Reminiscences of Stock Operator : What to do, what not to do!
Reminiscences of Stock Operator :What to do, what not
to do
Edwin, trained as mining engineer sums up journey of stock operator is very lucid way. It is one of the most recommended books for speculation and trading psychology. The name of protagonist is Larry Livingstone who narrates his story, how he got in the market to getting losses and making millions from it. I have summarized the chapters and picked out few quotes from each chapter.
Chapter 1
Livingstone starts to narrate his story, how he got the taste of the market by working at quotation office. He observed stocks, compared the behavior of stock from present to historical prices and maintained a written record to get accurate probabilities. Livingstone tells how sugar was manipulated by brokers and agents on the expense of cronies rigged by the agent.
Livingstone starts to narrate his story, how he got the taste of the market by working at quotation office. He observed stocks, compared the behavior of stock from present to historical prices and maintained a written record to get accurate probabilities. Livingstone tells how sugar was manipulated by brokers and agents on the expense of cronies rigged by the agent.
"Whatever happened in stock market today has happened before and will happen in future again"."Your business with the tape is now, the reason can wait but you ought to act at this moment."
Chapter 2
Livingstone went to NY @ age of 21 and lost everything he earned in just a
matter of few months. Instead of quitting trading he went back to bucket shops
to bring up more margin and found out there is much more to the game of stock
speculation than to play for the fluctuations of a few points.
Quotes-"I always made money when I was sure I was right before I began. What
beat me was not having brains enough to stick to my own game i.e. to play the
market only when I was satisfied that precedents favored my play. There is a
time for all the things on the wall street."
"There is a plain fool, who does the wrong things at all times everywhere and
there is Wall Street fool, who thinks he must trade all the time. No man can
always have adequate reasons for buying or selling stocks daily."
"Getting sore with the markets gets you nowhere."
Chapter 3
After getting broken now a couple more times, Livingstone learned what not to
do the hard way. Not to rely on tips, peculiarities of speculation, trading too
frequently and herd psychology were some of the important points discussed in
the chapter. Livingstone then decided to move back to bucket shops and bring
some margin to restart trading in NY.
Quotes- "No bull or bear but only right side."
"Speculation is a hard and trying business, a speculator must be on the job all
the time or he'll have no job soon."
"It took many years for me to learn that instead of placing piking bets on what
the next few quotations were going to be, my GAME WAS TO ANTICIPATE WHAT WAS
GOING TO HAPPEN IN A BIG WAY."
Chapter 4
In this chapter, he tells how tipsters used telegram to pass buck and leverage it to take
commissions. He also lays stress on trading psychology and how brokers use it to build that
edge-"They figured out that the more I trade the more I'd lose. They dealt
with averages and average customer was never long lived, financially. A busted
customer can't trade and half crippled can only whine and insinuate things."
Like Douglas, LeFevre affirms that you cannot always win but what matters is to
cut your losers and get that balance.
"There is nothing like losing all you have in the world for teaching you
what not to do". How not to lose matters more in the game of speculation. Why he went broke -not following his system(based on study and experience) and
trading out of season.
Chapter 5
Timing the market or time in the market.
-If a stock doesn't act right ,then don't touch it. No diagnosis, no prognosis, no profit-It is not plain arithmetic but human psychology and risk management
involved in reading charts. For average chart reader all movements are dips or peaks for stock
speculation which leads to over speculation and over confidence makes him bound to go broke.
After going broke 3 times, this time Livingstone made a few changes-Time to be
in the market. To trade less and observe more i.e. betting on fluctuations and
anticipating inevitable advances and declines. To win on balance matters.
Semi Sucker-the type that thinks he has cut his wisdom teeth because he loves
to buy on declines-lasts about 3 and half years on wall street. This type knows
all the trading aphorisms and rules yet lack malleability and ductility. Nobody can catch all fluctuations. The thing which matters is patience and
conviction to sit tight .
On Mistakes in Market-Mistakes are like assets which adds up to what not to do
list. "I earned by my mistakes, and some time always elapses between
making a mistake and realizing it, and more time between realizing it and
determining it."
Chapter 6
The story of Union Pacific trade -a hunch that came off during
vacation turned to his heavies bets. The stock was unreactive -to earthquakes,
results etc. for a few days-but fell like anything after 2 days.
Then went long as spotted accumulation in the stock. "I don't know what
happened bit I suppose I must have concluded that my tape reading told me the
stock was being absorbed simply because very clever manipulation made the tape
tell a story that wasn't true."
As he was tipped to not buy-UP went up and costed 40k dollars-"A low price
for a man to pay for not having the courage of his own convictions."
At last he highlights the importance of confidence in your own conviction which is born out
of tape reading experience-both physiological and psychological.
Chapter 7
Pyramid, Always Pyramid.
The chapter explains pyramiding by taking example of 2 stocks .
"To buy on
a rising market is the most comfortable way of buying."
It not to buy at
bottom or sell on top but sell at right time. Each sell must be at a lower
level than the previous sell and each buying at level higher than previous
level.
The best way to ensure you are right is by observing the market behavior and
whether or not it pertains to our observation.
"A man can pyramid and make big money that he couldn't make if he
didn't."
Chapter 8
Busted and boomed-Timing again.
Bullish during bull market and bearish during bear but also the right time to
take position matters. Market must substantiate your view or else you will end
on the losing side even after being right-i.e. not only right time but right
position at right time makes big money. Here, Reading case study explains the
above mentioned observations .Taking profits after the right position right
time is as important. During a bear market "I figured that the decline had
discounted the immediate future" i.e. time to exit shorts.
"If a man didn't make mistakes he would own the world in a month, but if
he didn't profit by his mistakes he wouldn't own a blessed thing.
He highlights the mistakes of too much trading and not right time to take
position.
Chapter 9
Anaconda trade study-Where he was bullish on just one stock
and bearish on broader markets. The price didn't react as he anticipated and
hence decided to exit as soon as possible. The time for anything to do is now.
"Now moment" is what matters the most as then tape now is the reality
-not blinded by hope and greed.
"The only thing to do when a man is wrong
is to be right by ceasing to be wrong."
"When you want to get out,
get out."
Another incident where the market was going from a phase of euphoria and
everyone was turning bullish-the brokers were not able to get money from money
post to repay and then came up the fall which Livingstone anticipated and got
in at the right time this time. He made a fortune (1 million )out of it and
finally knew to trade intelligently in a big way. "As money got tighter
call money rates went higher and prices of stocks lower."
"What is the point in being right unless you get all the good
possible out of it."
"Tape reading was an important part of the game; so was beginning at right
time; so was sticking to your position."
Chapter 10
It covers general psychological aspects like losses,
following rules, systems etc. He compares trading to normal business as
"trader gets dividends on study and observation, as he does in a regular
business"
On losses-Losses never bothers after you take them, but being wrong and not
taking the losses-that is what does the damage to pocket and to the soul."
Stock market mistakes wound you in two tender spots-your pocket and your
vanity. It is never wise for a speculator to fit facts to his
theories.
On speculation vs investing - "Speculator's objective is not to secure a steady
return on his money at a good rate, but to profit by either a rise or falling
price."
Line of least resistance and trading in ranges has been discussed in detail.
"The intelligent trader who has patiently waited to determine LoLR and let
two forces fight." The man who is right always has two forces working in
his favor-basic conditions and men who are wrong. Instead of
fear he must hope, hope instead of fear that losses may develop bigger and
profit may turn to bigger profit.
Chapter 11
How he leverages psychology to hedge corn by using oats trade. Long on
corn-slow accumulation and created heavy shorts on oats. Further explains July cotton trap where he went too heavy and got trapped but was able to offload his positions with profit after a newspaper published his article stating July cotton cornered.
