By The Acquirer’s Multiple. Originally published at ValueWalk.
Reminiscences of a Stock Operator is a classic investing book that focuses on the character Larry Livingston, which is really a depiction of Jesse Livermore, one of the most highly regarded traders of all time.
Reminiscences of a Stock Operator by Edwin Lefevre
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The book provides a first person account of Livingston’s journey which started in the stock trading bucket shops before the great depression. Livingston’s skill was in figuring out anticipated price moves based on the ticker tape and whilst this worked on a small scale it was much harder to apply on Wall Street, eventually leaving him broke a number of times.
It wasn’t until he met Mr Partridge, or “Old Turkey” as the traders used to call him, that he eventually figured out what he was doing wrong. Instead of picking up small changes in price movements and making small profits, Old Turkey would hold positions through the short-term price fluctuations and make larger profits as prices eventually moved further up. This is what led to Livingston’s eventual success and his famous quote, “Men who can both be right and sit tight are uncommon.”
While the book is set in the early twentieth century, this lesson still remains one of the main reasons that investors have continued to under-perform since then and will continue to underperform into the future. Investors are unable to ride out short-term price fluctuations that will eventually lead to a stock’s out-performance.
Here’s an excerpt from the book:
Most -let us call ’em customers -are alike. You find very few who can truthfully say that Wall Street doesn’t owe them money. In Fullerton’s there were the usual crowd. All grades! Well, there was one old chap who was not like the others. To begin with, he was a much older man. Another thing was that he never volunteered advice and never bragged of his winnings. He was a great hand for listening very attentively to the others.
He did not seem very keen to get tips that is, he never asked the talkers what they’d heard or what they knew. But when somebody gave him one he always thanked the tipster very politely. Sometimes he thanked the tipster again when the tip turned out O.K. But if it went wrong he never whined, so that nobody could tell whether he followed it or let it slide by.
It was a legend of the office that the old jigger was rich and could swing quite a line. But he wasn’t donating much to the firm in the way of commissions; at least not that anyone could see. His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast.
The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap’s answer was always the same.
The customer would finish the tale of his perplexity and then ask: “What do you think I ought to do?” Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, “You know, it’s a bull market!”
Time and again I heard him say, “Well, this is a bull market, you know!” as though he were giving to you a priceless talisman wrapped up in a million-dollar accident insurance policy. And of course I did not get his meaning.
One day a fellow named Elmer Harwood rushed into the office, wrote out an order and gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to John Fanning’s story of the time he overheard Keene give an order to one of his brokers and all that John made was a measly three points on a hundred shares and of course the stock had to go up twenty-four points in three days right after John sold out. It was at least the fourth time that John had told him that tale of woe, but old Turkey was smiling as sympathetically as if it was the first time he heard it.
Well, Elmer made for the old man and, without a word of apology to John Fanning, told Turkey, “Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I’ll be able to buy it back cheaper. So you’d better do likewise. That is, if you’ve still got yours.”
Elmer looked suspiciously at the man to whom he had given the original tip to buy. The amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out.
“Yes, Mr. Harwood, I still have it. Of course!” said Turkey gratefully. It was nice of Elmer to think of the old chap. “Well, now is the time to take your profit and get in again on the next dip,” said Elmer, as if he had just made out the deposit slip for the old man. Failing to perceive enthusiastic gratitude in the beneficiary’s face Elmer went on: “I have just sold every share I owned!”
From his voice and manner you would have conservatively estimated it at ten thousand shares. But Mr. Partridge shook his head regretfully and whined, “No! No! I can’t do that!”
“What?” yelled Elmer.
“I simply can’t!” said Mr. Partridge. He was in great trouble.
“Didn’t I give you the tip to buy it?”
“You did, Mr. Harwood, and I am very grateful to you. Indeed, I am, sir. But ”
“Hold on! Let me talk! And didn’t that stock go up seven points in ten days? Didn’t it?”
“It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that stock.”
“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers to be tip takers.
“No, I couldn’t.”
“Why not?” And Elmer drew nearer.
“Why, this is a bull market!” The old fellow said it as though he had given a long and detailed explanation.
“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”
“My
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