Finance · 08

Reminiscences of a Stock Operator

Edwin Lefèvre

Being right about the market pays only if you can afford to wait and can admit when you are wrong.

A trader's story, told here through one ticker tape. Five questions, each answered in a short piece to read or hear.

Start with question oneBuy the book

The five questions

In the order the book argues them.

Guiana Gold

The price fell before the reason arrived

Guiana Gold had prestigious sponsors and kept paying dividends, yet its price kept falling. Livingston read the weakness as a warning. Reports of disappointing ore explained it later.

As a boy he wrote each prediction in a notebook before the tape could prove it.

When prices move before the facts are public, how can you tell an early signal from a convincing story?Before the explanation arrivesLivingston learns to test a market story against what prices do, what businesses face, and what he still cannot explain.7 min listen

May 9, 1901

Both moves came. His money did not last.

He predicted a collapse and then a recovery. Both happened. The tape ran behind the market, his orders filled far from the prices he saw, and by the time he had traded both moves his stake was gone.

The ticker prints on whether or not you are still holding the tape.

With limited cash and time, how can a correct market prediction still bankrupt you?Right about the market, out of moneyLivingston predicts a collapse and a recovery, yet loses his stake. Execution, financing and deadlines explain why direction alone cannot pay him.7 min listen

Sitting through it

Patience needs a reason that still holds

Old Partridge would not sell his Climax Motors ahead of an expected dip, because it was a bull market. Livingston learned to sit through lost paper profits while the larger move held, and to close a trade that kept contradicting him.

He treated the closed loss as a paid bill.

With real money at risk, how do you stay patient without turning conviction into denial?What makes a position worth keepingLivingston learns that patient holding needs continuing evidence, room for error and enough freedom of mind to act when the evidence changes.7 min listen

Williamson & Brown

A favor took his trading out of his hands

Daniel Williamson gave him twenty-five thousand dollars to trade with. Three weeks later Livingston had made a hundred and twelve thousand. Gratitude kept him there even after Williamson reversed one of his trades before telling him.

When advice is free and help feels personal, how do you keep control of decisions that cost you money?The favor he could afford to repayGratitude keeps Livingston in an account he no longer controls. Friendly persuasion and paid recommendations can also separate a trader from his own judgment.7 min listen

Consolidated Stove

The rise did the selling

Buyers expected Livingston to push Consolidated Stove higher. Their orders let him sell the bank's entire block before he had bought a single share.

By the time the crowd agrees that a stock is going higher, the seller it admires may already be leaving.

When rising prices can be a sales pitch, who gets to cash out, and who is left carrying the risk?The buyers who let someone else outA stock's rising price can help its owners sell. Their costs, loans and selling plans tell a different story from the quotation.7 min listen

The tape runs on

Read the five questions

Start with question oneBuy the book

Published by Wiley. Cover shown to identify the book. Jesse Livermore, whose story it tells, drawn as an editorial caricature.