FuturesTechs Blog

It never ceases to amaze me how many people cite Edwin Lefevre’s 1922 book “Reminiscences of a Stock Operator” as one of their all time favourite books on investing and trading the markets.

I am one of those people. I read this book at least once a year. However busy I am (and I’m pretty bloody busy right now!) I make time to re-read this classic tome.

So what’s all the fuss about? This book was written, as mentioned, in 1922. The author, Edwin Leferve, never traded a stock in his life. It is believed that he based the book upon interviews he did for a newspaper column with the legendary Wall Street trader Jesse Livermore, although Livermore isn’t named in the book. The central character is known as Larry Livingstone, and the book is his story, from rags to riches and back again, several times.

So it’s a story about a trader who made and lost loads of money almost 100 years ago. So what’s the relevance?

I’ve wanted to make this a blog subject for a while now, so when I re-read the book this time around I highlighted the “gems” that I considered were totally relevant to today’s markets. Here’s a few:

On the second page: “…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”.

If you look at our previous Blog article on the sentiment cycle you will see that we firmly subscribe to this view; that what we’re going through right now is NOTHING NEW.

We need the market to stop trying to pick bottoms and for those same bottom pickers to give up and turn outright bearish before we can make a bottom. The market needs to feel discouragement; tired of trying to find the bottom, resigned to the fact that we can head lower to who knows where. Then we’ll start to rally!!

How about this one; “…I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”

Or this; “…there is only one side to the stock market; and it is not the bull side or the bear side, but the right side”

How about “..in losing money I have gained experience and accumulated a lot of valuable don’ts”

Gems, all of them. New traders: You have to realise that you will make mistakes. Just make sure they don’t cost you your account. And learn from these mistakes. And “don’t” make the same mistakes over and over.

A classic problem traders of all levels of experience encounter is running losses but not running profits.

“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”.

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight.”

One of the hardest things to do is to run a winning trade, beleive it or not, but when you’ve got trends akin to the sort of thing we’ve seen in Oil this year the real money has been made by staying short all the way back down from $147 (or $135, which is where we turned bearish).

I could go on and on, but I’m going to tie things up with a quote that is poetically relevant in the current climate, and adds weight to my loudest recurring rant of 2008: “Stop trying to pick bottoms”.

“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 eights in the world”.

Thank you Mr Livermore/Livingston. I couldn’t have said it better myself!

As usual, keep safe in these markets,

Cheers,

Clive.

If you are a regular reader of our reports, or if you’ve seen me on CNBC any time in the last few months you’ll know that we’re staying right out of the rush to pick a bottom on this equity market sell-off, a rather thankless task that so many people appear to be happy to do. This is how it works: If you are a market commentator and you’ve been calling the bottom all the way down, you may as well carry on, because at some point you’ll be right. Then you can say for the next three years “I picked the bottom”. It upsets me that these so called experts are happy to continue to give dud advice to people just to try and save their own face.

Here’s something else: The market will only bottom out once all of these people STOP calling it. When the towel is thrown in by the majority, and most commentators start talking about doom and gloom downside targets, is when we’ll get a bottom. Maybe that’s why Hugh Hendry was given an entire hour on Channel 4 last night to pick over the wreckage of the sub-prime crisis. It was a great bit of TV and you can’t but love the man!

As per last week’s Blog on the sentiment cycle, the bottom will most likely come when people give up trying to call it, and when the market resigns itself to a future of pain and misery. So we’re probably not quite there yet…

I looked back at our analysis in 2003 and saw that we were around 400 points off the low before we called started saying bullish things.

The DAX is certainly well off the lows over the past two sessions, on the back of the world’s most spectacular short squeeze. VW shares jumped from 200 Euros to 1000 Euros in two days. I don’t even want to start to explain the ins and outs so here’s a link to the story on Bloomberg’s website.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aWeWGIPhKfnk&refer=europe

The upshot is that Volkswagen has now become the world’s largest company by market cap on the back of a short squeeze. This story will only get bigger (although I don’t think VW’s market cap will!) and we’re bound to hear some fallout in coming days or weeks.

One wry (and somewhat tongue in cheek) observation on this shenanigans: We won’t see a financial stock reacting higher like this in the coming months, because the shorts have been banned…

Finally, In my spare moments right now I am doing something that I force myself to do once a year: I am re-reading “Reminiscences of a Stock Operator” by Edwin Lefevre. THE BEST BOOK EVER ABOUT THE MARKETS. i only got to chapter 1 when I read this quote:

“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 to-day has happened before and will happen again”.

Say no more…

As always my best advice if you’re trading these markets is “stay safe”.

Cheers,

Clive.