Reminiscences of a Stock Operator (1923) | Hacker News Reader

Reminiscences of a Stock Operator (1923)

gutenberg.org

44 pointsthomassmith6516 comments

I've read this book a couple times. I like it, but it's important to understand this is not a book about a stock trader. It's a book about a problem gambler who happens to gamble on the stock market. One of the biggest trade in the book is just a hunch the character has, and they make bank because of an earthquake. Having an act of God rescue your position is not a strategy.

There's a part where he sets up a trust so that his family will money the next time he goes bust (which happens constantly in the book), and tells his wife that he will beg and plead for the money but she has to refuse him. That feels to me like the behavior of an addict capitalizing on a moment of lucidity to protect loved ones from their addiction.

The real Jesse Livermore died penniless by suicide. The book doesn't address his depression, but I think you do see it in what's not in the book. They don't really talk about the character's friends. They don't seem preoccupied with their wife or their children.

One takeaway from the book is that trend following strategies are really difficult to follow. Jesse Livermore had a 3 yearlong losing streak from 2011 - 2014 despite him following his rules. After the events of the book, he went short in 1929 and was reportedly worth over 100m in that time, a huge amount. Then he lost it all in the strongly mean reverting markets of the 1930s where his trend following strategy didn't work.

He was a problem gambler, but I think if we looked at top poker players of today, they'd all have some love the gamble in them. Jesse had godly tape reading skills that allowed him to beat the bucket shops at the start of his career.

After being kicked out of the bucket shops, he should have just become a floor trader and in all likelihood, he'd have had lower highs but would have fared a lot better overall. A lot of the trading cliches like cutting trading losses quickly, letting profits run, averaging up rather than down originate from this book. There is a reason people still talk about it 100 years after its publication. It's a good contender for the best trading book of all time.

All it takes to make and lose a huge fortune is capital and a high variance strategy. Whether that strategy is informed by legitimate genius is immaterial to the final outcome - you bust badly, exhaust your credit, and are unable to stay in the market and score next big the windfall which you were counting on.

At my first job in finance I worked at a trading firm that recruited people off the street to electronically click trade futures. They would ride the intraday market moves and constantly open/close positions. At the end of the day they would be flat. It was a lot like gambling, but with CNBC on the TV instead of sports.

It’s kind of funny to see the similarities in this book. Like the bucket shops, there was a simulation environment with live market data where trainees had to prove themselves before they can move onto live trading. It turned out that a lot of folks were pretty good at the fake/simulation training but failed miserably with live trading due to their orders actually influencing the market. The firm only lasted a few years.

required reading when youre a young buck starting out on a trading desk. its a short, quick read. there's 2 key takeaways for me when comparing today's markets and those of 100+ years ago: market dynamics are essentially unchanged & human emotions - fear and greed - drive those market dynamics in the same way.

Keep in mind that ultimately Livermore died broke. Trading stocks is a promise of wealth that's just a mirage. Smart long term investments is your best way to a wealthy future.

Died by his own hand, I would add.

I bought this book in the early 1990s and still have it with the red cover. My favorite part that stuck with me all those years was this section:

"And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!"

Supposedly this is a roman a clef about Jesse Livermore's career. There's a lot of stuff in this book that makes sense of markets in ways that pretty much no other investing book I've ever read does. Some what I remember are bucket shops, tape sense, marketing campaigns for new stocks, risk of ruin (Livermore went bust over and over), and what amounts to compulsive gambling.

Honestly, nothing's changed. It's more modern; but otherwise all the same.

A big difference is central bank intervention. In the most recent Market Wizards book, the biggest gains came from traders who traded CB announcements and rumors.

The bucket shops sound like prop trading companies of today

legal bucket shops is exactly what they are

a market maker (MM) (citadel, optiver) etc makes money in the most part by filtering a trade from customer, and then agreeing or disagreeing with its sentiment. If you buy say msft at $480 and they think it will dip below $480 they will 'hold risk' and wait for it to dip to say $470 then execute your trade, making $10

except instead of aiming to make 2% on a single trade, they aim to make maybe 5 cents this way on a $480 stock, mostly holding for less than a few seconds, on millions of trades an hour

thus, robinhood very valuable because it encouraged retail investors to have high trading volume on complex instruments. that "order flow" then sold to MM like above for fixed rates or % shares.

MM are ultimately a good thing because they provide liquidity. there is always a person willing to take the other side of a trade when you click. if you trade in a boondocks stock market like singapore or new zealand you will quickly see the market run dry and you cant get out of a position

> they aim to make maybe 5 cents this way on a $480 stock, mostly holding for less than a few seconds, on millions of trades an hour

> MM are ultimately a good thing because they provide liquidity. there is always a person willing to take the other side of a trade when you click

At the end of the day, it's not clear where the liquidity is going to come from unless there are non-middlemen buyers on the other side.

Reducing typical spread and commission fees seems like a more realistic benefit.

There are still bucket shops, but they call them "binary options brokers" now. If your broker only makes money when you lose money, they're not a broker, they're a casino.

There are many modern day bucket shops. Any CFD or "spread betting" product is just your broker taking the other side of your trade (and optionally, offsetting the risk). Prop firm "evaluations" or "accounts" are another popular one on social media.

Basically anything that amounts to a side-bet rather than a trade recorded on an exchange should (IMO) be avoided, and you're putting yourself in a situation where you and your broker have an adversarial relationship.

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