Business Books & Co.
A monthly in-depth discussion of a popular business book.
15 days ago

[S4E8] Reminiscences of a Stock Operator with Brad Mills

Edwin Lefevre's fictionalized biography of Jesse Livermore

Transcript
David Kopec

There are timeless principles that underlie stock trading. In this episode, we divulge what we learned from reading reminiscences of a stock operator, considered by many to be a classic work in this space. Welcome to business books and company. Every month we read great business books and explore how they can help us navigate our careers. Read along with us so you can become a stronger leader within your company or more adept entrepreneur. This month we read reminiscences of a stock operator by Edwin Lefebvre. This classic fictionalized career biography of legendary stock trader Jesse Livermore was first published in 1923. Through the first person recounting of protagonist Lawrence Livingston's career, Lefave imparts hard won stock trading lessons. Through many booms and busts, Livingston grows and forms a deeper understanding of the principles that underlie the market as well as the forces that propel it. The fictionalized biography is minimal personal anecdotes concentrating almost wholly on Livingston's career and the events that shape the US economy during his exploits from the 1890s through to the 1920s. But before we get into the book, let's introduce ourselves.

David Short

I'm David Short. I'm a product manager.

Kevin Hudak

I'm Kevin Hudak, chief research officer at a Washington, DC based commercial real estate research and advisory services firm.

David Kopec

David and I'm David Kopeck. I'm associate professor of computer science at a teaching college and I'm really excited. This week we have on Brad Mills. Brad, tell us a bit about yourself.

Brad Mills

Hey David, thanks. I'm excited to join you guys as a listener first of the podcast. Really enjoy your episodes and friend of David shorts, as you know now a guest co host to discuss one of my favorite books on money mindset and markets. Reminiscences of a sock operator is actually a book that I hold dear because I've gone through it every couple of years since I started managing my own portfolio over a decade ago. I mostly listened to the entertaining audiobook version. I'm a serial entrepreneur with a focus on product development and marketing, as well as an angel investor in bitcoin startups. My journey with investing and trading began during the great financial crisis and the Occupy Wall street movement, when I discovered gold and bitcoin as a productive protest against what I saw as a corrupt system of bailouts and endless inflation of the money supply. And on my podcast, magic Internet money, I explore the intricacies of the monetary system, deep diving into not just bitcoin topics, but also central banking markets and money history, places where sometimes I have no business being in those conversations. But I also worked as a trader in a large crypto fund during the 2017 ICO bubble and kind of got a first hand sausage. Firsthand view of how the sausage was made really turned me off of crypto. And ive managed my own portfolio for over a decade, like I said. So ive been steeped in the boom bust world of bitcoin and cryptocurrencies, and ive lived through a Jesse Livermore style life of highs and lows. And actually, I've learned from his mistakes and, you know, also made a few of my own.

David Kopec

Thanks so much for that, Brad. And, you know, I think the author, having written this 100 years ago, you're probably the second best person we could have on the show. So, as we get into the book, let's start by talking a little bit about the real life person that it's based on. So can you tell us a little bit about Jesse Livermore?

Kevin Hudak

Sure. So, you know, really, Jesse Livermore's life through 1923 or so really follows that of Larry Livingston as fictionalized by Edwin Lefave. You know, our main character in reminiscences. He was born to a poor family in Massachusetts, but at the age of 14, he took a job as what was called a board boy in a Boston, Massachusetts brokerage. Really what it came down to was essentially putting up on the board the ups and downs of the market so that all of the traders and gamblers there could see what was going on in the market. Like Livingston, Livermore went into the bucket shops at the age of 15. Kind of recognizing his own skills, he was eventually making $200 per week, which was quite a lot in that time at these bucket shops throughout Boston. Similarly to Livermore, he went on to be barred from most of these bucket shops and decided eventually to move to New York to be closer to the action. As a full time speculator like Livingston, Livermore made incredible gains on the bullish moves and the shorts. Eventually, he'd be better known as a bit of a bear. But some of his notable bets were on northern Pacific Railroad, later Union Pacific, right before the 1906 San Francisco earthquake. Some of his shorts before the panic of 1907 made him his first million dollars even in one day, I believe. After which he was actually asked by JP Morgan himself to not short anymore, just to preserve the market. After JP Morgan had put in that inferiority fusion of cash and sort of cajoled other banks into making loans to keep the market afloat, which is what we read about in Ron Chernows Titan. Pre 1927, he was engaging in some of that market manipulation that we see in later chapters with Livingston. And apparently Livermore netted almost about $100 million after the crash in 1929. Livingstons account kind of ends well before that, since the book was ultimately published in 1923. And sadly, after the book was published, Livermore had many personal troubles, leading to losing his fortune by 1934, filing for bankruptcy, and ultimately he committed suicide in 1940.

David Short

Wow.

David Kopec

Quite a life story. And let's talk a little bit about the author, too, Edwin Lefay.

David Short

So Edwin was a journalist, a writer, and actually a diplomat, ultimately an ambassador. He actually came from a wealthy family and became quite a successful investor on his own. What I found interesting was that this was actually published in serial in the Saturday Morning Post. And so it actually came out chapter by chapter and then was later combined into the book.

David Kopec

Okay, we got through some good background info. Let's talk a little bit about the structure of the book. How is it structured?

Kevin Hudak

So the book is structured, Dave, you mentioned not too many personal anecdotes per se, but there are some vignettes and step ins at different points in Larry Livingstone's career. I almost just said Livermore, but I'd separate it out into sort of four different eras. So first was obviously that bucket shop phase that I talked about. Then there was his forays into Wall street, his first losses, his return to the bucket shops.

David Kopec

Kevin, I'm sorry, I got to stop you for a second. Can you explain to everybody what a bucket shop is?

Brad Mills

Yeah.

Kevin Hudak

So a bucket shop. I felt like I was watching the sting. And as our listeners know, I always love when some of the vignettes or anecdotes in a book are more cinematic. And so it felt like I was watching the sting and listening to the musings of Robert Redford's character. As Livingston was describing the bucket shops, it seemed like there were dozens of them in every major metropolis. According to Livingston, they werent trading floors. Instead, they were more like gambling parlors, where traders could bet on the ups and the downs of the market. Youd go to a window, youd make your bet on the movement in the stock youd get a slip, and then youd wait for the ticker tape to show the result or the boards to show the result. One thing that was interesting, and he described hundreds of well dressed men sitting around watching the board, holding onto their tickets, almost like at a horse race, waiting for their stocks to go up and down. But there was a notable delay in the information on the bucket shop floors versus the actual trading floors that early Livingston was able to really take advantage of with some good timing. If on the board he saw some change or a permutation in the price of a stock, he'd immediately go and close out that slip, and ultimately, he'd be able to make quite a profit on that before the ticker tape adjusted to the reality of the market floor. But ultimately, with these bucket shops, there were individual owners of the bucket shops or firms that own these bucket shops, and they were the ones who are putting out the money and being fleeced by Livingston. And that's why they started banning him and all the friends that he would send in. But so that third phase is really the bucket shops, or the second phase.

David Short

Was the bucket shop. One thing ill quickly chime in there, Kevin, is just the real distinction is that youre not actually buying or selling stock. So the bucket shop was just a gambling front that was using the trading prices as the method on which people could gamble. But it was the house that you were betting against the whole time. They werent actually buying or selling stock on your behalf. You were just betting with them as the house that would actually pay you out based on the performance of the stock. But there was no actual underlying stock. So that was why they could, they could either get fleeced or, you know, fleece the customers because they, they weren't real brokerages that are, that are truly buying those underlying securities.

Kevin Hudak

Yeah, and. Exactly. Just like watching horse racing, betting on a boxing fight, they weren't actually owning any of this. So. Great point. Short. So, you know, the third kind of era in the book was his return to Wall street. Like I said, with those early booms and busts, he wasn't necessarily using the right intuition. He hadn't had his technical analyses that he put in place yet. And ultimately, he did return the bucket shops. And then finally, I'd say ultimately, he does get to Wall street. He has, he's, you know, some booms and busts because he was taking some tips from others. He had some wins and losses in commodities trading and ultimately some help from his creditor friends to get out of about a million dollars in debt. Uh, and then finally, I'd say the last part of the book really just works and deals with market manipulation in the 1920s. And we leave Livingston's narrative and Livermore's narrative really at the, when he's at the top of his game.

David Kopec

Thanks for that, Kevin. Appreciate that. So let's talk about how he makes that transition, because he starts in these bucket shops, and eventually he moves to the real stock exchange. How does that happen?

David Short

Yeah, so he tells us a series of stories here. And as Kevin mentioned, he literally is, I think, ten years old, he says, when he first starts marking those boards. So he starts trading at a very young age. Through that, he is able to save up a sizable amount of money.

Kevin Hudak

And he.

David Short

And he talks about, you know, the first $1,000 he shows his mom. And she can't believe it. She thinks he. She thinks he stolen it or something. And then ultimately, he gets $10,000 scraped together with the bucket shops. But by the time he's done that, the bucket shops are increasingly unwilling to take his business. And so he. He is actually forced to. It's not. It's not really a choice. It is a necessity that he has to set off for New York and try his hand at the real markets. So he heads to New York. He takes his $10,000, I think, roughly that he had at the time, and he uses that to go to a legitimate brokerage and get a desk there to be able to start trading on the actual stock exchange.

David Kopec

Okay. And then later in his career, he starts calling what he does manipulation. And he talks about other people who are market manipulators, but he talks about some of his own exploits as a market manipulator. So what is a market manipulator, and how does Livingston become one?

Kevin Hudak

So, just to start off the question here, I think what gave him the ability to manipulate the market and actually create markets around stocks that had been inactive? One, in part, was his reputation and his image at that point, too, when were talking about the 1920s, when hes been moving more into market manipulation. A large part of that is driven by coverage in some of the daily Wall street rags, by the reputation of the friends around him. And on top of that, he really had a large purse at that point. We're talking about millions of dollars in the 1920s. And so he was able to buy and sell 30,000 shares of certain companies, 100,000 shares of certain companies, other groups. So pools or syndicates of directors or owners of companies would come to him and say they had 300,000 or 100,000 shares that they had, that they wanted to sell at the best price. Livingston would help them essentially achieve that best price, and he would do that through a series of shorts and sales. And really, he follows his path of least resistance. He believes that prices are driven by the path of least resistance for a given stock, for a given company. And so by doing that, he could basically convince the market so typical traders, to buy a stock and pump up the price based on his participation in that, based on the movement theyre seeing from anonymous buyers and then help the owners or help himself really sell that stock at its highest possible price. So in a way, it was driven by if Livingston is getting into a certain stock, towards the end of the book, they describe, I believe it was a stove company, consolidated stove, where just his reputation and insiders sharing the fact, and he counted on them sharing the fact that he was involved in being bullish on a given stock would inflate the value of that stock and allow him to then sell at the high point while some of those traders and even some of those directors and insiders were left holding the bag.

David Kopec

Trey, interesting. So as he goes through these different phases of his career, hes also constantly adapting and improving on his actual strategy for making the trades. How would you describe Livingstons trading strategy in his early career and how does it evolve then throughout the rest of it?

David Short

Yeah. So I was especially curious what Brad might think here. But it's really interesting to see the whole history here. He starts focused on individual stocks and he just calls it reading the tape. Right. That's what he constantly says. And so I wonder if it's sort of a version of TA but just more of an intuitive sense or something that he had that he would see the market and he just had a sense that it's going to continue to move in that way. He later shifted towards what seemed to me more like something akin to sentiment analysis where he just says were in a bull market, my friend, or whatever, that its really just having a sense for how the market in general is going to move and then sort of buying all the stocks or selling all the major stocks based off of that inclination that the market in general is really going to pump or the market in general is really going to collapse. He was certainly going long and short. He was certainly using equities and commodities. But yeah, im curious, Brad, with your trading experience, if you have a sense of what you might call his approach.

Brad Mills

Yeah. Well, so like I said, I go through this book probably every couple of years and every time I go through it, it's something new pops up that's relevant to my situation or, oh, I went through that in the last couple of years that I didn't pick up the first time I go through the book. The question is kind of like extremely relevant for anybody that is managing their own portfolio. And maybe people listening have dabbled in cryptocurrencies or meme coins or Wall street bets, penny stocks, futures, trades, all of this stuff. And you've probably, if you've read the book, you've probably made some of the mistakes that he's made in his career at the early stages. A lot of times it's just false confidence in your own understanding of the market. You think you're a good trader, you just think you got a pulse or an edge and you take a tip from somebody. The thing I loved about the book is that it tells a story of his journey through knowing nothing to becoming this kind of manipulator syndicate lead guy that you said is just his reputation alone could pump a stock, which at this point it's illegal to do the things that he was doing back then. This was before the securities and Exchange Commission even existed that he was doing this stuff. And its highly unethical now to be like doing what hes doing, but it happens all the time in markets still, especially in the meme, coin markets and cryptocurrency markets. A lot of the stuff that he learned and the lessons that he had are directly parallel to what we see happening even today. When were recording this, theres rug pulls like crazy all the time. Its basically the equivalent of consolidated stove companies and train companies just going and pumping and rug pulling and stuff, but its just happening 100 years later. But the main thing that I noticed that he had to learn that as he became a whale, if you will, like a large holder of a security, he couldn't use the same strategies that he, when he was just a minnow floating around in a pool with a small, a small line, as they call it in the book, he actually had to start shifting and thinking about longer term. And rather than just the fundamentals of the one stock he was trading or the future that he was in the commodities contract, whatever he was trading, rather than just thinking about the fundamentals, he had to actually think of like a larger long term picture and choose how much profits he wanted to make and accept that he wasn't going to get out his whole line at the top, and knew that when the conditions arose. This is something he learned through his career, that when he had to exit a position where he was the biggest holder of the position, you move the market heavily when you start to exit. So you cant exit until you either do what he did, which is sometimes manipulate the market to make it appear more bullish than it is, or wait for the actual conditions of bullishness to arrive, and then exit at whatever price you could get. Just take your exit Preston. So that was a very interesting thing that ive seen personally firsthand crypto funds and devs of coins and things like that actually doing this stuff.

David Kopec

Yeah.

Kevin Hudak

And, Brad, definitely appreciate your insights into what this looks like contemporarily today. And one thing I thought you brought up was his evolution as an investor as well, because I think while he started as a very self identified speculator, ultimately he sort of became more of a market maker. Right. He turned the playbook of the speculators against them, and he understood what speculators do because he was once in their position, and thats how he was able to really move those markets and manipulate markets.

David Kopec

Rad, im curious to follow up with you a bit about how you see these manipulations happen in the crypto market. So what do these moves look like and whos often behind them? Trey?

Brad Mills

Well, a timely example that ive sort of identified back in January. So I think, David, we even talked about this on clubhouse one day when Solana started to pump this coin. Solana was down like 98%. It was the cryptocurrency that FTX was the primary backer of the ICO. The coin launch happened on FTX. And for those who dont know, FTX was run by Sam Bankman Fried, who was the mastermind, sort of $8 billion, biggest theft in modern history. Financial markets criminal, I guess. You know, that's pretty much what he was. He just basically stole everybody's money and used it to invest in his own projects and hundreds of projects across the crypto space. He ended up getting sentenced to prison for that. But Solana was one of the coins that a lot of Silicon Valley insiders were kind of just like in the story there. They were just kind of following this FTX kid, this Sam bankman freed around. And just the fact that he was involved in these coins, they would get involved, and then they would all kind of act together, and they would all just like in the book, they would form little syndicates and kind of try to move together. And so, anyways, this coin won Solana in the, you know, the 2022, 2023 was a really brutal market for a lot of cryptocurrencies went down something like 90%, maybe 95%, maybe more. It was a significant drop. There was a huge bankruptcy problem for this coin and for many coins that FTX was involved in. So a big percentage of the supply was actually held up in bankruptcy proceedings. And there was all this confusion over whats the future of this project? Is it even going to be able to come back? Because one of the main perpetrators of this thing was a fraudster who got convicted. Is this thing even possible to have it come back? And what happened was this kind of one of the modern day market manipulator like market operator a la reminiscences of a stock operator formed what you'd call kind of. You could parallel it as a syndicate where he got to control all of the bankruptcy assets of FTX. So FTX owned a massive position of this Solana coin. So pretty much when the news broke that Mike Novogratz and Galaxy had taken, had won the contract. You know, Mike Novogratz is somewhat famous on Wall street and kind of infamous as well, but he's very well known as a crypto guy. And he got a tattoo of a Ponzi scheme on his arm last cycle. People probably remember, or may or may not, but he tattooed this Luna coin on his arm, and his firm had $300 million from profits from promoting this Ponzi scheme coin and then dumping it before the whole thing blew up. I mean, Luna was one of the biggest collapses in crypto in the last cycle. It was Luna and it was FTX. Mike Novogratz was out there shilling this thing just like, just like in the book, kind of telling people to buy it, and, oh, Mike Novogratz is involved, let's buy some Luna coins. And then he sold it. And his firm, I think it was 300 million. I mean, you can, we can look that up, but I'm pretty sure it was. He got out for 300 million. He had no losses. And so people like me see that and are like, that's unethical. That's completely disgusting. Like, how could we let that slide? How does this guy sell reputation? But if you're just a pure, you know, pure capitalist trader, you don't care about ethics or morals or anything like that, you're like, hmm, what an adept move that was to show that thing and then get out and make 300 million. So the FTX people kind of, like, chose Mike Novogratz and his firm as the, as the market operators that would likely be able to get them out of this crazy mess. And wouldn't you know it, as soon as that news hit the wire that, you know, they got the, the trading rights or whatever you call it, the thing started to fly. And if you look at the chart of Solana right now, its very reminiscent to the stories that are told in this book, because its pretty much market psychology, fear and greed, reputation, and the idea that you can manipulate this sort of gray area, unregulated market and potentially pump this coin with your other resources. Im sure there was some of that going on with Solana and these other coins where they can create volume, they can do what they call it market making, but really its just pumping and set the price higher and higher, knowing that theyve got such a massive position in this coin that theyre going to need to take out. They have to create FoMo. They have to create price action. They have to get everybody else in crypto believing that this is something that they should be buying. And then they succeeded. Now this thing is up way higher than it was, and theyre able to exit at a profit. So their conditions are there now, where theyve actually created the momentum that they can take as much liquidity out of this thing as they need to.

David Short

Preston and thats in part why we now heard that all the FTX creditors are going to get 18% beyond just the cash payback is the fact that they were able to get out of that Solana at a very high price.

David Kopec

Brad, I think we all suspect, who are just in the general populace watching a lot of this stuff going on in crypto, that these manipulations are going on. But youve really made it concrete for our listeners. Really appreciate that. Solana Anecdote. And as you mentioned, a lot of these manipulations, of course, are now illegal in the general stock market. Im wondering how much the three of you think that manipulations, similar but not using the same methods, obviously, because they are illegal, still go on in the broader stock market.

David Short

I mean, I imagine it still happens. Ultimately. I imagine it depends on the scale. And I would guess that people are very careful about communications and things like that, because the SEC is certainly very watchful. And if you buy a whole lot of out of the money call options just before expiry and then some news comes out and you make a killing, theyre going to investigate you. So theres certainly regulatory apparatuses that exist to try and catch this stuff, but theres never going to be enough to catch it all.

Kevin Hudak

If we look at the example of Livingston, too, one of the things that fueled his ability to manipulate the markets were news sources and shatter amongst the traders with the anecdote of consolidated stoves. At the end, we saw an example where simply his reputation and his providing information to those insiders resulted in everyone, including misses Livingston's dressmaker, knowing about his intent to pump up the stock. I can only imagine what that looks like now, when we have social media, when we have 24/7 news coverage, when we have even Reddit, Wall street bets, right. I imagine that these sorts of schemes can really take hold at very fundamental levels. And one quick anecdote, I thought it was funny. I went on Wall street bets to search for Edwin Lefave and reminiscences of a stock operator, and I only saw about one or two threads where somebody mentioned that it was a must read and one of their favorite books on that as well. So I almost feel like we should post this podcast there just so it can pick up some steam and gain some much deserved recognition.

David Kopec

Trey? Okay, coming back to the book, I want to talk about some of the big lessons that lefebvre, and maybe indirectly, therefore, Livermore, is trying to get through. And I actually want to start with you, Brad, because you keep coming back to this book every two years, so there must be new things that you're getting out of it. But what were the big things that you loved so much that you learned from it the first or second time you read it that kept you coming back?

Brad Mills

I think that's partially dependent on the condition. So the first time I read this book, I was, I think it was in the height of a price run and it was exciting and I was making money and I was such a good trader. Im so smart, you know, I had that going on. And then I left my too much money. I took too much risk and I left too much of my bitcoin on one of the exchanges because I thought I was trade, I thought I was a trader. And turns out that, you know, bitcoin was created so that there doesn't have to be a middleman between you and your wealth, that you can have sovereignty over your money. And by me leaving it on the exchange and not even thinking about risk management or trading rules, I was just taking too much risk and I didn't know what I didn't know. So I lost too much bitcoin doing stupid things on bucket shops. So I didn't know I was on bucket shops. I didn't know what a bucket shop idea was. So when I kind of read through the first time, it was exciting. Like I said, the energy was exciting. And then the crypto market took a dive and bitcoin went down 90%. And I was going through mentally the things that he was going through in the book. So im like, you know what? Im going to go back and read this book because maybe I missed something. The second time I went through, I think I picked up on the section about not only does he go long, but he shorts. And for, you know, it's part of the book. But when you're just fomo longing to taking bets on things, whether it's altcoins or futures or whatever it is, and you're in a bull market, you learn bad lessons, you learn bad habits, you think you're smart. And when he starts talking about his, if he has conviction that it's time to exit the position, then he should also go short, then that really kind of brings it into the light that wait, if you're not willing to short things and follow rules and have conviction to also short things, then you're not a trader because you're just a speculator. You're like probably an amateur, probably going to lose speculator because unless you have counterparty risk dialed in, unless you have risk management dialed in, portfolio sizing, position sizing, and you can take the long and the short side comfortably and follow your rules both ways, youre probably not a trader. Youre probably just an investor, probably more of an investor. And so then the third time I went through it, he was talking about the war and how actually there was a rally in prices during a war. And this was for me kind of like an eye opening point when at the bottom of bear markets, in the stock market and in bitcoin, especially in bitcoin, there's so much fud. Everybody's talking about all the negative things that are going on with bitcoin, all the negative things on the horizon. Oh, the government's going to ban it. Oh, it uses too much energy. Nobody cares about it anymore. I mean, you name it, like every piece of negative news is just going to be thrown at bitcoin. And if you don't take a zoomed out perspective, take some time off like he does sometimes when he's just not active, he just sometimes goes on his goes on his goes, sailing trips or whatever. He understands, like I came to understand through going through it the third or fourth time, that just because things are negative and the macro conditions are poor, it doesn't mean that prices are going to keep going down. And I think one of the, you know, one of the big quotes from the book that kind of is very relevant is theres only one side to the stock market. It is not the bull side or the bear side, but the right side. So a lot of people, they do the wrong thing where they just let the market get them into either overly bullish or overly bearish states of mind and they forget about their conviction on the idea that theyre trading on. And one of the main things I keep coming back to is his, his quote where he talks about it's never my thinking that made the big money for me has always been my sitting. So that is so relevant, not just for trading but also for investing. Most, I think billionaires, I forget where I heard this stat, but I'm pretty sure it's most billionaires, they don't make their wealth through diversification. They make it through concentration. And they make it through having high conviction and sitting on that conviction and sitting on it over a long period of time. They don't necessarily just make it through tons of pivoting and spreading their bets massively across 100 different positions. So in bitcoin, for me that's been a big deal because I have extreme conviction on why I think bitcoin is valuable. I've been in bitcoin since 2011 and sometimes I get activity bias where I just feel like I just need to be doing something even when the markets are in a bear market for two years, go back and read this book, learn some lessons from what he did wrong, and then try to minimize the mistakes that I make.

David Kopec

Thanks for that, Brad. Kevin, what were some lessons that you brought out of this book?

Kevin Hudak

Yeah, and I appreciate Brad's anecdotes and particularly the one around conviction and intuition and really sticking to that gut feeling. I mean one of the key lessons from Livingston for sure, and by extension Jesse Livermore was one thing. Never really taking tips from others, right. And really sticking to that tape reading and his technical analyses to get the market right. His biggest thing too is don't do things against your own judgment. Some of the biggest disasters that Livingston experiences was when he was doing a favor for others or he was not necessarily taking a tip but being pressured into getting into one stock or getting into one scheme. So really sticking to his own guns was important. Another key lesson obviously was that line of lease resistance that I was talking about. Prices follow the line of lease resistance. It's based more on the fundamentals of the market and even the company to a smaller extent than where the investors just want the prices to go. One thing he says as well is don't play prejudices, play the market conditions. Like Brad mentioned, he was studious, he was intense about just looking at the ticker tape and understanding, well, what is this stock doing typically before it rises by one or two points and then when do I want to get in? One thing I thought that was important too was this idea that you cant go out and expect the market to pay for your immediate need. He said, when I think this is relevant to investors and traders today, you cant go out and expect the market to pay for your new car or your new yacht or if you have an immediate need, an immediate bill to pay. You have to, like Brad said, sit and wait for the market to match your gut, your conviction. You know, one thing I also thought was cool was, you know, he mentioned at one point that he doesnt view other traders as the enemy. Now, obviously, some of these traders and some of these company directors and insiders were out to get him. He doesnt view them as the enemy, though. He views market conditions as the enemy. And that really brought me back to Chris Voss and never split the difference, which is one of the books that weve covered here on the podcast, in that Chris Voss said, your counterpart across the table in a negotiation isnt the enemy. Its the condition that you find yourselves in. Thats the enemy that you want or need something or your counterpart wants or needs something at conditions that arent suitable for either of you.

Brad Mills

Trey.

Kevin Hudak

And just to close on this with some of these lessons, he really brings it down to four points, observation, experience, memory, and mathematics. He says those are sort of the core of his investing style. And just to leave with one quote that I thought was super relevant, and again, there were some strong quotes throughout. But he says, Lefebvre, through Livingston, says the way to make money is to make it. The way to make big money is to be right at exactly the right time.

David Kopec

Thats hard to do. David, what were your big lessons that we mightve missed so far?

David Short

Preston, the one that resonated the most with me, and especially I imagine Brad might be able to relate during some crypto bear markets, is, or bull markets, is the selling down to the sleeping point concept. So it's just a specific anecdote about this guy. He's got, I forget what the, I think it's a commodity or something. He's got so much iron, so much steel, he can't sleep at all. And what do I do? And the guy responds, well, it sounds like you need to sell down to the sleeping point. So if you're overexposed to the point where you're staying up at night and you're constantly thinking about it, then you are overexposed. That's a good reason to say you need to sell a little bit.

Brad Mills

Yeah, that one, actually, I directly did that one in March 2020, before COVID really became a mainstream culture awareness topic. Actually, in January, I started seeing the reports coming out of China, and I started crunching the numbers and I started looking at the macro conditions and the interest rates and all these different factors. And it kind of really made me feel a little bit like I was seeing the future in one of these stories where Jesse Livermore actually, I guess I dont know if this is true or not, but in the book, he talks about how he was taking a break from the markets because the conditions were not good for trading, and he just had a feeling that he should go in and place a big bet. And then the earthquake happened a couple days later and he made a killing off of it. It was one of those moments for me where I absorb a lot of information and I kind of relate with those. Even though that sounds nonsensical, it really does happen, I think, to, at a certain point, if you can be in tune with enough information and you kind of like become a radar for sentiment and potential, like, what could this, all this information mean that I'm absorbing for my portfolio for markets. And I do think that some big traders do have these feelings, and it shows up sometimes as back pain. For me, its back pain. Its like this really crazy tight back pain that ive never experienced in my life until I started managing a large portfolio for myself. And I was responsible for seeing my net worth drop 60% to 80% every couple of years. I started getting this crazy back pain, and so I started absorbing all this information. And so in March 2020, I was certain that the COVID was going to cause disruption in global markets and we were going to see a 50% drop. Stock market was going to have to get shut down for a couple of days or something like that. And so I was having trouble sleeping. And I had just survived a 70% routing of my net worth in 2018 to 2019. I was feeling more confident. I had purchased more bitcoin because I was confident in bitcoin, but I was also confident something bad was going to happen in financial markets and it was going to cause a 50% drop in bitcoin. So I had to sleep. I had to sell down to the sleeping point. And I did sell, and I felt better. And my idea was I was going to do what he did in the book and take that advice, sell down to the sleeping point. And I did. I lightened my line and I thought what I was going to do was buy it back cheaper. And you know what? Sometimes, you know, you get punched in the face with your plan and you can't buy back cheaper because the 50% drop that you saw coming only lasts for like ten minutes and you're not online to place the order. Your broker's not awake, whatever it is. And that kind of happened to me. And it's one of the lessons in the book that is the market does not beat, he says the market does not beat them. They beat themselves. When he's talking about, you know, the importance of self discipline and emotional control and trading, most people don't have the emotional control to actually follow the rules even if they get it right. And that was a big lesson for me that I sold down to the sleeping point and I regretted it. And, and I, you know, my back pain went away for a little bit. I was right. The market dropped 50%, but I only bought back a little bit because I thought, oh, it's going lower. And it never went lower. It just kept going up. So I just spent the next year basically buying back my position at a higher price. So I kind of learned a lesson from that. And the lesson is, I guess I just have to be okay with not having a sleeping point.

David Kopec

Sometimes that's a hard lesson to learn. That doesn't sound pleasant.

Brad Mills

Well, you know what? I'm up quite a bit from March 2020 for even 21 when I bought it back higher. So it's not so bad anymore. But it was definitely a painful lesson to kind of learn in real time.

David Kopec

And that's how it was for Livingston. Right. I mean, he had a lot of painful lessons, but he really appreciated them. In the end, it was the school of hard knocks. So lets talk about how some of these lessons might have evolved over the hundred years since this book came out. Im going to talk about one thats very specific. That comes later in the book. Livingston talks about the idea that when stocks are going up, you dont know if theyre being manipulated or not. If youre just an outside kind of random person who doesnt have any insider knowledge, isnt connected to the street, you dont know if thats manipulation. Is that fundamentals if you dont have enough insight. But he says that stocks never go down to the point that theyre below their fundamental supported price. So in other words, there can be manipulations causing stocks to go too high, but its unusual for them to go too low and be undervalued. And that kind of goes against the idea of value investing. And I happened to do some research on this. The book came out in 23. The first proponents of so called value investing as we know it today came out in 1928. So theres a whole school of investing that kind of goes against that lesson from the book. And I think value investors have obviously been pretty successful. I mean, theres some hedge funds that are fully based on it, value investing that have been very successful. So I wonder if that lesson is still relevant today. Were there any other lessons in the book that you found questionable in a 2024 context?

Kevin Hudak

Well, I was just going to add one that I thought was still relevant. And at one point, Livingston says that hope and fear are the speculators two biggest weaknesses. You must hope when you normally fear and fear when you normally hope. And you know, what he ends up saying is that a perception of hope is really an unsolicited tip coming your way and that you shouldn't necessarily listen to it. I thought that stepping back and understanding your own perceptions, your own mindset as you're going into trading retail trading or trading a large portfolio is something thats super important. I thought that getting into his mindset, as Brad recounted a few times when it really resonated with him and his career, I thought that that was kind of some timeless lessons from Lafeeve and from Livingston.

Brad Mills

I think a general concept that I didnt connect with that probably still today isnt very relevant was the whole idea of reading the ticker tape, because I think back then there was just a lack of market transparency. And in his time, information was very scarce. Access to real time market data was limited to probably JP Morgan and whoever he printed off the papers to and gave them to, or even with people who had the specialized skills to read Morse code and to understand Morse code. He talks about that in the book. Sometimes the good traders could actually listen to the, the telegraph operators and read Morse code. You know, in today, it just, it just feels like that whole concept of like that ticker tape as an entity that you could see everything that you needed to see in the price or, you know, in the prints of the tape, because it was, most people were getting that the prices days or weeks after the prices actually happened on Wall street. So that concept in today's world, I don't think is extremely relevant. I mean, I don't. Even in cryptocurrencies, it just doesn't seem that you can just watch the price and kind of like know what's going on. I think today there's way more information that goes into kind of making up the reason for the price movements. And I don't know, David, you may have something to say about that.

David Short

I think a lot of the stories that he talks about, it's really about getting order book information. A lot of the action that he takes is kind of unnecessary in a modern world because you can see the order book, but then you read about like order book manipulation, and you read about dark pools and like, I guess it seems like things are very transparent and whatnot. But then I imagine there are a lot of like under the, whatever, there's the underbelly of Wall street or whatever, where this manipulation is still happening to some degree. And we have this kind of like facade of clear transparency. But then there is front running of order books and high frequency trading, whatever these other things that are happening that are a little bit hidden. Although obviously the actual trades themselves are clearly fully public. Ultimately, unless they are, again, those dark pools and things like that.

Brad Mills

Yeah, I think the high frequency algorithms are much better at reading the ticker tape than any human could be by just watching the prices go by.

David Kopec

No, im glad you brought that up, Brad, because I think about that as the guys today who you see looking at patterns in lines of the history of a stock, and theyre like, well, weve seen this pattern before, and so this is what must happen next.

David Short

Oh, youve got to memorize the Fibonacci sequences. Come on, Dave.

David Kopec

And I always thought that was B's, but then sometimes I see some kind of sophisticated people that are into that. Yeah, I really don't get it. Like maybe I don't have enough mathematical training. I think sometimes that I'm missing something, but it seems like Total B's to me.

David Short

Oh, that's a clear .67 retracement. Dave, come on, you gotta.

Brad Mills

It's obvious, I think what it is, it's kind of self fulfilling prophecy in a way. If enough people believe that the retracement levels and all these different levels mean something, then in that way, it's kind of similar to the very top of the money system. The chair of the Fed actually went in front of Congress and testified. Someone asked him, why do you target 2% inflation? And his answer was, well, if people believe that the inflation is 2%, then it will be 2%. So it's like sometimes even the most sophisticated money masters in the modern world still use the law of attraction when it comes to prices and facts and figures. And I'm a fan of the law of attraction, but not when it's coming from the head of the money. But the other thing I was going to say is that the sentiment is still relevant, because just as in the book, as is today, these markets are driven by fear and greed primarily, and later on, trend following is a very kind of middle ground trading or investing strategy that kind of is somewhat inspired by traders like Livermore and then also somewhat uses technical analysis. But it's not about like this magical spiral you draw on the chart. It's about kind of comprehending the long term structure. Is it a bullish market? Is it a bearish market? What is likely going to happen when something hits a 80 times its value, its earnings price earnings ratio, and then starts to come off because the markets saturated and people are taking profits? Well, historically it means a long bear market where the insiders distribute. And then theres a lot of fear. People get scared, they dont want to buy, the volume dries up and that then people will rediscover that. This thing is maybe undervalued. Theyll start accumulating. That can last for a year or two years. So these sort of patterns of just generally how fear and greed still drive markets, I think are extremely relevant. The other thing though, thats different, that kind of is we are on a different monetary system than was in this book. The book took place in the early turn of the century, 19 hundreds, when they were still on a gold standard and were kind of in the opposite direction here now where were in perpetually ever injected money into the system to keep stimulating things? Where back then, one of the reasons why the 1907 crash happened was because a lot of the gold from the United States treasury was kind of sent to Europe to buy materials and rebuild San Francisco. And it actually shrank the money supply in the United States because the dollar was pegged to gold. And so that meant interest rates went crazy. At one point, the interest rates to borrow from a bank in 1907 was like 100% interest and businesses were scrimping and saving. And so economic conditions contracted because they were on the gold standard. But now we're in this market where it's like the central bank is going to come in and bail out the businesses and bail out the banks. And you kind of can't apply the same trading philosophies in this like continually pumping world. So that is a huge difference between what happened in the book now or sorry and now.

David Kopec

That's a great point, Brad. Sometimes our monetary system now just feels like a giant confidence game. Let's keep things at 2%. Why? Because that's when people feel confident. They feel really good at that point. So Brad, I want to go into your life as a portfolio manager and the experiences that you've had and allow you to kind of weigh that against what you've learned from resources like this book. So can you really learn to be a trader, an investor, from reading a book like this and maybe some other more modern and specific materials? Or can you only really learn a lot of these lessons from having lived it, from actually having the experience of being out there in the arena?

Brad Mills

I think you can definitely learn how to become a trader through reading books like this. Not just this book, obviously, because of all the differences in the markets and advancements in technology and trend following itself just works. So yeah, I think theres some other great books I recommend people read aside from this one. This one is like especially listening to it multiple times. Its like entertainment and education at the same time because its so fun of a story. But it also gives you real lessons that, that you will probably go through this if you're, you know, it's not just for people that are portfolio managers or whatever. Everybody should be investing and saving. And if you read the book money master the game, I'm not sure if you guys have gone through that one yet. TonY RObBins book that, you know, he learned from all the investment grades, kind of trying to distill it into like advice for the average person. It just talks about long term thinking, long term, long term investing and everybody should be thinking about these things and especially learning what to guard against because a lot of people once they start to accumulate some wealth, they'll start thinking like, well, I guess I should go trade some stocks or invest in some companies. And you may be a gambling addict and you just don't even know it. You might likely be one of the statistics of people who take too much risk, blow yourself up and then before you know it, youve learned a very expensive lesson that you could have learned by reading a book like what I learned losing a million dollars, reminiscences of a stock operator, complete turtle trader trend following commandments Michael Covell has a lot of really good books on trend following new market wizards. Another one, I just love these books because it allows me to learn some lessons that are very expensive if you learn them on your own.

Kevin Hudak

Well, I will say, Brad, ive already taken your advice without even hearing it yet. And as a result of reading this book, I did set up an investopedia account where they give you $100,000 in simulated money that you can then make some aggressive moves with. So I am looking forward to doing that and taking away some lessons from you and from Lefebvre.

Brad Mills

Well, the biggest lesson I can give people for my is what I learned myself is that I'm not a trader and I don't trade and I made a lot of mistakes and I realized that the biggest, most impactful thing for me that I take from this book every time I read it is that thing about sitting on your hands and not being active. Because unless you're one of those two to 5% of people who can emotionlessly stick to your rules, first of all, you have to have rules. Rules. You have to know counterparty risk management, you have to know portfolio position sizing, you have to stick to your rules emotionlessly, and you have. So you have to have a mathematical edge, and then you have to be able to execute your stop losses and learn about trend following or whatever strategy you're going to use. And then you have to be hope you don't lose your money in the exchange or something like that. So the cards are stacked against you. So the best philosophy that I took from all of these books is like realizing that even though it might sound exciting to make a whole bunch of money trading, it's most likely not what people reading this book should be doing. They should just be taking the lessons of all the bad things he did and then realize, oh, you're probably not going to be the one that's actually going to then go and manipulate a cotton future and make $100 million in the market crash shorting it. You're probably going to be the person that just lost all the money and then didn't make it back. So I think of it more as a lesson in like, what not to do and actually education and how hard and difficult it is to succeed at trading.

David Kopec

That's a great way of almost wrapping up the episode, but we have a little bit more to talk about. So let's talk about some of our favorite anecdotes from the book. What were kind of the stories that really got your juices flowing as you were reading this.

Kevin Hudak

So ill start with one of mine. So I thought it was interesting when in 1917, Livingston essentially makes some big bets on brazilian coffee and has hundreds of thousands of bags of brazilian coffee. And in pre war times that had just started going up on the rise. And I thought it was interesting that this is where government is finally stepping in. At first, the brazilian coffee owners sort of came in and started accusing Livingston of leading to an enormous price increase in pre and during the war America and a price fixing commission actually came in and essentially made Livingston forfeit all of those gains and return the coffee bags to the brazilian coffee bean grower who ultimately put the coffee on the market and the price went up anyway. And Livingston seemed to be really frustrated with that. It was interesting how in that situation he was called very unpatriotic. But in 1907, when he held on and did not further his short position with the mentorship and with the advice of JP Morgan, he was then lauded as one of the folks who helped save the banking system. So I thought it was interesting how things can turn very quickly there. I also thought this opening vignette of the government getting more and more involved in trading price fixing and some of the market manipulation that was going on was interesting, too.

David Kopec

Trey.

David Short

I think, to Brad's point, the anecdotes I took the most from were the what not to do lessons. And I think the first really big one is around Percy Thomas. Livingston has this great success trading the July cotton futures, and it ends up on the front page of newspapers. Livingston corners cotton market. He makes a bundle, and through that, he gets introduced to this guy, Percy Thomas. And Percy wants to give him information and have him trade based off of the information that Percy has. But Livingston says, no, I always trade on my own account, like I'm not interested. But they then become friends, and so over time, Percy just says, oh, you know, that's, that's fine. You know, just, you should still reach out to me. And they, they just, you know, are sharing information, and, and Percy keeps sharing all this information with, you know, the secret information about Cotton that Percy has. And so, you know, uh, Livingston keeps looking at the tape, and the tape keeps telling him, you know, Cotton's not going to do well. Cotton's not going to do well. And Percy Thomas keeps saying, oh, I've got this inside information. I've got all my, you know, people in the south that are telling me, you know, presumably that the cotton market is not going to do or is going to explode, presumably because of whatever drought or something like that, that there arent going to be as many bales of cotton as people are expecting. And Livingston ends up putting tons and tons of money into it against his own intuition. So his trading strategy is looking at the tape, looking at the markets, understanding it. Everything hes seen as saying this is a down market, sell, sell. Percy Thomas convinces him. He goes long, long, and then ultimately, the market falls out from under him, and he finds out that Percy was actually selling to him. So Percy had tricked him into dumping his bags on him. He explicitly says, watch out for being manipulated by, I forget exactly how he says it. Articulate, convincing, brilliant speaker. Just because someone is very articulate, capable of sounding like they really understand a market, don't trust them. Stick to your guns.

Kevin Hudak

Well, in the real life of Jesse Livermore, that Percy Thomas was actually a man named Teddy Price. And you'll see throughout the book, and I'd encourage our readers to look for some of these instances where Lefave basically switches around some of the names we'll use. The same first initial will flip the first and last initials. So in real life, that was Teddy Price, who was selling all that cotton as Livermore, was then buying it up, and I believe it was 1908, and that was his first really, really big bankruptcy, that he then had to actually essentially go back to his creditors and eventually get a release of all those funds.

David Kopec

Okay, those were some fun stories from the book. Let's talk a little bit about this entire profession. So the main character, Larry Livingston, I don't know if this is true of Jesse Livermore, but he calls himself a speculator. He says what he does is speculation. I think this goes to what Brad was talking about earlier about the difference between a trader and an investor. All hes doing is constantly buying and selling, buying and selling to make some more money. Right? He doesnt make a product. He doesnt really offer a service, except for late in the book, where hes helping others manipulate the market as a service. But do people like him, pure traders, pure speculators, do they add to society, or are they just takers? Do you think its ethical for this to have this as a profession, to just be somebody who is constantly shorting stocks, buying some up as theyre on the way up, selling them as theyre on the way down, and just trying to make a little bit off of the market? Obviously, hedge funds do that. Obviously, a lot of folks who do work on Wall street do that. Do you think in this day and age, thats an ethical pursuit?

Brad Mills

Okay, so when I first heard that you could make money by buying corn futures, I was like, blown away because I came from a similar kind of upbringing, I guess, as he did in the book. I came from the eastern part of Nova Scotia in Canada, this island that I grew up in. An economic depression, really. It was like 30% unemployment rate. And I grew up in government housing. And I moved around like 18 times around the island. We were on welfare a couple of times. And my grandfather was a milk man and my dad was an entrepreneur. He sold eggs and pastries and bread door to door, door to door delivery man. It kind of sounds old timey. It had a funny, similar feeling as no financial experience or anything like that and no savings or anything. When I left Cape Breton and I went to college in Toronto, I went to this seminar and it was like a seminar on how to make money or something. I can't remember what the seminar was. It was like they were giving away free food and it was like, come, come to this seminar and we'll give you a lunch. And I was sitting by this guy and he was like, I was like, are you going to buy this thing? Are you going to actually do this? They're maybe teaching you about how to do real estate or something. And he's like, no, I'm actually a pretty successful trader of futures markets. And I'm like, what the hell? What do you mean futures markets? What is that? He's like, yeah, I trade like corn and coffee and beans and stuff. And I was like, are you serious? Like, you can actually trade? What do you trade, like buying cows and selling cows or something? He's like, no, I just betting on the price of what, what the price is going to be. And I thought he was pulling my leg. I thought I was probably like 20 years old. I thought he was pulling my leg. I thought it was a joke. And, and then, you know, I went through, we went through the 2008 collapse, and that's where I started learning about money. I started learning about the bailouts and the history of gold as a store of value. Gold has held its value while governments just kept bailing out banks and corporations. And that didnt seem fair because if you took all this risk and then the losses are socialized and these companies get to keep operating, that didnt seem like a capitalist market to me. So I was like, the stock market is a big Ponzi scam. You got these guys over here betting on cows and coffee beans, and then when the companies go under, they just get bailed out by the government, and the banks are charging 18, 20% interest rates on my credit cards, and the money doesnt even exist. They just print the money from nothing and charge me 18%. Im like, this whole thing is a big, unethical Ponzi scheme. So I was like, I was making some money as an entrepreneur. Finally after a little while, and I had some money in the bank and I was like, why am I keeping my money in the bank? What do I, what am I going to do with this? I don't want to put it in the stock market because that seems like a Ponzi scheme. I don't want to put it in real estate because that seems overvalued. So I guess I just, you know, I read rich dad, poor dad, and I was like, I guess I'm just going to hold it like put it in something that's going to hold its value. So my initial feeling of the traders and the futures and then the derivatives market, when you start watching the big short and you start learning about derivatives, when I learned about these things initially I felt like the entire system was a big scam. I literally felt like I was living a lie and we were all being manipulated and we were just profit meat for these bankers and trader trading firms. And I really did feel like it was a big giant scam. So I don't know if you guys have a different take about that, but for me it's, but its not so much the buying and the selling anymore as I became more mature and I understood markets. And you have to have a price discovery in a market otherwise the prices will keep going up for share. So you have to have shorting because you need to be able to take some of that exuberance out of the market by having people who think its overpriced be able to trade with conviction on thinking its overpriced. But then when you start getting into derivatives markets and you know like the volatility, the vix and all the volatility trading, you really see that the majority of the volume on in financial markets is just casino activity. It's just purely adds nothing to society. So originally the futures markets were put in place as a way for say if you were a farmer, you wanted to hedge a potential bad season where you wanted to sell some of your crops ahead of time, lock in a price at the market that provided a useful service and then someone would then facilitate that finding and selling of somebody who wanted the supply to the farmer. But what it has morphed into is definitely nowhere close to what it was supposed to be. And I do actually find a lot of the activity that happens in Wall street is just purely casino for billionaires.

David Kopec

Clay Im mostly with you Brad. The way I think about the negative aspect of this kind of pure speculation, pure trading set of careers, is when I think back to the people that David, Kevin and I went to college with. So David and Kevin and I went to the same college and we knew a lot of the same people and a lot of them into what was called at the time in our parlance ibanking investment banking. Right. They were people who were purely doing it, a lot of them, not all of them, but a lot of them because they wanted to make a lot of money. And these were brilliant people. A lot of them were much smarter than me, a lot of them were much more talented than me. And they could have done incredible things if they had become scientists or engineers or entrepreneurs or folks who were contributing in a way that had something tangible as an output. But instead they totally dedicated themselves to the pursuit of money. And being a trader speculator, as it's called in this book, was just the means to an end of that pursuit. And so I don't see a huge amount of social value from it. I mean, I see, and I would ask them about it. I'd see them at a reunion or something. I say to them, well, how do you feel that you're just kind of pushing money around? That's basically you're just shifting money from one place to another. They're like, well, were creating liquidity in the market. Its really important for the market to function well that we create that liquidity. Yeah, that may be true. I think it could probably be done by a computer program to create some liquidity. I think we could probably have a good algorithm that would do it pretty well, especially now with some machine learning techniques. I dont know if we need our brightest minds spending the most important decade of their life doing that. So yeah, im pretty down on it. And I agree with you, Brad. I think its created a lot of the issues that we see in society today that manifested themselves in 2008.

David Short

To quote Jeremy irons in Margin call, they are selling to willing buyers at the fair market price. So I don't know, you guys are all anti capitalist sounding like some commies over here, but.

Kevin Hudak

Short, I was thinking with John Hammond in Jurassic park, you're meant to come here and defend me against these characters and the only one I've got on my side is the bloodsucking lawyer. I'm with you, short, even though you're a little bit sarcastic here, I think that when it comes down to it, theres going to be bad actors, bad trades. I think its all about that spectrum between trading and investing. And for me it really comes down to, again, building some that liquidity like KoPEC was mentioning. But were opening markets, a lot of this money is going and investing in companies that create jobs both here and abroad. And I think that we start to lose out on that when we overly limit and overly regulate some of these trades. I do agree that some of the securities based on securities gets a little bit too far though.

David Short

Yeah, I mean, I guess my question would be, and I don't think we need to go down this path. So this could be a rhetorical question for us to end this with. But if anyone wants to feel free what would we do instead? Right. So, like, the idea, like, okay, speculation is bad. Like, what does that mean? Like, how are we going to enforce that? Like, okay, this is someone that's trading because they actually believe in the company, as opposed to this, as someone who's speculating. Like, I think the idea of having some regulatory regime around this is scarier than the negative externalities of the speculation is, I guess, the way I would think about it. So trying to do anything to stop it, I think, would be worse. Doesn't mean that it's the best thing in the world that you could be doing that. It's not better than, you know, starting a business where you sell things to people that, you know, really matter and change their lives. Obviously, I think even those investment bankers would would recognize that, you know, entrepreneurs who start valuable businesses are more important than what theyre doing, and thats how they justify what theyre doing. They say what theyre doing is enabling those entrepreneurs. And to some degree, investment banking is doing that. Naked shorting and things like that probably is not really doing that.

David Kopec

Preston well, I have to respond, David, because I dont want to be misunderstood again. We did our Elon Musk episode. We were getting responses from listeners saying that David Kopec was so against Elon Musk. He was so negative. He must be jealous of him. I actually love Elon Musk. I don't know why people took that away from the episode. But what I was saying is that we have a cultural problem. We have too many people in this country who are our best and brightest, who are going into this field purely to make money, not because they care about the long term outputs of their investments, not because, and I'm not saying that there should be some draconian set of regulations that don't allow people to speculate. I think some speculation is healthy. I think we have a cultural problem that led to the type of securities on top of securities that Brad was referring to that led to the Occupy Wall street movement. I'm no supporter actually of the Occupy Wall street movement, but I am a supporter of more people going into making tangible products and services or doing public service or working as teachers, then going onto Wall street in the way that we have kind of the pipelines from our best colleges today.

David Short

Yeah, that's totally fair. I was probably responding to more of a straw man than what you were truly saying.

Kevin Hudak

And I will just say with our guest Brad here, that was one of the most articulate and meaningful commentaries on the shape of the market where we're at right now that I've heard, particularly given his experience, his career, and his origin story. So that was truly educational.

Brad Mills

Thank you.

David Kopec

All right, let's start to wrap up on the book. So let's talk about how this book may have changed any of you at all. I know how it changed me. I was reading the book a few nights ago and I actually sold some stocks I've been holding for like seven years, eight years that are losers because I was like, why am I still holding onto them? I would always say to myself, oh, its because I want to be diversified and there happened to be in some random industries, I was like, its good that my portfolios diversified, but it actually made me think, why do I care about that if theyre losers? And so I sold them all. Has reading this book changed any of your strategies?

Brad Mills

Robert? The quote is, prices are never too high to begin buying or never too low to begin selling. And thats from other books as well. On trend following and investing. To really kind of identify if you are a trader or an investor is if you start to just ignore your positions because they're going down in price, then that's when you become a bag holder. And it's a very wise decision for people to understand that. Are you actually an investor or are you a bag holder? If you're just, if you're just ignoring your positions because they're going down and you don't want to look at them anymore. Yeah, you got to take something from that. And it's good that you were able to do that.

David Short

Yeah.

Kevin Hudak

And confirming what Brad said, I thought that reading this book, one, I opened up that investopedia account just to play with some money and be really aggressive like Livingston would be. But what I really took away is that the insiders, right. Livingston at the end talks about the advantage of the insiders. I think that advantage now still exists in terms of institutional money, in terms of big data analytics and all the algorithms and the bot trading that's going on, this confirmed for me that they are always going to have better information than the retail trader. And as Brad mentioned, to just be careful when youre in the market and recognize that its fairly impossible to beat the market. But you could have some lucky days, I imagine. But it is really tough as a retail trader to get near anything Livingston was able to accomplish by 1923 when this was written.

David Kopec

Trey David, are you changing any strategies based on this book?

David Short

Well, its a bull market, my friend. Um, I'm all in on Tesla now. Um, I I think I took the lesson that that Brad keeps, keeps hammering home from all this, that I certainly am prey to a lot of these emotions and I am not going to be able to spend enough time to be a true trader. And so in general I am very long bitcoin. But other than that I'm pretty much just uh, s and P 500 and cash and things like that. I don't try to pick individual equities because I know I dont have the stomach for it.

Kevin Hudak

Preston well, to Livingstons Point I was looking with this new investopedia account. Im not trying to give them so many shout outs, but with Salesforce. And one question I always hear is what does Salesforce do? And of course I tried to put in a big short on investopedia but because the market was closed on Monday, something went wrong. But lo and behold, we saw Salesforce plunge post earnings. So maybe I should have been in the market for that.

David Kopec

Is there anything about the book that we missed that any of you wanted to talk about?

Brad Mills

I don't think there's really too much other than again, I'll say if the listeners want to go through the book, the audiobook is so entertaining because the person who reads it, you got to get the one that's like the old timey narrator because he uses all this dialect and slogans and terms from 100 years ago. And if you just parallel what they're talking about in the book with what you observe over the last few years of markets and the craziness of Wall street bets and bankrupt companies. Bankrupt companies like, you know, Hertz going and trading for 400% gain and all this nonsense that's happening with naked shorting and the retail investor, you know, rising back and becoming a bigger force in the market, it's so, it's so relevant for people to kind of like think about what is going on now compared to then. And yeah, the audiobook is a very good listen because it's highly entertaining. I think I'm going to be going through it again and probably in the next year just, just to see, because I see where we are in the market right now. Feels like we're going to be heading into an insane, insane bubble. Yeah, I'm going to go through it again because I'm going to need another refresher on like what not to do.

David Short

Don't lose your position, Brad.

Brad Mills

It is a bull market.

David Kopec

Okay, now the big question, perhaps the most important question. Do you recommend this book? And if you do, who should read it?

Kevin Hudak

So when I'm taking this book and right in the beginning chapters, I mentioned how I felt like I was watching the sting but play out in these bucket shops. But as I went through it, I really thought, if you all remember a joke called the Aristocrats, there was a documentary done on it. And it's an inside joke amongst elite comics and stand ups where a family of stage actors, vaudeville performers goes before an agent. They do increasingly despicable things to audition. Gilbert Gottfried had a famous one post September 11 when they were doing a roast of one of their peers. But it's sort of like an inside joke. It's an inside unifier of an entire industry. And comedy salespeople have Glengarry Glen Ross, which everyone quotes, always be closing a I d a. Right. And people know that by heart. To me, this really seemed like one of those sort of inside unifiers for an entire industry.

David Short

Right.

Kevin Hudak

Finance professionals likely quote this reference it just like Glengarry Glen Ross, just like the aristocrats. And what I've heard from Brad is a little bit more than that. Right. Or a lot bit more than that in that hes been taking a lot of lessons from this, too. So what ive realized tonight, even just recording this podcast, is its a bit more than the aristocrats. Its a bit more than Glengarry Glen Ross. And id say I enjoyed it. Right. I think if youre in finance or finance adjacent roles, even as a retail trader or an everyday hobbyist, id definitely take a look at this book to see the mentality of someone who has gone through the highs and lows, see the mentality of those that youre up against. Right. I mentioned kind of the institutional shops, big data analytics firms, algorithm firms, bot farms, et cetera. So I definitely recommend it for those in finance finance adjacent, some of those hobbyists as well, to learn those important lessons that Livingston learned and that Jesse Livermore learned that ultimately ended up being quite bad for his personal life and led to his demise. Right. It's important to see those lessons for the larger business book audience that we have listening here. I would say this was a great example of an earl of early business writing. Right. We had some of that in past episodes, but as an early business book and also one that is, quote unquote, fictional, though we know it's based on the early life of Jesse Livermore, I think it's very valuable for others, though I likely wouldn't recommend this just because it was very, that first person narrative, it can drag on a bit if you're not interested in the subject matter. So finance finance adjacent folks who were inspired by early business books definitely, but for others, not so much.

David Short

Yeah, I would say I definitely recommend it for anyone who is interested in trading or in finance. Frankly, it provides a little bit of an interesting just color commentary picture of the financial history of the 1890s through 1920s. So if youre interested in economic history and those boom and bust cycles, I think it could be interesting but agree with Kevin's point. This is certainly not going to be a universal book that everyones going to enjoy and its definitely written in a old timey style that I personally really did enjoy, but others may find a little bit difficult. So yeah, probably a little bit of a niche audience, but one that I think would resonate with definitely anyone interested in trading.

Kevin Hudak

Preston, I completely overlooked that short and you are so right that for kind of early economic financial history, origins of trading, this would be perfect for someone interested in that as well. Good point.

David Kopec

Brad. I know you like the book because you read it every two years, but who do you recommend it to?

Brad Mills

Preston well, Im mostly a bitcoin guy and like I said, im more of an investor. I kind of try to sit on my hands instead of trying to fulfill this activity bias that I have, that a lot of people have. So when Im talking to people, Im trying to educate them about the history of money and just, you know, understanding the structure of inflation, like why the dollar is continually debasing over time and why its likely to continue to debase over time. So I like to send people to other resources when Im talking to them. Im one of those folks that believes that 90% of people in the world just want to work their job and save their money and enjoy their life, be happy and play their sports games and stuff, whatever they want to do. They don't want to become traders. Most people in the world just want to save and they just want to have a life. They want to own a home. And for them, the most important thing to do is to learn about the value of saving and saving in the best tool, which is not dollars anymore. So I like to recommend most people that I'm talking to read other books, books on money and bitcoin, but not trading because I like to steer people away from trading. I think, like I said, most people are going to get wrecked trying to trade eventually. You may get lucky a couple times and then you learn bad habits and then you take a big loss like he does in the book. So whenever somebody that I talk to is telling me about the latest dog coin that they're taking a shot at, I'm like, okay, you need to go read two books, reminiscences of a stock operator and what I learned losing a million dollars, at least the first half of that book. So yeah, it's mostly crypto people and people into speculation and into Wall street bet stuff. If any friends of mine text me with like, hey, what do you think about Nvidia? Should I go long? I'm like, okay, you got to learn what you're going to screw up here, most likely. So go read this book. So, yeah, it's definitely a book. I only recommend to the people that I think would benefit from learning all the lessons that he learned in the book. And I also try to coach them along with recommending them that they read this book, that they shouldnt be thinking like short term speculation. They should recognize that theyre likely not going to succeed and to just simply continue doing what youre doing in life, but save in a better form of money and increase your financial literacy rather than trying to just be a FOMO sapien and degen into everything that you think is going to go up ten x.

David Kopec

That makes total sense, Brad. And I'm mostly on the same page with you. I'm going to be a little bit of the odd person out here in that I really didn't enjoy the book almost at all. I found it kind of difficult to get through because a lot of it's like I bought 25,000 shares of us steel and it started to go up a couple points and then I sold some of my position and then started to go down and I bought some more and just those purely numeric anecdotes and there's always a lesson behind them, but they just bored me a little bit. So I struggled a little bit, just as a matter of finding it a little boring, frankly, to get through the entire 300 pages. Although I did from my perspective as a hobbyist investor and somebody who trades on a yearly basis, I try to only hold long positions. I found it interesting in parts. I did learn some lessons from it. As I mentioned, I already made some changes to my portfolio as a result. But ultimately, I really didn't enjoy it. Okay, David, tell us about our book. Next week we're going to be doing atomic habits.

David Short

Yeah, I'm excited to be reading atomic habits with you all. So this is a New York Times bestseller. I'm sure a lot of our listeners may have already read it or will now along with us, but this really tries to help teach you the ways to improve your everyday life through habits. And so James clear is a sort of expert on habit formation. And he gives a lot of specific strategies on how you can form good habits, break bad habits, and ultimately improve your life through those.

David Kopec

Okay, and do any of you have anything you want to plug? And how can our listeners get in touch with you?

David Short

You can see me on Twitter avidg short.

Kevin Hudak

You can find me on Twitter, also known as xudax basement. H u d a k s, basement.

Brad Mills

You can check me out at Brad mills can on Instagram. I'm mostly using Instagram these days, actually. Just recently locked my Twitter profile. I'm just not. I don't find it's a good. A good space to be in these days. Very negative. The algorithm is showing me all kinds of things that trigger me, and I decided I was going to cut the habit of Twitter, actually.

David Kopec

David and Brad, where can folks find you on Clubhouse?

David Short

I think I'm at David short on Clubhouse. To be honest, I'm not sure. I'll take a look.

Brad Mills

First, you have to go scroll down to the 10,000th listing on the top charts of the Apple app store. And then you'll find Clubhouse hidden there in the dusty corner with flappy wings. And then you can download it. And you have to get a secret invite from a friend. And then when you get a secret invite from a friend, you can't add us anymore because they removed that feature. So just don't use clubhouse. It sucks.

David Kopec

Okay, fair enough. Rad. Well, it was. It was great having you on the podcast. We really appreciate your insights and what you brought to this episode. Folks can find me on X. I'm at davekopeck. D A v e k o P e C. We want to thank everybody for listening. We hope that you follow us on Spotify or Apple podcasts. And don't forget to leave us a review if you enjoy the show, and we'll see you next month.

There are timeless principles that underlie stock trading. In this episode we discuss Reminiscences of a Stock Operator, considered by many to be a classic work in the space. First published in 1923, Reminiscences of a Stock Operator by Edwin Lefevre is a fictionalized biography based on the career of legendary stock trader Jesse Livermore. Through the first-person recounting of protagonist Lawrence Livingston’s career, Lefevre imparts hard won stock trading lessons. Through many booms and busts Livingston grows and forms a deeper understanding of the principles that underlie the market as well as the forces that propel it. The fictionalized biography has minimal personal anecdotes, concentrating almost wholly on Livingston’s career and the events that shape the US economy during his exploits from the 1890s through to the 1920s.

We were pleased to be joined by investor and entrepreneur Brad Mills on this episode, a huge fan of the book.

Show Notes

Follow us on X @BusinessBooksCo and join our Amazon book club.

Edited by Giacomo Guatteri

Find out more at http://businessbooksandco.com