While I was sitting on the saw and watching the corpse slowly jumping up and down, I decided to re-read my most favorite trading book -- Jesse Livermore's How to Trade in Stocks.
Of course, I'm not the first one to love this book. During the last 80 years pretty much every second one who touched the "investment and trading" sphere even briefly, declared his admiration of Mr. Livermore and the Book of Wisdom. Indeed, how dare you not to admire a person who coined e.g. "The market is never wrong" and a lot of other gilded coins?!
However, Mr. Livermore's book, as well as his trading career and whole life in general, has pretty many little devils under the hood -- and its those little devils that fascinate me the most.
In some modern trading article I read a story that in some big hedge funds the managers handed a copy of Livermore book over to every new employee, so that the newcomers could learn Mr. Livermore's great wisdoms before touching the trading terminal. However, the book they handed over was written not by Jesse Livermore. It was Mr. Lefevre's Reminiscences of the Stock Operator, a fictionized biopic first published in 1923.
Yup, it's Mr. Livermore's fictionized half-life biography that the most learn about Mr. Livermore and take the great wisdoms from. Well, so far so good, at least the Reminiscences is not some another "Trade like Jesse Livermore" shit.
The original book written by Jesse L. Livermore's own hand is How to Trade in Stocks. It was written and first published in 1940, only months before his death. It never become a best-seller and was then reprinted only twice, in 1966 and 2017, afaik. The book is 87 pages in quarto long (plus preface, table of contents, and example trading sheets with comments). It has no dialogs, no anecdotes, and honestly it's simply boring like shit. However, it does have a good many rule of thumb wisdom coins spotted here and there -- and more important is that all those maxims are undersigned with Mr. Livermore's own blood.
It order to understand the book better, one should first learn about Mr. Livermore's life. And not from Mr.Lefevre's popular Reminiscences, but from something like Mr. Rubython's recent book.
J.L.Livermore was an outstanding person indeed. He spent his whole life speculating stocks on his own, started from nearly zero capital, went up to one of the biggest fortunes in the US , and back. He went bankrupt three or four times, and was able to climb back up again, every time, except the last one. He could make tons of money very quickly and to lose them even quicker. It's possible that he was simply a super-lucky gambler, but taking into consideration his 30 years long win streak and how many times he managed to go from zero to hero -- it doesn't look like a mere lucky strike.
I often wonder what happened with Mr. Livermore after 1933 so that he didn't make yet another fresh start. Many possible reasons were suggested, but personally I don't find any of them convincing enough -- except the so-called "occupational burnout" and problems in personal life. "I'm a failure" -- that's how "the greatest trader of all times" attributed himself, his trading career and his life at the end of the day.
"What's so special about the failure's book then?", you might ask.
One thing is that the book is really stuffed with golden maxims, derived from Mr. Livermore's 30 years of trading experience and condensed by himself into 87 little pages. His rules do help make money with trading stocks. "Don't overtrade, go with the trend, don't average down, don't buy only because it dumped a lot, and don't sell only because it looks overpriced, etc." -- these things are a commonplace today because Mr. Livermore said them 80 years ago.
Another thing is that Mr. Livermore himself violated his own rules a bit too often. "An opportunity to trade comes maybe three of four times a year" -- and he traded much more often. "I don't buy on reactions or short on rallies" -- and he did exactly the opposite. "Keep the winner and sell the loser" -- doing vise versa broke him in his cotton affair. And so on...
I'd prefer to formulate it another way. At the end of his life Mr. Livermore wrote book where he gathered all the lessons he learned during his career and put forward what he must have done in order to be "a success" and attached his life as an illustration and proof -- for us to learn from his wins and failures.
However, Mr. Livermore also noted that just as one can indeed learn from mistakes and not make the same mistake twice, he can well make some other mistake and go broke. You can write all coined rules of wisdom on paper, stick it to your trading terminal and follow these rules as rigorously as you can -- and still have a plenty of room to make some fatal mistake. It's included in the game, as one smart guy put it.
If by any chance you wonder which of Livermore's sayings I value the most, it's here:
A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box. The only money that is ever take out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.
As usual, Mr. Livermore himself seems to follow this rule a bit less often...