The Psychology of Speculation by Henry Howard Harper

Traders and investors too often become stubbornly insistent on / recouping their stock market losses in the same identical securities / in which they lost their money. After having lost a large sum of money / there is undoubtedly a special gratification in seeing it return / by the same channel through which it escaped, but the enjoyment of / this peculiar satisfaction is hardly commensurate with the risk that / many people run in attaining it. In discussing this point some years / ago with a friend who owned a thousand shares of stock in a bankrupt / railway company which had cost him $50 a share, and was then selling / at $15 a share, with a fifty to one chance that the road would go into / receivership, I argued that while the loss of $35,000 was a large / and bitter pill to swallow, the chances were that it would not be / made smaller or more palatable by the inevitable receivership, and / that he might as well salvage what he could from the wreckage of his / investment. After all, there were dozens of really _good_ stocks that / had declined more than $35 a share; stocks that would eventually "come / back" when the market turned about; whereas with his stock there was / a probable assessment of $10 to $15 a share staring him in the face, / and after paying that, the stock was likely to sell at a figure less / than the assessment to be paid, judging by past performance of the / stocks of other companies in receivership. The road was tremendously / over-bonded, over-capitalized, encumbered with every conceivable / sort of debt, and not earning its fixed charges. He vehemently / declared, -- "No, I'll be damned if I'll allow those thieves to do me out / of that money; they shall pay it all back, and more with it! " He held / tenaciously to his resolution, the road fell into receivership, and a / few months later he could have bought the stock in the open market at / two dollars a share less than he had paid in on the assessment.

A favorite and amusing pastime with a multitude of traders is to / cajole themselves into believing that when some stock they own becomes / increasingly active after a considerable advance, the renewed activity / is a sure indication that "bankers and insiders" are accumulating it / for a still further advance. It is well to remember, however, that / bankers and insiders do most of their accumulating before the rise / begins, and while the outside public is doing its accumulating the / bankers and insiders are quietly supplying the stocks. It is quite / clear that if the insiders pursued the same tactics as the public they / would soon be relegated to the ranks of the outsiders.