In his wonderful book Reminiscences of a Stock Operator, Edwin Lefèvre describes learning the basics of investing by frequenting “bucket shops”—parlors that allowed customers to bet on the direction of stock movements without actually buying or selling shares. Bucket shops were outlawed in the U.S. a long time ago. So I was surprised to learn from Bloomberg this morning that they are alive and flourishing in the U.K.
Bloomberg’s Kevin Crowley writes about WorldSpreads Group, a small “spread-betting” firm that collapsed in March. WorldSpreads lost nearly $2 million in the 12 months through March 31.
Spread betting, which grew alongside sports betting thanks to the Internet, works much like the old bucket shops, with customers wagering on the direction of stocks, indexes, and other financial instruments. The bonus for U.K. customers is that the activity is regulated as gambling, not investing, which means they don’t pay taxes on their winnings unless spread betting is their primary source of income. Not surprising, then, that the volume of spread betting has grown tenfold in 12 years. And other spread-betting companies say the failure of WorldSpreads doesn’t seem to be scaring customers away.
Published as a novel almost 100 years ago, Lefèvre’s Reminiscences is widely thought to be a disguised biography of Jesse Livermore, known as the “Boy Plunger” for his outsize bets. Written in first person, it chronicles the author’s many wins and losses in the days when stock market investing was a largely unregulated Wild West. One of my favorite lessons from the book concerns the pointlessness of wondering about the direction of stocks. Lefèvre/Livermore writes of his contempt for “people who amuse themselves conducting imaginary operations in the stock market to prove with imaginary dollars how right they are.” The only way to know if your opinions have any worth, he believes, is to back them with money. “They say there are two sides to everything,” he writes. “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.
So for people wishing they had invested in Apple (AAPL) in 2005, his message would be simple: stop daydreaming about the past and place your bets now.