The Hindu Business Line : Sell stocks that keep you awake at night

Not happy with whatever success you achieve in the market? Perhaps you need Lessons from the Greatest Stock Traders of All Time, by John Boik, from Tata McGraw-Hill (www.tatamcgrawhill.com). The book profiles five individuals — Jesse Livermore, Bernard Baruch, Gerald M. Loeb, Nicolas Darvas and William J. O'Neil.

"Stock trading attracts many people because it's easy to try, and many view it as an easy and quick way to riches. But as the majority learn, most the hard way, it's not as easy as it seems. The stock market is an interesting display of expectations and emotions," writes Boik in the intro.

Runaway success

The tale of Livermore, the first among the five standout achievers discussed in the book, begins in the 19th century. In the early 1890s he began as a chalkboard boy, at $6 per week. His job was `to post the stock quotes on big chalkboards covering the length of the brokerage house as prices were called out by tape watchers sitting in the gallery as fast as they could yell them out from the ticker tape machines.' By the age of 20, Livermore was known as `The Boy Plunger' because of the runaway success he had in bucket shops, where one bet on the next move of the stock.

Over time, Livermore learnt an important lesson: Emotional control, or poise. "He knew that a healthy state of mental balance — one that was not to be influenced by hopes or fears — is a key skill of the successful trader." Patience is another virtue that he valued. "Also, being silent and keeping to yourself about your losses and your gains is a crucial skill."

Further traits that Boik infers from the master trader include: "Observation (stay focused only on factual data); memory (remember key events so you don't repeat mistakes); and mathematics (understand the numbers and fundamentals)." Avoid tips and information from others, reads a tip, drawn from Livermore's strategies. "Avoid cheap stocks," says another tip. "The big money is made in the big swings, and they usually don't come from cheap stocks."

Knowledge, the key

The story of the second star in the book, Baruch, begins with the lessons that he learnt early on, by analysing his losses.

He discovered `that most of his losses stemmed from a lack of knowledge of what he was investing in, such as the company's fundamentals and what the company's prospects were for future growth and profits'. Another culprit behind losses was trading beyond one's financial resources. Of universal relevance, you'd agree.

One of Baruch's quotes cited in the book is, "No speculator can be right all the time. In fact, if a speculator is correct half of the time, he is hitting a good average. Even being right three or four times out of ten should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong."

Baruch is reported to have spoken about selling to the `sleeping point'. This means selling stocks if they keep you awake at night worrying about them, explains Boik.

A book that can keep you awake!

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