Be right and Sit Tight, Adam Hamilton on Wisdom of Jesse Livermore

(Chapter V) … "And right here let me say one thing:  After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:  It never was my thinking that made the big money for me.  It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in bear markets.  I've known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit.  And their experience invariably matched mine – that is, they made no real money out of it.  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 is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance."

Be Right and Sit Tight!  Marvel at Jesse Livermore at his finest!  Like so many great truths in life this is so simple to understand, but so incredibly difficult to actually act out and walk the walk.  So much of speculation really boils down to patience, that extraordinarily difficult trait to acquire.  Do your research, determine the primary trend, deploy your positions, and then just hurry up and wait.

The patient and prudent contrarian speculator usually wins in the end, but the whole modern financial-market arena is configured to award impatience.  From 24/7 financial television to 3-second guaranteed executions on Internet trades to after-hours trading, our modern market environment is cunningly designed to nurture a culture of continuous frantic trading.  The brokerages and financial industry love this go-go focus because they make money on each and every trade, and higher trading volume leads to much higher Wall Street profits.

Most individual speculators also love this light-speed market culture, primarily because we speculators tend to be adrenaline junkies.  It doesn't matter whether you are buying or selling, it doesn't matter whether your trade is big or small, but whenever your finger hovers a quarter inch above your mouse button and you are ready to pull the trigger and execute a trade the adrenaline rush and euphoria are simply awesome.  Let's face it, trading is fun and addictive!  The very act of trading is a rush!

Yet, a truly great speculator must transcend and rise above this frenetic market culture.  Rather than getting all caught up in the incessant hype, a speculator must carefully cultivate patience.  He must figure out the primary market trends, deploy positions somewhere near the beginning, and then steadfastly ignore all the market noise and huge temptations to overtrade until the primary market trends appear to be ending.  This is very easy to understand, but exceedingly difficult to actually accomplish in the real world.

The key to being able to actually act out Be Right and Sit Tight in your own real-world trading is to relentlessly nurture your own patience.  According to the Bible (Romans 5:3), patience is learned through tribulation, which is suffering.  I think a great part of the education of a speculator is tribulation, the agony of defeat in losing precious capital in bad trades, as well as the psychological anchor of being caught wrong by the markets.  Learning to speculate is certainly not an easy or trivial undertaking!

But as these painful lessons accumulate, as a speculator suffers, gradually they learn.  Jesse Livermore characterized this process as, "And when you know what not to do in order not to lose money, you begin to learn what to do in order to win."  The entire education of a speculator ultimately leads to the elusive and prized emotion of patience, which is so difficult to cultivate yet so priceless to possess.  Only the abnormally patient command the crucial internal discipline and peace necessary to Sit Tight.

Jesse Livermore continued, right after the quotation above…

 

(Chapter V) … “The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do.  That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money.  The market does not beat them.  They beat themselves, because though they have brains they cannot sit tight.”

 

Every speculator has been in the situation Jesse Livermore describes, probably many times.  You diligently do your research, you are convinced that the markets are almost certain to head in a particular direction, but then they stubbornly don’t conform to your plan.  At first this is no big deal, but after a couple months of the markets not behaving all kinds of nagging doubts relentlessly assault the speculator.

 

Even if the speculator is dead right about the long-term, if he can’t sit tight over the short-term stress he is already sunk.  While there is a fine line between having courage in your own convictions on the markets and just being belligerently wrong indefinitely, having the patience to sit tight when you are right is so incredibly important.  If you are right on the primary trend and know it but the short-term fluctuations are moving against you, dig deep and summon the courage and patience to sit tight and wait for the major trend to reassert its dominance once again.

 

It takes a great deal of speculation experience, a lot of learning through a lot of challenging market conditions, to cultivate this patience and inner peace necessary to sit tight when the markets are making you look like a fool over the short-term.  Nevertheless, the ultimate returns to be earned by developing this serene patience necessary to sit tight through difficult short-term adversity are breathtaking.  Only the truly patient have a shot at the really big money which Livermore describes!

 

As I believe that this entire extended passage of “Reminiscences” is so profound and mind-bogglingly important, once again Jesse Livermore continues in the very next paragraph…