FLY AKA JESSE LIVERMORE AKA Old Mr. Partridge wins again…
For those not in the know, the title is a reference to Jessie Livermore’s book, Reminiscences of a Stock Operator
In it, he describes an old man named Mr. Partridge who would always walk around telling people “it’s a bull market you know”.
“Why, this is a bull market!” The old fellow said it as though he had given a long and
detailed explanation.
“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this
is a bull market as well as you do. But you’d better slip them that stock of yours and buy
it back on the reaction. You might as well reduce the cost to yourself.”
“My dear boy,” said old Partridge, in great distress “my dear boy, if I sold that stock now
I’d lose my position; and then where would I be?”
Jesse Livermore said the important line here,
“And right here let me say one thing: After spending many years in Wall Street and after
making and losing millions of dollars I want to tell you this: It never was my thinking
that made the big money for me. It always was my sitting. Got that? My sitting tight!”
Here is a more complete passage:
“One day a fellow named Elmer Harwood rushed into the office, wrote out an order and
gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to
John Fanning’s story of the time he overheard Keene give an order to one of his brokers
and all that John made was a measly three points on a hundred shares and of course the
stock had to go up twenty-four points in three days right after John sold out. It was at
least the fourth time that John had told him that tale of woe, but old Turkey was smiling
as sympathetically as if it was the first time he heard it.
Well, Elmer made for the old man and, without a word of apology to John Fanning, told
Turkey, “Mr. Partridge, I have just sold my Climax Motors. My people say the market is
entitled to a reaction and that I’ll be able to buy it back cheaper. So you’d better do
likewise. That is, if you’ve still got yours.”
Elmer looked suspiciously at the man to whom he had given the original tip to buy. 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.
“Yes, Mr. Harwood, I still have it. Of course!” said Turkey gratefully. It was nice of
Elmer to think of the old chap. “Well, now is the time to take your profit and get in again
on the next dip,” said Elmer, as if he had just made out the deposit slip for the old man.
Failing to perceive enthusiastic gratitude in the beneficiary’s face Elmer went on: “I have
just sold every share I owned!”
From his voice and manner you would have conservatively estimated it at ten thousand
shares. But Mr. Partridge shook his head regretfully and whined, “No! No! I can’t do
that!”
“What?” yelled Elmer.
“I simply can’t!” said Mr. Partridge. He was in great trouble.
“Didn’t I give you the tip to buy it?”
“You did, Mr. Harwood, and I am very grateful to you. Indeed, I am, sir. But ”
“Hold on! Let me talk! And didn’t that stock go op seven points in ten days? Didn’t it?”
“It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that
stock.”
“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most
tip givers to be tip takers.
“No, I couldn’t.”
“Why not?” And Elmer drew nearer.
“Why, this is a bull market!” The old fellow said it as though he had given a long and
detailed explanation.
“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this
is a bull market as well as you do. But you’d better slip them that stock of yours and buy
it back on the reaction. You might as well reduce the cost to yourself.”
“My dear boy,” said old Partridge, in great distress “my dear boy, if I sold that stock now
I’d lose my position; and then where would I be?”
Elmer Harwood threw up his hands, shook his head and walked over to me to get
sympathy: “Can you beat it?” he asked me in a stage whisper. “I ask you!”
I didn’t say anything. So he went on: “I give him a tip on Climax Motors. He buys five
hundred shares. He’s got seven points’ profit and I advise him to get out and buy ‘em
back on the reaction that’s overdue even now. And what does he say when I tell him? He
says that if he sells he’ll lose his job. What do you know about that?”
“I beg your pardon, Mr. Harwood; I didn’t say I’d lose my job,” cut in old Turkey. “I said
I’d lose my position. And 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. I hope the stock reacts and that you will be
able to repurchase your line at a substantial concession, sir. But I myself can only trade
in accordance with the experience of many years. I paid a high price for it and I don’t
feel like throwing away a second tuition fee. But I am as much obliged to you as if I had
the money in the bank. It’s a bull market, you know.” And he strutted away, leaving
Elmer dazed.
What old Mr. Partridge said did not mean much to me until I began to think about my
own numerous failures to make as much money as I ought to when I was so right on the
general market. The more I studied the more I realized how wise that old chap was. He
had evidently suffered from the same defect in his young days and knew his own human
weaknesses. He would not lay himself open to a temptation that experience had taught
him was hard to resist and had always proved expensive to him, as it was to me.
I think it was a long step forward in my trading education when I realized at last that
when old Mr. Partridge kept on telling the other customers, “Well, you know this is a
bull market!” he really meant to tell them that 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.
And right here let me say one thing: After spending many years in Wall Street and after
making and losing millions of dollars I want to tell you this: It never was my thinking
that made the big money for me. It always was my sitting. Got that? My sitting tight! 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. I’ve known many men who were right at
exactly the right time, and began buying or selling stocks when prices were at the very
level which should show the greatest profit. And their experience invariably matched
mine that is, they made no real money out of it. 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. It is literally true that
millions come easier to a trader after he knows how to trade than hundreds did in the
days of his ignorance.
The reason is that 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. That is
why so many men in Wall Street, who are not at all in the sucker class, not even in the
third grade, nevertheless lose money. The market does not beat them. They beat
themselves, because though they have brains they cannot sit tight. Old Turkey was dead
right in doing and saying what he did. He had not only the courage of his convictions but
the intelligent patience to sit tight.”
The important message is sticking to your plan
Here’s an interesting statistic that I have found but have not personally verified…
In bear markets (losses of 10-20% or more per year) 80% or more of all market participants beat buy-and-hold.
In sideways markets (+/- 5% per year) 20-50% of all market participants are able to beat buy-and-hold.
In weak bull markets (annual advance about +10%) about 10% of all market participants are able to beat buy-and-hold.
In average bull markets (annual rise about +15%) about 3-5% of all market participants are able to beat buy-and-hold
In powerful bull markets (annual rises about +20%) only about 1-3% of all market timers beat buy-and-hold.
In monster bull markets (annual advances of 25-50%) less than 1% of the market participants beat buy-and-hold.
In hyperinflations (rises of some hundreds of percentage points each year) no one is able to beat buy-and-hold for a year or longer.
I would imagine that applies to WINNING STOCKS too.
It’s easy to beat bear markets by just exiting positions every now and then and not being exposed to the entire downward move. Tight stop losses or trailing stops will help avoid bear markets in most conditions. However, you are generally better off trying to join bull markets. Of course that assumes you can anticipate them.
Have you made over 100% since 2009 bottom? Of course, by the time many people start holding, and start to believe in the market and decide to “buy and hold for the long term”, it’s usually too late…
That’s why you have to trust signals, whatever signals you use. I have a bit of a bipolar nature in my trading in that I have longer term holds which I may occasionally rebalance in the short term, and then I have a portion of my portfolio reserved for trading. If not for the longer term trades, my account would be volatile and there would be times when I trade poorly where I would wipe my account out. I learned the hard way.
Many people use the 50 and 200 day MA as a sign of when to hang on. When you get a golden cross (short term MA passing longer term MA), hold onto your positions you are in a bull market. That is a simplistic way and objective way that isn’t always right, and if you use shorter time frames, perhaps you’d rather use the 20 day and the 100 day. A pull back below 50 day, particularly on strong volume is a good time to take some of your profits. This applies to individual stocks as well as the market’s moving averages.
March 2009-March 2010 SPY rose over 75%.
March 2010-March 2011 only around a 10% increase.
March 2011-March 2012 only around a 5% increase (major setback crashing to lows in October and then rallying from there).
March Trend Report shows we are in a bull market, but we have been for quite some time. We are overbought on many indicators, but when does one consider shorting and getting bearish as opposed to sitting in more cash than risk on assets? Overbought doesn’t mean much, although it means a bit more if the RSI is overbought, and more importantly, if it was just overbought and closed below overbought it is more susceptible to a larger decline.
My core strategy which is conservative that I have been tracking is still ahead of the market just slightly since October 15th when I started, but let me tell you it has slipped significantly and the market has played catch up. At this rate I will be unable to stay ahead of the market.
This market is leaving me with very few options but to get more aggressive If I want to beat it. I don’t know if this market will end it’s uptrend very soon or not…. One way or another though, I am going to be getting more aggressive…. Perhaps I will allocate more capital into natural gas, perhaps I will find some stocks which are down significantly and undervalued. Perhaps I will look at the growth stocks that still present value. Perhaps I will instead look to trade other areas. Commodities, currencies and so on.
I do not like losing for very long.
For now I got a bit more aggressive than I normally would under such circumstances and perhaps my plan going forward will be a bit more aggressive.
The biggest problem with trying to time the market is sometimes the top never comes, or at least it doesn’t for years. The nature of a timer is to move in and out of the market, not stay in it.
Now while I am tempted to do things “all or nothing” and go in hand over fist into this market, I do not believe the market is stable. So I will employ some more creative tactics such as buying some calls here and there, adn perhaps even some puts if the price is right. and it gives me enough time. Oakshire Financial recently pointed out a good play involving a spread where you buy puts in the XLF and cover the cost by selling puts in the S&P.
Wall Street Elite recommends the simultaneous purchase of XLF June 15 PUTS for $0.39 and sale of SPY June 103 PUTS for the same price in equal numbers.
http://oakshirefinancial.com/2012/03/19/great-odds-on-a-bearish-options-play-xrt-and-xlf/
I don’t like writing puts naked 9without the capital available to buy it if you get it assigned to you), nor do I wish to be restricted and feel I have to have that much capital available, nor do I like selling options even at that low of a strike price, when the VIX is this low and options are this cheap and the market has been in an uptrend. I would rather play a call in the short term in the same area or in a different area. for now I think the XLF is still stong and will outperform until the market pulls back so I like actually buying JUNE XLF 16 calls and SEPTEMBER XLF 15 puts. A pretty neutral play but mostly is bullish short term, bearish long term.
I am not against ever selling puts, but I want to do it in an extreme scenario like on the S&P in 2009 when the VIX is super high and the price already has declined so much and I can sell way out of the money puts long term and still collect a nice premium with very minimal chance that I will ever have to buy it, and would be happy if I could that cheaply.
The one thing scaring me a bit is energy’s recent performance. The XLE does not look good. That could be an early indicator the market is ready to top out if energy does not rebound. However, if it does, it could build a base here
If you enjoy the content at iBankCoin, please follow us on Twitter
