Reminiscences of a book you should read

Since every post I write I include a book suggestion, this time I would like to talk about one I always mention when people that are starting to get involved in the financial markets, professional and casual, ask me what book they should read.

Reminiscences of a Stock Operator is a quasi-biography of the legendary Jesse Livermore, who went from early 1900’s bucket shop speculator to master trader, having won and lost large fortunes along the way in everything from stocks to cotton futures.

Written by Edwin LeFevre in the 1920’s, ROASO is one of the best books about trading ever written.  The narrative sucks you right into the mindset of a speculator as trades go wrong, right, and then wrong again. Along the way, you get a tour of the turn-of-the-century brokerage world, a glimpse into the commodity markets, and a chance to meet an incredibly well-drawn cast of characters based on real-life figures who shaped the way our markets work today.

During the years, my tastes regarding what I read changed a lot; for example, 15 years ago I was an avid reader of Bloomberg magazine, it was the first thing I read once it hit the office. Now I receive it at home and most of the time it goes straight from the mailbox to the bin. ROASO is a good read for the 2019 myself as it was for the 2000 myself.

Here are some of the best lessons from the book:

- The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.

- The average American is from Missouri everywhere and at all times except when he goes to the brokers’ offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium priced automobile.

- But the average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.

- 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 the other customers ‘Well, you know this is a bull market! 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.

- It seems incredible that knowing the game as well as I did and with an experience of twelve or fourteen years of speculating in stocks and commodities I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. It was an utterly foolish play. Of all speculative blunders here are few greater than trying to average a losing game. My cotton deal proved it to the hilt a little later. Always sell what shows you a loss and keep what shows you a profit.

- It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.

- A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don’t believe in tips. If I buy stocks on Smith’s tip I must sell those same stocks on Smith’s tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around? No, sir, nobody can make big money on what someone else tells him to do.

- One of the most helpful things that anybody can learn is to give up trying to catch the last eighth—or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.

- The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

Let me know if you enjoyed reading it as much as I did (multiple times).

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