Wiped Out!

I Suppose I should pretend that I'm writing this account to help others avoid the mistakes I made in the stock market. I am not that altruistic. The real reason is that I no longer want to pretend to myself that I was a victim of circumstances. I was a victim of my own stupidity and cupidity, and I want to be faced with all of the facts of my undoing. The only way I can prevent it from happening again is by writing down exactly what happened, step by step. If others find instruction in it, well and good. I made just about every mistake the novice in the market is likely to commit. And I lost a great deal of money.

What is a great deal of money? What is a fortune? To a $75-a-week clerk, $5000 is a fortune. For a millionaire, to lose $100,000, while no pleasure, would be no calamity. I earn an upper-middle-class income, but I have no millions to fall back on. The sum I lost was between $50,000 and $100,000. That is certainly a fortune to me--and to most people.

It took about six and a half years for me to lose my money--from the fall of 1957 to the spring of 1964. During that time the Dow-Jones Industrial Average rose from 485 to 820--a gain of about 70 percent. True, some of my biggest losses occurred during the "crash" of 1962, but I lost equally large amounts in sharply rising markets. Folly transcends all market conditions.

I first invested in the stock market at the age of 30. A few years before, in 1954, my father had died and left me some cash, an insurance policy and a piece of income property. I suddenly, there-fore, possessed capital that I did not need for day-to-day living and, at my family's suggestion, I invested it all in mutual funds. It was the first time that I even knew there were mutual funds.

Since 1945, many people who had never invested in the stock market had become interested in Wall Street. The market was rising, big money was being made. People with a little savings were getting hot tips and tripling their investments in a few months' time. The market was beginning to look like a one-way street to riches for all. A cousin of mine asked if I had any money in the market. When I answered in the negative, except for my mutual funds, he suggested I talk to his broker, a man my own age who was originally from the same Midwestern city where much of my own family lived, who had gone to the same college I had, and whom I may have known but could not remember. I called him.

He came over one Sunday afternoon, sat in our living room and talked to my wife and me most amiably, conservatively and sensibly. He asked us about our income and our insurance. He suggested that I always keep at least $3000 in the bank for any emergencies--and at that time I believe I did have that much in cash, or very near it. My wife was working, too, and as yet we had no children. If there was anything left over, the market, though uncertain, was a pretty good way to realize a gain superior to what the savings bank could pay. Careful investments, he said, should realize about 15 percent a year. This was better, too, than what most mutual funds could accomplish. He also urged me to sell my war bonds--bought as a boy in high school when I worked in the summer--to place the money where it could earn a better return. All that he said sounded reasonable and businesslike, and I decided to try it. I sold the mutual funds and bonds and sent a check to his office.

Since I knew nothing about the market, it was agreed that he would handle the whole thing for me--a discretionary account, as it is called. He needn't even tell me when he bought or sold securities; I would get slips from his office.

Another friend who had long been investing suggested that I buy a little looseleaf notebook at the ten-cent store and keep track of my stocks--to chart the progress of each by writing down its price at the end of every week. I bought my notebook.

My first entry in that book is American Home Products, 22 shares bought October 14, 1957, at a price at 131 3/4 a share, for a total cost, with commissions, of $2920.56. On October 18, the stock was 133 3/4. On October 25, 136 1/2. On November 1, 140 1/2. On November 8, 141. On November 15, 148. On November 22, 153 1/2. On November 27, my broker sold the stock for $152 a share. In a little over a month, without having to do a thing, I had made a profit of $391.83! I was delighted. This seemed to be the easiest thing in the world, and a very pleasant way to make money.

My broker's next purchase was 100 shares of Socony Mobil Oil. He paid 46 1/8 for it, sold it less than ten days later for 49, for a profit of $222.19. I never even talked to him over the phone. I wouldn't learn the delightful news of profit until the mail arrived.

I sold no other stock in 1957. Just the two complete transactions. My incometax return that year listed a short-term gain from securities of $614.02.

The following year was a busy one for my broker. I just watched from the side lines, delighted. Fifty shares of General Electric, bought in 1957 for 59 3/4, were sold for 62 3/4 in January 1958, for a profit of $109.79. Ten shares of IBM, bought at 287 1/4, sold a few months later at 304, for a profit of $145.83. Seventy-five shares of Florida Power Corporation, bought for 52, sold two months later for 58 1/4, for a profit of $397.60. One hundred shares of Mead Johnson, bought for 47 1/4, sold five weeks later for 53 1/2, for a profit of $566.64. One hundred shares of Northern Natural Gas, bought for 50 3/4, sold three months later for 58 3/8, for $649.83 profit. And many more--all profit. I took only one loss the whole year, and that for $289.73. The rest was pure gain, a total profit of about $4000. Since I had about $23,000 in the market at that time, I had made about 18 percent. Even better than my broker had promised. Plus dividends of some $900. Clearly, investing in the stock market was a wonderfully easy way to make a great deal of money.

The following year, 1959, ran just about as smoothly. There were 23 transactions in that year, and only five were losses, only one of them of any consequence. Some of the gains, on the other hand, were considerable. Washington Water Power, bought in July 1958, was sold in January 1959, for a profit of $662.77. Piper Aircraft, purchased in October 1958, was sold in April 1959, for a profit of $1293.06. Electric Auto-Lite was bought in April and sold in November, for a profit of $948.71. The year ended with a net profit of over $6000, plus over $1000 in dividends, but since I had put several thousand dollars more into the market, my percentage return was about the same as the year before.

I began to be dissatisfied.

For one thing, I was now looking at the stock tables daily and reading the comments on the financial pages, and I was beginning to wonder about my broker's policy of doing so much trading. Not that I was worried about short-term as against long-term profits, because I was not in that high a tax bracket. What was really bothering me was that I saw that my broker was moving in and out of stocks that had only begun their rise. If he had stuck with the better purchases, instead of trading, I would have made considerably more money. I made a list of all his transactions to date and checked on the price of every stock as it stood at the end of 1959.

American Home Products, which I had been so happy to sell at 76 (after a two-for-one split) for a $391 profit, was now 171 1/2, and had been as high as 193 that year. IBM, which I had sold at 304, was now 438 1/4, and had gone to 488 that year. Mead Johnson, which I had held for five weeks and sold at 53 1/2, was now 68, and had touched 82 1/2. I was particularly bothered by American Motors, which my broker had bought on March 20, 1959, at 31 1/2 and sold on April I at 35 3/4; it was one of the glamor stocks of the year, and hit 96 7/8.

I didn't know enough at the time to realize that one can seldom predict when a stock has hit its high; I didn't know that it is often wisest to grab a profit while you have it. I did see that a few of the stocks I had sold, at a profit, were now selling for less than I had realized from them. Yet those few that had run away to glamorous highs exasperated me. If I had only put all my money in American Motors and left it there, I could have tripled my investment. Why all this flitting around? Why not find a good stock and settle in with it?

I began to read the stock pages more and more closely; and I began to read the ads that promised so much if one only subscribed to a particular investment service. I began to send in dollar bills for trial subscriptions. Most of these services' recommendations were trading suggestions, which contradicted my decision that long-term holdings were best; but I was confused, inconsistent, and never really thought through the problem long enough and clearly enough to evolve any investment philosophy. All I knew was that the recommendations sounded attractive and that I was dissatisfied with my broker. I began to call him and make suggestions, then demands. What's more, even without my interference, in 1960 the market went down--and so did my broker's luck.

• • •

I instigated the first serious trouble in my account. One of the services to which I was now subscribing and one with which I was particularly impressed specialized in a consensus of all the other services. The favorite of this combined wisdom at the beginning of 1960 was American Motors. Momentum, it seems, had carried the glamor stock of the year before onto the favorite list for the current year as well. How often, I learned later, analysts merely go along with favorites, seeing on their charts no ceiling to a rising curve, recommending stocks just before they hit their peaks. But I was naïve and instructed my broker to buy me 100 shares of American Motors.

They cost me $29 a share (the stock had split since I had last owned it). Within days the shares went down to 27 1/2, then 26 1/2. My broker, disgusted with the outcome he expected from my first interference in my account, decided he would save my skin in spite of myself by averaging down and bailing me out when the stock rallied. He bought a second hundred at 26 3/8. But the stock, instead of rallying, sank lower. We finally tossed it out later in the year at just under 19, for a loss of lamost $1900. That was the beginning.

My next discovery of what sounded like a sure success came from another service. I asked my broker to buy Brown Co. on the American Exchange. He was indifferent to the stock, but we bought 200 shares, only to scramble out of it a month later, as it was falling fast, for a loss of $698. I turned to still another service, one that specialized in science and electronic issues, then in their heyday. I bought 100 shares of National Company, an over-the-counter stock my broker had never heard of, and made a (continued on page 118)Wiped Out!(continued from page 96) $630 profit. But then I lost that amount in a stock the same service touted called Cook Electric Co., and then lost the same sum again in Chance Vought Aircraft, recommended by two of my services ("poised for a breakout..."; "should move to..."; "buy on volume at...").

Then I took a tip from a friend with inside dope on an insurance stock and lost a whopping $1586. And from a technical service I was assured Ford was ready for a breakout; that cost me $1165.

With each new loss or occasional gain, a kind of madness grew in me. I could hardly wait for any stock I held to be sold, written off and forgotten, so that I picked from a service, from something I had read in the paper or in a financial magazine, or from some of the crude charts I was beginning to keep on stocks I saw recommended. (I hadn't even the know-how at first to record volume--only up-and-down moves, to draw almost meaningless hillocks on graph paper.) My money could not rest a moment. Since I always had a list of stocks that looked like good buys, I was impatient with any stock that didn't move up immediately. I resented the money invested in the stocks that my broker had chosen; I wanted it all to invest myself. The times I was right were tremendoulsy exciting and exhilarating; the times I was wrong were only temporary irritations. The gambling fever was taking hold rapidly--in me, who had never gambled at cards or in a casino. But once the fever has settled in, one can never shake it.

At the same time, my broker's luck or judgment began to deteriorate; he was buying in a falling market. He bought 100 shares of General Electric at 90 5/8 and sold them at 85, for a loss of $665. He bought 100 shares of International Telephone & Telegraph for 46 1/2, sold them at 40 1/2, for a loss of $687. He bought 100 shares of Pitney-Bowes for 40, sold them for 34, for a loss of $680. He bought 100 shares of National Cash Register at 68 7/8, sold them later that year for 58 1/8; loss: $1172.

There were profits, too, but we were running well in the red. When 1960 closed, I had losses of over $6000 for the year. My broker told me that mine was the worst account in his books. It was a statement I was to hear again and again, from his numerous successors.

We began to quarrel. He told me the trouble with my account was that I was interfering with it, that when he ran it alone he had done fine. What about the mistakes he had made that year? He would have done better, he said, if he had not been flustered by the irregular and vague state of the account. Was he running it or was I? It couldn't be both. His tone was peremptory.

After much anguish, I called him and told him I was taking my account else-where. He was unpleasant over the phone; it was the first account he had ever lost, he told me, and he felt he was losing it unjustly. For my part, though somewhat uneasy over the new responsibility, I was now eager to have full control, to test my own imagined skills.

I only wish I had stayed with that broker. He was a trader, but considerably more cautious than I proved to be. He would have saved me a fortune.

• • •

I looked for a new broker. After several interviews and several disappointments, I finally was told by my insurance agent about a young man who had hit upon some astonishing successes for him and other friends. This broker had recently recommended a stock unheard of by my insurance man and, sure enough, in a few months the stock had gone up 75 percent on news of a merger.

I called on this young man (he must have been about 30) a day or so later and found him extremely pleasant and likable, obviously as intent and serious about extraordinary success in the market as I was. He seemed to live, eat and sleep ticker tape, to take on lunch hours away from the board room, to put in endless outside hours studying the market and financial journals. He took me into a plush conference room adjoining his office and talked warmly and sincerely about the vast potential of number of stocks he had been following.

I soon learned that this broker had a different approach from any I had seriously considered before. He was not a chartist or a trader or a fundamentalist or long-term investor. He believed in special situations. These are unusual developments within company, such as mergers with another firm, profitable spin-offs, dynamic new management, new-product development, proxy fights, new mineral of resource discoveries, hidden assets or a host of other special posibilities that would be reflected in higher stock evaluation when they were revealed, understood or exploited.

For the moment, the first commitment he wanted me to make was to by Tennessee Corporation on the big board. The firm was supposed to be bought up by another company, a move that eventually did, indeed, take place. I bought 300 shares of the stock at42 1/4 on November 16, 1960. I watched it climb to 46 1/4 on November 25, drop back to 44 3/4 a week later, jump to 49 the next week, cross 50, drop back, jump ahead to 53 3/4, then 55, and so on. By the end of March 1961, the stock was 58 7/8. In June it even reached 68. Then it dropped back into the high 50s. I sold it finally, almost year after I had bought it, on November 8, 1961, at 60. My profit was about $5000.

That was fine. It only I had put all my money in Tennessee Corporation. Or half of it. But my broker's other favorite stock, about which he increasingly began to claim incontrovertible inside information, was 20th Century-Fox--and was the catalyst to my utter downfall.

But for a long time my course could not have run smoother. I was living out all my hopes. In fact, things were going so well, so much as they were supposed to go, that I was not even particularly elated--weren't your stocks supposed to go up in straight line? Why get excited because the sun rises in the morning or an apple falls to earth?

We bought 300 shares of 20th Century-Fox on November 17, 1960, at 37 3/4 a share. A week later, as the stock started to rise, I bought another 200 shares, this time at 40 1/8. I would add to my holdings as the stock climbed, accumulating along the lines recommended by Nicolas Darvas, whose book I had recently read and been fired by, in preparation for my new career toward wealth. Only a few days later it was 200 more shares at 42 1/4. The stock slipped back a week later t 40 1/8--I added 100 shares at that later to 40 1/8--I added 100 shares at that figure. Five weeks later, in January 1961, the stock jumped to 44 1/2; I added 400 more shares to my portfolio. Then 300 more at 45, 200 at 52 and another 200 in April at 55 1/4 (which proved to be the exact top of 20th Century-Fox for many a year to come). This was the Darvas dream come true. I now had 1900 shares of the stock and, on paper, profits in this one stock of about $20.000. Adding my Tennessee Corporation profits to that, I indeed had an excellent chance of doubling my money that year. I was now buying on margin (in addition to tossing into the kitty savings, the proceeds from selling some rental property, a cashed-in insurance policy and whatever other founds I could lay my hands on), some-thing I had never done with that fool of a first broker, who didn't realize the power of leverage, who wasn't able to think big and would therefore always remain small I was going to make a million dollars in the stock market--after all, if you double your money every year, that doesn't take long. I walked around buoyed by the secret knowledge of my vast paper profits. I, a brilliant investor who was going to make enough money to quit work and do whatever I wanted in life, had to spend my working hours--for the present, anyway--with fools who couldn't understand the dynamics of daring, imagination enterprise. When I happened to run into my first broker on the street, I couldn't resist boasting about my present success.

That marked the pinnacle of my market career. Ahead some $25,000 in less than a year, I was on top if the world.

Why was 20th Century-Fox rising so (continued on page 126)Wiped Out!(continued from page 118) rapidly? The story, which I got piecemeal, was that the company was going to be liquidated, and when that happened, the value of each share would be closer to $100, thanks to 20th Century-Fox' library of old films that could be sold to TV and to real-estate holdings all over the increasingly valuable terrain of Greater Los Angeles.

The stumbling block in this scheme, it soon turned out, was the president of the company, Spyros Skouras. He still liked the idea of making motion pictures. It was the money interests, the bankers from the East, who wanted to liquidate. It would take a little longer, but they would succeed. In March it had been announced that the brokerage firms of Carl M. Loeb, Rhoades & Co. and Treves & Co. had acquired about 22 percent of the Fox stock, and John L. Loeb and Milton S. Gould, representing those firms, were elected to the board of directors; Gould was a specialist in liquidations. That news had helped push the stock to the heights at which I had bought my last 200 shares. Much of this "inside information" possessed by my broker, I later learned, was common rumor all over the Street. But other investors and brokers had sense enough to realize that things are never sure in company politics, and were ready to sell if it looked like the dissolution of the company might be thwarted.

When the stock began to slip back from its high of 55 1/4 to 52 in late April, 46 in late May and 41 in late June, I was, needless to say, panicked. Every time the stock dropped one point, I was out almost $2000. This was a frightening experience for me. My paper profits had disappeared. Darvas' advice was to have sold long ago--I knew that. But my broker pleaded with me. I will never forget the day he told me, after some glib talk about his inside dope and news that was always imminent: "I won't let you sell." And he meant it--so firm was his belief in the financial cause to which he had dedicated my money and his money and the money of heaven knows how many other clients that he could no more surrender his faith in the rightness of his choice than a saint could forgo his God.

It is very hard for any investor to resist the advice of the "expert" who is his broker. You always ask yourself, "What can I know, I who am only an outsider reading the newspapers, when he is there with the tape all day, reads countless financial journals, converses daily with other brokers and analysts, has his company's experts and managers to advise him," and so on. besides, one wants to be convinced. When you have paid $54 for a stock and it is now $41, you are not anxious to sell. Hope buoys your prospects even as the actual price sinks.

The newspapers were full of the ferment at 20th Century-Fox. In June and July there were continual accounts of reorganizations. Rumor had it--and my broker "knew" it was true--that these were desperate but futile gestures. Skouras, who seemed to be the one man who wanted to continue making pictures, was on his way out. Cleopatra was becoming, after all, the biggest financial scandal in film history. In July the stock rallied to the mid-40s.

Then public patience evaporated. The stock began to fall again and, reluctantly, I finally sold some shares. I had to, for I was facing a margin call. I sold 100 shares at 43 5/8, 400 shares at 39 1/4 and 40 5/8. At the beginning of August I sold another 100 shares at 39 3/4. Finally, when I read a headline in the August 9 morning paper, I knew it was all over: Rumored Change At Fox Is Minor. Skouras was safe; the company would not be liquidated, our calculations were futile. I called my broker before the market opened and found him, for once, subdued. He admitted all his certainties were crushed. I instructed him to sell the rest. He didn't protest. I got $37 a share for my remaining 1300 shares. It was just under what I had paid for my first 300 shares--but I had added 1600 shares at higher prices on the escalator principle. My loss in 20th Century-Fox was nearly $14,000.

I was absolutely demolished. I had lived with this stock for a year, I had climbed to the heights of euphoria with it and had now been flung to the pit of despair. My pride in my own judgment was shattered. All my theories and all my study had ended in so much confusion. And the loss seemed absolutely devastating. I certainly never dreamed such losses--and worse--would be visited upon me, and more than once, until there would be nothing left to lose.

• • •

It was close to the end of my episode with 20th Century-Fox that I met the man who was to be my mentor for the next class in my education in the pitfalls of investment. This man--whom I shall call Wallace--was still in his mid-30s, and had made more than a million dollars in the two or three years prior to the time I was introduced to him. I was flattered that a man of his reputation and influence seemed to like me and was willing to help me. He invited me to his butlered town house for a drink one evening and there I met several other successful young brokers and analysts from Wall Street. I loved just being permitted to listen at the feet of these sages as they discussed trends, issues, inside dope, new underwritings and the opinions of other analysts. One of these young men, extremely serious, an intellectual in the realm of stock tables if I ever saw one, I especially admired. I asked him if I might see him sometime and he said he was very willing to meet with me. He was at that time working as an analyst, very highly regarded, at a major investment advisory firm.

I called for him at his office, impressed once again by my admission to ground that for me had the sanctity of the bishop's office to an acolyte. Instead of the fancy lunch to which I was perfectly ready to treat him, he told me he cared little about lunches and hadn't much time, and we settled for a hamburger and iced coffee at a little luncheonette in the Village, nor far from his office. As the first essential step, he suggested I open an account with one of the brokers he used--and that Wallace also used, for he and Wallace were good friends.

I was delighted. I was being given entree to the broker used by two of the shrewdest investors in Wall Street, both of whom had made considerable sums of money and were regarded by many of their colleagues with awe and envy. How could I possibly fail if they should take me under their wing?

This broker, whom I soon contacted, was a bit older than I and was certainly not a hotheaded enthusiast like the broker I had just left. He was pleasant and soft-spoken, and the firm he was with, though not one of the largest, was long-established and quite respectable. I was concerned that he did not seem more clever and aggressive and impassioned about making money, but both of my new friends assured me that he was exceedingly capable, that they trusted him and had made money from his suggestions, and that I was in good hands.

The first stock this new broker put me into was Kerr-McGee. It was a stock in which his company was very interested; they had taken a large position in Kerr-McGee. I told him that I preferred to continue with the system of buying a stock as it advanced, rather than committing all my funds at once. He agreed to that. On August 9, 1961, I bought 100 shares of Kerr-McGee Oil at 44 1/4. A few days later, I bought another 100 shares at 47 7/8. Not too many days after that, it was 200 at 47 1/2; and within the same month. I made it an even 500 shares, the last 100 bought at 48 1/2.

That was the high for the remainder of that year--and for the three years following. The stock abruptly turned around and within two weeks was down to 41 1/2. I then found out, to my bewilderment, that my two friends, far from buying Kerr-McGee through the same broker I was now using, were selling it through a different broker, at the very time I was buying it. Kerr-McGee was my new broker's own idea, and his firm's--an opinion contrary to my friends' views.

When I told them what I had bought (continued on page 212)Wiped Out!(continued from page 126) for my first investment with their recommended man, they shook their heads in unison. "Sell it, that stock's had it," they advised. My broker urged me to wait a while longer; he sent me a long letter with the company's earnings and brightprospects spelled out in neat tables. He took me to lunch at a dignified Wall Street executive luncheon club reserved for partners and customers' men and their guests, and I was deeply pleased to be in those richly wood-paneled and leather-chaired rooms, and bowed to his superior knowledge. When the stock rallied some weeks later to 46 and I could have got not almost even, I took his word that the rally represented a turning point for the stock and bided my time. But the stock fell back to 40, then fell through that support level and plummeted to 30, eventually going as low as 25. When I finally sold it, months later, it was at 34--for a loss of $6781.46.

Strikes, regional gasoline price wars and Government curtailment of uranium purchases (an important source of income for Kerr-McGee) were blamed for the company's disappointing earnings figures that eventually appeared and the lower price of the stock. But all I knew was that "a sure thing" had again led me to disaster. Long before the stock was sold, but after it had dipped considerably below the prices I had paid for it, it was decided that my broker would buy for my two astute friends. Now at last I felt safe: They were making money--I would make money.

For a time this proved true. They came up with an over-the-counter realestate-development firm called Dunbar Corporation, whose earnings looked poised to soar. I bought only 100 shares--at 13 3/4; within three weeks it was 18 1/4. My friends' contacts had obviously supplied some inside information and provided me, too, with a head start. I sold the stock a few months later at 19, for almost a $500 profit. Then a hotter tip came along--Rockower Brothers, also over the counter, a company in the newly burgeoning discount field, whose earnings picture promised to be phenomenal. I bought 200 shares and in less than two months sold the stock for a $1750 profit. I was on the right track.

With one horribly costly detour.

I had still been keeping my daily charts, which now incorporated volume as well as price, on 12 to 20 stocks that had caught my eye in the services I subscribed to. I saw that cartain stocks would trade in a very narrow range for months at a time, moving up three points, backing down the same three points, moving up once again--always bouncing between the same ceiling price and the same floor figure. It seemed so easy, after watching a stock act this way four or five times running, to buy it at the lower figure and sell it at the higher one. It is true there would be only a point or two of profit; but if one bought 500 shares of the stock, then one's gain could be $500 or $1000 in a short time.

I tried out the theory, receiving no argument from my broker, with 500 shares of a stock I had been watching on the American Stock Exchange called General Development. I had seen it hold three times at its bottom level, 13, and I bought 500 shares at that figure; I sold them about ten days later at 14 1/2, for a $525 profit.

The whole process seemed simple and rewarding, and I was eager to try again. For some time I had been plotting Brunswick, the glamor issue that had skyrocketed the year before and had been, even in 1961, as high as 74 7/8. I saw it moving in a narrow range between 53 and 56 or 57, and, since my broker thought that the stock was fully corrected anyway and was due for a rise, we bought 500 shares at 53.

The stock rose to 53 1/4 ns then backed down to 51. I should have sold it and taken what would have been a $1500 loss with commissions. If you are in a stock for a quick trade, you must stick to your purpose and sell it if it doesn't work out. To buy a stock for one reason and then forget that reason will almost always land you in trouble. But I decided to hold to at least get even. The stock did rally to 53 1/8, and it looked as though all might work out well after all. But it went no higher. One month after I had bought it, the stock was still 51. Nothing to be happy about, but not radically alarming, either.

Then it happened. In the first week of January 1962, the stock fell over four points in one day. Few were the people, even with stop-loss orders, who got the price they had expected, because there were no buyers on the way down. My broker advised me not to panic--the stock was bound to have a little rally after such a drop and we would take our bitter medicine at a little higher figure than 45, where it was a day later. But instead of even a slight comeback, the stock continued to drop--to 42 a week later, to 40 1/2 the next week, to 39 1/2 the week after that. IT was no use--I had made a terrible blunder. We sold the 500 shares, some two months after I'd bought them, at 37 1/2. And thank heaven I waited no longer. Everyone knows who bought some Brunswick stock about the same time I did and decided to average out his price by buying more on the way down. He still has his shares, I believe; the stock on the day I am writing this is selling for 8. What had been earmarked as a $500 profit for me ended up as a loss of $8188.11!

Of course I was sick about this terrible episode, and yet curiously I was not as deflated as might have been expected. Was I becoming inured to vast losses? No, but I was so sure now of the inevitable profitability of staying with the stocks my friends were buying that I was certain I could make back the losses of my stupid personal aberrations.

What they were buying at the time--and what I therefore put my remaining money into--were four stocks: Holly Stores, a discount-store chain whose stock traded on the American Exchange; Horizon Land, an over-the-counter glamor issue to $15 a share on the prospect of huge profits selling land in the West through mail-order ads; Midwestern Financial, one of the then-booming savings-and-loan stocks, also on the American Exchange; and a fourth stock, Sel-Rex, which I shall discuss shortly.

Actually, all of these stocks could, indeed, have made me the wealthy man I envisioned myself as deserving to become, if--and what an if--the market had continued to climb. I had met my friends too late, at the very end, though I did not then known it, of course, of a great bull market. My only comfort, if you can call it that, is knowing that if I had met them earlier and had made a great deal of money, I would probably have just lost that much more in the crash of 1962.

What kept me from being wiped out altogether in that year of debacle is the fact that half the stocks--Horizon Land and Sel-Rex--were bought over the counter. If they had been listed on an exchange, I would probably have bought them on margin and bought twice as much, which would have spelled my ruin a lot earlier than it eventually arrived. But since I had paid full price for much of my stocks and they didn't fall to zero, I had some money left when the smoke cleared.

The first stock to be in trouble was Horizon Land. I bought 500 shares in October 1961, at prices from 15 1/4 to 18 3/4, and I was naturally elated when by the end of the year the stock was already up to 23. Early in 1962 it fell back to 20 and hovered there for many months. When the clash came between President Kennedy and Roger Blough of United States Steel in April 1962--the event that triggered the crash--the stock plummeted to 13, 10, and by late June, 7. As soon as trouble call that he was, indeed, selling some of his Horizon Land, but only because he had to raise cash--and I knew how heavily margined he was, so that any sizable drop in the market necessitated drastic action. He told me the company's situation was as good as ever. I temporized and sold 100 shares, at 18 1/4, and held the rest. My broker and my new friends all told me this market was going to turn around soon. One would be a fool to sell out at the bottom. They were too young and too inexperienced to have lived through a terrible bear market. My broker, who seemed utterly lost through this whole period, was no help at all. The remaining 400 shares of Horizon Land were eventually sold for 6 3/4, for another tremendous loss--almost $5000.

Holly Stores repeated this unhappy pattern. My friends were buying, so I bought-500 shares late in 1961 at an average price of 17. Within two weeks, the stock was 22. Then it dropped and held for months at 19, at least not dipping below the price I had paid for it until that fateful April. I finally sold Holly Stores in September 1962, at $6 a share, for a loss of $5684.93.

Of Midwestern Financial I bought only 100 shares--but even so, in the same span of time, months when all savings-and-loan stocks fell apart, I suffered a loss of $1475.06. The stock has not recovered to this day.

But Sel-Rex was to prove the most costly of all Wallace's suggestions. I bought 500 shares at $35 a share. To be able to purchase a round number of shares, I had to borrow money from my wife--money she had earned while working before our first baby arrived. Thus far, I've not been able to pay her back.

I watched the stock anxiously. In one week's time, it was up to 38 1/2. Wallace told me the stock would be 100 by the end of the year--this was in February of 1962. The stock slipped back to 35, but that was understandable; it had already enjoyed a considerable rise before I bought it.

Then came the steel crisis in April, and in a few days' time the stock, dropping multiple points a day, was down to 28. Wallace never called me--if and when he sold it, I do not know. My broker, rightly not feeling he should reveal the account of another client, could only tell me Wallace was lightening his portfolio. My broker, again, did not advise selling; instead, he told me his brokerage house--which had a large position in the stock--was holding on.

Through the whole period when stocks were plunging in 1962, those who held their stocks did so because they thought the market would turn around soon, and that the wisest course was to see it through. When you had losses such as I had, it was easy to sigh and say, as I heard many say, "It's not really a loss till you sell it. Just wait, these things come back in time." Maybe they do--if you have bought General Motors or Eastman Kodak. But not a Horizon Land or a Sel-Rex.

I sold my Sel-Rex at an average price of 11 3/4. At least I could take the $5000 or so that was left of that particular investment and, buying on margin, have enough buying power to hope for some renaissance in my fortunes as the market staged its rally. My loss in Sel-Rex was $11,700. My loss in the four stocks of that year was about $16,000 left--and I was again looking for a broker.

• • •

This time he was easy to select. A few months after I had bought Sel-Rex, I noticed an advertisement in the Sunday New York Times placed by a very prominent and conservative brokerage house offering a brochure on that very prominent and conservative brokerage house offering a brochure on that very company--a company, they said, with a remarkable earnings potential. Naturally, I sent in my name, thinking I might as well see what another firm was saying about my stock and encouraged, too, that a brokerage house as reputable as this one was also touting the issue. The report was rubber-stamped with the name of one of their customers' men. In a few days, as expected, he telephoned.

I told him frankly that I was happy with my present broker, which was relatively true at that time, and that I had written in only because I was already a shareholder in Sel-Rex. He hesitated, said he knew he shouldn't disparage his own firm's recommendations, but he would advise my selling Sel-Rex. Later on, he was to look like the only savant in a world of total ignorance.

He called twice again, just to chat, he said, and he never pressured me to switch my account. He seemed just to enjoy talking to anyone about stocks, as much as I did myself, and he spoke calmly and intelligently. The President Kennedy-Big Steel affair spurred him to take all his clients our of the market and, soon, to begin selling short. He was completely bearish when everyone else was expecting an early turn-around. He urged me to take my losses and, if I didn't want to sell short, to put my money in bonds.

When all my stocks had hit bottom and were lying there like skewered balloons and I realized my broker had been a complete cipher through the whole reign of terror, I turned to the one man who had talked sense to me, on three occasions in the past six months.

We met for the first time, and I found him to be in his mid-30s, European born, intense and obviously very intelligent, a man who had been in business until the last few years but for whom the lure of the market had been too strong to resist. His father--or was it his stepfather?--had been a broker for years, so that he was no novice to the ways of Wall Street. After lunch he took me to his offices and showed me huge charts he kept--charts so big they unrolled over two desks--and tried to explain to me why he felt the market was in serious trouble for a good long time to come. That opinion proved to underlie my next misfortune: When he was right to be bearish, he wasn't my broker; and when he became my broker, he was wrong to be bearish. For the market was then very near its bottom; and while stocks were larking through one of the most glorious upsurges in history and offering one of the best opportunities to buy cheap and watch fortunes grow, I was hesitant and defensive.

My new broker's first pessimistic advice was to sell my Kerr-McGee and Holly Stores stocks before they dropped further and put my money in Consolidated Edison bonds. We'd wait out the bear market, if it took years. When it became obvious that a run-up was under way late that year--after President Kennedy's successful showdown with Russia over the Cuban missile base--my broker, admitting there might be some profit on the upside, sold the bonds (at a slight loss) and started buying common stocks--but hesitatingly, timidly, always ready to retreat. In the ll months that I stayed with that broker, he made 13 trades for me and he lost money in every one--except one stock that was entirely my own suggestion and that he advised me to sell at a loss but that I insisted we hold onto, and then we made a profit of less than one point a share. (One year later that stock, National Airlines, had doubled. I had had 600 shares; in three years it would have been worth six times as much.)

I was in Chicago on business for four days when he tried something in my absence (he had discretionary power with my account) that I had never dabbled in before: a day trade. At that time, if you owned $500 in securities, you could buy another $5000 worth of any stock in the morning and wait till the end of the trading day to decide if you wanted to sell your present holding in order to pay for what you bought that morning, or whether you would sell back your morning's purchase. This allowed you to gamble on a one-day trade, to make money on a stock that spurted ahead five or ten percent in one day without having to sell any of your present portfolio or put up any additional cash (though you must pay commissions, of course).

When I called my broker the morning of my return from Chicago, he informed me with a frantically penitential air that he had tried a day trade for me and that it had failed. He had gone short United States Smelting in the morning; we had covered that afternoon and taken a loss of $402. The very next day, U. S. Smelting fell ll points! He had been right, but his timing was off by one day. We decided to never again put my account in the position of having to close a trade on the same day: If there was enough buying power in the account to hold the stock for a day or two, it might be worth trying again--after all, he had called the Smelting bubble with almost perfect accuracy.

So when, a few days later, he went long 100 shares of Beckman Instruments at 102 as a day trade and it didn't work out that day, we decided to hold it another day or so to see if he had charted the stock correctly. Instead, the stock took a sharp, quick drop, and my broker, afraid of all the losses he had already taken in my account, didn't sell. There I was, again holding a weakening stock.

The discussions that went on daily about Beckman Instruments between me and my broker and between me and the charts I started keeping on the stock, and between me and my wife and any friend who was the least bit interested in the market, consumed hours. Resistance points were mapped--there was one at 92, and once the stock hit that point it would probably bounce back to 97, said the charts, and we would get out there. It didn't work--the stock fell through 92 as if it had never read its own chart.

Beckman fell a to 83 before I finally got out of it, for a loss, this time, of $1991. It then fell further, only to spurt all the way back to 102 and plunge once more, this time to as low as 47 1/2. I had learned: (1) the dangers of day trades an (2) the dangers of day trades that turn out not to be day trades. In fact, with this broker I was learning the dangers of trading altogether: If you are right even half of the time, you can easily lose money, because if you buy a stock at 50 and sell it at 55, you've made 4 points; but if you buy it at 50 and sell it at 45, you've lost 6 points. The commission will foil you every time. And most people aren't right half the time. The only way to make money trading is to cut your losses immediately and let your profits run. But the trading broker (and since an investor can't sit and watch the tape all day, he usually has to let his broker make trading decisions for him) seldom lets anything run; it's not the way he looks at the market--he's in and out of everything fast. It's great for his commissions, but the investor finds his wins aren't there's a streak of losses, he's soon out of the game.

I suppose I should have left this broker then and there, but I certainly had no one else to turn to, and I decided I would just have to try to take a greater part in making all decisions. I couldn't do much worse than the professionals had done thus far.

My broker, apparently also at his wit's end--for he was doing no better for his other clients than he was for me--had found what he began to tout as a savior in the form of a weekly market letter of uncanny accuracy. Someone in his office had come across this new service and my broker had started to read it and then he began to read it to me. The service recommended Creole Petroleum and it immediately shot up four points. It then touted Pyle National and that moved up sharply. My broker asked me if I would share the expense of subscribing to this service--and not just the weekly letter but the unlimited privilege of calling the service's offices for up-to-the-minute advice. I agreed to pay a third of the expense on a monthly basis until we saw how it worked out.

The wizard who ran this service had a select group of "wonder stocks" that would astound everyone. Eastman Kodak was one of them; he predicted a price of 300 for EK within a few years' time (and, adjusting for stock splits, he may prove correct). I liked the idea of owning a blue chip for a change; furthermore, according to our advisor, this was a blue chip with glamor potential. My broker called me one day in May to say that Eastman Kodak had gone up four points on heavy volume to break out of a "box" and that he had bought me 100 shares at 120 1/2. The very next day the stock fell back a handful of points and it didn't reach 121 again until the end of the year, which points out one of the grave dangers of the chartists and Darvasites--breakouts can be most deceptive. Chartists can jump into a stock because their readings indicate a rise, but if the public doesn't follow through--if the market as a whole, for example, decides to drift down--the stock can fall back sharply.

Others of the guru's wonders to watch at that moment were the sugar stocks, particularly South Puerto Rico Sugar on the big board. It is true that, with Cuba's sugar production going to ruin under Castro's regime, sugar was getting scarce on the world market; and as sugar prices went up, so did the prices of the stocks of sugar refineries and producers. I soon owned 200 shares of South Puerto Rico Sugar, at 45 1/8.

At first the stock acted well, rising steadily. It was certainly more volatile than any I had ever owned. A ship loaded with sugar would go down in a storm in the pacific--never mind whose company was involved--and; the stock would go up three points in anticipation of world shortages. For a while I had a nice little paper profit. Then trouble started in Haiti--a revolution against the dictator Duvalier. I hadn't the slightest notion that a company with Puerto Rico in its name got most of its sugar from Haiti, but apparently such was the case, and the company's cane fields were in danger of fire or confiscation. Added to that were statements of our Government, worried about a growing panic and hoarding of sugar, that we had plenty of sugar in our warehouses and that house-wives could stop worrying. A Congres-sional investigation was in the offing, it was announced, to see if prices were being artificially inflated. The world sugar shortage everyone was wailing about one week earlier suddenly disappeared. Sugar companies in various parts of the country began to lower their prices to the consumer. South Puerto Rico Sugar plummeted to 33. And Eastman Kodak, slipped now to 109, didn't help, either. I received a margin call--come up with $2000 or we sell. Disgusted, I threw in the towel. I told my broker I was leaving him for someone else. He told me--as every broker but the first had told me--that he didn't blame me.

When I settled in with a new broker, the first thing he did was sell the sugar stock, for a loss of $1925, and the Eastman Kodak, for a loss of $1322. He wanted to start afresh. These were losses piled on top of those in Beckman Instruments and the other ill-judged trades. I realized to my horror that my Sel-Rex friends and their broker had left me with $16,000, but that I now had only$8000 left. In surging bull market, in a space of months,I had lost half of my remaining money.

• • •

I realized that I was by now terrified of the stock market. But I couldn't walk away from it--I had to try to redeem myself, my lost money and my lost pride. But being afraid, my natural instinct was to get into the market and steal a few dollars quietly before the market would catch up with me and take everything away again. In concrete terms, I wanted to trade again. I was fearful of long-term commitments--they all seemed to end in bigger and bigger losses--and I hadn't the patience to wait years for turnabouts, if, indeed, they would ever materialize. I also realized that I had so many losses that I could take sort-term gains for years without taxes.

Increasingly interested in the technical approach, and realizing that my charts had always been a farce, too busy to keep better ones or to learn a system like the point-and-figure theories, and seeing no reason why someone who spent full time at it couldn't do better than myself in any case, I soon was in the hands of a new broker purported to be an expert chartist. This man wrote a weekly technical trading market letter for his brokerage house. I called him about my problems with South Puerto Rico Sugar and Eastman Kodak. I found that he had, indeed, traded in the former, profitably, but had been out of the stock for some time, and that though he liked Eastman Kodak, he would never have paid what I paid for it. Our telephone conversation brought out that he was a broker as well as an analyst, a member of a group of prominent Wall Street technicians, a contributor to a recent anthology of sophisticated analytical wisdom. I asked if I could see him.

I found him to be a young man, in his early 30s, obviously bright and terribly serious about the market. His firm had given his his own room, where he sat and watched the tape of a televisionlike screen. He never ate lunch out and seldom left the company's offices. He had taken one vacation in four years or so, and then had his charts flown to him daily. He left the office shortly after the market's closing every day, but only to read and study at home. He came in every Saturday to write his market letter.

He shook his head with real sympathy over the sad narrative I unfolded. He seemed moved by my true tale of woe. He told me that an older woman had come to him recently with a similar story and he had refused to handle her account; he couldn't stand the responsibility if she, through his fault, failed once again. But I was younger his fault, failed once again. But I was younger, more resilient. He thought my only hope was through short-term trading, and that in a good year he could make me 50 percent on my money--or even more. But there would be losses, too--and there would be stocks that rose much higher after we sold them. That was the way a trader worked--to cut losses quickly and to get as much profit on the upside as one could reasonably expect without enduring a reversal. "One thing I can promise you," he said. "You'll never ride a stock down and lose as much money as you did in Brunswick and Beckman."

With some trepidation--what I was doing now seemed more openly like gambling than anything I had done before--I signed the margin papers. My new broker said he understood that if I lost $1000 with him, I would leave him. He said he would at first be overly cautious--to let us try to get a few dollars' profit under our belt.

He was not particularly cautious, but he did not need to be. I had come to him at a time when the market had dipped and was just starting to turn around with genuine velocity. It was a perfect trader's market. My money was turning over so fast I couldn't keep up with it. At the end of a day I was cursing the downturn in a stock I had bought a few das before, only to learn from a brokerage-house notice in the mail that I no longer owned it. This was the action I loved, though I would get exceedingly upset when a stock I had just sold continued to rise sharply.

My first day with this broker was September 5, 1963. On that day he sold everything I had brought to him so that he could start with a tabula rasa and cash. The Eastman Kodak he sold was later to rise to a price that would have more than doubled my money if I had held it.

Things started well. He bought 200 shares of Texas Instruments at 76, and ten days later he sold them at 82 1/2; I had made a profit of just over $1000! This was my first profit for what had seemed to me an eternity; I went to dunhill's and sent him a $25 pipe.

The same day he sold Texas Instruments, he bought 600 shares of High Voltage Engineering at 35 and 35 1/2, and--as he called me to relate with restrained pride--he also made a successful day trade. He bought and sold on the same day 400 shares of Mueller Brass, for a $350 profit. One day later the High Voltage Engineering was sold at 37 5/8. Profit: $982! This was fantastic! In a couple of weeks I had made over 25 percent on the capital I had brought to him. My broker modestly said I had hit upon an extremely lucky period--it couldn't possibly stay that way. But he was pleased, too.

My next trade was a loss--in Bell & Howell. But he held the stock only three days and kept the loss to half a point (though it was $587 in dollars); this particularly hurt, because High Voltage Engineering continued to climb and in four weeks' time was 54. But the Bell & Howell loss was quickly canceled by an equal gain in Eversharp, a stock he held for what was then a record 11 days. He took a $600 loss in Crown Cork & Seal, but then he bought 1000 shares of Technicolor at 17 1/4, and he sold them 14 days later at 20, for a profit of $2175!

My profit with this magician in a little less than six weeks' time was almost $4000! I had made 50 percent on my money in a month and a half! My elation knew no bounds. At this rate, there was no ceiling to my hopes.

• • •

When he called to tell me he had bought 1000 shares of Cinerama, he added, "I think we're really going to make a killing on this one." Somehow I wished he hadn't said that. I'd heard it too often before. It boded ill.

The first day or two, the stock acted well. We bought it at 16 1/2; within a few days, it went to 17 1/2. We could have had a $500 profit. But that could hardly be called "a killing." Then the stock backed down to 16. But it had had a good climb and needed a rest. No reason to worry about it. Then it dropped to the 15s. Fifteen was the support area on the charts. If it held there, it should be OK. And it held beautifully for weeks, touching 16, then dropping back, but never breaking 15. There was good news about the company. It's a Mad, Mad, Mad, Mad World was to open soon; Variety had already reviewed it and said it should be a tremendous money-maker. What more encouragement did we need? How the West Was Won was already doing a great business at the box office. Other films were being shot--a Samuel Bronston picture in Spain, and Bronston was riding high since the success of El Cid and 55 Days in Peking; and The Greatest Story Ever Told, one of the biggest movies ever filmed, was going to be released first in Cinerama. The number of Cinerama theaters had increased from 29 in 1959 to 47 in 1960, to 83 in 1961, to 129 at the end of 1962, and expansion was continuing, including mobile units for showing in Europe and drive-in theater equipment. The company had made only 13 cents a share in 1962, but for 1963 there were estimates of $1 or more a share, with glowing prospects for the years beyond. A New York Stock Exchange brokerage house (later expelled from the National Association of securities Dealers for manipulating prices on another stock) is-sued a four-page report assuring investors that the foundation was now laid "for a firm earnings base from which current dreams can be translated into reality," and advised purchase of the stock "for potentially rewarding capital gains." The fundamentals, said my broker, were as impressive as the charts.

Mad, Mad, Mad, Mad World opened in November 1963. The reviews were unanimously favorable. Even The New Yorker liked it. But when stanley kramer, the producer, flew the press out for a big premiere in Hollywood, it cost so much money (a quarter of a million dollars) that Variety and even the daily press and the United States Senate questioned the need for such extravagance. Cinerama stock reacted by falling to 14 3/4.Should we sell? Normally, my broker would have been out of the stock automatically--he had never failed to sell a falling stock long before the loss was this big. But he said fundamentals had convinced him that the stock was good, that we should hold.

Cinerama went above 15 again. My broker called me and, in a diagnostic but pleased tone, told me how easily it went through 15, what should now have become a resistance level on the upside. Wait, we would still make a lot of money in Cinerama; he mentioned a price of $30 as a reasonable expectation.

The stock fell below 15 again. But why worry? It had happened before and recovered. But this time it did not recover. Instead, it fell to 13.

I was again at that point when panic about a loss brings to mind every reason to hold on. After all, I had lost money on Beckman and a month later it had climbed back to what I had paid for it. So had South Puerto Rico Sugar. So had so many stocks. Cinerama was merely a company that was doing well. I rehearsed in my mind the ways in which it was doing well. I developed in myself a kind of mystic belief in its future. I went to see Mad, Mad World and found I was most impressed with the new Cinerama process, in which no seams showed between the three screens. They had a great thing here. Why be a stupid trader? Why give back more money than I had made with this broker and end up with less than the $8000 I had brought to him? I would hold on and be patient, and my broker agreed with me.

Then came an announcement from the company that its president, Nicolas Reisini, had gone to England had come back with a great new British invention. Called Telcan, it was a camera and recorder that would allow you to take home "movies" of your family on tape and play the tape back immediately on your television screen; or film a TV program you wanted to preserve on tape to replay at your whim; or film a program while you were out so you could watch it at your leisure; or even film one channel's show while you were watching come out with a home instrument that would do these things, but the cheapest Ampex recorder was $11,900. The Telcan recorder would sell for under $300. (The camera, for home filming, would be about $150.) It was already being test-marketed in Great Britain. Reisini had grabbed American rights. This could be the greatest thing since the phonograph. Eventually every home would have one, with a library of video tapes the way homes now have records.Time reported on the new invention enthusiastically.

Cinerama started to rise again. I was overjoyed. But something went wrong. A press demonstration of the instrument proved unsatisfactory, and the stock fell, this time below 13. But Telcan was to remain a new false hope for me to delude myself with.

The Friday President Kennedy was shot, the stock, like all stocks that day, dropped fantastically in minutes. The day closed with Cinerama at 10 5/8. I was panicked. That weekend I had to fly to the West Coast on business, and Monday the exchange was closed . The first thing I did Tuesday morning was go to the brokerage office in the hotel and check the market. It was skyrocketing. By 12:30 in California, the New York market was closed; the Dow-jones was up 32.03 points. Cinerama was back up to 12 1/2. All would yet work out.

Then came weeks of drifting on low volume, an almost imperceptible falling away. The gradualness of it lulled me into complacency: Who sells a stock because it's fallen 1/4 of a point on low volume? Finally the stock was back down to 10 1/2, and this time there was no Presidential assassination to explain the weakness. And yet it seemed folly to sell now and lose so much money. At 10 1/2 I would be out $7000. This was so disastrous I couldn't face it. Out of tens of thousands of dollars, I would be left with less than $4000. Cinerama must be near the bottom by now. Besides, there was a new hope.

The company had been working on Telcan. A friend of my broker's, who in turn had a friend highly placed in Cinerama, let it be known that negotiations were almost completed with a major concern that would make and distribute the camera. that company was Philco. philco! The rumor might well be true, and we waited. It proved false, and the stock fell back to 10 1/2

Twine more this same rumor was to spurt the stock higher--though it never went back to 13 again. still, in an hour it would go up a full point. My broker pointed out that the stock would drift down on low volume, but a little good news and it shot up again on expanded volume. Besides, three times it had bounded away from 10. That looked like a firm resistance level. We would just wait till a deal came through on Telcan and all would be well.

Then came the day I remember so clearly. On Friday, April 24, 1964, I had lunch with a good friend and took a little walk afterward for my routine look in a brokerage-office window, one of those in the neighborhood that kept Cinerama on the board. The stock was 9 7/8. I could not believe it. I had never seen only one numeral before the fraction. I called my broker in a panic.

He didn't know what had happened. He had been telling me all along that weakness in the stock was at least partially attributable to rumors that the company was in financial difficulty, but nothing definite had come out.

That weekend I was really frightened. I called my old "friend" who had got me into Sel-Rex and all the other great growth stocks that had cost me so much money. He said he just didn't like Cinerama and thought I ought to get out, but he had no concrete reason for saying so.

That Monday (April 27) Cinerama quietly gained 1/8 and closed at 9 7/8. At the end of the week, rising a little and falling back a little more, it closed at 9 5/8. Then, on the following Monday (May 4), the market rallied sharply from its decline of the two previous weeks and Cinerama, too, acted encouragingly. It rose as high as 10 3/8 and closed at 10. Out of danger again! The action of the last few days could be the washout needed to turn the stock around.

Tuesday, May 5, was an amazing day. I had been invited to the opening of the United States Pavilion at the New York World's Fair, and the highlight of that pavilion was a special movie provided by Cinerama. I had not intended to go, but with the stock so precarious, I decided I might talk to a company official who could be helpful. Tuesday morning I called Cinerama and asked if it were too late to attend. Certainly not. An admission ticket was sent to my office by special messenger. The showing of the film was to be after lunch. When I left my office, Cinerama was below 10 again.

When I got to the United states pavilion, I milled about with the other guests, looking for someone who might be useful. Finally I recognized william R. Forman, who had replaced Reisini as president at the end of 1963. I walked over in his direction, impressed with the tall grace of the man, with his distinguished looks and quiet, responsible manner. When I had sidled next to him, I overheard him talking to another man, while both were eating sandwiches pre-pared for the press and other guests. He was saying: "I don't know what to do. I've worked every hour at this thing and I can't seem to work it out. I don't know what more I can do." I could catch no more, but it was enough to be frightening. He seemed distressed, but for all I knew, he could have been talking about a charity drive or crab grass on his lawn.

I decided to approach him and introduce myself. He put down his drink and sandwich to shake hands, and we had a little talk. He was most gracious. I told him I owned 1000 shares of his company's stock and was experiencing sleepless nights. He shook his head and said he knew it was terribly distressing, but that he couldn't understand why there was this weakness in the stock. I asked him about Telcan. He said he hoped to have some very good news in about two weeks. I asked him when the earnings report for the previous year would be out and he said he had spent sunday with the accountants and he thought the figures would be ready in the same two weeks. I asked him some questions about the two different Cinerama processes, one with one camera, one with three. He told me that The Greatest Story Ever Told would definitely appear in Cinerama, though they just hadn't made up their minds which process to use. And that was that. Others came to demand his attention. I was impressed by his dignity; he certainly seemed no petty operator to me. still, he was obviously troubled, and I couldn't help dwelling on what I'd overheard just before our conversation.

Before I left the luncheon hall I had met another man who was an official in the company. He was friendly and pleasant, and was kind enough to say I should call him if I had any questions, that all his friends did the same.

The show was a good one and I got back to the office just as the market was closing. Cinerama ended that day at 9 1/4, off 3/4 on the day, another new low.

The next day the stock didn't do much. It closed at 9 3/8, up 1/8 on the day. A respite. The next morning I called the man I had met at the showing, and he told me that what Mr. Forman had said was indeed true, that there would be good news soon on the stock should be falling the way it had.

The stock was weak all week, and by Thursday had dropped to 8 3/4. I learned this from my broker, who called to tell me that a partner in his firm had had a call from a client who wanted to go short on Cinerama immediately. The reason: He had it from an unimpeachable source that Cinerama was going to file Chapter ll that afternoon. The company was going bankrupt! My God, what to do? My broker said calmly, rationally, maybe we should sell some here. I said I'd call him back in a few minutes. I called my new friend at Cinerama. He said he had heard the rumors and they were absurd. Hold on, he advised. My broker, meanwhile, called his friend who had a contact at the company and he got the same story. And the partner in the brokerage firm--one of the privileges of being a partner--was able to place a call to Cinerama and ask for a statement. He, in turn, got his flat denial. We decided to wait and see what would happen. At one point the stock rallied above 9 again, but it closed at 8 3/4. I was now below my margin level. The situation was desperate.

The next day, friday, The Wall Street Journal, commenting on the weakness in Cinerama on heavy volume (it was the most active stock on the American Exchange on Thursday), said it was due to rumors on the Street that the Bank of America was calling in a loan to the company. No one was able to evaluate the truth of the rumors; they could very well prove correct. The stock opened at 8 3/8. My broker didn't know what to do. I had a business appointment at ll and went to it in a nervous daze. I called my broker from the offices I was visiting. The exchange had stopped trading in Cinerama at 8 1/4: There were too many sell orders for the specialists to handle. I cut my business short and rushed, trembling, to the nearest brokerage office. A few minutes after I arrived, trading was resumed in the stock--at 7 5/8. It went to 7 3/4--a few shorts were covering, perhaps--then back to 7 5/8. Then down. I called my broker. Again he said, wait. The stock was now 7 3/8. I realized I was completely wiped out--after paying back the $6500 I owed on margin and paying commissions, I would be left with about $500. I went back to my office. Knowing it was pointless, but desperate to do something, I called my new friend again. He was in coference--as well he might be--but while I was speaking to his secretary, my broker called on the other line. A flash had just gone out on the tape: The president of the Bank of America announced that Cinerama did not even have a loan with the bank! Forman himself did, indeed, have such a loan, but the bank denied categorically that it was being called in. Furthermore, the tape carried an announcement from Forman: He did not understand the recent volume in Cinerama. The earnings report would be out shortly and there would be no "material change" from the previous year (the once-expected $1-per-share earnings proved wholly chimerical). The stock immediately shot to 8 1/2. I will never forget the surge of relief and the joy I felt on hearing that news. I felt as a condemned man must feel when he hears of his reprieve. I hung up on my broker and related the news excitedly to the secretary still waiting on the other line. But the stock didn't hold at 8 1/2. It closed that amazing Friday at 7 7/8.

The margin clerk of my brokerage house had still not issued a call. But that weekend was another experience in torture. I could think of nothing but Cinerama. A dearly loved cousin from California come to visit, but I could hardly be civil to her, so engrossed were my thoughts. On Sunday I called a friend who had been associated with the film industry for years; he told me he had heard nothing adverse about Cinerama in the trade: Paramount would, indeed, release Bronston's Circus World in June and United Artists was committed to do The Greatest Story in Cinerama. Maybe the stock was a good buy, he suggested.

On Monday morning I called my friend at the company. He told me there was a board meeting in 20 minutes and he'd have to run. But there would be good news. There was going to be new financing. So there was something wrong with the company! That was the first time he'd admitted that. Still, maybe good news was forthcoming.

The newspapers had carried the story of the Bank of America's and Forman's statements and the stock opened buoyant on Monday morning, up 3/8, at 8 1/4. There was still hope. It went up to 8 3/8, dropped back to 8 1/4 and stayed there. I knew the price because I kept calling my broker and running down to a brokerage office on another floor in my building. At about 2:45 I checked again; still 8 1/4. Thank God. At about four I dropped down to the brokerage office again to see where it had closed. I couldn't believe it -- 7 3/8! It had fallen almost a point in the last half hour of trading! Another new low. Again, panic.

I couldn't work. I left the office, desperate to do something to save what little money was left and still unable to admit defeat. In my desperation, I walked to the building where Cinerama has its offices, at 575 Lexington Avenue, only a few blocks from where I work. I took the elevator to the top floor. It was after five, but a receptionist was still on duty. I smiled and said I had just come to see if the furniture was still there. (I was distressed to see that the paint was flaking from the walls.) When she asked what I meant, I told her that I was a stockholder who was concerned about the state of the company and was there any official of the company I could talk to? She pleasantly said I would have to call in the morning; she was sure someone would speak to me then. I stalled. read a pamphlet lying on the table in the reception area, and waited. When I sew a well-dressed man leave an inner office and go toward the elevator, I decided to follow him and speak to him. But he held the elevator door for a co-worker who soon followed after him, and we three entered the self-service elevator. The Well-dressed man tool hold of the other man by the lapels and said something like this, in a low voice:

"Look, we've got to pay that bill. The vice-president of their company called me today--it's no laughing matter anymore."

The other man replied: "You know I can't issue any checks--treasurer's orders."

"But this is serious. We've got to pay them."

"Look, he [Forman, I suppose] is aware of all of it, he knows all the problems."

We hit the ground floor and the elevator ride was over, but I certainly had found out something--this was a company in trouble!

I walked all the way home, trying to think calmly. Was there anyone whose advice I could ask? I decided to call my first broker (Would that I had never left him!). He was very nice. His firm had bought into Cinerama when it was 4, and got out in the teens. It's a company with nothing but "junk"--that was the word he used. It was one of those crazy stocks that fly down, and never go back again. We all make mistakes and I had made one. Get out of it. What would happen if the company did file a Chapter ll, I asked. Well, Compudyne had done that; it was now 2 1/2. But Forman had bought more Cinerama stock just a few months before and had so many of his own millions in the company. Well, Forman could be a fool, too. The president of Compudyne had done the same thing.

The next morning I took the subway to my broker's office in Wall Street and was waiting for him when he came in shortly before ten. He wasn't sleeping nights, either; at least he wanted to give me that impression. He had put five people besides myself in this stock. Cinerama opened (I was afraid it wouldn't) at 7 3/8. I told him what my first broker had said. My current broker said he'd been looking at the charts and saw no indication of a sell-off. There probably would be a turn-around in the stock, if the company stayed solvent, but it could be at about the 5 level, who knew? Should we sell, then? Well, there was still the president's letter to the stockholders that was supposed to go out during this week. It wouldn't help much, but it might help some. We agreed to do this: I would scrape up enough money to meet my margin call (a check with the margin clerk informed us that he would settle for $1400 for the moment) and get out if the stock fell below 7 1/4. Just get out at that point, no fooling around. Why wait at all? If the stock held at the present level, the letter might give us a better price at which to sell out.

The stock rallied slightly throughout the remainder of the week, reaching a high of 8 1/4 on Wednesday, and closed on Friday at 7 5/8.

On Monday, May 18, it opened at 7 5/8 and held even through Tuesday, even though the market as a whole was weak. If we could only hold at this level until some good news came.

I did two things that Tuesday: One was to withdraw $1400 from my savings account, money saved for urgent matters that would have to be returned in a few months. Food news had to come soon.

The other thing I did was to have lunch with the Cinerama man I had met at the World's Fair. He was a capable, intelligent man, always as honest with me as he could be. He told me the company was definitely not going bankrupt, that new financing would be forthcoming. Mr. Forman was worth in excess of $100,000,000 and there was no fear of collapse. Forman's letter to the stockholders was prepared and would definitely go out that week. I couldn't see a copy, of course, but it was a strong letter, explaining why the company lost money for the year--an 8¢-per-share loss instead of the $1-per-share profit I had once expected--largely a matter of overextending by supplying Cinerama equipment to too many new theaters, plus losses in The Wonderful World of the Brothers Grimm and a less-than-favor-able deal with United Artists that was netting them less than should have accrued from It's a Mad, Mad, Mad, Mad World. The letter would sound an optimistic note. The Telcan deal still looked good; now General Electric was considering manufacturing and marketing the product. Their board of directors was scheduled to meet on it in a few days. From what he said, it seemed sensible to try to hold on a few more days and see how things came out. There was still a chance of a turn-around.

The next day, Wednesday, the stock drifted down on medium volume, but with no great pressure. IT was 7 5/8 when I went to lunch, 7 1/2 after lunch and closed at 7 3/8, the same low it had closed at once before. I didn't like it--we were only 1/8 of a point from the low it had hit intraday earlier in the month and only 1/4 of a point from the spot where my broker and I agreed we had to sell. Suppose the stock dipped that 1/4 in the morning--or even opened 1/4 lower--should I still hold until Forman's letter came out, presumably by late in the day? We needed just one day's grace!

I also wildly considered borrowing money to be able to hold the stock, no matter where it fell to, just to avoid the reality of the final sale, the registered loss. But that was insane. If the stock fell to 5 and I put up a total of $4000 to cover my margin requirements, I would be putting it into a stock worth only $5000 altogether. That, even I realized, would be too utterly stupid.

I resisted the temptation the next morning to drop down and see how the stock opened. I learned later that it opened at 7 3/8; when I did check it, at 11:15, it was 7 1/4. Right at the line. If it would only hold there, maybe go up 1/8 or be even for the day, I could wait and see what the letter would accomplish. Not that I had any great expectations from a letter that could do no better then explain losses, but it might bolster the stock in the 7s until new financing or Telcan approval came through. If, by some miracle, those actions should prove realities, we would be back in the running; the stock might even be worth holding for the long pull. Maybe by the end of the year the appearance of The Greatest Story Ever Told would pull the stock back up above 10--and we could wait for a higher price a year hence.

At 11:55 my broker called me. In the 40 minutes that I had been back at my desk, the stock had fallen to 5 1/2!

I couldn't believe him--5 1/2! How was it possible so quickly? But before I could absorb his news, he told me we were out at 7. He said he had been able to call his floorman, have him at the proper post when the stock hit 7 1/4, and he got me out. He didn't know why it had collapsed that particular day, but I suppose Wall Street was expecting Forman's letter to announce the achievement of new financing, when all he could do was state he was still searching for new capital.

The stock rallied a bit to close at 5 3/4 that day, and further rallied to close Friday at 6 1/2. It stayed in the low 6s for weeks, until a new false rumor of approval of a loan quickly pushed it to 8 1/2, but in two or three days it plummeted to 6 again. On September 24, after all sources of long-term financing--including the Teamsters' Union--failed to materialize, Forman announced the company would be forced to file a petition seeking protection under Chapter 11 of the Bankruptcy Act unless its creditors extended the maturity dates of their claims. The stock fell to 4 and was not allowed to trade the following day--the same day Forman also announced that Cinerama had a loss of over $5,000,000 for the first half of 1964 and that further "substantial losses are expected by yearend." Reisini resigned as chairman of the board. Nottingham Electronic Valve Company of Britain, which developed Telcan, filed for voluntary liquidation, and Telcan has never been heard of since in Britain or the United States. Eventually, Forman was able to obtain loans and guarantees substantial enough to avoid Chapter 11 proceedings, but with the firm losing over $10,000,000 in the year, the stock couldn't hope to rally. It fell as low as 2 3/4 and closed the year 1964 slightly above 3--where it remains as this article is written.

When I had bought Cinerama, I had had almost $11,000 in the market. I paid 16 1/2 for the 1000 shares, sold them at 7; with commissions, I was out a neat $10,000. Interest charges over the eight months' time had cost me an additional $261. Out of my original tens of thousands of dollars, I had $297.78 left.

• • •

My six and a half years in the stock market ended in such total disaster that I have never heard of anyone else enduring anything similar. But I have heard, from friend after friend, tearful tales of rumors followed and sharp losses taken; of special situations that turned out especially costly (I think of friend, a Ph.D. in math, who invested in an over-the-counter stock of a large poultry producer whose forthcoming earnings would be fantastic because of expansion into European markets--all went as predicted until the Common Market was formed and foreign imports were discouraged, and the stock, bought at 22, had to be sold at 6); of "inside information" that proved uninformed (another friend told me he invested in a company because the president of the bank lending money to that company highly recommended the stock and said he was buying it for himself, but the company ended in bankruptcy); of arid, profitless years when the Dow-Jones was soaring to new highs. It may be easy to make money in the stock market. It is certainly easy to lose it.

What all the rulebooks and all the pamphlets tell you about how to avoid losing your capital is true: You shouldn't listen to rumors, you shouldn't try to trade, you shouldn't buy on margin, you should diversify your holdings, you should buy quality, you should be informed about a company and invest in it because you have faith in its future and are patient for that future to arrive. Then if a stock falls from 45 to 37 1/2, you don't have to decide whether it's time to jump or hold on; the company is sound, you're getting a dividend, you can wait. That is investment, even if you should prove wrong and have invested unwisely. Anything else is speculation. If I had invested instead of speculation. If I had invested instead of speculating, I would have an impressive portfolio now and an appreciable income in dividends.

Your broker should be your best ally. You can buy advice from mail services, but they aren't too helpful in the long run. They can contradict one another. They can be obstinately wrong. They can have runs of luck, then periods of sterility. They usually recommend so many stocks you don't know which to buy, anyway. They can, I think, point out stocks that look good, so that you can investigate them and watch their behavior; and they can give you food for thought about what the market and the economy will be doing in the next year. But you can't follow a service blindly.

Your broker and his firm will have enough names of stocks "likely to appreciate," heaven knows--as many as any service can supply. Your broker can time purchases properly, waiting for dips--those two- or three-point edges can give you a great feeling of security; and if you are short-term trading, those two or three points may be your profit. You will naturally seek out a man amenable to both your personality and your investment goals--someone you feel you can talk to comfortably; like a doctor, he becomes a very personal consultant. If you are looking for safety, he should obviously be conservative and investmentminded. If you yourself, however, insist on more dangerous paths, then you will undoubtedly gravitate toward the kind of broker I seemed to have invariably found. And I think my case proves how wrong such brokers can be. You--like it or not--have to shoulder the responsibility of decisions, too. A broker has many clients and many conflicting interests to juggle in his mind; you have only yours. And it's your money--you keep a jealous, zealous eye on it. The safest way to invest is to put your money in a conservative mutual fund or let a cautious broker pick out a portfolio of unimpeachable quality. That way you can wait out even the severest slumps. But it is very hard, especially for the younger investor, to put all one's money in blue chips. They climb upward, it is true, but with majestic languor, while one watches the glamor issues spring ahead with seemingly irrepressible ease. It might therefore be wise, for many of us, to put, say, 80 percent of our money into blue chips and try our luck and skill with the balance. If you decide to follow that course, just take it slow and easy for a long time. Invest only part of that 20 percent at first, no matter how small that amount must be. Learn by experience the dangers lurking in the market, the surprises, the sudden drops, the terrors of steep and rapid declines; find out, even in a "normal" and healthy market, the rhythm of stocks--how they spurt ahead, drop back, rest, move ahead again. In short, gain the "feel" of the market. Then toss in the rest--of the 20 percent.

If only part of your money is involved in trading, you can gamble, learn, taste the excitement of great potential gain, without fearing you will be wiped out. After all, that way the most you can lose is one fifth of your money. I wish someone had given me that advice--although I know, if I am honest with myself, that I probably wouldn't have taken it. Cupidity is seldom circumspect.