Читать книгу The Theory of Stock Exchange Speculation - Arthur Crump - Страница 4

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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.

“But apt the mind or fancy is to rove

Uncheck’d, and of her roving is no end,

Till warn’d, or by experience taught, she learns

That not to know at large of things remote

From use, obscure and subtle, but to know

That which before us lies in daily life

Is the prime of wisdom,”

says Milton; and

“But if you’ll prosper, mark what I advise,

Whom age and long experience render wise,”

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.

The question which a sensible speculator will ask himself before he begins to operate is, What are the risks incurred of losing his all at one stroke? De Morgan, in his book on probabilities, says in Chapter V., on the risks of loss or gain, “A man should not hazard his all on any terms; but in ventures the loss of one of which would not be felt, we may suppose the venturer able to make a large number of the same kind; in which case the common notions of mankind reinforced by the results of theory, tell us that the sum risked must be only such a proportion of the possible gain as the mathematical probability of gaining it is of unity. For instance: suppose I am to receive a shilling if a die, yet to be thrown, give an ace; in the long run, an ace will occur one time out of six, or I shall lose five times for every time which I gain. I must, therefore, make one gain compensate the outlay of six ventures, or one-sixth of a shilling is what I may give for the prospect, one time with another. But one-sixth is the probability of throwing the ace. Principle—Multiply the sum to be gained by the fraction which expresses the chance of gaining it, and the result is the greatest sum which should be given for the chance.”[3] “A man should not hazard his all on any terms.” Does a man who enters upon a career of speculation take the trouble to consider at starting whether or not his first operation places him in a position in which he hazards his all? There is not probably one speculator in a hundred who ever thinks of it at all. We will suppose a man to be worth £200 in cash as his all, applicable to the payment; of losses. It may safely be stated that numbers of speculators open accounts with a less sum, in fact a considerable proportion of speculative operations are entered upon in reality without any funds at all; misfortunes in other vocations being frequently followed by gambling in the Stock markets. A speculator with £200 to pay losses with is in this position if he buys, for instance, for the rise £5,000 of any English railway stock; a fall of 5 per cent., which even in two or three days is nothing very extraordinary, carries him £50 “under water.” What can he reckon upon on the other side, by keeping the account open, that is a mathematical certainty like the occurrence of an ace one time out of six in the long run in throwing the die? If he be exposed to such a loss at any moment as that mentioned, the risk is an absurd one to run if there is not at least an equal chance of a similar rise, and several times £250 in reserve. But all experienced in Stock Exchange fluctuations know that upward movements are, as a rule, gradual, a rise of 1 per cent. being considered as a profit which a speculator should without hesitation take, while a fall all round in a market of two or three per cent. in a day is of more common occurrence.[4] It may here, perhaps, be retorted that if a fall of 5 per cent. is nothing very extraordinary to happen in a few days, while a rise is, as a rule, gradual, why not speculate for the fall? The answer is, that the public are very seldom indeed bears. It goes against the grain. Speculation with the public, as a body, is a fair weather game. When the most potent influences are affecting the Stock markets downwards, ordinary people hold aloof. We shall go more into detail with reference to this peculiarity farther on. That it is so is a fact, and it is easily accounted for. When you are dealing with a die, a hexagonal body, you know that it must fall on one of its six sides, and that each side to a certainty will have its turn, and therefore a mathematician is able, from there being a limitation set to the risk incurred, to estimate to a fraction what amount a thrower of the die can afford to venture, five times out of six, on the chances of the ace turning up, so that in the long run he will not lose. A game of die-throwing for money, conducted by one of two players upon principles based upon the doctrine of probabilities, and upon conditions to give him a certain profit, can only be continued for a short time, as the absurdity of it becomes speedily evident to the other player, and play ends. Those with whom outside speculators deal in the Stock markets get all the profit also in the long run, much upon the same system that professional bettors on horse-racing always win in the long run by backing the field. In the die-throwing gambling there is no mystery, at least very little for the ordinary understanding. A person of average intelligence who is quite unable to comprehend that it is a mathematical certainty that a die will show the ace upwards, in the long run, one time in six, can be got by simple observations to see that in a great number of throws the ace will have appeared about as often as once in six throws. The fact of his losing his money through betting that it would not be so would, in any case, bring the truth home to him. The case, however, of speculation in the Stock markets is very different. Although so large a proportion of speculators speedily lose their money, a large proportion of them also, when quitting the arena through want of capital to go on with, seem to entertain a strong conviction that money is to be made at it. There is very frequently an impression left that if this and that, and the other, had been done instead of what was done, the result would have been otherwise. They regret that their purse was not longer that they might try again, feeling sure that with such a rich experience they would avoid the mistakes that had landed them losers. The Stock Exchange speculator has an innumerable number of influences arrayed against him, at least one-half of which he never sees at all until, like the sunken snag, which sinks the steamer without any warning, one or other of them wrecks his fortunes before he is aware of his danger.

A speculative operator has a very dangerous basis upon which to lay the foundations of the argument by which he endeavours to justify himself, and it is this. He says to himself: “there are only two ways for a price to move—up and down.” At first sight the chances seem to be as much in his favour as against, and he thinks the failure of others to make a profit must have been the result of mistakes made by them, which he will avoid. But does it occur to such an one that if there were any easy and certain method of making money by speculating in stocks everybody who had a little capital would at once commence to speculate? Speculation in the Stock markets has almost irresistible attractions as a mere amusement, quite apart from its being a kind of occupation which is the most luxurious and exciting mode of making money. It must be evident therefore from the comparatively few persons who habitually speculate, that large numbers are simply driven away from the markets through a conviction that such a vocation must end in disaster. The dangers of Stock Exchange speculation are made apparent when, as a species of gambling, it is compared with the games of chance, whose evil effects upon the community have been at last recognised by the abolition of the tables at Hombourg, Ems, Baden Baden, &c. The conductors of the Bank at the Palais Royal were fully alive to the necessity of limiting the stakes, and also as regards the number of persons with whom they would play at once. Governments are stepping in by degrees to suppress gaming houses, and it would have been more to the credit of Germany if the tables at the above-mentioned places had been done away with while the effects of the golden stream from beyond the Rhine were as yet unfelt by the comparatively poor exchequer at Berlin. The interference of a government is shown again by our own legislature having declared that A should not insure the life of B, unless it can be shown that A has some pecuniary interest in B’s continuing to live. The law, however, is for the most part evaded. Such systems are therefore looked upon as bad; but because it is difficult for governments to define in Stock Exchange gambling where bona fide business ends and the gambling begins, the most injurious of all games of chance is played year after year upon an increasing scale. At the first beginning of prosperity with a comparatively poor community, gambling springs up in these times in stocks and shares. As a result of such operations Vienna went half mad in the first half of 1873, which was followed shortly after by a financial crash and the suicides of certain bankers at Posen. Older communities, which have passed through the only crucible which in this life teaches people that if money is to be made rapidly the process must be attended with a proportionately large risk, are observed, as time goes on, to be less exposed to the headlong financial panics such as that in which the speculation at Vienna lately culminated. Commercial revulsions of one sort or another, and of greater or less violence, will probably occur during all time at intervals, wherever commerce is carried on, but the gradual fashioning of laws with the view to confine the injurious effects of over-speculation and over-trading within limited areas, as for instance the limited liability acts, will more and more render it possible to stand between the dupe and the financial sharper, and also to observe the gathering together for harm of the dangerous influences, so that they may be provided against in time, or checked at an early stage of the disease. Among the operators at younger commercial centres there is a more feverish desire to gain, but the efforts to satisfy it are not kept in check in the same degree as in places where memories of disaster cluster in traditions among the people, and inspire the growth of prudence, almost as if it were an instinct.

Farther on we shall call attention to the way in which an outside speculator on the Stock markets is handicapped with turns, commissions, and contangoes.[5]

Very few persons, if any, will be found to dispute the statement that speculation on the Stock Exchange is gambling. The highest mathematical authorities maintain that there are but two conditions under which gambling can be prudently followed as an amusement, viz.: small stakes, and equal play.

The ordinary gambler in the Stock market is no better off, as regards his chance of winning, than a player against a bank, which can only make certain of winning against all comers in the long run by the protection of a mathematical advantage. In the case of a bank established as a gaming-house the initial condition of existence has always been in the long run either bankruptcy to itself, or ruin to the individual players. As the banks have always flourished, the players, in the long run, must always have been losers.

A gaming-bank is an institution with limited means offering to play all who enter; or, in other words, it is limited means against unlimited means.

The Stock Exchange occupies a parallel position to that of the bank, and the operators[6] in the markets are protected in such a way that the outside player at speculation must in the long run lose, or no one would be found to take up his challenge. It must be obvious that supposing an outside speculator had any advantage when speculation in stocks and shares were first practised, and through such an inequality of terms he was on the average the gainer, experience would soon show the necessity of rectifying such a state of things, and what would be tantamount to the mathematical advantage secured to the gaming-bank would be speedily arrayed against him.

The number of people who play publicly at games of chance is very small compared with the number of people who gamble in mercantile transactions. And whereas the former are diminishing, partly from compulsion, as in the case of Germany of late, and partly through the more enlightened state of the human understanding as regards the immorality of this kind of amusement, the latter appear to multiply in proportion to the general increase of wealth, the ever enlarging fields in which public securities are dealt in and commercial transactions are negotiated, and also in proportion to the facilities afforded for speculation generally. The latter part of this sentence should, however, be qualified by the remark that the spread of wealth enables younger and less experienced persons to engage in speculation in a larger proportion as compared with the whole community than formerly. The difficulty of living and the ambition not to fall below the standard maintained by the well-to-do, tempt numbers of young men to endeavour to increase their income by speculation. And moreover as regards Stock Exchange speculation it is unfortunately much against the interest of the stock broker to make public the failure of his clients, hence it is seldom that the wholesome warning of publicity deters others from entering the arena.

Outsiders entering upon speculation with professional dealers in the Stock markets make two mistakes on the threshold. Firstly, they commence upon unequal terms, the effects of which adventitious favourable influences have never more than compensated for, in the long run. Secondly, supposing the terms were permitted to be equal, the outsiders’ stakes would be too large a proportion of their means. The losses incurred by speculators as a body have always been upon such a scale as to dispose of the theory advocated by some persons that the mere charges of commission, contangoes, and the “turn” are the only obstacles to success.

Now, if the playing of public games of hazard are on the decline from the interference of the State on moral grounds, the question arises: are there any considerations applying to Stock Exchange gambling, which, as a game, raises it above other games of chance, and entitles it to special privileges? Does the outside haphazard speculator stand a better chance as against the Stock Exchange, than a player at Rouge et noir against the bank? The answer must be No. Exactly the same considerations apply to commercial speculations as to other games of chance in which no absolute certainty exists. Mathematicians lay it down as a law, that if any possible event which cannot frequently occur in a game of chance, but which is, nevertheless, a part of the nature of the game, if a bet or stake be made upon the recurrence of that event in a proportion to some large gain which it is agreed that event shall secure, then prudence demands that the game shall be often played; and if this be impossible it shall not be played at all. Here we come to the crux of the whole question of Stock Exchange speculation. Unless a speculator, handicapped as we shall show he is to start with, has enough means to enable him to hold out for the arrival of the event, the occurrence of which is absolutely necessary to his keeping above water, he should not speculate at all.[7]

What is the one event constituting the benefit for which the speculator operates? it will be asked. The answer is, the greatest fluctuation in the direction favorable to him which may be caused by any one of the many influences that may spring into action at any time. This is part of the mystery which allures people on. If you tell persons who are throwing a die that the six will turn up once in six times in the long run, they can form some estimate of their chance of winning. But until a Stock Exchange speculator has been roughly undeceived, his understanding gets entangled so that what he sees clearly only at first, is what is in his favour, because his first interest is to discover that. What is against him, he disregards until he has discovered it has undermined him, and all goes together.

In cases where the public play against a bank, it is so managed that the bank has a better chance than the players. It is so managed that a considerable succession of losses can be sustained against the good luck of any comer. One side always secures to itself the benefits of the long run. The haphazard speculator stands at the same disadvantage as the player against the bank. His position is always relatively inferior. When the balance is nothing, as worked out by the following rule as stated by De Morgan, then the play is equal:—“Multiply each gain or loss by the probability of the event on which it depends; compare the total result of the gains with that of the losses: the balance is the average required, and is known by the name of the mathematical expectation.”

It must stand to reason that an outside speculator plays upon unequal terms, otherwise it could not be worth the while of the other side to engage him. As well might we expect a man to set up a shop and sell his goods at a loss. Then we come a step farther, and ask if it be any use for a Stock Exchange speculator to operate if the terms be equal? If such numbers of persons find themselves induced, by the estimate they are enabled to form of the chances in their favor, to play on terms more favourable to their antagonists than to themselves, their prospects would seem to be much improved if the terms were made equal. Although the position of the speculator be improved to the extent of the terms being equal, it is absolutely indispensable that the operations be kept open for a considerable time[8] in order to secure the mathematical expectation which can have no existence except through continuity. With the play in favour of the gambler, he stands no chance even of holding his own, unless he makes sure of being able to continue over such a number of trials, or during such a period of time, as will give him the benefit of an average of the ups as well as the downs of fortune.

As at cards so at Stock Exchange speculation, there must be two kinds of luck, ill-luck and good-luck, as the changes of fortune which are worth while taking account of. A man speculates, gets his turn of good luck and pockets his gain, treating the money as if it were ore from a mine, or something added to the realized wealth of the world, a pure plus as compared with a plus leaving a minus. For every profit made by a speculator, and for every realized profit made by a bona fide investor, there must be a corresponding loss. The man who in his turn is a winner, must also in his turn be a loser, and what he was plus when he won, he must be minus when he loses.

If the manager of gaming-tables secures to himself a mathematical advantage only sufficient to cover the expenses, he will infallibly be ruined at last. It may be in one year or in five, or ten, but ruined he must be. But he provides adequately against this, and in the long run those who play with him must be ruined. So it is with Stock Exchange speculators.

It is the character of negative events to lay less firmly hold of the mind than positive ones. The minds of Stock Exchange speculators are like other people’s minds. A speculator will often attribute a certain movement in prices to an influence which happened to be exercised at a particular moment, and he contents himself with the apparent connection of the two, and looks no farther. On another occasion, when operating in the same way, immediately upon the recurrence of the same influence he is bewildered to find prices move in an opposite direction. This comes from being satisfied with any solution which lies on the surface, and chances to catch the eye. It used to be supposed that comets were the cause of hot weather, and the theory was considered to be well founded, because more comets were seen during the summer months than at other seasons of the year. Hot and cloudless weather is most favourable for seeing comets, but they are no more productive of hot weather than is hot weather of them. This circumstance being fixed upon by one class of theorisers, shows how an event which is positive lays hold of the mind of any person who may be interested in certain effects and is in search of the causes. It is of great importance, in endeavouring to connect certain effects with specific causes, to mark carefully two distinct things, first, the occurrence of an event, and, secondly, our observation of it. Many entirely wrong deductions as to the causes of fluctuations in the value of money, and in the prices of Stock Exchange securities, are made from negligence in this respect.

As every rule has its exception, so in speculation are there a few professional experts who succeed at it as a business. What is contained in these pages is not for the expert, who is well able to take care of himself, but for the ordinary haphazard operator. The professional speculator, who has the right sort of head, sufficient capital, patience, perseverance, coolness, and a business-like aptitude for laying down the elaborate machinery that is necessary for mercantile success, may succeed. In the following chapters it is our intention always to make this reservation, and in speaking of the speculator, who must always lose in the long run, we refer to the ordinary run of men, whom we will designate as haphazard speculators.