Tuesday, April 19, 2011

Livermore on Century Marks

"The first thing I saw on the quotation board was that Anaconda was on the point of crossing 300. It had been going up by leaps and bounds and there was apparently an aggressive bull party in it. It was an old trading theory of mine that when a stock goes through 100 or 200 or 300 for the first time the price does not stop at the even figure but goes a good deal higher, so that if you buy it as soon as it crosses the line it is almost certain to show you a profit. Timid people don't like to buy a stock at a new high record. But I had the history of such movements to guide me. "Anaconda was only quarter stock; that is the par of the shares was only twenty-five dollars. It took four hundred shares of it to equal the usual one hundred shares of other stocks, the par value of which was one hundred dollars. I figured that when it crossed 300 it ought to keep on going and probably touch 340 in a jiffy. "I was bearish, remember, but I was also a tape-reading trader. I knew Anaconda, if it went the way I figured, would move very quickly. Whatever moves fast always appeals to me. I have learned patience and how to sit tight, but my personal preference is for fleet movements, and Anaconda certainly was no sluggard. My buying it because it crossed 300 was prompted by the desire, always strong in me, of confirming my observations. "Just then the tape was saying that the buying was stronger than the selling, and therefore the general rally might easily go a bit further. It would be prudent to wait before going short. Still I might as well pay myself wages for waiting. This would be accomplished by taking a quick thirty points out of Anaconda. Bearish on the entire market and bullish on that one stock! So I bought thirty-two thousand shares of Anaconda that is, eight thousand full shares. It was a nice little flyer but I was sure of my premises and I figured that the profit would help to swell the margin available for bear operations later on. On the next day the telegraph wires were down on account of a storm up North or something of the sort. I was in Harding's office waiting for news. The crowd was chewing the rag and wondering all sorts of things, as stock traders will when they can't trade. Then we got a quotation the only one that day: Anaconda, 292. There was a chap with me a broker I had met in New York. He knew I was long eight thousand full shares and I suspect that he had some of his own, for when we got that one quotation he certainly had a fit. He couldn't tell whether the stock at that very moment had gone off another ten points or not. The way Anaconda had gone up it wouldn't have been anything unusual for it to break twenty points. But I said to him, "Don't you worry, John. It will be all right to-morrow." That was really the way I felt. But he looked at me and shook his head. He knew better. He was that kind. So I laughed, and I waited in the office in case some quotation trickled through. But no, sir. That one was all we got: Anaconda, 292. It meant a paper loss to me of nearly one hundred thousand dollars. I had wanted quick action. Well, I was getting it. "The next day the wires were working and we got the quotations as usual. Anaconda opened at 298 and went up to 302¾, but pretty soon it began to fade away. Also, the rest of the market was not acting just right for a further rally. I made up my mind that if Anaconda went back to 301 I must consider the whole thing a fake movement. On a legitimate advance the price should have gone to 310 without stopping. If instead it reacted it meant that precedents had failed me and I was wrong: and the only thing to do when a man is wrong is to be right by ceasing to be wrong. I had bought eight thousand full shares in expectation of a thirty or forty point rise. It would not be my first mistake; nor my last."

Why post this today? Well, because SOHU is attacking 100 today.
http://screencast.com/t/NoyjhMijX12J