Larry Livingston (formally known as Jesse Livermore) starts out this story as a young boy. He lives in Boston and places small bets at a “bucket shop” where they bet on short term rise and falls on stocks and commodities. Soon he starts to understand the volatility of stocks and begins to get good at it. Eventually he makes his first $1000 at the age of 15 from his strong memory for stocks and their patterns. The bucket shops end up kicking him out after they lose so much money to him. No one in Boston will take his bets anymore so he decides to go to New York and begins trading on Wall Street.
He slowly starts to lose money and becomes broke in 6 months because the market does not work like he is used to at the bucket shops. He cannot capitalize on stocks quickly enough because there is a time lag which causes him to lose money when the market is most volatile. After losing his money, he heads to St. Louis to try a bucket shop that he has never heard of. Soon history repeats itself, he gets kicked out for making too much money and goes back to Wall Street and loses his money again. This time he heads back to Boston and finds a stock exchange that is trading a bit unethically.
The exchange normally tricks their investors into losing money, but he ends up turning the tables on them and making money off of them. He then heads back to Wall Street and begins to get better at trading. He starts to learn the market better from his experience. He tells the readers that you should buy stocks in a bullish market and sell stocks during a bear market following the overall direction, and to never trade on the opposite of the general trend of short-term rallies. By following these strategies, he ends up making a million dollars by going short on a bearish market. By understanding the world financial situation, he gets back into the market at the right time when the market begins to rally. At this point he believes that he understands how the market works.
After Livingston becomes rich, he buys a few yachts and goes on a fishing trip. Then, a few commodities market catches his eye and he begins to think about trading in cotton. A cotton trader contacts him and wants to go into a cotton trading partnership. Livingston declines the offer at first but eventually he enters into the deal. He starts ignoring his trading principles and dumps more and more money into his business that is losing money. He eventually goes flat broke, very sick, and disheartened.
He tries another attempt to make some money by calling in a favor to get $25,000 if he opens up a brokerage account with the firm. The brokerage wants him to cover for the activities of some well know clients and he agrees. He realizes that they are causing him to lose money and miss out on opportunities in favor of their other clients in a market that is not doing anything. Livingston’s debt reaches a million dollars and he realizes that he can not trade properly while being worried about his debt. He then declares bankruptcy which frees up his mind and debt. He calls Williamson and asks for a favor; Williamson agrees to give him 500 shares. The market rises dramatically from World War I, making him able to pay off his debt and then some. He then goes to reflect on some advice that he has learned through his ups and down. He discusses how his general rule is not listening for tips that everyone else is eager to get. At this day in age he believes that they are used to manipulate the market and inflate bad stocks that investors are wanting to get rid of. One should only rely on their knowledge of the market, trends, and information on the company. Along with that he believes that people should stick with their “hunches”, he believes that these are small signals that experienced traders notice without being conscious of them.
Later in his working life Livingston moves on to become a stock manipulator. He gets paid by insiders and investors to manipulate the price of a stock so that they can sell bad stocks at inflated prices. He believes the best way to do this is not from spreading tips, but instead to trade in the market that would give other traders impressions of what’s going to happened with that stock and that makes them buy or sell accordingly.
After reading this book I believe that there are a lot of lessons to be learned from Livingston’s life story. The first lesson is never trust brokerage firms with your money. Livingston is a smart investor when he wants to be but even he gets fooled by brokerage firms in the book. They are supposed to invest in ways that would benefit you but how are they supposed to do that when everyone acts out of self-interest. A lot of these brokerage firms are greedy and get their commission by placing trades for you. What’s from stopping them booking multiple trades in a day to get the maximum profit from you. It’s easy for them to take advantage of people who know very little about the markets.
The second lesson is not to listen to tips or information from an insider, listen to your gut and let your expertise take control. Tons of news outlets pounce on the first news they get without fact checking it. Take politics for example, so many news articles are published about different politicians without fact checking because every news outlet wants to be first. Stocks may adjust from these changes but eventually the market reacts to how likely this would happen or how trustworthy the information is, and it adjusts back to where it should be. Also, when “insiders” are spreading fake news the market adjusts within minutes so it’s hard to capitalize on these gains or losses when you aren’t the first one to hear of something.
The final lesson is never getting ballsy and trade differently than what the market is showing you or move away from your philosophy. I have learned this lesson the hard way multiple times. After making successful trades on options I tend to get a big head and usually stray away from my own philosophy or what the market is showing me because I think I know everything. This usually means wiping out my gains and starting from scratch once again. This happens to Larry multiple times the biggest one with the cotton partnership. Always listen to your gut and never stray away from a path that has been working for you.