The primary movement in either direction usually covers a considerable period of time, and often it is several years before its effect is consummated. A careful study of the variation in the prices of securi ties over a period of years shows that at more or less regular intervals, averaging perhaps four or five years, there is a reversal in the prices. Starting from a low point, securities will advance with some degree of steadiness to a high point, and will then decline with more or less suddenness. Altho during the years while the securities are running this range there will, of course, be many retrogressions, nevertheless the general tendency is unmistakably apparent. These more or less regular intervals of change are spoken of as "cycles" of advancing or declining prices.
The late Sereno S. Pratt, in his "Work of Wall Street" treats the subject of market movements in concise, picturesque language: A bicycle rider starts over a new road. The actual dis tance is twenty miles, but his cyclometer, at the end, regis ters thirty, owing to the fact that he has not traveled in a straight line, but has gone from one side to the other in an endless succession of curves in order to avoid teams and ruts, and perhaps because he has been maliciously misdirected. In a like manner, prices travel thru an endless succession of daily curves or fluctuations and sometimes miss the road al together, and, misled by manipulation, travel a long distance astray, but in the end they arrive at the true destination value.
In this Text frequent reference has been made to the fact that the greatest evil of speculation is the presence of unfit amateurs who regard speculation as an easy way of getting money without working. It also has been pointed out that the risks taken by prop erly equipped professional speculators are probably no greater than those necessary in all lines of busi ness. The speculator with capital as extensive as that of the large manufacturer and with the same expert knowledge, often makes reasonable profits. Prob ably in no other business are conservative methods and abundant capital so much needed.
Unquestionably the general public does not make money by active, in-and-out trading, and keep it. To attempt to "catch the turns"—that is, to follow every eddy, tide and swirl—is ruinous, except, as already stated, for professional floor traders. There are periods when even "the public" wins, especially those persons known as the long-pull, speculative investors. At other times even the professionals lose wholesale. Often they "fight a rise" and sell short and subse quent events prove that they should have bought in stead of selling.
Another disputed question is whether the great capitalists, men like the late E. H. Harriman and
J. P. Morgan, make large profits thru speculation. The probabilities are that many such men do speculate successfully, but in connection with constructive work along other lines. On the other hand, it often hap pens that costly speculative mistakes have been made by those who would seem to be best fitted to forecast the future. Frequently corporation managers and directors and bankers are actually too close to corpo rate affairs and too much occupied with details to get a clear view of speculative possibilities. They cannot see the forest for the trees.
13. Mistakes of reason of the dif ficulties which surround their operations, speculators are prone to fall into many errors of judgment. Perhaps the most conspicuous of these mistakes are: 1. Failure to reckon chances properly.
2. Overtrading as to amount.
3. Trading too often.
4. Overconfidence.
The chances for the speculator are not, as many think, even. The market goes up and down, it is true, but to enter it he must pay commissions and interest. By reason of these factors a slight change in the market against the speculator causes him more loss than he would gain from an equal change in his favor.
To assume risks not justified by the capital of the speculator is one of the most common mistakes, and one of the most frequent causes of loss. Trading on very narrow margins forces the speculator frequently to take a loss which would have been avoided had he not aspired to too large a profit, and made his trans actions on a broader margin.
Akin to the failing above noted is the tendency to too frequent trading. Men become obsessed with the desire to take advantage of every turn of the market. The result is that they act too frequently for their ac tions to be well considered. Speculation, a perilous occupation at the best, leads inevitably to ruin unless it is based on careful, close analysis of all available in formation.
Experience shows, moreover, that speculators are reluctant to take losses, they are disposed to let them grow, tho they are quick and eager to take profits even when they are small. They are sanguine of tempera ment and lack the resolution to follow the familiar maxim of the street, "Cut your losses—let your profits run." But this is not the only case where traders exhibit the overconfidence which too often brings dis aster in its trail. The only confidence on which it is safe to rely is that rooted in knowledge, and the pres ent Text has been written in vain unless it has made clear, that no one can be ever quite sure that he has all the knowledge necessary to a true appreciation of just how prices will move in the future.