Even though the real masquerades as fiction in Edwin Lefevre’s Reminiscences of a Stock Operator, the basic guidelines on stock trading hold true even after 84 years.
 REMINISCENCES OF A STOCK OPERATORBY EDWIN LEFEVRE PRICE: RS 940 PAGES: 273 WILEY |
First published in 1923, the book has been accepted as a thinly veiled biography of Jesse Livermore, one of the greatest speculators rumoured to have made over $100 million during the Great Crash of 1929 by going short (selling stocks that one doesn’t have). Written in a first person account, the book recounts the fortunemaking journey of protagonist Larry Livingston (pseudonym for Livermore). Livingston learnt the tricks of the “tape” as a quotationboard boy at a stock brokerage firm. Good with numbers he started figuring out price movement of various stocks.
What started as a mental arithmetic exercise soon had the young Livingston hooked and he started maintaining a log of scrip movements. Encouraged by a friend he made a profit in his first trade.
| What the book offers |
| Livermore’s trading philosophy that proved successful consistently |
| Analysis of the mind of a trader; reasons for holding, selling or buying |
| Anecdotal yarns that are strung with pearls of advice for aspiring traders |
By 15 he had made his first thousand, quit his job and was making money by “figuring” (trading in stocks). At 21 he had $10,000, mastered a system of trading that won oftener than it lost and had gathered enough experience to keep bucket shops—informal brokerage firms—on their toes. It is here that Livingston comes up with one of his great quotes: “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.” As the book traces Livingston’s life and times from being a market speculator to a market manipulator and finally reaching the status of a Wall Street icon, it packs in lessons learnt by the master trader as he crosses each milestone and overcomes each obstacle.
Livingston described his system of placing bets as simple arithmetic—the exploratory bets should be small as one loses only a small amount. Invest big only when one is confident of the trade. “If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet,” he points out. The book captures the mind of a trader, the recollections of mistakes made, the lessons learnt, the insights gained, much to the advantage of the reader. And those who have trading experience will be able to relate with them quite well, especially the emotional dilemmas one has to go through before making a decisive trade. Better still are the solutions that have been clearly expressed through Livingston’s experience.
| Livingston’s Trading Commandments |
| 1. Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally |
| 2. Always sell what shows you a loss and keep what shows you a profit |
| 3. Stocks are never too high for you to begin buying or too low to begin selling |
| 4. When a stock keeps on going down there’s something wrong |
| 5. Observation, experience, memory and mathematics—these are what the successful trader must depend on |
| 6. A market can often cease to be a bull market long before prices generally begin to break |
| 7. Do not seek to lure the profit back. Quit while the quitting is good—and cheap |
For a person who had been in the speculative game ever since he was 14, Livingston concludes after 30 years of constant trading: “A man may beat a stock or a group at a certain time, but no man can beat the stock market!” The book brings one a step closer to understanding the financial markets as it is done through the example of an active operator-cum-speculator.
Livingston’s approach was simple. As a speculator he just wanted to be correct. He would figure out what the path of least resistance would be, confirm the trend and then just go with the flow. He never questioned the market. He even makes a rule on this asking a speculator to concern himself with making money out of the market and not insisting that the market must agree with him.
“Stockmarket post-mortems don’t pay dividends,” he advises.
Livingston’s “go it alone” attitude was another of his unique traits. He never felt the need to tell his business to anybody else. This “one-man affair” helped him realise rather early that the competition was not just against another man’s intellect but also against oneself and one’s psychology. It was his losses that taught Livingston not to advance till he was absolutely sure. He hated states of indecision and would rather lose and learn a lesson than not move at all. “I always knew I would have another chance and that I would not make the same mistake a second time,” says the man who did not believe in tips. It took him five years to learn to play the game intelligently enough to make big money when he was right.
Termed as the “boy plunger” by the bucket shops, Livingston analyses each of his trades— the reasons for holding, selling or losing. It is these statements of retrospection that provide insights into the stock market trading.
Lefevre, noted for his writings on Wall Street, makes these insights even more engaging as he narrates each episode referring to actual companies and the price that each would have quoted at that time. Reminiscences of a Stock Operator was published six years before the 1929 crash. Livermore also lost fortunes during his lifetime as he did not follow his own rules strictly. He even wrote a book How to trade in stocks: The Livermore formula for combining time element and price that got published in 1940, the year he committed suicide.
