When it comes to investing, everyone wants to know the secret—how do you make fast money in the stock market? It’s a question that is as old as the market. The answer isn’t as simple or as quick as most people would like it to be.
In this episode, I’m talking about what it really takes to be a stock trader, how that’s different from just wanting a hot tip, and why your financial plan should be tailored to you, not the latest headline.
Trading Isn’t a Shortcut
If you subscribe to the MILMO Memo, a couple of weeks ago, I mentioned a book I recently read and really enjoyed called, How to Trade in Stocks by Jesse Livermore. Jesse is a legend in the stock market. He did his first trade at the age of 15. Some would say one of the best investors of all time. It’s disputed that he was better than Warren Buffett because there was less regulation when Jess Livermore was trading. He wrote the book in 1940, right before his death. I know investing books aren’t everyone’s alley, but it’s a subject I like to read about. I also love history books, so this one was up my alley. It also has historical pictures, which I also love.
The book has an addition written by Richard Smitten that includes fascinating lessons and stories passed on from his sons. These include things like what Jesse thought of insider tips, the media, and how the markets run on emotions.
One thing that stuck out to me in the book is what I want to talk about. If you plan on reading the book, this will be a small spoiler. The thing he mentioned that struck me is that people were asking him for investment advice. He was a Wall Street rock star, so people always hit him up for advice on, “How can I make some fast cash in the market?” He did not think it was a compliment to ask someone who “has made a scientific study of investment and speculation” that question. He was pointing out that there is a difference between a stock trader and someone wanting to make money in the stock market.
That sticks out to me because, as a financial coach, that is one of the top questions I get asked. How to make money in the stock market. They are not asking how to put money in their TSP. They want to buy individual stocks. I always tell people that if they want to make money investing in stocks, they have to have a passion or, at minimum, the discipline for it. It’s a whole career field. Unfortunately, a lot of people buy and sell based on news, what they heard from a friend, or by throwing a dart at the dart board, instead of building an expertise in stock trading. That’s not to say anybody can’t do it. If you want to take the time, you can do it. My point is that a lot of people just want a tip or a quick win in the stock market, but that is not how stock trading works.
There is a difference between contributing part of your pay to the Thrift Savings Plan into one of the funds and buying and selling individual stocks. For most people, investing through an employer-sponsored plan like the TSP or a 401 (k) is the better way to go because you are investing in a retirement account, not individual stocks. It’s in mutual or index funds or target date funds like the TSP’s Lifecycle funds. You are not out there hand-picking them, it’s an investment product that is replicating something like the S&P 500 and buying a mix of companies. Or if you are investing in mutual funds, there is a fund manager making the buy and sell decisions. Your retirement accounts have less risk because they are diversified. That is not the case when you pick one or two companies to buy stock in. You take on more risk because you are betting on the company doing well to make a return on your investment.
Jesse Livermore on Investment Advice
Here is what Jesse Livermore said about people asking him how to make money in the stock market.
“I always smiled and said to myself How could I possibly know how YOU could make money in the market? I always evaded the question. It was like asking me, how can I make some quick money in brain surgery? Or how can I make a few fast bucks defending some person in a murder case?”
It was him being asked that question over 40 years of investing in the stock market that led him to write the book. He thought there were some people out there who, if they had a guide, could also learn over time how to trade in stocks. He knew in 1940 that individuals could do it if they had the knowledge and a guide from someone experienced.
This is the case today. With the internet and the availability of free knowledge, anyone can become a stock trader. But do you want to do the work that comes with it?
I loved Jesse’s analogy about asking a person who has spent their life building their expertise on how they can make some quick cash doing it. I think this point is interesting given how the side hustle culture has grown since the 1940s, yet there are still some things you just can’t side hustle on. I think we can all agree that it would be unwise to go out and ask a brain surgeon to give me some quick tips on brain surgery because I’d like to give it a go. Or asking an attorney for the Cliff Notes on defending a capital murder case.
Anyone who wants to get into stock trading can do it, but recognize the difference between asking for a tip and being a stock trader.
The Stock Market and Media
Another point Jesse raises in the book is the media, which, given all that is going on in the markets, I thought was super interesting. He wrote this book in 1940, and here is what he said about the stock market and media.
“I have always been suspicious of everything I read in the newspaper, and I never accept what I read at face value. I try to look for hidden agendas and self-serving reasons that could have generated the articles, no matter which paper published the information. I understand that the market is composed of the reflections of the attitudes in the minds of millions and millions of people. But I try to read between the lines and formulate my own judgement. That is why I like to be alone to use my own judgment in situations such as reading the newspapers.”
He says more about how to interpret the media, but I won’t read you the whole book as much as I’d like to.
Nothing has changed since 1940. Headlines sell papers or get clicks. I agree with him, you have to read between the lines and read widely. When it comes to any information, consider the source. Always think about who is delivering the message and how they would prefer you to receive the information. Don’t be spoon-fed information because it’s more convenient. Feed yourself instead.
Related Podcast: Starting and Getting Confident in Stock Trading
Everyone’s Financial Plan is Different
Reading this book, I can only imagine what it was like back then to try to stock trade and be in finance. Stocks really did have to be your trade or you had to have a stockbroker. That is not the case today. Now, there’s a world’s worth of information at your fingertips. You can get any financial knowledge you want, 24/7. It’s great, but it can be overwhelming. I say that as someone in finance. It’s a humbling career field, there is a lot to know and track. But something Jesse pointed out in this book is important to think about when it comes to your money. He “made a scientific study of investment and speculation.” He was in a different league than most and was therefore doing many things like watching stock market tape like a hawk and reading the papers alone. He did those things because he was an Olympic investor.
When you get inundated with what you should and should not be doing with your money or when you see extremely financially successful people, remember, not everyone is the same. Warren Buffett and me should not be doing the same thing with our finances. He has way more money, so his plan is going to be different and most likely more complicated. I can’t even imagine the trusts he has in place.
Imagine if someone handed you an Olympic athlete’s meal plan. I’m not sure what that would look like, but probably something like five to seven meals a day, weighed out to the gram, and scheduled down to the minute. That plan would be overkill for me and most of us. Our bodies don’t need to compete on the world stage. The same goes for your finances.
You don’t need Jeff Bezos’s financial team or Elon Musk’s investment strategy. You need a plan that helps you stay on top of your money, reach your goals, and be happy.
Related Podcast: Setting Next-Level Financial Goals
Wrapping it Up
I hope this episode gave you some things to think about or a fresh perspective on what it takes to be successful in the stock market and why there’s a big difference between trading as a profession and trying to make money in the stock market quickly.
I found Jesse Livermore’s insights to be timeless, especially his reminder that markets run on emotion and all the experience he shared to help guide others in understanding the markets and trading.
Resources
- How to Trade in Stocks by Jesse Livermore
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