STREET DOGS

From ‘Why You Win or Lose: The Psychology of Speculation’ by Fred C Kelly (1930):

Owning stocks outright is by no means sure protection against loss in the market. If you pay $10,000 for shares that decline to a value of only $3,000, you have taken a terrible loss, and continue to have that loss for several years, even though you’re not compelled to sell.

Many people suffered big losses in the panic of 1929 mainly because they had their stocks well margined, or fully paid for, and were thus able to hold on too long. They would have lost less money if they had been wiped out on the first dip.

When you have so much money in the broker’s hands that you are immune to margin calls, it doesn’t follow that you aren’t quietly taking a terrible licking.

We often hear this stock or that recommended as one “to put away in your box and forget”. But no stock should ever be considered that safe. New inventions, changes in industry, are constantly making certain lines of goods obsolete and bringing others to the fore. How would you like to have remained a heavy stockholder in a buggy-whip corporation?

Years ago canal stocks were among the most conservative of investments ... Most people who owned canal stocks put them away and forgot about them. [But] investors who held canal stocks might better have had them on margin and been forced to examine their value sooner.

I know that every time my broker asked me for margin, I should have refused to give it to him. The fact that he had what he had thought, and I had thought, was enough margin, and we find that we both were mistaken should be enough to indicate that something unexpectedly unfavourable has happened, and it is no time to be putting more money into the market.