In my hometown of Baltimore, there’s an oft-heard saying that seems especially applicable when, like now, the seasons are changing: “If you don’t like the weather today, just wait until tomorrow.” For whatever meteorological reason, it’s not uncommon for an absolutely miserable Monday to turn into a gorgeous Tuesday. Temperatures have been known to swing as much as 20 degrees inside of an afternoon.
A scientific view of stock market history, unfortunately, shows us an even greater propensity for unpredictability and volatility.
Even the years that we refer to as the “good” ones, in retrospect, test our mettle. For example, between 1950 and 2014, a span of 65 years, the S&P 500 ended the year with a gain 51 times (or in almost 80% of them). Not bad. But in how many of those up years do you think investors would’ve found themselves in a “losing” position at some point in the year?
Every. Single. One.
Actually, the headlines on Friday, November 29th, 1940 read, “Livermore, Wall St. Wonder, Dead.”[i] I was recently re-acquainted with Jesse Livermore’s story—that of a self-made trading savant whose early-life exploits were regaled in a series of articles turned classic work of historical fiction, Reminiscences of a Stock Operator, by Edwin Lefevre[ii]. The volume is still handed out as a guide book to new traders every year, an ironic tradition considering the book was written as a cautionary tale.
It was first published in 1923, after Livermore had won and lost a couple fortunes already, but prior to his biggest take when he shorted the market in the Great Depression, increasing his net worth to a stunning $100 million. Livermore subsequently went bankrupt—not for the first time—and was suspended as a member of the Chicago Board of Trade in 1934. So why do we continue to romanticize the story of an investor who lost as much money as he ever made? Why do we glorify the existence of a man who, thrice married, deemed his life’s work an abject failure?
The story’s remarkable appeal should not surprise us—regardless of the futility of sustainable success in the business of gambling, the allure of the quick or easy fortune seems a siren’s song that will forever be sung, heard and followed. Maybe the appeal of Livermore’s sad story is that he did not follow his own rules, by his own admission, and that if we can manage to do so, we might be able to make the equivalent fortune without losing it.
Don’t bet on it. When attending to the business of fooling the market, we almost invariably end up fooling ourselves. And while one of the first stages of grief for the newly penniless may be blaming our failure on the market, like many others, Livermore eventually placed the blame where it rightly lay—on himself—and sadly took his own life at the age of 63.
Unfortunately, it’s not a stretch to suggest that dedicating ourselves wholly to the pursuit of money and riches often leads to death—literally for some but figuratively for many, many more. Relinquish the claim to overnight riches in favor of lifetime investing. You have a favorable probability of generating comfortable wealth through a lifetime of dedicated investing, but even the most disciplined gamblers eventually learn this sad truth—the house always wins.
[i] “The Daily News Record,” Harrisonburg, Virginia, November 29th, 1940
[ii] I highly recommend the edition published by John Wiley & Sons in 2010, newly and informatively annotated by Jon D. Markman.