The Finance Book Club

Reminiscences of a Stock Operator by Edwin Lefevre
One of the most famous trading books ever written, the book itself is remarkable both as a source of trading wisdom and as a story. It was recorded and fictionalized by Lefevre after just a few interviews which is also an amazing feat since you really get the sense that this is a first-hand account of a trader’s life, not just a made-up work of fiction.

The main character, Larry Livingston, is actually based on the true story of Jesse Lauriston Livermore, one of the greatest, if not the greatest, traders of the 20th century. Though the book doesn’t include Livermore’s final days, which I think are also an important part of the many lessons we can learn from Livermore.

Chapter 1

1. Livermore (L from now on) started working as quotation-board boy in a stock-broker office
2. Good at mental math
3. Not much of a talker
4. The numbers were always changing. But why they changed, he didn’t know or care.
5. This is how he became interested in price behaviour
6. “I could remember in detail how the prices had acted on the previous day, just before they went up or down.”
7. “That was all I had to think about five hours every day and two on Saturdays: that they were always changing.”

This reminds me of the 10,000 hours rule and the adage often quoted by price action traders that after thousands of hours looking at charts they can simply know what to expect. Is there any truth to it? Can we activate a special part of our brain after simply studying charts long enough without any formal study/structure?

 

1. “There was no end of parallel cases and these made precedents to guide me. I was only fourteen, but after I had taken hundreds of observations in my mind I found myself testing their accuracy, comparing the behaviour of stocks to-day with other days. It was not long before I was anticipating movements in prices.
2. “I carried the "dope sheets" in my mind. I looked for stock prices to run on form. I had "clocked" them. You know what I mean.”

Nope, not really. More detail would be great, but we won’t get it.

1. “You can spot, for instance, where the buying is only a trifle better than the selling. A battle goes on in the stock market and the tape is your telescope. You can depend upon it seven out of ten cases.”
2. There is nothing new in Wall St. Whatever happens today has happened before and will happen again.
3. L began to record his observations. Not a paper trading/ demo account of wins/losses but “hits and misses” and whether he was accurate or not.
4. He would look for a stock “that was behaving as it always did before it broke eight or ten points” then check it later with the tape.
5. “The message from the tape”
   1. The reason why a stock does what it does may not be known for a while, weeks or months
   2. But you must act instantly or be left out
   3. Example of Hollow Tube that went down 3 points while the rest of the market rallied
   4. “On the following Monday you saw that the directors passed the dividend. That was the reason. They knew what they were going to do, and even if they didn't sell the stock themselves they at least didn't buy it. There was no inside buying; no reason why it should not break.”

   
   

6. Instead of going home after work L would study the changes, looking for ‘repetitions and parallelisms of behaviour - learning to read the tape”
7. L begins to trade his system during his lunch hours
   1. L “was playing a system and not a favorite stock or backing opinions. All I knew was the arithmetic of it. As a matter of fact, mine was the ideal way to operate in a bucket shop, where all that a trader does is to bet on fluctuations as they are printed by the ticker on the tape.”

   
   

8. By fifteen he had made his first thousand and showed his mom. She urged him to put it in savings.
9. “That’s all the fun there is. Being right by using your head.”
10. It didn’t take more courage to trade more shares. It just meant he was “right more emphatically.”
    1. Risking $10 when that’s all he had is braver than risking $1M if he has another $1M salted away

    
    

11. Eventually the bucket shops got wise to L’s success and would stop taking his margin.
12. They called him ‘The Boy Plunger’ where ‘plunger’ was slang for a high-roller, a big better
13. As a result he had to change brokers and shops all the time
    1. He’d occasionally lose on purpose if they were suspicious and then “sting them proper”
    2. He’d use fictitious names but eventually they all shut down on him
    3. The various ways that Livingston tries to avoid getting identified by bucket shops, and the ways that he uses to connive new trades is a continuous theme in the book.

    
    

14. Eventually the only bucket shop that will do business with him is the biggest and richest - the Cosmopolitan Stock Brokerage Co.
    1. After a few months, they didn’t refuse his business for fear of the bad reputation they’d earn but “they made me put up a three-point margin and compelled me to pay a premium at first of a half point, then a point, and finally, a point and a half.” An impossible handicap Like a Forex broker decreasing your leverage until it’s barely possible to make anything without risking huge amounts. Sound familiar, SimpleFX?
    2. Not satisfied with this, they still eventually try to double-cross him.
    3. L was the “only man they were afraid of”. Despite the penalties under which he traded he was still the heaviest trader, sometimes trading 5000 shares.
    4. “Of course, the bucket shops never ask for more margin. The thinner the shoestring the better for them, for their profit lies in your being wiped.”
    5. “In the old days whenever a bucket shop found itself loaded with too many bulls on a certain stock it was a common practice to get some broker to wash down the price of that particular stock far enough to wipe out all the customers that were long of it. This seldom cost the bucket shop more than a couple of points on a few hundred shares, and they made thousands of dollars.
    6. This is called “the bucket shop drive”

    
    

L tells the story of another big operator who would send agents to all the buckets shops to place orders and then he would distribute bull tips among his cronies and then he would bid up the price, helped by the room traders. He ended up dying, “poor and obscure.”

Footnotes & commentary

Chapter 2

1. L decides to move to New York to try trading with a reputable member of the NYSE, since all the local bucket shops know him and they’re willing to resort to cheating to get rid of him
2. He had $10,000 when he was 20 but by the time he reaches New York at 21 he only has $2500
3. “My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I'd have been right perhaps as often as seven out of ten times. In fact, I always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own game—that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn't know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily—or sufficient knowledge to make his play an intelligent play.”
4. L realizes that his style of trading “betting on fluctuations” - scalping - works well in bucket shops where the razor thin margin actually works in his favor as a type of guaranteed stop-loss and he could “move like lightning”.
   1. Since it’s so easy to get wiped out, you don’t “play for long pulls”

5. However sometimes, he “let the craving for excitement get the better of [his] judgment.”
6. “A stock operator has to fight a lot of expensive enemies within himself.”
7. He begins trading with A.R. Fullerton & Co. - a reputable stock exchange house
   1. However the tape “always talked ancient history to [him], as far as [his] system of trading went and [he] didn’t realize it.”
   2. Since the bucket shops never actually sent orders to the exchange, he could trade as much as he wanted without affecting the price but at Fullerton’s his orders moved the market.
   3. He figures he might have done better as a floor trader, but “in short, [he] did not know the game of stock speculation” and after six months he was broke and in debt to Fullerton by a few hundreds.

8. L asks for a $500 loan, to go back and trade in the bucket shops
   1. New York doesn’t operate any shops at the time (driven out by the exchange)
   2. So L goes to St. Louis
   3. Although he pledges to start slowly within three days he’s taken $2800 dollars off one shop
   4. The boss of the shop immediately knows who is, by reputation, and threatens him in a hilarious exchange
   5. “"D' yeh see them? Them guys. Take a look at 'em, kid. There's three hundred of 'em! Three hundred suckers! They feed me and my family. See ? Three hundred suckers! Then yeh come in, and in two days yeh cop more than I get out of the three hundred in two weeks. That ain't business, kid—not for me! I ain't got nothin' agin yeh. Yer welcome to what ye've got. But yeh don't get any more. There ain't any here for yeh!"
   6. He doesn’t even get a chance to trade at the second shop as he is immediately recognized

9. L pays back his loan and then hears about another shop opening in Hoboken, run by the same jackass who kicked him out of the second shop in St. Louis
   1. L pretends to be a hayseed who prefers betting on ponies
   2. His strategy is to sell short stocks that the public had been long on all week
      1. The market had been going up all week
      2. The bank statement on Saturday would show a big decrease in the surplus reserve
      3. The big room traders would “jump on the market and try to shake out some of the weak commission-house accounts”
      4. The last half hour of trading would show “the usual reaction” especially in those stocks the public had bought up, the ones the bucket shop customers would be long on
      5. The shop might be glad to see some short-selling
      6. “There is nothing so nice as catching the suckers both ways; and nothing so easy—with one-point margins.”

   3. He wins so much that they can’t pay everything out to him until Monday
   4. On Monday he collects and gets warned off again.
   5. He sends a colleague from Fullerton’s to go in his place and after paying off his accomplice he makes another $2800

10. “Crooks don’t trust anybody.”
11. “If it hadn't been for their refusing to take my business I never would have stopped trading in them.And then I never would have learned that there was much more to the game of stock speculation than to play for fluctuations of a few points.”

Chapter 3
There are probably as many quotable bits of wisdom in this chapter as in any other entire book.

1. “It takes a man a long time to learn all the lessons of all his mistakes.”
2. “They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.”
3. It’s easy to be a ‘plunger’ when you’re trading fake money, the same way it’s easy to win a duel when no one is shooting back at you.
4. “I must back my opinions with my money. My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all.”
5. “A man should limit his losses when he is wrong but that should not breed indecision.”
6. “In losing money I have gained experience and accumulated a lot of valuable don'ts.”
7. L was flat broke several times but his loss was never a total loss.
   1. “I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself.”
   2. “A man must believe in himself and his judgment if he expects to make a living at this game.”

8. “I don't believe in tips. If I buy stocks on Smith's tip I must sell those same stocks on Smith's tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around? No, sir, nobody can make big money on what someone else tells him to do.”
9. “It took me five years to learn to play the game intelligently enough to make big money when I was right.”

This is around the figure that gets quoted most often on forums too - 4 or 5 years. I'd say the learning never really stops, but the basics take five years, even if a lot of that is disabusing yourself of some of the common myths.

1. “Speculation is a hard and trying business, and a speculator must be on the job all the time or he'll soon have no job to be on.”
2. “The tape-reading ability that trading in bucket shops developed in me and the training of my memory have been extremely valuable. Both of these things came easy to me. I owe my early success as a trader to them and not to brains or knowledge, because my mind was untrained and my ignorance was colossal. The game taught me the game. And it didn't spare the rod while teaching.”
3. “When I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.”
4. At 22 L thought he knew the game from A to Z, but he also considers that a 22-year old can’t really know too much of anything (due to overconfidence).
5. While trading in the exchange houses, L tries to do his usual scalps, but even when he won he ended up losing money, although he couldn’t say why at first.
6. “I was still sticking to the tape—that is, I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game.”
7. In 1901 L made a lot of money in a bull market. The public went ‘stock-mad’, the steel millionaires came to town, “with no more regard for money than drunken sailors”
8. “There must be a limit to the advances and an end to the crazy buying of A. O. T.—Any Old Thing—and I got bearish. But every time I sold I lost money, and if it hadn't been that I ran darn quick I'd have lost a heap more. I looked for a break, but I was playing safe—making money when I bought and chipping it out when I sold short—so that I wasn't profiting by the boom as much as you'd think when you consider how heavily I used to trade, even as a boy.”
9. L manages to gain $50,000 in profit but then loses everything a couple of days later when he tries to short, then go long but his orders don’t reach the market on time.
   1. “The ticker beat me by lagging so far behind the market.”

10. “It seems so obvious now that tape reading is not enough, irrespective of the brokers' execution, that I wonder why I didn't then see both my trouble and the remedy for it.”
11. “It came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way.“
12. L took longer to see the flaws in his trading because he made enough money to live well and to enjoy the NY high life. However his winnings didn’t offset his losses and his cost of living large.
13. By the fall he was cleaned out, and sick of the game. Sick of “being wrong so consistently.”

Chapter 4

1. L goes home but almost immediately starts plotting how to get back to Wall St.
2. He tries trading in buckets shops using his friend but most of them won’t take his money
3. L hears about a group of firms that are “not regular bucket shops, but bucketeers, alleged brokers who bucketed their orders but nevertheless went through an elaborate camouflage to convince the world that they were regular brokers engaged in a legitimate business. They were one of the oldest of that class of firms.“
   1. “Most concerns of that kind eventually go broke. There are times when there are regular epidemics of bucketeering bankruptcies, like the old-fashioned runs on several banks after one of them goes up.”
   2. L decides to chance trading with this firm, avoiding their sales pitches. The manager figures L for a “ticker-hound” a permanent sucker.
   3. Almost immediately after signing up he gets prepaid telegrams and letters urging him to buy stocks in which they said they know an inside pool was operating for a fifty point rise. Spam is old.
   4. “I traded in a small way so they wouldn't get frightened off at the very start. I made money on balance and they were not slow in telling me that they expected real business from customers who had direct wires to their offices. They did not hanker for pikers. They figured that the more I did the more I'd lose, and the more quickly I was wiped out the more they'd make. It was a sound enough theory when you consider that these people necessarily dealt with averages and the average customer was never long-lived, financially speaking. A busted customer can't trade. A half-crippled customer can whine and insinuate things and make trouble of one or another kind that hurts business.”
   5. L gets a couple of direct lines put in to his local ‘bucketeer’ shops and another one directly to his NY brokerage.
   6. The bucketeers are always trying to hoodwink him in some way, like fixing the account statements so that they don’t match his actual trades
   7. “The beauty of doing business with a crook is that he always forgives you for catching him, so long as you don't stop doing business with him. It's all right as far as he is concerned. He is willing to meet you more than halfway. Magnanimous souls!”

4. L decides to teach them a lesson
   1. The specifics are a little unclear so forgive me if I make a mistake
   2. He picks out a ‘waterlogged’ stock, a former favourite that is now inactive.
   3. If he had picked one that had never been popular it might have tipped his hand
   4. He gives out buying orders on this stock to his five bucketeer brokers
   5. While they’re waiting for the next quotation to come out on the tape he sends an order to his NY stock exchange house to sell 100 shares at the market, asking for ‘urgent action’
   6. “You can imagine what happened when the selling order got to the floor of the Exchange; a dull inactive stock that a commission house with out-of-town connections wanted to sell in a hurry. Somebody got cheap stock.”
   7. The wire house asked him what he’d heard and he says he got a tip.
   8. Now L is long 500 orders and short 100 with NY.
   9. Just before the close he sends an order to his ‘reputable house’ (NY?) “to buy back that hundred shares, and not waste any time; that [he] didn't want to be short under any circumstances; and didn't care what they paid.”
   10. The order to buy the hundred quick results in a sharp advance.
   11. Then L sells the 500 shares, for a net profit.
   12. “I worked that trick on them several times. I did not dare punish them as severely as they deserved, seldom more than a point or two on a hundred shares. But it helped to swell my little hoard that I was saving for my next Wall Street venture.”
   13. One day the trick works too well and from then on the trick stops working.
   14. One house initially refused to pay him out but he got his money in the end because “For a customer to lose money at his broker's is no rare event. But for a customer to make money and then not get it is the worst crime on the speculators' statute books.”

5. L returns to New York but on the way he and a trader fleece a bucket shop in New Haven where the manager mistakes them for a couple of college kids.
   1. “No professional gambler [minds losing money] so much. It's all in the game and the luck's bound to turn. It was his being fooled [about] us that hurt his pride.”

6. L reflects on what the flaws in his system might be
   1. “I traded out of season all the time; because when I couldn't play according to my system, which was based on study and experience, I went in and gambled.”
   2. “I had theories—that is, remedies for some of the faults that I thought I found in my play. But I needed actual practice.”

7. “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. Did you get that ? You begin to learn!” Or you go broke.
   

On holiday next week, will resume in September.
Enjoy the rest of your summer; beat the heat somehow.

The next few months should be historically interesting for trading.

Nice, enjoy well

In today's chapter I think the story of 'old Partridge' is one of the most important examples.

Chapter 5

1. “The average ticker hound—or, as they used to call him, the tape-worm—goes wrong, I suspect, as much from over-specialization as from anything else. It means a highly expensive inelasticity. After all, the game of speculation isn't all mathematics or set rules, however rigid the main laws may be.”
2. “There is what I call the behavior of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. 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”
3. Story of the ‘Frenchman’ who said by means of his mathematical curves he could forecast market movements. At various times the other traders try his system but go back to their unscientific methods. “Their hit-or-miss system was cheaper, they said.”
   1. “The method was too slow for practical use in an active market.”

   
   
   
   

4. "I should say that a chart helps those who can read it or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke.”
5. The story of the ‘former partner of a well-known stock exchange house’,
   1. a mathematician who traded based on ‘very careful and minute study of the behaviour of prices in many markets’.
   2. “What he really did was to take advantage of some highly intelligent averaging.” He won regularly until WW2 changed everything. He and his large followers lost millions before they desisted.

   
   
   
   

6. “Not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions.”
7. “I can see now that my main trouble was my failure to grasp the vital difference between stock gambling and stock speculation.”
8. “The more I made, the more I spent. This is the usual experience with most men.”
9. “Some men, like old Russell Sage, have the money-making and the money-hoarding instinct equally well developed, and of course they die disgustingly rich.”
10. “I never allowed pleasure to interfere with business.”
11. “I was acquiring the confidence that comes to a man from a professionally dispassionate attitude toward his own method of providing bread and butter for himself.”
12. L realizes that he has to anticipate price moves more than he did in the bucket shops if he is to succeed at Fullerton’s. He begins to study fundamental reports, trade reports, railroad earnings, statistics.
13. “Slow as my progress seems now, I suppose I learned as fast as I possibly could, considering that I was making money on balance. If I had lost oftener perhaps it might have spurred me to more continuous study. I certainly would have had more mistakes to spot. But I am not sure of the exact value of losing, for if I had lost more I would have lacked the money to test out the improvements in my methods of trading.”
14. “Although I often was 100 percent right on the market— that is, in my diagnosis of conditions and general trend—I was not making as much money as my market "rightness" entitled me to.”
15. “I listened to the elder statesmen and curbed my youthful impetuousness. I made up my mind to be wise and play carefully, conservatively. Everybody knew that the way to do that was to take profits and buy back your stocks on reactions.”
16. “I often took profits and waited for a reaction that never came. And I saw my stock go kiting up ten points more and I sitting there with my four-point profit safe in my conservative pocket. They say you never grow poor taking profits. No, you don't. But neither do you grow rich taking a four-point profit in a bull market.”
17. L creates a hierarchy of suckers according to their experience
    1. The tyro knows nothing, everybody including himself knows it. Average lifespan is 3-30 weeks.
    2. The second grade thinks he knows a great deal and makes others feel that way too. This sucker has studied - “studied—not the market itself but a few remarks about the market made by a still higher grade of suckers.” He knows how to avoid some of the traps of the raw beginner. Average lifespan 3.5 years. “It is this semisucker rather than the 100 per cent article who is the real all-the-year-round support of the commission houses.” Always quoting aphorisms and various rules of the game.
    3. The semi-sucker loves to buy on declines and thinks he is wise doing so.
    4. The third grade of sucker is not beaten by the market but they beat themselves because they cannot ‘sit tight’.

    
    
    
    

18. The story of Old Partridge
    1. A much older man
    2. Never brags or volunteers advice
    3. Listens attentively to others
    4. Not keen for tips - but when he received one he thanked them politely
    5. When it worked out he thanked the tipster, but never whined when it didn’t so that nobody knew if he was following them
    6. Traded rarely even though it was rumoured he was rich
    7. Whenever customers asked him for advice:
       1. ‘He would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, "You know, it's a bull market!"
       2. “Time and again I heard him say, "Well, this is a bull market, you know!" as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy.”
       3. Partridge continually refuses to sell his holdings at the behest of tipsters (who probably want his sale to further depress the price ‘on the reaction’) because he would “lose his position.”
       4. “When you are as old as I am and you've been through as many booms and panics as I have, you'll know that to lose your position is something nobody can afford; not even John D. Rockefeller.”
       5. “I paid a high price for it and I don't feel like throwing away a second tuition fee.”

       
       
       

19. “The big money was not in the individual fluctuations but in the main movements— that is, not in reading the tape but in sizing up the entire market and its trend.”
20. “It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
21. It’s not tricky being right at the start of a trend, the hard part is staying in.
22. “Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”
23. “Give up trying to catch the last eighth—or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.”
24. “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.”
25. “It is the big swing that makes the big money for you.”

Chapter 6

In this chapter the most important story is probably the Ed Harding story as it underlines the importance of 'being right and sitting tight' no matter how prestigious is the person or group who disagrees with you. In real life Ed Harding was Edward Francis Hutton, a famous financier who among other things, built Mar-A-Lago, currently the favored resort and presidential retreat of someone you might have heard about.

1. 1906, L was on vacation in Atlantic city, trading with Harding Brothers
2. L talks about the dozen times he didn’t listen to his hunches and regretted it
3. The Union Pacific hunch story
   1. After going up the boardwalk and looking at a quote board he has an unexplained feeling that he should short Union Pacific. He sells a whopping 1000 shares based purely on a strong feeling. His friend, long U.P. is understandably perturbed.
   2. He goes back into the office and sells 1,000 more shares. Then yet another 1,000.
   3. “I remembered that on previous occasions when I had the same urge to sell and didn't do it I always had reasons to regret it.”
   4. L reasons that this might be the work of the subconscious mind , the creative mind at work. Of course we might know a little more about it today, see Gladwell, Kahneman.
   5. “I never get impatient when I feel I am right.”
   6. The next day the market continues up but in the afternoon it levels and drops. This is a sign to L who shorts another 2,000 shares.
   7. He cancels his vacation and returns to New York
   8. News of the SF earthquake doesn’t affect the market much because it was bullish.
   9. “The public never is independently responsive to news.”
   10. “The Street did not appraise the extent of the catastrophe because it didn't wish to.”
   11. “I wouldn't cover because I knew the damage was enormous and the Union Pacific would be one of the worst sufferers. But it was exasperating to see the blindness of the Street.”
   12. The following day, after more reports, the market began to “slide off” and L sells another 5,000 shares.
   13. The market recovers and L sells 10,000 more somehow
   14. The next day he cleans up with a profit of $250,000, a few million in today’s money.

   
   
   

Recall the lesson from Taleb about Solon’s warning. Count no man happy until he is dead. Now is the time that L should listen to his mother’s advice, at least partly.

 

1. The Ed Harding derailment story
   1. That summer L vacations in Saratoga Springs, once again he spends his time at the Harding Brothers branch office
   2. He looks at the tape and thinks he can discern “very clever accumulation'' by a big roller so he begins to buy at 500 shares a clip, and the price begins to rise.
   3. He gets a phone call from Harding himself who tells him he is being conned by ‘highblinders’ who are shoveling it out at an inflated price. He urges him to sell, and L, convinced by Harding’s character and reputation, follows the advice.
   4. He also decides, if the stock isn’t going up he might as well short it for 4,000 shares.
   5. Of course, the next day a huge dividend is declared and the stock goes way up eventually
   6. “I got what I deserved for disregarding the voice of experience and listening to the voice of a tipster.” He loses $40,000, “a cheap lesson”
   7. He reverses and recovers his loss plus $15,000
   8. L figures this is his final lesson as a trader, giving him the courage to follow his convictions and to cast off his old style of trading

   
   
   

2. “I promoted myself to a higher grade in the hard school of speculation. It was a long and difficult step to take.”

Chapter 7

1. “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.”
2. “I have often said that to buy 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.”
3. L talks about testing the market. He’ll put in an initial order and if it goes up, put in another. Then at the first correction he’ll place substantially larger order and see how it’s filled. If he gets slipped upwards that’s a good sign. If he doesn’t then he’ll test selling a smaller order short.
4. “I never want to buy stocks too cheap or too easily.”
5. The story of Deacon White and the tipster
   1. Deacon White was one of the ‘big operators of the street’, a clever, fine old man.
   2. One day a tipster (very excited) comes into his office and gives White some information about H.O. Havenmayer, president of a sugar company, buying as much as he could get his hands on
   3. White tells his stockbroker to SELL 10,000 sugar
   4. This makes the tipster very upset. Havenmayer is buying he shouts!
   5. White calmly sells another 10,000 and then waits for the report
   6. The tipster is completely disheartened but White urges him to remain calm
   7. The report showed that someone was taking up his orders quickly, showing that in fact there was buying of sugar
   8. So then White buys 30,000 sugar, going long 10,000 net. He rewards the tipster with 500 of those 10,000 shares who wisely asks White to sell them for him at his discretion. “I don't know as much as I thought I did.”

6. “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.”

Chapter 8

1. “When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions—or my prepossessions either—to do any thinking for me.”
2. “I never argue with the tape. To be angry at the market because it unexpectedly or even illogically goes against you is like getting mad at your lungs because you have pneumonia.”
3. “since the entire list moves in accordance with the main current there was not so much need as I had imagined to study individual plays or the behaviour of this or the other stock.”
4. “I saw that to put it into practice really meant to anticipate probabilities.”
5. “A customer who makes money is an asset to any broker's office.”
6. “I have always found it profitable to study my mistakes. Thus I eventually discovered that it was all very well not to lose your bear position in a bear market, but that at all times the tape should be read to determine the propitiousness of the time for operating. If you begin right you will not see your profitable position seriously menaced; and then you will find no trouble in sitting tight.”
7. L decides that the key to trading is to be ‘bearish in a bear market and bullish in a bull market.” He decides that the fundamentals favor a bear market so he sells stocks short but they rally. He covers, and tries again during the next drop, but they rally again. He does this a third time and loses everything!
8. “I didn't wait to determine whether or not the time was right for plunging on the bear side. On the one occasion when I should have invoked the aid of my tape-reading I didn't do it. That is how I came to learn that even when one is properly bearish at the very beginning of a bear market it is well not to begin selling in bulk until there is no danger of the engine back-firing.”
9. “If a man didn't make mistakes he'd own the world in a month. But if he didn't profit by his mistakes he wouldn't own a blessed thing.”
10. Later on L sees an ad for a stock offering by two railroads. This is followed up by another a week later. L correctly surmises that this is a sign of money scarcity and that the bear market is in. He also aggressively shorts the one railroad stock that stubbornly held its value as a result of some close banker connections. He sends two different brokers orders to sell for 4,000, and it nosedives. By 1907 he had ‘cleaned up’ but he doesn’t say for how much.
11. L figures this is an example of his using reason rather than tape reading to trade. He doesn’t immediately enter long after this discount. He’s learned his lesson after trading in the bucket shops.

Just a quick interruption to let you know about a course going on right now. It's called 'Fat Chance : Probability From the Ground Up'. It's offered by Harvard(X) and is completely free to audit through EdX.

I haven't said much about the importance of probability in trading, hopefully I will have a chance to do that later, but it seems like an exceptionally good introduction to the subject. It starts off very gradually, beginning with sequences and I don't think you need better than high school math to follow along. I think it's not too late to enroll, but even if it is I will publish my notes for it.

https://courses.edx.org/courses/cour...dX+FC1x+1T2020

Awesome! Looks promising..

I would like to recommend this series on statistics 101. Has some great illustrative videos. Especially if you are new to learning about distributions, standard deviations, probabilities etc..

https://www.learner.org/series/again...de-statistics/

I will check this out, thanks!

Chapter 9

1. L goes on vacation in Florida. He chances to glance at a newspaper that shows there has been a big rally, so naturally he goes ashore and walks into the Harding Bros. branch.
2. The Anaconda stock story
   1. “I had come down to Florida on a fishing trip. I had been under a pretty severe strain and I needed my holiday. But the moment I saw how far the recovery in prices had gone I no longer felt the need of a vacation. I had not thought of just what I was going to do when I came ashore. But now I knew I must sell stocks. I was right, and I must prove it in my old and only way—by saying it with money.”
   2. “It was an old trading theory of mine that when a stock crosses 100 or 200 or 300 for the first time the price does not stop at the even figure but goes a good deal higher, so that if you buy it as soon as it crosses the line it is almost certain to show you a profit. Timid people don't like to buy a stock at a new high record. But I had the history of such movements to guide me. My buying it because it crossed 300 was prompted by the desire, always strong in me, of confirming my observations.”
   3. Anaconda goes down to 292, when L can’t trade because of a telegraph outage.
   4. The next day the wires were working and Anaconda went up to 302.25 but began to fade. L decides “If Anaconda went back to 301, I must consider the whole thing a fake movement. On a legitimate advance the price should have gone to 310 without stopping.”
   5. “The only thing to do when a man is wrong is to be right by ceasing to be wrong.”
   6. L advises never trading with limit orders. “When you want to get out, get out.”
   7. Anaconda does go to 301 and he covers his short, observing that the price dropped during the execution. “There was the market after its outrageous rally, begging to be sold.”
   8. L gets shorter and returns to New York just as he did after his last vacation.
   9. “The way to make big money is to be right at exactly the right time. In this business a man has to think of both theory and practice. A speculator must not be merely a student, he must be both a student and a speculator.”

3. L finds the summer slow so he heads to Europe with a balance of ¾ of a million.
4. “The big men of the Street are as prone to be wishful thinkers as the politicians or the plain suckers. I myself can't work that way. In a speculator such an attitude is fatal.”
5. The Smelters stock story
   1. L sees in the Paris Herald a dispatch saying that Smelters had declared an extra dividend. This was a clear sign of manipulation, he thought and he shorts Smelters, advises his friends to do so and catches a fast boat back to New York from Paris.
   2. “I had foreseen it. At first, my foresight broke me. But now I was right and prospering. However, the real joy was in the consciousness that as a trader I was at last on the right track. I still had much to learn but I knew what to do. No more floundering, no more half-right methods. Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities.”

6. L begins to get talked about and gets credit for exaggerated exploits.
7. In the great panic of 1907 he makes a million dollars in a single day.
8. “What is the use of being right unless you get all the good possible out of it?”

Chapter 10
This chapter has a lot of practical trading advice, including the clearest explanation of L’s ‘line of least resistance’ idea.

1. “There is a natural tendency in all men to avoid punishment.”
2. “If a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.”
3. “Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong. And when a millionaire is right his money is merely one of his several servants. Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong—not taking the loss— that is what does the damage to the pocketbook and to the soul.”
4. Dickson G. Watts’s story about the man who was so nervous about a big trade he couldn’t sleep. His friend advised him to ‘sell down to the sleeping point.”
5. “After a man makes money in the stock market he very quickly loses the habit of not spending. But after he loses his money it takes him a long time to lose the habit of spending.”
6. L would rather play commodities than stocks as they seem to be more bound by supply and demand laws.
7. L pontificates on how the average stock-buyer devotes less thought to buying a stock than they do buying a medium-priced automobile.
8. “Nobody should be puzzled as to whether a market is a bull or a bear market after it fairly starts. The trend is evident to a man who has an open mind and reasonably clear sight, for it is never wise for a speculator to fit his facts to his theories. Such a man will, or ought to, know whether it is a bull or a bear market, and if he knows that he knows whether to buy or to sell. It is therefore at the very inception of the movement that a man needs to know whether to buy or to sell.”
9. “The price will break through the old barrier or movement-limit and go on. As a rule, there is always a crowd of traders who are short at 120 because it looked so weak, or long at 130 because it looked so strong, and, when the market goes against them they are forced, after a while, either to change their minds and turn or to close out.”
10. “The intelligent trader who has patiently waited to determine this line [of least resistance] will enlist the aid of fundamental trade conditions and also of the force of the trading of that part of the community that happened to guess wrong and must now rectify mistakes. Such corrections tend to push prices along the line of least resistance.“
11. “You will find in actual practice that if you trade as I have indicated any important piece of news given out between the closing of one market and the opening of another is usually in harmony with the line of least resistance. The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa.”
12. “It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it. But in actual practice a man has to guard against many things, and most of all against himself—that is, against human nature.”
13. “The man who is right always has two forces working in his favor— basic conditions and the men who are wrong.”
14. The first cotton story
    1. L was bullish cotton and thought all it needed was ‘a little push’
    2. He buys 50,000 bales, and price goes up but settles back down
    3. He gets out and price stops falling
    4. He buys 50,000 again, and it goes up but comes down again.
    5. He does this 4-5 times but quits in disgust having wasted $200,000.
    6. A short time after that, of course, the bull market starts and doesn’t stop until it reaches a price that would “have meant a killing for me.”
    7. “I would study the tape as I told you, watching for an opportunity either to buy or to sell. Suppose the line of least resistance indicated a bull movement. Well, I would buy ten thousand bales. After I got through buying that, if the market went up ten points over my initial purchase price, I would take on another ten thousand bales. Same thing. Then, if I could get twenty points' profit, or one dollar a bale, I would buy twenty thousand more. That would give me my line—my basis for my trading. But if after buying the first ten or twenty thousand bales, it showed me a loss, out I'd go. I was wrong. It might be I was only temporarily wrong. But as I have said before it doesn't pay to start wrong in anything.”
    8. “What I accomplished by sticking to my system was that I always had a line of cotton in every real movement. In the course of accumulating my full line I might chip out fifty or sixty thousand dollars in these feeling-out plays of mine. This looks like a very expensive testing, but it wasn't. After the real movement started, how long would it take me to make up the fifty thousand dollars I had dropped in order to make sure that I began to load up at exactly the right time? No time at all! It always pays a man to be right at the right time.”

    
    

15. “This experience has been the experience of so many traders so many times that I can give this rule: 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.”
16. “Stock-market post-mortems don't pay dividends.”
17. L’s wheat story
    1. He advises a party of friends that if they wish to make money in wheat they should wait for it to go up to 1.20 and then buy
    2. Why not buy now? Because I don’t know if it will go up at all.
    3. Your profit will be smaller but surer. Entering immediately is gambling.
    4. “I knew that when it crossed $1.20 it would be because the upward movement at last had gathered force to push it over the limit and something had to happen.”

    
    

18. “What I have told you gives you the essence of my trading system as based on studying the tape. I merely learn the way prices are most probably going to move. I check up my own trading by additional tests, to determine the psychological moment. I do that by watching the way the price acts after I begin.”
19. “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. The same tape that said up did not necessarily lie merely because it is now saying not yet.”
20. “It is simple arithmetic to prove that 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, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet.”
21. L’s story about the civil-war era trader (old fellow)
    1. He describes his system for him
    2. “Yes! Yes! You're right. The way you're built, the way your mind runs, makes your system a good system for you.”
    3. The story of Pat Hearne
       1. Never gave advice
       2. “You can’t tell till you bet.”
       3. Would buy 100 shares and if they went up 1% he’d buy another 100
       4. Placed a stop-loss one point below the price of his last purchase
       5. As long as the price went up he moved his stop with it.
       6. Stopped out on a 1% retrace
       7. “He declared he did not see any sense in losing more than one point,
       8. whether it came out of his original margin or out of his paper profits.”
       9. A pro gambler is not looking for long-shots but sure bets
       10. “Pat Hearne was the only one who saw in stock speculation merely a game of chance like faro or roulette, but, nevertheless, had the sense to stick to a relatively sound betting method.”
       11. Cautionary tale of a trader who started doing well with Pat’s system but then forsakes it for ‘hope’s whispers’. He ends up broke.
       12. “He did not stick to his own proved system. That's the trouble with most of them," and the old fellow shook his head at me.”

       
       

    
    

22. The successful trader has to fight two basic instincts - hope and fear.
    1. Where hope is useful to empire-builders and pioneers, it’s fatal to traders
    2. Fear stops you from making as much as you ought to
    3. A successful trader “has to reverse what you might call his natural impulses. 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. It is absolutely wrong to gamble in stocks the way the average man does.”

    
    

23. Just as a man may beat a horse, he cannot beat horse racing, and no one may beat the market, though they may beat a stock.

Chapter 11

1. October 1907, once more L threatens to go fishing - on his yacht this time
2. However a corn short is preventing him from leaving
   1. Stratton, the biggest Chicago operator is cornering the market in corn
   2. L is stuck until he finds a way to get out of his massive short position
   3. He realizes the Armour group are competitors of Stratton’s and that Stratton is also in oats
   4. He puts in orders to buy 500k bushels of corn every ⅛ of a cent down
   5. Then he puts in 4 different orders from different exchange houses to sell 50k bushels of oats
   6. L expects that traders will see this as Armour gunning for Stratton
   7. This works and corn declines enough to allow L to cover his short

   
   

3. “The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. A trader gets to play the game as the professional billiard player does—that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.”
4. The story of Cammack which is basically a duplicate of the story of Deacon White except that Cammack buys instead of sells in order to sell at the right time and begin his bear campaign
5. The second cotton story
   1. Begins with Percy Thomas who went bust selling March cotton (but not many details)
   2. Hearing about this, when L gets back from fishing he studies the cotton market and finds the herd are selling July cotton, so he decides to buy
   3. He buys as many floating contracts as possible - 120k bales and the price begins to rise
   4. The market closes at the top, and in Liverpool the market gapped up 50 points, a 100% rise
   5. “This showed me that my deductions had been sound and that I was trading along the line of least resistance. At the same time I was not losing sight of the fact that I had a whopping big line to dispose of. A market may advance sharply or rise gradually and yet not possess the power to absorb more than a certain amount of selling.”
   6. Later L finds out he has made a newspaper headline which explains the rise in cotton in Europe
   7. He realizes he should sell immediately and within ten minutes he is out of cotton
   8. Without the headline he’d never have been able to unload the cotton without affecting the price
   9. “That is one trouble about trading on a large scale. You cannot sneak out as you can when you pike along. You cannot always sell out when you wish or when you think it wise. You have to get out when you can; when you have a market that will absorb your entire line. Failure to grasp the opportunity to get out may cost you millions. You cannot hesitate. If you do you are lost. Neither can you try stunts like running up the price on the bears by means of competitive buying, for you may thereby reduce the absorbing capacity.”
   10. “In Wall Street, and, for that matter, everywhere else, any accident that makes big money for a man is regarded with suspicion. When the accident is unprofitable it is never considered an accident but the logical outcome of your hoggishness or of the swelled head. But when there is a profit they call it loot and talk about how well unscrupulousness fares, and how ill conservatism and decency.”
   11. L becomes known as the 'Cotton King'

   
   

Chapter 12

1. L receives an invitation from Percy Thomas himself to partner in cotton trading
2. L is reluctant as he is used to being a ‘lone hand’
3. “I play a lone hand by choice and also because it is the wisest and cheapest way to trade. I get my pleasure out of matching my brains against the brains of other traders—men whom I have never seen and never talked to and never advised to buy or sell and never expect to meet or know. When I make money I make it backing my own opinions. I don't sell them or capitalise them. If I made money in any other way I would imagine I had not earned it. [...]I am interested in the game only as I play it for myself and in my own way."
4. The story of the book salesman who can sell anything. He sells a set of Walter Scott books to L who had no intention of buying and then he sells more to Harding.
5. “You can never bank on there being but one remarkable salesman in the world or on complete immunization from the influence of personality.”
6. The third cotton story
   1. L visits Percy Thomas again and makes the fatal mistake of getting his opinion about the cotton market.
   2. “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.”
   3. “I naturally think that if it is wrong to be bearish it must be right to be a bull. And if it is right to be a bull it is imperative to buy.”
   4. Having been “Thomas-ized” L begins to go wrong, making plays he would not have normally
   5. “It seems incredible that knowing the game as well as I did and with an experience of twelve or fourteen years of speculating in stocks and commodities I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out.”
   6. “Always sell what shows you a loss and keep what shows you a profit.”
   7. “Of all speculative blunders, there are few greater than trying to average a losing game.”
   8. L ends up buying more cotton to stop the price from falling until he’s tapped out and has to sell his line. He ends up losing almost everything he’d made.
   9. “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”
   10. “Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be.”
   11. “I had been a millionaire rather less than a year. My millions I had made by using brains, helped by luck. I had lost them by reversing the process.”
   12. L says this was his ‘crowning folly’ and he goes into debt.

   
   

Interestingly, according to Wikipedia, ‘Thomas Percy’ is the alias given to Teddy Price who convinced L to buy cotton but was secretly selling it himself, but clearly L didn’t relish looking like a rube who fell victim to an unscrupulous mentor.

1. “If you know much about the average customer of the average commission house you will agree with me that the hope of making the stock market pay your bill is one of the most prolific sources of loss in Wall Street.”
2. The story of Bob Keown’s sable-lined fur coat (the market is not a fairy godmother)
   1. Wanted a fur coat and proposed to have the market pay the bill
   2. Sold 5,000 steel
   3. Price promptly went up
   4. Bob covers and says New York is too warm for fur coats
   5. Someone else in the office tries the same thing - loses $1800 and says sables are only for women’s coats
   6. L explains this by saying when a man sets out to make the market pay for a sudden need he gambles, running greater risks than if he were speculating intelligently

   
   

Chapter 13

The Dan Williamson story is one of the most bizarre stories in the book and reminds me of something I keep telling my kids. If you don't make up your mind about what you want to do, someone will make it up for you. Of course there's another way to look at it, which is a man does what he has to do to get back on top, even if it means putting his plans on hold and subjugating himself for a time to another.

1. “There I was, once more broke, which was bad, and dead wrong in my trading, which was a sight worse. I was sick, nervous, upset and unable to reason calmly. That is, I was in the frame of mind in which no speculator should be when he is trading.”
2. “After the habit of taking a big profit on a big line I wasn't sure I would know when to take my profit on a small line. I can't describe to you how weaponless I felt.”
3. “After all those long years of successes, tempered by mistakes that really served to pave the way for greater successes, I was now worse off than when I began in the bucket shops.”
4. “There is no mind so machinelike that you can depend upon it to function with equal efficiency at all times.”
5. “A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable of in the line of folly was a long educational step. I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head.”
6. L decides to leave New York and move to Chicago, hoping the change of scenery will help him find himself again. An exchange house that had some history with him allows him to trade in a small way.
7. The Dan Williamson / Alvin Marquand story
   1. L’s Chicago adventure is cut short by an urgent request to return to New York sent by his friend Tucker
   2. Dan Williamson of Williamson & Brown stock exchange house makes him an offer
   3. The James Stillman technique - simply listen attentively and say nothing. Your interlocutor, feeling urged to say something, may offer more advantageous terms than he had meant to offer.
   4. “I don't keep silent just to induce people to offer a better bargain, but because I like to know all the facts of the case. By letting a man have his say in full you are able to decide at once. It is a great timesaver.It averts debates and prolonged discussions that get nowhere.”
   5. Williamson’s most important client is his brother-in-law Alvin Marquand, a railroad tycoon.
   6. Williamson wants to hire L to trade out of his office and even advances him $25,000 to use as his own money, promising more if he needs it.
   7. When pressed, L finds out his reputation as a plunger on the bear side is the reason - it will help the firm hide Marquand’s dealings.
   8. Within 3 weeks L profits $112,000 out of the $25k loaned to him and he goes to repay Williamson
   9. “"No, no!" he said and waved me away exactly as if I had offered him a castor-oil cocktail. "No, no, my boy. Wait until your account amounts to something. Don't think about it yet. You've only got chicken feed there."
   10. There is where I made the mistake that I have regretted more than any other I ever made in my Wall Street career. It was responsible for long and dreary years of suffering.”
   11. “Since he didn't draw out the twenty-five thousand dollars he had advanced me I felt I could not very well draw out my profit.”
   12. “You are apt to find these moral obligations mighty high priced at times. Moreover there is no statute of limitations.”
   13. Williamson starts to interfere in his trades, particularly the ones involving railroads. L can’t do anything since Williamson is the brother-in-law of the chairman of the board of directors.
   14. “To subordinate my judgment to his desires was the undoing of me. Gratitude is something a decent man can't help feeling, but it is for a fellow to keep it from completely tying him up. The first thing I knew I not only had lost all my profit but I owed the firm one hundred and fifty thousand dollars besides. I felt pretty badly about it, but Dan told me not to worry.”
   15. Dan ends up bailing L out with his own money and buys him shares of Southern Atlantic which go down, and Dan bails him out again.
   16. “I owed him more than ever. But you never saw a nicer or less importunate creditor in your life. Never a whimper from him. Instead, encouraging words and admonitions not to worry about it. In the end the loss was made up for me in the same generous but mysterious way.”
   17. Dan’s clearly shady - using numbered accounts and making deals that L has no knowledge about, but keeps wiping out his debts.
   18. Finally L realizes he’s being used and quits.
   19. Losing the money didn’t hurt as much as losing the opportunities for L, for it had been ‘a fine trading market’.
   20. “The opportunity to make millions was there. But I allowed my gratitude to interfere with my play. I tied my own hands. I had to do what Dan Williamson in his kindness wished done. Altogether it was more unsatisfactory than doing business with a relative. Bad business!”
   21. After this episode the market flattens and L goes into debt once again. From 1911-1914 there was no money to be made.
   22. “My business as a speculator is to back my own judgment always”
   23. “The tape is not chivalrous and moreover does not reward loyalty.”
   24. Looking back on the episode L concludes that Williamson was sincere at the start, intending to use L as a ‘smokescreen’ to cover Marquand’s selling, since he was the biggest trader in the office and his trades made the market jump.
   25. Williamson knew that Marquand was terminally ill, possibly before he himself realized it, and by keeping L in the office he tied up one of the largest bear plungers who could have caused difficulties liquidating the estate. That’s why he covered L’s Chesapeake & Atlantic trade.
   26. “As an active bear I would have done damage running into the millions of dollars to the Marquand heirs, for Alvin left only a little over a couple of hundred millions.”
   27. In comparison, paying off L’s debts was much cheaper.
   28. L considered this the most interesting and unfortunate episode of his career.

L was grasped by the law of reciprocity, good men are victims of their own goodness

This is why many of the most powerful sales techniques begin with offering a token gift to the mark. The potential buyer feels compelled to give something back, and is therefore more willing to buy whatever is offered.

Exactly, if the person comes back with the law of reciprocity is completely disproportionate to the well received, many people use this law to bring something beneficial to themselves, since it is divided from the purest good, but unfortunately man has usurped to achieve the goals of his heart in an unfair way