Evening star., 1927-04-18
THE BUSINESS OF GETTING
AHEAD,
Pitfalls of Speculation.


The hazards of speculation are par
ticularly high at the present time in
view of the fact that average security
quotations are at or near the highest
levels thus far attained
Mistakes Of judgment are more
costly in handling speculative security
accounts than in almost any other
phase Of life. In speculation the race
is to the swift. Successful specula-
ton. which is exceedingly rare, de.
pends upon a capacity to think inde-
pendently and to act instantaneously.
One of the leading spectators of this
period told me that he acts largely on
lunches, though always checking his
intuition with the known facts.
Perhaps no one since Mark Twain
has added anything of value in re-
spect to advice to the general public
on the subject Of speculation. Twain
said that speculation should be avoid
cd hy two classes-by those who have
money and those who have not.
Speculative Commitments.
There are various degrees of specu-
latiye commitments. The most dan
gerous type is that which Is based on
borrowed money, as all margin spec
ulatiOn is. Where accounts are thinly
margined, even the speculator whose
Judgment concerning future values is
correct may lose his entire stake as a
result of an intermediate reaction.
On the other hand, the individual who
bought a smaller amount OF the same
stocks outright for cash is financially
able to sit through temporary reac-
tons. no matter how drastic. The in.
diyidual who gets wiped out during
slu1nps is the one who is oXereXtended.
A leading authority on the question
of sneculatiOn lists the principal
causes of losses among the sucker
public as follows:
0) OverspecuIation. (2) Greed. (3
Ignorance and misunderstanding "a
Credulity. (5) Fear. (6) Stubbornness
ca Impatience. tS) Dependence on
tips or market appearances. CD The
employment OF stop-loss orders. 90
Dependence on charts ana Olner
mechanical methods.
Discussing the common malady oi
overspeculation Thomas Gibson, mar
ket analyst says, ANY man who
spreads his capital out so thiniy in
purchasing securities that he is not
adequately protected against possible
changes in the price level due to ac-
cidents, unexpected developments
manipulation or technical conditions
will eventually lose. He may be for
tunate for a time, and through mere
chance escape the penalties of over
speculation, but the ultimate result is
always the same. A successful cam.
paign based upon insufficient deposits
or reserves naturally leads to other
ventures along the same lines.
Egotism Is a Fault.
"Egotism is a human attribute, and
a purely fortuitous success often leads
to the assumption that the satisfac-
tory results were due to personal
astuteness. The popular fables of
large fortunes made by plungers'
tend to stimulate the appetites of
credulous people and to inspire them
to follow the same. methods. In the
first place, most of these tales of sud
denly acquired riches on a small
initial capital are untrue or greatly
exaggerated. 1t is admitted that there
are a few authentic records Of large
gains of this character, but in over
80 years of unusually close observa-
tion, the writer is unable TO refer to
single case of this kind which was
not followed by the loss Of all profits
so quickly secured"
1t is far more dangerous to be
over extended with prices at their
present high levels than in a period
of intense depression when quotations
have been ruthlessly Debated.