Where do you get your market information? Perhaps most people get it
from the daily papers. When you look over the financial news of one of
the leading metropolitan papers and see how much there is of it, you can
get some idea of the enormous volume of work necessary to get this
matter ready for the press in a few hours. There is no time to confirm
reports. It is necessary that many of the articles be written from pure
imagination, based on rumors.
Weekly and monthly periodicals can be more accurate in their
information, but even they are not always dependable. Much of the
financial news published comes from agencies that are not reliable. Read
what Henry Clews says about them:
"Principally among these caterers are the financial news agencies
and the morning Wall Street news sheet, both specially devoted to
the speculative interests that centre at the Stock Exchange. The
object of these agencies is a useful one; but the public have a
right to expect that when they subscribe for information upon which
immense transactions may be undertaken, the utmost caution, scrutiny
and fidelity should be exercised in the procurement and publication
of the news. Anything that falls short of this is something worse
than bad service and bad faith with subscribers; it is dishonest and
mischievous. And yet it cannot be denied that much of the so-called
news that reaches the public through these instrumentalities must
come under this condemnation. The 'points,' the 'puffs,' the alarms
and the canards, put out expressly to deceive and mislead, find a
wide circulation through these mediums, with an ease which admits of
no possible justification. How far these lapses are due to the haste
inseparable from the compilation of news of such a character, how
far to a lack of proper sifting and caution, how far to less
culpable reasons I do not pretend to decide; but this will be
admitted by every observer, that the circulation of pseudo news is
the frequent cause of incalculable losses. Nor is it alone in the
matter of circulating false information that these news venders are
at fault. The habit of retailing 'points' in the interest of
cliques, the volunteering of advice as to what people should buy and
what they should sell, the strong speculative bias that runs through
their editorial opinions, these things appear to most people a
revolting abuse of the true functions of journalism."
Of course, every trader gets market letters from one or more brokers.
These are many and varied in character. Some of them are prepared with
great care and give reliable information, but you must remember that a
broker's market letter is published for the purpose of getting business,
and business is created only by the customers' trading. Therefore it is
to the broker's interest to have his customers make many trades instead
of a few trades. In his book "Business Barometers," Roger W. Babson
reproduces a letter written to him by the Manager of the Customers' Room
of a Stock Exchange House. We consider this letter so important to all
traders, we are taking the liberty to reproduce it here:
"Hearing on every hand about the fortunes made in Wall Street, I
decided, upon being graduated from college, to devote myself to
finance. With this end in view, I secured a position with a
first-class New York Stock Exchange House, finally becoming the
'handshaker' for the firm; that is, 'manager' of the customers'
room. So I had an exceptional opportunity to size up the stock
business. The chief duties of the manager are to meet customers when
they visit the office, tell them how the market is acting, the
latest news from the news-tickers and the gossip of the Street. But
the real duties are to get business for the house. Once a most
peculiar man came to the office. He was about forty-five years of
age, dressed in a faded cutaway coat, high-water trousers, and an
East Side low-crown derby hat. In a high squeaky voice he said that
he knew our Milwaukee House and would like to open an account. Of
course, we were all smiles, for here was a new 'customer.'
"One day while in Boston he called us up on the long-distance
telephone to make an inquiry about the grain market. One of my
assistants, desiring to get a commission out of him, said 'We hear
that Southern Pacific is going up; you had better get aboard.' He
said 'All right; buy me a hundred at the market.' The stock was
bought, but he never saw daylight on his purchase, for the market
declined steadily afterward and by the time he got back from Boston
it showed a heavy loss. The man who advised its purchase had no
special knowledge about the stock, but simply took a chance, knowing
that the market had only two ways to go, and it might go up, in
which case, besides making twenty-five dollars in commissions for
the house, he would be patted on the back for his good judgment. If
the market went down, as it did, he would still make twenty-five
"I venture to say that 99% of the speculations on the New York Stock
Exchange are based on such so-called 'tips'. The manager has got to
get the business to keep his position and salary, and this can only
be done by 'touting' people into the market. So he draws on the
'dope' sheets of the professional tipsters and his own feelings, and
gives positive information to the bleating lamb that the Standard
Oil is putting up St. Paul, or that certain influential bankers are
'bulling' Union Pacific. The lamb buys the stock, the broker gets
the commission, and then the lamb worries his heart out as he sees
his one-thousand-dollar margin jumping around in value. Now it has
increased to eleven hundred dollars, then declined to nine hundred
and fifty dollars, then nine hundred dollars, eight hundred dollars,
then back to eight hundred and fifty dollars and then it takes the
'toboggan' to three hundred dollars upon which the broker calls for
margins, and sells the customer out if they are not forthcoming, the
whole speculation being based on the manager's 'feeling' that stocks
ought to go up.
"Men of affairs who will not play poker at home, and are shocked at
the mention of faro and roulette, which any old-timer will tell you
are easier to beat than the stock market, think they are using
business judgment when they try to make money on stock market
'tips'. Anyone with common sense can see that a 10% margin has no
more chance in an active market than a brush dam in a Johnstown
flood. One of the causes for this kind of speculating on a margin
is that a broker's commission is only 12-1/2 cents per share and it
does not pay to do small-lot business. The one-thousand-dollar
margin would only buy ten shares outright and net the broker but
$1.25 for buying and $1.25 for selling, whereas that same amount as
margin on one hundred shares yields the broker $12.50 each way
besides interest on the balance, the net result being that for any
given amount of money a speculator on 10% margin multiplies his
profits by ten and his losses by ten over those that would occur
were he to buy the stock outright and take it home. The broker on
his side multiplies his commission by ten over what he would receive
were he to do an investment business."
From the above letter you get an idea of the attitude of an employee of
the average broker's office. He would not be considered loyal to his
employer if he had a different attitude. When an attitude like this
influences the broker's market letters, they are not reliable.
You may ask whether there is any reliable information about the market.
Yes, there is. There are several large organizations that make a study
of fundamental statistics and statistics of different companies and give
information to their subscribers based upon this knowledge. We believe
that is the only kind of information that is worth very much to a
trader, except the statistical information--the number of shares sold
and the prices at which they are sold--he gets from his daily or weekly
papers. Some of the principal organizations of this kind are as follows:
Standard Statistics Company, Inc.
Babson's Statistical Organization.
The Brookmire Economic Service.
Harvard Economic Service.
Poor's Investment Service.
Moody's Investors Service.
Richard D. Wyckoff Analytical Staff.
The above are the principal organizations of this kind. Subscriptions to
their service cost from $85 to $1000 a year. In addition to these there
are a few other organizations besides our own and individuals giving a
somewhat similar service, but we know of none that gives such a service
at as low a price as ours.
You should not confuse the service given by the above organizations with
that given by many organizations and individuals who attempt to tell you
what the market is going to do from day to day. In other words, they
give 'tips' on the market. There are a number who issue daily market
letters of this kind and charge from $10 to $25 a month for their
service, but it is a line of service that we do not recommend at all,
because we consider that you would be taking a very great risk if you
followed advice of that kind. You might make enormously large profits
occasionally, but you would also have frequent losses, and when the
losses did come they might be greater than all the previous profits. We
want you to understand that that kind of advice is entirely different
from what we are recommending.