Jesse Livermore, speculation, and people

I just finished re-reading Jesse Livermore's auto-biography,Reminiscences of a Stock Operator. What a wonderful read. In this post besides advocating anyone who hasn't yet read the text do so (you can find it FREELY available here: http://www.archive.org/details/ReminiscencesOfAStockOperator), I wanted to highlight a couple quotes from the book on people:

"I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans and human nature never changes"

"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.""

"The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions, that the answers will supply themselves directly. But people never take the trouble to ask questions, leave alone seeking answers. The average American is from Missouri everywhere and at all times except when he goes to the brokers' offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile."

On the surface, Livermore traded in a completely different world. Insider trading was rampant, stock manipulation and tip buy/selling was popular, bank runs were common... Hah, see not so different after all? In truth however, humans are the same. The same emotions that drove and controlled the market in Livermore's time do so today. We simply need to accept and understand this. I'll include a few more highlighting the inherent laziness and gullibility of man.

"The average man doesn't wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think. It is too much bother to have to count the money that he picks up from the ground."

"At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860's and 70's than in the 1900's. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings."

How true! There is nothing new under the sun1! Re-reading Livermore's observations brings to mind the recent EVE Online ponzi scheme that rather successfully executed it's mission, netting a cool ~50k USD for its creators2.

All said, I will be continuing to study people. In understanding people, I will understand markets.

1. Ecclesiastes 1:9
2. http://www.evenews24.com/2011/08/14/the-1-trillion-isk-ponzi-phaser-inc-speaks/

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