From The Stock Market Barometer by William P. Hamilton, published in 1922

Speculation and the Importance of Sentiment in the Stock Market

Continued from......A "Line" and an Example - 1914

Speculation's Necessity and Function

Wall Street is a mystery to many men who have unsuccessfully tried to speculate there without knowledge, only to become convinced that they have in some way been cheated in what is no better than a gambling game. It has not been the purpose of these chapters to discuss ethical questions; as, for instance, the morality of speculation or the line which divides speculation from gambling, or the place of gambling in the Ten Commandments, or the supposed special sinfulness of short selling. The personal opinion of the writer is that speculation within a man's means is unaffected by any question of morality. Perhaps this is only another way of saying that its morality is taken for granted, just as the lawful conduct of a man's business is assumed. If the man chooses to make speculation his business, or part of his business, the ethical question becomes purely academic. Speculation is one of the greatest essentials in the development of a nation. The spirit which inspires it, can be called by prettier names, like adventure and enterprise. Certainly, if no one had been willing to take a speculative risk for a larger profit than mere investment provided the railroads of the United States would have stopped at the eastern foothills of the Alleghenies, and what the maps of our childhood called "the great American desert", now our great wheat and corn-producing states, would have remained a desert for all we knew to the contrary. Rudyard Kipling once said that if the British army had always waited for supports the British Empire would have stopped at Margate beach. The speculator in the stock market, or any free market, is a fact and not a theory. He is the embryo investor who does not wait for supports. It will be a bad day for this country, and a sign that having ceased to grow it has begun to dwindle, when it abandons free markets and the free speculation which they necessarily entail.

Difficult But Not Unfair

It is not true to say that the outside speculator always loses money in Wall Street if he continues speculating long enough, as the present writer (who does not trade on margin himself) can testify from numerous instances to the contrary. But the man who means to hold his own in an encounter requiring capital, courage, judgment, caution, and arduously acquired information from study must devote the same attention to that business that he would to any other business. So far as Wall Street is concerned, the simile of a game of chance is always a bad and misleading one. But it may be said that to those who will not or cannot comply with the conditions of the game when playing against expert exponents of it, trading in Wall Street is a sheer gamble, with a deadly percentage in favor of the dealer (who does not need to be dishonest) and against such a player. No one would play auction bridge against scientific players without learning how to bid, and how to draw correct inferences in the play. He would refrain, if only out of mercy for his prospective partner. But the man who will not risk his own and his partner's money in that way will not hesitate to speculate in Wall Street. Is it surprising that he loses his money?

Who Makes the Market?

This seems an appropriate place to answer a question which may be said to go to the root of the matter. "Who makes the market?" The manipulators? The great banking houses of issue with new securities to float? The professional traders on the floor of the Stock Exchange? The large individual "operators" who talk to newspaper reporters of their profits and tell Congressional committees how they made them, but never say a word about their losses? Certainly not. The market is made by the saving, investing public of the whole United States, first, last and all the time. There is no possible financial combination which can manipulate a bull market, by propaganda or in any other way, when the combined intelligence of the investing public sees that it is time to curtail their commitments in view of a coming decline in prices, earnings and the volume of trade. The most an expert manipulator can do is to stimulate activity in a particular stock, or a small group in a market which is already rising on its merits, with the approval of public sentiment. We hear about the successful manipulation of the market, in United States Steel or Amalgamated Copper, by the late James R. Keene in 1901 and 1902; but we hear nothing of almost innumerable attempts to manipulate for distribution abandoned because the general trend of the market made the operation profitless and dangerous.  The great private financing houses are normally sellers, at securities because it is their business to manufacture them, in the promotion of new enterprises, and the direction of the great reservoir of public capital into such channels. Individual Wall Street capitalists buy for private investment, and I could tell, from the will filed for probate, of the unbelievable minor errors of judgment of this kind made by men so well informed as the late J. Pierpont Morgan or the late E. H. Harriman, to name only two of many.

Speculation's Sound Basis

It has been said before that the stock market represents, in a crystallized form, the aggregate of all America knows about its own business, and, incidentally, about the business of its neighbors. When a man finds his jobbing trade or his factory showing a surplus he tends to invest that surplus in easily negotiable securities. If this improvement is general it is all reflected and anticipated in the market, for he can buy In July and carry on ample margin what he knows he can pay for outright when he divides profits at the end of the year. He does not wait till the end of the year, because he realizes that the knowledge he possesses in July will by that time have become common property, and will have been discounted in the price. He buys ahead just as he buys the raw materials for his factory ahead, at a time when the securities or the raw materials look cheap; It is important to note, that this is in the very best sense, sentiment, which comes from the Latin verb sentire - "to perceive by the senses and the mind, to feel, to think". This is anything but sentimentalism, which is not encouraged in Wall Street.


Wall Street knows what sentiment is. It is a thing of high emprise, of adventure, of noble effort to a worthy end. It carried Boone across the Appalachians, and the Argonauts of 1849 through the passes of the Rocky Mountains. It is something we inherit from our forefathers of Shakespeare's time. It is what they brought with them when they put out upon the trackless sea, defying the galleons of Spain, and named a plantation on an unknown continent after their Virgin Queen. Virginia is still here but, as Austin Dobson sings, and Admiral Dewey might have asked, where are the galleons of Spain? This sentiment is a life-giving principle in national growth, not to be confused with sentimental statutes for "an official state flower," with "smile weeks" and slop-over "mothers' days." In the English-speaking race it is a perception which greatly survives for great occasions. It was sentiment which first gave a kingly funeral, and a memorial stone in Westminster Abbey, to the Unknown Soldier who had saved the race. It was sentiment which made all London still its voice and hold its breath, one year, to the minute, after the declaration of the armistice. I spent those exalted two minutes at the Mansion House Corner, in the City of London, in November, 1919. It was a moving sight, indeed, when it could bring tears to the eye of the hardened newspaper reporter.

A great price movement is not the ordained outcome of enlightened individual choice, or even of individual leadership. It is a thing far greater and more impressive, at least to one who has learned, from personal contact, in Wall Street and out,

"How very weak the very wise,
How very small the very great are."
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From The Stock Market Barometer by William P. Hamilton, published in 1922

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