By Fred Evans – March 30, 2017

A young grain producer and I were recently speaking about marketing and he expressed frustration in his quest to do a good job at pricing his crops.  While he does an excellent job of producing his crops on the 1,000+ acres he farms, he feels out of his league when he ventures into the world of grain marketing at the CME.  I acknowledged his concerns and encouraged him to keep learning as much as he could about marketing, and to practice a degree of patience.

I explained to this producer that achieving a level of comfort and success with marketing often takes years.

The best example of persistence leading to success in the futures and stock markets is found in the biography of Jesse Livermore.  Livermore was known as a “Stock Operator” who made his career speculating in stocks and commodities at the turn of the last century.  The classic book, Reminiscences of a Stock Operator by Edwin Lefevre (1923), recounts the story of Livermore’s life and how he made and lost millions of dollars in the markets.

While it is not my intent to encourage speculation in the markets, the lessons Livermore imparts through his experiences and the advice he gives are applicable to all of us involved with grain marketing, despite being more than 100 years old.

Livermore had a brilliant mathematical mind that enabled him to recognize price patterns in stocks.  However, that was not the sole secret to his success.  He also had a keen insight into the attitudes and motivations of human nature that he was able to capitalize upon.

Some of his advice included the following, and I quote from the Forward in the book, written by William O’Neil:

1. – There is nothing new in Wall Street. Whatever happened in the market today has happened before and will happen again.
2. – History repeats itself.
3. – The big money is made by sitting, not thinking. Men who can both be right and sit tight are winners.
4. – The point is not to buy as cheaply as possible, or go short at the top price, but to buy and sell at the right time.
5. – I never argue with the tape. (Substitute computer screen.)
6. – It took me five years to learn to play the game intelligently enough to make big money when I was right.
7. – There is nothing like losing for teaching you what not to do. And when you know what not to do you begin to learn what to do in order to win.
8. – There are only two emotions in the market – hope and fear. The only problem is you hope when you should fear and fear when you should hope.
9. – Know yourself and provide against your own weaknesses.

If Livermore could speak with the young producer, he would probably tell him this:
“Realize that the market is difficult for most investors because it works precisely the opposite way of how a normal, intelligent person tends to think and react.”

He would also tell him to study the conditions of the market, avoid taking “tips” and to learn to anticipate probabilities.  Throughout the book Livermore credits learning from his mistakes and he would no doubt counsel the young producer likewise.

It took Livermore five years before he considered that he was truly successful in market speculation.  He worked at honing his skills daily and he did nothing but watch the markets.  We, as producers, do not have the luxury of solely watching the markets, so we should not expect our success timeline to be as short.

I realize there is a big difference between hedging and speculating, and a huge difference between farm marketing and speculating. I think it’s worth understanding how the speculator thinks, so we can become better grain marketers by capitalizing on their human frailties.

Finally, it would be most interestinging to observe Livermore in action if he lived today.  The role of the computer, the impact of commodity funds’ activity and the much tighter security industry regulations have altered the playing field but I have no doubt that he would adapt.  He understood human nature and that is one thing we still must work to understand in order to improve our chances of being successful at grain marketing.

Fred Evans spent about 40 years in the futures and grain trading business. He now provides services as an analyst and commodity market researcher on a part-time basis for DePutter Publishing Ltd.

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