The Psychology of Speculation by Henry Howard Harper

Another incident occurs to me, which is so typical of those who become / infected with the stock market microbe that it seems worth relating. / A few years ago a young friend appealed to me for advice as to the / best method of investing about $10,000 surplus which he had taken out / of his business the previous year with a view to placing it out at / interest. I recommended several preferred industrial and railroad / securities which seemed reasonably safe as a business man's investment, / and suggested that he put about twenty per cent. of the amount in each / of five different stocks. He knew nothing about buying securities, so / I introduced him to a reputable firm of bankers and brokers, and in / addition to warning him to buy no more than he could pay for in full, I / cautioned the head of the firm not to encourage, or even to permit, him / to speculate on margin. He bought twenty shares each of five investment / stocks, and a few weeks later he informed me, quite excitedly, that / already his purchases showed a profit of more than six hundred dollars; / also that inasmuch as the market was "going higher" he thought he ought / to double his holdings. The mistake I had made in advising him to buy / stocks, instead of non-speculative bonds, was now plainly evident; but / I could do no more than caution him to stick to his own business and / leave the stock market to others. He insisted that he could see no / harm in buying a few more shares and margining them fifty points or / more with the stocks he then owned; that it would not distract him in / the least from his business, nor would it subject him to any risk or / anxiety. My counter argument that stocks, having already advanced to a / high average level, were as likely to decline as they were to advance / further, was totally unconvincing. My young friend had caught the / speculative infection; which, like typhoid fever and smallpox, must run / its course. It can be treated, and sometimes mitigated, but not cured; / in some cases not even by bankruptcy.

About four months later, on returning home after a few weeks' absence, / I received a telephone call from the head of the brokerage firm, / informing me that the young man had sold out all his investment / securities, and was in a raging fever of speculation; that he was / buying and selling all sorts of highly speculative stocks in lots of / from a hundred to five hundred shares, and that he spent two or three / hours a day watching the ticker. He paid no heed to repeated warnings, / and threatened to take his account to some other office if his orders / were not executed as given. "What am I to do? " the broker asked in / despair. "This young daredevil will probably be in bankruptcy in less / than six months."