Thursday, 27 November 2014

Reminiscences of a Stock Operator (Jesse Livermore) - by Edwin Lefevre - Table of Contents

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Reminiscences 
of a Stock 
Operator
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by Edwin Lefevre
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Table of Contents
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Chapter One - Summary: "Livingston has a job as a quotation-boy in Boston. Quotes for stocks are called out as they come across the ticker tape, and are written on a large board. Later, he begins trading in bucket shops. Customers place bets on whether stocks will go up or down and can bet on the margin if the house allows it. The bucket shops are not legal but are tolerated. The young Livingston is fascinated by patterns in the tape and has an excellent memory for numbers. He is able to remember the patterns various stocks normally exhibit well enough to predict their behavior or notice if they act strangely. He records his predictions and compares them to the actual performance of the stocks. Livingston trusts his observations more than tips from others." (Source)
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Chapter Two - Summary: "When Livingston discovers no-one in Boston will take his bets anymore, he goes to New York to trade on Wall Street. He has $2,500 of his $10,000 original stake. No one should trade every day, just for the sake of trading—the excitement leads speculators to place bets even when nothing is really set up right. This has cost him and others large amounts of money. Having patience and waiting until the right moment is an important aspect of successful trading.
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Livingston makes his way to New York, where bucket shops are mostly shut down. He has no way to increase his stake, and Wall Street requires a greater amount of money to buy in. He starts trading, but is broke in six months." (Source)
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Chapter Three - Summary: "Livingston says, to be a successful stock trader, one must have confidence and back judgment with money, make the actual trades and learn from experience. He reiterates that the highly technical, short-term trading he learned in the bucket shop is not the whole picture, and is not even that useful on Wall Street. After returning from St. Louis, he plays cautiously, but still loses money.
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Livingston has a lot of ups and downs, riding some successful technical trades to new heights and reaching $50,000 at one point. One day the market moves so quickly the brokers cannot keep up, and even though Livingston is predicting the direction correctly, he loses most of his money. He is still reacting to the prices and movements, rather than trading on broader general principles that will anticipate the market." (Source)
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Chapter Four - Summary: "Livingston is broke and frustrated, and returns to Boston. There are some new bucket shops in Boston, but they will not allow large trades, and those who remember him will not let him trade. One day Livingston is complaining to friends about how slow trades are on Wall Street when he meets a new trader named Roberts. Roberts suggests there are alternative, smaller exchanges that take great care in executing quick trades, and which handle small stakes as well as large. Livingston knows these outfits are shady, but listens. These exchanges play tricks on their customers, getting some to buy a commodity while others are selling, making money on both deals. Livingston decides he can make money off of them, and goes to set up an account." (Source)
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Chapter Five - Summary: "Livingston discusses the patterns various stocks show and how charts can be kept of these patterns and compared to market trends. By applying certain rules to the patterns, traders can decide if it is a good time to buy or sell a particular stock. Only the best traders make money with this approach. One problem is that it ignores the underlying conditions that make a market move, irrespective of individual stocks and past precedents. These technical trading tools work best paired with knowledge of market conditions and normalcy.
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Livingston is still learning these lessons for himself, trading in Fullerton's office. He enjoys trading enough that it takes him a while to realize it is more important to anticipate larger movements of the market and trade on those. He begins to study longer-term movements of the markets and stocks he is interested in." (Source)
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Chapter Six - Summary: "Livingston gets a strong hunch and cannot shake the urge to sell Union Pacific stock. He starts selling, at first slowly, but then by the thousands of shares. He goes ahead with this because in the past when he has ignored strong hunches he has always regretted it. Just a few days afterward, the great San Francisco earthquake of 1906 happens. The extent of damage to Union Pacific's railways eventually causes its stock to plummet, and Livingston continues selling shares, making $250,000, his largest windfall yet. 
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Not long after, Livingston notices Union Pacific stock starting to rise. He starts buying to take advantage of the rise. However, the branch manager convinces him to sell the stock—he is certain Livermore is being played by company insiders and they will cause a turn-around in the price." (Source)
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Chapter Seven - Summary: "Livingston discusses bull and bear markets. He describes how he stopped focusing on individual stocks to look at the market overall. One should always buy or go long on a rising market, and sell or go short on a falling market. Each trade should be at a higher price than the last on a rising market, or at a lower price than the last on a falling market. One should not trade on the temporary reversals but maintain one's position on the overall rise or fall. Livingston also explains how to test the market with an initial trade, only making follow-up trades if the first one brings a profit." (Source)
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Chapter Eight - Summary: "Livingston is convinced his own knowledge, ideas, and hunches serve him better than any other other sources of information. He discusses the importance of being objective and neutral and not preferring a bear or bull market, but trading based on what conditions actually are. He complains that economic news in the papers is retrospective rather than forward-looking.
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Livingston is concerned about the world economic situation in 1906. He expects the San Francisco earthquake and fire, a British war in South Africa, and other disasters will effect the market. The market must drop, and the drop will be a big one. Consequently, he sells short. Unfortunately, a series of market rallies and general instability eat up his profits. Certain the market must eventually go as he expects, he tries again, only to go broke." (Source)
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Chapter Nine - Summary: "Livingston sees the market has been rallying. He sets out to prove this is just a temporary rally, waiting until the right moment and then selling stocks. The other traders think he will lose. However, he is right—the market drops. Later, he gets a further indication that companies and traders are trying to create a market turn-around, and he thinks it is not time yet. He again begins selling stocks. At this point he is at the top of his game, predicting market movements accurately and making a lot of money for himself and his brokerage. The market continues to slide, and there are signs the banking sectors may be affected. Funds start to dry up, which causes great concern in the railroad sector as companies compete for what capital there is." (Source)
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Chapter Ten - Summary: "Livingston trades in stocks and also the commodities market. He considers commodities down to earth and less prone to complex maneuvering than stocks. Commodities are affected by basic conditions such as supply and demand, crop health, transportation issues, and other understandable factors. Livingston discusses how to determine the direction of prices and then trade in accordance with this direction. Since the direction of least resistance is based on underlying factors, if a surprise event happens, it is more likely to contribute to the direction the market is already going and help one's trade." (Source)
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Chapter Eleven - Summary: "Livingston has been trading in wheat and corn, and is selling those as well. Wheat prices are declining as expected, but corn is having a hard time getting to market due to weather on the roads. Someone is also buying it all up, raising the prices and causing Livingston to lose money. Through some market maneuvers, Livingston makes back enough money to cover his losses in corn." (Source)
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Chapter Twelve - Summary: "Livingston receives a request to meet with the noted cotton trader, Percy Thomas, whom he admires but who has recently lost millions in the cotton market. Thomas proposes he and Livermore become partners, with Thomas providing information and Livingston guiding the trading. Livingston refuses because he prefers to work alone, so no-one is dependent on him and he can follow his own ideas. He hints that his downfall in the incident to come is that he can be persuaded by a brilliant mind and cogent presentation." (Source)
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Chapter Thirteen - Summary: "Now Livingston is flat broke, and becomes ill besides. He is no condition to trade and wonders how he could make such a terrible series of mistakes. He goes to Chicago to recover. He finds a small stake there from trading houses that still believe in him, and very slowly begins to build up his assets.
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Back in New York, Daniel Williamson offers Livingston $25,000 as a stake, if Livingston will open a brokerage account with his firm. The brokerage needs Livingston to cover for the activities of some well-known clients. Livingston agrees. He quickly makes back the stake and offers to reimburse Williamson. Williamson demurs. Livingston comes to regret not insisting, as Williamson calls in favors, asking Livingston to do or not do certain trades." (Source)
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Chapter Fourteen - Summary: "Livingston does his best to make money, but market conditions are not right. He becomes in debt to various brokerage houses. He comes to the conclusion that he cannot trade properly as long as he is worried about his debts, as it causes him to be less objective. He considers bankruptcy, but most of the brokerage houses tear up his debts, trusting him to pay them back if he ever has the means. He still declares bankruptcy to avoid two persistent creditors. After this, Livingston feels much better. However, he has no money with which to trade and the market is in a sad state, with not much money among any of the brokers, and none to lend. He decides to go to Williamson and call in a favor. Williamson agrees to allow him to buy 500 shares of any one stock." (Source)
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Chapter Fifteen - Summary: "Livingston warns there are some things no speculator can guard against. One can do his best to protect against the actions of other men, to accurately read and understand the market, and to avoid making mistakes—and if one is wrong due to any of these factors, one will lose money, but need not be upset. However, he hates losing money when he does everything right, but unforeseen events still cause him to lose." (Source)
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Chapter Sixteen - Summary: "Livingston makes fun of traders and the public hungry for the latest tips. Livingston believes his own success is due to ignoring tips, but rather objectively watching stocks and applying his own techniques and ideas. Livingston identifies the spreading of tips as a technique of stock manipulators and promoters, who do not have the best interests of their customers in mind.
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Livingston notes that traders on Wall Street are just as bad when it comes to tips. Livingston gets tips every day and generally ignores them. He is constantly asked for tips and follows his early mentor Partridge by simply noting the general direction of the market. This earns him glares from traders. He tells amusing stories about tips gone bad, as where a trader earns money by always doing the exact opposite of what an insider tells him to do." (Source)
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Chapter Seventeen - Summary: "Livingston admits he sometimes feels a strong urge on which he must take action, but believes there is a good explanation. He suggests there are small warnings, none large enough to provide a rational excuse, but which together create a subconscious sense that now is the time to act in a particular way.
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Livingston discusses the difficulties of selling a large amount of highly priced stock. On paper, one has a large profit, but one must convert that paper profit to cash. Doing so might affect the price substantially. One has to take a profit when conditions are right—others are willing to buy the stock for a reasonable price. This means beginning to sell before the price reaches its peak, or planning to sell at the top but expecting the price to drop along the way." (Source)
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Chapter Eighteen - Summary: "Livingston notices the price of Tropical Trading stock has been run way up by the insiders, in spite of the fact that the overall market is going down. Livingston proceeds to start selling their stock short. The insiders keep fighting back by running the stock up again, but Livingston holds his position, knowing the stock must eventually turn. The insiders start spreading rumors about the company to keep the price high and try to knock Livingston out of the market. In retaliation, Livingston sells a large amount of stock in a parent company of Tropical Trading, which makes everyone think there is something wrong with Tropical Trading that only insiders of that parent company know. At this, the price of Tropical Trading drops sharply. This has to be repeated to counteract the inside trading, but eventually Livingston watches the stock of both companies..." (Source)
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Chapter Nineteen - Summary: "Livingston becomes a stock operator, or manipulator. Many of the tricks of the trade he has used on his own behalf, he now accepts a commission to do for others. The main problem is how to buy or sell large amounts of a given stock at a favorable price, since any such trade begins to affect the price before the trade can be completed. Livingston points out that many of the methods used to manipulate the price of stocks in the past are illegal by his day, but that one can always rely on the mass psychology of traders and the general public." (Source)
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Chapter Twenty - Summary: "Livingston mentions a famous stock manipulator active in the early part of Livingston's career, James R. Keene, who achieves the upward manipulation of U.S. Steel stock prices in 1901. Livingston laments there are no records of Keene's manipulations to learn from. Though some of Keene's techniques are no longer allowed, Livingston believes Keene would have been successful in any time period because he completely understood the market.
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Livingston suggests stock manipulation is less about spreading rumors than it is about having the stock price itself tell traders what they want to see. In general, clients come to Livingston when they wish to sell a large amount of stock for the best possible price, either to bid up the price as high as possible or to avoid a market free-fall as they are in the process of selling it off." (Source)
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Chapter Twenty One - Summary: "Livingston is hired to assist the owners of Imperial Steel make its stock more active and sell their interest in it at prices better than they can obtain on the general market. This is a sound company but one whose stock has never been especially interesting. Trying to just sell large amounts of stock will naturally make the price drop, and there might not be any buyers for it. However, there is nothing wrong with the company that prevents Livingston from marketing it, so he accepts a contingent fee of one hundred thousand shares, which will only bring him profits if he succeeds in the task." (Source)
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Chapter Twenty Two - Summary: "Livingston is approached by an old friend and colleague, Jim Barnes. Barnes wants him to help a group of investors liquidate a large amount of stock in Consolidated Stove. This was a company that was formed by buying out and combining the stocks of three different companies, in order to be a large enough company to have enough stock to trade on Wall Street, where the prices are higher. A large bank loan is needed to finance the consolidation, which Barnes obtains from his bank. The loan seems like a good bet, since the stock offering is well-advertised, the backers are prominent well-known men, and there is more advance demand for the stock than there is stock." (Source)
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Chapter Twenty Three - Summary: "Livingston reviews the different forces that can cause a stock speculator's plans to go wrong, including ones inherent to the market and those related to unscrupulous activity. In the 25 years he has been active, the Stock Exchange has done a great deal to clean up its act and weed out charlatans. However, it is more difficult to be a stock trader, because the number of different stocks listed has increased greatly. It is difficult for a trader to keep up with them all and know enough about each stock to make good decisions. Further, due to the complexity of the market, most traders rely on tips, which Livingston believes are designed to mislead traders in a way that will benefit the insiders most. Insiders are usually attempting to sell large amounts of their own holdings at good prices. The price is manipulated upwards..." (Source)
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Chapter Twenty Four - Summary: "Livingston describes practices he believes should be banned as unfair to the public. Broker letters are letters brokers send out to subscribers or followers that give advice on good stocks to buy or sell. If these are fairly presented and accurately reflect what is likely to happen with these companies, taking into account future market conditions, then they can be useful tools. However, most brokers are looking to make a commission in the short-term, and their advice is often used to generate a market for insiders who have retained them. Livingston warns against selling stocks on a payment plan and stock splits. Livingston thinks stock splits are a device to get the total price of the split stock to exceed the price of the original stock, since the smaller units can be sold for a slightly higher price." (Source)
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