Home
How to Trade in Stocks
Reminiscences
Jesse Livermore Books

How to Invest

Investing today

www.how-to-invest.co.uk

Reminiscences of a Stock Operator
Edwin Lefèvre (1871–1943) was an American journalist, writer, and statesman most noted for his writings on Wall Street business.

An independently wealthy investor, while living in Hartsdale, New York a collection of Edwin Lefèvre's short stories was published in 1901 under the title "Wall Street Stories." This was followed by several novels about money and finance until 1908 when Lefèvre and his wife Martha and their children moved to a country estate in East Dorset, Vermont. During the 1909-1913 presidency of William Howard Taft, Edwin Lefèvre was appointed an Ambassador of the United States, serving in a number of countries including Italy, Spain, and France. When his diplomatic career ended, he returned to his home in Vermont where he resumed his literary work, providing short stories for magazines such as The Saturday Evening Post and writing novels.

Of the eight books authored by Edwin Lefèvre his Reminiscences of a Stock Operator is considered a must-read classic by most anyone involved in the American financial community. The book began as a series of twelve articles published between 1922 and 1923 in The Saturday Evening Post. It is written as first-person fiction, telling the story of a professional stock trader on Wall Street. While published as fiction, it is generally accepted to be the biography of stock market whiz Jesse Livermore. The book has been reprinted in almost every decade since its original publication in 1925, the latest put out by John Wiley & Sons in hardcover and paperback in 1994 which remains in print.

In his interviews with Edwin Lefèvre, Jesse Livermore spoke eloquently of the training a would-be successful stock trader needs:

"The training of a stock trader is like a medical education.”

"The physician has to spend long years learning anatomy, physiology, materia medica and collateral subjects by the dozen.”

"He learns the theory and then proceeds to devote his life to the practice. He observes and classifies all sorts of pathological phenomena. He learns to diagnose. If his diagnosis is correct - and that depends upon the accuracy of his observation - he ought to do pretty well in his prognosis, always keep in mind, of course, that human fallibility and the utterly unforeseen will keep him from scoring 100 per cent of bull's-eyes.”

"And then, as he gains in experience, he learns not only to do the right thing but to do it instantly, so that many people will think he does it instinctively. It really isn't automatism. It is that he has diagnosed the case according to his observations of such cases during a period of many years; and, naturally, after he has diagnosed it, he can only treat it in the way that experience has taught him is the proper treatment.”

"You can transmit knowledge-that is, your particular collection of card-indexed facts-but not your experience. A man may know what to do and lose money-if he doesn't do it quickly enough.”

"Observation, experience, memory and mathematics - these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed. He cannot bet on the unreasonable or on the unexpected, however strong his personal convictions may be about man's unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities - that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.”

"A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years at the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude and that enables him to beat the game-at times! This difference between the professional and the amateur or occasional trader cannot be overemphasized. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, it makes its money by dealing with facts and figures.”

"When I said that a trader has to keep posted to the minute and that he must take a purely professional attitude toward all markets and all developments, I merely meant to emphasize again that hunches and the mysterious ticker-sense haven't so very much to do with success."

From the age of 15, Jesse Livermore had become an expert at reading the ticker tape that brought price and volume data from the trading floor of the New York Stock Exchange.

Jesse Livermore had learned, with a high probability of being right, to predict whether a stock was due to rise or fall.

He had also learned that the time delay involved in trading on the stock exchange through a broker, rather than trading in a bucket shop, meant he had to choose his trades carefully. He should accept only those trades that offered the highest probability of large movements in price. The time-delay meant he could no longer step into trades where he thought he could very quickly grab a one-point profit.

Finally, he had learned through bitter experience to trust his own reading of the tape in preference to listening to experts. He had also learned that the insider tips he was regularly privy to were often worthless and that they should be ignored.

Something was still missing from his trading though and Jesse Livermore tried to find it.

First of all, rather than solely relying on the tape, Jesse Livermore began to look further afield, reading trade reports, earnings figures and financial statements. This gave him a better feel for the companies that should be rising and those that should be falling.

Then, studying his own trading records, he found that although he was often 100 percent right in predicting small movements in prices, he was making much less profit than he should in the bull market that prevailed. Jesse Livermore realized that by jumping into and out of stocks on the basis of his daily reading of the tape he was missing out on profits.

A Crucial Conversation - "It's a Bull Market"
Listening to the (repeated daily) advice of an old stager in the offices of Fullerton, it suddenly dawned on him why he was making less profit than he should. Whatever questions the old fellow - known to everyone as Turkey although his real name was Partridge - was asked about the market, he would reply, "Well, it's a bull market".

At first Jesse Livermore thought this was a mere platitude. Hearing "It's a Bull Market" daily, he began thinking about it more. Then, listening to a conversation between Turkey and Elmer Harwood - a young trader - he realized that it was more than a platitude - it was the missing piece in his own education.

Elmer: "Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I'll be able to buy it back cheaper. So you'd better do likewise. That is, if you've still got yours."

Turkey: "Yes, Mr. Harwood, I still have it. Of course!"

Elmer: "Well, now is the time to take your profit and get in again on the next dip," said Elmer, "I have just sold every share I owned!"

Turkey: "No! No! I can't do that!"

Elmer: "Didn't I give you the tip to buy it?"

Turkey: "You did, Mr. Harwood, and I am very grateful to you.

Elmer: And didn't that stock go up seven points in ten days? Didn't it?"

Turkey: "It did, and I am much obliged to you, my dear boy. But I couldn't think of selling that stock."

Elmer: "Why not?"

Turkey: "Why, this is a bull market!"
(The old fellow said it as though he had given a detailed explanation.)

Elmer: "I know this is a bull market as well as you do. But you'd better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself."

Turkey: "My dear boy, if I sold that stock now I'd lose my position; and then where would I be? And when you are as old as I am and you've been through as many booms and panics as I have, you'll know that to lose your position is something nobody can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don't feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It's a bull market, you know."
 

Jesse Livermore realized that Turkey's consistent message was that the big money was to be made not in trying to trade small moves on the tape but to catch the major trend.

"Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. One of the most helpful things that anybody can learn is to give up trying to catch the last eighth-or the first. These two are the most expensive eighths in the world."

With this step in place, Jesse Livermore's trading philosophy was complete.