The Psychology of the Stock Market quotes

It is evident that this series of inversions might be continued indefinitely.

These alert mental acrobats are doing a succession of flip-flops, each one of which leads up logically to the next, without ever arriving at a final stopping-place.

The main point of their argument is that the state of mind of a man short of the market is radically different from the state of mind of one who is long.

No special reason appears for the advance, and it is generally thought to be merely temporary, due to small professional operations. There is, of course, some short interest in the market, mostly, at this time, of the character sometimes called a “sleeping” short interest.

An active speculative stock is never entirely free from shorts.

As there is so little public speculation at this period in the cycle, there are but few who are willing to sell out on so small an advance, hence prices are not met by any large volume of profit-taking.

The public notes the advance and begins to think some further upturn is possible, but that there will be plenty of opportunities to buy on substantial reactions.

Strangely enough, these reactions, except of the most trifling character, do not appear.

Waiting buyers do not get a satisfactory chance to take hold. Prices begin to move up faster.

At length the more stubborn bears become alarmed and begin to cover in large volume.

The market “boils,” and to the short who is watching the tape, seems likely to shoot through the ceiling at almost any moment.

However firm may be his bearish convictions, his nervous system eventually gives out under this continual pounding, and he covers everything “at the market” with a sigh of relief that his losses are no greater.

but in a genuine bull market the advance will continue until checked by sales of stocks held for investment, which come upon the market only when prices are believed to be unduly high.

In a sense, the market is always a contest between investors and speculators.

The real investor, looking chiefly to interest return, but by no means unwilling to make a profit by buying low and selling high, is ready, perhaps, to buy his favorite stock at a price which will yield him six per cent.

What the speculator sells he or some other trader may buy back tomorrow.

The time comes when everybody seems to be buying.

Prices become confused. One stock leaps upward in a way to strike terror to the heart of the last surviving short.

Another appears almost equally strong, but slips back unobtrusively when nobody is looking, like the frog jumping out of the well in the arithmetic of our boyhood. Still another churns violently in one place, like a side-wheeler stuck on a sand-bar.

Then the market gives a sudden lurch downward, as though in danger of spilling out its unwieldy contents.

This is hailed as a “healthy reaction,” though it is a mystery whom it can be healthy for, unless it is the shorts. Prices recover again, with everybody happy except a few disgruntled bears, who are rightly regarded with contemptuous amusement.

Then the market gives a sudden lurch downward, as though in danger of spilling out its unwieldy contents.

This is hailed as a “healthy reaction,” though it is a mystery whom it can be healthy for, unless it is the shorts.

Prices recover again, with everybody happy except a few disgruntled bears, who are rightly regarded with contemptuous amusement.

The largest speculative holders of stocks, finding a market big enough to absorb their sales, are letting go.

And there are always stocks enough to go around.

Our big capitalists are seldom entirely out of stocks. They merely have more stocks when prices are low and fewer when prices are high. Moreover, long before there is any danger of the supply running out, plenty of new issues are created.

… around top figures for weeks or months, while big holdings are fed out, a few hundred shares here and a few hundred there, and even then a balance may be left to be thrown over on the ensuing decline at whatever prices can be obtained.

Great speculative leaders are far from infallible.

They have often sold out too soon and later have seen the market run away to unexpected heights, or have held on too long and have suffered severe losses before they could get out.

It is hard for the average man to oppose what appears to be the general drift of public opinion.

In the stock market this is perhaps harder than elsewhere; for we all realize that the prices of stocks must, in the long run, be controlled by public opinion.

In the stock market this is perhaps harder than elsewhere; for we all realize that the prices of stocks must, in the long run, be controlled by public opinion.

The point we fail to remember is that public opinion in a speculative market is measured in dollars, not in population.

One man controlling one million dollars has double the weight of five hundred men with one thousand dollars each. Dollars are the horse-power of the markets—the mere number of men does not signify.

The point we fail to remember is that public opinion in a speculative market is measured in dollars, not in population. One man controlling one million dollars has double the weight of five hundred men with one thousand dollars each.

Dollars are the horse-power of the markets—the mere number of men does not signify.

This is why the great body of opinion appears to be bullish at the top and bearish at the bottom.

Again, the man with one million dollars is a silent individual.

The time when it was necessary for him to talk is past—his money now does the talking.

But the one thousand men who have one thousand dollars each are conversational, fluent, verbose to the last degree; and among these smaller traders are the writers—the newspaper and news bureau men, and the manufacturers of gossip for brokerage houses.

The inexperienced operator is therefore left very much at sea.

He is playing with the professional’s edged tools and is likely to cut himself.

Of what use is it for him to try to apply his reason to stock market conditions when every event may be doubly interpreted?

They are always seeking an “ulterior motive” in everything. They credit—or debit—Morgan and Rockefeller with the smallest and meanest trickery and ascribe to them the most artful duplicity in matters which those “high financiers” wouldn’t stoop to notice.

The continual reversal of the mental engine sometimes deranges its mechanism.

Probably no better general rule can be laid down than the brief one, “Stick to common sense.” Maintain a balanced, receptive mind and avoid abstruse deductions. A few further suggestions may, however, be offered:

The average observer will find it difficult to masticate and swallow this proposition.

The effort to reduce the science of speculation and investment to an impossible definiteness or an ideal simplicity is, I believe, responsible for many failures.

A. S. Hardy, the diplomat, who was formerly a professor of mathematics and wrote books on quaternions, differential calculus, etc., once remarked that the study of mathematics is very poor mental discipline, because it does not cultivate the judgment.

A. S. Hardy, the diplomat, who was formerly a professor of mathematics and wrote books on quaternions, differential calculus, etc., once remarked that the study of mathematics is very poor mental discipline, because it does not cultivate the judgment.

Given fixed and certain premises, your mathematician will follow them out to a correct conclusion; but in practical affairs the whole difficulty lies in selecting your premises.

So the market student of a mathematical turn of mind is always seeking a rule or a set of rules—a “sure thing” as traders put it. He would not seek such rules for succeeding in the grocery business or the lumber business;

This is perhaps not so much because these high financiers couldn’t trust each other, as it is because each so-called interest consists of a loosely bound aggregation of followers of all sorts and varieties, having only one thing in common—control of capital.

Such an “interest” is not an army, where the traitor can be court-martialed and shot; it is a mob, and has to be led, not driven.

True, the known traitor might be put to death, financially speaking, but in stock market operations the traitor cannot, as a rule, be known. Unless his operations are of unusual size, he can successfully cover his tracks.

But inasmuch as definite, painstaking analysis of a situation is always better than a hazy general notion of it, the trader or investor would do much better to rid his mind of Them.

The word “They” means nothing until it has an antecedent; and to use it continually without having any antecedent in mind is slipshod language, which stands for slipshod thinking.

They, in the sense of the big banking interests, may be working directly against Them in the sense of individual manipulators; the manipulator, again, may be trying to trap Them in the sense of floor traders.

Not at all. He should say, “Prices have risen to the extent represented by these increased earnings, unless this effect has been counterbalanced by other considerations. Now what next?”

It is a sort of automatic assumption of the human mind that present conditions will continue, and our whole scheme of life is necessarily based to a great degree on this assumption.

When the price of wheat is high farmers increase their acreage because wheat-growing pays better; when it is low they plant less. I remember talking with a potato-raiser who claimed that he had made a good deal of money by simply reversing the above custom.

The average man is not blessed—or cursed, however you may look at it—with an analytical mind.

We see “as through a glass darkly.”

Our ideas are always enveloped in a haze and our reasoning powers work in a rut from which we find it painful if not impossible to escape. Many of our emotions and some of our acts are merely automatic responses to external stimuli.

Many of our emotions and some of our acts are merely automatic responses to external stimuli. Wonderful as is the development of the human brain, it originated as an enlarged ganglion, and its first response is still practically that of the ganglion.

A simple illustration of this is found in the enmity we all feel toward the alarm clock which arouses us in the morning.

We have carefully set and wound that alarm and if it failed to go off it would perhaps put us to serious inconvenience; yet we reward the faithful clock with anathemas.

A simple illustration of this is found in the enmity we all feel toward the alarm clock which arouses us in the morning.

We have carefully set and wound that alarm and if it failed to go off it would perhaps put us to serious inconvenience; yet we reward the faithful clock with anathemas.

When a subway train is delayed nine-tenths of the people waiting on the platforms are anxiously craning their necks to see if it is coming, while many persons on it who are in danger of missing an engagement are holding themselves tense, apparently in the …

yet you will find him buying stocks on this news after it comes out—if not at the moment, at any rate “on a reaction.”

Most coming events cast their shadows before, and it is on this that intelligent speculation must be based.

The movement of prices in anticipation of such an event is called “discounting,” and this process of discounting is worthy a little careful examination.

This was the case at the time of the Northern Securities decision in 1904. “Big business” could easily enough adjust itself to either result.

It was the uncertainty that was bearish.

Hence the decision was practically discounted in advance, no matter what it might prove to be.

It does not take much to make a man buy when he is short of stocks “up to his neck.” A bit of news which he would regard as insignificant at any other time will then assume an exaggerated importance in his eyes.

His fears increase in geometrical proportion to the size of his line of stocks.

Likewise the overloaded bull may begin to “throw his stocks” on some absurd story of a war between Honduras and Roumania, without even stopping to look up the geographical location of the countries involved.

In this matter of discounting, as in connection with most other stock market phenomena, the most useful hint that can be given is to avoid all efforts to reduce the movement of prices to rules, measures, or similarities and to analyze each case by itself.

Historical parallels are likely to be misleading.

Every situation is new, though usually composed of familiar elements. Each element must be weighed by itself and the probable result of the combination estimated.

Historical parallels are likely to be misleading.

Every situation is new, though usually composed of familiar elements.

Each element must be weighed by itself and the probable result of the combination estimated.

There is nothing peculiar about this condition. While it is especially difficult to maintain a balanced mind in regard to commitments in the markets, it is not easy to do so about anything that closely touches our personal interests.

As a rule we can find plenty of reasons for doing what we very much want to do, and we are still more prolific with excuses for not doing what we don’t want to do.

Most of us change the old sophism “Whatever is, is right” to the more directly useful form “Whatever I want is right.”

As a rule we can find plenty of reasons for doing what we very much want to do, and we are still more prolific with excuses for not doing what we don’t want to do.

Most of us change the old sophism “Whatever is, is right” to the more directly useful form “Whatever I want is right.”

To many readers will occur at once the name of a man prominent in public life who seems very frequently to act on this motto.

Talleyrand said that language was given us for the purpose of concealing thought.

Likewise many seem to think that logic was given us for the purpose of backing up our desires.

Few persons are so introspective as to be able to tell where this bias in favor of their own interests begins and where it leaves off. Still fewer bother to make the effort to tell.

When it comes to buying and selling stocks, there is no such thing as “putting it over.” The market is relentless.

It cannot be budged by our sophistries.

It will respond exactly to the forces and personalities which are working upon it, with no more regard for our opinions than if we couldn’t vote.

The market is relentless. It cannot be budged by our sophistries. It will respond exactly to the forces and personalities which are working upon it, with no more regard for our opinions than if we couldn’t vote.

We cannot work for our own interests as in other lines of business—we can only fit our interests to the facts.

To make the greatest success it is necessary for the trader to forget entirely his own position in the market, his profits or losses, the relation of present prices to the point where he bought or sold, and to fix his thoughts upon the position …

When it comes to buying and selling stocks, there is no such thing as “putting it over.”

The market is relentless.

It cannot be budged by our sophistries. It will respond exactly to the forces and personalities which are working upon it, with no more regard for our opinions than if we couldn’t vote.

Nothing could be more foolish than these arbitrary figures.

He is trying to make the market fit itself around his own trades, instead of adapting his trades to the market.

In any broker’s office you will notice that a large part of the talk concerns the profits and losses of the traders. Brown had a profit of ten points and then let it get away from him. “Great Scott!” says his wise friend.

Not one trader in a thousand ever becomes so expert or so seasoned as to entirely overcome the influence his position in the market exerts upon his judgment. That influence appears in the most insidious and elusive ways.

One of the principal difficulties of the expert is in preventing his active imagination from causing him to see what he is looking for just because he is looking for it.

An example will make this clear. The expert has learned from experience, let us say, that the appearance of “holes” in the market is a sign of weakness.

If you want to see distribution after a sharp advance, you are very likely to see it. If you have sold out and want to get a reaction on which to repurchase, you will see plenty of indications of a reaction.

Indeed, it is a sort of proverb in Wall Street that there is no bear so bearish as a sold out bull who wants a chance to repurchase.

In the study of so-called “technical” conditions of the market, a situation often appears which permits a double construction. Indications of various kinds are almost evenly balanced; some things might be interpreted in two different ways;

This caution or fearfulness gradually spreads, increasing and decreasing in waves, but growing a little greater at each successive swell.

The panic is not a sudden development, but is the result of causes long accumulated.

The actual bottom prices of the panic are more likely to result from necessity than from fear. Those investors who could be frightened out of their holdings are likely to give up before the bottom is reached.

For this reason, a small quantity of stock pressed for sale in a panicky market may cause a decline out of all proportion to its importance.

The offerings may be small, but nobody wants them.

It is this factor which accounts for the rapid recoveries which frequently follow panics. Waiting investors are afraid to step in front of a demoralized market, but once the turn appears, they fall over each other to buy.

It is this factor which accounts for the rapid recoveries which frequently follow panics.

Waiting investors are afraid to step in front of a demoralized market, but once the turn appears, they fall over each other to buy.

The boom is in many ways the reverse of the panic.

When prices get above the natural level, a well-judged short interest begins to appear.

These shorts are right, but right too soon.

In a genuine bull market they are nearly always driven to cover by a further rise, which is, from any common sense standpoint, unreasonable. A riot of pyramided margins drives the sane and calculating short seller temporarily to shelter.

… most of which may be traced, directly or indirectly, to the fact that we measure everything in money and always think of this money-measure as fixed and unchangeable, while in reality our money fluctuates in value just like iron, potatoes, or “Fruit of the Loom.”

We are accustomed to figuring the money-value of wheat, but we get a headache when we try to reckon the wheat-value of money.

When a fictitious situation like this begins to go to pieces, the stock market, fulfilling its function of barometer, declines first, while general business continues active.

It is confusing to the uninitiated, and first efforts to work on such a plan are almost certain to be disastrous; but for the experienced it becomes a successful, though of course never a certain, method.

A child’s first efforts to use a sharp tool are likely to result in bloodshed, but the same tool may trace an exquisite carving in the hands of an expert.

What, then, should be the mental attitude of the intelligent buyer and seller of securities?

As a general thing optimism includes the persistent nourishing of hope, an aggressive confidence, the certainty that you are right, a firm determination to accomplish your end.

But you cannot make the stock market move your way by believing that it will do so.

Here is one case, at any rate, where New Thought methods cannot be directly applied.

But you cannot make the stock market move your way by believing that it will do so. Here is one case, at any rate, where New Thought methods cannot be directly applied.

In the market you are nothing but a chip on the tide of events.

Optimism, then, must consist in believing, not that the tide will continually flow your way, but that you will succeed in floating with the tide. Your optimism must be, in a sense, of the intellect, not of the will.

Optimism, then, must consist in believing, not that the tide will continually flow your way, but that you will succeed in floating with the tide. Your optimism must be, in a sense, of the intellect, not of the will.

An optimism based on determination would, in this case, amount to stubbornness.

Another quality that makes for success in nearly every line of business is enthusiasm. For this you have absolutely no use in the stock market. The moment you permit yourself to become enthusiastic, you are subordinating your reasoning powers to your beliefs or desires.

Another quality that makes for success in nearly every line of business is enthusiasm. For this you have absolutely no use in the stock market.

The moment you permit yourself to become enthusiastic, you are subordinating your reasoning powers to your beliefs or desires.

Enthusiasm helps you influence other men’s minds, but in the market you do not desire to do this (unless you happen to be a big bull leader).

In such a case it doubtless represents an accumulation of small indications, each so trifling or so evasive that the trader cannot clearly marshal and review them even in his own mind.

Only the experienced trader is entitled to a “hunch.”

The novice, or the man who is not closely in touch with technical conditions, is merely making an unusual ass of himself when he talks about a “hunch.”

Only the experienced trader is entitled to a “hunch.”

The novice, or the man who is not closely in touch with technical conditions, is merely making an unusual ass of himself when he talks about a “hunch.”

The successful trader gradually learns to study his own psychological characteristics and allow to some extent for his customary errors of judgment. If he finds that he is generally too hasty in reaching a conclusion, he learns to wait and reflect further.

If he finds that he is generally too hasty in reaching a conclusion, he learns to wait and reflect further. After making his decision, he withdraws it and lays it up on a shelf to ripen.

He makes only a part of his full commitment at the moment when he feels most confident, holding the remainder in reserve.

If he finds that he is usually overcautious, he eventually learns to be a little more daring, to buy a part of his line while his mind is still partially enveloped in the mists of doubt.

(3) When in doubt, keep out of the market.

Delays cost less than losses.

(4) Endeavor to catch the trend of sentiment. Even if this should be temporarily against fundamental conditions, it is nevertheless unprofitable to oppose it.