From The Stock Market Barometer by William P. Hamilton, published in 1922

The Advantage of Wall Street Professionals

Continued from...Nature and Uses of Secondary Swings

Advantage of the Expert

Some authorities on auction bridge estimate that good cards constitute 80 per cent of the advantage in the game. An indifferent or unsound player can win, and even continue to win over an extended period, if he holds good hands, enjoys rather more than average luck and is blessed with good partners. But the remaining 20 per cent makes the vital difference between the incurably mediocre player and the expert. Playing constantly over a sufficient period of time to average the demerit of chance, the first-class player must win. He will win, moreover, without any unfair advantage. If, indeed, he depended upon collusive information from his partner, for instance, he would be merely a sharper and never a really first-class player. The advantage of the crook has always been overestimated. His mentality is at some point defective, or he would not be a crook. I have fallen in with a few - surprisingly few - crooks in Wall Street, in both the professional and the amateur class. They are soon detected, and with their sole advantage eliminated they find their level at the very bottom of the heap. Nemo repente fit turpissimus; and, in practice, they amount to little.

Graduating Professionals

Of the many successful speculators who fight for their own hand, like Hal o' the Wynd, those who, not being members of the Stock Exchange or partners in any brokerage house, are therefore obliged, to concede the broker's commission and the market turn, all sooner or later become, in every intent, professionals. They devote to the business of speculation exactly the jealously exclusive attention which a successful man gives to any kind of business. The outsider who takes only "an occasional flutter" in the stock market, however shrewd and well informed he may be, will lose money in the secondary swings, where he is pitted against the professional. He cannot recognize the change in movement quickly enough to adapt his attitude; he is usually constitutionally averse from taking a loss where he has previously been right. The professional acts upon the shortest notice, and reactions or rallies give little notice.

Wall Street Normally Bullish

But the intelligent amateur is on all fours with the professional when a bull market has reacted and become dull. In the old days Wall Street formulated a number of maxims for itself, and one of these was, "Never sell a dull market." It is bad advice in a major bear swing, for the market then will become dull after a sharp rally, and experienced traders will accordingly put out their shorts again. But Wall Street is inherently bullish. One reason for this is that the financial district does not make money in a bear market, contrary to the ideas of people who think that then is the time when the Street reaps its harvest, and wickedly turns disaster to its own advantage. Wall Street lives on commissions, and not on what it might make by selling short the securities it originates.

Large trading and large commissions go together. They are a feature of a bull market, but never one of a bear market. So true is it that Wall Street is normally and healthily bullish, by experience, that I have never known a great trader, with his first reputation established as a bear operator, who did not either turn bull or drop out of the market altogether.

When we studied the major swings we saw that bull markets last longer than bear markets, and we might have seen that over a period of years long enough to average both bull and bear swings the tendency seems upward, or at least has heretofore advanced, with the growing wealth of the country. Personally, I do not believe that the war has changed this fundamental fact, at least for the inexhaustible United States, if a special movement of the railroads, to be treated later, for a time at least, modifies the assumption.

James R. Keene

So far as the bear trader is concerned, I am entirely certain that James R. Keene lost as much money as he ever made on the bear side, and that he made all the money he left and spent on his racing stable by his purchases of securities which subsequently appreciated in value. I never enjoyed his intimate acquaintance. It is not unfair, at this distance of time, to say that newspaper men with responsibilities do not cultivate intimacy with large professional speculators. Such intimacy can be misconstrued, however innocent the personal relations may be, and easily results (for Wall Street is reeking with gossip and scandal) in giving the reporter an undesirable reputation for being the interested mouthpiece of that particular operator. This, of course is, a condition which no clean news-paper could or should tolerate.

This is not to say that the newspaper men, or even most of those who had the entree to Keene's highly inaccessible suite at his son-in-law, Talbot J. Taylor's office in Broad Street, were not men of honor. There were good reasons for liking Keene, who was by no means the cold and bloodless bandit some people, with ideas of financiers gathered from the scarehead newspapers or the moving-picture screen, have supposed. He had attractive qualities, and he was a man of his word, even if he was merciless to those who dealt with him and failed to keep theirs. All of us liked his admiring affection for his son Foxall, and his sportsman's love of a fine horse. Little that his enemies ever did to him in the stock market - and that was plenty - hurt him like the death of his favorite Sysonby, a horse he bred himself and one of the greatest three-year-olds that ever looked through a bridle. Among the newspaper men who could afford to know Keene was Edwin Lefevre, then on the New York Globe. But it is no more than just to say that Lefevre was less a friend than a connoisseur of Keene. He studied him, in a highly amusing way, for use in his cynical but effective Wall Street Stories, in Samson Rock of Wall Street, The Golden Flood and other tales of a like character, now somewhat out of date but interesting reading for those who knew the different Wall Street of twenty years ago.

Addison Cammack

There is another reason why bear operators are credited with more short selling and market "wrecking" than they ever performed or even conceived. Such an operator can bull stocks and keep himself in the background, while a campaign on the bear side is usually dramatic, with the principal figure very much in the spotlight. Addison Cammack's era was rather before my time, but people who knew him well say that his bear campaigns were short, sometimes successful and sometimes not, and that he would have been soon ruined or driven into other environment if he had not been an excellent judge of values, and much more interested financially in the growth and prosperity of the country than in efforts to check it. He made his big money buying Northern Pacific, on reconstruction, at $7 a share. He probably had more real belief in the greatness of the United States than some of those critics who are so ready to impugn Wall Street's patriotism. Keene was right, if premature, in his abortive bull campaign in Southern Pacific.

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From The Stock Market Barometer by William P. Hamilton, published in 1922