If in life, you plan on finding ways to make Mars inhabitable there isn’t exactly a road map of how to achieve such a goal. If however, you are interested in financial matters or a potential career in finance there are numerous stories of success and failure. Stories of this nature can help you learn financial lessons at little to no cost.
If this sort of thing does interest you, I recommend reading “Reminiscences of a Stock Operator” by Edwin Lefevre. At a young age Larry Livingston developed a knack for numbers by learning to read the ticker tape. This knack grew into a hobby as he started trying to predict what would happen to stocks and commodities based on historical patterns he observed. This hobby soon became his source of income when he started going to bucket shops to place trades and he was extremely good at it. So good in fact, several of them told him never to return because he was draining the pockets of the owners.
A bucket shop is essentially a casino for the stock market, it allows individuals to place bets in cash on what they think a security will do, there is no accounts or actual ownership of the securities. Individuals play against the house and if they win they take the shops money. Over years of getting kicked out he had to constantly change his strategy in order to place trades. He tried using a patsy and traveled far and wide searching for a shop that didn’t know who he was. While in the modern day your brokerage company can’t exactly tell you to get lost I do still think it’s a good idea to try and keep on good terms with them.
In an attempt to be able to continue doing what he loved he went to New York, a place where his skills could be appreciated instead of feared. His earnings in New York were anything but consistent like they were in the bucket shops. One lesson I think you should take away from this is that his continual pursuit of trading was driven by passion as much as it was by the money. Often when I talk to people who invest heavily they focus on the potential earnings and overlook that some of the most fulfilled financial professionals are fulfilled not by money but by their love of it. Although everyone should have a retirement account you should only pursue it personally if you have a passion for it. If you’re passionate about something else go do that and leave the investing of your money up to a professional.
In New York he lost all of his money more than once. This prompted him to try and piece together why he couldn’t do as well as he did in the bucket shops. Among the several reasons, one stood out to me. “The big money was not in the individual fluctuations but in the main movements.” He figured this out after watching old Turkey invest based on that very idea even if he got tips to focus on the more short term. Market’s are infinitely complex so it’s best not to try and trade every fluctuation because the odds will be against you. If however, you bet on the overall direction of the market you’re odds of winning go up. We have seen similar lessons in other articles on my website that talk about passive investing in the market.
While ETF’s weren’t around back then the idea was the same, determine if you think it is a bull or bear market and invest your money accordingly. I think Warren Buffett would agree with this concept, instead of attempting to determine the daily or hourly swings of a certain security, think of the overall market conditions and invest for a longer period of time. Day trading may seem exciting but the majority lose trying to do it. Livingston felt like if he wasn’t trading all the time he wasn’t doing his job, when in reality sitting on his holdings served him well, doing this however requires patience which can be hard when you’re dealing with your money.
On multiple occasions he battled with what to do when confronted with advice from others. Taking advice from others lost him substantial money even if the tip was in good faith. Experiencing this led him to always trust his gut instinct. More often than not it led him in the right direction. For example on one occasion when the majority was bullish on Union Pacific (UP) he bet against it more and more despite others telling him he was crazy and ended up making a killing in the end. On the other side of the spectrum once when he was buying shares of UP, Ed Harding called and told him to get out of his position because it was irresponsible. He thought if it was irresponsible to buy UP it would also be irresponsible to not short it so he reversed his position based on that tip and UP soon thereafter hit a new high, losing him a lot of money. In regards to receiving tips I like old Turkeys manor of dealing with them, he would show his appreciation and that continue doing whatever he planned on doing anyways.
If you do subscribe to a more passive style of investing some of the strategies in this book may actually be the opposite of what you want to do. For example he talks about a short term line of least resistance strategy where if a security goes to buy more until it goes back down. This strategy requires close attention to the specific security and its short term price movements. A more common passive investing strategy I’ve seen utilized is a weekly or monthly re-balance strategy. If for example you have $100,000 and you determine you want to split it between 10 different holdings at $10,000 a piece. Check the equity in each holding every week or month based on the interval that works best for you. If a holding has gone down and is less than the $10,000 goal, buy more to shore up to your target equity amount. If a holding has gone up and is over the $10,000 equity goal, do some profit taking to lower it back down.
Of all of the investing advice and techniques buried in this book, I couldn’t possibly list all of the lessons that are in it. However, I do hope that I have piqued your interest so that you may continue to explore this classic financial novel.