It's A Bull Market
A lesson in buy-and-hold investing from "Reminiscences of a Stock Operator"
Happy Tuesday and welcome to our new subscribers!
Special thanks, too, to those who recently became paid supporters! ❤️
One of my favorite investing-related books is Reminiscences of a Stock Operator — which recounts the true-enough story of Jesse Livermore’s tumultuous tenure on Wall Street. The title says it all: Livermore was very much an operator as opposed to an investor — playing a frenetic game of buy and sell that seems entirely at odds with the teachings of Kingswell favorites like Warren Buffett and Charlie Munger.
What always surprises me, though, is how often Livermore brushes up against core investing truths — but can never quite convince himself to fully embrace them.
And while Reminiscences remains great fun as a pacy rollercoaster ride of astounding wins and ruinous losses, it’s also more than a bit frustrating. Time after time, Livermore comes so close to “getting it” — but never puts the many lessons he has learned into practice. Needless to say, his story does not end well. IYKYK.
Today, I’d like to take a closer look at one small vignette from the book that really resonates with an inveterate buy-and-hold investor like myself. One that could have saved Livermore’s fortune — and life — if only he had been wise enough to heed it.
In an early chapter of Reminiscences of a Stock Operator, Jesse Livermore (who goes by the name of “Larry Livingston” in the book) introduces us to an older gentleman — “one old chap who was not like the others” — who hung around his brokerage office.
This elder statesman — known as “Old Turkey” — preferred to keep his own counsel and did not participate in the wild speculation and gossip of the others. His quiet confidence gave him a certain gravitas that impressed his compatriots. They often sought out his advice before making a buy or sell decision.
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.”
Time and again, I heard him say, “Well, this is a bull market, you know!” as though he were giving you a priceless talisman wrapped up in a million-dollar accident insurance policy.
But, as Livermore ruefully admitted, no one quite grasped his meaning.
At least not at first.
One day, a regular named Elmer burst into the office and made a beeline for Old Turkey. Elmer breathlessly told him that he was selling his position in a particular automaker and urged the old man to do the same.
But, much to Elmer’s surprise, Old Turkey was not impressed. He kindly brushed aside the excitable young man’s increasingly insistent warnings that the company’s stock price would surely drop in the coming days and weeks.
Old Turkey just smiled and repeated his mantra.
“Why, this is a bull market!”
The old fellow said it as though he had given a long and detailed explanation.
A stupefied Elmer could not believe what he was hearing. He pleaded with Old Turkey to at least sell off some of his position and then buy back in after the price dropped lower. “You might as well reduce the cost to yourself,” he said.
Old Turkey replied:
“My dear boy, if I sold that stock now I’d lose my position; and then where would I be? … When you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford — not even John D. Rockefeller.”
“I hope the stock reacts [as you expect] and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for [my experience] and I don’t feel like throwing away a second tuition fee … It’s a bull market, you know.”
It finally began to dawn on Livermore what Old Turkey was saying. That jumping in and out of the market — even with the best of intentions — just doesn’t work.
“The more I studied, the more I realized how wise that old chap was,” he said. “He would not lay himself open to a temptation that experience had taught him was hard to resist and had always proved expensive to him — as it was to me.”
I don’t believe we ever find out whether Elmer was right to sell his shares or not. Or whether Old Turkey was left holding the bag for a tanking stock.
But, to be fair, that’s not really the point.
The moral of this little story is that Old Turkey refused to let his hard-won habits — his bias for inaction amid the frenzied shouts of others — slip for even one moment. As he put it, he “paid a high price” to learn this lesson in the first place.
When [Old Turkey] kept on telling other customers, “Well, you know, this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements — that is, not in reading the [ticker] tape, but in sizing up the entire market and its trend.
Or, put another way, there’s this brilliant line commonly attributed to former Realty Income CEO Tom Lewis: “The American stock market is similar to watching a person walk up the stairs with a yo-yo. People focus on the yo-yo going up and down, while the real story is the consistent movement of the person up the stairs.”
While Elmer was preoccupied with the yo-yo rising and falling, Old Turkey kept his gaze locked on the market’s larger, long-term ascent.
The lesson: If you zoom out far enough, it’s always a bull market.
(Or at least it has been throughout the history of the United States.)
As Warren Buffett likes to point out: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
Through all of these trials and tribulations, when the world must have felt like it was falling apart at the seams, we were actually in a bull market.
Even true financial calamities like the Great Depression and GFC get smoothed out in the market’s inexorable climb up and to the right. Of course, there’s no guarantee that this will continue into the future — but I certainly won’t be the one to bet on its sudden reversal after centuries of steady progress.
Become a paid supporter today and receive immediate access to seven (and counting) annotated transcripts full of wit and wisdom from the top names at Berkshire Hathaway.
Paid subscribers will also continue to receive a new annotated transcript each month.
Unfortunately, Jesse Livermore did not entirely grasp this simple idea. A dyed-in-the-wool trader, he took Old Turkey’s advice to mean that investors should jump in with both feet during bull markets — but run for the exits before the bears arrived.
Left unsaid — probably because it’s next to impossible — is just how someone is supposed to predict these huge swings in the market ahead of time.
If Livermore had really listened to Old Turkey, he would have realized that the wiser course of action is to opt out of these guessing games altogether. Stop trying to time macroeconomic movements and, instead, remain invested through thick and thin.
Once you’ve identified a good idea — whether it comes in the form of an individual company or a broader index — the best investors load up and surf that particular wave all the way in.
After all, it’s a bull market.
That is a great one --> "The American stock market is similar to watching a person walk up the stairs with a yo-yo. People focus on the yo-yo going up and down, while the real story is the consistent movement of the person up the stairs."
“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’s interesting that Livermore’s strategy here is really just a limited version of Buffet/Munger strategy. The difference being one only of degree, as the latter buy right and sit tight… forever.