writers on daily papers, because they have not the time to investigate. Their copy must be ready in a few hours after they get the information. See Chapter XXV. on "Market Information" for fuller explanation of the reason why financial news usually is misleading. The manipulators of stock prices can have financial news "made to order."

When the general public reads this news and sees the stock going down, many of them get discouraged and sell. It is just the time they should not sell, but it is a well known fact that the majority of people do in the stock market just what they should not do. The more they sell the more the price goes down, and the pool operators accumulate the stock.

Having secured all the stock they want, they give out good news and continue to buy the stock until it starts to go up. The public reads this favorable news, and seeing the stock go up, will go into the market and buy, which puts it up higher. All the time financial writers are supplying good news about the stock and the public buys it. After they have sold all of it, the public may still be anxious for more, and the pool operators may go short of the stock. Then they will begin giving out bad news, so that they can buy in stock at a lower price to cover their short interests.

After that they have very little interest in the market. If it is declining too fast, they may support it occasionally by buying some stock and giving out some favorable news. That will make the market rally and they will sell out the newly acquired stock near the top of the rally.

Manipulations of this kind appear to be going on nearly all the time, and there does not seem to be any limit to the number of suckers who fall for them. But then, one can't blame the public when you realize how thoroughly unreliable is most of the market information given to them.

Still another kind of manipulation is "one-man" manipulation, where one man controls companies, which are known as "one-man" companies. Usually the directors of these companies are friends or employees of his, and in many instances he has their resignations in his possession, so that they must do whatever he wants them to do. Owing to the strict rules of the New York Stock Exchange, it is rather difficult for such manipulations to be carried on there. But there have been many of them on the New York Curb. When the Curb was operating on the street and was not under very much control, manipulations of this kind were very frequent.

As an example, suppose a man of this kind has a mining company. When he wants the stock to go up, he sends the stockholders a great deal of information about the work at the mine, and perhaps sends them a telegram when a new vein of rich ore is found. The stockholders rush in to buy more stock, and that puts the price up. Then he unloads stock on them to the extent that they will buy it.

In a day or two, the stock may drop back to less than one half of what it was selling at. If this "one-man" manipulator wants to buy any stock, he will give out a little unfavorable news, and he can get stock at his own price.

After that the news is good or bad according to whether the manipulator wants to buy or sell, but as a rule he has an abundance of stock that he wants to sell, and is continually giving out good news.

A few years ago there was a man operating in New York who promoted several companies and manipulated them in a large way. He is out of business now, but the same thing is still done in a smaller way.

It is our opinion that more money is lost by the public in manipulated stocks than in promotion stocks, and we read a great deal about the enormous losses in them. Promotions that are failures may be perfectly legitimate and conducted in the utmost good faith, but manipulations are nearly always for the purpose of swindling the public. However, the lure of them is so great many people cannot withstand the temptations of them even after they have been "trimmed" several times.

PART FOUR
TOPICS OF INTEREST TO SPECULATORS

CHAPTER XVI.
MARGINAL TRADING

Most people who trade in stocks buy on margin. The ordinary minimum margin is about 20% of the purchase price, because banks usually lend about 80% of the market value of stocks.

If you put up 20% of the purchase price of your stocks with your broker, he has to pay the other 80%, but he can do that by borrowing that amount from his bank, and putting up the stock as security. In this way brokers are able to handle all the margin business that comes to them, as long as money can be borrowed. Of course, there are some stocks that are not accepted by banks as collateral for loans, and you should not expect your broker to sell such stocks on margin. In fact, if he offers to do so, it looks as though he were running a bucket shop. See Chapter XVIII.

Many people think that buying stocks on margin is gambling and that people should not do it for that reason, but buying on margin is done in all lines of business, although it may not be known under that name. If you bought stock outright, but borrowed 80% of the purchase price from your banker to complete your payment for it and put up the stock with him as security, you would be buying on margin just the same.

In like manner, if you bought a home and paid 20% with money you had and borrowed the other 80% of the purchase price, you would be buying a home on margin. The principal difference is that when you buy from a broker on margin, one of the conditions of his contract is that he has the right to sell your stock provided the market price drops down to the amount that you owe on the stock, whereas if you borrow money on a home, it is usually for a certain specified time and the lender cannot sell you out until that time expires. However, in principle, there is very little difference between the two transactions.

Most margin traders do not put up sufficient margin. If you put up only the minimum margin, your broker has the right to call on you for more margin if the price of the stock declines at all. Unless you are fully prepared at all times to put up an additional margin when called upon, you should make smaller purchases and put up a heavy margin when you buy. The amount of margin depends upon the transaction, but we advise from 30% to 50%, and at times we advise not less than 50% margin on any purchase. In fact there are times when we advise not to buy stocks on margin at all.

Those who wish to be entirely free from worry should buy stocks when the prices are very low, pay for them in full, get their certificates, and put them away in a safe deposit box. However, when stocks are low the risk in buying on a liberal margin is very small, and the possibilities of profit are so much greater, we do not see any objection to taking advantage of this method of trading.

CHAPTER XVII.
SHORT SELLING

By short selling, we mean selling a stock that you do not possess, with the intention of buying it later. Short selling in general business is very common, and we think nothing of it.