready to impugn Wall

Street's patriotism. Keene his abortive bull

campaign in

was

right,if premature,

Southern

Pacific.

in

THE

150

MARKET

STOCK

BAROMETER

SellingCommodities few

Short

friends,because

not obviouslyhe canunless other people lose it. It is make money that this feeling illogical curiously againsthim extends

A

bear

the

to

even

has

the short

on

stocks for tions operaside in commodities like wheat or he forsakes

where

cases

nothing incompatiblewith a bull positionin stocks and a bear positionin wheat. There is nothingantagonistic to the greater prosperity of the country in believingthat such prosperitywill be enhanced if the humble consuming worker can get lower flour or bread at more prices. It would be of utterlyimpossibleto synchronize the movements But

cotton.

wheat

or

cotton

there

is

with

those of stocks. These

often decline when not

the

securities

general opinion,but it seems

of wheat

who

breaks

are

ties commodi-

advancing. It is to

me

in that

that

a

bear

commodity, if his end is selfish, is performing something in even of a publicservice. the nature Such an opinionas this,of course, will be unpopular with the farmer and still more unpopular with the farmer's political wheat at friends, to whom $5 a bushel looks like prosperity, with wealth beyond the dreams of avarice. It might well mean famine and widespread destitution. The farmer and his friends have become sensitive since their own wheat pool (not different morally from any other attempted corner in the staff of life), the price formed in 1919 to carry of wheat above $3 a bushel, collapsed under the futile of the Non-Partisan leadership League and the moral a

corner

SECONDARY of

support

SWINGS

of the members

some

151

of what

now

stitutes con-

States "bloc" in the United agricultural That corner failed,and it is no unkindness

the

Senate.

the farmer

to

to

stock market

of

say

that it deserved

to

fail.

The

warning him that such a pool could not succeed,in ample time for him to have realized all his wheat at priceswell over $2 a bushel. How

We the

are

cotton

not or

1920

was

the Barometer

AdjustsItself

wandering from grainmarkets may

our

text.

have

Weakness

much

to

in

do with

only for the financial commitments involved. ments, Secondarymoveindeed,are influenced by much more transitory conditions than any of those which govern the major ages asked,"Do the averswing. The questionis pertinently predict a secondary reaction in any dependable way?" There would be such a prediction, naturally, of a major bull swing,the market made if,in the course line in both averages, and then a pricebelow the a line to indicate that saturation pointhad been reached;

secondary reactions

and

the

converse

in the stock market, if

would

be

true

in

a

bear

market.

it is, experiencetells us that when the line occurs before but after a secondary break or not generally, rally. This line,then, is most useful to the speculator who has previouslysold and wants to get into the market again,because a bull indication after a line of accumulation would figure point the way to a new higher than that from which the secondary decline took its origin. Such a new top would be conclusive evidence,on all our records,that the bull movement But

had been resumed.

But

discussions

these

for

than

those

barometer

market

as

real

If said

be

it may unlike

we

device

a

designed less for speculators who wish to study the stock guide to the general business students

allowed the

of

secondary

sometimes

our

is

movement

not

for

used

of you have seen circles in the harbor, and

a

passes. adjustingcomscribin ship'slaunch de-

wondered

it

what

metaphor is anything but perfect,but it is clear that the secondary movement of correcting our the valuable serves purpose Our guide is,to that extent barometer. at least,selfmeant.

well

is

what

secondary metaphor,

the

mix

to

Many

I

well ask

may

usefulness

are

that

BAROMETER

are

and

purpose

movement.

a

These

of the country. the

MARKET

STOCK

THE

152

am

adjusting.

Remember

such certain element

that as

know

propertieswe barometer

that the

aware

we

The

conceivable

is

taking every includingthat most

stock

and

itself. We

therefore,expect the mechanical

market

thing into

fluid,inconstant nature

no

in the tube, whose

the mercury all about.

element, human

dealing with

are

exactness

of

count, ac-

culable incal-

cannot,

physical

science. Not

We

Good

to

might well be disposed if it were

of

Too

too

exact.

Our

Be to

True suspect

our

attitude would

eter barombe that

police evidence, when city magistrate toward story in the every policewitness tells exactlythe same Such evidence is altogethertoo good to words. same be true. I am repeatedly asked if I am quite sure about the low or high point of a given turningdate; a

SECONDARY

whether, for from

which

1921,

are

we

be

not

take

confirm

must

averages

it that way

allow

means

shown

the

bear

reallyJune,

was

in relation

said

been

the

to

alone, in

industrials

has

market

the

that

other, but if you like to it suits your habit of mind, by each

where

I

latitude.

much

material

any

figurecharts

from

the

yourself that

that it makes

see

been

and

of

considered

point, scored by following August. It

the

153

emerging

now

low

new

all

instance,the low

should

or

SWINGS

difference. bear

I have

bull

and

not can-

ments, move-

singleconstantlyactive stock like United States Steel common, were sedly profesexactness. predicted with mathematical They have not inspiredme, and I do not believe that they could stand the long years of test to which our eter baromhas been subjected. There far less kindly and with no other critics, are find no in picking real desire to help, who difficulty holes in our theory because they do not wish to be convinced. They are merely contentious. They can, of course, find plenty of movements, secondary especially failed to which they think the barometer ones, What

forecast. as

accuracy

and the present be

trusted

about

a

the

of

course

of

it?

they demand indeed, I do with

such smash

not

be

think

a

of

human

that

any

any

such

bility, impossiof

us,

in

development, could a certainty. One way to bring be for some would thoroughly

well-intentioned altruist of the hands

instrument

would

stage of man's

world

planetout

An

a

to

moral

take the management

of its Creator.

of the

XIV

Chapter AND

1909,

SINCE

have

we

market

by

We and

this series has

not,

But

if

is

of

look

we

established

"

deduced

or

barometer

a

distance

It

from reactions a

few

a

to

succeeding it

shows

roller be

swing, although

from of

three

downward,

or

its

the

for

a

154

say

time

law

natural

up

by

tending ex-

secondary

be, lasting from

may

further

long

ments move-

daily fluctuation. much

as

recessions, although

wave

permissible to

a

has

years;

and

but

theory

our

simultaneous,

comes

suspends

quality

market

case

weeks; are

tide

might

the

only

not

barometer

know

three

balance.

have

we

reader

price movement,

upward

to

many

movements

advancing

should

of

reading bank

invaluable

swing year

the

in the

if the

workable

stock

rallies,as

or

days

These

movement

the

its broad

"

of

the

We

is that

that

maining. re-

overcome.

not

mere

mental

see

a

with

forecast.

heart.

can

theory

the

his

still

by looking

run,

achievement

to

we

we

be

to

not

already

race

stock

the

are

ourselves

that

say

added

of

obstacles

have

we

is any

back

Dow's

constructed it

studies

thereby,

hearten

is in the to

we

fancied

and

much

not

HISTORY

goal,

our

always

reward

This

OF

understanding

as

real

the can

the

prize.

the

set

seeing how

Perhaps

DEFECTS

barometer

discouraged back

SOME

the

that the

beach. the

each haps Per-

secondary

great

is still in

the

primary

force

even

THE

156

ings and

STOCK

MARKET

for

dividends

BAROMETER

period of ten years past. There fundamental a was change in conditions, aggravated by an ill-judged change in policy,and the losses. people who bought that stock suffered severe How

would

a

a

of such

present holder

Sugar, for instance,have the

common

stock in 1920

a

stock

ican Amer-

as

fared if he had

bought

its dividend record?

on

Premises Insufficient It a base. Reasoning of that kind has too narrow lacks foresight.It is like saying that a patientwill of his symptoms, because he has irrespective recover, enjoyed good health for ten years past. This is an example of reasoningfrom insufficient premises. No doubt the possibilities of changes in management and other things,which with sometimes wreck concerns a previouslygood dividend record, are averaged in the total of a recordingagency'stables. But even when these thingsare averaged they are a record and not

a

barometer.

The

data

of the Weather

Bureau

of the

highestvalue, but they do not pretend to You mild winter. and I or a predicta dry summer know in from personal experiencethat the weather York is likelyto be cold in January and hot in New July. We could infer that much without assistance That from the Weather bureau can Bureau. give us tell us only an inadequatelyshort view. It cannot for our that there will be fine weather picnicthe day are

after to-morrow. the temperature

Still less and

can

it tell the farmer

humidity of

the

coming

that

summer

SOME

DEFECTS

will be such It

corn.

that he show

can

the farmer

must

use

chances

on

mar

picnic.

our

We

have

plant potatoes instead of but the records and probabilities; his own judgment; while we take

predict. It

of weather

Little the Best

shows

what

us

or

Knows

Man

will

will make

that

that the stock market

seen

157

should

the kind

How

HISTORY

OF

barometer

happen

to

the

does

general

volume

of business many It even ahead. months goes further and warns of the danger of international us which

events

based

on

could

upset

all

the

course

of business

It

cannot

be

records.

stock market

barometer

too

ordinary as

often

calculations from

the

repeated that

the

inferred

edge actingupon all the knowlavailable. I recentlyasked one of the greatest financiers in Wall Street,often credited,by sensationloving journals,with the most searchingknowledge of financial conditions and their influence upon coming of percentage of the available knowledge He said, "I have never supposed he had.

what

events,

he worked

am

than

sort

But

that out.

knowledge I

other

if I had

50 per cent is reflected in the movement

which

confident any

is

I would

that man

in Wall

be

far better

Street."

This

of all the of stocks

equipped was

from

financingof great railroads and industrial corporations, whose foreignconnections of the very highestclass. When he could confess are he would be this without false modesty to one not foolish enough to deceive,how absurd must be the a

banker

who

handles

the

THE

158

STOCK

MARKET

of

omniscience

assumed

of

fond

is so politician

BAROMETER

have

barometer

come

a

based

upon

octopus" the

parading1

A Needless We

"financial

the

Accuracy

long way

in the

Dow's

Theory.

reading of We

have

"line" in the average succession of a sufficient number of days for a prices,over that

a

"

of

volume

tradingwithin

either

accumulation of

narrow

range

closing a

distribution; and

or

fair cate indi-

must

"

seen

that

price out of that line, downward or upward, will confidentlyindicate a change in the generalmarket direction of at least a secondaryand even a primary character,which we can depend upon where either average is confirmed by the a

movement

the

a

the

average

other.

We must

have

also satisfied ourselves

that the averages each other, althoughthey may not break

confirm

out

of their

same

week.

lines respective

should

day. All with

we

the

same

day

in the

or

It is sufficientif

It is by that the low

on

means

no or

the

be

made

assume

tion. directhey take the same shows, necessary, as experience ment high point of a primary movein both is that

averages the market

on

the

has

same

turned,

even confirming, although one of the averages makes low point a new subsequently or a new highpoint,but is not confirmed by the other. The previouslows or highs made by both averages of the best be taken as representing the turn may

the two

averages

market. i

SOME

This a

DEFECTS

number

be

to

seems

of

not

expect

an

from

the averages, claim, if only for the

to

needed.

One

159

which is stillpuzzling difficulty

people who

accuracy

be the last

a

HISTORY

OF

absolute such reason

critic believes that I

am

matical mathe-

I would

as

it is

that

in

wrong

assuming that the low pointof the last bear movement in June, 1921, because the industrials made was a lower point in the followingAugust. But that lower confirmed not point was by the railroad average. from our Consequently,it is negligible point of view, of that gentleman's although if it adds to the sum if he dates his certaintyhe will not go far wrong from upward movement August and not from June. A

Double

Top

in

igog

In the present discussion it will be useful to the turn of the market to the bear side in 1909. is

likelyto

be

confusingto

meticulous

our

show This

cause becritics,

high for the preceding bull movement at 134.46 in August, 1909; the while the industrials made at a high of 100.12 ber, end of the followingSeptember, 100.50 earlyin Octoand 100.53, the highestof the year, at the beginning of November. The last high, taken with that preceding,is an example of what is called a double but is often useful; infallible, top. It is by no means that when the market makes has shown and experience the railroad

a

double

top

or

a

stocks made

their

in the averages there that the rise or decline for suspecting double

bottom

is strong

reason

is over.

If,however, I say that

a

bull market

saw

its

THE

160

top in from

August,

that

be

cannot

beginningof combine

that the bear market

said

November.

from

study of

a

in

set

bear

the

in until the

set

does

exhibited

that

me

have

to

What

the condition

learned

have

and

1909,

BAROMETER

date, somebody will tell

movement

we

MARKET

STOCK

If

it matter?

then with

what

we

the line of distribution

accumulation,we shall see that distribution preceding an dary important downward turn, possiblyseconbut proving to be primary in this case, had been

or

in progress

and at

firstweek's

had rate

any

That

to

seems

indication

before

the

tradingof November,

as

about

me

dare

we

Well

of Stocks

Bulls

its inevitable

established

as

completion of

the

1909.

Warned

adequate a

expect from

sequences, con-

a

barometrical

gauge

which

has

of human fallibility itself. Never was the bull of stocks given such nature at the top, repeatedchances as in 1909 to take profits few pointsbelow it. In a previousdiscussion I or a have said that the bull market which originated in almost unpopular. The December, 1907, was actually previousbear market had predictedan era of corporation baiting,originatedby President Roosevelt, who could never have foreseen the absurd lengthsto which take

to

his

into consideration

animadversions

wealth"

would

which

ignorantand The

all the

upon

be carried,or

would

be

drawn

"malefactors

of

great

devastatingimplications by people much more

the

far less sincere than himself.

bull market

of 1908-9 did

not

pleasea

number

SOME

DEFECTS

To

HISTORY

OF

Criticize

161

Critic

a

of

highly respectableand competent critics. I have elsewhere Forty Years appreciatedand recommended His D. Noyes. of American Finance,by Alexander review appears to have been carried only to the beginning of 1909, to judge by his concluding paragraph. He then in progto reprehend the bull market seems ress. He certainly failed to see that it would continue in force up to August, so far as the railroads were shown by the industrial concerned, up to November as and

average,

railroads

that, at the end

would

be

lower

no

of the year 1909, hundred than one

the and

and hundred thirtyon December 3ist, as against one in the middle of August, and the industrials thirty-four a bare point away from the top. Mr. Noyes can says, in speaking of the bull market, with what in unsuccessful fairlybe called a somewhat essay prophecy :

"The

end of this

with the opensingulardemonstration came ing of 1909, when facts were suddenly recognized,when prices for steel and other commodities the came down, and when Stock Exchange demonstrations ended. With the closing of the year 1908, this historymay properly close;for it marked the ending of a chapter."

But

we

that the

Noyes

have

seen,

chapter was

assumed.

the bull market or

in

November,

We had as

from not

may

of the averages, summarily as Mr.

the record

closed say,

so

for convenience, that

spent its force in August, 1909 choose to look at it. But the we "

1

THE

62

STOCK

bear market

which

MARKET

foresaw

BAROMETER

the next

sion period of depresdid not begin to "hit on all cylinders"until Here January, 1910. again we see a profound and able observer influenced by acceptinga record for a barometer.

A Record To

student

of

Too

Brief

history and the writer modestly claims to be something of the kind himself it is of unceasingregret that there is relatively so source little real historyto study. Our table of averages is a only truly effective for rather over quarter of a a

"

"

we century. When say that the twenty active railroad confirm the twenty industrials it seems stocks must to that this implies,at least in part, that less than me

inclusive picture give a sufficiently sion, of the market. I might, in some subsequent discusoffer a partial and incompleterecord of the years from 1860 to 1880, with an average high and low, month by month, of fifteen miscellaneous stocks. I

fortystocks

do

not

well say now that I do conclusive teachingvalue;

not

as

may any

or

think

that

it has

that if it had

been

of that time, kept contemporaneouslywith the events and not compiled years after, it would have given cations business anythinglike the thoroughlytrustworthy indiwhich we read in the more perfectdoublecan of to-day. barometer average How But the

mere

my

History Records

the

Wrong

Things

historygoes much further than records of which we are treating.It is that criticism of

1

BAROMETER

MARKET

STOCK

THE

64

year'saccountingof a typicalCarthaginian would We merchant engaged in foreign trade. have more practicalknowledge, applicableto the that single merchant's problems of to-day, from only

one

of

books the

the

year

and

Decline

than

B.C.

250 Fall

of

the

it

How

in tin from had

Cornwall

and

correspondentsall from

then extended Did

east.

he,

or

of

over

the

he, for the tin

He

dealt

Tyre.

He

to

India

or

he dyestuffs

in coined gold or received,pay exclusively may

say

world, which

known west

and

in

commerce

dyestuffsfrom

Britain in the could

Empire, Carthage, to

do his business ?

did that merchant

from

get

can

Roman

incidentallysays about nothing of the practicalconduct those days. all

we

in the

silver ?

He

for of his commodities exchanged one did he How something else for both.

well have

another,

pay? bills of

or

How

did he settle his balances?

Did

he have

exchange ? I am inclined to think that he did, form whatever have taken, although no they may But historydoes or parchment has survived. papyrus tell us the one How did not to know. thing we want the Carthaginians adjust their international trade balances? The chants merThey necessarilyhad them. of Joppa or Sidon or Alexandria kept books, or their equivalent. They had of what record a they imported from Carthage and what they exported there elsewhere. and Rome owed Carthage balances in transactions which must have required account, in triangular some knowledge of double entry, with more less regular exchange quotationsto balance one or

SOME

DEFECTS

OF

HISTORY

165

national

does history What coinageagainstanother. tell us about all this ? Absolutelynothing. And yet that knowledge would be of infinitely greater value to save us more mistakes, than Xenophon's us, would

deathless story of the

Who

Heaven

forbid

of the

retreat

Financed

that

Xerxes? should

we

thousand.

ten

lose

inspiring

the

lesson of

Thermopylae. We have seen, in the Great stillcapableof rising to the heroism War, that men are of the fated three hundred. fed and

who men"

in the

mountains the

on

look

sea," and of the

cost

of

army

other, until the the

clothed

But and

Marathon

on

they crack

ship'sstores

Xerxes?

"The

Marathon

looks

looking at each without tellingus

continue

may

of

and

"

tors contrac-

the "five million

armed

victorious

the

of the

what

doom, consumed

in the fleet which

"You have the transported the defeated Persians. Pyrrhic dance as yet, where is the Pyrrhic phalanx gone?" We could dispensewith the dance if we knew three square how the Pyrrhicphalanx got its necessary meals a day, and from whence its food was imported. I am far from endorsing the Henry Ford criticism of history it is not "bunk"; but what would we not sequences give for a trustworthyanalysisof the economic conof Diocletian's price-fixing edicts, in the "

year

301?

Where were

Was

did the Greeks

they assembled? it in coined money,

buy their naval How or

was

in

a

the

? How

stores

settled?

account

draft written

on

parch-

1

THE

66

STOCK

MARKET

ment,

one transferring

order

to

left

balance

the

of classical

out

history. It

modern

nineteenth

BAROMETER

merchant's books

of

debt third?

a

history,and was

not

century that Green

another

to

is

All

this is

sadly lacking in

until the middle wrote,

in

of the

historyof History of The not

a

kings of England, but A Short all too short; and the most English People. It was loftily important part of the English people was minimized that respectable but inarticulate element business and which goes about attendingto its own would of the papers." No to "keep out one manages the

"

belittle the record

of the events

led up

which

to

the

But if I am not signingof Magna Charta. greatly interested in King John, I want much to know more than historyrecords about those useful mercantile and financial figurespersonified by Walter Scott in Isaac of York. The tooth outtortured Jew's extracted weighs, in real historical value, the sceptre of the Plantagenetking.

What

The

of the Banking

more

we

the

more

search we

are

the

in the Middle

of

work

astonished

Ages?

the at

torians earlier his-

their

inability

almost for they were thing so self-evident, icle, invariablydrawn from the class they failed to chrondevotes except where it touched politics.Froude chaptersof a volume of his historyto the divorce of Catherine of Aragon. tells us nothing of value He to

see

about

a

the

financial transactions

simplematter

as

the collection and

involved

payment

in

such

a

of Queen

SOME

Catherine's

DEFECTS

dowry

HISTORY

OF

I have

Henry VIII.

to

167 heard

perienced ex-

interesting is a good news never gets into the papers." There deal of cynicaltruth in that remark, and certainly the newspaper

men

"The

say,

most

instructive historical facts seldom

most

get into the

histories. That

is

why the diary of Samuel Pepys, not written for publication, tells us more of the real things we ten, been writthan anythingwhich has ever want to know contemporaneouslyand since,about the period of Restoration.

the

begin to get like, and London

it

how

far

from

date

that

we

a

banking was in the great cityof

conducted

was

and

half

centuries

available records

as

that

familiar idea of what

some

two so

It is almost

are

edge, knowl-

Our

ago.

concerned, hardly,

in any real sense, of the antedates the incorporation of England, at the end of the seventeenth Bank tury. cenThe

banking of the earlier financiers almost are hopelessly wanting. There have been such records arisingout of the must colonial expansion of Holland, Spain and Portugal or, working back through the years, in the trade of the But these highlyrespectGenoese and the Venetians. able records

historians

king's bastard of

an

avenue

branch

to

think

that

the

important than

more

of trade, with the creation necessary

How am

and

commerce

seemed was

machinery

I

of

for its

New

Is

crediblyinformed banking,has

been

use

the

of

a

opening

of the financial

development.

Credit?

that

in

birth

banking, in China

and

for

at

even

least

thousand

two

with

years,

if in

banking machinery, be

also

must

drafts, credits and

admitted

a

much

that

to

the

know

we

be

may

interest,and

coinage meant broking; nor was is

received now,

than line

but

allusions

the

Bible

the

to

interest It

banking

evidence

some

the

exchange.

as

There

merely

be

because

trading of history. The Venice But was largelybarter. it was all barter. Not not only

law

many

meant

usury

that

canon

have

works

and

sure

Church

the

it would

But

little about

so

Carthage, Genoa we

of

structure

great

that it is all modern,

assume

It

simplifiedform.

modern. to-day'scredit is essentially

absurd

usual

the

that

of

the

itself and

sin of

credit, just all pawn-

not

the same

But

usury.

meant was

like

Middle

Ages.

people

both

and

then The merchant, as paid interest. probably had a good deal more practicalsense the theologian,and certainlya clearer idea of the The between ble troulegitimateinterest and usury.

is that influenced

historians, up

to

a

late

date, have

by the ecclesiastical attitude

toward

been money

exasperatingly dogmatic on the I am inclined to they don't know. the early Middle not Ages that suspect that it was I am posed dis"dark" but only the historians. even were friend Dr. James J. Walsh with my to agree that, in point of real civilization and attainment, both the thirteenth artistic and literary, century in Europe And he has even favorably with our own. compares been unable about to elicit anything of real usefulness lending. They things they admit

the

mechanics

And

of

are

commerce.

if this is the

sum

of

our

knowledge

of the his-

SOME

DEFECTS

Socialism's

tory of the of the

HISTORY

OF

False

Assumption

vital part of human

most

169

affairs,the history

made who paid the taxes and the men the taxes possible; the historyof those who took the bare product of labor and fructified it tenfold how difficultis it for us to gather together enough particulars the from to frame a trustworthy generalization tabulation of trade, of the records wholly modern industryand finance! There has recentlybeen published book tory, a by H. G. Wells, The Outline of Hiswho

men

"

which

persuading a have

number

But

that

assumption rather blindly, in

socialism.

"

Is there

the

people to reading in

"outline"

fallacious way,

had

of

little serious

done

lives.

least has

at

excellent

course

is devoted

that

men

history who

read the

of their

proving a groping their to

are

the direction

effect of

of

international

quate singlerecord in all the inadevolumes of history, which Mr. Wells and upon ourselves necessarily we depend, which indicates anything of the kind? ment Everything pointsto the developof the efficient individual. There is nothing in the Wells inference which does not ignore the factor of management dominant and dominant in production, now learned to save always,from the time when man something out of his harvest, to keep himself and others through the coming winter, and exchange for what he could not produce. A

With

Sound

regard

of the market

to

one

and the

Conservative use

in 1909,

Forecast

of the barometer The

Wall

in the turn

Street Journal

on

MARKET

STOCK

THE

170

BAROMETER

after the railroads

September nth, a month their high, said: "The

has

which

of the average

movement

The

swing. whatever

marked

often

the

that all the

'now

look

commencement

bad

was

one

downward

a

doubtedly unout,' the averages they have done in a long

is

news

bearish

more

of

as

think

may

Thursday's break

on

corded re-

but authoritative, yet is not very about a resumption of the bull movement,

indication

we

had

than

period. has

"Pessimism

been

never

the

policy of this

but

paper,

when the market plea for conservatism the top. at Nothing has occurred since which has not was emphasized the positiontaken."

published an

it

that time

From have

we

seen,

modified

forward, although the market, as remarkably firm, showing only

was

secondary

the end

to

earnest

to

downward

of the year, The Wall Street Journal continued draw lessons of warning from the averages.

On

October

of

the

it said,after

28th

rally necessary

market

swings practically up

re-establish

to

old

the

bull

:

"There

is no

pretense

here

to

any

other point of view

upon

the

experience of the price record

of

many

than

years,

an

pass

from

average

the extent

pointingout

a

opinion upon

purelytechnical

movements

but

the market

as

one,

shown

based in the

ometer, the depression in the barof

here evidenced,is well worthy of the consideration

thoughtful traders."

Growing Effectivenessof Remarking how 1910

was

then

widely the

held

The

the

idea of

Wall

Barometer

a

Street

bull market Journal

in was

Chapter XV "LINE"

A

N

I

AND

AN

EXAMPLE

"

1914

past discussions of the stock market barometer the record by dailyaverages of the closing "bid" "

pricesof

a

number

stocks,taken in each is called

a

other

of selected industrial and railroad firm separate groups to check and conemphasishas been laid upon what

two "

"line."

of value

It is needless

river. The

from

say that

no

ence infer-

ing. singleday'stradHowever large the transactions may be, they show the generaltrend. This dailyfluctuation cannot is merely the third and least importantmovement defined in Dow's theoryof the averages. If we could ment imaginesuch a thingas an irregular dailytidal moveit is justthat. The generallevel of the sea is not changed by an abnormally high tide in the Bay of Chinese Fundy or a tidal bore in the mouth of some can

be drawn

to a

ocean's real encroachments

and

recessions

take time. A

Definition

line,therefore,may be considered as often precedingan appreciable recovery in a primary bear market or a well-defined reaction in a primary bull market, and, rarely, as the possible turningof a major The

movement.

for all our

It

can

purposes

almost that

a

be

set

down

line is and must

as

axiomatic

necessarily

A

"LINE"

be either For

AN

EXAMPLE"

of accumulation

one

time

AND

or

one

1914

173

of distribution.

the

buying and sellingpower are in equilibrium There lines in the are some most significant historyof the averages to which reference has already been

a

made.

the Predicting/

To

show

War

the

specialvalue of the averages as a barometer Street itself Wall forecastingwhat even in any general sense does not know at or any rate does not realize,the extraordinary line made by both industrials and railroads,in the months of averages, May, June and July,1914, preceding the outbreak of the Great No test War, is here submitted. severer of the averages could be chosen. The came as war Did the stock market a surpriseto the whole world. foresee had

it?

It may

be

predictedit,or crossed

Let

it be

trouble

of the

that it did, and most

momentous

July,while the German into Belgium on August 3d" 4th. remembered that a primary bear movement

character, before army

fairlyclaimed

the end

of

in the stock market in progress In May, 1914, both averages since October, 1912. ations started to make a line of unusual length. The fluctuhad

then

been

in the railroads three and

one

hundred

were

and

between one,

and

one

hundred

and

in the industrial

eighty-oneand seventy-nine.Only once, or June 25th, did the railroads give a warning at one This was taken back the followingday with hundred.

between

a

continuance

of the line in both

averages

up

to

July

THE

174

STOCK

8th in the

of

BAROMETER

MARKET

the

railroads

and

July 27th in the of the industrials. At the latter date, eight days case before the German trials invaded Belgium, the indusarmy the warning the railroads confirmed had given. 1

case

Definition of The I, 1914,

April

months, no

recorded

of accumulation

one

been

"Line"

accompanying figure chart, to July 3Oth, answers many

line,like others of

a

the

bear

and

there

war

market is fair

this would

followed

was

distribution.

had

May

questions. The

in the averages, or

from

taken

continued

ably presumthe

At for

conjecture that have proved a line

nineteen

had

of

end

there

lation, accumu-

which actually by the bull market started in the ensuing December, after the Stock soon Exchange reopened for business. This chart also the questions as the to answers dimensions of a line,which, of course, in breadth or be prolonged indefinitely in this instance and theory may had over actually extended sixty-sixtrading in the railroads. days in the industrials and seventy-one It will be seen the extreme that three pointswas range in the industrials four and points that in the more line proved to have stable railroad stocks. The been of distribution, and indeed the market had become one that with stocks the Stock saturated Exchange so closed its doors for the first time since the gold panic of

1873.

AVERAGES TO

FROM

CLOSING

OF

figurerepresents the

Each

twelve

THE

i, 1914

EXCHANGE

STOCK

closingbid priceof twenty a complete trading day.

average stocks,and

industrial

MAY

railroad

stocks

and

RAILROADS MAY

^

,

103 IO2

102

IO2

IO2

IO2

IO2

IO2

IO2

IO2

IOI

101

IOI

103 103 103

IO2

IO2

103

103

103

103

103

103 IO2

IO2

-JUNE

-JULY103 102

102

I O2

102

102

102

IOI

IOI

IOI

IOI 100

100

100

100

98

98

98

97

97

97

96 "

"

"

"

94

93 INDUSTRIALS -MAY-

80

79

80

79

79

79

79

79

80

SI

81

80

80

Si

81

81

81

80

80

81

Si

81

81

81

Si

81

Si

81

80

79

JUNE 80

Si

Si

81

81

81

Si

"

81

81

81

Si

81

Si

80

"

81 80

80

80

80

80

79

JULY 81

80

80

81

81

81

81

81

81

81

80

80

80

80

80

80

80

80

80

79

79

79

76

76

THE

176

STOCK

MARKET

What had

What

this would

a

have

holders

been

If there absorbed

of American

European had

by

been

the

no

bankers war

American

all

vestor in-

the

unrepresentativelow prices prevailing bear market which in July,1914, had been operative at

in

German

the best informed

sold in this market.

had

Happened?

happened?

and

stocks

Had

BAROMETER

for twenty-two months. absorbed All of it was the American The investor in the followingyear.

by supply from

Europe then, and subsequently,as the loans forced foreignholders to realize,and war war of other investments, took compelled the liquidation the place of the normal investment supply of new securities which it is the duty of Wall Street to create through concentration of opportunity and of savings and the bringing of the two things together. Overrecognized to have regulationof the railroads,now been an economic crime, had paralyzed their power The public to create new capitallong before the war. for five years before that of it,like the industrial opportunity,some

attention had

been

diverted

calamityto inflation period, of a shady oil promotions of our eign the forWithout character. dangerouslyspeculative sales of American securities and the war, turning us

in effect from

a

debtor

to

a

creditor

nation, there

capitalopportunity; and break late in July this is why after the all-revealing small decline on the the market made only a relatively diately reopeningof the Stock Exchange, in December, immeswinging into one of its great bull periods.

would

have

been

a

dearth

of

A

"LINE"

AND

AN

Relation

Knowledge is what

do

EXAMPLE"

to

valuable

177

1914

Volume

merely

not

for

tellingus

for

but

Inside what to avoid. us telling information,so called,is a dangerous commodity in Wall Street, especially if you trade upon it,but at least it guards you againstthe rumors which cannot will possiblybe so. Diligentstudy of the averages show where sufficiently a "line,"having proved to be of accumulation,has given definite information, one not merely useful to the trader but valuable to those who

to

look

upon

the stock market

the trend is

Here

an

as

a

means

of forecasting

of the

country'sgeneralbusiness. appropriate opportunity for adding

is of sales. This volume something about volume much less significant than is generallysupposed. It is purely relative,and what would be a large volume in of the market state one supplymight well be negligible If the line means in a greatlyactive market. tion, absorpthis aosorption sums the market supply, up whether

it be three

million.

Showers

duration. the air

it covers

But

hundred

thousand

shares

or

three

and of rain vary in intensity, area they all result from the moisture in

reaching saturation point.Rain is rain whether five days. or a state, in five hours a county or

How

to

Know

a

Bull

Market

might well be asked, how are we to tell when a secondary swing,upward for instance,has developed It

into

a

primary bull

market?

The

result is

seen

in

178

THE

STOCK

the averages

in

BAROMETER

succession

a

secondary swing be

MARKET

reacts

of

littleafter what

a

its culmination

would

narily ordi-

primary bear market but does not decline to the old low figures, sequentl and subto pointsbetter than the new recovers high established on with the earlier rally, assume we may confidence that a primary bull market of indefinite length has been established. It is,of course, impossible for the barometer of the to predictthe duration movement,

October

any

in

If the

zig-zagsteps.

the aneroid

than

more

3"Dth what

a

the weather

tell

can

will be

us

on

Election

on

Day. Barometrical

There aneroid

is

no

need

to

expect

barometer, which,

takes back

as

omniscience we

its predictions and would

guide for true

Limitations

of the

stock

the mariner

know, be

a

if it did

from

frequently

most not.

barometer, which

market

an

worthy untrust-

This must

is be

read. intelligently Surgeons and physiciansin our time have been greatlyhelped,to the lastingadvantage of human life and comfort, by the X-ray photograph. But

these

medical

men

will tell you

that

the

be read by an expert; that to photograph itself must the mere its to general practitionernot accustomed or frequent use it may be unintelligible misleading. The results of an X-ray to disclose, for instance, of the teeth would pyorrhea "pockets" at the roots be meaningless to the layman and perhaps even to some

dentists.

But

any

dentist could

qualifyhimself

our

childhood

now

our

called

great wheat

remained

have

MARKET

STOCK

THE

i8o

a

"the and

BAROMETER

great

American

desert,"

corn-producingstates, would

desert for all we

knew

the contrary.

to

Rudyard Kiplingonce said that if the British army for supports the British Empire had always waited The would have stopped at Margate beach. lator specuin the stock market, or any free market, is a fact and not a theory. He is the embryo investor who does It will be a bad day for this wait for supports. not it has country, and a sign that having ceased to grow begun to dwindle, when it abandons free markets and the free speculation entail. which they necessarily But Difficult

It is not

true

loses money

say

Unfair

that the outside

in Wall

ways speculatoral-

Street if he continues

lating specu-

long enough, as the present writer (who does trade on margin himself) can from numerous testify

not

instances to

to

Not

hold

his

to own

the contrary. But the man who means in an encounter requiringcapital,

judgment, caution, and arduously acquired information from study must devote the same tion atten-

courage,

to

that business that he would So

of

a

one.

game

But

far

as

Wall

of chance it may

to

any

other

ness. busi-

Street is concerned, the simile is

always

be said that

to

a

bad

and

those who

misleading will

not

or

comply with the conditions of the game when playingagainstexpert exponents of it,trading in Wall Street is a sheer gamble, with a deadly percentage in favor of the dealer (who does not need to be di"cannot

A

"LINE"

AND

AN

EXAMPLE"

181

1914

honest) and against such a player. No one would play auction bridge against scientificplayerswithout ences inferlearning how to bid and how to draw correct in the play. He would refrain, if only out of for his prospectivepartner. who But the man mercy will not risk his own in that and his partner'smoney will not hesitate to speculatein Wall Street. Is way it surprising that he loses his money? Who

This

seems

which

"Who

an

may

makes

Makes

the Market?

appropriateplace to

be said

to

the market?"

go to the root

The

answer

of the

a

tion ques-

matter.

manipulators?

The

securities to banking houses of issue with new The professionaltraders on the floor of the Stock Exchange? The large individual "operators" who talk to newspaper and reporters of their profits tell Congressionalcommittees how they made them, but never about their losses? Certainly say a word The is made market not. by the saving,investing last and all publicof the whole United States,first, the time. There is no possiblefinancial combination which can manipulate a bull market, by propaganda in any other way, when the combined or intelligence of the investingpublicsees that it is time to curtail their commitments of a coming decline in in view prices,earnings and the volume of trade. The most do is to stimulate activity an expert manipulator can in a particularstock, or a small group in a market which is alreadyrisingon its merits,with the approval great float?

1

82

THE

STOCK

MARKET

BAROMETER

of

hear We publicsentiment. manipulation of the market, in or Amalgamated Copper, by the

the

about United

successful

States

Steel

James R. Keene in 1901 and 1902; but we hear nothing of almost innumerable attempts to manipulate for distribution because the general trend of the market abandoned the operationprofitless made and dangerous. The houses are normally sellers of great private financing securities because

late

it is their business

them, in the promotion of

manufacture

to

enterprises,and the direction of the great reservoir of publiccapitalinto such channels. Individual Wall Street capitalists buy the for private investment, and I could tell, from wills filed for of

judgment

probate,of

new

of this kind made

by men the late J. Pierpont Morgan as or Harriman, to name only two of many. Sound Speculation's It has

in America

said before

been a

that

about

its

own

errors

well informed

the

late

E.

H.

Basis

the

market

aggregate

resents, rep-

of all

tally, business, and, inciden-

a neighbors. When finds his jobbing trade or his factory showing man invest that surplusin easilynegoa surplushe tends to tiable securities. If this improvement is general it is all reflected and anticipatedin the market, for he can buy in July and carry on ample margin what he knows he can he divides profits at the pay for outrightwhen

about

the business

end of the year.

He

does

of

so

the stock

form, crystallized

knows

minor

the unbelievable

not

its

wait tillthe end of the

A

year,

"LINE"

because in

AND

EXAMPLE"

AN

he realizes that the

July will by

property, and

that time

will have

knowledge

he

become

common

have

in the

discounted

been

183

1914

sesses pos-

price. for

He

materials buys ahead justas he buys the raw his factoryahead, at a time when the securities or materials

raw

that comes

the

look

cheap.

It is

this is, in the very best sense, from the Latin verb sentire senses

and

the mind,

to

important to

note

sentiment, which "to

"

perceiveby

feel,to think."

anythingbut sentimentalism,which in Wall

the

is

not

is

This

encouraged

Street.

Sentiment

Wall

Street knows

what

sentiment

is. It is

a

thing

high emprise, of adventure, of noble effort to a It carried Boone the Appalaacross chians, worthy end. and the Argonauts of 1849 through the passes inherit It is something we of the Rocky Mountains. of Shakespeare'stime. It is from forefathers our what they brought with them when they put out upon the trackless sea, defying the galleons of Spain, and continent after named a plantationon an unknown their Virgin Queen. Virginia is still here but, as Austin Dobson sings,and Admiral Dewey might have ment asked, where are the galleonsof Spain? This sentiin national growth, not is a life-giving principle of

to

be confused state

sentimental

flower," with

"smile

statutes

weeks"

for and

"an

cial offi-

slop-over

days." In the English-speakingrace perceptionwhich greatly survives for great

"mothers' a

with

it is occa-

1

THE

84

STOCK

It

sions.

to

a

which

its

hold

and

of

declaration two

minutes

of

London,

the A

of

individual

more

is

contact,

"How How

in

very very

to

City

moving the

is

It least

Wall

to

choice, a

Street

the

small

the

very very

or

far

thing who

one

weak

ordained

the

not

individual

leadership. at

the

a

tears

the

eyes

reporter.

movement

enlightened

in

was

voice

exalted

those

It

bring

newspaper

price

after

Corner,

1919. could

its

minute,

spent

It

race.

still

the

House

it

the

London

I

November,

kingly

a

Abbey,

saved

to

year,

Mansion

when

impressive,

personal

all

gave

Westminster

had

armistice.

the

hardened

great

who

one

the

in

indeed,

sight, of

at

in

made

breath,

first

stone

Soldier

sentiment

was

which

memorial

Unknown

the

BAROMETER

sentiment

was

and

funeral,

MARKET

greater

out,

wise, great

are."

of

even

learned,

has

and

come out-

and from

Chapter AN

EXCEPTION

PROVERB

A

the

controversialist it

wit

of

finds

the

that

us

if it is trite.

even

would in

especially

is

de

regulam the

the

Our

back

stock many

averages to

each

of

market

in

rule

have

rule, and that set

by But

there more

up. 185

probat But

what

be

may averages.

stocks

industrial to

ence infer-

any

The

history going

averages,

that

was

the

two

tion excep-

one

valuable

exception which

suits

exception

market

conclusively

it is the

it is the

these

rule,

want.

we

movement.

shown

proves

and

tions excep-

best

"Exceptio

stock

out with-

new

the

give weight

to

price

together.

move

this

as

in the

of a

about

true,

rule

no

which

what

not

railroad

other the

years,

purpose we

exception

from

drawn

Coke's

startlingly true

even

is

that

says

osopher phil-

presumably

number

proverb

exceptis" is

averages

confirm

the

is

great

two

must

the

calls

he

fallacious,

formulate

to

the

French are

there

sufficient

a

many

when

A

is

that

which

that

rebus

proverb

called

truism

a

rule, although

the

proves

truism.

a

generalizations

economics,

purpose

our

or

as

of

wisdom

inconvenient,

proverb

it necessary

make

the

RULE

Sometimes,

one.

But

but

THE

called

It is said

exception,

an

all

this one."

"including

PROVE

been

glitteringgenerality

a

told

of

TO

has

and

XVI

for

proves

our

the

THE

i86

MARKET

STOCK

Some

It adds

BAROMETER

Necessary History

the interest of the

to

that it is necessary

make

to

study of this subject into contemporary

excursions

ment, historyto explainthe meaning of the pricemoveoften only fullyapparent after the movement for many In 1918, for has been under way months.

nine months

some

both

primary

a

secondary reaction

the Great

entered

had

we

showed

averages

strong

after

bull market

War, with

a

of that year. stocks fullyshared that the end

over

During that year the railroad sold off,making almost upward swing but subsequently a

bear

were

the which for

of their

market

in 1919, Letters were

own

strongest. serial publicationof

this well-known

rejectingthe But

if

fact

the

trials indus-

written

ing dur-

when

these

discussions, in

adduced

was

a

as

reason

ages. theory based upon the averexceptionproved the rule this

entire

ever

an

that

the

does.

one

Remember

industrial

and

railroad

stocks

speculative.Only essentially to a are they held for fixed income by people to whom safetyof the principalshould be the main constantly consideration, and their holders are not they would be speculative changing. If they were

used

in the averages limited extent

useless for

a

why railroad bull market

are

market

stock stocks

in

a

during

in the industrials

real

sense

1919 was

did

not

reason

share

that, through

the ernment gov-

and

they guaranty, government ceased, for the time at least,to be

ownership had

The

barometer.

speculative. They could

not

advance

in any

market,

EXCEPTION

bull

bear,

or

value

enough

187

discount

to

the

mated esti-

of that guaranty.

An

Thus

than

more

RULE

THE

PROVES

for

a

Impaired Barometer

year

their usual value

half, for the

as

or

a

the

more

barometer,

essential confirmation

of

corresponding

a

half

less than

indeed

or

industrials lacked

in the

movement

had

averages

the

movement

in the

clear speculativerailroad stocks. It is made by the accompanying chart that during that period the railroads followed not the speculative market but the yond market for bonds. They had nothing to expect bethe

sighted

government holders of

destruction

unless, indeed, far-

guaranty, them

could

foreseen

have

the

of

earning capacity resultingfrom the colossal waste of government sequent ownership and its subcollapse. It will be shown that the railroad stocks during the period of that ownership paralleled the speculativeindustrials accidentally ent and for differonly so far as to discount the supposed reasons, value of a government ered relapsed,and recovguaranty; with an ensuing price movement tially governed essenby the totallydifferent conditions which are compelling in the case of bonds. An

There

is

some

difference between

Important Distinction need a

to

bond

here

point

out

and

stock.

while partnershipobligation,

a

the bond

essential

the

The

is

stock a

is

a

debt,

a

1

THE

88

mortgage,

STOCK

a

bondholder has

BAROMETER

liability ranking

stockholder

The

MARKET

is

a

is

a

ahead

of

in the business,while

partner

creditor

lent the

stock.

the

of the company. his money concern

The on

the

holder bond-

the

fixed

the manuor facturer's assets, such as the railroad's real estate mills. But the essence of the bond is that its

speculativefeature

to

non-existent.

even

the

holder

It is held

is subordinate,

for

its income

or

return.

The

pricefluctuates strictly ing accordingto the purchasof the income. The priceof the bond will power be high when the necessaries of life are low, and the investment bond will decline in price as the cost of It would be easy, but constantly necessaries advances. misleading,to say that the priceof bonds is regulated The interest rate fluctuates by the value of money. from day to day, and only by the issue terms of longtime bonds can we get any idea of the quotationfor over a long period of years, which is at the money best an estimate,and often wrong. A

It is for

Definitionfor

simplestto

fixed income

living. If other

the

say

that the

is in inverse latter is

securities held

their apparent If the cost of

the

Layman

priceof ratio

securities held

to

the

cost

high the price of bonds

for fixed income

will be low

of or

and

in dollars,will be large. measured yield, livingis low the priceof securities held for fixed income will be high and the apparent income, representedby the yieldin dollars,will be correspondingly less.

EXCEPTION

Effectsof Government It is of

plain,then, that with

minimum

a

return,

based

RULE

THE

PROVES

189

Guaranty guaranty

government

a

the

upon

ings earn-

average

of three years ended June 30, 1917, the railroads entered the fixed income class. If they had continued with no government speculative, guaranty and no government ownership,their fluctuations would not have been governed by the cost of living but by their earning pacity; capacity,and chiefly by their prospectiveearning cafor it cannot be too often repeated that the stock market is not conditions as they are reflecting to-day but conditions as far ahead as the combined see foreof the country there concentrated can intelligence them. Let

us

consider the

affected the war,

in the

railroad

stocks.

and

stockholders

It

was

not

Christmas, 1917, that the would was

period as it

war

When

entered

we

the

between 1917, the arrangement the railroads was purelytentative.

still speculative, and trend.

the

springof

the government So far as the were

historyof

be

made.

knew, these

The

followed

until late

on

stock

over

market

the

the

lative specu-

day

after

roads that the rail-

announcement

taken definitely

investments

their

by the had

not

ment govern-

time

to

ownership on that day, but on Uie price of followingday, December 27th, the average discount

the

new

the twenty active railroad stocks closed at 78.08 an the closing advance of no less than 6.41 points from "

than two For not more pricesof the day before. days previouslywas the idea that the roads would be per-

MARKET

STOCK

THE

190

manently taken although it had

BAROMETER

considered

over

been

in seriously

expected for

the

time past that for maturing

some

would advance the money the government and capitalimprovements. On obligations of the York

day

of the

had take

announcement

a

story

the roads

to

the

for

the

ing morn-

of the

one

in the confidence

newspapers,

Street,

of the Wilson effect that

the

New

ministra Ad-

plan

compensation based of five years'net earnings. It is imthe average possibl on Wilson's to plumb the depths of Mr. mind, but this new assumed, then and for ownership was ship ownerlong afterwards, to be permanent government to

was

for all intents and

How

From in the which

the

over

a

purposes.

Averages Diverged

accompanying chart it rally throughout 1918 from the

had

followed

will be the

the firstbull market

seen

that

swing

bear

of the Great

road the railculminating in October, 1916 had accompanied the industrials in a averages the time when But from the fate steady advance. of the stockholders became dominated by government and guaranty the two parted management averages roads The in railhigh point of the movement company. made in October, 1918, while the bull was War

"

market

that

in the industrial stocks did

November, year

break

"

Toward

1919.

the railroads

had

followingthe guaranty.

made

not

midsummer some

from

that

until

of the latter

recovery,

first impetuous

But

culminate

after

a

buying on government point they steadily

EXCEPTION declined

while

PROVES

RULE

THE

the

in the industrials advance principal made, continuingto do so while the preliminary

was

of the great

movement

In

decline of

in ress. progtrials, the fallingindus-

1920

was

to they ran counter the way on crossing the up actually the way of 1920. on down, in the autumn in simultaneouslya confirmatory recovery

1920

The

It will be and

1919 movement

seen

Esch-Cummins

in those years.

deflation of the summer

There

was

bonds.

Act

that the decline in the railroads

closelythis corresponded and

industrials

in

the recovery in 1920 virtually the paralleled of the average dailypricesof forty representative bonds

in

191

of

cost

1919,

to

of

while

It will be noticed the inflation and

living.During Mr.

Wilson

the

was

how

quent subse-

spring absent

appoint frequentlyreported that he was diswith the unexpected costliness and inefficiency of government ownership,and that he would seek an earlyopportunityfor a return of the railroads to their is reason There to believe that he private owners. them about did expect, or least hope, to return at that Congress would have August i, 1919, anticipating gress Conby that time. passed appropriatelegislation bill,now was working on the Esch-Cummins called the TransportationAct, which dragged through and autumn the summer i6th, the until,on November It of Representativespassed the measure. House dent at that time, or was earlyin December, that the Presithe roads declared that he would return positively

Europe, it was

THE

192

January

on

MARKET

STOCK

But

ist.

BAROMETER

the Senate

did

not

bill until late in

Cummins the

President

had

fixed

by

February, compelled to extend

was

the Esch-

pass 1920;

the

so

that

limit

he

months.

two

Selling "Ex-Control" But when of

more

than

nine

the railroad

months

average

was

before, in May, making

the

1919,

first figure

"double

top,"completed in July, The Wall Street Journal said that the strength of these stocks in the face of discouragingreports of earnings might be due trol." to the fact that they were beginning to sell "ex-conthe There is no questionthat the decline from point of the further (July) rally to the early low of due to the appallingdamage inflicted by gov1920 was ernment had ownership,which actually,in most cases, raised the operatingcost above the operating revenue. The principalitem, wages, had been advanced beyond all reason, which was rather by a management political than financial, and the cost of everythingthe railroads tion administraconsumed had been multiplied. The war had actually bid up railroad ties in Maine against each to the only buyer, from cents itself, thirty-seven $1.40. It is noteworthy also that at that time the large the but absolutely increase in rates to render necessary railroads self-supporting under privateoperationwas in fact not It was only being discussed. granted by the

a

Interstate

Commerce

of its usefulness

had

Commission

passed.

until the

time

THE

194

STOCK

!// Sense

There

is

for

need

regard it in

to

enthusiast

for any you

fad. can

see

surrounding objects. If eye

and you

its relation

to

those

exaggerated, and can

see

attempt

to

die for

the

a

the

false

from

the at to

bring it too close to the distorted objectswill become can

you

hold

the

it

forbid

Heaven

the stock market

distance

our

perspective of

of economists wabbles

world

close

so

the eye

barometer that

we

at

shall

that

that I should

prepared to along on a for disciples. of a school,

There is no cry here theory of averages. We can forgivea great deal to the founder but we Let seldom can forgive the school. hold

with

you

school

thesis that

fall in love

If you hold a silver dollar relation it in its correct

nothing else. found

to

us

of Humor

and

"

no

length

BAROMETER

of Proportion

theory or arm's

MARKET

such not

fore, there-

us, a

able read-

consider

it important than the weather have sound predicts. We theory to go upon, or this and the preceding chapters have been written in vain. let us overwork Don't statisticians do. it,as so many inclined to worship the greatest, are Scientists, even their hypotheses, with humiliating results. Herbert said to Spencer, the great syntheticphilosopher,once the late Professor Huxley: "You may hardly believe the beginning and at least the it,but I, myself,wrote framework of a tragedy." "I can quite believe it," said Huxley. "I know the plot. It was how a perfectlybeautiful theory was murdered by an ugly little the

barometer

fact."

more

EXCEPTION

PROVES

Our

Is

Some H.

Material

disappointmenthas said

Dow

little that

so

theory of the market few

RULE

THE

195

Modern

Mostly

expressedthat

been

Charles

definite upon his own able to draw or was

was

movement,

of the inferences which

implicitin that theory, to say nothing of the practicaland useful truths developed from its application.The wonder is so

that he got

were

far with the scanty materials then available. In the latter part of 1902, when Dow died, but so

six of the twenty industrial stocks now in the average in the average of such were then, and the number stocks

used

stocks

to

Ten before, it only twelve. years would have been impossibleto find a sufficient number of representative and consistentlyactive industrial

and

was

make

I wish I

an

able

were

back

to

all.

old averages, examples of the market

at

average

show

as

far

to

include Western

The

1860, with

least

single for fifteen stocks, had not the advantage of average their present double form. how portant We see vitallyimit is to have two firming correctingand conaverages each other. But when McKinley was re-elected

movement

it was

necessary

railroad

averages,

in activity belittle the had

a

work

which

sincere.

for lack of

sufficient number

a

at

Union

in the

even

consistent

of stocks.

a

We

degree of need

not

pioneers,or overpraisethem. sarily They necesbreak and improvise to ground for themselves

their benefit of

as

own

their is

tools, while

we,

experience,only too certainlyless creative

with often and

all turn

often

the out

less

XVII

Chapter ITS

had

there

IF

the

GREATEST

would

and

it is

intelligencerepresented by empiric,

were

should

based

or

said

have

that

unable

reason,

of

the

that

United

it

of

view been

have

turnips

a

1916,

bear

called

the

Uncertainty of One grasp

of the "

those

that

stock

market

asked

why

of the and

the

findings might

than

the

fluctuations

in

chain

of

for

from

But

barometer's

which

year

greatest

tion. vindica-

Outlook

War

who

has

failed

in these

in the 196

upon

year

1917

future made

to

cussions dis-

of the

analyzed triplemovement bearing

there

November,

constantly repeated

its

market

link.

following

the

the

our

October"

precipitate critics

principle so

tive self-protec-

Its

its weakest

of

plain

affairs.

grocery,

swing

borders

the

and

sane

prehensible incom-

some

seemed

have

a

I

premises.

beyond

would

taking

as

movement

for

was,

look

more

December

justly be

may

little

strong

as

major until

of

crossroads

the

reasoning is was

It

international

worth

at

to

States.

incapable

was

market

should

knowledge

market

the

insufficient

upon

the

of

sum

of discussions

I

prepared. the

in

stocks

this series

that

been from

in

market

probable

inferences

1917

"

bear

a

have

never

felt that

have

been

not

1917

year

VINDICATION

events a

warn-

"

ITS

GREATEST

ing major continued

VINDICATION"

bear

although

movement

show

197

1917

business

charts

of practical large volume perity, prosthen and in the followingyear; while Babson's familiar black area of good business was once never below his amended line of growth, from the latter part of 1915 to near tuted the end of 1920? But what constithe excess business during volume of American the earlier war it not making supplies years? Was for the combatants? Were not we feedingthem and Have arming them, and takingpayment in I O U's? billions of the I O U's outstanding, not we some many of them never likelyto be paid? These thingsare important to remember, but there in market was a specific reason a bear why there was the fact that the stock market kept 1917, apart from its head, and did not treat war profitsas a complete offset to the destruction of our past and future foreign to

For

customers.

the did

war

a

in doubt.

was

The

final German

preclude a

not

of that year the issue of of market knowledge sum

the whole

victory.

of 1917 did the stock market predictthat the allies would win.

the end

barometer

to

The

which the

born

was

armistice

Germany's last bravelywe in 1917, which

then

one

was

the

tremendous

to

concluded teach

can

kind

sanest

of that year months, and the

of

of

drive

by

anticipated failure

six months.

of

ever How-

rightmust triumph, the wish, the thought. The bear market

believe

father

was

It

eleven

begin

bull market

in December

by

until

Not

had

been

little to

those

a

measure

who

"prosperity"from

all stock

market

of insuranc

cannot

another.

movements.

tinguish disIt It

THE

198 offers than

a

of the market's

demonstration

anythingwe

BAROMETER

MARKET

STOCK

have

readers

higher

previouslyanalyzed. Had

// Germany Many

vision

have

must

Won

themselves

asked

what

happened to the world if Germany and her allies had won. have dismissed must Many more the possibility dreadful to contemplate. Conditions too as But in all conscience. bad enough now, are gium what would they have been with France crushed, Belof anarchy, Great enslaved, Italy in $ state Britain ruined, bankrupt and unable to feed herself, would

have

with

her

have

been

should

Caribbean?

marine

we

would

of billions of

the world? laid upon liked her for a neighbor in the

would have

There

What

destroyed?

of the hundreds

burden

the

Germany

ransom

How

merchant

have

has

been

disintegrationof

a

perhaps a rebirth of nationalities (some possiblyspurious),which has produced sufficiently have happened But what would grave consequences. if the British Empire had been brought to the world nations, or

to

irrecoverable wreck? Such

a

might well possibility

daunt

the staunchest

It asked heart,but the stock market faced it,in 1917. itself exactlythese questions. Admiral Sims has told the since how the condition which us desperatewas allies at that time confidentially admitted. It was not until the end

of that year that effective, although we had gone in the

spring.

The

assistance became

our

to

stock

war,

prepared, largelyun-

market

did

not

ITS

know

GREATEST then

be

not

might the

too save

market

failed

to

save

(for

VINDICATION"

no

late.

man

There

1917 whether

knew)

little

was

199

should

we

questionthat

we

the business of skins,but it was insure against the consequences if we to the allies. It has been said,in an earlier

our

own

discussion,that the stock market

into

takes

account

other

lation thingsin addition to those chosen for tabuand analysis by the most complete information bureau. Honest compilersof such records would be the last to contend that the warning movement of the stock market is limited in its application to mere a reflection of the coming business of the United States only. many

Britain's National

Debt

It will be

cussion highlyinstructive to treat in another disof the quietyears of contracted business which followed the bull market of 1908"9 and preceded the

great between

war

boom. the bear

There market

is

a

before

manifest the

connection and

war

which, nevertheless,upset all calculations. now we thing so vast that even precedents in history,although ones followingthe long quarter

which

We

culminated

at

are

there of

a

a

It

loss

are

was

to

a

find

incomplete

century

with the battle of Waterloo

event

an

of

war

in 1815.

there than some probably get a better parallel observers have supposed, if we accept length as to and take the relative some degree offsetting intensity, size of the conflicts compared with population and national wealth. is one There illustration significant can

THE

200

MARKET

STOCK

which has

offered

been

not

BAROMETER

elsewhere,so far

as

I know.

It is that of the British national debt after the immense losses of the

Great Britain's debt Napoleonic wars. that time at (1815-16) represented3il/2 per cent of her estimated national wealth. Throughout the greater part of the century, and during the long reign of Queen Victoria,the debt was graduallypaid off, War until, previous to the Boer (1899-1902) it amounted

to

estimated

much

not

than

more

debt

the Boer figures, billion dollars,and

a

national

to

cent

per

of the

wealth.

In round about

4

to

of

wealth at

33

of about

1902

raised

the

6 per

over

i

y2

1914,

Great

Britain

proportion of cent.

In

the

in

British debt

The

1899.

of the national

cent

per

and

cost

spiteof the steady increase in the cost of livingand the growth of taxation, the British national debt was again declining, althoughit did not reach the low proportionto national years

between

wealth

War

cent

per

wealth, or

than that

more

is estimated

now

at

a

proportion

the conclusion

Napoleonic wars, which had lasted, with a three-yearinterregnum,from 1793 to 1815. No doubt it is a formidablyhigh proportion. But it is far from this is a basic reason a hopelessproportion;and why, the of all the money units depreciatedin the conflict, in exBritish pound sterling change approximatesrespectably of

the

credit

In would

1917

the American

to

Our

One

of

the

stock

happen

to

Own

dollar. Liabilities

asking itself what and everything the pouad sterling, market

was

THE

202

In

earlier

an

MARKET

STOCK

chapter,that alluded

I have

BAROMETER

on

"Water

in the Barometer,"

compar being inmore deadly than watered capital. How billions of our national debt might not have many been deducted, as never incurred, if there had been no Mr. -Piez, director-generalof the such dilution? mated Emergency Fleet Corporation during the war, estiof labor had been dangerously that the efficiency reduced through smaller individual output and larger the latter only excused by the higher pricesfor wages, commodities been

of

which

the automatic

"Labor

to

those

cause.

labor

watered

He

wages

as

themselves

had

said:

In the slack during the war. deliberately Atlantic Coast shipyardsworkmen received $2 for the same time that a year ago (1916) brought only $i, but that the individual only two-thirds of what it had been a year before." output was

had

been

Walker, in The Things That Are Guy Morrison Piez, says that Caesar's, quoting Director-General the unit of cost share in the production during our at the beginning war was only one-third what it was national debt of hostilities. at Estimating our it all, up and to deducting from $24,000,000,000 rowed owed $11,000,000,000, by the allied nations who borfrom which

labor. to

the

a

$13,000,000,000, of large part, possiblyhalf, constitutes watered

But

there

us,

we

are

allies,which

necessaries

of war,

to were

remains

remember made

of which

that in the advances not

labor

in cash was

but in the

the

costliest

ITS

GREATEST

item, the

was

was

shirking and which

has

bad

have

not

a

our

If

of

out

tions. propor-

slacking,

the

labor

stock market,

which

upon

a

to

century

and

we

children's children must

water

talizat corporationcapishould

we

lessly shame-

anythingnearlyapproachingthe

sum

for half

same

203

all the

took

we

squeezed

the remorseless

watered and

work.

been

ever

by

1917

also present in the less the cash wages than

water

It

VINDICATION"

continue

children

our

to

est inter-

pay

come.

Paying for

Bad

Work

largelynominal character of "water" in capitalization. How relatively seldom has it represented any real loss,to anybody, compared with the irreparablelosses from watered the industrial labor! How seem unsatisfyingmust of the five years of recorded and commercial activity, in graphicstatistical tabulation,when we have the war from it the tripleprice for that prosperity deducted for which from henceforth we have to pay. Everyone It has not

of those

been

sham

difficultto show

dollars

must

be

the

met

in real

dollars.

Every wasted hour of bad work or shirked work hour of good work. to be paid for in an

Secondary Inflation And "

If I had

to

in stocks, and

forecast the

area

likelyto be much obvious, I sufficiently vears

which

followed

has

After

coming major bull swing tion, of a possiblesecondary infla-

the

less than would

that

compare

of the it with

the battle of Waterloo

war

but

the six in Great

THE

204

STOCK

Britain.

It

back

MARKET

in 1821

was

BAROMETER

that

of

England premium upon

the Bank

gold basis,and the gold disappeared. A self-deluded House of Commons admitted in 1819 that the famous Bullion Report then And was right,and that fiat money was wrong.

went

followed levels

was

the years in which the deflation of the war taken in hand by a nation in which every

sixth person that we in

Dare we registeredpauper. pose supshall not pay our lighterbill relatively later? It is less such way as or this,sooner

some

was

four years

than

a

upon

a

since the armistice.

The

bull market

in progress while this is written may not or carry may in Europe. to a date correspondingto that of 1821 us

We

desperatecondition as Great Britain then. But our have an almost was foreigncustomers It is not a incalculably greater reckoning to meet. It problem which can be solved by quack remedies. indeed, be settled only by throwing the quack can, remedies out of the window, for the patienthas been doped to the danger point. in

are

no

such

Unsuspected Qualitiesof But

sufficientunto

stock market

the

barometer

the Barometer

day is the is enough

evil thereof. for

that it records,well in advance, the and

clear

to

of

more

1922.

ahead are

averages

business will be summer

track

The

predict the duration

and

more

barometer of

have

we

the

saying now

active and

such

purpose

in

periodsof depression

prosperityalike,giving,as

signalfor a danger. The

our

The

seen,

warning of that general

cheerful does

the

in the

profess prosperity,although not

ITS

GREATEST

close

scrutinyit

VINDICATION"

205

1917

cations give tolerablyclear indiof the character of the boom or depression which it forecasts. The business depression of 1908-9, predictedby the bear market of 1907, was deep rather than long. The period of prosperity of the latter part on

of 1909

and

;

it

and

1910

was

while its range was of the true business

extended

more

the market

also slower

was

to

seems

bull

which

movement

and

longer than the less. correspondingly

lower shal-

preceded

bear

market,

This

is strikingly

later fluctuations, both

narrower

in the stock market, with

and

but much

in

the latter characteristi

precedingthe former. It was only in the war years that the precedingmajor swings of the stock market became the developmentsin our as vigorousas trade. It is also of

noteworthy that during those quietyears

fluctuations before

narrow

transactions

in

the

stocks,as shown also.

chart, contracted

The

in

war our

average

the volume

of

twenty-five-year tions monthly transacfavorably whole, rather un-

in volume, upon the with those precedingthe re-election of Mc-

compare

Kinley in 1914

show

in the years 1899 made than

The

1900.

volume

a

1911, 1912, 1913, and of trading below that recorded years

1897, 1898, 1899, and 1900; and the year better showing in the average tions transaca any

one

of the later years

here

taken

for

comparison. Forecasting the War We in

a

may measure

say,

therefore,that the stock market

foresee,althoughprobably in

a

way

does not

definite sufficiently the

character, and

predicts. One knowledge could, was it

it

that

of much

the

itself.

war

was

a

It will be 1912

bear

a

remembered

movement

intensitycompared of the past and

that

most

that stock

those especially

of

in the

latter part

to

which

movements

an

1914

given

have

we

of business

area

which

could

of the prepartly convincingjustification ceding major bear swing. But there can be little doubt the decline was also influenced by liquidationof held by those who realized the dangerous possibilitie

have

must

the

with

dence. coinci-

as

in the German This

market

mere

of the bear

There particularconsideration. was depression of no great depth in be offered

bear

in, of decidedly mild

set

with

knew

Somebody

the and livelypossibility, accident or no preceded the war was

which

of

be

practicalusefulness, the dimensions, of the thing even thing it foresaw, so far as human to

Kiel

the

It may

attitude

started

toward

somewhere

other

about

the

Canal, strategically connecting

North

Sea

through German

nations.

opening

the

Baltic

territory.

justlyclaimed that the bear market, quite in business, was predicting a contraction apart from also discountingthe possibilities of war. In a previous in study, referring to the line of distribution made 1914,

be

before

the outbreak

of hostilities, it

was

shown

responsible for turning foreign liquidationwas would what normally have been a line of accumulation into a line of distribution,during the period of almost three months of equilibriumso represented. To those dissatisfied that the major who profess themselves stock market not movements are always immediately that

ITS

adjustable be

may

That

is

where

said

them.

test

we

to

the

the

that

confirm We to

vindicate

its

war

and had

the

in

come

that the

of

the

its

top

of

the

triumphantly

more

prescience

both

conflict. bull

worse

severe

be

a

they

the

much

would

the

facts

therefore,

more

It

of

course

at

so

the

usefulness. value

the

If,

deductions, found

barometer.

our

international

of

not.

barometer

our

in

not

it

charts,

business

note

do

our

have

overestimate

war

takes

tabulations

apply it

and

is

207

1917

current

fault

the

universal,

inadequately for

various

the

to

those

does

VINDICATION"

GREATEST

market?

difficult before What

if

Chapter WHAT

REGULATION

as,

for

is

equal

instance, "the to

however

degree requires but

youngest embodies

Harvard

at

idea

the been

of

the

in successful

its allied

familiar

will recollect "

a

line of

business.

use

that

with it uses

This

in

previous records,

and

only

good

for

the

With

the

a

208

adapts

which

has

Journal

and

years.

economic

service

lines in its business

line of to

twenty

casting fore-

Forecast

Harvard

three

itself

it

that

Street

past

of search. Re-

of

method

reason

Wall

records service

barometer,

The

the

Economic

a

in

statement

a

is the

on

offer

does

speculation,a

a

business

our

Committee

by

Chart

It commits

of

market

publications A

Those

stock

is

that

truism

be

business

records,

forecast.

the

triangle

because qualification,

scientific

business, for

proof;

of any

said

have

But

some

chart

It would

own

it would

best

at

University's Its index

angles

I

forecasts.

most

its

containing Or

qualification

no

things.

tabulated

are

least

RAILROADS

two

of the

that

quality of

a

and

stating.

presented,

minor

of

one

sum

criticism

necessary

which

worth

OUR

requiring

right angles."

two

greatly

not

be

probably

axiom, self-evident

an

TO

assertion

would

be

a

DID

SWEEPING

A

XVIII

no

banking

and

a

chart line

of

floundering attempt

THE

210

BAROMETER

MARKET

STOCK

precedingits

line of distribution for the three months outbreak.

A

Movement

Greater

But there is another

Than

Major

the

Swing

givenby the averages which, while of the greatest importance to-day, has been largelyunrecognized. We that the have seen railroad stocks,where for free market there was a them, in the years under privateownership,shared the minatin major swings; and that we had a bull market culin 1909,

a

indication

market

bear

in the

determined

followingyear, a greatlyrestricted and hesitatingbull in the railroad stocks,carryinginto market, especially

minatin culthe latter part of 1912, and another bear market immediatelyafter the reopeningof the Stock

Exchange weeks

of

in

December,

is

a

historical

trend

of the very of downward

1906

to

warning

which

June,

than than a

following eighteen

war.

There

wider

1914,

the any

significancea first importance in the pricesof railroad

1921.

"

"

This

is

a

major swings but of

these

assumed

previous discussion

lesson the

and

general

stocks from

only

movement

not

even

able consider-

more

cycleperiods with

dealt.

It has

extended

but as nearly nearlysixteen years. It is not onlylikely certain as anything merely human be, that the can the average railroad stocks on will improve in the But there is a radical reason coming year 1922. why they will not, in any near period of time, attain the old freedom and buoyancy which they enjoyed in the

REGULATION

RAILROADS

AND

211

"x.

later lifetime of great

Hill

Edward

and

railroad

railroad

H.

like

builders

Harriman.

James J.

condition

A

enterprisehas been established which

only taken

stocks but much condition

of the

much

of the permanent

which

emasculated

value speculative

and

has

left

value

the

as

has

for not

of the

out

well.

It is a

themselves

railroads

weak, with their virile creative power

removed.

Roosevelt

Theodore

If

and

Roosevelt

the Railroads

could

foreseen

have

the

agitationagainstrailroad he inaugurated;if he could have realized that he was not applying temporary checks to temporary evils,that his policies, so called,carried to their logical terprise conclusion,would cripplerailroad enfor incalculable years to come, and perhaps forever,in order to punish a few who had abused the successful enterwhich prise to accrues necessarily power of the

deadly consequences corporationswhich

we

"

may

The

be

he would

sure

publicpower

to

have

reform

acted far otherwise.

has been

construed,

in the past fourteen years, as the power to Railroad development,which in the past has

destroy. not only accompanied the increase in populationbut, on this moribund continent at least,has preceded it,is now or dead. No new capitalhas been forthcoming for the greatlyneeded extension of railroad facilities to parts of the country that do not enjoy them, to say nothing of

greater are

terminal

the

very

facilities. Lines

arteries of

of

tion communica-

civilization.

But

the

theories rather the adaptation of the Roosevelt or dore misconception of those theories,the ascriptionto Theo"

in

a

the

Roosevelt

of

ideas

hardening

of

those

arteries,in

heart

which

central

great

An

the

can

ten-year

census.

eight

of

weakening

a

lifeblood

the

pumps

We

been

irreducible

two

and

and

thirty miles

of

of

not

nearly

hundred

25

per

the railroad a

1920,

have

has

had

we

of

mileage

If

had

of

census

in the

with

hundred

have

ourselves

contemporaneously

double

than

more

miles.

resulted

taken

increase

an

"

should the

has

"

Development

fact for

States

thousand

and

Arrested

the

see

United

in 1910

held

never

them.

through

We

he

of

each

forty

railroad

since

cent

mileage

in

1

1900 8 So"we

in continuing increase, shown much as ninety thousand as one-sixth

had

fifteen

less than

of

it.

thousand

The

crease in-

miles, the

justenough to keep the railroads alive. A "craven fear of being great" has possessed politicians.They have paralyzed the growth of our most our important industryrather than permit a few conspicuous individuals to grow rich by the turning of minimum,

ideas

great

rich when

to

their

rich

because

wealth

the

of

one

was

needs.

necessary

But of

the

Harriman

and

them

almost

fortuitous.

have

financial Harriman railroads

Hill

both, and

I knew

they could

independent. stock

died.

they

that

without

great

were

I know

They were done nothing creative them strength to make never

he

controlled

directed.

He

the was

deservedly trusted by the stockholders. He had Pacific, never a voting majority in Southern Union and Pacific or He even Chicago " Alton. their own Hill, incidentally to fort, wealth, brought comaffluence,to millions of Americans competence, The they never saw. period of railroad development so clearly set forth in the record and chart of our and implicitly

barometer to

era,

from the

1907,

the whole

upon

and

the

A

We

have

theory

of

seen

period

Cycle of and

most

greatest,

in

Human

proved

the

reconstruction

the destruction

beginning of

creative

most

of

1897, the end

era,

was

ful deservedly successAmerican history.

Folly

the correctness

of Dow's

know that the We price movement. stock market has simultaneously a major swing upward or downward, a secondary reaction or rally,and almost But not a daily fluctuation. might we go further and establish a sort of cycle of our not own, related in the least to those cycleswhich we have previously considered, with their imposing and instructive lists of panic dates? The Harvard University chart far as is wise and profitable. Its series is ventures as "Depression," "Revival," "Prosperity," "Strain," "Crisis,"without assuming absolute length for any of these states, and and "Crisis," taking "Strain" even or

in

the

"Crisis" some

which which

cases we

can

could

and

"Panic," coincident.

deduce almost

from be

"Strain"

or

there

But our

called

"Panic,"

is another

as

cycle

of the averages, cycle of human folly.

records a

and

THE

2i4

STOCK

MARKET

BAROMETER ,

It could

only occur in a democracy such as ours, where themselves too to govern a people with the power and misconstrue the greatest privilege rashly assume of such a democracy their own the power to make "

mistakes.

Coxey's Army It will the

not

be difficult to

show

what

I

mean.

In

1890, with a Republican President and a full of uncertainty Republican Congress, the air was and sectionalism;and legislation, is always in which some degree a compromise, had become an immoral cessfully can compromise. A true statesman compromise sucyear

non-essentials with

on

no

real sacrifice of vital

Silver Purchase Act was principles.But the Sherman which brought about the gravest a sacrifice of principle consequences,

of

because

financial system.

our

the very lifeblood great and inevitable

it adulterated The

panic,due to consequent tion,might well have come

inflation and

overspecula-

1892 had it not been had that, in that year, we large an extraordinarily wheat with a complete failure harvest coincidentally national of the crop of Russia, our only considerable intertherefore, competitor. The panic came, in

in

1893. For

much

four years the

same

after the country

kind

of

Populism

was

which

full of very is so rife at

Coxey'sArmy started from Masillon, Ohio, to march on Washington in 1894. Coxey's main postulate that prosperitycould be restored with the

present.

"

REGULATION

AND

RAILROADS

215

I

unlimited issue of fiat money the United it. The

celebrated Kansas?"

dreadful but

The

a

years,

few

Middle

of the tide

turn

White's With

States.

West

all

editorial,"What's

the

over

with

rotten

was

by William

marked

was

Railroad

Allen Matter

during those in the last depths of despair. All

were

and

strong

As

marching

was

"

much

managers,

sound

roads

into bankruptcy.

went

road country'srailmileage in 1896 was in receivership.Only with the first election of McKinley did the country emerge into a state of sanityand light.

87

as

Ten It had all the

tried

rest

Prosperous the

out

of them

at

years, between

of

politicswas

United

that time

was

It

decade

a

Politicians

were

For

enactments.

1897 and 1907, the paralyzinghand We

or

they pointed in

that

bankruptcy.

from

removed

States. before

was

found

the results of their rash

ten

free silver and

"

and

"

Years

Populistfollies

the direction of national terrified

of the

cent

per

had

never

since.

greater which

The than saw

such

a

railroad it had the

of

business

the

ever

the

period of prosperity, development in been

broadest

before.

and

most

the amalgamations, of which United States Steel Corporation is the outstanding the cost of livingwas time when a example. It was risingin the latter upon the whole low, although it was a time when part of the ten-year period. It was wages as were expressed in good, not merely in their amount dollars and cents, but in their purchasingpower. beneficent

industrial

MARKET

STOCK

THE

216

"And

BAROMETER

Waxed

Jesurun

Fat, and

Kicked"

"Jesurun waxed

it be Can fat, and kicked." stand prosperity? Or is there that democracies cannot wide an still no need to make so assumption? We that labor agitationreaches its maximum, have seen But

in the

not

lean

when

years,

unions

non-existent,but in the fat years,

premium

funds

union not,

and

as

so

the leaders than

many

they

of

us

can

have

are

when

impotent labor

is

at

or a

their

disposalmore wiselyspend. Agitation is

have

at

assumed, the result of trade

depression. It is,indeed, the kickingof the national fat. The tion dangerous foundaJesurun when he waxes of the Populism which ineffaceably marked the laid in the years before. be running into such an era of Populism

nineties had to

We

been

has, of

thrown

once

seem more.

possible"cycle" of kilter,but the evil fertilization of the impresout sionable against publicmind, implantedby the agitation personal property, is bound to bear its noxious fruit

The

war

in the years

to

Public

course,

any

come.

Opinion'sSecond

Thoughts

ket extendingthe purpose of the stock marbarometer, and the design of these discussions if I ventured upon a forecast beyond their proper field, based upon this cycleof popular folly. We can see far behind us the golden ten-year period of true how the peak of it. We saw prosperityis. We can name its sudden and dramatic collapse The feverin 1907.

It would

be

THE

8

2 1

STOCK

MARKET

BAROMETER

if,at that time, there had been in operationa federal law to "recall" officers federally elected,it is well of probability within the bounds that Lincoln might have

been recalled and

not

re-elected.

It

not

was

until

the

followingyear that his re-election to the presidency and there are readers of these was a certainty, discussions old enough to remember the moral depression of 1863 and its effect upon the publicmind.

Paying for It

can

second

Government

Meddling

be seen, from this instance of many, that the mind was right,where thought of the American

its first impressionmay

well have

been

wrong.

Look

created in the Middle West recently by the Non-Partisan League, with its half grain of Dare truth and its bushel of quackery or fraud. we that poison from that we have extruded our assume system? Hardly a week passes that a bill for the at

the enthusiasm

under of billions of fiat money, one pretext another, is not introduced into the Congress of the

creation or

United

States.

If there is one

lesson which

should

have

been burned

in upon the publicmind in the past decade, it is that interferes with privateenterprise, when government even

of and

is directed to the development enterprise it can do incalculable harm a publicutility, little good. The people who develop the

where

very

that

railroads and

the natural

of the country are ownershipis,in a way, more

resources

only ourselves. Railroad than ever representative Congress can

be.

It includes

REGULATION

RAILROADS

AND

219

depositorin the savingbanks, every holder insurance policy,and, indirectly, holder every United States bond, so long as the interest on bond is dependent on taxation largelyderived railroad enterprise. every

Legislating Everybody It

be admitted

must

the averages

as

a

that this

barometer

discussions would

our

lesson of that record

an

of

a

that from

Poor

chapter is less

about

record.

But

than

a

as

incompleteif

be

of

the

most

for the

overlooked

were

portant im-

ten that it is writreason easilyunderstood psychological in such large letters across the sky. Look at the of the railroad averages the twenty-five-year course on than sixteen years ago the twenty active stocks made the highest point on record, at

More

chart.

railroad

138.36, on January figureagain,but came it in August, 1909,

pointsbelow recession

134.46. The

reached

1912, at 124.35 On the the record.

was

only

109.43

share have

112.28,

an

the

of the war, on

the bull market devoted

next

than advance

next

January

on

rally. Even

firstbull market to

pointsof high point

four

more

"

October of

earlier

fourteen the

net

average

the top of in the recovery,

31, 1914, next

only carried the 4, 1916. They

1919,

that

saw

still further,while the railroad

half-hearted

stocks

never

less than

in October,

was

a

within at

They

1906.

22,

as

chapter

to

railroad did

know, for

we

the

study of

not we

the

reason.

To-day

the

pointsbelow priceis fifty

the

record,and

THE

220

MARKET

STOCK

less

than

25,

1898

this

steady

points

fourteen

than

more

"

decline

include

to

over

over

the

period

and

1857

1873

line

declining medial

line of

some

of

values

nation

to

its greatest

into we

the

in

people

the

we

more

is

one

how

it

is

thing

possible

the

it, from

legislate

to

added

built,

know,

idea

that

legislate everybody

?

Are ing allow-

or

the

that

make

other

ought

or

rich.

everybody to

industry this

as

will

We

politicians

greatest

some

the

Can

its

allow

fathers

our

in

postulated

stupidly

and

steadily assumed

charts.

its

of

longer

cent

belittles

to

and

happier?

example

the

the

stockholders

cannot

exceed

how

wealth

afford

squander

to

and

that

here

the

least

"

per

business

steadily

railroad

richer

know,

and

national

world

as

away

politicians of

mocks

at

those

panics

See

cycle.

investment

ground

throwing

ruin

the

to

60

versity Uni-

Harvard

enough

time

a

better-known

the

the

greatest

our

growing

richest run

of

ten-year

of

of

cient suffi-

years,

Research

long

covering

"

Jevons

the

than

than two

sixteen

July

Analyze

ago.

of

cycle

of

figure

years

Economic

on

between

low

the

period

a

simple

more

"

above

twenty-three

Committee twice

BAROMETER

of

Russia,

poor.

to

But

of

XIX

Chapter A

I

T

has

STUDY

been

IN

MANIPULATION

in

shown

unimportant

But

history presents and decades

two

was

back

which

to-day. of

bounds stocks

they

as

stock

possibilityto

years

merely

offered

example,

that

am

I remember

was

it,with

H.

Charles

Dow)

The

Amalgamated

in sin and

in of

be

to

assumed

There

all the

are

was

of

an

mated Amalganow.

even

freedom time

the

at

the it

in progress.

Conceived

for

R.

stocks

two

all over,

allowed,

to-day

by James

distribution hot

the Steel

the

distribution

parity.

me

I criticized

that

(and

the

makes

which

Copper law

about

impudence

arrogant

a

of

ated toler-

or

either

it is not

and

on

ulation, manip-

Street

feasible

These

ago.

them

Wall

manipulated

twenty-one

placing

for

Copper

Keene

I

be

manipulate

undoubtedly for

of

instance, be within

for

not,

is.

manipulation

in the

not

tively rela-

how

striking instances would

It would

were

market

possible

Amalgamated

or

previous discussions

some

much

1900-!

"

under

born

subscription with 1899, and that

year.

the A

in

Copper similar a

Sin

Company auspices.

capital

of

subscription books number

of 221

conceived

was

It

offered

was

early

$75,000,000 closed

on

"newspapers,"

May of

a

4th kind

THE

222

STOCK

BAROMETER

MARKET

happilydefunct,reportedthat

now

oversubscribed!"

"five times with than down the

News

the stock The

month.

a

the stock had

It did

sound

not

been

able, probin less

at a heavy discount selling generalstock market was

the

on

of grade then. It did not turn until the summer Of all the contemporary ments comfollowingyear. that disreputable on exploitthose of the Boston refused to be humbugged, Bureau, which flatly about

were

the

publishedless

than On

is

vitriolic. Here

most a

month

June

I,

of them,

one

after the fivefold "oversubscripti

1899, the Boston

News

said:

Bureau "The

the Amalgamated Copper stock which was feature of the trading in outside securities yesterday,was ticularly parthe general railway appropriate at this time when list is on the down grade. Many shrewd observers in Wall Street contend that the formation of the Amalgamated Copper Company was the red flagwhich warned conservative investors and speculatorsaway from the securitymarket; that a blind scribed pool calling for a capitalof $75,000,000 should be oversub-

drop

in

five times

an

was

indication

the better element

to

speculatorsthat the public lost its head and not

the crash

of

would

be far distant.

"One

features of the whole

of the worst

National

City Bank,

in this country,

which

should

is the

have

case

is that the

largestinstitution of

stood sponsor

for such

a

its kind tion," transac-

etc., etc.

Amalgamated It will be about a

lated that,in spiteof all the flubdub circuthe flotation had been "oversubscription," seen

failure. The upon

Copper

Boston

"'The

News

Bureau

Amalgamated

continued

to

ment com-

Fiasco," "Promises

MANIPULATION"

and

1900-1

223

Predictions

"The Humor and Against Realities," of Copper Promises," in an acridlyhumorous In the same of June there were month rumors

Pathos vein. that

control of the Anaconda

company

had

been

chased pur-

by the organizers of Amalgamated Copper, for something like $45 a share, though it was quoted at $70 a share by the time Amalgamated floated, was and was said to be going into the new Amalgamated company

at

$100

share.

a

The

same

Boston

article

points out that the $75,000,000 capitalof Amalgamated Copper should have been sufficient to pay for the entire capital of the constituent companies, although only a control,presumably 51 per cent, was declared to have been acquired. The whole transaction that in the better Wall Street of to-day was so raw it

seems

almost

unbelievable.

Keene's

In

Part

the latter part

manipulated

of

in Distribution

1904, three years distribution of the stock by

after

the

James

R.

place,that eminent operator wrote letter,which became a public,in which he admitted of Henry H. "for the account that he distributed, Rogers and associates,"$22,000,000 of Amalgamated Copper (two hundred and twenty thousand shares) at In that letter pricesranging from ninetyto ninety-six. he indicated the period of distribution with sufficient clearness. In the followingJanuary I published,in of what he had The Wall Street Journal, an analysis by the recorded sales,under the title done, as shown Keene

had

taken

THE

224

STOCK

BAROMETER

MARKET

of "A

did not Study in Manipulation." That analysis deal with the ethical question. You cannot say much about the ethics of peoplewho seem to have none. By taking the sales of Amalgamated Copper stock, as of the recorded on the ticker, togetherwith the names brokers executingorders as reported from the Stock Exchange, and by comparing periods of activityit seemed possibleto dot Mr. Keene's "i's" and cross his "t's." It had

the

making me Street,although,to do James

Wall I do

not

that

we

think he were

was

intimate.

never

R. Keene I have

of them.

one

But

he

say seemed

books.

at

me

that I had As

various

had

not

some

Wall

own

business,made

to to

vince con-

his

suspicious.His habitually

Keene

incompletein the respect it hard to believe a simple truth where of anybody. upon the unsupported word some

Keene

A

analysis

illicitaccess

mentalitywas

whom.

tunities oppor-

have leaked." he put it,"Somebody must of his Street of that time, and the nature

The

and

justice,

made

published,and nothingI could

see

in

said before

after that

him

men,

enemies

some

times

to was

result of

children,know was

not

a

when

great

DifferenceBetween

to

that

found

he

depended Reallygreat it

believe

"

and

man.

Steel and

Copper

Leaving all questionsof ethics apart, there was probably nothing more ably done in its day than the distribution of Amalgamated Copper in the stock market. Keene's handlingof United States Steel com-

THE

226

STOCK

MARKET

BAROMETER

publicas had reallysubscribed for Amalgamated Copper were originally unloadingon the promoters of the enterprise.Certain "court circulars" of the time were rightfor talkingboldlyof "inside buying." They were Insiders were once. buying because they could not help themselves. much against They were "accumulating," of their will,to judge from the downward movement the stock. With a knowledge of the backs of the cards well as the faces,the "Standard which Oil crowd" as the company could not conceal their crude and the moveWe may here recapitulate ments clumsy methods. hatched

and

total sales

during this period:

The

96 openingpriceDecember 3, 1900, was Sales from December 3d to December 160,000 I3th were from The fluctuation in that period was 96 to 90^ Sales from December uary 14, 1900, to Jan295,000

n,

1901, were fluctuation in that

period was from 89^ all this stimulation the closingpriceon With only giy". II, 1901, was

The

First

Keene's Keene's

then, and would

first appearance he

was

much

be necessary before he put it to

to a

break

9^ uary Jan-

Appearance seems

too

to

to

clever

have

not

to

the market

level which

would

speculativepublic. The next record is: Opening priceJanuary 12, 1901.... Sales from January I2th to January I9th

been see

made that it

for the stock attract

the

91

70,000

MANIPULATION" Fluctuation

227

1900-1

in that

period from 92^ ClosingpriceJanuary I9th Sales from January 2Oth to January

y" 90^

to

26th

90

88,000

Fluctuation

in that

period from 92 to 83^4 ClosingpriceJanuary 26th 89 This closingprice of January 26th is a tribute to Keene's ability.It was real pricethan a much more the ninety-six momentarily established by the fatuous "insiders" in the previousDecember. The beginning of Keene's operationsis characteristic. There were transactions averagingfrom twenty thousand to thirty thousand shares daily in the third week of January, the 2Oth of the month, the pricewas 1901, when, on hammered fluctuated between to eighty-six, 83^ and 89 on the followingday, and tended to settle down able the day after. The gossipobtainat 8854 on stolidly at

the time

was

beneath

contempt

from

a

news

point of view, but was well calculated to stimulate the avarice of the public. Everything tended show to that,if Keene was in the market at all,he was raiding the stock too

trouble that

to

But

so

a

turn

on

side.

the bear

It is

not

turing ven-

far to say that he had previouslytaken no cover up his tracks,in order to create exactly

impression. What

was

for

the

a

Major

McKinley

well under

way.

Bull

Swing

boom

Made

in the

Stocks

but violentlyinterrupted,

were

not

Possible

broadening market in that great swing, terminated, by the

THE

228

Pacific

Northern

and

corner

He

Oil stock."

admits

panic of

the

suited Keene

have

it believed that he

have

BAROMETER

MARKET

could

Nothing

May. to

STOCK

was

of

short

following

better a

than

"Standard

having sold all the stock pricesfrom ninetyto ninety to

Rogers pool, at hundred and six,shortlybefore the advance to one twenty-eight.That advance did not take place until the middle of the followingApril,but early in March I the stock was already sellingwell above par. that assumed, when writingin 1905, that Keene meant the $22,000,000 of stock was credited to Rogers not and his friends at one price,but perhaps in average a series of largeblocks of stock averagingfrom ninety after allowingfor the cost of manipulato ninety-six, tion. of it was, Some of course, sold much higher, sold but we of it was have already seen that some below eighty-four. of the

Keene's

Keene it

was

where of

not

was

the

Second

man

to

Stage the market

press

his way, and there followed allowed to stock was judiciously

going the

with occasional itself,

sentiment.

Transactions

stimulus were

a

when

period

take

care

cultivate bullish

to

in relatively ume. lightvol-

fluctuation was period the extreme less than five points,but it is noteworthy that the the prevailingpricewhen see we higher figurewas Keene's hand again: Sales January 26th to February 23d. 110,000 Fluctuation in that period to 92^ 87^4 In the

next

.

MANIPULATION" In this real

some

1900-1

quietperiod of a month stock but certainly never

have sold he may the forced it on

market.

It is difficultto say how many dealt in that he might distribute It

229

so

shares he

ally actu-

large a

tity. quan-

possiblyultimatelythree times the stock he had to sell. In the earlystages he was employing brokers on both sides of the market, even if they did know that they were orders. not executingmatched That was, and is,againstthe Stock Exchange rules, and we can afford,at this distance of time, to give them the benefit of the doubt. As the market improved, manipulationof that kind probably grew less,and of the course as public took hold it disappeared altogether. was

Keene's

What

may

Final

Distribution

be called the third movement

final distribution

of the

shows

the

stock:

92^ Opening priceFebruary 28th Sales February 28th to April 3d 780,000 Fluctuation in that period from 92 to 103^ 100^ Closing priceApril 3d It is in this period that Keene probably distributed the

of

bulk

shares.

He

his

two

admitted

satisfiedwith my

answer

hundred that much to

his

and to

thousand

twenty me,

and

was

questionas

to

never

how

I

knew. It is that was

one

of the discreditable facts of that

throughout this trading Amalgamated 8 per cent basis. It was an on practically

period Copper declar-

THE

230

STOCK

BAROMETER

MARKET

,

with a half per cent extra ; ing i y*,per cent quarterly, and its directors, with that extraordinaryfatuityfor which the publicultimately convinced that paid, were definit they could hold up the world priceof the metal inOne of the items of gossip in the early part of the Keene of

decline

the

free

world's checked

metal

in

market

as

some

was

and

had

not

But it was

so.

the

the

now

last been

copper,

at

as

of that curious

rumors

before

years

the effect that the

London, then

for

of the

any

to

was

It was effectually.

the truth It

movement

near

time.

competing copper

magnate, with the

Augustus Heinze, reached a settlement Amalgamated Copper people,but such a settlement of the the rumors and one then exploited, was among principalbull arguments. The

As Keene a

himself. in

one

for the It

at

was

least twice

February or March, to

hundred

two

case,

and

to

with

almost

shares

broad

as

as

as

it had

dailytransactions

fourteen

and

much

on

thousand

been

ing amount-

shares

several other

in

days

compared with the activities,of seventy-seven tuation flucMarch 6th, with an extreme

It during that month. record, during Keene's thousand

Boom

manipulationhere detailed firstfortnight of April,1901, created stock which may well have surprised

had, in the

market

Own

result of the

net

a

Public's

on

should

be

of

nearly three points. It may be taken that the subsequent tradingshowed all obstacles removed from the stock's pathway to the top:

,

,

MANIPULATION"

1

231

900-1

Sales from

April 4th to April i6tH. 1,275,000 Advance in price from loi^i to 128^ The stock of the Rogers pool had been marketed and, indeed,greedilyeaten up in the enthusiasm of a generalbull market. .

Their It is human

Gold

have

gold brick. It is of record of the man quitein the manner

that he

Keene had

that "the stock

received

indictment

who

had

to

of

called in

believe in their

Henry H. Rogers,

that

has "heard

who

friend of his who

a

the

begun

own

from

in

that the "insiders"

actuallyto

seem

informed

Brick

humiliatingexhibit

a

nature

Keene

Own

knows

an

thing some-

insider,"

going to advance ; letters from partieswho were he suggestedMr. Keene should was

going to buy, and that It is needless to say that the joinin the movement." net was vainlyspread in the sightof that wary old bird. But the stock certainly advanced some twenty when pointsbeyond the priceat which it was selling Keene

finished his distribution.

had

It is also which

is

not

in the study of an significant, at all likelyto recur, that, in

trading,houses

which

brokers"

be called "Keene than

felt flattered in those

in the

much

were

earlier time

when

more

the

incident the later

days to uous conspic-

real

Keene

Mr. Keene's name, to judge tradingwas in progress. at the time,was only mentioned by the gossipcurrent when he had safelycompleted his selling.What pened hapto know, but subsequentlywould be interesting there is not

the

same

evidence

to

go upon.

THE

232

STOCK

MARKET

Petroleum There

is no

and

"Standard

BAROMETER

Swelled

Head

Oil crowd"

lionaire mil-

The

now.

who

to the new comprised that group were possessionof great wealth. They believed themselves invincible, up to the time of the issue of Amalgamated Copper. They made many mistakes, then and after, but as time went and got out of on they learned sense the stock market. so They were overwhelmingly Standard Oil, rightabout petroleum,and particularly that they could afford to risk enormous losses in other directions. Some day some will unkindlytell the one Mr. John D. Rockefeller,and his venture ^tory of young in "Little Leather." with a Only a young man reallywell-to-do father could afford to spend so much There his education. is good reason to on suppose in the school that his expensivepost-graduate course admirable effect. of experience had permanent and even I have told, in earlier discussions,how heartily Henry H. Rogers could be, and how his pride wrong of opinionlaid all the blame the ignorantstock upon "arket,which, in the last showdown, is always right. worth $50,000,000, and he died in 1908 he was When twice it is possiblethat his estate would have shown

that

had

amount

of his work

was

he

lived another

good, and

Virginian Railroad was originalconstruction,ever in the its

United

States.

two

calculated the

best

years. to endure.

built road,

undertaken

It almost

broke

and the

Some The in its

completed heart

godfather that, with his financial backing and wealth, he was compelled to borrow money

of sonal per-

in

234

STOCK

THE

BAROMETER

MARKET

pie are no longer deceived by the mystery talk which bility infalliThe decades ago. two was peddled as news of the "insider" has been utterly exploded. The stock market barometer, based upon Dow's theory of of the market, has the triplesimultaneous movement increased in dependability the years have gone by. as Certainlyit is in no real danger from manipulation, and on that topicI have something further to add. A

Shiftof Bad

Manipulation in times for method

which

of

the stock market

it occurs.

once

has

Collection

of

taken

not

stock

a

market

trouble

the

in Wall

news

is reportedtwenty

It is the inefficientreporter's

accountingfor

he

Reporting

movement

understand.

to

Street is difficult, but

of impossible. It requiresa higher average than news collection anywhere else,and, done properly,entails unremittinghard work.

workers

hard

are

not

much

the newspaper business than elsewhere. reporter is tempted by the fact that he

not

gence intelliif it is

remittin Unin

commoner

The

financial

take

refuge in technical terms understood not or correctlyappreciated by his employers. Except in such a responsible the Dow-Jones service,whose news as very agency existence depends upon the integrity of what it gathers and sells, financial reportingis apt to become tory, perfuncalthough it is improving. Always This because

is some

a

a

Reason,

matter

of my

which

and

can

Always

News

interests particularly

earliest work

in Wall

Street

me

was

MANIPULATION"

235

19001

writing the stock market paragraphs for the Dowservice. The far as aim was Jones news to get, as if only a tentative reason, for all possible,a reason, individual and general fluctuations in the market. Mere generalities not were accepted,and I could tell stories,ranging from pathos to wild absurdity, many of the gatheringof news which might be stale in half an

hour's

time.

highest value

to

Such the

news

active

houses, servingas it did

They news

to

of

course,

brokerage and

of

whose

Even

at

an

appetitefor interval

humbled

the

banking

sustain interest in the

customers

insatiable.

was

I

all had

was,

ket. mar-

such

of twenty of the

by the crudityof some I had to give,especially I was reasons evolving a as of nothing. But at least it was method out genuine and not news collecting, guessing. I look back on nothing in my life with greater pleasure than the friendlyexpressionsof regret I received from the active houses in Wall Street when that I relinquished nerve-rackingtask to take up the editorshipof The Wall Street Journal. Almost a reporter's necessarily, yards are those of the tinker's donkey "more kicks than ha' pence." He has, for compensation,the most it so. if he likes to make work in the world interesting Here is a chief reason lation why the part of the manipuhas been so absurdlyexaggeratedin the public in the stock market has a mind. Every movement involves valid explanation.To get at that explanation much research, with a comparison of the intelligent in of the people concerned carefullysifted expressions years

am

"

"

the actual market

movement

"

those who

executed

the

THE

236

STOCK

orders

on

them.

The

source

of

floor, and,

the

research the

the

to

of

the

stocks

is, "There

of is

with

except

market is

comments or

for

items will

the

which take

refuge

"traders other

accept

and

simply

will

turn

morning in

in such

fudge as

which

the

world.

inexhaustible.

any

it.

get

for

the

newspapers,

press

;

evening

Oil

as

my

and

all

proprietors

is

the

he

"manipulation,"

buying,"

collection in

over

warm

"slips,"

news

newspaper

News

to

content

financial

Street

greatly improved

eral gen-

it, in and

out

a

paragraphic

expressions

Wall

news.

get

true,

not

justify of

these

perfunctory

the

some

It is

plenty

only

out

market

finds

and

news,

of

One

to

less

or

more

market."

selling," "Standard

of

center

he

maxims

"dope."

bull

a

reporter to

of

qualifications

is

the

on

even

in

many

content

and

Public

the

is called

news

the

ther, fur-

traced

selling stocks,

or

Protects

number

a

There

if

he

no

be

can

original

the

to

gave

involved.

what

too

rule.

If

has

back

news

buying

News

Street nature

the

for

reasons

Honest

Wall

and

carried

who

those

preferably,

be

can

orders

particular

the

BAROMETER

MARKET

financial there

time, but

has the

the still

news

ily stead-

field

is

Chapter SOME

"""T

7E

of

and writer

series

of

of

subject

It has

led

of

what

compiled,

tell

and

have

reached

not

only

of

not

not an

method

also

advertised

to

of

We

know,

beating

the

of

system

stock

intelligently the

national or

past, and

at

world

estimate,

barometer now

when

appreciated.

dependable

market

stock

ries theo-

much

how

us

were

know

upon

examination

an

shown

records

fair and

the

movement.

pretentious

in

a

the

of

price

little understood

its limitations. a

the

has

we

ing illuminat-

been

profitably said

some

commerce

so

what

of

which

little

of

was

of

I

publication

realize, when

not

"cycles";

if the

us

how

We

is

called

authorities

development

of

analysis

From

certainly instructed

be

theory

an

importance

but

could

had

It

did

he

much

are

could

history

for

Dow's to

us

of historical

the

how

serial

of papers

interesting.

them,

began,

their

of

discussions

our

Barometer.

during

this series

widely

of

end

Market

Barren's

that

gathered

the

Stock

1910-14

"

the

nearing

The

readers

the

CONCLUSIONS

are

W

XX

does, it

least, that

speculative

market

"

trading, guaranteed

against loss.

Speculation's So

far

this

from

limiting

really expands

Prediction

the

that

V alue

usefulness usefulness

of

the

further

eter, barom-

than

238

THE

could

have

STOCK

been

MARKET

BAROMETER

expectedwhen

started

analyze of the market the triple its major swing movement its secondary reaction downward; or upward or ebb and flow of the daily rally; and the never-ceasing fluctuation. At least we have evolved something of real value to the man business is sufficiently whose extended it necessary foresee the general to make to we

to

"

of trade.

current on

to

1914

Economic

calculation

such the

reach

of its

market

from

as

in the

and

in its construction,

from

recorded

lightof

conservatism

extreme

the barometrical

averages

considered

years

banking and business. This is correctlyextracted after the event, and adjustmentsmade

never

market

mittee Com-

lines of

numerous

will

Research, for the

chart, because

a

of the Harvard

1903 the line of speculation is shown inclusive, as

precedingthe a

In the chart

Dow's

value

of the stock

day to day, when theory of the triple

movement.

A

Prophet

Who

Knows

When

to

Stop

livingby givingtipson the stock market active and conspicuouswhen the market are itself shows similar activity.In dull times they are depressingfolk to listen to unless you have a patient the of humor. In those quiet years between sense Those

who

culmination

make

of the bear

of the Great to

me

market

his

market

War

one

of 1910 and of them often

to predict market inability

which

But

a

our

has

ceased

barometer

to

break out-

deplored in

a

tions. profitablefluctuanothing to take back

show

has

movements

the

SOME

It is almost

1910-14

239

only prophet of to-day From stops talkingwhen he has nothing to say. studies in the pricemovement publishedfrom time

regret.

or

who the to

CONCLUSIONS"

time in The that

Wall

the

bear

clearlyforeseen took

a

the

Street Journal market

offered evidence

I have

in stocks

of

1910

was

in the latter part of 1909. The for the better after June, 1910.

turn

Although the recovery was slow general trend was upward. There reaction of recognizabledimensions

ket mar-

hesitatingthe a secondary was about midsummer, The top of the main movement, however, was 1911. in the latter part of 1912, and what is most interesting about the four years before the war is the relatively small

extent

from

market

of 1910

was

of

any

of

the

and

fluctuations.

The

bear

the latter part of 1909 until the middle well defined,but in both averages was

of

ket barelyhalf the extent of the precedingbear marin the panic year of 1907. The following bull market, if it attains quite that dignity,for it was anythingbut a boom, showed scarcelya third of the of the precedingbull market which held from range

the

the end 1907 to near in these instructive years, we

autumn

of

dwindling movement. for those

years

Examination

will show

of can

of

gether, Alto-

1909. see

a

general

business

that there

was

a

ords recresponding cor-

in trade, not amounting slowingup of activity but rather to a dull level of business ; to depression without the improvement to be expectedfrom the not country'snatural growth; but in no way conspicuous, of or strong enough to stimulate any large volume speculation.

THE

240

STOCK

PredictingSmall Here

again we

barometer. forecast the

well

as

major

Movements

of

valuable function

do, in this

movements

almost

and

extent

Large

as

another

see

The

BAROMETER

MARKET

the duration

our

sense,

of the

ing com-

the severity, improvement, or the depth,and even of the impending business depression. Our sions discusof selected periods covered in our twenty-fivethis sufficiently clear, as anyone year chart have made for himself by comparing the price-movement can see velopme analyses in previous articles with the subsequent dein trade. It may be broadly said that

business

became

dull in 1910 its activity, in any sense

in the the

by

market, speculative

and

that

it did

not

cover re-

ing anticipat-

greatlyworth until the boom

created

war.

Here

is

culty raise a diffito period,then, which seems for the compilers of business charts, where a certain rhythm is postulatedas normal condition a of business. Action and reaction can hardly be called equal in these instructive years, unless it may be the action and reaction of the pendulum of a clock which is running down. Perhaps that is not a bad simile of what took placebefore the war. It may be said that a

for

the

demand

our

business clock when

This

is

anythingbut

idea which But could

from

material

war

the

plot what bear justice, a

it seemed

accurate;

is useful if

of all kinds

not

too

wound

up

slowing down. but it givesa pictorial rigidlyapplied. to

be

top of the stock market

in 1909

might be termed, with some market lastingnearly five

show years.

we

of It

THE

242

by

STOCK

MARKET

BAROMETER

period of depressionmuch longerthan in the break in stocks, although there

a

that

pied occu-

were

rowing nar-

fluctuations up and down which, if charted, look strikingly like those of the years following

would

the strong

stock market

rallyculminatingin 1909. Here have we a uniformitywhich suggests at least similar laws, governing a movement broader than that the major swing which of even have been able to we deduce by the application of Dow's theory of the stock market a

of months

task

where

We

movement.

it has

but

of years

been

once

least

at

can

to

it is

that

see

not

confidence

restore

assailed. successfully

ContractingVolume

Its

and

Bearing

pointed out already that business in than in stocks is always far lighterin a bear market Our chart, recording a bull market. twenty-five-year it does the monthly average of dailystock trading, as tells us that speculative business,in the years 1911 to It has

been

1914

inclusive, was

than

in the

The

McKinley.

years

later

followed

was

preceding the re-election of eration, period,here under our considevent boom, an by the war

upset all calculations.

which

Economic

on

four

Research it does

representingas abnormal

as

an

better in volume

littleif any

very

does a

The not

set

earthquake

Committee

Harvard even

chart

that

period,

of world

conditions

or

such

some

as

natural

phenomenon. and the culmination since the war, in be called the deflation bear market

And may

of what

June-Au

SOME

CONCLUSIONS"

the volume

gust, 1921, contraction. and least any

We

are

record.

recovery

nine

points in

two-thirds

had

extended

the

of which

movements

Of

marked

a

of the slowest

one experiencing

of these be

in

no

market,

articles when of doubt.

manner

April,1922,

industrials and

have

we

the fact of the bull

than one anticipatedin more there can published serially, The

243

of business has shown

spectacularbull

authentic

1910-14

rather

to

twentythan

more

in the

much

with typicalsecondary railroads, In a strong primary swing the movements. is correspondingly secondarymovement vigorous. It is noteworthy that neither the upward major swing the secondary movement of 1922 has shown nor a ness, which is,as yet, propheticof a boom in busivirility as distinguishedfrom a conservative recovery. The is due, barometer is saying that some recovery as

but that it will

come

slowly and will

take

than

more

predictionis rather of a bull market which will not carry pricesto new high records, to put it mildly,than a spectacular adventurous which foreshadows movement a largeand development of our industrial resources. the usual

time

establish itself.

to

The

Throttling the Railroads Readers downward

of

Chapter XVIII, in which

of sixteen years

why

was

barometer

even

at

its recovery, least,the twenty on

period easilyrecognize

stocks

considered, will

conservatism

the extreme

present,

of railroad

movement

the the broad over

a

of the stock market is

justified.In

active railroad

at our

stocks

244

THE

STOCK

represent one-half of

MARKET

BAROMETER

material and record. speculative Our railroads represent the largestsingleinvestment of capitalin this country, exclusive of farming. The status of these railroads is anythingbut reassurvexatious ring. There is nothing to show that more regulationmay not still further restrict their wealthcreatingcapacity. We have falsely and foolishly assumed, through our of that 6 per cent is the very maximum legislators, holder; earningswhich should be permittedto a railroad stockwhile he is to take the risk of anything less, down to a receivership. Obviously capitalwill never on go into the development of transportation any such couragi But we cannot establish such utterlydisterms as this. conditions for one-half of the speculative field without injuriously the other half. Who affecting foresee what politics not bring forth if we are can may condition which marked running into that populistic the middle nineties? We are regulatingcapitalout of is to say that this publicutilities of all kinds. Who of capital interference with the earningpower will not be extended to the great industrial corporations? our

Politics in

This It

is

no

idle surmise.

Industry It has

been

so

extended.

certainlyhas not been so exercised with any gain the action of the Department of to the public. But Justiceagainst the United States Steel Corporation if the be done (now abandoned) shows what can dangeroustheories of the demagogue are to be forced

SOME

business.

upon

CONCLUSIONS"

It is all very

of modern

191014

245

well to say that the tendency is toward concentration,

production and that commodities will ultimately be cheaper under like that of the Steel Corporation, one management, than under the score or more separate enterprises comprised in that great and beneficent organization. But if the politician's size is in assumption that mere itself an

offense is

accepted,as it has undoubtedlybeen accepted in responsiblequarters in the past, we may

well look upon the course of business in the decade with serious misgiving.

Mr.

It saw

must

have

Taft's Inherited been

President Taft

half-

Policies

early in House.

1910 I

that I

pointed

toward the unrelentinghostility tion backed up as it had been by the Administrarailroads, itself, was paralyzingrailroad development,and how our regulatorybodies were adding to the business handicap. Mr. Taft was sympathetic,but cautious. He could no contended that we longer expect the rapid growth of the past, based though it had been speculative hope made true by great endeavor. upon out

But

to

he

him

in 1909 or at the White

next

how

the

said that he

was

inclined

to

believe

that this

the pricewhich be paid for the must necessarily securityof the publicthrough the regulationof these ited the "policy"he inhergreat corporations.This was from Roosevelt, and yet it did not satisfythe not a long interview, Progressivesin 1912! It was the end of it. When Mr. Taft, with and that was

was

THE

246

MARKET

STOCK

BAROMETER

his

unimpeachablehonesty,could take that view, what in the to be expectedof all the little politicians, was and the state regulatorybodies, who state legislatures were paying off old grudges against the railroads, regardlessof the cost to the public? Our

is the worth

What

assumed?

have

Fetters

Voluntary of

voluntary fetters

these

Is it contended

that railroad

we

service

those

improved by all this meddling? There is dining car to-day which givesmeals as good as provided by Harvey for the Atchison twenty

years

ago.

has

been

not

a

by Mr.

The

is recalled like

McAdoo, The

victims.

railroads

level of service. York

Central

New

York

time

has

Both

once

and now

have the

recovered

not

to

cut

Chicago to sixteen lengthened to twenty

Are

the

cars

were?

Are

the

railroad

obliging? When employee for not interminable

nightmare by its

a

any

the

the

more

time

and

any

railroads

between But

hours.

that

twenty-two

comfortable

servants

keeping a car inquirybefore

the

old

the New

Pennsylvania and

able

were

hours.

an

railroad meal," established

"standard

than

more

they

civil and

could

discharge an clean without risking the Labor Board, the have legislatedand

kept clean. But we regulatedthe spiritof service out of the railroads. ing Only in a half-hearted way are they competing in mak-

cars

were

their

own

route

more

attractive than

that

of their

roads is there for the railinducement neighbors. What in developingsuch attractions? to spend capital

SOME

Congress

has

from

return

CONCLUSIONS"

said

that

wise

so

they will

investment

an

arbitraryfigureof 6 per real provisionfor growth A

We

True

not

are

shown

in

out

robbed

be

if it exceeds which

one

"

of the

of a

any

purely

makes

no

earnings.

Condition Psychological

wandering

of the

tracingone

cent

247

1910-14

causes

our

from

of the

averages.

the most

You

point. We are ment movesignificant roads hit the rail-

cannot

without

hittingeverything else, because the manufacturers of railroad supplies, as represented in the imposing list of the Railway Business Association, try constitute a part of our national manufacturingindusso large that it swings all industrywith it. If there is one word which has grown wearisome, from of quackery from and misuse in the era constant use which we are chology onlyslowlyemerging,that word is "psycondition. But here is a true psychological We

have

lost

trust

in ourselves.

We

have

meddled

with the law of supply and demand disastrously that we cannot bring ourselves to the radical step of it alone. letting so

You

have

you so

have

real freedom

freedom

in business.

cannot no

hard, because

none

so

,as stupid,

in

a

country where

There that of

is no

tyranny

bureaucracy.

sylvania, singleillustration : President Rea of the Pennnot so long ago, asked me how many reports ington, I supposed his railroad made to departments in Washsion, Commisthe Interstate Commerce principally in a single ample that railyear ? Knowing how Fake

a

THE

248

STOCK

MARKET

I said that it might be safe

road's reports are, a

that basis,an

estimate

singleyear.

Mr.

"Last

we

year

A

And

that

of

Rea

made

reports for

that

take

to

reallyneeded, year, as all that were multiplythat figureby twenty; and ventured, on

five hundred and

BAROMETER

laughed ruefully. He hundred

one

lines

our

Reform

or

all the railroads

by

bureaucratic service

red tape

and

of

east

said,

fourteen

sand thou-

Pittsburghalone

one

railroad!

in the country and see what do in tyingup a great utility's

can

have We impairing its efficiency. begun, thanks to General Dawes, to import a into Washington business methods. common sense manifestlyhe has only scratched the surface. which

1"

Multiply

and

reform

a

Revolution?,

a

for part of

was

reports for

thousand

ten

is needed

almost

amounts

to

a

just little But The

tion, revolu-

Department of Commerce and the Department of Labor, to name for more lightand only two, are making their demands wasted time, more more figures, stationeryand more for

upon

the

we

a

to

remember

Handicap

that the

of the country.

Its

and

Consequences

self-imposedhandicap. We thank.

President years

to

generalbusiness

One

It is

are

ago.

ofi Sinbad's

Taft's

Who

Look

at

what

acceptance is

to

shoulders?

take

How

of

I have the

the Old can

have

we

selves only our-

recorded

of

positiontwelve Man

of the Sea

expect

a

general

XXI

Chapter TRUE

RUNNING

the of

It

assignment. of

of

of

the

Line

and

submitted

to

different

or

Barren's,

of the

out

It

myself

would

to

Dow's with

call

This

is

of

editor

intention

an

incurable

a

newspaper

Barren's

ter charac-

curiously true the

That

1914."

"

of

theory

of the

extent,

some

book

the

what

was

the

ters chap-

fifteenth,

article

with

was

entirely

an

line for illustration.

a

"Line"

in the

accumulation;

above of

or

the

their

in Illustration

of the averages

"line"

scarcityhas

many

order

of

study

itself.

Example

the

All students

or

of

important chapters,

A

rule that

the

criticism.

most an

columns

start

not

partook,

contemporary

one

"A

of like

man

newspaper

this

did

book

a

the

first appeared

subsequent publication of

price movement making

Barometer

of 1921,

Indeed,

used.

1922-1925

Market

part

in the

adopted not

FORM,

serially in

in the latter

mostly

was

Stock

The

WHEN

TO

come

below future

that

about the

after

the

movement

line

gives of

movement

advance

days' trading

indicates

daily average and

above and

a

all within 250

the broad

will remember

either of

saturation the

ages aver-

important

an

the

"line" a

tion distribu-

market.

dicatio inviously, Ob-

representing

range

of

three

RUNNING

pointsor

TRUE

exhausted

in order

to

familiar

tempt

a

floating supplyof

market,

that

point, where

into rain.

in the

251 stocks

that it is necessary to bid up of selling. Conversely, volume new

below

saturation

themselves

1922-1925

and

movement

a

FORM,

indicates that the

so

been

has

TO

There

line indicates the

follows

clouds a

the

resolve

marked

sion reces-

pointwhere stocks become attractive to buyers. That fifteenth chapter was submitted to of Barren's at the bottom of a major bear

movement.

The

that which

to*

line first chosen then

a

for

illustration

was

once

more

the editor

making. He considered such prediction altogethertoo daring, although I was willing enough to put Dow's theory and my conceptionof it

was

to

in the

the hazard

been

a

of such

remarkable

a

test.

The

vindication of the

result would

theory.

But

have sels coun-

of

prudence prevailed and the illustrative line taken shows the action,or rather the inaction,of stocks break during May, June and July of 1914, before the outof the World War. There be no can question that the illustrationchosen was the rightone, both for historical purposes and for the subsequentauthority of the book, which has, to my gratification, assumed a positionof its own, with several times the circulation which the cautious publishers anticipated. What is true enough to have become familiar and, therefore

is that the book itself applied unimpressive, Dow's theory to an actual market and predicted, in the which set most positiveway, the major bull movement in during the time of publication, umns in the colserially, of Barren's. I have been asked to bringthe topic

252

STOCK

THE

MARKET

BAROMETER

edition, pointingout how the theory has been verified,or modified, in the three years Stock Market eter Baromwhich have elapsed since The esting first published. The was topicshould be interof and useful,and I hope that a lifelong sense from indulgingin boasts about my humor will keep me if it is necessary to inspirationas a prophet, even from furnish a few illustrations, these- columns and those of The Wall Street Journal,of the way in which the application of Dow's theory has been successsfully date for this new

down

to

made

since 1922.

Some Since the the

SuccessfulForecast

of The Stock publication market has experienced a

Market

eter Barom-

major upward

in which the industrials,between (bull) movement 61 over Aug. 24, 1921, and March 20, 1923, advanced vanced points,while the railroads between June 20, 1921, adfrom 65.52 to 93.99 on Sept.n, 1922, or 28.47 points,and had only lost about three points of this when recorded in the high point of the industrials was the followingMarch. and Street Journal The Wall Barren's both entirely clear on this bull movewere ment, the former saying,on Feb. n, 1922: "At present the major swing of the market is upwards." The final paragraph of that study is significant: "The

inquirers, therefore,is that we are stillin a bull market and that it should run much further,possiblywell into 1923, and certainlyfor a time well beyond the improvement in generalbusiness which it forecasts," answer

to

TRUE

RUNNING

TO

FORM,

1922-1925

253

not merely as regards sufficiently explicit, of the stock market the movement interpreted by the ness Dow theory but upon the improvement in generalbusi-

That

was

which, in due 26

points,or

is

no

the twenty industrials had advanced said : "There in the followingJune, it was that the present bull market of its culmination." Remember that

to

reason

suppose

months

reallyran

the bull movement of

presence

line

a

bearish inference

noted

was

was

"well

continuance that in

an

into

March,

May 8,

drawn.

resumption of the bull note

rise in the

When

barometer.

is within

the

followed

course,

On

movement

1922,

the 22nd was

1923.

The

althoughno of May the

noted, while its

again inferred. 1923" was interview given in Boston on June into

I 16

repeated the conviction that the stock market was likelyto run further in the upward direction and that it would be all the better for the secondary reaction had A tendency to which occurred about that time. check in the railroad averages noted in the "Study was in the Price Movement" publishedJuly 8, but it was then said: "With this proviso it may be said that the is distinctly indication in the averages bullish." I

'A

It has been

Secondary Reaction

said elsewhere

in these

pages

that the

predictionof secondary reactions is a chancy sort of business and is not here encouraged although in September The looked This

for

may

Wall a

Street Journal

and

Barren's

reaction,recognizingit on

be called

merely a good

guess,

rather

September 19. by the scoffer,

THE

254

MARKET

STOCK

BAROMETER

the market, but at any if he was on especially wrong rate September 30 the industrials had reacted nearly on the high of the bull movement and six points from the railroads the

"Study in

four

than

more

points. On

the Price Movement"

October

18

said:

typicalsecondary reaction, is pointingclearlyto the resumption of the major upward movement which developed in August, 1921." "The

stock market

It would

today, after

be wearisome

to

a

recall all such

predictions.

ence prefer to call them inferences. The bullish inferAs late as was again drawn on November 3. Jan. 16, 1923, the "extended but by no means cedented unprediscussed,but the secondary reaction" was shown stillto dominate. was primaryupward movement

I

A

For

swing

a

bearish

and

Movement

all it is

in March,

reached

was

"Study in

Taken

Bear

of convenience the short major bear purposes be said to have set in after the top of the may

industrials the

Short

the Price Movement"

indication

from

the

through,the bear noteworthy that

Price Movement"

1923.

On

April 4

called attention line of

market while

did the

to

distribution. not

last

studies

long,

in "the

slow to concede they were the primary reaction,evidentlyinfluenced by the fact that the previous bull movement cidedly had been de-

slow. a

The

decline continued

secondary reaction worked

bearish

were

out

to

in 20

a

to

bull market.

look rather like The

total

cession re-

culpoints in the industrials,

TRUE

RUNNING

minating Oct. 27, concerned, while

TO

1923,

as

FORM, far

as

1922-1925 the industrials

that date the railroads

at

255

were

down

were

points,although the actual low for had been early in the previousAugust. Rather of record this conspicuouslyshort bear convenience has been taken as primary, but a plausible movement case might be put up for datingthe present bull market rather

than

more

from

the

in

turn

Barometer

17

when

1921,

The

Stock

appearing seriallyand bullish. charged with being indelicately was

Influence of What stock

market

had

Congress had been in session all The

29, 1923,

of

the

way

business,had the

very

and

surtax

Wall

Street Journal

Wall

barometers

of business

then

were

is a

influence in the

and

summer

had

a

averages.

Aug. careful study on

politics, by dangerous interference with to a large extent falsified, neutralized, or

Street Journal

"There

new

itself felt in the

made

even

was

Taxes

a unquestionably

was

Market

reason

at

said

their

Income

highestpointsand

tax

The

:

the barometer

why

itself.

in the past few months

has been bull

deflected by an felt before in a major influence not market. This influence undoubtedly is the cumulative

effect of the income "Brokers

surtax.

tell how

steadilythe dividend-payingcommon stocks,representingthirty out of the forty taken in the two have been sold by large holders on development averages, any of comparative strength. It is correct factor, to call this a new it has been germinating since the bull market started although in the autumn

can

of 1921.

The

whole

theoryof the stock market

MARKET

STOCK

THE

256

is based

barometer

BAROMETER

the assumption that

upon

stocks

on

pressure

coming liquidation of general business. But here, for the firsttime in the historyof the averages, is a pressure only

can

forecast

of stock for sale which bears "It is as though a hot coal the bulb of

to

Congress

return

a

beyond

a

lump

much

too

cure

but only itself,

about fiftyshares "A him

rich

than

cent,

afford

half of the

to

its cost.

on

to

applied hope that

over

a

a

dition con-

period

as

the stock of the

holding is round

stockholder.

cannot

man

six per

per

been

stage will be reached railroad common stocks

one

every

events.

That

of the twenty active industrials is as widely held and the twenty Pennsylvania Railroad, where the average when

coming

sanity in taxation,this is

calculation.

present

to

of ice had

If it is

to

will nevertheless

which of time

or

thermometer.

a

see

may

reference

no

hold

Not

deducted

return

stock returning only is he liable to see more by the taxgatherer; such a a

common

all his other income. on holding pulls up the tax he must pay months He, therefore,has been a steady seller for many past, with a vengeance. and this is 'inside'selling It is well informed but obviousy it need not predict the general in a way, selling, of business. Congress, in imposing impossibletaxes, has course not merely laid a handicap on the country'sbusiness. It has

falsifiedthe very

That far

so

must

barometer

temporary as

have

influence is now

Congress not

some

wished

I had

It is

be

true

regret the way

but

the

State

taxes

Bull Market

written to

of removal

course

effect. entirely negligible

to hypocritical

never

in

is concerned

rA New It would

of business."

say

in which

The

that crude

say

that

Stock I have

I have

Market

really eter. Barom-

witnessed

with

adaptations of Dow's ket complete theory have been taken by tipstersand marconclusions, quacks to bolster up their unsound drawn from an incompleteunderstandingof the prin-

MARKET

STOCK

258 THE Davis,

they

"

openly

were

BAROMETER

twelve

to

one

before

the

pansion "good news" was reallythe resumed exeter of generalbusiness which the market baromhad been predicting.

election

the

"

TA

is

There

Changed Technical a

technical condition

Condition

which

has

developed

in the present bull market and one which did not exist before. Here is substantially what I have had to say about

it in another

place: well Studies of the stock market, based upon Dow's closed disknown as theory of the triplemarket movement by the average pricesof the industrials and the railroads taken separatelyfor comparison,have been astonishingly right in forecastingthe broad upward of the stock market and indicating its conmovement tinuance. The present major bull market, however, is subjectto a condition which did not exist before, and it is important to consider the bearing of that limitation. While

the

Exchange Governing Committee has been strengthening its control over the conduct of business for a good many since years past and certainly the time when the unlisted department was abolished, the more recent stringentregulationhas been of entirely development. It has only been in the past year or

two

that

strongest

Stock

the

governors

brokerage

houses

have

assumed

how

much

of

to

tell the

an

account

they may carry on their capital.In the not very old days a Stock Exchange house took all the sound busi-

RUNNING

TRUE

TO

FORM,

259;

1922-1925

trustingto its own ingenuityto find a in a big bull carryingan expanded account

it could get,

ness

of

means

market. has been

This

that

secret

open

houses

drastically changed, and considerable

a

carryingfor

are

number

it is of

now

an

brokerage

all the stock the Exchange's

customers

positionis eminentlysafe, but their policyis obviouslychanged. The to way in a bull market is to buy what you can make money is fairly afford when the upward movement pand assured, exlaw allows.

Their

hold on to the profits, larger part of your interest,sellingin periods of and making up to the proportionyou marked strength, afford in the inevitable secondary reactions. can But this is not the kind of customer a Stock Exchange It means the tying up of a substantial house wants. with commissions for purchases or of capital, amount broker The sales only earned in a few weeks. once though commissions likes the customer to pay day, alevery it is anything but profitable cause to the latter,bethe attempt to guess the dailyfluctuation is faf like gambling than speculation. more bull

your

One

own

on

the

result of the broker's

stock cash

account

in small and

that

bull

account

of the country

some

uncertaintyas

because orders

there all

at

limitations

is that

has been widely bought for quantities are financingtheir wealthy customers bankers in many through their own

parts

but also

new

a

outside to

New

the real

hitherto unknown

is less likelihood one

time.

York. extent

This

leaves

of the bull

count, ac-

degree of stability, of a flood of selling

MARKET

STOCK

THE

260

of evolution the result will

In the natural way be

with

each

much

a

is at least

condition nothing in the new rules for reading the stock market

change the

to

What

necessary.

has

is

is that there

certain

fewer

among

probably houses,

larger working capitalthan

considered

been

hitherto

business

concentrate

to

BAROMETER

barometer.

Barometrical

be

It would

timid

to

Indications

conclude

sayingwhat I think of writing in August, 1925.

this discussion without

the barometrical There

is

bull account,

distributed

indications

obviouslya strong

and

well

and

there

is absolutely

has

indication in the averages that the bull market culminated. Counting from the end of the short no

bear the

market in the latter part of 1923, the duration

long and there are still stocks which are demonstrablyselling below the many I think this assumption,if we line of values. could calculate an average line of values, would be true of

major swing

the railroad in

spiteof

and

has

of

not

been

of the industrial groups,

partlytrue

their considerable

All indications

advance. further

upward movement carryinginto next year, although secondary reactions of substantial proportions would be very much in order. of Nothing has developed since the firstpublication The

Stock

pointto

Market

the great utility of the pricemovement.

a

Barometer a

common-sense

It may stocks,except that these do

to

shake

my

faith in

of interpretation

be valueless for individual not

commonly make

serious

RUNNING

TRUE

advances is

The

upwards.

lag

behind

and

the

but

I

am

had

of

to

the

some

general

trend

I

up.

its It

that

has

weight,

drawn

business

been but

freely continued

has of

the

the

country.

may

terested in-

Wall

in

speculate

attention

market

greatly

not

am

to

gratified

the

of

speculator

the

by

people

humbly

guide.

barometrical

service

catch

never

has

country

authorities

chosen

one

261

1922-1925

general

the

encouraging

in

Street,

when

except

FORM,

TO

of

business such

to

by

criticised its

a

useful

XXII

Chapter THOUGHTS

SOME

MANY

years

which

which

law where that

a

than

the

in those

It

days.

from

prisoners, while had not

a

of

of

said: the

game

convince

lawyer

with

his

that

As

the

to

the

them

jury

that

seemed

will for

euchre

a

a

is

Game

not

of

eminently fair, accordingly

the

locked 26z

way,

for

the ents" cli-

I

was

men gentle-

the

selves, them-

defense

the

demonstrate

to

time

it

incredulity.

for

me

a

the

game

with

a

formalities

that

and

counsel

short

in

"unfortunate

court

allow

and

euchre

counsel

received the

breach

law

of

out

said

be

smaller

the

playing

dignity, when

was

honor

your

were

enforce

a

chance

of the

one

considered

however,

Not

This

in the

overburdened

chance.

contention

"If

honored

men

admitting

daunted,

Nothing

hardly

jury habitually played

the the

It need

to

not

of

games

playing euchre, submitted

been

game

was

states,

identified, had

sheriff of

young

not

were

departure

a

of

party

Courts

barn.

The

determined

however, a

"more

was

Southern

of

playing

involved.

was

foolish

so

the

otherwise

the

observance."

captured

or

stake

law

towns,

be

not

prohibited

any

of

one

ago

need

SPECULATORS

FOR

am

I

sure

can

of chance."

game

Chance

and up

the

jury

the

and

together.

In

a

SOME

THOUGHTS

time

short borrow

various members

of the

little change from

a

hour

or

court

with

a

SPECULATORS

FOR

so

of

263

jury sent

their friends.

out

After

to an

"demonstration," the jury returned

the unanimous

verdict that euchre

was

to not

of chance.

game

complete if I did not and, incidentally, give say something about speculation counsel to the speculator.Speculation some practical It is involves a large element of chance. necessarily himself who too often makes the speculator it a sheer gamble. I do not know what the Southern lawyer in the story did to convince the jury of the certainties if the underlyingthe game of euchre. But certainly, is to come into Wall Street and "speculate" amateur with the stupidity he so frequently exhibits,the professionals there can him that his kind of speculashow tion is not a game of chance, and they will not havt! These

to

cheat

articles would

to

do

be

so.

Real

It

not

Protection

in the Barometer

often

said that Dow's

be

theory of is not the stock market movement a "system" for scheme which a get-rich-quick beating the market cannot

too

"

converts

the Wall

Street district into

a

sort

of Tom

with a few dollars ground, where any man for margin can pick up gold and silver. But if the intelligent speculatorof to-day (who in many cases is find investor of to-morrow) cannot the intelligent himself in the stock market of protecting means by an earnest study of the stock market barometer, then Tiddler's

THE

264

STOCK

BAROMETER

MARKET

chaptershave, in that respect, failed. He has alreadygained something tangibleif he has correctly If he comes into understood the major movement. Wall Street on a mere tip from somebody he trusts about a stock of which he never heard before,without is in an upwhether the general market ascertaining ward lent or a downward major swing, he stands an excelof of losing all he brings in the way chance margin, without a fair "run for his money." But if these

he has learned what

the market

movement

and

means

the opportunity appreciates given to him in the dulness after a typicalreaction in a bull market, he stands than an even chance of making a profit.That more of considerations which, will depend on a number profit do not enter into the minds of many apparently, people who Street only to lose money, to Wall come ing spendchange the rest of their lives denouncing the Stock Exas a gambling hell.

Speculationand Gambling To not

these

alike.

people all stocks look alike. But they are So far as well-protected is concerned, speculation

there is all the difference in the world such

a

stock

as

well-established

widely held floated The

on

"

United market

and

the

States "

a

Steel common,

with

stock well distributed

the latest motor

Curb

between

for the

purpose

or

oil

a

and

proposition

of distribution.

good, but it is at least untested, not only as regards the business the new company doing,but in the market aspect of its stock. purposes latter may

be

THE

266

STOCK

MARKET

BAROMETER

Selectinga Stock Let

us

ered then, that the outsider has consid-

suppose,

of the

the character of the

stock

select his stock.

major

market.

Here

His

again the

and

movement

business

next

is

who

amateur,

dency tento

wants

quick action to

inform

for his money, will not take the trouble himself properlyupon the stock in which he risk his small

to

purposes

It is

a

good standingrule market

permanent

no

capital.

which

has

that in

been

a

stock for which

created

a

"

tion flota-

new

is stillnotoriously, by

ings, majorityholdin control of the people who dictate the policies of the corporation the small speculatorshould not trade on margin at all. This is,of course, of a counsel but at least he should make it a rule to take perfection, onlya small risk in such a venture and to buy onlywhat or

one

"

he

in

can

By

some

finance himself

way

the time

a

if necessary.

stock is listed in the Stock

there is times

generallya dependable market although here the danger of too

Exchange

for it much

at

most

ship owner-

Motor, still exists. Such stocks are good to let alone; and only business gives of the speculator's the nature where own should he embark him access to specialinformation then his money in stocks of such a character,and even in few

his

margin

hands,

should

On

in the

case

be of the

most

as

the Matter

of Stutz

ample

kind.

of Margin

plete bringsus to the questionof margins. A commisunderstandingof what constitutes a sufficient

This

SOME

THOUGHTS

FOR

SPECULATORS

267

for many needless losses in Wall margin is responsible Street. Brokers are looking for business, and they tell the tyro that ten pointsmargin is good enough if ations. he can againstfluctuguarantee the firm that amount This

would

shares of stock

at

mean

That

par.

$1000

hundred

one

on

margin is not enough, or

nearlyenough. Writing twenty-one years ago, Charles H. Dow dred who pointed out that "the man buys a hunshares on a 10 margin, and stops his per cent loss at 2 per cent, has lost (with commissions) nearly one-quarter of his capital." Obviously it does not take long to wipe him out. Dow ultra-cautious, was but he such

a

have

been

wide

not

was

had

man

able

of the mark

begun with to

see

a

when

ten-share

he said that if

lots he

substantial loss and

would

yet have

averaged his purchases to yieldhim an ultimate profit, in his first surmise that the correct granting he was stock was sellingmuch below its value. Certainlya trader start

with

with at

Steel

a a

common

$1000, hundred very

and

no

more,

has

no

business

shares of stock unless it be

to

thing some-

low

time when a price. There was could have been bought below $10 a

share.

Little

Another should

delusion

Traders

of

the

and

small

Large trader

is that

he

adding buy part of the quantityhe contemplates, each point of decline until he to his holdingson he thinks he can But completes the amount carry. why not buy it all at the last price? If he proposes to

THE

268

buy

STOCK

hundred

MARKET

shares

BAROMETER

in

pects twenty-sharelots,and exthat there will be a decline of five pointsin the the assumptionupon market, he is reallycontradicting which he originally decided to trade. He has not considered

one

all the facts of the

If the stock

case.

can

go

five

down

pointsthe purchase is not so good a one as he supposed. It is quite true that great operators, like Jay Gould, did buy stock in that way. But they not were tradingon margin, except in the respect that they financed their stocks mostly through their own And banks. they were buying upon considerations which would the small to seem hopelesslyremote speculatorwho wishes to test his judgment in Wall Street. could Such a man as Jay Gould, moreover, himself give value to the things he purchased. He during the might well start to buy into a company of a major bear swing,knowing that he could course get all the stock he wanted

not

The

small

in

devote

to

purposes

take any such such exclusive attention

afford

cannot speculator

view, unless he

bull market.

a

to

trading as he would give to any other business. There are plentyof peoplewho do that, and I have in previousdiscussions given instances of their of the man who But we are success. talkingnow speculateson his judgment while interested in some is no reason other business. There why a speculator to

stock

of this class should chance common

in the market sense

first casual

than

more

if he would

bear.

to

friend

shares of A. O.

have

not

who

T., and

But

ask

no

even-money

only bring

if he

tells him

an

will listen

a

to

little the

"buy a hundred and risks questions,1' to

SOME

his

THOUGHTS

dollars in

only thousand if he loses. would

He dollars

the

to

in the open

He

is

have

air and

A

July

on

"If

n,

much

would

cannot not

a

plain com-

lator. specu-

if he took

fun

more

find the

have

a

racehorse

a

his

healthy day much

more

the ticker.

Dow

publishedin

The

Charles

H.

1901,

269

doing so, he gambler and

Quotation from

editorial

an

a

He

races.

than amusing spectacle

In

SPECULATORS

FOR

Wall

Street Journal

Dow

said:

look people with either large or small capitalwould trading in stocks as an attempt to get 12 per cent per

upon annum

on

their money instead of 50 per a good deal better in the long

cent

weekly,they would

Everybody knows this in its applicationto his private business,but the man who is prudent and careful in carrying on a store, a factoryor out

come

a

real

estate

should from

business,seems be

to

run.

think that

ods different methtotally

employed in dealingin stocks. Nothing

is further

the truth."

In

the

article Dow

same

went

on

to

say

that

the

tying himself up in a financial knot at the outset by keepinghis transactions down to a limit which, compared with his capital, leaves his judgment clear and affords ample ability to cut loss after speculatorcan

avoid

loss short;

double

to

stock,and generallyto

up;

to

switch

to

some

other

instead easilyand fearlessly of under the constraint which comes from a knowledge that his margin of safety is so small as to leave no for anything except a few anxious gasps before room the

account

is closed.

act

THE

270

This

STOCK

is

Written.

as

The

learn

have

said before

Wall

Street

any

other

that it is

that

from

more

into Wall

was

Street

quickly. I

them has

money

it

day

lost in

been

sheer

case.

You

cannot

are

under

long as you capital. You so

all your view unless you

consider

of

the terror

cannot

see

take

partial im-

them

losing

clear,unbiased tively. get out and look at the thing objectied up in a losingspeculation When are you in the positionof the man lost in the forest

are

who

the

pride of opinion than from If you buy a stock and find singlecause. fallingrapidly,you have not considered all

the facts of the

you

BAROMETER

as on now good sense speculatorwho comes take losses,and take

must

to

MARKET

cannot

for the

the wood

a

trees. .

Avoiding Readers who

man

Gould

Inactive

Stocks

the story I told of the young partnershipoffered to him by Jay

will remember refused

a

because, in executingGould's

of the Stock

nothing but

Exchange, Gould losses.

He

orders

seemed

to

on

him

the floor to

make

broad

enough to see that these unsuccessful attempts were merely testing purchases, and that Gould probably employed some that he had other broker he was when quite sure is where Here the caught the turn of the market. active becomes purchase of a stock only occasionally so dangerous. The broker may be able to carry it well to-day,although inactive stocks are not very looked But

upon

with

the broker

favor

was

not

in bank

himself

does

loans. not

know

whether

he

SOME

can

THOUGHTS the stock

carry

SPECULATORS

FOR

so

271 The

to-morrow. conveniently

peculiarcircumstances

the

started

which

movement

in that stock may be fullydiscounted in a few days' active trading,and the event will be a market without where the seller singletransaction for days together, is obligedto make concessions to find a buyer generally who a professional, charges all the traffic will a

"

for such

bear

carried is in the

at

intimate

some

textile

Bethlehem is

a

Such

all. But

connection

industrymay

there

active

Steel

a

the

stock should

with the steel trade

well take hold or

American

of Steel

or

mon com-

Woolen, if

market

permanent

business

whose

man

be

not

not

feeling always an

one.

A

I have

Street. than

margin

on

or

that

service.

a

ten

Word

for

the Consolidated

friends in the New

many

also

friends

I have

The

odd-lot brokers, of whom

there

in specializing

in lots of less than Consolidated

York

elsewhere

but

firms

Exchange

a

that way, make hundred shares.

Stock

change, Ex-

in Wall are

fewer

the But

ket mar-

the

Exchange makes a regularmarket all the time. It is in every for those small quantities whose members a are reputableinstitution, open way to the same scrutinythe speculatorought to apply to small amateur trader he employs. Our any broker the Consolidated do his business just as well on can Exchange, provided he chooses reallyactive stocks. tribute "seasoned" and thoroughly well disSuch stocks are and

Stock

this is

not

true

of those which

make

up

STOCK

THE

272

BAROMETER

MARKET

the listof the Curb

Association.

I

am

sayingone

not

againstthe latter,but the securities in which it deals are seldom popular in bank loans, and I should have the strongest suspicions of a Curb house which indiscriminately professedto trade for its customers on a 10 per cent margin. By all means get the idea of such a margin out of head. The margin should be as good as you your make it. If you are engaged in business or living can income from investments with people depenan dent upon should be losses in speculation upon you, your word

limited

to

an

compunction.

not

cause

you

serious

probably heterodox to say so, but in the proposition that gambling sense risk what we cannot reallyafford to

beginswhere we gain something we A

can

will

It is

there is common

How

which

amount

have

Glance

the

stock

earned.

not

at

Short

market

Selling barometer

help

the

In many He cannot expect any ways. unusual stock, except under most circumstances,to advance of the profitably againstthe general current

speculator?

market. an

He

almost

must

be

most

instinctive reader

unusuallywell informed, of the market, if he

can

the occasional rallies which on speculatesuccessfully take placein a major downward swing. I am saying little about short selling.The who tries short man in a bull market is merely guessing at the secondary selling

reactions,and unless he is a trader or

devotingall his

attention

to

on

the business of

the floor

specula-

THE

274

STOCK

MARKET

BAROMETER

lished the successful

comes purchase of stocks for a rise befeasible proposition. If on the completion a of his purchase a stock reacts, carried down by a similar reversal of movement in the general market, should take his loss without hesitation the speculator and wait for that inevitable periodof dulness which develops after a secondaryreaction in a major bull swing. Here again he may buy his stock, and instead of purchasingon the way down, on the fallacious assumption I exposed earlier in this article, well add he may his holdings as the market rises. Each advance to adds to his margin of safety, and, providedhe does not "pyramid" too much, and concedingthat his holdings not

are

be

overextended

so

that his

own

account

would

tempting object of attack, the speculatormay orders, well, if he protects himself with "stop-loss" make substantial than he at first profitsmuch more expected. We hear a great deal about people who a

lost money who made

Street but very little about those The latter,as a substantial profits there. in Wall

experience;and a man seldom ascribe his prosperityto successful to cares investment. speculation.He prefersto call it judicious There is littledifference between a purchaseof a house and a purchaseof stocks on margin, proon mortgage vided his contracts. In these the purchasercan meet everybody is minding great upliftingtimes, when I am stilldisposedto say that everybody else's affairs, it is nobody's business how our speculatorcarries his stocks so long as he does so out of his own resources, which include his borrowingcredit at the bank.

class,are

in inarticulate,

my

SOME

THOUGHTS

SPECULATORS

FOR

275

Ways of Losing Money There

is another

who the market he

asks

him

me

what

all too common, speculator, loses money by forgetting why he went into in the firstplace. Knowing me personally, I tell opinion of Atchison common. my

class of

the road's

prospects

and margin may be over generalrailroad outlook He

concludes

that

above

are,

what

the dividend, and

is

of

protect his broker

If he

margin, or

would

pay

But

he

cheap, and buys himself

for the stock

he would

and outright,

probably make

listens

the

in that part of the country. Atchison common (here chosen

merely for example) it.

the earned

some

with

ample tuations ignore fluc-

money.

gossip,particularly stories of "traders selling," tion," "Congressionalinvestiga"threatened strikes,""crop failures,"and all the rest of it. He forgetsthat the market has made allowance for everything of the kind in the broad estimate of the prospectivevalue of the stock. He becomes minor takes a loss fluctuation, nervous on a and decides never to ask my opinionagain. At least I wish he would so decide ; but,unfortunately, he does He not. to me comes again to see if I cannot say something to upset what he calls his judgment, based, this time, upon the opinionof somebody else. to

Another Take

another

every

Way

bit of

of Losing Money of

in Wall losingmoney of a Street. The speculatoris informed, correctly, coming quick movement, perhaps coveringfour points easy

way

276 in

THE

STOCK

MARKET

BAROMETER

stock. He notices that the stock has particular been active,without paying much attention to the fact that a point and a half of the expectedfour pointsis already shown in the advance of the price. After hesitation he buys,when is almost the movement some and then the stock completed. He sees a small profit, dull. The is over. The becomes specialmovement attention of the professionals is turned to some other and his own stock sags with the market or security, its head off in interest. But he is still fatuously eats holding on instead of realizingthat he has missed his opportunityand has had what, if he would look instructive is reallya cheap and most at it sensibly, a

lesson. Here

bought the again he forgetswhy he originally stock, justas he did when he purchased on permanent value. If the special he anticipated fails to movement materialize he should take his loss,or his disappointingly small profit, But and wait for another chance. the trouble with most of the speculatorsof my quaintance acis that they lack not only memory but the be dabbling all the virtue of patience. They must later they get tied up with an time; and sooner or extended

account, to

have

market

It is

to

their full resources,

which

aground, with the generalcurrent swingingpast it. run

a

"Where

do

common

mistake

broker

makes

his

the Gentiles

to

of the

Get It?"

that the table repuof what his customer

suppose

out profits

seems

SOME

THOUGHTS

loses.

The

FOR

broker

stays in business

that his customers them

to

make

help them do losingmoney.

SPECULATORS

pay.

but he does

money, so, or, at

the worst,

out

277 of the

missions com-

only wants everythinghe can to He

to

not

from

prevent them

It is

only the bucket shop which wants customer a new every day, to fleece thoroughlybefore the market closes. All the reputablebrokers of my who have are acquaintance proud to pointto customers been employing them for many years, in good times and bad, extendingin at least two instances I can recall, to nearlyhalf a century. In writingthis I have necessarily outlined a patient, and level-headed speculator in fact,a man intelligent of exceptionalcoolness and poise. But that is the kind of speculatorfor whom I am writing. I am change. not certainly drumming up business for the Stock Ex"

These

stories of the continual losses of the

publicin Wall Street always remind me of the Jew who said to his wealthy parent: "Father, young take where do the gentiles that we get all the money from them?" Where does the public get ail away this money which Wall Street is supposed to take from it in speculation? Is the broker's commission sort a of middleman's profittaken out of the whole business it is; but not to of the country? To a certain extent anything like the extent the people who do not love outside

Wall

Street

assume.

Wall

for small, trickling streams

would market

be

for the

free market

Street is the great reservoir of capital. Great corporations

not a impossibleif there were interchange of their securities.

is in itself

an

element

of value.

free The

If

we

278

THE

could

imagine

two

every

respect,

the

and to

market

that

with

one

the

Wall

This

brings

of

the

on

my

to

stock

conscience

of

parting respect of

they the

at

his of

free

a

allowed

would

make

United would

did

is

to

choose show

feel

least money

the

compel

not

run.

but

him.

a

to

him

that that

do how

not

he

only has

All

so.

he

of

all

earned

he

still that laws

if,

even

business

in Wall

Street tried

have

to

himself, a

fair

prize

at

as

of law

any

had the

sorts

imagine

protect

can

has

I

that

imagine

the

trade

to

in

impossible,

cannot

man

least

has

can

paralyzed

we

inevitable

the

he

We

weakling

any

spite

legislation,

they But

In

it

have

not

At

money.

speculation

States.

would

day,

a

agent.

to

certainly would,

which

here

is

by

discussions

my

encouraged

his

regulatory

freedom

which

I had

from

man

personally

I

expedited,

fool

a

every

much

he

had

or

of

conclusion

barometer. that

free

this

Thought

the

to

me

five

from

exactly

is

evitably in-

would

market

anything

It

in

provides.

Final

market

gamble,

sell

other.

Street

A

free

the

properly,

above

exactly equal merit

of

securities

most

points

ten

BAROMETER

MARKET

STOCK

run

the

if do and for end

APPENDIX

282:

Changes have been made as follows: In July, 1898, Metropolitan Street Railway,Union Pacific

and

common

substituted for

Lake

Northern

Pacific

common

were

Shore, New

York, Ontario " and Northern Pacific preferred. Western In July, 1899, Brooklyn Rapid Transit, Denver " Rio Grande preferred and Norfolk " Western preferred substituted for Metropolitan Street Railway, were Reading and Erie. In July,1900, Southern Pacific common and Union substituted for Wabash Pacific preferred were ferred preand Norfolk " Western preferred. In June, 1901, Baltimore " Ohio, Illinois Central, and Southern Pennsylvania were Railway common, substituted for Burlington,Southern Pacific common, Pacific Southern Railway preferred and Northern common.

Pacific, Reading, Canadian and Minneapolis" St. Lous were " Hudson Delaware " Texas substituted for Missouri, Kansas preferred, Rock Island,Chesapeake " Ohio and JerseyCentral. stituted subOn May 18, 1904, Southern Pacific common was for Minneapolis " St. Louis. politan On June 27, 1904, Wabash preferred and Metrosubstituted for C., C., C. Street Railway were " St. Louis and Denver preferred. On April 12, 1925, Erie was substituted for Wabash preferred. folk and NorPacific common In May, 1905, Northern In

September,

" Union

Western Pacific

1902,

were

substituted for Manhattan

preferred.

and

APPENDIX

283

stituted 1906, Twin City Rapid Transit was subfor Metropolitan Street Railway. On April 25, 1912, Rock Island and Lehigh Valley substituted for Brooklyn Rapid Transit and Twin were City Rapid Transit. On December 12, 1914, Chesapeake " Ohio, Kansas were City Southern and N. Y., N. H. " Hartford substituted for Chicago " North Western, Missouri On

May

Pacific and On

4,

Rock

April 10, were

Island.

D., L. " W.

1924,

St. Louis

and

substituted for Kansas

western South-

City Southern and

Lehigh Valley. The

railroad

list now

Atchison Bait. " Canadian

Ohio

Reading St. L. Southwestern

Chesapeake " Ohio

New

Haven

Del.

Norfolk

Nash.

"

Western

Northern

Erie

Pennsylvania Basis

Pacific

of Calculation

Originallyquotationswere 13, 1915,

stocks should

sell on

the Stock a

St. Paul Southern Pacific Southern Railway Union Pacific

Central

Del., Lack. " W.

October

lows: 1925) is as fol-

Louisville " York

Hudson

31,

Illinois Central New

"

Pacific

(August

all in percentages. On Exchange ruled that all

dollar-share

basis. For

the sake

continuitythe averages of Pennsylvania, Reading and Lehigh Valley, all having $50 par values, have since been computed on a percentage basis,which ever obtained was by doubling their market quotation. to Lehigh having been dropped, it is now necessary double the quotationonly in the cases of Pennsylvania of

APPENDIX

284 of

and

Reading, all the railroad stocks being adjusted

this arrangement

by

to

both

the dollar

and

the percentage

basis.

Industrial Stocks twelve industrial stocks used

The

in

January,1897,

were:

American

Cotton

Oil

American

National

American

SpiritsMfg. Sugar

American

Tobacco

Standard Rope " Twine Tennessee Coal " Iron U. S. Leather pref.

Laclede

Lead

Pacific Mail

Chicago Gas General

Gas

Electric

Changes have been made as follows : In November, 1897, PeoplesGas was substituted for Chicago Gas. In September, 1898, U. S. Rubber common stituted subwas for General

Electric.

In

April, 1899, Continental Tobacco, Federal Steel, General tuted substiSteel " Wire Electric,American were for American Tobacco, SpiritsMfg., American Laclede

Gas

and Standard

Rope " Twine. In June, 1901, Amalgamated Copper, American Smelting " Refining,International Paper preferred, U. S. Steel common and U. S. Steel preferredwere substituted for American Cotton Oil, Federal Steel, Steel " General Electric,Pacific Mail and American

Wire. In

January, 1902,

Colorado Tobacco

Fuel " Iron and

American were

International

Car

"

Foundry

and

substituted for Continental

Paper preferred.

APPENDIX In

In

stituted April,1905, U. S. Rubber 1st preferredwas subfor U. S. Leather preferred. November, 1907, General Electric was substituted

for Tennessee

In

May,

" Iron.

Coal

Central

1912,

for Colorado

July 31,

1914,

Leather

because

the Stock

of the war,

Amalgamated Copper Car " Foundry American American Smelting American Sugar

March,

for U.

In

1915,

S. Rubber

ist

was

stituted sub-

Exchange closed

on

was:

Lead Peoples Gas U. S. Rubber com. U. S. Rubber ist pref. U. S. Steel com. U. S. Steel pref. National

Central Leather General Electric

In

common

Fuel " Iron.

when list, therefore,

The

In

285

General

Motors

was

substituted

preferred.

substituted for Amalgawas July,1915, Anaconda mated Copper. all September, 1916, a list of twenty industrials,

common,

was

substituted for

the old list of twelve.

National

Lead, Peoples Gas, General Motors Steel preferred were dropped and twelve were

American American American

added.

The

Beet Sugar Can

Car "

Foundry

American Locomotive American Smelting American Sugar American Tel. " Tel. Anaconda Copper Baldwin Locomotive

Central Leather

and U. S. new

panies com-

list became: General Electric Goodrich Republic Iron " Steel Studebaker Texas Co. U. S. Rubber U. S. Steel Utah

Copper

Westinghouse Western

Union

286

APPENDIX

rAll Quotationson At this time

(1916) Stock Exchange quotationswere

all in dollars instead Utah

had

caused

a

of $10 and

par

However, in order averages,

of percentages,

immediate

no

to

figuredbackward

make

the

December

that the present

twenty

a

of

after the

par

new

of $50

averages.

the industrial stocks

new

reopening 1914,

12,

in the

for continuity

of the

to

the fact that

so

Westinghouse

confusion

the records

on

Basis

Dollar

the war

were

Stock

so closing,

published record

of averages is as above had been quoted

the twenty stocks mentioned the dollar basis from that date.

Changes On

since made

March

for American On

Mack Corn

January Trucks

change Ex-

i,

1920,

Beet

as

Corn

follows

on

:

products was

substituted

Sugar. 1924,

22,

and

are

if

American

Sears-Roebuck

Tobacco, du Pont, were

substituted

Products, Central Leather, Goodrich

and

for

Texas

Co. On

Vas

February 6,

1924,

Standard

Oil of California

substituted for Utah.

and WoolMay 12, 1924, Studebaker non-par and substituted for old Studebaker worth $25 par were Republic Iron " Steel. After the change from twelve to twenty industrials, Co. reduced its par from in 1916, Texas $100 to $25. Locomotive American Then changed from $100 par to old share. shares for one new issuingtwo non-par, Studebaker changed from $100 par to non-par, issuing

On

APPENDIX

and

two

half shares of

a

arisingfrom

Texas

Co. and

so

was

Products retained

scheme

closingprices on

a

average

at

of

the

97.41

stocks

new

was

American

Car

American

Locomotive

Sears-Roebuck

American

Smelting

Standard

American

Sugar

Studebaker

American

Tel. "

American

Tobacco

the old

97.23,

all

as

lows: fol-

Trucks

Mack

Oil of California

U.

S. Rubber

U.

S. Steel

Woolworth

Baldwin

Westinghouse Western

Pont

were

Electric

Anaconda

du

on

July,1924,

General

Tel.

1924,

basis.

Can

Foundry

tion. quota-

new

quotations'that while the

American

"

ment. adjust-

new

January 22,

the industrial list for

made

plication com-

Locomotive

the actual

Tuesday averaged on

The

ican dropped. Amer-

were

on

the dollar

being figuredon This

of old.

one

Texas, American

changes,made

fitted into the

stocks, the

the

Corn

Locomotive These

for

new

changes brought about

Studebaker

and

287

Union

August 31, 1925, General Motors, International Harvester, Kennecott, Texas Co. and U. S. Realty for Anaconda, substituted Baldwin, du Pont, were On

Standard

Oil

of California

and

Studebaker

in the in-

288

APPENDIX

dustrial list. These

changes made

ference appreciabledif-

no

in the averages.

industrial list now

The

(August

American

Can

American

Car

American

Locomotive

Sears-Roebuck

American

Smelters

Texas

American

Sugar

U.

S. Realty

American

Tel.

U.

S. Rubber

American

Tobacco

TeL

"

U. S. Steel Western

General

Motors

Westinghouse

used

the

last year

"

Foundry

lists

are

stocks.

common

capitalreadjustments of and

new

quotation. To

the

Union

Woolworth

in both

stocks

the issue of two

averages

it is necessary

Foundry

and

and

Co.

Electric

Car

lows: fol-

Trucks

Mack

Foundry

"

General

Within

as

Kennecott

International Harvester

All

1925) is

31,

Tobacco,

American

shares

for each

maintain to as

Tobacco old

ican Amer-

resulted in

share, splitting

the

consistencyof the the price of Car " double in the case of Pennsylvania

Reading.

compiled from closingprices. In there is no sale of a particular stock, the last precase vious close is used. total sum of the closingquoThe tations for the twenty rails,with Pennsylvania and Reading doubled,is then divided by twenty. The total The

averages

are

APPENDIX

290

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APPENDIX

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INDEX "A.

B.

C.

Aetna

of Stock

Fire

Speculation,"28

Co., 105

Adamson

201 Law, Agriculture, Department

Alexandria,

Egypt,

of,

panic

47

1907,

140

Amalgamated

Copper,

35, 50,

89,

221

Anaconda

Copper, 223 Bridge chances, 145 Stock See Averages, Averages Babson, Roger W., 52, 197, theory, 53 Auction

Barrens, Baruch, Bear

237, 250,

His

251, 253

Bernard, M., 66 Markets, 45, 254

Boston

News

British

Company

British

National

Bureau,

35,

Debt,

222,

233

84

Law,

199,

2OO

Dow, Dow,

tops,

Reserve

7

H., 21, His of any market,

Charles

4; True first description, 23;

His

theory, 14;

His

panic

dates, 25, 269 Economist, London, 141 112 Elijah, Mendelssohn's, Bank England, of, 167 Act,

Farmers', pool, Street, 47

121

193

Jerome,

K.,

Jerome Jesurun, "waxes Jevons, William Keene, James

"Line,"

of

10

fat," 216

Stanley, I, 116 R., 94, 107, 147,

l82, 221 Lefevre, Edwin,

148

II,

accumulation

6,

32,

or

82, 172,

Lincoln, Abraham,

bution, distri-

250

217

Listing, 82 London 82 Exchange, McKinley Election, 82 minor Manipulation, importance, cannot

49;

50;

make Where

primary movement, possible, 50,

234

165 Marathon, 266 Margins, Marx, Karl, 163 "Matched Orders," 85, 229 Southern Michigan corner, J. Pierpont, 17 Morgan, Daily, 6 Movement, Major, 5, 40; "

Il8

dates,

43-44

191

48;

System,

Flood, Mississippi,33 Floor trader, 76 Fluctuation, Daily, 6 Ford, Henry, 165 Forecast, successful, 32, 252 Gamblers, 67 and Gambling morals, 265 George III, anecdote, 79 Gould, Jay, anecdote, 67 ; 268, 270 Greeks, 165 Hamburg panic 1907, 141 Edward Harriman, H., 18, 212 Harvard Chart, 122, 208, 238 Hill, James H., 18, 141, 212 Huxley, Prof. T., 194 Interstate Commerce Commission,

51,

32

Jones Averages,

Esch-Cummins

Incorporation, 83

Federal

192,

Bucketing, 77 Bull Market, 31, 32, 44, 256 Addison, 149 Cammack, Carthage, 163 Chile panic 1907, 141 China, banks, 167 Clearing House Certificates, 121 Consolidated Stock Exchange, 271 Coolidge, Calvin, 257 Coxey's Army, 214 Curb Market, 84 78, Customers, 259 Davis, John W., 257 Definition of the Market, 65 Dolliver, Senator, 8, 46 Double

Federal

and

Wall

Primary, "

see

Secondary, 5

major

National

Bank,

City

Nelson,

S.

28,

A.,

Non-Partisan

29

Stock

League,

Alexander

Noyes, Overend,

1

26,

panic,

41

161

12,

ure, Fail-

118 Panic

Years,

dates,

2;

113,

256

Theory,

S., 128

Sereno

Prediction, all

98,

1903,

knowledge

99;

Business

42;

138

bad,

a

Rea,

Association,"

Samuel, Cecil

Rockefeller,

J., John

Roosevelt,

D.,

Unlisted

102, Silver

ii3, Short

Sims,

94

Act,

all

Steel,

United

averages

194

Group,

8,

41,

States

themselves, barometer, 56

Exchange,

closing

232

4;

ficient Suf-

40;

of, 174

A

Journal,

255,

169

G.,

Allen,

Woodrow, War,

191

251

Louis, Xenophon, 165 165 Xerxes, Wormser,

contains

8,

223,

2O2

56

Bureau, William

28; 269

Barometer,"

the

H.

edge, knowl-

J., 168

87,

Labor,

White, World

The,

257,

James Sales, 85

Wells, Wilson,

Steel

explained,

in

64,

its

58

47,

Dr.

in

205

202

of

theories,

253,

Weather

70

232

Extent

Dow's

"Water

Oil

unique

Street

Watered

professional,

see

46, Wall

Wash

84

Herbert,

greatest,

Morrison,

Street,

Walsh,

Speculator,

Stock

105

272

79

Spencer,

56

136, 177,

trading,

Guy

44,

Loss,

Purchase

Specialists,

Standard

theory's

Railroad, of

Wall

94

198

House,

244;

225,

Barometer,

to

the

Walker,

103;

8l,

Selling,

no

52,

82

Stock,

252,

Admiral,

191

93

Vindication

Volume

1

214

Somerset

Stock

21

Earthquake,

Fire,

Sherman

231;

Steel,

applied

Virginian 160,

anecdote,

Francisco

232

223,

1920,

IQ

196

anecdote,

Russell,

lOi;

Jr., 41,

Theodore,

Rothschild,

value,

Unique,

of

securities,

States

17

Henry Rogers, H., 8, 63 Anecdote, 164 Rome,

San

Church,

Undigested

fessional, pro-

74

of, 36 Act

Transportation

its

113

69;

advantages,

methods

United

Rhodes,

Sage,

his

Trinity

247

238

intelligent,

an

Trading

and

165

on

available,

61, 62, 63; 163 War,

"Railway

based

;

Dow

see

Tipsters,

and

Trader,

correct, Punic

Tips

202

dates

40;

Dow's,

45

12

corner,

Thermopylae,

165 Piez, Director-General, Persians, Pratt,

Motor,

Swings, major, duration, 43-44

24

Railroad,

Pennsylvania

Stutz

pulation, mani-

right,

always 46

;

thanked,

never

than

bigger

Market,

2l8

150,

D.,

Gurney

mittee, Com-

Governing

Exchange 258

236

Collection,

News

Stock

222

131

215

87