Sunday, November 2, 2008

Lessons from "Reminiscences of a Stock Operator"

This morning I received a copy of the typical "Doom and Gloom" article that has been floating around recently from a fellow friend and trader. The article was filled with the typical economist bleating regarding how we are going to enter a prolonged economic contraction (i.e. another Great Depression) etc., etc. and that the world has never experienced the level of greed that we have seen in recent years on Wall Street and that the world as we know it will end.

Good grief people! Read your history. Just this morning I was re-reading "Reminiscences of a Stock Operator" by Edwin Lefevre for about the 100th time. Why? Because there is nothing new under the sun when it comes to the markets. It doesn't matter if the year is 2008 or 1908 or 1858.

A great example of this is when Livingston (a fictional character based on the true stock operator Livermore) is discussing his involvement with the manipulation of the Consolidated Stove stock. In this scenario, a number of uninteresting and not particularly profitable stove companies are consolidated into one stock to be marketed and hyped on the general market and sold for more than their current value. Gee, I say to myself, this sounds a lot like a CDO! And this type of activity was rampant in the 1920's bull market. Livermore also goes on about the weak moral fiber of his associates (not to mention his own sordid manipulation of the stock). Sounds just like Wall Street today, doesn't it!

So for all of you out there, including my good friend, please take heart. The more that the economists and general public are saying that this is the end of the world the more convinced I am this bear market (for stocks) is reaching the end of the line. We aren't there yet, in my humble opinion. I am still waiting to hear from the general masses that a) they will never buy stocks again, b) the U.S. will declare bankruptcy any minute. When I start hearing this type of talk "from the shoeshine boy" as Livingston would put it, then I will know that it is time to be a bull again. Until then, I continue to listen to the market, not the hype. I strongly suggest you do the same.



Mike K. said...

This is great book. Current situation is very similar to one of those great panics from 100 years ago. Markets are jumping like a yo-yo, traders, politicians and general public don't know what the hell is going on and are running around like chicken with heads cut off. A century went by, but it reads like today's newspaper. Timeless.

kurichh said...

thanks sir