Time is Time and Money is Money. The key to success in investing is not speed. It is patience, patience, and more patience. “It is not the thinkin’ that makes the money; it’s the sittin’ and waitin’ that makes the money”. This quote is from Jessie Livermore, one of the world’s greatest stock traders.
Jesse Livermore was born in 1877. He ran away from home at age 14 with five dollars. He started as a board boy with Pain Webber, made so much money he was quickly banned. He made a fortune in the crash of 1907 and later lost it all, only to make it again and lose it several times more. He married Dorothy Zeigfield, a showgirl, lived in a magnificent mansion on Long Island, had a three hundred foot yacht with which he ferried to Wall Street. He sold the market short before the crash of 1929 and entered the Depression with 100 million in cash.More on the live of Jesse Livermore can be found in Richard Smitten’s book: The Amazing Life of Jesse Livermore: the World’s Greatest Stock Trader.
The most remarkable aspect of Smitten’s book is that in Chapter 11 he sums up the Market Timing Secrets of Jesse Livermore; and in Chapter 12 you can find Money Management Rules. Does it surprise you that rule number one is: “Don’t Loose Money”; the same rule on which Phil Town wrote an entire book?
Rule number two is: “You should always have a target where to sell a stock that moves against you”. Jesse Livermore suggested that he never takes more than a ten percent loss of capital. William O’Neil, who wrote a book that heavily borrowed from Jessie Livermore, later refined this rule to imply never to take a loss of more than 7-8% of the original cost of a stock.
The third rule of Jesse Livermore suggests that there are times your money should be inactive, waiting on the sidelines in cash, waiting to come into play. Often money that is just sitting on the sidelines can later be moved into the market at the right time. Patience is the key to success, not speed.
If you are in the market and your portfolio is making money, then stay with it, said Jesse Livermore. “Profits take care of themselves; losses never do”. Never confuse this with “buy-and-hold”.
Finally, remember this quote from Jesse Livermore: “You can win a horse race, but you cannot beat the races. You can win on a stock, but you cannot beat Wall Street all the time – nobody can”. It is interesting to reread these time proven lessons about market timing and money management; as well as to observe how few professional investment managers are taking these lessons at heart.
