Imágenes de páginas
PDF
EPUB

Where there is a great change in the value of a stock it will advance in a bear period. The market as a whole declined from 1881 to 1885, but in that period Manhattan, while participating in most of the market swings, went from the neighborhood of 30 to the neighborhood of par, because the increased earnings of the company increased value steadily and largely during that time.

The practical lesson is that a stock operator should not deal in stocks unless he thinks he knows their value, nor unless he can watch conditions so as to recognize changes ir value as they come along. He should then have at least a conviction as to what stocks are above their value and what are below their value at a given time. If the main tendency of the market is downward, he should sell stocks which he believes to be above their value when they are very strong, taking them in on the next general decline. In buying for a rally, he should invariably take the stocks that are below their value, selling them also when a moderate profit is shown.

When the market appears in a doubtful position it is sometimes wise to sell short a stock that is conspicuously above its value and buy a stock which is conspicuously below its value, believing that one will protect the other until the position of the general market becomes clear. It was formerly very popular for traders to be long of Northwest and short of St. Paul, usually with good results.

During the past year (1901-2) there have been operators who have aimed to be long of Manhattan and short of either Metropolitan or Brooklyn on the same line of rea

son. The general method of operating such an account is to trade for the difference; that is, supposing a transaction to have been started with the two stocks 10 points apart-the account is closed when they are, say, 15 points apart, assuring 5 points net profit. It is all, however, a part of the same general law. Stocks fluctuate together, but prices are controlled by values in the long run.

CHAPTER XVII.

*CONCERNING DISCRETIONARY ACCOUNTS.

A correspondent writes: "I inclose herewith a circular in which the sender asks me to give him a discretionary account promising large returns and claiming great success in past operations. A man in the market ought to be able to do better for me than I could do for myself at a distance. Is this party reliable, and do you consider his scheme safe?"

We get this letter in some form very often and have answered it many times, but it is difficult to make people see the truth. Outsiders want to make money and they believe that people in Wall Street know what the market is going to do, hence that the only question involved in discretionary accounts is the honesty of the men who run them.

The fact is that people in Wall Street, even those who get very near the center of large operations, do not know what the market is going to do with any regularity or certainty. The more they actually know, the less confident they become, and the large operators who try to make markets are, in most cases, the least confident of anybody because they know so well the variety and extent of the difficulties which may be encountered.

People who trade in stocks can set down as a fundamental proposition the fact that any man who claims to

*Dow's Theory.

know what the market is going to do any more than to say that he thinks this or that will occur as a result of certain specified conditions is unworthy of trust as a broker. Any man who claims that he can take discretionary accounts and habitually make money for his customers, is a fraud; first, because he knows when he makes such statements that he cannot do it regularly or with certainty, and, second, because if he could, he would surely trade for himself and would scorn working for % commission when he could just as well have the whole amount made.

The governors of the Stock Exchange will not permit a member of that body to advertise that he will take discretionary accounts, and any Stock Exchange member who stated that he was endeavoring to build up a business by discretionary trading for customers would lose caste with. his fellow-members. It would be considered that he was either lacking in honesty or in judgment.

We do not say that Stock Exchange houses never take a discretionary account. They sometimes do, but they take them unwillingly in very limited amounts, only for people with whom they have very confidential relations and who understand speculation sufficiently to expect losses and failures quite as frequently as profits. It is safe to say that Stock Exchange houses regard the acceptance of a discretionary account as a rather serious demand upon personal friendship, and this not because they do not wish to see their friends make money, but because they know too well that a discretionary account often means the loss of both money and friends.

When, therefore, men of little or no capital and little or no reputation advertise boldly in the Sunday papers that they desire discretionary accounts from strangers and will, for a commission of 1% per cent., guarantee profits ranging from 25 to 250 per cent. per annum, commission houses have but one word with which to describe the proposition and people of practical experience in Wall Street are amazed at the credulity of those who send their money to be placed in such accounts and who subsequently appear in the company of those who wail in the outer rooms of closed offices over the rascality which has robbed them of their hard earnings.

The head of a discretionary concern which was very prominent a year or two ago frequently said that if the United States Government would let his mails alone and deliver to him the money forwarded by his dupes he would ask no better occupation and no quicker road to wealth. Evidence presented in court has shown repeatedly that swindlers who have advertised to make money for the public in speculation have received thousands of letters containing money; that none of this money was ever invested in stocks; that the advertisers were not members of any exchange and did not even pretend to have any business other than receiving and keeping the bulk of the money entrusted to their care. A small amount of the money received was usually returned to senders as profits on alleged transactions.

This is substantially, we believe, the general practice. If a man sends $100 to one of the concerns, he is notified, after a little time, that he has made $10 and, a little

« AnteriorContinuar »