Photo comes from cuttenfields.com/
While reading about Jesse Livermore, the name Arthur Cutten came up several times as Livermore’s nemesis. I did a little research and found out that Cutten penned an autobiography titled The Story of a Speculator. I decided to read the bio to see what wisdom was contained within and this post shares select excerpts. Let’s begin with some quotes:
I was saving all my money for a purpose. The purpose was to seek my fortune in the United States…I worked out for myself the notion that the essential difference between the brothers [one successful the other not as much] was that one had stayed home and one had gone out into the world…I determined to go to Chicago…I arrived there in 1890…Tremendous wealth and power were flowing into Chicago in the form of hogs and cattle and sheep…within eighteen months after I came from Guelph [Canada] to Chicago my ears were filled with the clamor of the wheat pit.
For any ambitious young man the place [Chicago] was unparalleled in its opportunities.
Already I discovered that the acquisition of capital, much more than luck, was apt to govern the fate of a man trying to advance himself from obscurity.
This comment is both interesting and incredibly important. If you study history you find that even the greatest legends (Jim Simons, Warren Buffett, Jesse Livermore, Arthur Cutten, etc.) need to find capital early on. Most legends find capital in one of two ways: grass roots fundraising (never glamourous - watch The Founder) or, after some failed attempts, they eventually buy a stock or commodity using a lot of leverage and make a killing that provides them with their seed capital. Back to more quotes from the book:
…it was in the pits that I learned how to make money…Under my arrangement - one no longer permitted - the firm, instead of commissions, paid me $150 a month to serve them as a pit broker and allowed me…to scalp for myself…Scalping transactions are closed out every day. The common tendency is to grab an eighth-of-a-cent profit and run as quickly from a loss.
I should have had to be pretty dull not to discover that the way to make money was to be as quick as possible in taking a loss, but to be slow in taking profits; rather to let these pile up as high as they would go…I knew scalping would never make me rich, and so I was constantly striving to make sense of the broad swings of the market and to understand the reasons for them…Most of my success has been due to my hanging on while my profits mounted.
Yet another market legend talking about cutting losses, riding winners, and playing for larger moves. Back to the quotes:
The first big money I realized was in Soo Line stock…I bought 2000 shares of Soo Line at $54, and two years later, in 1906, I sold it at $164. That was my real start.
Here we see that Cutten got his stake from the big bet gone right avenue. Cutten bought 2000 shares at $54 which would be $108,000. He then sold for $164 making a profit of around $220k. Let’s put this in context. Most easy to find inflation calculators only go back to 1913 but, using 1913 (vs 1904) as the starting point, the inflation factor is about 30x meaning $108k in 1913 would be about $3.3mm today. According to the book, around that time Cutten made about $4,000 a year between his salary and scalping. In 2023 dollars, this is $120k. Notwithstanding taxes, living expenses, etc., Cutten bought the modern equivalent of $3.3mm worth of Soo Line stock with a pretax income of $120k. This position represented 27.5x his total pretax income. Considering he had some expenses and/or taxes (he talks about >50% tax rates in the book), the ratio is even higher. He then made $220k which would be about $6.6mm today. Cutten’s stomach for risk borders on what could be called insane which makes his going broke now and then no big surprise. Back to quotes:
It would have been foolish for me to continue working as a pit broker after the culmination of that Soo Line deal. So I resigned…Thereafter all my trading was for my own account. I took no one into my confidence. I had no employees.
Confidence in yourself is something that you have to have if you are going to be a successful speculator…To be able to stick in a risky position without shattering your nerves, you must have continuing confidence in the judgement that caused you to take that position in the first place [Michael Marcus said the same]. I have had confidence in my own judgement always. I have had little faith in the judgement of other people; little faith likewise in the ability or disposition of other people to keep their mouths shut. For these reasons I have been a lone trader.
As to Cutten’s process on trading commodities:
…in any market, a group of men reasoning from the same facts often arrive at varying conclusions because they do not give the same weight to each of the facts. I was always reluctant, as it happened, to go out into the country to look at damaged crops. I was afraid it might warp my judgement as the judgement of a doctor may be warped by listening all day to the whining complaints of sick and nervous people…
I was generally eager to learn how other speculators were behaving…I felt that I could find out about such things in the trading pits sooner than anywhere else…
…as a grain speculator, I did not have a single advantage over others who traded except as these advantages existed within my own skull. Sometimes stratagems helped.
There was no wizardry, no inside information, and no pool [market manipulation]. What I had seen early in the season was an excessive amount of rainfall, unseasonable storms and cold weather…I had anticipated partial crop failure and taken a position…my timing had been good.
It is not speculators who put markets up and down. It is supply and demand…none can dictate prices who cannot also control production.
Cutten also shed some light on his stock trading:
My trading in Baldwin Locomotive attracted lots of newspaper attention. They always referred to a pool [market manipulation]. There never was any pool. There never was any inside stuff at all as far as I was concerned…Really, though, when I started buying Baldwin I had not known much about [the company]. It was selling around $100 and paying seven dollars. That ought to be enough for anybody.
Never be in more than four or five [stocks] at a time. Four is plenty. So many stocks are confusing and interfere with your judgement. [Quick note: Stan Druckenmiller says basically the same thing nowadays]
The following comment was also interesting:
Personally, I do not know any supermen. The world may contain some, but I have never met them.
When I add it all up, Cutten’s successes (and failures) don’t seem like a mystery. If we take him at his word, no great brain trust went into taking a position - he used simple theories and established positions in stocks and commodities. He played for big moves (long-term trends) and adhered to other trading principles (hold winning positions and cut losing positions). From there, he focused on concentrated positions often times with significant leverage which resulted in high highs and low lows. These conclusions on Cutten bring to mind my research on the Soros camp. The consistencies of successful speculators throughout history are hard to deny.
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Wow been looking for a writeup about this legend fo' a while now... thanks
Hilarious, I just saw his name now in this old article I came across https://web.archive.org/web/20110515141721/http://www.time.com/time/magazine/article/0,9171,837295-4,00.html