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Reminiscences of a Stock Operator by Edwin Lefevre

February 18th, 2009

Page 123 – The Unbeatable Game

The fundamental message of the book is given in this section.  In no vague terms, Livermore declares that no man can beat the stock market.

I have been in the speculative game ever since I was fourteen.  It is all I have ever done.  And the conclusion that I have reached after nearly thirty years of constant trading, both on a shoestring and with millions of dollars behind me, is this: A man may beat a stock or a group at a certain time, but no man living can beat the stock market!

Later on in the book, Lefevre expresses frustration that his readers continue to think they can beat the stock market, even after Livermore, the most successful speculator of their time, could not beat the market.  It is concluded that the public focuses only on Livermore’s spectacular wins, but forever ignores his many losses, and ignores the fact that Livermore was flat broke for many years.

Page 144 – Wall Street Hoodoos

Livermore warns against trying to ‘play the market’ when you need money or when you want to buy something special.  This amounts to gambling and scrambles one’s trading mindset for the worse.  When this happens, traders become impatient and are less likely to wait for a good trade, or trade carelessly since the mindset is programmed by hope or desperation instead of reason.

Page 163 – Watching and Waiting

During Livermore’s description of one of his comebacks, he talks of watching and waiting for a stock to break through its overhead resistance of 200.  This is one of his favorite trading principles: buy or sell a stock when it is breaking through a resistance or support level.

Page 198 – The Bewildered Followers

Lefevre talks about the hopelessness of common investors’ efforts to ‘follow’ the trades of supertraders such as Livermore.  He says that even if Livermore were giving a junior trader his tips, it is highly unlikely that the junior trader would make any money on the tips.  Markets move fast and supertraders like Livermore are apt to change their minds or take profits quickly before they have a chance to tip friends or family on closing a position.  He says that supertraders often cost their dearest friends money by trying to help them by tipping them off.  For this reason Livermore is tightlipped about his trades.

It wouldn’t make any difference if you spoke to him a thousand times a day.  There are many reasons why no man can make money following supertraders of the Livingston class, not even if they heard or read every order Livingston gave his broker.  I don’t recall a single instance where a big operator did not cost his dearest friends money…. The repetitions of history serve but to annoy youth.

Page 210 – Periodical Hope Sprees

Livermore makes it very clear that he has a strong disdain for trading on tips.  Trades must be based on a trader’s own analysis of individual stocks, macroecnomics, market analysis, and ‘the tape’.  Trades must never be based on tips from friends or experts, no matter how compelling.  His ideas are summed up nicely:

It has always seemed to me the height of damfoolishness to trade on tips…  I sometimes think that tip takers are like drunkards…  It is not so much greed made blind by eagerness as it is hope bandagged by the unwillingness to do any thinking.

Page 243 – Kings, Paupers, and the Hazards of the Game – The Great Man’s Fall – The Monarch Dethroned – From Splendor to Squalor.

The final chapter of the book chronicles the rise and fall of other great stock market speculators whose eras were in the 1700s, 1800s, and early 1900s.  These men were the kings of their time, but were mostly long since forgotten by the early 1900s when Reminiscences of a Stock Operator was written.

All shared the familiar story of being brilliant traders with extraordinary riches, only to lose it all after a small string of wrong-way bets.  In this chapter we learn the history of obscure trading legends such as: Jacob Barker, Jacob Little, Daniel Drew, Bill Travers, Addison Commack, Charles Woerishoffer, Jim Keene, Anthony W. Morse, Alden B. Stockwell, and many others. The George Soros, Paul Tudor Jones, Steven Cohen, or John Paulson s of our current time.

Lefevre writes of Jacob Little’s ultimate demise:

Cause of death: Acute bearishness in a bull market.  Not an obscure disease.  How did he come to contract it, with all his experience and skill?  Because he was a human being.  That is why the game beats them all.

and Lefevre finally concludes:

Well, my study of the history of Wall Street justifies that the same ticker which giveth also taketh away.  The only kings that were not ignominiously dethroned were those who abdicated in time and ran away from the danger of destitution.  There have been quite a number of these market monarchs.  Their history was identical with the history of their predecessors.

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