Money and risk
Jesse Livermore
Sitting tight
Jesse Livermore (United States · 1877–1940) — Sitting tight.
What actually happened?
In the summer of 1929 the market was euphoric and everyone was talking about a new era. He worked his own system: small probing shorts at his key points, several small losses, no increase in size, and waiting. In October the market broke, his positions came good, and he made roughly a hundred million dollars in a month. Papers called him the great bear of Wall Street and ruined strangers wrote to threaten him. Every rule that made that month work was one he personally broke five years later.
Trade the pivotal point, do not predict it
Do not guess tops and bottoms. Wait until the price clears a key level and the trend confirms itself. He said he never bought at the low or sold at the high. Give up the first fifth of a move in exchange for the market telling you which way it is going.
He did not call the top in the bull market. He waited until the index broke support and the rally failed, and only then went in size.
Cut losses, let profits run
A losing position is evidence you are wrong: leave, and never average down. A winning one is evidence you are right: stay. The amateur instinct is exactly inverted, holding losers to avoid admitting error and taking gains quickly to bank being right.
The workplace version: stop the wrong project early, and be willing to double the resources on the one that is working.
Probe, then pyramid
Open small, add only after the market has confirmed the view, and make each addition smaller than the last. No single judgement should be able to reach the base of your capital. The opposite is the one big bet, which ties the judgement and the survival together.
Put in a tenth first. Add on evidence rather than on conviction, and never in order to rescue an average price.
Being flat is a position
Money is made by sitting, not by trading. When there is nothing there, doing nothing is optimal. Most of his profit came from a few large opportunities each year, and most of his losses from restlessness in between.
Count the trades, or the decisions, you made last quarter out of boredom rather than because something had actually changed.
Nothing new, because nobody is new
There is nothing new in Wall Street, because speculation is as old as the hills. Greed, fear, hope and regret run the same script in every bubble and every crash with a fresh cast. Whoever can read the cycle in people finds the same trade in any decade.
Every mania has the same four acts. The asset changes; the sequence of feelings in the crowd does not.
How do I use it today?
Set a written stop on every serious commitment, money or career or project, and hand it to someone else to hold you to, because stops are kept by systems rather than by willpower. Then apply the multiplication rule: never take a bet that can take you to zero, however good the odds look.
Deep read
Read alongside
Further
Lines to keep
There is nothing new in Wall Street. Speculation is as old as the hills.
It never was my thinking that made the big money for me.
Men who can both be right and sit tight are uncommon.
Instead of hoping he must fear; instead of fearing he must hope.