The Washington herald., 1914-11-28
The Adventures Of an
.,. Emotional Investor
tcOpyriEht, lgli, b. G. ". Ksysl


tCopyriEht, 1914, By @. N. KsyAl
In these extremely quiet days in Wall
Street there IL plenty Of eme for con-
versation and 1t IL quite a usual thing to
meet groups OF brokers and bankers who,
contrary to their normal custom, take
plenty of time for lunch. In one such
group recently the conversation turned
upon the adventures Of various clients
with their money. This topic produced
a food OF "reminiscences from the per-
sonal experience of those who told them.
Most OF the stories, Of course, were tales
of sudden acquirement of. wealth, or
wealth Suddenly lost through unfor-
tunate speculation. Here and there, how
ever, incidents transpired that were
worth consideration from the standpoint
OF the real investor.
One broker, the business OF whose house
is largely investment, told an incident to
illustrate the danger of allowing emo
tions to play any large part in the max
ing of investments. The illustration Is
almost an extreme one, but It serves its
purpose very well. 1t is a common say
ing, and an accepted principle. that the
business OF handling money should be
purely a business and should not be die
tated by sentiments, fancies. fears or en-
thusiasms.
This story" said the old broker, Do
gan in 1901. One of my customers who
usually bought very conservative things
like bonds and standard preferred stocks
took it into his head that he was going
to speculate in United States Steel 1t
was a new stock and there was a great
deal of enthusiasm about 1t. He did not
want to buy very much, but whatever
he did buy he meant to sell again when
he saw a good advance in the price. and
then to leave it alone. The intention was
quite a common one in those days, even
amongst conservative investors.
He bought II at 40 It advanced a lit
tie but none Of US suggested TO him that
he sell, because We DO not generally make
a habit of advising about speculative
commitments. Anyway. he paid cash for
1t and owned the stock, and We saw no
particular good reason to disturb
II. He held it until 1904 He came
in one day while the general market was
going all to pieces, and said that he had
come to the conclusion that he had made
a mistake in buying Steel and that he
wanted to sell it. The manager of the
Office deplored the sale at such a time;
but he executed the order at Is. The
investor, therefore, took a loss OF IS
points, or $500 on his twenty shares Of
stock.
THE next time that this stock occur
red to this investor was in 1905, just about
year later At that time he came in
and expressed the opinion that he had
made a mistake In selling 1t and wanted
To buy It again. He bought IT at Is. A
little more than two years later he came
back and sold 1t during the panic period
of 1907 at 3, taking an additional loss of
S4OO on his twenty shares Of stock. talk
ed to him personally at that time and
commiserated with him on his bad luck
in speculation, as compared with steady
income and comparative immunity from
even sentimental disturbances that he
had enjoyed in his other investments. He
took it philosophically, but it seemed to
me that he had made up his mind that
at some fine or another he was going
to get his money back from United States
Steel stock.
Sure enough, he tried II again two
years later. He bought Steel common at
IS. 1t went on up and touched 95. On
that day, said the broker, he called up
on the telephone and wanted advice from
one of my men about selling. He put
in an order TO sell it at s.. but the order
was never executed, because the market
did not hold. He sold that stock nearly
five years later at 55, taking an addi-
tional loss of 30 points, or 500. So far
as my office records are concerned, that
The total losses, leaving out of consid-
Grafton any dividend he may have re-
ceived, amounted to 1850. At no time
did he have any more than twenty
shares, so that his loss may be figured
at SIS a share. He did not actually buy
at the top or sell at the bottom In any
case, but came pretty close to 1t now
and then. His method was, of course,
the exact reverse Of the successful meth
cd in stock speculation. 1 have often
thought of his experience and talked
about it to him as being the best illus
tration I have ever encountered of the
way the public plays the stock market" /"
While II Is extreme, the experience Of
this investor is duplicated In a lesser de-
gree in the records OF every house that
deals in securities. Once in a long time
one encounters q trader amongst the
people who reverses the process, buying
low and selling high. Such q man al
most invariably comes to the conclusion
that he has invented a system to beat
the game. About one out of ten of such
successful traders carries It on year after
year with perfect success. The other
nine let their initial success lead them
into larger amounts and finally comes a
cropper in one fine spectacular smash. 1t
Is not difficult to guess that a good many
all about the trading business, found out
in August, 1914. that there were still
some things that they did not know.
Dozens of instances of this sort have
come under the observation of the writer
and. OF course, there are thousands of
such instances all over the country.
The gist Of the story is that the trad
ing business is too hard and cold
process for the ordinary
man to carry on. II a man is success
full, what he is supposed to do is to curb
his enthusiasm and keep his trading
within the same limits with which he
started. II he finds himself wrong, on
the contrary, the successful trader will
either cut his losses very short or will
await favorable moment and buy at
the low prices instead of selling out, thus
doubling his commitments, but lower
ing his average price. Such process
is far too cold for the average man.
This average man; in fact, will let his
Tears, enthusiasm, thoughts, fancies and
Whims dictate his activities with the al
most universal result that other men,
VINO have no enthusiasms, no fancies.
no whims and no fears, finally get his
money and he gets nothing but expe-
rlence In return for it,