Monday, September 21, 2009

Wyckoff, Wall Street Ventures

Richard D. Wyckoff’s Wall Street Ventures & Adventures through Forty Years (originally published in 1930 and republished by Traders Press in 1986) should be on every trader’s reading list. Not only does it capture the spirit of Wall Street and deal making in the years between 1888 and 1928, it also provides insights into Wyckoff’s own trading strategy. And for Livermore fans, there’s a description of his methods—and of those who ganged up to bring him to his knees.

I’m going to write separate posts on Wyckoff’s tape reading and on bucket shops, especially as they evolved into predatory scams. Today’s is a smorgasbord of “tasty takeaways” from the book.

Does history repeat itself or at least, as Mark Twain claimed, rhyme? We can only hope so, at least in the case of GM. “In this year, 1913, General Motors was selling on the New York Stock Exchange around $30 a share. There were only 164,000 shares of common stock outstanding on which no dividends were being paid. The company had found itself in financial difficulties a few years before, had been forced to borrow $15,000,000 on pawnbrokers’ terms, and the bankers lending the money had secured control by means of a voting trust.” Wyckoff had some inside information about company operations and believed it had a great future. So he tried to get a piece of the action. Visiting the bankers one after the other, he tried to get an option on 10,000 shares at $30 a share. Of course, he would take only a part himself and parcel out the rest. No dice. The bankers decided to stand pat. “Thirty dollars a share made the entire outstanding stock worth about $5,000,000. Fifteen years later it had a $4,000,000,000 valuation. The low point for General Motors in the year of my negotiation was 25. Within three years that same stock sold at 850.” (pp. 195-96) So have hope, American taxpayers.

Why do I write this blog? Wyckoff, the editor, principal contributor, managing editor and make-up man, procurer of articles from others, advertising solicitor, business manager, and statistician of The Ticker, the monthly magazine he founded, answers. “As number after number of The Ticker was prepared, I began to see that I was getting more out of it than anyone else. The articles selected for publication were only a small part of the material examined and considered. Much that was of value, in one way or other, left a residue of new knowledge. Writing articles clarified many things in my mind. Much came out of my head that I did not know was there.” (p. 163)

Wyckoff’s magazine was intended to teach its readers general methods by which to acquire money-making ability in the stock market. It was a money-losing proposition. “I had, for the first time in my life,” Wyckoff writes, “run into debt, in attempting to put over a publication which taught the public how to play the market. I had succeeded in training myself—and in finding out that the public did not want to be trained, but wanted me to do the ‘doping out’ for them.” (p. 189). So he started a weekly forecasting service, The Trend Letter. Naturally, it was a huge success. Wyckoff was a good tape reader and he made money for his subscribers. And at $50 a year, as opposed to the measly $3 a year for The Ticker, The Trend Letter was a cash cow for Wyckoff. Indeed, to mash metaphors, why learn to fish when for $50 a year you can have as much as you can eat?

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