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,