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- Herausgeber: Booksell-Verlag
- Kategorie: Fachliteratur
- Sprache: Englisch
In "The Theory of Stock Exchange Speculation," Arthur Crump meticulously analyzes the interplay between human psychology and market dynamics during an era of burgeoning financial markets. Written in a clear and accessible style, this work blends theoretical insights with practical observation, illuminating the mechanisms of speculation that drive market fluctuations. Crump contextualizes his arguments within the historical development of stock exchanges, offering readers a profound understanding of the speculative forces at play and their implications for investors and policymakers alike. Arthur Crump, an astute observer of economic trends and a practitioner in the financial world, draws upon his extensive experience and academic background in economics to craft this seminal piece. His engagement with the socio-economic factors influencing market behavior reflects his conviction that human emotion plays a critical role in decision-making processes. Crump'Äôs insights are particularly relevant amidst the volatile economic landscapes of his time, characterized by rapid industrialization and the democratization of investing. This book is an invaluable resource for scholars, investors, and anyone interested in the intricacies of financial markets. Crump's convergence of theory and practice not only enhances our understanding of speculation but also equips readers with the analytical tools necessary to navigate modern investment landscapes.
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Veröffentlichungsjahr: 2019
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The Theory of Stock Exchange Speculation
Table of Contents
PREFACE.
Some years ago I came across a book, called “Crump’s Theory of Stock Speculation,” which had gone through several editions in England; and the practical wisdom expressed therein impressed me so forcibly that ever since then I formed the project of publishing an American edition.
The reader may be astonished that, as a broker, I desire to give such a book a larger circulation than it possessed heretofore, as the natural conclusion would be that it might injure my business. I feel, however, that it is not so, and think that a broker loses nothing by doing his duty in warning his clients against danger, and showing them the pitfalls.
I do not quite agree with the author of the book on every point, especially when he seeks to convey the impression that it would seem almost impossible that any profit could be derived from Stock Exchange speculation. During my long experience I have seen many speculators accumulate large fortunes, and I believe that when speculation is conducted by a clear-headed man, as a matter of business and not as a matter of amusement, it offers great chances.
Where the strength of Mr. Crump’s work lies is in his showing what attributes of character a man must possess to be successful, and with these attributes a man must prove successful in stock speculation as well as in any other business. Condensed, these attributes are: first, a clear head; second, capital; and third, patience.
I do not agree with Mr. Crump, that a speculator, to be successful, must be a hard-hearted, selfish man. I found it different with most of the prominent men in Wall Street. Of course, if a Gould or a Vanderbilt buys up a whole railroad, he cannot very well take many people into his confidence; but these men are not what is generally called speculators—they are generals or diplomats, and they are not different in their actions from generals in warfare or diplomats in politics.
Outside of this class, I found generally, when I asked one of the prominent speculators for his opinion of the market, that he gave me his true and candid opinion of the future of the market; and the probabilities are that, if even not acting on this opinion at that very moment, his general policy was based on such a forecast of the market’s condition.
The strength of the successful speculator lies in his observing the important principle set forth by Mr. Crump on page 60 of his work. “Speculators never set sufficient value on the importance of avoiding a loss—they think only of the profits.” As it is with our money affairs when we say, “Look after the pence; the pounds will take care of themselves,” so it is with speculation. Look after the losses; the profits will take care of themselves. Never refuse a profit, is a golden motto for speculators, which unhappily few of them, in their greediness, have the courage to adopt. The observance of this rule is the main cause of the success of the best speculators, and the non-observance is the cause of failure of even their confidential friends.
Very few fortunes have been made in Wall Street at one stroke. Fortunes which were made in that way were generally lost again in a very short time. Most of the long, lasting, and solid fortunes were made by a gradual accumulation of profits extending over a great many years. The beginnings of these were sometimes quite small, and, as the capital increased, larger operations were entered into.[1]
Another cause of failure is the habit of taking larger risks than the means of speculators warrant. They naturally become nervous when they begin to see their capital dwindle away, and then begin, what is called in Wall Street, to “chip out.” Now this is the curse of the speculator, not so much on account of the loss, as on account of the demoralization it will lead him into. Of course, big losses ought to be avoided, but at the same time well based and matured operations may sometimes be temporarily upset by a temporary manipulation of the market, or by some accidents which however right themselves in a few days, and cannot seriously interrupt the natural course of the market. In such a market a nervous speculator may “chip out” a fortune, and still be right in his views as to general conditions.
I think it is better to make one loss of 5 per cent. or so, when you know you are wrong, than to make three or five losses of 1 per cent. each, when you do not know whether you are wrong or right, and in this connection Mr. Crump has very much undervalued the importance of options.
Options, if considered in their proper light, are the most important adjunct to speculation. They will enable the speculator to bridge over many difficulties, and furnish capital to speculators who know how to use them.
I do not say this simply because I am a broker in options, but because it is my honest conviction that options are cheap at almost any price, when a speculator has occasion to use them. If money is lost by buyers of options, it is because many of them are bought by people who have not sufficient reasons for doing so, and after the option has been bought, the owner does not know what to do with it. I have, for example, known people to be bulls on Lake Shore, and then go and spend money for a put in Western Union. Is it any wonder that men who do business on such principles lose money?
That many stock brokers object to options is natural. They look out for commissions, and greatly prefer to buy and sell several times a day on stop orders or on margins, even if customers lose money thereby, rather than see them make money two or three times a year, through operations extended over periods of two or three months each.
I do not mean to say that all stock brokers are of this kind, but if speculators recall their own experience, they will undoubtedly remember how often their broker said to them, “Cut your losses,” if the transaction was against them, while, if the transaction showed a profit, the advice was, “Taking profits will never make any man poorer.” All these things make commissions for the broker, and this is the object of his business.
Another reason for the unwillingness of some brokerage houses to encourage speculation against options must be found in the fact that a great many of them have not sufficiently large capital to enter upon large transactions without any other margin than the option. Although I acknowledge that it is hardly fair to ask a broker to do an unlimited amount of business based on options alone, the fact, nevertheless, exists that the strongest houses have always been glad to encourage trading against options, and only the more insignificant houses are opposed to it.
A well planned and matured operation, looking far ahead, backed by ample capital and patience, is the only way to make a fortune at the Stock Exchange, and prudence demands that in case the speculator’s idea should have been wrong, he should have a safe way for a retreat open. Options will fulfill all these demands; and no matter how expensive, if the speculator can afford it, it is the only way of speculating in a safe and reasonable manner.
There are some people who are under the impression that they know everything already, and have nothing to learn, and such may be amused, but not benefited, by reading this book; others, however, who are inclined to speculate (and there are and always will be many of them) cannot fail to derive great benefit from the perusal of Mr. Crump’s interesting work, and I hope I may put money in some people’s pockets or save others from ruin by sending this book forth among the American people.
H. W. Rosenbaum.
New York, Nov., 1886.
The last chapter in Mr. Crump’s book, entitled “Outside Criticism on the Causes of Disturbance in the Money Market,” has been omitted in this edition, as it relates simply to questions about the policy of the Bank of England in regard to regulating the discount rate, and a controversy and correspondence on this point between Mr. Crump and Mr. Bonamy Price.
As this whole question is of no practical value or interest to the American reader, I thought it expedient to omit the whole matter.
H. W. R.
INTRODUCTION.
Our object in writing this book is to endeavour to show to persons who may contemplate trying their hand at Stock Exchange speculation, the improbability of their hopes being realized. Much mischief and trouble would be avoided, and a deal of money saved, if, before entering upon such a dangerous career under the most favorable circumstances as that of a speculator, a study were made of the difficulties such an occupation involves, and also of the chances against the operator, considered as one individual versus the Stock markets. It is melancholy to think of the vast sums of money that are invested in the most serious sense of the word, annually by Stock Exchange speculators in the purchase of a sorrowful experience. It seems to be in the nature of things, that numbers of people must come to grief in their early struggles, through an obstinate determination to trust complacently in their own ingenuity, in preference to profiting by the experience of others. A mountain climber who disclaims the aid of a guide, and is subsequently fished out of a crevasse, can expect no other epitaph, even from his friends, than that he has paid the deserved penalty of extreme temerity and folly. There are probably many guides who can ensure a safe passage over most mountain defiles, but he would be a bold man who guaranteed to pilot a young speculator through the Stock markets, and bring him out to a certainty with a profit.
If a speculator asks the advice of what we will term “an old hand,” and it is in his interests to tell him what he really thinks, he will say: “Leave it alone.”
Why so many people will never be convinced except by their own personal experience is, that they cannot believe what others say of things that are hidden.
“Hereof experience hath informed reason, and time hath made those things apparent which were hidden,” says Sir W. Raleigh.
says Milton; and
says Pope.
Stock Exchange speculation is very deceitful to the eye, and also to the ear. In some respects its associations are like those of a morass, under whose smooth and inviting surface are hidden the remains of unwary travellers. Those who are new to the business see only the glittering surface, and hear only of the fortunes made by stock brokers. People seldom tell of their losses.
Individuals who are tempted, not only by curiosity, but by a love of excitement, and more than all in this case by the love of gain, go into the markets and lose their money, and quit the place with much the same feelings as the man who paid a penny to see a horse with his tail where his head ought to be.
“If we hope for things of which we have not thoroughly considered the value, our disappointment will be greater than our pleasure in the fruition of them,” wrote Addison.
The most brilliant good fortune which may result from the operations of a speculator generally fall below his anticipations, when the operations are reduced to figures. It appears that the imagination gets, as it were, diseased by feeding on the contemplation of very rapid gains; and that whatever may be the reality of a hypothetical gain, the mind gets bewildered and fails to estimate as an element of loss, the surrounding husks in which the fruit is enclosed. One forgets that every tangible advantage, in whatever form obtained in this life, has to be got out of a shell. What, then, must be the speculator’s feelings when the balance is on the wrong side of the account?
It has been suggested that the abolition of “time-bargains” would materially, if not quite, prevent much of the mischief that results from speculation; but it is no more possible entirely to do away with the custom of “time-bargains” than it is to abolish credit in other kinds of business. It may be readily conceded that a very large number of those who are ruined or greatly injured by Stock Exchange speculation, would never operate at all if they were called upon even to make a deposit before the purchase was effected. But when it is considered that to abolish “time-bargains” would be to ruin at once half the brokers in existence, the difficulty of effecting what from one point of view would be a most salutary change of custom, will be understood. In our day money is so closely employed that a fortnight is not too long to get the funds together, when, for some good reason or other, a change of investment has been determined on. It is often that such a transfer gives rise to a course of speculation that ends in disaster. A purchase effected for the account[2] with the view of changing from one stock to another leaves at the end of the fortnight, we will suppose, a handsome profit. The buyer of the stock takes it, and postpones the intended change of investment, thinking he shall get rich sooner by such an operation as that, than by simply transferring his money to another security that promised a better yield per cent. He has another try, expecting the same good fortune. In the end he loses as usual on balance, which he would not probably have done if he had bought and sold for money, finishing the operation on the same day. This is what often causes loss to people who can afford to lose, if they stop soon enough. The great mischief is done by the facilities afforded by “time-bargains” to operators who have a little money, just sufficient to enable them to keep afloat as speculators in fair weather. The first serious disturbance that violently agitates prices sweeps them away in a shoal.
