Book Review: Reminiscences of a Stock Operator
This Edwin Lefevre classic centers on Larry Livingston, a simple depiction of Jesse Livermore, one of the most highly regarded traders of all time. Reminiscences of a Stock Operator takes place in the early 20th century and gives a first-person point of view of Livingston’s journey from a boy on a quote board in a bucket shop, to stock scalper, to trading larger positions. The book follows Livingston as he sharpens his trading skills through a process that leaves him completely broke more than once, while with each occurrence he becomes more dedicated.
Observing movements in price action on the ticker tape was Livingston’s specialty. He worked at a bucket shop, a house of stock trading prior to the great depression, where Livingston discovered that he had a talent for figuring out when a price was going to go up or down. After he proved his system as accurate with a successful first trade, he went on to have a very successful run scalping price (trading for short term moves in price).
Having already made a name for himself with his bucket shop exploits, the “boy plunger,” as Livingston was referred to, found the larger realm of Wall Street. The scalping tactics that made him famous in bucket shops proved far less effective on Wall Street. Livingston experiences early setbacks on trades that were poorly timed that sent him back to square one. He takes on a bit of a trial-and-error process that sends him packing a few more times, but eventually figures out that there was more to the market than just catching quick, small price moves.
Interacting with Wall Street
Throughout the story, Livingston provides a few short descriptions of interactions he has with fellow traders. One that he touches on while he’s still new to Wall Street involves Mr. Partridge, who is known to traders as “Old Turkey.” Turkey sticks out to Livingston because he’s not like most of the traders Larry encounters. Rather than waiting on tips and trading impatiently for small profits, Turkey holds positions through short-term fluctuations to catch the larger profit from the bigger move.
Turkey’s response to all questions about individual stocks was simply “Well, you know this is a bull market!” This resonates with Livingston. He comes to realize that his errors were not regarding the direction of the market, but that he just wasn’t patient enough to let the full profit trade out from his analysis. This is when Livingston drops the famous “Men who can both be right and sit tight are uncommon.”
After Livingston comes to this realization, he sets himself apart from other traders. While other traders weren’t always wrong with direction, they never seemed to be able to get the kind of big profits that Livingston did.
As the book gets into strategy, it discusses how Livingston is a strong opponent of acting on tips to buy or sell any individual stock. “Tips are for the waiters.” Livingston even points out a number of occasions where trading the opposite of stock tips can actually be a better way to play the tip.
While Reminiscences of a Stock Operator only goes far enough to see Livingston make a few million in the market downturn of 1907 only to lose it on a poor cotton trade, the real Jesse Livermore went on to make an even larger fortune. The short positions he took just before the Great Crash of 1929 earned him profits of $100 million dollars, which in today’s figures would equate to about $1.3 billion!
Related reading: Livermore’s Trading Methods & $100 Million Story
One has to ask themselves after reading this book, what if Livermore was around today? Because his strategy was based on big swings from highly volatile issues, a current day Livermore would likely swap out his utilities and railroads for some hot movers like Tesla, Apple, NVidia, or Google.
Beyond the educational merits of the book, it is simply a very well written book with a story sure to engulf anyone who has interest in the stock market. Great read.