Published in: 1923
Reminiscences of a stock operator was first published in 1923 and is seen as a classic in investor circles. The book is based on the life of investor and trader Jesse Livermore but built around the fictional speculator Lawrence Livingston. Many concrete tips for stock trading are interspersed with the story of Livermore’s roller coasters in life.
NOTHING IS NEW ON WALL STREET. What is happening in the stock market today has happened before and will happen again. We humans run on greed and fear and cannot stay away from speculation. In every boom, private investors fail to turn paper profits into money and in every crash they sell at the bottom.
“When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature.”
HAVE THE WISDOM TO STAND ON THE SIDELINES. Only a fool trades all the time. There is no referee who says that we must constantly be on the playing field. The intelligent investor only trades when the odds are in his favor. The “action bias” that investors generally suffer from drags many otherwise intelligent people into ruin.
”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. It never was my thinking that made the big money for me. It was always the sitting. Got that? My sitting tight!”
THE VALUE OF LOSSES. Investors will repeatedly make mistakes that lead to losses. As long as no mistake leads to total loss, these are good learning opportunities. During the career, the investor accumulates lessons learned about what to avoid and evolve from these mistakes if these are not repeated. Livermore saw losses in the market as a fee for experience and knowledge.
“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.“
DON’T TAKE TIPS. If you buy shares on tips from your neighbor, you also need his tips when it’s time to sell. You become dependent on a party that you certainly do not have access to in the future. In addition, it is difficult to keep a straight course if the share price falls sharply and you yourself are not familiar with the investment. The risk of being scared away when it is darkest is significantly greater than if it is a self-chosen stock.
DO NOT SKIMP ON THE SPREAD. Livingston learned early on that it was a “fools game” to try to catch the last cents in the spread. He believed that this – as early as the beginning of the 20th century – had cost stock traders enough millions of dollars to build a highway across the American continent.
“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.”
TAKE THE CHANCE WHEN IT COMES. When the opportunity arises to follow one’s analysis, one must take the chance. You sell when you can – not when you want. A major investor cannot sneak out of a position, he must wait for liquidity. By observing the trading volumes and trying your hand, trading skills can be refined over time.
THE REAL JESSE LIVERMORE. Livermore was born in Massachusetts in 1877 and grew up in poor and simple conditions. He began his trading career as a 14-year-old by taking a job as a “stock price writer” with a stockbroker in Boston. He learned to see patterns in stock trading and began to “bet” on stocks in “bucket shops” (a type of betting business for the stock market). As a 15-year-old, he resigned from his job and was then a professional stock trader for the rest of his life. The first time he came to Wall Street, he lost everything, after which he had to return to the “bucket shops” and rebuild his portfolio. Livermore lost several times, but always recovered through short-term loans. The peak of his career was after the great crash of 1929 – Livermore had then been short shares and was good for $100m. By the time he committed suicide in 1940, at the age of 63, his fortune had shrunk to $5m.