Saturday, November 21, 2009
Thursday, November 12, 2009
Reminiscences of a Stock Operator
Author of commentary is unknown:
Today “Reminiscences of a Stock Operator” is fondly read with awe by speculators of all levels and abilities all around the globe. I have personally read the book many times and I try to re-read it at least once a year now. The speculation wisdom contained within these magical pages is just awesome and truly priceless for all speculators to digest.
(Chapter VII) … “I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up. I don’t mean of course that in a bear market caused by a war, ammunition shares do not go up. I speak in a general sense. But 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.”
Jesse Livermore, as always, comes out with both barrels blazing while discussing the importance of focusing on markets as a whole rather than individual stocks. This is indeed one of the central themes of the entire book. I suspect the reason that Mr. Livermore emphasizes this core truth of speculation so much is because it is so contrary to our natural inclinations as speculators. We tend to want to ignore the markets as a whole and focus on the exciting story stocks, always looking for the next future giant like Microsoft while it is still in its infant stage.
Yet, if we spend so much time focusing on individual stocks that our current understanding of the big strategic market picture fades, we risk losing the forest for the trees. If conditions are favorable in a forest at a given time, if the temperatures are moderate and rain is plentiful, all of the trees will grow. But if conditions are unfavorable, such as during a long drought or wildfire season, none of the trees will fare particularly well. The markets work the same way.
During a bull market, most stocks will ride the primary trend up to higher prices. A rising tide lifts all boats. During a bear market, most stocks will fall in price. Even folks adept at stock picking, if they are fighting the primary trend, are not likely to achieve excellent trades. Shorting stocks in a bull market or buying stocks in a bear market, almost regardless of their individual stories, is very risky and has a high probability of failure.
Never lose sight of the primary trend in place, and bet with it rather than against it whenever you can. If you can combine a solid understanding of the strategic trends in force with carefully buying great stocks positioned to leverage the markets’ major movements, your odds of speculation success multiply dramatically.
Interestingly, Livermore ties his trademark macro view in with his legendary antipathy for tippers, people who give stock tips. Since we are all searching for that next elusive tiny stock that will blossom into a monstrous corporate giant and make us fabulously wealthy, we have to be very careful about where we get our information. As Livermore rightly says, we all tend to want something for nothing, to be told exactly what to trade rather than thinking for ourselves. This desire renders us vulnerable to all kinds of unscrupulous players, con artists, and promoters.
To fight this innate tendency, make sure that you carefully cultivate multiple independent sources of information that you trust, and even then carefully filter all of this through your own observations, studies, and understanding of the markets.
Never trade on information from an anonymous or unaccountable source, such as some random spam e-mail touting a stock, or some unknown poster on the Web hiding behind a false name, or even a friend of a friend of a friend. Always be wary of someone who appears to be just picking stocks for the sake of picking stocks, with no strategic market context offered. And if someone presents a case for a stock that is just too good to be true, then it probably isn’t true.
Good information sources, in addition to being fully accountable for their info, only attempt to pick stocks within the context of the already dominant primary market trends. As Jesse Livermore wisely pointed out, almost all trades will do well if they are congruent with the primary trend already in force.
Today “Reminiscences of a Stock Operator” is fondly read with awe by speculators of all levels and abilities all around the globe. I have personally read the book many times and I try to re-read it at least once a year now. The speculation wisdom contained within these magical pages is just awesome and truly priceless for all speculators to digest.
(Chapter VII) … “I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up. I don’t mean of course that in a bear market caused by a war, ammunition shares do not go up. I speak in a general sense. But 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.”
Jesse Livermore, as always, comes out with both barrels blazing while discussing the importance of focusing on markets as a whole rather than individual stocks. This is indeed one of the central themes of the entire book. I suspect the reason that Mr. Livermore emphasizes this core truth of speculation so much is because it is so contrary to our natural inclinations as speculators. We tend to want to ignore the markets as a whole and focus on the exciting story stocks, always looking for the next future giant like Microsoft while it is still in its infant stage.
Yet, if we spend so much time focusing on individual stocks that our current understanding of the big strategic market picture fades, we risk losing the forest for the trees. If conditions are favorable in a forest at a given time, if the temperatures are moderate and rain is plentiful, all of the trees will grow. But if conditions are unfavorable, such as during a long drought or wildfire season, none of the trees will fare particularly well. The markets work the same way.
During a bull market, most stocks will ride the primary trend up to higher prices. A rising tide lifts all boats. During a bear market, most stocks will fall in price. Even folks adept at stock picking, if they are fighting the primary trend, are not likely to achieve excellent trades. Shorting stocks in a bull market or buying stocks in a bear market, almost regardless of their individual stories, is very risky and has a high probability of failure.
Never lose sight of the primary trend in place, and bet with it rather than against it whenever you can. If you can combine a solid understanding of the strategic trends in force with carefully buying great stocks positioned to leverage the markets’ major movements, your odds of speculation success multiply dramatically.
Interestingly, Livermore ties his trademark macro view in with his legendary antipathy for tippers, people who give stock tips. Since we are all searching for that next elusive tiny stock that will blossom into a monstrous corporate giant and make us fabulously wealthy, we have to be very careful about where we get our information. As Livermore rightly says, we all tend to want something for nothing, to be told exactly what to trade rather than thinking for ourselves. This desire renders us vulnerable to all kinds of unscrupulous players, con artists, and promoters.
To fight this innate tendency, make sure that you carefully cultivate multiple independent sources of information that you trust, and even then carefully filter all of this through your own observations, studies, and understanding of the markets.
Never trade on information from an anonymous or unaccountable source, such as some random spam e-mail touting a stock, or some unknown poster on the Web hiding behind a false name, or even a friend of a friend of a friend. Always be wary of someone who appears to be just picking stocks for the sake of picking stocks, with no strategic market context offered. And if someone presents a case for a stock that is just too good to be true, then it probably isn’t true.
Good information sources, in addition to being fully accountable for their info, only attempt to pick stocks within the context of the already dominant primary market trends. As Jesse Livermore wisely pointed out, almost all trades will do well if they are congruent with the primary trend already in force.
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