A Must Read!

Recently I read the book Reminiscences of a Stock Operator by Edwin Lefevre. Below I will provide a summary of the reading and will then provide you with some takeaways I thought would be beneficial to share with all of you.

Larry Livingston was a very successful stock operator who began his career as a tape reader at the young age of 14. He began his stock operating career in bucket shops where he was very good at reading the tapes and it was easy for him to see trends and get in or out at the prices he wanted. However, he made too much from the bucket shops that the shops around the country refused to let him trade at any of their places any longer. His only choice after this was to move to New York and try his hand on Wall Street. In very little time, Larry had learned that trading on Wall Street was no joke and he lost all that he had because his system didn’t quite work on the Street like it did in the bucket shops. The price the tapes read was not always up to date with what they actually were, causing him to miss out on profits and actually face losses. After he lost everything his first time around in New York, he tried to go back and trade at the bucket shops, but they all recognized him and wouldn’t allow him too. So, he got sneaky and had people do the trading for him at the bucket shops or had places where he would wire in and trade from as well. Again, after he accumulated enough capital to where he thought he could be successful he went back to Wall Street. He adapted his method and ended up figuring out how to play the game on Wall Street. Although his method adapted, he never strayed away from what he knew best, reading the tapes. Throughout his career as a stock operator Mr. Livingston had extreme highs and extreme lows. One of his best days as a stock operator he became in his words “King” of the market. The market was crashing, and nobody was buying any stock. On this day Mr. Livingston made his first million dollars selling his short positions. Due to the prices being so low nobody was willing to buy, and Larry knew that with the move he just made he could have flushed the market as a whole. So, he did the “modest” thing and bought loads of stock for a strong long position for very cheap and believes he saved the market in a way. After this Larry had a long spell where he was in heaps of debt because he took someone else’s advice as opposed to following his own judgment and knowledge. After struggling for quite some time he was able to borrow some capital and make back much more than his debts. He paid all of his debtors back and then he put a fair amount of his capital into annuities so he wouldn’t be "strapped, uncomfortable and minus a stake ever again." After all of this Larry Livingston had finally figured out the way of the market. He never went against his own judgement even when somebody gave him a tip. He had figured out how he could manipulate or read manipulations done on the market. You still can never be 100% sure, but Larry seemed to have a pretty good system and grasp of the market that ended up making him a very respected and wealthy stock operator.

Takeaways:

When you are acting bearish in a bearish market and you decide to sell a stock, each sale must be at a lower level than the previous one. However, when you are buying the reverse is true. You must buy on a rising scale. Don’t buy long stock on a scale down, buy on a scale up.

In a narrow market, when prices are remaining in a narrow range, there is no sense in trying to anticipate what the next big movement is going to be—up or down. The thing to do is to watch the market, read the tape to determine the limits of the prices that are going nowhere at the time. After you determine this point, you must not take an interest until the price breaks through the limit in either direction.

A speculator must concern himself with making money out of the market and not with insisting the tape agree with him. Never argue with the market or ask it for reasons or explanations.

A man may beat a stock or a group at a certain time, but no living man can beat the stock market.

Don’t let emotions take place of your educated judgements.

Always buy stocks after they cross par. In Livingston’s career whenever a stock crosses 100, 200, or 300 for the first time, it nearly always keeps going up for 30-50 points—and after 300 faster than after 100 or 200.

Never try to sell at the top, sell after a reaction if there is no rally.

It is smart to play both sides of the market, bearish and bullish, no need to be fixed to one or the other.

In a bear market it is always wise to cover if complete demoralization suddenly develops.

It is not wise to get out of a position when the break is the result of a raid by an operator, because the moment the operator stops the raid the price must rebound.

All stocks do not move one way together, but all the stocks of a group will move up in a bull market and down in a bear market.

In addition to that last point, if a stock in a group is not acting like the others something could be wrong and you should test the stock to see if it will react how it should in the group. If it doesn’t something is wrong, and you should treat the stock opposite of the group.

A stock speculators deadly enemy: ignorance, greed, fear, and hope

Don’t take others advice or word without doing your own research and tests.

A protracted decline is never due to bear raiding. When a stock keeps on going down you can bet there is something wrong with it, either with the market for it or the company. If the decline were unjustified the stock would soon sell below its real value and that would bring in buying that would check the decline. The only time a bear can make big money selling a stock is when that stock is too high. Therefore, a stock’s protracted decline is not because of bear raiding, but because of something else going on within the stock or the company.

No man can consistently and continuously beat the stock market, he may make money in individual stocks on certain occasions, but no matter how experienced, the possibility of making losing plays is always present because speculation cannot be made 100% safe. Stock trading is an educated gamble.

I hope you can gain something from these takeaways and implement them into your own trading someday. I would highly recommend giving this book a read to help give you some perspective on what the life of a stock operator entails and the ebbs and flows you go through, learning all along the way.

Life’s greatest assets are the lessons you learn along the way.