Story of a Specualtor

Book Analysis: The Story of a Speculator

Story of a Specualtor

“Why, if a speculator won every time, soon he would own everything in the world”
-Arthur W. Cutten, veteran wheat pit trader

 

In his autobiographical narrative titled the Story of a Speculator, the famous commodity trader Arthur W. Cutten (1870-1936) recollects his lifelong knack for speculation. Right from the get go, Cutten had been an ardent risk taker with a staunch willingness to see his dicey ventures through to the very end. His ambitious nature was a key factor in his eventual rise to power as a prominent commodity speculator for the Chicago Board of Trade’s wheat pit where he would eventually earn a name for himself as the “Wheat King”. As he later learned, however, success such as this also had the potential to fade to oblivion. Cutten emphasizes this point by exposing “the tips and turns” of trading, which he illustrates as equally likely to both impoverish and enrich even the most talented speculator. Aided by luck, Cutten had found success. However, he appears to have mistaken such good fortune for repeatable skill, which ultimately led to his very own financial and professional undoing.


A penny-farthing photographed in the
Škoda Auto Museum in the Czech Republic

What had set the erratic chain of events into motion was a firm determination on a 20-year-old Arthur’s part to “seek his fortune in the United States” which explains his willingness to leave his hometown of Guelph, Ontario for the big city of Chicago with “no more than ninety dollars, his old fashioned trunk, and a high-wheeled bicycle.” From his description, we can visualize that the bike looked something like the one shown to the right, and Cutten would recall his audacity to ride this intimidating set of two-wheels as his very first speculation.

This dangerous trek was just one out of many gambles taken by a brazen, yet sometimes ill-advised Cutten. The real struggle, which was to live within his means, had begun shortly following his arrival to the “City by the Lake” where he held a series of menial jobs that paid between $7 and $10 per week. It wasn’t until 18 months following his departure from Guelph that things appeared to look up as his “ears were filled with clamor from the wheat pit.” Cutten’s first exposure to it had occurred in July of 1891 when he landed a job with the eponymous firm owned by the former president of the Chicago Board of Trade, A. Stamford White. After working for them for five years as a clerk, he persuaded them that he knew enough about the trading mechanisms to serve the firm as a pit broker. This job paid a whopping $150 dollars a month, and it was this promotion that put Cutten in a high-risk line of work in which he would witness the dangers of living a life navigated largely by chance.

Cutten’s newfound love of trading served him quite well. Cutten recalls, “I was rarely long or short more than 10,000 bushels at a time, I used to scalp two or three hundred thousand bushels a day”. An exceptionally good year such as this had earned Cutten a total of $4,000. However, it was in the SooLine railroad stock that Cutten’s first source of “big money” occurred. His interest in this railroad was sparked by a successful corn deal, which he had landed in 1904. When Cutten had bought up the SooLine, it ran from North Dakota through Minneapolis and St. Paul to North Portal, Manitoba where it joined the Canadian Pacific. As luck would have it according to Cutten, “the Canadian Pacific had acquired the Wisconsin Central, bringing this railroad into Chicago.” This turn of events brought a nice windfall to Cutten, enabling him to buy 2,000 shares of the railroad at $54 a share. Two years later, he sold them for $164 a share. Cutten credits this bit of good fortune as being his real start. It was this incident of seemingly instant financial success that indulged Cutten’s risk taking proclivities, compelling him to take the perhaps biggest gamble of his career thus far, which was his voluntary resignation from A. Stramford White & Co. so that he could trade only for himself. Cutten rationalizes his decision by expressing his pessimistic attitudes towards others: “I have had little faith in the judgment 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.” Overall, a daring move such as this was the result of highly inflated self-confidence in his self-purported abilities to predict the direction of a frequently fluctuating market.

It was during the 1920’s economic boom that Cutten had become that much more convinced of his speculating abilities. Cutten benefitted hugely from long positions held during the rising market of the 1920s. Cutten maintains that during this time he was involved “more heavily I think, than any other individual.” His taking of very large positions sparked competition by Jesse Livermore, a well-known contemporary of Cutten who along with many others, had decided to “jump on the bandwagon.” The final results of this competition did not end in Livermore’s favor, who had taken home a far smaller profit than that of Cutten who “held on and made millions of dollars,” according to Christopher Dennistoun in this article. Naturally, Cutten’s (and other traders riding his coattails) gains in the zero-sum game of trading/speculation were somebody else’s losses to the tune of $226 million (or about $3 billion in today’s dollars). No real wealth was actually created.

However, such a notion was not the least bit disturbing to Cutten, who would continue to defend economically unproductive behavior to the very end. In fact, when called upon by the Chicago Board of Trade’s Business Conduct Committee to be held to task for amassing huge positions that were attributed to increasing prices paid by consumers, he unapologetically defended speculation as “the elemental driving force that caused this nation to spread itself—the first to do so in all history—far across a continent.”

Cutten would remain unfazed by the wild swings of highs and lows and the sometimes disastrous consequences that potentially result from speculating. For example, in the Crash of 1929, Cutten’s leveraged positions cost him around $50 million (about $660 million in today’s dollars). Regardless, he held fast to the notion that “speculation is a larger part of our genius than we realize.” Unfortunately, such shortsightedness on Cutten’s part would keep him from seeing a gigantic loss as a wake-up call!

The year that his autobiography was published (1936) was also the same year that Cutten passed away from a heart attack, which may have been induced by the stress resulting from his being targeted by separate government investigations for market price manipulations and income tax evasion. At the time of his death, Cutten’s already-reduced fortune was largely depleted by legal bills. His estate formerly known as Sunny Acres Farm is now the Hidden Lake Forest Preserve in DuPage County, Illinois.