Friday, September 1, 2017

Friday Feature Book Review: Reminiscences of a Stock Operator by Edwin Lefevre 欲望と幻想の市場―伝説の投機王リバモア : エドウィン ルフェーブル

Long before George Soros, came to fame or was even born, the greatest trader ever who shorted, a "plunger" was Jesse Livermore. He made millions in profits, more than 100 years ago, a true pioneer. He literally "wrote the book" on how to short the stock market before many of the current market rules were even in place. He explained his life in the markets over several interviews that were published in the Saturday Evening Post. This was very rare, as he was a very private person, and was often hated for being "anti-market" or anti-capitalism". Shorting was not respected at the time, and is hardly so today. The most amazing thing about all of his stories is how timeless most of them are a full century later.

Another alternative title for this book could have been "Where are the customer yachts?". This is because greed and fear are timeless. This is both very realistic in its details of how the market of investors works as well as humorous on what really happens to customers and how to deal with market realities. For those who do not know, Jesse Livermore started as a runner in a bucket shop as a boy, he learned to be sensitive to the ticker tape that would have a certain sound or rhythm. He was a pioneer of this kind of market intelligence and could sense the emotional mindset of of markets better than any trader of his time. All of the current views on customer accounts or prop trading in general today, all have their roots in these same interviews so many years ago.

Jesse started out as a board boy at age 14, writing price quotes from the stock market. He saved and learned from another boy, that margin trading was possible. With just 5 US dollars, he began with a long position and made a 3 dollar profit soon after. He was hooked and continued looking for trades to get in on. Although he started with another partner, he quickly came to realize that he had to work alone. He went on to make millions by building up his own capital via rivals bucket shops. Each of them did not like his winning ways, so he had to change often. 

Ultimately, you learn that he was not usual. He had a photographic mind for numbers, and a keen musical ear for sounds that recognized panic or fear from the ticker tape patterns. What was clear to him as a pattern, was not at all clear to others in the market. For him these advantages became intuitive and very natural. It reminds me of athletes who discover they can throw or hit a ball better any others, after a short time. There are many great stories that show how market fear is timeless, and how taking advantage of it as a shorting specialist is key to make a financial killing.

The Top 3 Takeaways from this book that really impact any reader are:

1) This is the story of a very special person with hard wired talent. He could learn the tale of the tape with ear training that few others could ever match. He could actually "hear panic" in market moves by sound.

2) The ability to work with numbers and get comfortable with the speed of risk does not come easily to many people. Stress from major positions could be handled well over time. 

3) This was not a regular guy who wanted to be "one of the boys". He had ambition and a strong desire to find the outer limits of his abilities in the market. He often won and sometimes lost, both very big.

Almost 100 years ago, a first stage market had a ticker tape machine that gave life to a living market with sound and paper, and it developed. Live traders in a pit, became a second stage with shouts and order screams via live screens in an exchange. With a third stage of online markets now widely available, how will the traders of today "learn to listen" to the market and adapt with new technology in the future? What patterns will emerge to again understand the basics of human emotions in a market? This is what this book ultimately gives insight into. It is a timeless question, and is very much a worthwhile read. A true classic of market behaviour. It is a deep principle worth figuring out, because that is where the money is! Highly recommended.

Please visit us for our Friday Feature Review where TMJ Partners will review books, movies, services and anything else with a financial theme.  Follow us now for our free weekly updates, just click here. Thank you for reading and learning more about how money is made in finance!

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