Trench Trading Tactics

30 04 2008

Gerald M. Loeb was a highly successful trader who wrote the classics “The Battle For Investment Survival” and “The Battle For Stock Market Profits.”

Loeb’s Trading Tactics:

• The market is a battlefield. Make sure you are on the winning side
• You must trade with the actions of the market and not simply by how you might think the market should trade
• Knowledge through experience is one trait that separates successful stock market speculators from everyone else
• To do well in short-term trading, it takes full-time attention and dedication
• Exploit all new trends quickly and aggressively
• The best traders are usually psychologists. The worst are usually accountants
• Stocks act like human beings and go through the same stages and phases as people do, including infancy, growth, maturity, and decline. The key in trading is to be able to recognize which stage the stock is in and to take advantage of that opportunity
• Successful traders are intelligent, they understand human psychology, they practice pure objectivity, and they have natural quickness
• To succeed in trading you must
1) aim high,
2) control the risks, and
3) be unafraid to keep uninvested reserves and be patient
• The stock market is more an art than a science and far more complex than most people understand
• It takes considerable amount of self-control to trade well
• The more experienced and successful you become, the less you should diversify
• Big money is always made in the market’s leaders
• The best stocks will always seem overpriced to the majority of investors
• Resist the urge and temptation to change your strategy for each and every different market cycle
• Traders should always close a trade when good reasons exist to do so
• Tops in stocks usually occur when the advance in price stalls as volume or activity increases, or if the prices decline and the activity increases
• A sell signal occurs when a stock rises sharply on big volume but ends the day at no gain or at a loss
• Every new market cycle produces a new list of fresh leaders
• Pyramid your buys – start with an initial position and then add to it only if the trade moves in your favor
• Stocks are always way overvalued in a bull market and way undervalued in a bear market
• Expectation, not the news itself, is what moves the market
• What everyone else knows is not worth knowing
• Three basis elements should be considered when evaluating a stock –
1) quality (fundamentals, liquidity, management),
2) price, and
3) trend (the most important)
• Always sell when you start patting yourself on the back for being smarter than the market


Three Things My Son Taught Me about Trading

30 04 2008

Tom Gentile, Profit
April 7, 2008

Watching kids grow up is amazing. The processes we all take for granted were once major challenges for all of us. And what really impresses me is how they seem to take to most things like a fish to water—first looking at each new endeavor, then assessing it, and finally accomplishing it. Thinking about a recent trip to the ice rink, I realized that his learning process had some profound lessons for us as traders.

First, he is single-minded and on purpose. Though falling down a lot, he realized that ice skating was possible, and he chose to go everywhere on those skates. Unless there was some tight crowd he couldn’t get through, he was up trying to skate

Second, he is unstoppable. If someone or some object got in his way, he would just skate around them. He would skate not only the way everyone else skated, but even against the crowd, scaring most of them. Not because he was or wasn’t supposed to, but just because he could.

Third, he is failure-proof. When he started off, he fell down every few feet. He realized, however, that all he had to do was to get up, and he could be off on his skates again. Getting up became easy, and falling down became less frequent. Even when he fell in a way that would cause me to wince, he just stood right up, because getting up after falling down had become second nature for him.

And you know this is a proven Success Formula. In some form or another we all learned this lesson growing up.

How Does This Apply To Investing?

First, Be Single-minded and On-purpose. To do this you have to have a goal. For example, “I’m going to increase my wealth by $1 million by getting a trading plan and following through on that plan.” And you have to have a plan to reach your goal—i.e., “I’m going to get good at process of calendar spreads, or straddles, or the forex markets.” Keep your focus on that goal.

Second, Be Unstoppable. If some challenge comes up, figure out a way around it. If you’re having trouble getting fills, don’t whine. Evaluate why, improve your execution skills or try something else—perhaps a new broker.

Third, Be Failure-proof. Remember challenges. “Falling down” is part of the process. Get up and keep on going. In time, the getting up will become easy and second nature, and the challenges will become less frequent. Knowledge in this business without application is like worrying about falling down so much that you never try to skate. Get out there and start doing it!

Tom Gentile
Chief Strategist
Profit Strategies Group, Inc.

A Few Trading Psychology Observations

30 04 2008

* From working with developing traders, I’d say that 90% don’t/can’t sustain the process of keeping a substantive journal. Among the group that does journal, well over 90% of the entries are about themselves and their P/L. I almost never see journal entries devoted to figuring out markets.

* A sizable proportion of traders who have been having problems are trading methods and patterns that used to work, but are no longer operative. The inability to change with changing markets affects traders intraday (when volume/volatility/trend patterns shift) and over longer time frames (when intermarket patterns shift).

* It’s a common observation that traders fail because they don’t stick to their plans. My experience is different. Traders develop plans and trade patterns that simply don’t work; they’re based on randomness. When the patterns don’t work, traders become frustrated and abandon their plans. So it looks like lack of discipline causes trading failure. But planning doesn’t create success; sound planning does. Sticking to plans based on randomness is no virtue.

* I mentioned in my book an important law of performance: In every performance field of note–from Olympic athletics to Broadway–performers spend more time in practice than in formal performance. That is how expertise develops. The ratio of “practice” time (time spent on markets outside of trading) to trading time is a worthwhile indicator of a trader’s prospective success.

* Among the predictors of trading success, a “passion for trading” is grossly overrated. The successful traders have a passion for markets, which is very different from a passion for trading. Indeed, a passion for trading in the absence of passion for markets is a fair definition of addiction.

* Some traders habitually look for tops in a rising market and bottoms in a falling one. There’s much to be said for countertrend methods, but not when the need to be right exceeds the need to make money.

* An underrated element in trading success is mental flexibility: the ability to shift views and perceptions as new data enter the marketplace. It takes a certain lack of ego to form a strong view and then modify it in the face of new evidence.

* A trader I spoke with recently told me he was going to trade more aggressively by putting on more trades. Trading more frequently is not necessarily trading more aggressively, and it certainly isn’t necessarily trading prudently. Trading more aggressively means allocating more risk capital to particular (sound) trade ideas. A considerable portion of traders would benefit from trading less frequently *and* more aggressively.

* Nice litmus test for any website devoted to trading education, coaching, and the like: If the site spends more time promoting the person than promoting ideas, you have a good sense for the site’s priorities. Caveat emptor.

* Many traders fail because they’re focused on what the market *should* be doing, rather than on what it *is* doing. The stock market leads, not follows, economic fundamentals. Some of the best investment opportunities occur when markets are looking past news, positive or negative.

* Success in trading requires the capacity for personal investment. Too many traders close out their efforts, along with their positions, at the end of the day.

Why Every Trader Should Be An Investor

30 04 2008

I find two things striking about a large number of active traders:

1) They’re not prepared for failure – If trading doesn’t work out for them, they don’t have clear backup plans (and trading doesn’t naturally lead to other careers);

2) They’re not prepared for success – If trading does work out for them, how will they accumulate wealth over time and ensure their financial future?

In some ways, the latter problem is just as acute as the first. Making money, holding onto money, and accumulating wealth are very different things. Just because traders make money doesn’t mean they know how to deploy that money wisely to build wealth. Indeed, I’ve seen many sad outcomes among those who have retained a trading mindset with respect to financial planning.

If traders are going to build a financial future, they need to think like investors. And that’s not easy to do, when all your financial decision-making has been on the short term.

Fortunately, there are some valuable resources available to help traders make the transition to becoming personal money managers. Here are a few that have come to my attention of late:

1) The Disciplined Investor by Andrew Horowitz – This very accessible book is excellent for those needing an investment primer. Horowitz doesn’t cover the full gamut of financial planning (insurance, estate planning, wills), but rather focuses on the range of wealth enhancement and wealth preservation opportunities via stock market investing, mutual funds, and annuities. He begins with “creating a discipline”, offers background on quantitative, technical, and fundamental investment strategies, and launches into important material on risk management. It’s clearly written and not at all intimidating for investment newbies. Andrew also maintains a blog and conducts frequent podcasts on investment themes.

2) Create Your Own ETF Hedge Fund by David Fry – This is a valuable introduction to the world of exchange-traded funds (ETFs), which are rapidly putting a variety of investment options–from bonds to stocks to currencies and commodities–in the hands of traders. Fry is the founder of the ETF Digest site, which tracks various ETF portfolios and includes weekly podcasts related to investment in ETFs. Fry’s central thesis is that individual investors can replicate common and successful hedge fund strategies, from long/short equities to profiting from global macro themes. At the end of the book, he offers sample portfolios designed to meet a variety of investor needs. The book is very practical and quite clearly written.

3) The ETF Book by Richard A. Ferri – Ferri’s book is a detailed look at the exchange-traded fund universe, covering various styles and choices among ETFs and then examining portfolio management options for ETF investors. A particularly worthwhile segment of the text applies different ETF strategies to investors in various phases of their life cycle. Ferri covers both passive and active portfolio strategies and offers clear, illustrative sample portfolios. If you’re ever wondering which ETFs are available for particular kinds of investment, this book pretty well covers the gamut in a way that is not overly technical. Ferri has also written on asset allocation–an extremely important theme among investors.

What are some general lessons from these books that traders can draw upon in becoming more astute investors? These come to mind:

* You can’t invest what you don’t save – An investment plan starts with a cogent savings plan.

* Know your objectives – It’s important to get a return on your capital, and it’s important to ensure the return *of* your capital. Your investment strategy should be tailored to your risk tolerance, and that should reflect where you’re at with respect to child bearing, retirement, etc.

* Know your alternatives – With a vast array of mutual funds, annuities, and exchange-traded funds, there are many ways of investing nationally, internationally, in stocks, and in other asset classes.

* Diversify, diversify, diversify – Even the greatest investments (think residential real estate of the last decade, or equities in China) can lose money quickly. Placing eggs in many baskets and ensuring that those baskets are not highly correlated in returns produces superior risk-adjusted returns over time.

You work for your profits; it’s important to ensure that they work for you. The average savings rate in the U.S. has recently become negative; people are spending more than they earn. They have assumed that the rising values of their homes would fund their retirements. With the recent housing decline, that assumption will be called into question for quite a few of those folks. For them, retirement is a potential train wreck on the horizon.

That doesn’t have to be you. Saving money and making it work for you in a carefully planned manner can ensure that earnings today become tomorrow’s wealth of a lifetime.

2007 Ireland’s Best Joke

29 04 2008

The following was voted the best joke in Ireland in 2007. John Kelly was in a pub; he lifted his glass of beer and said, “Here’s to spending the rest of my life between my wife’s legs.” That won him top prize at the pub for the best toast of the night.

He went home and told his wife Mary, “I won the prize for the best toast of the night.”

She said, “Did you, now? And what did you say?”

John replied, “Here’s to spending the rest of my life, sitting in church beside my wife.”

“Oh, that’s very nice indeed, John.”

The next day, Mary ran into one of John’s drinking friends on the street corner. The man laughed and said, “John won the prize the other night at the pub with a toast about you, Mary.”

She said, “Yes, he told me and I was rather surprised myself. You know, he’s been there only twice in the past four years. Once, he fell asleep, the other time I had to pull him by the ears to make him come.”

Jack and the Beanstalk, v3

28 04 2008

As told by Edwin Sidney Hartland

There lived a poor widow, whose cottage stood in a country village a long distance from London, for many years.

The widow had only a child named Jack, whom she gratified in everything. The consequence of her partiality was that Jack paid little attention to anything she said, and he was heedless and extravagant. His follies were not owing to bad disposition but to his mother never having chided him. As she was not wealthy, and he would not work, she was obliged to support herself and him by selling everything she had. At last nothing remained, only a cow.

The widow, with tears in her eyes, could not help reproaching Jack. “Oh! You wicked boy,” said she. “By your prodigal course of life you have now brought us both to fall! Heedless, heedless boy! I have not money enough to buy a bit of bread for another day. Nothing remains but my poor cow, and that must be sold, or we must starve!”

Jack was in a degree of tenderness for a few minutes, but soon over. And then becoming very hungry for want of food, he teased his poor mother to let him sell the cow, to which at last she reluctantly consented.

As he proceeded on his journey he met a butcher, who inquired why he was driving the cow from home. Jack replied he was going to sell it. The butcher had some wonderful beans of different colors in his bag which attracted Jack’s notice. This the butcher saw, who, knowing Jack’s easy temper, resolved to take advantage of it, and offered all the beans for the cow. The foolish boy thought it a great offer. The bargain was momently struck, and the cow exchanged for a few paltry beans. When Jack hastened home with the beans and told his mother, and showed them to her, she kicked the beans away in a great passion. They flew in all directions, and were extended as far as the garden.

Early in the morning Jack arose from his bed, and seeing something strange from the window, he hastened downstairs into the garden, where he soon found that some of the beans had grown in root and sprung up wonderfully. The stalks grew in an immense thickness and had so entwined that they formed a ladder like a chain in view.

Looking upwards, he could not descry the top. It seemed to be lost in the clouds. He tried it, discovered it firm and not to be shaken. A new idea immediately struck him. He would climb the beanstalk and see to whence it would lead. Full of this plan, which made him forget even his hunger, Jack hastened to communicate his intention to his mother.

He instantly set out, and after climbing for some hours reached the top of the beanstalk, fatigued and almost exhausted. Looking round, he was surprised to find himself in a strange country. It looked to be quite a barren desert. Not a tree, shrub, house, or living creature was to be seen.

Jack sat himself pensively upon a block of stone and thought of his mother. His hunger attacked him, and now he appeared sorrowful for his disobedience in climbing the beanstalk against her will, and concluded that he must now die for want of food.

However, he walked on, hoping to see a house where he might beg something to eat. Suddenly he observed a beautiful young female at some distance. She was dressed in an elegant manner, and had a small white wand in her hand, on the top of which was a peacock of pure gold.

She approached and said, “I will reveal to you a story your mother dare not. But before I begin, I require a solemn promise on your part to do what I command. I am a fairy, and unless you perform exactly what I direct you to do, you will deprive me of the power to assist you, and there is little doubt but that you will die in the attempt.”

Jack was rather frightened at this caution, but promised to follow her directions.

Your father was a rich man, with a disposition greatly benevolent. It was his practice never to refuse relief to the deserving in his neighborhood, but, on the contrary, to seek out the helpless and distressed.

Not many miles from your father’s house lived a huge giant who was the dread of the country around for cruelty and oppression. This creature was moreover of a very envious disposition, and disliked to hear others talked of for their goodness and humanity, and he vowed to do him a mischief, so that he might no longer hear his good actions made the subject of everyone’s conversation.

Your father was too good a man to fear evil from others. Consequently it was not long before the cruel giant found an opportunity to put his wicked threats into practice, for hearing that your parents were passing a few days with a friend at some distance from home, he caused your father to be waylaid and murdered, and your mother to be seized on their way homeward.

At the time this happened you were but a few months old. Your poor mother, almost dead with affright and horror, was borne away by the cruel giant’s emissaries to a dungeon under his house, in which she and her poor babe were both long confined as prisoners. Distracted at the absence of your parents, the servants went in search of them, but no tidings of either could be obtained. Meantime he caused a will to be found making over all your father’s property to him as your guardian, and as such he took open possession.

After your mother had been some months in prison the giant offered to restore her to liberty, on condition that she would solemnly swear that she would never divulge the story of her wrongs to anyone. To put it out of her power to do him any harm, should she break her oath, the giant had her put on shipboard and taken to a distant country, where he had her left with no more money for her support than what she obtained from the sale of a few jewels she had secreted in her dress.

I was appointed your father’s guardian at his birth, but fairies have laws to which they are subject as well as mortals. A short time before the giant assassinated your father I transgressed. My punishment was a suspension of my power for a limited time, an unfortunate circumstance, as it entirely prevented my assisting your father, even when I most wished to do so.

The day on which you met the butcher, as you went to sell your mother’s cow, my power was restored. It was I who secretly prompted you to take the beans in exchange for the cow. By my power the beanstalk grew to so great a height and formed a ladder. The giant lives in this country. You are the person appointed to punish him for all his wickedness. You will have dangers and difficulties to encounter, but you must persevere in avenging the death of your father, or you will not prosper in any of your undertakings.

As to the giant’s possessions, everything he has is yours, though you are deprived of it. You may take, therefore, what part of it you can. You must, however, be careful, for such is his love for gold that the first loss he discovers will make him outrageous and very watchful for the future. But you must still pursue him, for it is only by stratagem that you can ever hope to overcome him and become possessed of your rightful property, and the means of retributive justice overtaking him for his barbarous murder.

One thing I desire is, do not let your mother know you are acquainted with your father’s history till you see me again. Go along the direct road. You will soon see the house where your cruel enemy lives. While you do as I order you I will protect and guard you. But remember, if you disobey my commands, a dreadful punishment awaits you.”

As soon as she had concluded she disappeared, leaving Jack to follow his journey. He walked on till after sunset, when to his great joy he espied a large mansion. This pleasant sight revived his drooping spirits. He redoubled his speed and reached it shortly. A well-looking woman stood at the door. He accosted her, begging she would give him a morsel of bread and a night’s lodging. She expressed the greatest surprise at seeing him and said it was quite uncommon to see any strange creature near their house, for it was mostly known that her husband was a very cruel and powerful giant, and one that would eat human flesh if he could possibly get it.

This account terrified Jack greatly, but still, not forgetting the fairy’s protection, he hoped to elude the giant, and therefore he entreated the woman to take him in for one night only and hide him where she thought proper. The good woman at last suffered herself to be persuaded, for her disposition was remarkably compassionate, and at last led him into the house.

First they passed an elegant hall, finely furnished. They then proceeded through several spacious rooms, all in the same style of grandeur, but they looked to be quite forsaken and desolate. A long gallery came next. It was very dark, just large enough to show that instead of a wall on each side there was a grating of iron, which parted off a dismal dungeon, for whence issued the groans of several poor victims whom the cruel giant reserved in confinement for his voracious appetite. Poor Jack was in a dreadful fright at witnessing such a horrible scene, which caused him to fear that he would never see his mother, but be captured lastly for the giant’s meat. But still he recollected the fairy, and a gleam of hope forced itself into his heart.

The good woman then took Jack to a spacious kitchen, where a great fire was kept. She bade him sit down and gave him plenty to eat and drink. In the meantime he had done his meal and enjoyed himself, but was disturbed by a hard knocking at the gate, so loud as to cause the house to shake. Jack was concealed in the oven, and the giant’s wife ran to let in her husband.

Jack heard him accost her in a voice like thunder, saying, “Wife! Wife! I smell fresh meat!”

“Oh! My dear,” replied she, “it is nothing but the people in the dungeon.”

The giant seemed to believe her, and at last seated himself by the fireside, whilst the wife prepared supper.

By degrees Jack endeavored to look at the monster through a small crevice. He was much surprised to see what an amazing quantity he devoured, and supposed he would never have done eating and drinking.

After his supper was ended a very curious hen was brought and placed on the table before him. Jack’s curiosity was so great to see what would happen. He observed that it stood quiet before him, and every time the giant said, “Lay!” the hen laid an egg of solid gold. The giant amused himself a long time with his hen.

Meanwhile his wife went to bed At length he fell asleep and snored like the roaring of a cannon. Jack, finding him still asleep at daybreak, crept softly from his hiding place, seized the hen, and ran off with her as fast as his legs could possibly allow him.

Jack easily retraced his way to the beanstalk and descended it better quicker than he expected. His mother was overjoyed to see him.

“Now, mother,” said Jack, “I have brought you home that which will make you rich.”

The hen produced as many golden eggs as they desired. They sold them and soon became possessed of as much riches as they wanted.

For a few months Jack and his mother lived very happy, but he longed to pay the giant another visit. Early in the morning he again climbed the beanstalk and reached the giant’s mansion late in the evening.

The woman was at the door as before. Jack told her a pitiful tale and prayed for a night’s shelter. She told him that she had admitted a poor hungry boy once before, and the little ingrate had stolen one of the giant’s treasures, and ever since that she had been cruelly used. She, however, led him to the kitchen, gave him supper, and put him in a lumber closet.

Soon after, the giant came in, took his supper, and ordered his wife to bring down his bags of gold and silver. Jack peeped out of his hiding place and observed the giant counting over his treasures, and after which he carefully put them in bags again, fell asleep, and snored as before.

Jack crept quietly from his hiding place and approached the giant, when a little dog under the chair barked furiously. Contrary to his expectation, the giant slept on soundly, and the dog ceased. Jack seized the bags, reached the door in safety, and soon arrived at the bottom of the beanstalk.

When he reached his mother’s cottage he found it quite deserted. Greatly surprised, he ran into the village, and an old woman directed him to a house, where he found his mother apparently dying. On being informed of our hero’s safe return, his mother revived and soon recovered. Jack then presented two bags of gold and silver to her.

Her mother discovered that something preyed upon his mind heavily and endeavored to discover the cause, but Jack knew too well what the consequence would be should he discover the cause of his melancholy to her. He did his utmost therefore to conquer the great desire which now forced itself upon him in spite of himself for another journey up the beanstalk.

On the longest day Jack arose as soon as it was light, ascended the beanstalk and reached the top with some little trouble. He found the road, journey, etc., the same as on the former occasions. He arrived at the giant’s house in the evening and found his wife standing as usual at the door.

Jack now appeared a different character, and had disguised himself so completely that she did not appear to have any recollection of him. However, when he begged admittance, he found it very difficult to persuade her. At last he prevailed, was allowed to go in, and was concealed in the copper.

When the giant returned, he said, as usual, “Wife! Wife! I smell fresh meat!”

But Jack felt quite composed, as he had said so before, and had soon been satisfied. However, the giant started up suddenly, and notwithstanding all his wife could say, he searched all round the room. Whilst this was going forward, Jack was much terrified, and ready to die with fear, wishing himself at home a thousand times. But when the giant approached the copper and put his hand upon the lid, Jack thought his death was certain. Fortunately the giant ended his search there without moving the lid, and seated himself quietly by the fireside.

When the giant’s supper was over he commanded his wife to fetch down his harp. Jack peeped under the copper lid, and soon saw the most beautiful one that could be imagined. It was put by the giant on the table, who said, “Play,” and it instantly played of its own accord. The music was uncommonly fine. Jack was delighted and felt more anxious to get the harp into his possession than either of the former treasures.

The giant’s soul was not attuned to harmony, and the music soon lulled him into a sound sleep. Now, therefore, was the time to carry off the harp, as the giant appeared to be in a more profound sleep than usual. Jack soon made up his mind, got out of the copper, and seized the harp, which, however, being enchanted by a fairy, called out loudly, “Master, master!”

The giant awoke, stood up, and tried to pursue Jack, but he had drank so much that he could not stand. Jack ran as quick as he could. In a little time the giant recovered sufficiently to walk slowly, or rather to reel after him. Had he been sober, he must have overtaken Jack instantly. But as he then was, Jack contrived to be first at the top of the beanstalk. The giant called to him all the way along the road in a voice like thunder, and was sometimes very near to him.

The moment Jack down the beanstalk he called out for a hatchet. One was brought him directly. Just at that instant the giant began to descend, but Jack with his hatchet cut the beanstalk close off at the root, and the giant fell headlong into the garden. The fall instantly killed him.

Jack heartily begged his mother’s pardon for all the sorrow and affliction he had caused her, promising most faithfully to be dutiful and obedient to her in future. He proved as good as his word and became a pattern of affectionate behavior and attention to his parent.

Jack and the Beanstalk, v2

28 04 2008

As told by Andrew Lang

Jack Sells the Cow

Once upon a time there was a poor widow who lived in a little cottage with her only son Jack. Jack was a giddy, thoughtless boy, but very kind hearted and affectionate. There had been a hard winter, and after it the poor woman had suffered from fever and ague. Jack did no work as yet, and by degrees they grew dreadfully poor.

The widow saw that there was no means of keeping Jack and herself from starvation but by selling her cow; so one morning she said to her son, “I am too weak to go myself, Jack, so you must take the cow to market for me, and sell her.”

Jack liked going to market to sell the cow very much; but as he was on the way, he met a butcher who had some beautiful beans in his hand. Jack stopped to look at them, and the butcher told the boy that they were of great value and persuaded the silly lad to sell the cow for these beans.

When he brought them home to his mother instead of the money she expected for her nice cow, she was very vexed and shed many tears, scolding Jack for his folly. He was very sorry, and mother and son went to bed very sadly that night; their last hope seemed gone.

At daybreak Jack rose and went out into the garden. “At least,” he thought, “I will sow the wonderful beans. Mother says that they are just common scarlet runners, and nothing else; but I may as well sow them.” So he took a piece of stick, and made some holes in the ground, and put in the beans.

That day they had very little dinner, and went sadly to bed, knowing that for the next day there would be none, and Jack, unable to sleep from grief and vexation, got up at day-dawn and went out into the garden.

What was his amazement to find that the beans had grown up in the night, and climbed up and up until they covered the high cliff that sheltered the cottage and disappeared above it! The stalks had twined and twisted themselves together until they formed quite a ladder.

“It would be easy to climb it,” thought Jack. And, having thought of the experiment, he at once resolved to carry it out, for Jack was a good climber. However, after his late mistake about the cow, he thought he had better consult his mother first.

Wonderful Growth of the Beanstalk

So Jack called his mother, and they both gazed in silent wonder at the beanstalk, which was not only of great height, but was thick enough to bear Jack’s weight. “I wonder where it ends,” said Jack to his mother. “I think I will climb up and see.”

His mother wished him not to venture up this strange ladder, but Jack coaxed her to give her consent to the attempt, for he was certain there must be something wonderful in the beanstalk; so at last she yielded to his wishes.

Jack instantly began to climb, and went up and up on the ladder-like beanstalk until everything he had left behind him — the cottage, the village, and even the tall church tower — looked quite little, and still he could not see the top of the beanstalk.

Jack felt a little tired, and thought for a moment that he would go back again; but he was a very persevering boy, and he knew that the way to succeed in anything is not to give up. So after resting for a moment he went on. After climbing higher and higher, until he grew afraid to look down for fear he should be giddy, Jack at last reached the top of the beanstalk, and found himself in a beautiful country, finely wooded, with beautiful meadows covered with sheep. A crystal stream ran through the pastures; not far from the place where he had got off the beanstalk stood a fine, strong castle.

Jack wondered very much that he had never heard of or seen this castle before; but when he reflected on the subject, he saw that it was as much separated from the village by the perpendicular rock on which it stood as if it were in another land.

While Jack was standing looking at the castle, a very strange looking woman came out of the wood, and advanced towards him. She wore a pointed cap of quilted red satin turned up with ermine. Her hair streamed loose over her shoulders, and she walked with a staff. Jack took off his cap and made her a bow.

“If you please, ma’am,” said he, “is this your house?”

“No,” said the old lady. “Listen, and I will tell you the story of that castle:”

Once upon a time there was a noble knight, who lived in this castle, which is on the borders of fairyland. He had a fair and beloved wife and several lovely children; and as his neighbors, the little people, were very friendly towards him, they bestowed on him many excellent and precious gifts.

Rumor whispered of these treasures; and a monstrous giant, who lived at no great distance, and who was a very wicked being, resolved to obtain possession of them.

So he bribed a false servant to let him inside the castle, when the knight was in bed and asleep, and he killed him as he lay. Then he went to the part of the castle which was the nursery, and also killed all the poor little ones he found there.

Happily for her, the lady was not to be found. She had gone with her infant son, who was only two or three months old, to visit her old nurse, who lived in the valley; and she had been detained all night there by a storm.

The next morning, as soon as it was light, one of the servants at the castle, who had managed to escape, came to tell the poor lady of the sad fate of her husband and her pretty babes. She could scarcely believe him at first, and was eager at once to go back and share the fate of her dear ones. But the old nurse, with many tears, besought her to remember that she had still a child, and that it was her duty to preserve her life for the sake of the poor innocent.

The lady yielded to this reasoning, and consented to remain at her nurse’s house as the best place of concealment; for the servant told her that the giant had vowed, if he could find her, he would kill both her and her baby.

Years rolled on. The old nurse died, leaving her cottage and the few articles of furniture it contained to her poor lady, who dwelt in it, working as a peasant for her daily bread. Her spinning wheel and the milk of a cow, which she had purchased with the little money she had with her, sufficed for the scanty subsistence of herself and her little son. There was a nice little garden attached to the cottage, in which they cultivated peas, beans, and cabbages, and the lady was not ashamed to go out at harvest time, and glean in the fields to supply her little son’s wants.

Jack, that poor lady is your mother. This castle was once your father’s, and must again be yours.

Jack uttered a cry of surprise. “My mother! Oh, madam, what ought I to do? My poor father! My dear mother!”

“Your duty requires you to win it back for your mother. But the task is a very difficult one, and full of peril, Jack. Have you courage to undertake it?”

“I fear nothing when I am doing right,” said Jack.

“Then,” said the lady in the red cap, “you are one of those who slay giants. You must get into the castle, and if possible possess yourself of a hen that lays golden eggs, and a harp that talks. Remember, all the giant possesses is really yours.” As she ceased speaking, the lady of the red hat suddenly disappeared, and of course Jack knew she was a fairy.

Jack determined at once to attempt the adventure; so he advanced, and blew the horn which hung at the castle portal. The door was opened in a minute or two by a frightful giantess, with one great eye in the middle of her forehead. As soon as Jack saw her he turned to run away, but she caught him, and dragged him into the castle.

“Ho, ho!” she laughed terribly. “You didn’t expect to see me here, that is clear! No, I shan’t let you go again. I am weary of my life. I am so overworked, and I don’t see why I should not have a page as well as other ladies. And you shall be my boy. You shall clean the knives, and black the boots, and make the fires, and help me generally when the giant is out. When he is at home I must hide you, for he has eaten up all my pages hitherto, and you would be a dainty morsel, my little lad.”

While she spoke she dragged Jack right into the castle. The poor boy was very much frightened, as I am sure you and I would have been in his place. But he remembered that fear disgraces a man, so he struggled to be brave and make the best of things.

“I am quite ready to help you, and do all I can to serve you, madam,” he said, “only I beg you will be good enough to hide me from your husband, for I should not like to be eaten at all.”

“That’s a good boy,” said the giantess, nodding her head; “it is lucky for you that you did not scream out when you saw me, as the other boys who have been here did, for if you had done so my husband would have awakened and have eaten you, as he did them, for breakfast. Come here, child; go into my wardrobe. He never ventures to open that. You will be safe there.”

And she opened a huge wardrobe which stood in the great hall, and shut him into it. But the keyhole was so large that it admitted plenty of air, and he could see everything that took place through it. By and by he heard a heavy tramp on the stairs, like the lumbering along of a great cannon, and then a voice like thunder cried out.

Fe, fa, fi-fo-fum,
I smell the breath of an Englishman.
Let him be alive or let him be dead,
I’ll grind his bones to make my bread.

“Wife,” cried the giant, “there is a man in the castle. Let me have him for breakfast.”

“You are grown old and stupid,” cried the lady in her loud tones. “It is only a nice fresh steak off an elephant that I have cooked for you which you smell. There, sit down and make a good breakfast.”

And she placed a huge dish before him of savory steaming meat, which greatly pleased him and made him forget his idea of an Englishman being in the castle. When he had breakfasted he went out for a walk; and then the giantess opened the door, and made Jack come out to help her. He helped her all day. She fed him well, and when evening came put him back in the wardrobe.

The Hen That Lays Golden Eggs

The giant came in to supper. Jack watched him through the keyhole, and was amazed to see him pick a wolf’s bone and put half a fowl at a time into his capacious mouth.

When the supper was ended he bade his wife bring him his hen that laid the golden eggs.

“It lays as well as it did when it belonged to that paltry knight,” he said. “Indeed, I think the eggs are heavier than ever.”

The giantess went away, and soon returned with a little brown hen, which she placed on the table before her husband. “And now, my dear,” she said, “I am going for a walk, if you don’t want me any longer.”

“Go,” said the giant. “I shall be glad to have a nap by and by.”

Then he took up the brown hen and said to her, “Lay!” And she instantly laid a golden egg.

“Lay!” said the giant again. And she laid another.

“Lay!” he repeated the third time. And again a golden egg lay on the table.

Now Jack was sure this hen was that of which the fairy had spoken.

By and by the giant put the hen down on the floor, and soon after went fast asleep, snoring so loud that it sounded like thunder.

Directly Jack perceived that the giant was fast asleep, he pushed open the door of the wardrobe and crept out. Very softly he stole across the room, and, picking up the hen, made haste to quit the apartment. He knew the way to the kitchen, the door of which he found was left ajar. He opened it, shut and locked it after him, and flew back to the beanstalk, which he descended as fast as his feet would move.

When his mother saw him enter the house she wept for joy, for she had feared that the fairies had carried him away, or that the giant had found him. But Jack put the brown hen down before her, and told her how he had been in the giant’s castle, and all his adventures. She was very glad to see the hen, which would make them rich once more.

The Money Bags

Jack made another journey up the beanstalk to the giant’s castle one day while his mother had gone to market. But first he dyed his hair and disguised himself. The old woman did not know him again and dragged him in as she had done before to help her to do the work; but she heard her husband coming, and hid him in the wardrobe, not thinking that it was the same boy who had stolen the hen. She bade him stay quite still there, or the giant would eat him.

Then the giant came in saying:

Fe, fa, fi-fo-fum,
I smell the breath of an Englishman.
Let him be alive or let him be dead,
I’ll grind his bones to make my bread.

“Nonsense!” said the wife, “it is only a roasted bullock that I thought would be a tit-bit for your supper; sit down and I will bring it up at once.”

The giant sat down, and soon his wife brought up a roasted bullock on a large dish, and they began their supper. Jack was amazed to see them pick the bones of the bullock as if it had been a lark.

As soon as they had finished their meal, the giantess rose and said:, “Now, my dear, with your leave I am going up to my room to finish the story I am reading. If you want me call for me.”

“First,” answered the giant, “bring me my money bags, that I may count my golden pieces before I sleep.”

The giantess obeyed. She went and soon returned with two large bags over her shoulders, which she put down by her husband.

“There,” she said; “that is all that is left of the knight’s money. When you have spent it you must go and take another baron’s castle.”

“That he shan’t, if I can help it,” thought Jack.

The giant, when his wife was gone, took out heaps and heaps of golden pieces, and counted them, and put them in piles, until he was tired of the amusement. Then he swept them all back into their bags, and leaning back in his chair fell fast asleep, snoring so loud that no other sound was audible.

Jack stole softly out of the wardrobe, and taking up the bags of money (which were his very own, because the giant had stolen them from his father), he ran off, and with great difficulty descending the beanstalk, laid the bags of gold on his mother’s table. She had just returned from town, and was crying at not finding Jack.

“There, mother, I have brought you the gold that my father lost.”

“Oh, Jack! You are a very good boy, but I wish you would not risk your precious life in the giant’s castle. Tell me how you came to go there again.” And Jack told her all about it.

Jack’s mother was very glad to get the money, but she did not like him to run any risk for her. But after a time Jack made up his mind to go again to the giant’s castle.

So he climbed the beanstalk once more, and blew the horn at the giant’s gate. The giantess soon opened the door. She was very stupid, and did not know him again, but she stopped a minute before she took him in. She feared another robbery; but Jack’s fresh face looked so innocent that she could not resist him, and so she bade him come in, and again hid him away in the wardrobe.

By and by the giant came home, and as soon as he had crossed the threshold he roared out:

Fe, fa, fi-fo-fum,
I smell the breath of an Englishman.
Let him be alive or let him be dead,
I’ll grind his bones to make my bread.

“You stupid old giant,” said his wife, “you only smell a nice sheep, which I have grilled for your dinner.”

And the giant sat down, and his wife brought up a whole sheep for his dinner. When he had eaten it all up, he said, “Now bring me my harp, and I will have a little music while you take your walk.”

The giantess obeyed, and returned with a beautiful harp. The framework was all sparkling with diamonds and rubies, and the strings were all of gold.

“This is one of the nicest things I took from the knight,” said the giant. “I am very fond of music, and my harp is a faithful servant.”

So he drew the harp towards him, and said, “Play!” And the harp played a very soft, sad air.

“Play something merrier!” said the giant. And the harp played a merry tune.

“Now play me a lullaby,” roared the giant, and the harp played a sweet lullaby, to the sound of which its master fell asleep.

Then Jack stole softly out of the wardrobe, and went into the huge kitchen to see if the giantess had gone out. He found no one there, so he went to the door and opened it softly, for he thought he could not do so with the harp in his hand.

Then he entered the giant’s room and seized the harp and ran away with it; but as he jumped over the threshold the harp called out, “Master! Master!” And the giant woke up. With a tremendous roar he sprang from his seat, and in two strides had reached the door.

But Jack was very nimble. He fled like lightning with the harp, talking to it as he went (for he saw it was a fairy), and telling it he was the son of its old master, the knight.

Still the giant came on so fast that he was quite close to poor Jack, and had stretched out his great hand to catch him. But, luckily, just at the moment he stepped upon a loose stone, stumbled, and fell flat on the ground, where he lay at his full length.

This accident gave Jack time to get on the beanstalk and hasten down it; but just as he reached their own garden he beheld the giant descending after him.

“Mother! mother!” cried Jack, “make haste and give me the ax.” His mother ran to him with a hatchet in her hand, and Jack with one tremendous blow cut through all the stems except one.

“Now, mother, stand out of the way!” said he. Jack’s mother shrank back, and it was well she did so, for just as the giant took hold of the last branch of the beanstalk, Jack cut the stem quite through and darted from the spot.

Down came the giant with a terrible crash, and as he fell on his head, he broke his neck, and lay dead at the feet of the woman he had so much injured.

Before Jack and his mother had recovered from their alarm and agitation, a beautiful lady stood before them. “Jack,” said she, “you have acted like a brave knight’s son, and deserve to have your inheritance restored to you. Dig a grave and bury the giant, and then go and kill the giantess.”

“But,” said Jack, “I could not kill anyone unless I were fighting with him; and I could not draw my sword upon a woman. Moreover, the giantess was very kind to me.”

The fairy smiled on Jack. “I am very much pleased with your generous feeling,” she said. “Nevertheless, return to the castle, and act as you will find needful.”

Jack asked the fairy if she would show him the way to the castle, as the beanstalk was now down. She told him that she would drive him there in her chariot, which was drawn by two peacocks. Jack thanked her, and sat down in the chariot with her. The fairy drove him a long distance round, until they reached a village which lay at the bottom of the hill. Here they found a number of miserable-looking men assembled. The fairy stopped her carriage and addressed them.

“My friends,” said she, “the cruel giant who oppressed you and ate up all your flocks and herds is dead, and this young gentleman was the means of your being delivered from him, and is the son of your kind old master, the knight.”

The men gave a loud cheer at these words, and pressed forward to say that they would serve Jack as faithfully as they had served his father. The fairy bade them follow her to the castle, and they marched thither in a body, and Jack blew the horn and demanded admittance.

The old giantess saw them coming from the turret loop hole. She was very much frightened, for she guessed that something had happened to her husband; and as she came downstairs very fast she caught her foot in her dress, and fell from the top to the bottom and broke her neck.

When the people outside found that the door was not opened to them, they took crowbars and forced the portal. Nobody was to be seen, but on leaving the hall they found the body of the giantess at the foot of the stairs.

Thus Jack took possession of the castle. The fairy went and brought his mother to him, with the hen and the harp. He had the giantess buried, and endeavored as much as lay in his power to do right to those whom the giant had robbed. Before her departure for fairyland, the fairy explained to Jack that she had sent the butcher to meet him with the beans, in order to try what sort of lad he was.

“If you had looked at the gigantic beanstalk and only stupidly wondered about it,” she said, “I should have left you where misfortune had placed you, only restoring her cow to your mother. But you showed an inquiring mind, and great courage and enterprise, therefore you deserve to rise; and when you mounted the beanstalk you climbed the Ladder of Fortune.”

She then took her leave of Jack and his mother.