Thursday, January 18, 2007

Jesse Livermore

I read the first 7 chapters of "How To Trade Stocks" that were actually written by Jesse Livermore (the remainder of the book was written by someone else). I'm starting to see why this guy is so amazing.....

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There is a scene in "It's a Wonderful Life" where George Bailey is sitting at Mr. Potter's office and listening to speech by Mr. Potter about a "once in a lifetime" chance at the comfortable, affluent life. In his diatribe, Mr. Potter guesses that George is earning about $40/week, and George immediately interrupts him by emphatically declaring that he actually earns $42/week. Mr. Potter is offering George a chance to work for Mr. Potter for the annual salary of $20,000. That amounts to over 9x the salary that George had defiantly declared he was making. To put that into modern day terms, that is about the equivalent of a CEO salary (on average, the CEO earns about 9x the joe average salary worker).

So, what does this have to do with Jesse Livermore? Well, George Bailey and Jesse Livermore both lived at approximately the same time period (Livermore traded in the late 20's and early 30's, while George Bailey's story took place around the late 30's). So where the average salary worker at that time made $2K or 3K per year, Livermore made trades of 2 or 3 Million ! To put it in today's terms, that is like trading 1000x your typical office cubicle worker salary - making a $50 Million profit (or loss) from a couple trades. I don't know about you, but I wouldn't have the guts to make a $50 Million dollar trade.

I know that "How to Trade Stocks" is not one of the better books on Jesse Livermore, but that was the only one available at the time at the library. However, I did come across "Reminiscences of a Stock Operator" online (check the link at the sidebar). I think I might skip the remaining chapters of Van Tharp's book and just start reading all about Jesse.

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