Hello, and welcome to Investor Bookshelf, where we’ll be discussing Reminiscences of a Stock Operator—a biographical novel about Jesse Livermore, the “King of Speculation” on Wall Street. This book vividly chronicles Livermore’s roller-coaster career in speculation and the lessons he learned from losing and making millions: namely, befriend the trend, battle yourself.
Let’s first clarify the term “Operator”. Literally meaning “expert” or “master,” in this context it refers to a seasoned trader—one of those dominant figures who could stir waves in the market. The “stock operator” in the title is Jesse Livermore himself. Born in 1877, Livermore was active on Wall Street from the late 19th century through the 1930s. In a public poll conducted by The New York Times in 1999, he was overwhelmingly voted “The Greatest Stock Trader of the Century,” surpassing legends like Warren Buffett, George Soros, and Peter Lynch.
Just how legendary was Livermore? He had only an elementary school education, entered the market at age 14 with $5, and earned his first $1,000 by 15. By the age of 29, he was already a millionaire. At 52, during the Wall Street Crash of 1929, when others were losing fortunes, Livermore bet on the market’s collapse and made $100 million within days—equivalent to tens of billions today.
So, did that make him a shoo-in for world’s richest man? Not quite. Less than five years later, he went bankrupt—his final and most devastating collapse. A few years after that, he took his own life with a gunshot. How did a man with only primary education become a Wall Street legend? And why, despite his brilliance, did he go bankrupt multiple times and ultimately end in tragedy? The answers lie within Reminiscences of a Stock Operator.
The book was written by Wall Street financial journalist Edwin Lefèvre, based on Livermore’s own accounts. It began serialization in newspapers in 1922 and was compiled into a book the following year. As a biographical novel, it mixes authentic recounting of Livermore’s life with some fictionalization, yet it is still widely regarded as the most valuable resource for understanding Livermore’s life and his philosophy of investing. Over the years, the book has been published in many editions, sometimes credited to both Lefèvre and Livermore, and occasionally just to Livermore. In the narrative, Livermore is given the alias “Larry Livingstone.” For clarity, we will refer to him directly as Livermore throughout this discussion.
This book is, in many ways, an encyclopedia of the stock market ecosystem. Though it describes the U.S. markets of over a century ago, the insights remain incredibly relevant today. It’s considered essential reading not just for traders, but even for those who don’t invest—thanks to its profound exploration of human nature. Since its introduction to China in 1998, the book has seen at least 20 different editions in 20 years—averaging one per year—and remains a staple among seasoned investors.
Each chapter title in the book is itself a distilled lesson from Livermore’s decades of market experience, often quoted by generations of investing masters. Phrases like:
- “Knowing what not to do is more important than knowing what to do,”
- “Do the right thing first—profits will follow naturally,”
- “The battle in the market is not man versus man, but vision versus vision.”
In this episode, I’ve distilled Livermore’s philosophy into three core survival rules of the stock market:
- There’s nothing new on Wall Street—because human nature never changes.
- The market is never wrong—make the trend your ally, and go with the flow.
- The one who errs is always yourself—be your own enemy, and overcome your human weaknesses.
Part One:
Let’s begin with Jesse Livermore’s first principle: There is nothing new on Wall Street, because human nature never changes.
As we know, Wall Street is home to America’s major financial institutions. For over a century, it has been synonymous with the U.S. and even global financial markets, and it has witnessed countless legendary stories.
But Livermore famously said: “Speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
Whether in Livermore’s era, in the decades before him, or in today’s global markets, bull and bear cycles endlessly repeat. Financial giants rise and fall, investing legends come and go, and only a small minority consistently make money—epic stories of triumph and disaster play out daily, only with different names and places. In no other place does history repeat itself so frequently as on Wall Street.
Why is this the case? Because markets are made up of people—and human nature is innate and unchanging. At any given time, market fluctuations are driven by greed, fear, ignorance, and hope.
These traits, while natural, become fatal weaknesses in investing. Everyone enters the market out of greed—wanting to make money. But with prices rising and falling every day, your account balance constantly changes, pulling your emotions along with it.
When the market moves against you, you keep hoping each day will be the last losing day—you hold on, only to lose more. When the market moves in your favor, you're afraid the profit will vanish the next day—you exit too soon, and fear causes you to miss out on further gains.
This cycle of greed and fear repeats endlessly. That’s why Livermore believed that to survive the market, you must learn from history and from your own mistakes.
Let’s talk first about learning from history.
At age 14, Jesse Livermore started working at a bucket shop, recording stock prices in real-time. He earned $5 per week. These “bucket shops” were basically gambling parlors. Participants weren’t buying or selling actual stocks—they were betting on price movements. If you bet $1 on a stock going up and it rose by $1, you made $1. If it rose by $10, you earned 10 times your bet. But if it dropped $1, you lost everything. Bets could be placed and settled at any time.
The house—the bucket shop—made guaranteed profits in two ways: high transaction fees and a strong statistical edge. The odds were stacked against the gamblers: most of their bets were wrong. Even if they were right this time, continued gambling would eventually lead to losses. But the real danger was emotional—human greed and fear. Losers chased losses and lost more; winners couldn’t walk away and got “harvested” by minor price swings.
Yet this teenage Livermore thrived in that environment. He won nearly every bet. By age 15, he had already made $1,000—what would have taken years of wages. On one occasion, he earned more in two days than 300 other gamblers had collectively lost over two weeks.
How did he do it? Livermore had an exceptional memory and a natural affinity for numbers. By recording and analyzing the price movements of various stocks, he discovered patterns in the ticker tape. For instance, before a major move, stock prices would show specific, repeated fluctuations. When a certain pattern emerged, the stock would usually rise by 8 to 10 points.
Since prices reflect human behavior, and people tend to repeat themselves due to human nature, those behaviors showed up in price patterns. After a while, Livermore could predict price moves just from the numbers on the ticker—he had, in modern terms, developed an algorithm.
Now, it’s important to note: the book portrays this algorithm with near-mystical accuracy, which may be a bit dramatized. And even if it were true, today’s stock markets—vastly larger and more complex—would make such a method nearly impossible to implement.
But the key takeaway isn’t the method—it’s the mindset: learning from history, discovering patterns, and using them to judge the present and anticipate the future. That way of thinking and acting is something every investor should develop.
In addition to learning from history, Livermore believed traders must also learn from their own mistakes.
Early in his career, Livermore realized a harsh truth: the best way to learn what to do in the stock market is to lose everything. Losing money isn’t the worst thing—what’s tragic is failing to extract a lesson from the loss.
By age 20, Livermore had made $10,000 from bucket shops. But as time passed, the shops realized they were consistently losing to him. They blacklisted him. Cut off from income, Livermore went to the heart of the financial world—Wall Street—to begin trading actual stocks in legitimate brokerage houses.
Within days, he went bankrupt.
Why?More than a hundred years ago, stock trading was done manually. Price quotes were transmitted by telegraph and written on blackboards—there were delays. By the time an order was executed, the price had already changed.
His predictions were still accurate, but the lag rendered them useless. For example, a stock quoted at $100 might reach $105 by the time his order was executed—cutting deeply into his margin. When he sold, the delay again caused a loss. Before, a correct 1-2 point move could yield profits; now he needed to be right by 5-6 points.
Not understanding this new environment, he panicked. Losses drove him to double down—again and again—until all his capital was wiped out.
Livermore rebuilt his capital and returned to New York, this time with greater caution and awareness of quote delays. He rode the bull market and quickly made $50,000.
But just two days later, he lost it all again—despite being right.
The market was nearing a top. Livermore correctly predicted a downturn and went short a single stock with all his capital. The stock plummeted, but the price moved so fast that the delayed quote showed $100, while his order filled at $80. Then, thinking the fall was overdone, he flipped long—again hit by a delay that had the order filled 15 points higher. In short order, he went bankrupt again.
Two bankruptcies, caused by almost identical reasons.
Livermore learned a vital lesson: the market follows its own rules. If you trade without understanding them, you will lose everything.
This, then, is Livermore’s first survival principle for the market:
There is nothing new on Wall Street, because human nature never changes.
That’s why Livermore studied the past—developing a predictive system from historical data. And it’s why he studied his own mistakes—to revise and refine that system.
Part Two:
Livermore’s Second Rule: The Market Is Never Wrong—Follow the Trend
In the stock market, many retail investors prefer shortcuts. They don’t want to think too hard; they just want someone to tell them which stock will make money. They chase stock tips and insider information. When they win, they credit their intelligence; when they lose, they blame others, complaining about manipulation or a “broken” market.
Livermore was the exact opposite. He never blamed the market or others—instead, he constantly reflected on his own mistakes and learned from them. As he famously said: “There is only one side to the market, and it is not the bull side or the bear side, but the right side.” In his experience, people may beat individual stocks from time to time, but no one can consistently beat the market.
As mentioned earlier, Livermore experienced two bankruptcies early in his Wall Street career. But he didn’t give up. Instead, he upgraded his trading algorithm to adapt to the new rules of the game. Back in the bucket shops, he only needed to predict the next few minutes or hours of price movements. On Wall Street, he had to think long-term. He shifted his focus from short-term noise to identifying medium- and long-term trends. This change in perspective helped him avoid losses from delayed quotes and allowed profits to come more naturally. It was a fundamental shift in his philosophy: to survive in the market, you must follow the trend.
Let’s quickly review a basic concept. In financial markets, being "bullish" means expecting prices to rise; being "bearish" means expecting prices to fall. Going long means buying low and selling high; going short means selling high first, then buying back at a lower price. “Bulls” represent buying pressure, and “bears” represent selling pressure. But whether you're a bull or bear isn’t what matters—the only thing that matters is whether you’re on the right side of the market.
It’s like taking an escalator. If you want to go up, you better be on the upward-moving one—even if you stand still, you’ll get there. But if you’re on the downward escalator, you’ll have to run just to stay in place. Even someone as skilled as Livermore lost heavily when going against the trend.
Take one of his major failures as an example. In 1906, not yet 30 years old, Livermore had already spent 15 years in the markets and had become consistently profitable. That year, despite a booming stock market, he noticed the economy was weakening and a liquidity crunch was looming. He correctly foresaw an impending crash and began to short the market heavily.
He was right—but he still went bankrupt. Why? Because he was early. He acted before the market confirmed the reversal and got crushed by the last wave of the bull market.
This taught him another hard lesson: being right about the market isn’t enough—you also need to act at the right time. Only when the trend is fully underway can you ride the wave efficiently. The next year, in 1907, the market finally collapsed. Livermore borrowed money from brokers and shorted stocks aggressively, turning a massive profit of $1 million. The panic was so widespread that even financial titan J.P. Morgan personally asked Livermore to stop shorting.
Retail investors often believe that large speculators like Livermore or Soros manipulate markets. But Livermore himself denied this. He insisted no one can control the market. Great traders don’t create trends—they recognize and ride them. They treat the market as an ally, not an opponent.
Now, you might say, “Sure, I know I should follow the trend—but how do I identify the trend and take advantage of it?” Livermore had two core principles for this.
1. Identifying the Trend: Look for the Path of Least Resistance
Prices are driven by the battle between buyers and sellers. Whichever side has more capital and conviction determines the direction. In essence, prices behave like water—they flow toward the path of least resistance.
For example, imagine a stock that’s been falling for a long time. It’s now very cheap, and the broader environment is favorable. At this point, most weak hands have already sold, and remaining investors are unwilling to let go. Even bad news doesn’t push the price lower, while any good news triggers strong buying and quick gains. In such cases, the path of least resistance is upward.
Pay close attention to key technical levels—round numbers like 10, 100, or 130, or previous all-time highs. Once the price breaks through such thresholds, it often draws in momentum traders and capital, accelerating the uptrend.
Here’s an example from Livermore’s trading in wheat futures. When asked for his opinion on wheat, he said, “Just observe and wait. Don’t act until the price breaks $1.20.” Someone questioned him: “But it’s only $1.14 now—isn’t that a better deal?” Livermore replied, “Yes, it’s cheaper, but the direction is unclear. I’d rather wait for confirmation and earn a safer profit.”
Over the next few months, wheat fluctuated between $1.10 and $1.20. Then one day, it broke through $1.20. Livermore entered the market, and prices quickly surged. He kept adding to his position and rode the trend to substantial profits.
While most investors believe in “buy low, sell high,” Livermore preferred to buy high and sell higher—because he waited for trends to confirm before acting. That made his profits more reliable and scalable.
2. Using the Trend: Go Long in Bull Markets, Short in Bear Markets
One day, Livermore met an elderly man who looked ordinary and rarely spoke, like a character from a martial arts novel. Despite his low profile, he was known to have made a fortune in the stock market.
A young trader once recommended a stock to the old man. A few days later, the stock had risen 7%, and the young man excitedly urged him to sell. But the old man just smiled and replied calmly: “If I sell, I’ll lose my position. This is a bull market, you know.”
Livermore said this was one of the most valuable lessons he ever learned: big money is made by riding big trends—not by chasing small price swings.
Many retail investors end up “only earning the index, not the money” in bull markets. That’s because they keep trading in and out, trying to catch every mini-rally and dodge every pullback. But in doing so, they miss out on the true multi-bagger stocks and long-term gains.
The best strategy in a bull market is simple: buy and hold.
Trends are shaped by capital and sentiment. Once a trend forms, it will usually persist for a while, despite occasional volatility. Even unexpected events tend to be interpreted in line with the trend. In bull markets, investors ignore bad news or spin it as good; in bear markets, good news is dismissed or seen as insufficient.
That’s why Livermore believed the best approach is to align with the dominant trend and stick with it, ignoring short-term noise.
In summary, Livermore’s second rule for survival in the markets is:
“The market is never wrong. Treat the trend as your friend, and follow it.”
Once you identify the direction of least resistance, ride the major trend. Avoid getting shaken by small fluctuations. Go long in bull markets, go short in bear markets. Let the market do the heavy lifting.
Part 3:
Livermore’s third survival principle is this: be your own enemy, conquer your human weaknesses, and never trade like a normal person.
We all know Wall Street is one of the most profitable places in the world, attracting elites from across the globe. So, does that mean successful investing requires a high IQ and elite education? If that were true, the richest people would be university professors. But the reality is quite the opposite. Many highly intelligent individuals underperform in the markets. Take Isaac Newton for example—despite being one of history’s greatest minds, he once lost £20,000 in a market bubble (equivalent to millions today). Afterward, he famously said:
“I can calculate the motion of heavenly bodies, but not the madness of men.”
In contrast, Livermore, who only completed elementary school, rose to become a legendary stock trader. As Peter Lynch once said:
“To succeed in investing, you only need to be able to do fifth-grade math.”
This isn’t to say that knowledge is unimportant, but rather, psychological strength outweighs intellect in determining investment success. Greed, fear, and ignorance—these human flaws are what truly defeat investors. Livermore even believed that it was a mistake for a “normal” person to enter the stock market.
So how do “normal” people invest? Typically in one of two ways:
- They rely on an expert to give them stock picks.
- They act on so-called insider or “hot” tips.
These approaches appeal to human laziness, greed, and the desire for easy money. They seem convenient but rarely work. Livermore openly denounced both.
1. Can you trust the experts?
In most areas of life—whether you're sick, suing someone, or fixing your car—you look to professionals. But this logic breaks down in the stock market. In finance, authority and experience don't always translate into accuracy.
Even the CEO of a company who knows all its secrets, or a Nobel Prize-winning economist with deep understanding of market theory, may fail to make money in the market. The market follows its own logic. Unless someone has consistently made money in the markets, they cannot be considered an expert. And even those who have, can’t reliably predict the next day’s movement any better than a coin toss.
Livermore learned this the hard way. In 1907, after making a fortune shorting cotton futures, he was hailed as the new “Cotton King.” The reigning “Cotton King,” Thomas, reached out to him, suggesting a meeting and collaboration. Thomas was a legendary figure in the cotton market, as respected in his domain as Steve Jobs was in tech.
Though Livermore was already a seasoned trader, he idolized Thomas and was flattered by the attention. But the two held opposite views on cotton’s future. Livermore, trusting Thomas’s reputation and sincerity, changed his strategy—and lost everything.
That costly mistake taught him a key lesson: experts can offer opinions, but they don’t bear the consequences of your losses. Blindly following others robs you of your own judgment, and without that, any gains are accidental and unsustainable.
2. Can you rely on insider information?
People often say the stock market is an “information game,” and whoever gets the news first makes the money. If a company is about to release good news, shouldn’t buying beforehand guarantee a profit? Not exactly.
First, in modern markets, trading on insider information is illegal—you risk fines and prison time. But even in the early 1900s, before such laws existed, Livermore refused to act on rumors or confidential tips. Even if the tip came from a trusted friend who had “skin in the game,” he didn’t believe in relying on it.
Why?
- First, most “insider tips” are fake. If someone truly had a golden opportunity, why wouldn’t they keep it to themselves and cash in? Many market manipulators spread false rumors to offload shares to unsuspecting retail traders at inflated prices.
- Second, even if a tip is genuine, by the time you hear it, it’s probably too late. Insiders usually sit on good news and quietly build their positions before making it public.
- Third, insider info may tell you when to buy, but never when to sell. You’re still dependent on others, with no real strategy of your own.
Livermore’s wife once learned this lesson the hard way. A company president whispered to her that a major bullish announcement was coming and insisted she was the only one being told. He hoped she’d pass the tip to her husband—whose influence and capital could help push up the price. But Livermore’s wife, flush with recent profits, secretly bought in herself. A few days later, the stock tanked. When she finally told her husband, Livermore just laughed—it was the very stock he had recently shorted.
That’s the difference between a stock market legend and everyone else. One trusts their own system, the other trusts the words of others.
In summary, Livermore’s third rule of stock market survival is this:
“Be your own worst enemy. Confront your psychology. Don’t trade like a normal person.”
Never rely on so-called experts or insider tips. They may feel comforting in the moment, but the only path to lasting success is through independent thought and judgment.
Conclusion
That brings us to the end of this book. Let’s recap the three survival principles Jesse Livermore left behind for navigating the stock market:
First Principle: "There is nothing new on Wall Street," because human nature never changes.
Behind the markets lie human behaviors and psychological patterns. To succeed, investors must study historical cycles and learn from their own mistakes.
Second Principle: "Make friends with the trend."
The key to market success is to follow the path of least resistance—go long in bull markets, go short in bear markets. Ignore short-term fluctuations, focus on major trends, and aim for steady, compounding profits.
Third Principle: "Be your own worst enemy."
To survive long-term in the market, you must resist the temptation of easy money. Always maintain independent thinking, and never blindly trust experts or insider tips.
Finally, let’s talk about the man himself—Jesse Livermore. His story ends in tragedy. After earning $100 million during the 1929 crash, he became overconfident and began violating his own trading rules. He even attempted to manipulate market trends. As a result, his fortune vanished once again, and within five years he declared bankruptcy. Alongside this financial downfall came a series of personal crises—mental illness, a broken marriage, and a disabled son. In 1940, at the age of 63, Livermore shot himself in the cloakroom of a hotel. When his assets were tallied, he had about $5 million left—down 95% from his peak. His suicide note carried a haunting message:
“My life has been a failure.”
Throughout his career, Livermore experienced repeated cycles of massive wealth and devastating loss. Every collapse followed a deviation from his principles—being swayed by others, trusting too easily, chasing greed, or trying to control the market itself. Knowing the rules is easy. Living by them is hard. Even a master like Livermore struggled against market forces and his own human nature—how much more so for the rest of us?
So, the next time you're facing a major trading decision, take a moment to revisit Livermore’s rules. Use reason, follow the trend, and respect the market.
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