Jesse Livermore

Re: Jesse Livermore

Postby millionairemind » Wed Jul 16, 2008 4:25 pm

Suckers and Lessons in Trading Suckers

In Jesse Livermore's time, the stock market was similar to today's - it was full of suckers losing their money (and, all too often, other people's money too).

Livermore talked frequently about suckers. Several times he admits to actions that lost him a lot of money and which, with hindsight, he realized were the actions of a sucker. (See below.)

The difference between Livermore and a real sucker, however, was that Livermore mostly admitted his mistakes and learned from them.

He recognized different grades of sucker:

First of all there's the complete beginner who knows nothing about anything and is aware of his ignorance.


Second, and more dangerous, is the semi-sucker. The semi-sucker has read books about trading - usually written by yet higher grade suckers - but he does not realize that reading books is not the same as trading experience. This type of sucker can quote all sorts of wise sayings about the operations of the stock market. He does not lose money as quickly as the beginning sucker because he has learned some of the most rudimentary trading rules.

Livermore said:

"It is this semi-sucker rather than the 100 percent article who is the real all-the-year-round support of the commission houses. He lasts about three and a half years on an average, as compared with a single season of from three to thirty weeks, which is the usual Wall Street life of a first offender. He knows all the don'ts that ever fell from the oracular lips of the old stagers-excepting the principal one, which is: Don't be a sucker!"

Livermore The Sucker - Part A
It was only after going broke twice and then making much less profit in a raging bull market than he would have expected to that Livermore realized he was trading like a sucker. He was losing his profit because he was trading every day for the sake of trading. This, he realized, made him a "Wall Street Fool".

"Whenever I read the tape by the light of experience I made money, but when I made a plain fool play I had to lose. There was the huge quotation board staring me in the face, and the ticker going on and people trading and watching their tickets turn into cash or into waste paper. Of course I let the craving for excitement get the better of my judgment."

After he had learned to trade less, Jesse Livermore's profits soared.

Livermore The Sucker - Part B
Another occasion when Livermore was suckered was when he broke one of his cardinal rules - the rule that said he should think for himself rather than accepting tips from other people.

On this occasion he was steadily buying-up shares in Union Pacific when a much respected, and well-informed friend, Ed Harding, called him and told him that insiders were selling Union Pacific - and worse than that, they were selling to Livermore - Livermore was being suckered. The insiders were feeding him all the stock they could shift. Livermore's own reading of the tape was that the stock price was rising due to real demand. He told this to Harding. Harding, his friend, responded:

"I got heart disease when your orders began to come in. For the love of Mike, don't be a sucker. Get out! Right away. It's liable to bust wide open any minute. I've done my duty. Good-bye!" And he hung up.

Despite his doubts, Livermore decided to believe his friend. He sold his shares and then sold Union Pacific short at $162.

The next day Union Pacific declared a 10 percent dividend and the stock leapt to a new record high price. Livermore, realizing the information he had been given was wrong, bought Union Pacific back at $172 and $174 for a total loss of $40,000.

Livermore was philosophical about the loss. His own interpretation of the tape had been correct. Listening to a tip had been wrong. He did not hold a grudge against Ed Harding because he believed the incident had completed his education as a trader. In Livermore's view, $40,000 was, "a low price for a man to pay for not having the courage of his own convictions! It was a cheap lesson."

Livermore The Sucker - Part C
When Livermore lost much of his fortune in the cotton market he concluded that he had not just been a sucker, he had been a super-sucker. On this occasion he broke two of his cardinal rules. Firstly, he let someone else's apparently brilliant analysis of a situation influence his trading decisions; then he increased his stake in a position that was showing him a loss while selling a position that was showing him a profit.

At the beginning of his involvement with cotton and wheat, Livermore had been bearish on cotton and bullish on wheat. Accordingly, he had gone short on cotton and he had gone long on wheat. On paper, he was in profit on both positions.

And then he met Percy Thomas. Percy Thomas had a fine reputation in commodities and he persuaded Livermore that his information on cotton was all wrong. Thomas had better information and that information said cotton was going to go up. Livermore said:

"Gradually, as I began to accept his facts and figures, I began to fear I had been basing my previous position on misinformation. Of course I could not feel that way and not cover. And once I had covered because Thomas made me think I was wrong, I simply had to go long. It is the way my mind works."

Unfortunately, the price of cotton fell. Livermore sold his profitable position in wheat (a position which, had he held it would have profited him by eight million dollars) to buy more cotton. Every day Livermore bought more cotton. In fact, he bought so much cotton that he was supporting an entire market into which the smart money was selling.

In the end, this incident did not wipe out Livermore's fortune completely, but it lost him millions. After it, in dollars, he had fewer hundreds of thousands than he'd had in millions before it.

"To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind."

"It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. Having learned what folly I was capable of I closed that particular incident. Percy Thomas went out of my life."
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

Re: Jesse Livermore

Postby millionairemind » Wed Jul 16, 2008 4:27 pm

"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. Then get out of all your stocks; get out for keeps! You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. 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."
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

Re: Jesse Livermore

Postby millionairemind » Wed Jul 16, 2008 4:36 pm

Speculation Defined
Graham and Dodd's Definition of Speculation


In their 1934 classic text, Security Analysis, Benjamin Graham and David Dodd provided a general definition of speculation: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

By this definition, most people who buy stocks are speculators. We can attempt to sharpen Graham and Dodd's definition by including time-scale. Speculators are not interested in putting their money into a stock or commodity for a long time. They want to see a good profit quickly - on a time scale of minutes to months. If their money does not quickly perform well in a situation, they move it into another situation.

In pursuit of greater gain, speculators take greater risks with their capital than people who put their money into Savings & CD Accounts.

Jesse Livermore's Definition of Speculation
Jesse Livermore, the 20th century's most (in)famous speculator provided his own definition of speculation - preceding Graham and Dodd's by several years. In Reminiscences of a Stock Operator, under his pseudonym of Lawrence Livingston, he said: "The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in."

Intelligent Speculation
Benjamin Graham and Jesse Livermore both had more to say about speculation: Benjamin Graham continued - this time in The Intelligent Investor:

Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many common-stock situations there are substantial possibilities of both profit and loss and the risks therein must be assumed by someone.

There is intelligent speculation as there is intelligent investing. But there are many ways in which speculation may be unintelligent. Of these the foremost are:

speculating when you thing you are investing
speculating seriously when you lack proper knowledge and skill for it
risking more money in speculation than you can afford to lose

Livermore said:


The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.
Speculation is a hard and trying business, and a speculator must be on the job all the time or he'll soon have no job to be on.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

Re: Jesse Livermore

Postby millionairemind » Sun Aug 03, 2008 3:30 pm

Taken from How to Trade in Stocks by JL

On 'buy and hold' investing:

Speculators in stock markets have lost money. But I believe that it is a safe statement that the money lost by speculators alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride. (Page 25)

From my point of view, the investors are the big gamblers. They make a bet, stay with it, and if all goes wrong, they lose it all. (Page 25)

MM comments - GOOD value investors will buy with a BIG MOS so that thy don't suffer this fate. I think many self-proclaimed value investors are actually "closet traders". They enter a stock and when it goes against them, they shout out loud that they see VALUE in the stock and hold tight tight and then lose all their money (maybe not all). Cutting loss is a difficult strategy to employ. Tell that to the poor guys who are still holding to Cosco at $8, Sino Env at $3.80, YZJ at $2.80... these stocks have lost more than 50% of their value.

Again, let me point out that I am NOT AGAINST value investing before you go and proclaim "here mm goes again" :). I do alot of FA before I buy a stock. Any form of time tested investment methodology will work. It has always been the practitioner that sets him aside.. not the method.


On history repeating, and learning from the past:

The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements. (Page 51)

mm comments - Human's needs for speculative excesses never changes. Think 1929 and Think Nasdaq 2000 :D History keeps repeating itself... just the participants are different and the pockets change.



The chart tells the entire story:


The only reason an investor or speculator should ever want to have pointed out to him is the action of the market itself. Whenever the market does not act right or in the way it should - that is reason enough for you to change your opinion and change it immediately· Remember, there is always a reason for a stock acting the way it does. But also remember: the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably. (Page 71)

mm comments - I am NOT a chartist.. however, I do believe that the chart tells the story best about demand/supply...
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

Re: Jesse Livermore

Postby kennynah » Sun Aug 03, 2008 3:38 pm

recently, i browsed thru a book containing the life of jesse livermore and his family...

tragic man....the mother shot and killed the eldest son, jesse jr.. duno why....

jesse himself committed suicide a day after attending a grand ball... he spends a night each year in a bank vault counting his cash....so sad....so lonely....so scared....
Options Strategies & Discussions .(Trading Discipline : The Science of Constantly Acting on Knowledge Consistently - kennynah).Investment Strategies & Ideas

Image..................................................................<A fool gives full vent to his anger, but a wise man keeps himself under control-Proverbs 29:11>.................................................................Image
User avatar
kennynah
Lord of the Lew Lian
 
Posts: 16005
Joined: Wed May 07, 2008 2:00 am
Location: everywhere.. and nowhere..

Re: Jesse Livermore

Postby LenaHuat » Sun Aug 03, 2008 4:08 pm

Oh realli?? This shocks me too :!:
Please be forewarned that you are reading a post by an otiose housewife. ImageImage**Image**Image@@ImageImageImage
User avatar
LenaHuat
Big Boss
 
Posts: 3229
Joined: Thu May 08, 2008 9:35 am

Re: Jesse Livermore

Postby rooster » Sun Aug 03, 2008 6:19 pm

He killed himself with a bullet through his brain. I think it is important to note that money cannot buy wealth or happiness. Contentment is the greatest treasure one can have. In this turbulent times, let's remember that and be happy in all situations and with all the Huatopedians supporting each other to, let's hope it will be less painful for all! :D
User avatar
rooster
Loafer
 
Posts: 59
Joined: Sat May 10, 2008 1:09 pm

Re: Jesse Livermore

Postby millionairemind » Sun Aug 03, 2008 7:20 pm

Money can buy wealth lah.. but cannot buy happiness :D

Money will solve all of life's monetary problems, leaving one with enough free time to attend to the more impt things in life, like family and friends and contribution to society.

Its true that JL took a bullet thro' his head. It's indeed tragic.

What we should learn from him is his trading methodology.. not his lifestyle :)

I agree with Rooster that we should support one another thro' this difficult investment times.

Huat ar,
mm
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

Re: Jesse Livermore

Postby kennynah » Sun Aug 03, 2008 11:30 pm

all the Huatopedians supporting each other to, let's hope it will be less painful for all!

i like this spirit very much....

rooster...u must visit here more...see more of your postings... dont be a stranger....
Options Strategies & Discussions .(Trading Discipline : The Science of Constantly Acting on Knowledge Consistently - kennynah).Investment Strategies & Ideas

Image..................................................................<A fool gives full vent to his anger, but a wise man keeps himself under control-Proverbs 29:11>.................................................................Image
User avatar
kennynah
Lord of the Lew Lian
 
Posts: 16005
Joined: Wed May 07, 2008 2:00 am
Location: everywhere.. and nowhere..

Re: Jesse Livermore

Postby millionairemind » Mon Aug 04, 2008 3:11 pm

[quote="millionairemind"]

On history repeating, and learning from the past:

The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements. (Page 51)

mm comments - Human's needs for speculative excesses never changes. Think 1929 and Think Nasdaq 2000 :D History keeps repeating itself... just the participants are different and the pockets change.

[quote]

I thought I put up a chart here to explain the above... History does keep repeating itself, doesn't it?? :D

Image

Nothing has ever changed in the game of stock speculation in a 100 years since JL's time.... and it will continue to be the same for the next 100 years, provided the market is still there :mrgreen:
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

PreviousNext

Return to Market Gurus

Who is online

Users browsing this forum: Google [Bot] and 5 guests

cron