“Reminiscences of a Stock Operator” cheat sheetI was recently invited for a proprietary trading company interview after the interviewer was pleased with my response to a questionnaire. My response to “Who do you admire most and why?” was Jesse Livermore. The interviewer casually mentioned another interviewee quoted Hitler to the same question. I was trying not to let out an inappropriate laughter while trying to figure out the intent of the answer. But I digress.
Jokes aside, here are some of the aphorisms of “Reminiscences of a Stock Operator” by Edwin Lefevre to chew on. (Italics indicate quotes from links)
1) Quote: I noticed that in advances as well as declines, stock prices were apt to show certain habits, so to speak
Remarks: Read more: Meet The Top 3 Traders Under 30I’m not a technician and I really don’t study charts. That’s not to say I won’t look at them to see where things are. At the same time, I’m not a big fundamental guy based on the nature of how long I hold a position. I mean, I do understand the fundamentals of each stock and what people generally expect, but for the most part I rely heavily on intuition and the feel I have for a stock based on watching it for so long. After watching the same 50-100 names, you start to easily understand how they trade and what moves them.
It’s pattern recognition.
2) Quote: Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.
Remarks: The boom and bust cycle
3) Quote: There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his play an intelligent play
Remarks: But then again there are highly successful high frequency traders who made obscene profits by churning positions. Read more:Background: Is Coffey Causing too Many Ripples at Moore? No one said anything because most of these positions paid off and there was also Greg’s trading style. Sometimes he would trade around a position more than 50 times. A day!
4) Quote: It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.
Remarks: Warren Buffet’s timeless wisdom “"The first rule of investing is don't lose money; the second rule is don't forget Rule No. 1." And Stevie Cohen’s, read more:SAC Capital’s Cohen Opens Up “I spend most the day watching my losers because if those are being managed correctly the winners take care of themselves,”
5) Quote: I can’t tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way
Remarks: Think big to make large gains, not to scalp for measly profits
6) Quote: They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market
Remarks: Reinforces point #5
7) Quote: Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study the general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps!
Remarks: Top down approach and all or nothing strategy
8) Quote: If there is a solid bull foundation, for instance, whether or not what the papers call bull manipulation is going on at the same time, certain news items fail to have the effect they would have if the Street was bearish. It is all in the state of sentiment at the time.
Remarks: It is instructive to note that the market tops out just as future optimism is at its high, whereas the market mood is bleak just as markets turn around
9) Quote: People don’t seem to grasp easily the fundamentals of stock trading. I have often said that to buy on a rising market is the most comfortable way of buying stocks. Now, the point is not so much to buy as cheap as possible or go short at top prices, but to buy or sell at the right time. When I am bearish and I sell a stock, each sale must be at a lower level than the previous sales. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stock on as scale down, I buy on a scale up
Remarks: Momentum trader
10) Quote: To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind
Remarks: To make money in the market, you must be an independent thinker
Part 2 continued here. “Reminiscences of a Stock Operator” cheat sheet. Part 2
