Another fascinating book.
The book was written as a fictional autobiography of a stock speculator Larry Livingston in the US in the early 1900s. Yet the book was based on a real trader at the time, named Jesse Livermore.
Don't forget this book was first published as a series of articles in 1922, 90 years ago. I am only half way through the book, but what I read in these stories written 90 years ago can still easily related to my own business experience, including things I saw in my first job as an investment analyst with a stock broker.
In the very beginning, the main character made it very clear that "there is nothing new in Wall Street" because "speculation is as old as the hills." The study of the market and speculation is eventually the study of human natures, and human natures don't change much. To quote the preface by the modern day annotator, "the book has lasted because its wisdom is timeless."
What I had read so far told the story of Livingston (Livermore's?!) character building and maturing in trading strategies. He first learned the trading skills in bucket shops (which is more of a book maker for gamblers than a real brokerage.) The trading techniques were all technical in nature involved solely on reading price movement correctly. Trading in bucket shop is just betting against the bucket shop at a set margin advantageous to the shop. (It was about 1/8 of a point on both buy and sell side. E.g. when the market is quoting $85, the customer can only buy at $85 1/8, sell at $84 7/8. Also traders trading on margin reduced their tolerance to market fluctuations.) So as soon he was proven a winning trader, he got kicked out and banned from bucket shops. (To side track a bit, this is why it can't never be a long term business betting against the house who takes your bet. It only works in long term if the house that takes your money is neutral to your winning, like either a real broker or a pari mutuel agent.)
Then he moved on to trade with a real broker. When the trading techniques no long worked, he reflected and learned to consider the bigger picture. He was going for fundamentals, in additional to technical analysis. As the story progress, there are more and more discussions about fallacies of human natures. Throughout the book, he recounted many tricks run by the financial market con mans, major blunders he himself committed that ended up in total losses or missed profit opportunities.
Like the time when a manipulator would simultaneously place buys orders via other bucket shops while secretively selling in the open market. When I read this part, I immediately recall the incident a few years ago in which a company I once was a shareholder of was cheated a few $million. (That is another interesting story I often shared with my friends. Perhaps I will write a short version of it later.)
In another times, Livingston was completely charmed by certain charismatic personalities and traded against his own intuition and loss almost everything. One of these charismatic personalities was the leading experts in the cotton market. Livingston was talked into doubting his own conviction of the market, reversing his privious position, and trading against his basic principle (of cutting losses, let the profit run.) When I read about the bits and pieces of how he was getting hooked, I cannot help to think that I have seen this and that in here and there of my past experiences. Something never changes. Something always works.
The part I read last night (Chapter XIII) was about the time he was broke again (seems another recurring theme to many once successful speculators), he was generously offered the opportunity to work with one of the most moneyed and prestigious firm. The firm told him up front that they wanted to use him as a smoke screen on their own large trading. What Livingston did not realized until too late was that the firm had a bigger purpose in mind. In order not to spoil the story I am not revealing the idea here. On reflection, the owner of the firm was "farsighted, ingenious, daring,.. a thinker, has imagination,... extremely nice." As a result, Livingston missed a huge opportunity that he figured only come once in many years. Right after reading this part, I immediately remember the saying, "keep your friends close, keep your enemies closer."
I should be finishing the book in a few days, and I will keep it in my office. My friend who wants to read this book can pick up in my office.
