Reminiscences of a Stock Operator the book about Jesse Livermore written by Edwin Lefèvre constantly references ‘Speculation As A Fine Art’ by Dickson G. Watts. I bought the book years ago and just reread it. It is very short and only 45 pages long. Most of the book consists of quotes contained in the second part entitled ‘Thoughts on Life’. The back cover of the book states that Dickson G. Watts was the president of the New York Cotton Exchange from 1878 to 1880 and that the last 85 years (that’s a while back) have changed a lot of things, but the rules of speculation set forth by Mr. Watts are still very effective in today’s market.
Fools try to prove that they are right. Wise men try to find when they are wrong.
His list of ‘Essential Qualities of the Speculator’ and ‘Laws Absolute” show the timeless value of his insight:
1. Self-Reliance. A man must think for himself,
must follow his own convictions. George
MacDonald says: “A man cannot have another
man’s ideas any more than he can another
man’s soul or another man’s body.” Self-trust
is the foundation of successful effort.
2. Judgment. That equipoise, that nice
adjustment of the faculties one to the other,
which is called good judgment, is an essential
to the speculator.3. Courage. That is, confidence to act on the
decisions of the mind. In speculation there is
value in Mirabeau’s dictum: “Be bold, still be
bold; always be bold.”4. Prudence. The power of measuring the
danger, together with a certain alertness and
watchfulness, is very important. There should be
a balance of these two, Prudence and Courage;
Prudence in contemplation, Courage in execution.
Lord Bacon says: “In meditation all dangers
should be seen; in execution one, unless very formidable.”
Connected with these qualities,
properly an outgrowth of them, is a third, viz:
promptness. The mind convinced, the act should
follow. In the words of Macbeth; “Henceforth the
very firstlings of my heart shall be the firstlings
of my hand.” Think, act, promptly.5. Pliability. The ability to change an opinion,
the power of revision. “He who observes,”
says Emerson, “and observes again, is always
formidable.”The qualifications named are necessary to the
makeup of a speculator, but they must be in well-balanced
combination. A deficiency or an overplus of one
quality will destroy the effectiveness of all. The possession
of such faculties, in a proper adjustment is, of
course, uncommon. In speculation, as in life, few succeed,
many fail.
These are his ‘Laws Absolute’:
1. Never Overtrade. To take an interest larger than
the capital justifies is to invite disaster. With such an
interest a fluctuation in the market unnerves the
operator, and his judgment becomes worthless.2. Never “Double Up”; that is, never completely and
at once reverse a position. Being “long,” for instance,
do not “sell out” and go as much “short.” This may
occasionally succeed, but is very hazardous, for should
the market begin again to advance, the mind reverts
to its original opinion and the speculator “covers up”
and “goes long” again. Should this last change be
wrong, complete demoralization ensues. The change
in the original position should have been made moderately,
cautiously, thus keeping the judgment clear
and preserving the balance of the mind.3. “Run Quickly,” or not at all; that is to say, act
promptly at the first approach of danger, but failing
to do this until others see the danger, hold on or close
out part of the “interest.”4. Another rule is, when doubtful, reduce the amount
of the interest; for either the mind is not satisfied with
the position taken, or the interest is too large for
safety. One man told another that he could not sleep
on account of his position in the market; his friend
judiciously and laconically replied: “Sell down to a
sleeping point.”
You can download a .pdf file of the complete book in my book section.
Fools try to prove that they are right. Wise men try to find when they are wrong.
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