Unknown to most modern-day investors and traders who cherish Reminiscences of a Stock Operator as one of the most important investment books ever written, the material first appeared in the 1920s as a series of articles and illustrations in the Saturday Evening Post. Now, for the first time ever, this beloved classic is being made available in its original, illustrated format. You’ll track the exploits of Jesse Livermore as he won and lost tens of millions of dollars playing the stock and commodities markets during the early 1900s. At one point, he made the then astronomical sum of 10 million dollars in just one month of trading.
Author: Edwin Lefevre
Topics: (1) Finance, (2) Trading, (3) Psychology
Year: 2006
Number of Pages: 288
Language: English
Publisher: John Wiley & Sons
Summary
This is one of the greatest classics in the financial world and a “must-read” for those interested in an excellent financial story combined with essential and still relevant principles and concepts related to trading, speculation, and market psychology. Even though the book was initially published in 1923, it is still highly relevant.
Edwin Lefevre’s book Reminiscences of a Stock Operator is written in the first person, where we follow a person named Larry Livingston. However, it’s an open secret that the book is loosely based on Jesse Livermore, an American stock trader today considered one of the greatest in stock trading and speculation. The narrative, taking place at the beginning of the twentieth century, is from Livingston’s quite unique viewpoint, where we follow him from his start in a bucket shop, where his job was to write quotes on a wall, to one of the best stock speculators. Here we are guided through a story where we follow Livingston’s investment journey, which in the beginning means that he loses all his money more than once.
Despite these setbacks, Livingston is determined to succeed. This determination is also one of the reasons why the reader can learn a lot from his experiences. When reading the book, one quickly sees that Livingston has a natural gift that enables him to analyze price movements on the ticker tape. In addition, he has a unique ability to know when stock prices will rise and fall and to adjust his strategy to account for market changes. This is also evident in the accuracy of his system and some of the first trades he makes. Moreover, his constant strategy development and ability to execute means his success increases, which gets him blacklisted among bucket shops across the United States. His great success and achievements also mean that he is dubbed “boy plunger” on the street. It is essential to explain what a bucket shop is. A bucket shop is a business that allows gambling based on developments in stocks, commodities, and similar. It is a place where one can bet on whether the price will rise or fall without needing to exchange the underlying securities (stocks and similar). It was popular in the US around the mid-1800s but was made illegal in the 1920s.
Livingston’s challenge with bucket shops makes him focus on Wall Street and the opportunities there. That is the “real” markets. The stock strategy he ran in bucket shops, which was his “bread and butter” strategy, was not successful in the larger markets. Although his price predictions are often correct, his timing could be better, which results in significant losses. Through repeated attempts, however, Livingston learns from his mistakes over time. He discovers there is more to the investment world than predicting short-term market trends, as the author puts it: “to catch quick and small price drops.” His interaction with other traders is quite significant for his future success. One of the most important is his meeting with Mr. Partridge, who uses a different strategy than Livingston. Instead of trading in and out of stocks with a short time horizon, Patridge focuses on taking a position and holding on for the long term. In his mind, the enormous profit obtained from more significant market movements (long-term trend) outweighs the small short-term gains Livingston achieves through his methodology. Partridge’s insight is invaluable to Livingston as he struggles to navigate the often treacherous terrain of Wall Street culture. Through his interactions with Partridge, and others, Livingston quickly realizes that his problem is not the way he trades but that he needs more patience to wait for the full earnings potential of the stock movements.
This is also where one gets an insight into Livingston’s ability to analyze his own mistakes and identify why he falls short and what he needs to do differently to improve: “The big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend […]. Disregarding the big swing and trying to jump in and out was fatal to me” (page 57). This is the “ah-ha” moment for Livingston and helps him eventually to reduce the number of failed trades and become incredibly successful.
Contrary to what one might think, his advice today is just as relevant as it was at the beginning of the 1900s. Whether it’s about having one’s own methodology and way of doing things (page 86) or avoiding listening to good ideas from others (page 69). Some of the most critical learnings in the book are:
- Investing and trading is hard work.
- Recognizing who you are (investor or speculator) is essential.
- It’s the losses you learn from, so it is essential to study your mistakes.
- When your decisions are correct, it is vital to get out of it what you can.
- The big profits are in trading with the longer trend.
- Do not listen to others’ ideas and tips, but listen to your own experiences and analyses.
- Losses always show when one can advance (increase position sizes, etc.).
Generally, the book’s value undoubtedly lies in learning about discipline, money management, and risk management. That it’s then wrapped up in a piece of literary fiction makes the story better and the book easier to read. In addition, the book’s goal was to present the consequences of entering the financial market without a strategy or a wrong mindset. Jesse Livermore certainly learned the effects the hard way.
Rating
We have chosen to give “Reminiscences of Stock Operator” the following rating:
Overall rating: ★★★★☆
Overall, it is a highly recommendable book, where one learns the basics of what it takes to be successful in the financial markets.
Style: ★★☆☆☆
It is a relatively easy book to understand in terms of language. It is clear that the book is from the early 1920s, which naturally is reflected in the language. Additionally, the book also requires a certain level of English.
Structure: ★★★★☆
There isn’t much to fault in the structure. Most of the book is set up chronologically, which makes it easy to follow. However, this also means that one must read the book from beginning to end for it to make sense.
Level: ★★★★☆
The book is fictional, which makes the level relatively low and thus easily accessible in terms of the professional level. As it is an old book, one should be aware that some of the things included in the book may not exist today. For instance, investment-related things such as bucket shops and tapes.
Technical: ★★★★★
The book is not technical and does not require anything in terms of the technical level.