Edwin Lefevre tells an entertaining story of a fictionalized account of Jesse Livermore in Reminiscences of a Stock Operator. The draw of Livermore is an interesting one because he failed to learn the biggest lesson, summed up by Levefre:
In addition to trying to determine how to make money one must also try to keep from losing. It is almost as important to know what not to do as to know what should be done.
Even after he made and lost multiple fortunes in his life, Livermore never figured it out. In the end, he died broke. But this is less about Livermore and more about highlights from the book.
Despite the book being fiction, it offers some great lessons on history, human nature, and what not to do:
On the other hand there is profit in studying the human factors — the ease with which human beings believe what it pleases them to believe; and how they allow themselves — indeed, urge themselves — to be influenced by their cupidity or by the dollar-cost of the average man’s carelessness. Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was… 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.”
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The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.
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Nowhere does history indulge in repititions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature.
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I am fairly immune from the commoner speculative ailments, such as greed and fear and hope. But being an ordinary man I find I can err with great ease.
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After a boom the public is positive that nothing is going up. It isn’t that buyers become more discriminating, but that the blind buying is over. It is the state of mind that has changed. Prices don’t even have to go down to make people pessimistic. It is enough if the market gets dull and stays dull for a time.
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In a bull market bear factors are ignored. That is human nature, and yet human beings profess astonishment at it.
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Speculation in stocks will never disappear. It isn’t desirable that it should. It cannot be checked by warnings as to its dangers. You cannot prevent people from guessing wrong no matter how able or how experienced they may be. Carefully laid plans will miscarry because unexpected and even the unexpectable will happen. Disaster may come from a convulsion of nature or from the weather, from your own greed or from some man’s vanity; from fear or from uncontrolled hope.
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The speculator’s deadly enemies are: Ignorance, greed, fear, and hope. All the statute books in the world and all the rules of all the Exchanges on earth cannot eliminate these from the human animal.
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Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very ammusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but after any tip.
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It has always seemed to me the height of damfoolishness to trade on tips… I sometimes think that tip-takers are like drunkards. There are some who can’t resist the craving and always look forward to those jags which they consider indespensable to their happiness… To be told precisely what to do to be happy in such a manner that you can easily obey is the next nicest thing to being happy — which is a mighty long first step toward the fulfilment of your heart’s desire. It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to any thinking.
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After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!
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A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
Last Call
- Four Behavioral Biases, and How to Fight Them – Enterprising Investor
- The Lies We Tell – Farnam Street
- How the Anchoring Effect Contaminates Judgment – Psychology Today
- What We Want Doesn’t Always Make Us Happy – N. Smith
- Useful and Overlooked Skills – M. Housel
- Five Questions: The Importance of Narratives with Ben Hunt – ValIdea
- An Ancient Relationship: FinTech and Financial Advice – J. Catherwood
- Vanguard Patented a Way to Avoid Taxes on Mutual Funds – Bloomberg
- Joel Greenblatt: Prime Quadrant Conference (video) – Youtube
- How to Reduce Digital Distractions: Advice from Medieval Monks – Aeon
- 2019 Berkshire Hathaway Annual Book Selections (pdf) – The Bookworm
- The Oral History of Amazon Prime – Vox
