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Investment Books Review #2: Reminiscences of a Stock Operator
- A Timeless Classic
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Article
Investment Books Review #2: Reminiscences
of a Stock Operator - A Timeless Classic
This is Edward Lefevre's story of the legendary speculator
Jesse Livermore - and Reminiscences of a Stock Operator is full
of trading wisdom.
Although written 83 years ago, its wisdom and insight are
timeless, being often featured as one of the top ten investment
books of all time - and this is a book every trader should read.
Jesse Livermore - A Trading Legend
The book follows the exploits of Jesse Livermore and his
colorful trading history.
He made and lost tens of millions of dollars, speculating
in the stock and commodities markets during the early 1900s.
At one stage, he made $10 million dollars in just one month
- imagine what this amount would be worth today!
The Importance of Money Management
Reminiscences of a Stock Operator, though, are not so much
lessons in how to make money - but how you should protect what
you have.
The book is a witty and entertaining read - but the real
value of the book is the insight into a traders mind, and how
our emotions cause us to lose more than we should - if we don’t
trade with discipline.
As Livermore says:
“Losing money is the least of my troubles. A loss never
bothers me after I take it. I forget it overnight. But being
wrong – not taking the loss – that is what does the damage to
the pocketbook and to the soul.”
Can you associate with that? - I can!
“All stock market mistakes wound you in two tender spots
- your pocketbook and your vanity.“
Yes, we all hate taking losses, but at the end of the day,
you have to forget your pride - as Livermore says, but you need
to keep losses small.
The Myth of Market Timing
Whilst the book is rightly seen as an insight into trader
psychology, it also makes an important point in relation to
market timing, and trying to PREDICT market turning points.
As Livermore correctly says:
“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. They
have cost stock traders, in the aggregate, enough millions of
dollars to build a concrete highway across the continent.”
He’s Right!
Many traders make the mistake of trying to predict market
turning points - and follow methods such as Gann and Prechter
- but the fact is, the best way to make money, is to wait for
confirmation - before entering the market.
You miss a bit of the move, but so what? – You will make
money overall, as the odds will be in your favor.
Predicting the market, nearly 80 years after Livermore’s
death, is still a major mistake traders make today.
A Sad Ending and a Lesson
This book was published seven years before the 1929 Crash.
Although Livermore avoided losses in the crash - he got
out before the crash - he made the mistake of going back in
too early - and lost heavily.
The market falls of late 1931 and 1932 drove him to bankruptcy
- and eventually to suicide. This shows how even great traders
like Livermore, could not keep their emotions out of trading
- we all know it’s hard to do, but it’s an essential part of
trading success.
Reminiscences of a Stock Operator remains one of those books
that is a true classic, in the eyes of all who have read it.
If you have not read it, do so - it will bring a smile to
your face, and give you trading insights you will remember forever.
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