Livermore The Sucker - Part B
Another occasion when Livermore was suckered was when he broke one of his cardinal rules - <b>the rule that said he should think for himself rather than accepting tips from other people.</b>
On this occasion he was steadily buying-up shares in Union Pacific when a much respected, and well-informed friend, Ed Harding, called him and told him that insiders were selling Union Pacific - and worse than that, they were selling to Livermore - Livermore was being suckered. The insiders were feeding him all the stock they could shift. Livermore's own reading of the tape was that the stock price was rising due to real demand. He told this to Harding. Harding, his friend, responded:
"I got heart disease when your orders began to come in. For the love of Mike, don't be a sucker. Get out! Right away. It's liable to bust wide open any minute. I've done my duty. Good-bye!" And he hung up.
Despite his doubts, Livermore decided to believe his friend. He sold his shares and then sold Union Pacific short at $162.
The next day Union Pacific declared a 10 percent dividend and the stock leapt to a new record high price. Livermore, realizing the information he had been given was wrong, bought Union Pacific back at $172 and $174 for a total loss of $40,000.
Livermore was philosophical about the loss. His own interpretation of the tape had been correct. Listening to a tip had been wrong. He did not hold a grudge against Ed Harding because he believed the incident had completed his education as a trader. In Livermore's view, $40,000 was "A low price for a man to pay for not having the courage of his own convictions! It was a cheap lesson."
http://www.jesse-livermore.com/trading-lessons-suckers.html
