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Reminiscences of a Stock Operator by Edwin Lefevre -My favorite 15 quotes

  
Analysis, Education
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1/ The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professional.

2/ In this business a man has to think of both theory and practice. A speculator must not be merely a student, he must be both a student and a speculator.

3/ When you know what not to do in order not to lose money, you begin to learn what to do in order to win.

4/ Not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions.

5/ They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.

6/ When you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford.

7/ The big money was not in the individual fluctuations but in the main movements— that is, not in reading the tape but in sizing up the entire market and its trend. It never was my thinking that made the big money for me. It always was my sitting.

8/ One of the most helpful things that anybody can learn is to give up trying to catch the last eighth—or the first. These two are the most expensive eighths in the world.

9/ The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.

10/ I don’t buy long stock on a scale down, I buy on a scale-up. Remember that stocks are never too high for you to begin buying or too low to begin selling.

11/ When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions—or my prepossessions either—to do any thinking for me

12/ The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa.

13/ A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him.

14/ A man can excuse his mistakes only by capitalizing them to his subsequent profit.

15/ Of all speculative blunders, there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.

Take Money Off the Table

  
Analysis, Education
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  • A speculator should make it a rule each time he closes a successful deal to take 50% of his profits and lock this sum up in a safe deposit box. The only money that is ever taken out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.
  • There is no better time than after a large “win” on a stock. Cash is your secret bullet in the chamber, keep a cash reserve.
  • The single largest regret I have ever had in my financial life was not paying enough attention to this rule.

‘Speculative Strategy’:

  
Analysis, Education
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The Fourth Axiom tells you not to build your speculative program on a basis of forecasts, because it won’t work. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
Of course, we all wonder what will happen, and we all worry about it. But to seek escape from that worry by leaning on predictions is a formula for poverty. The successful speculator bases no moves on what supposedly will happen but reacts instead to what does happen.

Design your speculative program on the basis of quick reactions to events that you can actually see developing in the present. Naturally, in selecting an investment and committing money to it, you harbor the hope that its future will be bright. The hope is presumably based on careful study and hard thinking. Your act of committing dollars to the venture is itself a prediction of sorts. You are saying, “I have reason to hope this will succeed.” But don’t let that harden into an oracular pronouncement: “It is bound to succeed because interest rates will come down.” Never, never lose sight of the possibility that you have made a bad bet.

If the speculation does succeed and you find yourself climbing toward a planned ending position, fine, stay with it. If it turns sour despite what all the prophets have promised, remember the Third Axiom. Get out.

Observation, Experience, Memory and Mathematics

  
  Education
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“Observation, experience, memory and mathematics – these are what the successful trader must depend on. He must not only observe but remember at all times what he has observed. He cannot bet on the unreasonable or the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities – that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

“A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years of the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude that enables him to beat the game – at times! This difference between the professional and the amateur or occasional trader cannot be overemphasized. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, it makes its money by dealing with facts and figures.”

The Pitfalls of Speculation

  
  Education
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The question at once asks itself: “How may the top of the market be discerned, and the dangers of the eleventh hour be avoided?” The answer is more or less complex.

It is, of course, necessary above all things to revert to the estimated and fixed value of the stocks traded in and to find out how much above this normal point the securities are selling. This done, common sense, plus prudence, and minus piggishness, may determine the question and dictate the time for liquidation. This action, however, once decided upon must be adhered to with great rigidity, for thousands of traders who thus take time by the forelock have been dissatisfied afterwards by seeing a still greater advance in which they had no interests, and through greed and impatience have re-entered the lists at a most inopportune time.

The trader who realizes his profits, and sees a further advance following his own withdrawal from the market, may console himself with the fact that he has made and secured a profit; that trying to guess the exact extreme of a cycle is hazardous, and that the advance which followed his withdrawal is unsound, being founded on speculation rather than valuation.

But this is a digression from the technical phase of the matter.  So far as it is possible to judge the culmination of the speculative campaign by extraneous appearances, it may be said that a long period of backing and filling, a swinging back and forth of prices at the approximate high level marks the beginning of the end.

The definition of the “top” of the market is that point at which the great traders have almost in unison decided to unload, and per contra, the public has reached its highest level of enthusiasm.  At the beginning of this period the insiders possess and enormous aggregate of stocks which must be sold in such a manner as not to break the market. This operation will take weeks, or even months to accomplish, as any precipitate selling would be disastrous.  The wise element, therefore, sells all the market will absorb without any severe decline, and ceases selling, or even takes the buying side at the first sign of any “softness.” In short, they do all they can to maintain a good feeling and high prices, at the same time parting with the securities as rapidly as possible.

This statement may convey the impression that the shrewd speculators act in unison.  This is true, but not necessarily in the sense that there is any preconceived arrangement between them.  The unison or more or less unconscious, and is founded on the fact that there are only two sides to the market, the right and the wrong side, and that those of the speculative world who have sufficient wisdom and experience to know what is right are working to the same end, while all the inexperienced or unthinking horde are working on theories diametrically opposed to reason or even probability. 

From the SAME AS IT EVER WAS files:

The Pitfalls of Speculation by Thomas Gibson, 1906.

 

Avoiding Punishment is the mistake-Reminiscences of a Stock Operator

  
  Education
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This chapter gives several examples of different peoples method of placing their trades, and uncovers the difficulties that many people have in following a trading method. Much of the difficulties lie in the behavior pattern of avoiding punishment. A speculator may make mistake and know that he is making them, but not why. He simple calls himself names and lets it go at that. 

Mistakes are always around if you want to make a fool of yourself. Mistakes are part of the human condition, and should not cause lost sleep. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.  

Trading Commodities rather than stocks partakes more of the nature of a commercial venture than trading in stocks does. Commodities are governed by one law in the long run, supply and demand.  Fundamental information is more concrete than in Stocks, where the investor must guess about many influences.  

Technical analysis, or tape reading, works exactly the same for stocks as for cotton or wheat or corn or oats. Still, the average trader from Missouri everywhere will risk half his fortune in the stock market with less reflection than he devotes to the selection of a car. Today the popular analogy is that most people spend more time planning their vacation than they spend planning for their retirement.   (more…)

Jesse Livermore: Original Trend Follower and Great Trader

  
  Education
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The unofficial biography of Jesse Livermore was Reminiscences of a Stock Operator published 1923. Below are selected quotes:

  • Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.
  • I told you I had ten thousand dollars when I was twenty, and my margin on that Sugar deal was over ten thousand. But I didn’t always win. My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times. In fact, I have always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own game- that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily- or sufficient knowledge to make his play an intelligent play.
  • It takes a man a long time to learn all the lessons of his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.
  • There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!
  • I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, Well, you know this is a bull market! he really meant to tell them that the big money was not in the individual fluctuations but in the main movements- that is, not in reading the tape but in sizing up the entire market and its trend.
  • The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.
  • ?the average man doesn’t wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.
  • To tell you about the first of my million dollar mistakes I shall have to go back to this time when I first became a millionaire, right after the big break of October, 1907. As far as my trading went, having a million merely meant more reserves. Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong. And when a millionaire is right his money is merely one of his several servants. Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong- not taking the loss- that is what does damage to the pocketbook and to the soul.
  • What I have told you gives you the essence of my trading system as based on studying the tape. I merely learn the way prices are most probably going to move. I check up my own trading by additional tests, to determine the psychological moment. I do that by watching the way the price acts after I begin.
  • Of all speculative blunders there are few worse than trying to average a losing game. My cotton deal proved it to the hilt a little later. Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.
  • The loss of the money didn’t bother me. Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee. A man has to have experience and he has to pay for it.
  • In booms, which is when the public is in the market in the greatest numbers, there is never any need of subtlety, so there is no sense of wasting time discussing either manipulation or speculation during such times; it would be like trying to find the difference in raindrops that are falling synchronously on the same roof across the street. The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably pay for the privelege of proving conclusively that it cannot be found on this sordid earth. At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860’s and 70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.
  • There are men whose gait is far quicker than the mob’s. They are bound to lead- no matter how much the mob changes.

5 Great Quotes From Jesse Livermore

  
Analysis, Education
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1. The only leading indicator that matters

Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

2. Patterns repeat because human nature hasn’t changed for thousand of years

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.
I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.

3. Your first loss is your best loss. (more…)

Jesse Livermore with Edwin Lefevre, dated circa 1922

  
  Education
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JL-ASRWhat follows is a never before published “interview” with Jesse Livermore.

Conducted by Edwin Lefevre, dated circa 1922, this “interview” reveals great insights into the mind of the famous trader. As we will see, the wisdom imparted here could change our entire perspective on the speculative game we love and enjoy.  It might even change our lives.  I took the liberty of editing it due to its length.

Lefevre:  Hello Mr Livermore.  Thank you for taking the time to conduct this series of interviews with me.  It is my understanding that you do not grant many interviews, so I am honored.

Livermore: You are very welcome.  I appreciate the respect but you do not have to address me as Mr.  Jesse, or my nickname, the boy plunger, will suffice.

Lefevre: And where did you get the name boy plunger?

Livermore: It was during the early days when I was trading small lots in the bucket shops, where the man who traded in twenty shares at a clip was suspected of being J.P. Morgan traveling incognito.  I didn’t have a following.  I kept my business to myself.  As it was, it did not take long for the bucket shops to get sore on me for beating them.  I’d walk in and plank down my margin, but they’d look at it without making a move to grab it.  They’d say nothing doing. That is when they started calling me the boy plunger.  I had to move from shop to shop, even to the point of changing my name.  I couldn’t put trades on without getting cheated on the quotes.  This was in Boston, so I then moved to where the real action was, to New York.  I was 21 at the time.

Lefevre:  Were you making money? (more…)

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