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Reminiscences of a Stock Operator by Edwin Lefevre

February 18th, 2009

Buy From Amazon:
Reminiscences of a Stock Operator

by Edwin Lefevre
Originally Published in 1922

Reminiscences of a Stock Operator by Edwin Lefevre

Reminiscences of a Stock Operator by Edwin Lefevre

Key Takeaways

Reminiscences of a Stock Operator is the fictionalized biography of Jesse Livermore, one of the greatest stock market traders / speculators ever.  Lawrence Livingston is the fictionalized character representing the real life Jesse Livermore.  The book is a must-read for the serious investor / trader / speculator. 

My biggest takeaway is that, although the book was written nearly a century ago, Wall Street remains essentially the same, and that even today there is a lot to be learned from Livermore’s trading insights. It is easy to discredit the Reminiscences story because it is nearly a century old, but you must keep in mind that Jesse Livermore was a ‘super trader’ of similar stature as a George Soros, Paul Tudor Jones, Steven Cohen, or John Paulson of today. He towed an enormous line and was feared and respected up and down Wall Street.

The book includes numerous famous quotes.  Please visit my other site to read all of the best Finance Quotations from Reminiscences of a Stock Operator.

The point of the book is to argue that it is impossible for traders to consistently beat the stock market.  Lefevre uses Livermore as his example.  Livermore was extremely smart and capable, the most astute trader of his era, but he went from boom to bust, and died penniless, just like the other common speculators.

Ironically, Jesse Livermore committed suicide in 1940 in a New York hotel cloakroom.  He left a suicide note describing his life as a “failure”.  During bust sequences in the book, Livermore talks of being stressed out, depressed, and despondent.  This is a warning to those considering trading as a career.

The last chapter of the book is particularly interesting because it briefly chronicles the rise and fall of legendary traders from the 1800s.  After spectacular rises, each, inevitably, went bust and died penniless.  Lefevre’s point was that sooner or later, the odds catch up to all successful traders and that the market taketh whatever it had heretofore giveth. The book is full of excellent trading insights, but is ultimately a warning to would-be speculators that beating the market is impossible over the long term.

The timeless insights found within Reminiscences of a Stock Operator have schooled generations of investors and make this book one of the foremost investment classics of all time.

Jesse Livermore won and lost tens of millions of dollars playing the stock and commodities markets during the early 1900s.  At one point he made ten million dollars in one month of trading – an astronomical sum for his time.

His ideas and analysis of market price movements are as true today as they were when he first implemented them. He offers profound insights into the motivations, attitudes, and feelings shared by every investor, Reminiscences of a Stock Operator, is among the most compelling and enduring pieces ever written on trading in the markets.

Page 12 – Merchants in Wall Street

Livermore talks about how successful businessmen will manage costs down to the last penny and take days or weeks to research and investigate the smallest factors affecting their business, but that they throw caution to the wind and plow tens of thousands of their hard earned dollars into a stock without thinking twice after hearing a quick tip from a friend or news periodical.  He says this is a suckers play.

The sucker play is always the same: to make easy money.  That is why speculation never changes.  The appeal is the same: greed, vanity, and laziness.  The merchant who would not dream of buying and selling on the advice of fools goes to Wall Street and cheerfully risks his money on the say-so of men whose interest is not his interest.

Page 21 – Speculators’ Weaknesses

In this section Livermore covers the most common weaknesses that lead to losses by “suckers”:

Motive: the sucker wishes to get something for nothing.  His motive is greed, laziness, or the excitement of gambling.  Livermore’s motive is solely to win, or to be right.

Trading In and Out of Season: the sucker often trades without an edge or without a patient setup.  Livermore waits patiently, sometimes for months or years before making a trade.  He waits for the perfect setup and does not compromise by trading just to trade.  This is a big theme in Livermore’s strategy: that there is no harm in sitting and waiting on the sidelines for months at a time for the perfect set up.

Hope: the average sucker buys a stock and then does little more than hope.  He says that most men lose money because they are governed by fear or hope.  Livermore doesn’t hope or fear – he thinks. He takes a dispassionate view of the markets.  Livermore’s aphorism is to “never argue with the tape.”

Lack of Knowledge of the Game: the suckers don’t understand economics, fundamental analysis, technical analysis, or market action.  Livermore knows all of these things and studies them constantly.  He reads trade reports, hires experts, reads company filings, and is constantly on the job.

Inexperience in the Stock Market: the sucker plays the stock market in his spare time.  The stock market is the one business Livermore knows.  He has been trading stocks since he was fourteen years old.

Tempermental Unfitness: the sucker is easily shaken or flustered, is shortsighted, has a poor memory, and/or lacks ticker sense.  Livermore is not easily shaken, is farsighted, has an excellent memory, and has great market instincts.

Page 51 – When the Clock Struck Three

One of Livermore’s themes is to wait patiently for a set up and then go confidently in a chosen direction.  This is not to say traders should not cut their losses.  They should cut losses immediately.  However, Livermore says that his losses have taught him ‘not to begin an advance until he is sure he will not have to retreat’.  If he is not supremely confident in a direction, he does not advise to move at all.  Again, his advice is not to trade without an edge.  In his words, ‘don’t trade out of season’.

(be sure to scroll through additional pages below)

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