We cannot make a rule of thumb for the investing world because there are lots of parameters which can affect the price of a business. If today some parameters driving prices of businesses then tomorrow there will be some another parameter which drives the prices of businesses.

We need to focus on to be on the right side. If we cannot short the overvalued businesses then also we can book the position of overvalued businesses, we hold into our portfolio.

When Mr. Livermore was learning about the market, he kept records of his trades to the journal. Keeps journal of our trades helps us to overcome many emotional biases and help us to stick with our predecided process. I am keeping a journal for my investment studies and decision since the last 2+ years which has helped me to build strong decisions.

In May 1901, Mr. Livermore has experienced first larger loss as a professional speculator. He put an order of short sale of US Steel and Santa Fe Railroad at $100 and $80 respectively before the market got opened. He had also taken leverage for this trade. But his US steel and Santa got executed at $85 and $65 respectively, it is a price where he intended to cover his position.

When we are engaged in the trading or into the investment, we need to spend the time to learn. We have to train ourselves as we get training in any other field. We cannot able to survive and win without getting thorough education, knowledge, experience, and temperament. If we are making an investment without spending time on above points then we have depends on the luck which we do not know that favor us or not. Rather being dependent on luck, we should work for developing our skills and temperament. If luck wants to favor us then it will add additional advantages to us.

He has a conviction on his position with the proper logic and he did not change his conviction into the worst period which has made him a rich man.

Many times, we get influenced by the other person or information overload (noise) which affect our decision. We should work on evolving our process but should not make a decision by just getting influenced by others. We should increase our position to the odds which are into our favors, not to the odds which are not into our favors. While we keep on accumulating our winners then we can have a huge probability to win. And when we keep on accumulating our losers then we can have a huge probability to lose.

We need to do our homework before making an investment, we cannot bet our money on the decision of others. If we see the past track record of so-called professionals then we can realize the importance of own homework.

Mr. Livermore had been cheated by people many times which also teach us that we should not trust others easily. We should work on what we know, not what others want us to do. If someone knows much then lets them take benefits. Because staying on the pitch is much important rather than getting wiped out. I have already implemented such learning into my investing career but still struggling with my personal life.

After the few snake and ladder game, Mr. Livermore has started to short from the year 1927 and the great recession of the year 1929 has created fortune of him.

The year 1932 was set for the bottom of Dow Jones but Mr. Livermore was on the wrong side. He had made the biggest mistake ever, he covers his shorts and goes for long on the top of the Dow Jones. After this failure, he declared bankruptcy for the second time.

One of the biggest lesson from Mr. Livermore –

We also need to prepare a list of “Don’ts” and which can be through our own experience or through the experience of others, such as learning from the mistakes of others.

He was also failed in his last attempts in the year 1939 and after that, he took his own life.

As Mr. Livermore quoted that there are a huge amount of mistakes available to the investing filed. We cannot avoid all of them but we can definitely avoid repeating those mistakes again and again.

The main lesson from the mistake of Mr. Livermore is to manage risk. He has not properly managed risk and he blows up. Investing itself as an uncertain and we cannot control our return, we cannot control uncertainty but we only can manage risk which is only into our hand. We need to construct our investment process in a way which can help us to manage risk and avoiding a few of the mistakes which can increase the probability of our winning. We need to work on the checklist, process, do’s and don’ts etc. I have work on the same and still making my checklist and process stronger which has to help me well.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick