"Wall Street Never Changes, Because Human Nature Never Changes"

By Eric Peters, CIO of One River Asset Management

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer - they will die poor,” said Jesse Livermore, the speculator made famous by Edwin Lefevre’s Reminiscences of a Stock Operator, 1923. It was the first and best book I’ve read on speculation.

Livermore was my Lao Tzu.

“Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes,” said Livermore, and I became utterly obsessed with studying previous bull and bear markets.

“Trends come like a series of ocean waves, bringing the high tide when things are good and, as conditions recede, the low tide appears. These trends come unexpectedly, unpredictably, and they must be weathered with temperance, poise, and patience - good or bad.”

His musings formed the basis for my interest in systematic trend-following.

“It isn’t a hunch but the subconscious mind, which is the creative mind, at work. That is the mind which makes artists do things without their knowing how they came to do them. Perhaps with me it was the cumulative effect of a lot of little things individually insignificant but collectively powerful,” explained Livermore, describing the magic we find on long quiet walks.

“Instead of hoping he must fear and instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit,” said Jesse. It is a paradox that exposes a fatal flaw in the human psyche when it comes to speculating.

“A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul.”

Years later I learned Livermore died of a self-inflicted gunshot wound, broke, alone, his soul damaged beyond repair. It was his final lesson. Teaching us to show the utmost respect to the most uniformly fascinating game in the world.