Breaking it Down: Jesse Livermore
'Breaking It Down,' where we embark on a journey into the world of futures, commodities, bonds, equities and more! In this edition, we shift our spotlight to the Reminisces of a Stock Operator.
Knowing yourself is the beginning of all wisdom.–Aristotle
“A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable of in the line of folly was a long educational step. I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head. Speculators buy the trend; investors are in for the long haul; “they are a different breed of cats.” One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.”
During his tenure on Wall Street, Jesse encountered multiple investment missteps that nearly led to his financial downfall. Acknowledging these errors, he candidly regarded them as educational expenses, emphasizing the valuable lessons learned from these experiences in his book.
“There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
The line of least resistance
“Suppose line of least resistance showed a bull movement. I would buy ten thousand bales. If the market went up ten points after, I would take on another ten thousand bales. If after buying the first ten or two thousand bales, the position showed a loss, out I’d go. I was wrong, maybe temporarily, but it doesn’t pay to start wrong in anything.”
Try not to excessively dwell on the reasons behind price fluctuations.
“The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now – not tomorrow. The reason can wait. But you must act instantly or be left.”Relying solely on tips and recommendations is futile in the world of trading. Real success as a trader stems from developing a personal methodology, rather than depending on external sources such as news or social media for day-to-day decisions.
“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.”“Tips! How people want tips! They crave not only to get them but to give them.”
”The public always wants to be told.”Take loses
”An old broker once said to me: 'If I am walking along a railroad track and I see a train coming toward me at sixty miles an hour, do I keep on walking on the ties? Friend, I sidestep. And I do not even pat myself on the back for being so wise and prudent.”
”Of all speculative blunders there are few worse 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. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.”
”Instead of hoping he must fear and instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.”Trends
”I think it was a long step forward in my trading education when I realized 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. 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 your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks.”
”Without faith in his own judgement no man can go very far in this game. I have learned to study general conditions, to take a position and stick to it. It is the big swing that makes the big money for you.”Sitting tight
”And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”
Jason Perz AAO Research