This book (I took a picture of my actual book to the right), Reminiscences of a Stock Operator, written in 1923 by Edwin Lefevre, is is quite simply…
Before you jump immediately to the conclusion and say
“1923! Forget that, I need something relevant that will help me with my trading today!”
I get it. I thought the same thing too.
However, I kept noticing that it was mentioned again and again in other books, blogs, podcasts, you name it. I never bought it because it was written such a damn long time ago!
I particularly remember how it came up over and over in the Market Wizards book by Jack Schwager. Here traders were asked what the most important books on trading were to them, and this one probably took the cake.
So finally, to see what all the fuss was about, I begrudgingly bought the book because became to much to ignore.
I remember when I first sat down to read it. Before I knew it, hours had passed. I couldn’t put it down. I was dog-earing pages left and right!
For most of my books, I “dog-ear” the pages that I think contain something important, something I can use. So I mark them to come back again and again to re-read and adopt. Most of my books have a good amount of dog ears.
My Reminiscences of a Stock Operator book is in a class by itself though!
Check out this picture of my actual book!
Look at how puffed up this sucker is with those dog-ears!
Since that first reading, I’ve come back again and again to re-read it.
I think I read this book once a year. Each time I read it, I find something new.
Yep, it’s that amazing. I would say that probably once ever few months, I come back to just the dog-eared pages and re-read what I consider to be important.
As you can see…I think this book has a lot of important things to learn and focus on as a trader!
This book recounts the life and trading exploits (and failures) of one of the greatest (and maybe the greatest) trader that Wall Street has ever seen.
His name was Jesse Livermore.
The author initially interviewed Jesse under the pseudonym of Lawrence Livingston in a serialized newspaper column with regular installments that documented his start as a small runaway kid, to his present in the 1920’s when he was at the height of his powers.
The article series was so popular that he decided to write this book and worked with Jesse to explore his life further and his philosophy of trading.
I’m not going to ruin the “plot” of the book, but here is a quick snapshot of Jesse’s life up until the point of 1923, when the book was written.
Jesse’s early years
As a kid, he got a job updating quotes on a board in a stock brokerage house. Back then, they wrote up the prices on a big chalk board, with updates that came in from these ticker machines that would print stock price updates on a long, continuous strip of paper. Here’s what those old tickers used to look like:
Lawrence (Jesse) started to notice that he had a sense for how a stock would behave, based upon the past movements. He started to track the prices, writing them down in a little book he kept. It didn’t take long for him to notice that when he thought a stock was behaving like it was ready to move sharply higher or lower, he was right.
Over time, he started trading on the side by himself. Back then, there were “bucket shops” that allowed customers to participate in the movement of stock prices. These weren’t brokerage houses, but simply betting houses, typically run by unscrupulous owners who would tilt the odds in their favor in too many ways to count.
These bucket shops, like any betting business (casinos, racetracks) would make tons of money because as we all know, most gamblers lose money.
Jesse was different though. He started to regularly take money out of these bucket shops. He became so good that he would get banned if he started to win too much. Just like today at the casinos where kick out card counters, because card counters aren’t your typical gamblers. They are speculators that are coldly using the odds in their favor.
As he “wore out his welcome” in one bucket shop, he had to go to another, where he would take their money.
He became known as “The Boy Plunger”, because he would sometimes make big bets and win big. Over time, he realized he really needed to move on to Wall Street and leave the small-time, sleazy backwaters of the bucket shops.
Jesse on Wall Street
He moved to New York City, setup up brokerage accounts and promptly lost everything in short order. He couldn’t figure out why he wasn’t able to duplicate what he did in the bucket shops.
Long story short… he started to figure out how to adapt and trade in the real world of Wall Street.
There were times when he made an absolute killing, making so much money as a relative kid that he became wealthy. Then, just when he thought he had things figured out though, he would go completely bust.
Over the years, he would go from being extremely, extremely wealthy, to completely bankrupt with a mountain of debt that he piled up with brokerage houses.
As a side-note: This isn’t mentioned in this particular book, but at one point, he might have been the richest man in the world after he shorted the great stock market crash in 1929.
He talked openly about his failures, what went wrong, and what he did about it to fix his trading.
He had an amazing ability to analyze his methods, his weaknesses, the weaknesses of others and developed methods and rules to live by as a trader.
And that my friends, is the real value within this book!
The real message of this book
What makes this book so timeless and so popular among traders, are the quotes that Lawrence (Jesse) provides.
Some of these are famous to this day.
Here is a small sampling that I particularly like…
- Cut your losses quickly, without hesitation.
- Markets are never wrong, opinions often are.
- A loss never troubles me after I take it.
- There is only one side of the market and it is not the bull side or the bear side, but the right side.
- Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market.
- Emotional control is the most essential factor in playing the market. Never lose control of your emotions when the market moves against you. Don’t get too confident over your wins or too despondent over your losses.
- Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.
- 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.
- I don’t believe in tips.
- Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.
- 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 always was my sitting. Got that? My sitting tight!
- He will risk half his fortune in the stock market with less reflection that he devotes to the selection of a medium-priced automobile.
- Never average losses. Let this thought be written indelibly upon your mind.
- Remember, don’t fight the tape!
- I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.
- There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
Pretty amazing right? Do you see some of yourself in these quotes? I know I do. I have made many of the mistakes that you see Lawrence (Jesse) recounting in the book!
Take a look at that last quote I listed in that list above again…
There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
I think this is what makes the book so timeless. It will never fade away into irrelevance. Human nature never changes.
The price patterns on a stock chart expose our human emotions:
- Why does a support line hold?
- Why does a trendline hold?
- Why does support become resistance when it is broken?
- Why do we see huge gaps up in the morning?
- Gap downs?
- Double tops?
- Exhaustion runs in a stock price?
The many individual decisions of each player in the market add up and combine into the prices that we see on the stock charts. The individual players many times are also acting in the same way, thinking as a group, a herd of animals stampeding this way and that. It’s easy to get swept up into the mass-crowd psychology.
Everything is all there on the stock chart. It will never will change.
Another fascinating reason I think this book is so amazing is how explores and emphasizes the importance of these major areas when it comes to trading:
- Emotional control
- Risk management
- A trading process that you develop and make your own
These areas above way more important than developing trade signals or entries. I’ve learned the hard way that this is only a small factor in becoming successful as a trader. In the past, I’ve ruined my trading account by not developing control over my emotions and using proper risk management.
Look at this recent tweet from a modern-day trader…a legend: Peter Brandt:
Novice trades believe that trade selection is key to success. Oh, if it was only that easy. Trade identification (IMO) is the LEAST important component of consistent long-term trading performance.
Look at the chart he provides in that tweet:
Look at what a small slice of the pie that is!
The focus of Reminiscences of a Stock Operator is all about the rest of that pie chart.
These other slices are not the what most traders focus on.
The successful traders do, but remember, most traders lose money. The reason they lose money is because they focus on just one area of the pie chart, or maybe 2 areas.
Nothing has changed. Most traders (gamblers) look at the entry to a trade, not paying attention to the all of the other areas that are most important to make it as a successful trader (speculator).
What do you think?
Have you read this book? If so, I’d like to hear about it.
If you haven’t read this book yet, what do you think about my thoughts in this post?
Leave a comment below.
Right now…I think I’m going to just flip through a few of the pages again and see if I can find a few more nuggets of wisdom I might have missed in this amazing book. 🙂
Good luck with your trading!
My Top 5 Free Trading Tools
Access a list of the Top 5 tools that I use every day to find and analyze the best swing trading opportunities.
P.S. – I just added an extra resource that turned my trading career around.