The Great and Crazy Trading Life of Jesse Livermore


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---The King of Speculation

Wall Street never changes, speculators change, stocks change, money bags change, but Wall Street never changes because human nature never changes.

The market will always have one direction, neither long nor short, but the right direction.

“In 1907, he correctly judged the stock market crash and made $3 million in one day. The financier J.P. Morgan sent an envoy to ask him to stop shorting in order to save the market, and he was honored to agree; in 1921, during the recession and stock market downturn phase, he went in long; in 1929, he accurately shorted again before the big crash , making $100 million and reaching the pinnacle.”

He was the king of speculation, Jesse Livermore, a landmark Wall Street legend.

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The Life of Jesse Livermore

Made his fortune on $5 a week

Jesse Livermore was born in 1877 in the United States to farmer parents. As the youngest of three children in the family, Jesse was not well received by his father, but his mother loved him so much that she wanted to teach him all the best things in life.

Happily, Jesse was a fast learner, learning to read and write at the age of three and a half, and by the time he was five he could read the newspaper and relished the financial pages. But his father, a pragmatist, forced young Jesse, who was still in school at 14, to drop out and leave school to earn money by farming.

Young and determined, Jesse left home ambitiously in a horse and cart.

He threw away the piece of paper clutched in his hand with the address his mother had given him. For when the carriage drove past Penn Webb, Jesse immediately asked the coachman to stop. It was a Boston stock exchange company, and young Jesse was completely enchanted from the moment he saw it.

With an air of maturity beyond his years, Jesse soon landed a job at Penn & Webb and the trust others placed in him. As a small trader earning $5 a week and writing numbers on a trading board as his job, Jesse officially began his legendary life.

After working for a while, young Jesse’s notebook was filled with dense numbers, but soon discovered that these trading numbers seemed to follow a pattern. So, at the age of 15, Jesse began taking his $5 a week paycheck to the market to trade, and after a few weeks, he was already making more money than he had ever made at Penn Webb.

This was the first time Jesse earned his first bucket of money through his study of trends. After that, at the age of 16, Jesse left Penn and started trading in the bigger markets of Boston.

The high-profile Jesse always won beautifully and somewhat invitingly, and soon the trading market caught on to the young man’s delusions of grandeur and kept throwing him out. Smartly, he put on a beard, but was eventually caught and permanently banned. By then, he had also made a small fortune of $10,000.

In 1899, Jesse felt that the time had come to challenge his abilities. He decided to make his way to New York and met his wife, Nettie Jordan, that same year. They married after knowing each other for only a few weeks, but they hastily separated again a few months later.

Due to a 30 to 40 minute lag in real time data, Jesse lost everything. He asked Nettie to pawn some jewelry he had given Nettie as a gift, but angered her by doing so.

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5,000 up and coming

Abused but still confident, Jesse returns to the point where he made his fortune. He wandered the St. Louis trading market again. Because of the ban on the trading floor, he could only entrust others to trade for him. Eventually, he earned $5000. This $5,000 later made “the name Jesse Livermore ring out on Wall Street”.

In 1901, Jesse returned to Wall Street when the bull market was in full swing. 24 years old, he immediately earned $50,000, but lost in the cotton trade. This failure taught Jesse a lesson, and his trading style became conservative, worrying too much to the point of stagnation.

“I could have made $20,000, but instead I only made $2,000,” he said while enjoying the golden, seductive life of a diamond king in town.

By age 28, Jesse had $100,000 to his name, but that’s when he lost his confidence. His conservatism, combined with his experience of not winning streaks in the stock market, made him begin to question his long-term stock market trading ability. So he decided to give himself a vacation in Palm Beach – which became the turning point of his life.

Jesse gambled and socialized with the owners of the beach while vacationing in a luxury hotel. He had a “psychological shock” that he had never experienced before and decided to short Union Pacific stock.

Jesse had just returned to town when he heard the news about the San Francisco earthquake – and Union Pacific stock fell. By this time, Jesse had $250,000. His friends thought he was crazy or thought he had insider information.

Soon after, Jesse decided to buy Union Pacific stock and was looking for a time to do so. But an old friend of his, Edward Houghton, warned him not to take the plunge. Jesse followed this advice, and then regretted it, because Houghton was completely wrong. For this reason, Jesse blamed himself.

In 1907, Jesse had made up to $1 million in a single day, but seeing the market in crisis, Jesse decided to do the right and wise thing. He began to buy as much as he could, and drove other Wall Streeters to buy together, and the market began to recover.

Jesse earned the title of hero. Following his inspiration, many of his peers made fortunes one after another.

In just one year, Jesse made the leap from 0 to $3 million and entered a new class of wealth. To imitate Morgan, he bought a yacht for $200,000 and purchased a villa on Manhattan’s Upper West Side. From then on he frequented only the most exclusive clubs in New York and had countless mistresses.

But gradually Jesse was overwhelmed by the high costs and he returned to the stock market once again.

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Five million dollars of fame

In 1908, he trusted a “friend” and lost his $5 million fortune in the Chicago commodities market. He was in a desperate situation.

In 1915, Jesse went bankrupt. The stocks he bought in 1907 to bail out the market gave him a cushion to survive until this long, drawn-out bear market passed. Just one year later, he made back the $5 million he had lost in the bull market that followed.

After a high-profile and protracted divorce, the 40-year-old Jesse finally got rid of Nettie and married the 22-year-old Ziegfeld Follett Show actress, Dorothy. 1919 saw the birth of their first child, Jesse Livermore II. 1922 saw the birth of their second child, Paul. They were wealthy, high status, and traveled through high society. It was one of Jesse’s happiest family times.

The notorious Livermore also made frequent headlines in the media, and people counted on his newspaper recommendations to buy and sell stocks. Jesse set up a formal trading office and made $15 million, and 2 years later they moved to a larger office where Jesse had 60 employees.

To write “Memoirs of a Great Stock Trader”, Edwin Rachel contacted and interviewed Livermore and got permission to publish it in 1923. During its release, no one realized that the book was really based on Livermore, and that the main character in the book went by the pseudonym Livingston. But it did sell very well, and was reprinted many times.

Meanwhile, Jesse’s popularity continued to grow on Wall Street. in 1925, he made a $10 million deal for wheat and corn on the Chicago trading board. This was also a declaration of war against Arthur Caton, the famous bull trader known for his good manipulation of the market.

In 1927, two robbers broke into Livermore’s home and held him and his wife at gunpoint. Dorothy was surprisingly calm and only begged the robbers to leave them some of their valuable jewelry. She also convinced the robbers not to wake her children while they were gone.

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100 million dollars to short Wall Street

In 1929, Livermore was keenly aware of a slight shift in the market. He decided to leave the office and save his trading for October 29th. News of Black Tuesday spread like wildfire, the market crashed, and untold numbers of traders went bankrupt overnight. Panic wracked Dorothy and her mother as those who heard it, and when Jesse returned home, they cried to him that it was all over. But they didn’t realize that Jesse had already made $100 million by shorting Wall Street.

Jesse got the news that the Bank of England was ready to raise interest rates, and accurately predicted the impending sell-off in stocks and the undoubted fall in share prices. At the same time, he was astute enough to analyze the value of recession warnings through various newspaper clippings, so he got ahead of the curve and kept selling short. He made $100 million and made several fortunes because he was so accurate and got out ahead of the curve.

However, Livermore’s family fun seemed to be coming to an end. With Dorothy’s alcoholism overwhelming her, and Jesse’s flirtations and countless mistresses bringing her into disrepute, she demanded a quick end to the marriage. She asked for custody of her two children and a $10 million villa. The same day of the divorce, Lightning married a young official.

At 56, Jesse, no longer young and no longer rich, decided to spend all the money he had left on a vacation. He meets again his third wife, the American singer Harriet Mays.

Livermore plans to use the vacation to recuperate and rise from bankruptcy to return to New York. But he was already mentally overwhelmed.

His ex-wife Dorothy still wants to live the same luxurious Palm Beach life as before, but is already in debt. So she sold Jesse’s heart and soul, the mansion he was so proud of, the house that carried countless family joys, was sold in an instant. Jesse was in great despair. Moreover, the jewels and wedding ring that Jesse had given to Dorothy were sold off in a very cheap way, which left Jesse in a state of shame. The purchase and refurbishment cost Jesse $35 million, while Dorothy dumped it for $220,000.

The third bankruptcy ended magnificently

One year later, Livermore had to declare a third bankruptcy. This time, he felt that he could not come back. He had friends and had made a comeback. But this bankruptcy at the age of 60 may be fatal for him. Despite Livermore’s first two high-profile returns to the stock market, the creation of the SEC and the Phoenix passion to stop dragging everything into the depths of despair drew to a close.

Jesse’s son Livermore II was foppish, troubled and an alcoholic like his mother. On Thanksgiving night, they have dinner together and Dorothy’s son’s drinking problem returns. Dorothy stared at her son and said coldly, “I’d rather see you dead than see you drinking like that.” Her son contemptuously tossed her a gun and said, word for word, “You don’t have the courage to shoot.” The drunken Dorothy, in the midst of the argument, got carried away and pulled the trigger on her son. Although the son survived with difficulty and Dorothy was exonerated from the charges, the incident added a blow to Jesse’s already high-stress life.

In 1940, Livermore’s book “How to Trade in the Stock Market” was published, but apparently it was not as hot as the previous memoirs of the great trader.

Not always able to take the high ground in the wise man’s game of stock trading, Livermore shot himself in a New York hotel in 1940, leaving little money behind. His son also ended his life in the same way in 1975.

The reason about Livermore’s final suicide was not because of bankruptcy as everyone speculated, but more probably because of depression due to the failure of his marriage and family life. A certain speculator once commissioned his classmate in the U.S. to specifically check out the information that proved this.

If you had done your research, you would know that he had been bankrupt four times, so bankruptcy was not a terrible blow to him and he was doing quite well in life after his last bankruptcy. As you can understand from the news and photos of the time, the first thing he did after his bankruptcy in 1934 was to travel to Europe with his wife for 20 months, and before going on deck, he told reporters, “I wish to settle something in my mind.” He still rode in and out in limousines, wore sharp suits to social occasions and frequented nightclubs.

Although Livermore was indeed broke for the fourth time in his career in his later years, he did not actually live in poverty, as he had left a large sum of money for himself and his family in advance, enough to ensure that he continued to live a life of luxury and wealth – the strongest evidence for this comes from Wikipedia, whose findings are — “Livermore still had $5 million in untouchable funds at the time of his death, roughly the equivalent of $100 million today.” This suggests that he had long since learned from his successive bankruptcies and set up a trust fund for himself and his family early enough so that he could be assured of being clothed and fed in his old age even in the event of bankruptcy.

Although the curtain has come down on Jesse Livermore’s legendary life, his wisdom has been passed down to influence generations of traders. The mistakes he made are also seen as lessons learned by today’s traders.

Lessons from the legendary life of Jesse Livermore

Jesse’s legendary and splendid life has come to a close, but his story is still widely told and enjoyed on Wall Street, just as he read the news on the financial pages with great interest when he was 5 years old.

Fundamentals: Jesse never believed in gossip as much as he could, but believed in adequate preparation and research of fundamentals, and would also do his own market research. He follows trends and operates only those leading stocks in strong industries with promising prospects, selling those with poor prospects. He is an extremely self-disciplined person, with a regular routine, a light diet and accurate judgment. He emphasizes that it is the profitability of the company that shapes the stock price movement.

Trend side: Unlike traders in the market who trade several times frequently, Jesse is very patient. As long as he is right about the trend, he can wait until the best time comes. Most successful traders follow the direction of the market, minimizing resistance. Jesse will use a partial small amount for testing before making a big move, and then follow through with a big move after confirming it is correct.

Risk Side: The $100 million shorting of Wall Street has led many to believe that Jesse is an unabashedly high-risk appetite. Neil of Gordon FRM Research says that’s actually only half right. Livermore was sometimes even very conservative in the face of risk. He famously said that when I see a red flag, I don’t argue with it, I duck out and come back a few days later if everything looks good. And, Neil adds, whenever the market is acting against his judgment, considering the risk to principal, Jesse will stop immediately and never allow a loss of more than 10%.

Psychological side: Good stock traders never rely only on technical level analysis and some insider information, they also study the deep desire in stocks – human nature very thoroughly. It is this that Jesse has seized upon, studying the psychology of trading and taking night school psychology courses in the hope of gaining a better understanding of the stock trading market. While Jesse believes that it is relatively safe to follow the majority, he has the idea of breaking away from the group and going in the opposite direction at all times. Warren Buffett said something similar, “Fear when others are greedy and be greedy when others are fearful.”

There is no news on Wall Street, what happens today in the trading market has happened in the past and will happen again.

Wall Street never changes, speculators change, stocks change, money bags change, but Wall Street never changes because human nature never changes.