A Book Review I did for Barrons

作者:Victor Niederhoffer
日期:2011/03/22

History Lessons for Investors
A Thrice-Told Tale, All in One Book
Reminiscences of a Stock Operator, Annotated Edition
by Edwin Lefevre and
Jon D. Markman,
With a Foreword
By Paul Tudor Jones

Wiley
423 pages
$34.95

Reviewed by?Victor Niederhoffer

Imagine that master novelist and chess aficionado Vladimir Nabokov wrote a fictional memoir by Capablanca—the 1920s world champion who never made a mistake on the board—and that Bobby Fisher then published an updated and annotated version, incorporating all of the important developments of modern chess strategy, along with a foreword by Anatoly Karpov. A similar multilayered feast on investment is now available, with minor differences. Edwin Lefevre's Reminiscences of a Stock Market Operator is a novel told in the first person by a character inspired by legendary trader Jesse Livermore. This classic is now graced with extensive annotations by investment advisor Jon Markman, and includes a foreword by hedge-fund manager Paul Tudor Jones.

The result is big and beautiful, cutting across two centuries of booms and busts and market and economic history, with a myriad of vintage historical photos and instructive historical charts throughout.

One of Lefevre's favorite adages is that there's nothing new on Wall Street. The similarity between the financial panic of 2008 and the 1907 panic recounted in the book is a prime example.

The numerous squeezes, manipulations, insider trading, government hauling in of scapegoats and frauds settled for pennies on the dollar that Lefevre and Markman recount are horses that are found as well in the modern stable.

The book can be divided into three parts: 1. The bucket-shop era from 1890-1910, when Livermore was able to make easy money by taking advantage of the bid-asked spread on inactive stocks with leverage of 100 to one. 2. His days as a stock trader on the New York Stock Exchange from 1910-1920, when he went bust over and over again, despite his abilities and insights, because he used too much leverage. 3. His career as a stock manipulator in the 1920s, where the fees he charged were 25% of the market value of the manipulated stock.

But there is a fourth part of the story, which happened after Lefevre wrote Reminiscences of a Stock Operator. Markman fills in the details. Livermore went bankrupt for at least the fourth time in 1934. His excess liabilities of $2 million included promised payments to the dancer Lucille Ballantine for keeping him "cheered and amused," and a liability for breach of promise to a former secretary.

Despite having amassed a fortune of $100 million by 1929, Livermore was back where he started at 16. He did not seem to learn from his mistakes. The excessive spending that put him in the hole over and over again was part of a much bigger mistake that he repeated throughout his career. He traded with so much leverage and generated so many commissions and gave away so much slippage in his bid-asked spreads that even a small move against him, one almost certain to occur in a season, would be enough to create ruin and worse. After losing his fortune or going bust at least six times, Livermore committed suicide in 1940 at the age of 63 at the Sherry Netherland Hotel in Manhattan.

The original book is replete with sensible suggestions for making money. The problem is that many are untested and contradictory. It took a man of sagacity and respect—a trader and shrewd, prize-winning journalist like Jon Markman, to separate the wheat from the chaff.

The appendix contains 100 main tenets of the Livermore method, which are just as profitable for today's traders as they were for Livermore–provided they are tested and used without improper leverage and transactions costs.

This book will live forever.