Source: Chishubai, compiled from the Internet
Introduction:
One day, Livermore called his two sons to his “permanent” study.
He sat behind a large table with his two children sitting in front of him. He was in debt. He took a handful of cash from his pocket, drew 10 1 yuan notes from it, drew the same one time, then folded up two piles of money and handed it to his son one by one.
The children sat and watched him with money in their hands. “Sons, keep folding up your money and putting it in your left pocket. Just do what I say; the money is yours.” The children did the same, folding up the money and putting it in their left pocket. “You have to understand that thieves are always looking for wallets, often in the back pocket, or they will walk up behind you and look for your front right pocket because most of them are right-handed. Do you understand now, son?” he asked. The kids nod. He went on to say, “OK, that's why you have to fold up your money and put it in your left pocket. Look, if a thief wants to touch your left pocket, he gets close to your point and you'll notice.” The children glanced at each other. Their father continued, “Don't lose your money, son, this is the key. Keep the essentials close and don't let anyone get close.”
Buffett once said that there are two principles for investment transactions: principle one is don't lose money, and principle two is don't forget principle one. What he told us was money management.
Money management, on the other hand, is one of the three puzzles: timing, money management, and emotional control, which fascinates Jesse Livermore the most. Jesse Livermore has five main principles when it comes to money management. In the whole trading theory he explained to his son a few years later, money management made up a large part of the content.
Capital boss Ge Weidong once posted the following picture of Livermore's 10% loss table and said, “This table should be what you should learn in the first investment lesson! Anyone who has only read his autobiography can know his ending! At his peak, his net worth seemed to be only over 100 million US dollars, but at that time the GDP of the US was only about! From this point of view, he is much richer than Buffett and Soros! What a wonderful life! But what can I do!!!”
But regardless of the final outcome of Livermore, his money management system is definitely worth learning from every one of our financial investors.
Livermore Fund Management Principle 1
Don't lose money - don't lose your principal, don't lose your credit. A speculator running out of money is like a shopkeeper running out of goods.Money is your inventory, your lifeline, and your best friend; if you don't have money, you're out of the game. Don't lose your credit.
It's wrong and dangerous to fill a position at one price. You should first decide how many shares you want to buy. For example, if you want to buy 1,000 shares the most, you should do this: buy 200 shares first in the experimental phase, buy 200 shares again if it's still rising, then look at the market reaction. If it continues to rise or if it continues to rise after consolidation, then you can let go of your guts and buy 400 shares at once.
Also, keep in mind that the price of each follow-up purchase will definitely get higher and higher, which is important.Of course, short selling also uses the same principles; the only difference is that prices are getting lower and lower.
The root cause is simple: in the process of finally buying enough 1,000 shares, every transaction must show that the speculator is profitable. Profit every time is clear evidence that it is irrefutable that your basic judgment is correct. That's all you need, that's all. But in turn, if you lose, you know right away that your judgment was wrong.
What is most difficult for investors who are still literate to overcome is that the price of adding positions is getting higher and higher.What's the reason? Because everyone wants to buy bargains, that's all. Don't use your mind to compete with facts, be extravagant, or discern right from wrong with paper tape; paper tape is always right. If you speculate, you can't get lucky, think nonsense, be fearful, be insatiably greedy, or use it with vigor. What the paper tape says is the truth, yet people often lose the slightest bit when they understand it.
Last but not least, you can buy stocks without my ratio. For example, you can buy 30% the first time, 30% the second time, and 40% the last time. This is entirely up to you, as long as he thinks the results are the best. I'm just here to briefly talk about the method I'm most comfortable using. The core principle is that you don't need to cut your positions once; wait until your judgment is confirmed, and the price of each purchase should be higher. The instinctive reaction of most traders is the opposite.
Remember to determine your total position before trading.
Livermore Fund Management Principles II
You should determine the total number of shares bought, the ratio of the investment portfolio in all cases, and the price target for a normal increase. Similarly, you should also have a clear goal for when to sell stocks. If the stock market movement contradicts your estimates, you must remember to stop loss.”
Also, you must abide by your own principles, and don't sit idly by and deceive yourself! My basic principle has always been to keep losses within 10% of the principal amount.
If the stock market moves contrary to expectations, it should be clear when to sell. Be sure to follow the principles! Don't let losses exceed 10% of your investment. It's half the hard work to make up for the loss.
This is what I learned from speculative shops — they only pay a 10% security deposit. If I lost more than 10%, the speculative shop would naturally kick me out. The 10% loss principle is my most important money management principle and a key “determining timing” principle.
Remember: you must establish a firm stop-loss point before trading, and never lose more than 10% of your investment!
If you lose 50%, you have to win 100% to make it back!
Livermore 10% loss schedule
I also learned one thing. If your agent calls you and tells you that because the stock has fallen, your security deposit isn't enough, and you have to pay some more money, just tell him to clear your inventory. If the stock you bought for 50 yuan now falls to 45 yuan, don't buy more to lower the average purchase price. The stock price didn't perform as expected, which is enough to show that you made a mistake in your judgment! Hurry up and admit your losses and quit.
Remember, don't respond to phone calls asking for an increase in security deposit, and don't keep buying low.
I've lost less than 10% of my inventory many times, just because I bought the wrong one in the first place. My 'intuition' always quietly says to me, “JL (Jesse Livermore likes people to call him JL). This stock is a bit wrong. It's an idiot who can't fool around with three sticks; it's not normal to be alive,” so all of a sudden I liquidate all of my holdings.
Perhaps it was the “heart” that worked, refined what I had witnessed thousands of times before, sent subconscious signals, and stored these repetitive patterns in my memory, so I unknowingly wrote them down. Whatever it is, my extensive market experience over the past few years has taught me to trust these instincts.
I definitely believe that the price movement pattern is repeated over and over again, with only minor changes. The reason is that it is human nature that drives the stock market movement, and human nature never changes.
I've observed many times that people often passively become investors. They bought the stock, but the stock fell, but they didn't want to sell it to accept losses; they would rather hold on to the stock and hope that it would rise again after a rebound. That's why the 10% principle is important. Don't be a passive investor. Hurry up and admit your losses and launch! That's easier said than done.
Livermore Fund Management Principle 3
A successful speculator must always keep cash in their hands. It's like a general who is good at using troops, has an army specially reserved for good fighter jets, and then acts with full confidence so that the garrison can deliver the final attack and save effort. Before, he watched the changes and waited for the opportunity to fully mature.
The opportunities in the stock market are endless. If you miss an opportunity, just wait a little longer. Don't worry; the next great opportunity is just around the corner. Don't chase lost opportunities; live to death on this deal. If it's a good deal, then all the conditions you want will be there.
Remember, there's no need to stay in the stock market all the time.” Livermore applied the same principles to the pastime of cards, Camaro, poker, and bridge cards; these are all games manipulated by humans. The desire to “always be involved” seems like one of speculators' greatest enemies, and may even eventually lead to disaster. Livermore learned this a few times in his early years.
When you invest in the stock market, there are always times when you have to let your money rest, take your money aside, etc., and wait for the opening time of the tournament to arrive. This is no loss of money; time is time; money is money.
The money that remains motionless now will be moved by the right conditions and at the right time in the future to fight a quick and decisive battle and make a big profit. The secret to success is patience, patience, patience, not speed. When used properly, time is a smart speculator's best friend.
Remember, smart speculators are patient and always keep cash in their hands.
Livermore Fund Management Principle 4
As long as the stock market runs as expected, don't rush to arbitrage; know that your basic judgment is correct; otherwise, you have no profit to make at all. If there aren't any negative factors on the big side, then just go with the stock rising! It may be a huge increase in profit. As long as fundamentals and the actions of the stock market have nothing to worry about, let it rise, and you must have the courage to trust your own judgment. Don't be shaken!
I'm never nervous if the deal is profitable. I may have bought hundreds of thousands of shares in one stock, but I can sleep in peace. The reason? Because I've already made money. I'm just “using the money brought about by the rise, it's the money from the stock market,” and even if I lost all my profits, the money I lost wasn't mine; that's all.
Of course, the opposite is true; if I buy a stock but the stock doesn't work as expected, I sell it right away. You can't sit back and watch; instead, you have to work hard to figure out why the stock market isn't operating as expected. The current reality is that the stock market is “running” like this; this evidence is enough to get experienced speculators out.
Earning money is worry-free, but losing money is not at all worry-free.
Don't confuse the rise of stocks with “buy it and hold on and don't let go.” I have never and will never blindly buy a stock to hold. How could we know the situation so far away? Things are changing: life is changing, relationships are changing, physical conditions are changing, seasons are changing, children are changing, lovers are changing, so why shouldn't the basic conditions for buying stocks change? Just because the company is good, the industry is developing strongly, and the overall state of the economy is good, buying and holding blindly is, in my opinion, tantamount to finding a dead end in the stock market.
Stick to the frontrunner, unless there is a clear reason to get out of hand, otherwise the stock will rise along with it.
Jesse Livermore's Fund Management Principle 5
I recommend saving 50% of the profit, even more so if it's 100% profitable. Set the money aside, keep it in the bank, use it as a reserve, or lock it in a secure deposit box.
It's like winning money in a casino, and every now and then you have to get off the table and exchange the winning chips for money. This is unmistakable. There is no better time than to “make” a fortune in the stock market. Cash is the bullet in the barrel of a gun; you must always have cash in your hands.
One of my biggest regrets in my financial career was that I didn't pay enough attention to this principle.
Editor/jayden
