Stocks and Stock-Jobbing in Wall Street by William Armstrong

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Published in 1848, by “a reformed stock gambler,” this pamphlet acts as a guide to new investors in the stock market. William Armstrong shares the ins and outs of Wall Street operations, the brokerage business, and “fancy stocks.”

The Notes

• “The prices of all Securities for the investment of Capital, the value and returns being unaltered, are affected more or less by the general condition of the country, as it may be influenced by foreign and domestic affairs, and especially by the state of the money market.”
• “In times of national prosperity, when money is abundant, and seeking investment, sound securities are sought after, and consequently more highly valued, than in seasons of universal distress, when money is scarce, and is wanted for other purposes. At such times, people who find it expedient to do so, withdraw their investment by throwing their Stocks upon the market; and the supply being greater than the demand, prices are of course depressed.”
• “The American Stock Market, when compared with the market of other nations, is peculiarly sensitive… Every rumor or report, whether true or false, causes an immediate action and reaction. These fluctuations and their extent may be partly attributed to those unforeseen causes which are continually changing and occurring in what may be termed the natural course of events; but these are very much aggravated by the nature of the various transactions which constitute the principal part of the business done on the N.Y. Stock Exchange.”
• “For the bold and enterprising broker is very far from confining his calculations to, and estimating his profits by, the unavoidable movements of securities. His talent is principally exercised in causing or bringing about fluctuations by every method that human ingenuity can invent, and he gains or loses according to the success of his plans or designs.”
• “Insiders are those by whom and through whom all transactions are made in and about the Exchange. They both speculate upon their own account, and act as Commission Brokers for all who may wish to employ them. This class comprehends all the regular brokers who are members of either Board, and also all those petty operators and non-descripts, who have neither a local habitation or, scarcely, a name, that are dignified with the title of curb-stone brokers.”
• “To an individual who has never done a commission business in Wall Street, the number and variety of people who hazard their money upon anticipated fluctuations in prices would seem incredible, for nothing more is generally known of these transactions, excepting that disastrous failures generally occur among merchants and milliners, confectioners and printers, which may be attributed to any other cause but the real one, or are inexplicable.”
• NYSE and the Curb
  • The NYSE, at the time, had about 75 members and met twice per day — 10:30am to noon and 2:45pm to 3:00pm. Members gathered as a list of stocks/securities were read, pausing at each name so members could buy or sell. Transactions were recorded and prices were reported in the papers.
  • More trading was done outside those sessions, either in the Exchange or on the curb at the corner of Wall and Hanover Streets.
  • Regular stock transactions required delivery of the shares and payment made the day after the sale.
  • “In stirring times the number assembled is pretty large, one, two, or three hundred, and all opposing influences are brought to bear against each other, causing prices to fluctuate one or two per cent every five minutes.”
• Options
  • Were called privileges.
  • “A person pays a small amount, say ten dollars per hundred shares, for the privilege of delivering or calling for a certain number of shares of any particular stock at a certain price within or at the end of a specified time.”
  • “The prices named are generally very improbable ones; but in squally times it is not very uncommon for an investment of five or ten dollars to produce a profit of one or two hundred.”
  • “A person once lost $3000 on a privilege that he sold for ten dollars. It is a common observation that no sensible person will sell a privilege, and there are not many sold.”
  • Any “time operations” like options were limited to no longer than one year.
  • “One prominent result of these time operations has been the formation of two opposing parties among stock operators — the Bulls, who have based their transactions upon their expectation of an advance in prices, and the Bears, who have sold stock which they are not in possession of, trusting to a decline. Thus their interests are totally opposed to each other, and, as a matter of course, each party endeavors to bring about a rise or fall as interest may dictate. Hence inevitable fluctuations are aggravated, and unnecessary or unnatural actions and reactions are produced by the various maneuvers resorted to.”
• You could borrow against as much as 90% to 95% of the value of stock. You paid interest plus “a bonus of 1/8th percent on the stock” when borrowing from banks or other money lender.
• Fancy Stocks
  • “Strange as it may seem, the greater part of the transactions on the Exchange are those relating to a class of in-securities, called Fancy Stocks. These are, generally speaking, of no particular or known value.”
  • “Fancy stocks during an inflation of prices most commonly rise one, two, or three percent per diem, sometimes ten percent, and rarely more. They have also been known to fall forty percent in a day.”
  • “In these enormous fluctuations operators must make or lose an enormous amount in proportion to their investment, as their calculations with regard to an advance or fall is correct. And it is this chance for making a large profit on a small amount of cash properly invested which tempts so many people to operate. But of course, if an individual is on the wrong side, his losses are proportionally great.”
  • “These are, generally speaking, of no particular or known value, and represent worthless or embarrassed corporations, which have failed in the undertakings for which capital was contributed, and most generally have never paid a dividend, and are never expected to. Their real worth, or rather worthlessness, is so little known, that it seldom interferes with an unlimited expansion or contraction in prices, as according as the wealth or talent employed on either side may preponderate.”
  • The author warns of “disinterested individuals” who sell shares in a new company on the guise that a dividend will be paid, only for the company to cancel the dividend after two or three years, the stock plummets, and the same “disinterested individuals” offer to buy the shares back at a 50% discount.
  • The author lists a few “fancy stocks” at the end that fall under: Banks, Trust Companies, Insurance Companies, and Railroads.
• Bubbles
  • “Of the beautiful bubbles manufactured in Wall-street, whose varying hues of transcendent brilliancy as they are wafted along by prosperous gales, tempt an admiring public to grasp at them, and — get ‘sucked in’ by their mysterious disappearance.”
  • “It does not take the public long to get frightened, and not acting in concert, all throw their stocks upon the market at once for the most they can get. Consequently, no matter how long stocks have been advancing, they always fall very rapidly, generally five, ten, or fifteen percent per diem, sometimes thirty or forty.”
  • “The sufferers are those principally whom the inflation has tempted to speculate, and who generally lose all they have gained on the advances, if they had previously realized anything, for the simple reason that they never know when to pocket their profits and withdraw; for nearly all who speculate realize their gains merely for the purpose of making large investments, and the crisis generally catches them unawares, put as they are on the point of making a small fortune. Some of course do realize, and large amounts too, in proportion to their investment, but the number of outside operators who come off with gain is small compared with the number who lose.”
• “At certain periods of the year the prices of Stocks, as a general thing, are comparatively quiet. These are the intervals that occur between the Fall and Spring trade of the mercantile community during the middle of the Winter and Summer seasons.”
• Stock Operations
  • Stock operations were made up of one or more individuals who pooled their capital to manipulate stock prices, in whatever direction they desired, in order to profit.
  • It was common and legal.
  • “The value of an article which is actually needed depends very much upon the relation which the supply bears to the demand. And acting in accordance with this well-known law, the first and principal move in a cornering operation — is to create a demand for particular Stocks, and at the same time cause a scarcity of the articles.”
  • “Stock operators are susceptible of being elongated or contracted to a much greater extent than those of other people. Perhaps it is because they practise so many variations on the human face divine.”
  • “If there is an unnatural and forced advance, there must at some time occur a proportionate reaction, as the intrinsic value of the stock is not sufficient to sustain it after the influence of those who have brought an inflation, for a particular purpose, is withdrawn.”
  • Spreading rumors was a way operators influenced stock prices higher or lower.
  • “The first caution that should be impressed upon a novice, is to believe nothing that is told him, especially if the information is given in a very confidential manner, as a matter of the greatest importance.”
  • “Outsiders are influenced mostly by the ‘money articles’ in the leading papers of the day, which are often very elaborate productions. Let it be remembered that these are in most cases written by interested persons, or by individuals who are bribed to write in a specified manner, and, therefore, they should be viewed with the greatest suspicion, and their admonitions utterly disregarded unless they produce sound arguments in support of them.”
  • Wash sales were essentially fake transactions done to give the impression a stock’s price was falling. Two traders would agree to buy and sell shares at below the asking price, in the hopes that others would sell out of fear.
• “There can be little or nothing said which might serve as a guide to persons, as to whether they had better buy or sell. We have shown that variations in price are caused both by the influences resulting from the natural course of events, concerning which nothing can, of course, be accurately predicted, and certain contrivances which are kept as secret as possible.”
• “The knowledge of the effect which matters of universal interest have upon the prices of stocks, can only be acquired from experience, and then, it is of no certain benefit. For, unlike all kinds of useful business, no amount of talent, knowledge, wealth, or perseverance, can ensure success. Strange as it may seem, people are very apt to be most successful in stock gambling when they know the least about it, and lose every thing as soon as they get a knowledge of the business.”
• “The most rational mode of deciding, in our opinion, with regard to the expediency of being a Bull or a Bear, is to close one’s eyes, toss up a penny, and abide by the result.”
• “All operators have some favorite maxims, which they occasionally repeat in an oracular manner, but they are seldom or never of universal application. Moderation is urged, and as a general thing, it is profitable, but then most operators owe their enormous fortunes almost solely to their lack of it.”
• “The most common and fatal error, however, which tyro’s are apt to fall into, is that of too frequently hazarding all their resources, no matter how extensive they may be, upon single speculations… This error is most apt to be committed by those who are in too great a hurry to acquire a fortune, and is easily accounted for, when we consider that the profit or loss upon an investment in stirring times is frequently enormous, and of course, are in proportion to the amount invested.”
• “As a general, and almost an invariable rule, you had better not place any dependance upon anybody’s honor or honesty, certainly not, until you are well acquainted with the business and operators generally.”
• “We cannot too strongly urge it upon beginners to transact business with no one with whom they are unacquainted; and the adoption of this rule will render it unnecessary to expose the various tricks and devices of the numerous sharpers who are always going about seeking whom they may devour.”
• “No man is absolutely safe until he has entirely withdrawn; and the desires of men are generally so insatiable, that they never know when it is best to do so. They will not retire so long as there is a prospect of their acquiring more; and when they have reached their highest point, and begin to recede, they cannot be content to retire with less than they once possessed, and lose all in fruitless efforts to regain the position they once held. Still we think this indisposition to retire should not be entirely attributed to the desire for gain, which possess all men to a greater or less degree. We would rather ascribe it to an almost irresistible infatuation, no less powerful than that which exercises such control over the votaries and victims of gambling hells. It has all the excitement and uncertainty of cards and dice, and is consequently as seductive and alluring. Neither does it essentially differ from them in its effects upon the mind and disposition; it is equally absorbing and harassing, and as completely unfits a man for all those pursuits which tend to refine and elevate human nature.”
• “We advise those not acquainted with active business, widows, orphans, &c. to leave all new undertakings to business men, and invest only in securities of known value; for if this were the case, there would be fewer bubbles manufactured, and a smaller portion of the aristocracy would owe their exalted position to the ruin and heartrending misery of the hundreds of poor and credulous people whom they have entrapped with their damnable knaveries.”

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