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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Livermore observed that people who have no knowledge of the stock market, but insist on playing it, generally lose their moneyHOW LIVERMORE PREPARED FOR HIS DAY Livermore developed the following rule from a great trader: Keep stress at bayact in all ways to keep the mind clear and your judgment correct. Livermore did all he could to achieve this in his physical life by going to bed early, eating and drinking lightly, taking exercise, standing upright at the stock ticker, standing while on the telephone and demanding silence in the office. He made it a rule to speak to no one on his way to work and he kept silent about his stock market transactions. Jesse Livermore was a highly disciplined man. During the week, he went to bed every night at 10:00 P.M. and arose each morning at 6:00. He preferred to have no one around him for the first hour. This early time was for him. It was the time, after sleep, when he was most alert and open to absorbing information. The kitchen staff was trained to leave his coffee and juice on the table in the solarium, if he was in his mansion at Great Neck, Long Island. The newspapers were also laid out for him, including the European and Chicago newspapers. He read voraciously all his life. He wanted this hour or two to plan his day. Livermore had observed that few men really planned their day. Yes, they were organized, they had appointments scheduled and lunch engagements, and public affairs planned and written down. They often had secretaries to assist them. They knew in detail what awaited them, meetings, people coming by the office, phone calls they would make and receive. They knew what had been planned for them, but what items of major importance had they planned actually to get done for themselves, and did they prioritize their time? Livermore, on special occasions, spoke to his two sons, Paul and Jesse Jr., of his business while in his massive library in the house on Long Island: Boys, you will find that hardly any businessman really plans his day to handle the most important items. In most cases his day is laid out for himorganized for him by his secretary and his staff. He is merely an attending party. At the completion of the day he is often left with the most important matters still unattended, unexamined, uncompleted. Important strategy matters in running a complex business are perhaps not being attended: personnel problems, mergers and acquisitions, raising capital, and great marketing conceptslike buying on the installment plan was to bankingor perhaps the competition is not being clearly examined or assessed until it is too late. Not so for me. In the stock market my moves must be based as much on clear facts as they can be. To play the market properly requires silence, and seclusion to examine the situation, and to appraise, and deliberate on new information that comes to hand during the trading day. One must always have a clear strategy to play the market and clear rules to follow. I have found that it is easy to pick up the phone and pull the trigger by buying or selling. The problem is knowing when and what to do, and to follow religiously your own rules and discipline. Boys, I decided long ago in the stock market that if there are going to be mistakes made in my tradingI want them to be my mistakes. I dont need some one else to lose my money for me by giving me tips or influencing my trades. In the business I am in, there is no room for post mortems, you either make money or you lose money . . . or your money just sits there waiting for the right situation while earning small interest. Thats why I go to bed at ten and rise at six. The careful, disciplined man must be aware of everything, ignorant of nothing. You cannot afford to be careless about anything. Sometimes overlooking a single item, big or small, can ruin everything, kill all your plans. Like a general in wartimehis mens lives depend on his thoroughness in planning and executing that plan. In the stock market there is no room for error and carelessness. People think that I am simply a speculator, a trader, who finds situations and plunges into them. Nothing could be further from the truth. I often pick up small, seemingly useless clues in the newspapers and after checking them out, investigating what is behind them, I will act upon them. You ask about my day? In the solitude of the morning hours, after being rejuvenated from sleep, with nothing to distract me, I carefully read the papers. I have often used small specific news items like weather events, like droughts, insect problems, labor strikes, and assess how they would affect the corn, wheat, or cotton yields that often lead me to a possible good trade. I got my real news on the financial side by examining the actual prices and actions in the commodities market such as coal, copper, steel, textiles, sugar, corn, wheat. I also looked at the automobile sales, and employment figures. I got a feel from this information and often a correct judgment on general business conditions in the United States. It was no one single fact, it was a plethora of facts that often led me finally down a narrow path to a trade. I did more than just scan the headlines of the newspaper; I read the paper carefully looking for small items of news that might provide me with important clues, especially about an Industry Group or a specific stock that had changed from weak to strong or vice-versa. The headlines are for the suckers. A good speculator has to get behind the news and see what was really going on. Beware, often misleading articles are planted by people or brokers with hidden agendas, who want to sell their stock on the good news or they want to keep people invested while they go ahead and distribute their own stock. Once I traveled in my railway car to Pittsburgh where I observed that the steel mills were not at 30 percent of capacity, they were at less than 20 percent and falling. In other words, the steel stocks were a perfect short sale. Unfortunately, many people who invest in the market only read the headlines, and they too easily believe what they read. This is not good, since there are many pitfalls, schemes, and dangers. Slick money traps always appear wherever great sums of money are involved, such as the stock market. It is my observation that often what you read in the newspaper is nothing more than another form of a planted stock tipso the reader has to be aware of the source, motives, and effect of what he is reading on the stock market, otherwise chances are he or she will become a sucker too. Boys, it is my observation that there is no better time than the early morning to gain an enormous advantage toward being a successful stock trader. There is silence in the house, no person or thing is disturbing your concentration, and the mind is renewed after a good nights sleep. You will learn as you grow older that most people simply get up at a certain time in the morning, get ready, and go directly to the office. Often, these same people feel the desire to go out at night during the week to the cinema, a play, a long dinner with several drinks. In other words, they feel the need for social interaction or recreation during the weekdays. This may work well in other fields of endeavor, but it is a dangerous practice on a regular basis if a person wants to be successful in seriously trading the stock market. A good stock trader is not unlike a well-trained professional athlete who must keep the physical side of his life in perfect form if he wants to continue to be at the top of his mental form. The body must be in tune with the mind, for there is no more intense or exciting field of battle than the stock market. A person is making a mistake if he thinks success in the stock market comes easily, instantly, or steadily without great effort. The successful trader must always be in top physical form. The boys always enjoyed their fathers time with them, especially as they grew older. It was rare for him to spend a lot of time with his sons. His oldest son, Jesse Jr., lived a life full of strife and torment, until he finally took his own life in Palm Beach. During the week, Livermore had always been willing to sacrifice the diversions offered to people from ten oclock at night until two in the morning. He did not feel he had missed anything by being asleep during this period, and up at five or six in the morning. All Livermores life, he found that there is true joy in the solitude and the pure mathematical work he did during this time. For he always believed he was in search of bigger game than just pleasure and social interaction. He wanted to be supreme in his endeavors in the stock marketthis is what gave him the real pleasure and satisfaction: playing the game and winning the game. It was his observation that the public sincerely believes that the stock market is an easy way to make money. If they have some extra money to invest, they believe the stock market should offer them an easy way to increase the value of that money. This is not the case and never has been. Livermore observed that people who have no knowledge of the stock market, but insist on playing it, generally lose their money in a hurry. In Livermores view, if you want to succeed in the stock market, make sure you get plenty of sleep, give yourself plenty of time for the uninterrupted study of all the elements involved with the stock market, and remember that the key to success in the stock market is knowledge and patience. So few people succeed in the market, because they have no patience and are generally ignorant of the market. Finally, they want to get rich quickly. Anyone who figures that his success is dependent upon chance may as well stay out of the market. His attitude is wrong from the very start. The great trouble with the average persons who buys securities is that they think the market is a gambling proposition. One should realize at the outset that to work in the stock market requires the same study and preparation as law or medicine. Certain rules of the stock market are to be studied as closely as if you were a law student preparing for the bar. Many people attributed Livermores success to luck. As Livermore said, That is not true; the fact is that since I was 15, I have studied this subject closely. I have given my life to it, concentrating upon it and putting into it my very best. SUMMARY OF LIVERMORE ADVICE Keep your own counsel; Maintain silence on matters concerning the stock market; Do not listen to or take tips. If Jesse Livermore were still alive, he would advise the current traders of today: If you want to watch FNN or MSNBC or Bloomberg, then do so with the volume in the mute position. It was Jesse Livermores belief that you should never listen to a top company executive talk about his company. He is simply acting like a cheerleader. In order to keep his share price high or at least where it is currently trading, the corporate executive is often compelled to shade the truth. He believed that top executives often simply tell lies about their companys situation. The same may be true of the impartial analysts who secretly may hold stock or they may be ordered to give a favorable report by the company they work for. A trader can be duped by these sources. The entire subject of the media is an area that can throw the trader off balance, since the media and their guests can present financial material any way they want. But it does not matter what people say. What matters is what the market says. Lets take an example: The head of the Federal Reserve Bank makes a statement at a speech given at a college one evening and the press picks up a few sentences out of the speech like It is my desire that the country not enter a trade war with the European Common Market, and it comes out in headlines: Greenspan Says We Are About to Be Engaged in a Trade War with the European Common MarketExpect New Embargoes and High Tariffs on American Goods Going to Europe. The next day the market takes a severe drop at the beginning of trading. The smart trader will wait and stay calm because he knows this will pass and the market will most likely absorb the news and recover back to where it was. The answer lies in the action of the marketnot what people say about things. This of course, is a complicated issue since with sudden real news such as a war or a natural disaster, those items may affect the market on a real basis. And dont misunderstand pleaseLivermore kept up with current events. He rose at six every morning and read the morning papers cover to cover. He also had phones that were directly connected to the exchanges in Paris, London, Chicago, and New York, and talked often to the traders on the floor. He was also a person who went broke several times from taking tips. Often, the tips will be given to you with the best of intentions. They may come from friends, even relatives, so they will sound very appealing. They may even emanate from insiders in a company (officers and directors) that have perhaps created a new technology or a revolutionary product and you may be told that the company is about to announce the breakthrough. Such a tip, also is dangerous because it may really come true, and the stock pops upward. Then the trader is remorseful that he did not act on the tip ... so he may take the next tip he gets. It was Livermores life experience that these tips rarely paid off, and in the long term, they often cost him a lot of money. His final ruletake no tipsnot ever . . . period. |
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