Sitting Tight Doesn't Mean Holding Stocks: What Livermore Actually Meant

50% of investing is taking a Warren Buffett, Charlie Munger, or Jesse Livermore quote out of context to justify something you are doing. 

Jesse Livermore famously said, "It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!" 

Most investors use this quote to justify holding stocks. This wasn’t what Jesse Livermore was referring to. The excerpt below is from the book,  Jesse Livermore – World’s Greatest Stock Trader, by Richard Smitten:

Livermore firmly believed in patience and courage. His pivotal point theory allowed him the chance to buy at the exact right time. He never wanted to buy at the lowest price or sell at the top. He wanted to buy at the right time and sell at the right time.

This required patience to wait for the perfect trading moment to form. He did not care if the right formation did not occur on a particular stock he was following, because the pattern would appear on another stock sooner or later. Patience, patience, patience—that was his key to timing success.

Livermore always considered time as a real and essential trading element. He often would say it’s not the thinking that makes the money, it’s the sitting and waiting that makes the money.

This has been incorrectly interpreted by many people to mean that Livermore would buy a stock and then sit and wait for it to move. This is not so. There were many occasions where Livermore sat and waited in cash, holding little or no stock, until the right situation appeared. He was able to sit and wait patiently in cash until the perfect situation presented itself to him. When these conditions came together, when as many of the odds as possible were in his favor, then and only then would he strike.

Buying on the pivotal point assured him the best chance of coming into the situation, just as the action was about to begin. And once he was sure of his play, he was not afraid to make his commitment. He was not called the Boy Plunger for nothing.

His decision was always clear, as he wrote in his own book, published in 1940, How to Trade in Stocks:

When a speculator can determine the Pivotal Point of a stock and interpret the action at that point, he may make a commitment with the positive assurance of being right from the start.

But bear in mind when using Pivotal Points in anticipating movements, that if the stock does not perform as it should, after crossing the Pivotal Point, this is an important danger signal which must be heeded.

I have found the study of Pivotal Points fascinating almost beyond belief. You will find a golden field for personal research. You will derive a singular pleasure and satisfaction from successful trades based on your own judgment. You will discover that profits made in this way are immensely more gratifying than any which could possibly come from tips, or the guidance of someone else. If you make your own discovery, trade your own way, exercise patience, and watch for the danger signals, you will develop a proper trend of thinking.

Every time I lost patience and failed to await the Pivotal Points and fiddled around for some easy profits, I would lose money.

Stock Picker

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