Successful 
 Stock Speculation 
 
 By 
 
 J. J. BUTLER 
 
 Written April 1922 
 Published December 1922 
 
 Published by 
 
 NATIONAL BUREAU OF FINANCIAL INFORMATION 
 395 Broadway, New York City 
 
'Shis {Book Is SNj)t Copyrighted 
 
 We believe the principles expounded 
 in this book are of immense value 
 to everyone who buys speculative 
 securities, and we do not object to 
 anyone reproducing any part of it, 
 whether or not we are given credit 
 for it. 
 
 National Bureau of Financial Information 
 
CONTENTS 
 
 PART 1 
 
 INTRODUCTORY CHAPTERS 
 
 Chapter Page 
 
 I. THE PURPOSE OF THIS BOOK ... 7 
 
 II. WHAT Is SPECULATION 9 
 
 III. SOME TERMS EXPLAINED 13 
 
 IV. A CORRECT BASIS FOR SFECULATING . . 17 
 
 PART 2 
 
 WHAT AND WHEN TO BUY AND SELL 
 
 V. WHAT STOCKS TO BUY 23 
 
 VI. WHAT STOCKS NOT TO BUY .... 25 
 
 VII. WHEN TO BUY STOCKS 29 
 
 VIII. WHEN NOT TO BUY STOCKS .... 33 
 
 IX. WHEN TO SELL STOCKS 35 
 
 PART 3 
 
 INFLUENCES AFFECTING STOCK PRICES 
 
 X. MOVEMENTS IN STOCK PRICES ... 41 
 
 XI. MAJOR MOVEMENTS IN PRICES ... 43 
 
 XII. THE MONEY MARKET AND STOCK PRICES 47 
 
 XIII. MINOR MOVEMENTS IN PRICES ... 49 
 
 XIV. TECHNICAL CONDITIONS 51 
 
 XV. MANIPULATIONS 53 
 
 688010 
 
PART 4 
 
 TOPICS OF INTEREST TO SPECULATORS 
 
 Chapter Page 
 
 XVI. MARGINAL TRADING 61 
 
 XVII. SHORT SELLING ........ 65 
 
 XVIII. BUCKET SHOPS ......... 69 
 
 XIX. CHOOSING YOUR BROKER 71 
 
 XX. PUTS AND CALLS 73 
 
 XXI. STOP Loss ORDERS 75 
 
 PART 5 
 
 CONCLUDING CHAPTERS 
 
 XXII. THE DESIRE TO SPECULATE 81 
 
 XXIII. Two KINDS OF TRADERS 87 
 
 XXIV. POSSIBILITIES OF PROFIT 91 
 
 XXV. MARKET INFORMATION 95 
 
 XXVI. SUCCESSFUL SPECULATION 103 
 
PART ONE 
 INTRODUCTORY CHAPTERS 
 
CHAPTER L 
 THE PURPOSE OF THIS BOOK 
 
 This book is written for the purpose of 
 giving our clients some ideas of the funda- 
 mental principles that guide us when we se- 
 lect stocks for them to buy, but these prin- 
 ciples are valuable to every person who trades 
 in listed stocks or in any other kind of spec- 
 ulative stocks. 
 
 First of all, we want you to get a clear 
 conception of the meaning of the word spec- 
 ulation, which is explained in the next chap- 
 ter. Our purpose is to protect you against 
 losses as well as to enable you to make profits, 
 and it is very important that you understand 
 how to provide for safety in your speculating. 
 
 It is a well known fact that there are tre- 
 mendous losses in stock speculation, but we 
 claim that almost all of these losses would 
 be avoided if all speculators were guided by 
 the principles expounded in this book. 
 
 "What" and "When" are two very impor- 
 tant words in stock speculation, and we can- 
 not urge upon you too strongly to study care- 
 fully Chapters V. to IX. 
 
8 SUCCESSFUL STOCK SPECULATION 
 
 Chapters X. to XV. tell you much about 
 the influences that affect the prices of stocks, 
 a knowledge of which should also be a guide 
 to you in making your selections. 
 
 Perhaps the most important chapter in 
 the entire book is XXV., on Market Informa- 
 tion. A careful reading of this chapter 
 should convince you that much of the pre- 
 vailing information about the stock market 
 is misleading. That fact alone accounts for 
 many of the losses in stock speculation. 
 
 It has been our aim to state all facts 
 briefly. The entire book is not long, and it 
 will not require much of your time to read 
 it through carefully. We are sure you will 
 get many ideas from it that will help you. 
 
CHAPTER II. 
 WHAT IS SPECULATION? 
 
 To speculate is to theorize about some- 
 thing that is uncertain. We can speculate 
 about anything that is uncertain, but we 
 use the word "speculation" in this book with 
 particular reference to the buying and selling 
 of stocks and bonds for the purpose of mak- 
 ing a profit. When people buy stocks and 
 bonds for the income they get from them 
 and the amount of that income is fixed, they 
 are said to invest and not to speculate. In 
 nearly all investments there is also an ele- 
 ment of speculation, because the market price 
 of investments is subject to change. "In- 
 vestment" also conveys the idea of holding 
 for some time whatever you have purchased, 
 while speculation conveys the idea of selling 
 for a quick profit rather than holding for 
 income. 
 
 To the minds of most people, the word 
 "speculation" conveys the thought of risk, 
 and many people think it means great risk. 
 The dictionary gives for one of the meanings 
 of speculation, "a risky investment for large 
 
10 SUCCESSFUL STOCK SPECULATION 
 
 profit," but speculation need not necessarily 
 be risky at all. The author of this book once 
 used the expression, "stock speculating with 
 safety/' and he was severely criticized by a 
 certain financial magazine. Evidently the 
 editor of that magazine thought that "spec- 
 ulating" and "safety" were contradictory 
 terms, but the expression is perfectly correct. 
 Stock speculating with safety is possible. 
 
 Of course, we all know that the word 
 "safety" is seldom used in an absolute sense. 
 We frequently read such expressions as: 
 "The elevators in modern office buildings are 
 run with safety." "It is possible to cross 
 the ocean with safety." "You can travel 
 from New York to San Francisco in a rail- 
 road train with safety." And yet accidents 
 do occur and people do lose their lives in 
 elevators, steamships, and railroad trains. 
 Because serious accidents are comparatively 
 rare, we use the word "safety." 
 
 In like manner it is possible to purchase 
 stocks sometimes when it is almost certain 
 that the purchaser will make a profit, and 
 that is "stock speculating with safety." When 
 Liberty Bonds were selling in the 80's, many 
 people bought them for speculation. They 
 
SUCCESSFUL STOCK SPECULATION 1 1 
 
 were not taking any risk, except the slight 
 risk that the market price might go still 
 lower before it would go higher, and that 
 did not involve any risk for those who knew 
 they could hold them. The fact that the 
 market prices of Liberty Bonds would ad- 
 vance was based upon an economic law that 
 never fails. That law is that when interest 
 rates go up, the market prices of bonds go 
 down, and when interest rates go down, the 
 market prices of bonds go up. When Liberty 
 Bonds were selling in the 80's, interest rates 
 were so very high, it was certain that they 
 would come down. That the market prices 
 of Liberty Bonds would go up was also cer- 
 tain, but nobody could tell how much they 
 would go up in a given time. It was that 
 element of uncertainty that made them spec- 
 ulative, and not that there was any doubt 
 about the fact that the market prices of 
 them would go up. Buying Liberty Bonds 
 at that time was speculating with safety. 
 If you read this book with understanding, 
 you will know much about speculating with 
 safety. 
 
CHAPTER III. 
 SOME TERMS EXPLAINED 
 
 There are certain terms used in connec- 
 tion with stock speculation that are very fa- 
 miliar to those who come in contact with 
 stock brokers, and yet are not always famil- 
 iar to those who do business by mail. Un- 
 doubtedly the majority of our readers are 
 familiar with these terms, but we give these 
 definitions for the benefit of the few who 
 are not familiar with them. 
 
 Trader: A person who buys and sells 
 stocks is usually referred to as a trader. The 
 word probably originated when it was cus- 
 tomary to trade one stock for another and 
 later was used to refer to a person who sold 
 one stock and bought another. He was a 
 trader; but the person who buys stocks for 
 a profit and sells them and takes his profit 
 when he gets an opportunity, may not be a 
 trader in the strict sense of the word. How- 
 ever, for convenience, we use the word 
 "trader" in this book to refer to any one who 
 buys or sells stocks. 
 
14 SUCCESSFUL STOCK SPECULATION 
 
 Speculator: This word refers to a person 
 who buys stocks for profit, with the expec- 
 tation of selling at a higher price, without 
 reference to the earnings of the stock. He 
 may sell first, with the expectation of buying 
 at a lower price, as explained in Chapter 
 XVII. on "Short Selling." In many cases 
 where we use the word "trader," it would 
 be more correct to use the word "speculator." 
 
 Investor: An investor differs from a spec- 
 ulator in the fact that he buys stocks or 
 bonds with the expectation of holding them 
 for some time for the income to be derived 
 from them, without reference to their spec- 
 ulative possibilities. We believe that invest- 
 ors always should give some consideration to 
 the speculative possibilities of their pur- 
 chases. It frequently is possible to get spec- 
 ulative profits without increase of risk or 
 loss of income. 
 
 Bull: One who believes that the market 
 price of stocks will advance is called a bull. 
 Of course, it is possible to be a bull in one 
 stock and a bear in another. The word is 
 used very frequently with reference to the 
 market, a bull market meaning a rising 
 market. 
 
SUCCESSFUL STOCK SPECULATION 15 
 
 Bear: The opposite of a bull is a bear. 
 It refers to a person who believes that the 
 market value of stocks will decline, and a 
 bear market is a declining market. 
 
 Lambs: "Lambs" refers to that part of 
 the public that knows so little about stock 
 speculating that they lose all their money 
 sooner or later. The bulls and bears get 
 them going and coming. If the lambs would 
 read this book carefully, they would discover 
 reasons why they lose their money. 
 
 Long and Short: Those who own stocks 
 are said to be long, and those who owe stocks 
 are said to be short. Short selling is ex- 
 plained in Chapter XVII. 
 
 Odd Lot: Stocks on exchanges are sold 
 in certain lots. On the New York Stock Ex- 
 change, 100 shares is a lot; and on the Con- 
 solidated Stock Exchange, 10 shares is a lot. 
 Less than these amounts is an odd lot. When 
 you sell an odd lot you usually get 1/8 I GSS 
 than the market price ; and when you buy an 
 odd lot, you usually pay % more than the 
 market price; that is, 1/8 of a dollar on each 
 share where prices are quoted in dollars. 
 
 Point: It is a common expression to say 
 that a stock went up or down a point, which 
 
16 SUCCESSFUL STOCK SPECULATION 
 
 means a dollar in a stock that is quoted in 
 dollars, but a cent in a stock that is quoted in 
 cents, as many of the stocks are on the New 
 York Curb. In cotton quotations, a point is 
 1-100 part of a cent. For instance, if cotton 
 is quoted at 18.12, it means 18 cents and 
 12-100 of a cent per pound, and if it went 
 up 30 points the quotation would be 18.42. 
 
 Reaction: Every person who has traded 
 in listed stocks probably is familiar with this 
 word. It means to act in an opposite direc- 
 tion, but it is used especially to refer to a 
 decline in the price of a stock that has been 
 going up. 
 
 Rally : "Rally" is the opposite of the sense 
 in which "reaction" usually is used. When 
 a stock is going down and it turns and goes 
 up, it is called a rally. 
 
 Commitment: This term is used refer- 
 ring to a purchase of stock. It is more com- 
 monly used by investment bankers when they 
 contract to buy an issue, but the term some- 
 times is used by traders. 
 
 Floating Supply : The stock of a company 
 that is in the hands of that part of the public 
 who is likely to sell, is referred to as floating 
 supply. 
 
CHAPTER IV. 
 A CORRECT BASIS FOR SPECULATING 
 
 We maintain that there is only one basis 
 upon which successful speculation can be car- 
 ried on continually; that is, never to buy a 
 security unless it is selling at a price below 
 that which is warranted by assets, earning 
 power, and prospective future earning power. 
 
 There are many influences that affect the 
 movements of stock prices, which are re- 
 ferred to in subsequent chapters. All of these 
 should be studied and understood, but they 
 should be used as secondary factors in rela- 
 tion to the value of the stock in which you 
 are trading. 
 
 If the market price of any stock is far be- 
 low its intrinsic value and there is no reason 
 why the future should bring about a change 
 in this value that will decrease it, then you 
 may be certain that important influences are 
 working against the market price of the stock 
 for the time being. In the course of time the 
 market price will go up towards the real 
 value. This matter will be more fully ex- 
 plained in subsequent chapters. 
 
18 SUCCESSFUL STOCK SPECULATION 
 
 You always should keep in mind the fact 
 that when you buy a stock at a higher price 
 than its intrinsic value, you are taking a 
 risk. The stock may have great future pos- 
 sibilities, but it is risky to buy stocks when 
 present assets and earnings do not warrant 
 their market prices, no matter how attrac- 
 tive prospective future earnings may appear. 
 However, the possibilities of profit sometimes 
 are so great that one is justified in taking 
 this risk. 
 
 It is our belief that the majority of traders 
 buy stocks because they are active in the 
 market and somebody said they were a good 
 buy, even though the real values may not 
 be nearly as much as the market prices. 
 
 As an example of this kind of trading, we 
 want to call your attention to a news item 
 that appeared in a New York paper. It stated 
 that on April 1st, some brokers in Detroit, 
 as an April Fool joke, gave out a tip to buy 
 A. F. P., meaning April Fool Preferred, but 
 when asked what it meant, replied "Amer- 
 ican Fire Protection." Of course, there was 
 no such stock, but there was active trading 
 in it until the joke was discovered. Evi- 
 dently it is not necessary to list a stock on 
 
SUCCESSFUL STOCK SPECULATION 19 
 
 the Detroit Stock Exchange in order to trade 
 in it. 
 
 This story may or may not be true, but 
 we believe the statement that people trade 
 in stocks they do not know anything about 
 is true. You should be careful not to buy 
 a stock merely because somebody says it 
 is a good thing to buy, unless the person 
 making the statement is in the business of 
 giving information on stocks, because it may 
 be only a rumor with no substantial basis. 
 Of course, if many people act on the rumor, 
 there will be active trading in the stock, and 
 it is frequently for that purpose that such 
 rumors are started. 
 
PART TWO 
 
 WHAT and WHEN TO BUY 
 and SELL 
 
CHAPTER V. 
 WHAT STOCKS TO BUY 
 
 In deciding what stocks to buy, it is well 
 to consider first the classes of stocks, and 
 then what particular stocks you should buy 
 in the classes you select. We would first of 
 all divide all stocks into two classes, those 
 listed on the New York Stock Exchange and 
 those not listed on the New York Stock Ex- 
 change. As a rule, it is better to buy stocks 
 listed on the New York Stock Exchange, al- 
 though there are frequent exceptions to this 
 rule. 
 
 Then, the stocks listed on the New York 
 Stock Exchange may be divided into classes, 
 such as railroad stocks, public utility stocks, 
 motor stocks, tire stocks, oil stocks, copper 
 stocks, gold stocks, and so forth. At certain 
 times certain stocks are in a much more fav- 
 orable condition than at other times. In 
 1919, when the industrial stocks were selling 
 at a very high price, the public utility stocks 
 and gold stocks were selling low, because it 
 was impossible to increase incomes in pro- 
 portion to the increase in operating costs. 
 
24 SUCCESSFUL STOCK SPECULATION 
 
 Hut .since the betfirmiriK O f 1921, the condi- 
 tion of these two classes of stocks has been 
 improving and the market has reflected that 
 improvement. 
 
 At the time of this writing (early in April, 
 1922) we are recommending the stocks of 
 only a very few manufacturing companies; 
 but we are recommending a number (not all) 
 of the railroad and public utility stocks, and 
 a few specially selected stocks among the 
 other classes. 
 
 In every instance, when you make a selec- 
 tion, you should consider the company's as- 
 sets, present earnings, and prospective fu- 
 ture earnings, and then take into considera- 
 tion all the influences that affect price move- 
 ments, as explained in subsequent Chapters. 
 
CHAPTER VI. 
 WHAT STOCKS NOT TO BUY 
 
 A great deal more can be said about stocks 
 you should not buy than about stocks you 
 should buy, because the list is very much 
 larger. 
 
 Stocks not listed on the New York Stock 
 Exchange, as a rule, should not be bought 
 by a careful speculator, but as stated in the 
 previous chapter, there are exceptions to that 
 rule. Billions of dollars have been lost in 
 the past by buying stocks that have become 
 worthless. A few years ago a list of de- 
 funct securities was compiled, and it took 
 two large volumes in which to enumerate 
 them. New ones have been added to them 
 every year. Therefore, it is very important 
 that you should give careful thought to the 
 subject of what stocks not to buy. 
 
 Nearly all promotion stocks (stocks in new 
 companies) are a failure. An extremely 
 email percentage of them are very success- 
 ful, and the successful ones are referred to 
 in the advertising of the new ones; but, on 
 the basis of average, the chances are you will 
 
26 SUCCESSFUL STOCK SPECULATION 
 
 lose your money entirely in promotion stocks. 
 We believe that most of the promotion com- 
 panies are started in perfectly good faith, 
 although some of them are swindles from the 
 beginning; but no matter how honest and 
 well meaning the organizers are, the chances 
 of success are against them. Therefore, we 
 say that promotion stocks should not be 
 bought by the ordinary man who is looking 
 for a good speculation, because his chances 
 of making a large profit with a minimum 
 risk are very much better when he buys 
 stocks listed on the New York Stock Ex- 
 change and uses good judgment in doing so. 
 
 Among the listed stocks there are many 
 you should not buy. First of all, eliminate 
 them by classes. Do not buy the classes of 
 stocks that are selling too high now. You 
 may say that there are some exceptions in 
 all classes. That may or may not be so, but 
 in any event, you have a better chance of 
 profiting by confining most of your purchases 
 to the classes of stocks that are in the most 
 favorable position. 
 
 As a rule, when stocks are first listed, they 
 sell much higher than they do a short time 
 afterwards. Of course, that is not always 
 
SUCCESSFUL STOCK SPECULATION 27 
 
 true. It is more likely to be true when a 
 stock is listed during a very active market, 
 when prices are more easily influenced by 
 publicity. The high price of it is usually 
 due to the fact that publicity is given to it, 
 and as soon as the effect of this publicity 
 wears off, the market price of the stock de- 
 clines. 
 
 It is a good rule never to buy stocks that 
 brokers urge you to buy. Your own common 
 sense ought to tell you that a stock that is 
 advertised extensively by brokers is likely 
 to sell up in price while the advertising is 
 going on and will drop in price just as soon 
 as the advertising stops. 
 
 Many people notice that and they think 
 they can profit by buying when the advertis- 
 ing starts and sell out when they get a good 
 profit, but the majority of them lose money. 
 The stock may not respond to the advertising, 
 or if it does go up, they may wait too long 
 before selling. Those who do sell and 
 make 200% or 300% profit in a very short 
 time are almost sure to lose it all in an effort 
 to repeat the transaction. Many of those 
 who read this know it is true from their own 
 experience. 
 
28 SUCCESSFUL STOCK SPECULATION 
 
 You should leave such stocks strictly alone. 
 You may win once or twice, but you are sure 
 to lose if you keep it up. As a rule stocks 
 of this kind have very little value and the 
 brokers who boost them make their own 
 money from the losses of their foolish fol- 
 lowers. 
 
CHAPTER VII. 
 WHEN TO BUY STOCKS 
 
 Stocks should be bought when they are 
 cheap. By being cheap, we mean that the 
 market price is much less than the intrinsic 
 value. In Chapters X. to XV. we talk about 
 influences that affect the price movements 
 of stocks. By studying these carefully you 
 should be able to decide when stocks gen- 
 erally are cheap. Of course, not all stocks 
 are cheap at the same time, but the majority 
 of listed stocks do go up and down at the 
 same time, as a rule. 
 
 At the time of this writing (in the early 
 part of April, 1922) there are a great many 
 stocks listed on the New York Stock Ex- 
 change that are selling at prices much less 
 than their intrinsic values, but there are some 
 stocks that should not be bought now, nor 
 at any other time. There are some stocks 
 listed on the New York Stock Exchange now 
 that perhaps have no intrinsic value and 
 never will have any. Nevertheless we con- 
 
30 SUCCESSFUL STOCK SPECULATION 
 
 sider that right now* is one of the times for 
 buying stocks. There are unusual bargains 
 to be had, although keen discrimination is 
 necessary in order to be able to pick out the 
 bargains. 
 
 As a usual thing, it is a good time to buy 
 stocks when nearly everybody wants to sell 
 them. When general business conditions are 
 bad, trading on the stock exchanges very 
 light, and everybody you meet appears to be 
 pessimistic, then we advise you to look for 
 bargains in stocks. The last six months of 
 1921 was an unusually good time for buying 
 stocks. 
 
 It is well known that the large interests 
 accumulate stocks at such times. They buy 
 only when the stocks are offered at a low 
 price and try not to buy enough at any one 
 time to give an appearance of activity in 
 the market, but they buy continually when 
 the market is very dull. It seems to be char- 
 acteristic of human nature to think that bus- 
 iness conditions are going to continue just 
 as they are. When business is bad, nearly 
 
 *In our advisory Letter of April 25, 1922, we advised our 
 clients to refrain from margin buying for a while, because the 
 market was advancing too rapidly. Shortly after that there 
 v/as a decided reaction in the market. 
 
SUCCESSFUL STOCK SPECULATION 31 
 
 everybody thinks business will be bad for a 
 long time, and when business is good, nearly 
 everybody thinks business will be good al- 
 most indefinitely. As a matter of fact, con- 
 ditions are always changing. It never is pos- 
 sible for either extremely good times nor for 
 extremely bad times to continue indefinitely. 
 You can buy stocks cheaper when there is 
 very little demand for them, and you should 
 arrange your affairs so as to be prepared to 
 buy at such times. 
 
CHAPTER VIII. 
 WHEN NOT TO BUY STOCKS 
 
 There are times when stocks should not 
 be bought, and that is when nearly all stocks 
 have advanced beyond their real values. It 
 is doubtful if there ever is a time when all 
 stocks have advanced beyond their real val- 
 ues, but when the great majority of stocks 
 have so advanced, there is likely to be a gen- 
 eral decline in all stock prices. The stocks 
 that are not selling too high will decline some 
 in sympathy with the others. Therefore, 
 there are times when we advise our clients 
 not to buy any stocks. 
 
 Some organizations giving advice in regard 
 to the buying of stocks, advise their clients 
 to refrain entirely from buying for periods 
 of a year or longer, but we think it is seldom 
 advisable to refrain entirely from buying for 
 any great length of time. There usually are 
 some good opportunities if you watch care- 
 fully for them. It is our business to watch 
 for these opportunities and tell our clients 
 about them. 
 
34 SUCCESSFUL STOCK SPECULATION 
 
 There are also times when the technical 
 condition of the market is such that we ad- 
 vise our clients to refrain from buying for 
 a while. See Chapter XIV. 
 
CHAPTER IX. 
 WHEN TO SELL STOCKS 
 
 You should sell stocks when the market 
 price is too high. That is a general rule, but 
 it is necessary for you to study all the in- 
 fluences affecting stock prices to be able to 
 decide more accurately when you should sell 
 your stocks. We give you, in future chap- 
 ters, much more information on judging the 
 markets. 
 
 Another general rule, is to sell stocks when 
 nearly everybody is buying them. It is a 
 well known fact that the great majority of 
 people buy stocks near the top and sell near 
 the bottom. Naturally when everybody is 
 optimistic, stocks will sell up high, but sooner 
 or later they will come down again, and when 
 everything looks very promising is a good 
 time to sell. It is better to lose a little of the 
 profit that you might have made by holding 
 on longer than not to be on the safe side. 
 The man who trys to sell at the top nearly 
 always loses, because stocks seldom sell as 
 high as it is predicted they will, or, in other 
 
36 SUCCESSFUL STOCK SPECULATION 
 
 words, the prediction of higher prices is ad- 
 vanced more rapidly than the prices. 
 
 We remember reading in 1916, when U. S. 
 Steel sold up around $136 a share, a predic- 
 tion that it was going to sell up to $1000 a 
 share. Probably many people who read such 
 news items consider them seriously. Of 
 course, that was a most exaggerated predic- 
 tion, but during the extreme activity of a 
 bull market, it seems that nearly everybody 
 is talking in exaggerated terms of optimism. 
 That is why most traders seldom ever take 
 their profits in a bull market. They wait 
 until stock prices start to come down, and 
 then they are likely to think there will be 
 rallies, and keep on waiting until they lose 
 all their profits. 
 
 On the other hand, some people make the 
 mistake of selling too soon. Just because 
 your purchase shows a liberal profit is no 
 reason why you should sell. The stock may 
 have been very cheap when you bought it. 
 In 1920, Peoples Gas sold below $30. Those 
 who bought it then were able to double their 
 money by the close of 1921, and many sold 
 out and took their profits. Of course, if they 
 invested the proceeds in other stocks that 
 
SUCCESSFUL STOCK SPECULATION 37 
 
 were just starting upward, they may not 
 have lost anything, but there was no partic- 
 ular reason for selling Peoples Gas at that 
 time. The public utilities generally were 
 coming into their own, and nearly all of them 
 were regarded by economic students as hav- 
 ing unusual opportunities for profit. 
 
 Then again, it is not always a mistake to 
 sell a stock in order to get funds to put into 
 something else that seems more promising, 
 even though the stock you sell is likely to 
 go much higher. 
 
 It is very important that you should try 
 to sell your stocks at the right time. That 
 is the main thing to keep in mind and it is 
 better to sell too soon than too late. Don't 
 be too greedy and hold on for a big profit. 
 Read Chapter XXIV. on the "Possibilities 
 of Profit." 
 

 PART THREE 
 
 INFLUENCES AFFECTING 
 STOCK PRICES 
 
CHAPTER X. 
 MOVEMENTS IN STOCK PRICES 
 
 It is due to the fact that stock prices con- 
 stantly move up or down that speculation is 
 possible. Sometimes certain stocks remain 
 almost at a standstill for a long period of 
 time, but at least a part of the stocks listed 
 on the Exchanges move either up or down. 
 If one always could tell just what way they 
 were going to move, it would be compara- 
 tively easy to make a fortune within a short 
 time. 
 
 In the last twenty years, a great deal of 
 time and money has been spent by statistical 
 organizations in checking up statistics for 
 the purpose of ascertaining a definite basis 
 upon which to predict future movements in 
 stock prices. Several of these organizations 
 use very different statistics upon which to 
 base their conclusions, and yet their conclu- 
 sions are very similar. They have proved 
 beyond any question of doubt that some of 
 these movements are clearly indicated by 
 laws that never fail. 
 
42 SUCCESSFUL STOCK SPECULATION 
 
 We do not attempt in this book to explain 
 the fundamental statistics upon which the 
 predictions of business cycles are based, but 
 in the next five chapters we explain some 
 of the influences that affect the movements 
 in stock prices. Read these chapters very 
 carefully, for your success in stock specu- 
 lation will depend very largely upon your 
 correct prediction of these movements. 
 
CHAPTER XL 
 MAJOR MOVEMENTS IN PRICES 
 
 Stock prices move up and down in cycles. 
 These are the major movements in prices, 
 but there may be many minor movements up 
 and down within the major movements. These 
 stock price movements nearly always pre- 
 cede a change in business conditions; that 
 is, an upward movement in stock prices is 
 an indication that business conditions are 
 going to improve, and a downward move- 
 ment in stock prices is an indication that 
 business conditions are going to get worse. 
 
 At the present writing, we are in a period 
 of improvement. Stock prices began to go 
 up in August, 1921. The upward movement 
 has been slow, but gradual. In a period of 
 seven months, forty representative stocks 
 show an upward movement of about 20 
 points, although business has not shown 
 much improvement. A steady upward move- 
 ment in stock prices is a sure sign that bus- 
 iness conditions are beginning to improve, 
 even though that improvement is not 
 noticeable. 
 
44 SUCCESSFUL STOCK SPECULATION 
 
 These major stock movements are not an 
 exact duplicate of any previous ones, and it 
 is impossible to tell how long they will last 
 or just what course they will take. Certain 
 influences could change a period of improve- 
 ment into a period of prosperity very quickly. 
 
 A period of prosperity is noted for high 
 prices, high wages, and increasing produc- 
 tion in all lines. Everybody is optimistic. 
 Most people spend their money freely, and 
 that makes times better. As prices go up 
 and business increases, more money is re- 
 quired in business and interest rates go up. 
 As a consequence, when interest rates go up, 
 bond prices go down. During this period, 
 speculative stocks are selling at their highest 
 prices; and under the influence of this move- 
 ment, many stocks that have no actual value 
 sell up at high prices. Of course, wise spec- 
 ulators sell all their stocks during this period. 
 
 Following a period of prosperity comes a 
 period of decline. The first sign of it usually 
 is a severe break in the stock market. At 
 that time general business is running along 
 at top speed and there is no sign of a let-up, 
 but this break in the stock market should 
 be a warning. Most people think the break 
 
SUCCESSFUL STOCK SPECULATION 45 
 
 is merely a temporary reaction they may 
 refer to it as a HEALTHY reaction and 
 they start buying stocks again, and put the 
 market up, but it does not go up as high as 
 it was before the break occurred. When 
 stock prices do not rally beyond the prices 
 at which they were before the break occurred, 
 it is a sign that the turning point has been 
 reached and that the bear market has started, 
 although the majority of people do not real- 
 ize this until a long time afterwards. 
 
 Next comes a period of depression, when 
 we have low prices, low wages, hard times, 
 tight money, and many commercial failures. 
 Many people who lost all their money dur- 
 ing the speculation period, become thrifty 
 and economize during the period of depres- 
 sion, and start in to save again. Nearly 
 everybody is pessimistic during this period. 
 Trading on the Stock Exchange is irregular 
 and as a rule very light. 
 
 This is the time to get stock bargains, 
 but the general public as a rule doesn't take 
 advantage of it. People are scared and think 
 prices will go still lower. The big interests 
 accumulate stocks during this period, and 
 sell them during the period of prosperity. 
 
CHAPTER XII. 
 
 THE MONEY MARKET AND STOCK 
 PRICES 
 
 Perhaps no other one thing influences the 
 movement of stock prices so much, in a large 
 way, as money conditions. It is impossible 
 to have a big bull market without plenty of 
 money. During a bull market nearly all stocks 
 are bought on margin, which is explained in 
 Chapter XVI. This makes it necessary for 
 brokers to borrow large sums of money. 
 When money is tight, it is impossible to get 
 enough to carry on a large movement in 
 stocks. 
 
 You will see, therefore, that the Federal 
 Reserve Bank has it in its power to regulate 
 the stock market to some extent. In 1919 
 speculation was carried very much further 
 than it should have been, but undoubtedly 
 it would have been much worse had the 
 Federal Reserve Bank not raised interest 
 rates and urged member banks to withdraw 
 money from Wall Street. While there was 
 
48 SUCCESSFUL STOCK SPECULATION 
 
 considerable criticism of that action, it cer- 
 tainly was a good thing for the entire 
 country. 
 
 In a period of depression, the banks ac- 
 cumulate money, and there always is an 
 abundance of money at the beginning of a 
 bull market. During a period of prosperity 
 the banks' reserves decrease and their loans 
 increase. When you see these reserves go 
 down to a very low point, it is usually time 
 for you to sell your stocks. 
 
CHAPTER XIII. 
 MINOR MOVEMENTS IN PRICES 
 
 Within the major movements of stock 
 prices, there always are several minor move- 
 ments, which are caused by various influ- 
 ences. One of the important causes is the 
 technical condition of the market. Another 
 cause might be called a psychological one. 
 When stocks are moving up steadily in a 
 bull market, people closely connected with 
 the market expect a reaction and watch for 
 it. The newspapers predict it. Consequently, 
 there is sufficient let-up in buying to allow 
 the pressure of selling by the bears to bring 
 it about. However, the desire to buy during 
 reactions is so general, many people rush in 
 to buy and this buying, in addition to the 
 covering by the shorts, puts the market up 
 again; and if conditions are favorable for a 
 bull market, prices will go up much higher 
 than they were before. 
 
 In like manner, we have rallies in bear 
 markets. Of course the professional bears 
 sell during these rallies, with the expecta- 
 tion of buying later at a cheaper price. 
 
50 SUCCESSFUL STOCK SPECULATION 
 
 These minor price changes mean more to 
 the majority of traders than the major move- 
 ments. The major movements are so slow 
 that people get out of patience, and yet those 
 who are guided only by the major movements 
 are operating on a much safer basis. We 
 believe that a greater amount of money can 
 be made, with a minimum risk, by being 
 guided principally by the major movements, 
 while taking advantage of the minor move- 
 ments in a minor way. However, stocks do 
 not move uniformly and there frequently is 
 an opportunity to buy some particular stock 
 at a bargain when nearly all stocks are sell- 
 ing too high. We try to pick out these 
 opportunities for our clients. 
 
 Reports of earnings by various companies 
 influence stock prices, as does also the pay- 
 ing of extra dividends or the passing up of 
 dividends. A peculiar psychological influence 
 is noticed when a company declares an extra 
 dividend. The price of the stock usually goes 
 up, while as a matter of fact the intrinsic 
 value of the stock is decreased by the amount 
 of this dividend; and sometimes it is advis- 
 able to sell a stock shortly after an advance 
 in its dividend rate. 
 
-,- 
 
 CHAPTER XIV. 
 TECHNICAL CONDITIONS 
 
 Technical conditions refer to the condi- 
 tions that usually affect the supply and de- 
 mand, such as short interests, floating sup- 
 ply, and stop loss orders. 
 
 It is sometimes said that supply and de- 
 mand must be equal or else there could not 
 be any sales, but that is not so. There are 
 always some people who are willing to sell 
 at some price above the market who will not 
 sell at the market ; and when the demand for 
 stock is greater than the supply, it goes up 
 until it is supplied by some of these people 
 who are holding it at a higher price. 
 
 It works the same way when the supply 
 is greater than the demand. There are al- 
 ways some people who will buy at some price 
 below the market. Therefore, when the sup- 
 ply is greater than the demand prices must 
 go down. 
 
 A stock may have an intrinsic value of 
 $100 a share and yet be selling at $50 a 
 share, and it can never sell higher than $50 
 
52 SUCCESSFUL STOCK SPECULATION 
 
 until all stock that is offered at that price 
 is bought. 
 
 However, you should keep this in mind : if 
 the real value is $100 a share, sooner or later 
 the market price will approach that figure. 
 That is why we so strongly urge our cli- 
 ents to buy stocks that have actual values, 
 or at least prospective values far greater 
 than their market prices, and either to buy 
 them outright or margin them very heavily, 
 and then hold them until the prices do go up. 
 
 Of course, when one finds that a mistake 
 has been made, the sooner one sells and takes 
 a loss the better. 
 
CHAPTER XV. 
 MANIPULATIONS 
 
 Stock prices are influenced largely by ma- 
 nipulation. Years ago when the volume of 
 trading on the New York Stock Exchange 
 was small compared with what it is today, 
 it was possible to influence the entire market 
 by manipulation, but it would be very diffi- 
 cult to do that today. It is only certain 
 stocks that are manipulated; but if condi- 
 tions are favorable, many other stocks may 
 be influenced by them. 
 
 There are different kinds of manipulation. 
 .One is for the insiders of a company to give 
 out unfavorable news about their company 
 if they want the price of the stock to go 
 down, so that they can buy it in; or to give 
 out very favorable news if they want the 
 price to go up, so that they can sell out. 
 This method is not practiced now to the ex- 
 tent that it was years ago. Public opinion 
 is strongly opposed to it, and we believe 
 business men are acquiring a higher stand- 
 ard of business ethics. Methods of this kind 
 are legal but they are morally reprehensible. 
 
54 SUCCESSFUL STOCK SPECULATION 
 
 Another method of manipulation is the 
 forming of pools to buy in the stock of a 
 company and force it up. If the market 
 price of a stock is far below its real 
 value, we believe it is justifiable for a pool 
 to force it up, but the ordinary pool is merely 
 a scheme to rob the public. 
 
 There are four periods to the operation 
 of such pools. First is the period of accum- 
 ulation. A number of large holders of stock 
 in a certain company will pool their stock, 
 all agreeing not to sell except from the pool, 
 in which all benefit proportionately. Then 
 they give out bad news about the company. 
 That is very easy to do, because financial 
 writers usually accept the news that is given 
 to them without much investigation, espec- 
 ially writers on daily papers, because they 
 have not the time to investigate. Their copy 
 must be ready in a few hours after they get 
 the information. See Chapter XXV. on 
 "Market Information" for fuller explanation 
 of the reason why financial news usually is 
 misleading. The manipulators of stock prices 
 can have financial news "made to order." 
 
 When the general public reads this news 
 and sees the stock going down, many of them 
 
SUCCESSFUL STOCK SPECULATION 55 
 
 get discouraged and sell. It is just the time 
 they should not sell, but it is a well known 
 fact that the majority of people do in the 
 stock market just what they should not do. 
 The more they sell the more the price goes 
 down, and the pool operators accumulate the 
 stock. 
 
 Having secured all the stock they want, 
 they give out good news and continue to buy 
 the stock until it starts to go up. The public 
 reads this favorable news, and seeing the 
 stock go up, will go into the market and buy, 
 which puts it up higher. All the time finan- 
 cial writers are supplying good news about 
 the stock and the public buys it. After they 
 have sold all of it, the public may still be 
 anxious for more, and the pool operators may 
 go short of the stock. Then they will begin 
 giving out bad news, so that they can buy 
 in stock at a lower price to cover their short 
 interests. 
 
 After that they have very little interest 
 in the market. If it is declining too fast, 
 they may support it occasionally by buying 
 some stock and giving out some favorable 
 news. That will make the market rally and 
 
56 SUCCESSFUL STOCK SPECULATION 
 
 they will sell out the newly acquired stock 
 near the top of the rally. 
 
 Manipulations of this kind appear to be 
 going on nearly all the time, and there does 
 not seem to be any limit to the number of 
 suckers who fall for them. But then, one 
 can't blame the public when you realize how 
 thoroughly unreliable is most of the market 
 information given to them. 
 
 Still another kind of manipulation is "one- 
 man" manipulation, where one man controls 
 companies, which are known as "one-man" 
 companies. Usually the directors of these 
 companies are friends or employees of his, 
 and in many instances he has their resigna- 
 tions in his possession, so that they must do 
 whatever he wants them to do. Owing to 
 the strict rules of the New York Stock Ex- 
 change, it is rather difficult for such manip- 
 ulations to be carried on there. But there 
 have been many of them on the New York 
 Curb. When the Curb was operating on the 
 street and was not under very much control, 
 manipulations of this kind were very 
 frequent. 
 
 As an example, suppose a man of this kind 
 has a mining company. When he wants the 
 
SUCCESSFUL STOCK SPECULATION 57 
 
 stock to go up, he sends the stockholders a 
 great deal of information about the work at 
 the mine, and perhaps sends them a telegram 
 when a new vein of rich ore is found. The 
 stockholders rush in to buy more stock, and 
 that puts the price up. Then he unloads 
 stock on them to the extent that they will 
 buy it. 
 
 In a day or two, the stock may drop back 
 to less than one half of what it was selling 
 at. If this "one-man" manipulator wants to 
 buy any stock, he will give out a little un- 
 favorable news, and he can get stock at his 
 own price. 
 
 After that the news is good or bad accord- 
 ing to whether the manipulator wants to buy 
 or sell, but as a rule he has an abundance of 
 stock that he wants to sell, and is continually 
 giving out good news. 
 
 A few years ago there was a man operat- 
 ing in New York who promoted several com- 
 panies and manipulated them in a large way. 
 He is out of business now, but the same thing 
 is still done in a smaller way. 
 
 It is our opinion that more money is lost 
 by the public in manipulated stocks than 
 in promotion stocks, and we read a great 
 
58 SUCCESSFUL STOCK SPECULATION 
 
 deal about the enormous losses in them. Pro- 
 motions that are failures may be perfectly 
 legitimate and conducted in the utmost good 
 faith, but manipulations are nearly always 
 for the purpose of swindling the public. How- 
 ever, the lure of them is so great many 
 people cannot withstand the temptations of 
 them even after they have been "trimmed" 
 several times. 
 
PART FOUR 
 
 TOPICS OF INTEREST TO 
 SPECULATORS 
 
CHAPTER XVI. 
 MARGINAL TRADING 
 
 Most people who trade in stocks buy on 
 margin. The ordinary minimum margin is 
 about 20% of the purchase price, because 
 banks usually lend about 80% of the market 
 value of stocks. 
 
 If you put up 20% of the purchase price 
 of your stocks with your broker, he has to 
 pay the other 80%, but he can do that by 
 borrowing that amount from his bank, and 
 putting up the stock as security. In this 
 way brokers are able to handle all the mar- 
 gin business that comes to them, as long as 
 money can be borrowed. Of course, there 
 are some stocks that are not accepted by 
 banks as collateral for loans, and you should 
 not expect your broker to sell such stocks 
 on margin. In fact, if he offers to do so, it 
 looks as though he were running a bucket 
 shop. See chapter XVIII. 
 
 Many people think that buying stocks on 
 margin is gambling and that people should 
 not do it for that reason, but buying on mar- 
 gin is done in all lines of business, although it 
 
62 SUCCESSFUL STOCK SPECULATION 
 
 may not be known under that name. If you 
 bought stock outright, but borrowed 80% of 
 the purchase price from your banker to com- 
 plete your payment for it and put up the 
 stock with him as security, you would be 
 buying on margin just the same. 
 
 In like manner, if you bought a home and 
 paid 20% with money you had and borrowed 
 the other 80% of the purchase price, you 
 would be buying a home on margin. The 
 principal difference is that when you buy 
 from a broker on margin, one of the condi- 
 tions of his contract is that he has the right 
 to sell your stock provided the market price 
 drops down to the amount that you owe on 
 the stock, whereas if you borrow money on 
 a home, it is usually for a certain specified 
 time and the lender cannot sell you out until 
 that time expires. However, in principle, 
 there is very little difference between the 
 two transactions. 
 
 Most margin traders do not put up suf- 
 ficient margin. If you put up only the mini- 
 mum margin, your broker has the right to 
 call on you for more margin if the price of 
 the stock declines at all. Unless you are 
 fully prepared at all times to put up an 
 
SUCCESSFUL STOCK SPECULATION 63 
 
 additional margin when called upon, you 
 should make smaller purchases and put up 
 a heavy margin when you buy. The amount 
 of margin depends upon the transaction, but 
 we advise from 30% to 50%, and at times 
 we advise not less than 50% margin on any 
 purchase. In fact there are times when 
 we advise not to buy stocks on margin at 
 all. 
 
 Those who wish to be entirely free from 
 worry should buy stocks when the prices 
 are very low, pay for them in full, get their 
 certificates, and put them away in a safe 
 deposit box. However, when stocks are low 
 the risk in buying on a liberal margin is 
 very small, and the possibilities of profit are 
 so much greater, we do not see any objec- 
 tion to taking advantage of this method of 
 trading. 
 
CHAPTER XVH. 
 SHORT SELLING 
 
 By short selling, we mean selling a stock 
 that you do not possess, with the intention 
 of buying it later. Short selling in general 
 business is very common, and we think noth- 
 ing of it. Manufacturers frequently sell 
 goods that are not yet made, to be delivered 
 at some future time. Selling stocks short 
 is a similar transaction, except that in a ma- 
 jority of cases delivery of the stock must 
 be made immediately. 
 
 However, your broker can attend to that 
 by borrowing the stock. As explained in the 
 preceding chapter, when the market is active 
 most of the trading is done on margin. Your 
 broker buys a stock for you, but as he has 
 to pay for it in full, it is customary for him 
 to take it to his bank and borrow money on it. 
 A bank usually lends about 80% of the mar- 
 ket value, but if some other broker wants to 
 borrow this stock, he will lend the full value 
 of it. If that particular stock is very scarce 
 and hard to get, the lender of the stock may 
 
66 SUCCESSFUL STOCK SPECULATION 
 
 get the use of the money without any in- 
 terest. 
 
 Therefore, there is an advantage to the 
 broker in lending stock, and for that reason 
 it is nearly always possible for a broker to 
 arrange delivery of stock for you if you 
 wish to sell short. When you instruct him 
 later on to buy the stock for you, lie will do 
 so and deliver it to the broker from whom he 
 borrowed it, who will return the money he 
 received for it. 
 
 When you sell stock short and the price 
 goes up, you will have to pay a higher price 
 for it. Therefore, to protect himself against 
 the possibility of losing, your broker demands 
 a payment from you just the same as you 
 pay margin when you buy stock. 
 
 Short selling is something that we do not 
 recommend very much to our clients. We 
 think it is not advisable to do any short sell- 
 ing as long as there are good opportunities 
 to make money by buying ; but when all bar- 
 gains disappear, as they do sometimes, you 
 must either sell short or else keep out of the 
 market entirely. At such times, there may 
 be many opportunities to make money by 
 short selling, and we do not consider that 
 
SUCCESSFUL STOCK SPECULATION 67 
 
 there is any reason why our clients should 
 not take advantage of them. 
 
 Of course, great care must be exercised 
 in selling stocks short. You might sell a 
 stock short because you know the market 
 price is 100% greater than its real value, 
 but it is possible for manipulators to force it 
 up a great deal higher; and if you are not 
 able to put up sufficient money with your 
 broker to protect him, he will buy at a high 
 price and you will lose the money you have 
 put up with him. In some instances, stocks 
 are cornered and the short interests are 
 forced to buy the stocks at prices that rep- 
 resent enormous losses. 
 
 It is a common thing to read about the 
 short interests in certain stocks. All stocks 
 that are sold short must be bought sooner or 
 later, and when that buying takes place, it 
 may affect the market very much. There- 
 fore, if it is known that there is a big short 
 interest in a certain stock, we should expect 
 the stock to sell at a higher price ; but some- 
 times the short interests break the market 
 and force the price down, especially when 
 general conditions are in their favor. 
 
CHAPTER XVIII. 
 BUCKET SHOPS 
 
 There has been so much publicity given 
 to bucket shops, nearly everybody is familiar 
 with the term. A broker runs a bucket shop 
 when he sells stock to his clients on margin 
 and either never buys the stock for their ac- 
 counts, or else sells it immediately after buy- 
 ing it. The bucket shop simply gets your 
 money on the supposition that you are more 
 likely to be wrong than to be right. Of 
 course, if you take the bucket shop's advice 
 you surely are likely to be wrong. Bucket 
 shops get their clients into the very specu- 
 lative stocks, where there is likely to be a 
 great deal of fluctuation in the price of the 
 stocks, which gives them frequent opportun- 
 ities to sell out their clients. 
 
 When the market is going down or when 
 there are many movements up and down in 
 the price of stocks, the bucket shops make 
 money rapidly, but occasionally there is a 
 long period when the market is working 
 against the bucket shops, and unless they 
 have a great deal of money they must fail. 
 
70 SUCCESSFUL STOCK SPECULATION 
 
 In August, 1921, Stock Exchange stocks 
 started to go up. The upward movement 
 was very slow but it was continual. Up to 
 the time of this writing, there has not been 
 a three-point reaction, except in a few stocks, 
 in all of that time. Without a fluctuating 
 market, the bucket shop has no chance to 
 clean out its customers. As a consequence, 
 the bucket shops began to fail in the early 
 part of 1922, and up to the present writing 
 (April, 1922) there have been more than fifty 
 of these failures. However, it is not likely 
 that all the bucket shops will be put out of 
 business. The more successful ones are 
 likely to "weather the storm." 
 
 Many laws have been enacted against buck- 
 et shops, and we believe some way will be 
 found to get rid of them at some future time ; 
 but we do not expect that to happen soon, 
 and we warn our readers not to get into their 
 hands, because if they do not get your money 
 away from you one way they are likely to 
 get it some other way. The man who runs 
 a bucket shop usually has no conscience, and 
 it certainly is an unfortunate thing for any- 
 one to get mixed up with such a man. 
 
CHAPTER XIX. 
 CHOOSING A BROKER 
 
 It is very important that you choose a 
 good broker. No matter how careful you are, 
 it is possible to make a mistake. However, 
 if you choose a broker who is a member of 
 the New York Stock Exchange, you have 
 eliminated a very large percentage of your 
 chances of getting a wrong broker. 
 
 Occasionally a member of the Stock Ex- 
 change fails and once in a while one is sus- 
 pended for running a bucket shop or being 
 connected with one, but these instances are 
 very rare compared with the number of bro- 
 kers who get into trouble who are not mem- 
 bers of the New York Stock Exchange. The 
 rules and regulations of the Stock Exchange 
 protect you to a great extent. 
 
 When you buy stock on margin, you leave 
 your money in the hands of a broker, and 
 you should know that he is responsible. No 
 matter who your broker is, you should get a 
 report on him. If you are a subscriber to 
 Bradstreet's or Dun's Agencies, get a report 
 from them. If you are not a subscriber to 
 
72 SUCCESSFUL STOCK SPECULATION 
 
 any mercantile agency, you perhaps have a 
 friend who can get a report for you, or your 
 bank may get one for you. Banks make a 
 practice of getting reports of this kind for 
 their clients. When asked to do so, we send 
 our clients the names of brokers who are 
 members of the New York Stock Exchange, 
 but we prefer not to recommend any broker. 
 Of course, we cannot guarantee that a broker 
 is all right. We simply use our best judg- 
 ment, but, as we said before, you eliminate 
 a large percentage of your chances of going 
 wrong when you trade with a broker who 
 is a member of the New York Stock Ex- 
 change, 
 
CHAPTER XX. 
 PUTS AND CALLS 
 
 A "put" is a negotiable contract giving the 
 holder the privilege to sell a specified num- 
 ber of shares of a certain stock to the maker 
 at a fixed price, within a specified time. A 
 "call" is the exact reverse. It is a negoti- 
 able contract giving the holder the privilege 
 to buy a specified number of shares of a cer- 
 tain stock from the maker at a fixed price, 
 within a specified time. The price fixed in 
 a put or call is set away from the market 
 price a certain number of points, depending 
 upon the stock and the condition of the mar- 
 ket. When the market is steady and not 
 fluctuating, the price fixed is frequently only 
 two points away, but in a more active mar- 
 ket it is considerably more. 
 
 For instance, at the present time, U. S. 
 Steel is selling at about 95, and you can buy 
 a call on it at 97 or a put at 93. That is by 
 paying a certain amount, which at present is 
 $137.50, you can have the privilege of buy- 
 ing 100 shares of U. S. Steel at 97, within 
 thirty days of the date of the purchase of 
 
74 SUCCESSFUL STOCK SPECULATION 
 
 your call. If Steel should go up to 101 you 
 could have your broker buy it at 97 and sell 
 it at the market, and you would make a 
 profit of four points, less the cost of your 
 call and commissions. 
 
 As a method of operating in the stock 
 market, we do not recommend the buying of 
 puts and calls. Professional speculators may 
 be able to use them to advantage sometimes, 
 but for the outsider, who is not in close touch 
 with the market, there is nothing about them 
 to recommend. 
 
 Here is one point : the people who sell puts 
 and calls fix the terms. If the market is 
 irregular, they will set the point of buying 
 or selling far away from the market price. 
 These people are shrewd traders and they 
 make the terms in their own favor. It is 
 generally said that nearly all the buyers of 
 puts and calls lose, and that is our opinion. 
 Therefore, we advise you to leave them alone. 
 
CHAPTER XXL 
 STOP LOSS ORDERS 
 
 A "stop-loss" is an order to your broker 
 to sell you out if the market sells down a 
 certain number of points. Many speculators 
 place stop loss orders only two points from 
 the market price. The idea is that when the 
 market starts to go down it is likely to con- 
 tinue going down, and by taking a two-point 
 loss you may save a much greater loss. It 
 also can be applied to a short sale, when you 
 give your broker instructions to buy in the 
 stock for you if it goes up a certain number 
 of points. 
 
 We read so much in the financial news 
 about stop-loss orders or merely stop orders, 
 which is the same thing, the average reader 
 is likely to get the idea that it is something 
 he must use for his own protection, but it 
 is our opinion that it is something that should 
 be used very seldom by those who trade along 
 the broad lines recommended by us. If your 
 purchases were made in stocks that were 
 very cheap, you should continue to hold them 
 in case of a reaction. If you bought them 
 
76 SUCCESSFUL STOCK SPECULATION 
 
 outright or on a substantial margin, you are 
 not in danger, and you should look upon your 
 loss merely as a paper loss. In the great 
 majority of cases, you will be a great deal 
 better off to hold on to your stocks than you 
 would be if you had a stop-loss order. 
 
 A large number of stop-loss orders is a 
 good thing for the short interests. Let us 
 take U. S. Steel again, as an example. Sup- 
 pose it is selling at 94 and it is believed 
 that there are a large number of stop-loss 
 orders at 92. The short interests may sell 
 the stock heavily and force it down to 92. 
 Then the brokers with stop-loss orders would 
 begin to sell ; that would force the price down 
 still lower, and the short interests could buy 
 in to cover at this lower price. 
 
 Therefore, we believe that stop-loss orders 
 are a bad thing and, as a rule, do not recom- 
 mend them. 
 
 There is one instance where a stop-loss 
 order can be used to advantage, and that is 
 near the top of a bull market. It is impos- 
 sible to tell when the market has reached the 
 top. If you sell out too soon, you may lose 
 a profit of several points. Of course, it is 
 better to do that than to take a chance of 
 
SUCCESSFUL STOCK SPECULATION 77 
 
 a large loss. In that case, you might instruct 
 your broker to place a stop-loss order at two 
 or more points below the market, and keep 
 moving it up as the market price moves up. 
 Then when the reaction does come, he will 
 sell you out and prevent you from losing a 
 large part of your profit. That is about the 
 only instance where we recommend a stop- 
 loss order, but we do recommend it to our 
 clients sometimes, although seldom. 
 
 If the stock you own is selling at more 
 than 100 we would suggest that you make 
 the stop loss order at least three points from 
 the market, but for stocks selling below 100, 
 a two-point stop-loss order might be used. 
 However, the number of points should be 
 decided upon in each particular case. In the 
 special instructions to our clients, we tell 
 them when we think they can use a stop- 
 loss order to advantage. 
 
PART FIVE 
 CONCLUDING CHAPTERS 
 
CHAPTER XXII. 
 THE DESIRE TO SPECULATE 
 
 It is said that the desire to speculate is 
 very strong in the American people. That 
 is why our country has made greater progress 
 than any other country in the world, because 
 progress is the result of speculation. We 
 are not referring merely to stock specula- 
 tions, but to the word in its broadest sense. 
 Every new undertaking is a speculation. 
 
 An inventor speculates on what he is going 
 to invent. Often such speculations result in 
 losses, because many inventors, or would-be- 
 inventors, never accomplish very much. They 
 spend their money, time, and efforts, and 
 probably live years in poverty, and then if 
 the invention is not profitable, they are heavy 
 losers. Many inventors spend the best years 
 cf their lives in poverty and never succeed. 
 We hear a great deal about some of those 
 who do succeed, but very little about those 
 who fail those whose speculations were un- 
 successful except when somebody accuses 
 them of being crooks because they solicited 
 
82 SUCCESSFUL STOCK SPECULATION 
 
 money for the promotion of their inventions 
 and did not succeed. 
 
 It is the same thing with every new busi- 
 ness. It is purely a speculation. It is a com- 
 mon saying that 95% of commercial under- 
 takings fail. We do not know that that 
 statement is correct, but there is no question 
 but that the number of failures is very great, 
 which shows the great risk in going into a 
 new undertaking. It is far greater than the 
 risk involved in stock speculating when it is 
 done in accordance with the advice given in 
 this book. 
 
 Yet, there would be no progress without 
 speculating of this kind. If those entering 
 a new business would make a careful study 
 of the venture before entering it, and would 
 exercise greater care and judgment in con- 
 ducting it, the number of failures would be 
 very much less. The same thing is true of 
 stock speculating. The failures in stock spec- 
 ualting are caused mainly by ignorance and 
 greediness. Many people who would be satis- 
 fied with a fair return on their money in a 
 business enterprise, think they ought to make 
 a 100% profit in a few weeks in stock 
 speculation. 
 
SUCCESSFUL STOCK SPECULATION 83 
 
 There is something about stock specula- 
 tion that appeals to the greediness and pure 
 gambling instincts of people. In the chapter 
 on Manipulation, we have told you how stock 
 prices are put up and down. Some outsider 
 accidentally buys one of these stocks just 
 before the price starts up. In thirty days 
 he has made several hundred per cent profit. 
 He does not realize that it was purely acci- 
 dental as far as he was concerned, and he 
 tries to do the same thing again, and loses 
 all of his profits and probably all of his capi- 
 tal as well. 
 
 A stock gambler (we use the word "gam- 
 bler" to refer to a man who operates ignor- 
 antly) is watching a large number of ex- 
 tremely speculative stocks and suddenly 
 notices one that takes a big jump in price. 
 Then he says to himself, "If I only had 
 bought that stock on a ten-point margin, I 
 would have made several hundred per cent 
 profit." He picks out another stock that 
 some one tells him is going to do equally 
 as well. He buys as much of it as he can and 
 puts up all the money he has as a margin, 
 but the price doesn't go up. Perhaps the 
 price goes down and he loses his margin ; but, 
 
84 SUCCESSFUL STOCK SPECULATION 
 
 it may remain almost stationary for a long 
 period, sometimes for a year or more, and 
 during all of this time, this man is worrying 
 for fear he will lose his money. If he does 
 not lose his money, it is tied up for a long 
 time where he cannot use it to take advant- 
 age of real opportunities that come his way. 
 
 It does not pay to take big risks. That is 
 true in stock speculating the same as in any 
 other undertaking. Most speculators are 
 keeping their minds all the time on the possi- 
 bilities of profit and not thinking about the 
 possibilities of losing. 
 
 If you want to be successful in stock spec- 
 ulating, there is one thing you must learn 
 to do, and that is never to think about the 
 big profits you might have made if you had 
 bought such and such a stock, because the 
 probabilities are you could not have afforded 
 to take the necessary risk in buying that 
 stock. 
 
 Of course, after it is all over, it may look 
 to you as though the buying of that stock 
 was a sure thing, but the buying of such 
 stocks is never a sure thing. The risk always 
 exists. There is an old saying, and we believe 
 a very true one, that a man who speculates 
 
SUCCESSFUL STOCK SPECULATION 85 
 
 with the idea of getting rich quickly loses all 
 his money quickly, but that the man who 
 speculates with the idea of making a fair 
 return on his money usually gets rich. 
 
 In our advice to our clients, we seldom 
 recommend highly speculative stocks, be- 
 cause we consider the avoidance of loss more 
 important than the making of profits. You 
 may object to that statement, because you 
 speculate to make profits, and not for the 
 purpose of avoiding losses. Nevertheless, if 
 you are careful in keeping your losses down 
 to a minimum, your profits are likely to be 
 very liberal. Any trader who trades for any 
 great length of time is likely to make large 
 profits sometimes, and yet the majority of 
 them have greater losses than profits. It is 
 said that more than 80% of all margin trad- 
 ers lose ; but we do not consider that an argu- 
 ment against trading on margin, because 
 these losses are mostly due to ignorar.ee, 
 greediness, and the taking of too great 
 chances. 
 
 Do not suppress your desire to speculate. 
 All progress would stop if people did not 
 speculate. But do not speculate in stocks 
 nor in anything else without any knowledge 
 
86 SUCCESSFUL STOCK SPECULATION 
 
 of what you are doing, and try to use as 
 much good judgment and care as possible in 
 all of your transactions. If you do not know 
 what to do, get advice from someone who is 
 supposed to know and who is not interested 
 in having you buy or sell. Stock speculating 
 with safety is possible for those who make 
 the effort to be guided by correct principles. 
 
CHAPTER XXIII. 
 TWO KINDS OF TRADERS 
 
 There are two kinds of stock traders. One 
 kind nearly always makes a profit, and the 
 other wins sometimes and loses other times, 
 but eventually loses all if he does not change 
 his methods. The first kind buys stocks on 
 liberal margin or outright and is not worried 
 when the market goes against him, because 
 he has good reasons for believing that prices 
 eventually will go up. If he does have to 
 take a loss occasionally, it is likely to be 
 small compared with his profits. The second 
 kind wants to make a big profit quickly, and 
 he buys stocks that he thinks are going to 
 make big gains in the near future, but his 
 selections are not based upon good judgment. 
 
 We might designate these two traders as 
 the careful trader and the reckless trader. 
 
 The careful trader tries to get good advice 
 on the markets and the values of stocks. If 
 the advice appears to him to be conservative, 
 he is guided by it ; but if the reckless trader 
 gets advice on stocks, he is not guided by it 
 if it is of a conservative nature. If he does 
 
88 SUCCESSFUL STOCK SPECULATION 
 
 take advice, it is likely to be from one of 
 those unreliable market tipsters who is very 
 emphatic in his statements about what the 
 market is going to do. The reckless trader 
 lets his greed and desire for large and quick 
 profits influence his judgment. 
 
 Once in a while one of these reckless trad- 
 ers realizes that he has made a great mis- 
 take, and he wants to change his attitude. 
 Usually he is holding several stocks that 
 show a big loss and he does not know what 
 to do with them. He reasons that they are 
 selling so low now they surely will sell higher 
 some time. Perhaps his reasoning is good 
 and perhaps it is not. The stocks may have 
 -no chance of going up for a very long time, 
 if at all, but even though they have a good 
 chance to go up later, it is better for him to 
 sell them now if he can put the money derived 
 from the sale into something else that has a 
 better chance to make a profit. 
 
 Our advice is never to hesitate to sell and 
 take a loss if you can put the proceeds 
 from the sale into something better rather 
 than leave it in the stock in which it is now. 
 It is not so much a question whether or not 
 the stock you are holding will go up, as it 
 
SUCCESSFUL STOCK SPECULATION 89 
 
 is whether or not you would buy that par- 
 ticular stock if you were just coming into 
 the market to make a purchase. Of course 
 there is a loss of commissions when you sell 
 a stock and buy something 1 else, and for that 
 reason we sometimes recommend holding a 
 stock when we would not recommend 
 buying it. 
 
 If you have been a reckless trader in the 
 past, the only thing for you to do is to 
 change your methods and try to become a 
 careful trader. It is much better to go to 
 the extreme in carefulness and be satisfied 
 with very small profits than to take great 
 risks. 
 
CHAPTER XXIV. 
 POSSIBILITIES OF PROFIT 
 
 What are the possibilities of profit in stock 
 speculation? That question is frequently 
 asked but it is difficult to answer. James R. 
 Keene is quoted as having said : "Many men 
 come to Wall Street to get rich ; they always 
 go broke. Others come to Wall Street to op- 
 erate intelligently for fair returns; they us- 
 ually get rich." 
 
 While it is true that nearly all stock trad- 
 ers who try to make unusually large profits 
 in a very short time in stock trading lose, yet 
 unusual profits can be made if you exercise 
 good judgment and have patience. 
 
 Roger W. Babson, in his book entitled, 
 "Business Barometers," speaks of the possi- 
 bilities of profit in language that would be 
 considered greatly exaggerated if used by a 
 promoter, and yet he is extremely conserva- 
 tive in his advice to traders. He advises 
 never to buy on margin, never to sell short, 
 and staying out of the market entirely, 
 neither buying or selling, for a great part 
 of the time. Here is a quotation from his 
 
92 SUCCESSFUL STOCK SPECULATION 
 
 book, which follows a detailed statement of 
 an investment of $2,500 over a period of fifty 
 years : 
 
 "The preceding example shows that $2,500 con- 
 servatively invested in a few standard stocks about 
 fifty years ago would today amount to over 
 $1,000,000. These are not only strictly investment 
 stocks, but are also stocks which have fluctuated 
 comparatively little in price. This, moreover was 
 possible by giving orders to buy or sell only once 
 in every three or four years. 
 
 "If other stocks which were not dividend payers 
 and which have shown greater fluctuations were 
 purchased, and advantage had been taken of the 
 intermediate fluctuations, the $2,500 would have 
 amounted to much larger figures. By intermediate 
 movements is not meant the weekly movements 
 which the ordinary professional operator notes, but 
 the broader movements extending over many months 
 and possibly a year or more. Nevertheless, these 
 broader intermediate movements should not be 
 noticed by a conservative investor, as it is possible 
 to correctly diagnose only the movements extending 
 over longer periods. Many brokers believe that it 
 is possible to discern also these intermediate move- 
 ments of six or eight months; and if so, the following 
 results would have been possible. 
 
 "$5,000 invested in 'St. PauF in 1870 would 
 
 amount to over $10,000,000 today. 
 "$5,000 invested in 'Union Pacific' in 1870 
 would amount to over $15,000,000 today. 
 "$5,000 invested in 'Central of New Jersey* 
 
 would amount to over $30,000,000 today. 
 "$5,000 invested in 'Northern Pacific* would 
 
 amount to over $50,000,000 today. 
 'These figures are not based on the supposition 
 that the investor was selling at the top of every 
 
SUCCESSFUL STOCK SPECULATION 93 
 
 rise or buying at the bottom of every decline, but 
 that the transactions were made at average 'high' 
 and average 'low 7 prices based upon the study of 
 technical conditions." 
 
 If such large profits can be made by fol- 
 lowing Babson's advice, of course larger 
 profits can be made by buying on conserva- 
 tive margin and by selling short when all 
 the conditions are in favor of it. 
 
 While there are possibilities of making 
 extremely large profits without taking great 
 risks, by those who are patient and exercise 
 good judgment, one should be satisfied with 
 a small profit, if it is the result of great care, 
 in an effort to eliminate risk. Of course, you 
 can afford to take a much greater risk with 
 a small part of your speculative fund than 
 you can with all of it. The less money you 
 have with which to speculate, the more care- 
 ful you should be. Some people cannot afford 
 to speculate at all. They should invest their 
 funds in good, safe investments, but this 
 book is written for speculators. 
 
 Careful stock speculation carried on regu- 
 larly over a period of years, we believe brings 
 larger returns than almost anything else, and 
 in the next chapter we tell you something 
 about where to get information to guide you. 
 
CHAPTER XXV. 
 MARKET INFORMATION 
 
 Where do you get your market informa- 
 tion? Perhaps most people get it from the 
 daily papers. When you look over the financial 
 news of one of the leading metropolitan pa- 
 pers and see how much there is of it, you can 
 get some idea of the enormous volume of 
 work necessary to get this matter ready for 
 the press in a few hours. There is no time to 
 confirm reports. It is necessary that many 
 of the articles be written from pure imagi- 
 nation, based on rumors. 
 
 Weekly and monthly periodicals can be 
 more accurate in their information, but even 
 they are not always dependable. Much of 
 the financial news published comes from 
 agencies that are not reliable. Read what 
 Henry Clews says about them: 
 
 "Principally among these caterers are the financial 
 news agencies and the morning Wall Street news 
 sheet, both specially devoted to the speculative inter- 
 ests that centre at the Stock Exchange. The object of 
 these agencies is a useful one; but the public have a 
 right to expect that when they subscribe for informa- 
 tion upon which immense transactions may be under- 
 taken, the utmost caution, scrutiny and fidelity 
 
96 SUCCESSFUL STOCK SPECULATION 
 
 should be exercised in the procurement and publica- 
 tion of the news. Anything that falls short of this 
 is something worse than bad service and bad faith 
 with subscribers; it is dishonest and mischievous. 
 And yet it cannot be denied that much of the so- 
 called news that reaches the public through these 
 instrumentalities must come under this condemnation. 
 The 'points,' the 'puffs,' the alarms and the canards, 
 put out expressly to deceive and mislead, find a wide 
 circulation through these mediums, with an ease 
 which admits of no possible justification. How far 
 these lapses are due to the haste inseparable from tne 
 compilation of news of such a character, how far to 
 a lack of proper sifting and caution, how far to less 
 culpable reasons I do not pretend to decide; but 
 this will be admitted by every observer, that the 
 circulation of pseudo news is the frequent cause 
 of incalculable losses. Nor is it alone in the matter 
 of circulating false information that these news ven- 
 ders are at fault. The habit of retailing 'points' 
 in the interest of cliques, the volunteering of advice 
 as to what people should buy and what they should 
 sell, the strong speculative bias that runs through 
 their editorial opinions, these things appear to most 
 people a revolting abuse of the true functions of 
 journalism." 
 
 Of course, every trader gets market letters 
 from one or more brokers. These are many 
 and varied in character. Some of them are 
 prepared with great care and give reliable 
 information, but you must remember that 
 a broker's market letter is published for the 
 purpose of getting business, and business is 
 created only by the customers' trading. 
 Therefore it is to the broker's interest to 
 
SUCCESSFUL STOCK SPECULATION 97 
 
 have his customers make many trades in- 
 stead of a few trades. In his book "Business 
 Barometers", Roger W. Babson reproduces a 
 letter written to him by the Manager of the 
 Customers' Room of a Stock Exchange 
 House. We consider this letter so important 
 to all traders, we are taking the liberty to 
 reproduce it here: 
 
 "Hearing on every hand about the fortunes made 
 in Wall Street, I decided, upon being graduated from 
 college, to devote myself to finance. With this end 
 in view, I secured a position with a first-class New 
 York Stock Exchange House, finally becoming the 
 'handshaker' for the firm; that is, 'manager* of the 
 customers' room. So I had an exceptional oppor- 
 tunity to size up the stock business. The chief 
 duties of the manager are to meet customers when 
 they visit the office, tell them how the market is 
 acting, the latest news from the news-tickers and 
 the gossip of the Street. But the real duties are 
 to get business for the house. Once a most peculiar 
 man came to the office. He was about forty-five 
 years of age, dressed in a faded cutaway coat, high- 
 water trousers, and an East Side low-crown derby 
 hat. In a high squeaky voice he said that he knew 
 our Milwaukee House and would like to open an ac- 
 count. Of course, we were all smiles, for here was 
 a new 'customer. 1 
 
 "One day while in Boston he called us up on the 
 long-distance telephone to make an inquiry about 
 the grain market. One of my assistants, desiring to 
 get a commission out of him, said 'We hear that 
 Southern Pacific is going up; you had better get 
 aboard.' He said 'All right; buy me a hundred at 
 the market.' The stock was bought, but he never 
 saw daylight on his purchase, for the market de- 
 
98 SUCCESSFUL STOCK SPECULATION 
 
 clined steadily afterward and by the time he got 
 back from Boston it showed a heavy loss. The man 
 who advised its purchase had no special knowledge 
 about the stock, but simply took a chance, know- 
 ing that the market had only two ways to go, and it 
 might go up, in which case, besides making twenty- 
 five dollars in commissions for the house, he would 
 be patted on the back for his good judgment. If the 
 market went down, as it did, he would still make 
 twenty-five dollars. 
 
 "I venture to say that 99% of the speculations 
 on the New York Stock Exchange are based on 
 such so-called 'tips'. The manager has got to get 
 the business to keep his position and salary, and this 
 can only be done by 'touting' people into the market. 
 So he draws on the 'dope' sheets of the professional 
 tipsters and his own feelings, and gives positive 
 information to the bleating lamb that the Standard 
 Oil is putting up St. Paul, or that certain influential 
 bankers are 'bulling' Union Pacific. The lamb buys 
 the stock, the broker gets the commission, and then 
 the lamb worries his heart out as he sees his one- 
 thousand-dollar margin jumping around in value. 
 Now it has increased to eleven hundred dollars, then 
 declined to nine hundred and fifty dollars, then nine 
 hundred dollars, eight hundred dollars, then back to 
 eight hundred and fifty dollars and then it takes the 
 'toboggan' to three hundred dollars upon which the 
 broker calls for margins, and sells the customer out 
 if they are not forthcoming, the whole speculation 
 being based on the manager's 'feeling' that stocks 
 ought to go up. 
 
 "Men of affairs who will not play poker at home, 
 and are shocked at the mention of faro and roulette, 
 which any old-timer will tell you are easier to beat 
 than the stock market, think they are using business 
 judgment when they try to make money on stock 
 market 'tips'. Anyone with common sense can see 
 that a 10% margin has no more chance in an active 
 market than a brush dam in a Johnstown flood. One 
 
SUCCESSFUL STOCK SPECULATION 99 
 
 of the causes for this kind of speculating on a mar- 
 gin is that a broker's commission is only 12 * cents 
 per share and it does not pay to do small-lot bus- 
 iness. The one-thousand-dollar margin would only 
 buy ten shares outright and net the broker but $1.25 
 for buying and $1.25 for selling, whereas that same 
 amount as margin on one hundred shares yields the 
 broker $12.50 each way besides interest on the bal- 
 ance, the net result being that for any given amount 
 of money a speculator on 10% margin multiplies his 
 profits by ten and his losses by ten over those that 
 would occur were he to buy the stock outright and 
 take it home. The broker on his side multiplies his 
 commission by ten over what he would receive were 
 he to do an investment business." 
 
 From the above letter you get an idea of 
 the attitude of an employee of the average 
 broker's office. He would not be considered 
 loyal to his employer if he had a different at- 
 titude. When an attitude like this influences 
 the broker's market letters, they are not 
 reliable. 
 
 You may ask whether there is any reliable 
 information about the market. Yes, there 
 is. There are several large organizations 
 that make a study of fundamental statistics 
 and statistics of different companies and give 
 information to their subscribers based upon 
 this knowledge. We believe that is the only 
 kind of information that is worth very much 
 to a trader, except the statistical information 
 the number of shares sold and the prices at 
 
100 SUCCESSFUL STOCK SPECULATION 
 
 which they are sold he gets from his daily 
 or weekly papers. Some of the principal or- 
 ganizations of this kind are as follows : 
 
 Standard Statistics Company, Inc. 
 Babson's Statistical Organization. 
 The Brookmire Economic Service. 
 Harvard Economic Service. 
 Poor's Investment Service. 
 Moody' s Investors Service. 
 Richard D. Wyckoff Analytical Staff. 
 
 The above are the principal organizations 
 of this kind. Subscriptions to their service 
 cost from $85 to $1000 a year. In addition 
 to these there are a few other organizations 
 besides our own and individuals giving a 
 somewhat similar service, but we know of 
 none that gives such a service at as low a 
 price as ours. 
 
 You should not confuse the service given 
 by the above organizations with that given 
 by many organizations and individuals who 
 attempt to tell you what the market is going 
 to do from day to day. In other words, they 
 give 'tips' on the market. There are a num- 
 ber who issue daily market letters of this 
 kind and charge from $10 to $25 a month 
 for their service, but it is a line of service 
 that we do not recommend at all, because we 
 consider that you would be taking a very 
 
SUCCESSFUL STOCK SPECULATION IQI 
 
 great risk if you followed advice of that kind. 
 You might make enormously large profits 
 occasionally, but you would also have fre- 
 quent losses, and when the losses did come 
 they might be greater than all the previous 
 profits. We want you to understand that 
 that kind of advice is entirely different from 
 what we are recommending. 
 
CHAPTER XXVI. 
 SUCCESSFUL SPECULATION 
 
 Success in stock speculation depends upon 
 a few things that are very simple. 
 
 ^^you know what to buy, when to buy, 
 and when to sell, and will act in accordance 
 with that knowledge, your success is assured. 
 You may think it is impossible to know these 
 things, but it is not so difficult as it is sup- 
 posed to be. 
 
 Many people buy stocks at the wrong time, 
 and most of those who do buy them at the 
 right time, buy the wrong stocks. Right now 
 (early in April, 1922) is buying time in the 
 stock market, and it is possible that this buy- 
 ing time may continue with some interrup- 
 tions for another year or two, or even 
 longer. 
 
 It is more difficult, however, to tell you 
 WHAT stocks to buy. First of all, we ad- 
 vise you against buying stocks that are put 
 up to high prices by manipulation. Of course, 
 if you get in one of those stocks right and 
 get out right, your profits are very large, 
 but you take a great risk, and those who win 
 
104 SUCCESSFUL STOCK SPECULATION 
 
 once or twice by this method are almost sure 
 to lose everything sooner or later in an ef- 
 fort to do the same thing again. Your 
 chances are not much better than if you 
 gambled at Monte Carlo. The chances in 
 buying manipulated stocks are invariably 
 against the outsider. 
 
 There always is so much publicity about 
 these very active speculative stocks that the 
 public is attracted towards them. News- 
 papers and brokers' market letters give al- 
 together too much space to them. Such 
 stocks sell far too high, and when the break 
 comes, it brings ruinous losses to many 
 people. 
 
 On the other hand, by following a con- 
 servative course, you really have a chance to 
 make large profits with a minimum risk. We 
 are giving below sixteen stocks that we rec- 
 ommended in our Advisory Letter of Febru- 
 ary 14th, 1922, with the approximate prices 
 of them then and the approximate prices on 
 March 31st.* In arriving at these prices, we 
 
 *We did not advise the sale of these stocks on March 31st, 
 but the author figured profits to that date because this book 
 was written shortly after that. If these stocks had been bought 
 on or about February 14th, on the margin basis suggested by 
 us, and sold six months later, the profit would have been more 
 than 60%, or 120% yearly. 
 
SUCCESSFUL STOCK SPECULATION 105 
 
 took the closing prices on February 13th and 
 on March 31st, and omitted the fractions. 
 We recommended only sixteen stocks on that 
 date, and you will see that every one of them 
 made substantial gains. 
 
 Approximate Approximate 
 
 Price Price 
 
 Stock Feb. 14, 1922 Mar. 31, 1922 Profit 
 
 C. R. I. & P. pfd (6) 75 79 4 
 
 C. R. I. & P. pfd (7) 88 93 6 
 
 New York Central 76 88 12 
 
 Pacific Gas & Electric 64 68 4 
 
 Consolidated Gas 90 109 19 
 
 American Telephone & 
 
 Telegraph 118 121 3 
 
 General Motors Deb. (6) 70 78 8 
 
 General Motors Deb. (7) 81 91 10 
 
 U. S. Steel 87 95 8 
 
 Dome Mines 23 26 3 
 
 Laclede Gas 50 63 13 
 
 Missouri Pacific Pfd 48 54 6 
 
 C. R. I. & P. Common 33 40 7 
 
 Am. Smel. & Refining 45 53 8 
 
 Anaconda 47 51 4 
 
 Erie Common 10 11 1 
 
 Total 1005 1120 115 
 
 Let us suppose you bought ten shares of 
 each of these stocks on February 14th. They 
 would have cost you $10,050. We recom- 
 mended 30% margin on the first ten, all of 
 which were dividend payers; and 50% mar- 
 gin on the last six, because they were more 
 speculative and would have been more af- 
 
106 SUCCESSFUL STOCK SPECULATION 
 
 fected by a reaction in the market. To buy 
 ten shares of each on that margin basis 
 would have required a little less than $3,500, 
 but let us suppose you put up $3,500. After 
 allowing for buying and selling commissions 
 and interest on the balance of $6,550, but 
 crediting you with dividends paid, your profit 
 would be about 32% or at the rate of about 
 250% per annum. 
 
 Of course, we do not claim that by fol- 
 lowing the conservative course we advise, 
 you always will make such large profits, al- 
 though you might do just as well as that 
 if you took advantage of some of the oppor- 
 tunities so frequently to be found in the mar- 
 ket; but keen discrimination in what you 
 buy always is necessary. However, let us 
 suppose you made annual profits of one-fifth 
 the above amount, or 50%, which is easily 
 possible without taking the risks that are 
 usually taken in stock speculating. If you 
 invested $1000 and made 50% profit per an- 
 num, reinvesting your profit at the same rate 
 each year for twenty years, you would have 
 more than THREE MILLION DOLLARS. 
 
 When there is a possibility of making such 
 enormous profits as that by following care- 
 
SUCCESSFUL STOCK SPECULATION 107 
 
 ful methods, surely there is no argument in 
 favor of taking the extreme risks that people 
 do take in buying the highly speculative 
 stocks, the prices of which are put up for 
 the purpose of unloading them on the public. 
 Ten of the stocks we selected in the above 
 list were dividend payers, and while the other 
 six were not, they were considered worth 
 much more than their market prices, and 
 the list as a whole was conceded by conserv- 
 ative people as a safe one to buy. 
 
 Very frequently we are able to recom- 
 mend a list of stocks that we believe will 
 yield equally large profits, but the stocks you 
 should buy are not the ones that are the 
 most active nor the ones that are mentioned 
 most frequently in the financial news and 
 brokers' market letters. The stocks that 
 most people buy are usually the very stocks 
 that should be left alone. The stocks you 
 should buy are usually the ones you hear 
 very little about. 
 
 There is only one SAFE way to speculate, 
 and that is to be guided by a knowledge of 
 the fundamental conditions of each stock and 
 also of the industries they represent. There 
 are several large organizations giving infor- 
 
108 SUCCESSFUL STOCK SPECULATION 
 
 mation of this kind, and those who have been 
 guided by the fundamental statistics issued 
 by them, almost invariably have made money 
 in stock speculating. The value of that kind 
 of service has been thoroughly demonstrated 
 beyond any question. However, a subscrip- 
 tion for the service of most of these organi- 
 zations costs more than the average person 
 can afford to pay. Usually it is anywhere 
 from $100 to $1,000 a year. 
 
 We are giving a service for the purpose of 
 guiding our clients to successful speculation 
 for a fee of only $25 a year, $15 for six 
 months, or $10 for three months. For this 
 fee we tell you what stocks to buy, when to 
 buy, and when to sell. We send you our 
 recommendations at least twice a month, but 
 send you additional Advisory Letters and lists 
 oftener if conditions make it necessary. You 
 also have the privilege of unlimited personal 
 correspondence regarding your market prob- 
 lems. The cost of our Service is very small, 
 compared with what other reliable organi- 
 zations charge. 
 
 Our Service is based on the principles ex- 
 pounded in this book. We try to select 
 stocks having the greatest possibilities of 
 
SUCCESSFUL STOCK SPECULATION 109 
 
 profit with minimum risk, and the sample 
 of our Service given in this Chapter is proof 
 of our success. 
 
 NATIONAL BUREAU OF FINANCIAL 
 INFORMATION 
 
 395 Broadway, New York City 
 
14 DAY USE 
 
 RETURN TO DESK FROM WHICH BORROWE1 
 
 LOAN DEPT. 
 
 This book is due on the last date^d below, or 
 f m ^imecMB.te recall. 
 
 
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