Feb

11

Just discovering Google's book project. They're scanning in books from various libraries and have an ambitious plan to scan every book ever published (New Yorker article by Toobin).

A search for "speculator" brings up these full, searchable texts (among many others):

Arthur Crump: The Theory of Stock Exchange Speculation; London, 1874, John Hill, Jr. (of the Chicago Board of Trade).

Gold Bricks of Speculation; Chicago, 1904, A Study of Speculation and Its Counterfeits, and an exposé of the methods of bucketshop, and "get-rich-quick" swindles.

Harrison H. Brace: The Value of Organized Speculation; New York, 1913. A prize-winning essay from a contest run by Chicago, Columbia, Michigan, NYU, and Harvard, and sponsored by, "…Hart, Schaffner & Marx, of Chicago, who have shown a special interest in trying to draw the attention of American youth to the study of economic and commercial subjects."

Jim Sogi writes:

Thanks to Alston Mabry for pulling this one up. It will surely be a favorite of the Chair.

Arthur Crump appears to talk about the English markets, but the lessons are the same. Crump charges out of the gate with some great formulas for risk, such as, "…the sum risked must be only such proportion of the possible gain as the mathematical probability of gaining it is of unity." This is brilliant. "A man should not hazard his all on any terms."

Imagine this quantitative risk measurement in the 19th century. Closer to current one-day drops he speaks of typical drops of 2-3% a day with very gradual gains, familiar scenario indeed.

Crump identifies the pitfalls that await the unwary.

A typical reason many beginners convince themselves speculation is simple is they say to themselves the market can only go up or down and his chances are at least 50-50. Their mistake is overlooking path dependency in calculating the odds, thinking reversing position might have avoided losses.

"The outsider's stakes are too large a proportion of their means."

"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 mathematical expectation."

It follows from this that the player must be able to stand a number of plays to realize the expectation. Furthermore, the gains must be greater than the expenses.

"Those whose only business it is to be in the stock markets must of course know that the outside public are always dropping their money."

"If a speculator has not learnt the alphabet of recurring intervals, he has not learned the alphabet of his business."

More later, but this is fun and good book in nice quaint old print.

More Crump Quotes from Jim Sogi:

"Any jackass can take a profit, but it requires a devilish clever fellow to cut a loss. After he has once realized the importance of having his accounts open and ready for the periodic haves to carry him in and land his profit, the difficulty is to get him to realize the importance of keeping out while the water weeps back, carrying with it the gray speculators who were not content to take their profits"

Good advise these last few days.

"It is as necessary to the success of his operation that he posses no more regard for the feelings or pockets of other people than a hungry tiger would for him, if he were airing himself unconcernedly in a Bengal jungle. He has a purpose in view, just as a surgeon has when the amputation of a leg has been decided upon." 

"Deception in all its form will be found in the armory
of the professional speculator, and the weapons, two-edged, are employed."

"Then there is the fatal blunder made by almost every inexperienced speculator, of never being satisfied with a moderate profit. If he buys, and the price rises 1/2, he cannot make up his mind to take it, but must wait for 3/4th. When it has reached that he must have 1 per cent and when that rise has been attained too, he wants another 1/8th to cover the commission. Like a dog in attempting to grasp the shadow of his bone, he loses all." 


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