Reminiscences of a Stock Operator by Edwin Lefevre

The Book in a Few Senenteces

Wall Street classic still read widely for its timeless wisdom on the perils and promises of stock speculation. Recommend the book but not speculating.

Reminisces of a Stock Operator summary

This is my book summary of Reminiscences of a Stock Operator by Edwin Lefevre. My summary and notes include the key lessons and most important insights from the book.

Introduction

Yes, it is a book of fiction. But, over the years, I have regarded it and have recommended it, as just about the best single all-around textbook on the subject.
I have insisted on it as must reading for all pilgrims who have selected, or who are considering, the Wall Street “path.”
If you can learn, even somewhat, from the experience of others, as an investor or speculator, you are bound to benefit from this grand old book which contains the experience and highly personal observations of one of the greatest market operators of all time.

I

Another lesson I learned early is that there is nothing new in Wall Street.
Whatever happens in the stock market to-day has happened before and will happen again.
That’s all the fun there is—being right by using your head.

II

In fact, I always made money when I was sure I was right before I began.
…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 ot make his play an intelligent play.
The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.
A stock operator has to fight a lot of expensive enemies within himself.
It was not that I now was playing it legitimately that made me lose, but that I was playing it ignorantly.
But if with all I had I still lost, what chance does the green outsider have of winning, or, rather, of cashing in?
I didn’t have much to unlearn; only to grasp the one fact that there was more to the game of stock speculation than I had considered before I went to Fullerton’s office to trade.
I was like one of those puzzle fans, doing the crossword puzzles in the Sunday supplement. He isn’t satisfied until he gets it. Well, I certainly wanted to find the solution to my puzzle.
Crooks don’t trust anybody.

III

It takes a man a log time to learn all the lessons of all his mistakes.
It is like the old story of the man who was going to fight a duel the next day. His second asked him, “Are you a good shot?” “Well,” said the duelist, “I can snap the stem of a wineglass at twenty paces,” and he looked modest. “That’s all very well,” said the unimpressed second. “But can you snap the stem of the wineglass while the wineglass is pointing a loaded pistol straight at your heart?”
A man must believe in himself and his judgment if he expects to make a living at this game.
Ignorance at twenty-two isn’t a structural defect.
I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game.
If the unusual never happened there would be no difference in people and then there wouldn’t be any fun in life.
It was the sublimation of my previous unsuccess, the selfsame thing that had beaten me before.
In New York I had made thousands and lost them. I got up to fifty thousand dollars and two days later that went.

IV

…one can see the whole better when one sees it from a little distance.
They figured that the more I did the more I’d lose, and the more quickly I was wiped out the more they’d make.
It was a sound enough theory when you consider that these people necessarily dealt with averages and the average customer was never long-lived, financially speaking.
That is how I came back to Wall Street for a third attempt. I had been studying, of course, trying to locate the exact trouble with my system that had been responsible for my defeats… I was twenty when I made my first ten thousand, and I lost that.
But I knew how and why—because I traded out of season all the time; because when I couldn’t play according to my system, which was based on study and experience, I went in and gambled.
When I was about twenty-two I ran up my stake to fifty thousand dollars; I lost it on May ninth.
There is nothing like losing all you have in the world for teaching you what not to do.

V

If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going.
No diagnosis, no prognosis. No prognosis, no profit.
Yet, I can see now that my main trouble was my failure to grasp the vital difference between stock gambling and stock speculation.
He knows all the don’ts that ever fell from thge oracular lips of the old stagers—excepting the principal one, which is: Don’t be a sucker!
The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
He had not only the courage of his convictions but the intelligent patience to sit tight.
Nobody can catch all the fluctuations.
Without faith in his own judgment no man can go very far in this game.

VII

Remember that stocks are never too high for you to begin buying or too low to begin selling.

VIII

I have always found it profitable to study my mistakes.

IX

A speculator must not be merely a student, he must be both a student and a speculator.
Finally there came the awful day of reckoning for the bulls and the optimists and the wishful thinkers and those vast hordes that, dreading the pain of a small loss at the beginning, were now about to suffer total amputation—without anesthetics.

X

Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original.
The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.
A loss never bothers me after I take it. I forget it overnight. But being wrong—not taking the loss-that is what does the damage to the pocketbook and to the soul.
He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.
But in actual practice a man has to guard against many things, and most of all against himself—that is, against human nature.
A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him.
Never argue with it or ask it for reasons or explanations.
The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.

XI

The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to.

XII

I get my pleasure out of matching my brains against the brains of other traders—men whom I have never seen and never talked to and never advised to buy or sell and never expect to meet or know.
A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.
Of all speculative blunders there are few greater than trying to average a losing game.
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.
There isn’t a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motor boat or a painting.

XIII

There is no mind so machinelike that you can depend upon it to function with equal efficiency at all times.
Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee.
A man has to have experience and he has to pay for it.

XIX

“It was the kind of market in which not even a skunk could make a scent.”
I have come to feel that it is as necessary to know how to read myself as to know how to read the tape.
The game does not change and neither does human nature.
When something happens on which you did not count when you made your plans it behooves you to utilize the opportunity that a kindly fate offers you.

XV

As a matter of fact I trade in accordance to my means and always leave myself an ample margin of safety.

XVI

It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to do any thinking.
The belief in miracles that all men cherish is born of immoderate indulgence in hope.
He didn’t believe in family tips. The farther away the source the purer the tip.
Investors are a different breed of cats. Most of them go in strong for inventories and statistics of earnings and all sorts of mathematical data, as though that meant facts and certainties.
The human factor is minimized as a rule.

XVII

I have found that experience is apt to be a steady dividend payer in this game and that observation gives you the best tips of all.

XVIII

Why do the room traders, who have suffered so often from the loaded dice of the insiders, continue to go up against the game?
Knowledge is power and power need not fear lies—not even when the tape prints them.

XIX

On the other hand there is profit in studying the human factors—the ease with which human beings believe what it pleases them to believe; and how they allow themselves—indeed, urge themselves—to be influenced by their cupidity or by the dollar-cost of the average man’s carelessness.
Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was.
Weapons change, but strategy remains strategy, on the New York Stock Exchange as on the battlefield.
I think the clearest summing up of the whole thing was expressed by Thomas F. Woodlock when he declared: “The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.”
People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.
Vision without money means heartaches; with money, it means achievement; and that means power;…

XX

There is no question that advertising is an art, and manipulation is the art of advertising through the medium of the tape.
The tape should tell the story the manipulator wishes its readers to see.
The truer the story the more convincing it is bound to be, and the more convincing it is the better the advertising is.
Stocks are manipulated to the highest point possible and then sold to the public on the way down.
When there is activity there is a synchronous demand for explanations;…

XXI

You would think—wouldn’t you?—that shrewd men who have made millions in their own business and in addition have successfully operated in Wall Street at times would realize the wisdom of playing the game dispassionately.
In every boom companies are formed primarily if not exclusively to take advantage of the public’s appetite for all kinds of stocks.
The top is never in sight when the vision is vitiated by hope.
The average man sees a stock that nobody wanted at twelve dollars or fourteen dollars a share suddenly advance to thirty—which surely is the top—until it rises to fifty. That is absolutely the end of the rise. Then it goes to sixty; to seventy; to seventy-five.
It then becomes a certainty that this stock, which a few weeks ago was selling for less than fifteen, can’t go any higher. But it goes to eighty; and to eight-five.
Whereupon the average man, who never thinks of values but of prices, and is not governed in his actions by conditions buy by fears, takes the easiest way—he stops thinking that there must be a limit to the advances.
That is why those outsiders who are wise enough not to buy at the top make up for it by not taking profits. The big money in booms is always made first by the public—on paper. And it remains on paper.

XXII

Dog has no foolish prejudices against eating dog in Wall Street.
Getting angry doesn’t get a man anywhere. More than once it has been borne in on me that a speculator who loses his temper is a goner.

XXIII

Speculation in stocks will never disappear. It isn’t desirable that it should. It cannot be checked by warnings as to its dangers.
You cannot prevent people from guessing wrong no matter how able or how experienced they many be.
Carefully laid plans will miscarry because the unexpected and even the un-expectable will happen.
Disaster may come from a convulsion of nature or from the weather, from your own greed or from some man’s vanity; from fear or from uncontrolled hope. But apart from what one might call his natural foes, a speculator in stocks has to contend with certain practices or abuses that are indefensible normally as well as commercially.
The old-fashioned bucket shops are gone, though bucketeering “brokerage” houses still prosper at the expense of men and women who persist in playing the game of getting rich quick.
Difficult as profitable stock speculation always has been it is becoming even more difficult every day.
There are many thousands of people who buy and sell stocks speculatively but the number of those who speculate profitably is small.
The speculator’s deadly enemies are: Ignorance, greed, fear and hope.
Get the slips of the financial news-agencies any day and it will surprise you to see how many statements of an implied semi-official nature they print.
The authority is some “leading insider” or “a prominent director” or “a high official” or someone “in authority” who presumably knows what he is talking about.
It is therefore well to remember that manipulation of some sort enters into practically all advances in individual stocks and that such advances are engineered by insiders with one abject in view and one only and that is to sell at the best profit possible.
In addition to the losses sustained by the public through believing bullish statements and buying stocks, there are the losses that come through being dissuaded from selling out.
The next bet thing to having people buy the stock the “prominent insiders” wishes to sell is to prevent people from selling the same stock when he does not wish to support or accumulate it.
I have done my share of trading and have kept fairly well posted on the stock market for many years and I can say that I do not recall an instance when a bear raid caused a stock to decline extensively.
The public might profitably consider the disadvantages under which it labours when it tries to make money buying and selling the stock of a company concerning whose affairs only a few men are in position to know the whole truth.

XXIV

The public always wants to be told.
…the experience of years as a stock operator has convinced me that no man can consistently and continuously beat the stock market though he may make money in individual stocks on certain occasions.
Wall Street professionals know that acting on “inside” tips will break a man more quickly than famine, pestilence, crop failures, political readjustments or what might be called normal accidents.
There is no asphalt boulevard to success in Wall Street or anywhere else.