Thursday, April 3, 2008

Inverted Tips

As I have said a thousand times, no manipulation can put
stocks down and keep them down. There is nothing mysterious
about this. The reason is plain to everybody who will take the
trouble to think about it half a minute. Suppose an operator
raided a stock -- that is, put the price down to a level below
its real value -- what would inevitably happen? Why, the raider
would at once be up against the best kind of inside buying. The
people who know what a stock is worth will always buy it when it
is selling at bargain prices. If the insiders are not able to
buy, it will be because general conditions are against their
free command of their own resources, and such conditions are not
bull conditions. When people speak about raids the inference is
that the raids are unjustified; almost criminal. But selling a
stock down to a price much below what it is worth is mighty
dangerous business. It is well to bear in mind that a raided
stock that fails to rally is not getting much inside buying and
where there is a raid, that is unjustified short selling --
there is usually apt to be inside buying; and when there is
that, the price does not stay down. I should say that in
ninety-nine cases out of a hundred, so-called raids are really
legitimate declines, accelerated at times but not primarily
caused by the operations of a professional trader, however big a
line he may be able to swing.
The theory that most of the sudden declines or particular
sharp breaks are the results of some plunger's operations
probably was invented as an easy way of supplying reasons to
those speculators who, being nothing but blind gamblers, will
believe anything that is told them rather than do a little
thinking. The raid excuse for losses that unfortunate
speculators so often receive from brokers and financial
gossipers is really an inverted tip. The difference lies in
this: A bear tip is distinct, positive advice to sell short. But
the inverted tip -- that is, the explanation that does not
explain -- serves merely to keep you from wisely selling short.
The natural tendency when a stock breaks badly is to sell it.
There is a reason -- an unknown reason but a good reason;
therefore get out. But it is not wise to get out when the break
is the result of a raid by an operator, because the moment he
stops the price must rebound. Inverted tips!

Jesse Livermore

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