JESSE LIVERMORE, a great place to start
FAITH IN THE SYSTEM
by Irwin Greenstein
Born and raised on a New England dirt farm, this young man went on to become the greatest stock trader ever - and one of the most despised men of his time.
He lived through two of America's most horrible stock crashes - making millions in a single day, as others jumped from windows to escape financial ruin. At times, he controlled the entire American economy from his posh New York office. He was blamed for the great crash of 1929. He survived death threats and kidnapping plots - on several occasions.
His name was Jesse Livermore. And in 1940, he killed himself with a .32 calibre pistol in a New York City hotel.
In 1891, at the age of 14, Livermore arrived in Boston on the back of a horse-drawn wagon. He had nothing to his name except a five-dollar bill that his mother had slipped him - against the will of his father, who argued that the boy should stay put and work the plough.
But his father never understood his son's knack for numbers...a gift that would be the source of his fortune. As luck would have it, the wagon stopped in front of the Paine Webber office. Livermore marched in and asked for a job. It just so happened that one of the chalkboard boys (who posted the results of the ticker on giant blackboards) didn't show up for work that day. Livermore got a job immediately.
Suddenly immersed in the wild action of trading stocks, Livermore gradually began to realise that the market had a life of its own. And he was bent on trying to figure it out.
Night after night, after a gruelling day at work, he went back to his dingy boarding-house room. He would furiously enter notes and numbers in a diary...trying to decipher the market's patterns. During those lonely years, two realisations formed his entire trading philosophy...and would make him one of world's richest men.
Livermore's first realisation was that he had to become a student of the market. He had to commit himself to an ongoing education - not only of the market dynamics, but also of the personality flaws that caused people to make fatal trading errors. The other realisation was that he needed a system - a set of self-imposed rules that would govern his life as a trader.
His belief in a system arose from his detailed observations that the stock market had an inherent logic. It was only through logic that a trader could beat it - and make a real killing.
Two years into his self-education, Livermore felt confident enough to test his trading theories. The problem was he didn't have a stake - a wad of cash that he could use to start trading. So like other poor men at the time who sought their riches in the stock market, Livermore headed straight for the notorious bucket shops of Boston.
Operated by gangsters, bucket shops attracted stock gamblers like moths to a flame. That was because guys who were broke and desperate could open accounts and trade for a slim margin - usually ten cents on the dollar. With fifty cents you could invest five dollars. And if you lost, the bucket shop kept the proceeds. With house odds of 95-to-1, most men met financial ruin. Except for Livermore.
Armed with his system, Livermore knew he could beat the house. And that's exactly what he did. Time after time, Livermore bet on stocks and won. In fact, he won so often he was banned by the bucket shops in Boston.
Shut out, he decided to put his skills to the ultimate test. He went to Wall Street.
In New York, he quickly made a fortune...but lost it when he strayed from his system. He was forced to return to the buck shops to rebuild his stake. Since he was banned in Boston, he went to St.Louis and then New Haven. Finally, he was ready to return to Wall Street to make another killing.
In the summer of 1929, Livermore's extensive analysis of the market pointed to a disastrous downturn. He didn't know exactly when it would happen. But he started shorting the market, his positions growing increasingly larger as Wall Street collapsed around him. The results were amazing...
While millions of people waited in soup-kitchen lines, Livermore made a staggering $100 million during the Great Crash of `29.
The millions of investors who had lost everything complained about Livermore. People started questioning how he made so much money, while they ended up destitute. Even The New York Times blamed him directly for the tragic crash. Death threats came directly to his phone line - and he took them head on, talking his way out of them.
After his $100 million windfall, Livermore lost his passion for trading - and with it his fortune. No one could understand why, not even himself. It wasn't until his legacy had been chronicled that experts understood he had been suffering from clinical depression. But at the time there was only way out for him...a .32 calibre slug to the brain.
It was the same, magnificent brain that had developed one of the most successful trading systems ever.
Like most great concepts, Livermore's incredible system was simplicity itself. It involved market timing (knowing when to get in and out), quickly cutting losses, anticipating trends and optimising the market's momentum, up or down.
Livermore was the first trader to actually demonstrate that both a commitment to market understanding, and a bona fide trading system, were the keys to making millions in the stock market. And although Livermore is dead, his ideas live on to form the cornerstone of modern stock trading principles.
Regards,
Irwin Greenstein for The Daily Reckoning
Full Version: Great Traders & Investors
Nice post Dr B- if this is to be a series then maybe Buffett and Graham should feature.
One thing the Jesse Livermore story shows is the big difference between equities and property- you can win on equities whether the market goes up or down. It's a lot harder to do that with property....
One thing the Jesse Livermore story shows is the big difference between equities and property- you can win on equities whether the market goes up or down. It's a lot harder to do that with property....
Here is something you may not have read about Livermore. I have not read this anywhere else and have some doubts about it. I've never seen Livermore linked to the Babson break. It is from "The Day The Bubble Burst" by Gordon Thomas and Max Morgan-Witts 1979.
---
It fell on Livermore's desk some time in the afternoon of Wednesday, 4 September. It came in the form of a message from London. Whether it was by transatlantic telephone - introduced two years before and still an innovation - or by one of the coded telegrams which regularly arrived at his office remained unknown. So did the name of his informant.
Livermore took great pains to protect his sources; it was the only way he could continue to receive the sort of information which had reached him that morning.
The message came in three separate parts.
The first part said that a 'high official' in the Bank of England had reportedly told associates over lunch in the City that very day - London was five hours ahead of New York - that 'the American bubble has burst'.
Several times in the past month, Livermore had heard similar assertions from sources in Europe.
The second part quoted the same official as saying that there were strong rumours that Governor Montagu Norman of the Bank of England was looking for an excuse to raise the interest rate before the end of the month. That was significant, and made sense. The outflow of gold from Great Britain in July and August had been huge (the major portion was taken by France). The bullion stock of the Bank was now a mere #137,000,000. There was an obvious need to re-establish faith in sterling. And, as the Federal Reserve had raised the New York rediscount rate by 1 per cent, there was reason to expect England to retaliate. If Norman did raise his discount rate, money earmarked for Wall Street would more than likely be diverted to London. That would be bad for the home market.
The third part of the message was also thought-provoking. It stated that Clarence Hatry was in serious financial trouble.
Livermore knew Hatry by reputation as an able and skilled financier. One thing puzzled him: if Hatry was in danger in London, why had he not turned to Wall Street for help?
Livermore did not know the answer. But he decided to keep a careful eye on what sounded like a rapidly developing situation.
He turned to a report from another trusted source - one with assess to the Federal Reserve Board.
This Washington source did not expect the Board to take 'any further definite steps' in September; it has made is big move in August. The Board would remain a sluggish as the Potomac which it overlooked.
It was a generally quiet day. The market closed with many prices having receded somewhat in what was described as an overdue 'technical correction'. But General Motors, with a three-point gain and RCA, up a full ten points, moved against the day's downward trend.
Radio had increased fourteen dollars a share in three days of trading. Livermore, like many operators, wondered whether Mike Meehhan was backing another pool. By early evening he knew Meehan was as baffled an anybody as to why Radio, which had shown little movement in weeks, had now sprung up dramatically back to life. The stock seemed for no reason suddenly to have taken the public's fancy again.
Livermore remained until midnight at his office trying to piece together 'a jigsaw which did not have all the pieces'.
Next morning, Thursday, long before his weary staff returned to their calculations, he was back at his desk, the phoning, checking, cross-checking. He got people out of bed on the West Coast; out of meetings in London, Paris, and Berlin. Nothing really gelled.
At 8 a.m., talking to a contact in Boston, he was reminded that today's luncheon speaker at the annual National Business Conference was the economist Roger W. Babson, who had been bearish about the market for the past two years.
Impulsively, Livermore asked his secretary to bring him Babson's file. Livermore kept dossiers on a wide number of people: fellow speculators like Kennedy, Cutten, Raskob, and Durant; journalists like Alexander Noyes of the Times; bankers like Giannini and Mitchell. The files were regularly updated and assessed.
The folder on Babson was slim, but revealing. The economist has first come to the notice of Livermore's staff during the 'panic' of March 1926, when the market slumped sharply. Babson, however, had not thought the decline sufficient to 'create any real stock bargains'. He urged investors to subscribe to his 'long-swing-area method', a system Livermore dismissed as 'designed purely for bearish minnows'.
Babson had gone on being a bear, offering through 1927 and the boom year of 1928 a bleak blanket forecast that 'any major movement should be on the downside'.
A year ago, at the same conference which he was to address this lunch time, Babson had proclaimed that, if Al Smith and the Democrats were elected, 'we are almost certain to have a resulting business depression in 1929'.
Smith had lost to Hoover, so there was no way to test Babson's belief.
Livermore looked again at the file on the economist. This was the third year running he had been invited to speak at the business conference. His previous speeches had not been widely reported, perhaps because Babson was a dull speaker who 'doggedly confined himself to his familiar bearish bandwagon'.
In any case, as Livermore quickly established, his public utterances had made no detectable impression on the market.
Livermore put aside the Babson file and called for others. He checked the Giannini folder. The latest entry showed that, on 24 August, the banker had issued a statement attacking margin buying. It received wide coverage - but also had no apparent affect on the market. Livermore glanced at Paul Warburg's folder. Again, when the distinguished banker had spoken out earlier in the year about over-valued shares, the response was less that enthusiastic.
He turned to the morning editions; it was a slack day for news. Livermore, Henry Ford apart, was probably unequalled in his ability to 'read' the media; he knew, instinctively, the sort of story they would go for. For months now the newspapers had vied with one another to run boom stories about the market. Now Livermore sensed they could be ready for a change. On such a slow day for news, the Press would be looking for something 'different'. Babson, on previous record, could be just the person to give it to them.
By mid-morning, every major New York and Boston newspaper, wire service desk and the radio networks had received tip-off calls that Babson was to deliver a major financial speech at the conference. The tipster said the Times was sending Alexander Noyes to cover the occasion; Noyes was told rival financial editors were heading for the conference. Playing off one newspaper against the next was an old trick seldom had it been more effective.
Soon Babson was receiving call from reporters seeking an advance of his text.
The economist sensed that, for reasons he could not fathom, the media this year were going to give him 'the full treatment'. He told callers there would be no advance leaks.
Press interest grew. Reporters knew that a refusal to provide an advance generally meant a speaker had something important to say. In growing numbers they headed for the conference.
Professor Irving Fisher, of Yale University, one of the nation's leading economists, received a call from a Herald-Tribune reporter in New York saying he might be need to respond to Babson's speech. Fisher agreed to be ready to comment.
By noon, Jesse Livermore had completed his plans. Using thirty brokers so as to maintain secrecy, he had gone short of some $300,000 worth of stock.
At 12:30 p.m., the Associated Press bells rang on their machines across America with a news flash: 'ECONOMIST PREDICTS 60 TO 80 POINTS STOCKMARKET CRASH'.
A minute later United Press began to punch out the crucial words of Babson's speech. 'Sooner or later a crash is coming which will take in the leading stocks and cause a decline of from 60 to 80 points in the Dow-Jones barometer.'
It was enough. Nearly every afternoon newspaper in America replated its front page in order to carry the sensational news.
Babson, unknown to the masses, was given the distinctive tabloid treatment. He was called 'one of the world's great economists' and ' a famous financial prophet'. One, with a neat play on words, called him 'the Prophet of Loss'.
Radio programmes interrupted their schedules to bring news of his forecast.
The specialist financial wire services in Wall Street fed Babson's statement into brokerage houses around the country.
William Hutton-Miller was just about to go for a late lunch when the Babson news flash 'went off like a bomb' in W.E.Hutton's. Within minutes the telephones were ringing with investors wanting to sell.
---
---
It fell on Livermore's desk some time in the afternoon of Wednesday, 4 September. It came in the form of a message from London. Whether it was by transatlantic telephone - introduced two years before and still an innovation - or by one of the coded telegrams which regularly arrived at his office remained unknown. So did the name of his informant.
Livermore took great pains to protect his sources; it was the only way he could continue to receive the sort of information which had reached him that morning.
The message came in three separate parts.
The first part said that a 'high official' in the Bank of England had reportedly told associates over lunch in the City that very day - London was five hours ahead of New York - that 'the American bubble has burst'.
Several times in the past month, Livermore had heard similar assertions from sources in Europe.
The second part quoted the same official as saying that there were strong rumours that Governor Montagu Norman of the Bank of England was looking for an excuse to raise the interest rate before the end of the month. That was significant, and made sense. The outflow of gold from Great Britain in July and August had been huge (the major portion was taken by France). The bullion stock of the Bank was now a mere #137,000,000. There was an obvious need to re-establish faith in sterling. And, as the Federal Reserve had raised the New York rediscount rate by 1 per cent, there was reason to expect England to retaliate. If Norman did raise his discount rate, money earmarked for Wall Street would more than likely be diverted to London. That would be bad for the home market.
The third part of the message was also thought-provoking. It stated that Clarence Hatry was in serious financial trouble.
Livermore knew Hatry by reputation as an able and skilled financier. One thing puzzled him: if Hatry was in danger in London, why had he not turned to Wall Street for help?
Livermore did not know the answer. But he decided to keep a careful eye on what sounded like a rapidly developing situation.
He turned to a report from another trusted source - one with assess to the Federal Reserve Board.
This Washington source did not expect the Board to take 'any further definite steps' in September; it has made is big move in August. The Board would remain a sluggish as the Potomac which it overlooked.
It was a generally quiet day. The market closed with many prices having receded somewhat in what was described as an overdue 'technical correction'. But General Motors, with a three-point gain and RCA, up a full ten points, moved against the day's downward trend.
Radio had increased fourteen dollars a share in three days of trading. Livermore, like many operators, wondered whether Mike Meehhan was backing another pool. By early evening he knew Meehan was as baffled an anybody as to why Radio, which had shown little movement in weeks, had now sprung up dramatically back to life. The stock seemed for no reason suddenly to have taken the public's fancy again.
Livermore remained until midnight at his office trying to piece together 'a jigsaw which did not have all the pieces'.
Next morning, Thursday, long before his weary staff returned to their calculations, he was back at his desk, the phoning, checking, cross-checking. He got people out of bed on the West Coast; out of meetings in London, Paris, and Berlin. Nothing really gelled.
At 8 a.m., talking to a contact in Boston, he was reminded that today's luncheon speaker at the annual National Business Conference was the economist Roger W. Babson, who had been bearish about the market for the past two years.
Impulsively, Livermore asked his secretary to bring him Babson's file. Livermore kept dossiers on a wide number of people: fellow speculators like Kennedy, Cutten, Raskob, and Durant; journalists like Alexander Noyes of the Times; bankers like Giannini and Mitchell. The files were regularly updated and assessed.
The folder on Babson was slim, but revealing. The economist has first come to the notice of Livermore's staff during the 'panic' of March 1926, when the market slumped sharply. Babson, however, had not thought the decline sufficient to 'create any real stock bargains'. He urged investors to subscribe to his 'long-swing-area method', a system Livermore dismissed as 'designed purely for bearish minnows'.
Babson had gone on being a bear, offering through 1927 and the boom year of 1928 a bleak blanket forecast that 'any major movement should be on the downside'.
A year ago, at the same conference which he was to address this lunch time, Babson had proclaimed that, if Al Smith and the Democrats were elected, 'we are almost certain to have a resulting business depression in 1929'.
Smith had lost to Hoover, so there was no way to test Babson's belief.
Livermore looked again at the file on the economist. This was the third year running he had been invited to speak at the business conference. His previous speeches had not been widely reported, perhaps because Babson was a dull speaker who 'doggedly confined himself to his familiar bearish bandwagon'.
In any case, as Livermore quickly established, his public utterances had made no detectable impression on the market.
Livermore put aside the Babson file and called for others. He checked the Giannini folder. The latest entry showed that, on 24 August, the banker had issued a statement attacking margin buying. It received wide coverage - but also had no apparent affect on the market. Livermore glanced at Paul Warburg's folder. Again, when the distinguished banker had spoken out earlier in the year about over-valued shares, the response was less that enthusiastic.
He turned to the morning editions; it was a slack day for news. Livermore, Henry Ford apart, was probably unequalled in his ability to 'read' the media; he knew, instinctively, the sort of story they would go for. For months now the newspapers had vied with one another to run boom stories about the market. Now Livermore sensed they could be ready for a change. On such a slow day for news, the Press would be looking for something 'different'. Babson, on previous record, could be just the person to give it to them.
By mid-morning, every major New York and Boston newspaper, wire service desk and the radio networks had received tip-off calls that Babson was to deliver a major financial speech at the conference. The tipster said the Times was sending Alexander Noyes to cover the occasion; Noyes was told rival financial editors were heading for the conference. Playing off one newspaper against the next was an old trick seldom had it been more effective.
Soon Babson was receiving call from reporters seeking an advance of his text.
The economist sensed that, for reasons he could not fathom, the media this year were going to give him 'the full treatment'. He told callers there would be no advance leaks.
Press interest grew. Reporters knew that a refusal to provide an advance generally meant a speaker had something important to say. In growing numbers they headed for the conference.
Professor Irving Fisher, of Yale University, one of the nation's leading economists, received a call from a Herald-Tribune reporter in New York saying he might be need to respond to Babson's speech. Fisher agreed to be ready to comment.
By noon, Jesse Livermore had completed his plans. Using thirty brokers so as to maintain secrecy, he had gone short of some $300,000 worth of stock.
At 12:30 p.m., the Associated Press bells rang on their machines across America with a news flash: 'ECONOMIST PREDICTS 60 TO 80 POINTS STOCKMARKET CRASH'.
A minute later United Press began to punch out the crucial words of Babson's speech. 'Sooner or later a crash is coming which will take in the leading stocks and cause a decline of from 60 to 80 points in the Dow-Jones barometer.'
It was enough. Nearly every afternoon newspaper in America replated its front page in order to carry the sensational news.
Babson, unknown to the masses, was given the distinctive tabloid treatment. He was called 'one of the world's great economists' and ' a famous financial prophet'. One, with a neat play on words, called him 'the Prophet of Loss'.
Radio programmes interrupted their schedules to bring news of his forecast.
The specialist financial wire services in Wall Street fed Babson's statement into brokerage houses around the country.
William Hutton-Miller was just about to go for a late lunch when the Babson news flash 'went off like a bomb' in W.E.Hutton's. Within minutes the telephones were ringing with investors wanting to sell.
---
Lurker,
That is great. A window into history.
thanks for posting it here.
here's my second pick. Someone from our own time...
JIM ROGERS, the Adventure Capitalist
An Early Christmas for Jim Rogers
The superinvestor is racking up big gains in commodities, has a new book on the way, and just resolved an ugly dispute with a business partner
Celebrity investor and intrepid traveler, Jim Rogers has lots of reasons to be in a good mood these days. The author of best-selling travelogue Investment Biker and founder with George Soros of the Quantum Fund, Rogers has a new book out called Hot Commodities. It describes the ongoing bull market in commodities and how individual investors can take part. Advertisement
Rogers, who started betting on commodities in 1998, has already benefited handsomely from making that early call in the midst of the dot-com bubble: His Rogers International Commodity Index has increased 185% since Aug. 1, 1998.
Another load off his mind: On Dec. 7, Rogers announced that he has resolved an ugly dispute with Beeland Management, the Chicago firm that markets the Rogers International Raw Materials Fund, which is based on his commodities index. Beeland manages about $500 million in assets.
"CLEARER" COMMITMENT. "I'm back in with both feet," says Rogers who had announced in October that he was breaking off with Beeland, which might no longer be able to use his name, because the firm should have disclosed errors in calculating the index. "It has been a little bit confusing to some of the investors, but the mistakes have been rectified, and everything is fine."
Rogers, who was already majority shareholder of Beeland, has increased his stake as part of the dispute's resolution. "Suffice it to say, I own lots of it," he says, although he declines to disclose his stake. "I wanted to make my commitment clearer."
Beeland countered in its own October press release that the error Rogers referred to was inconsequential and that the real dispute concerned Rogers' ownership interests in Beeland and his intention to launch competing commodities funds for investors in Japan and Europe (which he has done). Rogers now says these issues are all resolved.
CORRECTIONS COMING? A bet on commodities isn't the only one of Rogers' investment calls to prove remarkably prescient. He told BusinessWeek Online earlier this fall that he expected the dollar to decline -- just before it began a dramatic decent against the euro (see BW Online, 10/28/04, "Jim Rogers' Home Truths").
In fact, Rogers' calls have been so dead-on lately that now he thinks a short-term correction could be coming in some of the trends he has identified. A long-term bear on the U.S. dollar, he thinks the currency is due to rally in the near term. "Everyone is talking about the collapsing dollar," he says. "Whenever something has been pounded down, that's usually time for a rally," he says. However, he adds: "Long-term I expect the dollar to be seriously depressed."
Oil, he believes, is having its correction now. "Nothing goes straight up," he says. Even the bull market for U.S. stocks, which lasted from 1982 to 1999, saw many major corrections. For oil it will be the same, he says -- especially if China's economy wobbles sometime next year, as he predicts.
SELLING STOCKS. Rogers recently returned from a trip to China. Although he remains a major fan of the country's prospects, he thinks the red-hot economy will weaken sometime next year. "I'm still expecting and worried about a hard landing," he says. "Nothing I saw changed my mind about that."
What about U.S. stocks? Rogers, who has never been much of a trader, is executing his long-stated plan to sell stocks this fall and winter. "I don't think 2005 and 2006 will be good," he says. That's mainly because he expects the U.S. economy to slow next year as fiscal stimulus wanes. As the dollar declines, foreigners will stop investing in dollar-denominated securities. "The U.S. owes the world $8 trillion dollars. It's a huge international debtor, and I'm not the only one who understands that."
Next year Rogers also expects Federal Reserve Chairman Alan Greenspan to find he can no longer keep rates so low and President Bush to be unable to keep spending so high -- both factors that will slow the domestic economy.
Rogers may have a bleak outlook for the U.S., but his well-placed investments in commodities and foreign currencies are keeping him in an upbeat mood. Resolving the dispute with his business partners and seeing his new book roll of the presses are adding extra measures of holiday cheer.
@: http://www.businessweek.com/bwdaily/dnflas..._0319_db035.htm
That is great. A window into history.
thanks for posting it here.
here's my second pick. Someone from our own time...
JIM ROGERS, the Adventure Capitalist
An Early Christmas for Jim Rogers
The superinvestor is racking up big gains in commodities, has a new book on the way, and just resolved an ugly dispute with a business partner
Celebrity investor and intrepid traveler, Jim Rogers has lots of reasons to be in a good mood these days. The author of best-selling travelogue Investment Biker and founder with George Soros of the Quantum Fund, Rogers has a new book out called Hot Commodities. It describes the ongoing bull market in commodities and how individual investors can take part. Advertisement
Rogers, who started betting on commodities in 1998, has already benefited handsomely from making that early call in the midst of the dot-com bubble: His Rogers International Commodity Index has increased 185% since Aug. 1, 1998.
Another load off his mind: On Dec. 7, Rogers announced that he has resolved an ugly dispute with Beeland Management, the Chicago firm that markets the Rogers International Raw Materials Fund, which is based on his commodities index. Beeland manages about $500 million in assets.
"CLEARER" COMMITMENT. "I'm back in with both feet," says Rogers who had announced in October that he was breaking off with Beeland, which might no longer be able to use his name, because the firm should have disclosed errors in calculating the index. "It has been a little bit confusing to some of the investors, but the mistakes have been rectified, and everything is fine."
Rogers, who was already majority shareholder of Beeland, has increased his stake as part of the dispute's resolution. "Suffice it to say, I own lots of it," he says, although he declines to disclose his stake. "I wanted to make my commitment clearer."
Beeland countered in its own October press release that the error Rogers referred to was inconsequential and that the real dispute concerned Rogers' ownership interests in Beeland and his intention to launch competing commodities funds for investors in Japan and Europe (which he has done). Rogers now says these issues are all resolved.
CORRECTIONS COMING? A bet on commodities isn't the only one of Rogers' investment calls to prove remarkably prescient. He told BusinessWeek Online earlier this fall that he expected the dollar to decline -- just before it began a dramatic decent against the euro (see BW Online, 10/28/04, "Jim Rogers' Home Truths").
In fact, Rogers' calls have been so dead-on lately that now he thinks a short-term correction could be coming in some of the trends he has identified. A long-term bear on the U.S. dollar, he thinks the currency is due to rally in the near term. "Everyone is talking about the collapsing dollar," he says. "Whenever something has been pounded down, that's usually time for a rally," he says. However, he adds: "Long-term I expect the dollar to be seriously depressed."
Oil, he believes, is having its correction now. "Nothing goes straight up," he says. Even the bull market for U.S. stocks, which lasted from 1982 to 1999, saw many major corrections. For oil it will be the same, he says -- especially if China's economy wobbles sometime next year, as he predicts.
SELLING STOCKS. Rogers recently returned from a trip to China. Although he remains a major fan of the country's prospects, he thinks the red-hot economy will weaken sometime next year. "I'm still expecting and worried about a hard landing," he says. "Nothing I saw changed my mind about that."
What about U.S. stocks? Rogers, who has never been much of a trader, is executing his long-stated plan to sell stocks this fall and winter. "I don't think 2005 and 2006 will be good," he says. That's mainly because he expects the U.S. economy to slow next year as fiscal stimulus wanes. As the dollar declines, foreigners will stop investing in dollar-denominated securities. "The U.S. owes the world $8 trillion dollars. It's a huge international debtor, and I'm not the only one who understands that."
Next year Rogers also expects Federal Reserve Chairman Alan Greenspan to find he can no longer keep rates so low and President Bush to be unable to keep spending so high -- both factors that will slow the domestic economy.
Rogers may have a bleak outlook for the U.S., but his well-placed investments in commodities and foreign currencies are keeping him in an upbeat mood. Resolving the dispute with his business partners and seeing his new book roll of the presses are adding extra measures of holiday cheer.
@: http://www.businessweek.com/bwdaily/dnflas..._0319_db035.htm
For those interested / who have some delusional idea that there is a "right" way, try "Market Wizards" by Schwager. Through a series of interviews with some of the brightest and richest, you'll learn that :
1 ) charting should be used exclusively
2 ) charting should be used in combination with fundamentals
3 ) charting is rubbish
4 ) fundamentals should be used exclusively
5 ) fundamentals should be used in combination with charts
6 ) fundamentals are rubbish
7 ) one must be convinced about the righteousness of ones strategy / information, have an iron will and ignore price action
8 ) one must listen only to the price as someone always knows better
9 ) buy and hold 'til the situation you envisage comes true
10) trade every other second, going with the flow.
11) buy low, sell high
12) buy high, sell low
13) a good system is the most important element
14) your personality is the most important element
15) there is no clearly definable key element
Nonetheless, it is a good read. Just as good as any of those books about Branson etc, and devoid of all the aspirational crap you'll find in the run of the mill investment fodder. I particularly like:
Q: "what would be your advice to an avergae trader?"
A: "give your money to an exceptional trader."
Pure class! What would the dreamers think at SingingPig
1 ) charting should be used exclusively
2 ) charting should be used in combination with fundamentals
3 ) charting is rubbish
4 ) fundamentals should be used exclusively
5 ) fundamentals should be used in combination with charts
6 ) fundamentals are rubbish
7 ) one must be convinced about the righteousness of ones strategy / information, have an iron will and ignore price action
8 ) one must listen only to the price as someone always knows better
9 ) buy and hold 'til the situation you envisage comes true
10) trade every other second, going with the flow.
11) buy low, sell high
12) buy high, sell low
13) a good system is the most important element
14) your personality is the most important element
15) there is no clearly definable key element
Nonetheless, it is a good read. Just as good as any of those books about Branson etc, and devoid of all the aspirational crap you'll find in the run of the mill investment fodder. I particularly like:
Q: "what would be your advice to an avergae trader?"
A: "give your money to an exceptional trader."
Pure class! What would the dreamers think at SingingPig
QUOTE
12) buy high, sell low
Sledge, I fail to see how this could ever be a winning strategy.
QUOTE(zzg113 @ Jan 4 2005, 01:27 PM)
Sledge, I fail to see how this could ever be a winning strategy.
only from the way I've phrased it.
I guess I could have been more helpful, but it would not have presented such a contrast to "buy low sell high". being more helpfull I could have said:
12 ) buy high, sell higher. Sell low, close short lower.
The strategy of buying on a new high and selling on a new low isn't uncommon and can produce spectacular results ..... but you need the right personality, and an unswerving belief that a new high means a sea change in the underlying business.
QUOTE(DrBubb @ Dec 23 2004, 08:36 AM)
JESSE LIVERMORE, a great place to start
FAITH IN THE SYSTEM ....
FAITH IN THE SYSTEM ....
Livermore is interesting in that :
a ) he committed suicide;
b ) he lost as many fortunes as he made;
c ) he comes from a bygone era.
All of these aspects are likely to make the reader less inclined to adopt his approach without question; this can only be a good thing.
Why?
Firstly the approach to markets one adopts will only work if it suits you (sir).
Secondly, whilst the performance of authors is always difficult to determine with any real degree of accuracy, a small amount of reading will result in the inevitable epiphany that many of the books espouse wildly divergent opinions even on subjects that people with a reasonable degree of experience should be able to agree on.
Here for instance are two quotes from "experienced professionals":
C Farrell : "The market order is the investing public's most popular and most used means of buying and selling stocks."
W O'Neil : "Novice investors like to put price limits on their buy-and-sell orders. They rarely place market orders."
How can they have such wildly differing opinions?
Suffice to say that Mr Farrell would have you believe that only mugs make market orders, and that riches await you if only you (bought his book and) became enlightened to his daytrading techniques. Mr O'Neil on the other hand want syou to see the sense of his technique (so buy his book!), for which quibling over a penny this way or that merely serves to muddy good investment principles.
Let's accept for the moment that they can both make money. Why do they feel the need to justify their approach by saying that everybody who adopts an opposite stance is a loser novice?
Bought a book today, called "Lessons from the Greatest Stocktraders of all time" by John Boik. It has chapters on Livermore and O'Neill, also on Baruch, Loeb and Darvas.
A good riead so far- I veer towards the fundamentals good, charts are rubbish stance by temperament, so its good to learn from those who made fortunes through different approaches.
A good riead so far- I veer towards the fundamentals good, charts are rubbish stance by temperament, so its good to learn from those who made fortunes through different approaches.
QUOTE(Yonmon @ Jan 4 2005, 06:37 PM)
I veer towards the fundamentals good, charts are rubbish stance by temperament, so its good to learn from those who made fortunes through different approaches.
I think it's good to have a balanced view on all things in life and it strikes me you won't get that from the likes of O'Neil. So I'll just try to persuade you of the logic behind charting. First excuse me for starting with a question:
Q : what in your opinion is the chief attraction of investing in listed securities or stocks?
QUOTE(Sledgehead @ Jan 4 2005, 09:20 PM)
I think it's good to have a balanced view on all things in life and it strikes me you won't get that from the likes of O'Neil. So I'll just try to persuade you of the logic behind charting. First excuse me for starting with a question:
Q : what in your opinion is the chief attraction of investing in listed securities or stocks?
Q : what in your opinion is the chief attraction of investing in listed securities or stocks?
In absolute terms, the ability to make returns in a rising or falling market, by going long or short.
In relative terms, their liquidity.
To be honest though, I have no great love affair with any asset class, and would be just as happy trading forex say.
Jim Rogers' books:
Investment Biker and Adventure Capitalist
are both good reads, and would make a good post-Christmas present,
especially if you can find them on sale.
I understand he will have a new book out soon. I am looking forward to it.
Sledge,
I recently got New Market Wizards, Schrager's second book.
One thing I remember, and have practiced from the first book is: that you have to find a trading style which fits your personality. For instance, I am not good with stops, so I have to use options (in the money!) or only trade in the direction of the long term. Since I began to use these tools, and forsake others, I have done well. But I paid alot of "tuition" to get to my present style.
Investment Biker and Adventure Capitalist
are both good reads, and would make a good post-Christmas present,
especially if you can find them on sale.
I understand he will have a new book out soon. I am looking forward to it.
Sledge,
I recently got New Market Wizards, Schrager's second book.
One thing I remember, and have practiced from the first book is: that you have to find a trading style which fits your personality. For instance, I am not good with stops, so I have to use options (in the money!) or only trade in the direction of the long term. Since I began to use these tools, and forsake others, I have done well. But I paid alot of "tuition" to get to my present style.
QUOTE(Sledgehead @ Jan 5 2005, 09:20 AM)
Q : what in your opinion is the chief attraction of investing in listed securities or stocks?
QUOTE(Yonmon @ Jan 5 2005, 11:09 AM)
...
In relative terms, their liquidity.
In relative terms, their liquidity.
Just the answer I was looking for. If you can see this you can probably work out the attractions of charting yourself, but for those who can't:
In the words of Benjammin Graham, the stock market is a voting machine short term and a weighing machine long term. By this he meant that over the long term company / commodity etc fundamentals would exert themselves, but in the short term it's very much a popularity contest. In this regard fundamentals can be very misleading and costly to those who don't like large draw-downs (periods when the asset price moves against you). IMHO Charting is far superior when it comes to determining the shorter term popularity swings. Why you ask trade the maket short term? Firstly because you will likely suffer smaller draw downs. Secondly, simply because liquidity allows it. There are plenty of other (physical) markets you could trade but you will never be able to capitalise on short term volatility. All of these other markets however give much clearer signals when it comes to fundamentals (imagine you go into trading consumer goods - ie become a retailer. Your customers will be pleased to tell you exactly what they want: that's what I call real fundamentals).
QUOTE(Yonmon @ Jan 5 2005, 11:09 AM)
To be honest though, I have no great love affair with any asset class, and would be just as happy trading forex say.
Great attitude.
I have just finished reading Reminiscences of a Stock Operator. A fascinating biography of Livermore written in 1923 by Edwin Lefevre. Livermore of course was purely a technical trader, the total opposite to today's superinvestors like Buffett, Lynch, Schloss etc who rely on excellent fundamental analysis pioneered by Ben Graham during the great depression.
The essence of this classic can be summed up in one of its opening paragraphs:
"Another Lesson I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I've never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience."
In his first job as a chalkboard boy in a bucket shop, Livermore observed the effect of crowd behaviour. He also observed that the crowed usually lost money. They would become excited when their stocks moved in the direction they backed, and then try to reassure each other when it moved the other way. The bucket shop keeper said to him: "You see how often these guys talk amongst themselves? You see how often they are wrong? I'll tell you something - it isn't what they say to each other that counts, it's what the goddamn tape says!"
The essence of the book is as relevant today as it was in 1923. Nothing has really changed, because humans being don't change, we are as driven today as we were 80 or 100 years ago by the same emotions of fear, greed, hope & ignorance.
The essence of this classic can be summed up in one of its opening paragraphs:
"Another Lesson I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I've never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience."
In his first job as a chalkboard boy in a bucket shop, Livermore observed the effect of crowd behaviour. He also observed that the crowed usually lost money. They would become excited when their stocks moved in the direction they backed, and then try to reassure each other when it moved the other way. The bucket shop keeper said to him: "You see how often these guys talk amongst themselves? You see how often they are wrong? I'll tell you something - it isn't what they say to each other that counts, it's what the goddamn tape says!"
The essence of the book is as relevant today as it was in 1923. Nothing has really changed, because humans being don't change, we are as driven today as we were 80 or 100 years ago by the same emotions of fear, greed, hope & ignorance.
"When asked to nominate the most powerful force on earth, Albert Einstein is reputed to have answered ‘compound interest’. Buffett might well agree."
For the world's greatest investor, it is long-term or nothing. There is nothing complicated about the way Warren Buffett invests. He took the principles of value-investing developed by Ben Graham and applied the idea of a sustainable competitive advantage to add a qualitative element, an influence from, amongst others, the reclusive great investor Phil Fisher.
Buffett simply looks for excellent companies with a competitive advantage that enables them to grow their earnings year upon year and be able to sustain those margins to fend off would-be competitors who would introduce competition and erode profits in the industry. The most commons forms of a competitve advantage is a strong brand name, or barriers to entry to a the market, or simply being first to the market and having economies of scale. A "Coca cola", or a "WD-40", or a "Nike", or even an "Intel" would offer the sort of investment opportunity that Warren Buffett would like. It is only through having a sustainable competitive advantage, that future growth will actually increase earnings. In some industries (airlines is a good example..Buffett would never touch an airline), growth can acutally be value destroying as competition erodes profit margins and there are actually barrier to exit.
Even when he has identified suitable companies, Buffett will not pay over the odds for them. They must be "cheap" by whatever his calculation of intrinsic value to be, whether it is a low price-to-earnings, a low price-to-book value, or whatever other determinant of "value" he wants. And sometimes the market will not offer it to him at a price he deems reasonable. In 1969, Buffett considered the market so over-valued that he couldn't find anything worth buying given the market's rediculous price. What did he do - buy the cheapest thing he could find? No. He acutally dissolved the Buffett Partnership and handed the money back to shareholders, explaining to them that he could find nothing worth investing in. He then stayed out of the market until 1973, when the market crashed. By that time he had restructured Berkshire Hathaway into a holding company, and begun buying companies at dirt cheap prices when everyone else has lost all their money and moreover had lost all confidence in the stock market. He subsequently picked up the Washington Post Company for $80m when the value of its assets was easily worth at least $400m, and Berkshire reaped the rewards when the market eventually recovered. Buffett said afterwards he would have had "No worries at all in investing everything I owned into the Washington Post Company at that time."
More on WB:
http://www.buffettsecrets.com/warren-buffett.htm
Value investing:
The supervestors of Graham & Doddsville
For the world's greatest investor, it is long-term or nothing. There is nothing complicated about the way Warren Buffett invests. He took the principles of value-investing developed by Ben Graham and applied the idea of a sustainable competitive advantage to add a qualitative element, an influence from, amongst others, the reclusive great investor Phil Fisher.
Buffett simply looks for excellent companies with a competitive advantage that enables them to grow their earnings year upon year and be able to sustain those margins to fend off would-be competitors who would introduce competition and erode profits in the industry. The most commons forms of a competitve advantage is a strong brand name, or barriers to entry to a the market, or simply being first to the market and having economies of scale. A "Coca cola", or a "WD-40", or a "Nike", or even an "Intel" would offer the sort of investment opportunity that Warren Buffett would like. It is only through having a sustainable competitive advantage, that future growth will actually increase earnings. In some industries (airlines is a good example..Buffett would never touch an airline), growth can acutally be value destroying as competition erodes profit margins and there are actually barrier to exit.
Even when he has identified suitable companies, Buffett will not pay over the odds for them. They must be "cheap" by whatever his calculation of intrinsic value to be, whether it is a low price-to-earnings, a low price-to-book value, or whatever other determinant of "value" he wants. And sometimes the market will not offer it to him at a price he deems reasonable. In 1969, Buffett considered the market so over-valued that he couldn't find anything worth buying given the market's rediculous price. What did he do - buy the cheapest thing he could find? No. He acutally dissolved the Buffett Partnership and handed the money back to shareholders, explaining to them that he could find nothing worth investing in. He then stayed out of the market until 1973, when the market crashed. By that time he had restructured Berkshire Hathaway into a holding company, and begun buying companies at dirt cheap prices when everyone else has lost all their money and moreover had lost all confidence in the stock market. He subsequently picked up the Washington Post Company for $80m when the value of its assets was easily worth at least $400m, and Berkshire reaped the rewards when the market eventually recovered. Buffett said afterwards he would have had "No worries at all in investing everything I owned into the Washington Post Company at that time."
More on WB:
http://www.buffettsecrets.com/warren-buffett.htm
Value investing:
The supervestors of Graham & Doddsville
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