How do big boys operate in the market – Part 2

In another big boy operation from the “Reminiscences of the Stock Operator“, it was Livingston’s turn in the Cottom market:

“”When I got back to New York I gave myself up to studying the market. Everybody was bearish and everybody was selling July cotton. You know how people are. I suppose it is the contagion of example that makes a man do something because everybody around him is doing the same thing. Perhaps it is some phase or variety of the herd instinct. In any case it was, in the opinion of hundreds of traders, the wise and proper thing to sell July cotton and so safe too! You couldn’t call that general selling reckless; the word is too conservative. The traders simply saw one side to the market and a great big profit. They certainly expected a collapse in prices.

I saw all this, of course, and it struck me that the chaps who were short didn’t have a terrible lot of time to cover in. The more I studied the situation the clearer I saw this, until I finally decided to buy July cotton. I went to work and quickly bought one hundred thousand bales. I experienced no trouble in getting it because it came from so many sellers. It seemed to me that I could have offered a reward of one million dollars for the capture, dead or alive, of a single trader who was not selling July cotton and nobody would have claimed it.

I should say this was in the latter part of May. I kept buying more and they kept on selling it to me until I had picked up all the floating contracts and I had one hundred and twenty thousand bales. A couple of days after I had bought the last of it it began to go up. Once it started the market was kind enough to keep on doing very well indeed -that is, it went up from forty to fifty points a day.

One Saturday this was about ten days after I began operations the price began to creep up. I did not know whether there was any more July cotton for sale. It was up to me to find out, so I waited until the last ten minutes. At that time, I knew, it was usual for those fellows to be short and if the market closed up for the day they would be safely hooked. So I sent in four different  orders to buy five thousand bales each, at the market, at the same time. That ran the price up thirty points and the shorts were doing their best to wriggle away. The market closed at the top. All I did, remember, was to buy that last twenty thousand bales.

The next day was Sunday. But on Monday, Liverpool was due to open up twenty points to be on a parity with the advance in New York. Instead, it came fifty points higher. That meant that Liverpool had exceeded our advance by 100 per cent. I had nothing to do with the rise in that market. This showed me that my deductions had been sound and that I was trading along the line of least resistance. At the same time I was not losing sight of the fact that I had a whopping big line to dispose of. A market may advance sharply or rise gradually and yet not possess the power to absorb more than a certain amount of selling.

Of course the Liverpool cables made our own market wild. But I noticed the higher it went the scarcer July cotton seemed to be. I wasn’t letting go any of mine. Altogether that Monday was an exciting and not very cheerful day for the bears; but for all that, I could detect no signs of an impending bear panic; no beginnings of a blind stampede to cover. And I had one hundred and forty thousand bales for which I must find a market. On Tuesday morning as I was walking to my office I met a friend at the entrance of the building.

“That was quite a story in the World this morning,” he said with a smile.
“What story?” I asked.
“What? Do you mean to tell me you haven’t seen it?”
“I never see the World,” I said. “What is the story?”
“Why, it’s all about you. It says you’ve got July cotton cornered.”
“I haven’t seen it,” I told him and left him. I don’t know whether he believed me or not.

He probably thought it was highly inconsiderate of me not to tell him whether it was true or not. When I got to the office I sent out for a copy of the paper. Sure enough, there it was, on the front page, in big headlines:

JULY COTTON CORNERED BY LARRY LIVINGSTON

Of course I knew at once that the article would play the dickens with the market. If I had deliberately studied ways and means of disposing of my one hundred and forty thousand bales to the best advantage I couldn’t have hit upon a better plan. It would not have been possible to find one. That article at that very moment was being read all over the country either in the World or in other papers quoting it. It had been cabled to Europe. That was plain from the Liverpool prices. That market was simply wild. No wonder, with such news.

Of course I knew what New York would do, and what I ought to do. The market here opened at ten o’clock. At ten minutes after ten I did not own any cotton. I let them have every one of my one hundred and forty thousand bales. For most of my line I received what proved to be the top prices of the day. The traders made the market for me. All I really did was to see a heaven-sent opportunity to get rid of my cotton. I grasped it because I couldn’t help it. What else could I do?

The problem that I knew would take a great deal of hard thinking to solve was thus solved for me by an accident. If the World had not published that article I never would have been able to dispose of my line without sacrificing the greater portion of my paper profits. Selling one hundred and forty thousand bales of July cotton without sending the price down was a trick beyond my powers.

But the World story turned it for me very nicely. Why the World published it I cannot tell you. I never knew. I suppose the writer was tipped off by some friend in the cotton market and he thought he was printing a scoop. I didn’t see him or anybody from the World. I didn’t know it was printed that morning until after nine o’clock; and if it had not been for my friend calling my attention to it Iwould not have known it then.

Without it I wouldn’t have had a market big enough to unload in. That is one trouble about trading on a large scale. You cannot sneak out as you can when you pike along. You cannot always sell out when you wish or when you think it wise. You have to get out when you can; when you have a market that will absorb your entire line. Failure to grasp the opportunity to get out may cost you millions. You cannot hesitate. If you do you are lost. Neither can you try stunts like running up the price on the bears by means of competitive buying, for you may thereby reduce the absorbing capacity. And I want to tell you that perceiving your opportunity is not as easy as it sounds. A man must be on the lookout so alertly that when his chance sticks in its head at his door he must grab it.

Of course not everybody knew about my fortunate accident. In Wall Street, and, for that matter, everywhere else, any accident that makes big money for a man is regarded with suspicion. When the accident is unprofitable it is never considered an accident but the logical outcome of your hoggish-ness or of the swelled head. But when there is a profit they call it loot and talk about how well unscrupulousness fares, and how ill conservatism and decency.

It was not only the evil-minded shorts smarting under punishment brought about by their own recklessness who accused me of having deliberately planned the coup. Other people thought the same thing.

One of the biggest men in cotton in the entire world met me a day or two later and said, “That was certainly the slickest deal you ever put over, Livingston. I was wondering how much you were going to lose when you came to market that line of yours. You knew this market was not big enough to take more than fifty or sixty thousand bales without selling off, and how you were going to work off the rest and not lose all your paper profits was beginning to interest me. I didn’t think of your scheme. It certainly was slick.”

“I had nothing to do with it,” I assured him as earnestly as I could.
But all he did was to repeat: “Mighty slick, my boy. Mighty slick! Don’t be so modest!”

It was after that deal that some of the papers referred to me as the Cotton King. But, as I said, I really was not entitled to that crown. It is not necessary to tell you that there is not enough money in the United States to buy the columns of the New York World or enough personal pull to secure the publication of a story like that. It gave me an utterly unearned reputation that time.”