11 Key Takeaways from Reminiscences of a Stock Operator

by Matt Spillar · July 8, 2019

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In 2017, my Dad issued a challenge for me to start reading books about investing. After completing 4 books that year, he brought the challenge back for 2018-2019 with a new list of books.

You can read my other recaps for the first three books here:

This is my recap for the fourth book in the challenge, Reminiscences of a Stock Operator, by Edwin Lefevre. The book is a fictionalized biography of famous stock trader Jesse Livermore, who Lefevre names Larry Livingston. Originally published in 1923, the book has continued to be a classic nearly 100 years later. It discusses how Livermore learned how to trade, the lessons he picked up, and his many successes and failures throughout his life.

He made his first $1,000 by age 15 and his first $10,000 before 21. Soon, he became so successful that the local bucket shops would no longer accept his trades. One of the most interesting aspects of the book was that even though times have changed, so many of the lessons have proven to be timeless. Anyone interested in stock trading would find some wisdom within this book.

Here are some of the key themes that stood out to me:

Times change, but some things remain the same

Livermore talks about that human nature brings about challenges when it comes to investing. Most people exhibit traits of fear, hope, and greed in investing. Even though this book is almost 100 years old, these same traits are prevalent. Investors need to have both mental and emotional intelligence to succeed.

Be a student of the markets

Always be a student of the markets. No matter how much experience a trader has, there is always something more to be learned. Livermore set himself apart through his vast life experiences and dedication to studying the markets. He also discusses throughout the book about the importance in sizing up the entire market as a whole instead of individual price fluctuations. He carefully studied underlying market conditions when making his trades. Don’t worry too much about why the price moved, pay attention to the market conditions as a whole.

The market teaches us lessons

Livermore says that our best lessons are taught by the markets. In his own journey, history, experience, and his mistakes were his best teachers. He says that most people aren’t beaten by the market, they beat themselves through impatience, fear, and poor judgement.

Learn from your losses

It’s important to learn from your losses. Sometimes it’s better to sell and take small losses early, rather than compounding your errors.

“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.”

Make money, don’t worry about being right

The biggest focus for investors needs to be on making money, not being “right.” Investors need to manage both risks and rewards.

“They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.”

Speculators vs Investors

There are differences between speculators and investors. Namely, it comes down to time horizons. Speculators buy the trend and investors are in it for the long haul. Most people act as speculators, speculating what future prices will be. Speculators are often lazy, greedy, and vain. They depend on brokers or tipsters to supply them with information, rather than doing their own research.

Practice patience

One of the most important skills in investing in patience. We see through Livermore’s story that it takes time to build investing skills. Also, we see that despite many years of experience there will still be plenty of mistakes that happen. We need to learn to wait for the right opportunities and sit tight until they develop. Don’t force trades.

“It was never was my thinking that big money for me. It always was my sitting. Got that? My sitting tight!”

Take time to plan your strategy

Most people don’t spend enough time and reflection on investing. Instead they tend to act in a haphazard manner. Take your time to plan your strategy and then stick to it throughout all the ups and downs of the market. Livermore also began all his trades with the end in mind, knowing when he was going to get out.

“He will risk half his fortune in the stock market with less reflection that he devotes to the selection of a medium-priced automobile.”

Trust your own judgement

Do your own research, build your skills, and then trust your own judgement. Avoid the “hot stock tips” that get sensationalized by the media, they are often driven by fear and greed. Another key theme that Livermore goes back to time and time again is learning to trade the line of least resistance. The market has a tendency to trend upwards or downwards. Livermore studied these larger trends carefully, and had confidence in his abilities because he had built his experience over many years.

“A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don’t believe in tips.”

Know your limitations

Guard against your own human nature. Be careful trying to pick the tops and bottoms of the market, most of the time it doesn’t turn out well. Don’t let your view of the market or certain stocks be dictated by your holdings. Sometimes we start to have too rosy of a picture, thinking bad stocks will rebound simply because we own them.

Money can’t be consistently made through trading

Of all the lessons throughout the book, this may be the most important. Lefevre concluded that stock speculation is an unbeatable game. You may win on certain trades for awhile, but that good fortune will eventually run out. This is why value investing and index fund investing are both much better investing strategies long-term than actively trading stocks.

“My own opinion is that Livingston will agree with me that stock speculation is an unbeatable game.”

Final Thoughts

Overall, while this book is nearly 100 years old it is filled with dozens of timeless lessons that the modern investor can benefit from. It was a compelling book, to read a fictionalized biography through the eyes of Jesse Livermore. His life was filled with many ups and downs, and he was clearly a brilliant mind that investors should look to learn from.

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