Think and Grow Rich chapter 2
WHEN Edwin C. Barnes climbed down from the freight train in Orange, N. J., more than thirty years ago, he may have resembled a tramp, but his thoughts were those of a king!
As he made his way from the railroad tracks to Thomas A. Edison’s office, his mind was at work. He saw himself standing in Edison’s presence. He heard himself asking Mr. Edison for an opportunity to carry out the one CONSUMING OBSESSION OF HIS LIFE, a BURNING DESIRE to become the business associate of the great inventor.
Barnes’ desire was not a hope! It was not a wish! It was a keen, pulsating DESIRE, which transcended everything else. It was DEFINITE.
The desire was not new when he approached Edison. It had been Barnes’ dominating desire for a long time. In the beginning, when the desire first appeared in his mind, it may have been, probably was, only a wish, but it was no mere wish when he appeared before Edison with it.
A few years later, Edwin C. Barnes again stood before Edison, in the same office where he first met the inventor. This time his DESIRE had been translated into reality. He was in business with Edison. The dominating DREAM OF HIS LIFE had become a reality. Today, people who know
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[paragraph continues] Barnes envy him, because of the “break” life yielded him. They see him in the days of his triumph, without taking the trouble to investigate the cause of his success.
Barnes succeeded because he chose a definite goal, placed all his energy, all his will power, all his effort, everything back of that goal. He did not become the partner of Edison the day he arrived. He was content to start in the most menial work, as long as it provided an opportunity to take even one step toward his cherished goal.
Five years passed before the chance he had been seeking made its appearance. During all those years not one ray of hope, not one promise of attainment of his DESIRE had been held out to him. To everyone, except himself, he appeared only another cog in the Edison business wheel, but in his own mind, HE WAS THE PARTNER OF EDISON EVERY MINUTE OF THE TIME, from the very day that he first went to work there.
It is a remarkable illustration of the power of a DEFINITE DESIRE. Barnes won his goal, because he wanted to be a business associate of Mr. Edison, more than he wanted anything else. He created a plan by which to attain that purpose. But he BURNED ALL BRIDGES BEHIND HIM. He stood by his DESIRE until it became the dominating obsession of his life–and–finally, a fact.
When he went to Orange, he did not say to himself, “I will try to induce Edison to give me a job of some sort.” He said, “I will see Edison, and put him on notice that I have come to go into business with him.”
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He did not say, “I will work there for a few months, and if I get no encouragement, I will quit and get a job somewhere else.” He did say, “I will start anywhere. I will do anything Edison tells me to do, but before I am through, I will be his associate.”
He did not say, “I will keep my eyes open for another opportunity, in case I fail to get what I want in the Edison organization.” He said, “There is but ONE thing in this world that I am determined to have, and that is a business association with Thomas A. Edison. I will burn all bridges behind me, and stake my ENTIRE FUTURE on my ability to get what I want.”
He left himself no possible way of retreat. He had to win or perish!
That is all there is to the Barnes story of success!
A long while ago, a great warrior faced a situation which made it necessary for him to make a decision which insured his success on the battlefield. He was about to send his armies against a powerful foe, whose men outnumbered his own. He loaded his soldiers into boats, sailed to the enemy’s country, unloaded soldiers and equipment, then gave the order to burn the ships that had carried them. Addressing his men before the first battle, he said, “You see the boats going up in smoke. That means that we cannot leave these shores alive unless we win! We now have no choice–we win–or we perish! They won.
Every person who wins in any undertaking must be willing to burn his ships and cut all sources of retreat. Only by so doing can one be sure of main-
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taming that state of mind known as a BURNING DESIRE TO WIN, essential to success.
The morning after the great Chicago fire, a group of merchants stood on State Street, looking at the smoking remains of what had been their stores. They went into a conference to decide if they would try to rebuild, or leave Chicago and start over in a more promising section of the country. They reached a decision–all except one–to leave Chicago.
The merchant who decided to stay and rebuild pointed a finger at the remains of his store, and said, “Gentlemen, on that very spot I will build the world’s greatest store, no matter how many times it may burn down.”
That was more than fifty years ago. The store was built. It stands there today, a towering monument to the power of that state of mind known as a BURNING DESIRE. The easy thing for Marshal Field to have done, would have been exactly what his fellow merchants did. When the going was hard, and the future looked dismal, they pulled up and went where the going seemed easier.
Mark well this difference between Marshal Field and the other merchants, because it is the same difference which distinguishes Edwin C. Barnes from thousands of other young men who have worked in the Edison organization. It is the same difference which distinguishes practically all who succeed from those who fail.
Every human being who reaches the age of understanding of the purpose of money, wishes for it. Wishing will not bring riches. But desiring riches with a state of mind that becomes an obsession, then
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planning definite ways and means to acquire riches, and backing those plans with persistence which does not recognize failure, will bring riches.
The method by which DESIRE for riches can be transmuted into its financial equivalent, consists of six definite, practical steps, viz:
First.
Fix in your mind the exact amount of money you desire. It is not sufficient merely to say “I want plenty of money.” Be definite as to the amount. (There is a psychological reason for definiteness which will be described in a subsequent chapter).
Second.
Determine exactly what you intend to give in return for the money you desire. (There is no such reality as “something for nothing.)
Third.
Establish a definite date when you intend to possess the money you desire.
Fourth.
Create a definite plan for carrying out your desire, and begin at once, whether you are ready or not, to put this plan into action.
Fifth.
Write out a clear, concise statement of the amount of money you intend to acquire, name the time limit for its acquisition, state what you intend to give in return for the money, and describe clearly the plan through which you intend to accumulate it.
Sixth.
Read your written statement aloud, twice daily, once just before retiring at night, and once after arising in the morning. AS YOU
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[paragraph continues] READ–SEE AND FEEL AND BELIEVE YOURSELF ALREADY IN POSSESSION OF THE MONEY.
It is important that you follow the instructions described in these six steps. It is especially important that you observe, and follow the instructions in the sixth paragraph. You may complain that it is impossible for you to “see yourself in possession of money” before you actually have it. Here is where a BURNING DESIRE will come to your aid. If you truly DESIRE money so keenly that your desire is an obsession, you will have no difficulty in convincing yourself that you will acquire it. The object is to want money, and to become so determined to have it that you CONVINCE yourself you will have it.
Only those who become “money conscious” ever accumulate great riches. “Money consciousness” means that the mind has become so thoroughly saturated with the DESIRE for money, that one can see one’s self already in possession of it.
To the uninitiated, who has not been schooled in the working principles of the human mind, these instructions may appear impractical. It may be helpful, to all who fail to recognize the soundness of the six steps, to know that the information they convey, was received from Andrew Carnegie, who began as an ordinary laborer in the steel mills, but managed, despite his humble beginning, to make these principles yield him a fortune of considerably more than one hundred million dollars.
It may be of further help to know that the six
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steps here recommended were carefully scrutinized by the late Thomas A. Edison, who placed his stamp of approval upon them as being, not only the steps essential for the accumulation of money, but necessary for the attainment of any definite goal.
The steps call for no “hard labor.” They call for no sacrifice. They do not require one to become ridiculous, or credulous. To apply them calls for no great amount of education. But the successful application of these six steps does call for sufficient imagination to enable one to see, and to understand, that accumulation of money cannot be left to chance, good fortune, and luck. One must realize that all who have accumulated great fortunes, first did a certain amount of dreaming, hoping, wishing, DESIRING, and PLANNING before they acquired money.
You may as well know, right here, that you can never have riches in great quantities, UNLESS you can work yourself into a white heat of DESIRE for money, and actually BELIEVE you will possess it.
You may as well know, also that every great leader, from the dawn of civilization down to the present, was a dreamer. Christianity is the greatest potential power in the world today, because its founder was an intense dreamer who had the vision and the imagination to see realities in their mental and spiritual form before they had been transmuted into physical form.
If you do not see great riches in your imagination, you will never see them in your bank balance.
Never, in the history of America has there been
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so great an opportunity for practical dreamers as now exists. The six year economic collapse has reduced all men, substantially, to the same level. A new race is about to be run. The stakes represent huge fortunes which will be accumulated within the next ten years. The rules of the race have changed, because we now live in a CHANGED WORLD that definitely favors the masses, those who had but little or no opportunity to win under the conditions existing during the depression, when fear paralyzed growth and development.
We who are in this race for riches, should be encouraged to know that this changed world in which we live is demanding new ideas, new ways of doing things, new leaders, new inventions, new methods of teaching, new methods of marketing, new books, new literature, new features for the radio, new ideas for moving pictures. Back of all this demand for new and better things, there is one quality which one must possess to win, and that is DEFINITENESS OF PURPOSE, the knowledge of what one wants, and a burning DESIRE to possess it.
The business depression marked the death of one age, and the birth of another. This changed world requires practical dreamers who can, and will put their dreams into action. The practical dreamers have always been, and always will be the pattern-makers of civilization.
We who desire to accumulate riches, should remember the real leaders of the world always have been men who harnessed, and put into practical use, the intangible, unseen forces of unborn opportunity, and have converted those forces, (or impulses
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of thought), into sky-scrapers, cities, factories, airplanes, automobiles, and every form of convenience that makes life more pleasant.
Tolerance, and an open mind are practical necessities of the dreamer of today. Those who are afraid of new ideas are doomed before they start. Never has there been a time more favorable to pioneers than the present. True, there is no wild and woolly west to be conquered, as in the days of the Covered Wagon; but there is a vast business, financial, and industrial world to be remoulded and redirected along new and better lines.
In planning to acquire your share of the riches, let no one influence you to scorn the dreamer. To win the big stakes in this changed world, you must catch the spirit of the great pioneers of the past, whose dreams have given to civilization all that it has of value, the spirit which serves as the life-blood of our own country–your opportunity and mine, to develop and market our talents.
Let us not forget, Columbus dreamed of an Unknown world, staked his life on the existence of such a world, and discovered it!
Copernicus, the great astronomer, dreamed of a multiplicity of worlds, and revealed them! No one denounced him as “impractical” after he had triumphed. Instead, the world worshipped at his shrine, thus proving once more that “SUCCESS REQUIRES NO APOLOGIES, FAILURE PERMITS NO ALIBIS.”
If the thing you wish to do is right, and you believe in it, go ahead and do it! Put your dream across, and never mind what “they” say if you meet
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with temporary defeat, for “they,” perhaps, do not know that EVERY FAILURE BRINGS WITH IT THE SEED OF AN EQUIVALENT SUCCESS.
Henry Ford, poor and uneducated, dreamed of a horseless carriage, went to work with what tools he possessed, without waiting for opportunity to favor him, and now evidence of his dream belts the entire earth. He has put more wheels into operation than any man who ever lived, because he was not afraid to back his dreams.
Thomas Edison dreamed of a lamp that could be operated by electricity, began where he stood to put his dream into action, and despite more than ten thousand failures, he stood by that dream until he made it a physical reality. Practical dreamers DO NOT QUIT!
Whelan dreamed of a chain of cigar stores, transformed his dream into action, and now the United Cigar Stores occupy the best corners in America.
Lincoln dreamed of freedom for the black slaves, put his dream into action, and barely missed living to see a united North and South translate his dream into reality.
The Wright brothers dreamed of a machine that would fly through the air. Now one may see evidence all over the world, that they dreamed soundly.
Marconi dreamed of a system for harnessing the intangible forces of the ether. Evidence that he did not dream in vain, may be found in every wireless and radio in the world. Moreover, Marconi’s dream brought the humblest cabin, and the most stately manor house side by side. It made the
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people of every nation on earth back-door neighbors. It gave the President of the United States a medium by which he may talk to all the people of America at one time, and on short notice. It may interest you to know that Marconi’s “friends” had him taken into custody, and examined in a psychopathic hospital, when he announced he had discovered a principle through which he could send messages through the air, without the aid of wires, or other direct physical means of communication. The dreamers of today fare better.
The world has become accustomed to new discoveries. Nay, it has shown a willingness to reward the dreamer who gives the world a new idea.
“The greatest achievement was, at first, and for a time, but a dream.”
“The oak sleeps in the acorn. The bird waits in the egg, and in the highest vision of the soul, a waking angel stirs. DREAMS ARE THE SEEDLINGS OF REALITY.”
Awake, arise, and assert yourself, you dreamers of the world. Your star is now in the ascendency. The world depression brought the opportunity you have been waiting for. It taught people humility, tolerance, and open-mindedness.
The world is filled with an abundance of OPPORTUNITY which the dreamers of the past never knew.
A BURNING DESIRE TO BE, AND TO DO is the starting point from which the dreamer must take off. Dreams are not born of indifference, laziness, or lack of ambition.
The world no longer scoffs at the dreamer, nor
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calls him impractical. If you think it does, take a trip to Tennessee, and witness what a dreamer President has done in the way of harnessing, and using the great water power of America. A score of years ago, such a dream would have seemed like madness.
You have been disappointed, you have undergone defeat during the depression, you have felt the great heart within you crushed until it bled. Take courage, for these experiences have tempered the spiritual metal of which you are made–they are assets of incomparable value.
Remember, too, that all who succeed in life get off to a bad start, and pass through many heartbreaking struggles before they “arrive.” The turning point in the lives of those who succeed, usually comes at the moment of some crisis, through which they are introduced to their “other selves.”
John Bunyan wrote the Pilgrim’s Progress, which is among the finest of all English literature, after he had been confined in prison and sorely punished, because of his views on the subject of religion.
O. Henry discovered the genius which slept within his brain, after he had met with great misfortune, and was confined in a prison cell, in Columbus, Ohio. Being FORCED, through misfortune, to become acquainted with his “other self,” and to use his IMAGINATION, he discovered himself to be a great author instead of a miserable criminal and outcast. Strange and varied are the ways of life, and stranger still are the ways of Infinite Intelligence, through which men are sometimes forced to undergo all sorts of punishment before discovering their
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own brains, and their own capacity to create useful ideas through imagination.
Edison, the world’s greatest inventor and scientist, was a “tramp” telegraph operator, he failed innumerable times before he was driven, finally, to the discovery of the genius which slept within his brain.
Charles Dickens began by pasting labels on blacking pots. The tragedy of his first love penetrated the depths of his soul, and converted him into one of the world’s truly great authors. That tragedy produced, first, David Copperfield, then a succession of other works that made this a richer and better world for all who read his books. Disappointment over love affairs, generally has the effect of driving men to drink, and women to ruin; and this, because most people never learn the art of transmuting their strongest emotions into dreams of a constructive nature.
Helen Keller became deaf, dumb, and blind shortly after birth. Despite her greatest misfortune, she has written her name indelibly in the pages of the history of the great. Her entire life has served as evidence that no one ever is defeated until defeat has been accepted as a reality.
Robert Burns was an illiterate country lad, he was cursed by poverty, and grew up to be a drunkard in the bargain. The world was made better for his having lived, because he clothed beautiful thoughts in poetry, and thereby plucked a thorn and planted a rose in its place.
Booker T. Washington was born in slavery, handicapped by race and color. Because he was tolerant, had an open mind at all times, on all subjects, and
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was a DREAMER, he left his impress for good on an entire race.
Beethoven was deaf, Milton was blind, but their names will last as long as time endures, because they dreamed and translated their dreams into organized thought.
Before passing to the next chapter, kindle anew in your mind the fire of hope, faith, courage, and tolerance. If you have these states of mind, and a working knowledge of the principles described, all else that you need will come to you, when you are READY for it. Let Emerson state the thought in these words, “Every proverb, every book, every byword that belongs to thee for aid and comfort shall surely come home through open or winding passages. Every friend whom not thy fantastic will, but the great and tender soul in thee craveth, shall lock thee in his embrace.”
There is a difference between WISHING for a thing and being READY to receive it. No one is ready for a thing, until he believes he can acquire it. The state of mind must be BELIEF, not mere hope or wish. Open-mindedness is essential for belief. Closed minds do not inspire faith, courage, and belief.
Remember, no more effort is required to aim high in life, to demand abundance and prosperity, than is required to accept misery and poverty. A great poet has correctly stated this universal truth through these lines:
“I bargained with Life for a penny,
And Life would pay no more, p. 52
However I begged at evening
When I counted my scanty store.
“For Life is a just employer,
He gives you what you ask,
But once you have set the wages,
Why, you must bear the task.
“I worked for a menial’s hire,
Only to learn, dismayed,
That any wage I had asked of Life,
Life would have willingly paid.”
DESIRE OUTWITS MOTHER NATURE
As a fitting climax to this chapter, I wish to introduce one of the most unusual persons I have ever known. I first saw him twenty-four years ago, a few minutes after he was born. He came into the world without any physical sign of ears, and the doctor admitted, when pressed for an opinion, that the child might be deaf, and mute for life.
I challenged the doctor’s opinion. I had the right to do so, I was the child’s father. I, too, reached a decision, and rendered an opinion, but I expressed the opinion silently, in the secrecy of my own heart. I decided that my son would hear and speak. Nature could send me a child without ears, but Nature could not induce me to accept the reality of the affliction.
In my own mind I knew that my son would hear and speak. How? I was sure there must be a way, and I knew I would find it. I thought of the words of the immortal Emerson, “The whole course of things goes to teach us faith. We need only obey.
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[paragraph continues] There is guidance for each of us, and by lowly listening, we shall hear the right word.”
The right word? DESIRE! More than anything else, I DESIRED that my son should not be a deaf mute. From that desire I never receded, not for a second.
Many years previously, I had written, “Our only limitations are those we set up in our own minds.” For the first time, I wondered if that statement were true. Lying on the bed in front of me was a newly born child, without the natural equipment of hearing. Even though he might hear and speak, he was obviously disfigured for life. Surely, this was a limitation which that child had not set up in his own mind.
What could I do about it? Somehow I would find a way to transplant into that child’s mind my own BURNING DESIRE for ways and means of conveying sound to his brain without the aid of ears.
As soon as the child was old enough to cooperate, I would fill his mind so completely with a BURNING DESIRE to hear, that Nature would, by methods of her own, translate it into physical reality.
All this thinking took place in my own mind, but I spoke of it to no one. Every day I renewed the pledge I had made to myself, not to accept a deaf mute for a son.
As he grew older, and began to take notice of things around him, we observed that he had a slight degree of hearing. When he reached the age when children usually begin talking, he made no attempt to speak, but we could tell by his actions that he could hear certain sounds slightly. That was all I
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wanted to know! I was convinced that if he could hear, even slightly, he might develop still greater hearing capacity. Then something happened which gave me hope. It came from an entirely unexpected source.
We bought a victrola. When the child heard the music for the first time, he went into ecstasies, and promptly appropriated the machine. He soon showed a preference for certain records, among them, “It’s a Long Way to Tipperary.” On one occasion, he played that piece over and over, for almost two hours, standing in front of the victrola, with his teeth clamped on the edge of the case. The significance of this self-formed habit of his did not become clear to us until years afterward, for we had never heard of the principle of “bone conduction” of sound at that time.
Shortly after he appropriated the victrola, I discovered that he could hear me quite clearly when I spoke with my lips touching his mastoid bone, or at the base of the brain. These discoveries placed in my possession the necessary media by which I began to translate into reality my Burning Desire to help my son develop hearing and speech. By that time he was making stabs at speaking certain words. The outlook was far from encouraging, but DESIRE BACKED BY FAITH knows no such word as impossible.
Having determined that he could hear the sound of my voice plainly, I began, immediately, to transfer to his mind the desire to hear and speak. I soon discovered that the child enjoyed bedtime stories, so I went to work, creating stories designed to develop
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in him self-reliance, imagination, and a keen desire to hear and to be normal.
There was one story in particular, which I emphasized by giving it some new and dramatic coloring each time it was told. It was designed to plant in his mind the thought that his affliction was not a liability, but an asset of great value. Despite the fact that all the philosophy I had examined clearly indicated that EVERY ADVERSITY BRINGS WITH IT THE SEED OF AN EQUIVALENT ADVANTAGE, I must confess that I had not the slightest idea how this affliction could ever become an asset. However, I continued my practice of wrapping that philosophy in bedtime stories, hoping the time would come when he would find some plan by which his handicap could be made to serve some useful purpose.
Reason told me plainly, that there was no adequate compensation for the lack of ears and natural hearing equipment. DESIRE backed by FAITH, pushed reason aside, and inspired me to carry on.
As I analyze the experience in retrospect, I can see now, that my son’s faith in me had much to do with the astounding results. He did not question anything I told him. I sold him the idea that he had a distinct advantage over his older brother, and that this advantage would reflect itself in many ways. For example, the teachers in school would observe that he had no ears, and, because of this, they would show him special attention and treat him with extraordinary kindness. They always did. His mother saw to that, by visiting the teachers and arranging with them to give the child the extra attention
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necessary. I sold him the idea, too, that when he became old enough to sell newspapers, (his older brother had already become a newspaper merchant), he would have a big advantage over his brother, for the reason that people would pay him extra money for his wares, because they could see that he was a bright, industrious boy, despite the fact he had no ears.
We could notice that, gradually, the child’s hearing was improving. Moreover, he had not the slightest tendency to be self-conscious, because of his affliction. When he was about seven, he showed the first evidence that our method of servicing his mind was bearing fruit. For several months he begged for the privilege of selling newspapers, but his mother would not give her consent. She was afraid that his deafness made it unsafe for him to go on the street alone.
Finally, he took matters in his own hands. One afternoon, when he was left at home with the servants, he climbed through the kitchen window, shinnied to the ground, and set out on his own. He borrowed six cents in capital from the neighborhood shoemaker, invested it in papers, sold out, reinvested, and kept repeating until late in the evening. After balancing his accounts, and paying back the six cents he had borrowed from his banker, he had a net profit of forty-two cents. When we got home that night, we found him in bed asleep, with the money tightly clenched in his hand.
His mother opened his hand, removed the coins, and cried. Of all things! Crying over her son’s first victory seemed so inappropriate. My reaction was
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the reverse. I laughed heartily, for I knew that my endeavor to plant in the child’s mind an attitude of faith in himself had been successful.
His mother saw, in his first business venture, a little deaf boy who had gone out in the streets and risked his life to earn money. I saw a brave, ambitious, self-reliant little business man whose stock in himself had been increased a hundred percent, because he had gone into business on his own initiative, and had won. The transaction pleased me, because I knew that he had given evidence of a trait of resourcefulness that would go with him all through life. Later events proved this to be true. When his older brother wanted something, he would lie down on the floor, kick his feet in the air, cry for it–and get it. When the “little deaf boy” wanted something, he would plan a way to earn the money, then buy it for himself. He still follows that plan!
Truly, my own son has taught me that handicaps can be converted into stepping stones on which one may climb toward some worthy goal, unless they are accepted as obstacles, and used as alibis.
The little deaf boy went through the grades, high school, and college without being able to hear his teachers, excepting when they shouted loudly, at close range. He did not go to a school for the deaf. WE WOULD NOT PERMIT HIM TO LEARN THE SIGN LANGUAGE. We were determined that he should live a normal life, and associate with normal children, and we stood by that decision, although it cost us many heated debates with school officials.
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While he was in high school, he tried an electrical hearing aid, but it was of no value to him; due, we believed, to a condition that was disclosed when the child was six, by Dr. J. Gordon Wilson, of Chicago, when he operated on one side of the boy’s head, and discovered that there was no sign of natural hearing equipment.
During his last week in college, (eighteen years after the operation), something happened which marked the most important turning-point of his life. Through what seemed to be mere chance, he came into possession of another electrical hearing device, which was sent to him on trial. He was slow about testing it, due to his disappointment with a similar device. Finally he picked the instrument up, and more or less carelessly, placed it on his head, hooked up the battery, and lo! as if by a stroke of magic, his lifelong DESIRE FOR NORMAL HEARING BECAME A REALITY! For the first time in his life he heard practically as well as any person with normal hearing. “God moves in mysterious ways, His wonders to perform.”
Overjoyed because of the Changed World which had been brought to him through his hearing device, he rushed to the telephone, called his mother, and heard her voice perfectly. The next day he plainly heard the voices of his professors in class, for the first time in his life! Previously he could hear them only when they shouted, at short range. He heard the radio. He heard the talking pictures. For the first time in his life, he could converse freely with other people, without the necessity of their having to speak loudly. Truly, he had come into possession
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of a Changed World. We had refused to accept Nature’s error, and, by PERSISTENT DESIRE, we had induced Nature to correct that error, through the only practical means available.
DESIRE had commenced to pay dividends, but the victory was not yet complete. The boy still had to find a definite and practical way to convert his handicap into an equivalent asset.
Hardly realizing the significance of what had already been accomplished, but intoxicated with the joy of his newly discovered world of sound, he wrote a letter to the manufacturer of the hearing-aid, enthusiastically describing his experience. Something in his letter; something, perhaps which was not written on the lines, but back of them; caused the company to invite him to New York. When he arrived, he was escorted through the factory, and while talking with the Chief Engineer, telling him about his changed world, a hunch, an idea, or an inspiration–call it what you wish–flashed into his mind. It was this impulse of thought which converted his affliction into an asset, destined to pay dividends in both money and happiness to thousands for all time to come.
The sum and substance of that impulse of thought was this: It occurred to him that he might be of help to the millions of deafened people who go through life without the benefit of hearing devices, if he could find a way to tell them the story of his Changed World. Then and there, he reached a decision to devote the remainder of his life to rendering useful service to the hard of hearing.
For an entire month, he carried on an intensive
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research, during which he analyzed the entire marketing system of the manufacturer of the hearing device, and created ways and means of communicating with the hard of hearing all over the world for the purpose of sharing with them his newly discovered “Changed World.” When this was done, he put in writing a two-year plan, based upon his findings. When he presented the plan to the company, he was instantly given a position, for the purpose of carrying out his ambition.
Little did he dream, when he went to work, that he was destined to bring hope and practical relief to thousands of deafened people who, without his help, would have been doomed forever to deaf mutism.
Shortly after he became associated with the manufacturer of his hearing aid, he invited me to attend a class conducted by his company, for the purpose of teaching deaf mutes to hear, and to speak. I had never heard of such a form of education, therefore I visited the class, skeptical but hopeful that my time would not be entirely wasted. Here I saw a demonstration which gave me a greatly enlarged vision of what I had done to arouse and keep alive in my son’s mind the DESIRE for normal hearing. I saw deaf mutes actually being taught to hear and to speak, through application of the self-same principle I had used, more than twenty years previously, in saving my son from deaf mutism.
Thus, through some strange turn of the Wheel of Fate, my son, Blair, and I have been destined to aid in correcting deaf mutism for those as yet unborn,
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because we are the only living human beings, as far as I know, who have established definitely the fact that deaf mutism can be corrected to the extent of restoring to normal life those who suffer with this affliction. It has been done for one; it will be done for others.
There is no doubt in my mind that Blair would have been a deaf mute all his life, if his mother and I had not managed to shape his mind as we did. The doctor who attended at his birth told us, confidentially, the child might never hear or speak. A few weeks ago, Dr. Irving Voorhees, a noted specialist on such cases, examined Blair very thoroughly. He was astounded when he learned how well my son now hears, and speaks, and said his examination indicated that “theoretically, the boy should not be able to hear at all.” But the lad does hear, despite the fact that X-ray pictures show there is no opening in the skull, whatsoever, from where his ears should be to the brain.
When I planted in his mind the DESIRE to hear and talk, and live as a normal person, there went with that impulse some strange influence which caused Nature to become bridge-builder, and span the gulf of silence between his brain and the outer world, by some means which the keenest medical specialists have not been able to interpret. It would be sacrilege for me to even conjecture as to how Nature performed this miracle. It would be unforgivable if I neglected to tell the world as much as I know of the humble part I assumed in the strange experience. It is my duty, and a privilege to say I believe, and not without reason, that nothing
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is impossible to the person who backs DESIRE with enduring FAITH.
Verily, a BURNING DESIRE has devious ways of transmuting itself into its physical equivalent. Blair DESIRED normal hearing; now he has it! He was born with a handicap which might easily have sent one with a less defined DESIRE to the street with a bundle of pencils and a tin cup. That handicap now promises to serve as the medium by which he will render useful service to many millions of hard of hearing, also, to give him useful employment at adequate financial compensation the remainder of his life.
The little “white lies” I planted in his mind when he was a child, by leading him to BELIEVE his affliction would become a great asset, which he could capitalize, has justified itself. Verily, there is nothing, right or wrong, which BELIEF, plus BURNING DESIRE, cannot make real. These qualities are free to everyone.
In all my experience in dealing with men and women who had personal problems, I never handled a single case which more definitely demonstrates the power of DESIRE. Authors sometimes make the mistake of writing of subjects of which they have but superficial, or very elementary knowledge. It has been my good fortune to have had the privilege of testing the soundness of the POWER OF DESIRE, through the affliction of my own son. Perhaps it was providential that the experience came as it did, for surely no one is better prepared than he, to serve as an example of what happens when DESIRE is put to the test. If Mother Nature bends to
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the will of desire, is it logical that mere men can defeat a burning desire?
Strange and imponderable is the power of the human mind! We do not understand the method by which it uses every circumstance, every individual, every physical thing within its reach, as a means of transmuting DESIRE into its physical counterpart. Perhaps science will uncover this secret.
I planted in my son’s mind the DESIRE to hear and to speak as any normal person hears and speaks. That DESIRE has now become a reality. I planted in his mind the DESIRE to convert his greatest handicap into his greatest asset. That DESIRE has been realized. The modus operandi by which this astounding result was achieved is not hard to describe. It consisted of three very definite facts; first, I MIXED FAITH with the DESIRE for normal hearing, which I passed on to my son. Second, I communicated my desire to him in every conceivable way available, through persistent, continuous effort, over a period of years. Third, HE BELIEVED ME!
As this chapter was being completed, news came of the death of Mme. Schuman-Heink. One short paragraph in the news dispatch gives the clue to this unusual woman’s stupendous success as a singer. I quote the paragraph, because the clue it contains is none other than DESIRE.
Early in her career, Mme. Schuman-Heink visited the director of the Vienna Court Opera, to have him test her voice. But, he did not test it. After taking one look at the awkward and poorly dressed
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girl, he exclaimed, none too gently, “With such a face, and with no personality at all, how can you ever expect to succeed in opera? My good child, give up the idea. Buy a sewing machine, and go to work. YOU CAN NEVER BE A SINGER.”
Never is a long time! The director of the Vienna Court Opera knew much about the technique of singing. He knew little about the power of desire, when it assumes the proportion of an obsession. If he had known more of that power, he would not have made the mistake of condemning genius without giving it an opportunity.
Several years ago, one of my business associates became ill. He became worse as time went on, and finally was taken to the hospital for an operation. Just before he was wheeled into the operating room, I took a look at him, and wondered how anyone as thin and emaciated as he, could possibly go through a major operation successfully. The doctor warned me that there was little if any chance of my ever seeing him alive again. But that was the DOCTOR’S OPINION. It was not the opinion of the patient. Just before he was wheeled away, he whispered feebly, “Do not be disturbed, Chief, I will be out of here in a few days.” The attending nurse looked at me with pity. But the patient did come through safely. After it was all over, his physician said, “Nothing but his own desire to live saved him. He never would have pulled through if he had not refused to accept the possibility of death.”
I believe in the power of DESIRE backed by FAITH, because I have seen this power lift men
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from lowly beginnings to places of power and wealth; I have seen it rob the grave of its victims; I have seen it serve as the medium by which men staged a comeback after having been defeated in a hundred different ways; I have seen it provide my own son with a normal, happy, successful life, despite Nature’s having sent him into the world without ears.
How can one harness and use the power of DESIRE? This has been answered through this, and the subsequent chapters of this book. This message is going out to the world at the end of the longest, and perhaps, the most devastating depression America has ever known. It is reasonable to presume that the message may come to the attention of many who have been wounded by the depression, those who have lost their fortunes, others who have lost their positions, and great numbers who must reorganize their plans and stage a comeback. To all these I wish to convey the thought that all achievement, no matter what may be its nature, or its purpose, must begin with an intense, BURNING DESIRE for something definite.
Through some strange and powerful principle of “mental chemistry” which she has never divulged, Nature wraps up in the impulse of STRONG DESIRE “that something” which recognizes no such word as impossible, and accepts no such reality as failure.
Think and Grow Rich chapter 1
THE MAN WHO “THOUGHT” HIS WAY INTO PARTNERSHIP WITH THOMAS A. EDISON
TRULY, “thoughts are things,” and powerful things at that, when they are mixed with definiteness of purpose, persistence, and a BURNING DESIRE for their translation into riches, or other material objects.
A little more than thirty years ago, Edwin C. Barnes discovered how true it is that men really do THINK AND GROW RICH. His discovery did not come about at one sitting. It came little by little, beginning with a BURNING DESIRE to become a business associate of the great Edison.
One of the chief characteristics of Barnes’ Desire was that it was definite. He wanted to work with Edison, not for him. Observe, carefully, the description of how he went about translating his DESIRE into reality, and you will have a better understanding of the thirteen principles which lead to riches.
When this DESIRE, or impulse of thought, first flashed into his mind he was in no position to act upon it. Two difficulties stood in his way. He did not know Mr. Edison, and he did not have enough money to pay his railroad fare to Orange, New Jersey.
These difficulties were sufficient to have discouraged
the majority of men from making any attempt to carry out the desire. But his was no ordinary desire! He was so determined to find a way to carry out his desire that he finally decided to travel by “blind baggage,” rather than be defeated. (To the uninitiated, this means that he went to East Orange on a freight train).
He presented himself at Mr. Edison’s laboratory, and announced he had come to go into business with the inventor. In speaking of the first meeting between Barnes and Edison, years later, Mr. Edison said, “He stood there before me, looking like an ordinary tramp, but there was something in the expression of his face which conveyed the impression that he was determined to get what he had come after. I had learned, from years of experience with men, that when a man really DESIRES a thing so deeply that he is willing to stake his entire future on a single turn of the wheel in order to get it, he is sure to win. I gave him the opportunity he asked for, because I saw he had made up his mind to stand by until he succeeded. Subsequent events proved that no mistake was made.”
Just what young Barnes said to Mr. Edison on that occasion was far less important than that which he thought. Edison, himself, said so! It could not have been the young man’s appearance which got him his start in the Edison office, for that was definitely against him. It was what he THOUGHT that counted.
If the significance of this statement could be conveyed to every person who reads it, there would be no need for the remainder of this book.
Barnes did not get his partnership with Edison on his first interview. He did get a chance to work in the Edison offices, at a very nominal wage, doing work that was unimportant to Edison, but most important to Barnes, because it gave him an opportunity to display his “merchandise” where his intended “partner” could see it.
Months went by. Apparently nothing happened to bring the coveted goal which Barnes had set up in his mind as his DEFINITE MAJOR PURPOSE. But something important was happening in Barnes’ mind. He was constantly intensifying his DESIRE to become the business associate of Edison.
Psychologists have correctly said that “when one is truly ready for a thing, it puts in its appearance.” Barnes was ready for a business association with Edison, moreover, he was DETERMINED TO REMAIN READY UNTIL HE GOT THAT WHICH HE WAS SEEKING.
He did not say to himself, “Ah well, what’s the use? I guess I’ll change my mind and try for a salesman’s job.” But, he did say, “I came here to go into business with Edison, and I’ll accomplish this end if it takes the remainder of my life.” He meant it! What a different story men would have to tell if only they would adopt a DEFINITE PURPOSE, and stand by that purpose until it had time to become an all-consuming obsession!
Maybe young Barnes did not know it at the time, but his bulldog determination, his persistence in standing back of a single DESIRE, was destined to mow down all opposition, and bring him the opportunity he was seeking.
When the opportunity came, it appeared in a different form, and from a different direction than Barnes had expected. That is one of the tricks of opportunity. It has a sly habit of slipping in by the back door, and often it comes disguised in the form of misfortune, or temporary defeat. Perhaps this is why so many fail to recognize opportunity.
Mr. Edison had just perfected a new office device, known at that time, as the Edison Dictating Machine (now the Ediphone). His salesmen were not enthusiastic over the machine. They did not believe it could be sold without great effort. Barnes saw his opportunity. It had crawled in quietly, hidden in a queer looking machine which interested no one but Barnes and the inventor.
Barnes knew he could sell the Edison Dictating Machine. He suggested this to Edison, and promptly got his chance. He did sell the machine. In fact, he sold it so successfully that Edison gave him a contract to distribute and market it all over the nation. Out of that business association grew the slogan, “Made by Edison and installed by Barnes.”
The business alliance has been in operation for more than thirty years. Out of it Barnes has made himself rich in money, but he has done something infinitely greater, he has proved that one really may “Think and Grow Rich.”
How much actual cash that original DESIRE of Barnes’ has been worth to him, I have no way of knowing. Perhaps it has brought him two or three million dollars, but the amount, whatever it is, becomes insignificant when compared with the greater asset he acquired in the form of definite knowledge that an intangible impulse of thought can be transmuted into its physical counterpart by the application of known principles.
Barnes literally thought himself into a partnership with the great Edison! He thought himself into a fortune. He had nothing to start with, except the capacity to KNOW WHAT HE WANTED, AND THE DETERMINATION TO STAND BY THAT DESIRE UNTIL HE REALIZED IT.
He had no money to begin with. He had but little education. He had no influence. But he did have initiative, faith, and the will to win. With these intangible forces he made himself number one man with the greatest inventor who ever lived.
Now, let us look at a different situation, and study a man who had plenty of tangible evidence of riches, but lost it, because he stopped three feet short of the goal he was seeking.
THREE FEET FROM GOLD
One of the most common causes of failure is the habit of quitting when one is overtaken by temporary defeat. Every person is guilty of this mistake at one time or another.
An uncle of R. U. Darby was caught by the “gold fever” in the gold-rush days, and went west to DIG AND GROW RICH. He had never heard that more gold has been mined from the brains of men than has ever been taken from the earth. He staked a claim and went to work with pick and shovel. The going was hard, but his lust for gold was definite.
After weeks of labor, he was rewarded by the
discovery of the shining ore. He needed machinery to bring the ore to the surface. Quietly, he covered up the mine, retraced his footsteps to his home in Williamsburg, Maryland, told his relatives and a few neighbors of the “strike.” They got together money for the needed machinery, had it shipped. The uncle and Darby went back to work the mine.
The first car of ore was mined, and shipped to a smelter. The returns proved they had one of the richest mines in Colorado! A few more cars of that ore would clear the debts. Then would come the big killing in profits.
Down went the drills! Up went the hopes of Darby and Uncle! Then something happened! The vein of gold ore disappeared! They had come to the end of the rainbow, and the pot of gold was no longer there! They drilled on, desperately trying to pick up the vein again–all to no avail.
Finally, they decided to QUIT.
They sold the machinery to a junk man for a few hundred dollars, and took the train back home. Some “junk” men are dumb, but not this one! He called in a mining engineer to look at the mine and do a little calculating. The engineer advised that the project had failed, because the owners were not familiar with “fault lines.” His calculations showed that the vein would be found JUST THREE FEET FROM WHERE THE DARBYS HAD STOPPED DRILLING! That is exactly where it was found!
The “Junk” man took millions of dollars in ore from the mine, because he knew enough to seek expert counsel before giving up.
Most of the money which went into the machinery
was procured through the efforts of R. U. Darby, who was then a very young man. The money came from his relatives and neighbors, because of their faith in him. He paid back every dollar of it, although he was years in doing so.
Long afterward, Mr. Darby recouped his loss many times over, when he made the discovery that DESIRE can be transmuted into gold. The discovery came after he went into the business of selling life insurance.
Remembering that he lost a huge fortune, because he STOPPED three feet from gold, Darby profited by the experience in his chosen work, by the simple method of saying to himself, “I stopped three feet from gold, but I will never stop because men say ‘no’ when I ask them to buy insurance.”
Darby is one of a small group of fewer than fifty men who sell more than a million dollars in life insurance annually. He owes his “stickability” to the lesson he learned from his “quitability” in the gold mining business.
Before success comes in any man’s life, he is sure to meet with much temporary defeat, and, perhaps, some failure. When defeat overtakes a man, the easiest and most logical thing to do is to QUIT. That is exactly what the majority of men do.
More than five hundred of the most successful men this country has ever known, told the author their greatest success came just one step beyond the point at which defeat had overtaken them. Failure is a trickster with a keen sense of irony and cunning. It takes great delight in tripping one when success is almost within reach.
A FIFTY CENT LESSON IN PERSISTENCE
Shortly after Mr. Darby received his degree from the “University of Hard Knocks,” and had decided to profit by his experience in the gold mining business, he had the good fortune to be present on an occasion that proved to him that “No” does not necessarily mean no.
One afternoon he was helping his uncle grind wheat in an old fashioned mill. The uncle operated a large farm on which a number of colored sharecrop farmers lived. Quietly, the door was opened, and a small child, the daughter of a tenant, walked in and took her place near the door.
The uncle looked up, saw the child, and barked at her roughly, “what do you want?”
Meekly, the child replied, “My mammy say send her fifty cents.”
“I’ll not do it,” the uncle retorted, “Now you run on home.”
“Yas sah,” the child replied. But she did not move.
The uncle went ahead with his work, so busily engaged that he did not pay enough attention to the child to observe that she did not leave. When he looked up and saw her still standing there, he yelled at her, “I told you to go on home! Now go, or I’ll take a switch to you.”
The little girl said “yas sah,” but she did not budge an inch.
The uncle dropped a sack of grain he was about to pour into the mill hopper, picked up a barrel stave, and started toward the child with an expression on his face that indicated trouble.
Darby held his breath. He was certain he was about to witness a murder. He knew his uncle had a fierce temper. When the uncle reached the spot where the child was standing, she quickly stepped forward one step, looked up into his eyes, and screamed at the top of her shrill voice, “MY MAMMY’S GOTTA HAVE THAT FIFTY CENTS!”
The uncle stopped, looked at her for a minute, then slowly laid the barrel stave on the floor, put his hand in his pocket, took out half a dollar, and gave it to her.
The child took the money and slowly backed toward the door, never taking her eyes off the man whom she had just conquered. After she had gone, the uncle sat down on a box and looked out the window into space for more than ten minutes. He was pondering, with awe, over the whipping he had just taken.
Mr. Darby, too, was doing some thinking. That was the first time in all his experience that he had seen a child deliberately master an adult. How did she do it. What happened to his uncle that caused him to lose his fierceness and become as docile as a lamb? What strange power did this child use that made her master over her superior? These and other similar questions flashed into Darby’s mind, but he did not find the answer until years later, when he told me the story.
Strangely, the story of this unusual experience was told to the author in the old mill, on the very spot where the uncle took his whipping. Strangely, too, I had devoted nearly a quarter of a century to the study of the power which enabled an ignorant, illiterate child to conquer an intelligent man.
As we stood there in that musty old mill, Mr. Darby repeated the story of the unusual conquest, and finished by asking, “What can you make of it? What strange power did that child use, that so completely whipped my uncle?”
The answer to his question will be found in the principles described in this book. The answer is full and complete. It contains details and instructions sufficient to enable anyone to understand, and apply the same force which the little child accidentally stumbled upon.
Keep your mind alert, and you will observe exactly what strange power came to the rescue of the child, you will catch a glimpse of this power in the next chapter. Somewhere in the book you will find an idea that will quicken your receptive powers, and place at your command, for your own benefit, this same irresistible power. The awareness of this power may come to you in the first chapter, or it may flash into your mind in some subsequent chapter. It may come in the form of a single idea. Or, it may come in the nature of a plan, or a purpose. Again, it may cause you to go back into your past experiences of failure or defeat, and bring to the surface some lesson by which you can regain all that you lost through defeat.
After I had described to Mr. Darby the power unwittingly used by the little child, he quickly retraced his thirty years of experience as a life insurance salesman, and frankly acknowledged that his success in that field was due, in no small degree, to the lesson he had learned from the child.
Mr. Darby pointed out: “every time a prospect tried to bow me out, without buying, I saw that child standing there in the old mill, her big eyes glaring in defiance, and I said to myself, ‘I’ve gotta make this sale.’ The better portion of all sales I have made, were made after people had said ‘NO’.”
He recalled, too, his mistake in having stopped only three feet from gold, “but,” he said, “that experience was a blessing in disguise. It taught me to keep on keeping on, no matter how hard the going may be, a lesson I needed to learn before I could succeed in anything.”
This story of Mr. Darby and his uncle, the colored child and the gold mine, doubtless will be read by hundreds of men who make their living by selling life insurance, and to all of these, the author wishes to offer the suggestion that Darby owes to these two experiences his ability to sell more than a million dollars of life insurance every year.
Life is strange, and often imponderable! Both the successes and the failures have their roots in simple experiences. Mr. Darby’s experiences were common-place and simple enough, yet they held the answer to his destiny in life, therefore they were as important (to him) as life itself. He profited by these two dramatic experiences, because he analyzed them, and found the lesson they taught. But what of the man who has neither the time, nor the inclination to study failure in search of knowledge that may lead to success? Where, and how is he to learn the art of converting defeat into stepping stones to opportunity?
In answer to these questions, this book was written.
The answer called for a description of thirteen principles, but remember, as you read, the answer you may be seeking, to the questions which have caused you to ponder over the strangeness of life, may be found in your own mind, through some idea, plan, or purpose which may spring into your mind as you read.
One sound idea is all that one needs to achieve success. The principles described in this book, contain the best, and the most practical of all that is known, concerning ways and means of creating useful ideas.
Before we go any further in our approach to the description of these principles, we believe you are entitled to receive this important suggestion. . . . WHEN RICHES BEGIN TO COME THEY COME SO QUICKLY, IN SUCH GREAT ABUNDANCE, THAT ONE WONDERS WHERE THEY HAVE BEEN HIDING DURING ALL THOSE LEAN YEARS. This is an astounding statement, and all the more so, when we take into consideration the popular belief, that riches come only to those who work hard and long.
When you begin to THINK AND GROW RICH, you will observe that riches begin with a state of mind, with definiteness of purpose, with little or no hard work. You, and every other person, ought to be interested in knowing how to acquire that state of mind which will attract riches. I spent twenty-five years in research, analyzing more than 25,000 people, because I, too, wanted to know “how wealthy men become that way.”
Without that research, this book could not have been written.
Here take notice of a very significant truth, viz: The business depression started in 1929, and continued on to an all time record of destruction, until sometime after President Roosevelt entered office. Then the depression began to fade into nothingness. Just as an electrician in a theatre raises the lights so gradually that darkness is transmuted into light before you realize it, so did the spell of fear in the minds of the people gradually fade away and become faith.
Observe very closely, as soon as you master the principles of this philosophy, and begin to follow the instructions for applying those principles, your financial status will begin to improve, and everything you touch will begin to transmute itself into an asset for your benefit. Impossible? Not at all!
One of the main weaknesses of mankind is the average man’s familiarity with the word “impossible.” He knows all the rules which will NOT work. He knows all the things which CANNOT be done. This book was written for those who seek the rules which have made others successful, and are willing to stake everything on those rules.
A great many years ago I purchased a fine dictionary. The first thing I did with it was to turn to the word “impossible,” and neatly clip it out of the book. That would not be an unwise thing for you to do.
Success comes to those who become SUCCESS CONSCIOUS.
Failure comes to those who indifferently allow themselves to become FAILURE CONSCIOUS.
The object of this book is to help all who seek it, to learn the art of changing their minds from FAILURE CONSCIOUSNESS to SUCCESS CONSCIOUSNESS.
Another weakness found in altogether too many people, is the habit of measuring everything, and everyone, by their own impressions and beliefs. Some who will read this, will believe that no one can THINK AND GROW RICH. They cannot think in terms of riches, because their thought habits have been steeped in poverty, want, misery, failure, and defeat.
These unfortunate people remind me of a prominent Chinese, who came to America to be educated in American ways. He attended the University of Chicago. One day President Harper met this young Oriental on the campus, stopped to chat with him for a few minutes, and asked what had impressed him as being the most noticeable characteristic of the American people.
“Why,” the Chinaman exclaimed, “the queer slant of your eyes. Your eyes are off slant!”
What do we say about the Chinese?
We refuse to believe that which we do not understand. We foolishly believe that our own limitations are the proper measure of limitations. Sure, the other fellow’s eyes are “off slant,” BECAUSE THEY ARE NOT THE SAME AS OUR OWN.
Millions of people look at the achievements of Henry Ford, after he has arrived, and envy him, because of his good fortune, or luck, or genius, or whatever it is that they credit for Ford’s fortune. Perhaps one person in every hundred thousand knows the secret of Ford’s success, and those who do know are too modest, or too reluctant, to speak of it, because of its simplicity. A single transaction will illustrate the “secret” perfectly.
A few years back, Ford decided to produce his now famous V-8 motor. He chose to build an engine with the entire eight cylinders cast in one block, and instructed his engineers to produce a design for the engine. The design was placed on paper, but the engineers agreed, to a man, that it was simply impossible to cast an eight cylinder gas engine block in one piece.
Ford said, “Produce it anyway.”
“But,” they replied, “it’s impossible!”
“Go ahead,” Ford commanded, “and stay on the job until you succeed no matter how much time is required.”
The engineers went ahead. There was nothing else for them to do, if they were to remain on the Ford staff. Six months went by, nothing happened. Another six months passed, and still nothing happened. The engineers tried every conceivable plan to carry out the orders, but the thing seemed out of the question; “impossible!”
At the end of the year Ford checked with his engineers, and again they informed him they had found no way to carry out his orders.
“Go right ahead,” said Ford, “I want it, and I’ll have it.”
They went ahead, and then, as if by a stroke of magic, the secret was discovered.
The Ford DETERMINATION had won once more!
This story may not be described with minute accuracy, but the sum and substance of it is correct. Deduce from it, you who wish to THINK AND GROW RICH, the secret of the Ford millions, if you can. You’ll not have to look very far.
Henry Ford is a success, because he understands, and applies the principles of success. One of these is DESIRE: knowing what one wants. Remember this Ford story as you read, and pick out the lines in which the secret of his stupendous achievement have been described. If you can do this, if you can lay your finger on the particular group of principles which made Henry Ford rich, you can equal his achievements in almost any calling for which you are suited.
YOU ARE “THE MASTER OF YOUR FATE, THE CAPTAIN OF YOUR SOUL,” BECAUSE . . .
When Henley wrote the prophetic lines, “I am the Master of my Fate, I am the Captain of my Soul,” he should have informed us that we are the Masters of our Fate, the Captains of our Souls, because we have the power to control our thoughts.
He should have told us that the ether in which this little earth floats, in which we move and have our being, is a form of energy moving at an inconceivably high rate of vibration, and that the ether is filled with a form of universal power which ADAPTS itself to the nature of the thoughts we hold in our minds; and INFLUENCES us, in natural ways, to transmute our thoughts into their physical equivalent.
If the poet had told us of this great truth, we would know WHY IT IS that we are the Masters of our Fate, the Captains of our Souls. He should have told us, with great emphasis, that this power makes no attempt to discriminate between destructive thoughts and constructive thoughts, that it will urge us to translate into physical reality thoughts of poverty, just as quickly as it will influence us to act upon thoughts of riches.
He should have told us, too, that our brains become magnetized with the dominating thoughts which we hold in our minds, and, by means with which no man is familiar, these “magnets” attract to us the forces, the people, the circumstances of life which harmonize with the nature of our dominating thoughts.
He should have told us, that before we can accumulate riches in great abundance, we must magnetize our minds with intense DESIRE for riches, that we must become “money conscious” until the DESIRE for money drives us to create definite plans for acquiring it.
But, being a poet, and not a philosopher, Henley contented himself by stating a great truth in poetic form, leaving those who followed him to interpret the philosophical meaning of his lines.
Little by little, the truth has unfolded itself, until it now appears certain that the principles described in this book, hold the secret of mastery over our economic fate.
We are now ready to examine the first of these principles. Maintain a spirit of open-mindedness, and remember as you read, they are the invention of no one man. The principles were gathered from the life experiences of more than 500 men who actually accumulated riches in huge amounts; men who began in poverty, with but little education, without influence. The principles worked for these men. You can put them to work for your own enduring benefit.
You will find it easy, not hard, to do.
Before you read the next chapter, I want you to know that it conveys factual information which might easily change your entire financial destiny, as it has so definitely brought changes of stupendous proportions to two people described.
I want you to know, also, that the relationship between these two men and myself, is such that I could have taken no liberties with the facts, even if I had wished to do so. One of them has been my closest personal friend for almost twenty-five years, the other is my own son. The unusual success of these two men, success which they generously accredit to the principle described in the next chapter, more than justifies this personal reference as a means of emphasizing the far-flung power of this principle.
Almost fifteen years ago, I delivered the Commencement Address at Salem College, Salem, West Virginia. I emphasized the principle described in the next chapter, with so much intensity that one of the members of the graduating class definitely appropriated it, and made it a part of his own philosophy. The young man is now a Member of Congress, and an important factor in the present administration. Just before this book went to the publisher, he wrote me a letter in which he so clearly stated his opinion of the principle outlined in the next chapter, that I have chosen to publish his letter as an introduction to that chapter.
It gives you an idea of the rewards to come.
“My dear Napoleon:
“My service as a Member of Congress having given me an insight into the problems of men and women, I am writing to offer a suggestion which may become helpful to thousands of worthy people.
“With apologies, I must state that the suggestion, if acted upon, will mean several years of labor and responsibility for you, but I am en-heartened to make the suggestion, because I know your great love for rendering useful service.
“In 1922, you delivered the Commencement address at Salem College, when I was a member of the graduating class. In that address, you planted in my mind an idea which has been responsible for the opportunity I now have to serve the people of my State, and will be responsible, in a very large measure, for whatever success I may have in the future.
“The suggestion I have in mind is, that you put into a book the sum and substance of the address you delivered at Salem College, and in that way give the people of America an opportunity to profit by your many years of experience
and association with the men who, by their greatness, have made America the richest nation on earth.
“I recall, as though it were yesterday, the marvelous description you gave of the method by which Henry Ford, with but little schooling, without a dollar, with no influential friends, rose to great heights. I made up my mind then, even before you had finished your speech, that I would make a place for myself, no matter how many difficulties I had to surmount.
“Thousands of young people will finish their schooling this year, and within the next few years. Every one of them will be seeking just such a message of practical encouragement as the one I received from you. They will want to know where to turn, what to do, to get started in life. You can tell them, because you have helped to solve the problems of so many, many people.
“If there is any possible way that you can afford to render so great a service, may I offer the suggestion that you include with every book, one of your Personal Analysis Charts, in order that the purchaser of the book may have the benefit of a complete self-inventory, indicating, as you indicated to me years ago, exactly what is standing in the way of success.
“Such a service as this, providing the readers of your book with a complete, unbiased picture of their faults and their virtues, would mean to them the difference between success and failure. The service would be priceless.
“Millions of people are now facing the problem of staging a come-back, because of the depression, and I speak from personal experience when I say, I know these earnest people would welcome the opportunity to tell you their problems, and to receive your suggestions for the solution.
“You know the problems of those who face the necessity of beginning all over again. There are thousands of people in America today who would like to know how they can convert ideas into money, people who must start at scratch, without finances, and recoup their losses. If anyone can help them, you can.
“If you publish the book, I would like to own the first copy that comes from the press, personally autographed by you.
“With best wishes, believe me,
“Cordially yours,
“JENNINGS RANDOLPH”
Futures Trading Lesson
Why Can’t Johnny and Jane Make Money in the Markets?
By Jake Bernstein
Two weeks ago, on the occasion of our 33 year anniversary, I took the occasion to share with you some of the lessons I’ve learned during my years in the stock and futures markets. The response I have received was all positive.
In fact, there is no article I have ever written that has promoted so much response. I told you at the time that I would share more of my thoughts with you in future issues of this newsletter.
Accordingly, this issue will be dedicated to more of my thoughts about trading,trading problems, issues and concerns.
I’ve entitled this article “Why Can’t Johnny and Jane Make Money in the Markets?” Because there are literally thousands of traders out there who have brains, motivation, money (but not for long), big computers, trading software, newsletters, trading magazines, courses and more, but who can’t make money.
I call them “Johnny and Jane, because they’re typical and engage in losing behaviors common to so many traders. The sad but true fact is that in spite of all the advances we have made, traders still fail. But why? Why is it that “Johnny and Jane Can’t Make Money in the Markets” consistently or successfully?
Here are some of my thoughts.
I hope they help you in your trading plan.
* The average trader gets too much information.
In my talks with traders I have discovered that the typical trader uses the following information sources almost daily or even many times daily: two or three newsletters, two or three newsletter hotlines, brokerage house on line reports and recommendations, CNBC, free on line reports (usually 2 or 3), computerized trading systems, timing indicators (at least three to five of them), a variety of charts, and postings in various trading chatrooms.
If you DO NOT use the majority of these “informational sources” then I congratulate you. The simple truth is that the vast majority of these informational sources have no value. All too often they reflect the opinions of other traders and analysts who usually have very little experience or who are merely touting their own points of view. You only need a few sources of information. In fact, if you trade based on mechanical trading systems, then you need NO OTHER source of information.
One of the reasons that “Johnny or Jane can’t trade” is that they have TOO MUCH INFORMATION. When it comes to trading information, less is often more. Don’t make the mistakes that so many others make. DECREASE the amount of information you get. REMEMBER that most of the information you get is totally useless. In fact, it’s worse than useless. It can actually help you lose money!
Johnny and Jane are victims of common thinking. Common thinking in the markets will get you common results. In fact, common thinking in any aspect of life will get you common results. Common results in the markets are losses. If you want uncommon results then train yourself to become an uncommon, unconventional thinker and trader. Be a contrarian. Question the psychology of the herd. Don’t listen to what most traders are listening to and don’t do what most traders are doing. The logic is VERY SIMPLE. If what most people are doing leads to the common result of losses then what most people do is DEAD WRONG!
* Don’t over analyze your trades. Most things in the markets are simple. Most moves do not happen by accident. The markets give us very clear clues in advance of moves. I would estimate that about 20% to 40% of market behavior is random. Accordingly, many of the signals or conclusions that you reach from analyzing markets will be incorrect. Some traders believe that the more tools they have in their analytical arsenal, the better will be their trading decisions. This is not correct. The time you spend in analyzing a trade does not improve the odds of success beyond a certain point. If you think that you will do better if you spend more time analyzing your trades then you are wrong. Stop wasting your time and stop fooling yourself.
* Johnny and Jane love small stop losses. The myth of the small stop loss is another reason for Johnny’s losses. The good news about small stops is that you won’t lose too much money every time you get stopped out. The bad news is that you WILL likely get stopped out almost every time. Johnny and Jane don’t understand that the size of the stop loss must be related to the volatility of the underlying market. A stop loss of $800 may be reasonable for the cocoa market, but it’s not at all reasonable for the full S&P contract.
* Stop losses should be a function of your trading system and not your pocketbook. By this I mean that the markets have NO RESPECT for what you can afford to lose on a trade. Using a dollar risk stop loss based on how much risk you want to take makes a lot less sense than a stop loss based on market volatility and trading methodology. Think about it!
Reminiscences of a Stock Operator chapter 11
And now I’ll get back to October, 1907. I bought a yacht
and made all preparations to leave New York for a cruise in
Southern waters. I am really daffy about fishing and this was
the time when I was going to fish to my heart’s content from my
own yacht, going wherever I wished whenever I felt like it.
Everything was ready. I had made a killing in stocks, but at the
last moment corn held me back.
I must explain that before the money panic which gave me my
first million I had been trading in grain at Chicago. I was
short ten million bushels of wheat and ten million bushels of
corn. I had studied the grain markets for a long time and was as
bearish on corn and wheat as I had been on stocks.
Well, they both started down, but while wheat kept on declining
the biggest of all the Chicago operators — I’ll call
him Stratton — took it into his head to run a corner in corn.
After I cleaned up in stocks and was ready to go South on my
yacht I found that wheat showed me a handsome, profit, but in
corn Stratton had run up the price and I had quite a loss.
I knew there was much more corn in the country than the
price indicated. The law of demand and supply worked as always.
But the demand came chiefly from Stratton and the supply was not
coming at all, because there was an acute congestion in the
movement of corn. I remember that I used to pray for a cold
spell that would freeze the impassable roads and enable the
farmers to bring their corn into the market. But no such luck.
There I was, waiting to go on my joyously planned fishing
trip and that loss in corn holding me back. I couldn’t go away
with the market as it was. Of course Stratton kept pretty close
tabs on the short interest. He knew he had me, and I knew it
quite as well as he did. But, as I said, I was hoping I might
convince the weather that it ought to get busy and help me.
Perceiving that neither the weather nor any other kindly
wonder-worker was paying any attention to my needs I studied how
I might work out of my difficulty by my own efforts.
I closed out my line of wheat at a good profit. But the
problem in corn was infinitely more difficult. If I could have
covered my ten million bushels at the prevailing prices I instantly
and gladly would have done so, large though the loss
would have been. But, of course, the moment I started to buy in
my corn Stratton would be on the job as squeezer in chief, and I
no more relished running up the price on myself by reason of my
own purchases than cutting my own throat with my own knife.
Strong though corn was, my desire to go fishing was even
stronger, so it was up to me to find a way out at once. I must
conduct a strategic retreat. I must buy back the ten million
bushels I was short of and in so doing keep down my loss as much
as I possibly could.
It so happened that Stratton at that time was also running
a deal in oats and had the market pretty well sewed up. I had
kept track of all the grain markets in the way of crop news and
pit gossip, and I heard that the powerful Armour interests were
not friendly, marketwise, to Stratton. Of course I knew that
Stratton would not let me have the corn I needed except at his
own price, but the moment I heard the rumors about Armour being
against Stratton it occurred to me that I might look to the
Chicago traders for aid. The only way in which they could
possibly help me was for them to sell me the corn that Stratton
wouldn’t. The rest was easy.
First, I put in orders to buy five hundred thousand bushels
of corn every eighth of a cent down. After these orders were in
I gave to each of four houses an order to sell simultaneously
fifty thousand bushels of oats at the market. That, I figured,
ought to make a quick break in oats. Knowing how the traders’
minds worked, it was a cinch that they would instantly think
that Armour was gunning for Stratton. Seeing the attack opened
in oats they would logically conclude that the next break would
be in corn and they would start to sell it. If that corner in
corn was busted, the pickings would be fabulous.
My dope on the psychology of the Chicago traders was
absolutely correct. When they saw oats breaking on the scattered
selling they promptly jumped on corn and sold it with great
enthusiasm. I was able to buy six million bushels of corn in the
next ten minutes. The moment I found that their selling of corn
ceased I simply bought in the other four million bushels at the
market. Of course that made the price go up again, but the net
result of my manoeuvre was that I covered the entire line of ten
million bushels within one-half cent of the price prevailing at
the time I started to cover on the traders’ selling. The two
hundred thousand bushels of oats that I sold short to start the
traders’ selling of corn I covered at a loss of only three
thousand dollars. That was pretty cheap bear bait. The profits I
had made in wheat offset so much of my deficit in corn that my
total loss on all my grain trades that time was only twenty-five
thousand dollars. Afterwards corn went up twenty-five cents a
bushed. Stratton undoubtedly had me at his mercy. If I had set
about buying my ten million bushels of corn without bothering to
think of the price there is no telling what I would have had to
pay.
A man can’t spend years at one thing and not acquire a
habitual attitude towards it quite unlike that of the average
beginner. The difference distinguishes the professional from the
amateur. It is the way a man looks at things that makes or loses
money for him in the speculative markets. The public has the
dilettante’s point of view toward his own effort. The ego
obtrudes itself unduly and the thinking therefore is not deep or
exhaustive. The professional concerns himself with doing the
right thing rather than with making money, knowing that the
profit takes care of itself if the other things are attended to.
A trader gets to play the game as the professional billiard
player does — that is, he looks far ahead instead of
considering the particular shot before him. It gets to be an
instinct to play for position.
I remember hearing a story about Addison Cammack that
illustrates very nicely what I wish to point out. From all I
have heard, I am inclined to think that Cammack was one of the
ablest stock traders the Street ever saw. He was not a chronic
bear as many believe, but he felt the greater appeal of trading
on the bear side, of utilising in his behalf the two great human
factors of hope and fear. He is credited with coining the
warning: “Don’t sell stocks when the sap is running up the
trees!” and the old-timers tell me that his biggest winnings
were made on the bull side, so that it is plain he did not play
prejudices but conditions. At all events, he was a consummate
trader. It seems that once this was way back at the tag end of a
bull market — Cammack was bearish and J. Arthur Joseph, the
financial writer and raconteur, knew it. The market, however,
was not only strong but still rising, in response to prodding by
the bull leaders and optimistic reports by the newspapers.
Knowing what use a trader like Cammack could make of bearish
information, Joseph rushed to Cammack’s office one day with glad
tidings.
“Mr. Cammack, I have a very good friend who is a transfer
clerk in the St. Paul office and he has just told me something
which I think you ought to know.”
“What is it?” asked Cammack listlessly.
“You’ve turned, haven’t you? You are bearish now?” asked
Joseph, to make sure. If Cammack wasn’t interested he wasn’t
going to waste precious ammunition.
“Yes. What’s the wonderful information?”
“I went around to the St. Paul office today, as I do in my
news-gathering rounds two or three times a week, and my friend
there said to me: `The Old Man is selling stock.’ He meant
William Rockefeller. `Is he really, Jimmy?’ I said to him, and
he answered, `Yes; he is selling fifteen hundred shares every
three-eighths of a point up. I’ve been transferring the stock
for two or three days now.’ I didn’t lose any time, but carne
right over to tell you.”
Cammack was not easily excited, and, moreover, was so
accustomed to having all manner of people rush madly into his
office with all manner of news, gossip, rumors, tips and lies
that he had grown distrustful of them all. He merely said now,
“Are you sure you heard right, Joseph?”
“Am I sure? Certainly I am sure! Do you think I am deaf?”
said Joseph.
“Are you sure of your man?”
“Absolutely!” declared Joseph. “I’ve known him for years.
He has never lied to me. He wouldn’t! No object! I know he is
absolutely reliable and I’d stake my life on what he tells me. I
know him as well as I know anybody in this world a great deal
better than you seem to know me, after all these years.”
“Sure of him, eh?” And Cammack again looked at Joseph. Then
he said, “Well, you ought to know.” He called his broker, W. B.
Wheeler. Joseph expected to hear him give an order to sell at
least fifty thousand shares of St. Paul. William Rockefeller was
disposing of his holdings in St. Paul, taking advantage of the
strength of the market. Whether it was investment stock or
speculative holdings was irrelevant. The one important fact was
that the best stock trader of the Standard Oil crowd was getting
out of St. Paul. What would the average man have done if he had
received the news from a trustworthy source? No need to ask.
But Cammack, the ablest bear operator of his day, who was
bearish on the market just then, said to his broker, “Billy, go
over to the board and buy fifteen hundred St. Paul every
three-eighths up.” The stock was then in the nineties.
“Don’t you mean sell?” interjected Joseph hastily. He was
no novice in Wall Street, but he was thinking of the market from
the point of view of the newspaper man and, incidentally, of the
general public. The price certainly ought to go down on the news
of inside selling. And there was no better inside selling than
Mr. William Rockefeller’s. The Standard Oil getting out and
Cammack buying! It couldn’t bet
“No,” said Cammack; “I mean buy!”
“Don’t you believe me?”
“Yes !
“Don’t you believe my information?”
“Yes.”
“Aren’t you bearish?”
“Yes.”
“Well, then?”
“That’s why I’m buying. Listen to me now: You keep in touch
with that reliable friend of yours and the moment the scaled
selling stops, let me know. Instantly! Do you understand?”
“Yes,” said Joseph, and went away, not quite sure he could
fathom Cammack’s motives in buying William Rockefeller’s stock.
It was the knowledge that Cammack was bearish on the entire
market that made his manoeuvre so difficult to explain. However,
Joseph saw his friend the transfer clerk and told him he wanted
to be tipped off when the Old Man got through selling. Regularly
twice a day Joseph called on his friend to inquire.
One day the transfer clerk told him, “There isn’t any more
stock coming from the Old Man.” Joseph thanked him and ran to
Cammack’s office with the information.
Cammack listened attentively, turned to Wheeler and asked,
“Billy, how much St. Paul have we got in the office?” Wheeler
looked it up and reported that they had accumulated about sixty
thousand shares.
Cammack, being bearish, had been putting out short lines in
the other Grangers as well as in various other stocks, even before
he began to buy St. Paul. He was now heavily short of the
market. He promptly ordered Wheeler to sell the sixty thousand
shares of St. Paul that they were long of, and more besides. He
used his long holdings of St. Paul as a lever to depress the
general list and greatly benefit his operations for a decline.
St. Paul didn’t stop on that move until it reached fortyfour
and Cammack made a killing in it. He played his cards with
consummate skill and profited accordingly. The point I would
make is his habitual attitude toward trading. He didn’t have to
reflect. He saw instantly what was far more important to him
than his profit on that one stock. He saw that he had
providentially been offered an opportunity to begin his big bear
operations not only at the proper time but with a proper initial
push. The St. Paul tip made him buy instead of sell because he
saw at once that it gave him a vast supply of the best
ammunition for his bear campaign.
To get back to myself. After I closed my trade in
wheat and corn I went South in my yacht. I cruised about in
Florida waters, having a grand old time. The fishing was great.
Everything was lovely. I didn’t have a care in the world
and I wasn’t looking for any.
One day I went ashore at Palm Beach. I met a lot of Wall
Street friends and others. They were all talking about the most
picturesque cotton speculator of the day. A report from New York
had it that Percy Thomas had lost every cent. It wasn’t a
commercial bankruptcy; merely the rumor of the world-famous
operator’s second Waterloo in the cotton market.
I had always felt a great admiration for him. The first I
ever heard of him was through the newspapers at the time of the
failure of the Stock Exchange house of Sheldon & Thomas, when
Thomas tried to corner cotton. Sheldon, who did not have the
vision or the courage of his partner, got cold feet on the very
verge of success. At least, so the Street said at the time. At
all events, instead of making a killing they made one of the
most sensational failures in years. I forget how many millions.
The firm was wound up and Thomas went to work alone. He devoted
himself exclusively to cotton and it was not long before he was
on his feet again. He paid off his creditors in full with
interest — debts he was not legally obliged to discharge and
withal had a million dollars left for himself. His comeback in
the cotton market was in its way as remarkable as Deacon S. V.
White’s famous stock-market exploit of paying off one million
dollars in one year. Thomas’ pluck and brains made me admire him
immensely.
Everybody in Palm Beach was talking about the collapse of
Thomas’ deal in March cotton. You know how the talk goes and
grows; the amount of misinformation and exaggeration and
improvements that you hear. Why, I’ve seen a rumor about myself
grow so that the fellow who started it did not recognise it when
it came back to him in less than twenty four hours, swollen with
new and picturesque details.
The news of Percy Thomas’ latest misadventure turned my
mind from the fishing to the cotton market. I got files of the
trade papers and read them to get a line on conditions. When I
got back to New York I gave myself up to studying the market.
Everybody was bearish and everybody was selling July cotton. You
know how people are. I suppose it is the contagion of example
that makes a man do something because everybody around him is
doing the same thing. Perhaps it is some phase or variety of the
herd instinct. In any case it was, in the opinion of hundreds of
traders, the wise and proper thing to sell July cotton and so
safe too! You couldn’t call that general selling reckless; the
word is too conservative. The traders simply saw one side to the
market and a great big profit. They certainly expected a
collapse in prices.
I saw all this, of course, and it struck me that the chaps
who were short didn’t have a terrible lot of time to cover in.
The more I studied the situation the clearer I saw this, until I
finally decided to buy July cotton. I went to work and quickly
bought one hundred thousand bales. I experienced no trouble in
getting it because it came from so many sellers. It seemed to me
that I could have offered a reward of one million dollars for
the capture, dead or alive, of a single trader who was not
selling July cotton and nobody would have claimed it.
I should say this was in the latter part of May. I kept
buying more and they kept on selling it to me until I had picked
up all the floating contracts and I had one hundred and twenty
thousand bales. A couple of days after I had bought the last of
it it began to go up. Once it started the market was kind enough
to keep on doing very well indeed — that is, it went up from
forty to fifty points a day.
One Saturday this was about ten days after I began
operations — the price began to creep up. I did not know
whether there was any more July cotton for sale. It was up to me
to find out, so I waited until the last ten minutes. At that
time, I knew, it was usual for those fellows to be short and if
the market closed up for the day they would be safely hooked. So
I sent in four different orders to buy five thousand bales each,
at the market, at the same time. That ran the price up thirty
points and the shorts were doing their best to wriggle away. The
market closed at the top. All I did, remember, was to buy that
last twenty thousand bales.
The next day was Sunday. But on Monday, Liverpool was due
to open up twenty points to be on a parity with the advance in
New York. Instead, it came fifty points higher. That meant that
Liverpool had exceeded our advance by 100 per cent. I had
nothing to do with the rise in that market. This showed me that
my deductions had been sound and that I was trading along the
line of least resistance. At the same time I was not losing
sight of the fact that I had a whopping big line to dispose of.
A market may advance sharply or rise gradually and yet not
possess the power to absorb more than a certain amount of
selling.
Of course the Liverpool cables made our own market wild.
But I noticed the higher it went the scarcer July cotton seemed
to be. I wasn’t letting go any of mine. Altogether that Monday
was an exciting and not very cheerful day for the bears; but for
all that, I could detect no signs of an impending bear panic; no
beginnings of a blind stampede to. cover. And I had one hundred
and forty thousand bales for which I must find a market.
On Tuesday morning as I was walking to my office I met a
friend at the entrance of the building.
“That was quite a story in the World this morning,” he said
with a smile.
“What story?” I asked.
“What? Do you mean to tell me you haven’t seen it?”
“I never see the World,” I said. “What is the story?”
“Why, it’s all about you. It says you’ve got July cotton
cornered.”
“I haven’t seen it,” I told him and left him. I don’t know
whether he believed me or not. He probably thought it was highly
inconsiderate of me not to tell him whether it was true or not.
When I got to the office I sent out for a copy of the
paper. Sure enough, there it was, on the front page, in big
headlines:
JULY COTTON CORNERED BY LARRY LIVERMORE
Of course I knew at once that the article would play the
dickens with the market. If I had deliberately studied ways and
means of disposing of my one hundred and forty thousand bales to
the best advantage I couldn’t have hit upon a better plan. It
would not have been possible to find one. That article at that
very moment was being read all over the country either in the
World or in other papers quoting it. It had been cabled to
Europe . That was plain from the Liverpool prices. That market
was simply wild. No wonder, with such news.
Of course I knew what New York would do, and what I ought
to do. The market here opened at ten o’clock. At ten minutes
after ten I did not own any cotton. I let them have every one of
my one hundred and forty thousand bales. For most of my line I
received what proved to be the top prices of the day. The
traders made the market for me. All I really did was to see a
heaven-sent opportunity to get rid of my cotton. I grasped it
because I couldn’t help it. What else could I do?
The problem that I knew would take a great deal of hard
thinking to solve was thus solved for me by an accident. If the
World had not published that article I never would have been
able to dispose of my line without sacrificing the greater
portion of my paper profits. Selling one hundred and forty
thousand bales of July cotton without sending the price down was
a trick beyond my powers. But the World story turned it for me
very nicely.
Why the World published it I cannot tell you. I never knew.
I suppose the writer was tipped off by some friend in the cotton
market and he thought he was printing a scoop. I didn’t see him
or anybody from the World. I didn’t know it was printed that
morning until after nine o’clock; and if it had not been for my
friend calling my attention to it I would not have known it
then.
Without it I wouldn’t have had a market big enough to
unload in. That is one trouble about trading on a large scale.
You cannot sneak out as you can when you pike along. You cannot
always sell out when you wish or when you think it wise. You
have to get out when you can; when you have a market that will
absorb your entire line. Failure to grasp the opportunity to get
out may cost you millions. You cannot hesitate. I f you do you
are lost. Neither can you try stunts like running up the price
on the bears by means of competitive buying, for you may thereby
reduce the absorbing capacity. And I want to tell you that
perceiving your opportunity is not as easy as it sounds. A man
must be on the lookout so alertly that when his chance sticks in
its head at his door he must grab it.
Of course not everybody knew about my fortunate accident.
In Wall Street, and, for that matter, everywhere else, any
accident that makes big money for a man is regarded with suspicion.
When the accident is unprofitable it is never considered
an accident but the logical outcome of your hoggishness or of
the swelled head. But when there is a profit they call it loot
and talk about how well unscrupulousness fares, and how ill
conservatism and decency.
It was not only the evil-minded shorts smarting under punishment
brought about by their own recklessness who accused me
of having deliberately planned the coup. Other people thought
the same thing.
One of the biggest men in cotton in the entire world met me
a day or two later and said, “That was certainly the slickest
deal you ever put over, Livermore. I was wondering how much you
were going to lose when you came to market that line of yours.
You knew this market was not big enough to take more than fifty
or sixty thousand bales without selling off, and how you were
going to work off the rest and not lose all your paper profits
was beginning to interest me. I didn’t think of your scheme. It
certainly was slick.”
“I had nothing to do with it,” I assured him as earnestly
as I could.
But all he did was to repeat: “Mighty slick, my boy. Mighty
slick! Don’t be so modest!”
It was after that deal that some of the papers referred to
me as the Cotton King. But, as I said, I really was not entitled
to that crown. It is not necessary to tell you that there is not
enough money in the United States to buy the columns of the New
York World or enough personal pull to secure the publication of
a story like that. It gave me an utterly unearned reputation
that time.
But I have not told this story to moralize on the crowns
that are sometimes pressed down upon the brows of undeserving
traders or to emphasize the need of seizing the opportunity, no
matter when or how it comes. My object merely was to account for
the vast amount of newspaper notoriety that came to me as the
result of my deal in July cotton. If it hadn’t been for the
newspapers I never would have met that remarkable man, Percy
Thomas.
Reminiscences of a Stock Operator chapter 10
The recognition of our own
mistakes should not benefit us any
more than the study of our
successes. But there is a natural
tendency in all men to
avoid punishment. When you associate
certain mistakes with a
licking, you do not hanker for a second
dose, and, of course, all
stock-market mistakes wound you in two
tender spots — your
pocketbook and your vanity. But I will tell
you something curious: A
stock speculator sometimes makes
mistakes and knows that he
is making them. And after he makes
them he will ask himself
why he made them; and after thinking
over it cold-bloodedly a
long time after the pain of punishment
is over he may learn how he
came to make them, and when, and at
what particular point of
his trade; but not why. And then he
simply calls himself names
and lets it go at that.
Of course, if a man is both
wise and lucky, he will not
make the same mistake
twice. But he will make any one of the ten
thousand brothers or
cousins of the original. The Mistake family
is so large that there is
always one of them around when you
want to see what you can do
in the fool-play line.
To tell you about the first
of my million-dollar mistakes I
shall have to go back to
this time when I first became a
millionaire, right after
the big break of October, 1907. As far
as my trading went, having
a million merely meant more reserves.
Money does not give a
trader more comfort, because, rich or
poor, he can make mistakes
and it is never comfortable to be
wrong. And when a
millionaire is right his money is merely one
of his several servants.
Losing money is the least of my
trcubles. A loss never
bothers me after I take it. I forget it
overnight. But being wrong
— not taking the loss that is what
does the damage to the
pocketbook and to the soul. You remember
Dickson G. Watts' story
about the man who was so nervous that a
friend asked him what was
the matter.
"I can't sleep," answered
the nervous one.
"Why not?" asked the
friend.
"I am carrying so much
cotton that I can't sleep thinking
about it. It is wearing me
out. What can I do?"
"Sell down to the sleeping
point," answered the friend.
As a rule a man adapts
himself to conditions so quickly
that he loses the
perspective. He does not feel the difference
much that is, he does not
vividly remember how it felt not to be
a millionaire. He only
remembers that there were things he could
not do that he can do now.
It does not take a reasonably young
and normal man very long to
lose the habit of being poor. It
requires a little longer to
forget that he used to be rich. I
suppose that is because
money creates needs or encourages their
multiplication. I mean that
after a man makes money in the stock
market he very quickly
loses the habit of not spending. But
after he loses his money it
takes him a long time to lose the
habit of
spending.
After I took in my shorts
and went long in October, 1907, I
decided to take it easy for
a while. I bought a yacht and
planned to go off on a
cruise in Southern waters. I am crazy
about fishing and I was due
to have the time of my life. I
looked forward to it and
expected to go any day. But I did not.
The market wouldn't let
me.
I always have traded in
commodities as well as in stocks. I
began as a youngster in the
bucket shops. I studied those
markets for years, though
perhaps not so assiduously as the
stock market. As a matter
of fact, I would rather play commodities
than stocks. There is no
question about their greater
legitimacy, as it were. It
partakes more of the nature of a
commercial venture than
trading in stocks does. A man can
approach it as he might any
mercantile problem. It may be
possible to use fictitious
arguments for or against a certain
trend in a commodity
market; but success will be only temporary,
for in the end the facts
are bound to prevail, so that a trader
gets dividends on study and
observation, as he does in a regular
business. He can watch and
weigh conditions and he knows as much
about it as anyone else. He
need not guard against inside
cliques. Dividends are not
unexpectedly passed or increased
overnight in the cotton
market or in wheat or corn. In the long
run commodity prices are
governed but by one law — the economic
law of demand and supply.
The business of the trader in
commodities is simply to
get facts about the demand and the
supply, present and
prospective. He does not indulge in guesses
about a dozen things as he
does in stocks. It always appealed to
me trading in
commodities.
Of course the same things
happen in all speculative
markets. The message of the
tape is the same. That will be
perfectly plain to anyone
who will take the trouble to think. He
will find if he asks
himself questions and considers conditions,
that the answers will
supply themselves directly. But people
never take the trouble to
ask questions, leave alone seeking
answers. The average
American is from Missouri everywhere and at
all times except when he
goes to the brokers' offices and looks
at the tape, whether it is
stocks or commodities. The one game
of all games that really
requires study before making a play is
the one he goes into
without his usual highly intelligent preliminary
and precautionary doubts.
He will risk half his fortune
in the stock market with
less reflection than he devotes to the
selection of a
medium-priced automobile.
This matter of tape reading
is not so complicated as it
appears. Of course you need
experience. But it is even more
important to keep certain
fundamentals in mind. To read the tape
is not to have your fortune
told. The tape does not tell you how
much you will surely be
worth next Thursday at 1:35 P.m. The
object of reading the tape
is to ascertain, first, how and,
next, when to trade — that
is, whether it is wiser to buy than
to sell. It works exactly
the same for stocks as for cotton or
wheat or corn or
oats.
You watch the market –
that is, the course of prices as
recorded by the tape with
one object: to determine the direction
— that is, the price
tendency. Prices, we know, will move
either up or down according
to the resistance they encounter.
For purposes of easy
explanation we will say that prices, like
everything else, move along
the line of least resistance. They
will do whatever comes
easiest, therefore they will go up if
there is less resistance to
an advance than to a decline; and
vice versa.
Nobody should be puzzled as
to whether a market is a bull
or a bear market after it
fairly starts. The trend is evident to
a man who has an open mind
and reasonably clear sight, for it is
never wise for a speculator
to fit his facts to his theories.
Such a man will, or ought
to, know whether it is a bull or a
bear market, and if he
knows that he knows whether to buy or to
sell. It is therefore at
the very inception of the movement that
a man needs to know whether
to buy or to sell.
Let us say, for example,
that the market, as it usually
does in those between
swings times, fluctuates within a range of
ten points; up to 13o and
down to 120. It may look very weak at
the bottom; or, on the way
up, after a rise of eight or ten
points, it may look as
strong as anything. A man ought not to be
led into trading by tokens.
He should wait until the tape tells
him that the time is ripe.
As a matter of fact, millions upon
millions of dollars have
been lost by men who bought stocks
because they looked cheap
or sold them because they looked dear.
The speculator is not an
investor. His object is not to secure a
steady return on his money
at a good rate of interest, but to
profit by either a rise or
a fall in the price of whatever he
may be speculating in.
Therefore the thing to determine is the
speculative line of least
resistance at the moment of trading;
and what he should wait for
is the moment when that line defines
itself, because that is his
signal to get busy.
Reading the tape merely
enables him to see that at 130 the
selling had been stronger
than the buying and a reaction in the
price logically followed.
Up to the point where the selling
prevailed over the buying,
superficial students of the tape may
conclude that the price is
not going to stop short of 1 So, and
they buy. But after the
reaction begins they hold on, or sell
out at a small loss, or
they go short and talk bearish. But at
120 there is stronger
resistance to the decline. The buying
prevails over the selling,
there is a rally and the shorts
cover.
The public is so often
whipsawed that one marvels at their
persistence in not learning
their lesson.
Eventually something
happens that increases the power of
either the upward or the
downward force and the point of
greatest resistance moves
up or clown — that is, the buying at
130 will for the first time
be stronger than the selling, or the
selling at 12o be stronger
than the buying. The price will break
through the old barrier or
movement-limit and so on. As a rule,
there is always a crowd of
traders who are short at 12o because
it looked so weak, or long
at 13o because it looked so strong,
and, when the market goes
against them they are forced, after a
while, either to change
their minds and turn or to close out. In
either event they help to
define even more clearly the price
line of least resistance.
Thus the intelligent trader who has
patiently waited to
determine this line will enlist the aid of
fundamental trade
conditions and also of the force of the
trading of that part of the
community that happened to guess
wrong and must now rectify
mistakes. Such corrections tend to
push prices along the line
of least resistance.
And right here I will say
that, though I do not give it as
a mathematical certainty or
as an axiom of speculation, my
experience has been that
accidents — that is, the unexpected or
unforeseen have always
helped me in my market position whenever
the latter has been based
upon my determination of the line of
least resistance. Do you
remember that Union Pacific episode at
Saratoga that I told you
about? Well, I was long because I found
out that the line of least
resistance was upward. I should have
stayed long instead of
letting my broker tell me that insiders
were selling stocks. It
didn't make any difference what was
going on in the directors'
minds. That was something I couldn't
possibly know. But I could
and did know that the tape said:
"Going up!" And then came
the unexpected raising of the dividend
rate and the thirty point
rise in the stock. At 164 prices
looked mighty high, but as
I told you before, stocks are never
too high to buy or too low
to sell. The price, per se, has
nothing to do with estab
lishing my line of least resistance.
You will find in actual
practice that if you trade as I
have indicated any
important piece of news given out between the
closing of one market and
the opening of another is usually in
harmony with the line of
least resistance. The trend has been
established before the news
is published, and in bull markets
bear items are ignored and
bull news exaggerated, and vice
versa. Before the war broke
out the market was in a very weak
condition. There came the
proclamation of Germany's submarine
policy. I was short one
hundred and fifty thousand shares of
stock, not because I knew
the news was coming, but because I was
going along the line of
least resistance. What happened came out
of a clear sky, as far as
my play was concerned. Of course I
took advantage of the
situation and I covered my shorts that
day.
It sounds very easy to say
that all you have to do is to
watch the tape, establish
your resistance points and be ready to
trade along the line of
least resistance as soon as you have
determined it. But in
actual practice a man has to guard against
many things, and most of
all against himself — that is, against
human nature. That is the
reason why I say that the man who is
right always has two forces
working in his favorbasic conditions
and the men who are wrong.
In a bull market bear factors are
ignored. That is human
nature, and yet human beings profess
astonishment at it. People
will tell you that the wheat crop has
gone to pot because there
has been bad weather in one or two
sections and some farmers
have been ruined. When the entire crop
is gathered and all the
farmers in all the wheat growing
sections begin to take
their wheat to the elevators the bulls
are surprised at the
smallness of the damage. They discover that
they merely have helped the
bears.
When a man makes his play
in a commodity market he must not
permit himself set
opinions. He must have an open mind and
flexibility. It is not wise
to disregard the message of the
tape, no matter what your
opinion of crop conditions or of the
probable demand may be. I
recall how I missed a big play just by
trying to anticipate the
starting signal. I felt so sure of
conditions that I thought
it was not necessary to wait for the
line of least resistance to
define itself. I even thought I
might help it arrive,
because it looked as if it merely needed a
little
assistance.
I was very bullish on
cotton. It was hanging around twelve
cents, running up and down
within a moderate range. It was in
one of those in-between
places and I could see it. I knew I
really ought to wait. But I
got to thinking that if I gave it a
little push it would go
beyond the upper resistance point.
I bought fifty thousand
bales. Sure enough, it moved up.
And sure enough, as soon as
I stopped buying it stopped going
up. Then it began to settle
back to where it was when I began
buying it. I got out and it
stopped going down. I thought I was
now much nearer the
starting signal, and presently I thought I'd
start it myself again. I
did. The same thing happened. I bid it
up, only to see it go down
when I stopped. I did this four or
five times until I finally
quit in disgust. It cost me about two
hundred thousand dollars. I
was done with it. It wasn't very
long after that when it
began to go up and never stopped till it
got to a price that would
have meant a killing for me — if I
hadn't been in such a great
hurry to start.
This experience has been
the experience of so many traders
so many times that I can
give this rule: In a narrow market,
when prices are not getting
anywhere to speak of but move within
a narrow range, there is no
sense in trying to anticipate what
the next big movement is
going to be up or down. The thing to do
is to watch the market,
read the tape to determine the limits of
the get-nowhere prices, and
make up your mind that you will not
take an interest until the
price breaks through the limit in
either direction. A
speculator must concern himself with making
money out of the market and
not with insisting that the tape
must agree with him. Never
argue with it or ask it for reasons
or explanations.
Stock-market post-mortems don't pay dividends.
Not so long ago I was with
a party of friends. They got to
talking wheat. Some of them
were bullish and others bearish.
Finally they asked me what
I thought. Well, I had been studying
the market for some time. I
knew they did not want any
statistics or analyses of
conditions. So I said:
"If you want to make some
money out of wheat I can tell you
how to do it."
They all said they did and
I told them, "If you are sure
you wish to make money in
wheat just you watch it. Wait. The
moment it crosses $1.20 buy
it and you will get a nice quick
play in it!"
"Why not buy it now, at
$1.14?" one of the party asked.
"Because I don't know yet
that it is going up at all."
"Then why buy it at $1.20?
It seems a mighty high price."
"Do you wish to gamble
blindly in the hope of getting a
great big profit or do you
wish to speculate intelligently and
get a smaller but much more
probable profit?"
They all said they wanted
the smaller but surer profit, so
I said, "Then do as I tell
you. If it crosses $1.20 buy."
As I told you, I had
watched it a long time. For months it
sold between $1.10 and
$1.20, getting nowhere in particular.
Well, sir, one day it
closed at above $1.I9. I got ready for it.
Sure enough the next day it
opened at $1.20-1/2, and I bought.
It went to $1.21, to $1.22,
to $1.23, to $1.25, and I went with
it.
Now I couldn't have told
you at the time just what was
going on. I didn't get any
explanations about its behaviour
during the course of the
limited fluctuations. I couldn't tell
whether the breaking
through the limit would be up through $1.20
or down through $1.10
though I suspected it would be up because
there was not enough wheat
in the world for a big break in
prices.
As a matter of fact, it
seems Europe had been buying
quietly and a lot of
traders had gone short of it at around
$1.19. Owing to the
European purchases and other causes, a lot
of wheat had been taken out
of the market, so that finally the
big movement got started.
The price went beyond the $1.20 mark.
That was all the point I
had and it was all I needed. I knew
that when it crossed $1.20
it would be because the upward
movement at last had
gathered force to push it over the limit
and something had to
happen. In other words, by crossing $1.20
the line of least
resistance of wheat prices was established. It
was a different story
then.
I remember that one day was
a holiday with us and all our
markets were closed. Well,
in Winnipeg wheat opened up six cents
a bushel. When our market
opened on the following day, it also
was up six cents a bushel.
The price just went along the line of
least
resistance.
What I have told you gives
you the essence of my trading
system as based on studying
the tape. I merely learn the way
prices are most probably
going to move. I check up my own
trading by additional
tests, to determine the psychological
moment. I do that by
watching the way the price acts after I
begin.
It is surprising how many
experienced traders there are who
look incredulous when I
tell them that when I buy stocks for a
rise I like to pay top
prices and when I sell I must sell low or
not at all. It would not be
so difficult to make money if a
trader always stuck to his
speculative guns — that is, waited
for the line of least
resistance to define itself and began
buying only when the tape
said up or selling only when it said
down. He should accumulate
his line on the way up. Let him buy
one-fifth of his full line.
If that does not show him a profit
he must not increase his
holdings because he has obviously begun
wrong; he is wrong
temporarily and there is no profit in being
wrong at any time. The same
tape that said up did not
necessarily lie merely
because it is now saying NOT YET.
In cotton I was very
successful in my trading for a long
time. I had my theory about
it and I absolutely lived up to it.
Suppose I had decided that
my line would be forty to fifty
thousand bales. Well, I
would study the tape as I told you,
watching for an opportunity
either to buy or to sell. Suppose
the line of least
resistance indicated a bull movement. Well, I
would buy ten thousand
bales. After I got through buying that,
if the market went up ten
points over my initial purchase price,
I would take on another ten
thousand bales. Same thing. Then, if
I could get twenty points'
profit, or one dollar a bale, I would
buy twenty thousand more.
That would give me my line — my basis
for my trading. But if
after buying the first ten or twenty
thousand bales, it showed
me a loss, out I'd go. I was wrong. It
might be I was only
temporarily wrong.
But as I have said before
it doesn't pay to start wrong in
anything.
What I accomplished by
sticking to my system was that I
always had a line of cotton
in every real movement. In the
course of accumulating my
full line I might chip out fifty or
sixty thousand dollars in
these feeling-out plays of mine. This
looks like a very expensive
testing, but it wasn't. After the
real movement started, how
long would it take me to make up the
fifty thousand dollars I
had dropped in order to make sure that
I began to load up at
exactly the right time? No time at all! It
always pays a man to be
right at the right time.
As I think I also said
before, this describes what I may
call my system for placing
my bets. It is simple arithmetic to
prove that it is a wise
thing to have the big bet down only when
you win, and when you lose
to lose only a small exploratory bet,
as it were. If a man trades
in the way I have described, he will
always be in the profitable
position of being able to cash in on
the big bet.
Professional traders have
always had some system or other
based upon their experience
and governed either by their attitude
toward speculation or by
their desires. I remember I met an
old gentleman in Palm Beach
whose name I did not catch or did
not at once identify. I
knew he had been in the Street for
years, way back in Civil
War times, and somebody told me that he
was a very wise old codger
who had gone through so many booms
and panics that he was
always saying there was nothing new under
the sun and least of all in
the stock market.
The old fellow asked me a
lot of questions. When I got
through telling him about
my usual practice in trading he nodded
and said, "Yes! Yes! You're
right. The way you're built, the way
your mind runs, makes your
system a good system for you. It
comes easy for you to
practice what you preach, because the
money you bet is the least
of your cares. I recollect Pat
Hearne. Ever hear of him?
Well, he was a very well-known
sporting man and he had an
account with us. Clever chap and
nervy. He made money in
stocks, and that made people ask him for
advice. He would never give
any. If they asked him point-blank
for his opinion about the
wisdom of their commitments he used a
favourite race-track maxim
of his: "You can't tell till you
bet." He traded in our
office. He would buy one hundred shares
of some active stock and
when, or if, it went up i per cent he
would buy another hundred.
On another point's advance, another
hundred shares; and so on.
He used to say he wasn't playing the
game to make money for
others and therefore he would put in a
stoploss order one point
below the price of his last purchase.
When the price kept going
up he simply moved up his stop with
it. On a 1 per cent
reaction he was stopped out. He declared he
did not see any sense in
losing more than one point, whether it
came out of his original
margin or out of his paper profits.
"You know, a professional
gambler is not looking for long
shots, but for sure money.
Of course long shots are fine when
they come in. In the stock
market Pat wasn't after tips or
playing to catch
twenty-points-a-week advances, but sure money
in sufficient quantity to
provide him with a good living. Of all
the thousands of outsiders
that I have run across in Wall
Street, Pat Hearne was the
only one who saw in stock speculation
merely a game of chance
like faro or roulette, but, nevertheless,
had the sense to stick to a
relatively sound betting
method.
"After Hearne's death one
of our customers who had always
traded with Pat and used
his system made over one hundred
thousand dollars in
Lackawanna. Then he switched over to some
other stock and because he
had made a big stake he thought he
need not stick to Pat's
way. When a reaction came, instead of
cutting short his losses he
let them run as though they were
profits. Of course every
cent went. When he finally quit he owed
us several thousand
dollars.
"He hung around for two or
three years. He kept the fever
long after the cash had
gone; but we did not object as long as
he behaved himself. I
remember that he used to admit freely that
he, had been ten thousand
kinds of an ass not to stick to Pat
Hearne's style of play.
Well, one day he came to me greatly
excited and asked me to let
him sell some stock short in our
office. He was a nice
enough chap who had been a good customer
in his day and I told him I
personally would guarantee his
account for one hundred
shares.
"He sold short one hundred
shares of Lake Shore. That was
the time Bill Travers
hammered the market, in 1875. My friend
Roberts put out that Lake
Shore at exactly the right time and
kept selling it on the way
down as he had been wont to do in the
old successful days before
he forsook Pat Hearne's system and
instead listened to hope's
whispers.
"Well, sir, in four days of
successful pyramiding, Roberts'
account showed him a profit
of fifteen thousand dollars. Observing
that he had not put in a
stop-loss order I spoke to him
about it and he told me
that the break hadn't fairly begun and
he wasn't going to be
shaken out by any one-point reaction. This
was in August. Before the
middle of September he borrowed ten
dollars from me for a baby
carriage — his fourth. He did not
stick to his own proved
system. That's the trouble with most of
them," and the old fellow
shook his head at me.
And he was right. I
sometimes think that speculation must
be an unnatural sort of
business, because I find that the
average speculator has
arrayed against him his own nature. The
weaknesses that all men are
prone to are fatal to success in
speculation — usually
those very weaknesses that make him
likable to his fellows or
that he himself particularly guards
against in those other
ventures of his where they are not nearly
so dangerous as when he is
trading in stocks or commodities.
The speculator's chief
enemies are always boring from
within. It is inseparable
from human nature to hope and to fear.
In speculation when the
market goes against you — you hope that
every day will be the last
day and you lose more than you should
had you not listened to
hope — to the same ally that is so
potent a success-bringer to
empire builders and pioneers, big
and little. And when the
market goes your way you become fearful
that the next day will take
away your profit, and you get out
too soon. Fear keeps you
from making as much money as you ought
to. The successful trader
has to fight these two deep-seated
instincts. He has to revers
e what you might call his natural
impulses. Instead of hoping
he must fear; instead of fearing he
must hope. He must fear
that his loss may develop into a much
bigger loss, and hope that
his profit may become a big profit.
It is absolutely wrong to
gamble in stocks the way the average
man does.
I have been in the
speculative game ever since I was fourteen.
It is all I have ever done.
I think I know what I am
talking about. And the
conclusion that I have reached after
nearly thirty years of
constant trading, both on a shoestring
and with millions of
dollars back of me, is this: A man may beat
a stock or a group at a
certain time, but no man living can beat
the stock market! A man may
make money out of individual deals
in cotton or grain, but no
man can beat the cotton market or the
grain market. It's like the
track. A man may beat a horse race,
but he cannot beat horse
racing.
If I knew how to make these
statements stronger or more
emphatic I certainly would.
It does not make any difference what
anybody says to the
contrary. I know I am right in saying these
are incontrovertible
statements.
Reminiscences of a Stock Operator chapter 9
Cruised off the coast of
Florida. The fishing was good. I was
out of stocks. My mind was
easy. I was having a fine time. One
day off Palm Beach some
friends came alongside in a motor boat.
One of them brought a
newspaper with him. I hadn't looked at one
in some days and had not
felt any desire to see one. I was not
interested in any news it
might print. But I glanced over the
one my friend brought to
the yacht, and I saw that the market
had had a big rally; ten
points and more.
I told my friends that I
would go ashore with them. Moderate
rallies from time to time
were reasonable. But the bear
market was not over; and
here was Wall Street or the fool public
or desperate bull interests
disregarding monetary conditions and
marking up prices beyond
reason or letting somebody else do it.
It was too much for me. I
simply had to take a look at the
market. I didn't know what
I might or might not do. But I knew
that my pressing need was
the sight of the quotation board.
My brokers, Harding
Brothers, had a branch office in Palm
Beach. When I walked in I
found there a lot of chaps I knew.
Most of them were talking
bullish. They were of the type that
trade on the tape and want
quick action. Such traders don't care
to look ahead very far
because they don't need to with their
style of play. I told you
how I'd got to be known in the New
York office as the Boy
Plunger. Of course people always magnify
a fellow's winnings and the
size of the line he swings. The
fellows in the office had
heard that I had made a killing in New
York on the bear side and
they now expected that I again would
plunge on the short side.
They themselves thought the rally
would go to a good deal
further, but they rather considered it
my duty to fight
it.
I had come down to Florida
on a fishing trip. I had been
under a pretty severe
strain and I needed my holiday. But the
moment I saw how far the
recovery in prices had gone I no longer
felt the need of a
vacation. I had not thought of just what I
was going to do when I came
ashore. But now I knew I must sell
stocks. I was right, and I
must prove it in my old and only way
by saying it with money. To
sell the general list would be a
proper, prudent, profitable
and even patriotic action.
The first thing I saw on
the quotation board was that
Anaconda was on the point
of crossing 300. It had been going. up
by leaps and bounds and
there was apparently an aggressive bull
party in it. It was an old
trading theory of mine that when a
stock crosses 100 or 200 or
300 for the first time the price
does not stop at the even
figure but goes a good deal higher, so
that if you buy it as soon
as it crosses the line it is almost
certain to show you a
profit. Timid people don't like to buy a
stock at a new high record.
But I had the history of such
movements to guide
me.
Anaconda was only quarter
stock — that is, the par of the
shares was only twenty-five
dollars. It took four hundred shares
of it to equal the usual
one hundred shares of other stocks, the
par value of which was one
hundred dollars. I figured that when
it crossed 300 it ought to
keep on going and probably touch 340
in a jiffy.
I was bearish, remember,
but I was also a tape-reading
trader. I knew Anaconda, if
it went the way I figured, would
move very quickly. Whatever
moves fast always appeals to me. I
have learned patience and
how to sit tight, but my personal
preference is for fleet
movements, and Anaconda certainly was no
sluggard. My buying it
because it crossed 300 was prompted by
the desire, always strong
in me, of confirming my observations.
Just then the tape was
saying that the buying was stronger
than the selling, and
therefore the general rally might easily
go a bit further. It would
be prudent to wait before going
short. Still I might as
well pay myself wages for waiting. This
would be accomplished by
taking a quick thirty points out of
Anaconda. Bearish on the
entire market and bullish on that one
stock! So I bought
thirty-two thousand shares of Anaconda –
that is, eight thousand
full shares. It was a nice little flyer
but I was sure of my
premises and I figured that the profit
would help to swell the
margin available for bear operations
later on.
On the next day the
telegraph wires were down on account of
a storm up North or
something of the sort. I was in Harding's
office waiting for news.
The crowd was chewing the rag and
wondering all sorts of
things, as stock traders will when they
can't trade. Then we got a
quotation, the only one that day:
Anaconda, 292.
There was a chap with me, a
broker I had met in New York.
He knew I was long eight
thousand full shares and I suspect that
he had some of his own, for
when we got that one quotation he
certainly had a fit. He
couldn't tell whether the stock at that
very moment had gone off
another ten points or not. The way
Anaconda had gone up it
wouldn't have been anything unusual for
it to break twenty points.
But I said to him, "Don't you worry,
John . It will be all right
tomorrow." That was really the way I
felt. But he looked at me
and shook his head. He knew better. He
was that kind. So I
laughed, and I waited in the office in case
some quotation trickled
through. But no, sir. That one was all
we got: Anaconda, 292. It
meant a paper loss to me of nearly one
hundred thousand dollars. I
had wanted quick action. Well, I was
getting it.
The next day the wires were
working and we got the
quotations as usual.
Anaconda opened at 298 and went up to
3ozY4, but pretty soon it
began to fade away. Also, the rest of
the market was not acting
just right for a further rally. I made
up my mind that if Anaconda
went back to 301 I must consider the
whole thing a fake
movement. On a legitimate advance the price
should have gone to 310
without stopping. If instead it reacted
it meant that precedents
had failed me and I was wrong; and the
only thing to do when a man
is wrong is to be right by ceasing
to be wrong. I had bought
eight thousand full shares in
expectation of a thirty or
forty point rise. It would not be my
first mistake; nor my
last.
Sure enough, Anaconda fell
back to 301. The moment it
touched that figure I
sneaked over to the telegraph operator -
they had a direct wire to
the New York office and I said to him,
"Sell all my Anaconda,
eight thousand full shares." I said it in
a low voice. I didn't want
anybody else to know what I was
doing.
He looked up at me almost
in horror. But I nodded and said,
"All I've got!"
"Surely, Mr. Livermore, you
don't meant at the market?" and
he looked as if he was
going to lose a couple of millions of his
own through bum execution
by a careless broker. But I just told
him, "Sell it! Don't argue
about it!"
The two Black boys, Jim and
Ollie, were in the office, out
of hearing of the operator
and myself. They were big traders who
had come originally from
Chicago, where they had been famous
plungers in wheat, and were
now heavy traders on the New York
Stock Exchange. They were
very wealthy and were high rollers for
fair.
As I left the telegraph
operator to go back to my seat in
front of the quotation
board Oliver Black nodded to me and
smiled.
"You'll be sorry, Larry,"
he said.
I stopped and asked him,
"What do you mean?"
"Tomorrow you'll be buying
it back."
"Buying what back?" I said.
I hadn't told a soul except the
telegraph
operator.
"Anaconda," he said.
"You'll be paying 320 for it. That
wasn't a good move of
yours, Larry." And he smiled again.
"What wasn't?" And I looked
innocent.
"Selling your eight
thousand Anaconda at the market; in
fact, insisting on it,"
said Ollie Black.
I knew that he was supposed
to be very clever and always
traded on inside news. But
how he knew my business so accurately
was beyond me. I was sure
the office hadn't given me away.
"Ollie, how did you know
that?" I asked him.
He laughed and told me: "I
got it from Charlie Kratzer."
That was the telegraph
operator.
"But he never budged from
his place," I said.
"I couldn't hear you and
him whispering," he chuckled. "But
I heard every word of the
message he sent to the New York office
for you. I learned
telegraphy years ago after I had a big row
over a mistake in a
message. Since then when I do what you did
just now — give an order
by word of mouth to an operator — I
want to be sure the
operator sends the message as I give it to
him. I know what he sends
in my name. But you will be sorry you
sold that Anaconda. It's
going to 500."
"Not this trip, Ollie," I
said.
He stared at me and said,
"You're pretty cocky about it."
"Not I ; the tape," I said.
There wasn't any ticker there
so there wasn't any tape.
But he knew what I meant.
"I've heard of those
birds," he said, "who look at the tape
and instead of seeing
prices they see a railroad timetable of
the arrival and departure
of stocks. But they were in padded
cells where they couldn't
hurt themselves."
I didn't answer him
anything because about that time the
boy brought me a
memorandum. They had sold five thousand shares
at 299Y4. I knew our
quotations were a little behind the market.
The price on the board at
Palm Beach when I gave the operator
the order to sell was 30 1
– I felt so certain that at that very
moment the price at which
the stock was actually selling on the
Stock Exchange in New York
was less, that if anybody had offered
to take the stock off my
hands at 296 I'd have been tickled to
death to accept. What
happened shows you that I am right in
never trading at limits.
Suppose I had limited my selling price
to 300? I'd never have got
it off. No, sir! When you want to get
out, get out.
Now, my stock cost me about
300. They got off five hundred
shares — full shares, of
course, at 299-3/4. The next thousand
they sold at 299-5/8. Then
a hundred at 1/2; two hundred at 3/8
and two hundred at 1/4. The
last of my stock went at 298-3/4. It
took Harding's cleverest
floor man fifteen minutes to get rid of
that last one hundred
shares. They didn't want to crack it wide
open.
The moment I got the report
of the sale of the last of my
long stock I started to do
what I had really come ashore to do -
that is, to sell stocks. I
simply had to. There was the market
after its outrageous rally,
begging to be sold. Why, people were
beginning to talk bullish
again. The course of the market,
however, told me that the
rally had run its course. It was safe
to sell them. It did not
require reflection.
The next day Anaconda
opened below 296. Oliver Black, who
was waiting for a further
rally, had come down early to be
John ny-on-the-spot when
the stock crossed 320. I don't know how
much of it he was long of
or whether he was long of it at all.
But he didn't laugh when he
saw the opening prices, nor later in
the day when the stock
broke still more and the report came back
to us in Palm Beach that
there was no market for it at all.
Of course that was all the
confirmation any man needed. My
growing paper profit kept
reminding me that I was right, hour by
hour. Naturally I sold some
more stocks. Everything! It was a
bear market. They were all
going down. The next day was Friday,
Washington's Birthday. I
couldn't stay in Florida and fish
because I had put out a
very fair short line, for me. I was
needed in New York. Who
needed me? I did! Palm Beach was too
far, too remote. Too much
valuable time was lost telegraphing
back and forth.
I left Palm Beach for New
York. On Monday I had to lie in
St. Augustine three hours,
waiting for a train. There was a
broker's office there, and
naturally I had to see how the market
was acting while I was
waiting. Anaconda had broken several
points since the last
trading day. As a matter of fact, it
didn't stop going down
until the big break that fall.
I got to New York and
traded on the bear side for about
four months. The market had
frequent rallies as before, and I
kept covering and putting
them out again. I didn't, strictly
speaking, sit tight.
Remember, I had lost every cent of the
three hundred thousand
dollars I made out of the San Francisco
earthquake break. I had
been right, and nevertheless had gone
broke. I was now playing
safe, because after being down a man
enjoys being up, even if he
doesn't quite make the top. The way
to make money is to make
it. The way to make big money is to be
right at exactly the right
time. In this business a man has to
think of both theory and
practice. A speculator must not be
merely a student, he must
be both a student and a speculator.
I did pretty well, even if
I can now see where my campaign
was tactically inadequate.
When summer came the market got dull.
It was a cinch that there
would be nothing doing in a big way
until well along in the
fall. Everybody I knew had gone or was
going to Europe. I though
that would be a good move for me. So I
cleaned up. When I sailed
for Europe I was a trifle more than
three-quarters of a million
to the good. To me that looked like
some balance.
I was in Aix-les-Bains
enjoying myself. I had earned my
vacation. It was good to be
in a place like that with plenty of
money and friends and
acquaintances and everybody intent upon
having a good time. Not
much trouble about having that, in Aix.
Wall Street was so far away
that I never thought about it, and
that is more than I could
say of any resort in the United
States. I didn't have to
listen to talk about the stock market.
I didn't need to trade. I
had enough to last me quite a long
time, and besides, when I
got back I knew what to do to make
much more than I could
spend in Europe that summer.
One day I saw in the Paris
Herald a dispatch from New York
that Smelters had declared
an extra dividend. They had run up
the price of the stock and
the entire market had come back quite
strong. Of course that
changed everything for me in Aix. The
news simply meant that the
bull cliques were still fighting
desperately against
conditions — against common sense and
against common honesty, for
they knew what was coming and were
resorting to such schemes
to put up the market in order to
unload stocks before the
storm struck them. It is possible they
really did not believe the
danger was as serious or as close at
hand as I thought. The big
men of the Street are as prone to be
wishful thinkers as the
politicians or the plain suckers. I
myself can't work that way.
In a speculator such an attitude is
fatal. Perhaps a
manufacturer of securities or a promoter of new
enterprises can afford to
indulge in hope-jags.
At all events, I knew that
all bull manipulation was '
foredoomed to failure in
that bear market. The instant I read
the dispatch I knew there
was only one thing to do to be comfortable,
and that was to sell
Smelters short. Why, the insiders
as much as begged me on
their knees to do it, when they
increased the dividend rate
on the verge of a money panic. It
was as infuriating as the
old "dares" of your boyhood. They
dared me to sell that
particular stock short.
I cabled some selling
orders in Smelters and advised my
friends in New York to go
short of it. When I got my report from
the brokers I saw the price
they got was six points below the
quotations I had seen in
the Paris Herald. It shows you what the
situation was.
My plans had been to return
to Paris at the end of the
month and about three weeks
later sail for New York, but as soon
as I received the cabled
reports from my brokers I went back to
Paris. The same day I
arrived I called at the steamship offices
and found there was a fast
boat leaving for New York the next
day. I took it.
There I was, back in New
York, almost a month ahead of my
original plans, because it
was the most comfortable place to be
short of the market in. I
had well over half a million in cash
available for margins. My
return was not due to my being bearish
but to my being
logical.
I sold more stocks. As
money got tighter call-money rates
went higher and prices of
stocks lower. I had foreseen it. At
first, my foresight broke
me. But now I was right and
prospering. However, the
real joy was in the consciousness that
as a trader I was at last
on the right track. I still had much
to learn but I knew what to
do. No more floundering, no more
half-right methods. Tape
reading was an important part of the
game; so was beginning at
the right time; so was sticking to
your position. But my
greatest discovery was that a man must
study general conditions,
to size them so as to be able to
anticipate probabilities.
In short, I had learned that I had to
work for my money. I was no
longer betting blindly or concerned
with mastering the technic
of the game, but with earning my
successes by hard study and
clear thinking. I also had found out
that nobody was immune from
the danger of making sucker plays.
And for a sucker play a man
gets sucker pay; for the paymaster
is on the job and never
loses the pay envelope that is coming to
you.
Our office made a great
deal of money. My own operations
were so successful that
they began to be talked about and, of
course, were greatly
exaggerated. i was credited with starting
the breaks in various
stocks. People I didn't know by name used
to come and congratulate
me. They all thought the most wonderful
thing was the money I had
made. They did not say a word about
the time when I first
talked bearish to them and they thought I
was a crazy bear with a
stock-market loser's vindictive grouch.
That I had foreseen the
money troubles was nothing. That my
brokers' bookkeeper had
used a third of a drop of ink on the
credit side of the ledger
under my name was a marvellous
achievement to
them.
Friends used to tell me
that in various offices the Boy Plunger
in Harding Brothers' office
was quoted as making all sorts of
threats against the bull
cliques that had tried to mark up
prices of various stocks
long after it was plain that the market
was bound to seek a much
lower level. To this day they talk of
my raids.
From the latter part of
September on, the money market was
megaphoning warnings to the
entire world. But a belief in
miracles kept people from
selling what remained of their
speculative holdings. Why,
a broker told me a story the first
week of October that made
me feel almost ashamed of my.
moderation.
You remember that money
loans used to be made on the floor
of the Exchange around the
Money Post. Those brokers who had
received notice from their
banks to pay call loans knew in a
general way how much money
they would have to borrow afresh. And
of course the banks knew
their position so far as loanable funds
were concerned, and those
which had money to loan would send it
to the Exchange. This bank
money was handled by a few brokers
whose principal business
was time loans. At about noon the
renewal rate for the day
was posted. Usually this represented a
fair average of the loans
made up to that time. Business was as
a rule transacted openly by
bids and offers, so that everyone
knew what was going on.
Between noon and about two o'clock there
was ordinarily not much
business done in money, but after
delivery time — namely,
2:15 P.M. — brokers would know exactly
what their cash position
for the day would be, and they were
able either to go to the
Money Post and lend the balances that
they had over or to borrow
what they required. This business
also was done
openly.
Well, sometime early in
October the broker I was telling
you about came to me and
told me that brokers were getting so
they didn't go to the Money
Post when they had money to loan.
The reason was that members
of a couple of well-known commission
houses were on watch there,
ready to snap up any offerings of
money. Of course no lender
who offered money publicly could
refuse to lend to these
firms. They were solvent and the
collateral was good enough.
But the trouble was that once these
firms borrowed money on
call there was no prospect of the lender
getting that money back.
They simply said they couldn't pay it
back and the lender would
willy-nilly have to renew the loan. So
any Stock Exchange house
that had money to loan to its fellows
used to send its men about
the floor instead of to the Post, and
they would whisper to good
friends, "Want a hundred?" meaning,
"Do you wish to borrow a
hundred thousand dollars?" The money
brokers who acted for the
banks presently adopted the same plan,
and it was a dismal sight
to watch the Money Post. Think of it.
Why, he also told me that
it was a matter of Stock Exchange
etiquette in those October
days for the borrower to make his own
rate of interest. You see,
it fluctuated between ioo and 150 per
cent per annum. I suppose
by letting the borrower fix the rate
the lender in some strange
way didn't feel so much like a
usurer. But you bet he got
as much as the rest. The lender
naturally did not dream of
not paying a high rate. He played
fair and paid whatever the
others did. What he needed was the
money and was glad to get
it.
Things got worse and worse.
Finally there came the awful
day of reckoning for the
bulls and the optimists and the wishful
thinkers and those vast
hordes that, dreading the pain of a
small loss at the
beginning, were now about to suffer total
amputation — without
anaesthetics. A day I shall never forget,
October 24,
1907.
Reports from the money
crowd early indicated that borrowers
would have to pay whatever
the lenders saw fit to ask. There
wouldn't be enough to go
around. That day the money crowd was
much larger than usual.
When delivery time came that afternoon
there must have been a
hundred brokers around the Money Post,
each hoping to borrow the
money that his firm urgently needed.
Without money they must
sell what stocks they were carrying on
margin-sell at any price
they could get in a market where buyers
were as scarce as moneyand
just then there was not a dollar in
sight.
My friend's partner was as
bearish as I was. The firm
therefore did not have to
borrow, but my friend, the broker I
told you about, fresh from
seeing the haggard faces around the
Money Post, came to me. He
knew I was heavily short of the
entire market.
He said, "My God, Larry! I
don't know what's going to happen. I
never saw anything like it.
It can't go on. Something has got to
give. It looks to me as if
everybody is busted right now. You
can't sell stocks, and
there is absolutely no money in there."
"How do you mean?" I
asked.
But what he answered was,
"Did you ever hear of the classroom
experiment of the mouse in
a glass-bell when they begin to
pump the air out of the
bell? You can see the poor mouse breathe
faster and faster, its
sides heaving like overworked bellows,
trying to get enough oxygen
out of the decreasing supply in the
bell. You watch it
suffocate till its eyes almost pop out of
their sockets, gasping,
dying. Well, that is what I think of
when I see the crowd at the
Money Post! No money anywhere, and
you can't liquidate stocks
because there is nobody to buy them.
The whole Street is broke
at this very moment, i f you ask me!"
It made me think. I had
seen a smash coming, but not, I
admit, the worst panic in
our history. It might not be profitable
to anybody if it went much
further.
Finally it became plain
that there was no use in waiting at the
Post for money. There
wasn't going to be any. Then hell broke
loose.
The president of the Stock
Exchange, Mr. R. H. Thomas, so I
heard later in the day,
knowing that every house in the Street
was headed for disaster,
went out in search of succour. He
called on James Stillman,
president of the National City Bank,
the richest bank in the
United States. Its boast was that it
never loaned money at a
higher rate than 6 per cent.
Stillman heard what the
president of the New York Stock
Exchange had to say. Then
he said, "Mr. Thomas, we'll have to go
and see Mr. Morgan about
this."
The two men, hoping to
stave off the most disastrous panic
in our financial history,
went together to the office of J. P.
Morgan & Co. and saw
Mr. Morgan. Mr. Thomas laid the case before
him. The moment he got
through speaking Mr. Morgan said, "Go
back to the Exchange and
tell them that there will be money for
them."
"Where?"
"At the banks!"
So strong was the faith of
all men in Mr. Morgan in those
critical times that Thomas
didn't wait for further details but
rushed back to the floor of
the Exchange to announce the
reprieve to his
death-sentenced fellow members.
Then, before half past two
in the afternoon, J. P. Morgan
sent John T. Atterbury, of
Van Emburgh & Atterbury, who was
known to have close
relations with J. P. Morgan & Co., into the
money crowd. My friend said
that the old broker walked quickly
to the Money Post. He
raised his hand like an exhorter at a
revival meeting. The crowd,
that at first had been calmed down
somewhat by President
Thomas' announcement, was beginning to
fear that the relief plans
had miscarried and the worst was
still to come. But when
they looked at Mr. Atterbury's face and
saw him raise his hand they
promptly petrified themselves.
In the dead silence that
followed, Mr. Atterbury said, "I
am authorized to lend ten
million dollars. Take it easy ! There
will be enough for
everybody!"
Then he began. Instead of
giving to each borrower the name
of the lender he simply
jotted down the name of the borrower and
the amount of the loan and
told the borrower, "You will be told
where your money is." He
meant the name of the bank from which
the borrower would get the
money later.
I heard a day or two later
that Mr. Morgan simply sent word
to the frightened bankers
of New York that they must provide the
money the Stock Exchange
needed.
"But we haven't got any.
We're loaned up to the hilt," the
banks protested.
"You've got your reserves,"
snapped J. P.
"But we're already below
the legal limit," they howled
"Use them! That's what
reserves are for!" And the banks
obeyed and invaded the
reserves to the extent of about twenty
million dollars. It saved
the stock market. The bank panic
didn't come until the
following week. He was a man, J. P. Morgan
was. They don't come much
bigger.
That was the day I remember
most vividly of all the days of
my life as a stock
operator. It was the day when my winnings
exceeded one million
dollars. It marked the successful ending of
my first deliberately
planned trading campaign. What I had
foreseen had come to pass.
But more than all these things was
this: a wild dream of mine
had been realised. I had been king
for a day!
I'll explain, of course.
After I had been in New York a
couple of years I used to
cudgel my brains trying to determine
the exact reason why I
couldn't beat in a Stock Exchange house
in New York the game that I
had beaten as a kid of fifteen in a
bucket shop in Boston. I
knew that some day I would find out
what was wrong and I would
stop being wrong. I would then have
not alone the will to be
right but the knowledge to insure my
being right. And that would
mean power.
Please do not misunderstand
me. It was not a deliberate
dream of grandeur or a
futile desire born of overweening vanity.
It was rather a sort of
feeling that the same old stock market
that so baffled me in
Fullerton's office and in Harding's would
one day eat out of my hand.
I just felt that such a day would
come. And it did October
24, 1907.
The reason why I say it is
this: That morning a broker who
had done a lot of business
for my brokers and knew that I had
been plunging on the bear
side rode down in the company of one
of the partners of the
foremost banking house in the Street. My
friend told the banker how
heavily I had been trading, for I
certainly pushed my luck to
the limit. What is the use of being
right unless you get all
the good possible i out of it?
Perhaps the broker
exaggerated to make his story sound
important. Perhaps I had
more of a following than I knew.
Perhaps the banker knew far
better than I how critical the
situation was. At all
events, my friend said to me: "He listened
with great interest to what
I told him you said the market was
going to do when the real
selling began, after another push or
two. When I got through he
said he might have something for me
to do later in the
day."
When the commission houses
found out there was not a cent to be
had at any price I knew the
time had come. I sent brokers into
the various crowds. Why, at
one time there wasn't a single bid
for Union Pacific. Not at
any price! Think of it! And in other
stocks the same thing. No
money to hold stocks and nobody to buy
them.
I had enormous paper
profits and the certainty that all
that I had to do to smash
prices still more was to send in
orders to sell ten thousand
shares each of Union Pacific and of
a half dozen other good
dividend-paying stocks and what would
follow would be simply
hell. It seemed to me that the panic that
would be precipitated would
be of such an intensity and character
that the board of governors
would deem it advisable to
close the Exchange, as was
done in August, 1914, when the World
War broke out.
It would mean greatly
increased profits on paper. It also
mean an inability to
convert those profits into actual cash. But
there were other things to
consider, and one was that a further
break would retard the
recovery that I was beginning to figure
on, the compensating
improvement after all that bloodletting.
Such a panic would do much
harm to the country generally.
I made up my mind that
since it was unwise and unpleasant
to continue actively
bearish it was illogical for me to stay
short. So I turned and
began to buy.
It wasn't long after my
brokers began to buy in for meand,
by the way, I got bottom
prices that the banker sent for my
friend.
"I have sent for you," he
said, "because I want you to go
instantly to your friend
Livermore and say to him that we hope
he will not sell any more
stocks today. The market can't stand
much more pressure. As it
is, it will be an immensely difficult
task to avert a devastating
panic. Appeal to your friend's
patriotism. This is a case
where a man has to work for the
benefit of all. Let me know
at once what he says."
My friend came right over
and told me. He was very tactful.
I suppose he thought that
having planned to smash the market I
would consider his request
as equivalent to throwing away the
chance to make about ten
million dollars. He knew I was sore on
some of the big guns for
the way they had acted trying to land
the public with a lot of
stock when they knew as well as I did
what was coming.
As a matter of fact, the
big men were big sufferers and
lots of the stocks I bought
at the very bottom were in famous
financial names. I didn't
know it at the time, but it did not
matter. I had practically
covered all my shorts and it seemed to
me there was a chance to
buy stocks cheap and help the needed
recovery in prices at the
same time if nobody hammered the
market.
So I told my friend, "Go
back and tell Mr. Blank that I
agree with them and that I
fully realised the gravity of the
situation even before he
sent for you. I not only will not sell
any more stocks today, but
I am going in and buy as much as I
can carry." And I kept my
word. I bought one hundred thousand
shares that day, for the
long account. I did not sell another
stock short for nine
months.
That is why I said to
friends that my dream had come true
and that I had been king
for a moment. The stock market at one
time that day certainly was
at the mercy of anybody who wanted
to hammer it. I do not
suffer from delusions of grandeur; in
fact you know how I feel
about being accused of raiding the
market and about the way my
operations are exaggerated by the
gossip of the
Street.
I came out of it in fine
shape. The newspapers said that
Larry Livermore, the Boy
Plunger, had made several millions.
Well, I was worth over one
million after the close of business
that day. But my biggest
winnings were not in dollars but in the
intangibles: I had been
right, I had looked ahead and followed a
clear-cut plan. I had
learned what a man must do in order to
make big money; I was
permanently out of the gambler class; I
had at last learned to
trade intelligently in a big way. It was
a day of days for
me.
Trading Plan
Things You Need to Know to be a Successful Trader
THINGS YOU NEED TO KNOW
#1 – You have to have a exact trading plan.
#2 – You have to believe in your trading plan.
#3 – When you start trading your plan, you have to follow it – exactly.
#4 – If you don’t have a plan and follow it, you will not be successful trading.
========================
#1 – THE TRADING PLAN
If I had to make a guess I would say most trader’s probably trade their entire career without a trading plan.
Does that sound hard to believe?
Well if you don’t mind, let’s take a little test here .
Write down your trading plan.
A) How to enter a trade.
B) Where does the stop go.
C) Where do you take profits.
And to me each of the above needs to be clear cut, no questions asked.
In other words anyone who followed your plan, would know exactly where to enter, where to get out, and where to take profits, at all times.
If your plan reads, I trade double bottoms, triangles, bull flags, or I use Stochastics, Moving Averages, etc. etc, I’m sorry but to me that isn’t a plan, that is a hodge podge of chart patterns and technical indicators.
So let me give you an example of what I consider a trading plan, and this is just an example and is not an actual trading plan.
EXAMPLE PLAN – BUY
#1 – If the market trades above the 10 day high go long.
#2 – The stop if wrong is the most recent 10 day low.
#3 – If the trade moves your way, use the low of the last 10 days to take profits.
A sell example would be just the opposite.
=============================
Anybody that decided to follow the example plan above would know exactly what they were going to do before they even entered the trade, and they would know exactly what to do while in the trade.
============================
#2 – BELIEVE IN YOUR PLAN
This is where paper trading and testing, will come in.
If you see the plan works before you start to trade it, you will be able to stick to the rules.
If you don’t have an exact plan, you will never be able to follow it, quite simply because you really have nothing to follow.
============================
#3 – FOLLOW THE RULES
This is where the going get tough, because most trader’s can’t follow a plan.
And quit simply that is why most traders lose.
If you have a trading plan you believe in through, paper trading and testing, you will be able to follow the rules, because you will know overall you are going to come out ahead.
===========================
#4 – YOU CAN DO IT !
If you develop a clear cut trading plan that works, and have the will power to follow it, you will be a successful trader.
Really the big secrets to a successful system are
#1 – Trade with the trend
#2 – Cut your losses short
#3 – Let your profits run.
Not much of a secret, right, everybody knows that.
Here’s where I believe most fail even though we all know to trade with the trend, cut losses short, and let profits run.
Trading with the trend, cutting losses short, and letting profits run, can mean almost anything to anybody and that brings us right back to what we are talking about – we have to have a plan.
#1 – We have to know how to define the trend.
#2 – We have to have a specific rule for cutting losses.
#3 – We have to have a specific rule for taking profits.
Well I could go on and on from here, but I am also one of those people who believes in keeping it simple, so I think this is plenty for one lesson.
So please before you ever trade have an exact plan, and then when you start to trade – follow it.
You can do it !
Thanks !
Jim Robinson
How to Handle Trading Losses
A Major Key to Successful Trading is Coping With Losses.
“Mental Fitness for Futures Traders”
by Norman Hallett, former CTA/Trader
Be warned. “Part of overall winning is taking losses along the way.” “If you have 55% winning trades, you’ll win in the long run.” We’ve heard it said a million times in a hundred different ways. In any trading system, we will experience losing trades as well as winning trades. We know this. So why is it that as we moved forward from trade to trade, we become frozen with doubt when the losing trades appear in bunches?
If you think about it, when winning trades appear in bunches, we get motivated and we look for reasons to find the next trade. We’re on a roll and we love it. We’re on top of the world. The words “genius” and “professional trader” seem to fit us perfectly. Conversely, when losing trades appear in bunches, we become fearful of the next trade and look for reasons to shy away from following our system. We become filled with doubt and the words “gambler” and “loser” seem to describe us best.
OK, so why? It’s because you’re are viewing our trading outcomes as reflections of you as a person. This leads to the destruction of virtually all failing traders. Negative personal evaluation leads to your being emotionally out of control, which leads to straying from your tested trading system … and the result… you’re trading by the seat of your pants (which should be pulled down and you spanked!).
You see, you must develop the mindset (and the true understanding) that you are a winning trader whether you are experiencing a run of losing trades or winning trades. Your self-image of a winning trader allows you to glide through losing streaks so you can be there for the winning streaks.
Most new and “intermediate” traders do NOTHING about their mental trading fitness. They are willing to spend thousands of dollars on “holy grail” systems and out-of-town seminars, but are totally neglecting mental conditioning. You should be training as hard on your mental fitness as you do on preparing your trading signals. As a broker/trader/CTA for 21 years, I have probably seen 50+ trading systems that were money makers, IF you had the mental/emotional strength to follow them!
You need to find a system that suits your personality (more on this next week), back-test the system, appropriate the money to trade the system, and then GO FOR IT. The “go for it” part would actualize without the mental strength to take the good with the bad.
Your Trading Personality
Are You The Turtle Or The Hare?
“Mental Fitness for Futures Traders”
by Norman Hallett, former CTA/Trader
What would you rather have the perfect trading system or the perfect soul-mate? Don’t answer that out loud! I would venture to say that most traders are so “into” their trading that they would hesitate when pondering that question. By the way, the answer is the perfect soul-mate. That’s because there is no perfect trading system. The perfect trading system is the right system for you.
Let’s assess.
Are you the Impatient Type? Let me stress here that by impatient, I mean that you don’t like the notion of waiting more than, say, a day, to see your trade results. You use logic like “I don’t like to stay in a trade overnight, because that’s where the risk is… anything can happen in these crazy times.” Or.. “My signals are just as valid with a 60 second chart as they are with a weekly chart and I’d rather be able to keep adjusting.”
These things that you say to yourself (valid or not) come from your inner-self trying to move you to comfort.
Are you the Position-Trade Type? You say, “The market can be controlled short-term, but eventually the fundamentals come home to roost.” Or..”I’m not looking to eat up my capital in transactional costs. As far as I’m concerned, the trend is your friend and I’ll stick with a trade.”
Are you the Where The Action Is Type? You tend to think, “A signal is a signal, whether it’s on a 2-minute chart or a monthly. When my signal sets up, I GO!” You add, “Sometimes I don’t even know which commodity I’m looking at. That really doesn’t matter to me. I just care about the technical pattern.”
I won’t bore you with more types, because they are unlimited. In my coaching of traders for years, these above types were the predominant ones.
There is no right and wrong type. There is only assessing which type you are comfortable with perceiving yourself as and then committing to a trading system that reflects that type. There are plenty of winning trading system, of all types, that can be very successful. The best way to have a good system work for you is if you can follow it’s signals without hesitation.
You are more likely to follow your trading signals if the system “agrees with you.” Now look inside yourself. Then commit to following what your tested system tells you to do!
You must win the BATTLE WITHIN YOURSELF first, before you can win with the markets.
W.D. Gann Rules
W.D. Gann’s Techniques
Psychology
Master yourself
* Do not overtrade
* See if your trade is based on hope or logic and systems developed by you
Trading strategies
Have different strategies for the four situations:
* Bull market
* Bull market top i.e. reversal from bull to bear market phase
* Bear market
* Reversal phase from bear to bull market
Importance of number 3
Majority of moves will generally occur in time period of three – days, weeks or months.
Never trade in the direction of the trend on its third day.
Tops, bottoms and consolidations
* Tops usually take time to form. Spike tops are less common compared to spike bottoms. Tops are marked by extreme movements in medium and small stocks. They will rise by even 20% in a day. These are called blow offs. Because of this short-selling on extreme top is risky.
* Divergences will appear at the top but they cannot be used for timing the trade. Time cycles shall indicate when the actual reversal will start.
* In bull market watch for a correction which is greater in both price and time than the previous corrections in the move up. (Opposite in the downmoves).
* Highest probability of support is that the corrections in the uptrend will all be very close to equal.
* Swing objectives – add the range to move to the top of that move to find out the target for the next upmove or reverse in the bear market.
* Square of numbers and 50% of the difference between those squares are significant support and resistance, but cannot be traded by themselves.
Gann says that there can be nine mathematical proofs of any point of resistance
1. Angles from top and bottoms
2. Angles running horizontally i.e. the previous tops and bottoms
3. Time cycles (vertical angles) (Press a short sale if there are three or four days of sideways movement after a high day and this is followed by a down day with high volume where low is lower than the low of the sideways movement and when this coincides with expiry of time cycles)
4. Crossing of important angles originating at zero
5. Crossing or coming together of angles from double or triple tops or bottoms
6. Crossing of double or triple tops or bottoms
7. Past resistance/ support
8. Volume of sales
9. Squaring of time and price.
Weak stocks will generally not rally until either a test of the first bottom or a higher bottom is made by the market. (That is why AD line is a lagging indicator and generally moves up in the third wave)The third move trying to break the consolidation top/bottom is the most important. If it fails, a fast move in the other direction may be expected.
False breakouts from consolidation result in very fast moves. False breakout occurs when a move outside the consolidation zone fails to sustain in the following week and where the price has not gone beyond three points above the top. These false moves start with high momentum.
A breakout from a three-four day consolidation in a very narrow range results in sharp three day move.
Faster moves start from third of fourth higher bottom. It will be strong move if there is space between the third or fourth bottom and the previous top.
Trend and trend following techniques: In fast advancing markets, in the last stage of the campaign, reactions get smaller as stocks work to higher level, until the final run has ended. Then comes a sharp reaction and a reversal in the trend. Same happens in the bear market. Once you are convinced that a trend is in force, do not wait too long to go with the trade. Early in the trend buy/sell a stock which is already strong/weak. Fast moves generally come from bear market bottoms. These moves usually run three weeks up, then move sideways three to five more weeks, and then accelerate followed by another sideways movement. Under fast moves the first signal to trend change is overbalance i.e. reaction gets larger compared to the earlier ones, specially in the fifth wave. Watch the changes in momentum of price – is the market/stock gaining less points in more time? If the market is trending up, then it should go up more time than it goes down. And vice versa.
Any reversal pattern should be seen in conjunction with the time cycles. Do not pay attention to the financial press.
Use simple trading filter of not entering the market on the third day of the move.
