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nikoschopen
2,824 posts
msg #40321
Ignore nikoschopen
1/16/2006 2:12:20 AM

I'm re-reading "The ABC of Stock Speculation" by S.A. Nelson (1903), and I'm left in utter shock as to how insightful this book is to this day. The narrative gravity of dry wit aside, the book presents to our gaze some very sane, albeit basic, notions that elude us in our everyday trading lives. I would like to take this time, and times to come, to reecho certain passages from the book that I find inspiring.

___________

WALL STREET'S GREAT GAME

Nobody can shut his eys to the fact that in a bull market (that is, when insiders are long), stocks go up in the face of bad news, and in a bear market (insiders short), prices go down, no matter how rosy the outlook. Every extended movement is planned in advance and controlled throughout by the shrewdest generals in the world. They know the actual -- not the published -- conditions of the properties whose stocks are to be handled. They know when natural conditions warrant a bull or a bear campaign. They leave nothing to chance, but their trump card is "the weakness of human nature" (emphasis mine).

When the plans have been arranged for a bull campaign, or extended upward movement, every sort of bear argument imaginable is used to induce the public to sell: elections, war, stringent money, damaged crops, gold exports, etc. are resurrected and used effectively year after year. Meanwhile, the insiders are quietly accumulating stocks and checking every advance at certain figures. Finally, when all is ready, and the vast majority of speculators bearish, and declines seem inevitable, the bull market commences -- often upon the actual happening of some anticipated bad news. The advance is at first very gradual: some stocks rise, others remain stationary, while a break is made in one or two, to encourage the bears in putting out more "short lines." Presently the "leaders" advance more rapidly, and the others begin to move up. Each stock has its individual range and peculiarity in moving, though toward the end of a campaign those stocks which have been lagging behind come forward with a rush. The importance, therefore, of confining your attention to the leaders during the first half of a campaign, can readily be seen. The money made on them can be transferred to the "specialties" before the latter have had their advance.

(More to come...)


nikoschopen
2,824 posts
msg #40345
Ignore nikoschopen
1/16/2006 10:47:14 PM

When everyone becomes enthusiastic over improving business, the "sneaking" bull market has developed into a "creeping" bull market and the "lambs" (viz. dumb money) are at last making money. Finally there comes a wholesale rush to buy, accompanied by great excitement and the wildest [orgy of] optimistic rumors. Enormous quantities of stocks are exchanged, and this is the finish, for the moment at least, of the bull campaign. As insiders are "unloading", they resort to using tricks, via newspapers, financial writers, news bureaus and every bull artifice that can be devised, to "jolly" the public into buying. While everything looks rosy and there is not a cloud in the financial horizon, the market comes to a stall. In spite of good news, prices sag. Gradually but surely, and with many false upward starts, the market falls.

Once the insiders have distributed their stocks,absolutely nothing can keep prices up. Before long, excuses are found to force down the market; and the same game is repeated. It all resolves itself into two grand divisions: accumulation, or swindling the unsuspected out of their stocks at less than optimal value, and distribution, or selling the same stocks, by means of false pretenses, at vastly inflated prices.

The details are changed, but the same general tactics are employed year after year. The lambs never learn to buy stocks when everything looks darkest. They never learn that a bull campaign begins in gloom and ends in glory.


Railwhore
69 posts
msg #40378
Ignore Railwhore
1/17/2006 8:00:36 PM

The details are changed, but the same general tactics are employed year after year. The lambs never learn to buy stocks when everything looks darkest. They never learn that a bull campaign begins in gloom and ends in glory.
---------------------------
Those last 2 sentences really hit it home, dont they?


nikoschopen
2,824 posts
msg #40380
Ignore nikoschopen
1/17/2006 9:11:10 PM

Human nature is such that Human nature is such that it is almost impossible to buy stocks at the bottom, with nothing but bad news pouring in. It is still harder to sell at the top when the market looks strong and only good news is heard. The manipulator's game is to play on this phase of human nature, and they pull the wires so as to get everybody full of optimism just at the time when they themselves are ready to pull out. Surely anyone can see that the big fellows are not here for their health, or for glory, but to make money in the largest amount possible in the least amount of time, with absolute disregard of whose pocket it comes from. Somebody MUST lose the money which they make. See to it that YOU are not one of them.

In accumulating stocks before a full-fledged bull campaign, the usual method is to depress prices as far as possible with a view of catching stop order, etc., then to quickly buy without bidding up prices, then work it down again as far as circumstances will permit. Before the upward move is fairly under way, and sometimes after the move starts, sudden breaks will be made in a stock to shake out "weak hands" and induce short selling. If outsiders can be made to think the stock is a sell whenever it "rears its ugly head", a large and weak short interest can be fostered, which makes upward manipulation easy. A common method, not only by the smart money, but by many professional operators, is to divide their holdings into three equal lots: holding one lot perhaps two or three years, for the extreme movement of say 80 points. (Note: that's 80 points in 1903.) The second lot is sold at the culmination of each minor bull campaign, perhaps in three or four months, at a profit of twenty to thirty points, and bought back on a reasonable decline. Profits of five to ten points are taken on the third lot, which is also bought back in due course.

When the larger players are preparing for an onslaught of bear campaign, they usually begin by holding the market strong, and if possible, advance two or three "darling" stocks with a great ostentation to fool the public with stories of "Bill Gates buying," "Intel buying," (original quotes are "Vanderbilt buying" and "Standard Oil buying", respectively) while they unload their position at the highest possible prices. When at last the market commences in their favor, they hammer it down further. At about the time the bottom has reached, and liquidation of long stocks finally induced, short sellers invariably cover their position.


nikoschopen
2,824 posts
msg #40438
Ignore nikoschopen
1/19/2006 3:08:35 AM

HINTS ON HOW TO WIN

"In all the stupendous works of nature there is nothing more sublime than the egotism of the man who expects to win when he plays at a game of skill which he does not understand!"

● When a dull, weak market has become active and declining, then panicky, and enormous quantities of stock are changing hands, prices are most likely at or very near the bottom. A rally of several points may be expected at this time. After this rally, there is "usually" (emphasis added) a second downward movement to about the previous low. Stocks bought at such times should be held for good advances, provided other signs indicate that it is the end and not the beginning of a bear campaign.

● If after a dull, sagging market, when everybody is bearish, there comes a rally of 3 or 4 points (note: keep in mind that this book was written in 1903), and then certain stocks lose 1/2 to 3/4 of this rally, after which they rally again, and this time lose only about half of the latter rally. The next upward move of about a point makes it all the more certain that insiders are accumulating those stocks. The same movements reversed, when the market is at the top, indicate lower prices.

● After a series of pronounced advances, engulfed in great excitement and enthusiasm, the rally suddenly halts and the market reacts. Then there will follow a period of rangebound activity. If your charts show a great many fluctuations over a narrow range in a certain stock after a decline, followed by an eventual breakout above this range on heavy volume, it will be a fair assumption that the insiders are accumulating and further advances are expected. If the charts show theat several leading stocks are acting in concert, there is a very good chance that a bull market lies ahead.

● After the market has been dragging along the bottom for an extended period, with only small fluctuations in price, it is safe to bet that a bull campaign will soon be under way. The reason is that when the bears get tired of selling and there are no more stocks to offer, the market will inevitably come to a standstill, at which time the insiders conclude that the tide has been turned.

● When everything appears to favor lower prices and everybody is bearish, especially when every possible reason is given as to why you should sell, but the stock merely fluctuates over a narrow range without going lower despite the ongoing bear raid, you may be sure that the insiders are accumulating and the next pronounced move should be upward.

● The volume activity is an excellent indicator as to the general trend of prices. When the largest volumes are on the advances and trading falls off on the reactions, you can be certain that it is a bull market.


markcrisp
187 posts
msg #40441
Ignore markcrisp
1/19/2006 4:28:14 AM

The lambs never learn to buy stocks when everything looks darkest. They never learn that a bull campaign begins in gloom and ends in glory

------------------------------------------------------------------------------
HMMM So maybe I should have bought TASR at about $7 AFTER it's huge run up?

I know whathe'ssaying but you can't blindly buy low priced, beaten up stocks...that's a suckers game for sure.


nikoschopen
2,824 posts
msg #40460
Ignore nikoschopen
1/19/2006 1:42:06 PM

markcrisp,

Have you read the passage in its entirety? The author isn't indulging us about when/where/what/how to buy but the general market psychology we so often overlook at a time of crucial turning point.


alf44
2,025 posts
msg #40471
Ignore alf44
1/19/2006 3:59:21 PM

Much of what is being described here reminds me of what Stan Weinstein discusses in his classic book "Secrets for Profiting in Bull and Bear Markets"...albeit from a chart reader's perspective.

Weinstein describes...what he calls...The 4 Stages of a Market :


Stage 1 - The Basing Area

Stage 2 - The Advancing Phase

Stage 3 - The Top Area

Stage 4 - The Declining Phase


Basically, he says that every stock (or index) moves through these 4 Stages. And...that this cycle is repeated over and over again throughout time. The 4 Stages provide a "roadmap" that indicates not only where a particular stock is at, but also where it's headed in the future.

Obviously, the trader's job is to determine what Stage a particular stock (or index) is in at the time...and how best to play it...based on his assessment !


Regards,

alf44





nikoschopen
2,824 posts
msg #40480
Ignore nikoschopen
1/19/2006 4:54:10 PM

Alf,

Thx for the comment. I too have read Stan's book and encourage others to spend their hard-earned money on this book rather than on bar hopping. <grin>


alf44
2,025 posts
msg #40481
Ignore alf44
1/19/2006 4:55:53 PM

ditto :8^)


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