Many years ago (circa 2005), I came across the below food-for-thought piece from a musical theorist named Lee Humphries. The ideas presented intrigue to this day.
Investment assumptions aside — An 8.5% passive return? Good luck with that— the concepts of compounding and Metcalfe’s law (aka network effects) apply strikingly well to the development of expert knowledge… and the theory and practice of trading.
What’s more, a persistently cultivated “perception of subtleties” is, indeed, a large part of what trading is all about.
So without further ado…
The Mathematics of Persistence (more…)
One of the good guys (for me, at least) has always been Jesse L. Livermore. He’s considered by many of today’s top Wall Street traders to be the greatest trader who ever lived.
Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.
Long or short, it didn’t matter to Jesse.
Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.
In one of Livermore’s more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today’s dollars, that would be a cool $12.6 billion.
That’s part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.
A gambler and speculator to the core, his insights into human nature and the markets have been widely quoted ever since.
Here are just a few of his market beating lessons:
On the school of hard knocks:
The game taught me the game. And it didn’t spare me rod while teaching. It took me five years to learn to play the game intelligently enough to make big money when I was right.
On losing trades:
Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.
On trading the trends:
Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end. (more…)