Jesse Livermore highlighted a very important lesson to traders and investors – Do not demand anything from the market! Here is an interesting excerpt from the “Reminiscences of a Stock Operator” to illustrate.
“Why, in Harding’s office one winter a little bunch of high flyers spent thirty to forty thousand dollars for an overcoat – and not one of them lived to wear it. It so happened that a prominent floor trader – who since has become world-famous as one of the dollar-a-year men – came down to the Exchange wearing a fur overcoat lined with sea otter. In those days, before furs went up sky high, that coat was valued at only ten thousand dollars. Well, one of the chaps in Harding’s office, Bob Keown, decided to get a coat lined with Russian sable. He priced one uptown. The cost was about the same, ten thousand dollars.
“That’s the devil of a lot of money,” objected one of the fellows.
“Oh, fair! fair!” admitted Bob Keown amiably. “About a week’s wages – unless you guys promise to present it to me as a slight but sincere token of the esteem in which you hold the nicest man in the office. Do I hear the presentation speech? No? Very well. I shall let the stock market buy it for me!”
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“Why do you want a sable coat?” asked Ed Harding.
“It would look particularly well on a man of my inches,” replied Bob, drawing himself up.
“And how did you say you were going to pay for it?” asked Jim Murphy, who was the star tip-chaser of the office.
“By judicious investment of a temporary character, James. That’s how,” answered Bob, who knew that Murphy merely wanted a top.
Sure enough, Jimmy asked, “What stock are you going to buy?”
“Wrong as usual, friend. This is no time to buy anything. I propose to sell five thousand Steel. It ought to go down ten points at the least. I’ll just take two and a half points net. That is conservative, isn’t it?”
“What do you hear about it?” asked Murphy eagerly. He was a tall thin man with black hair and a hungry look, due to his never going out to lunch for fear of missing something on the tape.
“I hear that coat’s the most becoming I ever planned to get.” He turned to Harding and said, “Ed, sell five thousand U.S. Steel common at the market. To-day, darling!”
He was a plunger, Bob was, and liked to indulge in humorous talk. It was his way of letting the world know that he had an iron nerve. He sold five thousand Steel, and the stock promptly went up. Not being half as big an ass he seemed when he talked, Bob stopped his loss at one and a half points and confided to the office that the New York climate was too benign for fur coats. They were unhealthy and ostentatious. The rest of the fellows jeered. But it was not long before one of them bought some Union Pacific to pay for the coat. He lost eighteen hundred dollars and said sables were all right for the outside of a woman’s wrap, but not for the inside of a garment intended to be worn by a modest and intelligent man.
After that, one after another of the fellows tried to coax the market to pay for that coat. One day I said I would buy it to keep the office from going broke. But they all said that it wasn’t a sporting thing to do; that if I wanted the coat for myself I ought to let the market give it to me. But Ed Harding strongly approved of my intention and that same afternoon I went to the furrier’s to buy it. I found out that a man from Chicago had bought it the week before.
That was only one case. 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. I could build a huge hospital with the birthday presents that the tight-fisted stock market has refused to pay for. In fact, of all hoodoos in Wall Street I think the resolve to induce the stock market to act as a fairy godmother is the busiest and most persistent.
Like all well-authenticated hoodoos this has its reason for being. What does a man do when he sets out to make the stock market pay for a sudden need? Why, he merely hopes. He gambles. He therefore runs much greater risks than he would if he were speculating intelligently, in accordance with opinions or beliefs logically arrived at after a dispassionate study of underlying conditions. To begin with, he is after an immediate profit. He cannot afford to wait. The market must be nice to him at once if at all. He flatters himself that he is not asking more than to place an even-money bet. Because he is prepared to run quick – say, stop his loss at two points when all he hopes to make is two points – he hugs the fallacy that he is merely taking a fifty-fifty change. Why, I’ve known men to lose thousands of dollars on such trades, particularly on purchases made at the height of a bull market just before a moderate reaction. It certainly is no way to trade.”