The Psychology of Speculation

Of course the speculator who buys stock in a new copper mine is simply taking a gambler's chance that ore will be found in paying quantities. Most of those who have submitted to this enticement in the past thirty years do not need to be reminded of the hazards attending such risks. I recall that about twenty-five years ago, when the "copper fever" was raging throughout the country -- and in Boston especially it was highly infectious -- a half-page advertisement appeared in one of the leading Boston newspapers, relating in graphic terms the discovery of the most remarkable copper mining prospect that had ever come to light. The chief mining engineer of one of the largest and best known copper mines in the United States -- a man of wide experience and vast knowledge in the mining business -- while prospecting somewhere in the West came upon what seemed to him the richest deposits of copper ore he had ever seen. These ore bodies were said to be located in a large mountain, conveniently near a railroad, and by tunneling into the side of the mountain the ore could be trammed out, dumped onto the cars and hauled to a smelter a few miles away. The mining engineer (whose full name was given) had immediately resigned his position, organized a stock company, known as the Occidental Copper Mining Company -- into which he admitted a number of personal friends -- bought the property, and began tunneling operations on his own capital and what he had raised among his friends through the sale of stock in the new corporation. Having exhausted their funds and desiring to continue exploration work -- which became more and more promising -- the directors had sold a block of treasury stock, the par value of which was one dollar a share.

The latest reports showed that the work was progressing satisfactorily under the personal direction of the engineer who had discovered the mine, and that stockholders might expect dividend returns inside of a year or so. The advertisement was inserted, not by a stock-jobbing firm or underwriting syndicate, but by a well known wholesale and retail grocery and provision company, who claimed that after fully investigating matters they had bought a large block of the stock, twenty thousand shares of which they would distribute among their customers at the par value of one dollar per share. I called on the president of the grocery company, who said his firm thought so well of the prospect that they had bought twenty thousand shares as a speculative investment, and a like amount to distribute among their customers. He represented that although the shares were easily worth $5 each he considered it good advertising for his company to sell them at par, $1; and with a view to extending the benefits as widely as possible he preferred to dispose of the stock in small lots. He cheerfully gave me the names and addresses of the directors of the new mining company and suggested that, if interested, I might write to them.