The Art of Speculation
First published in 1923, Reminiscences is a fictionalized account of the life of the securities trader Jesse Livermore. Despite the book's age, it continues to offer insights into the art of trading and speculation. In Jack Schwager's Market Wizards, Reminiscences was quoted as a major source of stock trading learning material for experienced and new traders by many of the traders who Schwager interviewed.
Plot
The book tells the story of Livermore's progression from day trading in the then so-called "New England bucket shops," to market speculator, market maker, and market manipulator, and finally to Wall Street where he made and lost his fortune several times over. Along the way, Livermore learns many lessons, which he happily shares with the reader.
In print
The book remains in print as of 2008, (
ISBN 0471770884). In December 2009, John Wiley & Sons published an annotated edition in hardcover,
ISBN 0-470-48159-5, that bridges the gap between Lefèvre's fictionalized account and the actual exploits, personalities, and locations that populate the book. Page margins in the 2009 edition explain the historical setting and the real companies, individuals, and news events to which Lefèvre alludes.
Quotes
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It took me five years to learn to play the game intelligently enough to make big money when I was right. |
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It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. |
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Old man Partridge's insistence on the vital importance of being continuously bullish in a bull market doubtless made my mind dwell on the need above all other things of determining the kind of market a man is trading in. I began to realize that the big money must necessarily be in the big swing. Whatever might seem to give a big swing, initial impulse, the fact is that its continuance is not the result of manipulation by pools or artifice by financiers, but depends upon basic conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and as long as the impelling forces determine. |
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To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. Having learned what folly I was capable of, I closed that particular incident. |
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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 today has happened before and will happen again. |
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Of course there is always a reason for fluctuations, but what the tape does not concern itself with the why and wherefore. It doesn't go into explanations. The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now - not tomorrow. The reason can wait. But you must act instantly or be left. |
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There is a time for all things, but I didn't know it. And that is precisely what beats so many men on Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying and selling stocks daily - or sufficient knowledge to make his play an intelligent play. |
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The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages. |
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A stock operator has to fight a lot expensive enemies within himself. |
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I never argue with the tape. Getting sore at the market doesn't get you anywhere. |
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Much more to the game of speculation than to play for fluctuations for a few points. |
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There is one side to the stock market; and it is not the bull side or bear side, but the right side. |
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A man must believe in himself and his judgement if he expects to make a living at this game. |
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Speculation is a hard and trying business, and a speculator must be on the job all the time or he'll soon have no job to be on. |
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It seems so obvious now that tape reading is not enough, irrespective of broker execution, that I wonder why I didn't then see both my trouble and the remedy for it. |
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I can't tell you how it came to take me so many years 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. |
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Since suckers always lose money when they gamble on stocks - they never really speculate. |
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There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn! |
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The game of speculation isn't all mathematics or set rules, however rigid the main laws may be. |
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If a stock doesn't act right don't touch it; because being unable to tell precisely what is wrong; you cannot tell which way it is going. |
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I should say that a chart helps those who can read it or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke. |
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I can see now that my main trouble was my failure to grasp the fundamental difference between stock gambling and stock speculation. |
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The game of beating the market exclusively interested me from ten until three every day, and after three, the game of living my life. |
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I had to study what was going to happen; to anticipate stock movements. |
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It was the change in my own attitude that was of supreme importance to me. It taught me little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating. |
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I made up my mind to be wise and play carefully, conservatively. Everybody knew that the way to do that was to take profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried to do.....They say you never grow broke taking profits. No, you don't. But neither do you grow rich taking a four point profit in a bull market. |
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"Well this is a bull market,you know!"
He really meant to tell them that the big money was not in individual fluctuations but in the main movements - that is not in reading the tape but in sizing up the entire market and its trend. |
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It seems incredible that knowing the game as well as I did and with an experience of twelve or fourteen years of speculating in stocks and commodities I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. It was an utterly foolish play, but all I can say in extenuation is that it wasn't really my deal, but Thomas'. Of all speculative blunders there are few greater than trying to average a losing game. My cotton deal proved it to the hilt a little later. Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse. |
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Broke again and incapable of assuming the offensive vigorously. In debt and wrong! After all those long years of successes, tempered by mistakes that really served to pave the way for greater successes, I was now worse off than when I began in the bucket shops. I had learned a great deal about the game of stock speculation, but I had not learned quite so much about the play of human weaknesses. There is no mind so machinelike that you can depend upon it to function with equal efficiency at all times. I now learned that I could not trust myself to remain equally unaffected by men and misfortunes at all times. |
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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 overemphasised. 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. |
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