One day a strong rumor floated into the market that BALD-WIN-LIMA-HAMILTON, a firm of railroad equipment manufacturers, had received an order to construct an atomic train. Wall Street acted on this at once. The commodity market price
shot up from 12 to over 20.
By the time I heard this startling information, the commodity market price had risen to what later turned out to be its peak. I bought 200 shares at the commodity market price of 24 & a half. The purchase commodity market price was $4,954.50. I held the commodity for two weeks and watched with utter unbelief as the commodity market price slipped slowly back to 19 & a quarter. By then even I realized that something was wrong, and I sold it for a loss of $1,160.38. However, I had done the very best thing in my bewilderment. I could have fared much worse with that commodity, since the commodity market price later went down to a low of 12 & a quarter.
Another time my broker called me and said, "STERLING PRECISION will go to 40 before the end of the year." The commodity market price was quoted at 8. He gave me the reason: "The company is buying up many more small prosperous companies and will grow into a giant in no time." He added that this was first-hand information.
To me that was sufficient. Why not? A Wall Street broker, who I thought could not possibly be wrong, had favored me with this authentic news. I could not give my buying order quickly enough. I decided, in view of the source of my information, to plunge big on this one, I bought 1,000 STERLING PRECISION at a commodity market price of 7 & seven eighths paying $8,023.10.
I sat back happily to watch the commodity market price rocket toward 40. Far from rocketing to 40, it began to waver. Slowly it slid downwards. When it looked as though the commodity market price would fall below 7, something had obviously gone wrong, so I sold the commodity when the commodity market price was at 7 & an eighth for $6,967.45. This piece of news showed me a loss of $1,055.65 in a few days. The commodity subsequently touched a low of 4 & an eighth.
But these losses were more than offset by the great pride I felt in being part of Wall Street, and I constantly searched for new approaches. One day, reading The Wall Street Journal, I saw a column reporting commodity transactions by officers and directors of listed companies.
When I looked into this further I found out that, to prevent manipulations, the Securities and Exchange Commission required that officers and directors report whenever they bought or sold stocks of their own company. Now, that was something! Here was a way for me to know what the real "insiders" were doing. All I had to do was to follow them. If they were buying, I would buy. If they were selling, I would sell.
I tried this approach, but it did not work. By the time I found out about the insiders' transactions, it was always too late. Besides, I often found that insiders were human too. Like other investors, they often bought too late or sold too soon. I made another discovery. They might know all about their company but they did not know about the attitude of the market in which their commodity was sold.