Reminiscences of a Stock Operator

Edwin Lefevre’s book Reminiscences of a Stock Operator focuses on Jerry Livingston, a depiction loosely based on the real-life stock trader Jesse Livermore. Livermore was one of the most notorious traders of all time. The narrative, set in the early twentieth century, is from Livingston’s rather unique point of view. From a quotation-board boy in a bucket shop to one of the top stock-price scalpers, Lefevre guides the reader through Livingston’s journey as he hones his craft of trading chops, a process that leaves him broke and near destitute more than once. Despite these setbacks, Livingston is determined to be successful. While Livingston is known for making arbitrary, seat-of-the-pants trades, there is still much the reader can learn from his experiences.

Livingston has a natural gift for keeping an eye on price movements on the ticker tape. Moreover, he has a particular knack for knowing when stock prices will rise and fall, adjusting his tactics to account for changes in the market. He proves the accuracy of his system with his very first trade. He has such a successful run with his now proven system, that he is blacklisted in shops across the country. So well known are his exploits that he is dubbed “boy plunger.”

Eventually, Livingston grows disenchanted with his bucket shop gig, deciding to try his hand catching much bigger fish on Wall Street. However, the price scalping that had been his bread and butter in the shop prove less than effective on Wall Street. Early on, Livingston has many downfalls on The Street. Although his pricing predictions are often on point, they are ill-timed, resulting in major losses. Through trial and error, however, Livingston learns from his mistakes over time. He discovers there is more to predicting market trends than, as writer Matt Koppenheffer puts it, “capturing quick, small price blips” (“Foolish Book Review: 'Reminiscences of a Stock Operator',” 2016).

Throughout the book, Livingston receives little truisms as a result of his interactions with fellow traders. One involves Mr. Partridge, a colleague affectionately nicknamed “Old Turkey” by his fellow traders. Partridge employs a different method than Livingston is used to. Instead of holding out for tips on small market fluctuations and then trading in and out of stocks based on the new information, Partridge often picks a position and holds on to it long term. In his mind, the larger profit gained from macro market movements far outweighs the short-term benefit of Livingston’s ready-fire-aim approach. Partridge’s insights prove invaluable to Livingston as he struggles to navigate the often-treacherous terrain of the Wall Street culture. Through his interactions with Partridge and others, Livingston soon discovers that his problem is not the manner in which he is trading, but that he has insufficient patience to wait out the full earning potential of his stock movements.

Livingston shares his learning with the reader via one of the many truisms he expresses in the book: “Men who can both be right and sit tight are uncommon.” Livingston expounds further on this epiphany, examining his own actions and identifying where he falls short: “Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market, your game is to buy and hold until you believe that the bull market is near its end….One of the most helpful things that anybody can learn is to give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world.”

This is the “ah-ha” moment for Livingston and the concept that helps him to eventually pull himself out of the string of unsuccessful trades that caused his initial downfall. He even discovers how to efficiently react to tips from fellow trades.

Contrary to what one may think, his advice is as unconventional today as it was in the early 1900s. Livingston believed in playing a “lone hand.” Often times, he surmised it was better to stick to his guns than to act on every tip immediately. In fact, he often found that going against the tips was the most effective way to come out on top. In a time where trading regulations were not as strictly enforced as they are today, many traders would react to tips from insiders, only to find themselves disgruntled when the tip turned out to be as useless as the paper it was written on.

While Larry Livingston’s doppelganger Jesse Livermore was one of the most famous traders to hit Wall Street, his methods would undoubtedly be met with much skepticism today. However, Lefevre’s goal with this book is not necessarily to provide a guide to the get-rich-quick school of trading. Instead – and perhaps more importantly – it is a cautionary tale about the downside of approaching the market (and life for that matter) with too much initiative and too little patience. Larry Livingston certainly learned this lesson the hard way. Perhaps Lefevre’s point is to provide a true to life example so his readers don’t have to.