Taking a chance in financial markets implies potential big risks and this is not for everyone. The risk/reward might be high and even if you have every possible rational for a trade well thought, discussed, supported with solid fundamentals and technical analysis, even so, things might go wrong and you might suffer big losses. This bitter reality is many times true for people who enter the stock markets with a speculative short term view. History taught us that solid Risk Management is crucial to help understand how much risk an investor should take.
Reminiscences of a Stock Operator, by Jesse Livermore is a famous book about risk and investing. It’s a great book for anyone working in markets. And better yet, it’s free to download and only costs $1 at Amazon if you buy it for your Kindle.
Jesse Livermore was known to take high risks and trade with big swings in the markets, which is highly discouraged for people starting in this business. It is said he earned over $100m by shorting the market before the big crash in 1929 – that equates to more than a $1b at present day.
The book is a page turner and will teach you several lessons, specially some “Don’t Do” pointers. Jesse Livermore took big risks and went several times from “flat broke” to incredibly wealthy.
Ultimately, Jesse Livermore committed suicide in November 1940, after going broke and depressed.
In my opinion, the most important take away from this book and Jesse Livermore’s story is how rigorous and disciplined one must be when trading in financial markets. Experience and market feeling are not sustainable risk management trading rules. Learning from losses is also key for investors and traders. Jesse Livermore knew the rules but when reading his history one can tell that he must of skipped a few, causing him huge losses.
Losing big is emotionally hard for a trader. A trader must get back in the saddle, rationalise, and return back to the desk. He/she will have to restart his process and it is normal that insecurity thoughts come into play. Who likes to lose money? It’s crucial to follow very sound and clear risk management trading rules.
Stock investing is a relatively recent phenomenon and the inventory of true classics is somewhat slim. When asked, people in the know will always list books by Benjamin Graham, Burton G. Malkiel’s A Random Walk Down Wall Street, and Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher. You’ll know you’re getting really good advice if they also mention Reminiscences of a Stock Operator by Edwin Lefèvre.
Reminiscences of a Stock Operator is the thinly disguised biography of Jesse Livermore, a remarkable character who first started speculating in New England bucket shops at the turn of the century. Livermore, who was banned from these shady operations because of his winning ways, soon moved to Wall Street where he made and lost his fortune several times over. What makes this book so valuable are the observations that Lefèvre records about investing, speculating, and the nature of the market itself. For example:
“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”
If you’ve ever spent weekends and nights puzzling over whether to buy, sell, or hold a position in whatever investment–be it stock, bonds, or pork bellies, you’ll be glad that you read this book. Reminiscences of a Stock Operator is full of lessons that are as relevant today as they were in 1923 when the book was first published. Highly recommended. –Harry C. Edwards –This text refers to an out of print or unavailable edition of this title.