Early Days of Stock Investing

After I had learned that the stock market does not have to be associated with the word crash, I began purchasing stock in earnest feeling that this was the road to financial independence.

I opened an account with Spencer Trask on State Street in Schenectady and purchased shares in Bethlehem Steel and Liggett and Myers. I bought these because the names were familiar and I felt that the companies had good futures. The stocks didn’t immediately begin going up as I had hoped and expected. I realized that I should select stocks more carefully.

I felt that fundamental quality was the key and began searching for stocks that exhibited good fundamentals. These were stocks that were low priced, had a good record of earnings growth, paid a dividend, had no debt, and had a reasonable price to earning record. I selected a stock named Simplicity Pattern and bought 100 shares for about ten dollars a share. I had no idea what the company did. I thought it made patterns for industrial tools. It came as a surprised that it made patterns used for sewing.

The stock rose dramatically and had doubled in value within a year. I then bought some Doctor Pepper, Friendly Ice Cream, and Dunkin’ Donuts. These did well. I ran out of money but wanted more stock. I had never heard of a margin account and did not know I could borrow money from Spencer Trask. But I was receiving my shares in paper form. I took some of this paper to a bank and the bank allowed me to borrow sixty percent of the stock’s value. I had to leave the stock with the bank and had to pay interest on the loan every three months.

I bought more stock and took this stock to a different bank and borrowed money from it. This led to more stock purchasing and more borrowing. Eventually, I had loans from several banks and had purchased a great deal of stock. It was several years later that I fully realized how dangerous it had been to use this technique and how lucky I had been that the stock market was in an upward spurt such that anything anybody selected was likely to rise in value.

If the market had gone down even a little, I could have lost everything like a the toppling of a row of dominoes.

My representative at Spencer Trask retired and I opened an account with Merrill Lynch. This was a margin account and I was able to borrow all the funds I needed from this company. The banks began charging ten percent interest and I paid back all the loans.

By this time reality had set in. It had become clear that stocks go down as well as up. But I had learned how deal with down markets as well as those that went up.

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