Preface

Reminiscences of a Stock Operator is a pretty old book (1923) that tells the story of Jesse Livermore, a very successful speculator in the markets of that time. The age of the book only makes it more impressive how its teachings can still be applied today to markets that look completely different from the markets of old. This quote from the book illustrates what I want to say:

Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one things that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.

This article is based on curated quotes from the book with teachings that can be applied to cryptocurrency markets and my comments on them. I try to make the thoughts as simple and short as possible, straight to the point.

This is the second part of my series of articles about this book. You can read the first one here.

Tape reading in the old days. Source.

Highlights from Reminiscences (part #2)

Understanding people

Markets are heavily influenced by the behavior of people. Learn how people "work" (including how you work) and it will help you with the markets. Learn your weaknesses and deal with them.

I had learned a great deal about the game of stock speculation, but I had not learned quite so much about the play of human weaknesses. There is no mind so machine like that you can depend upon it to function with equal efficiency at all times. I now learned that I could not trust myself to remain equally unaffected by men and misfortunes at all times.

There is no need to feel anger over being human. I have come to feel that it is as necessary to know how to read myself as to know how to read the tape.

Lost opportunities are very, very hard on your mind. Knowing it and knowing yourself can help you deal with it. And you absolutely need to learn to deal with it because you will lose opportunities.

It isn’t uncomfortable to lose when the loss is not accompanied by a poignant vision of what might have been.

Trading is a craft and you need a clear mind to do it. Feelings and life situations will affect you and you need to learn to deal with it.

I quite cold-bloodedly reached the conclusion that I would never be able to accomplish anything useful so long as I was worried, and it was equally plain that I should be worried so long as I owed money.

Remember: "live to fight another day". Risk management is very important.

[after losing everything] I was young enough to wait with patience for the strayed millions to come back. But five years is a long time for a man to be poor. Young or old, it is not to be relished. I could do without the yachts a great deal easier than I could without a market to come back on. The greatest opportunity of a lifetime was holding before my very nose the purse I had lost. I could not put out my hand and reach for it.

… probably that he may be reminded of the sad fact that no human being can be so uniformly right on the market as to be beyond the reach of unprofitable accidents.

Timing your trades

You don't need to take all the trades. Waiting for the right moment, for the right trades, is of extreme importance.

[on his first trade after going bankrupt and borrowing money, he had to get it right] Those six weeks of waiting for the right moment were the most strenuous and wearing six weeks I ever put in.

… There were times when a man could no more help making money than he could help getting wet if he went out in a rainstorm without an umbrella.

No rush, no FOMO. Plan your trades and learn to read what is happening.

And there is another thing to remember, and that is that a market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal or form. A market can and does often cease to be a bull market long before prices generally begin to break.

When you learn to read the market and you enter your trades at the right time, everything looks easier.

When I had a profit of at least four points in each and every one of the twelve stocks that I was short of, I knew that I was right. The tape told me it was now safe to be bearish, so I promptly doubled up… The market was bound to go my way, and, knowing that, I could afford to wait. After I doubled up I didn’t make another trade for a long time.

Risk management

Taking risks is part of trading and is necessary if you want high profits. But you need to learn to manage them and live with the consequences.

Among the hazards of speculation the happening of the unexpected - - I might even say of the unexpectable - - ranks high. There are certain chances that the most prudent man is justified in taking - - chances that he must take if he wishes to be more than a mercantile mollusk. Normal business hazards are no worse than the risks a man runs when he goes out of his house into the street or sets out on a railroad journey.

You can't be 100% sure of any trade. No matter how sure you are of what will happen, external factors are out of your control and can change the situation completely. Risk management is paramount in times when the unexpected happens.

They fixed on a maximum price for raw coffee and also fixed a time limit for closing out all existing contracts. This decision meant, of course, that the Coffee Exchange would have to go out of business. There was only one thing for me to do and I did it, and that was to sell out all my contracts... Post-mortems in speculation are a waste of time. They get you nowhere. But this particular deal has a certain educational value. It was as pretty as any I ever went into. The rise was so sure, so logical, that I figured that I simply couldn't help making several millions of dollars. But I didn't.

Blindly following tips and easy money

Following tips from others is easy and gives you the idea that you will make money easily. And, if that doesn't happen, it will not be your fault. This is the lazy way of people that don't want to do the work themselves.

With the Internet and social media this is even more evident. How many traders do you follow on Twitter? Are you on any trading groups on Telegram? How do you follow their calls?

To be told precisely what to do to be happy in such a manner that you can easily obey is the next nicest thing to being happy -- which is a mighty long first step toward the fulfilment of your heart's desire. It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to do any thinking.

People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.

...the wise trader bewares of the Greeks bearing gifts. It is all the warning needed. The public disregards it and loses millions of dollars annually.

Doing it yourself is always, always better.

I can only rise by knowledge. If I fall it must be by my own blunders.

Attributes of a good trader

I absolutely agree with the attributes he lists below. But in the age of information we live in I would add "curation", the ability of sorting through the garbage.

Observation, experience, memory and mathematics -- these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed.

Be humble, keep learning and leave your ego behind.

He had in superlative degree the qualities of mind that are associated with successful speculators anywhere. That he did not argue with the tape is plain. He was utterly fearless but never reckless. He could and did turn in a twinkling, if he found he was wrong.

They are still angry. I am not. 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.

The speculator's deadly enemies are: ignorance, greed, fear and hope.

Market manipulation

This section is very interesting because it can definitely be applied to the current cryptocurrency markets, where manipulation, if not evident, is at least very possible. Learning how they did it in the past is a great way of trying to understand how whales think and behave in crypto markets.

To start with, what exactly is "manipulation"?

I do not know when or by whom the word "manipulation" was first used in connection with what really are no more than common merchandising processes applied to the sale in bolk of securities on the Stock Exchange.

Is advertising also manipulation? Social media definitely changed what would be the "normal" behavior of cryptocurrencies. Remember Verge (XVG) and Tron (TRX)? What about @officialmcafee's tweets? Where these manipulations or just the natural way things are nowadays?

There is no question that advertising is an art, and manipulation is the art of advertising through the medium of the tape.

The first step in a bull movement in a stock is to advertise the fact that there is a bull movement on.

In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done. 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 on object in view and on only and that is to sell at the best profit possible.

The main goal in manipulating a coin is obviously being able to sell it at a higher price. At the public's expense.

There is no sense in marking up the price to a very high level if you cannot induce the public to take it off your hands later... As a matter of fact, it is well to remember a rule of manipulation, a rule that Keene and his able predecessors well knew. It is this: stocks are manipulated to the highest point possible and then sold to the public on the way down.

A stock which it is desired to distribute should be manipulated to the highest possible point and then sold.

...it is a cardinal principle of stock manipulation to put up a stock in order to sell it. But you don't sell in bulk on the advance. You can't. The big selling is done on the way down from the top.

There's no point in increasing the price of a coin if you won't have other people buying it. Whales need the public, they need outside money.

A pool manager should be willing to buy his own stock when he has company. But when he is the only buyer in the market he'd be an ass to buy it. For every five thousand shares I buy the public ought to be willing or able to buy five thousand more.

When you hear news about a coin, it has already been "manipulated" for "insiders" to profit from the movements.

The turn comes in the line of business the company is engaged in. Who are the first to know it, the insiders or the public? You can bet it isn't the public.

The nature of the game as it is played is such that the public should realise that the truth cannot be told by the few who know.

I myself didn't sell on the news. I had sold long before, on the stock's behaviour. My concern with it was not philosophical. I am a trader and therefore looked for one sign: Inside buying. There wasn't any.

Best of

To finish this collection of quotes, I separated a few uncategorized quotes that are my favorites in the book. Here they are.

FOMO was a bad practice even 100 years ago.

If I hadn’t bought that cotton just before the market closed the day before, I would have saved that four hundred thousand dollars. It shows you how quickly a man may lose big money on a moderate line.

Holding bags was also a thing.

The chap who is compelled to lug a corpse a year or two always loses more than the original cost of the deceased; he is sure to find himself tied up with it when some really good things come his way.

It has never been a good plan to mortgage your house and/or sell your furniture to have a bigger margin in the markets.

After I paid off my debts in full I put a pretty fair amount into annuities. I made up my mind I wasn't going to be strapped and uncomfortable and minus a stake ever again.

People make mistakes. Usually the same they did in the past.

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.

As already said before, one of the biggest enemies of a trader is hope.

The top is never in sight when the vision is vitiated by hope.

The big money in booms is always made first by the public -- on paper. And it remains on

Have a plan and trade your plan. There's no right or wrong, there is just what works and what doesn't. Stick to what works for you.

"Not at all. I have found an easy way and I stick to it. I simply cannot help making money. I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon." -- Old Baron Rothschild

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This is the second of three articles of my quote-based takeaways from the book Reminiscences of a Stock Operator. Come back in the future for the next ones!

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Stay tuned for more posts. Until then you can check my previous posts at:

• (from May 6) What I learned from the amazing book Reminiscences of a Stock Operator (#1)
• (from April 11) Capital preservation and the 2%
• (from April 7) Moving Averages (SMA, EMA): How to use and calculate them (spreadsheet and code included

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Disclaimer: This is not financial advice, I write for informational and educational purposes only. This article expresses solely my opinion, make of it what you wish.