I’ve been reading Tom Rubython’s biography Jesse Livermore–Boy Plunger: The Man Who Sold America Short in 1929 lately. It’s not a great book for style, but it is fascinating if your interest happens to run toward finding out how people who make money actually do it. Livermore grew up with nothing but his brain, made and lost several fortunes over his lifetime, and eventually committed suicide in 1940. He might have held on to at least one of those fortunes had he been able able to learn what a great investor of the next generation, Warren Buffett, learned: stock markets go up and down, but they go up over time. Livermore was as aware as anyone that markets go up and down. He thought the game was to play both the ups and the downs, hence the short-selling of 1929. But that’s not the whole game. The whole game is in the realization and the execution of patience, as the market goes up over time. Patience is what allows the mathematical magic of compound interest to do its work. Patience is also what allows investors great and small to sleep at night, as those same markets endure downturns, crashes, and puzzling sideways turns that no one can predict.
Without the understanding that markets go up over time, investing becomes a guessing game; it becomes gambling, even for the most knowledgeable investor. If patience can become a large component of an investor’s mental makeup, however, investing in the stock market can be profitable, and can form a large and vital part of the funds that all of us must save for our retirement and our old age. Livermore never quite attained that patience, which was a tragedy. He died believing that he was ultimately a failure, something that was not so. He had a brilliant head for numbers and an intuitive sense of where the market was headed, but he lacked the sense of a long-term view. Decades of experience in reading the constantly-changing numbers on the old stock tickers blinded him to the trajectories of companies over longer periods of times, just as our earth-bound existence blinds all of us in every way to how vast our solar system is, and how much vaster than that the entire universe is around us.
There are inset stories in Rubython’s book that will fascinate you. The financial situation in America in 1907 may well make you think of 2008, for instance. J.P. Morgan himself had to intervene in order to prop up many Savings & Loans, and prop up the stock market itself. Livermore had to be persuaded–gently–not to short the market then, too–an early temptation he gave into twenty-two years later. But surrounding all of the many interesting details of Livermore’s obsessive love for making money is this larger issue of the trait of personality that he lacked: the patience to take the long view, and retain the fortune he had worked so hard to amass.