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Reminiscences of a Stock Operator
Reminiscences of a Stock Operator
LefГЁvre Edwin
Lowenstein Roger
Wall Street is where poker and modern finance?and the theory behind these "games"?clash head on. In both worlds, real risk means real money is made or lost in a heart beat, and neither camp is always rational with the risk it takes. As a result, business and financial professionals who want to use poker insights to improve their job performance will find this entertaining book a "must read." So will poker players searching for an edge in applying the insights of risk-takers on Wall Street.
Edwin LefГЁvre
Reminiscences of a Stock Operator
Introducing Wiley Investment Classics
There are certain books that have redefined the way we see the worlds of finance and investing – books that deserve a place on every investor’s shelf. Wiley Investment Classics will introduce you to these memorable books, which are just as relevant and vital today as when they were first published. Open a Wiley Investment Classic and rediscover the proven strategies, market philosophies, and definitive techniques that continue to stand the test of time.
Copyright В© 1993, 1994 by Expert Trading, Ltd.
Foreword В© 2006 by Roger Lowenstein
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
Originally published in 1923 by George H. Doran and Company.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com (http://www.copyright.com/). Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions (http://www.wiley.com/go/permissions).
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com (http://www.wiley.com/).
Library of Congress Cataloging-in-Publication Data
Lefèvre, Edwin, 1871–1943.
Reminiscences of a stock operator / Edwin LefГЁvre.
p. cm. – (Wiley investment classics) Originally published: New York: G.H. Doran, 1923. Includes index.
ISBN-13: 978-0-471-77088-6 (pbk.) ISBN-10: 0-471-77088-4 (pbk.) 1. New York Stock Exchange. 2. Speculation. I. Title. II. Series.
HG4572.L4 2006
332.64′273 – dc22
2005043672
TO JESSE LAURISTON LIVERMORE
FOREWORD
In the late 1970s, when I was thirsting for a job in journalism, The Wall Street Journal hired me to cover the copper market. My assignment was to get to know the traders who bought and sold copper futures and submit a report on the daily fluctuations. It being an era of high inflation, copper was bullishly inclined, and under my untutored but watchful eye its price increased from 80 cents a pound to 90 cents to, eventually, $1. Promptly I reported (after canvassing my newfound sources) that copper was rising on account of there being “more buyers than sellers.”
“More buyers than sellers!” my editor guffawed. He was a clownish man with a pointed head; he saw humor in everything, in particular his new cub reporter. “Your job is to tell us why there are more buyers than sellers.”
This seemingly straightforward advice led me into a maze of trader’s lore that came to seem indistinguishable from outright guesswork if not invention. On some days, I was told that the advance (or, as it were, the decline) was triggered by “investors,” and was therefore predictive of the future trend. On other days, the price change was ascribed to “speculators,” evidently a less reliable sort. Most mysteriously of all, the price could move for “technical reasons,” which advances I was urged to dismiss as having no significance whatsoever. Still, it was rising, wasn’t it?
Copper cracked $1.50 and throughout its run paid not the slightest heed to the “reasons” I was dutifully laying bare. I knew that something in my analyses was deficient, but I didn’t know what. The problem was a lack of preparation. I hadn’t read Edwin Lefèvre’s Reminiscences of a Stock Operator; therefore, I did not know how to write about commodities markets, or stock markets, or any other kind of market.
If I had read it, I would have understood that “the tape” utters a more powerful argument than any reason or affidavit; you do not argue with the tape, you do not explain it or deconstruct it. And I would have read it on the third page and I would have read it in a single paragraph:
Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and the wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it to-day, when I am forty… What the dickens does that matter?
The author of these lines, the son of a Union Army officer, had been trained as a mining engineer but followed his heart and, in the 1890s, turned to chronicling the exploits of Wall Street moguls. Though the public was as hungry as today for a glimpse into the inner workings of the stock market, in that era, little hard information was available. But Lefèvre, who wrote novels as well as journalism, had a knack for capturing the smell, and also the sound – the vernacular, that is – of Wall Street. In 1922, he caused a stir with a serialized account of a famous – ”infamous” is also a term that springs to mind – speculator who was willing to spill the secrets of the trade to readers of The Saturday Evening Post. His story was republished between hard covers the following year.
Though LefГЁvre wrote in the first person, Reminiscences is based on several weeks of interviews with a trader whom he calls Larry Livingston. Livingston did not exist; it is a nom de guerre for Jesse Livermore, one of the greatest stock speculators ever.
Livermore had begun his career just before the turn of the century, making wagers of a few dollars in “bucket” shops-parlors in which people who did not have the means to open a brokerage account made small bets against the house. The bucket shops booted him out for the unpardonable crime of consistently winning. By the end of World War I, Livermore had made, lost, and made millions, and was generally being blamed for any sizable disruption in the stock and commodities markets, not always without reason.
Though he was destined to play a marquee role in the great crash of 1929, before his untimely and tragic end, Reminiscences is a fictionalized memoir only of Livermore’s early and ascendant years. Do not ask which part exactly is fiction; Livermore was one of those American originals whose amplifications (especially in the hands of a writer as gifted as Lefèvre) merely served to enhance the overall verisimilitude of his story.
And so we have a tell-all confession of how traders worked in the era predating the federal securities laws: of the tipsters, the manipulations, the brazen efforts by corporate managers to ride their own stocks up and down and always in advance of a hapless public. A modern writer called Reminiscences a portrait of “a period in the stock market that no longer exists.” This is true and yet it is untrue. Human nature has not noticeably improved since Lefèvre’s day, nor have the morals of those attracted to Wall Street as a source of easy swag. When Lefèvre-cum-Livingston observes, “In every boom companies are formed primarily if not exclusively to take advantage of the public’s appetite for stocks,” not a few contemporary hucksters (dot.com promoters, for instance) come to mind.
And yet the tempo, the patois of his characters, is sheer Roaring Twenties. Livingston in Atlantic City, supposedly taking a break from the market, could easily be one of Damon Runyon’s track-addicted horse players.
One morning after we had breakfasted and had finished reading all the New York morning papers, and had got tired of watching the sea gulls picking up clams and flying up with them twenty feet in the air and dropping them on the hard wet sand to open them for their breakfast, my friend and I started up the Boardwalk… Harding Brothers had a branch office on the Boardwalk and we used to drop in every morning and see how they’d opened. It was more force of habit than anything else.
This is the signal that Livingston is getting the itch to trade, if only there is some action in the market. Sure enough —
I was looking over the quotation board, noticing the changes – they were mostly advances – until I came to Union Pacific. I got a feeling that I ought to sell it. I can’t tell you more. I just felt like selling it.
Prose that good is its own reason. But there are at least two others that are worthy of mention. The first is personal. Since parting ways with the copper market, I have been, for most of my career, tailing financial operators who were, shall we say, less than saintly and in some cases downright roguish. Most of them have hidden behind hired mouthpieces (later, they hide behind their lawyers). They give us a sanitized version or no version at all.
Livingston, though admittedly a literary construct, speaks directly to us. He names names and pins prices. Does not the president of the Borneo Tin Company, a Mr. Wisenstein, whisper to Livingston’s wife, during a dinner in Palm Beach, that she will make “a great deal of money” by buying his stock? Livingston’s “reminiscence” uncorks the fragrance of the sugary corruption that permeated the Wall Street of those freewheeling days far more than can any secondary source, not to mention any publicist.
Livingston’s response to the whisperer is too good to reveal here, but it will not give away too much to note that Livingston has prepared us for the encounter by observing, matter of factly, that Wisenstein is also the manager of the stock pool. That is to say, the company president is in charge of market operations (all of which would now be illegal) to manipulate the price of the company stock! When folks complain about regulation, as they always have and always will, we must ask whether the good old days were really so good.
Nor does Livingston shy from recounting, stroke by stroke, his own manipulations. I had not thought it possible to create, through cleverly timed purchases, the aura of such interest in a stock that one might move the price higher even while, on a net basis, dispensing of a position in it. Livingston turns the trick with Imperial Steel – ”a beautiful piece of manipulation,” as he allows in an uncommonly self-congratulatory mood. Perhaps he’s a trifle defensive, for he crankily objects to the fact that stock manipulation has gotten a bad name, and insists there is nothing crooked or underhanded about it. It is a brave show, but Livingston’s own prescriptions for cleaning up the market, some of which anticipate the soon-to-be-enacted securities laws, betray the stirrings of a sense of propriety. At all events, we get to hear the operator’s unvarnished account of his own machinations.
The other reason for reading Lefèvre is, of course, that his anecdotal yarns are strung with pearls of advice that the aspiring trader will find most useful. I am not a trader, and I admit that the business of following the tape has always struck me as a sure route to buying high and selling low. Livingston, of course, recognized this danger; you will see his answer. He also recognized that what he did was very different from “investing.” Speculators buy the trend; investors are in for the long haul; “they are a different breed of cats.” One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led. Livingston had no delusions; he was a speculator first and last. Yet, surprisingly, the qualities that worked for him are also those of a great stock picker. These qualities are patience, self-discipline, and a mind-set of detachment. One could get angry at the tape, but the tape didn’t care. Livingston deduced that it was better to learn from his mistakes rather than to pretend he hadn’t made them. His distinguishing trait would seem to have been self-awareness. As with gambling – as with any sport – it is our inner demons that do most harm.
You would expect a speculator to covet tips – Livingston calls them “hope cocktails” – but he urges us (and himself) to resist their siren. This reflects his keen appreciation of market psychology. be evident from If somebody likes a stock, it should the tape; if it is not, then the tip is a false lead; it is empty air. The public is craven for tips; it wants to be told. But Livingston confidently repeats, “I have always played a lone hand.”
Well, almost. Once in Saratoga Springs, another of those resorts where he goes to pretend that he is on vacation, Livingston sells a stock he had been accumulating (once again, it is Union Pacific) on the basis of a tip from his broker. The tip turns out to be wrong. It is a costly error – instructive to him and also to us. Our teacher ruefully reflects that he could have learned the same lesson while losing a lot less money. “But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill.” Happily, Fate has delivered the education to us at a far more reasonable price. It, along with the exquisite pleasure to be found in Lefèvre’s street-smart narration, has been attracting stock market fans to Reminiscences through many a bull and bear market.
В В В В Roger Lowenstein
Chapter I
I went to work when I was just out of grammar school. I got a job as quotation-board boy in a stock-brokerage office. I was quick at figures. At school I did three years of arithmetic in one. I was particularly good at mental arithmetic. As quotation-board boy I posted the numbers on the big board in the customers’ room. One of the customers usually sat by the ticker and called out the prices. They couldn’t come too fast for me. I have always remembered figures. No trouble at all.
There were plenty of other employes in that office. Of course I made friends with the other fellows, but the work I did, if the market was active, kept me too busy from ten A.M. to three P.M. to let me do much talking. I don’t care for it, anyhow, during business hours.
But a busy market did not keep me from thinking about the work. Those quotations did not represent prices of stocks to me, so many dollars per share. They were numbers. Of course, they meant something. They were always changing. It was all I had to be interested in – the changes. Why did they change? I didn’t know. I didn’t care. I didn’t think about that. I simply saw that they changed. That was all I had to think about five hours every day and two on Saturdays: that they were always changing.
That is how I first came to be interested in the behaviour of prices. I had a very good memory for figures. I could remember in detail how the prices had acted on the previous day, just before they went up or down. My fondness for mental arithmetic came in very handy.
I noticed that in advances as well as declines, stock prices were apt to show certain habits, so to speak. There was no end of parallel cases and these made precedents to guide me. I was only fourteen, but after I had taken hundreds of observations in my mind I found myself testing their accuracy, comparing the behaviour of stocks to-day with other days. It was not long before I was anticipating movements in prices. My only guide, as I say, was their past performances. I carried the “dope sheets” in my mind. I looked for stock prices to run on form. I had “clocked” them. You know what I mean.
You can spot, for instance, where the buying is only a trifle better than the selling. A battle goes on in the stock market and the tape is your telescope. You can depend upon it seven out of ten cases.
Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience.
I got so interested in my game and so anxious to anticipate advances and declines in all the active stocks that I got a little book. I put down my observations in it. It was not a record of imaginary transactions such as so many people keep merely to make or lose millions of dollars without getting the swelled head or going to the poorhouse. It was rather a sort of record of my hits and misses, and next to the determination of probable movements I was most interested in verifying whether I had observed accurately; in other words, whether I was right.
Say that after studying every fluctuation of the day in an active stock I would conclude that it was behaving as it always did before it broke eight or ten points. Well, I would jot down the stock and the price on Monday, and remembering past performances I would write down what it ought to do on Tuesday and Wednesday. Later I would check up with actual transcriptions from the tape.
LefГЁvre Edwin
Lowenstein Roger
Wall Street is where poker and modern finance?and the theory behind these "games"?clash head on. In both worlds, real risk means real money is made or lost in a heart beat, and neither camp is always rational with the risk it takes. As a result, business and financial professionals who want to use poker insights to improve their job performance will find this entertaining book a "must read." So will poker players searching for an edge in applying the insights of risk-takers on Wall Street.
Edwin LefГЁvre
Reminiscences of a Stock Operator
Introducing Wiley Investment Classics
There are certain books that have redefined the way we see the worlds of finance and investing – books that deserve a place on every investor’s shelf. Wiley Investment Classics will introduce you to these memorable books, which are just as relevant and vital today as when they were first published. Open a Wiley Investment Classic and rediscover the proven strategies, market philosophies, and definitive techniques that continue to stand the test of time.
Copyright В© 1993, 1994 by Expert Trading, Ltd.
Foreword В© 2006 by Roger Lowenstein
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
Originally published in 1923 by George H. Doran and Company.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com (http://www.copyright.com/). Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions (http://www.wiley.com/go/permissions).
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com (http://www.wiley.com/).
Library of Congress Cataloging-in-Publication Data
Lefèvre, Edwin, 1871–1943.
Reminiscences of a stock operator / Edwin LefГЁvre.
p. cm. – (Wiley investment classics) Originally published: New York: G.H. Doran, 1923. Includes index.
ISBN-13: 978-0-471-77088-6 (pbk.) ISBN-10: 0-471-77088-4 (pbk.) 1. New York Stock Exchange. 2. Speculation. I. Title. II. Series.
HG4572.L4 2006
332.64′273 – dc22
2005043672
TO JESSE LAURISTON LIVERMORE
FOREWORD
In the late 1970s, when I was thirsting for a job in journalism, The Wall Street Journal hired me to cover the copper market. My assignment was to get to know the traders who bought and sold copper futures and submit a report on the daily fluctuations. It being an era of high inflation, copper was bullishly inclined, and under my untutored but watchful eye its price increased from 80 cents a pound to 90 cents to, eventually, $1. Promptly I reported (after canvassing my newfound sources) that copper was rising on account of there being “more buyers than sellers.”
“More buyers than sellers!” my editor guffawed. He was a clownish man with a pointed head; he saw humor in everything, in particular his new cub reporter. “Your job is to tell us why there are more buyers than sellers.”
This seemingly straightforward advice led me into a maze of trader’s lore that came to seem indistinguishable from outright guesswork if not invention. On some days, I was told that the advance (or, as it were, the decline) was triggered by “investors,” and was therefore predictive of the future trend. On other days, the price change was ascribed to “speculators,” evidently a less reliable sort. Most mysteriously of all, the price could move for “technical reasons,” which advances I was urged to dismiss as having no significance whatsoever. Still, it was rising, wasn’t it?
Copper cracked $1.50 and throughout its run paid not the slightest heed to the “reasons” I was dutifully laying bare. I knew that something in my analyses was deficient, but I didn’t know what. The problem was a lack of preparation. I hadn’t read Edwin Lefèvre’s Reminiscences of a Stock Operator; therefore, I did not know how to write about commodities markets, or stock markets, or any other kind of market.
If I had read it, I would have understood that “the tape” utters a more powerful argument than any reason or affidavit; you do not argue with the tape, you do not explain it or deconstruct it. And I would have read it on the third page and I would have read it in a single paragraph:
Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and the wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it to-day, when I am forty… What the dickens does that matter?
The author of these lines, the son of a Union Army officer, had been trained as a mining engineer but followed his heart and, in the 1890s, turned to chronicling the exploits of Wall Street moguls. Though the public was as hungry as today for a glimpse into the inner workings of the stock market, in that era, little hard information was available. But Lefèvre, who wrote novels as well as journalism, had a knack for capturing the smell, and also the sound – the vernacular, that is – of Wall Street. In 1922, he caused a stir with a serialized account of a famous – ”infamous” is also a term that springs to mind – speculator who was willing to spill the secrets of the trade to readers of The Saturday Evening Post. His story was republished between hard covers the following year.
Though LefГЁvre wrote in the first person, Reminiscences is based on several weeks of interviews with a trader whom he calls Larry Livingston. Livingston did not exist; it is a nom de guerre for Jesse Livermore, one of the greatest stock speculators ever.
Livermore had begun his career just before the turn of the century, making wagers of a few dollars in “bucket” shops-parlors in which people who did not have the means to open a brokerage account made small bets against the house. The bucket shops booted him out for the unpardonable crime of consistently winning. By the end of World War I, Livermore had made, lost, and made millions, and was generally being blamed for any sizable disruption in the stock and commodities markets, not always without reason.
Though he was destined to play a marquee role in the great crash of 1929, before his untimely and tragic end, Reminiscences is a fictionalized memoir only of Livermore’s early and ascendant years. Do not ask which part exactly is fiction; Livermore was one of those American originals whose amplifications (especially in the hands of a writer as gifted as Lefèvre) merely served to enhance the overall verisimilitude of his story.
And so we have a tell-all confession of how traders worked in the era predating the federal securities laws: of the tipsters, the manipulations, the brazen efforts by corporate managers to ride their own stocks up and down and always in advance of a hapless public. A modern writer called Reminiscences a portrait of “a period in the stock market that no longer exists.” This is true and yet it is untrue. Human nature has not noticeably improved since Lefèvre’s day, nor have the morals of those attracted to Wall Street as a source of easy swag. When Lefèvre-cum-Livingston observes, “In every boom companies are formed primarily if not exclusively to take advantage of the public’s appetite for stocks,” not a few contemporary hucksters (dot.com promoters, for instance) come to mind.
And yet the tempo, the patois of his characters, is sheer Roaring Twenties. Livingston in Atlantic City, supposedly taking a break from the market, could easily be one of Damon Runyon’s track-addicted horse players.
One morning after we had breakfasted and had finished reading all the New York morning papers, and had got tired of watching the sea gulls picking up clams and flying up with them twenty feet in the air and dropping them on the hard wet sand to open them for their breakfast, my friend and I started up the Boardwalk… Harding Brothers had a branch office on the Boardwalk and we used to drop in every morning and see how they’d opened. It was more force of habit than anything else.
This is the signal that Livingston is getting the itch to trade, if only there is some action in the market. Sure enough —
I was looking over the quotation board, noticing the changes – they were mostly advances – until I came to Union Pacific. I got a feeling that I ought to sell it. I can’t tell you more. I just felt like selling it.
Prose that good is its own reason. But there are at least two others that are worthy of mention. The first is personal. Since parting ways with the copper market, I have been, for most of my career, tailing financial operators who were, shall we say, less than saintly and in some cases downright roguish. Most of them have hidden behind hired mouthpieces (later, they hide behind their lawyers). They give us a sanitized version or no version at all.
Livingston, though admittedly a literary construct, speaks directly to us. He names names and pins prices. Does not the president of the Borneo Tin Company, a Mr. Wisenstein, whisper to Livingston’s wife, during a dinner in Palm Beach, that she will make “a great deal of money” by buying his stock? Livingston’s “reminiscence” uncorks the fragrance of the sugary corruption that permeated the Wall Street of those freewheeling days far more than can any secondary source, not to mention any publicist.
Livingston’s response to the whisperer is too good to reveal here, but it will not give away too much to note that Livingston has prepared us for the encounter by observing, matter of factly, that Wisenstein is also the manager of the stock pool. That is to say, the company president is in charge of market operations (all of which would now be illegal) to manipulate the price of the company stock! When folks complain about regulation, as they always have and always will, we must ask whether the good old days were really so good.
Nor does Livingston shy from recounting, stroke by stroke, his own manipulations. I had not thought it possible to create, through cleverly timed purchases, the aura of such interest in a stock that one might move the price higher even while, on a net basis, dispensing of a position in it. Livingston turns the trick with Imperial Steel – ”a beautiful piece of manipulation,” as he allows in an uncommonly self-congratulatory mood. Perhaps he’s a trifle defensive, for he crankily objects to the fact that stock manipulation has gotten a bad name, and insists there is nothing crooked or underhanded about it. It is a brave show, but Livingston’s own prescriptions for cleaning up the market, some of which anticipate the soon-to-be-enacted securities laws, betray the stirrings of a sense of propriety. At all events, we get to hear the operator’s unvarnished account of his own machinations.
The other reason for reading Lefèvre is, of course, that his anecdotal yarns are strung with pearls of advice that the aspiring trader will find most useful. I am not a trader, and I admit that the business of following the tape has always struck me as a sure route to buying high and selling low. Livingston, of course, recognized this danger; you will see his answer. He also recognized that what he did was very different from “investing.” Speculators buy the trend; investors are in for the long haul; “they are a different breed of cats.” One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led. Livingston had no delusions; he was a speculator first and last. Yet, surprisingly, the qualities that worked for him are also those of a great stock picker. These qualities are patience, self-discipline, and a mind-set of detachment. One could get angry at the tape, but the tape didn’t care. Livingston deduced that it was better to learn from his mistakes rather than to pretend he hadn’t made them. His distinguishing trait would seem to have been self-awareness. As with gambling – as with any sport – it is our inner demons that do most harm.
You would expect a speculator to covet tips – Livingston calls them “hope cocktails” – but he urges us (and himself) to resist their siren. This reflects his keen appreciation of market psychology. be evident from If somebody likes a stock, it should the tape; if it is not, then the tip is a false lead; it is empty air. The public is craven for tips; it wants to be told. But Livingston confidently repeats, “I have always played a lone hand.”
Well, almost. Once in Saratoga Springs, another of those resorts where he goes to pretend that he is on vacation, Livingston sells a stock he had been accumulating (once again, it is Union Pacific) on the basis of a tip from his broker. The tip turns out to be wrong. It is a costly error – instructive to him and also to us. Our teacher ruefully reflects that he could have learned the same lesson while losing a lot less money. “But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill.” Happily, Fate has delivered the education to us at a far more reasonable price. It, along with the exquisite pleasure to be found in Lefèvre’s street-smart narration, has been attracting stock market fans to Reminiscences through many a bull and bear market.
В В В В Roger Lowenstein
Chapter I
I went to work when I was just out of grammar school. I got a job as quotation-board boy in a stock-brokerage office. I was quick at figures. At school I did three years of arithmetic in one. I was particularly good at mental arithmetic. As quotation-board boy I posted the numbers on the big board in the customers’ room. One of the customers usually sat by the ticker and called out the prices. They couldn’t come too fast for me. I have always remembered figures. No trouble at all.
There were plenty of other employes in that office. Of course I made friends with the other fellows, but the work I did, if the market was active, kept me too busy from ten A.M. to three P.M. to let me do much talking. I don’t care for it, anyhow, during business hours.
But a busy market did not keep me from thinking about the work. Those quotations did not represent prices of stocks to me, so many dollars per share. They were numbers. Of course, they meant something. They were always changing. It was all I had to be interested in – the changes. Why did they change? I didn’t know. I didn’t care. I didn’t think about that. I simply saw that they changed. That was all I had to think about five hours every day and two on Saturdays: that they were always changing.
That is how I first came to be interested in the behaviour of prices. I had a very good memory for figures. I could remember in detail how the prices had acted on the previous day, just before they went up or down. My fondness for mental arithmetic came in very handy.
I noticed that in advances as well as declines, stock prices were apt to show certain habits, so to speak. There was no end of parallel cases and these made precedents to guide me. I was only fourteen, but after I had taken hundreds of observations in my mind I found myself testing their accuracy, comparing the behaviour of stocks to-day with other days. It was not long before I was anticipating movements in prices. My only guide, as I say, was their past performances. I carried the “dope sheets” in my mind. I looked for stock prices to run on form. I had “clocked” them. You know what I mean.
You can spot, for instance, where the buying is only a trifle better than the selling. A battle goes on in the stock market and the tape is your telescope. You can depend upon it seven out of ten cases.
Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience.
I got so interested in my game and so anxious to anticipate advances and declines in all the active stocks that I got a little book. I put down my observations in it. It was not a record of imaginary transactions such as so many people keep merely to make or lose millions of dollars without getting the swelled head or going to the poorhouse. It was rather a sort of record of my hits and misses, and next to the determination of probable movements I was most interested in verifying whether I had observed accurately; in other words, whether I was right.
Say that after studying every fluctuation of the day in an active stock I would conclude that it was behaving as it always did before it broke eight or ten points. Well, I would jot down the stock and the price on Monday, and remembering past performances I would write down what it ought to do on Tuesday and Wednesday. Later I would check up with actual transcriptions from the tape.