"Old Turkey" Appraising Conditions

(Meditations on a Stock Operator, On Reminiscences Chapter 5)

Meditations on a Stock Operator: “Old Turkey” and Appraising Conditions

RE: Chapter 5, My favorite chapter

There is "gold" in this chapter. For as long as I've re-read, re-skimmed and referenced this "Traders' Bible", I always pause and savor Chapter 5. Many of you who have read this book carefully at least once knows what I mean by this.

"The average ticker hound-or, as they used to call him, tape-worm-goes wrong, I suspect, as much from over-specialization ...a highly expensive inelasticity."

This opening line refers to much of what our behavior bias bring us. There is the rigidity of discipline and there is the adherence to abstracted forms based upon what could be very arbitrary parameters.

When I read this line, I am reminded about the idea that my particular specialty, "trend following" comes with a caveat, from veterans, to develop a robust methodology. A robust system fits like a somewhat loose fitting glove, versus the skin tight surgical variety, which like some perfectly tailored intricate trading systems, have to be disposed of, usually sooner than later. (Please see: LTCM, “portfolio insurance”, “buy the dip” and perhaps risk parity, generational funds and robo-traders.)

"After all, the game of speculation isn't all mathematics or set rules, however rigid the main laws may be. Even in my tape reading something enters that is more than mere arithmetic... If a [trade/position/thesis/etc.] doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit."

"It is a very old thing, this of noting the behavior of a stock and studying its past performances...Today there are scores of commission houses where you find trading charts. They come ready-made from the offices of statistical experts and include not only stocks but commodities."

And just as today, we study the past in search of precedent and principles and we have an even greater abundance of sources for our "charts". As sophisticated as we think we are, and as many market cycles have passed since the publication of this book, we are still playing out historical and behavior "rhymes".

"I should say that a chart helps those who can read it or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke."

I would say this is 100% true right now and will always be so. There are limits to OUR perception and self-knowledge and therefore some of us are ripe for being taken out of the markets without realizing we gave ourselves permission to be taken out via losses/ margin calls/etc.

"...not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions."

This emphasis on being able to see things in the present, "to appraise conditions" is so helpful in more than speculative ventures in the market, but also in life itself.

“After I got back to New York to try for the third time to beat the market in a Stock Exchange house I traded quite actively...Yet, I can see now that my main trouble was my failure to grasp the vital difference between stock gambling and stock speculation."

This is at the heart of our process of developing from being mere punters to business managers of risk management. There is hope and emotion and ego versus risk aware transactions designed to grow capital.

"The first change I made in my play was in the matter of time... I had to start much earlier if I wanted to catch the move... In other words, I had to study what was going to happen; to anticipate stock movements. That sounds asininely commonplace, but you know what I mean. It was the change in my own attitude toward the game that was of supreme importance to me. It taught me, little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating."

We all do this and understand this process of doing our "homework" which enables us to make trades in accordance with managing a business. A professional trader is not driven by "fluctuations" but by appraising conditions and making a plan of action in advance of the actual trade itself.

Livermore would characterize his professional development as such and began to evolve during these early post-bucket shop years:

"I had to go further back than an hour in my studies of the market-which was something I never would have learned to do in the biggest bucket shop in the world. I interested myself in trade reports and railroad earnings and financial and commercial statistics. Of course I loved to trade heavily and they called me the Boy Plunger; but I also liked to study the moves. I never thought that anything was irksome if it helped me to trade more intelligently. Before I can solve a problem I must state it to myself. When I think I have found the solution I must prove I am right. I know of only one way to prove it; and that is, with my own money."

While you and I might not necessarily use trade reports, we do routinely and regularly engage in a business-like assessment of consistent data sets, and would adjust our process accordingly with time, experience and outside phenomena of loss, gain and mentors/role models to study from or with.

"Slow as my progress seems now, I suppose I learned as fast as I possibly could, considering that I was making money on balance. If I had lost oftener perhaps it might have spurred me to more continuous study. I certainly would have had more mistakes to spot. But I am not sure of the exact value of losing, for if I had lost more I would have lacked the money to test out the improvements in my methods of trading."

Another common predicament is not just our rate of development but also having enough capital to put into play. The size of our backroll can dictate what we do, how often and when.

"Studying my winning plays ...I discovered that although I often was 100 per cent right on the market- that is, in my diagnosis of conditions and general trend-I was not making as much money as my market "tightness" entitled me to. Why wasn't I? There was as much to learn from partial victory as from defeat."

We both know that one all too well. A trade looked great on paper and should have yielded so many points and grown our P&L with some respectable green but the actual executed results are so different? We also ask ourselves, “why??” Livermore is about to explain why:

"Everybody knew that the way to do that was to take profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried to do; for I often took profits and waited for a reaction that never came. And I saw my stock go kiting up ten points more and I sitting there with my four-point profit safe in my conservative pocket. They say you never grow poor taking profits. No, you don't. But neither do you grow rich taking a four-point profit in a bull market."

OH this is just about the hardest thing to do, to ride on your winners and allow for a chance to make an enjoyable and vastly profitable outlier blowout, ONLY we didn't because we were playing it "safe".

“Where I should have made twenty thousand dollars I made two thousand. That was what my conservatism did for me. About the time I discovered what a small percentage of what I should have made I was getting I discovered something else, and that is that suckers differ among themselves according to the degree of experience.

"The tyro knows nothing, and everybody, including himself, knows it. But the next, or second, grade thinks he knows a great deal and makes others feel that way too. He is the experienced sucker, who has studied-not the market itself but a few remarks about the market made by a still higher grade of suckers. The second-grade sucker knows how to keep from losing his money in some of the ways that get the raw beginner. ...This semisucker is the type that thinks he has cut his wisdom teeth because he loves to buy on declines. He waits for them. He measures his bargains by the number of points it has sold off from the top. In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly. He makes most of the money-until one of the healthy reactions takes it away from him at one fell swoop. But the Careful Mike sucker does what I did when I thought I was playing the game intelligently- according to the intelligence of others. I knew I needed to change my bucket-shop methods and I thought I was solving my problem with any change, particularly one that assayed high gold values according to the experienced traders among the customers."


“...there was one old chap who was not like the others. To begin with, he was a much older man. Another thing was that he never volunteered advice and never bragged of his winnings....His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast."

"Old Turkey", Mr. Partridge, is my favorite lesson in this book. FEEL Free to read this BUT you can skip down to where the lettering becomes "BOLD" and darker. There are the nuggets if you are one of those "TL/DR" types.

“The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap's answer was always the same.

The customer would finish the tale of his perplexity and then ask: "What do you think I ought to do?"

“Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, "You know, it's a bull market!"

Old Turkey faced many who who thought they owned his right ot sell or not sell after giving him a tip. Like many of us, have have tips pressed upon us, with a proprietary attitude taken by tipster, and some traders, in earlier days, have pressed us for advice or tips, and paid them not with money or commissions but with the burden of their personal responsibility. He gave one critical answer to a tipster who thought he could tell the old trader when to “pull the trigger” and exit a trade, and explained why he had not yet sold, in hopes of buying the same idea back on a reaction.

The old timer knew he would lose his “position” and he didn’t mean his job but his trading position in a profitable trade. That old bird was going to sit on his hand and ride a winner, leaving his tip benefactor dumbfounded.”

The amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out.

"I think it was a long step forward in my trading education when I realized at last that ...the big money was not in the individual fluctuations but in the main movements- that is, not in reading the tape but in sizing up the entire market and its trend."

"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 or 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. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance."

There it is, can we you learn how to "appraise conditions" and then make a plan and follow at the right moment and then be prepare an exit plan and then SIT on the trade if it works out and not exit until a PRE-PLANNED EXIT emerges, based upon your plan?

"The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight."

The challenge for us is to only assess your market, your field of speciality, and then find a speculative plan of trade which could offer a good risk-reward and then act then only and then exit ONLY according to a plan?

"Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! Wait until you see-or if you prefer, until you think you see-the turn of the market; the beginning of a reversal of general conditions. You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. One of the most helpful things that anybody can learn is to give up trying to catch the last eighth-or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent."

ANOTHER NUGGET is that weakness for "perfection" or some false precision that came of your already imperfect mind, and going for a specific price only. Sometimes that fear of "missing out" is further blown out by your insistence that the market miraculously obeys your whims/prejudices.

Without faith in his own judgment no man can go very far in this game. That is about all I have learned-to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary... It is the big swing that makes the big money for you."

I sympathize with this process of learning and re-learning how not to be a sucker so that Mr. Partridge, "Old Turkey" himself would not knowingly and smile about.