Songs of Experience: Reminiscences of a Strategist

It was 35 years ago this month that I began my career on Wall Street. In thinking about those three-and-a-half decades, I decided to shift tack with today’s report and ask readers to indulge me as I ruminate about what I’ve learned during these decades. I am often asked about the influences that have shaped me and my career; and they take many forms—including the iconic investors for whom I’ve worked, the memorable books and research I’ve pored over countless times, and the most valuable lessons they’ve imparted along the way.

My favorite quip ever said about the stock market was by Sir John Templeton. I had the great pleasure of meeting John many years ago when he appeared as a guest on Wall $treet Week With Louis Rukeyser (more on that below), when I was a panelist. He perfectly summed up what really drives the stock market—notably not using a single word that isn’t directly tied to investors’ emotional state:

“Bull markets are born on pessimism, they grow on skepticism, they mature on optimism and they die on euphoria.”

Some of the messages imbedded in Templeton’s most famous quote—as well as in those below—are even more important to ponder given today’s lofty valuations and not-so-subtle signs of investor complacency. There is nothing wrong with rejoicing in bull markets; but we must always remember that they do eventually end, so heed the messages from some of the greats of finance.

It was 1986 …

Thanks to admittedly heavy doses of luck and right-place-right-time, I started my career working for the late-great Marty Zweig and his partner Ned Babbitt at Avatar Associates. Within my first week on the job—as a “portfolio assistant” (aka, grunt)—Marty gave me a book that I still have, and still recommend every time someone asks me about my favorite investing books. It’s a must read for anyone, like me, who understands that it’s psychology that best defines market behavior.

Reminiscences of a Stock Operator was written by Edwin LeFevre and was first published in 1923. It is a fictionalized biography of Jesse Livermore, an actual legendary trader and speculator of that era. Below are some of the most memorable passages from that dog-eared book sitting on my shelf: