Jesse Livermore timeless wisdom

Discussion in 'Trading' started by a529612, Dec 27, 2006.

  1. Reminiscences of a Stock Operator published in 1923 offers timeless wisdom for all investors and traders:

    * Never act on tips.
    * Use a system and don't deviate from it.
    * Never buy a stock because it has had a big decline from its previous high.
    * If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.
    * Don't blame the market for your losses.
    * Never add to a losing position. A losing position means you were wrong.
    * Stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don't make a second unless the first shows you a profit.
    * Always sell what shows you a loss and keep what shows you a profit.
    * Don't argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good--and cheap.
    * There is only one side to the stock market; and it is not the bull side or the bear side but the right side.
    * The speculator's chief enemies are always boredom from within.
    * A man must believe in himself and his judgment if he expects to make a living at this game.
    * Bulls and bears make money, but pigs get slaughtered.
    * Use money management at all times.
    * Establish your trading plan before the markets open.
    * Detailed your plan for each trade.
    * Establish entry and exit points and understand risk reward rations.
    * Accept small losses as part of the game if you want to win.
    * Trade markets from the short side.
    * Stand aside from a position, knowing you have taken a position.
    * Develop a trading plan for each potential situation you may face.
    * Do not look at quotes during the day.
    * Do not concentrate on break-even levels when you are losing.
    * Don't liquidate a winner to keep a loser.
    * Develop and maintain an exit plan. Follow this plan with rigid discipline.
    * Sustain your patience. Big movements take time to develop.
    * Don't be overly curious about the rationale behind a move. The key to wealth in trading is simplicity.
  2. I just had the exact idea you had. I will try to add a few more profound thoughts from the book!!! Good work. Thanks.
  3. What does he mean by "boredom"? Forced trades?

    "* The speculator's chief enemies are always boredom from within."
  4. I believe the quote is "always boring (as in drilling) from within"
  5. "The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you hope that every day will be the last day--and you lose more than you should had you not listened to hope--to the same pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out--too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. he must fear that his losses may develop into a much bigger loss, and hope that his profit may become a bigger profit. It is absolutely wrong to gamble in stocks the way the average man does."
  6. This is the only book about trading that I have ever recommended to anyone...all good stuff.

  7. It's about time for all of us to get this timeless book out for a weekend re-read... :D
  8. How can you do that??

    "Do not look at quotes during the day."
  9. Folklore isn't just Paul Bunyon, Daniel Boone and Davey Crockett.

    There's a distinction between trading skill/money management versus 10% margin, no upticks, outside capital, acts of God, press releases, and insider information.

    For clarification, here's a sketchy chronology:

    By 1900, aged 23, he had amassed roughly $50,000, from the bucket shops.

    Fall of 1905 Thomas Lawson of Boston provided ALL partnership capital for Livermore to raid Union Pacifc stock, actively traded by the Harriman. pool.
    Losing his ass up until April 18, 1906 San Franciso earthquake. UNP stock took two days to respond lower. Lawson got the proceeds and Livermore pocketed a $300,000 fee. Took off for Saratoga.

    On an unknown date soon after Livermore made the mistake of going short the SAME stock. Harriman pool this time was prepared. Livermore watched a quarter of a million vanish on upticks.

    Slightly later, another 50/50 deal with Lawson to short Great Northern. Made a second killing. .

    Jesse made his FIRST million in shorting Anaconda in the summer of 1907. Market panic as much as his skill. Banks called existing loans. October 24, 1907 J.P. Morgan forced his fellow capitalists to start supporting stocks. Livermore knew better than to buck the Morgan crowd. Bought his first yacht, the Anita Venetian.

    Had an epiphany that commodities posed less "problems" because prices depended upon supply and demand (rather than synthetic measures). Long 120,000 bales of cotton. First used the power of the press release. in the New York Hearld "July Cotton Cornered by Jesse Livermore". Shorts covered, suckers (his term) rushed in, Livermore unloaded. New nickname, Cotton King.

    Spring of 1908, Desperately trying to stem a dropping price by buying in both New Orleans and Liverpool, found himself long 500,000 bales. Simply put, the Anita Venetian went under the hammer.

    For Livermore 1911-1913 appear to be lean years.

    In 1914 he was living Bretton Hall Hotel at 86th & Broadway.

    Filed bankruptcy in 1915 with $102,474 in professed liabilities.

    The Bethlehem Steel trade in cited LeFevere's book was in here somewhere.

    December 20, 1916, somehow became alerted to a telegram to Finlay Barrel & Co. in Palm Beach from a Washington reporter named W.W. Price leaking of Wilson warning the warring parties. Figuring there'd be a market collapse, Livermore approached Lawson again. With capital, shorted the "four horsemen" US Steel, American Can, Baldwin, and Anaconda. E.F Hutton made a flash wire to its offices hours before Wilson's note was publicized. Bids melted away. Livermore bought a half million annuity to throw off $30,000 per annum Also rushed out and bought a speed boat called the 'sub-catcher" and a $120,000 platinum and emerald ring.

    Unloaded his first wife via Reno in October 1917 and the 40 year old, on December 2, 1918, married the 18 year old daughter of a wealthy Brooklyn merchant named Wendt. Rented a furnished townhouse at 8 West 76th Street. January 1920, bought a seat on the Curb (today the AMEX). 1919, first son.

    1921 had a pool agreement with the Lewisohn Brothers to ramp Seneca Copper. After running from $12 to $25, the brothers canceled the (then legal) agreement.

    Summer of 1922, Livermore was reported to have lost $8.5 million on the short side of Mexican Pete. June 1922, Clarence Saunders, owner of the Piggly Wiggly chain hired Livermore to "kill the bears". By November, Livermore had amassed 105,000 of 200,000 shares outstanding at an average of $35. March 1923, stock was over $70. Livermore had 198,872 of the float. March 19th, Saunders asked Livermore to spring the trap demanding delivery from short sellers. Livermore RENEGED. Saunder's somehow succeeded anyway. From an open of 75 ½ sky rocked to $124, and closed the day at $82. Same year, ran the Mammoth Oil pool involving Harry Sinclair.

    In 1924, Arthur Cutten forced wheat to over $2 per bushel for the first time. Livermore was short and lost a considerable amount.

    In 1927, Livermore ran a pool to ramp Freeport Texas stock from $19 to $74 ½. Also a dirrector of Minter & Assoc, selling $9 million worth of Florida lots and filing BK two years after inception. Robbed at gunpoint in his home in May 1927.

    April 1929, sued for $1,450,000 over the 1926 Boca Raton RE crash.

    July 1929 refused to make a court appearance in a $525,000 suit against Livermore by the Carbonite Corp for an alleged breach of agreement.

    October 1929, details sketchy but even though Livermore "won" millions on the short side, he lost $6 million in his long positions in the crash.. Arthur Cutten purportedly lost $50 million.

    August 16, 1932. Divorced his second wife. March 28, 1933, married his third wife at age 56. May 30, 1933. Security Legislation enacted. Pool operations outlawed.

    March 4, 1934, Livermore filed BK again. . $2,259,212 liabilities/$184,000 assets.

    Thanksgiving Eve 1935 his divorced second wife shot his first son. Non-fatal.

    Summer 1937 chartered a yacht (Nina) rather than owning it outright.

    Apparently from 1934 to 1940 he was an investment advisor/broker. Apparently to acquire capital for a comeback, decided to write a book (in two versions) The office that's frequently mentioned in awe appears to have been merely a facade to promote the book. The "legendary" market key, is patterned after Dow Theory confirmation, but using two companies in each of 5 leading industries. Hardly original, and basically the opposite of pairs trading.

    November 28, 1940, shot himself in the head in the hat check room of the Sherry-Netherland hotel after writing an 8 page note to his wife with the recurrent theme "My life has been a failure"

    Pssst, did ya catch the first line about "folklore"? Would suicide be a clue to something? Manic depression, maybe? As for me, I torn. Which is worse, Buffett or Livermore groupies?
  10. I don't look at quotes during the day, and I haven't intentionally pulled up an intraday chart for many months... it's called position trading...
    #10     Dec 28, 2006