Reading investment books for Love or for Money?

By Kenneth Robson on October 20, 2013 • ( 0 )

Jesse Lauriston Livermore (Photo credit: Wikipedia)

A new follower of the traders’ website Ten Bags Full recently asked what reading would be most helpful for someone new to the intrigues of the stock-market. My response:

The most effective but harshest teacher is experience. Nothing beats putting one’s own, and one’s family’s, money at risk.

It may well be that one can avoid much of the downside to investing by profiting from the experiences of others. It also I think, makes investing a more fascinating activity if it is an intellectual challenge.

If you are new to the market, you have a whole new universe to explore. There are two books you might like to read early on, that are both readable and informative.

Reminiscences of a Stock Operator, written by Edwin Lefevre, is the story of one of the most successful traders of all time, Jesse Livermore. It is an eminently readable story.

Although his hey-day was a century ago, and investing is now more advanced, so much of his experiences are still applicable. It discloses a somewhat devious face to investing of which we should all be aware.

At that time it was possible for a single person with a willingness to take on risk, to almost control the market for a commodity or a security, sometimes creating for themselves fabled wealth, but other times rendering them bankrupt. More than once Jesse Livermore had to rise again by borrowing, to regain his fortunes.

At that time, short selling was an established legitimate trading activity, less controlled than it is today. Much of his wealth came from pouncing on vulnerable victims, and building up an unassailable position against the company and its share-holders. He was a hard-nut in his negotiations, but at times was vulnerable to appeals to the more generous side of his nature, aided by a little trickery.

Although it is commonly denied that short-selling had anything to do with the Great Depression, it was certainly true that it enabled him in his latter days to greatly increase his wealth.

The other book I would mention is “Charting Secrets” written by Louise Bedford. It is an easily understandable text on technical analysis. I would not belittle the iomportance of fundamental analysis, especially to value investors. However there are stocks, mostly low cap ones that may not yet be profitable but can be extremely rewarding to those who are prepared to back them. Technical considerations may be the only tool for assessing and exploiting market perceptions.