man operating in New York who promoted
several companies and manipulated them in a large way. He is out of
business now, but the same thing is still done in a smaller way.
It is our opinion that more money is lost by the public in manipulated
stocks than in promotion stocks, and we read a great deal about the
enormous losses in them. Promotions that are failures may be perfectly
legitimate and conducted in the utmost good faith, but manipulations are
nearly always for the purpose of swindling the public. However, the lure
of them is so great many people cannot withstand the temptations of them
even after they have been "trimmed" several times.
_PART FOUR_
TOPICS OF INTEREST TO SPECULATORS
CHAPTER XVI.
MARGINAL TRADING
Most people who trade in stocks buy on margin. The ordinary minimum
margin is about 20% of the purchase price, because banks usually lend
about 80% of the market value of stocks.
If you put up 20% of the purchase price of your stocks with your broker,
he has to pay the other 80%, but he can do that by borrowing that amount
from his bank, and putting up the stock as security. In this way brokers
are able to handle all the margin business that comes to them, as long
as money can be borrowed. Of course, there are some stocks that are not
accepted by banks as collateral for loans, and you should not expect
your broker to sell such stocks on margin. In fact, if he offers to do
so, it looks as though he were running a bucket shop. See Chapter XVIII.
Many people think that buying stocks on margin is gambling and that
people should not do it for that reason, but buying on margin is done in
all lines of business, although it may not be known under that name. If
you bought stock outright, but borrowed 80% of the purchase price from
your banker to complete your payment for it and put up the stock with
him as security, you would be buying on margin just the same.
In like manner, if you bought a home and paid 20% with money you had and
borrowed the other 80% of the purchase price, you would be buying a home
on margin. The principal difference is that when you buy from a broker
on margin, one of the conditions of his contract is that he has the
right to sell your stock provided the market price drops down to the
amount that you owe on the stock, whereas if you borrow money on a home,
it is usually for a certain specified time and the lender cannot sell
you out until that time expires. Ho
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