Reminiscences of a Stock Operator by Edwin Lefèvre • Novel Investor

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Edwin Lefèvre ’ s novelize explanation of Jesse Livermore is a classical. It shares the dateless principles around trading in markets while warning of the biggest obstacle that plague speculators and investors alike — human nature.

The Notes

• “Another lesson I learned early is 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 to-day has happened before and will happen again.”
• On bucket shop practices: “In the old days whenever a bucket shop found itself loaded with too many bulls on a certain stock it was a common practice to get some broker to wash down the price of that particular stock far enough to wipe out all the customers that were long of it. This seldom cost the bucket shop more than a couple of points on a few hundred shares, and they made thousands of dollars.”
• “What beat me was not having brains enough to stick to my own game—that is, to play the market only when I was satisfied that precedents favored my play. 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. No man can always have adequate reasons for buying or selling stocks daily—or sufficient knowledge to make his play an intelligent play.”
• “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 every day, as though they were working for regular wages.”
• “A stock operator has to fight a lot of expensive enemies within himself.”
• “I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”
• “It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.”
• “I have heard of people who amuse themselves conducting imaginary operations in the stock market to prove with imaginary dollars how right they are. Sometimes these ghost gamblers make millions. It is very easy to be a plunger that way.”
• “All my life I have made mistakes, but in losing money I have gained experience and accumulated a lot of valuable don’ts.”
• “A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don’t believe in tips.”
• “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 not to lose money, you begin to learn what to do in order to win.”
• “The average ticker hound…goes wrong, I suspect, as much from overspecialization as from anything else. It means a highly expensive inelasticity. After all, the game of speculation isn’t all mathematics or set rules, however rigid the main laws may be.”
• “The more I made the more I spent. This is the usual experience with most men. No, not necessarily with easy-money pickers, but with every human being who is not a slave of the hoarding instinct. Some men, like old Russell Sage, have the money-making and the money-hoarding instinct equally well developed, and of course they die disgustingly rich.”
• “They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.”
• “The tyro knows nothing, and everybody, including himself, knows it. But the next, or second, grade thinks he knows a great deal and makes others feel that way too. He is the experienced sucker, who has studied—not the market itself but a few remarks about the market made by a still higher grade of suckers. The second-grade sucker knows how to keep from losing his money in some of the ways that get the raw beginner. It is this semisucker rather than the 100 per cent article who is the real all-the-year-round support of the commission houses. He lasts about three and a half years on an average, as compared with a single season of from three to thirty weeks, which is the usual Wall Street life of a first offender. It is naturally the semisucker who is always quoting the famous trading aphorisms and the various rules of the game. He knows all the don’ts that ever fell from the oracular lips of the old stagers—excepting the principal one, which is: Don’t be a sucker!”
• “In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly. He makes most of the money—until one of the healthy reactions takes it away from him at one fell swoop.”
• “…the big money was not in the individual fluctuations but in the main movements—that is, not in reading the tape but in sizing up the entire market and its trend.”
• “It never was my thinking that made the big money for me. It always was my sitting… Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”
• “A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
• “Disregarding the big swing and trying to jump in and out was fatal to me. 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.”
• “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. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.”
• “…the average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.”
• “Remember that stocks are never too high for you to begin buying or too low to begin selling.”
• “When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions—or my prepossessions either—to do any thinking for me.”
• “To be angry at the market because it unexpectedly or even illogically goes against you is like getting mad at your lungs because you have pneumonia.”
• “…if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.”
• “Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong—not taking the loss—that is what does the damage to the pocketbook and to the soul.”
• “It does not take a reasonably young and normal man very long to lose the habit of being poor. It requires a little longer to forget that he used to be rich. I suppose that is because money creates needs or encourages their multiplication. I mean that after a man makes money in the stock market he very quickly loses the habit of not spending. But after he loses his money it takes him a long time to lose the habit of spending.”
• “The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.”
• “In a bull market bear factors are ignored. That is human nature, and yet human beings profess astonishment at it.”
• “In a narrow market, when prices are not getting anywhere to speak of but move within 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 get-nowhere prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction.”
• “I sometimes think that speculation must be an unnatural sort of business, because I find that the average speculator has arrayed against him his own nature. The weaknesses that all men are prone to are fatal to success in speculation…”
• “The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.”
• “A man may beat a stock or a group at a certain time, but no man living can beat the stock market!”
• “A man can’t spend years at one thing and not acquire a habitual attitude towards it quite unlike that of the average beginner. The difference distinguishes the professional from the amateur. It is the way a man looks at things that makes or loses money for him in the speculative markets. The public has the dilettante’s point of view toward his own effort. The ego obtrudes itself unduly and the thinking therefore is not deep or exhaustive. The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to.”
• “A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.”
• “Of all speculative blunders there are few greater than trying to average a losing game.”
• “Always sell what shows you a loss and keep what shows you a profit.”
• “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.”
• “There isn’t a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motorboat or a painting… In fact, of all hoodoos in Wall Street I think the resolve to induce the stock market to act as a fairy godmother is the busiest and most persistent.”
• “A great many smashes by brilliant men can be traced directly to the swelled head—an expensive disease everywhere to everybody, but particularly in Wall Street to a speculator.”
• “I learned that the weaknesses to which a speculator is prone are almost numberless.”
• “A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses.”
• “Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.”
• “In a bull market the trend of prices, of course, is decidedly and definitely upward. Therefore whenever a stock goes against the general trend you are justified in assuming that there is something wrong with that particular stock.”
• “Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.”
• “Among the hazards of speculation the happening of the unexpected—I might even say of the unexpectable—ranks high.”
• “I try to stick to facts and facts only, and govern my actions accordingly. That is Bernard M. Baruch’s recipe for success in wealth-winning. Sometimes I do not see the facts—all the facts—clearly enough or early enough; or else I do not reason logically. Whenever any of these things happen I lose. I am wrong. And it always costs me money to be wrong.”
• “The people who know what a stock is worth will always buy it when it is selling at bargain prices… But selling a stock down to a price much below what it is worth is mighty dangerous business.”
• “It has always seemed to me the height of damfoolishness to trade on tips.”
• “The belief in miracles that all men cherish is born of immoderate indulgence in hope. There are people who go on hope sprees periodically and we all know the chronic hope drunkard that is held up before us as an exemplary optimist. Tip-takers are all they really are.”
• “Observation, experience, memory and mathematics—these are what the successful trader must depend on… 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.”
• “Experiences had taught me to beware of buying a stock that refuses to follow the group-leader.”
• “I am profoundly interested in all phases of my business, and of course I learn from the experience of others as well as from my own.”
• “…there is profit in studying the human factors—the ease with which human beings believe what it pleases them to believe; and how they allow themselves—indeed, urge themselves—to be influenced by their cupidity or by the dollar-cost of the average man’s carelessness. Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was.”
• “The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.” — Thomas F. Woodlock
• “The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.”
• “In the stock market, as in warfare, it is well to keep in mind the difference between strategy and tactics.”
• “Experienced speculators do not expect ever to engage in utterly riskless ventures.”
• “After a boom the public is positive that nothing is going up. It isn’t that buyers become more discriminating, but that the blind buying is over. It is the state of mind that has changed. Prices don’t even have to go down to make people pessimistic. It is enough if the market gets dull and stays dull for a time.”
• “In every boom companies are formed primarily if not exclusively to take advantage of the public’s appetite for all kinds of stocks.”
• “The top is never in sight when the vision is vitiated by hope.”
• On Stock Splits: “It is an old device in Wall Street—to change the colour of the certificates in order to make them more valuable. Say a stock ceases to be easily vendible at par. Well, sometimes by quadrupling the stock you may make the new shares sell at 30 or 35. This is equivalent to 120 or 140 for the old stock—a figure it never could have reached.”
• “Getting angry doesn’t get a man anywhere. More than once it has been borne in on me that a speculator who loses his temper is a goner.”
• “The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statute books in the world and all the rules of all the Exchanges on earth cannot eliminate these from the human animal.”
• “In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done.”
• “When a stock keeps on going down you can bet there is something wrong with it, either with the market for it or with 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.”
• “In a bull market and particularly in booms the public at first makes money which it later loses simply by overstaying the bull market.”
• “No matter how experienced a trader is the possibility of his making losing plays is always present because speculation cannot be made 100 percent safe.”

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