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Echoes of a Stock Operator: Quotes and Commentary Part 4

Chapters VII-VIII

“I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock.”

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.”

The last part of this quote is a bit venomous, but having accrued eight years of trading experience I can understand the sentiment. Firstly, I don’t want the burden of telling someone what I am buying. I have done this in the past and it has led to constant hounding over when to exit. You can tell from my writings that I prefer to remain vague when describing my allocations, opting instead for more general language. It seems to me that anyone worth their weight in this industry is not going to give away their strategy for making money. If I see you on Bloomberg espousing your views on the market and giving away your analysis, that tells me you are more interested in earning fees from customers than you are in your own performance.

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“I have often said that buying on a rising market is the most comfortable way of buying stocks. Now, the point is not so much to buy as cheap as possible or go short at top prices, but to buy or sell at the right time. When I am bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stock on a scale down, I buy on a scale up.”

Livingston’s tactics are a combination of breakout trading and trend following. The initial set up must show significant price action to warrant entry, after which he will not add unless his paper profits grow. This is a disciplined approach that many of today’s traders employ. I too am no stranger to this method, however I’m equally comfortable buying on a falling market and selling in a rising market. The key is to know your advantage and take only those trades that fall within your wheelhouse.

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“The bear side doesn’t appeal to me any more than the bull side, or vice versa. My one steadfast prejudice is against being wrong.”

“But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my pre-possessions either – to do any thinking for me.”

Another one of the best quotes found within Lefevre’s book. Nearly every participant in financial markets holds some bias or prejudice, and I do not necessarily mean on the level of the perma-bears or perma-bulls. People hold shorter term biases too, bolstered by the hopium that eventually they will be proved right. I’m here to tell you that holding any bias can be disastrous. I know this from personal experience. I once made a terrible trade that subsequently fueled a yearlong resentment. I wanted markets to fall, so I kept opening short positions. Then I would get stopped out at a loss. Eventually there would be a small move to the downside and I would be convinced that a bear market was beginning. Rinse and repeat. This was the most expensive lesson of my education to date.

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“I had made a good bit, but the reason I cleaned up was that I figured that the decline had discounted the immediate future. I looked for a fair recovery, but I wasn’t bullish enough to play for a turn. I wasn’t going to lose my position entirely. The market would not be right for me to trade in for a while. The first ten thousand I made in the bucket shops I lost because I traded in and out of season, every day, whether or not conditions were right. I wasn’t making that mistake twice… Instead of sitting tight I went to Florida. I love fishing and I needed a rest. I could get both down there.”

One of the great mistakes traders make is continuing to trade, regardless of conditions, off the back of a major win. There’s probably a degree of overconfidence bias that emerges, a feeling of infallibility. No one can have reason for trading day in, day out. To protect against overtrading, I will force myself to take a break following big wins. I’ll do the same after major losses too, which can inspire a feeling of needing to “catch-up” and thus poorly thought-out trades. Another good time to take a break is when the market seems to be in limbo. Rather than wrack my brain for the likely outcome, I’ll get some R&R and come back with a fresh set of eyes. Regardless of your career, do not overlook the value of a weeklong reprieve.

NOVEMBER 3, 2024 OBSERVATIONS

As discussed in prior weeks, broad equity price action will remain choppy around the top until the election results are clear. The worst-case scenario would...