I just finished this book. Any thoughts on whether it bears any relevance in today's heavily regulated market environment? If so, what points of Jesse Livermore's (sorry, Larry Livingston's...) approach still apply? I came a way with the feeling that it was a quaint story about a different time, when volumes were relatively low and the Fed wasn't constantly injecting or withdrawing money. I did make me consider whether the current "credit crisis" is simply an engineered attempt to blow out highly leveraged market participants and create buying opportunities for big, connected players...
Livermore's "General Conditions" would have very much application today. What would he be saying if he were alive today about this? That is what kept coming to mind.
There is certainly a direct corollary between bucket shops in the 20's and risky bets with CDS contracts today. Both activities arguably exacerbated the market due to the lack of transparency and a central clearing house. Just my two cents.
Clearing house models need standardized instruments. This is one reason why OTC instruments are not a good fit. Well healed OTC participants would certainly begrudge the overhead (speculator premiums) to attract necessary liquidity. Greed on the part of institutional traders is what drove the stock market from 1/8's to decimals. I guess you could say CDS (and all the other useless anachronisms - CDO, CLO, etc) have succeeded in turning over-leveraged banks into bucket shops. If it wasn't for the fact that the government is hell bent on keeping them alive at taxpayer expense. The truth is becoming clear - There ain't enough money to do it. The entire global financial system is scrambling to understand and adjust to this reality.
If you're looking for something in the book that relates to what happened, besides the aforementioned CDSes and bucket shops. Well I need only point to the early part of the book where he goes on about the Money Post. It was his version of a credit squeeze that was making the Street face the prospect of forced selling to get funds, and that was only the start of it. Of course, in real life, this eventually led to J.P. Morgan corralling other bankers into providing more liquidity. I was reading the book the other day for the nth time, and that part, for some odd reason, jumped out at me.
Quote from Livermore himself gives you the answer; "I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans -- and human nature never changes.â
"I think it was a long step forward in my trading education when I realised at last that when old Mr Partridge kept on telling other customers, âWell, you know this is a bull market!â he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend. 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 also the intelligence and 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 the game is to buy and hold until you believe the bull market is near its end. " http://the3500.wordpress.com/2007/02/01/a-stock-operator/
I read the book many, many times. My personal feeling is that you can extract an endless barrage of lessons of all types that are still current, specially in reference to flexibility, introspection and the character of a trader. Regarding the different times, I think you may have a point. After the panics at the turn of last century, the fed engaged in trying to create "the great moderation" smoothing out boom/bust cycles and periods of inflation/deflation, therefore affecting the trading environment. And if they can engineer *that*, they can also engineer the opposite. Point is, opportunities to profit didn't really go away.