Saturday, 26 April 2014

Dickson G. Watts ‘Speculation As A Fine Art’ – A Speculator’s Essential Qualities

The book ‘Speculation As A Fine Art’ by Dickson G. Watts is very short and only 45 pages long. Most of the book consists of quotes contained in the second part entitled ‘Thoughts on Life’. Dickson G. Watts was the president of the New York Cotton Exchange from 1878 to 1880 and that the last 85 years (that’s a while back) have changed a lot of things, but the rules of speculation set forth by Mr. Watts are still very effective in today’s market.

His list of ‘Essential Qualities of the Speculator’ and ‘Laws Absolute” show the timeless value of his insight:



‘Essential Qualities of the Speculator’

1. Self-Reliance. A man must think for himself, must follow his own convictions. George MacDonald says: “A man cannot have another man’s ideas any more than he can another man’s soul or another man’s body.” Self-trust is the foundation of successful effort.

2. Judgment. That equipoise, that nice adjustment of the faculties one to the other, which is called good judgement, is an essential to the speculator.

3. Courage. That is, confidence to act on the decisions of the mind. In speculation there is value in Mirabeau’s dictum: “Be bold, still be bold; always be bold.”

4. Prudence. The power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance of these two, Prudence and Courage; Prudence in contemplation, Courage in execution.



Lord Bacon says: “In meditation all dangers should be seen; in execution one, unless very formidable.” Connected with these qualities, properly an outgrowth of them, is a third, viz: promptness. The mind convinced, the act should follow. 

In the words of Macbeth; “Henceforth the very firstlings of my heart shall be the firstlings of my hand.” Think, act, promptly.

5. Pliability. The ability to change an opinion, the power of revision. “He who observes,” says Emerson, “and observes again, is always formidable.”

The qualifications named are necessary to the make up of a speculator, but they must be in well - balanced combination. A deficiency or an over plus of one quality will destroy the effectiveness of all. The possession of such faculties, in a proper adjustment is, of course, uncommon. In speculation, as in life, few succeed, many fail.

‘Laws Absolute’:

1. Never Overtrade. To take an interest larger than the capital justifies is to invite disaster. With such an interest a fluctuation in the market unnerves the operator, and his judgement becomes worthless.

2. Never “Double Up”; that is, never completely and at once reverse a position. Being “long,” for instance, do not “sell out” and go as much “short.” This may occasionally succeed, but is very hazardous, for should the market begin again to advance, the mind reverts to its original opinion and the speculator “covers up” and “goes long” again. Should this last change be wrong, complete demoralization ensues. The change in the original position should have been made moderately, cautiously, thus keeping the judgement clear and preserving the balance of the mind.

3. “Run Quickly,” or not at all; that is to say, act promptly at the first approach of danger, but failing to do this until others see the danger, hold on or close out part of the “interest.”

4. Another rule is, when doubtful, reduce the amount of the interest; for either the mind is not satisfied with the position taken, or the interest is too large for safety. One man told another that he could not sleep on account of his position in the market; his friend judiciously and laconically replied: “Sell down to a sleeping point.” 
Edited article from http://www.tischendorf.com

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