Baffled by "Reminiscences" Believers

[jackb 10]

Many years ago when I first got into trading (before the Web existed) and began asking around about what books I should read, Reminiscences of a Stock Operator was seemingly somewhere near the top of everyone's list. Even today (and even on this forum) this continues to be true.

 

After reading it many years ago, I was fascinated by the story and wanted to know what other greatness the "Boy Plunger" went on to achieve from the point where the book left off. Sadly, it turns out that Livermore ended up losing all the money he had made during the '29 crash and eventually went bankrupt in '34. And it wasn't just Livermore's trading account that was on a vicious rollercoaster. He went through 5 marriages before he finally decided that life's ride was too much. He committed suicide in 1940.

 

Ever since learning the whole story, I have always been quick to ask of those that recommend the book whether or not they know of the ugly epilogue. Twenty years later and I still get the same response of "no" (despite the ease that Web now offers to research such matters).

 

As such, I'm not sure what to make of it all. To recommend only the book as some model of trading wisdom without reference to Livermore's sequel and final act, I find to be inappropriate and highly suspect. However, there is some truly great psychological wisdom to be discovered in telling the whole story. As far as trading wisdom, the book speaks volumes about inappropriate money management more so than it does in terms of trading strategies.

 

Thank you in advance for checking out the poll and for any feedback.

[electroniclocal 10]

jackb, the fact that JL later lost the plot (was it bipolar disorder) really takes nothing away from what the book teaches and the insight it gives. Like anything else I am taught, I take from it what I find useful and discard or ignore what I don't. I do not believe until I can prove it for myself.

 

The book is one that every trader in training should read. That and probably Edwards and Magee.

 

EL

Edited December 31, 2010 by electroniclocal
typo

[bakrob99 11]

Your Poll Questions seem to be tailored rather specifically to get a specific result. I liked the story of it, and the techniques that he employed to gain an edge and keep from being influenced by others. There are many excellent parallels for trading today. One example of this is the length to which he maintained his independence from Wall Street noise. Consider the parallel with respect to the "media" and ignoring the influence of "experts".

 

The fate of Livermore lies more in his mental instability than his profession. But like any trend follower... and he held on to positions like a trend follower... the strategy has large swings. He would get locked into huge positions without enough liquidity to exit. Cotton for example where he controlled the market. That is quite a bit different than any trader these days. No one is bigger than the market.

 

The one question in your poll that seems missing is: " Have You Learned anything from Reminisences which helps your trading today." and I can say without hesitation that his notion of "Making more by sitting (in a position) than by trading" is what I think about when the thoughts of taking early profits flow through my head.

[thalestrader 14]

Reminiscences is held in such high esteem by market operators because it is comprehensive in its depiction of Livermore - it is emphatically not one sided. He himself tells us that far and greed lead to ruin, and then throughout the course of the narrative shows how he himself had repeatedly ruined by the very things he advises his readers that they must control.

 

Reminiscences was not a "How to..." type reference book or instruction manual. It does teach, but it does so subtly, in the manner in which a novel or play or Platonic dialogue teaches. That is, one must read "between the lines," so to speak, and interpret the book as one does a piece of literature, which, of course, is not the same as reading it literally as a "do everything JL does here." Especially when he himself is so critical of so much of what he does.

 

Best Wishes,

 

Thales

[Ingot54 13]

I agree with Bakrob99 that the poll has a bias to achieve a certain result.

 

I have read ROSO a couple of times, and it is nothing but a good read about a trader, and about an era where bucket shops and high rollers gambled away their lives.

 

I would not recommend ROSO as a trading "must read" for anything other than an insight into the kind of greedy actions of bucket shop operators, the traditions of which are still carried out today by operators like Goldman Sachs.

 

Today, we have operators building huge computer complexes right next to NYSE in order to maximise the speed at which they are able to intercept and manipulate market orders. And we see the churning of clients' accounts and the use of algorithms to step up/down the price in order to achieve volume, for which they receive huge rebates; and in order to achieve a respectable VWAP for clients.

 

In Livermore's day the bucket shops used the telephone and the tape to gain an edge over the sucker stock gambler.

 

Today they use computers and the widening of spread to knock out trades at strategic levels. And the electronic triggering of stop-loss orders, which leads to a cascade of sell orders, followed by the fortuitous triggering of clairvoyantly-placed conditional buy orders, is still happening today.

 

NYSE Euronext > Exchanges >

 

I would venture that what went on in LIvermore's day pales into obscurity when compared to what those who are "doing God's work" get up to today.

 

I'm doing 'God's work'. Meet Mr Goldman Sachs - Times Online

 

These people are untouchable. The model Goldman Sach uses, is to head-hunt the brightest young things from Harvard and the like, and train them up to be brilliant derivatives traders and super-salespeople.

 

Next, they get a ticket to Washington, where they are able to effectively block any legislative attempt to clean up the Financial Services Industry by Congress. Neither side of US Politics has been able to get any reform past the house in recent years, that might have a moderating effect on the antics of Goldman Sachs in their relentless and ruthless march for financial glory.

 

Finally, after years of faithful political service to the company in Washington, the employee is welcomed back into the GS fold, and can be asured of the very best lifestyle money can buy until death us do part.

 

This is not fairytale stuff ... has anyone heard of Hank Poulsen, the former CEO of Goldmans Sachs, and the Secretary of the Treasury of the United States of America?

 

You don't have to read all of this link ... just scroll down to the "Conflict of Interest" item:

 

Henry Paulson - Wikipedia, the free encyclopedia

 

Particularly poignant is this:

 

"The Goldman Sachs benefit from AIG bailout was recently estimated as USD 12.9 billion and GS was the largest recipient of the public funds from AIG.[35] Creating the collateralized debt obligations (CDO's) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO. Opponents[who?] argued that Paulson remained a Wall Street insider who maintained close friendships with higher-ups of the bailout beneficiaries."

 

Now, why would you idolise a book like ROSO, when the financial manipulation going on today has left the corruption of Livermore's day far behind?

 

The true lesson to be learned here, is to be aware with whom you are playing, when you dabble as a wannbe trader in financial markets.

 

Sorry for the long post, but it had to be said.

 

A sixth question for the poll should have been added:

 

Did you gain any useful information from ROSO that could assist your trading today?

 

I believe the overwhelming response to that question would have been a large "NO".

 

As such, the book is overrated, and nothing more than a good bedtime story, for those who like to read about quaint historical figures and their antics. The real financial world story today would appear like a horror story if compared to Livermore's experiences.

[SIUYA 11]

George Kodak Eastman also ended his own life, all be it under different circumstances.....so I would not think it fair to judge his great acts and lessons to be learnt from based off his final act.

The nature of speculation and risk taking means that there will be multitudes of failure along the way, maybe the ultimate lesson is that risking it all will result in both spectacular gains and spectacular blowups.......

you can choose to be more cautious.

[rdhtci 10]

I agree with Bakrob99 -- there is no poll result I can take which freflects my view. Which is that it Reminiscences is a great read with some wisdom to be gleaned, and JL's failures, in life or in trading, do not diminish that for me.

 

I was aware of his later life downtrend, but that wouldn't stop me reading the book, assigning the same value to it as if he had fewer problems, nor recommending it to anyone elase on that basis.

 

I think you need to extend your poll options to account for those who don't agree that the whole experience is negative.

[davidjohnhall 10]

I agree with most other replies here. It's a fine line between genius and insanity and to try and marry the book to the man is a mistake in my opinion. A great many successful and talented men have taken their own life. Hemingway blew his head off with a shotgun. Does that make his literature any less readable?

 

Works of art are ultimately judged by the public for whom they are made. Seems to me the public has passed their verdict on Reminiscences. It's a classic must read. What I would look at and inspect here, is your own emotional reaction to the story behind the story and the need to create this poll. Perhaps it can give you some insight into your own trading and how you view wealth, success and failure. I think the results of that introspection would be much more valuable than the results of this poll.

[steveh2005 10]

The book "Jesse Livermore Speculator King" by Sarnoff tells a more believable story. The bulk of Livermore's wealth/success came from operating pools of stock for groups of wealthy syndicates. Much of the types of stock manipulations he did in the 20's became illegal in the 30's with the formation of the SEC.

 

Contrary to popular belief, the book also says that Livermore did not make a killing in the '29 crash as Kennedy and Baruch had done. It seems that he was too hedged. He had large long positions which offset all those great shorts he got off.

 

I think it's obvious that Richard Smitten's books are overly biased in favor or believing all the things that he personally wanted to believe about Livermore. Ironically, he was "smitten" with Livermore. It's in Smitten's own personal interest to glorify Livermore in print. It appeals to people's love of fantasies about making money from taking high risks.

 

I enjoyed reading ROSO a few times as I was learning how to trade. But the more I gained in my own experiences in day trading futures, the more I saw that Livermore, as told by Sarnoff, liked to leave out the details of these popular stories which would have otherwise cast Livermore in a dimmer light than the way he liked to recount them.

 

Another lesson to learn from ROSO...even if you find financial success in this life, you can easily lose it all again if you persist in spending money like a drunken sailor.

[nvr735i 10]

Reminiscences is a great example of investor psychology and its pitfalls.It also exemplifies how trend following can lead to great success if adhered to.By the way,Livermore had millions left when he died both in cash and had given his wife a trust

account worth millions which she blew up.The fact that Reminiscences is recommended still today by some of the greatest traders in the world(who are not dead or broke by the way!) should speak for itself.

[darvasfan 10]

Yes, I am fully aware of the later years of Livermore's life and his untimely, tragic death. I am also aware that he went bankrupt and aware that he also made back his money and paid off his creditors even though he was not required to do so.

 

There is no question that his life was a mess and that often translated into the trading blow ups that he had. However, all that does nothing to take away from his brilliance as a trader as well as the masterpiece Reminiscences. There are gems located throughout that book, overall strategies for trading - not tactics - but strategies, and warnings of things to avoid. You can see Livermore's strategies at work in people like Nicholas Darvas and Bill O'Neil. In fact, the latter gives quite a bit of credit to Livermore for helping establish the CAN SLIM foundational strategy. With endorsements like that, in addition to other very successful traders, who are no doubt aware of the entire Livermore story, there is nothing to be baffled about. Reminiscences is a masterwork that has stood the test of time.

[steveh2005 10]

SOHO is a fictionalized account of a person's life up to his mid-40's. Unless you've also read the Sarnoff book, based on independent research about the real person and not these Richard Smitten lovey/dovey "family ties" related books, it's easy to be misled by what Livermore actually did vs. what others said he did. He was a total news hound, embellishing any big play he was involved in to make it seem as though he had a magic touch. He didn't, but it helped to attract more money for him to, ahem, "manage". He won big, lost big and spent the majority of gains he ever made like a sailor on perpetual leave in Bangkok. He hung around the rich in their social playgrounds so he could either get their big trading ideas or what was going on in the manipulation world. It was a very different time and place (pre-1930) than the markets we see today...the land of no SEC.

 

Let's face it, 1906 was a complete luck-out fortune made because of the San Fran earthquake. Livermore was being financially backed (NOT a "lone hand", by the way) and he was totally against the ropes on his Union Pacific short when serendipity intervened. Now, who wouldn't rather hear of the SOHO account of the New Jersey boardwalk vacation stroll to the broker's office out of sheer boredom story than the reality of Livermore being a hair's breath from having his b@lls nailed to a fence post on the next short squeeze? I'll go for a re-read of the SOHO story any day of the week! It's fiction and fiction loves to play with your imagination.

 

I'm not disputing the fundamental principles of trend following as laid out in SOHO or that Livermore was a fake in the sense that he never made millions at any given time in his career. I'm saying that most of Livermore's success came from (now) illegal manipulations of the market. It's not hard to look like a market genius when you have a large pool of shares tied up in a stock of that era and you're pretty much calling all the zigs and zags because of the size you're swinging around.

 

The most important thing you can do to keep your head straight when you hear 'this story' or 'that story' about other people's successes in life is to trust that Occam's Razor is about the closest thing you'll get to the truth without knowing all of the facts firsthand.

[Ingot54 13]

... it's easy to be misled by what Livermore actually did vs. what others said he did. He was a total news hound, embellishing any big play he was involved in to make it seem as though he had a magic touch ... He hung around the rich in their social playgrounds so he could either get their big trading ideas or what was going on in the manipulation world.

 

The most important thing you can do to keep your head straight when you hear 'this story' or 'that story' about other people's successes in life is to trust that Occam's Razor is about the closest thing you'll get to the truth without knowing all of the facts firsthand.

 

I have paraphrased your post Steve, to highlight an important point that any/all of the accounts bring to light - and that is the passion Livermore seemed to have for the markets, and winning at any cost.

 

In order to win, he didn't seem to be sitting back and waiting for the information to come to him. He went all out looking for it, befriending those whose coat-tails he knew would carry him to fortune in trading. In short, Livermore needed an edge, and once he found that edge (insider information) he exploited it for all he could.

 

Contrast/compare that with the market geniuses and marketeers today.

 

They too have an edge, but to be a successful insider, you have to have connections, and you have to have financial batting power. Unless you are a Goldman or a Morgan-Chase, you will never get the kind of information, or the kind of impunity it takes to "succeed" in financial markets.

 

Even the rogue marketeers of the false systems that abound on any Google Internet search of "Forex Trading", are exploiting an edge - that of the gullibility and desire pf mug gamblers for easy profits.

 

So we fall back on the other "legacies" Livermore seems to have left his disciples and apprentices:

 

1) The work ethic - nothing comes except by hard work, and perhaps serendipity

2) Passion - unrelenting pursuit of an idea or a goal can not fail but to yield to you persistence.

3) Vision, determination, commitment and sheer effort of the will can deliver what wishful thinking can not.

 

Maybe I am painting a rosier picture of the rogue than he deserves, but there is a saying from the Good Book: "Whatever your hand finds to do, do it with all your might... " and didn't Livermore do that?

 

I would suggest that those who follow system-after-system, signal service-after-signal service, and never truly put in the hard work necessary to break through to successful trading really do not deserve to succeed.

 

I would put those why try, but fail, far above those who never seriously tried at all.

In that respect, Livermore does deserve a respected place in the annals of trading history.

[jonbig04 10]

There may exist a better book about trading than Reminiscences, but I'm not aware of it.

[BlowFish 10]

Many years ago when I first got into trading (before the Web existed) and began asking around about what books I should read, Reminiscences of a Stock Operator was seemingly somewhere near the top of everyone's list. Even today (and even on this forum) this continues to be true.

 

After reading it many years ago, I was fascinated by the story and wanted to know what other greatness the "Boy Plunger" went on to achieve from the point where the book left off. Sadly, it turns out that Livermore ended up losing all the money he had made during the '29 crash and eventually went bankrupt in '34. And it wasn't just Livermore's trading account that was on a vicious rollercoaster. He went through 5 marriages before he finally decided that life's ride was too much. He committed suicide in 1940.

 

Ever since learning the whole story, I have always been quick to ask of those that recommend the book whether or not they know of the ugly epilogue. Twenty years later and I still get the same response of "no" (despite the ease that Web now offers to research such matters).

 

As such, I'm not sure what to make of it all. To recommend only the book as some model of trading wisdom without reference to Livermore's sequel and final act, I find to be inappropriate and highly suspect. However, there is some truly great psychological wisdom to be discovered in telling the whole story. As far as trading wisdom, the book speaks volumes about inappropriate money management more so than it does in terms of trading strategies.

 

Thank you in advance for checking out the poll and for any feedback.

 

He won and lost fortunes several times. One of the greatest lessons is how not to approach risk and position sizing. It is crammed full of lessons and wisdom not only in the accounts of his successes but of his failures.

[MightyMouse 12]

SOHO is a fictionalized account of a person's life up to his mid-40's. Unless you've also read the Sarnoff book, based on independent research about the real person and not these Richard Smitten lovey/dovey "family ties" related books, it's easy to be misled by what Livermore actually did vs. what others said he did. He was a total news hound, embellishing any big play he was involved in to make it seem as though he had a magic touch. He didn't, but it helped to attract more money for him to, ahem, "manage". He won big, lost big and spent the majority of gains he ever made like a sailor on perpetual leave in Bangkok. He hung around the rich in their social playgrounds so he could either get their big trading ideas or what was going on in the manipulation world. It was a very different time and place (pre-1930) than the markets we see today...the land of no SEC.

 

Let's face it, 1906 was a complete luck-out fortune made because of the San Fran earthquake. Livermore was being financially backed (NOT a "lone hand", by the way) and he was totally against the ropes on his Union Pacific short when serendipity intervened. Now, who wouldn't rather hear of the SOHO account of the New Jersey boardwalk vacation stroll to the broker's office out of sheer boredom story than the reality of Livermore being a hair's breath from having his b@lls nailed to a fence post on the next short squeeze? I'll go for a re-read of the SOHO story any day of the week! It's fiction and fiction loves to play with your imagination.

 

I'm not disputing the fundamental principles of trend following as laid out in SOHO or that Livermore was a fake in the sense that he never made millions at any given time in his career. I'm saying that most of Livermore's success came from (now) illegal manipulations of the market. It's not hard to look like a market genius when you have a large pool of shares tied up in a stock of that era and you're pretty much calling all the zigs and zags because of the size you're swinging around.

 

The most important thing you can do to keep your head straight when you hear 'this story' or 'that story' about other people's successes in life is to trust that Occam's Razor is about the closest thing you'll get to the truth without knowing all of the facts firsthand.

 

I am really glad you posted this and not me.

[robertm 10]

My mentors told me of his fate at the time they recommended the book. It's still the best read ever written about trading, I've drawn more from it than any other book. It's not just his story, it's his story of his insights into his step be step education as a trader, both from his own experience, and the stories he tells of others that gave him his insights along the way.

 

It's not a book that will teach you how to trade, but it's a great guide to refer back to are re-read at regular intervals while you are on the journey.

 

It's a bit of a "Do as I say not as I do" tale in some respects. Sometimes people bet big and get named trader of the century. If they lose, as most gamblers do, they just fade into the crowd.

 

Reminiscences is merely one source to draw inspiration from, but it one of the best, and importantly it was written in a time long before computers and indicators clouded peoples views of the market.

[MightyMouse 12]

If JL traded today he would likely go down in a blaze of glory like Ivan Boesky or other current day hedge fund managers who are being investigated for insider trading activities.

 

Unlike, the current day cowboys, JL went broke while trading on inside information. That tells me that he relied a little to much on the information he garnered than on the information that the market was showing him at the time. In other words, he thought he knew that the market for a stock should be going up because of a looming favorable news announcement, instead of down as a different market participant might conclude by observing price and volume or whatever else it is that one uses to determine trend. It seems like he may have bought into one too many false rumors and relied on that information and was ultimately done in by his poor judgment.

 

There is a little too much of the do as i say and not as I do aspect to the book. Sort of like taking advice on how to be a good, sober dad and husband from an alcoholic, abusive skirt chaser. He is probably just assuming that the opposite of what he did was better than what he did. That doesn't help me much.

 

 

MM

[lightstar 10]

hmm, this was on my short list of future books to read, but after reading all these comments i think i'll move it to the end of the list. i appreciate all the intelligent responses; i'm glad i joined this forum :-)

[BlowFish 10]

hmm, this was on my short list of future books to read, but after reading all these comments i think i'll move it to the end of the list. i appreciate all the intelligent responses; i'm glad i joined this forum :-)

 

Of course that is your prerogative. Win or loose it arguably has more trading wisdom than any other book published. It has several different levels. If you read Market Wizards you will see it is often recommended in fact one trader kept a stack of them and it was mandatory reading for his new traders.

 

As for the 'manipulations' now being illegal, that is largely guff. Large positions are accumulated and distributed in pretty much the same way now as they where then.

[robertm 10]

 

As for the 'manipulations' now being illegal, that is largely guff. Large positions are accumulated and distributed in pretty much the same way now as they where then.

 

DB banned yesterday from trading the KOSPI for 6 months for their manipulation that netted them a tidy profit.

 

http://www.bloomberg.com/news/2011-02-23/deutsche-bank-gets-six-month-korean-proprietary-trade-ban-over-stock-rout.html

[BlowFish 10]

Ha! arguably because they are not good at working the market they got caught. A quote from the article “As trading gets more complex, it’s almost impossible to have perfect rules and systems in place to regulate it.”

 

Also what they actually got done for (or so it seems from the article) is reporting issues.

"Deutsche Bank breached stock exchange rules governing the disclosure of computer-driven trades by filing a report one minute late that day"

 

So the 'manipulation' was OK the reporting was not. Now they have tried to legislate around it by introducing limits on holdings for institutions (7500 cars) and individuals (5000 cars). Can't see that ending well for anyone.

 

Anyway interesting find.

[robertm 10]

I was thinking the filing may have been related to the trade, but maybe not. "Oops didn't we tell you about that massive block trade we just did? I'm sure we filed that paperwork..."

 

I think it's fair enough to have controls when poor liquidity is leading to incorrect price discovery like the May plunge. I'm sure they will come up with half arsed solutions that will be worked around instantly though. There was something in the news the other day about a limit on price moves for S&P stocks (% move in given intraday time) to try and prevent another May 2010 occurrence.

[zdo 20]

I liked the poll All the options are good and and few good options aren't even listed - such as "None of the above" Since I can't answer more than once though, I won't answer at all .

 

ROSO is a story. True or false doesn't matter. What matters is how each reader's individual mind fills in the 'gaps'...

What I learned reading it after trading for 7-8 years was vastly different from what I learned when I read it as beginner, because of the way I filled in the gaps differently each time...

In fact, if I had a do over I would not have read the book as a beginner.

 

The 'structure' is sort of VSA-like ( Tom style )

Jesse was in 'movement' more than most ppl ever are - then or now.

He never learned to 'breathe' properly

 

For me, ROSO is in the top 100 trading books - maybe even top 50.

The book would be no where near the top of any top 10 recommended reading list I built generally or for any individual trader.

It wouldn't even be on a list I built for someone DSM tagged with a bipolar disorder... likely the book would paradoxically help him stay blind to the 'trading' challenges he and Jesse share...

[robertm 10]

I would be hard pressed to get beyond 10 books on "trading" I'd actually recommend to people as worthwhile, so I'm intrigued what your top 50 would be ZDO?