10 Lessons from Reminiscences of a Stock Operator
What worked 95 years ago works today as well!
Reminiscences of a Stock Operator, written 95 years ago, is one of the best books ever written on Trading/Speculation. Written by American author Edwin Lefèvre, it is said to be a partly fictionalised biography of the legendary trader, Jesse Livermore. Even today, many successful traders/speculators who I know treat this book as their Bible.
Unlike the success stories of Investors like Warren Buffet, the most interesting part of Livermore’s story is that he made and lost fortunes many times over in his career. All these experiences that are recorded in the book have great lessons for not only those who like to trade/speculate in the market but also for investors.
If you have not read the book I would highly recommend it.
Here are 10 lessons from the book that are extremely useful.
1. Investing is hard work
“People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.”
2. It is important to recognize who you are…. Speculator or Investor
“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.”
3. History, Experience and Mistakes are the best teachers
“Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience.”
“Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was. Weapons change, but strategy remains strategy, on the New York Stock Exchange as on the battlefield. I think the clearest summing up of the whole thing was expressed by Thomas F. Woodlock when he declared: “The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.”
“If a man didn’t make mistakes he’d own the world in a month. But if he didn’t profit by his mistakes he wouldn’t own a blessed thing.”
4. Ignorance, Greed, Fear and Hope are the 4 deadly sins
The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statue books in the world and all the rule books on all the Exchanges of the earth cannot eliminate these from the human animal.
5. Uncertainty & Indecision are harmful for your financial health
“A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.”
6. Do not average your losses
“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. 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.”
7. If you are wrong cut your losses
“Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.”
8. Let your Position not dictate your view
When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me. That is why I repeat that I never argue with the tape.
9. Sometimes it is important to do nothing
“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.”
10. Do not plan your expenses based on your potential Trading Profits
There isn’t a man on Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motor boat or a painting.
Wish you a very Happy Festive Season
Chief Investment Officer
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