Jesse Livermore - Reminiscences of a Stock Operator

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holycow

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Post Number: 183
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Monday, October 11, 2004 - 12:02 pm:

The following are a couple of pages from JL that I found contain a lot of market wisdom. Thought I'd like to post them here. As usual, wisdom is in the beholder's eyes... it's up to you to find your own wisdom in this world of many false truths...

(the texts had been edited to fit into the forum format)

~~~~~~~~~~~
Jesse Livermore – Reminiscences of a Stock Operator

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that?

My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level, which should show the greatest profit. And their experience invariably matched mine -- that is, they made no real money out of it.

Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

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.

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see -- or if you prefer, until you think you see the turn of the market; the beginning of a reversal of general conditions.

You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear.

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. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.

Another thing I noticed in studying my plays in Fullerton's
office after I began to trade less unintelligently was that my initial operations seldom showed me a loss. That naturally made me decide to start big. It gave me confidence in my own judgment before I allowed it to be vitiated by the advice of others or even by my own impatience at times. Without faith in his own judgment no man can go very far in this game. That is about all I have learned to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary. I have been short one hundred thousand shares and I have seen a big rally coming. I have figured and figured correctly -- that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits.

And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again on the rally. I knew that if I did I might lose my position and with it the certainty of a big killing. It is the big swing that makes the big money for you.

****

1) does it come across to you that JL is a short term trader?

2) does it make sense to you that "trend riding", "buy and hold" for the "big swing" seem to be what he is talking about?

3) does it occur to you that in the last one and half year to now ASX is going through a "big swing"?

4) they said it's horses for courses - you can trade short term, long term etc and make money - but listen to JL, he is/was saying "if you want to make big money, you have to ride the big swing and not catch all the fluctuations, or trying to jump in jump out - which, according to him, is fatal". (my assumption here is - you are in the market to make BIG money, and not pocket money... fair?)

Have a good day.

HC

"... if you've got a chart, I have an opinion!"

holycow

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Monday, October 11, 2004 - 05:30 pm:

"it's up to you to find your own wisdom in this world of many false truths..." - I find this sentence too "zealous" and too "evangelical" and would like to change it to ""it's up to you to find your own wisdom in this world" will do.

Personally I'd like to keep a degree of pragmatism and scepticism in trading. There is no such thing as the holy grail or ultimate truth... (hit me, if you want).

Yes, I'd missed out my more important message, that is, if you subscribe to trend riding and like to ride the big swing all the way, then I'd like to share these:

1) in order to ride it all the way I find it necessary for me to pick stock that has "substance", ie, with real earning, real assets backing and real growth potential, if not, at least with a potential of decent dividend payout to give me a level of confidence such that I will not be easily shake out and fake out by the market;

2) in general, the lower the stock price, the higher you will be subjected to the ebbs and flow of market sentiment (read greed&fear), and hence it is much harder to trade;

- with stocks that give you nothing but a promissory note as in the case of biotech and exploration companies, you are "almost" trading totally in market sentiment/emotion - take a moment to consider there can be 100's or 1000's of traders trading this stock AGAINST you, and you are subjected to the masses as well as your own emotion;

- think how HARD it is for you to conquer the market instead of how easy for you to win;

3) in general, the shorter the time frame, the harder it is to trade with reason as in (2);

4) here is a suggestion (note, not advice) to the newbies, if you can, control your ambition and greed, learn to trade less volatile (read quality) stocks and in a longer time frame; give yourself time to pick up the market nuances and build up your confidence before going for the ultimate adrenalin rush by trading in highly volatile stocks and in ultra short time frame - you need experience and a very strong stomach to trade in this kind of market, so give yourself plenty of time to get used to the "market condition";

5) don't be fooled by the experienced traders here - they make it look and sound too easy by summarising at the eod; if they take their time to write down their full day's activities, you'd never want to trade like them right away. I am talking about short term traders here;

6) there are two ways to learn - you either learn from your own mistakes or you learn from others - I suggest you try the latter because it is less painful; so here is another "suggestion" - please learn from JL because he is universally recognised to be among the greatest, if not the greatest stock trader ever lived.

His greatest achievement? Well, JP Morgan (the man who has been attributed to have saved the USA from bankcruptcy) had to personally ask him to "stop" shorting the US market because the whole finance/banking system was on the verge of total collapse due to JL's "shorting" of the stock market - single-handedly, if I remember it right.

HC

"... if you've got a chart, I have an opinion!"

dogalog

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Monday, October 11, 2004 - 10:17 pm:

H.C.
the more it's the same,more likely it's different.
dead dudes have status
purely cos they're DEAD
personally i always remember the flat earth theory,
there are things we hold self evident today
that in 5/10/20/50 years will be a subject of MIRTH
ahh doze old folks were really STUPID
how did they get that old-time ConViction?
by droning out the must be ACCEPTABLE.
I'm really starting to worry 'bout you-COW
i'd really like to see your own personal agenda,but o'course why should that be?
tired,too much pondering,
regards,
jr

holycow

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Monday, October 11, 2004 - 11:27 pm:

Dr.D,

The thing I like about you is once a while you come along with a stick and then you give me a real good beating! :-)

Another good thing is your thinking and mine are on a very different plane so every now and then you put a mirror right in front of my face and I get reminded how ugly I look...

Let me tell you some thing quite personal - before I came across that two pages from JL, I was trading short term to very short term and I was not doing very well. In short term trading, it's not just the money you are losing that matters; what is worse is the confidence each losing trade erodes and robs off you. It's not surprising that there is a thread here dedicated just on "emotional control", I understand what others are saying and are going through because I have been there.

I read "Reminiscences" in a single day and then I reread the book a few more times since. What JL said made me think so hard that I couldn't believe how blinded I was with my trades. Like a whirlpool, my mind was a mixture of greed, fear, and panic plus a lot more other negative emotions. Frankly I don't like to revisit that period.

Anyway, due to the way my fingers are doing all the thinking and typing for me, I find I can never express my thought very well. But should you ever find that you are caught in a situation like what I have been through you'd believe how STUPID people can become.

JL may be dead. His wisdom is not. At least it lives in me. And I am sharing it not because it is a myth or a mirth; rather it's because I am seeing many are in the whirlpool I was in once.

You see, it is really TRUE that you make big money by sitting on your good trending stock and let it grow for you. It is also true that sitting tight is one of the hardest thing to do. And people can be THAT stupid. :-)

Cheers and have a good evening.

HC

"... if you've got a chart, I have an opinion!"

peterloh

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Wednesday, October 13, 2004 - 11:17 pm:

HC,

After reading your posts on JL, I must go and buy this book.I learned it the hard way through experience. Look at those that I have given away after it has gone up 100%.CTX,COA,OST,UGL,SKE and many more than I care to remember. Last year I had this strategy, never to sell till the trend is bend even then I have to satisfy myself that it is not temporary. The result is no bottom drawer. CPU,PMP,TWR,AMP,HHG,IAG,MAP, from last year. Discarded SRP, MIA,ION, CLH, BCA. New candidates, DVC ,MAY and HWE.THe portfolio is 4 times the size of what it used to be.

Wish I have read his book a long long time ago. Me dad who has no understanding of FA & TA has a heap of bank shares which he has kept for more years than I could remember.He didn't even attend more than 2 years of primary school.

Peter

-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

holycow

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Thursday, October 14, 2004 - 10:59 am:

Peter,

Listen to the "old man", he knows! :-)

Btw as recent as a month ago I took my profit on MCC and I couldn't bring myself to buy it back because of my "huge" ego problem. So don't be too hard on yourself (that's what I consol myself anyway :-)

).

It's water under the bridge and the sun is still shining. There is always tomorrow and good profit somewhere.

I believe this book is a "must read" in a couple of big investment funds in the USA, ie, the management hands out this book together with their corporate rules and policies, etc to their new recruits.

Base on the list of stocks you once owned, I think you REALLY have to believe in yourself and your stock picking ability. Many are REAL/BIG winners! Whoa!

Cheers and have a good day!

HC

"... if you've got a chart, I have an opinion!"

maligas

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Thursday, October 14, 2004 - 11:04 am:

Holycow,

I also found this book helped my trading (or perhaps my mindset when trading) immensely. I also borrowed out from the library a book called "Jesse Livermore - Stock-Operator King", I can't recall the author but it was printed in the 1960s.

It painted a much different picture of Livermore, personally and professionally, and gave the impression that he didn't learn much himself after all. Still, a light-hearted read.

Cheers,

Maligas

holycow

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Thursday, October 14, 2004 - 11:17 am:

MG,

Haven't heard of that one. I think I will take a look in the library.

Glad that you find the book helps you. Honestly I find sitting on stock is really painful and no joke. I find it's a test on my patience as well as my confidence - which can be nerves wrecking especially after you have moved into decent profit...

Cheers and have a good day.

HC

"... if you've got a chart, I have an opinion!"

peterloh

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Monday, November 01, 2004 - 12:30 pm:

Just ordered Jesse Livermore's book form A& R., couldn't get it at library, so adding to my collection.

holycow

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Monday, November 01, 2004 - 03:28 pm:

Peter,

Some one posted this link where you can download a copy in PDF format. I am not sure if this is a pirate copy or not, so it's your decision. The size is about 500K (I think).

http://www.trading-naked.com/library/jesse_livermore.pdf

Cheers.

HC

"... if you've got a chart, I have an opinion!"

peterloh

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Monday, November 01, 2004 - 07:17 pm:

HC

Wont be able to look into it just now.Appreciate your assistance.If it is good I will have it for my own library. I find that every time I read something over again, I learn a bit more and also things I missed the first time through I may be able to pick it up the second time.

Cheers,

Peterloh

spider

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Wednesday, November 03, 2004 - 03:52 pm:

Richard Smitten recently wrote a biography of JL.
It is excellent.
ROASO stops in the mid 20's, but the Smitten book continues on to the end of JL's life in 1940.

More than 50 years of trading experience, the ups and the downs.......... what a life.

When he died he had the equivalant, in todays money, of $550 million dollars in his apartment, he kept it on hand so that he could take advantage of any opportunity that came along!

spider.

.

"Take all you can, and don't give anything back!"
Captain Jack Sparrow.

"Economists have predicted 12 out of the last 7 bear markets."