Reminiscences of a Stock Operator
Edwin Lefèvre, 1923
Why does a person who correctly predicted a market crash go broke before the crash happens? Edwin Lefèvre tells, in the first person, the story of the stock trader Larry Livingston, who from youth bet on price moves, lost everything several times and got back up again. You will learn which mistakes he himself considered the most expensive, and why the main opponent of anyone who takes risks sits inside his own head.
Who it is for
For people who risk money, time or reputation and notice that they lose more often not to circumstances, but to their own haste, hope and other people's advice.
Big money never came to me from my ideas. It always came from my ability to sit still.
Right and Ruined
In the autumn of 1906, Larry Livingston was almost twenty-seven years old, and he had spent twelve of those years on the stock exchange. He saw what the public did not notice: the Boer War and the San Francisco earthquake had destroyed huge fortunes, soon there would not be enough money for everyone, and share prices would fall. He began to sell. On the exchange this is called “short selling.” You sell shares you do not own, then buy them back more cheaply. The market dipped a little, then climbed and ate up his profit. He sold again, prices shot up again, and in the end one more rally left him with nothing. So he turned out, in his own words, to be right and ruined.
Later he described it in a picture. Ahead lay a mountain of dollars with a sign that read “Take as much as you want.” Beside it stood a cart with his name on it, in his hands was a shovel, and all around there was not a soul. He rushed to the mountain at a run, ran out of breath and fell. The mountain stayed where it was, but the shovel and the cart disappeared. He had seen it correctly and was wrong only about the distance: he should have walked.
Edwin Lefèvre, a journalist, recorded this confession and published it in 1923. The narrator is fictional, but the book is dedicated to the famous stock speculator Jesse Livermore, and readers have long seen in Livingston his portrait. The book's main conclusion sounds unexpected: most often it was not the market that beat him, but he himself, with his haste, hope, fear and trust in other people's advice.
This is a market of a hundred years ago and the experience of one man, not a proven system and not financial advice. Where we turn to everyday decisions, this is an application of the book's ideas, not the narrator's advice. And a year after the ruin, the same forecast brought him more than a million dollars in a single day. What changed? The whole book is about that.
How He Lost Half His Money in the First Two Hours
At fourteen, Livingston wrote share prices on a large board in a brokerage office. The prices came off the ticker, a telegraph machine that printed them on a paper tape. Soon he noticed that before a rise or a fall, prices behaved in a similar way every time, and he began to bet on his observations in bucket shops, little parlours where nobody bought shares, and the customer simply wagered on which way the price on the tape would move. He won so often that the shops stopped accepting his bets.
Then he went to New York, to a real broker, and on his very first day, within two hours, he bought and sold 1,100 shares. By evening he had lost exactly 1,100 dollars, almost half of everything he had brought with him. The tape lagged behind the real prices, and large orders moved the price by themselves, so the bucket shop method did not work here. Soon he was ruined.
He saw the main mistake only years later. An ordinary fool, the narrator says, does everything at the wrong time, but the Wall Street fool thinks he has to trade all the time. Nobody has a sound reason to buy or sell every day. He sees this urge toward constant action even in professionals: they feel that every evening they must bring something home, as if it were a salary.
He won when, even before a trade, he was sure that past experience was on his side, and he lost when he simply wanted to play. Gambling bets on the nearest swing in price. In his understanding, speculation anticipates a big move and acts only when its signs are already visible.
Every loss he turned into a new “Don't!” on his list. There is nothing better, he says, than to lose everything to learn what not to do. Three ruins in less than two years became an expensive school.
Everyday application: if you feel like acting just because nothing has happened for a long time, name the reason to yourself in one sentence. If you cannot, then it is not a decision but an itch.
About the author
Edwin Lefèvre (1871–1943) was an American journalist who wrote about Wall Street for many years. This book, written in the voice of a fictional stock trader, became a classic about the psychology of risk.
All books by this author: Edwin Lefèvre
Terms from the book
- Thomas
- dividend
- speculation
- short selling
- position
- Livingston: Larry Livingston, the narrator of the book, a fictional stock trader. The book is dedicated to Jesse Livermore, and readers usually see Livingston as his portrait.
- Boer War: The war of 1899 to 1902 between Britain and two Boer republics in South Africa. In the narrator's view, it swallowed huge amounts of capital.
- Livermore: Jesse Livermore (1877–1940), a famous American stock speculator of the early twentieth century, to whom the book is dedicated.
- ticker: A telegraph machine that printed stock prices on a paper tape. That is where stock traders get the word “tape” from.
- bucket shop: An unofficial office of the late nineteenth and early twentieth centuries, where customers bet on the movement of share prices, and nobody actually bought the shares. Exchanges and police gradually closed such offices.
- Partridge: In the book, the name of an elderly customer of a brokerage office, a wise old trader nicknamed the Turkey.
- bull market: A market on which prices rise for a long time and on the whole. A market where they fall for a long time is called a bear market.
- point: In the book, the term for a change of one dollar in a share's price.
- Saratoga Springs: A resort town in New York State, known for its mineral springs and horse races.
- Union Pacific: Union Pacific, one of the largest railroads in the United States.
- Harding: Ed Harding, a broker and friend of the narrator, head of the firm through which he traded.
- insider: A person who runs a company or is close to its management, and who learns of its affairs before the public does.
- White: S. V. White, nicknamed Deacon, one of the big stock traders on Wall Street in earlier times.
- Havemeyer: H. O. Havemeyer, president of a sugar company. According to old traders, he beat many small players on its shares.
- bushel: A unit of grain volume, about 35 litres. A bushel of wheat weighs about 27 kilograms.
- Anaconda: Anaconda, a large American copper company.
- Hearn: Pat Hearn, a gambler of the nineteenth century, about whom an old trader told the narrator.
- Bethlehem Steel: Bethlehem Steel, a large American steel company that received huge military orders during the First World War.
- life annuity: A contract under which a person pays money once and then receives regular payments for the rest of his life.
- trust fund: Property handed over to be managed for named people. The person who created it can no longer dispose of it at will.
All terms
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