and pays commission would inevitably give all his money to his broker in the course of time.

The ordinary operator must always endeavor to get comparatively large profits. He should not buy unless he feels warranted in believing that the stock which he selects will go up four or five points, so that when he makes he will get double his loss when he loses. In trading for five or ten point turns, the operator at an interior city has one advantage. He does not hear the rumors and see sudden movements in prices which are the bane of the office trader.

Wall Street is often full of people to-day who have been long of the market for a month, but who have made little or no money, because they have been scared out by rumors and by small relapses. The man who does not see the mardis. ket escapes this. The greatest advantage resting upon the out of town operator is the fact that sometimes the market will change its character so rapidly as to convert a profit into a loss or establish a loss larger than he intended to take before he knows it. This, however, does not occur as frequently as most people seem to suppose.

It is rather exceptional for the market, having run several points in one direction, to reverse the movement suddenly and without considerable fluctuations near the turning points. Such cases do occur, but they are unusual. After a 5-point rise, a stock usually has a period during which fluctuations are narrow and which are maintained long enough to give the out-of-town trader plenty of time to get out if he dislikes the appearance of the trading. Stop orders are the special protection of the out-of-town

trader, who, if he will stick to stable stocks, can almost always cut his loss or save his profit at any spot where he deems wise.

The out-of-town trader wants to begin his campaign with a conviction that the stock which he buys is selling below its value. This should not only be a conviction, but a demonstrated conviction, which cannot be shaken if, at the outset, the price declines instead of advances. Having determined on his stock from the viewpoint of value, he should, if possible, wait about buying until the general market has had its normal setback from a high point.

If twenty active stocks have advanced 10 points, a normal setback would be four points, and then, in an extended period of rising prices, would be the time to make the initial purchase. The operator should then take in a great stock of patience. He will see other stocks go up

and his stock stand still. He will see and hear daily that something else is making riches for traders, but he must shut his ears to these statements, even if they are right as far as fluctuations go. He must just sit on his stock, which is intrinsically below its value, until the other people observe that it is selling too low and begin to buy it or manipulate it.

The tendency with most people holding a stock which does not move for a time is to sell the stock about as soon as it begins to move, through fear that it will again become dull. This is just the time not to sell, but, if anything, to buy more on the idea that other people have discovered that the price is below value. After the price has moved up two or three points, it is well to put in a stop

order perhaps two points back from the top and follow the rise in the stock with the stop order disregarding current reports and waiting until the price is either up to the value or until market conditions make taking a profit judicious, provided always that a sudden setback does not close out the transaction.

An out-of-town operator can do all this just as well as an office trader and in some respects better. Some of the large operators like to go away from the market and work from Newport or Saratoga or other distant points in order to look at the trading with an unbiased mind and without being unsettled by the rumors that always grow out of any special move. The outsider who will wisely study values and market conditions and then exercise patience enough for six men will be likely to make money in stocks.

CHAPTER XV.

*THE SHORT SIDE OF THE MARKET.

A correspondent writes: "You demonstrate that an operator in stocks ought to work on the short side of the market during about half of almost every decade. I feel some hesitation about selling property which I do not own. Will you not make it clear how the short side of the market is normal trading?"

It is quite true that in each of the past four decades it would have been wise to have worked on the short side at least half of the time. It is also true that the public as a whole does not like short selling. It is true that corners occur at long intervals and are destructive to those caught therein. But they occur so seldom as to make them a very remote danger. There is about one in ten years.

We have explained the principle of short selling many times, but will state the process once more. A customer X directs Broker A to sell short 100 shares of Union Pacific at par. Broker B buys it. A, not having the stock goes to Broker C, and borrows from him 100 shares of Union Pacific, giving as security $10,000 in cash. This stock is then delivered by A to B, who pays A $10,000 therefor. Matters then rest until Union Pacific advances or declines enough to make X wish to close his account, He then directs A to buy Union Pacific, say at 95, and A

*Dow's Theory.

gets the stock from Broker D. The stock thus obtained is delivered to C, who thereupon returns the money which he has had as security and $9,500 of the amount goes to D, leaving $500, less expenses, as the profit of X on the transaction.

While X is waiting to see what the market is going to do C has the use of A's $10,000, and under ordinary conditions, pays interest on this money. This interest is called the loaning rate on stocks and is usually a little below the current rate for loans on collateral.

The lower these rates are, compared with the rate for money, the more demand there is to borrow that particular stock, and the loaning rate is the point to be watched by those who may be short, to see whether the short interest is large or small.

In case the demand to borrow a certain stock is very large, the loaning rate will be quoted flat, which means in the case cited that C would get the use of A's $10,000 without paying any interest. If the demand for the stock should be still greater, A might have not only to give C the $10,000 without interest, but pay C a small premium in addition. When the loaning rate of a stock is quoted at 1-32 it means that C gets his $10,000 from A, without interest, and in addition a premium of $3.12 a day for each 100 shares, which has to be paid by X, who must also pay all dividends that may be declared on the stock.

In ordinary lines of business, selling short with the idea of borrowing for delivery would be impossible. In the stock market it is impracticable to sell distributed bonds or investment stocks short because such securities are held