Evening star. [volume] (Washington, D.C.) 1854-1972, 1933-08-05
FEARS ARE EASED
BY MARGINS CURB
New Rules Expected to Prove
Safeguard Against Wild
Speculation.
BY GEORGE T. HUGHES.


Special Dispatch to The Star.
NEW YORK, August 5.-If the new
rules promulgated by the Stock Ex-
change with regard to margins deter
speculation by those financially un-
equipped for it, great good will have
been accomplished.
The best essay on speculation ever
written was the work of D. G. Watts,
who was president Of the New York
Cotton Exchange from 1873 to 1880. In
it the author laid down as the first
principle of trading, never to be vio-
lated, that one must not assume a
risk greater than the capital available
warranted. To ignore this primary re-
quirement Is to invite disaster.
In so far as raising margin minima
prevents speculation by those lacking
the necessary means, q beginning has
been made to eliminate the unfit and
thereby to protect both them and the
market.
But that is only the first step. One
may be financially able to assume a
risk and not fitted for 1t mentally. For
it is not enough to possess the tools OF
the trade, art If you will; one must
know how to use them. If speculation
is not to degenerate into gambling.
something which the senatorial critics
Of the stock market apparently be-
lieve to be impossible, 1t must be
founded on accumulation and inter-
probation Of all the facts pertaining to
the economic situation as whole and
to the particular problem involved in
specific commitment.
Prefer to Take Tips"
That is q large order and few specu-
lators have time or inclination to make
the research for themselves, or even
to consult those who have made 1t:
Instead they take tips" or pointers,
as they are now called.
However, granting that a Spectator
has the means and the information,
there still is something else needed.
He must control his emotions, and II
is right here that most OF them fail
A professor in a teacheu college
was quoted the other day as estimating
that the odds against the average
man" in the stock market were more
than IL to /. The professor under
stated it. The odds are much
larger than that against success. The
reason is that once a commitment has
been made, fear and hope alternately
supplant judgment in the mind OF the
trader.
The professor complained that spec
ulators fail to take profits. Some Of
them do, of course, but more Of them
fail to take losses, and that is an even
greater mistake. The main handicap
to success, however. is in allowing the
matter of profit or loss to enter into the
calculation at all
Let us look into this aspect Of the
matter a little more closely. Suppose
$hn q
speculative operation has examined all
the facts obtainable with regard to it,
and has come to the decision that the
venture should be entered into. Sooner
or later he finds himself faced with
a paper profit or a paper loss. Now
in reaching a conclusion as to the flu
ture of the market for security or a
commodity, the fact that an individual
speculator has profit or loss Is no
help. On the contrary, 1t Is a hindrance,
and unless the trader can divorce from
consideration the effect on himself he
is hopelessly handicapped.
Concrete Case Cited.
To make 1t simpler, take a concrete
case. A speculator has purchased, on
margi nor outright-it makes no diff
ference-l00 shares Of United States
Steel common stock at $50 a share. He
has made diligent inquiry into the
status Of the steel trade and familiar
lied himself with the financial back
ground and outlook for the steel cor
poration. The market for Steel COM
mon advances to S54 a share and the
trader has paper profit Of $500.
Now. in arriving at a decision as to
what is likely to happen after the stock
has reached this point, the fact that
this trader has the profit Is immaterial
1t will not influence the market a par
ticle whether one individual has a loss
or a profit. It may distort the judg-
ment Of the one person concerned, but
1t will have no effect on the future of
the stock. And no one can permanent
ly remain solvent as a speculator un-
less he lets the profits run and cuts
the losses short"
So far we have taken it for granted
that profit is indicated on this sup
posititious trade. The case is much
stronger If there Is loss. Nine out Of
ten inexperienced spectators will
weigh against every outside develop
ment that indicates a turn for the
worse in the steel business, or in the
affairs Of the Steel Corporation or even
In the general industrial situation, the
fact that the stock in which he is in
terested is selling below the price he
originally paid and that to liquidate
now would be to realize q loss. Once
again, that fact has nothing to do with
the matter. It will not revive failing
business prospects nor turn q declining
market into an advancing one. All it
does is to make the individual incapable
OF analyzing for himself or permitting
any one else to analyze for him.
No rules that the Stock Exchange
may make or enforce can save any
Speculator from himself.
(Copyright, 1033)