Jesse Livermore was a legendary and controversial stock operator who exposed the market’s “dirty little secrets” during the 1920s bull and bear markets. Over the years, his teachings have become a colossal part of trend following, day trading, and managed futures strategies. He remains an icon in the financial industry for his incredible insights.
One of the most important lessons from Jesse Livermore is about “dead money” positions. Dead money positions are those stocks that have been heavily compromised of their earlier gains and lost their momentum. Livermore’s strategy was to always know when to cut his losses short and move on to the next opportunity. He believed that a dead money position created a vast amount of risk and almost sure way of incurring losses.
Livermore would caution investors to not become too attached to a position, regardless of how promising it may look. He recognized that investors often become too attached to stocks, haplessly believing that the stock is bound to make a grand return even when there is no evidence that it will. This almost always leads to disappointment, especially if the investor holds the stock for too long and it does not turn out as they hoped.
Livermore implores investors to pay attention to the signals the market sends at all times. He encourages cutting losses quickly in some situations and getting out of dead money positions as soon as they can. He likewise pushed for buying into opportunities that had potential for significant reward in the future.
Livermore’s advice is timeless and still applicable in today’s markets. He reminds us that having a clear exit strategy is important in order to protect our capital. This means that when a stock’s momentum is stalled, it’s important to make the decision to cut losses or find another opportunity. Holding dead money positions is almost always a sign of inexperience and lack of financial discipline. With the right mindset and adequate preparation, Livermore’s insights can lead to great success in the stock market.