Reminiscences of a Stock Operator Book Summary
Note: This summary is made up of my notes, thoughts and highlights of important passages while reading the book. I keep updating the summary when I revisit it, and occasionally may edit it to reduce summary length. Don’t be surprised if it has changed between visits. The author’s words are in normal font, while my interpretations are in italics.
There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again.
Your business with the tape is now – not tomorrow. The reason can wait. But you must act instantly or be left.
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.
Chapter II
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.
The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street.
Chapter III
It takes a man a long time to learn all the lessons of all his mistakes.
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.
I have been flat broke several times, but my loss has never been a total loss. Otherwise, I wouldn’t be here now.
A man must believe in himself and his judgment if he expects to make a living at this game.
I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment. It took me five years to learn to play the game intelligently enough to make big money when I was right.
Chapter IV
When a man is right he wants to get all that is coming to him for being right.
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.
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.
Chapter V
The game of speculation isn’t all mathematics or set rules, however rigid the main laws may be.
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.
The only thing that didn’t lie because it simply couldn’t was mathematics.
A chart helps those who can read it or rather who can assimilate what they read.
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.
Before I can solve a problem I must state it to myself.
When I think I have found the solution I must prove I am right. I know of only one way to prove it; and that is, with my own money.
There was as much to learn from partial victory as from defeat.
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.
In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly.
The amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out.
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.
It never was my thinking that made the big money for me. It was always my sitting.
It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets.
Men who can both be right and sit tight are uncommon.
Millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.
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.
The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
Nobody can catch all the fluctuations.
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 the general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps!
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.
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.
If I learned all this so slowly it was because I learned by my mistakes, and some time always elapses between making a mistake and realizing it, and more time between realizing it and exactly determining it.
Being broke is a very efficient educational agency.
Chapter VI
The bull forces were at work, and the public never is independently responsive to news. You see that all the time.
If there is a solid bull foundation, for instance, whether or not what the papers call bull manipulation is going on the same time, certain news items fail to have the effect they would have if the Street was bearish.
Chapter VII
I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock.
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.
People don’t seem to grasp easily the fundamentals of stock trading. 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 rising scale. I don’t buy long stock on a scale down, I buy on a scale up.
I never buy stocks cheap. Of course I always try to buy effectively—in such a way as to help my side of the market. When it comes to selling stocks, it is plain that nobody can sell unless somebody wants those stocks.
He has to sell when he can, not when he wants to.
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.
Chapter VIII
My one steadfast prejudice is against being wrong.
I always got my own meanings out of such facts as I observed. It is the only way in which the meaning reaches me. I cannot get out of facts what somebody tells me to get.
I do not allow my possessions – or my prepossessions either – to do any thinking for me.
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.
I began to realize that the big money must necessarily be in the big swing. Whatever might seem to give a big swing its initial impulse, the fact is that its continuance is not the result of manipulations by pools or artifice by financiers, but depends upon basic conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and as long as the impelling forces determine.
Obviously the thing to do was to be bullish in a bull market and bearish in a bear market.
A customer who makes money is an asset to any broker’s office.
The moment I ceased to be satisfied with merely studying the tape I ceased to concern myself exclusively with the daily fluctuations in specific stocks, and when that happened I simply had to study the game from a different angle. I worked back from the quotation to first principles; from price-fluctuations to basic conditions.
The analysis of the week that had passed was less important to me than the forecast of the weeks that were to come.
I have always found it profitable to study my mistakes.
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.
The first time I traded because of a crisis that was still to come I found that I had been using a telescope. Between my first glimpse of the storm cloud and the time for cashing in on the big break the stretch was evidently so much greater than I had thought
Was I fundamentally wrong in being bearish or merely temporarily wrong in having begun to sell short too soon?
Thinking about the reward for my excellent sight kept me from considering the distance to the dollar-heap. I should have walked and not sprinted.
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.
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.
The public, with their eyes fixed on the stock market, saw little – that week. The wise stock operators saw much – that year. That was the difference.
“First they sink to the bottom. Then they come up; but not right away. They’ve got to be good and dead a couple of days. It isn’t time for these corpses to rise to the surface. They are not quite dead yet.”
After the market began to go my way I felt for the first time in my life that I had allies – the strongest and truest in the world: underlying conditions.
I had made a good bit, but the reason I cleaned up was that I figured that the decline had discounted the immediate future.
I lost because I traded in and out of season, every day, whether or not conditions were right. I wasn’t making that mistake twice.
Chapter IX
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.
Whatever moves fast always appeals to me. I have learned patience and how to sit tight, but my personal preference is for fleet movements,
The only thing to do when a man is wrong is to be right by ceasing to be wrong.
When you want to get out, get out.
The way to make money is to make it. 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.
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.
All bull manipulation was foredoomed to failure in that bear market.
As money got tighter call-money rates went higher and prices of stocks lower.
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.
In short, I had learned that I had to work for my money. I was no longer betting blindly or concerned with mastering the technic of the game, but with earning my successes by hard study and clear thinking.
What is the use of being right unless you get all the good possible out of it.
Well, I was worth over one million after the close of business that day. But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at last learned to trade intelligently in a big way. It was a day of days for me.
Chapter X
The recognition of our own mistakes should not benefit us any more than the study of our successes.
When you associate certain mistakes with a licking, you do not hanker for a second dose, and, of course, all stock-market mistakes wound you in two tender spots – your pocketbook and your vanity.
A stock speculator sometimes makes mistakes and knows that he is making them. And after he makes them he will ask himself why he made them; and after thinking over it cold-bloodedly a long time after the pain of punishment is over he may learn how he came to make them, and when, and at what particular point of his trade; but not why. And then he simply calls himself names and lets it go at that.
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.
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.
Story about the man who was so nervous that a friend asked him what was the matter. “I can’t sleep,” answered the nervous one. “Why not?” asked the friend. “I am carrying so much cotton that I can’t sleep thinking about it. It is wearing me out. What can I do?” “Sell down to the sleeping point,” answered the friend.
In the long run commodity prices are governed but by one law—the economic law of demand and supply.
The business of the trader in commodities is simply to get facts about the demand and the supply, present and prospective.
He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.
To read the tape is not to have your fortune told.
Prices, like everything else, move along the line of least resistance. They will do whatever comes easiest, therefore they will go up if there is less resistance to an advance than to a decline; and vice versa.
A man ought not to be led into trading by tokens. He should wait until the tape tells him that the time is ripe. As a matter of fact, millions upon millions of dollars have been lost by men who bought stocks because they looked cheap or sold them because they looked dear.
The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in. 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, because that is his signal to get busy.
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. In either event they help to define even more clearly the price line of least resistance.
Stocks are never too high to buy or too low to sell. The price, per se, has nothing to do with establishing my line of least resistance.
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.
But in actual practice a man has to guard against many things, and most of all against himself—that is, against human nature.
The man who is right always has two forces working in his favor—basic conditions and the men who are wrong. In a bull market bear factors are ignored.
When a man makes his play in a commodity market he must not permit himself set opinions. He must have an open mind and flexibility. It is not wise to disregard the message of the tape, no matter what your opinion of crop conditions or of the probable demand may be.
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.
Speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations.
Stock-market post-mortems don’t pay dividends.
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.
It doesn’t pay to start wrong in anything.
It always pays a man to be right at the right time.
‘You can’t tell till you bet.’
The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.
In speculation when the market goes against you you hope that every day will be the last day—and you lose more than you should had you not listened to hope.
When the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon. Fear keeps you from making as much money as you ought to.
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.
A man may beat a stock or a group at a certain time, but no man living can beat the stock market!
Chapter XI
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.
“Don’t sell stocks when the sap is running up the trees!”
Chapter XII
A man can excuse his mistakes only by capitalising them to his subsequent profit.
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,
Of all speculative blunders there are few greater than trying to average a losing game.
Always sell what shows you a loss and keep what shows you a profit.
To learn that a man can make foolish plays for no reason whatever was a valuable lesson.
The hope of making the stock market pay your bill is one of the most prolific sources of loss in Wall Street.
Chapter XIII
A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets.
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 time-saver.
Gratitude is something a decent man can’t help feeling, but it is for a fellow to keep it from completely tying him up.
It isn’t uncomfortable to lose when the loss is not accompanied by a poignant vision of what might have been.
Chapter XIV
Whenever a stock crosses 100 or 200 or 300 for the first time, it nearly always keeps going up for 30 to 50 points—and after 300 faster than after 100 or 200.
There were times when a man could no more help making money than he could help getting wet if he went out in a rainstorm without an umbrella.
A man does not swear eternal allegiance to either the bull or the bear side. His concern lies with being right.
A market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal of form. A market can and does often cease to be a bull market long before prices generally begin to break.
Those stocks which had been the leaders of the market reacted several points from the top and – for the first time in many months – did not come back.
When something happens on which you did not count when you made your plans it behooves you to utilise the opportunity that a kindly fate offers you.
Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.
In a bear market it is always wise to cover if complete demoralisation suddenly develops.
Chapter XV
There are certain chances that the most prudent man is justified in taking—chances that he must take if he wishes to be more than a mercantile mollusk.
I try to stick to facts and facts only, and govern my actions accordingly. That is Bernard M. Baruch’s recipe for success in wealth-winning.
No reasonable man objects to paying for his mistakes. There are no preferred creditors in mistake-making and no exceptions or exemptions.
The punishment for being wrong is to lose money. The reward for being right is to make money.
If the insiders are not able to buy, it will be because general conditions are against their free command of their own resources, and such conditions are not bull conditions.
The natural tendency when a stock breaks badly is to sell it. There is a reason—an unknown reason but a good reason; therefore, get out.
Chapter XVI
Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them.
The belief in miracles that all men cherish is born of immoderate indulgence in hope.
I simply cannot help making money. I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon.”
Chapter XVII
A man may know what to do and lose money—if he doesn’t do it quickly enough.
Observation, experience, memory and mathematics—these are what the successful trader must depend on.
The wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets.
Wall Street makes its money on a mathematical basis. I mean, it makes its money by dealing with facts and figures.
Experience has taught me that the way a market behaves is an excellent guide for an operator to follow. It is like taking a patient’s temperature and pulse or noting the colour of the eyeballs and the coating of the tongue.
All stocks do not move one way together but that all the stocks of a group will move up in a bull market and down in a bear market.
Experience tells me that it is not wise to buck against what I may call the manifest group-tendency.
Experiences had taught me to beware of buying a stock that refuses to follow the group-leader.
I don’t look out for the breaks; I look out for the warnings.
Chapter XVIII
Courage in a speculator is merely confidence to act on the decision of his mind.
I cannot fear to be wrong because I never think I am wrong until I am proven wrong.
Knowledge is power and power need not fear lies.
Chapter XIX
There is profit in studying the human factors—the ease with which human beings believe what it pleases them to believe; and how they allow themselves—indeed, urge themselves—to be influenced by their cupidity or by the dollar-cost of the average man’s carelessness.
Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was.
Thomas F. Woodlock when he declared: “The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.”
The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity.
People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.
He that sells what isn’t hisn
Must buy it back or go to prisn.
Chapter XX
Stocks are manipulated to the highest point possible and then sold to the public on the way down.
The first step in a bull movement in a stock is to advertise the fact that there is a bull movement on.
The greatest publicity agent in the wide world is the ticker, and by far the best advertising medium is the tape.
When there is activity there is a synchronous demand for explanations;
A stock which it is desired to distribute should be manipulated to the highest possible point and then sold. I repeat this both because it is fundamental and because the public apparently believes that the selling is all done at the top.
The principal marketing of the stock, as you know, is done on the way down. It is perfectly astonishing how much stock a man can get rid of on a decline.
When the stock you are manipulating doesn’t act as it should, quit. Don’t argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good – and cheap.
Chapter XXI
Experienced speculators do not expect ever to engage in utterly riskless ventures.
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.
The best of all tipsters, the most persuasive of all salesmen, is the tape.
I was not bearish because I was short of stocks. I was bearish because that was the way I sized up the situation, and I sold stocks short only after I turned bearish.
It isn’t good business for a man to act against the teachings of experience and against common sense. But the suckers in Wall Street are not all outsiders.
The difference between stock-market manipulation and the over-the-counter sale of stocks and bonds is in the character of the clientele rather than in the character of the appeal.
The manipulator necessarily finds his primary market among speculators—who
After a boom the public is positive that nothing is going up. It isn’t that buyers become more discriminating, but that the blind buying is over. It is the state of mind that has changed. Prices don’t even have to go down to make people pessimistic. It is enough if the market gets dull and stays dull for a time.
In every boom companies are formed primarily if not exclusively to take advantage of the public’s appetite for all kinds of stocks.
The top is never in sight when the vision is vitiated by hope.
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.
The big money in booms is always made first by the public—on paper. And it remains on paper.
Chapter XXII
Getting angry doesn’t get a man anywhere.
Chapter XXIII
Speculation in stocks will never disappear. It isn’t desirable that it should. It cannot be checked by warnings as to its dangers.
The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statute books in the world and all the rules of all the Exchanges on earth cannot eliminate these from the human animal.
The overwhelming majority of the bullish articles printed on the authority of unnamed directors or insiders convey unreliable and misleading impressions to the public. The public loses many millions of dollars every year by accepting such statements as semi-official and therefore trustworthy.
I do not recall an instance when a bear raid caused a stock to decline extensively. What was called bear raiding was nothing but selling based on accurate knowledge of real conditions.
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.
Chapter XXIV
The trader must look far ahead, but the broker is concerned with getting commissions now; hence the inescapable fallacy of the average market letter. Brokers make their living out of commissions from the public and yet they will try to induce the public through their market letters or by word of mouth to buy the same stocks in which they have received selling orders from insiders or manipulators.
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