Reborn in America, I am a legendary short seller on Wall Street.

Chapter 106 The Dutch Gambler (5k-word long chapter, please vote!)
Larry arrived at the Boston branch of Paine Weber Securities at 8 a.m. on Friday.

At this moment, the two security guards on night duty at the branch office had just finished washing up and brewing their breakfast coffee. Seeing Larry arrive early, the two exchanged a glance and quickly opened the branch office door for him.

"Good morning, gentlemen." Larry had a good night's sleep last night and was looking radiant this morning.

"Good morning, Mr. Livingston! Would you like a cup of coffee?" the two security guards asked hurriedly.

"No, thank you. I have some information to look up. You guys go ahead with your work and don't worry about me."

After Larry finished speaking, he walked straight to the filing cabinet next to the trading hall, where there were price quotes for each stock for the most recent three months.

Following the alphabetical index, Larry found the "American Sugar Company" in the fourth long drawer of the seventh row. Opening the drawer, he saw neatly arranged daily stock tickers for the American Sugar Company, arranged chronologically from oldest to newest.

Larry frowned slightly. These days, without candlestick charts, if a client wants to know a stock's previous price, they have to check the daily quotes one by one.

"I'll have to get the candlestick charts working sooner or later, so I don't have to go through all this trouble every time I try to check the original stock price!!"

Larry muttered something to himself.

Larry had actually tried drawing candlestick charts before, but quickly found that it wasn't very useful for him. This is because Larry has a very good mind; he's not only exceptionally sensitive to numbers, but also has a superb memory. For any stock he's followed, he can easily recall the previous numbers and form a series of numbers in his mind, like a musical score.

There is absolutely no need to convert these numbers into graphs before analyzing them.

When Larry encounters stocks that he doesn't remember well or whose stock price he's forgotten for a few days, he just needs to flip through his notebook a bit more, and the problem is quickly solved.

Larry was able to quickly identify potential breakouts in the stock price based on previous patterns in numerical changes.

The difficulty is akin to asking a top pianist to continue playing the music after "Twinkle Twinkle Little Star" on the piano.

But when faced with the unfamiliar stock price of American Sugar, Larry was a bit lost, and even immediately began to miss the advantages of candlestick charts.

In the stock market, there are two types of stocks that are very easy to forget.

One type is a "dead body" rotting in the water, which consolidates within a certain price range with little movement. Even when a bull market comes, its rise is very restrained, such as the current US tobacco company.

Another type is the "super bull stock." Everyone who comes to this market knows that this stock is a super bull stock, and that it has been rising continuously. But whenever they are about to buy some stocks, they are shocked by the wild rise of this stock in the previous period, and then feel that they are buying this stock at a high price.

For example, the "American Sugar Industry" that Larry is currently searching for.

American sugar has been the brightest star on the New York Stock Exchange over the past three years, with its stock price climbing from less than $13 to around $85 in just 21 months.

Larry didn't have a strong impression of this stock before because after he joined Paine Weber, it had been fluctuating slightly above $80 with very little price movement.

In other words, the stock is in a "high-level consolidation range after a surge." Such a surge in a high-flying stock is a feast for existing holders, but for new investors, this stock lacks any price momentum and is not worth their attention.

Larry took out the bound booklet of stock price data from the drawer and started looking through it from October of last year, according to the daily transaction prices, constantly memorizing the patterns of daily stock price changes.

It took Larry about forty minutes to fully process the trends in the US sugar industry over the past three months.

The gains weren't significant, because, similar to my previous impression, this stock was indeed fluctuating at a high level, with little chance of making any significant moves.

If there's anything to be gained, it's that the stock has very strong market-supporting funds.

Larry noticed that every time the stock price approached $78, a strong bullish force would instantly push the price up to over $80.

The U.S. sugar industry is a very domineering trust, and its chairman, Hafmeyer, always uses brutal and ruthless methods to acquire small companies in the upstream and downstream of the sugar industry. Larry bought a stock called "Tennessee Sugar" before the New Year; this stock has now disappeared and become part of the U.S. sugar industry.

In the newspapers, the domineering and ruthless image of American Sugar Chairman Hafmeyer was comparable to that of John D. Rockefeller of Standard Oil.

Naturally, such a domineering CEO would not tolerate a sharp drop in his company's stock price.

Larry put the price list from the American Sugar Company back in the drawer, his mind still filled with countless questions.

Last night, Mr. K brought shocking news, saying that Logan's repeated assassination attempts were actually due to his father being a loyal follower of a nouveau riche in Boston; and that this nouveau riche had recently been having a very unpleasant falling out with the old money in the Boston financial group because of the differences between the Democrats and Republicans over tariffs.

The old money folks decided to give this new rich guy a hard time, and then they set their sights on Logan.

Poor Logan thought he was being targeted by the betting companies because he was making too much money, but little did he know that the truth was much worse; he was an innocent victim caught up in a political struggle.

However, the two assassination attempts failed, which made the situation quite delicate.

The old money has successfully attracted the attention of the new rich, but their goal of "making an example of someone" has not yet been achieved.

In fact, Larry was the one who saved Logan in this incident.

This was not only because Larry and Mr. K recognized the assassin during their second visit to Logan, but also because during the first assassination attempt, Logan would not have been able to escape the first hammer attack if he hadn't been in a highly vigilant state after helping Larry exchange profits.

Yesterday afternoon, right after Larry left the hospital, that important figure came to visit Logan.

It was there that Mr. K heard the news about tariffs and soaring sugar prices.

The bigwig said he didn't want to break with the old money right now, so he suggested that Logan's father downplay the matter. In exchange, he would propose that Logan's father be promoted from his current position as police superintendent to precinct chief.

Logan's father agreed, so Mr. K didn't have to go to the police station; instead, he rushed back in his carriage to inform Larry of the matter.

Larry recalled what Mr. K had told him yesterday.
"Now that Benjamin Harrison, a Republican, is president, they have already imposed high tariffs and will continue to raise them, so the price of sugar will continue to skyrocket!"

Mr. K is right. Since the implementation of the McKinley Tariff Act in 1890, the United States has imposed high tariffs of up to 49.5% on goods from abroad in order to protect domestic industries and support the growth and strengthening of related domestic factories.

At the time, the Republican slogan was "High tariffs make America great."

In implementing the high tariffs, the Harrison administration was actually quite restrained. They exempted essential goods such as coffee, sugar, and tea, which were in high demand by the American people, from tariffs in order to reduce the cost of living for ordinary American consumers.

Even so, the price of American white sugar rose from 4 cents per pound in 1889 to 12 cents per pound in 1892.

The price of sugar tripled, and the American sugar industry seized the opportunity to expand rapidly, not only acquiring small crushing companies but also further monopolizing imported supplies, thus raising the retail price of sugar.

This is the core secret behind the six-fold increase in the stock price of American Sugar in three years.

But the old money Republicans aren't satisfied. They are currently urging Congress to pass a "removal of exemptions" bill—that is, to increase tariffs on imported sugar in order to protect the poor, vulnerable companies in the American sugar industry, so that these conscientious businesses that belong to Americans can thrive.

The Boston nouveau riche that Mr. K mentioned belong to the Democratic Party.

In the northern states of the United States, the Democratic Party's supporters are undoubtedly new immigrants and minorities. Because these new immigrants lack job opportunities and have more or less some trade ties with their former home countries, high tariffs have a significant impact on their economy and lives.

New Democratic leaders attacked Republicans in Congress, arguing that the high tariffs had caused economic damage and increased the cost of living for ordinary Americans.

Logan's remarks angered the Brahmin family of Boston, which led to the two attacks on him.

According to Mr. K, the new elites are wavering and may abandon their proposal to defend the sugar import tariff exemption in Congress in Washington two weeks later; however, this is also a US election year, with the incumbent Republican President Harrison and the previous Democratic President Cleveland, who is in a head-to-head confrontation.

If the newly rich back down now, it will have a huge impact on the Democratic Party's election this year. It's clear they are currently in a dilemma.

Larry was very impressed by Mr. K's keen observation yesterday, but dismissed his subsequent "money-making plan" with disdain.

Because Mr. K suggested to him, "Boss, I suggest we invest a large sum of money to stockpile sugar. If the price of sugar really does rise due to the increased tariffs, then we can make a huge profit from the price difference!"

Larry looked up at the sky and thought that the Capone family was better suited to using "typewriters" than making money with their brains.
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But now the problem is, there are no signs of a significant surge in US sugar stock at the moment!

Larry couldn't find the answer in the stock price fluctuations of American sugar companies, so he thought of Brattle Bookstore.

There, Larry read a book about high tariffs and the American economy.

Thinking of Brattle Bookstore, Larry immediately thought of the old owner who loved to drink Coke.

Looking at the clock on the wall, it was only a little past 9 a.m. The sales staff were starting to arrive at their posts one after another, but Larry put on his coat and prepared to go to the Bratt Bookstore to do his own side business.

As Larry reached the door, he bumped into William Boeing, who calmly bowed and greeted him.

Larry smiled and nodded. "How are you doing, William? Are you settling in well here?"

William Boeing beamed. “Sir, I’m completely at home!”

Larry offered him a few more words of encouragement before heading out.

Upon entering Brattle Bookstore, Larry immediately spotted the elderly owner with a full head of white hair organizing things on the bookshelves.

"Good morning, sir, I've come to find some books!" Larry greeted him.

The old shopkeeper turned around and saw that it was the smiling blond boy. He smiled back and quickly gestured for him to make himself at home.

Larry found the book on tariffs in the economics section, and then found several similar books, which he then sat down at his desk to read carefully.

After what seemed like an eternity, Larry finally looked up from his book, his face still filled with confusion.

The knowledge in these books only helped Larry increase his basic economic common sense, but it didn't offer any hints on how to make money from this.

Larry felt that betting on a surge in U.S. sugar stock prices was certainly a good idea.

However, this is a double-edged sword. If news from Congress indicates that import tariffs on sugar will remain unchanged, or if the Democrats increase their opposition, then the stock price of the US sugar industry could plummet.

The expectation that "sugar prices will skyrocket" has been ingrained in the minds of those old money investors. Larry also believes that during the stock market volatility of the past few months, these old money investors must have accumulated a considerable number of sugar company shares.

In the event of an unexpected outcome in the congressional clash, it's possible that the old money could frantically drive down the stock price of American sugar companies.

Therefore, the odds of investing in the US sugar industry are now 50/50.

Betting on a 50% chance of getting rich quick or losing money is not Larry's style.

Larry frowned, deep in thought, but the more he pondered, the more confused he became...

At that moment, a glass of bubbly Coca-Cola was placed on Larry's desk.

Larry was startled, turned around, and saw the old shop owner's loving and caring gaze right in front of him.

"Thank you, sir!" Larry said hurriedly.

The shop owner raised an eyebrow, sat down next to Larry, and said in a gentle tone, "Child, don't worry too much about things. There's always a solution."

Larry smiled, shrugged, and said, "I've been dealing with a lot of things lately, and my mind is a mess... so I thought I'd look for some clues here by reading."

The old shopkeeper smiled faintly and said, "I am Dutch. When I was a child, I often sat on the bank of the canal watching the boats, sometimes for a whole day. Once, I happened to see the bow of a boat rocking, creating a beautiful arc about 0.5 meters high and 10 meters long."

The boat had already stopped, but the waves continued to move forward as before. I ran along the canal bank, chasing after that beautiful arc of water. The beautiful arc continued its forward march until it disappeared very, very far away. When I finally reached the spot where the waves had vanished, I realized that I was a full 3 kilometers away from where the waves had originated.

Larry's eyes lit up. He felt there was some philosophy hidden in the old shopkeeper's words, but he couldn't quite grasp it. However, Larry had a premonition that the old shopkeeper would continue to explain.

Sure enough, after Larry pondered for a moment, the old shop owner fell back into his memories.

"Why do arc waves appear and last so long? Why do seemingly calm water ripples maintain beautiful arc waves? I asked a British engineer this question, and he was also very interested. He told me that there are two ways to solve this problem. One is to follow the arc wave like I did and observe how it returns from order to disorder, which is an inductive summary of experience. The other is to go upstream against the arc wave and think about how it generates order from initial disorder, which is a causal construction of regularity."

As he spoke, the old shopkeeper's face was full of smiles, and his handsome mustache was even curled up. He continued, "There's nothing more to it than this! You can try them all."

Larry nodded heavily after listening, thought for a while, and decided that he could also share his doubts with the old shopkeeper and see what his opinion was.

After all, one can learn from others' experiences. When it comes to a matter, one's own thinking can easily get stuck in a rut, but others, with completely different perspectives, can see the bigger picture.

Of course, Larry couldn't give specific examples, but he said that he had encountered a dilemma in his investment, with a 50/50 chance of success and he didn't know what to do next!
After hearing Larry's question, the old shop owner smiled even more broadly.

He raised a finger to the sky and said, “Child, you must know that God is a biased left-hander! There is no such thing as a 50/50 chance; everything follows the golden ratio. If you have the advantage of 0.618, you will be the winner; if you are on the 0.382 side, you will lose. Besides, there is another crucial factor you haven't considered…”

"What is it..." Larry asked quickly.

"Odds!!" The old shopkeeper smiled, raised his eyebrows, and continued, "Have you heard of the 'Dutch Gamblers'?"

Larry shook his head.

The old shopkeeper stroked his handsome beard and continued.
"In a horse race, there's a chance the dark horse will win. Most gamblers bet based on gut feeling; but the Dutch don't. A proper Dutch gambler will bet 1 to 2 on the dark horse winning, and then bet 1 to 3 on the dark horse losing. If the dark horse wins, the Dutchman loses one bet but wins two, ending up with a one-point bet; if the dark horse loses, he loses one bet but wins three, ending up with two bets... So, whether the dark horse wins or loses, the Dutchman always wins, that's called 'Dutch betting'!"

The old store manager's words instantly cleared Larry's mind, and those principles that he couldn't understand before suddenly became clear.

Probability! And odds!

Only when both are combined can it constitute a complete speculative betting strategy.

Larry thought for a long time, then a grateful smile appeared on his face. He turned to the old shopkeeper and said, "Thank you so much! You've solved a huge problem for me! It seems I'll have to consult you more often in the future."

The old shopkeeper shook his head, smiled, and said, "They're not looking for me, they're looking for knowledge..."

As he spoke, he casually pointed to the densely packed stacks of books in the bookstore, and then continued,

"Don't be obsessed with your past experiences, but broaden your mind and believe in the wisdom accumulated by all mankind. Books record wisdom that existed before the birth of Jesus Christ. In the words of your financial industry, this is the leverage to help you succeed. Instead of sitting in a well and desperately seeking answers, open your mind and seek the help of knowledge."

Larry nodded emphatically, thought for a moment, and then asked, "Mr. Manager, was the British engineer you just told a real person?"

The old shopkeeper nodded and said, "Yes! His name is John Russell."

(End of this chapter)