“There were times when my plans went wrong and my stocks did not run true to form, but did the opposite of what they should have done if they kept regard for precedent.” So wrote Jesse Livermore, as chronicled in the brilliant book Reminiscences of a Stock Operator by Edwin Lefevre. Stock market historians will recall that Jesse Livermore is still considered one of the most colorful stock market speculators of all time. Indeed, the “boy plunger” was blamed for the market crash of 1929 and for precipitating every market swoon from 1917 to 1940. Jesse’s investing success was driven by his ability to develop certain indicators, combined with an investing discipline that spawned such stock market axioms as:

  1. Fear your losses and let your profits run.
  2. It never was my thinking that made me money, but my sitting tight.
  3. Markets are never wrong, opinions are.
  4. The tape knows all.

Years ago we studied the tactics of Jesse Livermore, along with a number of other stock market operators, and have found many of those strategies to be just as valid today as they were decades ago. We were reminded of the Livermore “pearls” while reading an interview with stock market guru Stan Druckenmiller who said:

These algos (algorithms) have taken all the rhythm out of the market and have become extremely confusing to me. And when you take away price action versus news from someone who's used price action news as their major disciplinary tool for 35 years, it's tough, and it's become very tough. I don't know where this is all going. If it continues, I'm not going to be able to return to 30% a year any time soon.

The implication was that almost every meaningful indicator Druckenmiller used to follow markets no longer works. “People, and institutions, simply are not trading or investing the way they used to. It’s part and parcel of how dramatically the business has changed, and of the ways so many hedge funds and trading desks work these days.” To us, those comments were akin to Jesse’s quote, “There were times when my plans went wrong and my stocks did not run true to form, but did the opposite of what they should have done if they kept regard for precedent.”

We, however, take exception to the quote “People, and institutions, simply are not trading or investing the way they used to. It’s part and parcel of how dramatically the business has changed, and of the ways so many hedge funds and trading desks work these days.” We actually think the individual investors/traders have a HUGE advantage to the institutional types. For example, if we want to buy, or sell, 1000 shares of a stock, we can do so easily. Not so a portfolio manager that wants to sell 100 million shares of Facebook (FB/$131.73/Outperform). At the end of this missive we include Jesse Livermore’s trading rules, which we consider to be just as valid today as they were nearly a century ago.