Sunday, January 18, 2015

Notes after reading the book "Reminiscences of the stock operator"

Bellow are copy-paste's from the book "Reminiscences of the stock operator" that I think are valuable thoughts, methods or ideas. Here we go:

No man can always have adequate reasons for buying or selling stocks daily. The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street.
A speculator who loses his temper is a goner.
No man can consistently and continuously beat the stock market though he may make money in individual stocks on certain occasions. No matter how experienced a trader is the possibility of his making losing plays is always present because speculation cannot be made 100 percent safe.

A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do.
A man must believe in himself and his judgment if he expects to make a living at this game.
Without faith in his own judgment no man can go very far in this game.
That is about all I have learned to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary.
A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.
A speculator must have faith in himself and in his judgment. The late Dickson G. Watts, ex-President of the New York Cotton Exchange and famous author of "Speculation as a Fine Art," says that courage in a speculator is merely confidence to act on the decision of his mind.
My business is to trade— that is, to stick to the facts before me and not to what I think other people ought to do.

Learning curve
There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.
It never was my thinking that made the big money for me. It always was my sitting.
One of the most helpful things that anybody can learn is to give up trying to catch the last eighth or the first. These two are the most expensive eighths in the world.
The way to make money is to make it. The way to make big money is to be right at exactly the right time.
Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position.
The price has nothing to do with establishing my line of least resistance.
You need to be bullish in a bull market and bearish in a bear market.
It is the big swing that makes the big money for you.
A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him.
It would not be so difficult to make money if a trader always stuck to his speculative guns that is, waited for the line of least resistance to define itself and began buying only when the tape said up or selling only when it said down. He should accumulate his line on the way up. Let him buy one-fifth of his full line. If that does not show him a profit he must not increase his holdings because he has obviously begun wrong; he is wrong temporarily and there is no profit in being wrong at any time.
it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet.
Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.
I naturally think that if it is wrong to be bearish it must be right to be a bull.
Always sell what shows you a loss and keep what shows you a profit.
A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses.
Important the study of group-behaviorism is and how its lessons are disregarded by inadequately equipped traders, big and little.
The reputable newspapers always try to print explanations for market movements. It is news. Their readers demand to know not only what happens in the stock market but why it happens. Therefore without the manipulator lifting a finger the financial writers will print all the available information and gossip, and also analyse the reports of earnings, trade condition and outlook; in short, whatever may throw light on the advance.
When you find that it fails to respond adequately to your buying you don't need any better tip to sell. You know that if there is any value to a stock and general market conditions are right you can always nurse it back after a decline, no matter if it's twenty points.
In a bull market and particularly in booms the public at first makes money which it later loses simply by overstaying the bull market. This talk of "bear raids" helps them to overstay. The public should beware of explanations that explain only what unnamed insiders wish the public to believe.

The reason for what a certain stock does today may not be known for two or three days, or weeks, or months.
If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.
In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see or if you prefer, until you think you see the turn of the market; the beginning of a reversal of general conditions.
If there is a solid bull foundation, for instance, whether or not what the papers call bull manipulation is going on at the same time, certain news items fail to have the effect they would have if the Street was bearish. It is all the state of sentiment at the 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.
Let us suppose, for example, that I am buying some stock. I'll buy two thousand shares at 110. If the stock goes up to 111 after I buy it I am, at least temporarily, right in my operation, because it is a point higher; it shows me a profit. Well, because I am right I go in and buy another two thousand shares. If the market is still rising I buy a third lot of two thousand shares. Say the price goes to 114. I think it is enough for the time being. I now have a trading basis to work from. I am long six thousand shares at an average of 111 ¾ , and the stock is selling at 114. I won't buy any more just then. I wait and see. I figure that at some stage of the rise there is going to be a reaction. I want to see how the market takes care of itself after that reaction. It will probably react to where I got my third lot. Say that after going higher it falls back to 112 ¼, and then rallies. Well, just as it goes back to 113 ¾ I shoot an order to buy four thousand at the market of course. Well, if I get that four thousand at 113 ¾ I know something is wrong and I'll give a testing order that is, I'll sell one thousand shares to see how the market takes it. But suppose that of the order to buy the four thousand shares that I put in when the price was 113 ¾ I get two thousand at 114 and five hundred at 114 ½ and the rest on the way up so that for the last five hundred I pay 115 ½. Then I know I am right. It is the way I get the four thousand shares that tells me whether I am right in buying that particular stock at that particular time for of course I am working on the assumption that I have checked up general conditions pretty well and they are bullish. I never want to buy stocks too cheap or too easily.
It is unwise to take a full line unless you are convinced that conditions are exactly right. Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don't make a second unless the first shows you a profit. Wait and watch. That is where your tape reading conies in to enable you to decide as to the proper time for beginning.
Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself.
In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be up or down. The thing to do is to watch the market, read the tape to determine the limits of the get-nowhere prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction.
In a bull market the trend of prices, of course, is decidedly and definitely upward. Therefore whenever a stock goes against the general trend you are justified in assuming that there is something wrong with that particular stock. It is enough for the experienced trader to perceive that something is wrong.
Never try to sell at the top. It isn't wise. Sell after a reaction if there is no rally.
The behavior of a certain stock is all you need at times. You observe it. Then experience shows you how to profit by variations from the usual, that is, from the probable.
I never buy a stock even in a bull market, if it doesn't act as it ought to act in that kind of market.
I don't look out for the breaks ; I look out for the warnings.
Beware of buying a stock that refuses to follow the group-leader.
I am a trader and therefore looked for one sign : Inside buying. There wasn't any. I didn't have to know why the insiders did not think enough of their own stock to buy it on the decline. It was enough that their market plans plainly did not include further manipulation for the rise. That made it a cinch to sell the stock short.
If as the result of my professional work— my manipulation— the price goes up, and if at the highest level there is a good demand for the stock so that I can sell fair-sized blocks of it I of course call the stock.
The most effective way to advertise what, in effect, are your honorable intentions is to make the stock active and strong. After all is said and done, the greatest publicity agent in the wide world is the ticker, and by far the best advertising medium is the tape. I do not need to put out any literature for my clients. I do not have to inform the daily press as to the value of the stock or to work the financial reviews for notices about the company's prospects. Neither do I have to get a following. I accomplish all these highly desirable things by merely making the stock active. When there is activity there is a synchronous demand for explanations; and that means, of course, that the necessary reasons— for publication— supply themselves without the slightest aid from me.
Say, then, that the stock has ceased to advance. There comes a weak day. The entire market may develop a reactionary tendency or some sharp-eyed trader may perceive that there are no buying orders to speak of in my stock, and he sells it, and his fellows follow. Whatever the reason may be, my stock starts to go down. Well, I begin to buy it. I give it the support that a stock ought to have if it is in good odour with its own sponsors. And more: I am able to support it without accumulating it— that is, without increasing the amount I shall have to sell later on. Observe that I do this without decreasing my financial resources. Of course what I am really doing is covering stock I sold short at higher prices when the demand from the public or from the traders or from both enabled me to do it. It is always well to make it plain to the traders —and to the public, also—that there is a demand for the stock on the way down. That tends to check both reckless short selling by the professionals and liquidation by frightened holders— which is the selling you usually see when a stock gets weaker and weaker, which in turn is what a stock does when it is not supported.
the more stock I sell on a reasonable and orderly advance the more I encourage the conservative speculators, who are more numerous than the reckless room traders; and in addition the more support I shall be able to give to the stock on the inevitable weak days. By always being short I always am in a position to support the stock without danger to myself.
As a rule I begin my selling at a price that will show me a profit. But I often sell without having a profit, simply to create or to increase what I may call my riskless buying power.
But I was ready for this selling, and on the way down I bought back the stock I had sold to the traders a couple of points higher.
I took all the stock that was for sale on the way up— it wasn't very much— and the price began to rise a second time; from a higher starting point than 70. Don't forget that on the way down there are many holders who wish to heaven they had sold theirs but won't do it three or four points from the top. Such speculators always vow they will surely sell out if there is a rally. They put in their orders to sell on the way up, and then they change their minds with the change in the stock's price. Of course there is always profit taking from safe-playing quick runners to whom a profit is always a profit to be taken. All I had to do after that was to repeat the process; alternately buying and selling; but always working higher. Sometimes, after you have taken all the stock that is for sale, it pays to rush up the price sharply, to have what might be called little bull flurries in the stock you are manipulating. It is excellent advertising, because it makes talk and also brings in both the professional traders and that portion of the speculating public that likes action. It is, I think, a large portion. I did that in Imperial Steel, and whatever demand was created by those spurts I supplied. My selling always kept the upward movement within bounds both as to extent and as to speed. In buying on the way down and selling on the way up I was doing more than marking up the price: I was developing the marketability of Imperial Steel.
The fear of being left high and dry if he bought, or squeezed to death if he sold, was gone. The gradual spread among the professionals and the public of a belief in the permanence of the market for Imperial Steel had much to do with creating confidence in the movement ; and, of course, the activity also put an end to a lot of other objections. The result was that after buying and selling a good many thousands of shares I succeeded in making the stocks sell at par. At one hundred dollars a share everybody wanted to buy Imperial Steel. Why not? Everybody now knew that it was a good stock still was a bargain. The proof was the rise.  
Principle of stock manipulation to put up a stock in order to sell it. But you don't sell in bulk on the advance. You can't. The big selling is done on the way down from the top.
The average man sees a stock that nobody wanted at twelve dollars or fourteen dollars a share suddenly advance to thirty—which surely is the top— until it rises to fifty. That is absolutely the end of the rise. Then it goes to sixty; to seventy; to seventy-five. It then becomes a certainty that this stock, which a few weeks ago was selling for less than fifteen, can't go any higher. But it goes to eighty; and to eighty-five . Whereupon the average man, who never thinks of values but of prices, and is not governed in his actions by conditions but by fears, takes the easiest way— he stops thinking that there must be a limit to the advances. That is why those outsiders who are wise enough not to buy at the top make up for it by not taking profits. The big money in booms is always made first by the public— on paper. And it remains on paper.
It is an old device in Wall Street - to change the color of the certificates in order to make them more valuable.
If insiders don't buy their own stock on recessions, who should? The absence of inside support is generally accepted as a pretty good bear tip.
I discovered for one thing that there was too much stock held by too few people— that is, too much for safety and far too much for comfort. if I made the stock strong and active— I could see Kane and Gordon and Wolff unloading.
The next best thing to having people buy the stock the "prominent insider" wishes to sell is to prevent people from selling the same stock when he does not wish to support or accumulate it.
The insiders knowing that trade conditions will adversely affect the company's future earnings do not dare to support that stock until the next turn for the better in the company's business. Then there will be inside buying and inside silence.
The real reason for a protracted decline is never bear raiding. When a stock keeps on going down you can bet there is something wrong with it, either with the market for it or with the company. If the decline were unjustified the stock would soon sell below its real value and that would bring in buying that would check the decline.