In the stock market, how many times have we picked a well-reasoned stock in anticipation of a price rise which never came? How often have we patiently waited, become disgusted and eventually sold off just when the stock began its upward moves?
What about the times when we kept holding on to a falling stock only to sell at the bottom? Again there were times when we delayed our purchases in an advancing stock only to buy at or near the ultimate top? Why so precisely wrong?
Is knowledge, wisdom, experience or charting the solution to these errors?
Jesse Livermore popularly known as the greatest speculator and trader made 100 millions in the 1929 cash. He became the richest American. For more than 30 years he had been successful in trading in commodities and the stock market. Who would have thought that Jesse would one day end tragically?
Jesse made two fatal errors. According to his tape-reading, Union Pacific was under accumulation. After he had bought 5000 shares, a personal friend, Ed Hutton, a great financier and owner of a broker firm, told him that he had inside tips that Union Pacific would tank. Acting on this tip, he sold his 5000 shares at $162 per share and made a profit of $10,000. The next day the stock jumped 10 points which meant $50,000 additional profits if he didn’t sell. He vowed never to listen to tips again.
There was a time when he shorted cotton. He was doing well when Percy Thomas, the “Cotton King” came into his life. Percy was a great talker. Before long, Jesse was under his influence. He covered his shorts and began to go long when cotton price was declining. The price of cotton continued to decline. For some mysterious reasons, he started to average down and kept on averaging down against his own principles. Eventually he lost 90% of his capital before he finally came back to his senses and sold out his stake for $300,000.
He tried to make a come back in the stock market. But from then on, his decisions were never right. From brilliancy to stupidity, he lost all his money; he was in debt to the tune of $1 million.
Eventually, he became a bankrupt in 1934 and committed suicide in 1940. He left a suicide note to his wife admitting that he was a failure.
Why did Jesse, a master speculator and trader with ample experiences, go against his own principles? Did God send Percy to bring about his downfalls? Is he destined to end in tragedy?
God helps us in mysterious ways, but he also brings about our downfall in the same manner.
10 comments:
Ben, thanks for sharing. I thought Livermore actually overcame the cotton fiasco later and made a comeback (Ref. Reminiscences of a stock operator, chapter 12-14). It wasn't known how he lost his capital after his much successful short on '29 crash. ref: en.wikipedia.org/wiki/Jesse_Lauriston_Livermore
kinclee,
Thanks for your comment.
Buffett says that only when the tide turns can one see who is swimming naked. To stay successful and prosperous in the stock market, we need to continuously
evolve with the market. Jesse failed to do this. Why did Jesse, a man of such intelligence and experience, failed to evolve with the market? Are there really some forces unfathomable to mankind controlling him in this particular
instance. I am inclined to believe.
Hey ben, can to share your thoughts on why you say u are inclined to believe that some unfathomable force was controlling him?
ccdev,
Our world is really mysterious. When the tide of fortune goes against you, whatever you do doesn't seem right. Your thinking becomes illogical and as a result success becomes far-fetched. Once in awhile, things do not go our way no matter how hard we try. At times, everything go smoothly. Why? Have you ever had this type of experience? If so,do you know why?
There's an interesting time-line on Jesse Livermore's life here - http://www.jesse-livermore.com/jesse-livermore-timeline.html
He was 30 years old (in 1908) when he took Percy's advice on cotton. He declared bankruptcy at age 36. Made it back. Then, in 1929 (when he is 52 year old), he made the famous $100M from the 1929 crash.
After this comes the interesting part which is unknown ... Just 5 years later, in 1934, he lost it all again ... It = entire trading capital. He still has his annuities to provide him and his family with a very good lifestyle. Question is how did he lost his entire trading capital?
Apparently, no one knows. I believe he must have broken his own trading rules, but why?
Are trading rules meant to be broken? Are trading rules possible to be implemented over the short-term, but the odds are stacked against implementing it continuously over the long term? Buffett is famous for saying that when you multiple 25 x 23 x 21 x 19 x ... x 0, the end result is nil. In other words, doesn't matter if someone is consistently successful for say 30 years in a row (and that's an incredibly long time), a single bad decision can wipe out all the past good result ... Jesse wrote the textbook on money management, but he himself probably didn't follow it - else, he wouldn't have lost his trading capital. The question is why didn't he follow it?
Psychologically, I believe that when one has made it phenomenally huge and for such a very, very long time - like Jesse did - he is unable to trade smaller towards the later part of his life. At some point, it probably became egotistical. And that is probably the cause of his downfall. Buffett on the other hand has no real use for his wealth - to him, he already has everything that's important in life, and when he goes, it will mostly go to charities. If one reads his Chairman's letters, and reads the Q&A session that he holds with shareholders everyyear, as well as talking to everyone who knows him, he is still a humble guy who is quick to admit his own mistakes. That humbleness - his entire character + his system + Charlie + .... - is probably what allowed him to keep his huge wealth ...
It's a shame Jesse didn't tell us what cause him to lose it all in 1934 ... it is certainly worthwhile to ponder...
Cheers,
Seng.
1 The words of the Teacher, [a] son of David, king in Jerusalem:
2 "Meaningless!Meaningless!" says the Teacher. "Utterly meaningless! Everything is meaningless."
3 What does man gain from all his labor at which he toils under the sun? 4 Generations come and generations go, but the earth remains forever. 5 The sun rises and the sun sets,and hurries back to where it rises. 6 The wind blows to the south and turns to the north; round and round it goes, ever returning on its course. 7 All streams flow into the sea, yet the sea is never full. To the place the streams come from, there they return again. 8 All things are wearisome, more than one can say. The eye never has enough of seeing, nor the ear its fill of hearing.
9 What has been will be again, what has been done will be done again; there is nothing new under the sun. 10 Is there anything of which one can say, "Look! This is something new"? It was here already, long ago; it was here before our time.
If you can understand this verses than you understand how and why the much revered Jesse L failed
"Once in awhile, things do not go our way no matter how hard we try. At times, everything go smoothly. Why? Have you ever had this type of experience? If so,do you know why?"
Happened to me once in Genting. At night i went from game to game, table to table, couldn't stop winning. Walked away with 5 figure winning. In the morning, maybe bcos of greed hit the tables again. Complete opposite, downhill all the way. Of course, people say gambling is just luck but it was an incredible experience. Too bad it wasn't the other way round.
Of course, who can tell what happened to Jesse? He lost everything before, then made it big again. Like you said, could have been ego, a man can grow too big for his boots,difficult to admit mistake when come back from hell before but that's just speculation on my part.
Actually, a string of good luck or a string of bad luck happens more often than most people think it could happen.
For example, suppose we have a million people, each tossing a coin 20 times. What do you think is the chance that one person would get all 20 heads or all 20 tails?
Actually, probability theory says that there should be at least 1-2 person with that sort of result, if there is 1 million people tossing.
Yet, the 1-2 person who tossed the coin probably didn't possess special skills. It's explained purely by random chance. It's only when we try to think "too much" that we sometimes forget that the string of 20 heads is actually still within normal statistical parameters, if you have a million people randomly tossing a coin 20 times. It's not due to "forces outside of us".
However, if there are 100 people (instead of 1-2) with that sort of result, then, it's clearly outside random chance, and maybe then, one could invoke the theory that there may be "a force outside us" that is controlling the outcome :-)
My opinion:
Winning is easy and natural if only God is willing.
Thanks to all who have commented.
Cheers!
Playing the stock market is like driving.
Some people like to switch lanes many times, some people like to stay in one lane all the time. Both will get to the destination, barring any unforeseen circumstances.
But one thing the two drivers cannot do is to fall asleep while driving, irregardless of whether one is driving constantly on one lane or keep switching, falling asleep would be akin to disaster.
However, at times, some drunkard may come and bang us out of the blue, we re minding our own business when suddenly...
What can we do?
Well, one is to stay alert for dunkards, another is to plan our timing of our journey - morning, afternoon or night?
We must do all we can to ensure our safe journey.
Happy driving!
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