Reminiscences of a Stock Operator

Transcriber’s Note Table of Contents created by Transcriber and placed in the Public Domain. REMINISCENCES OF A STOCK OPERATOR REMINISCENCES OF A STOCK OPERATOR By Edwin Lefevre _with a new Introduction by_ Benton W. Davis

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American Research Council · Larchmont, New York Copyright © 1923 by George H. Doran Company All Rights Reserved Reprinted by arrangement with Doubleday & Company, Inc. Library of Congress Catalog Card Number: 64-23364 Printed in the United States of America To Jesse Lauriston Livermore CONTENTS I 1 II 14 III 30 IV 39 V 55 VI 67 VII 80 VIII 87 IX 100 X 117 XI 131 XII 144 XIII 160 XIV 173 XV 190 XVI 199 XVII 215 XVIII 230 XIX 238 XX 245 XXI 257 XXII 273 XXIII 293 XXIV 304 _I_ I went to work when I was just out of grammar school. I got a job as quotation-board boy in a stock-brokerage office. I was quick at figures. At school I did three years of arithmetic in one. I was particularly good at mental arithmetic. As quotation-board boy I posted the numbers on the big board in the customers’ room. One of the customers usually sat by the ticker and called out the prices. They couldn’t come too fast for me. I have always remembered figures. No trouble at all. There were plenty of other employes in that office. Of course I made friends with the other fellows, but the work I did, if the market was active, kept me too busy from ten A.M. to three P.M. to let me do much talking. I don’t care for it, anyhow, during business hours. But a busy market did not keep me from thinking about the work. Those quotations did not represent prices of stocks to me, so many dollars per share. They were numbers. Of course, they meant something. They were always changing. It was all I had to be interested in--the changes. Why did they change? I didn’t know. I didn’t care. I didn’t think about that. I simply saw that they changed. That was all I had to think about five hours every day and two on Saturdays: that they were always changing. That is how I first came to be interested in the behaviour of prices. I had a very good memory for figures. I could remember in detail how the prices had acted on the previous day, just before they went up or down. My fondness for mental arithmetic came in very handy. I noticed that in advances as well as declines, stock prices were apt to show certain habits, so to speak. There was no end of parallel cases and these made precedents to guide me. I was only fourteen, but after I had taken hundreds of observations in my mind I found myself testing their accuracy, comparing the behaviour of stocks to-day with other days. It was not long before I was anticipating movements in prices. My only guide, as I say, was their past performances. I carried the “dope sheets” in my mind. I looked for stock prices to run on form. I had “clocked” them. You know what I mean. You can spot, for instance, where the buying is only a trifle better than the selling. A battle goes on in the stock market and the tape is your telescope. You can depend upon it seven out of ten cases. Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that. I suppose I really manage to remember when and how it happened. The fact that I remember that way is my way of capitalizing experience. I got so interested in my game and so anxious to anticipate advances and declines in all the active stocks that I got a little book. I put down my observations in it. It was not a record of imaginary transactions such as so many people keep merely to make or lose millions of dollars without getting the swelled head or going to the poorhouse. It was rather a sort of record of my hits and misses, and next to the determination of probable movements I was most interested in verifying whether I had observed accurately; in other words, whether I was right. Say that after studying every fluctuation of the day in an active stock I would conclude that it was behaving as it always did before it broke eight or ten points. Well, I would jot down the stock and the price on Monday, and remembering past performances I would write down what it ought to do on Tuesday and Wednesday. Later I would check up with actual transcriptions from the tape. That is how I first came to take an interest in the message of the tape. The fluctuations were from the first associated in my mind with upward or downward movements. Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it to-day, at forty. The reason for what a certain stock does to-day may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now--not to-morrow. The reason can wait. But you must act instantly or be left. Time and again I see this happen. You’ll remember that Hollow Tube went down three points the other day while the rest of the market rallied sharply. That was the fact. On the following Monday you saw that the directors passed the dividend. That was the reason. They knew what they were going to do, and even if they didn’t sell the stock themselves they at least didn’t buy it. There was no inside buying; no reason why it should not break. Well, I kept up my little memorandum book perhaps six months. Instead of leaving for home the moment I was through with my work, I’d jot down the figures I wanted and would study the changes, always looking for the repetitions and parallelisms of behaviour--learning to read the tape, although I was not aware of it at the time. One day one of the office boys--he was older than I--came to me where I was eating my lunch and asked me on the quiet if I had any money. “Why do you want to know?” I said. “Well,” he said, “I’ve got a dandy tip on Burlington. I’m going to play it if I can get somebody to go in with me.” “How do you mean, play it?” I asked. To me the only people who played or could play tips were the customers--old jiggers with oodles of dough. Why, it cost hundreds, even thousands of dollars, to get into the game. It was like owning your private carriage and having a coachman who wore a silk hat. “That’s what I mean; play it!” he said. “How much you got?” “How much you need?” “Well, I can trade in five shares by putting up $5.” “How are you going to play it?” “I’m going to buy all the Burlington the bucket shop will let me carry with the money I give him for margin,” he said. “It’s going up sure. It’s like picking up money. We’ll double ours in a jiffy.” “Hold on!” I said to him, and pulled out my little dope book. I wasn’t interested in doubling my money, but in his saying that Burlington was going up. If it was, my note-book ought to show it. I looked. Sure enough, Burlington, according to my figuring, was acting as it usually did before it went up. I had never bought or sold anything in my life, and I never gambled with the other boys. But all I could see was that this was a grand chance to test the accuracy of my work, of my hobby. It struck me at once that if my dope didn’t work in practice there was nothing in the theory of it to interest anybody. So I gave him all I had, and with our pooled resources he went to one of the near-by bucket shops and bought some Burlington. Two days later we cashed in. I made a profit of $3.12. After that first trade, I got to speculating on my own hook in the bucket shops. I’d go during my lunch hour and buy or sell--it never made any difference to me. I was playing a system and not a favorite stock or backing opinions. All I knew was the arithmetic of it. As a matter of fact, mine was the ideal way to operate in a bucket shop, where all that a trader does is to bet on fluctuations as they are printed by the ticker on the tape. It was not long before I was taking much more money out of the bucket shops than I was pulling down from my job in the brokerage office. So I gave up my position. My folks objected, but they couldn’t say much when they saw what I was making. I was only a kid and office-boy wages were not very high. I did mighty well on my own hook. I was fifteen when I had my first thousand and laid the cash in front of my mother--all made in the bucket shops in a few months, besides what I had taken home. My mother carried on something awful. She wanted me to put it away in the savings bank out of reach of temptation. She said it was more money than she ever heard any boy of fifteen had made, starting with nothing. She didn’t quite believe it was real money. She used to worry and fret about it. But I didn’t think of anything except that I could keep on proving my figuring was right. That’s all the fun there is--being right by using your head. If I was right when I tested my convictions with ten shares I would be ten times more right if I traded in a hundred shares. That is all that having more margin meant to me--I was right more emphatically. More courage? No! No difference! 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. Anyhow, at fifteen I was making a good living out of the stock market. I began in the smaller bucket shops, where the man who traded in twenty shares at a clip was suspected of being John W. Gates in disguise or J. P. Morgan traveling incognito. Bucket shops in those days seldom lay down on their customers. They didn’t have to. There were other ways of parting customers from their money, even when they guessed right. The business was tremendously profitable. When it was conducted legitimately--I mean straight, as far as the bucket shop went--the fluctuations took care of the shoestrings. It doesn’t take much of a reaction to wipe out a margin of only three quarters of a point. Also, no welsher could ever get back in the game. Wouldn’t have any trade. I didn’t have a following. I kept my business to myself. It was a one-man business, anyhow. It was my head, wasn’t it? Prices either were going the way I doped them out, without any help from friends or partners, or they were going the other way, and nobody could stop them out of kindness to me. I couldn’t see where I needed to tell my business to anybody else. I’ve got friends, of course, but my business has always been the same--a one-man affair. That is why I have always played a lone hand. As it was, it didn’t take long for the bucket shops to get sore on me for beating them. I’d walk in and plank down my margin, but they’d look at it without making a move to grab it. They’d tell me there was nothing doing. That was the time they got to calling me the Boy Plunger. I had to be changing brokers all the time, going from one bucket shop to another. It got so that I had to give a fictitious name. I’d begin light, only fifteen or twenty shares. At times, when they got suspicious, I’d lose on purpose at first and then sting them proper. Of course after a while they’d find me too expensive and they’d tell