“It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urging of a magnetic personality when plausibly expressed by a brilliant mind.”
In 1908, the 31 year old Livermore had already made millions in trading. Considering that he succeeded in building a fortune based on his own trading approach, what’s surprising is not that he heeded trading advice from another successful trader (Teddy Price, a well-known cotton trader), but that he put so much capital at stake trusting someone else’s opinion. Price told Livermore to continue buying cotton even as the cotton market was drastically falling. In the end, Livermore lost 90% of his remaining $5 million due to following bad advice. He went bankrupt later that year.
What caused Livermore to go against the manner of thinking which initially made him a multi-millionaire? It’s hard to say. But let’s take his words at face value: a “magnetic personality” and a “brilliant mind.” Because Teddy Price was a successful speculator by his own right, it was plausible that perhaps Livermore would learn something from him. Setting aside the possibility that Price might have been trading against Livermore, what remains is that Price’s approach, as it was presented to Livermore, differed greatly. Because Livermore didn’t take the time to fully study this approach, he still could have tested it with minimal capital. Instead he ended up “plunging” a market that eventually went against him.
Do you follow any “successful” trading gurus with magnetic personalities and seemingly brilliant minds? Do you simply accept their opinions or do you retain some healthy degree of skepticism? When you follow their approach, do you risk a large majority of your capital? If you do, are you sure that such actions are wise?