Posts filed under “Apprenticed Investor”

Nine Surprising Things Jesse Livermore Said

There are those who would convince you that it is somehow smart or in your best interest to be manically switching your investments around, back and forth, long and short, on a daily basis. To pay attention to this kind of overstimulation is the height of madness, even for professional traders.

The most storied and important trader who ever lived, Jesse Livermore, would be tuning these daily buy and sell calls out were he alive and operating today. Because while he was a trader, he was not of the mindset that there was always some kind of action to be taking.

Jesse Livermore’s legacy is a bit of a double-edged sword…

On the one hand, he was the first to codify the ancient language of supply and demand that is every bit as relevant 100 years later as it was when he first relayed it to biographer Edwin Lefèvre. Livermore himself sums it up thusly: “I learned early that 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. I’ve never forgotten that.”

On the other hand, Livermore’s undoing came at precisely the moments in which he ignored his own advice. After repeated admonitions about tipsters, for example, Jesse allowed a tip on cotton to lead to a massive loss which grew even larger as he sat on it – violating yet another of his own cardinal rules.

And of course, other than for a few moments of temporary triumph in the trading pits and bucket shops of the era, Jesse Livermore was not a happy man. “Things haven’t gone well with me,” he informed one of his many wives by handwritten note, before putting a bullet through his own head in the cloakroom of the Sherry-Netherland Hotel.

But he did leave behind a wealth of knowledge about the art of speculation. His exploits (and cautionary tales of woe) have educated, influenced and inspired every generation of trader since Reminiscences was first published in 1923.

In my opinion, some of the most useful bits of knowledge we get from the book concern Jesse’s discussion of timeframes and patience. Many traders, particularly rookies, approach the game with the idea that they’re supposed to be constantly doing something - in and out, with a trembling finger poised to click the mouse again and again.  Consequently, they get on the treadmill of booking wins and losses without ever really moving the needle. They end up with tons of brokerage commissions and taxes to show for their efforts, but not much else.

Being a trader doesn’t mean one must always be executing a trade, just as being a house painter doesn’t mean that every surface needs an endless series of coats.

Many rookies are surprised to learn that Livermore, the idol of so many great traders, advocated a lower maintenance, higher patience approach as he matured. In his early days, Livermore was dependent on the short-term funding and scalping activity of the bucket shops. Once he graduated and had his own capital, he was able to lengthen position holding times and could even afford to do nothing for extended periods.

Here are nine surprising things Jesse Livermore said regarding excessive trading:

1. “Money is made by sitting, not trading.”

2. “It takes time to make money.”

3. “It was never my thinking that made the big money for me, it always was sitting.”

4. “Nobody can catch all the fluctuations.”

5. “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

6. “Buy right, sit tight.”

7. “Men who can both be right and sit tight are uncommon.”

8. “Don’t give me timing, give me time.”

and finally, the most important thing:

9. “There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in 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. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

Jesse was a trader but he knew the value of staying with positions and sometimes not trading at all. Once he began to follow tips from others or trade when he should have abstained, all of his progress had come undone, and with it, his sanity.

We are fortunate to be able to learn from his mistakes and to sidestep the errors that eventually cost him everything.

Read Also:

Nine Financiers

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Category: Apprenticed Investor, Trading

My motto: ‘Fresh mistakes, every year’

My motto: ‘Fresh mistakes, every year’ Barry Ritholtz Washington Post February 9 2014     “More than anything else, what differentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively.” — Ray Dalio, Bridgewater   Once again, it is the time of year…Read More

Category: Apprenticed Investor

Your Ideology Is Killing Your Portfolio

“It’s going to blow up the deficit, won’t create any jobs and will cause all sorts of other problems.” A hedge-fund manager was lecturing me about the Jobs and Growth Tax Relief Reconciliation Act of 2003, better known as the Bush tax cuts. I had been suggesting that this fund close its short positions on…Read More

Category: Apprenticed Investor, Investing, Politics, Psychology, Really, really bad calls

Mea Culpas: ‘Fresh mistakes, every year’

>   Its my annual mea culpas column for the Washington Post Business Section column. Here’s an excerpt from the column: “Once again, it is the time of year when I look back at the various investing, trading and other mistakes I’ve made. (Last year’s version is here; prior years can be found here). Why…Read More

Category: Apprenticed Investor, Philosophy

Google’s Nest Labs Acquisition is a Smart Move

Defense! Google’s Nest Labs acquisition is a smart move Barry Ritholtz Washington Post, January 26 2014     With the Super Bowl just a week away, the age-old question of whether offense or defense wins big games is at hand. “The best defense is a good offense,” goes the saying, with the Denver Broncos called…Read More

Category: Apprenticed Investor, M&A

Crashes, Corrections & Sentiment

On Monday, we saw a sell-off of more than 1 percent across major U.S. markets. Europe and Asia followed suit the next day. Judging by my e-mails I received, this was it, the beginning of the end, and “you unrepentant bulls are finally going to get what you deserved.” Except not quite yet. Tuesday and…Read More

Category: Apprenticed Investor, Markets, Trading

Your Best Investment Idea for the Next Decade

Yesterday, Business Insider posted a huge piece, wherein they ask various folks for their best idea for a decade. With the low key headlne, Wall Street’s Brightest Minds Reveal Their Best Investment Ideas For The Next Decade, here is how I responded: Financial planning: “As it turns out, that is an easy question: Our own…Read More

Category: Apprenticed Investor, Asset Allocation, Finance, Media

Pushback: Lessons from Gold’s Rise & Fall

Last week, we published a 2,500-word opus on what lessons could be learned from the rise and fall of gold. There was lots of feedback on the general concept and many of the specifics. By and large, the response was positive, with most of the pushback coming from those who were long gold or other…Read More

Category: Apprenticed Investor, Gold & Precious Metals

Bitten by the Gold Bug? Some Lessons

>   I did something different with my Sunday Washington Post Business Section this week. Starting with the 2,500 word long form discussion I wrote for Bloomberg, I simplified this and edited it down to half that length. The print version had the headline Bitten by the gold bug? You’ll do well to heed the…Read More

Category: Apprenticed Investor, Gold & Precious Metals

10 Lessons Learned from Gold’s Epic Rise & Fall

This morning, I have a massive 2500 word piece at Bloomberg looking at the rise and fall of Gold.

The key to the discussion are the 10 lessons that we all can takeaway from that cycle and the experiences of Gold investors. Hopefully, these will make us each better investors in the future.

Here is the intro:

“It has been quite the ride for gold: from under $500 an ounce a decade ago, to above $1,900 in 2011, gold gained more than 400 percent. Since its peak of ~$1,921.15 on Sept. 6, 2011, however, the shine is off the yellow metal. Gold plummeted 38 percent, recently breaking below $1,200. Yesterday’s close is within 5 percent of the lows, at $1,241.

If a 20 percent drop is described as a bear market, and a 30 percent fall is called a crash — what do we call gold’s almost 40 percent plummet?

This column is not an “I told-you-so” or an exercise in “Goldenfreude” (describing a “delight in gold bugs’ collective pain”). Rather, it is an attempt to learn some investing lessons from the epic rise and horrific fall of gold.

As an investor, I am a gold agnostic: When used properly, the metal is a potentially valuable tool in an investment arsenal. There are times when it makes for a profitable part of a portfolio, as in the 2000s. There are periods when it is a speculative and dangerous trade — such as the 2010s. There have also been decades when it does nothing, earning no return, generating no income, essentially dead weight to a portfolio, as in the 1980s and 1990s…”

 

Full column after the jump:

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Category: Apprenticed Investor, Gold & Precious Metals