Big Time Operator

Reminiscences of a Stock Operator
Edwin LeFêvre

Eventually, I get around to everything, although I’m pretty certain I won’t be able to do that forever.

I first heard of this book nearly thirty years ago, when I was working on marketing programs for the institutional side of a major investment bank. Floor traders, fund managers, senior executives, they all told me to read this book.

I understand that younger people may look askance at a nearly thirty-year-old recommendation. They would probably be even more taken aback if they knew the book was more than 70 years old (and the episodes it recounts even older) at that time. And yet the used copy I ended up with bears a typical inscription: “JB, The best book ever written on trading.”

When praise is nearly universal (for these purposes, the universe in question is Wall Street, including the not-so-nearby annex in the Board of Trade building on LaSalle Street) and remarkably consistent, I tend to pay attention. Don’t get me wrong, I still believe I always learn more from a dissenting point of view, but I can’t deny that it’s important to know what everyone else is talking about.

These “reminiscences” constitute what might politely be termed inside baseball. More accurately, they struck me as a businessman’s version of an aged-hippie talking about the best acid trip they ever had. If you don’t start out with any interest in a subject,  a book, any book,  is not going to kindle it.

Broad Street, in front of the NY Stock Exchange, during the panic of 1907.

Similarly, don’t think you’ll learn anything that will turn you into a market-beating maven. “Tips! How people want tips!” (p. 196) begins what turns out to be a cautionary chapter on the role scoop plays among investors. The admonitions against tip-seeking could equally be applied to this book. There simply isn’t enough information for you to devise a trading strategy or to learn how to emulate our hero.

Hero, by the way, might not be the best noun to use. I’ve rarely encountered a non-fiction or business book quite as obfuscatory as this one. It’s not just the lack of information you can use, either. The author was long rumored to be hiding behind a pseudonym, though the Foreword to this edition suggests there really was an Edwin Lefêvre. The protagonist (these tales are recounted in the first person, almost as if the format was ‘as told to’) is Larry Livingston, widely believed to be Jesse Livermore, a famous speculator. In today’s more diverse United States that name might go unnoticed as being almost too plain vanilla, and no one would willingly hide their success.

Larry’s is a Horatio Alger-like tale of rags to riches with several roundtrips from boom to bust included. The busts play a big part in conveying his most important lesson: pay attention and learn your business. I’m always surprised by how many people seem not to do that. Livingston learns his lessons the hard way, making big bets that go wrong and teach him in the process.

Though it’s non-fiction, there’s more than a little Horatio Alger in the telling of this tale.

A little context helps here since, by the time you near the end of the book, the stakes are apparent. Livingston regularly enters trades–even potentially dangerous ‘short’ trades–that net him millions. Those are pre-income tax, pre-inflation dollars. That’s the reward. The downside is, it’s every man for himself.  There is no SEC or CFTC playing cop on the Wall/La Salle Street beat. There are only exchange rules and a man’s word, which are mighty thin reeds to hang on.

Still, the Street is recognizable and the mixture of fact, rumour and innuendo that drives the market is at the center of it. Livingston is fond of testing the market and riding trends. What he’s less fond of are aphorisms. “The trend is your friend” is legendary Street wisdom and says in five words what takes multiple chapters here.

Livingston is comfortable being a short, which means selling shares you don’t actually own. It is, essentially, a bet that a stock or commodity is improperly priced (in this instance, too high) and that the proper price will soon be ‘discovered.’ (Price discovery, a shibboleth for some market watchers and participants, is never mentioned here, but it’s happening.) The thing about being short is, you pay interest on shares you don’t own, but borrow, in order to enter the trade. And if the price moves the wrong way you eventually have to cover. Figure wrong and you hit zero PDQ.

More than once this happens to Livingston. As just described, shorting is risky. Without regulators, there’s an outsized risk that other players, and even the management of the companies whose shares you hold, will collude to squeeze you out. One lesson, Livingston makes clear, is to know yourself and your own tolerance for pain.

Trading in the commodities markets, as here, in 1995, makes the Street look gentlemanly.

Maybe the biggest lesson here, one buried deep in a chapter otherwise filled with tales of financial derring-do–is that investing and trading are different things. At some point, after many a lesson-delivering bust, Livingston takes a pause from the game and he sets up trusts for his wife and child. And not just run-of-the-mill trusts, either. He makes sure he can’t touch the principal and, presumably, a bank is managing the money. Even a master trader, it seems, knows when to secure his foundations.

Wall Street fancies itself a free market. Personally, I think it’s a rigged game and the insiders work for the house. When I say that, though, I’m thinking about trading. And despite the modern regulatory system, there is still a wild west element to the game.

Maybe that’s why the Street passes along wisdom in the form of soundbites. You can read this book. Or you can remember trees don’t grow to the sky, never try to catch falling knives, and bears make money, bulls make money, but pigs get killed.

In the age of Twitter, that may be more fitting.



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