When one kind of stock declines or advances in value, other stocks frequently show a similar tendency without any apparent cause; the investor becomes perplexed and fancies that some extrinsic and inexplicable influence is in action which cannot be resolved into the equation of supply and demand. The stocks which show the subsequent movement are popularly said to change in sympathy with the variations exhibited by the first stock.

The Meaning Of The Word "Sympathy."

Sympathy1 is applied exclusively to conscious life, and is the tendency (one might almost term it the spontaneous instinct or connate quality) of placing ourselves in the mental position of others, and thus experiencing in this dramatic mode the feelings which they outwardly manifest. An additional tendency exists universally in the human mind - that of acting out, of giving external expression or effect to, any feeling of which at the time it may be vividly conscious.

Abuse Of Metaphor

The desire of newspaper writers to assume what they imagine to be a graphic and picturesque style of composition is a constant source of bewilderment to the simple reader of the money article.

1 Sympathy: from the Greek with, in company with, and violent feeling ; like feeling, fellow-feeling.

The headings prefixed to the statements relating to the different kinds of investments, and the movements of their values, are frequently of a grotesque description; and the plain observer, forgetting for the moment the exaggerated uses of metaphor, might almost fancy that securities were separate entities endowed with volition and spontaneous activity in their changes. A stock is said to "droop by its own weight"; one security, we are informed, "displayed sympathy " with another, and accompanied its fall or rise with a correspondingly friendly change; shares become "buoyant" or "depressed" as though they were affected by emotions. It is unfortunate that money articles for the guidance of the public are not expressed in sober and rational prose. But this is consonant with an age of exaggeration and artificialness.

What Such Metaphors Really Mean

Let us interpret these metaphors into realities. A spirit of hopefulness of prospect at one time affects the speculative dealer or the public investor in connection with some particular stock or class of stocks - a sunny morning, cheerful news of trade, a reduction of the bank-rate with an easier command of capital, may be the determining cause upon the mind - under this influence purchases of stocks are made which show a chance of improvement, and with this additional demand their price ascends. The contagiousness of feeling is notorious, especially when it is displayed by a mass of persons. Other speculators and investors, seeing the prices of this section of investments rise, grow hopeful, by infection, that other investments in which they are more particularly interested will also improve by frequent purchases - especially where an affinity exists between the industries they represent, such as coal and iron shares: hence extended buyings in different classes of securities occur, with a consequent increase in value. The movement in the one direction may thus permeate practically the various markets, and the result may be due almost exclusively to the propagation, by the force of sympathy, of sanguine feelings from investor to investor. These feelings concretely express themselves in prices. In the gradual creation of a commercial inflation and collapse 1 it is found that when one trade prospers, or appears to prosper, others participate in the upward movement.

It can readily be seen that if increased profits are realised in any particular trade there is more money to spend in the products of other trades, which thus receive an impetus; but the main factor is a diffused feeling of hopefulness engendered in the latter traders by the sight of the prosperity of the trade or trades which first set the start, and which may genuinely possess the elements of success which the others never actually contain.

A rise of value in one trade induces a corresponding rise in an allied trade.

It is obvious that some industries are so closely allied in the nature of their work that a rise of value in one necessarily involves a corresponding advance in the other; thus, if the iron industry be stimulated by demands for shipbuilding the coal trade will benefit from the employment of coal in iron manufactures. These trades are united by the bond of co-operation to a common end, so that influences which affect the one will include the other within their scope. This sequence cannot be termed sympathy; it consists simply of effects produced in two industries by a common cause.

1 Collapse: Latin col (con), together, and labi (lapsus), to fall; to fall together, like the sides of a hollow body, by external pressure or the withdrawal of the contents. In a commercial collapse we perceive the twofold operation of the withdrawal of reality and the pressure of fear.

It is said that if the price of wheat rises, potatoes and other alternative (or substitutive) foods concurrently and gradually rise in sympathy; the prose translation of this statement merely is that frugal housekeepers would not continue buying wheat flour for 10d. when they can obtain a good alternative food in the form of potatoes or rice at 7d. Wheat, therefore, is either kept down in price or the substituted articles ascend to its level. This effect is not an example of sympathy; it is the feeling of economy enforced by the rise of an article in common use, and the search for cheaper substitutes.

The effects of sympathy in its proper sense as displayed in panics.

When securities fall or rise in value generally, we do discover the operation of sympathy, in its proper sense, as a conscious state of mind - the fellow-feeling existing and acting between the dealers (including the public) in these investments. Some cause or event, real or imaginary, or, if imaginary, converted for the time under stress of excited and unreasoning feeling into the power of reality so far as action is concerned - affects the minds of investors with the fear that a particular security is tending to become unsound or likely to prove unprofitable; sales in consequence grow numerous and the price keeps falling; the influence of the emotion of sympathy spreads to the minds of the holders of other stocks (although these stocks may not be related, in any special connection, to those which first fell, and have not been subject to the cause or causes which produced that fall), and they, in turn, become apprehensive that a similar fate is imminent for their own holdings; extended sales ensue under the power of a fear that may be entirely groundless, and the collapse of values is thus induced from market to market and a panic occurs; for a panic 1 is simply an outbreak of the emotion of terror affecting a multitude of persons in common, and rendered more perilous by this wider area for the action and reaction of sympathy.

The attitude to be maintained by the investor in times of panic.

The difficult but imperative attitude to be maintained - if possible - in this period of clamorous fear is clearness and steadiness of judgment; sound investments will inevitably return to stable equilibrium; and the reward is to the investor who can retain feeling within its boundary when the intellect is threatened with submergence. The time when these unguided feelings are the sole controllers of prices is the precise moment when judgment should step in to buy.

The prices of securities are sometimes stated to move in sympathy with the bank rate. Here again the metaphor may confuse the investor until it is transmuted into its literal form. When the bank rate is low, or money may be borrowed and bills of exchange converted into money on easy terms - purchases of securities tend to increase in number and volume (with a consequent belonging, or sacred to Pan.

1 Panic: the term implies a sudden or foundation less or unreasoning fear, such as that caused by sounds heard in lonely places at night and supposed to be inspired by the mysterious and invisible goat-god Pan.

Prices of securities as influenced by a rise or fall in the bank rate the outcome not of sympathy but of cause and effect.

advance of their price from competition) from the twofold cause of loans being obtainable at a cheap rate with which to buy securities yielding a higher return, and capitalists securing a more profitable income from investments on the exchange than from deposits with banks or from the employment of their funds in business generally on the lower prevailing terms. The opposite effect is produced when the rate for loans charged by the bank and the market generally exhibits a rise.