Continued from...The Business of Professional Stock Market Speculation
An Intelligent TraderRare talent of any kind commands great rewards for the reason that it is rare. The amateur who regards the market as a gamble starts wrong. He holds on when he is losing and takes small profits, to his continuing regret, when the market is going his way. The speculators he envies, those he charges with cogging the dice and marking the cards, exactly reverse his process. However strong their conviction maybe they run quickly when the market does not agree with them or justify the inferences they have drawn. They may be, as Gould often was, too far ahead of the market. One of the most intelligent men I ever met in Wall Street, not long dead, was a former teacher and a fine classical scholar, whose hobby was collecting rare coins but whose business was speculation. He saved no market turns or broker's commissions by partnership in a Stock Exchange house. He was just a speculator, sitting before a customers' board or near a stock ticker. And yet that man, by judgment, study, nerve tempered by caution and, above all, a readiness to see his error quickly, never made less.than $30,000 a year; dying at a good age, leaving a comfortable fortune and a collection of rare coins which brought excellenl prices.
He could select his stocks on analyzed value and
study the market movement. He would buy with confidence but always well
within his means. He would take a two-point loss on a thousand shares of
stock without hesitation if the market did not move his way. When that
discouragement happened he said that he could not form a correct judgment
unless he got out and took an objective view. He had originally about the
capital which would have been necessary to pay for the education of a doctor
or a lawyer, or to start them in business. He gave his undivided but by
no means selfish attention to what he had made his business. He was always
long of stocks early in a bull market, and in its last stages he generally
made a trip to Europe to add to his collection of coins. He was no solitary
instance. I could name others like him. But I am not advising any man to
speculate, even if he has the moral stamina to comply with the same exacting
requirements. If you have a business, that you like, one which keeps you
comfortably with a margin for the unforeseen, why speculate in stocks?
The Dial of the BoilerSome intelligent and many irrelevant questions have been put since these discussions began, and one of them, which has something of both qualities, disputes the economic necessity for the professional speculator. I am not to be drawn into a discussion of academic economics and still less into one of abstract ethical questions. I am describing the stock market barometer as it is and the great and useful service it performs. It is necessary, therefore, to explain its by no means complicated machinery. It is neither as simple as the crude three-foot tube with its column of mercury nor so complex as the highly perfected aneroid instrument. The question whether I would be willing myself to discharge the functions of a professional speculator is beside the point. We do not need to go back to the formal logic of the Greeks twenty-four centuries ago to know that there can be no argument on matters of taste.
Every bit as important as production is distribution, and distribution of capital is the greatest function of Wall Street. The professional speculator is no more superfluous than the pressure gauge of the steam-heating plant in your cellar. Wall Street is the great financial power house of the country, and it is indispensably necessary to know when the steam pressure is becoming more than the boilers can stand. It is important here to avoid getting our metaphors mixed, but the safety valve will occur to anybody. The stock market is all that and more; and the professional speculator, however ignoble or material his motives may be, is a useful and highly dependable part of that machinery. That he may grow rich in the process is neither here nor there, unless we are to adopt the bolshevist doctrine that personal wealth is wicked. There is another doctrine, held by many who would resent the epithet of bolshevism, which is in any country much more dangerous. It holds wealth, with the power it brings, as a thing for envy and not for emulation; that if we cannot legislate everybody rich it is demonstrably possible to legislate everybody poor. One short way to that end would be to eliminate the Stock Exchange altogether. But so long as it exists it is our business to understand it. Perhaps in so doing we may develop useful suggestions for improving the barometer and extending its usefulness.
From The Stock Market Barometer by William P. Hamilton, published in 1922
|Manipulation and Professional Trading||The Business of Professional Stock Market Speculation||Judgement of Value for Profits in Stock Speculation|