No One Can Beat the Market

By Fred Evans – June 8, 2017


“No one can beat the market.” — Edwin Lefevre


Isn’t that a fine statement from a man who enjoyed an 18-year career encouraging people to trade futures?


He had a point: There’s evidence that only two in ten people will be successful speculating on the market, and if those two stay in the market long enough they too will lose.


“No one can beat the market” was the theme of the book Reminiscences of a Stock Operator by Edwin Lefevre that I wrote about in my last article, Marketing Lessons Learned From a Pro.


I believe the lessons contained in that book are too important to be ignored.  Again, while the book focuses primarily on speculation on Wall Street more than 100 years ago, the parallels with the futures markets today are no different.  For those of us who have to buy or sell grain, the lessons are applicable.


If one does not have a marketing plan then, like it or not, one becomes a speculator.


Some of us are good at it. But the truth is, most of us are not.


As you may recall, the book follows the career of Jesse Livermore, who was regarded as the greatest market speculator of his time.


In the book, he is asked about making mistakes in the stock market: Does a person only learn from his own mistakes or, can he/she profit from the mistakes of others? 


He answers:

“The recognition of our own mistakes should not help us a bit more than the study of our own successes.  But there is a natural tendency in all men towards punishment.  When you associate a certain mistake with a licking, you do not hanker for a second dose.  Of course all stock market mistakes wound you in two spots – your pocket book and your vanity.”


In other words, we learn best from our own mistakes in the markets. When you err, and you own up to it, you learn. When you just read or hear about someone else’s mistakes, it doesn’t have the same impact.


During his career, Livermore often traded wheat and cotton on the futures markets.  In one of his more successful ventures he traded cotton from the long side when most others were short.  He commented that he always played a lone hand:


“You know how people are.  I suppose it is the contagion of example that makes a man do something because everybody around him is doing the same thing.  Perhaps it is some phase or variety of the herd instinct.” 


In grain marketing we are always encouraging the producer to have an established marketing plan with a set of guidelines to help determine when to pull the trigger on sales. Oftentimes, selling opportunities come and go quickly and require fast and decisive action. Livermore recognized the volatility of prices and offered the following comment:


“The failure to grasp the opportunity to get out (sell) may cost you millions.  You cannot hesitate.  If you do, you are lost.”


Livermore profited in the market when so many failed.  In fact, his description of the average stock market speculator was most unkind.  He referred to them as “suckers”.  He considered that they were often motivated by blind greed or the excitement of gambling.  In most cases, he believed that the sucker was not willing to work at speculating but rather “wanted something for nothing”.


Livermore contended that, to be successful, one had to have knowledge of the game.  He had to understand how the market moved.  He had to know both the general and specific trend conditions as related to the overall market and to a specific stock.  He had to study conditions in order to anticipate probabilities.  In short, he had to work for his money.


In discussing market trends, Livermore said:

“The reasons for what a stock does today may not be known for weeks or months – the reasons can wait.  The market is now – you must act instantly or be left.  The course of the market is always travelling six to nine months ahead of actual conditions.  The trader must see the trend in prices and he can only do this by looking ahead.”


Livermore made the observation that, between the close and open of trade, any important news that is given out is usually in harmony with the line of least resistance.  The trend has been established before the news is published.  In a bull market, all the bearish news is ignored and all the bullish news is exaggerated.


As you read this, remember that Livermore was a speculator.  A speculator is not an investor!  His objective is not to secure a steady return on his money, or a good rate of interesting, but to profit by either a rise or fall in the price of whatever he may be speculating in.


Jesse Livermore made and lost millions of dollars countless times during his career.  Each time he lost he made a note of what he had done, or not done, that led to the loss.  Of specific note, he said:


“Of all the speculative blunders there are few greater than trying to average a losing game.  Always sell what shows you a loss and keep what shows you a profit.  The ‘super-sucker’ play is to continue to buy a losing proposition”.


Jesse Livermore committed suicide in 1940 in the cloakroom of a New York hotel.  He left a note in which he described his life as a “failure”.  The psychology of the marketplace had exacted its toll over a career of speculation.


Despite the author’s unfortunate demise, we cannot help but understand markets and market psychology better if we invest the time to study the ideas in this book.


Reminiscences of a Stock Operator by Edwin Lefevre, published by John Wiley & Sons is a great read.


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.




Closing comment from John DePutter:

Fred Evans’ commentary rings true for me. I both enjoyed and learned something from this book when I first read it more than 30 years ago. A copy sits in my company library.


Here at DePutter Publishing, we don’t encourage the kind of speculating the author was engaged in. What we have done over the years though, is transferred many of the themes, theories and lessons of the author, over to our agricultural market analysis and grain marketing strategies.




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