| Warren | Datum: Mittwoch, 2013-12-18, 6:22 AM | Nachricht # 1 |
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Sergeant
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| Jesse Livermore and Fundamental Analysis The Fundamental Analyst
People sometimes make the mistake of believing that Jesse Livermore was a purely technical trader.
It's true that Jesse would try to exploit the market using his
technically based tape-reading skills and it's also true he wouldn't
worry too much about the reasons behind the numbers on the tape.
At other times though - as he explained in Reminiscences of a Stock
Operator - he would act on his understanding of the fundamental
economics of a situation.
The United State World Trade Corporation operated around the world.
It owned shipping lines, coffee plantations in Guatemala, hydroelectric
plants in Bolivia, banks in Peru and conducted a huge export business.
In a bear market, the public remembered that USWT's business was
spread all over the world and so could divide its risks. The company
continued to pay its quarterly dividend.
The bear market developed with severe declines. USWT stock descended
in a leisurely manner. One day when the rest of the market showed an
improvement, USWT stock suddenly fell five points on the highest volume
in months.
USWT's president and directors assured the public and
the press that nothing was wrong and denied rumors that the dividend
would be cut.
Instead of rallying, however, the stock fell further the next day and continued falling.
Then, to a chorus of outrage, the directors announced that there would be no quarterly dividend.
Why did USWT suddenly fall?
Jesse Livermore had been analyzing the export trade and conditions in
South America and the Far East and had concluded that the economic
conditions were not favorable and were going to worsen.
He looked for the stock that would corroborate and justify his
opinion of basic conditions. There was USWT, whose price was falling,
but had not been as badly sold down as many other stocks.
He got USWT's annual reports for three years and then, when he
understood the company's finances as well as the underlying conditions
in every one of the company's lines of business, he sold short ten
thousand shares of the stock.
He began at 110. The next morning, he read the president's statement:
"I'll tell you that there has been no talk whatever about it, and no
desire or intention of either reducing or passing the next dividend. I
hope we may never have to do that."
This had the effect of making Livermore sell short another ten
thousand shares, and the price broke so badly that he was encouraged to
put out an additional short line of ten thousand shares on the third
day.
Now the share price had fallen to the 80s. There was no inside
support to speak of, and the room-traders on the floor saw it and sold
so recklessly that the stock had a good rally on their covering.
Then came the last grand drive, at the opening, on the day after the
directors' meeting. Livermore took advantage of the big collapse to
cover his shorts at a little above 60. He commented:
"I made a killing on that stock. I didn't need any inside tip."
Edwin Lefevre said to Livermore:
"And the beauty of it is that Wall Street accused the directors of speculating
in their own shares. Do you remember the shriek the newspapers let out
when the stock broke after the president came out with a statement that
they were not going to pass the dividend? They did not know it was your
selling. I happen to know that the decision to pass the dividend was not
reached by the directors until two minutes before they took a vote on
it."
"Well," said Livermore, "I reached it for them two weeks before they
voted... I knew they must [pass the dividend]. I knew they must; if not
this time, three months later."
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