"Reminiscences of a Stock Operator"
These are my notes from this financial classic written a 100 years ago.
This book is based on the life of legendary trader Jesse Livermore. It has been written in an anecdotal form by the author Edwin Lefèvre. The story is dictated by Larry Livingstone (the name was changed in the book). What makes this an interesting read is the fact that, unlike most successful traders and investors whom we hear about, Mr Livermore earned and lost his fortunes a number of times. And the book contains his learnings from all these experiences.
Read through for the lessons you can take out of this book.
The game does not change and neither does human nature. Meaning, that human tendencies when dealing with greed, fear, hope and ignorance stay the same. And how the participants act at different stages of market cycles remain the same.
Expect hard work when investing. In other words, don’t look for easy money. People who keep looking for easy money instead of putting in the necessary work generally pay the most in financial markets.
Never average your losers. Mr Livermore put his money into trades in batches. If the first lot he took didn’t show profit he didn’t take more positions. This helps in keeping losses small since when you lose you’ll lose let’s say $10000, but when you win, because your position is many times greater, you’ll gain $50000.
When you’re wrong, book losses ASAP. You cannot fear taking losses (I talked about this here). You should book losers as soon as you can so that you can focus on the opportunities in front of you.
Trust your own plan only. Trustworthy or not, we tend to get confused about our own views when we hear tips and views from other people. Not paying heed to what others say pays great dividends in this field. Since you know what was behind each profit and loss, you can improve. If you follow others, you will have no control over any part of the process. Many of Mr Livermore’s big losses were when he himself went against this rule and listened to his friends/colleagues instead of his own skills.
Sometimes, doing nothing is the best. You don’t get opportunities every day. So you don’t have to trade every day. If you feel a compulsion to trade when there is no opportunity you won’t be able to capitalise when there is one. So when the situation demands it, sit tight.
Learn from your mistakes and experiences. Your mistakes can be your best teachers, but not if you refuse to learn from them and keep repeating them. There will already be a lot of impediments on your investing journey, no need to add yourself to the list too.
Recognize what kind of market participant you want to be. Every person is different. Some people are more suited to the long game while some are meant for trading intraday moves. Figure out quickly what suits you and stick to it. Much of traders’ losses can be attributed to the fact that they don’t stick to their own trading plans.
Now obviously, this is not all you can take from the book, but these are the most important things I found for myself. You should read the book if that interests you. And you can read my other articles here. If you want to get a more complete overview of Mr Livermore’s story, see this video.
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