Use code "UNLOCKVALUE" to get 20% off


Need Help? call us


Legend of Trading, Jesse Livermore

Blog Details

Legend of Trading, Jesse Livermore

The obsession of Wall Street, Jesse Livermore was a man of brilliance and excellence, girded by mistresses, money, scandals and bankruptcy. He was a renowned and legendary trader who played big and bagged millions during the crash of 1929.

The extreme polarity between his success and failures is what makes him such an amazing person for the traders to learn about. On one hand, you can see him as someone who has reached the peak of success through his hard work, his skills of trading as well as his knowledge on how the market functions and on the other hand, you can see how disastrously wrong things can go if you don’t act cautiously and you allow complacency to creep into your trading, as was the case with him.

Livermore was born to a farmer in 1877. A surprise child and the youngest of the three, he received no affection and attention from his father but his mother was determined to raise him.

Surprisingly, at a very tender age he was quite good with numbers and had even started reading financial newspapers. Passion for numbers and arithmetic made him go against his father, when, at the age of fourteen, his father insisted him on dropping off from school to become a farmer. Due to his burning desire, his mother helped him run away from home with a minimal amount of $5, keeping a secret from his father.

At adolescence, he charmed his way into a job of a chalk boy at a brokerage firm named Paine Webber with a $5 a week salary. Prices would come through the ticker tape and be called out. Thereafter he would write those on the chalkboard for the customers to see.

He was so enthralled by the way prices moved, he started maintaining his own notebook for tracking price alterations. This he kept for his own amusement outside of his work as a board boy.

Livermore was of the belief that chunks of money are required to participate in trading until he was introduced to bucket shops. Bucket shops ? What are these? These are like betting shops where you do not actually invest in the underlying asset, but could bet on whether the price would go up or down ( can be understood as derivative trading what is practiced in today’s time).
Livermore found this to be a good opportunity to test himself on whether his theory of price changes would actually work. He would check on his writings in the notebook, analyze the price movements, and then decide which trades to play on. His first profit reaped was around $3. Not long before when he realized that he was making more money as a trader than as a chalk boy, he decided to quit his job. At a very young age of fifteen, he earned a tidy sum of $1000 from the bucket shops which is equivalent to $20,000 in today’s time.

Little did Jesse know that one by one the bucket shops would ban him from trading as he was doing quite well and inflating profits at the cost of the bucket shop. He would even resort to using a disguise to continue trading, but word got around and soon everyone at the bucket shop knew his identity and eventually he was banned by a majority of the bucket shops.

At twenty, Livermore bagged his first $10,000, which was deflated to $2,500 in a year’s time. Following this, he moved to New York to legitimately trade in the New York Stock Exchange. In the same year he got married to Nettie Jordan. Unfortunately the marriage ended a few months after.
No sooner did he gain a good reputation as a winning trader in New York than he lost his money again. It appeared as if his ‘winning formula’ could only be applied for swelling profits at bucket shops and not at real stock exchanges. One of the reasons for him being insolvent could be that he was still using numbers from the ticker which was much lagged in contrast to the real market numbers.

Defeated but sanguine, Livermore went back to basics to earn money from the bucket shops at St. Louis. No sooner had the people there recognized him to be “Jesse Livermore” than he was banned from the shops. The only solution left was to send someone on his behalf and he managed to drag a huge sum of $5,000 before moving to New York to resume trading.

Livermore made a comeback to a roaring bull market in 1901. He made money almost effortlessly before losing it all in trading cotton. Thereafter he continued to trade but this time conservatively. His inconsistent wins in the stock market clubbed with conservatism made him doubt his ability to trade in the market for a long term.

A turning point in his life! He had some sort of a ‘psychic surge’ that he had never felt before and decided to short Union Pacific stock. Following the San Francisco earthquake, the market began to descend and the Union Pacific stock began to go down. But Livermore went against his instinct of buying the stock as he agreed to one of his companion’s tip of not taking this position which turned out to be wrong and cost him an arm and a leg.

It was during the panic of 1907, Livermore gained fame and managed to earn a huge sum of $1 million in just a day by shorting the market as it crashed.

At the behest of J.P.Morgan, who was formulating plans to bring the market back to health, he bought a number of stocks. As a result of which a number of traders followed his footsteps eventually leading to the recovery of the market. Acquiring a new level of wealth, he led a life of luxury, enjoying sumptuous artefacts, a grand apartment and becoming a part of the elite.

One of his theories was to completely work on your own and not resort to tips or opinions given by outsiders. However, in 1908 he went against his own theory of not taking any kind of advice from others by agreeing to a tip given by a cotton trader. The cotton trader counseled him to keep buying cotton, which he did, while the trader and others kept on selling cotton leading to the price drastically moving against Livermore. This resulted in him losing as much as 90% of the amount he had earned in the 1907 crash. With losses becoming deeper and deeper, by 1915 he declared bankruptcy with an inflated debt of around $1 million.

He was given a concession of just 500 shares and he planned to play on it cautiously. Given the rollercoaster ride in Livermore’s trading career, he managed to earn his fortune back in the next couple of years and eventually pay off his debts.

“Boy Plunger Scores Come Back in Operations on Wall Street,” – said the headlines of the newspapers in 1917 and there were innumerable articles on the “shrewd young speculator” who “made and lost millions in the stock market and then came back and made more million.”

In 1925, he earned $10 million by trading cotton and wheat and his notoriety continued to grow in Wall Street.

Livermore observed peculiar movement and patterns in the stock market similar to the one he had observed during the 1907 crisis. Confident about his hunch, he bagged millions by going short as he suspected a large negative movement in the market.

Manifestly, the “Boy Plunger” was correct, and he enjoyed the most successful times of his entire trading life. His worth was around $1.4 billion, in terms of today’s money, by the end of the crash in contrast to many who lost million on this so called ‘Black Tuesday’

Once again began the descent of his rollercoaster ride and Livermore started losing his fortune rapidly after earning millions in the 1929 crash.

Oh such dire straits! Even his private life was disturbed when he got divorced from his second wife who went on to kill their child thereafter. To recuperate , he went to Vienna where he met his third wife who was called the “Bitch-Witch” by his children as they despised her. Alas! Livermore had to declare bankruptcy for the third time and was refrained from being the member of the Chicago Trade Board. Like before, following his own tradition, Livermore believed that he could make a comeback. But the tensity and exertions in his work and personal life prevented him from doing so.

On 28th November 1940, Livermore was found dead in Manhattan. He had appallingly shot himself leaving a grief-stricken suicide note to his wife.

The enormity of his success becomes even more astonishing considering the fact that he traded on his own, using his own funds, his own system, and not in conjunction with anyone else’s capital. Yes, the times have changed today. Markets were thinly traded as compared to today and Mr. Livermore traded in stocks and commodities.

Despite the evolution of time, his theories, his rule, the price patterns he followed and looked for are still very much relevant and applicable today. He truly is a Legend of Trading.