LIBRARY -

THE UNIVERSITY
OF CALIFORNIA

SANTA BARBARA

PRESENTED BY

Dame Judith Anderson

THE
STOCK MARKET BAROMETER

1915 1916 1917 1913 1919 1920 1921 1922 1923 1924 1925 1926

1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914

1897 1898 1899 1900 1901 1902 1903 1904 190S 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1923 1926

(Copyriyht by Dow, Jones & Co., 1926)

THE DOW-JONES AVERAGES 1897-1925

THE

STOCK MARKET
BAROMETER

A Study oflts Forecast Value Based on

Charles H. Dow's Theory of the

Price Movement. With an

Analysis of the Market

and Its History

Since 1897

By
WILLIAM PETER HAMILTON

Editor of The Wall Street Journal

HARPER fcf BROTHERS PUBLISHERS
NEW YORK AND LONDON

THS STOCK MARKET BABOMETKB

B-A

Ninth Printing

My Old Friend and Colleague

HUGH BANCROFT

without whose suggestion and encouragement

this book would not have

been written

LIST OF CONTENTS

CHAPTER PAGE

I. CYCLES AND STOCK MARKET RECORDS 1

II. WALL STREET OF THE MOVIES.... 9

III. CHARLES H. Dow, AND His THEORY 21

IV. Dow's THEORY, APPLIED TO SPECULATION 30

V. MAJOR MARKET SWINGS 40

VI. A UNIQUE QUALITY OF FORECAST 49

VII. MANIPULATION AND PROFESSIONAL TRADING 60

VIII. MECHANICS OF THE MARKET 73

IX. "WATER" IN THE BAROMETER 87

X. "A LITTLE CLOUD OUT OF THE SEA, LIKE A MAN'S

HAND" 1906 101

XI. THE UNPUNCTURED CYCLE 115

XII. FORECASTING A BULL MARKET 1908-1909 128

XIII. NATURE AND USES OF SECONDARY SWINGS 142*

XIV. 1909, AND SOME DEFECTS OF HISTORY 154

XV. A "LINE" AND AN EXAMPLE 1914 172

XVI. AN EXCEPTION TO PROVE THE RULE 185

XVII. ITS GREATEST VINDICATION 1917 196

XVIII. WHAT REGULATION DID TO OUR RAILROADS 208

XIX. A STUDY IN MANIPULATION 1900-1 221

XX. SOME CONCLUSIONS 1910-14 237

XXI. RUNNING TRUE TO FORM 1922-1925 250

XXII. SOME THOUGHTS FOR SPECULATORS 262

APPENDIX : RECORD OF THE DOW-JONES AVERAGES 281

PREFACE

A preface is too often an apology, or at best an
explanation of what should be sufficiently clear. This
book requires no apology, and if it fails to explain
itself the fault is that of the author. But acknowl-
edgment must be made most gratefully to Clarence
W. Barron, president of Dow, Jones & Co., and to
Joseph Cashman, manager of that great financial
news service, for permission to use the indispensable
Dow-Jones stock-price averages, and to my old com-
rade in Wall Street newspaper work, Charles F.
Renken, compiler of those averages, for the charts
here used in illustration.

W. P. H.

THE
STOCK MARKET BAROMETER

Chapter I

CYCLES AND STOCK MARKET RECORDS

AJ English economist whose unaffected humanity
always made him remarkably readable, the late
William Stanley Jevons, propounded the theory of a
connection between commercial panics and spots on
the sun. He gave a series of dates from the beginning
of the seventeenth century, showing an apparent coinci-
dence between the two phenomena. It is entirely
human and likable that he belittled a rather ugly com-
mercial squeeze of two centuries ago because there
were not then a justifying number of spots on the sun.
Writing in the New York Times early in 1905, in com-
ment on the Jevons theory, I said that while Wall
Street in its heart believed in a cycle of panic and pros-
perity, it did not care if there were enough spots on the
sun to make a straight flush. Youth is temerarious
and irreverent. Perhaps it would have been more
polite to say that the accidental periodic association
proved nothing, like the exact coincidence of presi-
dential elections with leap years.

Cycles and the Poets

Many teachers of economics, and many business
men without pretension even to the more modest title

2 THE STOCK MARKET BAROMETER

of student, have a profound and reasonable faith in a
cycle in the affairs of men. It does not need an under-
standing of the Einstein theory of relativity to see
that the world cannot possibly progress in a straight
line in its moral development. The movement would
be at least more likely to resemble the journey of our
satellite around the sun, which, with all its planetary
attendants, is moving toward the constellation of
Vega. Certainly the poets believe in the cycle theory.
There is a wonderful passage in Byron's "Childe
Harold" which, to do it justice, should be read from
the preceding apostrophe to Metella's Tower. This
was Byron's cycle :

"Here is the moral of all human tales,
'Tis but the same rehearsal of the past ;
First freedom and then glory ; when that fails
Wealth, vice, corruption, barbarism at last,
And history, with all her volumes vast,
Hath but one page."

There seems to be a cycle of panics and of times of
prosperity. Anyone with a working knowledge of
modern history could recite our panic dates 1837,
1857, *866 (Overend-Gurney panic in London), 1873,
1884, 1893, 1907, if he might well hesitate to add the
deflation year of 1920. Panics, at least, show a vari-
able interval between them, from ten to fourteen years,
with the intervals apparently tending to grow longer.
In a subsequent chapter we shall analyze this cycle
theory, to test its possible usefulness.

CYCLES AND STOCK MARKET RECORDS 3

Periodicity

But the pragmatic basis for the theory, a working
hypothesis if nothing more, lies in human nature itself.
Prosperity will drive men to excess, and repentance for
the consequence of those excesses will produce a corre-
sponding depression. Following the dark hour of
absolute panic, labor will be thankful for what it can
get and will save slowly out of smaller wages, while
capital will be content with small profits and quick
returns. There will be a period of readjustment like
that which saw the reorganization of most of the
American railroads after the panic of 1893. Pres-
ently we wake up to find that our income is in excess
of our expenditure, that money is cheap, that the
spirit of adventure is in the air. We proceed from
dull or quiet business times to real activity. This
gradually develops into extended speculation, with
high money rates, inflated wages and other familiar
symptoms. After a period of years of good times the
strain of the chain is on its weakest link. There is a
collapse like that of 1907, a depression foreshadowed
in the stock market and in the price of commodities,
followed by extensive unemployment, often an actual
increase in savings-bank deposits, but a complete
absence of money available for adventure.

Need for a Barometer

Read over Byron's lines again and see if the parallel
is not suggestive. What would discussion of business

4 THE STOCK MARKET BAROMETER

be worth if we could not bring at least a little of the
poet's imagination into it? But unfortunately crises
are brought about by too much imagination. What
we need are soulless barometers, price indexes and
averages to tell us where we are going and what we
may expect. The best, because the most impartial,
the most remorseless of these barometers, is the
recorded average of prices in the stock exchange.
With varying constituents and, in earlier years, with a
smaller number of securities, but continuously these
have been kept by the Dow-Jones news service for
thirty years or more.

There is a method of reading them which has been
fruitful of results, although the reading has on occa-
sion displeased both the optimist and the pessimist.
A barometer predicts bad weather, without a present
cloud in the sky. It is useless to take an axe to it
merely because a flood of rain will destroy the crop of
cabbages in poor Mrs. Brown's backyard. It has been
my lot to discuss these averages in print for many
years past, on the tested theory of the late Charles H.
Dow, the founder of The Wall Street Journal. It
might not be becoming to say how constantly helpful
the analysis of the price movement proved. But one
who ventures on that discussion, who reads that bar-
ometer, learns to keep in mind the natural indignation
against himself for the destruction of Mrs. Brown's
cabbages.

Dow's Theory

Dow's theory is fundamentally simple. He showed
that there are, simultaneously, three movements in

CYCLES AND STOCK MARKET RECORDS 5

progress in the stock market. The major is the pri-
mary movement, like the bull market which set in with
the re-election of McKinley in 1900 and culminated in
September, 1902, checked but not stopped by the
famous stock market panic consequent on the Northern
Pacific corner in 1901; or the primary bear market
which developed about October, 1919, culminating
June- August, 1921.

It will be shown that this primary movement tends
to run over a period of at least a year and is generally
much longer. Coincident with it, or in the course of
it, is Dow's secondary movement, represented by sharp
rallies in a primary bear market and sharp reactions
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 separately from the railroads) may recover
much more sharply than the railroads, or the railroads
may lead, and it need hardly be said that the twenty
active railroad stocks and the twenty industrials, mov-
ing together, will not advance point for point with each
other even in the primary movement. In the long
advance which preceded the bear market beginning
October, 1919, the railroads worked lower and were
comparatively inactive and neglected, obviously be-
cause at that time they were, through government
ownership and guaranty, practically out of the specu-
lative field and not exercising a normal influence on
the speculative barometer. Under the resumption of
private ownership they will tend to regain much of
their old significance. t

6 THE STOCK MARKET BAROMETER

The Theory's Implications

Concurrently with the primary and secondary move-
ment of the market, and constant throughout, there
obviously was, as Dow pointed out, the underlying
fluctuation from day to day. It must here be said that
the average is deceptive for speculation in individual
stocks. What would have happened to a speculator
who believed that a secondary reaction was due in
May, 1901, as foreshadowed by the averages, if of all
the stocks to sell short on that belief he had chosen
Northern Pacific? Some traders did, and they were
lucky if they covered at sixty-five points loss.

Dow's theory in practice develops many implica-
tions. One of the best tested of them is that the two
averages corroborate each other, and that there is
never a primary movement, rarely a secondary move-
ment, where they do not agree. Scrutiny of the aver-
age figures will show that there are periods where the
fluctuations for a number of weeks are within a narrow
range; as, for instance, where the industrials do not
sell below seventy or above seventy-four, and the rail-
roads above seventy-seven or below seventy-three.
This is technically called "making a line," and experi-
ence shows that it indicates a period either of distribu-
tion or of accumulation. When the two averages rise
above the high point of the line, the indication is
strongly bullish. It may mean a secondary rally in a
bear market; it meant, in 1921, the inauguration of a
primary bull movement, extending into 1922.

If, however, the two averages break through the

CYCLES AND STOCK MARKET RECORDS 7

lower level, it is obvious that the market for stocks
has reached what meteorologists would call "satura-
tion point." Precipitation follows a secondary bear
movement in a bull market, or the inception of a pri-
mary downward movement like that which developed
in October, 1919. After the closing of the Stock Ex-
change, in 1914, the number of industrials chosen for
comparison was raised from twelve to twenty and it
seemed as if the averages would be upset, especially
as spectacular movements in stocks such as General
Electric made the fluctuations in the industrials far
more impressive than those in the railroads. But
students of the averages have carried the twenty chosen
stocks back and have found that the fluctuations of the
twenty in the previous years, almost from day to day,
coincided with the recorded fluctuations of the twelve
stocks originally chosen.

Dow-Jones Averages the Standard

The Dow- Jones average is still standard, although
it has been extensively imitated. There have been
various ways of reading it ; but nothing has stood the
test which has been applied to Dow's theory. The
weakness of every other method is that extraneous
matters are taken in, from their tempting relevance.
There have been unnecessary attempts to combine the
volume of sales and to read the average with refer-
ence to commodity index numbers. But it must be
obvious that the averages have already taken those
things into account, just as the barometer considers

8 THE STOCK MARKET BAROMETER

everything which affects the weather. The price move-
ment represents the aggregate knowledge of Wall
Street and, above all, its aggregate knowledge of com-
ing events.

Nobody in Wall Street knows everything. I have
known what used to be called the "Standard Oil
crowd," in the days of Henry H. Rogers, consistently
wrong on the stock market for years together. It is
one thing to have "inside information" and another
thing to know how stocks will act upon it. The market
represents everything everybody knows, hopes, be-
lieves, anticipates, with all that knowledge sifted down
to what Senator Dolliver once called, in quoting a Wall
Street Journal editorial in the United States Senate,
the bloodless verdict of the market place.

WALL STREET OF THE MOVIES

WE shall prove, by strict analysis, the fidelity of
the stock market barometer, tested over a
long period of years. With the aid of Dow's theory
of the price movement we shall examine the major
swings upwards or downwards, extending from less
than a year to three years or more; their secondary
interruption in reactions or rallies, as the case may be ;
and the relatively unimportant but always present daily
fluctuation. We shall see that all these movements
are based upon the sum of Wall Street's knowledge
of the business of the country; that they have no more
to do with morality than the precession of the equi-
noxes, and that manipulation cannot materially deflect
the barometer.

Movies and Melodrama

But, to judge from some of my correspondence, the
case must not even be argued, because it is alleged
that Wall Street does not come into court with clean
hands. It has seemed, in the past, at least discour-
aging to point out how the dispassionate, the almost
inhuman, movement of the market has nothing what-
ever to do with the occasional scandals which disfigure
the record of every market for anything anywhere.
But the proportion of people who only feel is, to those
who think, overwhelming. The former are in such a

io THE STOCK MARKET BAROMETER

majority that concession must be made to them, al-
though I still decline to apologize for the stock market.
I should as soon think of apologizing for the meridian
of Greenwich. To quote one of the best known of
Grover Cleveland's useful platitudes, it is a condition
and not a theory which confronts us.

In the popular imagination there is a fearful and
wonderful picture of Wall Street something we may
call the Wall Street of the movies. What the English
call the cinema is our modern substitute for the con-
ventional melodrama of our grandfathers. Its char-
acters are curiously the same. Its villains and vampires
are not like anything in real life; but they behave as
consistent villains or vampires ought to behave if they
are to satisfy critics who never saw a specimen of
either. Many years ago Jerome K. Jerome wrote a
chapter on stage law. He showed that on the English
stage the loss of a three-and-six-penny marriage certi-
ficate invalidated the marriage. In the event of death
the property of the testator went to the person who
could secure possession of the will. If the rich man
died without a will the property went to the nearest
villain. In those days lawyers looked like lawyers
on the stage. The detective looked like a gimlet-eyed
sleuth, and a financier looked so like a financier that
it positively seemed to hurt his face.

Financiers of Fiction

Our modern financier on the screen looks like that,
especially in the "close-ups." But he is no new creation.

WALL STREET OF THE MOVIES 1 1

I remember reading a magazine story, a score of years
ago, of a stock market coup by a great "manipulator,"
of the type of James R. Keene. The illustrations were
well drawn and even thrilling. In one of them Keene,
or his prototype, was depicted bending dramatically
over a Consolidated Stock Exchange ticker! It is
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 time, felt that he had been artis-
tically frustrated. But perhaps he had himself to
thank. Here is his own description of such a manip-
ulator. It is in a short story published in 1901, called
The Break in Turpentine:

"Now, manipulators of stocks are born, not made. The art
is most difficult, for stocks should be manipulated in such wise
that they will not look manipulated. Anybody can buy stocks
or can sell them. But not every one can sell stocks and at the
same time convey the impression that he is buying them, and
that prices therefore must inevitably go much higher. It re-
quires boldness and consummate judgment, knowledge of tech-
nical stock market conditions, infinite ingenuity and mental
agility, absolute familiarity with human nature, a careful study
of the curious psychological phenomena of gambling and long
experience with the Wall Street public and with the wonderful
imagination of the American people ; to say nothing of knowing
thoroughly the various brokers to be employed, their capabilities,
limitations and personal temperaments; also, their price."

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

12 THE STOCK MARKET BAROMETER

melodrama or the screen. It lays no stress on the
deeper knowledge of values and business conditions
necessary to assure the existence of the kind of market
which alone makes manipulation possible. Truth is
stranger than fiction, and perhaps harder to write,
although the remark is open to an obvious retort.

Silk Hats and Strained Faces

Not long ago there appeared a letter to a popular
newspaper, notorious for what may be called the anti-
Wall Street complex. It professed to give, in a series
of gasps, the impressions of a Western stranger on
visiting Wall Street. One of these "flashlights" was,
"silk hats and strained faces." Let me be exact. I
have seen a silk hat in Wall Street. It was when
Mayor Seth J-ow opened the new Stock Exchange in
1901. My stenographer, bless her honest heart, said
it was real stylish. But financiers of the movies tend
to wear silk hats, just as the heroes in melodrama,
even when reduced to penury and rags, wore patent-
leather shoes. A screen financier without a silk hat
would be like an egg without salt. We cannot other-
wise infer, as we are required, that he is a bad egg.

"A Long Way Back for Soup"

Only a few years ago there was a severely localized
scandal over a "corner" in a stock called Stutz Motor,
for which no true market had been established. No-
body was hurt except a few speculators who chose
to sell the thing short. They paid up without whin-

WALL STREET OF THE MOVIES 13

ing. But it formed an irresistible text for a popular
attack upon Wall Street. One of the New York news-
papers said that the incident was only in a piece with
"the Metropolitan Traction corruptionists, the New
Haven wreckers, the Rock Island wreckers, and" what
it called, with a free rendering of history, "the life
insurance corruptionists." This was in a newspaper
professing to sell news. It did not tell its readers that
the last of the Metropolitan Street Railway financing
happened twenty years before. Even the foolish and
indefensible capitalization of the surface lines of New
York, unloaded on what was then called the Inter-
borough Metropolitan Company, was fifteen years old.
The life insurance investigation, which, incidentally,
neither charged nor proved "corruption," went back
sixteen years. Even the last essay in misjudged New
Haven financing, a comparatively minor matter, oc-
curred fully eleven years earlier ; that of Rock Island,
nineteen years before; while that favorite charge
against Wall Street, the recapitalization of the Chicago
& Alton, was carried through in 1899 and not a soul
saw anything wrong with it until 1907. I suppose I
write myself down a hopeless reactionist when I say
that, with the fullest knowledge of the facts, I cannot
see anything reprehensible in it now.

Widows and Orphans

Even an incident so spectacular as the Northern
Pacific corner, with the purely stock market panic which
it produced, cannot be pleaded as an example of a kind

14 THE STOCK MARKET BAROMETER

of manipulation which would disable our barometer.
That particular panic occurred in the course of a pri-
mary bull market. It produced merely a severe secon-
dary reaction, for the upward movement was resumed
and did not culminate until sixteen months afterwards.
That incident of 1901, however, is still alive and kick-
ing, so far as the politicians who denounce Wall Street
are concerned. It is remarkable that all the stock
affected in these bygone incidents is alleged to have
been held by widows and orphans. I wish somebody
would marry that widow and adopt, or even spank,
the orphan. After depriving their trustees of the
commonest business sense they have no right to come
around in this indelicate way and remind us of our
crimes. There is a lucrative engagement waiting for
them elsewhere in the movies.

Dow's Theory True of any Stock Market

Let us be serious, and get back to our text. The
law that governs the movement of the stock market,
formulated here, would be equally true of the London
Stock Exchange, the Paris Bourse or even the Berlin
Boerse. But we may go further. The principles un-
derlying that law would be true if those Stock Ex-
changes and ours were wiped out of existence. They
would come into operation again, automatically and
inevitably, with the re-establishment of a free market
in securities in any great Capital. So far as I know,
there has not been a record corresponding to the Dow-
Jones averages kept by any of the London financial

WALL STREET OF THE MOVIES 15

publications. But the stock market there would have
the same quality of forecast which the New York
market has if similar data were available.

It would be possible to compile from the London
Stock Exchange list two or more representative
groups of stocks and show their primary, their secon-
dary and their daily movements over the period of
years covered by Wetenhall's list and the London
Stock Exchange official list. An average made up of
the prices of the British railroads might well confirm
our own. There is in London a longer and more
diversified list of industrial stocks to draw upon. The
averages of the South African mining stocks in the
Kaffir market, properly compiled from the first Trans-
vaal gold rush in 1889, would have an interest all their
own. They would show how gold mining tends to
flourish when other industries are stagnant or even
prostrated. The comparison of that average with the
movement of securities held for fixed income would be
highly instructive to the economist. It would demon-
strate in the most vivid way the relation of the pur-
chasing power of gold to bonds held for investment.
It would prove conclusively the axiom that the price
of securities held for fixed income is in inverse ratio to
the cost of living, as we shall see for ourselves in a
later chapter.

The Fact Without the Truth is False

It is difficult, and with many observers it has proved
impossible, to regard Wall Street comprehendingly

1 6 THE STOCK MARKET BAROMETER

from the inside. Just as it will be shown that the
market is bigger than the manipulator, bigger than
all the financiers put together, so it is true that the
stock market barometer is in a way bigger than the
stock market itself. A modern writer, G. K. Chester-
ton, has said that the fact without the truth is sterile,
that the fact without the truth is even false. It was
not until Charles H. Dow propounded his theory of
the price movement that any real attempt had been
made to elicit and set forth the truth contained in the
fact of the stock market. Can we make it possible
for the man whose business brings him into the midst
of that whirling machinery to understand the power
which moves it, and even something of the way that
power is generated? Apparently the only picture
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

Why does the swindling oil-stock promoter circular-
ize his victims from some reputable address in the
financial district, and use all sorts of inducements to
get his stock quoted in the financial columns of repu-
table metropolitan newspapers? Would he do that if
the public he addresses, the investor and the specu-
lator, the investor in embryo, really believed that
Wall Street was the sink of iniquity which the country
politician depicts? If that were truly the case the
shady promoter would seek other quarters. But he

WALL STREET OF THE MOVIES 17

uses the financial district because he knows that its
credit and integrity are the best in the world. Hypoc-
risy is the tribute which vice pays to virtue. He would
have no use for a Wall Street as rotten as himself.
Indeed, if the financial district were one tithe as cor-
rupt as the demagogues who abuse it there would be
no problem for them to propound. The money center
of the United States would fall to pieces of its own
rottenness. All this is true, and yet if the exact con-
trary were the case the theory of the stock-market
movement would still be valid.

Rhodes and Morgan

It will not be charged that the writer is like the
dyer's hand, subdued to what he works in, if his illus-
trations have been chosen mainly from the financial
district. There is a Wall Street engaged upon tasks so
serious, so exacting, that it has neither time nor inclina-
tion to be crooked. If it is true, as we have seen, that
nobody can know all the facts which at any one time
influence the stock-market movement, it is true, as any
of us can record from personal experience, that some
have far more knowledge than others. The men who
really know lift you out of this scuffle of petty criticism
and recrimination. When they are rich men their
wealth is incidental, the most obvious means to larger
ends, but not an end in itself.

When I was following my profession in South
Africa, a quarter of a century ago, I was thrown in
contact with Cecil John Rhodes. He had definite ideas

i8 THE STOCK MARKET BAROMETER

and large conceptions, far above the mere making of
money. Money was necessary to the carrying out of
his ideas, to the extension of white civilization from
the Cape to Cairo, with a railroad as the outward and
visible sign of something of even spiritual significance.
In the respect of intuitive intelligence I have met only
one man like him the late J. Pierpont Morgan. It
was impossible to follow the rapidity of their mental
processes. There was something phenomenal about it,
like the performances of mathematically gifted chil-
dren who can give you the square root of a number in
thousands with a few moments of mental calculation.
Other well-known men speaking perhaps from the
point of view of a reporter seemed to have mental
processes much like our own. Most of the great cap-
tains of industry I have met, like James J. Hill and
Edward H. Harriman, had a quality essential to a
first-rate thinker. They could eliminate the irrelevant.
They could grasp the fundamental fact in a page of
verbiage. But Rhodes and Morgan could do more.
They could reason to an often startling but sound con-
clusion before you could state the premises.

Not Indescribable

And these men were rich, almost fortuitously. They
had great tasks to accomplish, and it was necessary
that they should have the financial means which made
achievement possible. In the past few years we have
heard a great deal about "ideals," and found that most
of them were half-digested opinions. But there is a

WALL STREET OF THE MOVIES 19

Wall Street with an ideal. There has usually been,
and I hope there always will be, the right man to take
the right objective view at the right moment. Not
long ago I heard a lecturer setting forth what he called
the "indescribable" beauties of the Grand Canyon of
the Colorado. In the space of an hour and a quarter
he proved conclusively that those beauties were inde-
scribable, at least so far as he was concerned. But
Milton could have described them, or the Psalmist.
Perhaps any reasonably intelligent man could give you
an idea of that natural wonder if he set forth simply
the spiritual truth in the physical fact before him.

The Unchangeable

I feel I have said before, perhaps in editorials you
read to-day, and forget to-morrow, what I am saying
now. The problems of humanity do not change, be-
cause human nature is what it has been as far back
as human record tells. "Cycles" are as old as organ-
ized humanity. The changes we see are superficial,
especially where sincere and intelligent men so legislate
that they may the better live together in peace and
good will. The human heart is essential to all prog-
ress. Reform starts there, and not in the halls of
legislation.

The Bells of Trinity

Facing the western end of Wall Street, casting its
shadow from the setting sun upon the most criticized
and least understood section of a great nation, stands
the spire of Trinity. We have often heard its bells

20 THE STOCK MARKET BAROMETER

ringing the old familiar Christmas hymns. The shep-
herds will be watching their flocks again, all seated
on the ground. It may well be that, hearing those
bells, the glory of the Lord shall in some manner shine
round about us. There is little that laws can do to
make men happier or richer or more contented. There
is no form of government to-day, without its parallel,
and warning, in the past. There is none in the past
of which it could not be said that only righteousness
exalteth a nation. Wall Street knows as well as the
most disinterested of its critics that goodness and jus-
tice and sacrifice and love are the foundation of all
good government, because in that spirit alone a people
truly governs itself.

We have said that the laws we are studying arc
fundamental, axiomatic, self-evident. And in this
higher truth surely there is something permanent which
would remain if the letter of the Constitution of the
United States had become an interesting study for the
archeologist, and the surviving writings of our day
were classical in a sense their authors never dreamed.
Such a foundation is permanent because truth has in it
the element of the divine.

Chapter III

CHARLES H. DOW, AND HIS THEORY

TO judge from a large number of letters received
from readers of past discussions on Dow's
theory of the averages, and on panic and prosperity
cycles generally, that theory is assumed to be some-
thing in the nature of a sure way to make money in
Wall Street. It may be said at once that it bears no
resemblance to any "martingale" or system of beat-
ing the bank. Some of the questions show more intel-
ligence and understanding than this, and one of them
at least deserves an extended reply.

A Newspaper Man, and More

"Who was Dow, and where can I read his theory?"
Charles H. Dow was the founder of the Dow-Jones
financial news service in New York, and founder and
first editor of The Wall Street Journal. He died in
December, 1902, in his fifty-second year. He was an
experienced newspaper reporter, with an early train-
ing under Samuel Bowles, the great editor of the
Springfield Republican. Dow was a New Englander,
intelligent, self-repressed, ultra-conservative; and he
knew his business. He was almost judicially cold in
the consideration of any subject, whatever the fervor
of discussion. It would be less than just to say that
* never saw him angry ; I never saw him even excited.

22 THE STOCK MARKET BAROMETER

His perfect integrity and good sense commanded the
confidence of every man in Wall Street, at a time when
there were few efficient newspaper men covering the
financial section, and of these still fewer with any deep
knowledge of finance.

Dow also had the advantage of some years experi-
ence on the floor of the Stock Exchange. It came about
in a rather curious way. The late Robert Goodbody,
an Irishman, a Quaker and an honor to Wall Street,
came over from Dublin to America. As the New
York Stock Exchange requires that every member shall
be an American citizen, Charles H. Dow became his
partner. During the time necessary for Robert Good-
body to naturalize, Dow held a seat in the Stock Ex-
change and executed orders on the floor. When Good-
body became an American citizen Dow withdrew from
the Exchange and returned to his more congenial news-
paper work.

Dow's Caution, and His Theory

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

CHARLES H. DOW, AND HIS THEORY 23

"wallop" out of it. In the language of the prize ring,
he pulled his punches.

He was almost too cautious to come out with a flat,
dogmatic statement of his theory, however sound it
was and however close and clear his reasoning might
be. He wrote, mostly in 1901 and the first half of
1902, a number of editorials dealing with methods of
stock speculation. His theory must be disinterred
from those editorials, where it is illustrative and inci-
dental and never the main subject of discussion. It is
curious also that in one of his earliest statements of
the price movement he makes an indefensible claim.
Under the caption "Swings Within Swings," in the
Review and Outlook of The Wall Street Journal of
January 4, 1902, he says:

"Nothing is more certain than that the market has three well
defined movements which fit into each other. The first is the
daily variation due to local causes and the balance of buying or
selling at that particular time. The secondary movement covers
a period ranging from ten days to sixty days, averaging prob-
ably between thirty and forty days. The third swing is the
great move covering from four to six years."

Where Dow Went Wrong

Remember that Dow wrote this twenty years ago,
and that he had not the records for analysis of the
stock market movement which are now available. The
extent of the primary movement, as given in this quota-
tion, is proved to be far too long by subsequent experi-
ence; and a careful examination has shown me that
the major swing before Dow wrote was never "from

24 THE STOCK MARKET BAROMETER

four to six years," rarely three years and oftener less
than two.

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

Panic Dates of Jevons

In the opening chapter we spoke of historic panics,
of Professor Stanley Jevons, and of his theory con-
necting such crises with the recurrence of spots on the
sun and their assumed influence upon the weather and
crops. I said that the reasoning was about as good
as associating presidential elections with leap years.
But here are the dates of commercial crises in Eng-
land as recorded by Jevons, and it is fair to say that
they are 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 says in an editorial quoting these dates,
published in The Wall Street Journal on July 9, 1902 :

CHARLES H. DOW, AND HIS THEORY; 25

"This makes a very 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 account of the successive crises in this country
(he had personal experience of three of them 1873,
1884 and 1893) was so good and interesting that it
is well worth quoting here. So far as Jevons's dates
are concerned, it is curious to note that he omitted
one serious crisis near the beginning of his list. That
occurred in 1715, and was precipitated by the Scottish
invasion of England in that year to restore the Stuarts
to the English throne. It is rather human of Jevons
to omit it, if, as I suspect, there were not enough spots
on the sun in that year to fit the parallel.

Dow on Our Own Crises

Here is Dow's account of our own crises :
"The first crisis in the United States during the nineteenth
century came in 1814, and was precipitated by the capture of
Washington by the British on the 24th of August in that year.
The Philadelphia and New York banks suspended payments,
and for a time the crisis was acute. The difficulties leading
up to this period were the great falling off in foreign trade
caused by the embargo and non-intercourse acts of 1808, the
excess of public expenditures over public receipts, and the crea-
tion of a large number of state banks taking the place of the
old United States Bank. Many of these state banks lacked
capital and issued currency without sufficient security.

1819, 1825, and 1837

"There was a near approach to a crisis in 1819 as the result
of a tremendous contraction of bank circulation. The previous

26 THE STOCK MARKET BAROMETER

increase of bank issues had prompted speculation, the contrac-
tion caused a serious fall in the prices of commodities and real
estate. This, however, was purely a money panic as far as its
causes were concerned.

"The European crisis in 1825 caused a diminished demand
for American products and led to lower prices and some money
stringency in 1826. The situation, however, did not become
very serious and was more in the nature of an interruption to
progress than a reversal of conditions.

"The year 1837 brought a great commercial panic, for which
there was abundant cause. There had been rapid industrial
and commercial growth, with a multitude of enterprises estab-
lished ahead of the time. Crops were deficient, and breadstuffs
were imported. The refusal of the government to extend the
charter of the United States Bank had caused a radical change
in the banking business of the country, while the withdrawal
of public deposits and their lodgment with state banks had
given the foundation for abnormal speculation.

1847, 1857, and 1866

"The panic in Europe in 1847 exerted but little influence in
this country, although there was a serious loss in specie, and the
Mexican war had some effect in checking enterprises. These
effects, however, were neutralized somewhat by large exports of
breadstuffs and later by the discovery of gold in 1848-9.

"There was a panic of the first magnitude in 1857, following
the failure of the Ohio Life Insurance and Trust Company in
August. This panic came unexpectedly, although prices had
been falling for some months. There had been very large
railroad building, and the proportion of specie held by banks
was very small in proportion to their loans and deposits. One
of the features of this period was the great number of failures.
The banks generally suspended payments in October.

"The London panic in 1866, precipitated by 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. DOW, AND HIS THEORY 27

in Michigan Southern and rampant speculation generally, from
which the relapse was rather more than normal.

1873, 1884, and 1893

"The panic of September, 1873, was a commercial as well
as a Stock Exchange panic. It was the outcome of an enormous
conversion of floating into fixed capital. Business had been
expanded on an enormous scale, and the supply of money became
insufficient for the demands made upon it. Credit collapsed,
and the depression was extremely serious.

"The year 1884 brought a Stock Exchange smash but not a
commercial crisis. The failure of the Marine Bank, Metro-
politan Bank and Grant & Ward in May was accompanied
by a large fall in prices and a general check which was felt
throughout the year. The Trunk Line war, which had lasted
for several years, was one of the factors in this period.

"The panic of 1893 was the outcome of a number of causes
uncertainty in regard to the currency situation, the withdrawal
of foreign investments and the fear of radical tariff legisla-
tion. The anxiety in regard to the maintenance of the gold
standard was undoubtedly the chief factor, as it bore upon many
others."

A Weak Prediction

With a caution in prediction which is not merely
New England but almost Scottish, Dow, in a typical
final paragraph, goes on to say :

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

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

28 THE STOCK MARKET BAROMETER

grazed a panic by a bare five minutes. But the pre-
diction was made during a primary upward swing which
culminated in September of the year 1902, three
months before Dow died.

Events soon disproved Dow's five-year primary
swings, arrived at by splitting the assumed ten-year
cycle in half. There was a primary bear market from
September, 1902, lasting nearly a year. A primary
bull market originated in September, 1903, becoming
definitely marked by June, 1904, and culminating in
January, 1907 a period of three years and four
months; while the primary bear market which fol-
lowed it and covered the period of the crisis of 1907
lasted until the following December a period of
eleven months.

Nelson's Book on Speculation

All that Dow ever printed is in The Wall Street
Journal, and only by search through the precious files
of Wall Street's Bible can his theory of the stock
market price movement be reconstructed. But at the
end of 1902 the late S. A. Nelson wrote and published
an unpretentious book called The A B C of Stock
Speculation. It is long out of print, but may occa-
sionally be picked up from the second-hand booksellers.
He tried to persuade Dow to write the book, and,
failing that, he incorporated in it all that he could find
of what Dow had said on stock speculation in The
Wall Street Journal. Of the thirty-five chapters in the
book, fifteen (Chapters V to XIX inclusive) are edi-
torials, some slightly abridged, from The Wall Street

CHARLES H. DOW, AND HIS THEORY 29

Journal, covering such subjects as 'Scientific Specula-
tion," "Methods of Reading the Market," "Methods
of Trading" and market swings generally all of them
interesting but not suitable for entire reproduction
here, although they will be sufficiently quoted in sub-
sequent chapters.

Nelson's is a conscientious and sensible little book.
He was a conscientious and sensible little man one
we loved and laughed at, for young reporters could
not take him as seriously as he took himself. His
autographed copy lies before me as I write, and I can
see his pathetic figure and earnest, strained face he
was dying of tuberculosis as I read his rather con-
ventional discussions on the morality of speculation.
He died not long after, far away from his beloved
Wall Street, but it was he who evolved the name of
"Dow's Theory." It was an honorable ascription, to
which Dow is fully entitled; for if many people had
recognized meaning in traceable movements in the
stock market the great and useful barometer of
trade it was Dow who first formulated those ideas
in a practical way.

Chapter IV

DOW'S THEORY, APPLIED TO SPECULATION

WE have seen in past discussions of Dow's theory
of the stock-market price movement that the
essence of it could be summed up in three sentences. In
an editorial published December 19, 1900, he says, in
The Wall Street Journal:

"The market is always to be considered as having three move-
ments, all going on at the same time. The first is the narrow
movement from day to day. The second is the short swing,
running from two weeks to a month or more ; the third is the
main movement, covering at least four years in its duration."

It has already been shown that his third and main
movement may complete itself in much less than Dow's
assumed four years, and also how an attempt to divide
the ten-year period of the panic cycle theory into a
bear and bull market of approximately five years each
led to an unconscious exaggeration. That, however,
is immaterial. Dow had successfully formulated a
theory of the market movements of the highest value,
and had synchronized those movements so that those
who came after him could construct a business
barometer.

The Truth Beneath Speculation

This is the essence of Dow's theory, and it need
hardly be said that he did not see, or live to see, all

DOW'S THEORY APPLIED 31

that it implied. He never wrote a single editorial on
the theory alone, but returns to it to illustrate his dis-
cussions on stock-market speculation, and the under-
lying facts and truths responsible not only for specu-
lation (using the word in its best and most useful
sense) but for the market itself.

It is not surprising that The Wall Street Journal
received many inquiries as to the assumptions it made
on the basis of Dow's major premise. On January 4,
1902, Dow replies to a pertinent question, and any
thoughtful reader of these pages should be able to
answer it himself. The correspondent asks him, "For
some time you have been writing rather bullish on the
immediate market, yet a little bearish in a larger
sense. How do you make this consistent?" Dow's
reply was, of course, that he was bullish after the
secondary swing but that he did not think, in view of
stock values from earnings of record, that a bull mar-
ket which had then been operative sixteen months
could run much further. It was a curious contraction,
incidentally, of his own minimum four-year estimate,
but that major upward swing as a matter of fact ran
until the following September. It may be said that
such a swing always outruns values. In its final stage
it is discounting possibilities only.

A Useful Definition

In the same editorial Dow goes on to give a useful
definition from which legitimate inferences may drawn.
He says: _, ...

32 THE STOCK MARKET BAROMETER

"It is a bull period as long as the average of one high point
exceeds that of previous high points. It is a bear period when
the low point becomes lower than the previous low points. It is
often difficult to judge whether the end of an advance has come
because the movement of prices is that which would occur if the
main tendency had changed. Yet, it may only be an unusually
pronounced secondary movement."

This passage contains, by implication, both the idea
of "double tops" and "double bottoms" (which I
frankly confess I have not found essential or greatly
useful) and the idea of a "line," as shown in the nar-
row fluctuation of the averages over a recognized
period, necessarily one either of accumulation or dis-
tribution. This has been found to be of the greatest
service in showing the further persistence of the main
movement, or the possible termination of the secon-
dary movement, so apt to be mistaken for the initiation
of a new major trend. I shall, in a later chapter,
analyze such a "line," made in the stock market in
1914.

Successful Forecast

In subsequent discussions there will be no difficulty
in showing, from the various studies in the price move-
ment since 1902, standing for record in the columns
of The Wall Street Journal, that the method for a
forecast of the main market movement and for a cor-
rect discrimination between that and the secondary
movement had been provided in Dow's theory, and
that it has been used with surprising accuracy. A
prophet, especially in Wall Street, takes his life in
his hands. If his predictions are always of the ros

DOW'S THEORY APPLIED 33

whatever the facts of the situation may be, he will
at worst be merely called a fool for his pains. The
charge against him will be far more serious if he sees
that a boom nas overrun itself, and says so. If he is
bearish and right he will be accused of unworthy
motives. He will even be held contributory to the
decline which he foresaw, although his motives may
have been of the highest and he may have not a penny
of interest in the market either way.

"Recalling" a Prophet

Is the American public so ungrateful to its Micaiahs
and Cassandras as this? Yes, indeed, and more so.
It does not like unpleasant truths. In 1912, when
Colonel C. McD. Townsend of the United States
Engineers, an army man with a brilliant record then
and since, was president of the Mississippi River Com-
mission, he predicted, from the height of the water
in the upper rivers, one of the greatest Mississippi
floods. He warned the city of New Orleans that the
flood might be expected in a month's time, recommend-
ing the most vigorous and immediate steps to lessen
the calamity. Was New Orleans grateful? Its citi-
zens held an indignation meeting to demand from
President Taft the recall of this "calamity howler"
and "dangerous alarmist." Mr. Taft characteris-
tically kept his head, and Colonel Townsend was not
removed. A good deal of property in the Mississippi
Valley was "removed," and it is needless to record that
New Orleans did not escape. The railroads and great

34 THE STOCK MARKET BAROMETER

industrial concerns, where they were likely to be affected,
took the warning seriously, with advantage to them-
selves. The mayor of New Orleans subsequently
rescinded the resolution, with an apology. Anyone
who knows one of the ablest and least advertised en-
gineers in the United States Army will readily under-
stand that Townsend regarded the mayor and the
previous mass meeting with equal indifference.

Synchronizing the Price Movement

It has been said before that Dow's theory is in no
sense to be regarded as a gambler's system for beating
the game. Any trader would disregard it at his peril,
but Dow himself never considered it in that light, as
I can testify from many discussions with him. I was
writing the stock market paragraphs of the Dow-Jones
news service and The Wall Street Journal in those
days, and it was, of course, essential that I should
thoroughly understand so scientific a method of syn-
chronizing the market movement. Many men in Wall
Street knew Dow and set their experience at his service.
His mind was cautious to a fault, but logical and
intellectually honest. I did not always agree with
him and he was oftener right than I. When he was
wrong it was clearly from lack of accurate data such
as is now available.

Necessary Knowledge

It would perhaps be well to point out here that a
knowledge of the major movement of the market,

DOW'S THEORY APPLIED 3*

whether up or down, is necessary for the successful
flotation of any largely capitalized enterprise. In a
future discussion it will be convenient and highly inter-
esting to illustrate, from James R. Keene's own admis-
sions, how he distributed Amalgamated Copper to an
oversanguine public at a time when the Boston News
Bureau, to its everlasting honor, was warning New
England investors to have nothing to do with that
property at anything like the prices asked, or allow
themselves to be deceived by the quarterly dividend of
\Y-2. per cent and a half per cent extra. That rate
was retained at a time when The Wall Street Journal
was openly calling the company a "blind pool," and
showing, as the Boston News Bureau had shown, that
neither the conditions of the copper trade nor the
capitalization itself justified the flotation price. But
Keene could never have distributed the stock except
during the known major swing of a great bull market.
He had exactly the same condition to help him in the
much more formidable, and creditable, task of dis-
tributing the enormous capitalization of the United
States Steel Corporation. That stock could never have
been sold, and its sale would never have been at-
tempted, in the subsequent bear market of 1903.

An Instructive Editorial

It would be unfair to Dow if the reader were not
given the opportunity of extracting for himself some
light on Dow's own application of his theory, or at
any rate some idea of his method in the series of

36 THE STOCK MARKET BAROMETER

editorials which, as I have said before, dealt primarily
with stock speculation as such and only incidentally
with rules for reading the market. Here is an edito-
rial, almost in full, published on July 20, 1901, only
ten weeks after the panic which resulted from the
Northern Pacific corner. At the time he wrote he did
not see clearly that it was not a culmination of a major
swing but a peculiarly violent secondary reaction in a
primary bull market. He speaks first of individual
stocks :

"There is what is called the book method. Prices are set
down, giving each change of one point as it occurs, forming
thereby lines having a general horizontal direction but running
into diagonals as the market moves up and down. There come
times when a stock with a good degree of activity will stay
within a narrow range of prices, say two points, until there
has formed quite a long horizontal line of these figures. The
formation of such a line sometimes suggests that stock has been
accumulated or distributed, and this leads other people to buy
or sell at the same time. Records of this kind kept for the
last fifteen years seem to support the theory that the manipula-
tion necessary to acquire stock is oftentimes detected in this way.

"Another method is what is called the theory of double tops.
Records of trading show that in many cases when a stock reaches
top it will have a moderate decline and then go back again to
near the highest figures. If after such a move, the price again
recedes, it is liable to decline some distance.

"Those, however, who attempt to trade on this theory alone
find a good many exceptions and a good many times when
signals are not given.

Trading on Averages

"There are those who trade on the theory of averages. It is
true that in a considerable period of time the market has about

DOW'S THEORY APPLIED 37

as many days of advance as it has of decline. If there come a
series of days of advance, there will almost surely come the
balancing days of decline.

"The trouble with this system is that the small swings are
always part of the larger swings, and while the tendency of
events equally liable to happen is always toward equality, it is
also true that every combination possible is liable to occur, and
there frequently come long swings, or, in the case of stock
trading, an extraordinary number of days of advance or decline
which fit properly into the theory when regarded on a long
scale, but which are calculated to upset any operations based on
the expectation of a series of short swings.

"A much more practicable theory is that founded on the law
of action and reaction. It seems to be a fact that a primary
movement in the market will generally have a secondary move-
ment in the opposite direction of at least three-eighths of the
primary movement. If a stock advances ten points, it is very
likely to have a relapse of four points or more. The law
seems to hold good no matter how far the advance goes. A rise
of twenty points will not infrequently bring a decline of eight
points or more.

"It is impossible to tell in advance the length of any primary
movement, but the further it goes, the greater the reaction
when it comes, hence the more certainty of being able to trade
successfully on that reaction.

"A method employed by some operators of large experience is
that of responses. The theory involved is this: The market is
always under more or less manipulation. A large operator who
is seeking to advance the market does not buy everything on the
list, but puts up two or three leading stocks either by legitimate
buying or by manipulation. He then watches the effect on
the other stocks. If sentiment is bullish, and people are dis-
posed to take hold, those who see this rise in two or three stocks
immediately begin to buy other stocks and the market rises to
a higher level. This is the public response, and is an indication
that the leading stocks will be given another lift and that the
general market will follow.

38 THE STOCK MARKET BAROMETER

"If, however, leading stocks are advanced and others do not
follow, it is evidence that the public is not disposed to buy. As
soon as this is clear the attempt to advance prices is generally
discontinued. This method is employed more particularly by
those who watch the tape. But it can be read at the close of
the day in our record of transactions by seeing what stocks were
put up within specified hours and whether the general market
followed or not. The best way of reading the market is to
read from the standpoint of values. The market is not like
a balloon plunging hither and thither in the wind. As a whole,
it represents a serious, well-considered effort on the part of far-
sighted and well-informed men to adjust prices to such values
as exist or which are expected to exist in the not too remote
future. The thought with great operators is not whether a
price can be advanced, but whether the value of property which
they propose to buy will lead investors and speculators six
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 dis-
cover 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 possible to read movements in the market very clearly in
this way. To know values is to comprehend the meaning of
movements in the market."

There are assumptions here to which modifications
might be offered, but there is no need. It would be
impossible to show, except by the research of records
covering at 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 equalize themselves if a coin is
spun a sufficient number of times.

But what may be commended is Dow's clarity and

DOW'S THEORY APPLIED 39

sterling good sense. What he had to say was worth
saying and he stopped when he had said it a rare
virtue in editorial writing. His feeling for the essen-
tial fact and for the underlying truth, without which
the fact is bare and impertinent, will be readily re-
marked. He dealt with speculation as a fact, and could
still show forth its truth without profitless moralizing,
or confusing it with gambling. It will be well to imi-
tate his point of view in further discussion, both on
his theory and on the immense and useful significance
of the stock market generally.

MAJOR MARKET SWINGS

IT may be said, in continuing the discussion of what
Charles H. Dow actually published in the columns
of The Wall Street Journal, on his now well-known
theory of the stock price movement as shown by the
averages, and it must be emphasized, that he was con-
sciously devising a scientific barometer for practical
use. Remember the difference between the thermom-
eter and a barometer. The thermometer records actual
temperature at the moment, just as the stock ticker
records actual prices. But it is essentially the busi-
ness of a barometer to predict. In that lies its great
value, and in that lies the value of Dow's Theory.
The stock market is the barometer of the country's,
and even of the world's, business, and the theory shows
how to read it.

The Averages Sufficient In Themselves

It stands alone in this respect, for a sufficient reason.
Wall Street has been called "the muddy source of the
nation's prosperity," and we need not concern our-
selves with question-begging adjectives. The sum and
tendency of the transactions in the Stock Exchange
represent the sum of all Wall Street's knowledge of the
past, immediate and remote, applied to the discount-
ing of the future. There is no need to add to the
averages, as some statisticians do, elaborate compila-

MAJOR MARKET SWINGS 41

tions of commodity price index numbers, bank clear-
ings, fluctuations in exchange, volume of domestic and
foreign trade or anything else. Wall Street considers
all these things. It properly regards them as experi-
ence of the past, if only of the immediate past, to
be used for estimating the future. They are merely
creating causes of the weather predicted.

It is a common superstition, exemplified in the Pujo
Committee's inquiry into some supposed supercontrol
of banking and finance, that "powerful interests" in
Wall Street exist which have a sort of monopoly of
knowledge and use it to their own nefarious ends.
The stock market is bigger than all of them, and the
financial interests of Wall Street are seldom combined
except momentarily to stop a panic, as in the crisis of
1907. Taken separately, or even in temporary alli-
ance, these interests are often wrong in their estimate
of the stock market. In the days of H. H. Rogers and
the supposedly all-powerful activities of what was
called the Standard Oil group, I have known that
group wrong on stocks for months and even years
together. There was no shrewder judge of business
conditions as affecting great enterprises than Henry
H. Rogers, but I have heard him argue seriously that
it was not he that was wrong but the stock market
and the headstrong public.

Bigger Than any Manipulation

In the price movements, as Dow correctly saw, the
sum of every scrap of knowledge available to Wall

42 THE STOCK MARKET BAROMETER

Street is reflected as far ahead as the clearest vision
in Wall Street can see. The market is not saying what
the condition of business is to-day. It is saying what
that condition will be months ahead. Even with ma-
nipulation, embracing not one but several leading
stocks, the market is saying the same thing, and is
bigger than the manipulation. The manipulator only
foresees values which he expects and hopes, sometimes
wrongly, the investing public will appreciate later.
Manipulation for the advance is impossible in a pri-
mary bear market. Any great instances of designed
manipulation and they are few in number occurred
in a primary bull market, necessarily so because the
market sees more than the manipulator. A personal
experience of not only Wall Street but other great
markets has taught that manipulation in a falling mar-
ket is practically non-existent. The bear trader carries
his own letter of marque, and fights for his own hand.
A major bear swing has always been amply justified
by future events, or for exception, as in 1917, by terri-
fying future possibilities.

Writing in a Bull Market

Starting feebly near the end of June, 1900, with a
pitifully small volume of transactions, four months
before the re-election of McKinley, a bull market
developed which covered a period of more than twenty-
six months. This was interrupted by the May panic
of 1901, arising out of the Northern Pacific corner,
proving to be only a secondary downward swing of a

MAJOR MARKET SWINGS 43

typical, if violent, kind. It was during the course of
this bull market that Dow wrote the editorials in The
Wall Street Journal to which reference has here been
freely made because they contain the substance of his
theory. He had designed a barometer for practical
use, and it is characteristic of the man that he pro-
ceeded to apply it, to find out if it had the vital quality
of dependable forecast. It is a pity that he could not
have lived to test it in the twelve months' bear market
which followed. All subsequent market swings, up or
down, have proved the value of his method.

Throughout that bull market his forecasts were
remarkably accurate, if necessarily general and not
applied to particular stocks or small groups. He was
correct in the essential matter of the adjustment of
prices to values. His concluding editorials were pub-
lished in July, 1902, not long before his death. In
those he foresaw that prices were outrunning values,
and that within a few months the market would begin
to predict a contraction in railroad earnings, at least
a slower development in the great industrial groups,
and contraction of trade elsewhere.

Primary Movements

It will be well to give here the major swings from
the time Dow wrote to the end of the bear market
which culminated in 1921. They are as follows:

1. Up. June, 1900, to Sept., 1902.

2. Down. Sept., 1902, to Sept., 1903.

3. Up. Sept., 1903, to Jan., 1907.

4. Down. Jan., 1907, to Dec., 1907.

44 THE STOCK MARKET BAROMETER

5. Up. Dec., 1907, to Aug., 1909.

6. Down. Aug., 1909, to July, 1910.

7. Up. July, 1910, to Oct., 1912.

8. Down. Oct., 1912, to Dec., 1914.

9. Up. Dec., 1914, to Oct., 1916.

10. Down. Oct., 1916, to Dec., 1917.

11. Up. Dec., 1917, to Oct.-Nov., 1919.

12. Down. Nov., 1919, to June-Aug., 1921.

13. Up. Aug., 1921, to Mar., 1923.

14. Down. Mar., 1923, to Oct., 1923.

15. Up. Oct., I923 8 to

If the late J. Pierpont Morgan said that he was "a
bull on the United States," this exhibit confirms his
judgment. In that period of twenty-three years the bull
markets lasted rather less than twice as long as the bear
markets. The average duration of seven major bull
swings is twenty-five months; while the average dura-
tion of seven major bear swings is fifteen months.

It will be noted from the table that the longest
major swing upward was that from September 22,
1903, to January 5, 1907. The actual top of the
averages was January 22, 1906, with a subsequent
irregular decline of some months and a like irregular
recovery, all within the year 1906, to a figure close
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
we have any record. This exceptional year, of which the
San Francisco earthquake was the feature, will be fully
discussed in a subsequent chapter. The other five bull
markets show periods of from something over nineteen
months to a few days less than twenty-seven months.

MAJOR MARKET SWINGS 45

Startling Predictions

The longest of the six bear markets here illustrated
extended to nearly twenty-seven months, including the
outbreak of the Great War and the hundred days' clos-
ing of the Stock Exchange, culminating immediately
before Christmas, 1914. That was a black Christmas,
as some of us may happen to remember; but it was
followed, in 1915, by the tremendous boom in the
production of material for the combatants in a war
which America had not then entered a boom which
the stock market predicted with the greatest accuracy
at a time when the business of the country was hardly
beginning to grasp its significance.

Two of these six bear markets did not last quite a
year, one of them less than a month more, and one
of them less than fifteen months. There seems suffi-
cient material here to say that a bear market is nor-
mally appreciably shorter than a bull market; perhaps
as secondary downward swings in a primary rising
average are short and sharp, with a halting recovery
consuming a longer time than the decline.

The Market Is Always Right

It will be shown at a later stage that throughout
these great market movements it was possible from
the stock market barometer to predict, some valuable
distance ahead, the development of the business of the
country. These discussions would fail in their purpose
if they did not make the subject clear to the unfinan-
cial layman interesting to the man who never bought

46 THE STOCK MARKET BAROMETER

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

"Some damned liner's lights go by, like a grand hotel"

as it does to the navigating officers on the liner's
bridge. There is no business so small that it can afford
to disregard the stock market barometer. Certainly
there is no business so large that it dare disregard it.
Indeed the most serious mistakes in the management
of great business have come from a failure of these
navigators of the great liners of the sea of commerce
to take heed when the passionless, disinterested stock
market called their attention to bad weather ahead.

and Never Thanked

When, in the United States Senate, the late Senator
Dolliver, reading an editorial of The Wall Street Jour-
nal, said, "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
upon all the evidence, even when given by unconscious
and unwilling witnesses.

No wonder the rural politician can so easily make
Wall Street the scapegoat for depressing conditions,
affecting his farmer constituents no more than the rest
of us. Wall Street is guilty in their eyes, for they are
willing enough to hold Wall Street responsible for a

MAJOR MARKET SWINGS 47

condition which it merely foresaw and predicted. It
was said in a preceding chapter that the prophet of
calamity will make himself hated in any case, and
hated all the more if his predictions come true. But
Wall Street's predictions do come true. Its predictions
of prosperity, duly fulfilled as we have seen, are for-
gotten. Its predictions of adversity are remembered,
and by none more than the man who ignored those pre-
dictions and is therefore the more bound to find some-
body other than himself to blame.

Wall Street the Farmer's Friend

Wall Street is often called "provincial" by politi-
cians and others actuated by an unreasoning sectional
jealousy of the necessary financial center of the coun-
try. The country can have only one such center,
although the framers of the Federal Reserve Act,
overloading it with sectional politics, tried hard to
make twelve. The farmers say, or their political
spokesman says, "What does Wall Street know about
farming?" Wall Street knows more than all the
farmers put together ever knew, with all the farmers
have forgotten. It can, moreover, refresh its memory
instantly at any moment. It employs the ablest of the
farmers, and its experts are better even than those of
our admirable, and little appreciated, Department of
Agriculture, whose publications Wall Street reads even
if the farmer neglects them.

The stock market which began to break at the end
of October and the beginning of November, 1919,

48 THE STOCK MARKET BAROMETER

when the farmer was insanely pooling his wheat for
$3 a bushel and his cotton for forty cents a pound,
knew more than the farmer about cotton and wheat.
And that barometer was telling him then to get out,
to sell what he had at the market price and to save
himself while there was yet time. He blames Wall
Street and the Federal Reserve banking system and
everyone but his own deluded and prejudiced self.
He thinks he can change it all by getting his Congress-
man to take an axe to break the barometer. He is
trying to break the barometers of the grain trade in
Chicago and Minneapolis, the barometers of the cotton
trade in New Orleans and New York. Twenty years
ago, at the demand of her farmers, Germany broke
her grain barometer, with destructive legislation.
What was the consequence? She had to construct a
new barometer on the old plan, and it was the farmers
who paid for it in advance out of their own pockets.
The Germans have learned to let free markets alone,
a thing the British always knew, and built up the great-
est empire, with the widest commerce the world ever
saw, on exactly that knowledge.

Chapter VI

A UNIQUE QUALITY OF FORECAST

THERE are two Wall Streets. One of them is
the Wall Street of fact, slowly arriving at defi-
nition out of a chaos of misconception. The other
is the Wall Street of fiction; the Wall Street of sen-
sational newspapers, of popularity-hunting politicians ;
the Wall Street of false dramatic interpretation, whose
characters are no more real than the types of the
old-fashioned melodrama of fifty years ago those
caricatures which have had an astonishing and unintel-
ligent revival on the moving-picture screen. It was
felt that our second chapter might well be devoted to
that popular misconception, Wall Street of the movies.

Major Movements Are Unmanipulated

One of the greatest of misconceptions, that which
has militated most against the usefulness of the stock
market barometer, is the belief that manipulation can
falsify stock market movements otherwise authorita-
tive and instructive. The writer claims no more
authority than may come from twenty-six years of
stark intimacy with Wall Street, preceded by prac-
tical acquaintance with the London Stock Exchange,
the Paris Bourse and even that wildly speculative mar-
ket in gold shares, "Between the Chains," in Johannes-
burg in 1895. But in all that experience, for what it

50 THE STOCK MARKET BAROMETER

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

A Financial Impossibility

This is a sweeping statement, but I am convinced
of its fundamental truth. When James R. Keene
took up the task of marketing two hundred and twenty
thousand shares of Amalgamated Copper, for the
people who had brought about that amalgamation but
had not been able to float the stock, it is estimated that
in the course of distribution he must have traded in
at least seven hundred thousand shares of that stock.
He carried the price to above par to realize a net of
ninety to ninety-six for his employers. This was a
relatively small stock capitalization; but let us assume
that some syndicate, larger than any that the stock
market has ever seen, necessarily involving the co-
operation of all the great banking institutions, under-
took to manufacture the general bull market without
which Keene's efforts would have been worse than
wasted. Let us concede that this super-syndicate could
afford to ignore the large number of active securities

A UNIQUE QUALITY OF FORECAST 5 1

outside of the forty active stocks taken in our railroad
and industrial averages and defy all trained public
opinion. Let us assume that they had accumulated for
the rise, against all their previous practice and con-
viction, without, by some miracle, arousing suspicion,
not two hundred and twenty thousand shares of stock,
but a hundred times that number.

Anybody who learned in the little red school house
that two and two make four must see that we are here
leading ourselves into an arithmetical impossibility.
This syndicate would presumably not be content with
less than a forty-point net profit, and its actual trades,
before it had established a broad general market even
equivalent to that Keene established for Amalgamated
Copper, alone would therefore amount to something
like one hundred and twenty million shares, which,
taking them at par, would involve financing to the
amount of many billions of dollars so much financing,
in fact, that the great banks concerned would presum-
ably relinquish all their other business and confine
themselves to the syndicate operations alone. Such a
syndicate could not have done this, or a tithe of this,
at any time during the existence of our national bank-
ing system. Does anybody think it would be possible
to undertake such a panic-breeding operation with the
assistance of the Federal Reserve system?

Where Manipulation Was Possible

To state the terms of a corresponding bear opera-
tion, where every wealthy member of the syndicate is

52 THE STOCK MARKET BAROMETER

necessarily already a large holder in stocks, bonds,
real estate and industrial production, would reduce
the whole thing to the wildest absurdity. My mind
refuses even to grasp it. Keene, in a broad bull
market, to distribute a number of shares amounting
to one-twenty-fifth of the common stock alone of the
United States Steel Corporation, had behind him all
the wealth and influence of the powerful Standard
Oil group. When he distributed United States Steel
common and preferred he had behind him not only
the great Morgan banking influences but those of
every group that came into that steel combination,
with the general approval of a public which correctly
recognized a wonderful and even unprecedented
expansion in production and trade. But even with
that backing could he have multiplied his efforts a
hundredfold? The merchant, the banker, the manu-
facturer who studies the stock market barometer with
reference to the major swings, can dismiss from his
mind altogether the idea that they are falsified by
manipulation.

Roger W. Babson's Theory

But the idea is widely held. There is no intention
here to arouse or encourage controversy, and if I take
an example from Roger W. Babson and his book on
Business Barometers, he will, I am sure, readily
understand that it is not intended in criticism or
depreciation of his highly sincere work. It is only fair
to Mr. Babson to say, also, that the extract I give

A UNIQUE QUALITY OF FORECAST 53

here was published in 1909 (the italics are Mr.
Babson's) :

"A slowly sagging market usually means that the ablest spec-
ulators expect in the near future a period of depression in
general business ; and a slowly rising market usually means that
prosperous business conditions may be expected, unless the decline
or rise is artificial and caused by manipulation. In fact, if it
were not for manipulation, merchants could almost rely on the
stock market alone as a barometer, and let these large market
operators stand the expense of collecting the data necessary for
determining fundamental conditions. Unfortunately, however,
it is impossible by studying the stock market alone to distinguish
between artificial movements and natural movements ; therefore,
although bankers and merchants may watch the stock market as
one of the barometers, yet they should give to it only a fair and
proportional amount of weight."

Business Barometers Used in the Accumulation of
Money j by Roger W. Babson; second edition, 1910.

Mr. Babson's Chart

What sort of barometer should we have if we had
to make allowances for a tube of mercury that was
too short, or for a general lack of accuracy in the
delicate and sensitive mechanism of the aneroid? The
stock market barometer is not perfect, or, to put it
more correctly, the adolescent science of reading it is
far from having attained perfection. But it is not
imperfect in the sense Mr. Babson here assumes. It
does discharge its function of prediction, when viewed
over any reasonable length of time, with almost
uncanny accuracy. Let us take a few examples from
Mr. Babson's own picture chart, those composite
"plots" above and below a consistently rising line rep-

54 THE STOCK MARKET BAROMETER

resenting the steady increase in a growing country's
wealth, and we shall see how the stock market pre-
dicted each of them before Mr. Babson had the mate-
rial to draw them in the squares of his instructive and
striking chart. To those who are unfamiliar with a
publication so interesting it may be said that he divides
his chart with columns for each month of the year ver-
tically, and completes his squares horizontally with
numbered lines showing the area covered by all the
factors of business, above or below a gradually rising
middle line across the chart representing the growing
wealth of the country.

How the Stock Market Predicted

It will be observed that where these areas are shal-
low they tend to become broader in time consumed,
and where the time to complete the area is less the
depression or expansion is deeper or higher, as the case
may be, the black areas above or below being assumed
to balance each other, at least approximately. One of
these black areas of depression shown in the Babson
chart began in 1903, only developing recognizable
space in the latter part of that year, and continued
throughout 1904, finally emerging above the line of
growing wealth in the earlier part of 1905. The stock
market anticipated this area of business depression,
for a primary bear swing began in September, 1902,
and ran until the corresponding month of 1903. Mr.
Babson's area of depression was still ruling when the
market became mildly bullish, in September, 1903, and

A UNIQUE QUALITY OF FORECAST 55

strongly bullish before the following June; while the
Babson area of depression was not completed till the
end of that year 1904. The Babson chart does not
show any great degree of expansion until 1906,
although it foreshadows it in September, 1905. But
the stock market barometer foresaw all Mr. Babson's
expansion, and the long bull market continued up to
January, 1907, overrunning itself a tendency of bull
markets and bear markets alike.

A True Barometer

Mr. Babson's area of expansion reached its high
maximum in 1907, when a bear stock market swing
had already set in, continuing for eleven months until
early December of that year, predicting that length of
time ahead of Mr. Babson's truly calculated area of
depression, which was deep, but not long in duration,
and lasted till the end of 1908. His subsequent expan-
sion area above the line did not begin to show itself
in market strength until the end of July of 1908; but
the stock market barometer once again foretold the
coming prosperity' in a bull market which had its
genesis in December, 1907, and its culmination in
August, 1909, beginning from that time to predict
with equal accuracy, and well in advance, Mr. Babson's
next period of depression.

Surely this shows that the stock market is a barom
eter, and that the Babson chart is more strictly a
record, from which, of course, people as intelligent as
its industrious compilers can draw valuable guidance

56 THE STOCK MARKET BAROMETER

for the future. To use a much-abused word, the stock
market barometer is unique. You will remember that
"unique" is a word which takes no qualifying adjec-
tive. Our barometer is not rather unique, or almost
unique, or virtually unique. There is just one of it,
and it cannot be duplicated. It does predict, as this
simple illustration has shown, the condition of business
many months ahead, and no other index, or combina-
tion of indices, can assume to do that. Our highly
scientific and competent Weather Bureau often ex-
plodes the fallacy of any assumed radical change in
general weather conditions. It does not pretend to
go back to the glacial age. It tells us that there have
been droughts and hard winters before, coming at
uncertain and incalculable intervals. When it attempts
specific prophecy a single particular from its immense
collection of generals it is merely guessing. Does
anybody who happened to be in Washington at the
time remember the "fair and warmer" weather
prophesied over the Taft inauguration? I went over
the Pennsylvania Railroad on the following day, when
the storm had leveled every telegraph pole between
New York and Philadelphia. It was even said that
some of the special trains had so far missed the parade
that they were not in Washington then. Even the
aneroid barometer can only forecast a limited number
of hours ahead, according to the atmospheric pressure.

Cycles Overestimated

There are other compilations, and that of Harvard
University will be noticed in a more appropriate place.

A UNIQUE QUALITY OF FORECAST 57

I am inclined to think that all attach too much force
to the cycle theory, very much as we have seen that
Charles H. Dow did in splitting the favored ten-year
cycle into an assumed but non-existent five-year bear
market and a similar five-year bull market. But Mr.
Babson would tell you that his areas of expansion
and even of inflation, extending not five years but two
years or less than three in point of time, do not neces-
sarily blow their tops off in a final explosion and that
the bottom does not drop out of his period of depres-
sion. A stock market crisis may occur in the middle
of a bull market, like the Northern Pacific panic of
1901; or a near-panic, with a development more seri-
ous and radical, may occur in the course of a major
bear swing in the stock market, as in 1907. Mr. Bab-
son correctly shows that the latter was followed by
a business depression that had already been fore-
shadowed in the downward stock market movement.
If all panics and industrial crises arose from the
same causes and could be predicted with the suggested
rythmical certainty, they would never happen because
they would always be foreseen. This sounds some-
thing like an Irish "bull," but it may well stand as a
statement of the fact. Was it not an Irishman who
said that an Irish bull differed from other bulls in the
respect that it was always pregnant? I do not here
go deeply into this question of cycles, because it is
abundantly clear that the stock market is little moved
by any such consideration.

58 THE STOCK MARKET BAROMETER

Order Is Heaven's First Law

If Wall Street is the general reservoir for the col-
lection of the country's tiny streams of liquid capital,
it is the clearing house for all the tiny contributions to
the sum of truth about the facts of business. It cannot
be too often repeated that the stock market movement
represents the deductions from the accumulation of
that truth, including the facts on building and real
estate, bank clearings, business failures, money condi-
tions, foreign trade, gold movements, commodity
prices, investment markets, crop conditions, railroad
earnings, political factors and social conditions, but all
of these with an almost limitless number of other
things, each having its tiny trickle of stock market
effect.

It will be seen from this how true the postulate
made in an earlier discussion was when it was said
that nobody in Wall Street knows all the facts, to say
nothing of the meaning of all the facts. But the
impartial, passionless market barometer records them
as certainly as the column of mercury records the
atmospheric pressure. There is nothing fortuitous
about the stock market movement, and I think I have
shown that it cannot to any profitable extent be per-
verted to the ends of deception. There must be laws
governing these things, and it is our present purpose
to see if we cannot formulate them usefully. Many
years ago George W. Cable said: "What we call
chance may be the operation of a law so vast that we
only touch its orbit once or twice in a lifetime." There

A UNIQUE QUALITY OF FORECAST 59

is no need to lose ourselves in the mazes of predestina-
tion and foreordination, or reduce the Westminster
Confession to absurdity by saying that life is just one
damned thing after another. But we shall all recog-
nize that order is Heaven's first law, and that organ-
ized society, in the Stock Exchange or elsewhere, will
tend to obey that law even if the unaided individual
intelligence is not great enough to grasp it.

Chapter VII

MANIPULATION AND PROFESSIONAL TRADING

READERS of preceding chapters may well pause
here to take count of how much we have been
able to infer, and how much of our inference we have
been able to prove, starting on the sound basis of
Dow's theory of the stock market. We have satisfied
ourselves that he was right when he said that there are
in progress three definite movements in the market
the major swing, upwards or downwards; its occa-
sional suspension by a secondary rally or reaction, as
the case may be ; and the incalculable, and for our pur-
poses largely negligible, daily fluctuation. We can
satisfy ourselves from examples that a period of trad-
ing within a narrow range what we have called a
"line" gaining significance as the number of trading
days increases, can only mean accumulation or distribu-
tion, and that the subsequent price movement shows
whether the market has become bare of stocks or satu-
rated with an oversupply.

True to Form

But we have been able to go further than this. From
the preceding article alone we see that every major
swing is justified by the subsequent condition of the
country's general business. It has neither needed nor
received manipulation. The market consequently has

PROFESSIONALS AND MANIPULATION 61

often seemed to run counter to business conditions, but
only for the reason which represents its greatest use-
fulness. It is then fulfilling its true function of pre-
diction. It is telling us not what business is to-day but
what the future course of business will be. News
known is news discounted. What everybody knows
has ceased to be a market factor, except in the rare
instance of a panic, when the stock market is con-
fessedly taken by surprise.

When these articles appeared in serial form in Bar-
ron's, the national financial weekly, I included the fol-
lowing inference, based upon the reading of our
barometer, on September 18, 1921, the date when the
quoted paragraph was written. It appeared on No-
vember 5, 1921. It was no guess, but a scientific deduc-
tion from sound premises, and correctly announced
the change in the main direction of the market.

"There is a pertinent instance and test in the action of the
current market. I have been challenged to offer proof of
the prediction value of the stock market barometer. With the
demoralized condition of European finance, the disaster to the
cotton crop, the uncertainties produced by deflation, the unprin-
cipled opportunism of our lawmakers and tax-imposers, all the
aftermath of war inflation unemployment, uneconomic wages
in coal mining and railroading with all these things over-
hanging the business of the country at the present moment, the
stock market has acted as if there were better things in sight. It
has been 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
65.52 for the twenty railroad stocks."

62 THE STOCK MARKET BAROMETER

A Contemporary Example

At the beginning of the last week of August, 1921,
it looked as if the bear market might be resumed by
the establishment of new low points in both averages.
But remembering that the averages must confirm each
other, The Wall Street Journal said, on August 25th:

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

The railroad stocks were forming a "line" at that
time, and after a technical break of a fraction of a
point through on the lower side it was resumed, and
no new low point, indicating a definite resumption of
the main bear movement, was given. On September
2 ist, after a remarkable continuance of the line of
probable accumulation in the railroad stocks and a con-
firmatory rally in the industrials, The Wall Street
Journal's "Study in the Price Movement" said:

"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 seems to be forecasting a solid foundation for
better general business in the spring. It may well be that the
stage for a 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 previous rally. The Wall Street Journal's
analysis of October 4th said:

"By the well-tried methods of reading the stock market
averages, only a decline of eight points in the industrial average,

PROFESSIONALS AND MANIPULATION 63

and nine points in the railroads, or below the low figures of the
main bear movement recorded June 2Oth, would indicate a
resumption of that movement. On the other hand, the railroad
stocks alone at present figures would need to advance less than
a point to record the repeated new high for both averages which
would indicate a primary bull market. The industrials have
already recorded that point, and both averages have shown a
remarkably clear and distinct line of accumulation which is
likely at any time to disclose a market bereft of its floating
supply of stocks."

In the last paragraph of this closely reasoned
analysis it was said:

"Prices are low because all these bearish factors our critics
adduce have been discounted in the prices. When the market
is taken by surprise there is a panic, and history records how
seldom it is taken by surprise. To-day all the bear factors are
known, serious as they admittedly are. But the stock market
is not trading on what is common knowledge to-day but upon
the sum of expert knowledge applied to conditions as they can
be foreseen many months ahead."

Henry H. Rogers and His Critics

Here is the application of our theory, and the
reader can judge from the subsequent course of the
market the value of the stock market barometer. He
can even make the same analysis for himself, given the
same major premise and carefully tested reasoning
from it.

The professional speculator might well encourage
the general belief that he is invulnerable and invincible,
even if an ignorant public assumes that the cards are
stacked against itself and that the professional knows

64 THE STOCK MARKET BAROMETER

their backs as well as their faces. Many years ago
the late Henry H. Rogers, who was not talking for
publication, said to me : "The sensational newspapers,
which are always attacking John D. Rockefeller and his
associates for their wealth, have put millions into the
treasury of the Standard Oil Company. You and I
know that we are not omniscient or all-powerful. But,
by editorial innuendo and suggestion in cartoons, the
people who hold us up to popular envy and hate have
created exactly that impression. When everybody
who may have to do business with us assumes in
advance that we can dictate our own terms, we have
an invaluable business asset." The same agitation
brought about the dissolution of the Standard Oil into
its thirty-three constituent companies. That operation
trebled the value of Standard Oil shares, and, inci-
dentally, the price of gasoline. Perhaps these news-
paper proprietors were holders of the stock. That
was before the era of the Ford car, however, and they
may have assumed that it was a public service to make
the rich owner of a motor car pay more for his
gasoline.

A Speculator's Reasoning

Assumption of an unfair advantage for the profes-
sional is absolutely baseless. The reasoning of a pro-
fessional like Jesse Livermore is merely the reasoning
presented in this and preceding articles, backed by a
study of general conditions. He said on October 3,
1921, that he had been buying, and, giving him the
credence of ordinary courtesy for such a voluntary

PROFESSIONALS AND MANIPULATION 65

statement, it is clear that he was trying to shape in
his own mind what the investing and speculating public
would think at a date as far ahead as he could see.

This is not manipulation. These speculators are
not creating any false market or deceptive appearance
of activity to lure the public into the game, like the
"barker" outside a Midway show. On October 3d
Jesse Livermore was quoted in the columns of Bar-
ron's as saying that "all market movements are based
on sound reasoning. Unless a man can anticipate
future events his ability to speculate successfully is lim-
ited." And he went on to add: "Speculation is a
business. It is neither guesswork nor a gamble. It is
hard work and plenty of it."

Dow's Clear Definition

Let us compare this with the words of Charles H.
Dow in The Wall Street Journal twenty years before.
In the editorial of July 20, 1901, he said:

"The market is not like a balloon plunging hither and thither
in the wind. As a whole, it represents a serious, well-consid-
ered effort on the part of farsighted and well-informed men to
adjust prices to such values as exist or which are expected to
exist in the not too remote future. The thought with great
operators is not whether a price can be advanced, but whethei
the value of property which they propose to buy will lead invest-
ors and speculators six months hence to take stock at figures
from ten to twenty points above present prices."

Observe how the none too deftly expressed thought
of Livermore parallels the more perfectly shaped defi-
nition of the detached and dispassionate Dow. Ber-

66 THE STOCK MARKET BAROMETER

nard M. Baruch, after the war, gave evidence before
a Congressional committee as to a market operation
by which he had largely profited. He showed in the
simplest manner that he had merely analyzed a known
cause and foreseen clearly its probable market effect.
He showed, what nobody who knows him would ques-
tion, that he had no "inside information," so called,
and that no employee in a Washington department
had sold the secrets of his office. Wall Street holds
such secrets as of little value. They may give an unfair
advantage so far as individual stocks are concerned,
but they could be entirely neglected with imperceptible
loss, even if the secret were not generally as worthless
as the seller of it.

A Good Loser

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

PROFESSIONALS AND MANIPULATION 67

sources of information better than those of the specu-
lators. They take the same risks that he does. They
are often wrong, but they do not whimper about it.
I have known many operators of this kind, and I never
heard them whine when they lost, or boast greatly
when they won.

and a Bad One

But the little gambler who takes the gutter view of
Wall Street pits his wits against trained minds, not
merely those of the speculators and the professional
traders on the floor of the Stock Exchange, but the
minds of men whose business requires them to study
business conditions. This kind of gambler is a bad
loser, and is often highly articulate. He, or those
dependent upon him, is lucky if he receives such a
lesson at his first venture that he confines his future
relation with Wall Street to denouncing it as a gam-
bling hell. It would be all that if the stock market were
made by him or people like him. To the everlasting
credit of the country, we may confidently assume that
it is not.

Refusing a Partnership With Jay Gould

Charles H. Dow, who knew Jay Gould well and
enjoyed his confidence as much as any newspaper man
of the time, largely because of his incorruptible inde-
pendence, says in one of his editorials that Gould
based his position in the stock market primarily on
values. He tested that market with purchases of
sufficient stock to show whether there was a public

68 THE STOCK MARKET BAROMETER

response whether he had correctly foreseen the public
appreciation of values which he thought he had recog-
nized. If the response was not what he expected he
would not hesitate to take loss after loss of a point or
so, in order to reconsider his position from a detached
point of view. Some years ago there was a pathetic
derelict in New Street, one of the unlovely fringe of
any speculative market, who could truthfully say that
he had once been offered a partnership by Jay Gould.
I have missed his face in recent years, but not a great
many years ago he was a promising young member of
the Stock Exchange. His execution of orders on the
floor was remarkably good. It is a difficult and exact-
ing task. It requires about that combination of in-
stantaneous judgment and action which would mark a
star player in big-league baseball.

To this broker a number of Jay Gould's orders were
entrusted. No broker, it is needless to say, saw all of
them. Gould was so pleased with the way his business
was done that he sent for the young man and offered
him a limited partnership. To Mr. Gould's surprise,
it was refused. The broker actually said: "Mr.
Gould, I have executed a great many of your orders
and you seem to me to make more losses than profits.
That is not a business I want to share." He could not
see that his vision was restricted to only one side of
Gould's many-sided activities. Opportunity knocked
at his door tried to kick it in but the young man
showed that he could do only one thing well. His
administrative judgment would have been worthless,
as indeed it afterwards proved, for he drifted out of

PROFESSIONALS AND MANIPULATION 69

the Stock Exchange into New Street and from there,
I suppose, into oblivion. Truly, many are called but
few are chosen.

An Intelligent Trader

Rare talent of any kind commands great rewards
for the reason that it is rare. The amateur who re-
gards the market as a gamble starts wrong. He holds
on when he is losing and takes small profits, to his
continuing regret, when the market is going his way.
The speculators he envies, those he charges with
cogging the dice and marking the cards, exactly reverse
his process. However strong their conviction may be
they run quickly when the market does not agree with
them or justify the inferences they have drawn. They
may be, as Gould often was, too far ahead of the mar-
ket. One of the most intelligent men I ever met in
Wall Street, not long dead, was a former teacher and
a fine classical scholar, whose hobby was collecting
rare coins but whose business was speculation. He
saved no market turns or broker's commissions by part-
nership in a Stock Exchange house. He was just a
speculator, sitting before a customers' board or near
a stock ticker. And yet that man, by judgment, study,
nerve tempered by caution and, above all, a readiness
to see his error quickly, never made less than $30,000
a year ; dying at a good age, leaving a comfortable for-
tune and a collection of rare coins which brought excel-
lent prices.

He would select his stocks on analyzed value and
study the market movement. He would buy with con-

70 THE STOCK MARKET BAROMETER

fidencc but always well within his means. He would
take a two-point loss on a thousand shares of stock
without hesitation if the market did not move his
way. When that discouragement happened he said
that he could not form a correct judgment unless he
got out and took an objective view. He had originally
about the capital which would have been necessary to
pay for the education of a doctor or a lawyer, or to
start them in business. He gave his undivided but by
no means selfish attention to what he had made his
business. He was always long of stocks early in a bull
market, and in its last stages he generally made a trip
to Europe to add to his collection of coins. He was
no solitary instance. I could name others like him.
But I am not advising any man to speculate, even if he
has the moral stamina to comply with the same exact-
ing requirements. If you have a business that you
like, one which keeps you comfortably with a margin
for the unforeseen, why speculate in stocks? I don't.

The Dial of the Boiler

Some intelligent and many irrelevant questions have
been put since these discussions began, and one of them,
which has something of both qualities, disputes the
economic necessity for the professional speculator. I
am not to be drawn into a discussion of academic eco-
nomics and still less into one of abstract ethical ques-
tions. I am describing the stock market barometer as
it is and the great and useful service it performs. It
is necessary, therefore, to explain its by no means com-

PROFESSIONALS AND MANIPULATION 71

plicated machinery. It is neither as simple as the
crude three-foot tube with its column of mercury nor
so complex as the highly perfected aneroid instrument.
The question whether I would be willing myself to dis-
charge the functions of a professional speculator is
beside the/point. We do not need to go back to the
formal logic of the Greeks twenty-four centuries ago
to know that there can be no argument on matters
of taste.

Every bit as important as production is distribution,
and distribution of capital is the greatest function of
Wall Street. The professional speculator is no more
superfluous than the pressure gauge of the steam-heat-
ing plant in your cellar. Wall Street is the great
financial power house of the country, and it is indis-
pensably necessary to know when the steam pressure is
becoming more than the boilers can stand. It is im-
portant here to avoid getting our metaphors mixed,
but the safety valve will occur to anybody. The stock
market is all that and more; and the professional
speculator, however ignoble or material his motives
may be, is a useful and highly dependable part of that
machinery. That he may grow rich in the process is
neither here nor there, unless we are to adopt the bol-
shevist doctrine that personal wealth is wicked. There
is another doctrine, held by many who would resent
the epithet of bolshevism, which is in any country much
more dangerous. It holds wealth, with the power it
brings, as a thing for envy and not for emulation ; that
if we cannot legislate everybody rich it is demonstrably
possible to legislate everybody poor. One short way

72 THE STOCK MARKET BAROMETER

to that end would be to eliminate the Stock Exchange
altogether. But so long as it exists it is our business to
understand it. Perhaps in so doing we may develop
useful suggestions for improving the barometer and
extending its usefulness.

Chapter VIII

MECHANICS OF THE MARKET

IT has been shown that, for all practical purposes,
manipulation has, and can have, no real effect in
the main or primary movement of the stock market,
as reflected in the averages. In a primary bull or bear
market the actuating forces are above and beyond
manipulation. But in the other movements of Dow's
theory, a secondary reaction in a bull market or the
corresponding secondary rally in a bear market, or in
the third movement (the daily fluctuation) which goes
on all the time, there is room for manipulation, but
only in individual stocks, or in small groups, with a
well-recognized leading issue. A raid upon the oil
group, or upon the bear account in it, with special
attention to Mexican Petroleum, may easily have a
striking temporary effect. It shakes out some weak
holders or it forces a few bears to cover, as the case
may be. This sort of professional "scalping" is often
in evidence in a secondary swing for good reasons.

The Trader and the Gambler

Every primary market, bull or bear, tends to over-
run itself. As the traders say, there gets to be too
much company on the bull side ; or conversely, the "loan
crowd" shows that too many shorts are borrowing
stocks. There is even a premium for lending them,

74 THE STOCK MARKET BAROMETER

corresponding to what is called a "backwardation" in
London. This is the professional's chance. He buys
in a market which is oversold or, with testing sales,
he tries out the strength of a market which has been
bought not wisely but too well. The small speculator,
and more particularly the small gambler, suffers at the
hands of the professional. He is a follower of "tips"
and "hunches." He has made no real study of the
things in which he trades. He takes his information
without discrimination at second hand, lacking the abil-
ity to distinguish good from bad. He has no business
in the market, in the first place, and it could get along
very well without him. It is a great mistake to sup-
pose that it is he, or people like him, who keep the
Stock Exchange houses in business. Every one of these
will tell you that their customers are becoming better
informed all the time. Of course if ignorant people
will sit in a game requiring expert knowledge, against
others who understand the game perfectly, they can
blame their losses on no one but themselves. They
do, in fact, audibly blame Wall Street. A substantial
part of the time of most brokers is consumed in pro-
tecting people from themselves. It is a thankless job.
A fool and his money are soon parted.

Giving a Dog a Bad Name

But it must be obvious that this is no part of the
main current of speculation. It bears about the same
relation to that current that the daily fluctuation does
to the primary market movement. There are, of

MECHANICS OF THE MARKET 75

course, varying degrees of knowledge, but it is a vital
mistake to suppose that speculation in stocks (for the
rise at least) is a sort of gamble in which no one can
win unless there is an equivalent loss by somebody else.
There need be no such loss in a bull market. The
weak holders who are shaken out in the secondary re-
actions miss a part of their profits; and, in the culmina-
tion of such a movement, a great many people who
have lost sight of values and are buying on possibilities
only, with the latent hope that they may unload on
somebody more covetous than themselves, are apt to
get hurt.

So far as blaming Wall Street is concerned, it seems
to have become a case of giving a dog a bad name and
hanging him. The defaulting bank employee usually
pleads something of the kind. All his transactions and
contracts are matters of record; but how seldom the
court asks him for an exact statement of his specula-
tive account. He says nothing about fast women and
slow horses, or the many other devious ways of spend-
ing other people's money. He pleads that he was
"robbed in Wall Street," and sentimental people take
him back to their hearts, registering horror at the
temptations of the wicked financial district, whose
simplest functions they have not been at the pains to
understand.

A small and unsuccessful speculator, chagrined at
his inability to make money in the stock market but
failing to understand the real reason, picks up a vocabu-
lary of technical phrases which is apt to delude people
who know even less of the stock market than himself.

76 THE STOCK MARKET BAROMETER

He is fond of denouncing the "specialist" and the
"floor trader." He classes them with the croupiers
of a gambling house, and says that they are not even
as respectable as that because their dealer's chance is
extortionately larger. To take the floor trader first,
it may be pointed out that his small but real advantage
only stands him in good stead against the novice who
is trying to snatch quick profits in an active market by
the merest guessing. No competent broker encourages
the outsider to do anything of the kind, and the brokers
of my fairly exhaustive acquaintance in Wall Street
do their best to get rid of a customer who is apt to
be a liability rather than an asset, and is always a
nuisance.

The Floor Trader and the Market Turn

There is no intention here to write a textbook on
the practice of Wall Street and the Stock Exchange.
There are excellent books covering that field. All that
is necessary is to make sufficiently clear the mechanics
of our barometer, and especially those things which
may be assumed, rightly or wrongly, to influence it.
It is sufficient to say, therefore, that a "floor trader"
is necessarily a member of the Stock Exchange, and is
usually a partner in a brokerage house. He un-
affectedly operates for himself. He pays himself no
commission, and he is at an advantage over the outside
speculator in the matter of the market turn, which is,
of course, the difference between the bid and asked
price in the market. The more active the stock the
closer this turn is, but it may be averaged at a quarter

MECHANICS OF THE MARKET 77

of one per cent. Assuming that the price of United
States steel common is 90% bid and go l / 2 asked, the
customer who gives an order to sell cannot expect to
get better than 90^4, while, if he wishes to buy, he
must pay 903/2. The floor trader can often save this
turn or part of it for himself not, of course, against a
customer. He may be able to deal at 90^ or even to
sell at the asked price. Whatever he does has its effect
in the daily fluctuation. In practice it means that the
floor trader can afford to trade for a quick turn where
the outsider cannot. In daily custom the trader goes
home at the close with his book even, not hesitating to
take an occasional loss, or glad to come out even.

"Bucketing"

It is obvious then that the floor trader, snatching a
turn of a point or so, has an advantage. If the cus-
tomer tried to do it he would have the broker's com-
missions of a legal eighth per cent each way against
him, with the market turn of a quarter per cent; so
that, as a mere gamble, he would be betting heavy
odds on an even-money chance. A "bucket shop"
would encourage him to do that, because the keeper
of such an establishment works on the theory of new
customers all the time, fleecing them as thoroughly as
possible while he has the chance. None of his orders
is really executed in the stock market; so that he him-
self pockets this extortionate dealer's chance. But we
are considering the Stock Exchange itself, and its
speculative market as a trade barometer. Bucketing is

78 THE STOCK MARKET BAROMETER

no part of the Stock Exchange's business, and the
police can stop it elsewhere if they choose.

Old and Satisfied Customers

Commission both ways and the market turn do not
amount to much if the customer is buying on values,
with ample margin, or with the ability to pay for his
stock outright, together with 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
which was in continuous business since 1870 has re-
cently changed its name. It had at least one cus-
tomer who had been on the books for fifty years, and
many for twenty years and longer. This does not
look as if the outsider always lost money in Wall
Street, or as if the conditions of business made losses
inevitable.

A brokerage house, like any other business, works
to get new clients all the time, exactly as a paper or
magazine works to get new subscribers. But the ex-
perienced broker will tell you that while advertising
methods will bring the customers, nothing but disinter-
ested service will keep them. I have often noticed
that the really successful man in Wall Street is curi-
ously inarticulate. Experience has taught him to keep
his tongue between his teeth, and he is not at all com-
municative. The unsuccessful seem to be unable to
keep their losses to themselves, in most cases, and it
is usually found that they are thus articulate from a

MECHANICS OF THE MARKET 79

radical defect in character. They habitually do too
much talking and too little thinking.

No Apology Offered or Required

This is not an apology for the stock market. Our
old friend, our unwilling stepfather, George III, was
not renowned for his wit. But when he was offered the
dedication of Bishop Watson's celebrated Apology
for the Bible he asked if the Bible needed an apology?
Let us, therefore, content ourselves with merely ex-
plaining that part of the mechanism of the stock mar-
ket which should be understood for a full comprehen-
sion of the nature and usefulness of the barometer of
the country's business.

"Specialists" in particular stocks, corresponding in a
way to the "jobber," or more nearly the "dealer" in
the London Stock Exchange, the brokers on the floor
who limit their transactions to one or two active issues
and are entrusted with orders in those issues by other
brokerage houses, are little understood and much vili-
fied. It is falsely assumed that they habitually, or at
least occasionally, abuse their confidential position.
The specialist has "stop-loss" selling orders in a num-
ber of stocks at a point or so below the market price,
from brokers instructed to limit their customers' losses
in the event of an unexpected decline. It is suggested
that the specialist, for his own advantage, brings about
that decline. The answer is that even the suspicion
of such dealing would cost him his business and his
reputation. It recently cost a member his seat on the
Exchange, the only instance I recall.

8o THE STOCK MARKET BAROMETER

Transactions on the floor are by word of mouth,
without the passage of a written contract or even the
presence of witnesses. The honor of the parties is
absolute, and I can hardly recall a case where it was
called in question. There must necessarily be occa-
sional misunderstandings, but these are referred for
adjustment in the usual way. The specialist could not
stay in business if he did not have the interests of the
brokers who employ him as much at heart as any other
agent in a like position. His very living and stand-
ing in business depend upon it.

Professional Trader's Limited Influence

What is the influence of the active bear trader on
the averages? It is negligible so far as the major
movement is concerned, a small factor in the secondary
swings and mainly influential, at times, in particular
stocks in the least considerable movement, the daily
fluctuation. Such operations do not affect our barom-
eter in any degree worth serious consideration. Re-
member the character of the twenty railroad stocks
and the twenty industrials used in the two averages.
Every one of them complies with the stringent listing
requirements of the New York Stock Exchange. Each
company concerned publishes the fullest possible figures
of its operation, at frequent intervals. There are no
"inside secrets," of market value, which could by any
possibility affect more than a single stock out of forty.

It may be that one of them unexpectedly passes or
increases its dividend. The effect upon that particular

MECHANICS OF THE MARKET 8 1

stock, if there is any real surprise in the matter (which
is highly doubtful), is negligible when spread over
the other nineteen stocks of the same group. I do not
recall any useful illustrative instance; but suppose un-
expected dividend action produced a fluctuation of ten
points. It would only make a daily difference in the
average of half a point, which would be almost in-
stantly recovered if the dividend action presaged no
broad general change in business conditions. If there
had been any such change we may be entirely sure that
it would have already been reflected in the stock mar-
ket, which would know far more about it than that,
or any board of directors.

Short Selling Necessary and Useful

A discussion on the morality of short selling would
be utterly out of place here. It is true that the bear
cannot profit except where another loses, while the
bull at the worst reaps a profit which another man
might perhaps have made if he had been attending
strictly to his business. But every free market for
anything is helped far more than hurt by traders will-
ing to sell short. If, indeed, there were not this liberty
the result would be a most dangerous market, liable
to an unsupported panic break at any stage of its
progress. Voltaire said that if there had not been a
God it would have been necessary to invent one. It
must have been long ago, in the days when what after-
ward became the London Stock Exchange did its busi-
ness in Jordan's Coffee House off Cornhill, that bear
selling was invented.

82 THE STOCK MARKET BAROMETER

It soon became a patent necessity; and it is curious
that some of the most serious breaks in the London
market have occurred, not in the wildly speculative
securities, but in bank stocks, where the English law
prohibits short selling. It was unsupported pressure
in some bank stocks which helped to make the Baring
crisis of 1890 so serious. There is no such valuable
support for a falling market as the uncovered bear
account. When it is absent, as in this particular in-
stance, nothing but a bankers' combination hastily
improvised can check the devastating decline. As the
London Stock Exchange was reorganized in 1922 on
its old basis, without further government meddling
and regulation, Parliament will repeal this law and
substitute (as a protection to bank stocks, that com-
plete and constant publicity which is always the public's
best safeguard.

Protection of Listing Requirements

When Charles H. Dow wrote, twenty years ago, of
speculation generally, and incidentally of his theory
of the market movement, some of the industrial stocks,
included in the average and traded in freely on the
floor of the Stock Exchange, were in what was then
called the unlisted department. It would be difficult
to imagine The Wall Street Journal speaking to-day of
one of the industrials in the Dow-Jones average as a
blind pool. But it did not hesitate to apply that
epithet, editorially, to the American Sugar of Henry
O. Havemeyer's day. The elimination of the New

MECHANICS OF THE MARKET 83

York Stock Exchange's unlisted department is one of
the most creditable instances of reform from within.
It was bitterly opposed by some conservative members
of the Stock Exchange, mainly those who profited
largely by that vicious vested interest. An ex-presi-
dent of that institution, now dead, took upon himself
to berate me loudly, in the presence of his customers,
for advocating that eminently necessary reform. He
said that such agitators were driving business away
from the Wall Street in which they earned their liv-
ing. He threw out of his office the newspaper and
the financial news service with which I was and am
connected.

But his own customers made him reinstate both,
with humiliating celerity. American Sugar and Amal-
gamated Copper and the other formerly unlisted securi-
ties are still dealt in on the floor of the Exchange.
Those companies saw that they laid their management
under the gravest suspicion by a refusal to comply
with the terms of publicity so wholesomely exacted
from reputable companies. Stock Exchange houses
are naturally inclined to look askance at reforms ad-
vocated from outside. But I have never heard one
of them even suggest the restoration of the unlisted
department.

Federal Incorporation

It was said in an earlier discussion that something
further might be done for the protection of the public,
without the enactment of any of these "blue-sky" laws
which only embarrass honest enterprise without seri-

84 THE STOCK MARKET BAROMETER

ously impeding the operations of the crook. In this
discussion I can briefly set forth the sane and success-
ful method which protects the speculator and investor
in Great Britain. Under what is there called the Com-
panies (Consolidation) Act of 1908 the London Stock
Exchange is enabled to deal in any security the moment
it is registered at Somerset House, London. That
registration cannot be made until the fullest possible
disclosure of purposes, contracts, commissions and
everything else has been made. However adventurous
the purposes of the company may be, the speculator
knows all about them from the start. After that, under
this statute, the old common-law rule of caveat emptor
let the buyer beware prevails. It is properly held
that the buyer can protect himself, as he should, when
he can find out all about the property, its origin and
its present conduct, for the fee of a shilling, at Somer-
set House.

There would doubtless be all sorts of ignorant oppo-
sition to Federal incorporation of this kind, with the
law enforced and the public protected through limita-
tion in the use of the mails. But I am convinced that
it might well be done, and should, of course, be done
in a strictly non-partisan spirit. To the utmost of its
ability the New York Stock Exchange protects its
members and their customers. But the New York
Curb Market Association is simply an unlisted depart-
ment in itself. I have no reason to believe that its
government is not capable and honest, and I have not
a word to say against its membership. But sooner or
later it is calculated to prove a source of danger and

MECHANICS OF THE MARKET 85

scandal. If any of its members imagine that they
have something to lose, in the setting forth of the
absolute and original facts about everything in which
they deal, they are making exactly the same mistake
that ill-advised members of the New York Stock Ex-
change made when they shirked the disagreeable task
of compelling a number of industrial corporations
to comply with the listing requirements, on pain of
being stricken from the list.-

Real Reform from Within

Let me disclaim, however, the intention of crusad-
ing, or any bent toward that blatant and ignorant
"reform" which has made such costly experiments in
recent years. In my experience of it the standards
of the Stock Exchange have steadily improved, to the
permanent advantage of the investor and of the small
speculator, who is, after all, only an investor in embryo.
Practices were customary in Dow's day which would
not be tolerated now. In any future bull market
manipulation on the scale of James R. Keene, when
he distributed Amalgamated Copper, would be im-
practicable, for the reason that the publicity now
required by the Stock Exchange, in the accounts of
such a company, would make it impossible to persuade
the most reckless private speculator that the prospects
of the new combination made it worth four times its
book value, on any expert test. Even in those days
"wash sales" were largely a figment of the public
imagination, and "matched orders" were declined by

86 THE STOCK MARKET BAROMETER

any brokerage house of repute if their nature was
suspected. The Stock Exchange rule against fictitious
transactions is obeyed in spirit and in word. It was
not a mere letter even in those days, whatever it might
have been forty years ago, when the infant giant of
American industry was only awakening to conscious-
ness of his strength.

Chapter IX
"WATER" IN THE BAROMETER

EVERY effort has been made to simplify these dis-
cussions. They have been offered with the most
stringent exclusion of extraneous matter. In serial
form they aroused much criticism and comment, some
of it illuminating and helpful. But old preconceptions
and prejudices still survive. One critic, whose scanty
knowledge of the subject appears to have been derived
from the reading of perhaps two of these articles,
says:

"How can we trust your barometer if we cannot trust the
stocks which the Stock Exchange deals in? You have said
nothing about overcapitalization. What about water?"

Water is more unpopular than ever in the United
States just now. But the financial center of the United
States, with the business of the country in view, is far
more concerned about watered labor than watered
capital. There is only one way to squeeze the water
out of labor the factory or apartment house which
cost a million dollars to build and represents only
$500,000 of real value. That way is by bankruptcy.
Of the apartment houses that were built in New York,
during a period of high wages and "ca' canny" which

88 THE STOCK MARKET BAROMETER

set in long before the war, very few have not passed
through a stage of financial reorganization, due to
watered labor in construction, long before rents began
to advance. The stock market has a short and simple
method of dealing with water in stocks. It exists for
the purpose of squeezing that water out. The process
does not involve a receivership.

The very word "water" begs the question. You
may call the capitalization of an industrial flotation
"water" because you do not see the potential values
of a great creative organization. But with justice,
and better knowledge, the late J. Pierpont Morgan
might have called that capitalization intelligently an-
ticipated growth. Whatever it may be and I shall
give an example from the most striking instance, the
capitalization of the United States Steel Corporation
the stock market is forever adjusting prices to
values. The water soon evaporates.

Squeezing Out the Water

To recapitulate, we are studying the stock market
barometer, having established the fact of its known
and orderly movements the long primary swing, the
secondary reaction or rally, and the daily fluctuation;
and to do this we are taking the averages of two
groups of stocks twenty active industrials and twenty
active railroads. All adjustments of the prices of these
stocks individually must primarily be based upon
values. For all practical purposes the Stock Exchange
is an open market, and the business of such a market

"WATER" IN THE BAROMETER 89

is to adjust conflicting estimates to a common basis,
which is expressed in the price. By manipulation,
James R. Keene advanced the price of Amalgamated
Copper twenty years ago to one hundred and thirty,
and obviously the group of financiers which offered the
stock at par originally, without success, assumed one
hundred as value for it. The stock market does not
make its adjustments in a day. But, over a period
which seems brief in retrospect, it knocked one hun-
dred points off the highest figure Amalgamated Cop-
per attained in a general bull market.

This is the business of the stock market. It has to
consider both basic values and prospects. At the close
of a major downward movement, a primary bear mar-
ket, prices will have passed below the line of values.
The causes of the liquidation will have been so serious
that people have been compelled to realize their hold-
ings at less than their normal worth; less, indeed,
than their book value the worth of the company's
assets, that is, irrespective of productive capacity and
good will. The prices of the standard stocks will be
injuriously affected by the prices of "cats and dogs"
dealt in on the Curb market, many of them of such a
character that any bank would refuse them as collateral
in its loans. When the banks are compelled to call
loans made on Stock Exchange securities, the stocks
of tested worth, of properties competently and repu-
tably managed, will be the first to suffer because it is
those stocks which are pledged in bank loans. The
constantly recruited Curb group is highly speculative,
but trading there is always limited, and indeed safe-

90 THE STOCK MARKET BAROMETER

guarded, by the large margin which is necessary to
carry Curb stocks.

Stock Profits and Income Tax

Conversely, a bull market starts with stocks much
below their real value, certain to be helped in anticipa-
tion by the general improvement in the country's busi-
ness which the stock market foresees and discounts.
In the long advance values will be gradually overtaken,
and toward the close of the advance an uninformed
public, incapable of recognizing the bargains which
were offering when the movement started, is buying
on prospects only. Experienced traders in Wall Street
say that when the elevator boy and the shoeblack are
asking for bull tips on the market it is time to sell and
go fishing. When I sailed for Europe early in October,
1919, to report on financial conditions in Britain and
Germany, the market was in the last sanguine stage
of a long bull movement. The inflation bull argument
then was most curious. It was that the people who
had large profits 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
year that the tax-gatherer would take a prohibitive
share of the profits. We analyzed this fallacy in the
smoking saloon of the Mauretania, and at least some
of the business men on board concluded to divide up
with Uncle Sam. The argument was preposterous in
itself, because it pictured the most vulnerable kind of
bull account that it would be possible to conceive. It
was glaringly up to be shot at, and the poorest marks-

"WATER" IN THE BAROMETER 9 1

man could fill it full of holes. Rough seas stove in
five of the Mauretania's lifeboats, and put the wire-
less apparatus out of commission for the last three
days of that voyage. When we arrived at Cher-
bourg we learned that the stock market itself had
begun to free the bulls of stocks from the embar-
rassment of paying excessive income tax. They had
not much to worry about in that respect by the end
of the year, for the paper profits had been rapidly
extinguished.

Well-Distributed Holdings

There is no way of permanently holding up artificial
prices created by an overbought market. One great
protection to the public is in widely distributed stock
ownership. When a single group in Wall Street owns
practically all of the stock in a property like Stutz
Motor, that group can call the market price anything
it chooses. It will not be the "market" price because
there will be no real market. Abraham Lincoln pointed
out long ago that you could not talk five legs onto a
dog by renaming its tail. All the stocks in the average
have shared in the wide and healthy distribution of
securities. The average holding of Pennsylvania
(which has the greatest capitalization of any of the
railroads in our average) or of the five and a half
million shares of United States Steel common is noth-
ing near one hundred shares for each holder. So far
as the public is concerned, there is, indeed, safety in
numbers.

92 THE STOCK MARKET BAROMETER

"Valuation" and Market Prices

To the inquirer quoted at the beginning of this article,
who asks, "What about water?" we may answer, well,
what about it? He cannot show us any water in the
averages. We may go further and tell him that he
cannot show us any water, at prices and not at the
nominal par, in the whole Stock Exchange list. For
the railroads, no valuation which could be instituted by
Congress and carried out by a committee of the Inter-
state Commerce Commission could begin to compare
with the market prices of the securities themselves,
taken in a normal month of a normal year, with the
prices not inflated on overestimated prospects or de-
flated by forced liquidation, brought about largely to
protect unsalable securities and warehouse receipts not
associated with the railroads or the standard industrial
companies in any way.

Every scrap of intelligence and knowledge available,
uninfluenced in any real degree by manipulation, has
been brought to bear in the adjustment of the stock
market prices. Reproduction value, real estate value,
franchises, right of way, good will everything else
have been brought into the free-market estimate in a
way which no valuation committee appointed by Con-
gress could ever attain. The Interstate Commerce
Commission's valuation of a railroad has merely his-
torical worth if it has any. As a true estimate of
the property, if the method of fixing it were commonly
just, it is out of date the moment it is printed, or,
indeed, months before it is printed. But the Stock

"WATER" IN THE BAROMETER $3

Exchange price records the value from day to day,
from month to month, from year to year, from bull
market to bear market, from one of Jevons's cycle
dates to another; and the bankers of America and
any other civilized country accept that valuation and
advance real money on it, without reference to the
arbitrary estimate of the Interstate Commerce Com-
mission.

The Fetish of Watered Stock

It is astonishing to what depths of foolishness the
fetish of watered stock has carried this country. The
capitalization in stocks and bonds of its railroads,
alleged to 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
of any government or privately owned railroad in
Britain's self-governing colonies. I am not afraid to
go on record with the statement that the American
railroads are uneconomically undercapitalized, on their
real value. The charge of watered stock made against
the listed industrial corporations is equally absurd.
The stock market had far more than squeezed out the
water in that capitalization at the Stock Exchange
prices current in 1921. It had squeezed blood.

As this is written, United States Steel common is
selling under $80 a share. But stringent analysis of
an industrial corporation offering the most exhaustive
figures of any like company in the world gives a book
value to the common stock of $261 a share. In the
twenty years of its history it has put upwards of a

94 THE STOCK MARKET BAROMETER

billion dollars into the property in new construction,
and so little is this watered in the capital that this
new investment out of earnings is represented in prop-
erty account by only $275,000,000. The quick assets,
largely cash, are over $600,000,000 alone, something
like $120 a share with the whole concern scrapped.
Where is the water? A common stock capital of
$550,000,000 looks large, but it is only relatively large.
Was not Morgan right if he called this intelligently
anticipated growth? If his spirit could revisit the
pale glimpses of the moon, surely he would be aston-
ished at his own moderation.

And yet the distribution of the United States Steel
common and preferred stocks, made in the major swing
of a great bull market, was brought about largely by
the most stupendous manipulation the market ever
saw, under the direction of the late James R. Keene.
And what was the end of that manipulation? It was
to sell the common stock at fifty and the preferred stock
at par. If the people who bought at those prices put
the stock away after paying for it, would they have
anything to regret even at the low market prices of
August, 1921, attained after a major bear swing of
unusually long duration?

Buying on Values

Probably some one will charge me with writing a
bull argument about Steel common, because I set this
simple illustration before the public. There again we
have the inveterate prejudice against Wall Street.

1 t I I 9 02 I 1 3 I 1 B 4 I 1 1 S 1 i t 1 07 1 01 1 9 1 1 i 1 1

A COMPARISON OF THE MOST ACTIVE

IZ 1913 It 4 1t> I 1 1 I HI 7 I 1 II I 111l12 1! ill I 1 Ui

I 1 1 t I 1 1 7 I 1 1 1 I Itlll '!> Ili It 1 J

1CK UNITED STATES STEEL COMMON

"WATER" IN THE BAROMETER 95

The facts I have stated are of record, accessible to
anybody, perfectly well known to some of the people
at least who were selling Steel common in 1921. But
they were selling the stock because they needed the
money, at a time when most of us needed money.
When the Rothschild of the days of Waterloo, a week
before the result of that battle was known, was buying
British consols at fifty-four, a friend asked him how
he could buy with such confidence on an outlook so
uncertain. He said that if the outlook were certain
consols would not be selling at fifty-four. He knew
that with that uncertainty they must necessarily be sell-
ing below their value. Everybody needed money at
the same time, and he was one of the few people who
had any. I suppose no one will ever know how Russell
Sage did it, but he could lay his hands upon more real
money in a panic than anybody in Wall Street. He
believed in quick and liquid assets, short-time paper
maturing all the time, call loans and deposits every-
thing which could be turned into cash, not to hoard
but to buy freely when people who had lost sight of
values were selling.

A Story of Russell Sage

All sorts of stories are told of Russell Sage and his
extraordinary frugality. That is not exactly the word
I would use; nor would I call it miserliness, for he
was anything but a miser. I remember the last time
I ever saw him, when I was a young reporter, or at
least a younger reporter. I was trying to find out
something about a railroad property in which he was

96 THE STOCK MARKET BAROMETER

dominant with another financier of nation wide noto-
riety, or reputation. Lying is a word which is seldom
used (or needed) in Wall Street, -and it would be bet-
ter to say that the other financier had given me infor-
mation calculated to let me deceive myself if I was
not exceptionally wide-awake. With the idea, there-
fore, of seeing if Mr. Sage's terminological inexacti-
tude would differ from his comrade's, with enough
significance to enable me to deduce something from
the points upon which the two fairy tales did not agree,
I went over to see Sage, who was always accessible to
the newspaper men.

He greeted me in the most friendly way, as indeed
he did anybody whose visit had nothing to do with
money. I put my question and he rapidly changed
the subject. He said: "Do you know anything about
suspenders?" I was exasperated, but I replied mod-
estly that I did not know any more about them than
any other wearer. "What do you think of these?"
said Uncle Russell, handing me over a pair certainly
inferior to those worn by reporters, who are not, or
certainly were not at that time, given to undue extrav-
agance in such an article of attire. "What about
them?" I asked. "Well, what do you think of them?"
said Sage; "I gave thirty-five cents for those." Per-
haps I was a little vindictive, having failed to secure
even the poor information I had come to seek. I
said : "You were robbed. You can get better in Hester
Street for a quarter." Sage looked at me doubtfully.
"I don't believe it," he said. But he was really trou-
bled. It was not the difference of ten cents, and I

"WATER" IN THE BAROMETER 97

would not have sworn to the Hester Street quotation.
It was the principle of the thing. His judgment of
values had been impugned.

Values and Averages

And there you have it. The things in which Russell
Sage dealt had value. He had to know those values,
and it was by knowing them when they had ceased to
be apparent to other people that he died worth more
than $70,000,000. The stock market barometer
shows present and prospective values. It is necessary
in reading it to judge whether a long movement has
carried the average prices below that line or above it.
In looking back over the various analyses of the stock
market as a guide to general business, published in
The Wall Street Journal since Charles H. Dow died,
at the end of 1902, I find a typical instance of the
application of the averages which may seem remark-
able to the reader, although I regard it as the merest
common sense. There is no one so unpopular as the
man who is always telling you that he "told you so,"
but the illustration is impersonal.

A Cautious but Correct Forecast

No severer test could be taken than the interpreta-
tion of the averages in what might almost be called
the transition period between a bear and a bull market.
The bear market which developed from September,
1902, saw its low points in the September of the fol-
lowing year, and it is weeks or even months after-

98 THE STOCK MARKET BAROMETER

wards before the change in the major swing can be
definitely asserted. But on December 5, 1903, The
Wall Street Journal, after a review of the fundamen-
tally sound tendency of business in then recent years,
said:

"Considering the extraordinary advance in wealth of the
United States during that period, considering that railroad
mileage has not increased in anything like the ratio of increase
in surplus earnings, and finally considering that the ratio of
increase in surplus earnings available for dividends has been at
all times in excess of the rise in market prices and at the present
time shows a larger percentage on market price than at any
time since the former boom started, the question may well be
asked whether the decline in stocks has not culminated. There
is at least some evidence in favor of an affirmative answer to
that question."

A Bull Market Confirmed

It would be easy to say that such an opinion could
have been given without the help of the averages, but
it was given with the price movement clearly in view
and at a time when there was an easy possibility that
the main bear movement might be resumed. It cor-
rectly foresaw the bull market, allowing for the cau-
tion necessary in such a prediction and, indeed, for
the fact that analysis of the market movement was
still in its infancy. The bull market then foreseen
ran throughout 1904, and can be said to have ter-
minated only in January, 1907. But some nine months
after this editorial analysis of the business situation,
judged by the averages, was written, The Wall Street
Journal tackled the almost equally difficult question of

"WATER" IN THE BAROMETER 99

whether the bull market then getting into full swing
might be expected to continue. Remember that the
advance had been running with moderate but increas-
ing strength for twelve months, which would allow for
at least some discounting in values. On September 17,
1904, The Wall Street Journal said:

"There is apparently nothing in sight to lead one to believe
that railroad values are not on the whole maintaining their high
position, and that as time goes on this will bring a further
appreciation of prices. Much will depend on the coming win-
ter, which will at all events bring a clear indication of the
general trend of values. In the long run values make prices.
It is safe to say that if present values are maintained, present
prices are not on an average high enough.

"It must further be remembered that the continued increase
in the production of gold is a most powerful factor, which can-
not fail to be felt in the future as making for higher prices of
securities other than those of fixed yield."

A Vindication of the Theory

Note carefully that last line. We have satisfied
ourselves that bonds held for fixed income decline
when the cost of living rises, and more gold means
that the gold dollar will buy less because gold is the
world's accepted standard of value. But it stimulates
speculation, and the stock market had seen this in
1904, when this was written, even if the houses with
bonds to sell thought it rather "unclubby" to say any-
thing which would disturb their business. Of course,
these quotations are far from dogmatic, because Dow's
Theory was only beginning to be understood. We
shall see as the years went on that the theory allowed

ioo THE STOCK MARKET BAROMETER

for much more explicit statements of the market's
condition and its prospects. It is sufficient to record
how soon the stock market barometer proved its use-
fulness when Dow's sound method of reading it had
been set forth.

Chapter X

"A LITTLE CLOUD OUT OF THE SEA, LIKE A MAN'S
HAND" 1906

IN discussions such as these it is necessary to antici-
pate objections and explain apparent discrepancies.
There is nothing more deceptively fascinating than a
hypothesis which holds together too well. Out of
that sort of theory much obstinate dogma arises, which
seems able to continue its existence after time has
proved the theory unsound or inadequate. We have
established what is called Dow's theory of the price
movement the major swing, the secondary reaction
or rally, and the daily, fluctuation and out of it have
been able to evolve a working method of reading the
stock market barometer so constituted. But we are
to guard ourselves against being too cocksure, and to
recognize that while there is no rule without an excep-
tion, any exception should prove the rule.

The San Francisco Earthquake

i'he year 1906 presents an interesting problem in
this way. It is the problem of an arrested main bull
movement or an accentuated secondary reaction, ac-
cording to the way you look at it. It has been said
that major bull markets and bear markets alike tend
to overrun themselves. If the stock market were
oninis.cfcnt it would protect itself against this over-

101

102 THE STOCK MARKET BAROMETER

inflation or over-liquidation, as it automatically pro-
tects itself against everything which it can possibly
foresee. (But we must concede that, even when we
A have allowed for the further established fact that the
stock market represents the sum of all available knowl-
edge about the conditions of business and the influences
which affect business^ it cannot protect itself against
what it cannot foresee. It could not foresee the San
Francisco earthquake of April 18, 1906, or the sub-
sequent devastating fire.

Tactful to Call it a Fire

If you want to make yourself popular with that
somewhat strident individual, the California "native
son," you will not even allude to the San Francisco
earthquake. In California it is considered bad man-
ners to do anything of the sort. All that is conceded
there is the fire. For our purpose the earthquake
admits of no argument. Chronic California boosters,
however, cannot permit a general impression that
there might be, for instance, another earthquake in
San Francisco as bad as the last. A fire, on the other
hand, might occur to any city, anywhere, without de-
tracting from 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.
They put the Pacific coast in a class by itself, and a
class not at all to the taste of the inhabitants. As

A LITTLE CLOUD OUT OF THE SEA 103

Beau Brummell, the great English dandy of the early
years of last century, said: "A hole may be the result
of an accident which could happen to any gentleman,
but a darn is premeditated poverty."

Efect on the Stock Market

But the San Francisco earthquake came up in a
clear sky, and took an already reactionary stock mar-
ket by surprise. You will remember the clause in the
Lloyds ship insurance policies which 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
barometer. There was an undoubted bull market
from September, 1903, reaching a high point in Janu-
ary, 1906. It did not hold that point without reces-
sion; and it may be said that as a general rule there
is often no marked warning line of distribution at the
top of a major bull swing, especially when that bull
swing has overrun itself, as, for instance, it did in
1919. The market in the spring of 1906 was declining,
but with no such precipitancy as to indicate the bull
market would not be resumed, or had even been much
overbought when the earthquake occurred. We must
remember how serious the losses were. The convul-
sion set up a fire in the ruins of the immense number
of collapsed houses or those shaken to their founda-
tions, and this fire rapidly assumed the proportions
of what the insurance companies call a conflagration.
The American companies, without exception of con-

104 THE STOCK MARKET BAROMETER

sequence, and the English companies, paid up
promptly, to help the sufferers, although they had an
excellent fighting case over the earthquake itself.
We might have learned a little of German methods
from the action of Hamburg companies, who adopted
the opposite policy and repudiated their liability. It
might have taught us something of the German meth-
ods in the conduct of war and diplomacy, of the
German conceptions of the spirit of a contract and of
sportsmanship. At least after that time the fire insur-
ance companies of Hamburg wrote little insurance in
America.

Sound Prediction Under Difficulties

When the stock market is taken by such a surprise
there is a violent break closely akin to that of a panic.
The basis of a panic, when analyzed, is essentially
surprise. It cannot be said that the stock market of
1906, in the last days of April, got out of hand. But
the decline had been sufficiently serious. The twenty
railroad stocks which sold at 138.36 on January 22,
1906, on May 3d had declined over eighteen points;
the twelve industrials then used had reacted from
one hundred and three on January I9th to 86.45 on
the later date. There seems to be some sort of uni-
formity which obtains in breaks like this. Experience
records a recovery of part of the panic break, with a
subsequent and much slower decline which really tests
the strength of the stock market. In fact, The Wall
Street Journal of July 6, 1906, called attention to this

A LITTLE CLOUD OUT OF THE SEA 105

fact, in predicting a general recovery from the show-
ing of the averages. It said:

"It is a uniform experience, over the years when such averages
have been kept, that a panic decline is followed by a sharp rally
of from 40 per cent to 60 per cent of the movement, and then by
an irregular sag ultimately carrying the price to about the old
low point. It seems to need this to bale out the weak holders
who were helped over the panic. It could hardly be said that
the break on the San Francisco disaster was exactly of the panic
class, and the market in rallying recovered to 131.05 in the case
of the railroad stocks, which is only 1.61 below the price at which
the earthquake decline started. The rally, however, does repre-
sent about 60 per cent of the decline since January 22d, and the
course of the market since has been curiously parallel to the
movement observed after a panic rally. It seems fair to infer
that liquidation of very much the same kind as that following a
panic has been necessary."

Seriousness of the Disaster

At this distance of time we may easily forget how
serious the San Francisco disaster was. The loss direct
has been estimated at $600,000,000. The Aetna Fire
Insurance Company admitted that the conflagration
had cost it the savings of forty years. If that was the
effect on the strongest fire insurance company in the
United States, and one of the strongest in the world,
how severe must have been the consequences else-
where. It was all very well for the shallow, half-
taught optimist to say that broken windows made worn
for glaziers and manufacturers of glass. But it cost
you something to put in a new pane, and the money
you spent on it would have been spent on something

io6 THE STOCK MARKET BAROMETER

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

We see that the railroad stocks suffered more than
the industrials, and we should remember that they
were in a higher class, both relatively and positively.
But in a sudden and demoralizing break people sell
the things for which there is some market in order
to protect those for which there is no market. As
The Wall Street Journal put it at that time: "The
first decline in a panic is scare, and the second and
slower decline is the demonstration of the general
shock to confidence;" going on to say, in speaking
of the market on July 2d, that the line of prices was
well below the line of values and that the indications
were bullish.

Rally From a Break in a Bull Market

This inference proved correct, and it has been the
custom, which is followed in these discussions, to con-
sider the bull market which began in September, 1903,
as actually terminating and turning to the bear side,
not in January, 1906, but in December of the same
year. At the time the bullish inference quoted was
published the market was making a line which proved,
as the analyst correctly surmised, to be one of accumu-
lation. The forecast was soon verified, and on August
2 ist The Wall Street Journal again discussed the
market from the point of view of the averages. There

A LITTLE CLOUD OUT OF THE SEA 107

was a greatly active market at that time, and it re-
marked how absurd it was to suppose that within two
hours of trading on a Saturday one single interest
could possibly manipulate one million six hundred thou-
sand shares. This is a useful confirmation, coming
out of the past of fifteen years ago, of what we have
already seen for ourselves in demonstrating the rela-
tive unimportance of manipulation. In that discussion
The Wall Street Journal went on to say: "We can
only suppose that the long decline between January
22d and July 2d represented a somewhat extended
bear swing in a bull market."

'Average Deductions Uniformly Correct

Remember that this correct inference was drawn at
the time, and not after the event. I could easily go
back and show how trustworthy these deductions have
been over the twenty-odd years since Dow formulated
his theory. It would be absurd to say that it was
possible to call the exact turn in the major swings,
much less anticipate the unexpected. But these studies
in the price movement did what was much more useful
from the point of view of those using the barometer
from day to day: they were continually right when
they said of a major movement that it was still in
progress, even when a deceptive secondary movement
had made superficial observers bearish in a bull market
or bullish in a bear market.

There is a story, probably apocryphal, of James R.
Keenc saying that he would be well content to be

io8 THE STOCK MARKET BAROMETER

right 51 per cent of the time. I don't believe he ever
said it. He must have found a much larger percentage
necessary. The balance in his favor would not have
paid operating costs, to say nothing of keeping a
racing stable. But the deductions from the evidence
of the price movement have been right, as the printed
record proves, much the most of the time. After
searching both the record and my conscience I can
find no instance of a radical misinterpretation of the
meaning of the barometer. The studies based upon
its use were uniformly able to anticipate what the
public was thinking about business before the public
knew its own thoughts. The errors, where any oc-
curred, were mainly due to the almost impossibility of
forecasting the secondary movement of the market.
This is really much more difficult than the interpreting
of the major swing, just as it is easier for the Weather
Bureau to forecast weather for a large area than it
is to say whether it will rain in New York to-morrow
morning.

Initiation of a Bear Market

Near the top of this bull market The Wall Street
Journal uttered a caution. It pointed out, on Decem-
ber 15, 1906, that there had been a "line," especially
in the twenty active railroad stocks, and that the
possibility of a break through the lower level of the
line should be considered as indicating the warning of
a coming decline. This forecast did not commit itself
to anything more than a possible bear swing in what
had been for three years a primary bull market. It

A LITTLE CLOUD OUT OF THE SEA 109

was altogether too early to call the actual turn. In
the beginning of 1907, large railroad earnings, materi-
alized in the case of the spectacular dividend policy
announced for the Harriman roads during 1906, were
set off against high money rates, which, as we soon
saw, were already beginning to warn the market, and
business generally, of that severe crisis brought about
later in the year ; when the reserve of the old national
banking system virtually went to pieces, call money
became practically unobtainable at unparalleled rates,
and the banks resorted to clearing-house certificates
for the first time since the panic of 1893.

In the month of January, 1907, the active profes-
sional traders were selling stocks. Political meddling
was beginning to scare investors, and before the year
was out there was what amounted to a strike of
capital. The decline in stocks had already started,
and it is interesting to trace the elapsed time taken
to decide that a major bear swing had replaced the
preceding long-continued bull movement. A decline
of prices in January is always disturbing to the stock
market because that is a time of year when, other
things being equal, the tendency is oftenest bullish.
It is a time for cheap money, and the reinvestment of
the profits of the preceding year. It is a time, more-
over, when it is peculiarly unpopular to talk bearish
in Wall Street. The prophet of evil, as I have already
frequently demonstrated, is totally without honor in
that part of the country.

1 10 THE STOCK MARKET BAROMETER

Boom Times and a Falling Barometer

In the long bull market there had been an unusually
large emission of new issues, and it was then that the
late J. Pierpont Morgan originated the phrase about
undigested securities. America loves a good phrase,
and that one caught hold. Industrial earnings, and
especially those of the United States Steel Corpora-
tion, continued remarkably good. The railroads were
making an excellent showing of both gross and net.
But the sharp decline in the averages in January made
our commentator most cautious, particularly in de-
clining to predict a rally, much less assume that noth-
ing more than a secondary reaction had been estab-
lished. It was altogether too soon to be positive
about the major movement. In fact the severe decline
kept everybody guessing; but it appears from the rec-
ords that early in March the existence of a primary
bear market was conceded and The Wall Street
Journal, very like any other newspaper, was doing
all it could to cheer up the dispirited investor with a
statement of the genuinely satisfactory features.

Some Bearish Influences^

But the market was looking at all the facts, and
the far-reaching consequences of some of them were
reflected in stocks. These bear arguments were given
on March 15, 1907, and they read curiously now.
They were :

"i. Excessive prosperity.

"2. High cost of living, due largely to the effect upon prices
of a great gold production.

A LITTLE CLOUD OUT OF THE SEA 1 1 1

"3. Readjustment of values to the higher rates of interest.

"4. Speculation in land absorbing liquid capital that might
otherwise be available for commercial enterprises.

"5. Roosevelt and his policy of government regulation of
the corporations.

"6. Anti-railroad agitation in the various states.

"7. Progress of socialistic sentiment and demagogic attacks
on wealth.

"8. Harriman investigation of exposure of bad practices in
high finance.

"9. War between big financial interests.

"10. Over-production of securities.

"u. Effect of San Francisco earthquake."

There were other causes quoted of only momentary
consequence, in which possible bear manipulation was
put last. It has been said already that there never
was a bear market which was not justified by the facts
subsequently disclosed. Are we not entitled to say
that some of these influences became permanent, to
an extent which even the stock market could not pos-
sibly foresee, conceding that it is, at least theoretically,
of longer and larger vision than any of us ? As after
events proved, the over-regulation of the railroads
alone was sufficient to justify investors in protecting
themselves, whatever the consequences to the stock
market might be.

An Abnormal Money Market

In retrospect, the year 1907 seems to me the most
interesting I have ever spent in Wall Street, and per-
haps the most instructive. It is full of lessons and
warnings. I wish that the scope of these discussions

1 1 2 THE STOCK MARKET BAROMETER

permitted a treatment of it in greater detail. There is
no better story of it for the student than that of Alex-
ander Dana Noyes in his Forty Years of American
Finance. He was financial editor of the Evening
Post at that time. I remember that at the beginning
of the year, when industry was booming, when railroad
gross and net earnings were making about the best
showing on record, when the stock market was only
receding a little from three years of advance, where
prices, moreover, at least on paper, had not overtaken
values, he was struck, as I was, by the abnormal
money market. That is the time of year when money
should be cheap, and it was almost painfully tight in
February. The stock market foresaw the meaning of
it long before we did, as the major bear swing of 1907
showed.

No Bigger Than a Man's Hand

There was a broker of that time, since dead, whose
face comes up before me as I write. He talked in
terms of Wall Street, but his illustrations were vivid
and his intelligence was well above the average. He
was an educated lover of music, and much more rever-
ent than he sounded. He was speaking to me one
day about a performance of Mendelssohn's "Elijah"
that he had once heard, with the title role taken by
the greatest oratorio artist of all time, the late Charles
Santley. The dramatic story had appealed to my
friend. He talked of the priests of Baal being "corn-
ered bears of the stock Elijah controlled," and of
"their frantic efforts to cover their shorts." He was

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

Not only was the collapse in business tremendous.
It developed with a suddenness which simply took
our breath away. At the close of the year I was
traveling on the Pennsylvania railroad with Mr.
Samuel Rea, now the president and then the first vice-
president of the road. The Pennsylvania carries
and carried then a tenth of the railroad freight of
the United States. Mr. Rea said that at a time when
they were only a month away from the peak of their
load, apparently able to count upon the crop movement
and the industrial traffic, both ways, of the Pittsburgh
district, business seemed to shut up like a jackknife,
almost overnight. We could see the empty cars in
the stub-end sidings and yards all along the system
between Philadelphia and Pittsburgh, at a time of year
when railroads are normally using everything but the
cripples in the repair shops.

The Deadly Hand of Politics

There had been nothing like it since the collapse of
l $93> when that Congressional monument of economic
ignorance and sectional folly, the Sherman Silver Pur-

1 14 THE STOCK MARKET BAROMETER

chase Act, reaped its grisly harvest in the most demor-
alizing and far-reaching panic we ever saw. That
seemed to have been a lesson to our lawgivers. The
lean years which followed that panic, with the almost
universal bankruptcy of the railroads and those who
served them, finally put the fear of the Lord into the
politicians. For ten prosperous years previous to 1907
they had quit kicking the business dog around. But
in that year they had fully resumed that highly ex-
pensive sport, and before the end of the year there
was a strike of capital. Every man who had any-
thing to lose was terrified. Every man who knew
anything foresaw what bureaucratic meddling and un-
intelligent regulation would do for the business of
tl e country. It seems to me, if I am not wandering
frt n my text, that this is largely what is the matter
with the country now, war or no war, and that the
stock market for two years past has been foreseeing
some of the further consequences of fool politics. It
may also be that in the impending improvement in
business, already foreshadowed by the averages and
the underlying investment demand shown in bonds,
the market foresees some return to sanity, even if the
indications in Congress at present are anything but
encouraging.

Chapter XI

THE UNPUNCTURED CYCLE

WE have been considering in some necessary de-
tail the record of the stock market barometer,
and we shall have some further historical study to
make in that interesting and little understood period
between the bear market which culminated in 1910
and the outbreak of the World War. We have hith-
erto paid small attention to the tempting "cycle
theory" of human affairs, and especially of business
affairs. In an early discussion I set forth the panic
dates for the eighteenth and nineteenth centuries as
recorded by Jevons, together with Dow's brief account
of our panics of last century. But it was essential to
establish something of an irregular stock market cycle
of our own, not necessarily, and hardly more than
incidentally, involving a panic for, indeed, the panic
has more than once proved to be merely an interrup-
tion in the main movement of the barometer.

Our Own Modest Cycle

We can see that we have established some sort of
irregular rotation through Dow's theory of the stock
market price movement its major swing up or down;
its secondary reaction or rally, as the case may be;
and the daily fluctuation in prices on the Stock Ex-
change as reflected in the records of the average*,

1 1 6 THE STOCK MARKET BAROMETER

But the theory of the longer rhythmical cycle will
not down. It seems to be almost an obsession with
many of my readers and critics. None of them seems
to have analyzed his belief in it in any searching way.
The general impression is that there is "something
in" the idea; that if it is not proved true it should
be true; that the world's panic dates themselves indi-
cate a striking degree of periodicity; that, given such
periodicity in the past, we may anticipate something
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.

Basis of the Cycle Theory

Probably this unwillingness to analyze the panic
theory arises from the fact that in the eighteenth
century, according to Jevons, there were exactly ten
noteworthy crises at an average of ten years apart. I
am content to waive the one Jevons omitted that
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 18045 as crisis years, while it is of record
that our own first panic of the nineteenth century was
consequent upon the British capture of the city of
Washington in 1814 an event which no cycle could
have predicted, unless we are to assume that the cycle
theory could have predicted the late war. But, count-
ing 1814, and what Dow calls the "near approach to

THE UNPUNCTURED CYCLE 117

a crisis" in 1819, there were ten American crises in
the nineteenth century.

Let us see how the cyclist if that is the correct
word approaches the subject. The ten-year interval
between the British crisis of 1804-5 and our own of
1814 might stimulate him at first. And the really
serious and nation wide crises of 1837 and 1857 would
give him a great deal of confidence. He would recall
the ten-year intervals of Jevons, and that we had up
to 1837 recorded four crises of sorts, in four decades
of the new century. We did not greatly share the
panic in Europe in 1847, although it was sufficiently
serious there to impress itself upon American memory.
But when the cycle enthusiast found a real panic in
1857, ne cried "Aha! We have now discovered the
secret. There is a twenty-year cycle, with a big crisis
at each end, and a little crisis in the middle. We may
now confidently set about humoring the facts to fit
this beautiful theory."

Misfitting Dates

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

1 1 8 THE STOCK MARKET BAROMETER

of the interval between great crises. The twenty-year
theory was deflated to sixteen, and it is hard to derive
much consolation from the fact that the Overend-
Gurney failure in London in 1866 had marked a date
conveniently between the two great crises. The Lon-
don panic of 1866 was accompanied by a heavy fall
in prices in our Stock Exchange. In April of that
year there was a corner in Michigan Southern and
rampant speculation. The truthful but cautious Dow
says that the relapse from this "was rather more than
normal."

But the three panic years 1873, 1884 and 1893 did
something to revive the confidence of the ten and
twenty-year theorists. The first and the last were
crises of almost world wide magnitude and equally far-
reaching consequences. Our cyclists said: "That slip-
up in the reduction to sixteen years for the interval
between crises occurring in 1857 and 1873 was merely
fortuitous, or at least we shall be able to explain it
satisfactorily when we have deduced only a little more
about the laws which govern these things." And the
twenty-year cyclists prophesied, saying: "There are
twenty years between 1873 and 1893. Our barom-
eter is getting into shape. There will be a minor crisis
round about 1903 and a major panic in 1913, or not
later than 1914."

Lost in Transit

What is the use of the theory, indeed, unless it can
be made the basis for at least as much prophecy as
that? But between 1893 an d 1907 we have an interval

THE UNPUNCTURED CYCLE 1 19

of fourteen years. Has the twenty-year period con-
tracted, or the ten-year period expanded, to fourteen
years? Is there any dependable periodicity about the
thing? We see that there was not the slightest reason
for any crisis in the years presumably anticipated by
the cycle theorist 1903 or 1913. Indeed, the vol-
ume of the world's speculative business was not large
enough to make a crisis in those years. It is reason-
ably certain that a smash cannot be brought about
unless an edifice of speculation has been constructed
sufficiently high to make a noise when it topples over.
What is the value of all this as a forecast for busi-
ness? I cannot see that it has any. The theory has
to make so many concessions takes so much humor-
ing, in fact that it ceases to have more than a value
for record. We see that the sweeping conclusions
based upon the cycle assumption had to be changed
again and again. Does much that is really useful
remain? I am anything but a sceptic; but this whole
method of playing the cycles looks to me absurdly
like cheating yourself at solitaire. I can understand
stringent rules, arbitrary rules, unreasonable rules,
in any game. But my mind fails to grasp a game
where you change the rules as you go along.

Are They Equal?

And what becomes of that imposing premise that
"action and reaction are equal?" Are they? There
is little real evidence to prove the assumption, in
recorded human affairs. Of course the holders of that

120 THE STOCK MARKET BAROMETER

theory may respond, "Well, if they are not equal they
ought to be." I cannot even see why they ought to be.
Certainly, holding a Christian faith in the perfectibil-
ity of human nature, I do not see why crises should
not be eliminated altogether. It is easy to see how
the periods between them at least seem to have grown
longer. The interval between 1893 and 1907 was
fourteen years, and 1920 was no panic year.

Unless we are to force the construction of what
constitutes a panic until we actually distort it, we can
hardly regard the deflation liquidation of 1920 as a
typical crisis. It could not begin to compare with the
damaging effects of 1893, I 873> 1857, or 1837. I fc had
none of the earmarks of a panic year. I dare say I
shall believe, in five years' time, that the drastic con-
traction and deflation were about the best thing that
could have happened to us. They should certainly
discount all sorts of trouble in the future.

A Business Pathology Needed

There must be some sort of scientific pathology of
business affairs, or perhaps it might be better to call
it morbid psychology. I have suggested in another
chapter how utterly inadequate the records of history
are in the vital matter of commerce and all that con-
tributes to it. But we are beginning to 1 acquire a
scientific knowledge of the symptoms of the diseases
which afflict it. In this respect we have probably made
more advance in the past quarter of a century than in
all the years since Carthage sold the purple weaves

THE UNPUNCTURED CYCLE 121

of Tyre to Rome. We may well hope that we are de-
veloping a scientific method of diagnosing the symptoms
of business disease. There was no such method in 1 893,
bcause there were no such records as we have today.

But why need we assume that once every ten years
or twenty years, or any other period, the most intelli-
gent part of mankind loses its head and forgets all
the lessons of the past? One thing is certain about a
panic. It could never occur if it were foreseen. Are
we not working toward a sum of knowledge and an
accuracy of analysis which will, in a sufficiently safe
measure, foresee all but the non-insurable risks "the
act of God and the King's enemies?"

The Federal Reserve Safeguard

I can see a great deal too much politics, and many
defects, in the Federal Reserve banking system. But
under that system it is hard to imagine a set of con-
ditions which would force the country to resort once
more to clearing-house certificates, as it did in 1907
and 1893. It would pass the wit of man to devise a
perfect banking system ; and what would seem perfect
to one would appear utterly inadequate to another.
But the progress from the old national banking system
to the Federal Reserve system represents the most
tremendous stride in business practice which the coun-
try has ever seen. Is not the Reserve system itself an
entirely new factor for the cycle theorist to consider?

It must not be assumed for a moment that possible
crises in the future may be dismissed from considera-

122 THE STOCK MARKET BAROMETER

tion. On the contrary, they are certain to come. But
may we not hope that, with fuller knowledge, they
will be at least in part anticipated and, in their most
dangerous effects, radically mitigated?

Teaching the Teacher

If these studies have shown the man who takes an
intelligent, even if not a financial interest in Wall
Street, that knowledge will protect him there as it
will anywhere else, the educational design has been
largely accomplished. Certainly one of the desirable
educative services of this series has been to show the
writer how much there was about the stock market
movement which he had never before formulated to
himself in any useful fashion. The way to get at the
essence of such a proposition is pragmatic to live
with it from day to day. The stock market problem,
considered in the light of Dow's Theory, is essentially
simple. It can be set forth in a thoroughly useful way,
provided only that the teacher is neither a crank nor
a quack, a gambler or a crook. Harvard University
is performing a greatly needed service in putting out
tabulations and index charts on general business con-
ditions which are above suspicion. The compilers have
not tied themselves down to dangerous assumptions.
They are not lashed to an assumed "medial line" of
national wealth with a constant upward tendency at
the same rate of speed in good times or bad, which
loses its certainty in face of the grim facts of war,
and hysterically changes its course.

THE UNPUNCTURED CYCLE 123
Does the Physical Law Apply?

Such a system as that of Harvard University is not
committed to the proposition that in human affairs
action and reaction are equal. That is a fine-sounding
phrase, but it should require incalculably more evi-
dence than has yet been adduced to persuade us to
adapt a law of physics to something so unstable and
elusive as human nature itself. Among the many
things which our stock market averages prove, one
stands out clearly. It is that so far as the price move-
ment is concerned action and reaction are not equal.
We do not have an instance of a bull market offset in
the extent of its advance by an exactly corresponding
decline in a bear market. And if this is true, as it
demonstrably is, about the extent of the price move-
ment in any given major swing, it is still more true
about the time consumed. We have seen that bull
markets are, as a rule, of materially longer duration
than bear markets. There is no automatically balan-
cing equation there. I do not believe there is such an
equation in human affairs anywhere. Certainly there
is none recorded in history. I am compelled to rely
upon others for tabular figure compilations of all
kinds, and do not profess to have used my modest
razor for the cutting of any of these tables of stone.
But in all the study of figures prepared for use in my
profession, I have been unable to find a balance of
action and reaction.

124 THE STOCK MARKET BAROMETER

Extent and Duration Incalculable

Certainly the stock market barometer shows noth-
ing of the kind. There is no approximation to the
regularity of the pendulum, either in the arc of the
swing or its velocity. We see a bear market declining
forty points, a bull market advancing fifty points over
more than twice the period, a bear market declining
nearly sixty points, a bull market recovering forty-
live points, a bear market declining less than thirty
points, a major swing upward of not much more than
twenty points, a bull market advancing nearly sixty
points in the industrials with a simultaneous advance
of less than thirty in the railroads, and a different
period for each successive swing. This, in approxi-
mate figures, is the record for a quarter of a century.
There is, obviously, a rough periodicity about such
movements. But if we begin to twist them into some
mathematically calculable, regularly recurring "cycle,"
the next main movement, up or down, will leave us all
adrift, with nothing to hold on to but an empty theory
and an empty purse.

Sham Mysteries

I do not want to dogmatize about this, although I
am trying to make what is essentially a scientifically
treated subject popularly interesting, if, indeed, ser-
mons are ever popular. One trouble of all teaching,
and a moral danger to every teacher, is that the
authority necessarily accorded to the instructor leads
him to make something of a mystery of his trade. His

THE UNPUNCTURED CYCLE 125

unconscious desire to eliminate embarrassing competi-
tion leads him to exaggeration of the difficulties to be
encountered in acquiring a sound knowledge of the
subject. In a brief time, as human affairs run, there
will be a sort of cult amplifying and complicating an
otherwise simple thesis. Every religion breeds a
priesthood, where sacerdotal succession becomes more
important, or at least much more jealously defended,
than mere salvation. Both in the English common
law and the canon law handicrafts were sometimes
referred to as mysteries. The plumber who comes
into your house likes you to believe that his elaborate
preparations, and the general mess he makes, are evi-
dence of the difficulty of the task he has accomplished
a difficulty you as a layman are entirely unable to
measure and a sufficient pretext for the extortionate
bill he renders.

Tipsters and Insiders

I have known some likable people connected with
what are frankly stock-tipping agencies. There is a
market for what they supply, and they are necessarily
excellent judges of human nature. They are never
bearish on the stock market. They are often success-
ful and prosperous in a bull market, and I suppose that
the savings of the fat years support them in the lean
ones. They tell the unscientific speculator what he
wants to know, but not what he needs to know. Some-
times the guessing is good, and always there is the sug-
gestion that there is a mystery about reading the stock

126 THE STOCK MARKET BAROMETER

market movement. If this is true of what they teach
on the general market, it is still more true about indi-
vidual stocks. With them "insiders" are always buy-
ing. In my experience I have known many insiders,
and for every purpose of the small speculator they
were far oftener wrong than right.

As a matter of fact these so-called insiders, the real
men who conduct the real business of a corporation,
are too busy to spend their time over the stock ticker.
They are far too limited, too restricted to their par-
ticular trade, to be good judges of the turn of the
market. They are normally bullish on their own prop-
erty, in the respect that they believe it to be a growing
concern with great possibilities. But of the fluctua-
tions of business which will affect their stock, together
with the rest in the same group or all the other rail-
road and industrial stocks in the same market, their
view is singularly limited. It is not mere cynicism but
truth to say that sufficient inside information can ruin
anybody in Wall Street.

That is not only true, but it is an excellent thing that
it is true. Of course the executive officers of large
corporations should have a sound general knowledge
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 objec-
tive view. But even with the basis of a general educa-
tion, such as is required in a good university of the
man who intends afterwards to specialize in law or
surgery, their very occupation unduly affects their
sense of proportion. ,

THE UNPUNCTURED CYCLE 127

Our Trustworthy Guide

This is why the stock market barometer is so valu-
able. It makes little of cycles or systems, interesting
and even well-grounded inferences or common fads.
It uses them all so far as they are useful, together
with every other scrap of information it is possible
to collect. The market movement reflects all the real
knowledge available, and every day's trading sifts the
wheat from the chaff. If the resultant showing of
grain is poor, the market reflects the estimate of its
value in lower prices. If the winnowing is good, prices
advance long before the most industrious and up-to-
date student of general business conditions can bushel
up the residue and set it forth in his pictorial chart.
Few of us can be Keplers or Newtons. But it is pos-
sible to formulate working rules which will help and
protect any man in that forecast of the future which
he must necessarily make every day of his life. This
is what the stock market barometer does. It makes
no false claims. It admits highly human and obvious
limitations. But such as it is, it "an honestly claim
that it has a quality of forecast uhich no other busi-
ness record yet devised has even closely approached.

Chapter XII

FORECASTING A BULL MARKET 1908-1909

CONTINUING the important and, indeed, vital
subject of the prediction value of the stock mar-
ket barometer, if we are to prove the validity of Dow's
theory of the price movement, the analyses of the
stock market averages published at irregular periods in
The Wall Street Journal in 1907-8 may be here sub-
mitted. These are of record, and there is a personal
reason why they should have impressed themselves
upon my memory. At the end of the year 1907 the
late Sereno S. Pratt, a man of sound economic knowl-
edge, sterling character and exceptional ability as a
newspaper man, relinquished the editorial chair of
The Wall Street Journal for the dignified and less
exacting post of secretary to the New York Chamber
of Commerce.

Impersonal Editorials

Apart from the fact that they are not signed, news-
paper editorials have far less of any personal quality
than the public supposes or politicians assume. The
editor is, of course, personally responsible for them,
not only to the proprietors of the paper but civilly and
criminally under the law. His own editorials arc
checked, when necessary, by the experts of the paper
who "cover" particular subjects, and what they write

128

A BULL MARKET 1908-1909 129

editorially is in turn subject to the editor's revision.
Several competent persons have seen and criticized an
editorial before it appears, in any well-conducted
paper. I succeeded Pratt at the beginning of 1908,
but it is impossible for me to say, even if the matter
were not in some degree confidential, to what extent
the editorial discussions of the averages were a matter
of individual thought, although the methods of an
editor unconsciously impress themselves upon his staff.
At any rate Pratt and I were of one mind in the
method of reading the averages which the paper had
inherited from Charles H. Dow, its founder.

Detecting the End of a Bear Swing

It will be remembered, from the preceding article,
that there was a short but severe major bear swing
lasting throughout 1907, really culminating on No-
vember 2 1 st of that year. In the last week of Novem-
ber the industrial stocks rallied sharply, as they might
equally have done in a secondary upward swing in a
bear market; and the most difficult of all barometer
problems, that of calling the turn of the market, pre-
sented itself. On December 5th The Wall Street
Journal said:

"Since November 2ist, when the average price of twenty rail-
road stocks touched 81.41, its lowest point, there has been an
advance of 7.70 to 89.11, which was the record at the close of
yesterday's strong market. During these ten days there have
been only two days of decline. This is a very substantial rally,
and perhaps it is too rapid, all things considered, although it still

130 THE STOCK MARKET BAROMETER

leaves prices on a basis which would seem to discount in large
part the reasonable trade contraction of the future."

On December 23d there was an incidental reference
to the averages in the discussion of the general devel-
opments of the week. The writer seems to have felt
rather than asserted the change, which it would have
been rash to predict, and said:

"It will be noticed that there has been quite a typical move-
ment of the average price of railroad stocks. It declined twenty-
six points from July 2Oth to November 2ist. It rallied nine
points in the following fortnight, reacted four points in the next
ten days, and has rallied two points in the past week. This is
really the shortened swing of the pendulum, as it approaches
equilibrium."

A Self -Correcting Barometer

Before we go further it is necessary to say some-
thing about the secondary movement of which this
paragraph gives a simple, concrete instance, sufficient
for our present purposes. It will be observed that the
reaction following the rally from the low points of
the bear market was checked before it reached the old
low, and for purposes of record it may be said that
the movement of the twelve industrial stocks then used
in the average was roughly parallel and confirmatory.
Perhaps the last sentence "in the paragraph quoted is
the most illuminating if it were intended to develop
in this article the meaning and function of the sec-
ondary swing. It may be said that in that way our
barometer tends to adjust itself. At the turn of a
bear market there is a chaos of knowledge of all kinds,

A BULL MARKET 1908-1909 131

and an almost inextricable confusion of opinion, which
is gradually resolving itself into order. It follows
that speculators and investors tend to anticipate the
market movement and often look too far ahead.

Right Too Soon

It would be possible to offer endless instances of
people who lost money in Wall Street because they
were right too soon. One illuminating instance occurs
to me as far back as the bull market which developed
in the summer preceding the re-election of McKinley
in 1900. One of the most conspicuous traders on the
floor then was a partner in an active arbitrage house
which has long since gone out of existence. For the
sake of the layman it may be explained that an
arbitrage house is (or was) one of those which did
business by cable exchange with the London market,
taking advantage of the fluctuating differences between
the prices in the forenoon on the New York Stock
Exchange and those in what at that time of our day
would be the afternoon in the London Exchange. But
in those dull summer days there was not enough busi-
ness for the arbitrage houses, or anybody else. The
total recorded transactions, which have in their time
exceeded three million shares a day, dwindled down
to considerably less than a hundred thousand.

Louis Wormser, however, was as active as a trader
could be on the floor in such circumstances. He was
bullish all through the summer. Other traders com-
plained that he went about spoiling what little market

132 THE STOCK MARKET BAROMETER

there was in any stock which was momentarily active.
It is fair to say that he was entirely within his rights
as a floor trader and a member of the Exchange. The
market did not begin to gain strength or volume until
the last few weeks of the presidential campaign.
Wormser was then on the right side and followed the
market up. I suspect he even fancied he was leading
it. For three days after the election stocks were very
strong. They were so strong that he was convinced
the bull movement had sufficiently discounted the re-
election of McKinley. He turned bearish, and prob-
ably lost in a few days all he may have made on the
bull side in the preceding five months. That bull mar-
ket, as we have shown, did not culminate until Sep-
tember, 1902, in spite of the serious interruption of
the Northern Pacific corner and panic. This is an
excellent example of a speculator who saw only one
of the many factors where the market saw all of
them, and who was not content to trust the barometer.
It may, indeed, have been that Wormser's prominence
in a restricted market, a relatively large frog in a
small puddle, had given him the impression, by no
means singular, that he alone constituted the market,
as he sometimes had in the dull days preceding the rise.

A Courageous Prediction

Returning to the bull market of 1908 and 1909,
which The Wall Street Journal was evidently begin-
ning to foresee, on December 25, 1907, that news-
paper said, "We have seen the low price for the

A BULL MARKET 1908-1909 133

year in all probability." On January 10, 1908, when
the country was still quivering from the shock of the
developments of 1907, when the clearing-house certifi-
cates were a vivid reality, The Wall Street Journal,
manifestly judging by the barometer alone, was able
to record a significant rally. Speaking of this pre-
liminary movement, it says that it gives "the impres-
sion that it is one of those sharp fluctuations which
follow an extreme low point and precede, at greater
or less distance, a permanent turn in the tide." That
seems fairly courageous and clear as a prediction, and
one of exactly the conservative kind business men were
being led to expect from the general consideration of
the stock market barometer. Let us keep in mind
that Dow's theory is not a system devised for beating
the speculative game, an infallible method of playing
the market. The averages, indeed, must be read with
a single heart. They become deceptive if and when
the wish is father to the thought. We have all heard
that when the neophyte meddles with the magician's
wand he is apt to raise the devil.

Reviewing the Collapse

Prediction was anything but a comfortable task in
the beginning of a bull market which nobody at that
time would concede, much less forecast with any degree
of certainty. In an earlier chapter of this series great
stress was laid on the suddenness with which business
collapsed in 1907. The Wall Street Journal recalls
the conditions, and the startling change, in its editorial
of January 24, 1908:

134 THE STOCK MARKET BAROMETER

"Consider, for instance, the rapidity with which the pendu-
lum of business has swung in this country from extreme pros-
perity to great prostration. Almost in a single night the
situation changed from one extreme to another. Even after
the panic had swept through Wall Street with terrific force a
high official of a leading railroad commented upon the fact that
the traffic of his line had the day before touched high-water
mark. Three weeks later the same official reported that the
business of the line had fallen off abruptly. Anecdotes of this
kind could be multiplied indefinitely.

"It is only three months since the panic started in Wall
Street, and yet that time has been sufficient to produce what
amounts to a revolution in the economic conditions of the
country. Three months ago there were not cars enough to
move the freight. Now there are several tens of thousands of
empty freight cars on the sidings and in the terminals. Three
months ago the iron and steel trade was at the very height of
its activity. It took only five or six weeks to cut off the demand
and to close mills. If a chart were drawn to describe the
reduction in iron and steel production in the past ten weeks,
it would make almost a perpendicular line, so sudden and
extreme has been the contraction."

A Bull Market Recognized

These extracts could be supplemented by and con-
trasted with the uniformly bullish inferences drawn
from the stock market barometer during the winter
and spring of 1908, when the business of the country
was, apparently, in the deepest stage of depression.
The depression was recognized; but the fact that the
stock market was acting not upon the things of the
moment but upon all the facts, as far ahead as it could
see them, was never allowed to become obscure. It
will be seen that The Wall Street Journal set forth

A BULL MARKET 1908-1909 135

the known facts in the paragraphs quoted above. A
well-known chart showed its lowest point of depres-
sion at that time and did not cross its medial line, to
begin its ensuing area of expansion, until the following
November. But the stock market anticipated that
record by a clear twelve months, and the faithful
barometer predicted the recovery when there was ap-
parently not a patch of clear sky on the horizon.

Reprobating the "Frivolous" Recovery

Looking back on those days of early responsibility,
it is matter of thankfulness to me to have had Dow's
sound theory to back me in the face of unbelievably
virulent criticism. In the mind of the demagogue
Wall Street can never be forgiven for being right when
he is wrong. The country at that time was full of all
kinds of agitation for the curbing, controlling, regu-
lating and general bedeviling of business. Discontent
was general, and it was a winter of unemployment.
Some of the letters received, in which this bullish atti-
tude of the stock market was denounced in the most
unmeasured terms, would sound funny now, although
they were anything but funny then. We seemed to be
in the position of the "coon" at the country fair who
puts his head through a hole in a sheet as a target
for those willing to pay their nickels for the privilege
of a shot at him. The lightest accusation was that
Wall Street was "fiddling while Rome was burning."
The general charge took the form that guilty manipu-
lation by gamblers was in progress.

i 3 6 THE STOCK MARKET BAROMETER

If you will refer back to the twenty-five-year chart
published with an earlier discussion you will note that
the recorded sales at that time were the lowest since
1904, indicating a market so narrow that manipulation
would have been wasted even if it had been possible.
But that charge is always made in a bear market and
in the transition period between a major decline and
its succeeding upward movement. If I had not already
advanced so many arguments to prove what an in-
considerable factor manipulation really is, the volume
of sales itself would be sufficient to make my point.
But these sturdy protestants thought otherwise, and
continued to fill my wastebasket with revilings for
many months to come. For a time at least, a bull
market was positively unpopular.

Relevance of the Volume of Trading

It is worth while to note here that the volume of
trading is always larger in a bull market than in a
bear market. It expands as prices go up and contracts
as they decline. A moment's thought will reveal the
reason. When the market has been under long depres-
sion many people have lost money, actually and on
paper, and the fund for speculation or speculative
investment is correspondingly contracted. On the ad-
vance, however, many people are making money, actu-
ally and on paper, and the wellnigh universal experi-
ence has been that in the last stages of a bull market
they trade in stocks beyond their real resources. This
is uniformly true of major bull swings, but is subject

A BULL MARKET 1908-1909 137

to great modification in the secondary movements. A
sharp reaction in a bull market will often stimulate
the volume of business. There is a picturesque example
of this in the most spectacular reaction of the kind.
The average monthly sales in May, 1901, have not
been closely approached since. They were more than
one million eight hundred thousand shares a day, in-
cluding Saturdays, when there is only two hours of
trading, and it was on the 9th of May that the North-
ern Pacific panic took place. There will be an oppor-
tunity to take up the secondary swing in some detail
in a future discussion, and it is not necessary for our
purpose to expand upon the subject now.

An Unbiased Mind

Not to be tedious, but to counter the charge of
saying "I told you so," on ex post facto evidence, it
has been necessary to offer these examples of the prac-
tical use of the stock market barometer. There is,
indeed, little in these predictions to excite boasting.
Any intelligent student of the averages who has once
grasped the principle of the stock market barometer
can draw such deductions for himself, provided he
brings to the task a really unbiased mind. An interest
in the stock market would be almost certain to weaken
his judgment. It is only human to foresee what you
hope and, indeed, what you expected when you bought
stocks for the rise or sold them short. But the analyst
of the price movement, writing for the guidance of
others, must be absolutely disinterested. There are all

i 3 8 THE STOCK MARKET BAROMETER

sorts of traps to catch him if he is not, particularly if
he has previously committed himself to inferences not
clearly justified by the premises. Sheer pride of
opinion has ruined more speculators in the stock mar-
ket than all other causes put together.

An Unfortunate Guess

One of the shortest ways of going wrong is to accept
an indication by one average which has not been
clearly confirmed by the other. On May 10, 1921,
the New York American ventured into prophecy on
its financial page. To reinforce its prediction its fore-
caster published a reproduction of the Dow-Jones
chart. As the chart and the accompanying figures
were taken without acknowledgment, altruists who
believe that ill-gotten gains do not prosper will hear
with satisfaction that the author of the Hearst Ameri-
can article did not even understand the meaning of
what he had appropriated. He announced a bull
movement for the industrial stocks, even prescribing
its limits, a degree of prophecy hitherto unsuspected
in the barometer; while the railroad stocks, as he
expressed it, "marked time." It was a most unfortu-
nate guess, for the industrials declined a further thir-
teen points, making their new low in June; while the
railroads, so far from marking time, also showed a
substantial reaction.

Averages Must Confirm Each Other

This was a case where the observer was misled by
a bullish indication given in the industrial average

A BULL MARKET 1908-1909 139

which was not confirmed by the railroads. The former
had been making what we have learned to call a line,
and after a secondary rally in a bear market showed
some strength, at a figure above the line and calculated
to suggest accumulation if there had been any evidence
of the same thing in the railroad stocks. But there
was nothing of the kind, and it is to be hoped that the
readers of the Hearst American article did not follow
the tip; for the industrials, as shown by the averages,
did not cross the closing figure of the day on which
the bullish advice was given until the second trading
day of December, seven months after.

It is possible, however, for us to assume charitably
that this expounder of the barometer was not quite
so superficial as he sounds. There may have been in
his mind a recollection of the bull market of 1919,
which the industrials made entirely off their own bat.
If you will study the chart published with a later chap-
ter, headed "An Exception to Prove the Rule," you
will see that such an experience could not be repeated
unless our railroad stocks returned to government
ownership and guaranty a condition which at that
time took them entirely out of the speculative class
and left them moving downward with bonds and other
securities held for fixed income. These, as we know,
inevitably decline in price with an advance in the cost
of living, which was then in full flood.

This illustration serves to emphasize the fact that
while the two averages may vary in strength they will
not materially vary in direction, especially in a major
movement. Throughout all the years in which both

I 4 o THE STOCK MARKET BAROMETER

averages have been kept this rule has proved entirely
dependable. It is not only true of the major swings
of the market but it is approximately true of the sec-
ondary reactions and rallies. It would not be true of
the daily fluctuation, and it might be utterly misleading
so far as individual stocks are concerned. The indi-
cations of a single average can, and do, look seduc-
tively like the real thing, as I have discovered to my
cost; for in that way I find, upon analysis of articles
written long ago, that I more than once went wrong.
It says much for the value of our barometer that error
came from trusting it too little rather than too much.

Sticking to Our Text

It has been suggested that I should discuss the
causes which were related to the major movements of
the stock market the depressions in business, the
recoveries and the alleged or real overexpansion. I
have my own opinion about the causes of the panic
of 1907. I do not agree with writers rated as com-
petent as myself, who ascribe it to E. H. Harriman
and the "overexpansion" of the American railroads
from 1901 to 1906; who choose to think that the
advance in the Bank of England rate to the sufficiently
startling figure of 7 per cent at the end of 1906 was
a direct result of gambling in railroad stocks by Mr.
Roosevelt's "malefactors of great wealth." And by
no stretch of faith can I believe that Harriman pro-
duced a panic in Alexandria, Egypt, in April, 1907;
another in Japan within a month; what the London

A BULL MARKET 1908-1909 141

Economist called "the biggest financial disaster that
had overtaken the city since 1857" in Hamburg in
October; and still another in Chile all preceding our
own crisis at the end of October. It has seemed to
me that the subsequent paralysis of railroad develop-
ment, which should have gone on at the billion-dollar-
a-year rate James J. Hill suggested in 1906, but was
suspended almost entirely, was a much more serious
matter for the country than the reciprocal ownership
of railroad stocks of E. H. Harriman's plans. There
could be no menace to the public there, with the Inter-
state Commerce Commission to protect us through
the freight rates.

But all this is beside the point. I am writing about
the barometer, not about the weather. History reads
queerly fourteen years after the event to those who
were in a position to know the facts, who might even
have been, to at least a modest extent, part of that
history. But where it is necessary to review history
here these discussions will still stick to the text.

Chapter XIII

NATURE AND USES OF SECONDARY SWINGS

BEFORE resuming the historical demonstration of
the effectiveness of the stock market barometer
which has been the subject of our most recent discus-
sions, there is a good opportunity here for some con-
sideration of the secondary swing. Previous discus-
sions have shown how it was possible successfully to
diagnose a major swing in its incipient stages. But the
secondary movement postulated in Dow's Theory is
a different matter. We have proved by analysis the
correctness of the theory of the market as containing
three distinct and, in a way, simultaneous movements
the great primary swing up or down ; the secondary
movement, represented by reactions in a bull market
and corresponding rallies in a bear market; and the
daily fluctuation. It may be that this discussion will
seem to be addressed more to the speculator or embryo
investor than to those who consider using the stock
market barometer as a guide and warning to business.

How to Call the Turn

It may be conceded at once that if it is hard to call
the turn of a great bear or bull market it is still harder
to say when a secondary movement is due, although
there are no insuperable difficulties in the way of show-

14*

SECONDARY SWINGS 143

ing the termination of the secondary movement and
the resumption of the main market trend. We cannot
dogmatize about the depth of such movements, in
duration or extent. We have seen, from a study of
what was really a 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
can look so vigorous and convincing, as in the case of
the Northern Pacific panic of 1901, that even experi-
enced traders will rashly assume that the bull market
is over.

Dow estimated the length of a counter movement
at from forty to sixty days, but subsequent experience
has shown that this longer range is exceedingly rare
and that the duration may be appreciably less than
forty days. The daily fluctuation might be so con-
siderable as to constitute almost a secondary reaction
in itself, if the extent of it were all we were consider-
ing. When it was known that the government would
take over the railroads, at the end of December, 1917,
there was an advance in a single day in the railroad
average of over six points. There have been true
secondary movements which did not carry even so far
as this. It is a tried rule, which will help to guide us
in studying the secondary movement, that the change
in the broad general direction of the market is abrupt,
while the resumption of the major movement is appre-
ciably slower. The latter is frequently foretold by a
line of accumulation in a bull market or a line of dis
tribution in a bear market.

144 THE STOCK MARKET BAROMETER
More Meteors Than Stars

Who is to foresee the sharp break? It seems to
depend upon a set of causes altogether different from
the adjustment of prices to values, which is the main
function and intent of the major swing. It repre-
sents a technical market condition more than a summing
up and reflection of general knowledge. It means,
as the professionals say, that there is too much com-
pany on the bull side; or, conversely, that people are
selling a bear market short, regardless of the dimin-
ishing floating supply of stocks. I have declined in
more than one place to advise any man to speculate.
That virtuous attitude is easy and cheap, but it will
acquire more significance if I do not presume to advise
against speculating where a free American citizen feels
he has the qualities necessary for success and, more par-
ticularly, if he is the kind of man who can stand suc-
cess. That is the severest of all tests, in other places
than Wall Street. There have been many meteors
in the financial sky, but few fixed stars.

In the secondary movement of the market the pro-
fessional has a real and abiding advantage over the
amateur. It is an emergency in which his technical
experience tells. "Tape reading" is a sort of sixth
sense, and the man on the floor can feel a change com-
ing even better than the most accomplished tape reader
if he has real aptitude for his work. There are some
games in which the amateur is better than the pro-
fessional. There are many in which he seems at least

SECONDARY SWINGS 145

as good. But in the long run, in nearly all games,
the professional will win oftener than the amateur.
He will win more when there is anything consider-
able at stake and he will lose less when losses are
inevitable.

Advantage of the Expert

Some authorities on auction bridge estimate that
good cards constitute 80 per cent of the advantage
in the game. An indifferent or unsound player can
win, and even continue to win over an extended period,
if he holds good hands, enjoys rather more than aver-
age luck and is messed with good partners. But the
remaining 20 per cent makes the vital difference
between the incurably mediocre player and the expert.
Playing constantly over a sufficient period of time to
average the element of chance, the first-class player
must win. He will win, moreover, without any unfair
advantage. If, indeed, he depended upon collusive
information from his partner, for instance, he would
be merely a sharper and never a really first-class
player. The advantage of the crook has always been
overestimated. His mentality is at some point defec-
tive, or he would not be a crook. I have fallen in with
a few surprisingly few crooks in Wall Street, in
both the professional and the amateur class. They
are soon detected, and with their sole advantage
eliminated they find their level at the very bottom of
the heap. Nemo repente fit turpissimus; and, in prac-
tice, they amount to little.

i 4 6 THE STOCK MARKET BAROMETER
Graduating/ Professionals

Of the many successful speculators who fight for
their own hand, like Hal o' the Wynd, those who, not
being members of the Stock Exchange or partners in
any brokerage house, are therefore obliged to con-
cede the broker's commission and the market turn, all
sooner or later become, in every intent, professionals.
They devote to the business of speculation exactly
the jealously exclusive attention which a successful
man gives to any kind of business. The outsider who
takes only "an occasional flutter" in the stock market,
however shrewd and well informed he may be, will
lose money in the secondary swings, where he is pitted
against the professional. He cannot recognize the
change in movement quickly enough to adapt his atti-
tude; he is usually constitutionally averse from taking a
loss where he has previously been right. The pro-
fessional acts upon the shortest notice, and reactions
or rallies give little notice.

Wall Street Normally Bullish

But the intelligent amateur is on all fours with the
professional when a bull market has reacted and be-
come dull. In the old days Wall Street formulated
a number of maxims for itself, and one of these was,
"Never sell a dull market." It is bad advice in a
major bear swing, for the market then will become
dull after a sharp rally, and experienced traders will
accordingly put out their shorts again. But Wall

SECONDARY SWINGS 14?

Street is inherently bullish. One reason for this is
that the financial district does not make money in a
bear market, contrary to the ideas of people who think
that then is the time when the Street reaps its harvest,
and wickedly turns disaster ,to its own advantage.
Wall Street lives on commissions, and not on what it
might make by selling short the securities it originates.
Large trading and large commissions go together.
They are a feature of a bull market, but never one
of a bear market. So true is it that Wall Street is
normally and healthily bullish, by experience, that I
have never known a great trader, with his first reputa-
tion established as a bear operator, who did not either
turn bull or drop out of the market altogether.

When we studied the major swings we saw that
bull markets last longer than bear markets, and we
might have seen that over a period of years long
enough to average both bull and bear swings the
tendency seems upward, or at least has heretofore
advanced, with the growing wealth of the country.
Personally, I do not believe that the war has changed
this fundamental fact, at least for the inexhaustible
United States, if a special movement of the railroads,
to be treated later, for a time at least, modifies the
assumption.

James R. Keene

So far as the bear trader is concerned, I am entirely
certain that James R. Keene lost as much money as
he ever made on the bear side, and that he made
all the money he left and spent on his racing stable

i 4 8 THE STOCK MARKET BAROMETER

by his purchases of securities which subsequently
appreciated in value. I never enjoyed his intimate
acquaintance. It is not unfair, at this distance of time,
to say that newspaper men with responsibilities do not
cultivate intimacy with large professional speculators.
Such intimacy can be misconstrued, however innocent
the personal relations may be, and easily results (for
Wall Street is reeking with gossip and scandal) in
giving the reporter an undesirable reputation for being
the interested mouthpiece of that particular operator.
This, of course, is a condition which no clean news-
paper could or should tolerate.

This is not to say that the newspaper men, or even
most of those who had the entree to Keene's highly
inaccessible suite at his son-in-law, Talbot J. Taylor's
office in Broad Street, were not men of honor. There
were good reasons for liking Keene, who was by no
means the cold and bloodless bandit some people, with
ideas of financiers gathered from the scarehead news-
papers or the moving-picture screen, have supposed.
He had attractive qualities, and he was a man of his
word, even if he was merciless to those who dealt with
him and failed to keep theirs. All of us liked his
admiring affection for his son Foxall, and his sports-
man's love of a fine horse. Little that his enemies
ever did to him in the stock market and that was
plenty hurt him like the death of his favorite Sys-
onby, a horse he bred himself and one of the greatest
three-year-olds that ever looked through a bridle.
Among the newspaper men who could afford to know
Keene was Edwin Lefevre, then on the New York

SECONDARY SWINGS 149

Globe. But it is no more than just to say that Lefevre
was less a friend than a connoisseur of Keene. He
studied him, in a highly amusing way, for use in his
cynical but effective Wall Street Stones, in Samson
Rock of Wall Street, The Golden Flood and other
tales of a like character, now somewhat out of date
but interesting reading for those who knew the differ-
ent Wall Street of twenty years ago.

Addis on Cam mack

There is another reason why bear operators are
credited with more short selling and market "wreck-
ing" than they ever performed or even conceived.
Such an operator can bull stocks and keep himself in
the background, while a campaign on the bear side
is usually dramatic, with the principal figure very much
in the spotlight. Addison Cammack's era was rather
before my time, but people who knew him well say
that his bear campaigns were short, sometimes success-
ful and sometimes not, and that he would have been
soon ruined or driven into other environment if he
had not been an excellent judge of values, and much
more interested financially in the growth and prosper-
ity of the country than in efforts to check it. He made
his big money buying Northern Pacific, on reconstruc-
tion, at $7 a share. He probably had more 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 was right, if premature, in
his abortive bull campaign in Southern Pacific.

150 THE STOCK MARKET BAROMETER

Selling Commodities Short

A bear has few friends, because obviously he can-
not make money unless other people lose it. It is
curiously illogical that this feeling against him extends
even to the cases where he forsakes stocks for opera-
tions on the short side in commodities like wheat or
cotton. But there is nothing incompatible with a
bull position in stocks and a bear position in wheat.
There is nothing antagonistic to the greater prosperity
of the country in believing that such prosperity will
be enhanced if the humble consuming worker can get
more flour or bread at lower prices. It would be
utterly impossible to synchronize the movements of
wheat or cotton with those of stocks. These commodi-
ties often decline when securities are advancing. It is
not the general opinion, but it seems to me that a bear
of wheat who breaks a corner in that commodity,
even if his end is selfish, is performing something in
the nature of a public service.

Such an opinion as this, of course, will be unpopular
with the farmer and still more unpopular with the
farmer's political friends, to whom wheat at $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), formed in 1919 to carry the price
of wheat above $3 a bushel, collapsed under the futile
leadership of the Non-Partisan League and the moral

SECONDARY SWINGS 151

support of some of the members of what now con-
stitutes the agricultural "bloc" in the United States
Senate. That corner failed, and it is no unkindness
to the farmer to say that it deserved to fail. The
stock market of 1920 was warning him that such a
pool could not succeed, in ample time for him to have
realized all his wheat at prices well over $2 a bushel.

How the Barometer Adjusts Itself

We are not wandering from our text. Weakness in
the cotton or grain markets may have much to do with
secondary reactions in the stock market, if only for
the financial commitments involved. Secondary move-
ments, indeed, are influenced by much more transitory
conditions than any of those which govern the major
swing. The question is pertinently asked, "Do the aver-
ages predict a secondary reaction in any dependable
way?" There would be such a prediction, naturally,
if, in the course of a major bull swing, the market made
a line in both averages, and then a price below the
line to indicate that saturation point had been reached;
and the converse would be true in a bear market.
But experience tells us that when the line occurs it is,
generally, not before but after a secondary break or
rally. This line, then, is most useful to the speculator
who has previously sold and wants to get into the
market again, because a bull indication after a line of
accumulation would point the way to a new figure
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
had been resumed.

152 THE STOCK MARKET BAROMETER

But these discussions are designed less for specu-
lators than for those who wish to study the stock
market barometer as a guide to the general business
of the country. These students may well ask what is
the real purpose and usefulness of the secondary
movement. If we are allowed to mix our metaphor,
it may be said that the secondary movement is not
unlike a device sometimes used for adjusting com-
passes. Many of you have seen a ship's launch de-
scribing circles in the harbor, and wondered what it
meant. I am well aware that the metaphor is anything
but perfect, but it is clear that the secondary move-
ment serves the valuable purpose of correcting our
barometer. Our guide is, to that extent at least, self-
adjusting. Remember that we are dealing with no
such certain element as the mercury in the tube, whose
properties we know all about. The stock market
barometer is taking every conceivable thing into ac-
count, including that most fluid, inconstant and incal-
culable element, human nature itself. We cannot,
therefore, expect the mechanical exactness of physical
science.

Not Too Good to Be True

We might well be disposed to suspect our barom-
eter if it were too exact. Our attitude would be that
of a city magistrate toward police evidence, when
every police witness tells exactly the same story in the
same words. Such evidence is altogether too good to
be true. I am repeatedly asked if I am quite sure
about the low or high point of a given turning date;

SECONDARY SWINGS 153

whether, for instance, the low of the bear market
from which we are now emerging was really June,
1921, or should not be considered in relation to the
new low point, scored by the industrials alone, in
the following August. It has been said that the
averages must confirm each other, but if you like to
take it that way and it suits your habit of mind, by
all means allow yourself that much latitude. I can-
not see that it makes any material difference. I have
been shown figure charts where bear and bull move-
ments, from the course of a single constantly active
stock like United States Steel common, were profes-
sedly predicted with mathematical exactness. They
have not inspired me, and I do not believe that they
could stand the long years of test to which our barom-
eter has been subjected.

There are other critics, far less kindly and with no
real desire to help, who find no difficulty in picking
holes in our theory because they do not wish to be
convinced. They are merely contentious. They can,
of course, find plenty of movements, especially secon-
dary ones, which they think the barometer failed to
forecast. What of it? An instrument of any such
accuracy as they demand would be a human impossi-
bility, and indeed, I do not think that any of us, in
the present stage of man's moral development, could
be trusted with such a certainty. One way to bring
about a world smash would be for some thoroughly
well-intentioned altruist to take the management of the
planet out of the hands of its Creator.

Chapter XIV

1909, AND SOME DEFECTS OF HISTORY

SINCE we have set the understanding of the stock
market barometer as our goal, we are not to be
discouraged by the real and fancied obstacles still re-
maining. We can always hearten ourselves by looking
back and seeing how much we have already overcome.
Perhaps the reward is in the race we run, not in the
prize. This is not to say that the mere reading of
this series of studies is any achievement if the reader
has not, thereby, added to his mental bank balance.
But if we look back we can see that we have not only
established Dow's theory of the price movement, but
constructed or deduced a workable barometer from
it a barometer with the invaluable quality of long
distance forecast. We should know our theory by
heart. It is that the stock market has three move-
ments its broad swing upward or downward, ex-
tending from a year to three years; its secondary
reactions or rallies, as the case may be, lasting from
a few days to many weeks; and the daily fluctuation.
These movements are simultaneous, much as the
advancing tide shows wave recessions, although each
succeeding roller comes further up the beach. Per-
haps it might be permissible to say that the secondary
movement suspends for a time the great primary
swing, although a natural law is still in force even

154

SOME DEFECTS OF HISTORY 155

when we counteract it. My pen would fall from my
fingers to the ground or the desk, by the attraction of
gravitation, and that law continues operative, if not
active. In a like way of putting it, the secondary
movement can be regarded as simultaneous with the
major swing, which still continues to govern.

That Unbalanced Equation

It has been necessary to refer in previous articles to
business charts and records, and I would be the last
to seek a quarrel with the compilers of such useful
data. All I contend is that these charts and records
are hardly, in a useful sense, barometers. They are
hazy about the future, even where they make the
assumption that they are based upon a great law of
physics that action and reaction are equal. They
have still to show me that they have included all the
factors of their equation. Certainly these business
charts did not include the possibility of Germany win-
ning the war in 1918. The bear market in stocks in
1917 took count of all that these tabulations ever
formulated, and this overwhelming possibility besides.
It is true that we can form little conception of what
may happen in the future unless we are familiar with
what has happened in the past, where like causes
have produced like effects. But forecast may be mis-
taken or premature long enough to ruin any business
man, with no other guide than that. One of these
business-chart authorities not long ago advocated the
purchase of a certain stock, on the basis of the earn-

156 THE STOCK MARKET BAROMETER

ings and dividends for a period of ten years past.
There was a fundamental change in conditions, ag-
gravated by an ill-judged change in policy, and the
people who bought that stock suffered severe losses.
How would a present holder of such a stock as Amer-
ican Sugar, for instance, have fared if he had bought
the common stock in 1920 on its dividend record?

Insufficient Premises

Reasoning of that kind has too narrow a base. It
lacks foresight. It is like saying that a patient will
recover, irrespective of his symptoms, because he has
enjoyed good health for ten years past. This is an
example of reasoning from insufficient premises. No
doubt the possibilities of changes in management and
other things, which sometimes wreck concerns with
a previously good dividend record, are averaged in
the total of a recording agency's tables. But even
when these things are averaged they are a record and
not a barometer. The data of the Weather Bureau
are of the highest value, but they do not pretend to
predict a dry summer or a mild winter. You and I
know from personal experience that the weather in
New York is likely to be cold in January and hot in
July. We could infer that much without assistance
from the Weather Bureau. That bureau can give us
only an inadequately short view. It cannot tell us
that there will be fine weather for our picnic the day
after to-morrow. Still less can it tell the farmer that
the temperature and humidity of the coming summer

SOME DEFECTS OF HISTORY 157

will be such that he should plant potatoes instead of
corn. It can show the records and probabilities; but
the farmer must use his own judgment; while we take
chances on the kind of weather that will make or
mar our picnic.

How Little the Best Man Knows

We have seen that the stock market barometer does
predict. It shows us what will happen to the general
volume of business many months ahead. It even goes
further and warns us of the danger of international
events which could upset all ordinary calculations
based on the course of business as inferred from the
records. It cannot be too often repeated that the
stock market barometer is acting upon all the knowl-
edge available. I recently asked one of the greatest
financiers in Wall Street, often credited, by sensation-
loving journals, with the most searching knowledge
of financial conditions and their influence upon coming
events, what sort of percentage of the available knowl-
edge he supposed he had. He said, "I have never
worked that out. But if I had 50 per cent of all the
knowledge which is reflected in the movement of stocks
I am confident that I would be far better equipped
than any other man in Wall Street." This was from
a banker who handles the financing of great railroads
and industrial corporations, whose foreign connections
are of the very highest class. When he could confess
this without false modesty to one he would not be
foolish enough to deceive, how absurd must be the

158 THE STOCK MARKET BAROMETER

assumed omniscience of the "financial octopus" the
politician is so fond of parading 1

A Needless Accuracy

We have come a long way in the reading of the
barometer based upon Dow's Theory. We have seen
that a "line" in the average a succession of closing
prices, over a sufficient number of days for a fair
volume of trading within a narrow range must indi-
cate either accumulation or distribution; and that
a movement of the average price out of that line,
downward or upward, will confidently indicate a
change in the general market direction of at least a
secondary and even a primary character, which we can
depend upon where either average is confirmed by the
other.

We have also satisfied ourselves that the averages
must confirm each other, although they may not break
out of their respective lines on the same day or in the
same week. It is sufficient if they take the same direc-
tion. It is by no means necessary, as experience shows,
that the low or the high point of a primary move-
ment should be made in both averages on the same
day. All we assume is that the market has turned,
with the two averages confirming, even although one
of the averages subsequently makes a new low point
or a new high point, but is not confirmed by the other.
The previous lows or highs made by both averages
may best be taken as representing the turn of the

market.

SOME DEFECTS OF HISTORY 159

This seems to be a difficulty which is still puzzling
a number of people who expect an absolute mathe-
matical accuracy from the averages, such as I would
be the last to claim, if only for the reason that it is
not needed. One critic believes that I am wrong in
assuming that the low point of the last bear movement
was in June, 1921, because the industrials made a
lower point in the following August. But that lower
point was not confirmed by the railroad average.
Consequently, it is negligible from our point of view,
although if it adds to the sum of that gentleman's
certainty he will not go far wrong if he dates his
upward movement from August and not from June.

A Double Top in igog

In the present discussion it will be useful to show
the turn of the market to the bear side in 1909. This
is likely to be confusing to our meticulous critics, be-
cause the railroad stocks made their high for the pre-
ceding bull movement at 134.46 in August, 1909;
while the industrials made a high of 100.12 at the
end of the following September, 100.50 early in Octo-
ber, and 100.53, the highest of the year, at the begin-
ning of November. The last high, taken with that
preceding, is an example of what is called a double
top. It is by no means infallible, but is often useful;
and experience has shown that when the market makes
a double top or a double bottom in the averages there
is strong reason for suspecting that the rise or decline
is over. If, however, I say that a bull market saw its

160 THE STOCK MARKET BAROMETER

top in August, 1909, and that the bear market set in
from that date, somebody will tell me that the bear
movement cannot be said to have set in until the
beginning of November. What does it matter? If
we combine the condition exhibited then with what we
have learned from a study of the line of distribution
or accumulation, we shall see that distribution pre-
ceding an important downward turn, possibly secon-
dary but proving to be primary in this case, had been
in progress and had established its inevitable con-
sequences, at any rate before the completion of the
first week's trading of November, 1909.

Bulls of Stocks Well Warned

That seems to me about as adequate a barometrical
indication as we dare expect from a gauge which has
to take into consideration all the fallibility of human
nature itself. Never was the bull of stocks given such
repeated chances as in 1909 to take profits at the top,
or a few points below it. In a previous discussion I
have said that the bull market which originated in
December, 1907, was actually almost unpopular. The
previous bear market had predicted an era of corpora-
tion baiting, originated by President Roosevelt, who
could never have foreseen the absurd lengths to which
his animadversions upon "malefactors of great
wealth" would be carried, or the devastating implica-
tions which would be drawn by people much more
ignorant and far less sincere than himself.

The bull market of 1908-9 did not please a number

SOME DEFECTS OF HISTORY 161

To Criticize a Critic

of highly respectable and competent critics. I have
appreciated and recommended elsewhere Forty Years
of American Finance, by Alexander D. Noyes. His
review appears to have been carried only to the begin-
ning of 1909, to judge by his concluding paragraph.
He seems to reprehend the bull market then in prog-
ress. He certainly failed to see that it would continue
in force up to August, so far as the railroads were
concerned, up to November as shown by the industrial
average, and that, at the end of the year 1909, the
railroads would be no lower than one hundred and
thirty on December 3ist, as against one hundred and
thirty-four in the middle of August, and the indus-
trials a bare point away from the top. Mr. Noyes
says, in speaking of the bull market, with what can
fairly be called a somewhat unsuccessful essay in
prophecy :

"The end of this singular demonstration came with the open-
ing of 1909, when facts were suddenly recognized, when prices
for steel and other commodities came down, and when the
Stock Exchange demonstrations ended. With the closing of
the year 1908, this history may properly close; for it marked
the ending of a chapter."

But we have seen, from the record of the averages,
that the chapter was not closed so summarily as Mr.
Noyes assumed. We may say, for convenience, that
the bull market had spent its force in August, 1909
or in November, as we choose to look at it. But the

1 62 THE STOCK MARKET BAROMETER

bear market which foresaw the next period of depres-
sion did not begin to "hit on all cylinders" until
January, 1910. Here again we see a profound and
able observer influenced by accepting a record for a
barometer.

A Record Too Brief

To a student of history and the writer modestly
claims to be something of the kind himself it is
source of unceasing regret that there is relatively so
little real history to study. Our table of averages is
only truly effective for rather over a quarter of a
century. When we say that the twenty active railroad
stocks must confirm the twenty industrials it seems to
me that this implies, at least in part, that less than
forty stocks do not give a sufficiently inclusive picture
of the market. I might, in some subsequent discus-
sion, offer a partial and incomplete record of the years
from 1860 to 1880, with an average high and low,
month by month, of fifteen miscellaneous stocks. I
may as well say now that I do not think that it has
any conclusive teaching value; or that if it had been
kept contemporaneously with the events of that time,
and not compiled years after, it would have given
business anything like the thoroughly trustworthy indi-
cations which we can read in the more perfect double-
average barometer of to-day.

How History Records the Wrong Things

But my criticism of history goes much further than
the mere records of which we are treating. It is that

SOME DEFECTS OF HISTORY 163

all available history, as far back as we can trace
from Egypt and the supposed cradle of the race in
Asia Minor records the wrong things. It tells us
all about the dynasties of the Pharaohs, and nothing
about those productive middle-class brains of manage-
ment which made those dynasties rich gave them a
real people to rule over. We know that there were
rulers and wars, slaves and industrial workers enjoy-
ing different degrees of freedom. We know now that,
so far from labor creating everything the prepos-
terous major premise of Karl Marx labor creates
only a fraction of the sum of human wealth compared
with the product of brains. Of the "people" of the
past, in the sense that the Bolshevist demagogue uses
the word, we know a good deal. Professor Thorold
Rogers, of Oxford, many years ago compiled a tabu-
lation of wages in England, from the time of the
Tudors. But history seems to give something of the
bottom and a great deal too much of the top. It tells
us nothing, or next to nothing, of the middle class
which must be the directing brain force of a nation
with any commerce whatever.

Where Are the Business Records?

What do we really know about the Carthaginians?
They were the greatest trading nation of their time.
We might well afford to sacrifice the detailed accounts
of the campaigns of Hannibal, to throw away most
of what we know about the second Punic War, to
scrap nearly all that part of history, in exchange for

1 64 THE STOCK MARKET BAROMETER

only one year's accounting of a typical Carthaginian
merchant engaged in foreign trade. We would
have more practical knowledge, applicable to the
problems of to-day, from that single merchant's
books of the year 250 B.C. than we can get from
the Decline and Fall of the Roman Empire, and
all it incidentally says about Carthage, to say
nothing of the practical conduct of commerce in
those days.

How did that merchant do his business ? He dealt
in tin from Cornwall and dyestuffs from Tyre. He
had correspondents all over the known world, which
then extended from Britain in the west to India in the
east. Did he, or could he, for the tin or dyestuffs he
received, pay exclusively in coined gold or silver ? He
may well have exchanged one of his commodities for
another, or something else for both. How did he
pay? How did he settle his balances? Did he have
bills of exchange ? I am inclined to think that he did,
whatever form they may have taken, although no
papyrus or parchment has survived. But history does
not tell us the one thing we want to know. How did
the Carthaginians adjust their international trade
balances? They necessarily had them. The mer-
chants of Joppa or Sidon or Alexandria kept books, or
their equivalent. They had a record of what they
imported from Carthage and what they exported there
and elsewhere. Rome owed Carthage balances in
account, in triangular transactions which must have re-
quired some knowledge of double entry, with more
or less regular exchange quotations to balance one

SOME DEFECTS OF HISTORY 165

national coinage against another. What does history
tell us about all this ? Absolutely nothing. And yet
that knowledge would be of infinitely greater value to
us, would save us more mistakes, than Xenophon's
deathless story of the retreat of the ten thousand.

Who Financed Xerxes?

Heaven forbid that we should lose the inspiring
lesson of Thermopylae. We have seen, in the Great
War, that men are still capable of rising to the heroism
of the fated three hundred. But what of the contrac-
tors who fed and clothed and armed the "five million
men" in the army of the victorious Xerxes? "The
mountains look on Marathon and Marathon looks
on the sea," and they may continue looking at each
other, until the crack of doom, without telling us
the cost of the ship's stores consumed in the fleet which
transported the defeated Persians. "You have the
Pyrrhic dance as yet, where is the Pyrrhic phalanx
gone?" We could dispense with the dance if we knew
how the Pyrrhic phalanx got its necessary three square
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
give for a trustworthy analysis of the economic con-
sequences of Diocletian's price-fixing edicts, in the
year 301?

Where did the Greeks buy their naval stores ? How
were they assembled? How was the account settled?
Was it in coined money, or in a draft written on parch-

1 66 THE STOCK MARKET BAROMETER

ment, transferring one merchant's debt to another in
order to balance the books of a third? All this is
left out of classical history, and is sadly lacking in
modern history. It was not until the middle of the
nineteenth century that Green wrote, not a history of
the kings of England, but A Short History of The
English People. It was all too short; and the most
important part of the English people was loftily
minimized that respectable but inarticulate element
which goes about attending to its own business and
manages to "keep out of the papers." No one would
belittle the record of the events which led up to the
signing of Magna Charta. But if I am not greatly
interested in King John, I want to know much more
than history records about those useful mercantile and
financial figures personified by Walter Scott in Isaac
of York. The tortured Jew's extracted tooth out-
weighs, in real historical value, the sceptre of the
Plantagenet king.

What of the Banking in the Middle Ages?

The more we search the work of the earlier his-
torians, the more we are astonished at their inability
to see a thing so self-evident, for they were almost
invariably drawn from the class they failed to chron-
icle, except where it touched politics. Froude devotes
chapters of a volume of his history to the divorce of
Catherine of Aragon. He tells us nothing of value
about the financial transactions involved in such a
simple matter as the collection and payment of Queen

SOME DEFECTS OF HISTORY 167

Catherine's dowry to Henry VIII. I have heard ex-
perienced newspaper men say, "The most interesting
news never gets into the papers." There is a good
deal of cynical truth in that remark, and certainly the
most instructive historical facts seldom get into the
histories.

That is why the diary of Samuel Pepys, not written
for publication, tells us more of the real things we
want to know than anything which has ever been writ-
ten, contemporaneously and since, about the period of
the Restoration. It is almost from that date that we
begin to get some familiar idea of what banking was
like, and how it was conducted in the great city of
London two and a half centuries ago. Our knowl-
edge, so far as available records are concerned, hardly,
in any real sense, antedates the incorporation of the
Bank of England, at the end of the seventeenth cen-
tury. The records of commerce and banking of the
earlier financiers are almost hopelessly wanting.
There must have been such records arising out of the
colonial expansion of Holland, Spain and Portugal or,
working back through the years, in the trade of the
Genoese and the Venetians. But these highly respect-
able historians seemed to think that the birth of a
king's bastard was more important than the opening
of an avenue of trade, with the creation of the finan-
cial machinery necessary for its development.

How New Is Credit?
I am credibly informed that banking, and even

branch banking, has been in use in China for at least

two thousand years, with drafts, credits and the usual
banking machinery, if in a much simplified form. It
must also be admitted that the great structure of
to-day's credit is essentially modern. But it would be
absurd to assume that it is all modern, merely because
we know so little about history. The trading of
Carthage, Genoa and Venice was largely barter. But
we may be sure that it was not all barter. Not only
the Church canon law but the Bible itself and like
works have many allusions to the sin of usury. But
usury meant interest, and interest meant credit, just
as coinage meant exchange. It was not all pawn-
broking; nor was the banking of the Middle Ages.
There is some evidence that the same people both
received and paid interest. The merchant, then as
now, probably had a good deal more practical sense
than the theologian, and certainly a clearer idea of the
line between legitimate interest and usury. The trou-
ble is that historians, up to a late date, have been
influenced by the ecclesiastical attitude toward money
lending. They are exasperatingly dogmatic on the
things they admit they don't know. I am inclined to
suspect that it was not the early Middle Ages that
were "dark" but only the historians. I am even dis-
posed to agree with my friend Dr. James J. Walsh
that, in point of real civilization and attainment, both
artistic and literary, the thirteenth century in Europe
compares favorably with our own. And even he has
been unable to elicit anything of real usefulness about
the mechanics of commerce.

And if this is the sum of our knowledge of the his-

SOME DEFECTS OF HISTORY 169

Socialism's False Assumption

tory of the most vital part of human affairs, the history
of the men who paid the taxes and the men who made
the taxes possible; the history of those who took the
bare product of labor and fructified it tenfold how
difficult is it for us to gather together enough particu-
lars to frame a trustworthy generalization from the
wholly modern tabulation of the records of trade,
industry and finance! There has recently been pub-
lished a book by H. G. Wells, The Outline of His-
tory, which at least has had the excellent effect of
persuading a number of people to read history who
have done little serious reading in the course of their
lives. But that "outline" is devoted to proving a
fallacious assumption that men are groping their
way, rather blindly, in the direction of international
socialism. Is there one single record in all the inade-
quate volumes of history, upon which Mr. Wells and
we ourselves necessarily depend, which indicates any-
thing of the kind? Everything points to the develop-
ment of the efficient individual. There is nothing in
the Wells inference which does not ignore the factor
of management in production, dominant now and dom-
inant always, from the time when man learned to save
something out of his harvest, to keep himself and
others through the coming winter, and exchange for
what he could not produce.

A Sound and Conservative Forecast

With regard to the use of the barometer in the turn
of the market in 1909, The Wall Street Journal on

170 THE STOCK MARKET BAROMETER

September nth, a month after the railroads had re-
corded their high, said:

"The movement of the average on Thursday's break was one
which has often marked the commencement of a downward
swing. The indication as yet is not very authoritative, but
whatever we may think about a resumption of the bull move-
ment, 'now that all the bad news is out,' the averages un-
doubtedly look more bearish than they have done in a long
period.

"Pessimism has never been the policy of this paper, but
it published an earnest plea for conservatism when the market
was at the top. Nothing has occurred since which has not
emphasized the position taken."

From that time forward, although the market, as
we have seen, was remarkably firm, showing only
modified secondary downward swings practically up
to the end of the year, The Wall Street Journal con-
tinued to draw lessons of warning from the averages.
On October 28th it said, after pointing out the extent
of the rally necessary to re-establish the old bull
market :

"There is no pretense here to pass an opinion upon the market
from any other point of view than a purely technical one, based
upon the experience of the price movements as shown in the
average record of many years, but the depression in the bar-
ometer, here evidenced, is well worthy of the consideration of
thoughtful traders."

Growing Effectiveness of the Barometer

Remarking how widely the idea of a bull market in
1910 was then held The Wall Street Journal was

SOME DEFECTS OF HISTORY 171

unpopularly bearish on December 18, 1909, although
both averages were within a very few points of the
top. It is interesting to note that one of the bear
arguments (other than that of the averages) discussed
at that time was the high cost of living ! On Decem-
ber 28th, any idea of a January boom a movement
always talked of at the beginning of the year was
rather cruelly discouraged. It would be easy to mul-
tiply examples. It is sufficient here to show, before
taking up the discussion of the four years of some-
what indecisive market movements which preceded the
war, how faithfully the stock market barometer,
twelve years ago, was already serving its purpose.

Chapter XV
A "LINE" AND AN EXAMPLE 1914

N past discussions of the stock market barometer
the record by daily averages of the closing "bid"
prices of a number of selected industrial and railroad
stocks, taken in two separate groups to check and con-
firm each other emphasis has been laid upon what
is called a "line." It is needless to say that no infer-
ence of value can be drawn from a single day's trad-
ing. However large the transactions may be, they
cannot show the general trend. This daily fluctuation
is merely the third and least important movement
defined in Dow's theory of the averages. If we could
imagine such a thing as an irregular daily tidal move-
ment it is just that. The general level of the sea is
not changed by an abnormally high tide in the Bay of
Fundy or a tidal bore in the mouth of some Chinese
river. The ocean's real encroachments and recessions
take time.

A Definition

The line, therefore, may be considered as often
preceding an appreciable recovery in a primary bear
market or a well-defined reaction in a primary bull
market, and, rarely, as the possible turning of a major
movement. It can almost be set down as axiomatic
for all our purposes that a line is and must necessarily

A "LINE" AND AN EXAMPLE 1914 173

be either one of accumulation or one of distribution.
For a time the buying and selling power are in equi-
librium. There are some most significant lines in the
history of the averages to which reference has already
been made.

Predicting/ the War

To show the special value of the averages as a
barometer forecasting what even Wall Street itself
does not know in any general sense or at any rate
does not realize, the extraordinary line made by both
averages, industrials and railroads, in the months of
May, June and July, 1914, preceding the outbreak of
the Great War, is here submitted. No severer test
of the averages could be chosen. The war came as
a surprise to the whole world. Did the stock market
foresee it? It may be fairly claimed that it did, and
had predicted it, or trouble of the most momentous
character, before the end of July, while the German
army crossed into Belgium on August 3d 4th.

Let it be remembered that a primary bear move-
ment had then been in progress in the stock market
since October, 1912. In May, 1914, both averages
started to make a line of unusual length. The fluctu-
ations in the railroads were between one hundred and
three and one hundred and one, and in the industrial
between eighty-one and seventy-nine. Only once, or
June 25th, did the railroads give a warning at one
hundred. This was taken back the following day with
a continuance of the line in both averages up to July

174 THE STOCK MARKET BAROMETER

1 8th in the case of the railroads and July 27th in the
case of the industrials. At the latter date, eight days
before the German army invaded Belgium, the indus-
trials confirmed the warning the railroads had given.

Definition of a "Line"

The accompanying figure chart, taken from May
I, 1914, to July 3Oth, answers many questions. The
line, like others recorded in the averages, was presum-
ably one of accumulation or distribution. At the end
of April the bear market had continued for nineteen
months, and there is fair conjecture that had there
been no war this would have proved a line of accumu-
lation, followed by the bull market which actually
started in the ensuing December, soon after the Stock
Exchange reopened for business.

This chart answers also the questions as to the
dimensions or breadth of a line, which, of course, in
theory may be prolonged indefinitely and in this in-
stance had actually extended over sixty-six trading
days in the industrials and seventy-one in the railroads.
It will be seen that three points was the extreme range
in the industrials and four points that in the more
stable railroad stocks. The line proved to have been
one of distribution, and indeed the market had become
so saturated with stocks that the Stock Exchange
closed its doors for the first time since the gold panic
of 1873.

AVERAGES FROM MAY i, 1914
TO CLOSING OF THE STOCK EXCHANGE

Each figure represents the average closing bid price of twenty railroad stocks and
twelve industrial stocks, and a complete trading day.

RAILROADS

^ MAY ,

103 103 103 103 103 103 103 103 103 103

IO2 102 IO2 IO2 IO2 IO2 IO2 IO2 IO2 IO2 IO2 IO2 IO2

IOI 101 IOI

-JUNE

-JULY-

103

102 I O2 102 102 102 102

IOI IOI IOI IOI

100 100 100 100

98 98 98

97 97 97
96

94
93
INDUSTRIALS

-MAY-

SI 81 Si 81 81 81 81 Si Si Si 81

80 80 80 80 80 80 80 80

79 79 79 79 79 79 79

JUNE >

81 81 81 Si 81 Si 81 81 81 Si 81 81 81 Si Si 81 81

80 80 80 80 80 80 80

JULY

81 81 81 81 81 81 81 81
80 80 80 80 80 80 80 80 80 80 80

79 79 79

76 76

176 THE STOCK MARKET BAROMETER
What Had Happened?

What had happened? German holders of Amer-
ican stocks and the best informed European bankers
had sold in this market. If there had been no war all
this would have been absorbed by the American in-
vestor at the unrepresentative low prices prevailing
in a bear market which in July, 1914, had been oper-
ative for twenty-two months. All of it was absorbed
by the American investor in the following year. The
supply from Europe then, and subsequently, as the
war forced foreign holders to realize, and war loans
compelled the liquidation of other investments, took
the place of the normal supply of new investment
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. Over-
regulation of the railroads, now recognized to have
been an economic crime, had paralyzed their power
to create new capital long before the war. The public
attention had been diverted for five years before that
calamity to industrial opportunity, some of it, like the
shady oil promotions of our inflation period, of a
dangerously speculative character. Without the for-
eign sales of American securities and the war, turning
us in effect from a debtor to a creditor nation, there
would have been a dearth of capital opportunity; and
this is why after the all-revealing break late in July
the market made only a relatively small decline on the
reopening of the Stock Exchange, in December, imme-
diately swinging into one of its great bull periods.

A "LINE" AND AN EXAMPLE 1914 177

Relation to Volume

Knowledge is valuable not merely for telling us
what to do but for telling us what to avoid. Inside
information, so called, is a dangerous commodity in
Wall Street, especially if you trade upon it, but at
least it guards you against the rumors which cannot
possibly be so. Diligent study of the averages will
sufficiently show where a "line," having proved to be
one of accumulation, has given definite information,
not merely useful to the trader but valuable to those
who look upon the stock market as a means of fore-
casting the trend of the country's general business.

Here is an appropriate opportunity for adding
something about volume of sales. This volume is
much less significant than is generally supposed. It is
purely relative, and what would be a large volume in
one state of the market supply might well be negligible
in a greatly active market. If the line means absorp-
tion, this aosorption sums up the market supply,
whether it be three hundred thousand shares or three
million. Showers of rain vary in intensity, area and
duration. But they all result from the moisture in
the air reaching saturation point. Rain is rain whether
it covers a county or a state, in five hours or five days.

How to Know a Bull Market

It might well be asked, how are we to tell when a
secondary swing, upward for instance, has developed
into a primary bull market? The result is seen in

178 THE STOCK MARKET BAROMETER

the averages in a succession of zig-zag steps. If the
secondary swing reacts a little after what would ordi-
narily be its culmination in a primary bear market
but does not decline to the old low figures, and sub-
sequently recovers to points better than the new high
established on the earlier rally, we may assume with
confidence that a primary bull market of indefinite
length has been established. It is, of course, impos-
sible for the barometer to predict the duration of the
movement, any more than the aneroid can tell us on
October 3<Dth what the weather will be on Election
Day.

Barometrical Limitations

There is no need to expect omniscience from an
aneroid barometer, which, as we know, frequently
takes back its predictions and would be a most untrust-
worthy guide for the mariner if it did not. This is
true of the stock market barometer, which must be
intelligently read. Surgeons and physicians in our
time have been greatly helped, to the lasting advan-
tage of human life and comfort, by the X-ray photo-
graph. But these medical men will tell you that the
photograph itself must be read by an expert; that to
the mere general practitioner not accustomed to its
frequent use it may be unintelligible or misleading.
The results of an X-ray to disclose, for instance,
pyorrhea "pockets" at the roots of the teeth would
be meaningless to the layman and perhaps even to
some dentists. But any dentist could qualify himself

A "LINE" AND AN EXAMPLE 1914 179

to read those indications, and it is here submitted that
any intelligent layman with a sympathetic interest in
the stock market movement, by no means necessarily
speculative, can read the stock market barometer.

Speculation's Necessity and Function

Wall Street is a mystery to many men who have
unsuccessfully tried to speculate there without knowl-
edge, only to become convinced that they have in some
way been cheated in what is no better than a gambling
game. It has not been the purpose of these chapters
to discuss ethical questions; as, for instance, the mo-
rality of speculation or the line which divides specula-
tion from gambling, or the place of gambling in the
Ten Commandments, or the supposed special sinfulness
of short selling. The personal opinion of the writer
is that speculation within a man's means is unaffected
by any question of morality. Perhaps this is only
another way of saying that its morality is taken for
granted, just as the lawful conduct of a man's business
is assumed. If the man chooses to make speculation
his business, or part of his business, the ethical question
becomes purely academic. Speculation is one of the
greatest essentials in the development of a nation. The
spirit which inspires it can be called by prettier names,
like adventure and enterprise. Certainly if no one had
been willing to take a speculative risk for a larger
profit than mere investment provided the railroads of
the United States would have stopped at the eastern
foothills of the Alleghenies, and what the maps of

i8o THE STOCK MARKET BAROMETER

our childhood called "the great American desert,"
now our great wheat and corn-producing states, would
have remained a desert for all we knew to the contrary.
Rudyard Kipling once said that if the British army
had always waited for supports the British Empire
would have stopped at Margate beach. The specu-
lator in the stock market, or any free market, is a fact
and not a theory. He is the embryo investor who does
not wait for supports. It will be a bad day for this
country, and a sign that having ceased to grow it has
begun to dwindle, when it abandons free markets and
the free speculation which they necessarily entail.

Difficult But Not Unfair

It is not true to say that the outside speculator al-
ways loses money in Wall Street if he continues specu-
lating long enough, as the present writer (who does
not trade on margin himself) can testify from numer-
ous instances to the contrary. But the man who means
to hold his own in an encounter requiring capital,
courage, judgment, caution, and arduously acquired
information from study must devote the same atten-
tion to that business that he would to any other busi-
ness. So far as Wall Street is concerned, the simile
of a game of chance is always a bad and misleading
one. But it may be said that to those who will not or
cannot comply with the conditions of the game when
playing against expert 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-

A "LINE" AND AN EXAMPLE 1914 181

honest) and against such a player. No one would
play auction bridge against scientific players without
learning how to bid and how to draw correct infer-
ences in the play. He would refrain, if only out of
mercy for his prospective partner. But the man who
will not risk his own and his partner's money in that
way will not hesitate to speculate in Wall Street. Is
it surprising that he loses his money?

Who Makes the Market?

This seems an appropriate place to answer a ques-
tion which may be said to go to the root of the matter.
"Who makes the market?" The manipulators? The
great banking houses of issue with new securities to
float? The professional traders on the floor of the
Stock Exchange? The large individual "operators"
who talk to newspaper reporters of their profits and
tell Congressional committees how they made them,
but never say a word about their losses? Certainly
not. The market is made by the saving, investing
public of the whole United States, first, last and all
the time. There is no possible financial combination
which can manipulate a bull market, by propaganda
or in any other way, when the combined intelligence
of the investing public sees that it is time to curtail
their commitments in view of a coming decline in
prices, earnings and the volume of trade. The most
an expert manipulator can do is to stimulate activity
in a particular stock, or a small group in a market
which is already rising on its merits, with the approval

1 82 THE STOCK MARKET BAROMETER

of public sentiment. We hear about the successful
manipulation of the market, in United States Steel
or Amalgamated Copper, by the late James R. Keene
in 1901 and 1902; but we hear nothing of almost
innumerable attempts to manipulate for distribution
abandoned because the general trend of the market
made the operation profitless and dangerous. The
great private financing houses are normally sellers of
securities because it is their business to manufacture
them, in the promotion of new enterprises, and the
direction of the great reservoir of public capital into
such channels. Individual Wall Street capitalists buy
for private investment, and I could tell, from the
wills filed for probate, of the unbelievable minor errors
of judgment of this kind made by men so well informed
as the late J. Pierpont Morgan or the late E. H.
Harriman, to name only two of many.

Speculation's Sound Basis

It has been said before that the stock market rep-
resents, in a crystallized form, the aggregate of all
America knows about its own business, and, inciden-
tally, about the business of its neighbors. When a
man finds his jobbing trade or his factory showing
a surplus he tends to invest that surplus in easily nego-
tiable securities. If this improvement is general it is
all reflected and anticipated in the market, for he can
buy in July and carry on ample margin what he knows
he can pay for outright when he divides profits at the
end of the year. He does not wait till the end of the

A "LINE" AND AN EXAMPLE 1914 183

year, because he realizes that the knowledge he pos-
sesses in July will by that time have become common
property, and will have been discounted in the price.
He buys ahead just as he buys the raw materials for
his factory ahead, at a time when the securities or the
raw materials look cheap. It is important to note
that this is, in the very best sense, sentiment, which
comes from the Latin verb sentire "to perceive by
the senses and the mind, to feel, to think." This is
anything but sentimentalism, which is not encouraged
in Wall Street.

Sentiment

Wall Street knows what sentiment is. It is a thing
of high emprise, of adventure, of noble effort to a
worthy end. It carried Boone across the Appala-
chians, and the Argonauts of 1849 through the passes
of the Rocky Mountains. It is something we inherit
from our forefathers of Shakespeare's time. It is
what they brought with them when they put out upon
the trackless sea, defying the galleons of Spain, and
named a plantation on an unknown continent after
their Virgin Queen. Virginia is still here but, as
Austin Dobson sings, and Admiral Dewey might have
asked, where are the galleons of Spain? This senti-
ment is a life-giving principle in national growth, not
to be confused with sentimental statutes for "an offi-
cial state flower," with "smile weeks" and slop-over
"mothers' days." In the English-speaking race it is
a perception which greatly survives for great occa-

1 84 THE STOCK MARKET BAROMETER

sions. It was sentiment which first gave a kingly
funeral, and a memorial stone in Westminster Abbey,
to the Unknown Soldier who had saved the race. It
was sentiment which made all London still its voice
and hold its breath, one year, to the minute, after the
declaration of the armistice. I spent those exalted
two minutes at the Mansion House Corner, in the City
of London, in November, 1919. It was a moving
sight, indeed, when it could bring tears to the eyes
of the hardened newspaper reporter.

A great price movement is not the ordained out-
come of enlightened individual choice, or even of
individual leadership. It is a thing far greater and
more impressive, at least to one who has learned, from
personal contact, in Wall Street and out,

"How very weak the very wise,
How very small the very great are."

Chapter XVI

AN EXCEPTION TO PROVE THE RULE

A PROVERB has been called the wisdom of many
and the wit of one. Sometimes, when the
controversialist finds the proverb inconvenient, he calls
it a glittering generality or a truism. A French phil-
osopher told us that all generalizations are fallacious,
"including this one." But a truism is presumably true,
even if it is trite. It is said that there is no rule with-
out an exception, but as a sufficient number of excep-
tions would make it necessary to formulate a new rule,
especially in economics, the proverb which best suits
our purpose is that which says that the exception
proves the rule, although Coke's "Exceptio probat
regulam de rebus exceptis" is not what we want. But
the proverb is even startlingly true about what may be
called the great exception in the stock market averages.
Our two averages of railroad and industrial stocks
must confirm each other to give weight to any infer-
ence drawn from the price movement. The history
of the stock market as shown by these averages, going
back many years, proves conclusively that the two
averages move together. But there was one excep-
tion to this rule, and it is the more valuable for our
purpose in that it is the exception which proves the
rule we have set up.

185

i86 THE STOCK MARKET BAROMETER

Some Necessary History

It adds to the interest of the study of this subject
that it is necessary to make excursions into contempo-
rary history to explain the meaning of the price move-
ment, often only fully apparent after the movement
has been under way for many months. In 1918, for
some nine months after we had entered the Great War,
both averages showed a primary bull market with a
strong secondary reaction over the end of that year.
During that year the railroad stocks fully shared that
upward swing but subsequently sold off, making almost
a bear market of their own in 1919, when the indus-
trials were strongest. Letters were written dur-
ing the serial publication of these discussions, in
which this well-known fact was adduced as a reason
for rejecting the entire theory based upon the aver-
ages. But if ever an exception proved the rule this
one does.

Remember that the industrial and railroad stocks
used in the averages are essentially speculative. Only
to a limited extent are they held for fixed income by
people to whom safety of the principal should be the
main consideration, and their holders are constantly
changing. If they were not speculative they would be
useless for a stock market barometer. The reason
why railroad stocks during 1919 did not share the
bull market in the industrials was that, through gov-
ernment ownership and government guaranty, they
had in a real sense ceased, for the time at least, to be
speculative. They could not advance in any market,

MOVEMENT OF STOCK-MARKET AVERAGES

EXCEPTION PROVES THE RULE 187

bull or bear, more than enough to discount the esti-
mated value of that guaranty.

An Impaired Barometer

Thus for a year or more the averages had half
their usual value as a barometer, or indeed less than
half, for the movement in the industrials lacked the
essential confirmation of a corresponding movement
in the speculative railroad stocks. It is made clear
by the accompanying chart that during that period the
railroads followed not the speculative market but the
market for bonds. They had nothing to expect be-
yond the government guaranty, unless, indeed, far-
sighted holders of them could have foreseen the
destruction of earning capacity resulting from the
colossal waste of government ownership and its sub-
sequent collapse. It will be shown that the railroad
stocks during the period of that ownership paralleled
the speculative industrials accidentally and for differ-
ent reasons, only so far as to discount the supposed
value of a government guaranty; relapsed, and recov-
ered with an ensuing price movement governed essen-
tially by the totally different conditions which are
compelling in the case of bonds.

An Important Distinction

There is some need to point out here the essential
difference between a bond and a stock. The stock is a
partnership obligation, while the bond is a debt, a

1 88 THE STOCK MARKET BAROMETER

mortgage, a liability ranking ahead of the stock.
The stockholder is a partner in the business, while the
bondholder is a creditor of the company. The bond-
holder has lent the concern his money on the fixed
assets, such as the railroad's real estate or the manu-
facturer's mills. But the essence of the bond is that its
speculative feature to the holder is subordinate, or
even non-existent. It is held for its income return.
The price fluctuates strictly according to the purchas-
ing power of the income. The price of the bond will
be high when the necessaries of life are low, and the
investment bond will decline in price as the cost of
necessaries advances. It would be easy, but constantly
misleading, to say that the price of bonds is regulated
by the value of money. The interest rate fluctuates
from day to day, and only by the issue terms of long-
time bonds can we get any idea of the quotation for
money over a long period of years, which is at the
best an estimate, and often wrong.

A Definition for the Layman

It is simplest to say that the price of securities held
for fixed income is in inverse ratio to the cost of
living. If the latter is high the price of bonds or
other securities held for fixed income will be low and
their apparent yield, measured in dollars, will be large.
If the cost of living is low the price of securities held
for fixed income will be high and the apparent income,
represented by the yield in dollars, will be correspond-
ingly less.

EXCEPTION PROVES THE RULE 189

Effects of Government Guaranty

It is plain, then, that with a government guaranty
of a minimum return, based upon the average earn-
ings of three years ended June 30, 1917, the railroads
entered the fixed income class. If they had continued
speculative, with no government guaranty and no gov-
ernment ownership, their fluctuations would not have
been governed by the cost of living but by their earning
capacity, and chiefly by their prospective earning ca-
pacity; for it cannot be too often repeated that the
stock market is not reflecting conditions as they are
to-day but conditions as far ahead as the combined
intelligence of the country there concentrated can fore-
see them.

Let us consider the history of the war period as it
affected the railroad stocks. When we entered the
war, in the spring of 1917, the arrangement between
the government and the railroads was purely tentative.
So far as the stockholders knew, their investments
were still speculative, and these followed the specu-
lative trend. It was not until late on the day after
Christmas, 1917, that the announcement that the rail-
roads would be definitely taken over by the govern-
ment was made. The stock market had not time to
discount the new ownership on that day, but on Uie
following day, December 27th, the average price of
the twenty active railroad stocks closed at 78.08 an
advance of no less than 6.41 points from the closing
prices of the day before. For not more than two days
previously was the idea that the roads would be per-

190 THE STOCK MARKET BAROMETER

manently taken over considered seriously in the Street,
although it had been expected for some time past that
the government would advance the money for maturing
obligations and capital improvements. On the morn-
ing of the day of the announcement one of the New
York newspapers, in the confidence of the Wilson Ad-
ministration, had a story to the effect that the plan
was to take the roads over for a compensation based
on the average of five years' net earnings. It is im-
possible to plumb the depths of Mr. Wilson's mind,
but this new ownership was assumed, then and for
long afterwards, to be permanent government owner-
ship for all intents and purposes.

How the Averages Diverged

From the accompanying chart it will be seen that
in the rally throughout 1918 from the bear swing
which had followed the first bull market of the Great
War that culminating in October, 1916 the rail-
road averages had accompanied the industrials in a
steady advance. But from the time when the fate
of the stockholders became dominated by government
management and guaranty the two averages parted
company. The high point of the movement in rail-
roads was made in October, 1918, while the bull
market in the industrial stocks did not culminate until
November, 1919. Toward midsummer of the latter
year the railroads had made some recovery, after a
break following the first impetuous buying on govern-
ment guaranty. But from that point they steadily

EXCEPTION PROVES THE RULE 191

declined while the principal advance in the industrials
was made, continuing to do so while the preliminary
movement of the great decline of 1920 was in prog-
ress. In 1920 they ran counter to the falling indus-
trials, on the way up actually crossing the industrials
on the way down, in the autumn of 1920. There was
simultaneously a confirmatory recovery in bonds.

The Esch-Cummins Act

It will be seen that the decline in the railroads in
1919 and the recovery in 1920 virtually paralleled the
movement of the average daily prices of forty repre-
sentative bonds in those years. It will be noticed how
closely this corresponded to the inflation and subse-
quent deflation of the cost of living. During the spring
and summer of 1919, while Mr. Wilson was absent
in Europe, it was frequently reported that he was dis-
appointed with the unexpected costliness and inefficiency
of government ownership, and that he would seek an
early opportunity for a return of the railroads to their
private owners. There is reason to believe that he
did expect, or at least hope, to return them about
August i, 1919, anticipating that Congress would have
passed appropriate legislation by that time. Con-
gress was working on the Esch-Cummins bill, now
called the Transportation Act, which dragged through
the summer and autumn until, on November i6th, the
House of Representatives passed the measure. It
was at that time, or early in December, that the Presi-
dent positively declared that he would return the roads

192 THE STOCK MARKET BAROMETER

on January ist. But the Senate did not pass the Esch-
Cummins bill until late in February, 1920; so that
the President was compelled to extend the limit he
had fixed by two months.

Selling "Ex-Control"

But more than nine months before, in May, 1919,
when the railroad average was making the first figure
of a "double top," completed in July, The Wall Street
Journal said that the strength of these stocks in the
face of discouraging reports of earnings might be due
to the fact that they were beginning to sell "ex-con-
trol." There is no question that the decline from the
point of the further (July) rally to the early low of
1920 was due to the appalling damage inflicted by gov-
ernment ownership, which actually, in most cases, had
raised the operating cost above the operating revenue.
The principal item, wages, had been advanced beyond
all reason, by a management which was political rather
than financial, and the cost of everything the railroads
consumed had been multiplied. The war administra-
tion had actually bid up railroad ties in Maine against
itself, the only buyer, from thirty-seven cents each to
$1.40. It is noteworthy also that at that time the large
but absolutely necessary increase in rates to render the
railroads self-supporting under private operation was
only being discussed. It was in fact not granted by
the Interstate Commerce Commission until the time
of its usefulness had passed.

EXCEPTION PROVES THE RULE 193
A Difference of Kind

Federal control actually ended on February 28,
1920, two days after the signing of the Esch-Cum-
mins act, which, however, extended federal compen-
sation for another six months, created the Labor
Board and gave the Interstate Commerce Commission
the 6 per cent net return as a rule of rate-making.
Rates were not advanced until the following August,
but Wall Street knew that they must necessarily be
advanced, and, as usual, discounted that advantage
as far ahead as it could see it in this case nearly six
months.

In considering the effect of the war upon business
and production it is well to assure ourselves as to what
extent the conditions it created are different, in kind
or only in degree, from those following other wars.
This was a difference in kind. Without help from
other quarters the industrial stocks made a bull mar-
ket off their own bat a thing they had never done
before. Stress is laid upon this fundamental differ-
ence here, and the causes which created it, because
unless it is thoroughly explained and grasped it is
inevitable that teachers and students of the future, to
whom these discussions are intended to appeal quite
as much as to the readers of the present, will become
confused and discouraged, in the face of what might
well be considered irreconcilable difficulties and dis-
crepancies. Still another instance will be furnished of
a like searching test.

194 THE STOCK MARKET BAROMETER
!// Sense of Proportion and of Humor

There is no need for us to fall in love with our
theory or to regard it in the false perspective of the
enthusiast for any fad. If you hold a silver dollar at
arm's length you can see it in its correct relation to
surrounding objects. If you bring it too close to the
eye its relation to those objects will become distorted
and exaggerated, and you can hold it so close that
you can see nothing else. Heaven forbid that I should
attempt to found a school of economists prepared to
die for the thesis that the world wabbles along on a
theory of averages. There is no cry here for disciples.
We can forgive a great deal to the founder of a school,
but we can seldom forgive the school. Let us, there-
fore, hold the stock market barometer at such a read-
able distance from the eye that we shall not consider
the barometer more important than the weather it
predicts. We have sound theory to go upon, or this
and the preceding chapters have been written in vain.
Don't let us overwork it, as so many statisticians do.
Scientists, even the greatest, are inclined to worship
their hypotheses, with humiliating results. Herbert
Spencer, the great synthetic philosopher, once said to
the late Professor Huxley: "You may hardly believe
it, but I, myself, wrote the beginning and at least the
framework of a tragedy." "I can quite believe it,"
said Huxley. "I know the plot. It was how a per-
fectly beautiful theory was murdered by an ugly little
fact."

EXCEPTION PROVES THE RULE 195
Our Material Is Mostly Modern

Some disappointment has been expressed that Charles
H. Dow said so little that was definite upon his own
theory of the market movement, or was able to draw
so few of the inferences which were implicit in that
theory, to say nothing of the practical and useful
truths developed from its application. The wonder is
that he got so far with the scanty materials then avail-
able. In the latter part of 1902, when Dow died, but
six of the twenty industrial stocks now in the average
were in the average then, and the number of such
stocks used was only twelve. Ten years before, it
would have been impossible to find a sufficient number
of representative and consistently active industrial
stocks to make an average at all. The old averages,
and I wish I were able to show examples of the market
movement back as far as 1860, with at least a single
average for fifteen stocks, had not the advantage of
their present double form. We see how vitally im-
portant it is to have two averages correcting and con-
firming each other. But when McKinley was re-elected
it was necessary to include Western Union even in the
railroad averages, for lack of a consistent degree of
activity in a sufficient number of stocks. We need not
belittle the pioneers, or overpraise them. They neces-
sarily had to break ground for themselves and im-
provise their own tools, while we, with all the
benefit of their experience, only too often turn out
work which is certainly less creative and often less
sincere.

Chapter XVII

ITS GREATEST VINDICATION 1917

IF there had not been a bear market in stocks in
the year 1917 it is probable that this series of dis-
cussions would never have been prepared. I should
have felt that inferences from the sum of knowledge
and intelligence represented by the market movement
were empiric, or based upon insufficient premises. I
should have said that the market was, for some incom-
prehensible reason, unable to look beyond the borders
of the United States. It would have seemed plain
that it was incapable of taking a sane and self-protec-
tive view of international affairs. Its findings might
have been worth little more than the fluctuations in
turnips at the crossroads grocery, for our chain of
reasoning is as strong as its weakest link. But there
was a major bear swing from October November,
1916, until December of the following year which
may justly be called the barometer's greatest vindica-
tion.

Uncertainty of the War Outlook

One of those precipitate critics who has failed to
grasp the principle so constantly repeated in these dis-
cussions that of the analyzed triple movement of the
stock market and its bearing upon future events
asked why the market in the year 1917 made a warn-

196

ITS GREATEST VINDICATION 1917 197

ing major bear movement although business charts
continued to show a large volume of practical pros-
perity, then and in the following year; while Babson's
familiar black area of good business was never once
below his amended line of growth, from the latter part
of 1915 to near the end of 1920? But what consti-
tuted the excess volume of American business during
the earlier war years? Was it not making supplies
for the combatants? Were we not feeding them and
arming them, and taking payment in I O U's? Have
we not many billions of the I O U's outstanding, some
of them never likely to be paid?

These things are important to remember, but there
was a specific reason why there was a bear market in
1917, apart from the fact that the stock market kept
its head, and did not treat war profits as a complete
offset to the destruction of our past and future foreign
customers. For the whole of that year the issue of
the war was in doubt. The sum of market knowledge
did not preclude a final German victory. Not until
the end of 1917 did the stock market barometer begin
to predict that the allies would win. The bull market
which was born in December of that year anticipated
the armistice by eleven months, and the failure of
Germany's last tremendous drive by six months. How-
ever bravely we believe right must triumph, the wish,
in 1917, was father to the thought. The bear mar-
ket which then concluded had been a measure of in-
surance. It can teach little to those who cannot dis-
tinguish one kind of "prosperity" from another. It
was the sanest of all stock market movements. It

198 THE STOCK MARKET BAROMETER

offers a demonstration of the market's vision higher
than anything we have previously analyzed.

// Germany Had Won

Many readers must have asked themselves what
would have happened to the world if Germany and
her allies had won. Many more must have dismissed
the possibility as too dreadful to contemplate. Con-
ditions are bad enough now, in all conscience. But
what would they have been with France crushed, Bel-
gium enslaved, Italy in $ state of anarchy, Great
Britain ruined, bankrupt and unable to feed herself,
with her merchant marine destroyed? What would
have been the burden of the hundreds of billions of
ransom Germany would have laid upon the world?
How should we have liked her for a neighbor in the
Caribbean? There has been a disintegration of
nations, or perhaps a rebirth of nationalities (some
possibly spurious), which has produced sufficiently
grave consequences. But what would have happened
to the world if the British Empire had been brought
to irrecoverable wreck?

Such a possibility might well daunt the staunchest
heart, but the stock market faced it, in 1917. It asked
itself exactly these questions. Admiral Sims has told
us since how desperate was the condition which the
allies at that time confidentially admitted. It was not
until the end of that year that our assistance became
effective, although we had gone to war, largely un-
prepared, in the spring. The stock market did not

ITS GREATEST VINDICATION 1917 199

know then (for no man knew) whether we should
not be too late. There was little question that we
might save our own skins, but it was the business of
the market to insure against the consequences if we
failed to save the allies. It has been said, in an earlier
discussion, that the stock market takes into account
many other things in addition to those chosen for tabu-
lation and analysis by the most complete information
bureau. Honest compilers of such records would be
the last to contend that the warning movement of the
stock market is limited in its application to a mere
reflection of the coming business of the United States
only.

Britain's National Debt

It will be highly instructive to treat in another dis-
cussion of the quiet years of contracted business which
followed the bull market of 19089 and preceded the
great war boom. There is a manifest connection
between the bear market before the war and an event
which, nevertheless, upset all calculations. It was a
thing so vast that even now we are at a loss to find
precedents in history, although there are incomplete
ones following the long quarter of a century of war
which culminated with the battle of Waterloo in 1815.
We can probably get a better parallel there than some
observers have supposed, if we accept length as to
some degree offsetting intensity, and take the relative
size of the conflicts compared with population and
national wealth. There is one significant illustration

200 THE STOCK MARKET BAROMETER

which has not been offered elsewhere, so far as I know.
It is that of the British national debt after the immense
losses of the Napoleonic wars. Great Britain's debt
at that time (1815-16) represented 3i l /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 gradually paid off,
until, previous to the Boer War (1899-1902) it
amounted to not much more than 4 per cent of the
estimated wealth.

In round figures, the Boer War cost Great Britain
about a billion dollars, and raised the proportion of
debt to national wealth to over 6 per cent. In the
years between 1902 and 1914, in spite of the steady
increase in the cost of living and the growth of taxa-
tion, the British national debt was again declining,
although it did not reach the low proportion to national
wealth of 1899. The British debt now is estimated
at 33 per cent of the national wealth, or a proportion
of about i y 2 per cent more than that at the conclusion
of the Napoleonic wars, which had lasted, with a
three-year interregnum, from 1793 to 1815. No doubt
it is a formidably high proportion. But it is far from
a hopeless proportion; and this is a basic reason why,
of all the money units depreciated in the conflict, the
British pound sterling approximates respectably in ex-
change credit to the American dollar.

One of Our Own Liabilities

In 1917 the stock market was asking itself what
would happen to the pouad sterling, and everything

ITS GREATEST VINDICATION 1917 201

else, if Germany won. If the German printing presses
are working overtime to turn out paper marks, what
sort of currencies would the allies be circulating now
had the German drive in the spring of 1918 succeeded?
We have satisfied ourselves by analysis that the essen-
tial quality of the stock market barometer is its fore-
sight. Could there have been a more striking instance
of the clarity of its vision than that salutary bear mar-
ket, when we were deceiving ourselves with paper
profits, inflation wages and inflation prices? In 1916
we had placed in the hands of the labor unions, through
the Adamson Act, the power to inflate wages without
guaranty of any corresponding productive return.
Congress, with a presidential election in sight, had
tried to buy votes, lulling the American consumer and
taxpayer, who were to pay the bill, with professions of
a philanthropic desire to inaugurate shorter hours with
consequent greater safety for the railroad traveler.
Of course the Adamson Act did not mean shorter
hours but only earlier, and more, overtime. The
hours of railroad labor were actually lengthened; for
it was made strictly to the interest of the men, up to
sixteen hours, to stretch their day to the legal limit.
We know now what the demoralizing effect upon other
labor was, in every department of industry. With
such a precedent no wage demand was too preposterous
after our own entry into the war, early in 1917, had
tied our hands. There was hardly a single manufac-
turer in the country, and certainly not a consumer, who
did not reap the deadly consequences of that humiliat-
ing Congressional surrender.

202 THE STOCK MARKET BAROMETER

In an earlier chapter, that on "Water in the Barom-
eter," I have alluded to watered labor as being in-
comparably more deadly than watered capital. How
many billions of our national debt might not have
been deducted, as never incurred, if there had been no
such dilution? Mr. -Piez, director-general of the
Emergency Fleet Corporation during the war, esti-
mated that the efficiency of labor had been dangerously
reduced through smaller individual output and larger
wages, the latter only excused by the higher prices for
commodities of which those wages themselves had
been the automatic cause. He said:

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

Guy Morrison Walker, in The Things That Are
Caesar's, quoting Director-General Piez, says that
the unit of cost production during our share in the
war was only one-third what it was at the beginning
of hostilities. Estimating our national debt at
$24,000,000,000 and deducting from it all, up to
$11,000,000,000, owed by the allied nations who bor-
rowed from us, there remains $13,000,000,000, of
which a large part, possibly half, constitutes watered
labor. But we are to remember that in the advances
to the allies, which were made not in cash but in the
necessaries of war, of which labor was the costliest

ITS GREATEST VINDICATION 1917 203

item, the water was also present in the same propor-
tions. It was less the cash wages than the slacking,
shirking and bad work. If we took all the water
which has ever been squeezed out of corporation capi-
talization, by the remorseless stock market, we should
not have a sum anything nearly approaching the shame-
lessly watered labor upon which we and our children
and our children's children must continue to pay inter-
est for half a century to come.

Paying for Bad Work

It has not been difficult to show the largely nominal
character of "water" in capitalization. How relatively
seldom has it represented any real loss, to anybody,
compared with the irreparable losses from watered
labor! How unsatisfying must seem the industrial
and commercial activity, recorded of the five years of
the war in graphic statistical tabulation, when we have
deducted from it the triple price for that prosperity
for which from henceforth we have to pay. Everyone
of those sham dollars must be met in real dollars.
Every wasted hour of bad work or shirked work has
to be paid for in an hour of good work.

Secondary Inflation And After

If I had to forecast the coming major bull swing
in stocks, and the area of a possible secondary infla-
tion, likely to be much less than that of the war but
sufficiently obvious, I would compare it with the six
vears which followed the battle of Waterloo in Great

204 THE STOCK MARKET BAROMETER

Britain. It was in 1821 that the Bank of England
went back upon a gold basis, and the premium upon
gold disappeared. A self-deluded House of Commons
admitted in 1819 that the famous Bullion Report
was right, and that fiat money was wrong. And then
followed the years in which the deflation of the war
levels was taken in hand by a nation in which every
sixth person was a registered pauper. Dare we sup-
pose that we shall not pay our relatively lighter bill
in some such way as this, sooner or later? It is less
than four years since the armistice. The bull market
in progress while this is written may or may not carry
us to a date corresponding to that of 1821 in Europe.
We are in no such desperate condition as Great Britain
was then. But our foreign customers have an almost
incalculably greater reckoning to meet. It is not a
problem which can be solved by quack remedies. It
can, indeed, be settled only by throwing the quack
remedies out of the window, for the patient has been
doped to the danger point.

Unsuspected Qualities of the Barometer

But sufficient unto the day is the evil thereof. The
stock market barometer is enough for our purpose in
that it records, well in advance, the periods of depres-
sion and prosperity alike, giving, as we have seen, the
signal for a clear track ahead and the warning of
danger. The averages are saying now that general
business will be more active and more cheerful in the
summer of 1922. The barometer does not profess
to predict the duration of such prosperity, although

ITS GREATEST VINDICATION 1917 205

on close scrutiny it seems to give tolerably clear indi-
cations of the character of the boom or depression
which it forecasts. The business depression of 1908-9,
predicted by the bear market of 1907, was deep rather
than long. The period of prosperity of the latter part
of 1909 and 1910 was more extended but much shal-
lower ; and the market bull movement which preceded
it was also slower and longer than the bear market,
while its range was correspondingly less. This is strik-
ingly true of the narrower later fluctuations, both in
business and in the stock market, with the latter char-
acteristically preceding the former. It was only in the
war years that the preceding major swings of the stock
market became as vigorous as the developments in our
trade.

It is also noteworthy that during those quiet years
of narrow fluctuations before the war the volume of
transactions in stocks, as shown in our twenty-five-year
chart, contracted also. The average monthly transac-
tions compare in volume, upon the whole, rather un-
favorably with those preceding the re-election of Mc-
Kinley in 1900. The years 1911, 1912, 1913, and
1914 show a volume of trading below that recorded
in the years 1897, 1898, 1899, and 1900; and the year
1899 made a better showing in the average transac-
tions than any one of the later years here taken for
comparison.

Forecasting the War

We may say, therefore, that the stock market does
in a measure foresee, although probably in a way not

sufficiently definite to be of much practical usefulness,
the character, and even the dimensions, of the thing
it predicts. One thing it foresaw, so far as human
knowledge could, was the war itself. Somebody knew
that it was a lively possibility, and the bear market
which preceded the war was no accident or mere coinci-
dence. It will be remembered that in the latter part
of 1912 a bear movement set in, of decidedly mild
intensity compared with most of the bear movements
of the past and especially those to which we have given
particular consideration. There was an area of busi-
ness depression of no great depth in 1914 which could
be offered as partly convincing justification of the pre-
ceding major bear swing. But there can be little doubt
that the decline was also influenced by liquidation of
stock held by those who realized the dangerous pos-
sibilities in the German attitude toward other nations.
This must have started somewhere about the opening
of the Kiel Canal, strategically connecting the Baltic
with the North Sea through German territory.

It may be justly claimed that the bear market, quite
apart from predicting a contraction in business, was
also discounting the possibilities of war. In a previous
study, referring to the line of distribution made in
1914, before the outbreak of hostilities, it was shown
that foreign liquidation was responsible for turning
what would normally have been a line of accumulation
into a line of distribution, during the period of almost
three months of equilibrium so represented. To those
who profess themselves dissatisfied that the major
stock market movements are not always immediately

ITS GREATEST VINDICATION 1917 207

adjustable to the various current business charts, it
may be said that the fault is not in our barometer.
That is universal, and takes note of international facts
where those tabulations do not. If, therefore, they
inadequately confirm our deductions, so much the worse
for them. We have found that the more severe the
test we apply to our barometer the more triumphantly
does it vindicate its usefulness. It would be difficult
to overestimate the value of its prescience both before
the war and in the course of the conflict. What if
the war had come at the top of a bull market?

Chapter XVIII

WHAT REGULATION DID TO OUR RAILROADS

A SWEEPING assertion requiring no qualification
would probably be one of two things. It would
be an axiom, self-evident and containing its own proof;
as, for instance, "the sum of the angles of any triangle
is equal to two right angles." Or it would be a truism
not greatly worth stating. I have said in previous
necessary criticism that tabulated business records,
however presented, are at best records, and only in
a minor degree forecasts. But that is a statement
which requires at least some qualification, because the
youngest but most scientific of our business records
embodies a quality of forecast. This is the service of
Harvard University's Committee on Economic Re-
search. Its index chart does offer a method of fore-
casting business, for the good reason that it adapts
the idea of the stock market barometer, which has
been in successful use by The Wall Street Journal and
its allied publications for the past twenty years.

A Chart With a Forecast

Those familiar with the Harvard economic service
will recollect that it uses three lines in its business chart
a line of speculation, a line of banking and a line of
business. It commits itself to no floundering attempt

208

REGULATION AND RAILROADS 209

to show that "action and reaction are equal." Its
service dates from after the war; but it publishes a
chart from 1903 to 1914 inclusive, which is a most
valuable confirmation of what has been here laid down
in the discussion of the stock market barometer. Its
line of speculation, during those twelve years, uni-
formly precedes the lines of business and banking. In
other words speculation anticipates the developments
of business, which is exactly what these chapters have
been directed to prove.

The Harvard Committee on Economic Research
takes the average stock market prices for its line of
speculation. It recognizes how completely the war
threw many such calculations out of gear by breaking
up the very foundations upon which they were based.
Harvard, therefore, does not publish any chart of the
years of the war. I find, in looking back over my rec-
ords and newspaper comments, that conclusions upon
the stock market movement and its prophetic relation
to the business of the country were dropped almost
entirely for the same reason. We have seen that when
the government took over the railroads on a guaranty
we had remaining merely the speculative movement
of the industrial stocks, without any corresponding
movement of the railroads to check and confirm it.
We have seen also, in analyzing the war period which
the Harvard service not unwisely ignores, that the
stock market did, in a most valuable way, act as best
it could in holding before the public mind the possi-
bilities of the war itself, notably in the bear market of
1917, and that it also foreshadowed the war in the

210 THE STOCK MARKET BAROMETER

line of distribution for the three months preceding its
outbreak.

A Movement Greater Than the Major Swing

But there is another indication given by the averages
which, while of the greatest importance to-day, has
been largely unrecognized. We have seen that the
railroad stocks, where there was a free market for
them, in the years under private ownership, shared the
major swings; and that we had a bull market cul-
minating in 1909, a bear market determined in the
following year, a greatly restricted and hesitating bull
market, especially in the railroad stocks, carrying into
the latter part of 1912, and another bear market cul-
minating immediately after the reopening of the Stock
Exchange in December, 1914, following eighteen
weeks of war.

There is a historical significance a lesson and
warning of the very first importance in the general
trend downward of the prices of railroad stocks from
1906 to June, 1921. This is a movement not only
wider than the major swings but even more consider-
able than any of these assumed cycle periods with
which a previous discussion dealt. It has extended
nearly sixteen years. It is not only likely but as nearly
certain as anything merely human can be, that the
railroad stocks on the average will improve in the
coming year 1922. But there is a radical reason why
they will not, in any near period of time, attain the
old freedom and buoyancy which they enjoyed in the

REGULATION AND RAILROADS 211

"x.

later lifetime of great railroad builders like James J.
Hill and Edward H. Harriman. A condition for
railroad enterprise has been established which has not
only taken much of the speculative value out of the
stocks but much of the permanent value as well. It is a
condition which has left the railroads themselves
emasculated and weak, with their virile creative power
removed.

Roosevelt and the Railroads

If Theodore Roosevelt could have foreseen the
deadly consequences of the agitation against railroad
corporations which 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 conclusion, would cripple railroad en-
terprise for incalculable years to come, and perhaps
forever, in order to punish a few who had abused the
power which necessarily accrues to successful enter-
prise we may be sure he would have acted far other-
wise. The public power to reform has been construed,
in the past fourteen years, as the power to destroy.
Railroad development, which in the past has not only
accompanied the increase in population but, on this
continent at least, has preceded it, is now moribund or
dead. No new capital has been forthcoming for the
greatly needed extension of railroad facilities to parts
of the country that do not enjoy them, to say nothing
of greater terminal facilities. Lines of communica-
tion are the very arteries of civilization. But the

adaptation of the Roosevelt theories or rather the
misconception of those theories, the ascription to Theo-
dore Roosevelt of ideas he never held has resulted
in a hardening of those arteries, in a weakening of
the great central heart which pumps the lifeblood
through them.

An Arrested Development

We can see the fact for ourselves in the mileage of
the United States taken contemporaneously with each
ten-year census. If we had two hundred and forty
thousand eight hundred and thirty miles of railroad
in 1910 an increase of nearly 25 per cent since 1900
and more than double the railroad mileage in 1 8 So-
we should have had a continuing increase, shown in
the census of 1920, of as much as ninety thousand
miles. We have not had one-sixth of it. The in-
crease has been less than fifteen thousand miles, the
irreducible minimum, just enough to keep the railroads
alive. A "craven fear of being great" has possessed
our politicians. They have paralyzed the growth of
our most important industry rather than permit a few
conspicuous individuals to grow rich by the turning of
great ideas to great needs. Harriman and Hill were
rich when they died. I knew them both, and I know
that their wealth was almost fortuitous. They were
rich because they could have done nothing creative
without the necessary financial strength to make them
independent. But Harriman never controlled the
stock of one of the railroads he directed. He was

implicitly and deservedly trusted by the stockholders.
He never had a voting majority in Southern Pacific,
Union Pacific or even Chicago & Alton. He and
Hill, incidentally to their own wealth, brought com-
fort, competence, affluence, to millions of Americans
they never saw. The period of railroad development
so clearly set forth in the record and chart of our
barometer from 1897, the end of the reconstruction
era, to 1907, the beginning of the destruction era, was
upon the whole the greatest, most deservedly success-
ful and most creative period in American history.

A Cycle of Human Folly

We have seen and proved the correctness of Dow's
theory of the price movement. We know that the
stock market has simultaneously a major swing up-
ward or downward, a secondary reaction or rally, and
a daily fluctuation. But might we not almost go
further and establish a sort of cycle of our own, not
related in the least to those cycles which we have previ-
ously considered, with their imposing and instructive
lists of panic dates? The Harvard University chart
ventures as far as is wise and profitable. Its series is
"Depression," "Revival," "Prosperity," "Strain,"
"Crisis," without assuming absolute length for any of
these states, and even taking "Strain" and "Crisis,"
or "Crisis" and "Panic," or "Strain" and "Panic," as
in some cases coincident. But there is another cycle
which we can deduce from our records of the averages,
which could almost be called a cycle of human folly.

2i 4 THE STOCK MARKET BAROMETER ,

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

Coxey's Army

It will not be difficult to show what I mean. In
the year 1890, with a Republican President and a
Republican Congress, the air was full of uncertainty
and sectionalism; and legislation, which is always in
some degree a compromise, had become an immoral
compromise. A true statesman can compromise suc-
cessfully on non-essentials with no real sacrifice of vital
principles. But the Sherman Silver Purchase Act was
a sacrifice of principle which brought about the gravest
consequences, because it adulterated the very lifeblood
of our financial system. The great and inevitable
panic, due to consequent inflation and overspecula-
tion, might well have come in 1892 had it not been
that, in that year, we had an extraordinarily large
wheat harvest coincidentally with a complete failure
of the crop of Russia, our only considerable inter-
national competitor. The panic came, therefore,
in 1893.

For four years after the country was full of very
much the same kind of Populism which is so rife at
present. Coxey's Army started from Masillon, Ohio,
to march on Washington in 1894. Coxey's main
postulate that prosperity could be restored with the

REGULATION AND RAILROADS 215

unlimited issue of fiat money was marching all over
the United States. The Middle West was rotten with
it. The turn of the tide was marked by William Allen
White's celebrated editorial, "What's the Matter
With Kansas?" Railroad managers, during those
dreadful years, were in the last depths of despair. All
but a few strong and sound roads went into bank-
ruptcy. As much as 87 per cent of the country's rail-
road mileage in 1896 was in receivership. Only with
the first election of McKinley did the country emerge
into a state of sanity and light.

Ten Prosperous Years

It had tried out the Populist follies free silver and
all the rest of them and found that they pointed in
the direction of national bankruptcy. Politicians were
terrified at the results of their rash enactments. For
ten years, between 1897 and 1907, the paralyzing hand
of politics was removed from the business of the
United States. We never had such a period of pros-
perity, before or since. The railroad development in
that time was greater than it had ever been before.
It was a decade which saw the broadest and most
beneficent industrial amalgamations, of which the
United States Steel Corporation is the outstanding
example. It was a time when the cost of living was
upon the whole low, although it was rising in the latter
part of the ten-year period. It was a time when wages
were good, not merely in their amount as expressed in
dollars and cents, but in their purchasing power.

216 THE STOCK MARKET BAROMETER
"And Jesurun Waxed Fat, and Kicked"

But "Jesurun waxed fat, and kicked." Can it be
that democracies cannot stand prosperity? Or is there
still no need to make so wide an assumption? We
have seen that labor agitation reaches its maximum,
not in the lean years, when unions are impotent or
non-existent, but in the fat years, when labor is at a
premium and the leaders have at their disposal more
union funds than they can wisely spend. Agitation is
not, as so many of us have assumed, the result of trade
depression. It is, indeed, the kicking of the national
Jesurun when he waxes fat. The dangerous founda-
tion of the Populism which ineffaceably marked the
nineties had been laid in the years before. We seem
to be running into such an era of Populism once more.
The war has, of course, thrown any possible "cycle"
out of kilter, but the evil fertilization of the impres-
sionable public mind, implanted by the agitation against
personal property, is bound to bear its noxious fruit
in the years to come.

Public Opinion's Second Thoughts

It would be extending the purpose of the stock mar-
ket barometer, and the design of these discussions
beyond their proper field, if I ventured upon a forecast
based upon this cycle of popular folly. We can see
how far behind us the golden ten-year period of true
prosperity is. We can name the peak of it. We saw
its sudden and dramatic collapse in 1907. The fever-

REGULATION AND RAILROADS 217

ish productive activity growing out of the war is no
fair test, just as it is no sound basis. Before another
ten years like those between 1897 and 1907 can be
inaugurated, must the country go through a period
at the end of which it will ask itself, not "What's the
matter with Kansas?" but "What's the matter with
America?" I would be a poor American indeed if I
did not believe that the good sense of the American
people can find the right answer when that day comes.
There is no weaker fallacy of democracy than the one
which assumes that public opinion is always right. It
depends on what you call "public opinion." Such
opinion, as represented by the voice of the noisiest, in
its first expression is generally wrong, or right for the
wrong reason. But the second thought of the great
American people, as history shows, is usually right.

Recalling Lincoln

Annually we repeat to each other the great words
of the Gettysburg Address. Lincoln declared that
what was said there and be it remembered that he
was not at the time considered the principal orator ot
that great occasion would bear little place in men's
memories compared with what was done there. He
underrated, with characteristic modesty, the imperish
able quality of a great thought greatly expressed.
Lincoln's words in 1863 at Gettysburg will be remem-
bered by millions who will hardly know the conditions
of that battle 01 which side won it, except to assume
that the imperishable Union was there sustained. But

2 1 8 THE STOCK MARKET BAROMETER

if, at that time, there had been in operation a federal
law to "recall" officers federally elected, it is well
within the bounds of probability that Lincoln might
have been recalled and not re-elected. It was not until
the following year that his re-election to the presi-
dency was a certainty, and there are readers of these
discussions old enough to remember the moral depres-
sion of 1863 and its effect upon the public mind.

Paying for Government Meddling

It can be seen, from this instance of many, that the
second thought of the American mind was right, where
its first impression may well have been wrong. Look
at the enthusiasm recently created in the Middle West
by the Non-Partisan League, with its half grain of
truth and its bushel of quackery or fraud. Dare we
assume that we have extruded that poison from our
system? Hardly a week passes that a bill for the
creation of billions of fiat money, under one pretext
or another, is not introduced into the Congress of the
United States.

If there is one lesson which should have been burned
in upon the public mind in the past decade, it is that
when government interferes with private enterprise,
even where that enterprise is directed to the develop-
ment of a public utility, it can do incalculable harm
and very little good. The people who develop the
railroads and the natural resources of the country are
only ourselves. Railroad ownership is, in a way, more
representative than ever Congress can be. It includes

REGULATION AND RAILROADS 219

every depositor in the saving banks, every holder of an
insurance policy, and, indirectly, every holder of a
United States bond, so long as the interest on that
bond is dependent on taxation largely derived from
railroad enterprise.

Legislating Everybody Poor

It must be admitted that this chapter is less about
the averages as a barometer than as a record. But
our discussions would be incomplete if the most im-
portant lesson of that record were overlooked for the
easily understood psychological reason that it is writ-
ten in such large letters across the sky. Look at the
course of the railroad averages on the twenty-five-year
chart. More than sixteen years ago the twenty active
railroad stocks made the highest point on record, at
138.36, on January 22, 1906. They never saw that
figure again, but came within less than four points of
it in August, 1909, at 134.46. The next high point
was in October, 1912, at 124.35 more than fourteen
points below the record. On the next advance the net
recession was still further, while the railroad average
reached only 109.43 on January 31, 1914, the top of
a half-hearted rally. Even the next recovery, in the
first bull market of the war, only carried the railroad
stocks to 112.28, on October 4, 1916. They did not
share the bull market of 1919, as we know, for we
have devoted an earlier chapter to the study of the
reason.

To-day the price is fifty points below the record, and

220 THE STOCK MARKET BAROMETER

less than fourteen points above the low figure of July
25, 1898 more than twenty-three years ago. Analyze
this steady decline over a period of sixteen years, suffi-
cient to include the simple cycle of the Harvard Uni-
versity Committee on Economic Research at least
twice over more than long enough to exceed the
period between two of our greatest panics those of
1857 and 1873 covering a time 60 per cent longer
than the Jevons ten-year cycle. See how the steadily
declining line of values mocks and belittles the assumed
medial line of growing national wealth postulated in
some of the better-known business charts. Can the
richest nation in the world afford to allow its politicians
to run its greatest investment and its greatest industry
into the ground as steadily and stupidly as this ? Are
we throwing away the thing our fathers built, or allow-
ing politicians to squander it, from some idea that the
ruin of the railroad stockholders will make other
people richer and happier? We know, or ought to
know, that we cannot legislate everybody rich. But
here is one more example added to that of Russia, of
how it is possible to legislate everybody poor.

Chapter XIX

A STUDY IN MANIPULATION 1900-!

T has been shown in previous discussions how rela-
tively unimportant stock market manipulation is.
But history presents some striking instances of manip-
ulation, and much was possible in the Wall Street of
two decades back which would not be feasible or toler-
ated to-day. It would not, for instance, be within the
bounds of possibility to manipulate either the Steel
stocks or Amalgamated Copper for distribution to-day
as they were undoubtedly manipulated by James R.
Keene twenty-one years ago. These two stocks are
merely offered for example, and it is not to be assumed
that I am placing them on a parity. There was an
arrogant impudence about the distribution of Amalga-
mated Copper which makes me hot all over, even now.
I remember that I criticized it, with all the freedom the
law (and Charles H. Dow) allowed, at the time it
was in progress.

Conceived in Sin

The Amalgamated Copper Company was conceived
in sin and born under similar auspices. It was offered
for subscription with a capital of $75,000,000 early
in 1899, and the subscription books closed on May 4th
of that year. A number of "newspapers," of a kind

221

222 THE STOCK MARKET BAROMETER

now happily defunct, reported that the stock had been
"five times oversubscribed!" It did not sound prob-
able, with the stock selling at a heavy discount in less
than a month. The general stock market was on the
down grade then. It did not turn until the summer of
the following year. Of all the contemporary com-
ments on that disreputable exploit those of the Boston
News Bureau, which flatly refused to be humbugged,
were about the most vitriolic. Here is one of them,
published less than a month after the fivefold "over-
subscription." On June I, 1899, the Boston News
Bureau said:

"The drop in Amalgamated Copper stock which was the
feature of the trading in outside securities yesterday, was par-
ticularly appropriate at this time when the general railway
list is on the down grade. Many shrewd observers in Wall
Street contend that the formation of the Amalgamated Copper
Company was the red flag which warned conservative investors
and speculators away from the security market; that a blind
pool calling for a capital of $75,000,000 should be oversub-
scribed five times was an indication to the better element of
speculators that the public lost its head and the crash would
not be far distant.

"One of the worst features of the whole case is that the
National City Bank, which is the largest institution of its kind
in this country, should have stood sponsor for such a transac-
tion," etc., etc.

Amalgamated Copper

It will be seen that, in spite of all the flubdub circu-
lated about "oversubscription," the flotation had been
a failure. The Boston News Bureau continued to com-
ment upon "'The Amalgamated Fiasco," "Promises

MANIPULATION 1900-1 223

and Predictions Against Realities," "The Humor and
Pathos of Copper Promises," in an acridly humorous
vein. In the same month of June there were rumors
that control of the Anaconda company had been pur-
chased by the organizers of Amalgamated Copper,
for something like $45 a share, though it was quoted
at $70 a share by the time Amalgamated was floated,
and was said to be going into the new Amalgamated
company at $100 a share. The same Boston article
points out that the $75,000,000 capital of Amalga-
mated 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 transac-
tion was so raw that in the better Wall Street of to-day
it seems almost unbelievable.

Keene's Part in Distribution

In the latter part of 1904, three years after the
manipulated distribution of the stock by James R.
Keene had taken place, that eminent operator wrote
a letter, which became public, in which he admitted
that he distributed, "for the account of Henry H.
Rogers and associates," $22,000,000 of Amalgamated
Copper (two hundred and twenty thousand shares) at
prices ranging from ninety to ninety-six. In that letter
he indicated the period of distribution with sufficient
clearness. In the following January I published, in
The Wall Street Journal, an analysis of what he had
done, as shown by the recorded sales, under the title

224 THE STOCK MARKET BAROMETER

of "A Study in Manipulation." That analysis did not
deal with the ethical question. You cannot say much
about the ethics of people who seem to have none. By
taking the sales of Amalgamated Copper stock, as
recorded on the ticker, together with the names of the
brokers executing orders as reported from the Stock
Exchange, and by comparing periods of activity it
seemed possible to dot Mr. Keene's "i's" and cross
his "t's."

It had the result of making me some enemies in
Wall Street, although, to do James R. Keene justice,
I do not think he was one of them. I have said before
that we were never intimate. But he made oppor-
tunities to see me at various times after that analysis
was published, and nothing I could say seemed to con-
vince him that I had not had some illicit access to his
books. As he put it, "Somebody must have leaked."
The Wall Street of that time, and the nature of his
own business, made Keene habitually suspicious. His
mentality was incomplete in the respect that he found
it hard to believe a simple truth where it depended
upon the unsupported word of anybody. Really great
men, and some children, know when to believe and
whom. Keene was not a great man.

A Difference Between Steel and Copper

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

MANIPULATION 1900-1 225

mon and preferred will remain an example of con-
summate generalship. But in that instance he had the
enormous advantage of a public which wanted the
stock he had to sell. It is not true that there was much
real "water" in the capitalization of Steel. What was
called watered capital was only intelligently antici-
pated growth. United States Steel was floated in
1901, and three years afterwards was showing a well-
established surplus of 4.9 per cent on the common
stock sold to the public at fifty, which surplus had been
more than doubled by 1905. In an earlier article I
have pointed out the genuine book value of the
stock now.

But Amalgamated Copper was an utterly different
proposition. As a work of art the distribution, com-
pared with that of Steel, bears about the relation of
a Meissonier to one of the heroic battle pictures of De
Neuville. Keene, in his subsequent statement, said
that he was reluctant to take the matter in hand. It
was not that he had to create a market, as in the case
of United States Steel common and preferred; he had
to begin his distribution in a market which others had
done their stupid best to spoil.

Earlier Manipulation

On analysis of the sales, the first significant period
seems to be that between December 3, 1900, and about
the middle of January, 1901. Taking advantage of
the general bull movement which set in shortly before
the second election of McKinley, such members of the

226 THE STOCK MARKET BAROMETER

public as had really subscribed for Amalgamated Cop-
per originally were unloading on the promoters of the
enterprise. Certain "court circulars" of the time were
talking boldly of "inside buying." They were right for
once. Insiders were buying because they could not help
themselves. They were "accumulating," much against
their will, to judge from the downward movement of
the stock. With a knowledge of the backs of the cards
as well as the faces, the "Standard Oil crowd" which
hatched the company could not conceal their crude and
clumsy methods. We may here recapitulate the move-
ments and total sales during this period:
The opening price December 3, 1900, was 96

Sales from December 3d to December

I3th were 160,000

The fluctuation in that period was from 96 to 90^
Sales from December 14, 1900, to Jan-
uary n, 1901, were 295,000

The fluctuation in that period was from 89^ to 9^
With all this stimulation the closing price on Jan-
uary II, 1901, was only giy&.

Keene's First Appearance

Keene's first appearance seems to have been made
then, and he was much too clever not to see that it
would be necessary to break the market for the stock
before he put it to a level which would attract the
speculative public. The next record is:
Opening price January 12, 1901.... 91

Sales from January I2th to January

I9th 70,000

MANIPULATION 1900-1 227

Fluctuation in that period from 92^ to 90 y

Closing price January I9th 90^

Sales from January 2Oth to January

26th 88,000

Fluctuation in that period from 92 to 83^4

Closing price January 26th 89

This closing price of January 26th is a tribute to
Keene's ability. It was a much more real price than
the ninety-six momentarily established by the fatuous
"insiders" in the previous December. The beginning
of Keene's operations is characteristic. There were
transactions averaging from twenty thousand to thirty
thousand shares daily in the third week of January,
1901, when, on the 2Oth of the month, the price was
hammered to eighty-six, fluctuated between 83^ an d
89 on the following day, and tended to settle down
stolidly at 8854 on the day after. The gossip obtain-
able 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 to show
that, if Keene was in the market at all, he was raiding
the stock for a turn on the bear side. It is not ven-
turing too far to say that he had previously taken no
trouble to cover up his tracks, in order to create exactly
that impression.

What a Major Bull Swing Made Possible

But the McKinley boom in the broadening market
was well under way. Stocks were in that great swing,
so violently interrupted, but not terminated, by the

228 THE STOCK MARKET BAROMETER

Northern Pacific corner and panic of the following
May. Nothing could have suited Keene better than
to have it believed that he was short of a "Standard
Oil stock." He admits to having sold all the stock
of the Rogers pool, at prices from ninety to ninety
six, shortly before the advance to one hundred and
twenty-eight. That advance did not take place until
the middle of the following April, but early in March
the stock was already selling well above par. I
assumed, when writing in 1905, that Keene meant that
the $22,000,000 of stock was not credited to Rogers
and his friends at one average price, but perhaps in
a series of large blocks of stock averaging from ninety
to ninety-six, after allowing for the cost of manipula-
tion. Some of it was, of course, sold much higher,
but we have already seen that some of it was sold
below eighty-four.

Keene's Second Stage

Keene was not the man to press the market when
it was going his way, and there followed a period
where the stock was judiciously allowed to take care
of itself, with occasional stimulus to cultivate bullish
sentiment. Transactions were in relatively light vol-
ume. In the next period the extreme fluctuation was
less than five points, but it is noteworthy that the
higher figure was the prevailing price when we see
Keene's hand again:

Sales January 26th to February 23d. . 110,000

Fluctuation in that period 92^ to 87^4

MANIPULATION 1900-1 229

In this quiet period of a month he may have sold
some real stock but certainly never forced it on the
market. It is difficult to say how many shares he actu-
ally dealt in that he might distribute so large a quan-
tity. It was possibly ultimately three times the stock
he had to sell. In the early stages he was employing
brokers on both sides of the market, even if they did
not know that they were executing matched orders.
That was, and is, against the Stock Exchange rules,
and we can afford, at this distance of time, to give them
the benefit of the doubt. As the market improved,
manipulation of that kind probably grew less, and of
course as the public took hold it disappeared
altogether.

Keene's Final Distribution

What may be called the third movement shows the
final distribution of the stock:

Opening price February 28th 92^

Sales February 28th to April 3d 780,000

Fluctuation in that period from 92 to 103^

Closing price April 3d 100^

It is in this period that Keene probably distributed
the bulk of his two hundred and twenty thousand
shares. He admitted that much to me, and was never
satisfied with my answer to his question as to how I
knew.

It is one of the discreditable facts of that period
that throughout this trading Amalgamated Copper
was practically on an 8 per cent basis. It was declar-

230 THE STOCK MARKET BAROMETER ,

ing i y*, per cent quarterly, with a half per cent extra ;
and its directors, with that extraordinary fatuity for
which the public ultimately paid, were convinced that
they could hold up the world price of the metal in-
definitely. One of the items of gossip in the early
part of the Keene movement was to the effect that the
decline of the metal in London, then and now the
world's free market for copper, had at last been
checked effectually. It was not so. But it was as near
the truth as any of the rumors of that curious time.
It was some years before the competing copper mag-
nate, Augustus Heinze, reached a settlement with the
Amalgamated Copper people, but such a settlement
was among the rumors then exploited, and one of the
principal bull arguments.

The Public's Own Boom

As a net result of the manipulation here detailed
Keene had, in the first fortnight of April, 1901, created
a market for the stock which may well have surprised
himself. It was at least twice as broad as it had been
in February or March, with daily transactions amount-
ing to two hundred and fourteen thousand shares in
one case, and to almost as much on several other days
during that month. It should be compared with the
record, during Keene's activities, of seventy-seven
thousand shares on March 6th, with an extreme fluc-
tuation of nearly three points.

It may be taken that the subsequent trading showed
all obstacles removed from the stock's pathway to
the top: , ,

MANIPULATION 1 900-1 231

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, greedily eaten up in the enthusiasm of a
general bull market.

Their Own Gold Brick

It is a humiliating exhibit in the indictment of
human nature that the "insiders" who had called in
Keene seem actually to have begun to believe in their
own gold brick. It is of record that Henry H. Rogers,
quite in the manner of the man who has "heard some-
thing from a friend of his who knows an insider,"
informed Keene that "the stock was going to advance ;
that he had received letters from parties who were
going to buy, and that he suggested Mr. Keene should
join in the movement." It is needless to say that the
net was vainly spread in the sight of that wary old
bird. But the stock certainly advanced some twenty
points beyond the price at which it was selling when
Keene had finished his distribution.

It is also significant, in the study of an incident
which is not at all likely to recur, that, in the later
trading, houses which felt flattered in those days to
be called "Keene brokers" were much more conspic-
uous than in the earlier time when the real Keene
trading was in progress. Mr. Keene's name, to judge
by the gossip current at the time, was only mentioned
when he had safely completed his selling. What hap-
pened subsequently would be interesting to know, but
there is not the same evidence to go upon.

232 THE STOCK MARKET BAROMETER
Petroleum and Swelled Head

There is no "Standard Oil crowd" now. The mil-
lionaires who comprised that group were new to the
possession of 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 on they learned sense and got out of
the stock market. They were so overwhelmingly
right about petroleum, and particularly Standard Oil,
that they could afford to risk enormous losses in other
directions. Some day some one will unkindly tell the
^tory of young Mr. John D. Rockefeller, and his ven-
ture in "Little Leather." Only a young man with a
really well-to-do father could afford to spend so much
on his education. There is good reason to suppose
that his expensive post-graduate course in the school
of experience had permanent and even admirable effect.

I have told, in earlier discussions, how heartily
wrong Henry H. Rogers could be, and how his pride
of opinion laid all the blame upon the ignorant stock
arket, which, in the last showdown, is always right.
When he died in 1908 he was worth $50,000,000, and
it is possible that his estate would have shown twice
that amount had he lived another two years. Some
of his work was good, and calculated to endure. The
Virginian Railroad was the best built road, in its
original construction, ever undertaken and completed
in the United States. It almost broke the heart of
its godfather that, with his financial backing and per-
sonal wealth, he was compelled to borrow money in

MANIPULATION 19001 233

1907 for his pet railroad, on terms equal to 7 per cent
with his personal guaranty. Even there he miscal-
culated the meaning of the stock market. It was
saying, in the most explicit way, that H. H. Rogers
was lucky to get money on any terms whatever.
Money of that kind during the panic year may be said
to have commanded anything the lender chose to ask.

Lessons from the Incident

In this detailed examination of a notorious essay in
manipulation there are some important lessons on the
nature and quality of our barometer. Remember that
Amalgamated Copper was in the Unlisted Depart-
ment of the Stock Exchange, which is now abolished.
It was, as the Boston News Bureau said at the time,
a blind pool, in every sense of the term. Nothing like
it could occur under the present listing requirements.
I do not believe that anything of the kind would be
possible in the Curb Market's new Exchange. Mod-
ern methods of publicity are so much better than those
of twenty years ago that a movement of such a nature
would not last for a week before it met the active and
effective opposition of the banks. No financial clique,
like that which constituted the Standard Oil group,
is likely to acquire in the future the unwholesome
power which was exercised at the time we have had
under review. But the best of all protections is the
greatly enlightened public opinion. Information on
financial matters is now incalculably better than it ever
was before. The cure for corruption is publicity.
There is no such sanitary agent as full daylight. Peo-

234 THE STOCK MARKET BAROMETER

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

A Shift of Bad Reporting

Manipulation in the stock market is reported twenty
times for once it occurs. It is the inefficient reporter's
method of accounting for a stock market movement
which he has not taken the trouble to understand.
Collection of news in Wall Street is difficult, but not
impossible. It requires a higher average of intelli-
gence than news collection anywhere else, and, if it is
done properly, entails unremitting hard work. Un-
remitting hard workers are not much commoner in
the newspaper business than elsewhere. The financial
reporter is tempted by the fact that he can take refuge
in technical terms not understood or correctly appre-
ciated by his employers. Except in such a responsible
news agency as the Dow-Jones service, whose very
existence depends upon the integrity of what it gathers
and sells, financial reporting is apt to become perfunc-
tory, although it is improving.

Always a Reason, and Always News

This is a matter which particularly interests me
because some of my earliest work in Wall Street was

MANIPULATION 19001 235

writing the stock market paragraphs for the Dow-
Jones news service. The aim was to get, as far as
possible, a reason, if only a tentative reason, for all
individual and general fluctuations in the market.
Mere generalities were not accepted, and I could tell
many stories, ranging from pathos to wild absurdity,
of the gathering of news which might be stale in half
an hour's time. Such news was, of course, of the
highest value to the active brokerage and banking
houses, serving as it did to sustain interest in the mar-
ket. They all had customers whose appetite for such
news was insatiable. Even at an interval of twenty
years I am humbled by the crudity of some of the
reasons I had to give, especially as I was evolving a
method out of nothing. But at least it was genuine
news collecting, and not guessing. I look back on
nothing in my life with greater pleasure than the
friendly expressions of regret I received from the
active houses in Wall Street when I relinquished that
nerve-racking task to take up the editorship of The
Wall Street Journal. Almost necessarily, a reporter's

yards are those of the tinker's donkey "more kicks
than ha' pence." He has, for compensation, the most
interesting work in the world if he likes to make it so.

Here is a chief reason why the part of the manipu-
lation has been so absurdly exaggerated in the public
mind. Every movement in the stock market has a
valid explanation. To get at that explanation involves
much intelligent research, with a comparison of the
carefully sifted expressions of the people concerned in
the actual market movement those who executed the

236 THE STOCK MARKET BAROMETER

orders on the floor, and, preferably, those who gave
them. The research can be carried back to the original
source of the orders and the news can be traced fur-
ther, to the reasons for buying or selling stocks, and
the particular stocks involved.

Honest News Protects the Public

Wall Street has a number of maxims more or less
of the nature of what is called "dope." One of these
is, "There is no news in a bull market." It is not true,
except with too many qualifications to justify a gen-
eral rule. There is news, and plenty of it, in any
market if the reporter will only get out and get it.
If he is content to turn out perfunctory paragraphic
comments on the market for the evening newspapers,
or even for the morning press ; content to warm over
items which he finds in the financial news "slips," he
will take refuge in such expressions as "manipulation,"
"traders selling," "Standard Oil buying," and all the
other fudge which some newspaper proprietors still
accept as news. Wall Street is the financial news
center of the world. News collection there has stead-
ily and greatly improved in my time, but the field is
simply inexhaustible.

Chapter XX

SOME CONCLUSIONS 1910-14

""T 7E are nearing the end of our discussions of
W The Stock Market Barometer. From
readers of Barren's during their serial publication I
gathered that this series of papers had been illuminat-
ing and widely interesting. It certainly instructed
the writer of them, for he did not realize, when the
series began, how much could be profitably said upon
the subject of Dow's theory of the price movement.
It has led us to an analysis of some pretentious theo-
ries of what are called "cycles"; to an examination
of historical authorities which has shown us how much
history could tell us if the records were intelligently
compiled, and how little we know of the past, when
the importance of commerce in national and world
development was so little understood or appreciated.
We have reached also a fair and dependable estimate,
not only of what the stock market barometer does,
but of its limitations. We know, now at least, that it
is not a method of beating the speculative market
not an advertised system of stock trading, guaranteed
against loss.

Speculation's Prediction V alue

So far from limiting the usefulness of the barom-
eter, this really expands that usefulness further than

238 THE STOCK MARKET BAROMETER

could have been expected when we started to analyze
the triple movement of the market its major swing
upward or downward; its secondary reaction or
rally ; and the never-ceasing ebb and flow of the daily
fluctuation. At least we have evolved something of
real value to the man whose business is sufficiently
extended to make it necessary to foresee the general
current of trade. In the chart of the Harvard Com-
mittee on Economic Research, for the years from 1903
to 1914 inclusive, the line of speculation is shown as
preceding the lines of banking and business. This is
a calculation correctly extracted after the event, and
such a chart, because of its extreme conservatism and
the numerous adjustments made in its construction,
will never reach the barometrical value of the stock
market averages as recorded from day to day, when
considered in the light of Dow's theory of the triple
market movement.

A Prophet Who Knows When to Stop

Those who make a living by giving tips on the stock
market are active and conspicuous when the market
itself shows similar activity. In dull times they are
depressing folk to listen to unless you have a patient
sense of humor. In those quiet years between the
culmination of the bear market of 1910 and the out-
break of the Great War one of them often deplored
to me his inability to predict market movements in a
market which has ceased to show profitable fluctua-
tions. But our barometer has nothing to take back

SOME CONCLUSIONS 1910-14 239

or regret. It is almost the only prophet of to-day
who stops talking when he has nothing to say. From
the studies in the price movement published from time
to time in The Wall Street Journal I have offered evi-
dence that the bear market in stocks of 1910 was
clearly foreseen in the latter part of 1909. The mar-
ket took a turn for the better after June, 1910.

Although the recovery was slow and hesitating the
general trend was upward. There was a secondary
reaction of recognizable dimensions about midsummer,
1911. The top of the main movement, however, was
in the latter part of 1912, and what is most interesting
about the four years before the war is the relatively
small extent of any of the fluctuations. The bear
market from the latter part of 1909 until the middle
of 1910 was well defined, but in both averages was
of barely half the extent of the preceding bear mar-
ket in the panic year of 1907. The following bull
market, if it attains quite that dignity, for it was
anything but a boom, showed scarcely a third of the
range of the preceding bull market which held from
the autumn of 1907 to near the end of 1909. Alto-
gether, in these instructive years, we can see a general
dwindling movement. Examination of business rec-
ords for those years will show that there was a cor-
responding slowing up of activity in trade, not amount-
ing to depression but rather to a dull level of business ;
not without the improvement to be expected from the
country's natural growth; but in no way conspicuous,
or strong enough to stimulate any large volume of
speculation.

240 THE STOCK MARKET BAROMETER

Predicting Small as well as Large Movements

Here again we see another valuable function of our
barometer. The major movements do, in this sense,
forecast the extent and almost the duration of the com-
ing improvement, or the depth, and even the severity,
of the impending business depression. Our discus-
sions of selected periods covered in our twenty-five-
year chart have made this sufficiently clear, as anyone
can see for himself by comparing the price-movement
analyses in previous articles with the subsequent de-
velopments in trade. It may be broadly said that
business became dull in 1910 and that it did not re-
cover its activity, in any sense greatly worth anticipat-
ing in the speculative market, until the boom created
by the war.

Here is a period, then, which seems to raise a diffi-
culty for the compilers of business charts, where a
certain rhythm is postulated as a normal condition
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 place before the war. It may be said that
the demand for war material of all kinds wound up
our business clock when it seemed to be slowing down.
This is anything but accurate; but it gives a pictorial
idea which is useful if not too rigidly applied.

But from the top of the stock market in 1909 we
could plot what might be termed, with some show of
justice, a bear market lasting nearly five years. It

SOME CONCLUSIONS 1910-14 241

could be called, with a little latitude, a plausible in-
stance of that five-year major swing which Charles H.
Dow so hastily assumed when he first formulated his
theory. There had unquestionably been over-rapid
development of the country's resources, and possibly
of its railroad resources, which had culminated in the
panic of 1907. We may, I think, cautiously infer that
the effects of such major panics as that are not all
dissipated by the subsequent and logical stock market
rally; as, for instance, that recovery which culminated
in 1909. We see that the business of readjustment
took much longer.

Where the Cycle Becomes Useful

Here is a case where the "panic-cycle" theory be-
comes useful (and it has its proper place), even if it
is altogether too vague for helpful application to daily
affairs. It is immensely interesting historically, and
teaches real lessons when seen in its true perspective.
After the panic of 1873 there was some stock market
rally, but a subsequent general dwindling of business,
under entirely different conditions to those existing
to-day but sufficiently like the period we are now dis-
cussing to afford a useful parallel. It might almost
be said that it was not until the resumption of specie
payments (1879) was well in sight that the business of
the country picked up, going on to that broader devel-
opment which was checked by the less severe panic of
1884.

In the same way, the panic of 1893 was followed

242 THE STOCK MARKET BAROMETER

by a period of depression much longer than that occu-
pied in the break in stocks, although there were nar-
rowing fluctuations up and down which, if charted,
would look strikingly like those of the years follow-
ing the strong stock market rally culminating in 1909.
Here we have a uniformity which suggests at least
similar laws, governing a movement broader than that
of even the major swing which we have been able to
deduce by the application of Dow's theory of the stock
market movement. We can at least see that it is not
a task of months but of years to restore confidence
where it has once been successfully assailed.

Contracting Volume and Its Bearing

It has been pointed out already that business in
stocks is always far lighter in a bear market than in
a bull market. Our twenty-five-year chart, recording
as it does the monthly average of daily stock trading,
tells us that speculative business, in the years 1911 to
1914 inclusive, was very little if any better in volume
than in the four years preceding the re-election of
McKinley. The later period, here under our consid-
eration, was followed by the war boom, an event
which upset all calculations. The Harvard Committee
on Economic Research does not even chart that period,
representing as it does a set of world conditions as
abnormal as an earthquake or some such natural
phenomenon.

And since the war, and the culmination of what
may be called the deflation bear market in June-Au

SOME CONCLUSIONS 1910-14 243

gust, 1921, the volume of business has shown a marked
contraction. We are experiencing one of the slowest
and least spectacular bull movements of which we have
any authentic record. Of the fact of the bull market,
anticipated in more than one of these articles when
published serially, there can be no manner of doubt.
The recovery had extended in April, 1922, to twenty-
nine points in the industrials and rather more than
two-thirds as much in the railroads, with typical secon-
dary movements. In a strong primary swing the
secondary movement is correspondingly vigorous. It
is noteworthy that neither the upward major swing
nor the secondary movement of 1922 has shown a
virility which is, as yet, prophetic of a boom in busi-
ness, as distinguished from a conservative recovery.
The barometer is saying that some recovery is due,
but that it will come slowly and will take more than
the usual time to establish itself. The prediction is
rather of a bull market which will not carry prices to
new high records, to put it mildly, than a spectacular
movement which foreshadows a large and adventurous
development of our industrial resources.

Throttling the Railroads

Readers of Chapter XVIII, in which the the broad
downward movement of railroad stocks over a period
of sixteen years was considered, will easily recognize
why the extreme conservatism of the stock market at
present, even on its recovery, is justified. In our
barometer at least, the twenty active railroad stocks

244 THE STOCK MARKET BAROMETER

represent one-half of our speculative material and rec-
ord. Our railroads represent the largest single invest-
ment of capital in this country, exclusive of farming.
The status of these railroads is anything but reassur-
ring. There is nothing to show that more vexatious
regulation may not still further restrict their wealth-
creating capacity.

We have falsely and foolishly assumed, through our
legislators, that 6 per cent is the very maximum of
earnings which should be permitted to a railroad stock-
holder; while he is to take the risk of anything less,
down to a receivership. Obviously capital will never
go into the development of transportation on any such
terms as this. But we cannot establish such utterly dis-
couraging conditions for one-half of the speculative
field without injuriously affecting the other half. Who
can foresee what politics may not bring forth if we are
running into that populistic condition which marked
the middle nineties? We are regulating capital out of
public utilities of all kinds. Who is to say that this
interference with the earning power of capital will not
be extended to the great industrial corporations?

Politics in Industry

This is no idle surmise. It has been so extended.
It certainly has not been so exercised with any gain
to the public. But the action of the Department of
Justice against the United States Steel Corporation
(now abandoned) shows what can be done if the
dangerous theories of the demagogue are to be forced

SOME CONCLUSIONS 191014 245

upon business. It is all very well to say that the ten-
dency of modern production is toward concentration,
and that commodities will ultimately be cheaper under
one management, like that of the Steel Corporation,
than under the score or more separate enterprises
comprised in that great and beneficent organization.
But if the politician's assumption that mere size is in
itself an offense is accepted, as it has undoubtedly been
accepted in responsible quarters in the past, we may
well look upon the course of business in the next half-
decade with serious misgiving.

Mr. Taft's Inherited Policies

It must have been in 1909 or early in 1910 that I
saw President Taft at the White House. I pointed
out to him how the unrelenting hostility toward the
railroads, backed up as it had been by the Administra-
tion itself, was paralyzing railroad development, and
how our regulatory bodies were adding to the business
handicap. Mr. Taft was sympathetic, but cautious.
He contended that we could no longer expect the
rapid growth of the past, based though it had been
upon speculative hope made true by great endeavor.
But he said that he was inclined to believe that this
was necessarily the price which must be paid for the
security of the public through the regulation of these
great corporations. This was the "policy" he inher-
ited from Roosevelt, and yet it did not satisfy the
Progressives in 1912! It was not a long interview,
and that was the end of it. When Mr. Taft, with

246 THE STOCK MARKET BAROMETER

his unimpeachable honesty, could take that view, what
was to be expected of all the little politicians, in the
state legislatures and the state regulatory bodies, who
were paying off old grudges against the railroads,
regardless of the cost to the public?

Our Voluntary Fetters

What is the worth of these voluntary fetters we
have assumed? Is it contended that railroad service
has been improved by all this meddling? There is
not a dining car to-day which gives meals as good as
those provided by Harvey for the Atchison twenty
years ago. The "standard railroad meal," established
by Mr. McAdoo, is recalled like a nightmare by its
victims. The railroads have not recovered the old
level of service. Both the Pennsylvania and the New
York Central once were able to cut the time between
New York and Chicago to sixteen hours. But that
time has now lengthened to twenty and twenty-two
hours. Are the cars any more comfortable than they
were? Are the railroad servants any more civil and
obliging? When the railroads could discharge an
employee for not keeping a car clean without risking
an interminable inquiry before the Labor Board, the
cars were kept clean. But we have legislated and
regulated the spirit of service out of the railroads.
Only in a half-hearted way are they competing in mak-
ing their own route more attractive than that of their
neighbors. What inducement is there for the rail-
roads to spend capital in developing such attractions?

SOME CONCLUSIONS 1910-14 247

Congress has said that they will be robbed of any
return from so wise an investment if it exceeds a purely
arbitrary figure of 6 per cent one which makes no
real provision for growth out of the earnings.

A True Psychological Condition

We are not wandering from the point. We are
tracing one of the causes of the most significant move-
ment shown in our averages. You cannot hit the rail-
roads without hitting everything else, because the
manufacturers of railroad supplies, as represented in
the imposing list of the Railway Business Association,
constitute a part of our national manufacturing indus-
try so large that it swings all industry with it. If
there is one word which has grown wearisome, from
constant use and misuse in the era of quackery from
which we are only slowly emerging, that word is "psy-
chology." But here is a true psychological condition.
We have lost trust in ourselves. We have meddled
so disastrously with the law of supply and demand
that we cannot bring ourselves to the radical step of
letting it alone.

You cannot have real freedom in a country where
you have no freedom in business. There is no tyranny
so hard, because none so stupid, ,as that of bureaucracy.
Fake a single illustration : President Rea of the Penn-
sylvania, not so long ago, asked me how many reports
I supposed his railroad made to departments in Wash-
ington, principally the Interstate Commerce Commis-
sion, in a single year ? Knowing how ample that rail-

248 THE STOCK MARKET BAROMETER

road's reports are, I said that it might be safe to take
five hundred a year, as all that were really needed,
and multiply that figure by twenty; and ventured, on
that basis, an estimate of ten thousand reports for a
single year. Mr. Rea laughed ruefully. He said,
"Last year we made one hundred and fourteen thou-
sand reports for our lines east of Pittsburgh alone 1"

A Reform or a Revolution?,

And that was for part of one railroad! Multiply
that by all the railroads in the country and see what
bureaucratic red tape can do in tying up a great utility's
service and impairing its efficiency. We have just
begun, thanks to General Dawes, to import a little
common sense into Washington business methods. But
manifestly he has only scratched the surface. The
reform which is needed almost amounts to a revolu-
tion, for we are to remember that the Department of
Commerce and the Department of Labor, to name
only two, are making their demands for more light and
more figures, more stationery and more wasted time,
upon the general business of the country.

One Handicap and Its Consequences

It is a self-imposed handicap. We have only our-
selves to thank. Look at what I have recorded of
President Taft's acceptance of the position twelve
years ago. Who is to take the Old Man of the Sea
ofi Sinbad's shoulders? How can we expect a general

SOME CONCLUSIONS 1910-14 249

boom in business, or a restoration of the railroads to
their old conditions of vigor and growth, so long as
the politician can inflict such handicaps as these? We
are all hit by it. It hits the farmer in Nebraska, who
is burning corn because it works out cheaper per ton
than coal. It is hitting our foreign trade. Ours are
the largest coal resources in the world, but Great
Britain is actually landing coal in this country. She
has already supplanted us where we were able, through
the war, to build up foreign trade. The attitude of
Congress toward business is not merely a develop-
ment of the insane prejudice against the railroads.
It amounts, when analyzed, to the bolshevist idea of
fettering success of making large individual wealth
impossible. Enterprise will be attacked in the legis-
latures, not because there is a speculative danger but
because, in the development of the country, some indi-
viduals may grow rich. You cannot keep those indi-
viduals poor without keeping the country poor. Are
we to try again the experiment which was made during
the second Cleveland administration? Is that era of
Populism and depression, of entire lack of confidence
or trust in ourselves, what we shall run into when the
present bull market culminates and begins to give
signals on the bear side?

Chapter XXI

RUNNING TRUE TO FORM, 1922-1925

WHEN The Stock Market Barometer first ap-
peared serially in the columns of Barren's,
mostly in the latter part of 1921, the order of the chap-
ters adopted in the subsequent publication of the book
was not used. Indeed, this study of Dow's theory of
the price movement did not start out with the intention
of making a book of itself. It was what an incurable
newspaper man like myself would call a newspaper
assignment. It partook, to some extent, of the charac-
ter of contemporary criticism. This is curiously true
of one of the most important chapters, the fifteenth,
"A Line and an Example 1914." That article was
submitted to the editor of Barren's with an entirely
different line for illustration.

A "Line" in Illustration

All students of the averages will remember the broad
rule that a "line" in the daily average indicates distribu-
tion or accumulation; and that after either saturation
or scarcity has come about the movement of the aver-
ages above or below the line gives an important in-
dication of the future movement of the market. Ob-
viously, their advance above a "line" representing
many days' trading and all within a range of three

250

RUNNING TRUE TO FORM, 1922-1925 251

points or so indicates that the floating supply of stocks
has been exhausted and that it is necessary to bid up
in order to tempt a new volume of selling. Con-
versely, a movement below that line indicates the
familiar saturation point, where the clouds resolve
themselves into rain. There follows a marked reces-
sion in the market, to* a point where stocks once more
become attractive to buyers.

That fifteenth chapter was submitted to the editor
of Barren's at the bottom of a major bear movement.
The line first chosen for illustration was that which
was then in the making. He considered such predic-
tion altogether too daring, although I was willing
enough to put Dow's theory and my conception of it
to the hazard of such a test. The result would have
been a remarkable vindication of the theory. But coun-
sels of prudence prevailed and the illustrative line
taken shows the action, or rather the inaction, of stocks
during May, June and July of 1914, before the out-
break of the World War. There can be no question
that the illustration chosen was the right one, both for
historical purposes and for the subsequent authority
of the book, which has, to my gratification, assumed a
position of its own, with several times the circulation
which the cautious publishers anticipated.

What is true enough to have become familiar and,
therefore unimpressive, is that the book itself applied
Dow's theory to an actual market and predicted, in the
most positive way, the major bull movement which set
in during the time of publication, serially, in the col-
umns of Barren's. I have been asked to bring the topic

252 THE STOCK MARKET BAROMETER

down to date for this new edition, pointing out how the
theory has been verified, or modified, in the three years
which have elapsed since The Stock Market Barom-
eter was first published. The topic should be inter-
esting and useful, and I hope that a lifelong sense of
humor will keep me from indulging in boasts about my
inspiration as a prophet, even if it is necessary to
furnish a few illustrations, from these- columns and
those of The Wall Street Journal, of the way in which
the application of Dow's theory has been successsfully
made since 1922.

Some Successful Forecast

Since the publication of The Stock Market Barom-
eter the market has experienced a major upward
(bull) movement in which the industrials, between
Aug. 24, 1921, and March 20, 1923, advanced over 61
points, while the railroads between June 20, 1921, ad-
vanced from 65.52 to 93.99 on Sept. n, 1922, or 28.47
points, and had only lost about three points of this
when the high point of the industrials was recorded in
the following March. The Wall Street Journal and
Barren's were both entirely clear on this bull move-
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 answer to inquirers, therefore, is that we are still in a
bull market and that it should run much further, possibly well
into 1923, and certainly for a time well beyond the improve-
ment in general business which it forecasts,"

RUNNING TRUE TO FORM, 1922-1925 253

That was sufficiently explicit, not merely as regards
the movement of the stock market interpreted by the
Dow theory but upon the improvement in general busi-
ness which, in due course, followed the rise in the
barometer. When the twenty industrials had advanced
26 points, or in the following June, it was said : "There
is no reason to suppose that the present bull market
is within months of its culmination." Remember that
the bull movement really ran into March, 1923. The
presence of a line was noted May 8, 1922, although no
bearish inference was drawn. On the 22nd of May the
resumption of the bull movement was noted, while its
continuance "well into 1923" was again inferred. I
note that in an interview given in Boston on June 16
I repeated the conviction that the stock market was
likely to run further in the upward direction and that
it would be all the better for the secondary reaction
which had occurred about that time. A tendency to
check in the railroad averages was noted in the "Study
in the Price Movement" published July 8, but it was
then said: "With this proviso it may be said that the
indication in the averages is distinctly bullish."

'A Secondary Reaction

It has been said elsewhere in these pages that the
prediction of secondary reactions is a chancy sort of
business and is not here encouraged although in Sep-
tember The Wall Street Journal and Barren's rather
looked for a reaction, recognizing it on September 19.
This may be called merely a good guess, by the scoffer,

254 THE STOCK MARKET BAROMETER

especially if he was wrong on the market, but at any
rate on September 30 the industrials had reacted nearly
six points from the high of the bull movement and
the railroads more than four points. On October 18
the "Study in the Price Movement" said:

"The stock market today, after a typical secondary reaction,
is pointing clearly to the resumption of the major upward move-
ment which developed in August, 1921."

It would be wearisome to recall all such predictions.
I prefer to call them inferences. The bullish infer-
ence was again drawn on November 3. As late as
Jan. 16, 1923, the "extended but by no means unpre-
cedented secondary reaction" was discussed, but the
primary upward movement was shown still to dominate.

A Short Bear Movement

For purposes of convenience the short major bear
swing may be said to have set in after the top of the
industrials was reached in March, 1923. On April 4
the "Study in the Price Movement" called attention to
a bearish indication from the line of distribution.
Taken all through, the bear market did not last long,
and it is noteworthy that while the studies in "the
Price Movement" were bearish they were slow to con-
cede the primary reaction, evidently influenced by the
fact that the previous bull movement had been de-
cidedly slow. The decline continued to look rather like
a secondary reaction in a bull market. The total re-
cession worked out to 20 points in the industrials, cul-

RUNNING TRUE TO FORM, 1922-1925 255

minating Oct. 27, 1923, as far as the industrials were
concerned, while at that date the railroads were down
rather more than 17 points, although the actual low
had been early in the previous August. Rather for
convenience of record this conspicuously short bear
movement has been taken as primary, but a plausible
case might be put up for dating the present bull market
from the turn in 1921, when The Stock Market
Barometer was appearing serially and was even
charged with being indelicately bullish.

Influence of Taxes

What was unquestionably a new influence in the
stock market had made itself felt in the averages.
Congress had been in session all summer and on Aug.
29, 1923, The Wall Street Journal had a careful study
of the way politics, by dangerous interference with
business, had falsified, or to a large extent neutralized,
the very barometers of business itself. Income tax
and surtax were then at their highest points and The
Wall Street Journal said :

"There is a reason why the barometer in the past few months
has been deflected by an influence not felt before in a major
bull market. This influence undoubtedly is the cumulative
effect of the income surtax.

"Brokers can tell how steadily the dividend-paying common
stocks, representing thirty out of the forty taken in the two
averages, have been sold by large holders on any development
of comparative strength. It is correct to call this a new factor,
although it has been germinating since the bull market started
in the autumn of 1921. The whole theory of the stock market

256 THE STOCK MARKET BAROMETER

barometer is based upon the assumption that pressure on stocks
can only forecast coming liquidation of general business. But
here, for the first time in the history of the averages, is a pressure
of stock for sale which bears no reference to coming events.

"It is as though a hot coal or a lump of ice had been applied
to the bulb of a thermometer. If it is too much to hope that
Congress may see a return to sanity in taxation, this is a con-
dition which will nevertheless cure itself, but only over a period
of time beyond present calculation. That stage will be reached
when every one of the twenty active railroad common stocks
and the twenty industrials is as widely held as the stock of the
Pennsylvania Railroad, where the average holding is round
about fifty shares per stockholder.

"A rich man cannot afford to hold a common stock returning
him six per cent, on its cost. Not only is he liable to see more
than half of the return deducted by the taxgatherer; such a
holding pulls up the tax he must pay on all his other income.
He, therefore, has been a steady seller for many months past,
and this is 'inside' selling with a vengeance. It is well informed
selling, in a way, but obviousy it need not predict the general
course of business. Congress, in imposing impossible taxes, has
not merely laid a handicap on the country's business. It has
falsified the very barometer of business."

That temporary influence is now in course of removal
so far as Congress is concerned but the State taxes
must have some not entirely negligible effect.

r A New Bull Market

It would be hypocritical to say that I have really
wished I had never written The Stock Market Barom-
eter. It is true to say that I have witnessed with
regret the way in which crude adaptations of Dow's
complete theory have been taken by tipsters and mar-
ket quacks to bolster up their unsound conclusions,
drawn from an incomplete understanding of the prin-

RUNNING TRUE TO FORM, 1922-1925 257

ciples involved in reading the averages. On Feb. 4,
1924, after refraining, in disgust at the clamor of tip-
sters, from discussing the price movement editorially,
The Wall Street Journal said:

"On the method of reading the averages which is known as
Dow's theory, the stock market is in a major bull movement,
after the shortest major bear movement of record, one lasting
barely eight months. So far as the low of the present move-
ment is concerned, it would presumably date from November I ;
but the bull point was given after both the industrial and rail-
road averages had made one of the most consistent lines of
accumulation on record, emerging on the bull side last Decem-
ber (1923)."

It was noted there, as an eminently satisfactory rea-
son for a bull market, that stocks were selling well
below the line of values and had not discounted the pos-
sibilities of legitimate business expansion. Here again
the barometer was right. The business expansion came
in due course, slackening in the latter part of the year.
This was curiously matched by a substantial secondary
reaction in both averages from the high in the indus-
trials of 105.57 on August 20 to the low of 99.18
recorded October 14, paralleled by a reaction of more
than six points in the railroads, the averages having
seen the low of that movement on October 14.

Since that time the bull movement has been in full
swing, developing great activity immediately after the
election, when a number of stock tipsters advised taking
profits, and selling the market short, on the theory that
"the good news was out." As the real odds were
something like forty to one that oolidge would beat

258 THE STOCK MARKET BAROMETER

Davis, they were openly twelve to one before the
election the "good news" was really the resumed ex-
pansion of general business which the market barom-
eter had been predicting.

T A Changed Technical Condition

There is a technical 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 :

Studies of the stock market, based upon Dow's well
known theory of the triple market movement as dis-
closed by the average prices of the industrials and the
railroads taken separately for comparison, have been
astonishingly right in forecasting the broad upward
movement of the stock market and indicating its con-
tinuance. The present major bull market, however, is
subject to a condition which did not exist before, and
it is important to consider the bearing of that limi-
tation.

While the Stock Exchange Governing Committee
has been strengthening its control over the conduct of
business for a good many years past and certainly since
the time when the unlisted department was abolished,
the more stringent regulation has been of entirely re-
cent development. It has only been in the past year
or two that the governors have assumed to tell the
strongest brokerage houses how much of 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, 1922-1925 259;

ness it could get, trusting to its own ingenuity to find a
means of carrying an expanded account in a big bull
market.

This has been drastically changed, and it is now an
open secret that a considerable number of brokerage
houses are carrying for customers all the stock the Ex-
change's law allows. Their position is eminently safe,
but their policy is obviously changed. The way to
make money in a bull market is to buy what you can
afford when the upward movement is fairly assured, ex-
pand your bull account on the profits, hold on to the
larger part of your interest, selling in periods of
marked strength, and making up to the proportion you
can afford in the inevitable secondary reactions.

But this is not the kind of customer a Stock Exchange
house wants. It means the tying up of a substantial
amount of capital, with commissions for purchases or
sales only earned once in a few weeks. The broker
likes the customer to pay commissions every day, al-
though it is anything but profitable to the latter, be-
cause the attempt to guess the daily fluctuation is faf
more like gambling than speculation.

One result of the broker's new limitations is that
stock in small quantities has been widely bought for
cash and that wealthy customers are financing their
own bull account through their own bankers in many
parts of the country outside New York. This leaves
some uncertainty as to the real extent of the bull ac-
count, but also a hitherto unknown degree of stability,
because there is less likelihood of a flood of selling
orders all at one time.

260 THE STOCK MARKET BAROMETER

In the natural way of evolution the result will prob-
ably be to concentrate business among fewer houses,
each with a much larger working capital than has
hitherto been considered necessary. What is at least
certain is that there is nothing in the new condition
to change the rules for reading the stock market
barometer.

Barometrical Indications

It would be timid to conclude this discussion with-
out saying what I think of the barometrical indications
writing in August, 1925. There is obviously a strong
and well distributed bull account, and there is abso-
lutely no indication in the averages that the bull market
has culminated. Counting from the end of the short
bear market in the latter part of 1923, the duration of
the major swing has not been long and there are still
many stocks which are demonstrably selling below the
line of values. I think this assumption, if we could
calculate an average line of values, would be true of
the railroad and partly true of the industrial groups,
in spite of their considerable advance.

All indications point to a further upward movement
carrying into next year, although secondary reactions
of substantial proportions would be very much in order.

Nothing has developed since the first publication of
The Stock Market Barometer to shake my faith in
the great utility of a common-sense interpretation of
the price movement. It may be valueless for individual
stocks, except that these do not commonly make serious

RUNNING TRUE TO FORM, 1922-1925 261

advances except when the general trend of the market
is upwards. The one chosen by the speculator may
lag behind and never catch up. I am not greatly in-
terested in encouraging people to speculate in Wall
Street, but I am humbly gratified that the business of
the country has had its attention drawn to such a
barometrical guide. It has been freely criticised by
authorities of some weight, but has continued its useful
service to the general business of the country.

Chapter XXII

SOME THOUGHTS FOR SPECULATORS

MANY years ago one of the Southern states,
which need not be otherwise identified, had a
law which prohibited the playing of games of chance
where any stake was involved. It need hardly be said
that a law so foolish was "more honored in the breach
than the observance." The sheriff of one of the smaller
towns, however, determined to enforce the law and
captured a party of young men playing euchre in a
barn. Courts were not overburdened with formalities
in those days. It was not considered out of the way,
or a departure from dignity, when counsel for the
prisoners, while admitting that his "unfortunate cli-
ents" had been playing euchre, submitted that it was
not a game of chance. As the court and the gentle-
men of the jury habitually played the game them-
selves, the contention was received with incredulity.
Nothing daunted, however, the counsel for the defense
said: "If your honor will allow me to demonstrate
the game to the jury for a short time I am sure I can
convince them that euchre is not a game of chance."

Not a Game of Chance

This seemed eminently fair, and the jury and the
lawyer were accordingly locked up together. In a

26z

SOME THOUGHTS FOR SPECULATORS 263

short time various members of the jury sent out to
borrow a little change from their friends. After an
hour or so of "demonstration," the jury returned to
court with the unanimous verdict that euchre was not
a game of chance.

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

Real Protection in the Barometer

It cannot too often be said that Dow's theory of
the stock market movement is not a "system" for
beating the market a get-rich-quick scheme which
converts the Wall Street district into a sort of Tom
Tiddler's ground, where any man with a few dollars
for margin can pick up gold and silver. But if the
intelligent speculator of to-day (who in many cases is
the intelligent investor of to-morrow) cannot find
means of protecting himself in the stock market by an
earnest study of the stock market barometer, then

264 THE STOCK MARKET BAROMETER

these chapters have, in that respect, failed. He has
already gained something tangible if he has correctly
understood the major movement. If he comes into
Wall Street on a mere tip from somebody he trusts
about a stock of which he never heard before, without
ascertaining whether the general market is in an up-
ward or a downward major swing, he stands an excel-
lent chance of losing all he brings in the way of
margin, without a fair "run for his money." But if
he has learned what the market movement means and
appreciates the opportunity given to him in the dulness
after a typical reaction in a bull market, he stands
more than an even chance of making a profit. That
profit will depend on a number of considerations which,
apparently, do not enter into the minds of many people
who come to Wall Street only to lose money, spend-
ing the rest of their lives denouncing the Stock Ex-
change as a gambling hell.

Speculation and Gambling

To these people all stocks look alike. But they are
not alike. So far as well-protected speculation is con-
cerned, there is all the difference in the world between
such a stock as United States Steel common, with a
well-established market a stock well distributed and
widely held and the latest motor or oil proposition
floated on the Curb for the purpose of distribution.
The latter may be good, but it is at least untested,
not only as regards the business the new company
purposes doing, but in the market aspect of its stock.

SOME THOUGHTS FOR SPECULATORS 265

It is a sound general rule that the outsider, when he
buys a Curb stock, should do so outright. His pur-
chase on margin is largely in the nature of a gamble.
I am not laying down any law about the morality of
gambling. Unless it comes under the head of covet-
ousness, I do not know of any commandment against
it; and, like an Episcopalian bishop of my acquaint-
ance, with whom I have played auction bridge for
small cash points, I am not in the business of inventing
new sins. But margin trading in a security of which
the amateur trader knows nothing that he has not had
at second hand, in a market which only exists artifi-
cially by the manipulation of people who want to sell
the stock, is the merest gambling. The man who
chooses to speculate in it should regard his venture as
on the same level with a bet on a horse race. He
should see that his loss is limited to such amount as
he could afford to lose on a bet.

Speculation is a different matter, and I hope the
day will never come when the speculative instinct is
not at least latent in an American's mind. If ever
that day does come, if ever prohibition extends to the
taking of a chance involving the risk of whole or par-
tial loss, the result may be "good" Americans, but
of a merely negative type of goodness. If as you
enter Wall Street you will pause a moment in
Broadway, to look through the railings of Trinity
churchyard, you will see a place full of good Ameri-
cans. When speculation is dead this country will be
dead also.

266 THE STOCK MARKET BAROMETER

Selecting a Stock

Let us suppose, then, that the outsider has consid-
ered the character of the major movement and ten-
dency of the stock market. His next business is to
select his stock. Here again the amateur, who wants
quick action for his money, will not take the trouble
to inform himself properly upon the stock in which he
purposes to risk his small capital.

It is a good standing rule that in a stock for which
no permanent market has been created a new flota-
tion or one which is still notoriously, by majority hold-
ings, in control of the people who dictate the policies
of the corporation the small speculator should not
trade on margin at all. This is, of course, a counsel of
perfection, but at least he should make it a rule to take
only a small risk in such a venture and to buy only what
he can in some way finance himself if necessary.

By the time a stock is listed in the Stock Exchange
there is generally a dependable market for it at most
times although here the danger of too much owner-
ship in few hands, as in the case of Stutz Motor, still
exists. Such stocks are good to let alone; and only
where the nature of the speculator's own business gives
him access to special information should he embark
his money in stocks of such a character, and even then
his margin should be of the most ample kind.

On the Matter of Margin

This brings us to the question of margins. A com-
plete misunderstanding of what constitutes a sufficient

SOME THOUGHTS FOR SPECULATORS 267

margin is responsible for many needless losses in Wall
Street. Brokers are looking for business, and they
tell the tyro that ten points margin is good enough if
he can guarantee the firm that amount against fluctu-
ations. This would mean $1000 on one hundred
shares of stock at par. That margin is not enough, or
nearly enough. Writing twenty-one years ago, Charles
H. Dow pointed out that "the man who buys a hun-
dred shares on a 10 per cent margin, and stops his
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 was ultra-cautious,
but he was not wide of the mark when he said that if
such a man had begun with ten-share lots he would
have been able to see a substantial loss and yet have
averaged his purchases to yield him an ultimate profit,
granting he was correct in his first surmise that the
stock was selling much below its value. Certainly a
trader with $1000, and no more, has no business to
start with a hundred shares of stock unless it be some-
thing at a very low price. There was a time when
Steel common could have been bought below $10 a
share.

Little Traders and Large

Another delusion of the small trader is that he
should buy part of the quantity he contemplates, add-
ing to his holdings on each point of decline until he
completes the amount he thinks he can carry. But
why not buy it all at the last price ? If he proposes to

268 THE STOCK MARKET BAROMETER

buy one hundred shares in twenty-share lots, and ex-
pects that there will be a decline of five points in the
market, he is really contradicting the assumption upon
which he originally decided to trade. He has not con-
sidered all the facts of the case. If the stock can go
down five points the 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
were not trading on margin, except in the respect that
they financed their stocks mostly through their own
banks. And they were buying upon considerations
which would seem hopelessly remote to the small
speculator who wishes to test his judgment in Wall
Street. Such a man as Jay Gould, moreover, could
himself give value to the things he purchased. He
might well start to buy into a company during the
course of a major bear swing, knowing that he could
not get all the stock he wanted in a bull market.

The small speculator cannot afford to take any such
view, unless he purposes to devote such exclusive atten-
tion to stock trading as he would give to any other
business. There are plenty of people who do that, and
I have in previous discussions given instances of their
success. But we are talking now of the man who
speculates on his judgment while interested in some
other business. There is no reason why a speculator
of this class should not have more than an even-money
chance in the market if he would only bring a little
common sense to bear. But if he will listen to the
first casual friend who tells him to "buy a hundred
shares of A. O. T., and ask no questions, 1 ' and risks

SOME THOUGHTS FOR SPECULATORS 269

his only thousand dollars in doing so, he cannot com-
plain if he loses. He is a gambler and not a specu-
lator. He would have much more fun if he took his
dollars to the races. He would have a healthy day
in the open air and find the racehorse a much more
amusing spectacle than the ticker.

A Quotation from Dow

In an editorial published in The Wall Street Jour-
nal on July n, 1901, Charles H. Dow said:

"If people with either large or small capital would look
upon trading in stocks as an attempt to get 12 per cent per
annum on their money instead of 50 per cent weekly, they would
come out a good deal better in the long run. Everybody knows
this in its application to his private business, but the man
who is prudent and careful in carrying on a store, a factory or
a real estate business, seems to think that totally different meth-
ods should be employed in dealing in stocks. Nothing is further
from the truth."

In the same article Dow went on to say that the
speculator can avoid tying himself up in a financial
knot at the outset by keeping his transactions down to a
limit which, compared with his capital, leaves his judg-
ment clear and affords ample ability to cut loss after
loss short; to double up; to switch to some other
stock, and generally to act easily and fearlessly instead
of under the constraint which comes from a knowledge
that his margin of safety is so small as to leave no
room for anything except a few anxious gasps before
the account is closed.

270 THE STOCK MARKET BAROMETER

This is as good sense now as on the day it was
Written. The speculator who comes into Wall Street
must learn to take losses, and take them quickly. I
have said before that more money has been lost in
Wall Street from sheer pride of opinion than from
any other single cause. If you buy a stock and find
that it is falling rapidly, you have not considered all
the facts of the case. You cannot consider them im-
partially so long as you are under the terror of losing
all your capital. You cannot take a clear, unbiased
view unless you get out and look at the thing objec-
tively. When you are tied up in a losing speculation
you are in the position of the man lost in the forest
who cannot see the wood for the trees. .

Avoiding Inactive Stocks

Readers will remember the story I told of the young
man who refused a partnership offered to him by Jay
Gould because, in executing Gould's orders on the floor
of the Stock Exchange, Gould seemed to him to make
nothing but losses. He was not broad enough to see
that these unsuccessful attempts were merely testing
purchases, and that Gould probably employed some
other broker when he was quite sure that he had
caught the turn of the market. Here is where the
purchase of a stock only occasionally active becomes
so dangerous. The broker may be able to carry it
very well to-day, although inactive stocks are not
looked upon with favor in bank loans.

But the broker himself does not know whether he

SOME THOUGHTS FOR SPECULATORS 271

can carry the stock so conveniently to-morrow. The
peculiar circumstances which started the movement
in that stock may be fully discounted in a few days'
active trading, and the event will be a market without
a single transaction for days together, where the seller
is obliged to make concessions to find a buyer gen-
erally a professional, who charges all the traffic will
bear for such a service. Such a stock should not be
carried on margin at all. But the man whose business
is in some intimate connection with the steel trade or
the textile industry may well take hold of Steel com-
mon or Bethlehem Steel or American Woolen, feeling
that there is a permanent market if not always an
active one.

A Word for the Consolidated Exchange

I have many friends in the New York Stock Ex-
change, but I have also friends elsewhere in Wall
Street. The odd-lot brokers, of whom there are fewer
than ten firms specializing in that way, make the mar-
ket in lots of less than a hundred shares. But the
Consolidated Stock Exchange makes a regular market
for those small quantities all the time. It is in every
way a reputable institution, whose members are open
to the same scrutiny the speculator ought to apply to
any broker he employs. Our small amateur trader
can do his business just as well on the Consolidated
Exchange, provided he chooses really active stocks.
Such stocks are "seasoned" and thoroughly well dis-
tributed, and this is not true of those which make up

272 THE STOCK MARKET BAROMETER

the list of the Curb Association. I am not saying one
word against the 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
professed to trade for its customers indiscriminately
on a 10 per cent margin.

By all means get the idea of such a margin out of
your head. The margin should be as good as you
can make it. If you are engaged in business or living
upon an income from investments with people depen-
dent upon you, your losses in speculation should be
limited to an amount which will not cause you serious
compunction. It is probably heterodox to say so, but
there is common sense in the proposition that gambling
begins where we risk what we cannot really afford to
gain something we have not earned.

A Glance at Short Selling

How can the stock market barometer help the
speculator? In many ways. He cannot expect any
stock, except under most unusual circumstances, to
advance profitably against the general current of the
market. He must be most unusually well informed,
an almost instinctive reader of the market, if he can
speculate successfully on the occasional rallies which
take place in a major downward swing. I am saying
little about short selling. The man who tries short
selling in a bull market is merely guessing at the sec-
ondary reactions, and unless he is a trader on the floor
or devoting all his attention to the business of specula-

SOME THOUGHTS FOR SPECULATORS 273

tion, he is certain to lose his money. I am not dis-
cussing the morality of short selling, because I do not
believe the moral question enters into speculation at
all, provided it does not degenerate into gambling
with what is, in effect, other people's money. In every
market in the world there is necessarily a great deal
of short selling. The tourist in San Francisco whose
stocks are locked up in his safe deposit box in New
York cannot afford to miss his market by waiting until
he returns across the continent. If he sells he is short
of the market, and a borrower of stocks until he can
make his delivery good. But on the law of averages,
far more money has been made on the bull side than
has ever been made on the bear side, if only for the
reason that bull markets are generally much longer in
their duration than bear markets. Short selling is an
operation which may well be left to the professional,
especially by the man who is only a student of the
market learning the rules of the game.

Buying on Reactions

No knowledge of the stock market barometer will
enable any of us to call the absolute turn from a bear
market to a bull market. There may be weeks ol
narrow fluctuations before a definite trend is estab-
lished, as we have seen in our previous studies of the
market movement. All of these indecisive fluctua-
tions eat up the speculator's capital, in broker's com-
missions and interest, to say nothing of the market
turn. But when once the major bull swing is estab-

274 THE STOCK MARKET BAROMETER

lished the successful purchase of stocks for a rise be-
comes a feasible proposition. If on the completion
of his purchase a stock reacts, carried down by a
similar reversal of movement in the general market,
the speculator should take his loss without hesitation
and wait for that inevitable period of dulness which de-
velops after a secondary reaction in a major bull swing.
Here again he may buy his stock, and instead of
purchasing on the way down, on the fallacious assump-
tion I exposed earlier in this article, he may well add
to his holdings as the market rises. Each advance
adds to his margin of safety, and, provided he does not
"pyramid" too much, and conceding that his holdings
are not overextended so that his own account would
be a tempting object of attack, the speculator may
well, if he protects himself with "stop-loss" orders,
make profits much more substantial than he at first
expected. We hear a great deal about people who
lost money in Wall Street but very little about those
who made substantial profits there. The latter, as a
class, are inarticulate, in my experience; and a man
seldom cares to ascribe his prosperity to successful
speculation. He prefers to call it judicious investment.
There is little difference between a purchase of a house
on mortgage and a purchase of stocks on margin, pro-
vided the purchaser can meet his contracts. In these
great uplifting times, when everybody is minding
everybody else's affairs, I am still disposed to say that
it is nobody's business how our speculator carries his
stocks so long as he does so out of his own resources,
which include his borrowing credit at the bank.

SOME THOUGHTS FOR SPECULATORS 275

Ways of Losing Money

There is another class of speculator, all too com-
mon, who loses money by forgetting why he went into
the market in the first place. Knowing me personally,
he asks me my opinion of Atchison common. I tell
him what the road's prospects are, what the earned
margin may be over and above the dividend, and the
general railroad outlook in that part of the country.
He concludes that Atchison common (here chosen
merely for example) is cheap, and buys himself some
of it. If he would protect his broker with ample
margin, or pay for the stock outright, and ignore fluc-
tuations, he would probably make money.

But he listens to every bit of gossip, particularly
stories of "traders selling," "Congressional investiga-
tion," "threatened strikes," "crop failures," and all
the rest of it. He forgets that the market has made
allowance for everything of the kind in the broad
estimate of the prospective value of the stock. He
becomes nervous on a minor fluctuation, takes a loss
and decides never to ask my opinion again. At least
I wish he would so decide ; but, unfortunately, he does
not. He comes to me again to see if I cannot say
something to upset what he calls his judgment, based,
this time, upon the opinion of somebody else.

Another Way of Losing Money

Take another easy way of losing money in Wall
Street. The speculator is informed, correctly, of a
coming quick movement, perhaps covering four points

276 THE STOCK MARKET BAROMETER

in a particular stock. He notices that the stock has
been active, without paying much attention to the fact
that a point and a half of the expected four points is
already shown in the advance of the price. After
some hesitation he buys, when the movement is almost
completed. He sees a small profit, and then the stock
becomes dull. The special movement is over. The
attention of the professionals is turned to some other
security, and his own stock sags with the market or
eats its head off in interest. But he is still fatuously
holding on instead of realizing that he has missed
his opportunity and has had what, if he would look
at it sensibly, is really a cheap and most instructive
lesson.

Here again he forgets why he originally bought the
stock, just as he did when he purchased on permanent
value. If the special movement he anticipated fails to
materialize he should take his loss, or his disappoint-
ingly small profit, and wait for another chance. But
the trouble with most of the speculators of my ac-
quaintance is that they lack not only memory but the
virtue of patience. They must be dabbling all the
time; and sooner or later they get tied up with an
account, extended to their full resources, which seems
to have run aground, with the general current of the
market swinging past it.

"Where do the Gentiles Get It?"

It is a common mistake to suppose that the repu-
table broker makes his profits out of what his customer

SOME THOUGHTS FOR SPECULATORS 277

loses. The broker stays in business out of the com-
missions that his customers pay. He not only wants
them to make money, but he does everything he can to
help them do so, or, at the worst, to prevent them from
losing money. It is only the bucket shop which wants
a new customer every day, to fleece thoroughly before
the market closes. All the reputable brokers of my
acquaintance are proud to point to customers who have
been employing them for many years, in good times
and bad, extending in at least two instances I can re-
call, to nearly half a century.

In writing this I have necessarily outlined a patient,
intelligent and level-headed speculator in fact, a man
of exceptional coolness and poise. But that is the
kind of speculator for whom I am writing. I am
certainly not drumming up business for the Stock Ex-
change. These stories of the continual losses of the
outside public in Wall Street always remind me of the
young Jew who said to his wealthy parent: "Father,
where do the gentiles get all the money that we take
away from them?" Where does the public get ail
this money which Wall Street is supposed to take from
it in speculation? Is the broker's commission a sort
of middleman's profit taken out of the whole business
of the country? To a certain extent it is; but not to
anything like the extent the people who do not love
Wall Street assume. Wall Street is the great reservoir
for small, trickling streams of capital. Great corpora-
tions would be impossible if there were not a free
market for the interchange of their securities. The
free market is in itself an element of value. If we

278 THE STOCK MARKET BAROMETER

could imagine two securities of exactly equal merit in
every respect, the one with the free market would in-
evitably, and most properly, sell anything from five
to ten points above the other. It is exactly this free
market that Wall Street provides.

A Final Thought

This brings me to the conclusion of my discussions
of the stock market barometer. I would not have it
on my conscience that I had encouraged any weakling
to gamble, or had expedited, by a day, the inevitable
parting of a fool from his money. At least in that
respect every man is a free agent. In spite of all sorts
of personally regulatory legislation, he has still that
much freedom allowed to him. We can imagine laws
which would make speculation impossible, even if, as
they certainly would, they paralyzed the business of
the United States. But we cannot imagine any law
which would compel a man to trade in Wall Street if
he did not choose to do so. All I have tried to do
here is to show him how he can protect himself, and
at least feel that not only has he had a fair run for
his money but that he has earned the prize at the end
of the run.

APPENDIX

RECORD OF THE DOW-JONES AVERAGES TO
AUGUST 31, 1925

Dow, Jones & Co. began the publication of average
closing prices of active representative stocks in 1884.
The original list of stocks used was as follows:

Chicago & North Western Union Pacific

D., L. & W. Missouri Pacific

Lake Shore Louisville & Nashville

New York Central Pacific Mail

St. Paul Western Union
Northern Pacific pref.

The first average found in the files, of these eleven
stocks, nine of which were rails, was 69.93 as f J u ty
3, 1884.

The following is a complete statement of the record
from 1896 to date:

Railroads

The railroad stocks used in January, 1897, were:

Atchison Mo., Kansas & Texas pref.

Burlington Missouri Pacific

C., C., C. & St. Louis New York Central

Chesapeake & Ohio Northern Pacific pref.

Chicago & North Western New York, Ontario & Western

Erie Reading

Jersey Central Rock Island

Lake Shore St. Paul

Louisville & Nashville Southern Railway pref.

Manhattan Elevated Wabash pref.

281

282: APPENDIX

Changes have been made as follows:

In July, 1898, Metropolitan Street Railway, Union
Pacific common and Northern Pacific common were
substituted for Lake Shore, New York, Ontario &
Western and Northern Pacific preferred.

In July, 1899, Brooklyn Rapid Transit, Denver &
Rio Grande preferred and Norfolk & Western pre-
ferred were substituted for Metropolitan Street Rail-
way, Reading and Erie.

In July, 1900, Southern Pacific common and Union
Pacific preferred were substituted for Wabash pre-
ferred and Norfolk & Western preferred.

In June, 1901, Baltimore & Ohio, Illinois Central,
Southern Railway common, and Pennsylvania were
substituted for Burlington, Southern Pacific common,
Southern Railway preferred and Northern Pacific
common.

In September, 1902, Reading, Canadian Pacific,
Delaware & Hudson and Minneapolis & St. Lous were
substituted for Missouri, Kansas & Texas preferred,
Rock Island, Chesapeake & Ohio and Jersey Central.

On May 18, 1904, Southern Pacific common was sub-
stituted for Minneapolis & St. Louis.

On June 27, 1904, Wabash preferred and Metro-
politan Street Railway were substituted for C., C., C.
& St. Louis and Denver preferred.

On April 12, 1925, Erie was substituted for Wabash
preferred.

In May, 1905, Northern Pacific common and Nor-
folk & Western were substituted for Manhattan and
Union Pacific preferred.

APPENDIX 283

On May 4, 1906, Twin City Rapid Transit was sub-
stituted for Metropolitan Street Railway.

On April 25, 1912, Rock Island and Lehigh Valley
were substituted for Brooklyn Rapid Transit and Twin
City Rapid Transit.

On December 12, 1914, Chesapeake & Ohio, Kansas
City Southern and N. Y., N. H. & Hartford were
substituted for Chicago & North Western, Missouri
Pacific and Rock Island.

On April 10, 1924, D., L. & W. and St. Louis South-
western were substituted for Kansas City Southern and
Lehigh Valley.

The railroad list now (August 31, 1925) is as fol-
lows:

Atchison Illinois Central Reading

Bait. & Ohio Louisville & Nash. St. L. Southwestern

Canadian Pacific New York Central St. Paul

Chesapeake & Ohio New Haven Southern Pacific

Del. & Hudson Norfolk & Western Southern Railway

Del., Lack. & W. Northern Pacific Union Pacific

Erie Pennsylvania

Basis of Calculation

Originally quotations were all in percentages. On
October 13, 1915, the Stock Exchange ruled that all
stocks should sell on a dollar-share basis. For the sake
of continuity the averages of Pennsylvania, Reading
and Lehigh Valley, all having $50 par values, have
ever since been computed on a percentage basis, which
was obtained by doubling their market quotation.
Lehigh having been dropped, it is now necessary to
double the quotation only in the cases of Pennsylvania

284 APPENDIX

and of Reading, all the railroad stocks being adjusted
by this arrangement to both the dollar and the per-
centage basis.

Industrial Stocks

The twelve industrial stocks used in January, 1897,
were:

American Cotton Oil Laclede Gas

American Spirits Mfg. National Lead

American Sugar Pacific Mail

American Tobacco Standard Rope & Twine

Chicago Gas Tennessee Coal & Iron

General Electric U. S. Leather pref.

Changes have been made as follows :

In November, 1897, Peoples Gas was substituted for
Chicago Gas.

In September, 1898, U. S. Rubber common was sub-
stituted for General Electric.

In April, 1899, Continental Tobacco, Federal Steel,
General Electric, American Steel & Wire were substi-
tuted for American Spirits Mfg., American Tobacco,
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 preferred were
substituted for American Cotton Oil, Federal Steel,
General Electric, Pacific Mail and American Steel &
Wire.

In January, 1902, American Car & Foundry and
Colorado Fuel & Iron were substituted for Continental
Tobacco and International Paper preferred.

APPENDIX 285

In April, 1905, U. S. Rubber 1st preferred was sub-
stituted for U. S. Leather preferred.

In November, 1907, General Electric was substituted
for Tennessee Coal & Iron.

In May, 1912, Central Leather common was sub-
stituted for Colorado Fuel & Iron.

The list, therefore, when the Stock Exchange closed on
July 31, 1914, because of the war, was:

Amalgamated Copper National Lead

American Car & Foundry Peoples Gas

American Smelting U. S. Rubber com.

American Sugar U. S. Rubber ist pref.

Central Leather U. S. Steel com.

General Electric U. S. Steel pref.

In March, 1915, General Motors was substituted
for U. S. Rubber ist preferred.

In July, 1915, Anaconda was substituted for Amalga-
mated Copper.

In September, 1916, a list of twenty industrials, all
common, was substituted for the old list of twelve.
National Lead, Peoples Gas, General Motors and U. S.
Steel preferred were dropped and twelve new com-
panies were added. The list became:

American Beet Sugar General Electric

American Can Goodrich
American Car & Foundry Republic Iron & Steel

American Locomotive Studebaker

American Smelting Texas Co.

American Sugar U. S. Rubber

American Tel. & Tel. U. S. Steel

Anaconda Copper Utah Copper

Baldwin Locomotive Westinghouse

Central Leather Western Union

286 APPENDIX

r All Quotations on Dollar Basis

At this time (1916) Stock Exchange quotations were
all in dollars instead of percentages, so the fact that
Utah had a par of $10 and Westinghouse a par of $50
caused no immediate confusion in the new averages.
However, in order to make continuity for the industrial
averages, the records of the twenty new stocks were
figured backward to the reopening of the Stock Ex-
change on December 12, 1914, after the war closing, so
that the present published record of averages is as if
the twenty stocks mentioned above had been quoted on
the dollar basis from that date.

Changes since made are as follows :

On March i, 1920, Corn products was substituted
for American Beet Sugar.

On January 22, 1924, American Tobacco, du Pont,
Mack Trucks and Sears-Roebuck were substituted for
Corn Products, Central Leather, Goodrich and Texas
Co.

On February 6, 1924, Standard Oil of California
Vas substituted for Utah.

On May 12, 1924, Studebaker non-par and Wool-
worth $25 par were substituted for old Studebaker and
Republic Iron & Steel.

After the change from twelve to twenty industrials,
in 1916, Texas Co. reduced its par from $100 to $25.
Then American Locomotive changed from $100 par to
non-par, issuing two new shares for one old share.
Studebaker changed from $100 par to non-par, issuing

APPENDIX 287

two and a half shares of new for one of old. The com-
plication arising from the Texas, American Locomotive
and Studebaker changes brought about new adjust-
ment.

Texas Co. and Corn Products were dropped. Amer-
ican Locomotive was retained at the actual new quota-
tion. These changes, made on January 22, 1924, were
so fitted into the scheme of quotations' that while the
closing prices on a Tuesday averaged 97.41 on the old
stocks, the average on the new stocks was 97.23, all
being figured on the dollar basis.

This made the industrial list for July, 1924, as fol-
lows:

American Can General Electric

American Car & Foundry Mack Trucks

American Locomotive Sears-Roebuck

American Smelting Standard Oil of California

American Sugar Studebaker

American Tel. & Tel. U. S. Rubber

American Tobacco U. S. Steel

Anaconda Woolworth

Baldwin Westinghouse

du Pont Western Union

On August 31, 1925, General Motors, International
Harvester, Kennecott, Texas Co. and U. S. Realty
were substituted for Anaconda, Baldwin, du Pont,
Standard Oil of California and Studebaker in the in-

288 APPENDIX

dustrial list. These changes made no appreciable dif-
ference in the averages.

The industrial list now (August 31, 1925) is as fol-
lows:

American Can Kennecott

American Car & Foundry Mack Trucks

American Locomotive Sears-Roebuck

American Smelters Texas Co.

American Sugar U. S. Realty

American Tel. & TeL U. S. Rubber

American Tobacco U. S. Steel

General Electric Western Union

General Motors Westinghouse

International Harvester Woolworth

All stocks used in both lists are common stocks.
Within the last year capital readjustments of Amer-
ican Car & Foundry and American Tobacco resulted in
the issue of two new shares for each old share, split-
ting the quotation. To maintain the consistency of the
averages it is necessary to double the price of Car &
Foundry and Tobacco, as in the case of Pennsylvania
and Reading.

The averages are compiled from closing prices. In
case there is no sale of a particular stock, the last pre-
vious close is used. The total sum of the closing quo-
tations for the twenty rails, with Pennsylvania and
Reading doubled, is then divided by twenty. The total

APPENDIX 289

sum of the closing quotations of the twenty industrials,
with Car & Foundry and Tobacco doubled, is then di-
vided by twenty.

THE FOLLOWING PAGES GIVE
THE AVERAGE CLOSING PRICES

1897-1925

290 APPENDIX

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APPENDIX

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292 APPENDIX

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APPENDIX 293

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294 APPENDIX

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APPENDIX 295

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296 APPENDIX

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M to T*- IONO t^OO ON O M pi co -t IONO t>.00 ON O M p| to * IONO t^OO ON O

1 ***2 2s

APPENDIX 297

W 'view * M to ^"vi ""* "*" rno * tflo M * **" u " 1> * ** n v

Qvi vi so ^ *$" *t* ^* ^* ^ ^ ^ ^" ^* ^* to to ^ vt v> vi vi ^ vtso so to

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P3 WWWWWMWItWW<SJ(^p|p|p|C l IC4C4WCt tO CO 2?*

298

APPENDIX

ON ONOO ON O O O M O O OO ONOO ON O\ O O O O " * OO

OO OO ON OO

oo oo oo oo oo oo oo oo oo

00 00 00 00 00 OO tx

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CT\ c>oo oo ooooootxtxtx rxooooooooo\ e^dscvoooooo CNtx

APPENDIX

299

. N O w

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to N O P} f^OO
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300 APPENDIX

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2 """* ONON ON ON ON ON ON ON ON ON ONOO ON ON ON ON ONOO OO OO OO OO OO OO OO ONOO

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APPENDIX

301

. oo ao wise to p o to o o\ to co so o * to to vo to o va vo ui o
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txOO t>

302 APPENDIX

tO M A hs N OX 60 Xt N N M so M SO OO tO U-l W>OXrt *OOO 00 SO to t-, V*
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304

APPENDIX

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APPENDIX

305

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306

APPENDIX

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APPENDIX

307

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308 APPENDIX

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APPENDIX

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to N l^ so Os O
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APPENDIX

. rJ-OO v> Ov N OO tx $

l lx to N Ix

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Q3(4 pi WMp5rJ*NNNNMN *} O J n t to enMtONNci*ooiN

>N N NNNN NNNNNM NNNNMN NNNNN NNM

<^ M M MHMM MMMMMM MMMMMM MHIHHHH W l-> M

... WVOO VO O tl HI \O O <" MOOO ^VO OO V>OHHIU1M OvHIHIVOtx MM

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o vo * vo f^. ti. tx tx tx* vo txvo tx tx ^.* OO OO oo 4 1 -

W ffi

320 APPENDIX

. to O t^ O oo ve O O *t- >*t^ r-^oo O to *o O * N to

O *-vO r^ O *O <* O ^0 O\ r^. ** N N 't'^ M 00 CJ> *- to^j,

Qw O d M CKQ.0 M M tf d M M M'M <>* M M M M
oo oo oo oo txoo oo oo oo oooooooooooo oo oo oo oo oo

>; O "2 "I "f N O O>, O " ui O oo i-i f^ n O O * "1 NO 00 N N "> N

O 1 "I" 00 . ^ . * *^+- N *0 *0 ""* **" 1 ""> * 'f* <*, P -I *? tn * 1 ^ "0 ^ *0

5rxortA"^>rt A AMflM ^j.^.xAiJ.trv'A 4--i-iA Ai rntoN " *l

'- 1 oo oo oo oo oo oo oo oo oo oo oooooooooooo oo oo oo oo oo oo oo oo oo oo

^.vo oo vo so oo oo^ so w JN.

O t- oooooooooooo oooo oo oo oo oo oo oo oo oo oo oo 06 oo oo oo oo 06 oo f,

o oo oo oo oo oo oo oo ov o c^. oo oo oo oo oo o o oo GO <?\ ooo ^ o o oo

OO O tO O O OO o Wl I*. ^ M Vt M ^- l-^OO SO O>OO *N t* O\OO >* $

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<^O tx tx l"* tC. oo oo ^\ cKoo ^, O C^ w H O O O ^* ^oo oo ^k ^ &> O^ o ** ^o
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S. 2 **> ^^ fx

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<9<C* c> O 6 <> o ' >-i o rj ri rj IN MMQOc^d odoooovotv^o N >o
oo oo oo o o ooo oo o o CTS o o CA o\o\o> o--oo ON oo oo oo oo oo oo ooo

-r rv W M tooo u^ so O N tfloo O N n * w * to\e O M NMI^MVO^.

2 tx^O O OO O tO ^ tO CTVVO tXJ. M(J\tOH*tXW^ tOtOtO *O I IT * tx N ^ tx *O ^.

^^^v^tOraM tOMMNMM NMMM O O s O\ *4" (^

OO OOO OO OQO

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qvoo\M <( r>. . ^ON'?^^*? tog

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NOO oooo oo oo oo oo oo oo oo o O" CTV <?> o\ o\OvO9> ON Ooo

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OO OO ri. t> tC. tA. tx\O WVO to J-* tOtoNtOTj-rt- toONMl^N INOOQ
CTS Ovc\

APPENDIX 321

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-j i__
"**"* **""

oo <J> *J-vo to to rj- O M tooo u-i t^ to t-,vo Th O vo ^oo to w oo so O t-oo
to <* q <> tooo e * NW ?Q>" | tor^ NOOTi-o\i^xo N* * oo ao t. N N ** to
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totototo

i> csj n Os o M * o^oo MWM NNcito^co to"*" to ^~ to ff) to ^oo

tt|N fN M M ff (4 NNNNNN N M N N N f

ooOtoirivnos t>'ooot^O'*' toxoMMsot^ OOMO'^OOOO toOM

I , NNNNNPJ NNNNrTf* NNNNNN NNNNNN fNpt3

322 APPENDIX

. oo NO NO oc N ee n ex MI r. O oo t. w vo j. * r^ u-ivo os to oo oo o oo N

o oo NO r}- q _. *? 1 w NO *****. 9 t O vc 3' >0 . 00 ,P '? 00 . 00 . vnv ^.f- ^ ^ ^ *! P, 1 ^

0*6^ H>M r^-oo oo oo oo oo bVoo oo oo oo ON oo oo oo oo oo oo oo o> c?-, o- o- vo
ON ON ON Os ON ON ON OS Os ON Os Os OS Os Os ON ON Os Os Os Os Os Os Os Os Os Os ON

^ * to f' o to M l^oo t- bNO M IH i f- to <N) oo < to to M ON e to ON

o . +- 1 *f ? T 't **?*>*>*?*!* T 1 1 "0 *? *? P c> _t7-oo ) oo "P 00 ,

-r o\ Q Q Os Os osod oo oo oo ON osOsbVQOQ

'-'ON O O Os ON Os Os Os Os ON o\ Os Os Os O O O

. NO O ON <NJ tOOO t^ "> O 1 ^ I*. * 00>^NMNO

4Jf T l> C > "^Q^^jPH* ^"1^ '^Q'C 1 * * *^ H tQ Hlw ? f ^

vOQ O^OOOOOOOO VO VOOOOOOQ OO OO OO OO ^O <J"i

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t? OO *O A <S O M M B M ** Q O Q d^^OMH MMMM(Nt M OO

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t^ <JN ONOO osr^j_j_-

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O"ON torftotoON ON

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oooooooooooo oooooooo oooooooooooo t^oo oo oo oo oo t-

*~> oo oooooooooooo oooooooooooo oooooooooooo oooooooooooo

Si-J

APPENDIX 323

n s <?^>, JJ 2 ^ toooooooMfn ao *t O oo w *c oo ON <f w w

*^ iX vA rL ^^ ! M* M n u ^ * ^ * . ,| *( ... x ...

j 'zj ^ * * r**i*j OQ oo OQ OQ CTN OO 0** CT^ CTN O ^ ^^ O 1 ^ Q\ &\*^ O\ ^ O 1 ^ O O O ^^

M 2222 222222 2 2 2 2 2 JT 22222 222?M 1 M 1 2
* s" 1 "? 2 2 2* 2 2^ N'SN* 15 5T < S < S t S < S 1 {?" T? ST" ^U

MMMM MMMMMM MMMMMM MMM MM MM MM

o'0 v ^ ) i t ^ 'C 1 '?"^^ * ^ ^ ^"Po 9< 2'f?''^*> p } pj^j-iovooovo "*<*

M*''* tototototoco p| Ntotoro ^topjtopJPl NP4NPJNN <*^d

MMMMMM M MMMM MMMMMM MMMMMM MM

2.P2 2 9 Y?^ "^ 00 00 VO t~. tx 0X00 0V M 000*

MMM MM

yj j^> vo ov q PJ vo vovo M "i>> 5 q N o, b\To ^vo'oo' o^ 1>.

3 . L 5" 5S" , ^ ^ ^ ^oo oo oo oo * oo oVoo oooooo* oo o\oVd O M M>.

^^^J JN NNNNNPI NNNNNM pp>tototoo w

tq MMMMM MMMMMM MMMMMM MMMMMMMM

sjvo^-toM OVMI^I \ooo to M t^.oo ooOO ptoOAtoo v^ o tf> oop

j P> N P N Pt NP1PJNNN PINNPIPIP) PPPN > N > iNPlprN > ^5p

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vot^vovoM

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MM MMMM MMMMMM MMMMMM MMMMM MM

.OOOMVOVOVO i ^ ^^ "^vo tooo M to o\ n ovo O ovo M f ir, ^- TJ-VO
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X M M M M M H MMMMMM MMMMMM MMMMMM PJ M PJ PI 1-1

MMMMMM MMMMMM MMMMMM MMMMMM MMMMM
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OlHN ' n '* wlverx00< * v 2* Nr ** n '* vrive * >ooox O M M

MMMMMMMMMMNNN'S0 tO-^

324 APPENDIX

00 00 00 00 00 00

j Q t* W OO f^ t> ** OV <sl OO OS 00 Os t^ O OS OV f^ M U1 M tO O 00 O

o * .-t . *? t ? > * ^"0^ *?P ^^"j ^^ "* ^ ^ a **^ *r T 1 ^

ZN -f ^ '^ r^- rxt^.t>.t^oooo t^K.vovd'o^o vot^N. r>.t>. i>. OON

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cooooooooo oooooooooo oooooo

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IN Os tx Os Ovoo to vo O t^ to >n M tooo r^ b* - vo <s> oo N tooo OS i- HI N t.

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u-iso vo so SO so vo so so so so so so so so so so so so so SO SOSOSOvovosOvn

J3 . *

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APPENDIX

325

oo N * q q
o o o d d

.
O * ' ._ '"? v

O" 1 " N

oo to to to v> t^oo vo to t -t- O oo w f>. rj-oo w to M O w
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g o fj q ri-vo o *o to N 'T-qoTi-iHtn ^ q t> *> <} T ,WIOOMO>-!O

O O O O OOOOOO OOOOOO OOOOOO OMOO'-'O'-'O

<\o vo so vo ^ t^oo o t>.oo t.v vo vovdvovovovo vovo t--oo oo ds ^. Wv\d
o oooooo oooooo oooooo oooooo ooo

co **i

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^MN^WM* Ncntoroto^* *o^iovo*A^O io*AtA*o^
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tO ON

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326 APPENDIX

j * . <f . . . . . *?<f . . . " . T0 .9 -H* . * ....

Q O Ov O M M M Ovoo oo oo h- r~. txvo r^oo oo ox oo oo f^oo oo ovoo M vo
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o ox to >ooo i>.oo N iu-iu^ MM oo O
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w vo ov oo v> ovoo oo oo r wo o ox to >ooo i>.oo N iu-iu^ MM oo

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<3 M 6 M (VI (VlMOOOM MMOOMM MQMMMM Q Ov OO (4 OO

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3 t>. tx O\00 00 Ov ON Ov O\ Ovoo 00 lx t^.00 00txt>,tv txOvOOOO

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APPENDIX

327

ox t-. r~> t^-vo t>. NO vo t- t^oo ox oo t- r^oo oo o\oo o vo

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vn \r> \f> v\ * to* PPMPMM ^3

NNMNcoN-o.;;

MMMMMM G"Q

c/> H

* -I-

ON O M fc
C^coeogo

328

APPENDIX

ON ON ON ON

.,; O oo r- O ooo t^ N oo NO w VONO O N ** N >o to ^ t^ wi t- N tooo

goo PI M ^ \5 ^ ON vo to tO^ T Q 9 <1 ^ 1 * ^ O *? 'I T *0 *> 9 'J 4 *? T T

to T}- *J- >$ to to to to NtnTJ-^^io j- vo vo vo o ^- ^ vo vo vo vo N

ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON, ON ON ON

, tx p N NO e

gtfH

Ovo vo vo T^ vo vo
ON ON ON ON ON ON

wr>.toNO <*^oo txOn nT(-t^rxOO NOON t-^oo

**> *7"*^ " *0 ^> n rp PJ oo o^ vo oo * O O >^>0

c^MTt-TJ-^j- 4-ovriAi>Aivo iAA nvo voA

O\O\O\O\O\ O\(^OSO\O\O\

to P M N N N M IH N

I^^O t~- O oo O

oo oo oo oo oo oo

C/i W oo ON *$ IH N O ON OO O to M vo N NO to O *O vo vo N OO IH Q, ON w M n
tD C 9 f* *? 9 1 1 "? ^* T "! ^ 1*1 9* ^2 *f 9 *? ^^ * QT^^lQ 1 9
-^ 3 ^* <^ vo vo vo vo ^ to ^" ^" to NNM QwNOO Os ON ON t** OO t^ I s ** vo lx

H^ t ^ ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON ON oo OO oo oo oo oo oo ON OO

d^to^ovooovo, ooooNOwwto O^t^vovooo QvnvONOpjvo ONON vo^ vo

rtOlH^t-Ot^* t^OOOPlTj-M*OOO^Ot^^> NIHH^<i-H^ P)NO .. l^x t^ ^t"

Q ^ OO t^NO O\ON OPINfO^Oto NtOtotOpipj NNNNtoto toto to toNO

, 5 OO OO OQ OO OO ONONONONONON ONONONONONON ONONONONONON ONON ON ONOO

i& ONOO O ON NO

rioo t4 t^. t>.vo
ON ON ON ON ON ON

ONONtOtO ONOr*-ONtoO vo VOOO NONOt^ VONrJ-toQ VONO

. VOM N. VO ON O O tONO OO txOO MM M t~. VO

- *0*> t* 9 t ? v ^ w ? e T t >*4 91 ?*? 1 ?* TPIn

*< O O ON OOONONONON OONONONON ONONON

COM t^NO ON t^ O ONO O NO

y O'roo ) i ( oooqqpi t^-^ ^^^^x*^* T'C' "0^ /?

* " vovo^vor^ oot^-ooONOoN OO'HpitoN* NNNPINIH*

O\ONONONON ON ON ON ON O O OOOOOO OOOOOO

- o

APPENDIX

329

.0 so o tx "too M so tn tf> cooo so *}* * w w% N. t-iTj-Nui o NO i>.

CJ CO OO SO M COSO N SO U1SO ON tx IX CO M OO N COSO CO VI CO O ON OO VI to

J^ so* so NO so to so NO * so txNO 4- NO NO * wi co d w M Ov* oo "^"~ ooOOoo* ONtxoo

U O cococococoto cococototoco tocococococl d Ncocojsi PCON

, CO ON O M "|00

wNr-T- 10 NO NO NO NO NO v
tococototofi tntocotomco

oo w N ONOO

NO t^No NO NO i>. oo t>. osoo >NO

NONdrxtC.tiNd*NONdvriA>^->H

tot<->t<->mtif>i tntntotoficn

. vt w

6C -t- M

NO M OO COSO

MWMSO

3 * w

w ri"*" p5 <* 4-* *f*fcnri ri ri* 'i-^-tori-wi^i* NO tAvd tioo o^* oo 6\oVi-!
NN NNN NNNNNN NMNNNN NNNNfN NNNPJ

oo t~- NOt- vr >O

frsO^OONW >O O "4" <-> NO O COW) COSO O

ed t^NO CONO l" 1 ^^ 1 ^^ IQ ^ 1 ^

^<NN<S1NN NNNNNN NPINNNi

. tO O 00 If* Tl-SO rt N. Wl V CONO SO SO rl-SO MSO NOSOOOtO>ON VO OON

k MSONOO*Olx * O OO ^" O N)NOMCOqC^ *C lt T" Mt ^ ^^ Q *t ?

9"* copJNNNM* ddw"NN* (t <* M OO <?>OO *SONONO>ONIH* 4" tOM

^ tocococococo cocococococo totocoNNN NNNNdft N toN

Ntoto NNNcococo cocococococo NtOfjcococo cocototocotocoN

n ON l^oo t^ "^ t^oo cooo
u lA A CO* CO rj- CO CO >A rj-*
to tototo cocococococo

coco cococo

NO o\ oo

to tocoN

CONO COOO NO CO VOOO OQ VONNOtxONXO VOMQ"^ ONO OO n ^J-VO VO .

fS Mptco^^i- txt^sow^sooo ooi-tOONN COWN^IXCO ONIOCOCOCO^^*

rt-f cocoNco4-* 4-4-4- v "^ONO*sotxtxxoooo*ooootxxtxso* cotovoooN 'r;

*~ tococococo cocococococo cocococococo tocococococo cocotococo'o.;;

to * wsso txoo ON

O M N co *f >T>NO t^oo O\ O w

to * vovo txoo ON O * bfi &
CINNMNWMCO to--

330

APPENDIX

M O

<* N 00 to (^

7 $ to to N to fsiwNpj O * N N '*'* * WINO i/*, inNO Ov Os O\ Os d

^ OO OO OO OO OO OO SO CO OO OOOOOOOOOOOO OOOOOOOOOOOO OO OO OO OO CO

r) co oo u->

w t> o vo

OO to tONO Os t^.~ s| CNOO O N O jfc wtOT^-t^Ow* d^oOVO toso .fc N t^ O NO OO NO
^^^WMM ri -i N ri i^ (t Ct d (4 <) N f*NNPNN It ft ft (5 *l d

<, OO 00 00 OO 00 OOOOOOOOOOOO CO OO 00 CO 00 OO OOOOOOOOOOOO OOOOOOOOOOOO

oo O O vs O O

i 10 T ^'* ^ O Os

1 K t^. t>.t->!t^t^ t^t^l^t-t^l^ t^t^

.00 OO 00 OO t^

S w to ^"^ t^i

oo to Os o oo o\ \n >ooo ON t^ oo to

vnm voovitot>.N

M . tO O tp

4- 4od

f* Osso OON Nt^OsMoOt^ Pi-i^-Nt>.Os OOtoQ'^NNN

ON tooo t~. # NI-IOOOOWN^ O"^'f'* N00 * "^""t^NOOOs

ONOO OO OO OO ON O O

. M Os ^ tO O tO rf-so fv^ 00^tOPtO ^-11 TfwSO VOA VOW

J3 ON M rj- in^ OO NO VO N (NJ to^u ^. ^- ^>NO ON N jjj ON ^> j. t C 1( ^'^0^ N ; M J*

,5*dwM>H MNNNtOtO totototo^- 4-vAi lAisoNO >AA sod

R.I

NO t^ to N ^ to toso

,,. w.oo odd d w M oo
Nososo^t>.r^. r^ * t^No

J3 .

Os O M OC f
^to tO.2?

APPENDIX 33i

8 to vrt M *j-oe ! n < N *ioo O oo M tova vn <( Ixoe O ^-vo * vn
OX vo OO vo Ov to OX O OO N O OX N t^ OX N O M tP tnv T e ! A < Vi J

O OX* OX O O O M M * MNNNNW* M M M N to to* "* tO N to to* tO OX

3toN Ntototototo totototototo totototototo tototototo toN

t^tot--vn ox MOrow M rt-ao rs. ox vn tx tooo Qvovn votorj- t-%M

>toNTt-Tt- ON "00^ oxtoq t?^ ox ^'^* > q p J v * i c * v *T T *!*

N N pj M * M "*~ OOxbvOO* txO\dOxdd* MNMNKM* NMH*"* 1 fJt^.

^ \---v - . -

j* MNMMMO* ddc5d* ddd6N* NNNMHO MNNO
Q totototototo totototototo totototototo totototototo totototo

H oo NOvi>.Nto \aou^OO< torj-OMtoox r-~ t^oo tooo \o to t>

*: o o towtoo\to >< 'f *0 Q ^ **" "C 1 ^ *T T 1 ^ 1 T ^ T^ *T T

M M

to N N r) N NNNtototo totototototo totototototo

tooo wirj-o ooootot^Mt^ to\o O oo to ^oo t>.\O v\ to M ^ O r^ o^oo

tjvo o tooo oo t^oo oorl-O ootowNN VH in 10 M O t^-oo o M to w M n

D>A\Avovd^s* t^.t'.rit^.dd* dddd wMpipjiHiN* MNMOvNtA

<NNNNN NNNNtOeo totototototo totototototo tOtotONtON

M M M M M WMMMW MMHHM HIMWWWM H M M Kl M M

00 u-> 000 to O 00 1*. t^ N P 0\ r>woo*VO>A to ON JJ M JOV9 00 00

W5 >%tovoo

QTl to* r*-"*~ * ^- ** T*-* ^ to vn 4- 4- vn* vnvnvnvnTJ-N* tototo ^-vo vo '
, ^.N NNNN NNNNNN NNNNNN NNNNN 22

<J *^M M MMMM WMMMMM MMMMMM MMMMMM MMM
O

< iH. M* M" Sr* N

fS M M M i"

O J^OO vo'?WONtO VO^NtoO'* OOtOT*-OXOO t/>t >'*' t > ?~ v<^ *1 y <5

? 5;o\do\t^o<;oo - * t^oo' oo' o\ O o\* ^<>o\^vovn* 4-5-jivovovo* oo-*- oxo

^Q M ft M M M M MMMMN

00 tototowoo

vn oo o oo ^t* oo C

M to rt" O O tx* t-

N N N N M

vo oo >n in w

oo O

^OMNM* M(4NNN*- 1 -NNNNf5* N to" 1 " N rj- vn * vn to vn O

faNNNN NNNNMN NNNNN N N

MMMM MMMMMM MMMMM MM MMM MM

OvoNooto vnvntJ-MvoOx MVOtoOOH- oo O\vo tx * O oo yn vn to

c in M "frq 'TT^Noxrt- T ": ^. ^ *f <1 1 *0 1 ^ *; *?- ? P q q >,

cd * *H~ -^ ^ ^ ^Li*L* ^.frC.t^t>.KLoo* oo oc oo oo oxo\* oo txt^oo OxO O M M S- C3

cd* T oo oo oo

> MMM

MMM

o M to rf vnvo t^oo ox o M ( o rh vnvo txco ox

MMMMMMMMMMc<NCOIMMNtO tog O

33*

APPENDIX

j ^ *^i w* w w o t^* 4* ** vo tx ^* 4- q *^oo ^ i ^

P N N tO N OO 00 ON O VOVO VO VO 00 00 00 ONOO t^OO

(N. t~- t-~. FN> (N>VO VOVOts, \O VO VO V> M2 VO VO SO VO VO VO

tO O N. VO M tO Js,

H wNqqvoNt-.

ON O W O ON tO VO

C VO IN. M

r. txoo o

to 4" 4- VO

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t-5 ^ ?

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to ^- to"vo
oo oo oo t-, r~, r^. t> t> t^ts t^-oo op oo oo oo oo

^^^^^^ ^^"^ B

ooONQoooNvn oo oo m M vooo

APPENDIX 333

<>oo so so so r-^* to 4 to 4sd so * so" vd >o A >A-I-*

M M M M M

too t t. ox to

MMMMMH
MMHMMM

O so vooo r*. t- oo N N N M M N so >o O ^ M * M* f* tx to too
> to q o\ t^. T}- to C* to t*. ox topjoo^ooq <* * ? O *?> N ON ON to
-7 2> *f ^ JT !? S" if ^^ xd * vd r^sd t^.sd t^,* tivd so + ti. tC.* oo oo oo oo to

2 2 2 2 2 M M M M MMMMMM MMM MM MMM MM

MMMMM M MMMM MMMMMM MMM MM MMM MM

M OXSO O tOOO M (4 <O N >A M VO N OO O ON O OO N tO * M ( O VOOM

v"!, 1"?9 C 1 S C ? ?. ox ox to q N vn 5-vo^vo ^. tlvodo5-N to N Z

2* 2 s 2 1 2^ ^ odddf* to* to to to to 4 4* 4 4- 4 to 4 n* to vA ox

OO OOxOOM MMMMMM MMMMMM w^HIMM MMQ
M MMMMMM MMMMMM MMMMMM MMMMMM MMM

. MW NMootort MMVOt^ oxoo O O ''i ovo M (or^NOoo OOM

to to M oo N oo M ON oo oo scs oo to ON to q * cj> q n S to 5 ^. ^. to

S* ^C 1 ^ r^so tx t^oo * so so i^ t^ r> t%* so vo f*.vd vo tx* r>. t^*oo oo oo 06 o

c22 22222 22S2 00 oooooo ooooo oo

.O'^osOMQ OOOAOX tovo to vooo OOM OOMO<O OtowO"*

bt N oo <sj to voso v, os N ON M vo q oo M ^-^v to "C 1 * > f t> ^?<1^?

5s2!JI!"" MMNcjro to* 4 to 4 4 to to* 4- 4 4 >A A vn* vd A Aivd o

^o 300 dooooo oooooo ooooo

ff. to tovof^^to voOoxOOXM NT^MV^MVO OO'^^Mf^ ^to

r^ 3 t"** OO ON OO OX ON OX QOOOM Mf^pJM^fNJ* M O ON M Q Q * <*5 t>,

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^ t O\ OX ON OX OXONOXOXONOX ONONONONOXOX OXONONONONON ONOXOXOX OXON

^ OXONONONONON OXONONOXONOX OXONONONOXON OXONOXONOX ONOXON

^ vo vo so so t^ so so t**so tsvo so so vo vo vo so vd so vo vo vd vd vo vo t^. vo

^ ON ONONONONONOX ONONONONONON ONOXOXOXONOX OXOXONONOXOX ONOX

jj M O O ON O t^SO tOMSOtO MQtOVOMOO MVOOOO t '<O <*O U ^ONO ><

SNNNtoN NNririiHM Mtoto4tovo 4'> 1 'i444 >ovd vd vd vd M
OXONONONOX OXOXONOXONOX OXOXOXOXOXOX OXONONONONON ONONONOXONOx

. O voso MOO O vo voso M ** M tovo MOO (x to >ooo to oo O to

feONONONONONON ON O". OX OX OX OXONOXOXOXOX ONOXONOXOX OX OsOX

O vooo Moovoto tooxtx">MO toMvo tovo oo tovo O M

vo vo t. >) voso t. r^vo vo so so vo t-oo oo Ox ox ox oo ox oo oo l>. o\ vr>
"~> os cxososoxoxox OXONO\O\OXOX OXOSOXOXONOX oxosoxoxosox oxON

J3 ^
** M N tO * OVQ fNOO OX O M W O r^ VOVO (XOO OX O M f to Tt- tOVO fxoo OX O M_ b f

334

APPENDIX

> o

_ , - .. , i O vo O vo
P T T T *? * P 'T' 00 . . *? *i

10 NO NO NO (C. tC. tC.NO NO NO NO NO NO NO "

T}- >^NO w \r> v-t

SO to O M to tO

00 OX OX OX OX 4-

NO OO^M rt^rtotoMto veoO'oox u "< U^TT *"TJ-

m"vrixn^-u^t^f<

^^^.^.j-^-^-a.

MMWQO OOOX OXOO 00 OO 00 (X.VO NO NO \T1NO Wl V\

MOOM oo'i-u^t^iios *rt>.OtoO vo *' o *oo XNNNVOMOO

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eo oo O O oo

t^ covo
*o m M

Ox^

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t** to *^ oo O Oxoo p<
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iSOVONOSO NONONONO

OX p ^- b^ ^ rj- tONO M N. OX

so so so so so so so so so so so VOVONONO

M OO M O N tO

O NO oo l^-oo w t
NO NO >n 4 ^ T^
NO so NO NO NO NO

rj-

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so so so so so NO NONONOVO

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r^- txvd NO NO
NO NO NO NO NO

O"* oooototoH" trtoo oxOOt"- WOxotoOx ONOt^ vnvo oo to ox ,^

C t NONO^ tooo r^toNOO^vo Oxoo *oooOA *OMQoototo* oxtotoi/^oxxtow ^2*

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CA ffi
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APPENDIX

335

Ov x OX Ov

00 000 00

w> " "> t^

VO NO K. ^.

4J *f *T" ^0 * Q *t* ^ *i * ^ *o **"* 1^*00 oo ^ oo ^- Oi O *o 10* oo N ^ ^^ ^o oo N to
OMNW MINWO^^ <>c>^d\WM c?s M w IN M M Ne^f^NNN^Ov
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O*l_^t^'^ OO^WtOM HOO V OU^M Ot-~"> CO

1 Q t 100 . * *J *0 9 . T ^ O oo p> o\ o* oo N t~ *To

Wi^O>Os^ O^OCT\OS OvOCT\&i&>Os OO O OO &~en

. t~* O*ropOO O Tf^ to^o <o O ^00 oovo<*> Nwootowvo '1-O
bO *?* <^< <> T "? tf* *> "C^ M N 0^ vo oo oo oo oo ^ijj /i <* f os !- w^ O oo P
3vo "iwiHtoNO ^f* ^^o OON. oood<ovdvo v o vor^. r^>o li iv. oo oo o

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336 APPENDIX

o f o Q so to + o w t-. o o t> M O oo so t* t^ O >H M ox
t fi N w M M <si N d o> O ox ox o> O w M rsi <N N to to

to (

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f N

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> oo 4 *04~ "> *> *J ^ti *T a ^^. "J 1 ^.* ""5 ^ ^ 9 ^*? # ^ 1 'i'-f- 1 Q * ^

OiA >rt rf^^i-N 9 Q M M d M rwNrN NN" (N tod

2 SO SO so VO so so so so so so so so so so so so so 'sO so so so so so so so

. V r*-00 HI M r)-OO VOsOlJ- t.Nt^O^O COM OOO t~. * <O N **> t^SO,OO *

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so so so so so SO SO so SO SO so SO so so SO so so so so so so so so SO ^ SO SO SO SO

^ ^? *?* 1 " 1 > ' T ' T

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CO ^ tOSO OX. OX M tx *O O *O $ OX to O to *# M *4- O t^ OX OX 00 >* so N OO **"*

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^MOXVO so M so so O ""> MO wso o "> to toso oo ^ N so m M
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C to O t^ txso soo wr*oosoooOx ox^O vri NM QMIOW

ClJM^ tOt^OXHltosO* w tooo N to ^^A *O OX to N to to to O N N ti ill m

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v. *o ^T^r^T^*o^ TT^O ^^J"^~ *o ^ to *<f ^* *o *o to >o ^t

so so so so so so so so so so so so so so so so so so so so so so

Z N to os o p t~.oo to r M ts.se OXPTJ- *"i'*' M '* 1 9L *"* * vv * "^ *^ ** >.

s 4 . , . * . ? . P * t tn * * i.**_i.'_i. i-iA,p5 >ca

SO so SO so SO so SO so so so so so SO so so SO SO SO SO SO so SO SO so SO "Q 72

CO HL,

J=5 ., * +*

SO 1^00 OS O M N tO * IOSO txOO OX O * N tO f OSO tXOO OX Ol M Ml P

APPENDIX 337

M fx l.se os "> J- O 00 w oo M os to o M so to lv Os e ui N N oe oo oo
*0 ""* 't" *? *0 ** 'T "0*^3 Q P, P **! "? P, ""I ^ o *T "}" *, 41 ^P0 M , n J~ e r e T's5

. Os >rt to os M SO ON WSO soOM 00 M O so > r OO"* OOOO OsQ

OM O OsoVost^* so^Av^^Atov^ lA ^-so sc oo oo oo t^so Ix tx M co

Zf* ^ M , MMW M ^ WM S^ MMMMMM *^^S S2

M d O H

OOOM ooiOi*oooo ^

^ V< J T *'i t >P^^* T f

ododoo* tC.Arj-'iWT}- d

no^-o ooNtoO^os M tooo <Jf OoowOeo JJM

# * *> o ^ "^j^jif <j> * *> ! ^ "?* *? & 'f ^ * T *; ^ ^ *> *i+- 1 *?

i li A A\o >O n A \r\V3 w iA xAi Avo "^vo vo t-*O vo vd ti. tx. o

<NN NNNNN NNNNNM N N fi N *NNNf Nf

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m X

* -

338 APPENDIX

P fx * p NO OOtxu^M^N >r> tx oso tx pj M pj p) M so toso tx PJ

XH NO NO NO NO NO NO NO NO NO NO NO NO NO N) NO NO VO NO NO NO NO NO NO NO NO NO

r^ ^OO txOO N ^- t*l*O M N *> O M f^OO M N V O\O^-O>CTN MSOVO"^ I~.OO

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Q" ^ c, N r,c NWW ; g ^

APPENDIX 339

oo to pJ ve Q tOMOeooow^ vo N oo vo w to w> t-% oo r^oo M ui moo
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S "o

S> a

340

APPENDIX

10 tn <* wi t* p*ao vo f v* &, * * O N ovoo to *o
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APPENDIX

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Sunday
fHoliday

342

APPENDIX

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APPENDIX

343

os o" >? ^i oo ao so *** ^ M O tx to O O oo tx,oo OQ tx v\ o tovo to Ixoo

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344

APPENDIX

VOrJ-VO O O N *J- vd M OO OOO l IN *J- OO W O to

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APPENDIX

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"",3

INDEX

"A. B. C. of Stock Speculation," 28
Aetna Fire Co., 105
Adamson Law, 201
Agriculture, Department of, 47
Alexandria, Egypt, panic 1907,

140
Amalgamated Copper, 35, 50, 89,

221

Anaconda Copper, 223
Auction Bridge chances, 145
Averages, See Stock Averages
Babson, Roger W., 52, 197, His

theory, 53

Barrens, 237, 250, 251, 253
Baruch, Bernard, M., 66
Bear Markets, 45, 254
Boston News Bureau, 35, 222, 233
British Company Law, 84
British National Debt, 199, 2OO
Bucketing, 77

Bull Market, 31, 32, 44, 256
Cammack, Addison, 149
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
Customers, 78, 259
Davis, John W., 257
Definition of the Market, 65
Dolliver, Senator, 8, 46
Double tops, 32
Dow, Jones Averages, 7
Dow, Charles H., 21, His theory,

4; True of any market, 14; His

first description, 23; His panic

dates, 25, 269
Economist, London, 141
Elijah, Mendelssohn's, 112
England, Bank of, 167
Esch-Cummins Act, 191
Farmers', pool, 48; and Wall

Street, 47

Federal Incorporation, 83

Federal Reserve System, 121

Flood, Mississippi, 33

Floor trader, 76

Fluctuation, Daily, 6

Ford, Henry, 165

Forecast, successful, 32, 252

Gamblers, 67

Gambling and morals, 265

George III, anecdote, 79

Gould, Jay, anecdote, 67 ; 268, 270

Greeks, 165

Hamburg panic 1907, 141

Harriman, Edward H., 18, 212

Harvard Chart, 122, 208, 238

Hill, James H., 18, 141, 212

Huxley, Prof. T., 194

Interstate Commerce Commission,
192, 193

Jerome, Jerome K., 10

Jesurun, "waxes fat," 216

Jevons, William Stanley, I, 116

Keene, James R., 94, 107, 147,
l82, 221

Lefevre, Edwin, II, 148

"Line," of accumulation or distri-
bution, 6, 32, 82, 172, 250

Lincoln, Abraham, 217

Listing, 82

London Exchange, 82

McKinley Election, 82

Manipulation, minor importance,
49; cannot make primary move-
ment, 50; Where possible, 50,

51, 234

Marathon, 165
Margins, 266
Marx, Karl, 163
"Matched Orders," 85, 229
Michigan Southern corner, Il8
Morgan, J. Pierpont, 17
Movement, Daily, 6

" Major, 5, 40; dates,

43-44

Primary, see major
" Secondary, 5

National City Bank, 222

Nelson, S. A., 28, 29

News Collection, 236

Non-Partisan League, 150, 2l8

Noyes, Alexander D., 1 12, 161

Overend, Gurney panic, 26, Fail-
ure, 118

Panic Years, dates, 2; 24

Pennsylvania Railroad, 113, 256

Persians, 165

Piez, Director-General, 202

Pratt, Sereno S., 128

Prediction, 1903, 98, 99; based on
all knowledge available, 42;
correct, 61, 62, 63; a bad, 138

Punic War, 163

"Railway Business Association,"
247

Rea, Samuel, 113

Rhodes, Cecil J., 17

Rockefeller, John D., Jr., 232

Rogers, Henry H., 8, 41, 223, 231;
Anecdote, 63

Rome, 164

Roosevelt, Theodore, 160, 21 1

Rothschild, anecdote, 94

Sage, Russell, anecdote, 94

San Francisco Earthquake, 44,
lOi; Fire, 102, 103; Loss, 105

Sherman Silver Purchase Act,
ii3, 214

Short Selling, 8l, 272

Sims, Admiral, 198

Somerset House, 84

Specialists, 79

Speculator, professional, 70

Spencer, Herbert, 194

Standard Oil Group, 8, 41, 64, 232

Steel, see United States Steel

Stock averages explained, 4; Suf-
ficient in themselves, 40; A
unique barometer, 56

Stock Exchange, closing of, 174

Stock Exchange Governing Com-
mittee, 258

Stock Market, bigger than mani-
pulation, 41 ; always right, 45 ;
never thanked, 46

Stutz Motor, corner, 12

Swings, major, 40; dates and
duration, 43-44

Theory, Dow's, see Dow

Thermopylae, 165

Tips and Tipsters, 238

Trader, an intelligent, 69; pro-
fessional, his advantages, 74

Trading methods of, 36

Transportation Act of 1920, 191

Trinity Church, IQ

Undigested securities, no

United States Steel, 52, 225, 244;
its value, 93

Unique, applied to Barometer, 56

Unlisted Stock, 82

Vindication the theory's greatest,
196

Virginian Railroad, 232

Volume of trading, 136, 177, 205

Walker, Guy Morrison, 202

Wall Street, Extent of its knowl-
edge, 46, 47, 58

Wall Street Journal, The, contains
all Dow's theories, 28; 8, 223,
252, 253, 255, 257, 269

Walsh, Dr. James J., 168

Wash Sales, 85

Watered Labor, 87, 2O2

"Water in the Barometer," 87

Weather Bureau, 56

Wells, H. G., 169

White, William Allen, 215

Wilson, Woodrow, 191

World War, 251

Wormser, Louis, 131

Xenophon, 165

Xerxes, 165

JJ.CSB IIBRAR*

y a.4274

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