JESSE-LIVERMORE-METHODS.pdf

Jess Jessee Liver Livermo more re's 's Methods of                  Trading in Stocks

Richard D.

f     'yckoff    

Wind Windso sorr Book Bookss ÿBrig ÿBright htwat watel el

Þ ˜   N.Y.

Jesse Liv ive ermo rmore' re' s Metho thods of  Trad rading ing in Sto Stoc cks

R i chard D . W yckoff  All All righ rights ts rese reserv rved  ed  inclu includi ding ng the the righ rightt of reprod reproduc ucti tion on in who whole or in part part in any any form form Copy Copyri righ ghtt 1984 1984 by Winds Windsor or Book Bookss Publ Publis ishe hed d by Wind Windso sorr Book Bookss Brig Bright htwat water erss ÿN.Y. 1171 11718 8

Manufactured

in the United

Stat tates of Ame America

Jesse Liv ive ermo rmore' re' s Metho thods of  Trad rading ing in Sto Stoc cks

R i chard D . W yckoff  All All righ rights ts rese reserv rved  ed  inclu includi ding ng the the righ rightt of reprod reproduc ucti tion on in who whole or in part part in any any form form Copy Copyri righ ghtt 1984 1984 by Winds Windsor or Book Bookss Publ Publis ishe hed d by Wind Windso sorr Book Bookss Brig Bright htwat water erss ÿN.Y. 1171 11718 8

Manufactured

in the United

Stat tates of Ame America

k J

Contents CHAPTER

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Preface. 1.

PAGE

Meet The Market's

Greatest

Trader.

. . . . . . . . . . . . .. ..

3

The Secret Secretive ive Operat Operator  or  A Titanic Titanic Opera Operator  tor  He Cons Consen ents ts To An Inte Interv rvie iew w A Lesson Lesson To Be Lear Learne ned  d  Avoid Avoid The The Weak Weak Indus Industri tries es Stoc Stocks ks Have Have Their Their Seas Season onss and and Fash Fashio ions ns The The One One Sure Sure Wa Way y To Succ Succee eed d In The The Mark Market et Liverm Livermore ore's 's Essen Essentia tiall To Succes Successs

2.

How He Pr Prepares

For The Day's

Work.

. . . . . . . . . . . . 7

The Early Early Liverm Livermor oree Organ Organizi izing ng His Mark Market et Work Work Day In Trim Trim For For The The Day' Day'ss Work  Work  Digs Digs For Facts Facts He Learn Learnss For Himsel Himself f                  He Conc Concen entra trates tes On Essen Essentia tia1s 1s The Market Market Requi Requires res Study Study 3.

The Special

Arrangements

Of Hi H is Of Office.

. . . . . . . . . . .1 . 12

How He Insula Insulates tes Himse Himself lf From From Bad Inf1u Inf1uenc ences es Poise Poise ÿAn Indispe Indispensa nsable ble Adjun Adjunct ct What What He Hates Hates The The Most Most His Office Equipme Equipment nt Simi Simila lari rity ty With With James James R. Keene Keene How How He Inte Interp rpre rets ts The The News News 4.

How Livermore

Reads

The Tape.

. . . . . . . . . . . . . . . 17 17

How How He Judg Judges es The The Turn Turnin ing g Poin Points ts How How He Play Playss The The Inte Interm rmed edia iate te Swin Swings gs

.• .

5.

How He Ma Makes His Co Commitments

And Limits

His Mi Minimum

. . . . . . . . .

Prospective

Profit.

His Ri Risk22   G 3 e G G

Lesson Lessonss From From Succe Successf ssful ul Operat Operators ors How How He Limit Limitss His His Risk  Risk  6.

How He Ke Keeps His Ca C apital

Tunú ng

Over.

. . . . . . . . . . 2S

"Dri "Drift ftin ing" g" Stoc Stocks ks Cost Cost Mone Money y y He's Always Always Ready Ready For Oppo Opportu rtunit nities ies

 €¯‹

7.

The Kind Of St S tocks

In Which To Trade.

Liverm Livermore ore Wants Wants "Actio "Action" n" 8.

Livermore's

Method

. . . . . . . . . . . 28 28

Stock Stockss

Of Py P yraminding.

ALes ALesso son n From From A Com Commo modi dity ty Spec Specul ulat ator  or  ACoo ACooll Head Head For For Supr Suprem emee Deci Decisi sion onss In Summary Summary

. . . . . . . . . . . •

.30

3

CHAPTER

1

Preface The material presented here first appeared as a continuing series of articles in the Magazine of Wall Street. They were obtained through exclusive interviews with Jesse Liverrnore  by   R.D.   Wyckoff at a time when Livermore was the sing1e most formidable factor in the market. After being "lost" for many years. these interviews are now  brought together for the first time under the covers of a book.

Meet the Markets Greatest Trader  Every c1ass in organized society 01' organized industry has its leaders ; its conspicuous figures.who combine in the fullest sense the attributes of their   particular c1ass. These leaders are not seleeted by popular vote. They are not   selected    at all. They reach the highest ranks through their own individual efforts. battling their way against whatever odds appear  ÿ redoubling their  efforts whenthe inevitable setbaeks occur. Sö me of these leaders get there. as the saying goes. more quiekly than others: some rise by more brilliant tactics. 8ut ÿ irrespective of how long it takes any of them to arrive ÿ they no sooner definitely do arrive than their  fame spreads almost like flashes of light into every nook and cranny of the rcading world. An enterprising press. incessantly on the lookout for new idols to sct before the public. does the trick.

THE SECRETlVE

OPERATOR

The press ÿ which has made the aehievements of these leaders common  property has-in nearly every case.done thesame thing with their methods. thefr principles and beliefs. To feed the pub1ic's insatiable interest in these mcn's innermost views ÿ their opinions have been demanded on nearly every controversial question under the sun-and in some cases obtained ÿScarcely one 01'them has kept himself to himself. even among the very few who so dcsired. There are exceptions to every rule. however; and there is a glaring cxccption to this one. For the man who towers head and shoulders above all othcrs in onc p v ï ticular field -the man who is almost the sole leader 01' that tï cld-has successful1y evaded publicity in the past ÿ and has kept himself                vcry detinitely to hÎ mself. This man's reticence has been all the more imprcssivc because of the nature of the field he dominates. one which

?Q 1eet The  Q? 1arket's Greatest

4

Tr  der 

interests a far greater sectí on of the public than any other  ÿ and one in which far greater numbers actively participate. He is the one man in theone field  that most people would rather hear talk than anybody else. The field referred to is that of active speculation in secucities. The dominant leader of the field ÿas everybody knows ÿ is Jesse L. Livermore.

 A TlTANIC

OPERATOR

Livermore started trading in securities when he was fourteen years old. He mad  ]ó   his fï rst thousand when a m ere boy. He has practiced every device known to the active speculator. studied every speculative theory. and d]ó alt in about every active security Iisted on the New York Stock Exchange. He has piled up gigantic fortunes from his commitments ÿ lost them. digested. started all over again-and piled up new fortunes. He h as changed his market position in the twinkling of an eye-sold out thousands of s hares of long stock ÿ and gone short of t housands of shares more on a decision which required reading only the one word    ÿ itit but ÿt in a lengthy ticker statement. If hls later experiences were not enough to catch the public fancy ÿ Livermore would have won it by his greatest feat of all: beating the bucket shops. Beating the cheaters ÿ in fact ÿ was Livermore's pet plan after things had   gone against him and he was forced to start anew on a small  —  e ot basis.

 HE

CONSENTS

Until of late about his past casuaJ ÿ poorly survived. It is n ot his

TO AN

ÿ Livermore operations.

prepared custom

INTERVIEW 

has maintaí ned absolute silence when questioned  Perhaps it was because he did not want to lead the investor into the arena where only master students

to brag

about

himself ÿ but no doubt

he felt that

the

methods worked out at the cost of a Iifetime of battering ÿ courage-straining effort were not lightly to be tossed into the amateur's Iap. Mr. Livermore's wiIIingness to be interviewed by me and to be quoted has  been in part influenced by the work 1 have done in the past in shedding light on Wall Street's ways ÿ Wall Street's men ÿ their theories and methods-in reaI educational work which has led to more intelligent operating methods  being empJoyed by the public On the eve of d eparture for a European vacation ÿ Livermore said  ÿ "the most inteIIigent way toget one's mind attuncd to market conditions and to be successful is to make a deep study of industries in o rder to be able to distinguish the good from the bad; get long of those which are in a promising  position and get out of those which are not. ] Ý

 A LESSON

TO BE LEARNED

"1 r egard it of great importance to caII the attention of t he readers to t he above facts ÿ  because it has been shown time and again that in WaII Street

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 bf  

 M eet The M arket's Greatest Trader 

5

 peop1e very often fai1 to see the thing that is right under their nose. We now have millions of peop1e interested in the security markets. where there were on1y thousands in former years; and 1 cannot emphasize too strongly the importance of the utmost discrimination in the purchase of securities at the  present time. One of the greatest mistakes inexperienced investors make is in  buying cheap securities just because they are selling at a low price. As a matter of fact. price is not always an indication of cheapness. because non-dividend paying stocks have a certain speculative value that usually causes them to sell at more than they are worth on the basis of either  earnings or possible initia1 dividends. Whi1e it may happen that in many instances stocks advance from $30 to $40 a share to over $100ÿa very much greater proportion of these low.priced stocks have sunk into ob1ivion by going into receivership ÿ or e1se they have strugg1ed along striving to make both ends meet for years and years. with on1ythe faintest prospects of ever paying a return to their stockholders. "In selecting securities. it is onl)' necessary for an investor to determine which industries are in the strongest position. which are less strong and  which are comparatively weak. very weak. etc."

 AVOID

THE WEAK

INDUSTRIES 

Many investors do not discriminate between strong and weak stocks: and  in fai1ing to recognize these essentia1 differences. they p1ace themselves in a  position to lose many excellent investment opportunities. As Mr. Livermore says: h 5 1 Find it best to avoid the weak industries entirely. 1 should   particularly avoid the lower.priced stocks that have not a firm financial foundation. because when a declining movement does set in ÿ securities representing these weak industries are the first to go and they recover only with the great!est difficulty. Thus. we should avoid getting hung up with these cheap stocks ÿ and companies that are poorly financed  ÿ for without ample working capital such concerns will have a hard row to hoe under severe com petition. Just as 1 would avoid the weak industries and the weak stocks. so 1 would  favor the strongest industries and the strongest stocks. 1would choose those industries that face a most promising future so far as can be seen under   present conditions. We must ÿ of course ÿ  be able and willing to revise our  forecasts in the light of developments that come to hand frorn day to day.

STOCKS HA VE THEIR SEASONS

AND FASHIONS 

In making selections of securities ÿ investors should remember that the demand does not break out in all commodities at the same tirne. Everything has its season ÿ and it is very important that this should be taken into consideration. For example. as everyone knows ÿ the best season for the motor and tire stocks is in the spring and summer. The stock market generally discounts this activity a little in advance. 1 would be illogical to expect these stocks to continue to advance after their best season is over. Conditions that affect one group of stocks favorably might be precisely the

t

÷S

'

6

"x1eet

The

arket'5 Qo 1

Greate5t

Tr αder 

ones to affect others unfavorably. Thus it wil1 be seen that there are fashions as wel1 as seasons in investments. Conditions change ÿand one ha