One of my favorite investing books ever is The Money Game, by Adam Smith. This book absolutely nails Wall Street and what’s so fascinating is that it was published in 1967. “Adam Smith” probably wouldn’t be surprised to know his book is still just as relevant fifty years later because in The Money Game, he references a book that was written 86 years prior. How to Win in Wall Street: by a Successful Operator, was published in 1881. Amazingly, this book is available online.
I went through it and pulled a few bits and pieces I found interesting. This was written 134 years ago, enjoy.
“Sometimes a very ignorant man will gain great wealth in speculation in defiance of all rules. And again, a man of vast experience, deliberate judgment and close observance of the accepted rules of the “street” will steadily lose, until a fortune will slip away.
We often hear of men making fabulous sums of money in Wall street, who were not only very ignorant but quite reckless of what they did. But sweep your mind’s eye back over those of that class whom you have known and ask how many have kept their money or have a dollar to-day? And you can constantly hear men say ‘It is all luck, this speculating in Wall street!’ A gross mistake! While it is to be admitted that a man may for a time make money by chance there, I assert that the tenure of all men who depend solely on ‘luck’ in Wall street is only for a season. And yet there are many, thousands, who enter into speculations thee dependent solely on the chapter of accidents to pull them through. Those are the ‘Lambs; and it is on these that Lions thrive and fatten. ….But there are rules in all of these which no man can long despise without paying dearly for his ignorance or indifference at the end”
“Unlike the miner, who has gone down into the dark earth and brought forth gold where it has been hidden since the days of creation, to contribute to the commerce of the world; unlike the farmer who has sown his seeds in the naked soil and appealed to nature and to time; unlike any man who toils with hand or head, you contribute nothing whatever to the worth, to the wealth, to the beauty or good of the world. You simply take that which another man has had. And doubt not that he is depressed as much by what he has lost as you are elated by what you have won.”
On short selling
“And yet, a worthless thing ought to be sold. There is much more money in that than anything else, if you hit it right. But it is much more risky. For if its friends have been able to lift it up in the face of shrewd men there, thus high, may they not be able to take it away up out of your reach? And then it seems to me it Is not a magnificent nature that takes the ‘bear’ side and bets on the fall of a property, or the misfortunes of the country.”
“And yet, as I said before, the ‘bear’ must necessarily be a sore-headed, sour-natured creature, who doubts and disbelieves everything, and waits for and even desires disaster, that he may profit by the fall of others.”
On what moves stocks
“In London we always swept the horizon for a little speck of war. Any trouble or disturbance, even at the extreme part of the earth, whether under the British flag or not, always brought a tumble in stocks. But here, I observe, through all British disasters, the Boer battles which affected even British consols, nothing of this kind disturbs Wall street, and I imagine that even a very considerable battle with the Indians at the frontier would make little impression. So that the causes which shake the market of the two countries are quite different.”
On dividend stocks
“Under the loose and unregarded law of this country a stock company can, and often does, no doubt, sell bonds and pay a dividend that never has been and never will be earned. The purpose is, of course, apparent. But the poor, heedless little lamb, for whom the snare was laid, counts it ‘a dividend-paying stock,’ and, to the extent of his hard-earned and limited means, buys it, simply because it seems cheap.”
“I doubt if you could sell a gold or silver mine to much advantage if you should locate it in the state of New Hampshire- although I am told there are excellent mines in that state. But put it in the region of the Rocky Mountains, or, better still, in Alaska, and you will certainly find buyers for it.”
“Buy only about once or twice a year. Make no haste about buying. These stocks are going to stay there. They will not leave town. They will remain, my friend, and be bought and sold, cursed, blessed, wept and wailed over, when you and I and all of to-day are in the dust. So take your time and wait till you are perfectly certain that they are low, and are about as low as they are likely to go for the next half year.
On day trading
“Neither are my suggestions of any more use to the ‘eight and one quarter per cent man’ than to the ‘tape man.’ For the ways of the ‘eght and one quarter percent man’ are not may ways. He is a nervouse, narrow creature , who fights quite outside of all law or rule. He is called a ‘scalper,’ and I can but think that he took his name from the Indians of the border who skirmish and scalp without either order or rule.”
On having a plan
“For my part, I always despise money made in Wall street by accident or by ignorance. I like to lay my plans of battle, fight it out according to discipline and tactics, take my time and win my victory as a general wins a campaign.”