Archives of “JESSE LIVERMORE” tag

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20 Wisdom Points from the Book ‘Superperformance Stocks’

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.

3.  A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market

There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken. (more…)

Losers Average Losers

  
  Education
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There is a famous picture of Paul Tudor Jones relaxing in his office with his feet kicked up. A single sheet of loose-leaf paper is tacked on the wall behind him with the simple phrase written out in black marker: “Losers Average Losers”. Trite meaningless talk? Not so fast.

Famed trader Jesse Livermore warned 100 years ago against averaging losses. For example, you buy a stock at 50, and two or three days later if you can buy it at 47, you average down by buying another hundred shares, making an average price of 48.5. Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the double worry when the price hits 44? At that point, there would be a $600 loss on the first hundred shares and a $300 loss on the second shares. If you are able to apply such an unsound principle, you can keep on averaging down by buying 200 at 44, then 400 at 41, 800 at 38, 1600 at 35, 3200 at 32, 6400 at 29, and so on (source: Jesse L. Livermore, How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price).

Losses are a part of the game. You want no losses? You want positive returns every month? It does not work that way, that is, not unless you were lucky enough to be invested in the Bernard Madoff Ponzi-scheme which has resulted in assorted criminal convictions and a few suicides. Losses are not your problem. Its how you react to them. Ignore losses with no plan, or try to double down on your losses to recoup, and those losses will come back like a Mack truck to run over your account.

Wisdom Not to Be Ignored

Don’t frown, double down! Not smart strategy.

Escalator up, express elevator down.

You can’t win if you are not willing to lose. It’s like breathing in, but not breathing out.

Trading Quotes

  
  Education
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“Jesse Livermore described Wall Street as a ‘giant whorehouse,’ where brokers were ‘pimps’ and stocks ‘whores,’ and where customers queued to throw their money away.”
The Economist

Another psychological aspect that drives me to use timing techniques on my portfolio is understanding myself well enough to know that I could never sit in a buy and hold strategy for two years during 1973 and 1974, watch my portfolio go down 48 percent and do nothing, hoping it would come back someday.
Tom Basso

With the title alone causing hysterics, placing this on your coffee table will elicit your guests to share their best dot-com horror story. How they invested their $100,000 second mortgage in Cisco Systems at $80 after reading about it, waiting for it to become $500 (as predicted in this very book) only to see it dive to $17. Just the thought of this book gives me the chuckles.
Amazon.com Review of Dow 36,000

You will run out of money before a guru runs out of indicators.
Neal T. Weintraub

There is little point in exploring the Elliott Wave Theory because it is not a theory at all, but rather the banal observation that a price chart comprises a series of peaks and troughs. Depending on the time scale you use, there can be as many peaks and troughs as you care to imagine.

If you want a guarantee, buy a toaster.
Clint Eastwood

You have to say, “What if?” What if the stocks rally? What if they don’t? Like a catcher, you have to wear a helmet.
Jonathan Hoenig, Portfolio Manager,
Capitalistpig Hedge Fund LLC

There is no greater source of conflict among researchers and practitioners in capital market theory than the validity of technical analysis. The vast majority of academic research condemns technical analysis as theoretically bankrupt and of no practical value…It is certainly understandable why many researchers would oppose technical analysis: the validity of technical analysis calls into question decades of careful theoretical modeling [Capital Asset Pricing Model, Arbitrage Pricing Theory] claiming the markets are efficient and investors are collectively, if not individually, rational.

The biggest cause of trouble in the world today is that the stupid people are so sure about things and the intelligent folks are so full of doubts.
Bertrand Russell

We are what we repeatedly do. Excellence, then, is not an act, but a habit.
Aristotle

Forecasts are financial candy. Forecasts give people who hate the feeling of uncertainty something emotionally soothing.
Thomas Vician, Jr., student of Ed Seykota’s

Never let the fear of striking out get in your way.
Babe Ruth

The Henry theory— statistically corroborated, of course—is that assets, once in motion, tend to stay in motion without changing direction, and that turns the old saw— buy low, sell high—on its ear.

Enron stock was rated as “Can’t Miss” until it became clear that the company was in desperate trouble, at which point analysts lowered the rating to “Sure Thing.” Only when Enron went completely under did a few bold analysts demote its stock to the lowest possible Wall Street analyst rating, “Hot Buy.”
Dave Barry
February 3, 2002

“If you don’t risk anything, you risk even more.”
Erica Jong

“No matter what kind of math you use, you wind up measuring volatility with your gut.”
Ed Seykota

How Much does a Penny Doubled Every day for Month End up Being?

  
  Education
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If you took a penny on the first day of the month and doubled it every day for that month (all 30 days), how much would you end up at the end of the month? One cent, two cents, four cents, 8 cents…. you end up with $5,368, 709.12 at the end of day thirty. Surprised? This is the power of compounding money over and over for staggering returns. This also shows how much money some traders on social media would quickly have if they were as good as they pretend to be. This also explains this quote from Jesse Livermore:
“If a man didn’t make mistakes, he‘d own the world in a month. But if hedidn’t profit by his mistakes, he wouldn’t own a blessed thing.” ~ Jesse Livermore 

Trading Psychology Quotes

  
  Education
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Psychology matters more to trading or investing than perhaps any other income-producing activity. Here are some quotable quotes from some well known industry participants highlighting that reality…

 Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.

Ralph Vince (money management expert)

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.

Victor Sperandeo (master Wall St trader) (more…)

What Not to Do-What to Do

  
  Education
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What Not to Do

  1. Have an opinion. One sure way to find yourself trading against the market is to have a market opinion. Trading with a rigid belief about what the market will do next can limit your ability to see what the market is actually telling you. 
  2. Have someone else’s opinion. Adopting some market guru’s market opinion is actually worse than having your own. Market gurus are notoriously inaccurate in their predictions.  Embracing another’s market judgment prevents you from learning to read the market on your own. Besides, it’s doubtful the guru will be texting you to let you know when his or her opinion has changed.
  3. Make your opinion public. Putting your bias into a chat room or forum thread makes it public. Making something public gives it a psychological life of its own. It’s hard to back off an opinion once you have announced it to others. 
  4. Let your ego get involved. Everyone wants to be right. In trading, learning to accept being wrong and the losses associated with being wrong is a big part of the game. This is no place for big egos.
  5. Ride a loser. Still wanting to be right? Having a bias, making it public, and getting your ego involved will cause you to hold losers far longer than you should.

What to Do

  1. Anticipate. Avoid having an inflexible bias. Identify areas where the market might turn, break out, or continue, and think through what that would look like. Anticipate the alternative ways the market may trade. When you see the market trading as anticipated, you already know what to do.
  2. Keep your own counsel. Avoid gurus. Jesse Livermore viewed trading as a “lone-wolf” business, and it is. Learn to read the market and make your own decisions.
  3. Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
  4. Check your ego. Be aware of when you want to be right. Ask yourself, “What is more important, being right or making money?” Then, make the correct decision.
  5. Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.

Trading Wisdom – Jesse Livermore

  
  Education
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JesseLivermore

Many books have been written by and about Mr. Livermore. He was a fascinating individual who reportedly made $100 million in a single day in the 1929 crash.
Legend has it that during the crash J.P. Morgan personally walked over to the N.Y. Stock exchange to ask Jesse Livermore to stop selling and start buying in order to save the markets.
He was an expert at following the right trend, with the exception of marriage. His wife was married about four times prior to marrying him, and all four husbands killed themselves, as did Jesse eventually. Not quite marriage counselor material, he is nonetheless one of the greatest wells of trading wisdom from which I have quenched my thirst in the past.
I am a much better trader because of Jesse Livermore. Every time I get stuck in a trading rut, I review my notes on his trading philosophies, which I would like to share with you below. (more…)

Lessons of the Legendary Traders

  
  Education
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What do the worlds best Trading masters differently than the average investor? Can the average investor learn from the Player Legends success stories and their techniques used? What do the most famous Players have in common that can be applied by the average talented trader?

Before we should give some insights on those questions lets have a look at some of the most successful Trade jockey Legends:

Nicolas Darvas turned an $ 36000 account into $ 2000000 in 18 months!!!
Ed Seykota, a Turtle Financier, turned $ 5’000 into $ 15’000’000 in 12 years!!!
Jesse Livermore made several multi-million USD fortunes in the early 1900’s
Richard Dennis, another Turtle Player, made between $ 100 and $ 200 000.000
George Soros is believed to be one of the greatest Trade jockey of all time!!!

The results are quite impressive and some different amazing Financiers should be added easily to the list above. Why do these guys have such tremendous results?

There are common factors, that can be observed through most of the successful Pitbull Legends:

They have a Strategy that they strictly follow.
Most of them have a trend-following average trading style.
Most of them have a mid- to long-term approach. Some of them burned their fingers over the preceding 3 years and some even lost a fortune. Here are some examples of observed behaviour patterns:

Losses are not slice early enough.
Investment with a short-term horizon become long-term horizon in hope of raising asking prices.
People listen to the advise of their invested $ Trade facilitators and Analysts.
People risk coin in hot issues recommended by colleagues of their colleagues.
People have no plan for their investments.
Money Management is not considered at all.
Greed and fear is omnipresent.

What can average talented trading insiders learn from the above and how can the mistakes listed above be avoided? The after key notches can be learned from some of the most successful Trading expert Legends:

Each investor has its own personality. Some of the investor have a very aggressive paper trading style and are stockmarket trading very frequently. Some prefer shares as different are increased risk oriented and speculate in contracts. Other players want only spend a minimum of effort. An investor need to reflect on his outline and choose a note trading approach that fits his personality.

A trade needs to be completely planned in advance. g. when they go on holiday, when they move house etc. But do they have a plan when they invest? An investor needs to have a method that helps him to be prepared for all scenarios of a exchange. One needs to know in advance when to buy, how much to buy, when to exit. Once a buy / sell is executed the bottom line of the instrument (stock, promise note, fixed interest paper etc.

The most important component of a stock trading method is Cash Management? Surprised? Lots of pitbulls and super traders spend most of their time developing a very advanced trade entry strategy. But the entry methodology contributes only approximately 15% to the success of a Note trading Method based on academic studies.
The most important question of a Paper trading Technique is how much to risk bucks and how many deals to trade at the same time.

A can do attitude is required to buy / sell successfully. Why? Because with phrases like it should be great, but I cant or one day perhaps I should succeed in the lottery, but until then I must work hard they have already lost.

Lessons from the Wizards

  
  Education
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3994One of the first books I read in this business oh-so many years ago was Stock Market Wizards. It had a profound impact on my thinking about trading, psychology, risk, capital preservation, etc.

  1. All successful traders use methods that suit their personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.  
  2. What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.

    To be a winner, you have to be willing to take a loss

  3.  HOPE is not a word in the winning Trader’s vocabulary;

  4.  When you are on a losing streak — and you will eventually find yourself on one — reduce your position size;

  5.  Don’t underestimate the time it takes to succeed as a trader — it takes 10 years to become very good at anything; 

  6.  Trading is a vocation — not a hobby (more…)

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