Mid Week Pit Stop #16

I have decided to go back and read on "Reminiscence of a Stock Operator" again. Looking for something to fall back on since I have lost some part of myself recently. If you look at the mistakes I made, you will realise that some mistakes are the very important lessons that I have emphasized before and I have made them unknowningly again.

I will quote some of his wisdom and talk about it. You may have seen some before actually.

1. That's all the fun there is - being right by using your head... ... If all I have is ten dollars and I risk it, I am much braver than when I risk a million, if I have another million salted away

Being right is probably the greatest reward you can get from the market. Monetary benefits are supplementary to some extent because as long as you are right with what you think and do, money flies through the window. Remember this process: Being right -> Money comes in automatically. Sometimes, the lure of money simply overwhelms a person and makes him forget about the using his head and making the right decision. This may also be due to the volatile nature of the market that forces one to go with the flow subconsciously.

You should be familiar with the second part of the quote. I think losing all you have is a really painful lesson but it is important to some extent. Jesse Livermore was bankrupt and in debt many times in his career. It is about handling risk carefully. When you have more money as backup or too much money, you overrate risk and don't protect your capital most of the time.

2. The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages

The mentality of taking home some money every day is acting subconsciously most of the time. This has to do with the short sightedness of most people. Well Singapore has one of the highest rates of myopia in the world. Alright, it is not about the glasses, it's about seeing the money as quickly as possible. They want to see results fast. Most stock books use transaction costs to debate against trading but they fail to highlight this desire.

3. We ran into a crazy bull market when stocks didn’t react enough to wipe out even the one-point margins,and, of course, all the customers were bulls and winning and pyramiding... ... But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.

It is simply not me if I don't talk about this. I can't stress the importance of this anymore. It is a social stigma to some extent. People just wish to buy and hold and refuse to look at the other side of the market which may actually be the right side. Analysts look good with their buy recommendations because we were in a crazy bull market for the last 4 years and from 1982 to 2000. For those who are relative new to this market (start less than 5 years ago), things look bright and awesome isn't it. To an extent, it's too good to be true. Even Warren Buffett is facing some limits right now and going into derivatives, a tool that he calls "weapons of mass destruction".

I will try to pick out some more in the future. Some can be found on other sites if you search for jesse livermore. Will look into the commodities and future of oil with the weekend post. So look forward to it. =D

P.S: Notice some NTU ip address, well if you don't know me, my msn is xeron_knight@hotmail.com, we could discuss online or something about stocks. A direct discussion is great since we can learn more from one another actually. If not, you can find me at IIC, I think I will joining it in the future.