alea iacta esto

Not All That Glitters

This is from my review on Amazon of “Reminiscences of a Stock Operator” by Edwin Lefevre

Speculators: good guys or scum? This story of a speculator’s, Larry Livingston’s, rise from naif speculator in bucket shops to centi-millionare on Wall Street might help you decide. As some of us understand it, the stock market is one way to hoover up money from the many and deliver it to businesses for the purpose of their making some contribution to the economy – employ people, provide goods and services etc. As Livingston lays out his story it’s clear his motives have nothing to do with the greater economy; he’s only interested in seeing the price of a stock go up when he’s long or it going down when he’s short. Reading between the lines if getting what he wants takes spreading rumours about the company or cornering the market or trading on inside information then that’s what will be done. After all everyone else is doing it. The little guys (that’s you and me) motivated mostly by our greed to “play the market” get crushed as the big elephants massage the market. Yes dear, it is a Ponzi scheme. The only good thing to be said about speculators is that they they provide liquidity. That is until they don’t and the market freezes.

These reminiscences are really quite entertaining and full of street smarts, escapades and episodes. Will this book help you become a successful investor? The easy answer is no, it won’t. If you want to be an investor you are better off learning about fundamental analysis. However, if you want to be a speculator then just be warned that Livingston played his game in the 1890s and early 1900s i.e. like 100 years ago when the stock market was still like the Wild West. Today we have regulators and tens of thousands of pages of regulation. Still, there are some beautiful gems two of which made me stand up. The first is to forget about timing the market – just buy as the market moves up and sell as it moves down, in other words follow the trend. You still have to know when the trend has turned around. The other trick is to test market support so if you want to go long you buy a bit first and see if the price keeps going up after you stop buying. If it does then you repeat a few times. If the price keeps going up after you stop buying then you know there’s some support and you can trade in a much bigger size. If, however, the price had traded back after you stopped buying then you quit buying as support is weak. Obviously this only works if you have the capital for gazillions of stock buys. As a small time player you/I have no hope. Trading costs will kill us or our petty trades won’t be sufficient to test the market. We could use leverage and lots of it and it’s easy to set up accounts today with the likes of IG Index. Too easy in fact. If you’ve ever played on these sites you know the rap: they take your money, you invest on margin and then you can’t sleep or concentrate at work as every point move in the adverse direction costs you five bucks. And if it’s going your way you can’t sit still for adrenaline and the fear it will all soon turn to puff. A little volatility and you’re stopped out. It’s a mugs game really with the cards stacked against us. However I guess that as long as there’s the occasional smart ass who makes a lot of money playing the market, there will be mugs. As the old song says “There’s one born every minute”.

This book isn’t really about a Larry Livingston. It’s the story of the rise, fall and rise of Jesse Livermore who in winning and losing many fortunes became one of the richest men in America. On November 28, 1940 he committed suicide leaving behind the note “I am a failure”.


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