Sunday, August 29, 2010

Reminiscences of a Stock Operator: Chapters 21 & 22

Reminiscences of a Stock Operator was originally written in 1922 as a first-person fictional account, but is now generally accepted as the biography of stock market whiz Jesse Livermore. The book is recommended to traders and value investors alike, for the lessons it teaches the reader in human behaviour as it pertains to securities trading and investing.

Livermore discusses some of the successes and failures he has had in selling stocks for clients with large blocks. Due to his reputation in the newspapers as a skilled trader, he has received many such requests.

In these chapters, Livermore goes into detail about which companies he sold under the requests of which stock owners. In some cases, he had luck on his side, as a prevailing bull market enabled him to employ the technique (of running up the price, and thus encouraging volume to grow) described in the previous chapter. But at other times, he simply advised his requester to sell, as he feared things would only get worse if he purchased more.

In one particular instance, Livermore was double-crossed by a consortium he was in league with to drive up the price of a security. The large holders (who wanted to sell) were actually adding to their positions, as they figured Livermore would be driving the stock up in an attempt to attract speculators. Livermore, however, noticed the market action and did nothing of the sort. This left the large holders with even more stock to sell, and thus eventually caused the price to get driven even lower. Livermore notes that hogs are bound to lose.

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