- Reminiscences of a Stock Operator is a chronicle of Jesse Livermore’s life, one of the 19th century’s most famous traders. His fame was resides in the fact that he earned millions on the market several times, just to go bankrupt quickly after. Along the way, Jesse learned a lot of lessons, which are recited here through a string of quotes, such as ..
- “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.”
- “It was never my thinking that made the big money for me, it always was sitting.”
- “The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.”
Reminiscences of a Stock Operator is a chronicle of Jesse Livermore’s life, one of the 19th century’s most famous traders. His fame was resides in the fact that he earned millions on the market several times, just to go bankrupt quickly after. For instance, shortly before the 1907 crisis, Jesse shorted the entire market and made $3 million ($40 million today, adjusted for inflation). That same year, he lost everything – and was even $1 million in debt. In 1929, Jesse’s net worth was $100 million ($1.3 billion today, adjusted for inflation). 5 years later, he was broke once again.
During his ups and downs, he learned a lot of lessons, some of which are recited here.
Valuable profits – and losses!
This book was published in 1923, a decade before Jesse went bankrupt. Before his final collaps, he experienced a lot of ups and downs, which taught Jesse that “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.”
Jesse acknowledges that you can’t catch all fluctuations. Namely, you should never expect to be right on every long or short position. You will make mistakes, no matter how thorough and intellectual you are. The tricks is to make more money on the winning trades than you lose on the losing trades. To have a few big winners make it far easier to be profitable. Sure, it sounds self-explanatory, but Jesse’s point is this: Investors and speculators alike are quick to take home profits based on the dogma “nobody has gone broke taking home profits”. There is but one problem: You don’t get rich on taking home profits too readily either!
In length, Jesse states: “It was never my thinking that made the big money for me, it always was sitting.”
Maximize the winners
Unlike many value investors, Jesse recommends plowing money into your winners despite appreciating stock prices. Many value investors wants to buy additional shares when the stock price declines, as they are considered ‘cheaper’. Jesse disagrees. He believes the big winners are far in-between, so when you find one you should capitalize on them by buying more continuously despite averaging up the purchase price. No matter how expensive or cheap a market or stock seems, it can always go either higher or lower. Therefore, continue to plow money into the trades that prove correct and take advantage of the momentum.
Nothing new under the sun..
As mentioned, the book is from 1923. But already at that time, Jesse claimed that the markets never change. The two opposites, fear and greed, are the same today as in 1800, 1900 and 2000: “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 today has happened before and will happen again.”
In addition to the above, Jesse mentions that “the principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.”
The good ol’ virtues
Reminiscences of a Stock Operator emphasizes either directly or indirectly the importance of the virtues, which basically all other investment books stress: be disciplined, observant, trust your own judgment and think independently.
Jesse learned the last virtue the hard way. Following one of his great wins that once again made him a millionaire, he soon lost 90% of his fortune by investing in cotton after a convincing and charismatic seller’s pitch. Based on this painful experience, he said that even men with original mindsets and lifelong habits of self-thinking can be vulnerable to persuasive personalities. He learned to believe in himself and his own judgment rather than trust ‘hot tips’.
Reminiscences of a Stock Operator is an interesting book, but not exactly a manual in successful investment. It is rather a tale of a ‘cool’ trader’s lessons based on both good and bad investment decisions.