Jesse Livermore made – then lost – millions of dollars several times over in the first few decades of the 1900s.
He amassed his last fortune by short-selling stocks during the 1929 stock market crash.
By 1934 he had lost it all.
He was bankrupt.
In 1940 he committed suicide. While tragic, spare a thought for his third wife, Harriet. Livermore was her fifth husband. And she had lost every one of them to suicide.
The book, Reminiscences of a Stock Operator by Edwin LefÃ¨vre immortalised Jesse Livermore’s exploits. I have never read it so I can’t be sure the following quote is even from that book. But wherever it comes from, it might be the most wise advice you’ll ever read about how to handle a bull market.
For the record, I read it in a recent interview with James Turk, founder of Goldmoney.com.
Keep in mind Livermore was a trader. He made and lost millions. This advice comes from bitter experience.
‘And right here let me say one thing: after spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets.
‘I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine — that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.‘
Sitting tight might sound easy. But our emotions get in the way. We are hard wired to ‘take action’ when threatened of losing, or gaining a ‘profit’.
Just take a look at what Dennis Gartman said recently…
Gartman publishes a well-known trading report in the US. His clients are mostly hedge funds and institutional investors. He influences the ‘big money’.
In his 13 December 2011 report he commented negatively on gold’s price action, ‘We have the beginnings of a real bear market, and the death of a bull’.
But early in the New Year, Gartman changed his call. The gold price correction was not as deep as he first feared. The subsequent rally back above US$1,600 forced him to concede the bull market was still intact.
For a trader like Gartman, switching between a bull and bear market call might not seem like a big deal. And for traders it might not be. But for investors it is. It’s a massive deal. Getting a bull market call right… and sticking with it… is the most important thing you can do to build wealth.
There’s a lot of market noise and gloom right now. So don’t lose sight of the fact that precious metals are in the middle of an epic bull market. I know it can be tough on your emotions when gold and silver sell off at the same time as stocks in general. It’s demoralising. The sharp falls in price can make you question your strategy. At its worst, it forces you to sell at the wrong time.
Let me assure you, the bull market has a long way to go. What you’re seeing now is the bull having a breather. It’s happened before and will most likely happen again.
Don’t confuse this lull, like Dennis Gartman did, as the start of a bear market. If you take a trader’s mentality in bull markets you risk giving up huge gains. That’s because you’ll trade in and out and might miss the biggest spikes.
So my advice to you is simple. Sit tight during this precious metals bull market. Do nothing.
And most of all, try to enjoy the ride.
for The Daily Reckoning Australia