Chapter 1: The Challenge of
Speculation
·
Consider speculation as a business. Do not let
the speculation play into emotion.
·
If you think a price will go from 25 to 50. Wait
and watch the stock. Buy when it reaches 30, which gives you confirmation of
the momentum. If you buy at 25 or 26, your move, more often than not, will end
stale.
·
It is human trait to be hopeful and equally
fearful. But when you inject hope and fear into the business of speculation,
you are faced with a very formidable hazard.
·
To be a consistently successful investor or
speculator, one must have rules to guide him.
·
Remember, one’s set of rules may not work for
another. Don’t depend on rules given by someone else.
·
Sometimes investors say “I don’t worry about
fluctuations in the market. I never speculate. When I buy stock, I buy for
investment, and if they go down, eventually they will come back”. Most likely
the investment will evaporate into thin air.
·
Whereas, the speculators with a clear guiding
plan, will cut losses quickly and use the cash to buy another good investment.
·
Money lost by speculation is small compared to
sums lost by the so-called investors.
·
Points to remember:
o Never
sell a stock, because it seems high-priced
o Never
buy a stock because it has a big decline from its previous high.
o Never
make a second trade, if your first trade shows you a loss. Never average
losses.
Chapter 2: When does a Stock Act
Right?
·
Stocks, like individuals, have character and
personality.
·
When you see a danger signal, don’t argue with
it. Get out. A few days later, if things look all right, you can always get
back in.
·
A speculator who insists on trying to profit
from daily minor movements will never be in a position to take advantage of the
next best move.
Chapter 3: Follow the Leaders
·
It is much easier to watch a few stocks than
tracking many.
·
The leaders of today may not be the leaders of
tomorrow. Watch out for changes in prime stocks.
Chapter 4: Money in the Hand
·
Avoid averaging down. Why send good money after
bad?
·
A speculator should make it a rule, that each
time a successful deal is closed, take one-half of profits and lock it in a
safe-box.
·
Never make a trade unless you know you can do so
with financial safely.
Chapter 5: The Pivotal Point
·
Pivotal points are prices with round values.
E.g. $10, $20, $40 etc.
·
Sometimes it better to wait for the price to
pierce the nearest pivotal point and then place a trade.
·
It is necessary to keenly observe the stock’s
movement and take the profits at the first sign of weakness.
Chapter 6: The Million Dollar
Blunder
·
Don’t buy all at once. First determine the entry
point. Determine how much total investment you are going to make. Buy partial
at entry. If the price progresses, buy more at new high. If the first buy
becomes sour, then you can cut losses and in the end you will lose less.
·
Always keep a little notebook and make notes of
market information or about a particular stock. That way you can be well aware
of a stock’s characteristics.
·
The author talks about how he lost lot of money
buying cotton bales several times. The price went down each time he would buy.
After 5 times, he gave up. But then later price had a breakout and sky
rocketed. He missed a fortune. He leant a lesson of patience.
Chapter 7: The Three Million
Dollar Blunder
·
The author explains how he made $3 million
dollar profit from short-selling wheat.
·
Short interest in speculative markets may give
big profits, because the short interests become willing buyers, and those willing
buyers act as a much-needed stabilizer in times of panic.
Chapter 8: The Livermore Market
Key
·
Trading in and out of the market all the time,
catching small intermediate moves is wrong.
·
The author provides his technique of using a
table chart with 6 columns to record the price movements that helps capture the
major movements and avoid the minor intermediate moves. This will help to stick
to the rules and not deviate from that the price movement says.
·
Always track two stocks in the same group. They give
absolute confirmation of the trend.
Chapter 9: Explanatory Rules
·
Detailed explanation of the rules on how to
record the prices in the table-chart.
