Investor Profile Series- Knowing the God (Part I)- Warren Edward Buffett

(Suvi) #1

Applied Value Investing by Jose Calandro

A classic for practising valuation. Jose starts from where Bruce Greenwald left in his master piece “Value Investing-Graham, Buffett and beyond”. The book picks up the Graham Dodd concepts which were refined by Bruce Greenwald and added with Seth Klarman practice notes.
So what we get:
Jose starts by creating a value growth paradox which encompass all key drivers of value i.e. assets, growth, earnings and franchise.

His initial valuation calls for conservative which is Net asset value reproduction, earnings power and franchise growth or simple growth value.

Stage 2 covers a validation with further adjustments to asset base by calling out appraiser note, auditor comments, expert opinions.

Earnings power refined with targeted executive discussion items. Few hints has been given as to how to use management communication. I think a combination of “Investing between the lines” by Rittenhouse would be a perfect match.

In the next leg of stage 2 the franchise growth has been attacked by strategy based inquiries, what if scenarios in operations, financial management etc.

Stage 3 talks about macro view, George Soros view of business stages and final validation of margin of safety.

Great book I would say, however a caution this is not meant for stand alone reading. Prior reading of Bruce Greenwald, Graham and Dodd is essential to practically use the concepts. Of course “Measuring the Value” from Mckinsey would be icing on cake for this book.

Happy investing!

(Suvi) #2

Value Investing and Behavioural Finance by Parag Parikh

Parag Parikh unfortunately left all of us last year in an bizarre incident that took place while he was in Omaha to attend Buffet’s AGM. Incidentally Mr Parikh passed within a month or so of death of his guru Chandrakant Sampat.

The book is a rare piece customized on Indian scenario, what you can see inside is:

Parag explains the importance of behavioral finance through both psychology and market terminologies. He starts off with success, failures of a human, his behavioral trends. And most importantly how does one human reacts to these behavioral trends.

Parag touched upon sufficiently on contrarian philosophy, what can lead to growth trap before he plunged to investment specifics.

Specific investment coverings are quite diversified, you have commodity, PSU, sector based investing, IPO and index investing.

He ends up with a caution on bubble trap and how to manage behavioral finance.

The strength of this book is very simple and lucid language, all Indian examples. He extended his conversations with his own clients in aggregate manner.

I just finished 4th time after I bought in 2010. I am sure you will enjoy as well, there is no kindle version. A copy is available through Amazon.

Happy reading!

(Suvi) #3

The Dhandho Investor by Monish Parai

Well known Value Investor and Fund Manager Monish Pabrai takes us through various facets of his investing journey.

He gives Patel’s of US Motel industry as an example of Dhandho (Business) their spend management, concentration in turning around distressed asset.

He moves to Virgin Atlantic , again another attempt at distressed asset turning into gold. Also Mittal steel example is included.

Mohnish starts his investing tips saying you:

  • must invest in existing business
  • simple business
  • distressed business and distressed industries
  • business with durable moats
  • few bets, big bets and infrequent bets
  • arbitrage to increase liquidity
  • Margin of safety
  • Low risk and high certainty business
  • go with copy cat not with innovators

Not sure, how others found. When I red first couple of years back nothing kicked me really. Pretty much same stuff of value investing except stress on distressed asset.

And in India, distressed assets are more risky than it looks, they hang on to stock exchange for years. Perhaps bankruptcy code will make distress investment easier.

Saying that I do have very high regards for Mr Pabrai.

(P Sharma) #4

Hi There are already a few threads with various book reviews. I don’t see the need for another thread.


(Suvi) #5

I saw a bunch of thread with different names. Wanted to share the books which I probably found good and may be helpful for others.
I didn’t find Dhandho Investor mentioned anywhere, neither not sure where do I club this.

(P Sharma) #6

Appreciate your interest in helping others. There is a thread called Next Reading List : Beyond the basics. This thread covers the review of Dhando Investor too. It really helps if one searches the topic that one wants to write about before starting a new thread.

My point of bringing this up is to keep up the site easy to navigate and use and we all continue to benefit from the collective wisdom of the readers.

I have read some of the other threads that you have created. Found them useful. Keep up the good work.

Many Thanks

(Nikhil Jain) #7

Check this out

(Suvi) #8

I did search by using the icon on right corner, unfortunately it didn’t give me much information. May be I should have dug deeper. Trust me I have no intent to clutter the thread.

I understand your point, thanks for bringing to my attention.

(Suvi) #9

Thanks Nikhil for pointing me out, still new in this forum.

(Suvi) #10

Walter Schloss……value hunter

Source: Value Walk, Schloss Speech at CBS, Walter Schloss Memo

One better way to understand investment strategy is clone the best in markets. But the catch lies what to clone and what not to clone. If you see writings on media wall you fill find stuffs written on the great investors are mostly personal in nature…i.e. achievements, family life and so on. Is that sufficient, simple answer is no.

This is abstract profile of legendary investor Walter Schloss.

Walter Schloss passed away in 2012, he had a phenomenal success in investing where he compounded at almost 16% over 47 years.

Investment Philosophy of Walter Schloss

Schloss belong to Ben Graham school, most of his style are inspired from Graham.
Say like

  • Discount to book value, low PE, existence for long time, no long term debt, owner promoter and good dividend yield.

Schloss believed that while some talent is needed, value investing can be taught, the only skill that is required is discipline. Schloss liked to test himself, controlling his emotions and waiting for a stock to fall further before buying, even though he liked the stock in the first place when it was at a higher price. This discipline and patience can be linked to his success; waiting for the perfect opportunity can be the key to successful value investing.

Words of Wisdom

Price is the most important factor to use in relation to value.

Try to establish the value of the company. Remember that a share of stock represents part of business and is not just a piece of paper.

Use the book value as a starting point and try to establish the value of the enterprise. Be sure that debt does not equal to 100% of equity.

Have patience, stocks do not go up immediately.

Don’t buy on tips or for a quick move. Let the professional do that if they can. Don’t sell on bad news.

Don’t be afraid to be a loner but be sure that you are correct in your judgment. You can’t be certain 100% but try to look for weakness in your thinking. Buy on a scale and sell on a scale up.

Have the courage of your convictions once you have made a decision.

Have a philosophy of investment and try to follow it. The above is a way that I have found successful.

Don’t be in too much of a hurry to sell. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock goes up say 50%, people say sell it and button up your profit. Before selling try to reevaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yields low and P-E ratios high. If the stock market historically high. Are people very optimistic etc?

When buying a stock, I find it helpful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. 3 years before the stock sold at 20 which shows that there is some vulnerability in it.

Try to buy assets at a discount than to buy earnings. Earnings can change dramatically in a short time. Usually assets change slowly. One has to know how much more about a company if one buys earnings.

Listen to suggestions from people you respect. This doesn’t mean you have to accept them.

Remember it’s your money and generally it is harder to keep money than to make it. Once you lose a lot of money it is hard to make it back.

Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks.

Remember the word compounding. For example, if you can make 12% a year and reinvest the money back, you will double your money in 6 yrs, taxes excluded. Remember the rule of 72. Your rate of return into 72 will tell you the number of years to double your money.
Prefer stocks over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.

Be careful of leverage. It can go against you.

(Source: 1994, Walter Schloss Memo)

Conclusion: key theme is patience that’s what Walter Schloss says. It’s a strategy that takes time to develop understand and become accustomed to, but after first ten years, it should be easy. Walter Schloss personally for me is one of 19 gurus always I get inspired and adored.

By the way Walter never went to school!

Note- I searched above from lens, I didn’t find any similar subject. Please let me know a corrective action if required.

(Suvi) #11

Somebody asked me in 2015, what is the biggest thematic investment possibility in your opinion. Well I never struggled for this answer since I started investing back in 1997.

It’s the women

If one thing going to turn India to stardom then it’s her girl and women. Intelligent, sharp shooters with decades of vision and outstanding academicians. For us the good news is a lot of them still sit in sidelines thanks our social fabric of putting them behind curtain for what they call as greater cause. Though veil has lifted long time back some demented sections of society with megalomaniac attitude have been trying to play different cards ! But no one can stop this juggernaut ……Kalpana Moraparia, Naina Lal Kidwai, Chanda Kochar, Sanjutka Verma, Punita Sinha, Shikha Sharma……whats common in them? They are all leading the banks, IB, financial services in India. Supposedly the most complex sector of India!

These stunning partners of India are ready to add another few trillion in coming years.

When we speak about women, who can forget Ashalata Maheshwari? Even Mr Ratan Tata checked in before he proposed Mr Cirus Mystry’s name for heading Tata Group.

Though much information is not available on web or public about this magic lady, her clout has reached even wall street journal.

Her investment philosophy is not known much, I saw her on ET Now and one another channel giving interview. She carried this legacy from 1954 and guess what Chandrakant Sampat supposedly entered in 1956!

She looks like any other housewife, investment philosophy what I could make out is:

  • hold for long long period, she is holding Grasim for 62 years (1954-2016).
  • take investing easy, depend on good promoters with impeccable track record. This made her close to who’s and who’s of industry including Tata and Aditya Birla even.
  • She attends a lots of AGM to and listen to it, ask questions.

She have so much faith in some group, she holds almost all Tata group stocks.

She is undoubtedly one of flag bearers of Indian Women investing fraternity.

I came to knew about Mrs Maheshwari around 2005, I wanted to put her above Mr Sampat by heart somehow mind didn’t allow!

(Suvi) #12

Knowing the God (Part I)- Warren Edward Buffett

Simply putting he is the greatest investor of all time, and if we are proud to call ourselves as investor then its because of him. He is also the one who punctured other wise a strong belief, “investors can’t make more money than entrepreneur”. No further introduction for Warren Edward Buffett.

My challenge was what I can inform about God which others don’t know or even like to read in first place. He is covered from printing magazines to pistol magazine, news paper to toilet paper, video to audio….not a single sphere is left where Buffett is left out. Then what is it I think probably it will help? I have been like a billion plus people following him, hearing him for long time. I put them to single document and categorise it. Before I put my money, after all analysis I checked this holy text to find out whether I have gone terribly wrong somewhere.
First the source:

  1. Berkshire Hathway letters (1964-2015)
  2. His free speeches available on web.
  3. Few books which I know of covered his style.

All I did over the years is made into different buckets like investment philosophy and method, valuation, risk, special situations etc.

Today let’s talk about Buffett and his “investment philosophy” with more small little things what I could sniff from letters

  1. My best deals didn’t came from financial numbers, couple of company I bought at one third of working capital. Had I looked at products closely I would have not buy at at all. I made lot of money from windmill, street car, but investing is not about making money. These are for all one time profit, I don’t consider them as investing.
  2. Everybody has different circle of competence, you should not be worried about how big the circle of competence but to stay inside the circle of competence. Even if its 30 out of 1000 you still need to know them better than regretting over missing 970. There are a lot of things you need to learn about business.
  3. I don’t fool around myself around multiple buy prices. Once I decide a price and makes sense to me I put the button. I was happy before pressing and after also. I don’t do a DCF but I can explain why I bought this company.
  4. Idea can come out of cumulative knowledge or it just comes along. You must be patient, idea doesn’t come overnight; sometime it can take years. And I am not worried about missing something outside the circle of competence. Avoid dump things, know your limitations; I was incapable of taking decisions in more than 70% of US listed companies.
  5. I look for owner promoter who are passionate about business. And passion for me is integrity, I look at their eyes and ask do you love business or the money?
  6. First, you need two piles. You have to segregate businesses you can understand and reasonably predict from those you don’t understand and can’t reasonably predict. An example is chewing gum versus software. You also have to recognize what you can and cannot know. Put everything you can’t understand or that is difficult to predict in one pile. That is the too-hard pile. Once you know the other pile, then it’s important to read a lot, learn about the industries, get background information, etc. on the companies in those piles.
  7. I read a lot, annual reports, magazines, forms to SEC; and the good news investment is a business where knowledge accumulates and forms a base.
    They ought to think about what he or she understands. Let’s just say they were going to put their whole family’s net worth in a single business. Would that be a business they would consider? Or would they say, “Gee, I don’t know enough about that business to go into it?” If so, they should go on to something else. It’s buying a piece of a business. If they were going to buy into a local service station or convenience store, what would they think about? They would think about the competition, the competitive position both of the industry and the specific location, the person they have running it and all that.
  8. I think you should read everything you can. In my case, by the age of 10, I’d read every book in the Omaha public library about investing, some twice. You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water – take a small amount of money and do it yourself. Investing on paper is like reading a romance novel vs. doing something else.
  9. But you need something in the way you’re programmed so you don’t lose a lot of money. Our best ideas haven’t done better than others’ best ideas, but we’ve lost less. We’ve never gone two steps forward and then one step back – maybe just a fraction of a step back.
  10. There won’t be any scarcity of opportunity in your life, although there will be times when you feel that way.
    Don’t worry too much about your mistakes
    Don’t learn too much from your mistakes:
    Don’t become Mark Twain’s cat that never sat again on a stove after being burned
    BUT…never be willing to play a “fatal” game
    Don’t confuse social progress with the chance to make money – look at airlines and autos for examples
    Law degree is not essential, but good if you think it will help in your specific career
    Learning to think like a lawyer is a valuable trait
    Allocate even more of your day to reading than he does
    Read lots of K’s and Q’s – there are no good substitutes for these - Read every page
    Ask business managers the following question: “If you could buy the stock of one of your competitors, which one would you buy? If you could short, which one would you short?”
    Always read source (primary) data rather than secondary data
    If you are interested in one company, get reports for competitors. “You must act like you are actually going into that business, and if you were, you’d want to know what your competitors were doing.”
  11. It’s hard for individual investors to successfully pick stocks or time the market. The best investment you can make is in your own abilities. Anything you can do to develop your own abilities or business is likely to be more productive than investing in foreign currencies.
  12. Ben Graham said you’re neither right nor wrong if you’re investing with the crowd – you’re right if your facts and reasoning are right. Once you have the facts, you have to think about what they mean. You don’t take a survey.
    You should focus on what’s important and knowable. There are many things that are important but now knowable, like [whether there will be] a nuclear attack tomorrow. You can’t focus on those.
  13. Investors have to remember: corporate profits are going up, but stocks are going up faster. How can that continue indefinitely? Investors can only earn what companies themselves can earn; the government or the markets themselves don’’t kick anything in. How can you get anything more out of a farm than what it grows?
    There’’s nothing magical added by the stock market to corporate returns. It just doesn’’t create more earnings to pay out to investors. If you trace out the mathematics of the market’’s logic, you begin to see the limits to the logic.
  14. There is no doubt that there are far more “investment professionals” and way more IQ in the field, as it didn’t use to look that promising. Investment data are available more conveniently and faster today. But the behavior of investors will not be more intelligent than in the past, despite all this. How people react will not change – their psychological makeup stays constant. You need to divorce your mind from the crowd. The herd mentality causes all these IQ’s to become paralyzed. I don’t think investors are now acting more intelligently, despite the intelligence. Smart doesn’t always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.
  15. The qualitative [evaluating management, competitive advantage, etc.] is harder to teach and understand, so why not just focus on the quantitative [e.g., cigar butt investing]? Charlie emphasized quality [of a business] much more than I did initially. He had a different background.
  16. If we were to do it over again, we’d do it pretty much the same way. The world hasn’t changed that much. We’d read everything in sight about businesses and industries we think we’d understand. And, working with far less capital, our investment universe would be far broader than it is currently.
  17. You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share!! I tried to buy up as much of it as possible. No one will tell you about these businesses. You have to find them.
  18. Attractive opportunities come from observing human behavior. In 1998, people behaved like frightened cavemen (referring to the Long Term Capital Management meltdown). People make their own opportunities. They will be frozen by fear, excited by greed and it doesn’t matter what their IQ, degrees etc is. Growth of 50% per year is with small capitalization, not large cap. The point is I got rich looking for stock with strong earnings.
    The last 50 years weren’t unique. It’s just capitalizing on human behavior. It’s people that make opportunities when others are frozen by fear or excited by greed. Human behavior allows for success if you are able to detach yourself emotionally.
  19. In your investing life you will have several opportunities and one or two that can’t go wrong. For example, in 1998 the NY fed offered a 30-year treasury bonds yielding less then the 29-½ year treasury bonds by 30 basis points. What happened was LTCM put a trade on at 10 basis points and it was a crowded trade, they were 100% certain to make money but they could not afford any hiccups. I know more about human nature; these were MIT grads, really smart guys, and they almost toppled the system with their highly leveraged trading.
  20. We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially. The worst – the financial panic is behind us. The economic spillout which came to some extent from that financial panic is still with us. It will end. I don’t know if it will end tomorrow or next week or next month. Or maybe a year. But it won’t go on forever. And to sit around and try and pick the bottom, people were trying to do that last March and the bottom hadn’t come in unemployment and the bottom hadn’t come in business but the bottom had come in stocks. Don’t pass up something that’s attractive today because you think you will find something way more attractive tomorrow.
  21. You don’t need another Ben Graham. You don’t need another Moses. There were only Ten Commandments; we’re still waiting for the eleventh. His investing philosophy is still alive and well. There are disciples of him around, but all we are doing is parroting. I did read Phil Fisher later on, which showed the more qualitative aspects of businesses. Common stocks are part of a business. Markets are there to serve you, not to instruct you. You can often find a couple of companies that are out of line. Find one; get rich. Most people think that what the stock does from day to day contains information, but it doesn’t. It isn’t just something that wiggles around. The stock market is the best game in the world. You can take advantage of people who have no morals. High prices inside of a year will typically be 100% of the low price. Businesses don’t change in value that much. That is simply crazy. There are extreme degrees of fluctuation, and Mr. Market will call out the prices. Wait until he is nutty in one direction or the other. Put in a margin of safety. Don’t find a bridge that says no more than 10,000 pounds when you have a 9800 pound vehicle. It isn’t a function of IQ, but receptivity of the mind.
  22. When investing you don’t have to invest in all 10,000 companies available, you just have to find the one that is out of line. Mr. Market is your servant. Mr. Market is your partner and wants to sell the business to you everyday. Some days he is very optimistic and wants a high price, others he is pessimistic and will sell at a low price. You have to use this to your advantage. The market is the greatest game in the world. There is nothing else that can, at times, get this far out of line with reality. For example, land usually only fluctuates within a 15% band. Negotiated transactions are less volatile. Some get this; others don’t. Just keep your wits about you and you can make a lot of money in the market.
  23. You don’t have to be right on everything or 20%, 10%, or 5% of businesses. You only have to be right one or two times a year. I used to handicap horses. You can come up with a very profitable decision on a single company. If someone asked me to handicap the 500 companies in the S&P 500, I wouldn’t do a very good job. You only have to be right a few times in your lifetime, as long as you don’t make any big mistakes.
  24. The key is to have a “money mind,” which is not IQ, and then you have to have the right temperament. If you can’t control yourself, you’re going to have disasters. Charlie and I have seen it. The whole world in the late 1990s went a little mad in terms of investments. How could that happen? Don’t people learn? What we learn from history is that people don’t learn from history.
  25. I have 2 views on diversification. If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund, and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb.
  26. We think first in terms of business risk. The key to Graham’s approach to investing is not thinking of stocks as stocks or part of the stock market. Stocks are part of a business. People in this room own a piece of a business. If the business does well, they’re going to do all right as long as long as they don’t pay way too much to join in to that business. So we’re thinking about business risk. Business risk can arise in various ways. It can arise from the capital structure. When somebody sticks a ton of debt into a business, if there’s a hiccup in the business, then the lenders foreclose. It can come about by their nature–there are just certain businesses that are very risky. Back when there were more commercial aircraft manufacturers, Charlie and I would think of making a commercial airplane as a sort of bet-your-company risk because you would shell out hundreds and hundreds of millions of dollars before you really had customers, and then if you had a problem with the plane, the company could go. There are certain businesses that inherently, because of long lead time, because of heavy capital investment, basically have a lot of risk.
  27. We don’t care if a company is large cap, small cap, middle cap, micro cap. It doesn’t make any difference. The only questions that matter to us:
    Do we understand the business?
    Do we like the people running it?
    And does it sell for a price that is attractive?
  28. You didn’t have to have a high IQ or a lot of investment smarts to buy junk bonds in 2002, or certain other things after Long-Term Capital Management blew up. You just had to have the courage of your convictions and the willingness to act when everyone else was terrified and paralyzed. The lesson of following logic rather than emotion is obvious, but some people can follow it and some can’t.
  29. Right now, I would pay a hundred-thousand dollars for 10 percent of the future earnings of any of you. So, if anyone wants to see me after this is over. If that’s true, you’re a million dollar asset right now, right? If ten percent of you is worth a hundred-thousand? You could improve on that, many of you, and I certainly could have when I got out, just in terms of learning communication skills.
    It’s not something that’s taught, I actually went to a Dale Carnegie course later on in terms of public speaking. But if you improve your value 50 percent by having better communication skills, it’s another 500-thousand dollars in terms of capital value. See me after the class and I’ll pay you 150-thousand. You can dramatically increase your value by improving oral and written communication skills.

Next bit I would post what Mr Buffett have to say about Valuation and Price.

(The Confused Consultant) #13

Jesse Livermore- pivot point of unlearning (Part I)

I was told about Jesse Livermore when I was 14 years old. Though sitting on a small time coastal beach I couldn’t understand a lot, it did left impression for future to know more and more. The more I read about Jesse Livermore more I get convinced about one thing. There can not be any other fascinating story of an investor or trader, it has all……poverty, stardom, beautiful women, quick bucks, failure and tragic end. I am sure many of you would have gone through his biography, this is for those who are yet to know about this personality of gut wrenching and nerve wrecking. Pass over value investor Warren Buffett or trader/investor George Soros, the story of Livermore is unlikely to be repeated, or getting reborn due to the basic fact he didn’t end as a successful human despite the might of wealth and galaxy he has created. There is lot to learn and unlearn from him.

I will attempt not to repeat of what is being already written about him though it’s difficult to do so.

Major books credited to Jesse Livermore

  1. The reminiscences of a stock operator (all time classic)
  2. The Boy plunger (more recent version)
  3. How to trade in stocks by Mr. Livermore himself
  4. The world’s greatest stock trader
  5. All documentary on 1929 wall street crash

In addition there is no single trader in world who has not named or adopted Jesse Livermore at some point of time. The rule of stop loss, averaging upward, anchoring bias etc he was practising well before these words were invented. He deserves a rightful place among greatest financial personality ever born.

Roller coaster of an impoverished boy

Jesse Livermore shot himself at a laundry room of upscale hotel in Manhattan, NY on the fateful day of 27th November 1940 leaving a suicide note. When cops decoded the lengthy note frustration was oozing out, repetitive words of failed attempt of depression, acceptance of failure was apparent. This was from a man who made 100 million dollar in 7 days by shorting stock market in 1929 wall street crash. In current terms at meagre 8% CAGR the value is 81 billion dollars for 7 days, way above richest man of world now even. Did he managed to hold on? A flat no, Jesse Livermore ended up with negative net worth of 5 million dollars. He had a history of failing and rising, a champion speculator but a great teacher for all of us.

As a matter fact I asked specifically in Sherry Netherland (the hotel where he shot himself) whether I can see the place where the greatest trader spent his last minute. Unfortunately it’s completely revamped.

A chronological view of Jesse Livermore’s life

  1. Was born as unwanted child (he was not expected into world as father was struggling with debt and existing children).
  2. Forced out of school by father to work in farmland, landed in Boston with help of her mother. All done by age of 14.
  3. His super fast ability to read the price tickers in bucket shop (a malnourished version of brokerage house for poor then) prompted the owners of the houses to ban him from trading.
  4. Mr. Livermore bought first share at the age of 15 and made some money by understanding trends.
  5. He has always won in the bucket shop , in the end he was banned.
  6. He landed in Newyork and tested his abilities on wall street and lost every thing. First bankruptcy.
  7. Again he went back to bucket shops in disguise and got his fortune back before he was recognised and kicked out.
  8. By 1901 Livermore made more money, buy automobile and luxury. Lost everything in cotton trade. Bankruptcy 2.
  9. By the age 28, gathered a fortune of 100K, spent lavishly on vacation and fashion.
  10. In 1907 market crash catapulted more fortune by shorting. Bought Yacht, a rail car and posh apartment.
  11. 1908 lost 5 Million basis tips from friend. Bankruptcy 3.
  12. Got into cotton and steel trade, made 5 million.
  13. Household name by 1916, book written on him.
  14. By 1925 he made 25 Million. 1927 in burglary lost half his fortune.
  15. 1929 great crash- cracked 100 million in 3-4 days, the biggest money in history of man kind anyone made in short time.
  16. His wife shot his child due to drinking habits.
  17. Married and spend lavishly on chartered flight again.
  18. His lifestyle, renovation, again lost money. Livermore sunk to depression and filed for fourth bankruptcy in 1935.
  19. SEC arrived in 1934 and Livermore understood trading is never going to same.
  20. 1940 he shot himself leaving no money to children.

The story doesn’t end here, his son committed suicide (Jr Jesse Livermore) in 1965, his grandson Jesse Livermore 3 also committed suicide in 2006. Great grandson is not named either Jesse and still surviving three children. May god keep him alive and healthy!

But this is not something we don’t want to follow and know. Jesse Livermore may not kept his money but his wisdom stayed for generations with investors and traders.

Livermore wisdom notes, please do read them carefully. Some of them may change you forever, you can cover missing notes if any from the books written on him. Pure words of wisdom!

  1. In fact, I always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own.
  2. There is a plain fool, who does wrong thing at all times everywhere, but there is wall street fool who thinks he must trade all the time.
  3. They say there are two sides to everything. But there is only one side to the stock market, and it is not the bull or bear side, but the right side.
  4. My losses have taught me that I must not begin to advance till I am sure I shall not retreat.
  5. All my life I have made mistakes, but in losing money I have gained experience and accumulate a lot of valuable dont’s.
  6. A man must believe in himself and his judgment, that is why I don’t believe in tips.
  7. After several years I was back where I began. No worse, for I had acquired habits and a style of living that required money; though that part didn’t bother me as much as being wrong so consistently.
  8. The beauty of doing business with a crook is that he always forgives you for catching him, so as long as you don’t stop doing business with him.
  9. There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to do. Did you get that? You begin to learn.
  10. I know what I didnt know then, and I think of the mistakes of my ignorance because those are the very mistakes every average stock speculator makes in and out.
  11. I could make out difference between stock speculation and gambling, I won and lost as before , but I was winning balance.
  12. The game of beating market was 10-3 everyday, and after three it was game of living my life!
  13. I am not sure of the exact value of losing, for if I had lost more I would have lacked money to test out the improvements in my methods of trading.
  14. The amateur tipster always thinks he owns the received of his tip body and soul, even before he knows how the tip is going to turn out.
  15. After loosing million and making million I want to tell you it was never my thinking that made big money for me. It was always my sitting tight! Men who can both be right and sit tight are uncommon.
  16. Some time always elapses between a mistake and realising it, more time for determining it.
  17. Overtime I found the reason for a loss or the why and how of another mistake, I added a brand don’t to my schedule of assets. And that is cut down my living expenses!
  18. When I have argued myself into disregarding my impulse and have stood pat I have always had cause to regret it.
  19. A million things could happen. But I cant promise you that of them will. I can’t give you any reasons and I cant tell fortunes.
  20. The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something or nothing, he doesn’t wish to work even think. It is too much bother to have to count the money he picks up from the ground!

I will continue with another series of words of wisdom shortly. It gives me goosebumps when I think this man was saying all this 100 years back when probably my grand father or even great grandfather was scared even to buy a cycle!

Making a long time move to equity investing, personal financial plan has been few ephemeral questions. The more I discuss them in past more I was convinced, there is no common answer. One has to find out his self styled philosophy backed up by conviction and patience! The eternal answer is within you, don’t look for it from outside. Jesse Livermore’s words can help you reaching few or a lot of answers for sure.

Good wishes and happy investing

(Nandan Banerjee) #14

Thanks for the wonderful post…