I had done this piece for SENSEX – a magazine run by the BSE (the mumbai stock exchange or bombay stock exchange)
Reminiscences of a Stock Operator (Wiley Investment Classics)
by Edwin Lefèvre
Once upon a time, quite long ago – the US was a highly unregulated market.
Very briefly, Jesse Livermore’s life as a stock and commodities trader is portrayed in the book through the character of Larry Livingston.
It is a story well told – and is surely gripping. It is racy and you will be able to read it in a short time. Readers who have been in the Indian equity markets since the 1970s should be able to identify with some of the happenings in the book. A note of caution though – this book is only meant for the persons who understand how brokerage houses work – concepts like churn and price rigging are clearly broking concepts!
It is also important to remember that Jesse’s life had many upheavals – and he died by committing suicide.
Jesse Livermore was supposed to have been responsible for the market crash of 1929, the tsunami of all market crashes. A clear indicator perhaps that not too many fortunes have been made by trading. Livingston started out life at the age of 14 as a quotation board boy (those of you who went into the ring at the BSE would surely remember the “kaka” who would write the quotations on the black board – just outside the “ring”). Here he developed an uncanny knack of predicting the patterns – just a good feel for numbers. Surely as a trader (even as an Investor perhaps) having a feel for numbers is necessary.
A friend wants him to play on “Burlington” – he quickly amasses $ 1000 – and his mother wants him to “save up” because no boy so young could have made so much money. But a trader is always a trader so all the money constantly becomes margin and Livingstone goes through many ups and downs in life. Traders have this peculiar trait of playing – it is not about money – it seems like a game – its about winning. And like Yudhishtra of Mahabarat they cannot ever seem to walk away with a small loss or a small profit.
You will also see some absolutely foolish ideas being touted to Larry and even as a small boy he realized the foolishness of the idea. In page 45 you find mention of one such idea – making a client buy a share and immediately close the deal. Sure, clients like action, but at least at the year end the client sees his P&L account and knows he has been had!
He tells us about being invited to New York by Williamson & Brown. Their biggest client is Alvin Marquand who is rich and is also Williamson’s brother-in-law. Williamson wants Livingston to trade through W&B and gives him a seed capital of $ 25,000. Livingston uses the capital, makes enough money to repay Williamson. Williamson does not take it back – and tells Livingstone that he is needed to protect his big clients. The ability of Livingstone to see through the transaction – and not allow Williamson interfere with his deals is amazing in hind sight. It is difficult to guess the motives of brokers or poker players!
The story of how a bucket shop tries to pull a fast one on him – of the sugar speculation is spine chilling to say the least.
Some of these methods may not be happening in the bigger cities, but I recently heard of bucket shops in rural India – however could not verify the authenticity of the same. Surely in rural India where banks are a rarity, broker’s contracts would be a dream. Surely some kind of bucket trading could be happening. Only in a bear run would some of these horror stories come out.
However, if you see stories like Consolidated Stove- you get feeling in your stomach that you just saw it happening!
Like a Random Walk Down Wall Streets many axioms, this book too has some axioms.
“SPECULATION IN STOCKS WILL NEVER DISAPPEAR”
Sounds so simple and so profound, and true! Till date you hear horror stories of clients calling their brokers to buy “ISN E 42300” – many of them do not know the names of the scripts that they are buying. You need to be in a broker’s office to believe this statement!
“WHATEVER HAPPENS IN THE STOCK MARKET TODAY HAS HAPPENED BEFORE, AND WILL HAPPEN AGAIN.”
We have all been there, seen that, and again believe the pundits on Television when they say “This time it is different” – it of course requires a John Templeton to call these the most dangerous words in the Investment world.
“WEAPONS CHANGE, BUT STRATEGY REMAINS STRATEGY.”
Whatever you do, this is true. When you do make money (or lose money) you need to go back and question your strategy. Livermore had clear strategy – whether it was in a bucket shop or the New York Stock Exchange! I think whatever works for you as strategy – should be questioned repeatedly so that your brain does not blind side you into a false sense of confidence.
“THOU SHALL NEVER FIGHT THE TREND”
The trend is your friend. This is a timeless, and perhaps a useless saying, because the human mind’s ability to see a trend is not so simple. In fact, what you see as a trend is just the mind wanting to believe the trend. Many books on mathematics and statistics keep telling you that recognizing a trend is difficult.
“LET YOUR PROFITS RUN AND CUT YOUR LOSSES SHORT”
* “NO STOCK IS TOO HIGH TO BUY OR TOO LOW TO SELL”
Jesse Livermore was everything you think he was, and more. His untimely death at his own hand is not what should be studied, and learned. We all have our pains that we must deal with. Read this book, and change your investing life forever, or don’t read it, and pay a price with your portfolio, and forgone profits. Good luck
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