Edwin LeFevre: Man Of Mystery

Nevertheless, he did exist

LeFèvre did such a good job of presenting the mindset of a high-stakes speculator, and so ably managed to convey Livermore's personality, that the rumor spread that the book was ghost-written for Livermore and that "Edwin LeFèvre" was a mere pseudonym. This idea seems plausible in light of the fact that Livermore was a publicity hound who was friendly with many prominent writers of the 1920s. Further confusing the issue is that many years later, when Livermore was down-and-out, he agreed to the publication of a book about investing under his name, even though he had little to do with its creation.

Yet LeFèvre did in fact exist. Indeed, he was the most successful writer about Wall Street of the Roaring 1920s and early 1930s.

Born on January 23, 1871, in Colon, Colombia (now a part of Panama), to American parents, Edwin LeFèvre was educated in the United States (at Michigan Military Academy and Lehigh University) and seems to have felt no particular attachment to Central America. In contrast, his brother Ernesto Tisdel LeFèvre chose to remain in Panama and even served a term as president of that country.

In the early part of the 20th century, LeFèvre became a reporter for the New York Sun newspaper and soon specialized in writing about the stock market. He contributed articles about finance to many leading popular magazines of the day, including Harper's, Everybody's, Munsey's, and The Saturday Evening Post, and wrote several successful books on the subject.

In the 1920s, he signed an exclusive contract with The Saturday Evening Post, which was then the most widely read magazine in the US. Shortly afterward, he arranged to interview Jesse Livermore for a series of articles, which subsequently formed the bulk of Reminiscences Of A Stock Operator.

The motivation of Livermore and many high-stakes speculators was captured by LeFèvre when he quoted "Livingstone" as saying: "I didn't think of anything except that I could keep on proving my figuring was right. That's all the fun there is: Being right by using your head." Reminiscences Of A Stock Operator offers the best description of the "bucket shops" that flourished from the late 19th century to the 1920s. These businesses of dubious legality were essentially betting parlors where people could wager on which stocks were going to increase in value. They appealed to the daytraders of that time, who were handicapped by a lack of access to information and even access to a brokerage account. While the stock ticker and telegraph were in wide use, they were very expensive and not affordable to most investors. Further, reputable brokers usually would not open accounts for individuals with only a small amount to invest. Into this void stepped the bucket shops.

An individual with just a few dollars could walk into a bucket shop and wager that a particular stock was going to increase in value. For each share of stock, the individual would be charged a "margin," which in reality was the spread that had to be beat.

For instance, if the margin was one-quarter for a stock whose last reported trade was $15.25 per share, the customer would pay 25 cents per share. If the price thereafter increased above $15.50 (the last reported price plus the 25 cent "margin"), the receipt for the transaction could be exchanged for the difference between the stock price and $15.50 per share. Therefore, the price would have to increase in value to above $15.75 (that is, the price at which the stock was "in the money" plus the cost of the "margin") before the customer could make a profit. But if the stock price dipped below $15.25 at any time before cashing in the receipt, the transaction receipt would be worthless.

On most days at that time, stocks traded on thin volume. Therefore, a stock's price was more likely to drift below the margin rather than above it. This was true even of stocks that were headed up, since few had an uninterrupted increase in price. The odds were in favor of the house.

Furthermore, many tricks were in use to foil customers, such as falsely reporting a stock trade. A more sophisticated approach was to arrange a "wash sale" with an unscrupulous broker on the exchange, in which a buy order was matched with a sell order at a low price, and then reversed. The two trades (which were at a low price) were then reported, thereby closing out the bucket shop's customer even though no stock actually changed hands. Of course, if a customer was particularly successful, such as Livermore and his fictional alter ego, the bucket shop could simply refuse to accept his order.

All too true

LeFèvre, writing as "Livingstone," offered many aphorisms about investing. Here are some of the best:

• I never argue with the tape. Getting sore at the market doesn't get you anywhere.
• It takes a man a long time to learn all the lessons of all his mistakes.
• If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.
• They say you never grow poor taking profits. No, you don't. But neither do you grow rich taking a four-point profit in a bull market.
• They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.
• A stock operator has to fight a host of expensive enemies within himself.
• To learn that a man can make foolish plays for no reason whatsoever was a valuable lesson.
• Observation, experience, memory and mathematics — these are what the successful trade must depend on.
• Between being bearish and selling there is no need to waste time.
• Experienced speculators do not expect ever to engage in utterly riskless ventures.
• It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.
• Remember that stocks are never too high for you to begin buying or too low to begin selling.
• A man can excuse his mistakes only by capitalizing them to his subsequent profit.
• Without faith in his own judgment no man can go very far in this game.

LeFèvre enlivened Reminiscences with a colorful use of language. When a large number of shares are dumped on the market, he said that the shares were "Niagaraing." Someone who invests without investigating the underlying facts "listened to hope's whispers." And a trader who takes action even when unsure of the market's direction, he explained, has "traded out of season."

LeFèvre seemed almost to have been addressing current daytraders when he wrote, "The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among professionals, who feel that they must take home some money every day, as though they were working for regular wages."

Not only that, he recognized the role of psychology in investing when he observed:

A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not in the sucker class . . . , nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.

Near the end of Reminiscences, LeFèvre offered what is perhaps the best one-sentence summary of what it takes to be a successful investor: "A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weakness."

For the August 6, 1932, issue of The Saturday Evening Post, LeFèvre wrote an article entitled "When Is It Safe To Invest?" His answer was "Never!" and "Always!" He explained, " 'Never' for the crowd . . . 'Always' for the reasonable man."

Widely read, little known

Surprisingly, Edwin LeFèvre claimed never to have made more than small stock market investments. He retired in the mid-1930s, when interest in the stock market evaporated during the depths of the Great Depression.

He died a few years later at his retirement home in Dorset, VT, shortly after his 72nd birthday. Even though he was for a time the most widely read writer about Wall Street, he soon became little known. Nevertheless, Reminiscences Of A Stock Operator has continued to entertain and inform investors.

James Maccaro is an attorney and freelance writer. He has written articles for Newsday, Ideas on Liberty, The Massachusetts Law Review, and other magazines. He can be reached at jam@juno.com.

Suggested reading

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