Jesse Livermore – Greatest Trader Of All Time

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August 24, 2021

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Strategic Alpha

Who was Jesse Livermore?

Jesse Lauriston Livermore was one of the most successful and legendary traders of the 20th century. He had a brilliant mind, High emotional IQ, extraordinary analytical skills, unique intuition, and was a mysterious and stock market genius. 

A truly self-made man who was one of the world’s richest person starting with a few dollars from his youngest age. Born in 1877, Jesse Livermore started trading at the age of 14 and had a net worth of around $100 million at his peak.

Like most notable traders, he is most known for his big calls, shorting the stock market prior to the Panic of 1907 and the 1929 Great Depression.

He invested and traded securities much more successfully using his own invented unique trading principal and methods first time in that era than other market participants.

Jesse Livermore was a self-taught stock trader and commodities trader utilizing his own investing style and approached the markets with the attitude of a businessman operating a business.

He was ahead of his time, making millions trading on others’ emotions. His timeless powerful lessons of trading principles, psychology, and risk management that worked 100 years ago are still valid today.   

Livermore was raised from dirt to riches and unfortunately ended up in bankruptcy and suicide because he frequently violated his own principles and rules and usually lost money as a result. 

One must read his unofficial biography in the book “Reminiscence of a Stock Operator” first published in 1923 and written by journalist Edwin Lefebvre which still ranks as one of the best business books of all the time. If you work on a trading floor and haven’t read Reminiscences, you’re probably in the minority. That’s how much this book has shaped the trading community.  This book is devoted to Livermore’s experiences and a larger part of the book deals with trading wisdom and rules. The views and lessons of Livermore mentioned in the book continue to be relevant to every new generation of investors and traders.

Later on, in 1940, Livermore had written and published a book “How to Trade in Stocks” a book for people wishing to learn stock trading which is also extremely popular among investors worldwide even today.

Some observers have regarded Livermore as the greatest trader who ever lived, but others have regarded his legacy as a cautionary tale about the risks of leverage to seek large gains rather than a strategy focused on smaller yet more consistent returns.

Jesse Livermore’s Trading Journey

Born in 1877 in Massachusetts to a poor family, Jesse learned to read and write by the time he was 3 and a half. At age 5, he was reading newspapers. He attended school until the age of 14, His father pulled him from school to work at a family farm leading him to ran away from home with the support of his mother with only $5 to peruse his love with numbers, love of reading and to achieve his dream of someday climbing out of poverty.

Fortunately found his first job at Boston in a stockbroker’s office to operate ticker-tape. Here he got an early exposure to the glamour of the stock market and an inside view of the operations of the stock market. 

As a chalk boy, refreshing stock quotes by hands for the investors and traders, Jesse started to notice patterns and observed prices movements. He observed the reactions and behaviors of people on ups and down in stocks prices and noticed that emotions seemed to guide investors on sell/buy decisions.   

At the age of 15, he started betting on stocks in bucket shops and made a $3.12 profit on his first trade and further accumulated $1000 by trading stocks at various bucket shops.  

By 1899 at the age of 20, he accumulated first $10000 and became quite wealthy, then moved to New York to trade NYSE through legitimated stockbrokers but in a couple of years, he lost all his fortune in loss-making trades and he attributes this to slow execution of his trades.

At the age of 22, Jesse borrowed $500 and went back to trade in bucket shops in St. Louis and thereafter he again came back to New York with a small earned fortune of $5000, repaid $500 loan, and resumes trading on both the NYSE exchange and in bucket shops simultaneously.

From this point in time, He was trying to trade conservatively because he did not want to lose his stake again and with this approach by the age of 28, he had $100,000 to his name.

In April 1906, by the age of 28, Livermore took a short position against Union Pacific railroad stock. Luckily, the very next day after taking his position a huge Magnitude earthquake struck San Francisco, earned an instant $250,000 profit, and then after he continued to short various stocks in the market accumulating a tidy $750,000 profit by June 1907.

The panic of 1907, The stock markets had been in a frenzied bull run in the years leading up to 1907. A lot of the stock being traded was done on margin/leverage (borrowed funds). Jesse saw signs that the market would turn exceptionally bearish before it became obvious to people. He started short-selling the market aggressively at this point.

In September 1907, markets started plummeting. By 24 October it had reached a breaking point, triggering liquidity issues due to the large levels of stock purchases on margin. In a three-week period, the New York Stock Exchange had fallen almost 50%. Livermore benefited hugely from the fear and panic, making over $1 million in a single day (equivalent to $27 million in 2021). However, his mentor, J. P. Morgan, who had bailed out the entire New York Stock Exchange during the crash, requested him to refrain from further short selling. Livermore agreed and instead, profited from the rebound, boosting his net worth to $3 million. 

This event made him famous on Wall Street and throughout the United States. Livermore started living the high life. Splashing out for a yacht, railcar, and apartment on the fashionable Upper West Side. He became a regular patron at famous clubs.

In 1908, he listened to Teddy Price, who told him to buy cotton, while Teddy Price was selling secretly. He went almost bankrupt however, he was able to make this money back to eventually break even at the end of the trade of cotton. 

By 1915 at the age of 36, he had lost all his money again. He declared again bankruptcy and had debts of over $2 million. On declaring bankruptcy, he, later on, said, “My mind now being free to take up trading with some prospect of success, the next step was to get another stake.”  

Livermore continued to play the market perfectly with available capital which he earned by providing consultancy service for trading to other people in the market. He went long when the market is strongly bullish and then goes short when it turns bearish and had repaid all his debts.

At the age of 40 in 1917, He bought $800,000 worth of annuities to ensure his family has a secure income and he also puts money into trusts for his wife and son to assure that in no case this secured money can be affected due to his passion of stock trading activities. 

The Great Depression of 1929, The next opportunity was one of the most epic in trading history. The market grew five-fold over the previous 6 years, with everyone getting involved. In September 1929, the stocks started to level off and Jesse felt like the market was in trouble and the bubble in the market was going to burst anytime. So he shorted the market with his pyramiding technique, a play that was risky and dangerous. Initially, he had lost a lot—almost $6 million. But the crash that led to the great depression hit. By the end of the day, Livermore at the age of 52, emerged with a fortune of over $100 million ($1.5 billion in 2021) when everyone else lost hundreds of millions. 

1934 at the age of 56, Jesse Livermore once again managed to lose this gigantic fortune he accumulated through the market crash of 1929. No one truly knows how he had lost it at this point since he was trading more and more secretively.

On November 28, 1940, at the age of 63, Jesse Livermore dies by his own hand, via a revolver bullet through the brain. He had been suffering from clinical depression and in his suicide note he describes his life as a “failure”.

Jesse Livermore’s trading journey was a fantastical journey of dizzying highs and devastating lows. His life offers many learnings and lessons to all of us. 

Jesse Livermore’s Top 10 Trading Rules

  1. Buy the winners and sell the losers means Continue rides the trade that show you a profit, end those a loss (Jesse was applying stop loss in that era).
  2. Get out of the trade do not wait for things to come if your trade goes wrong – Don’t become an Involuntary Investor and Never try to average to recover your losses and Never take a capital loss of more than 10%.
  3. Enter into your convicted trade as earliest as possible before the market does judgment
  4. Controlling your emotions will surely lead to becoming a good trader and if you can’t, it is advised not to enter this business. There’s no room for hope in trading because it’s also an emotion creator.
  5. Jumping into speculation by giving much time for learning and educating yourself will make you a successful trader
  6. Probe the market by trading small positions first, rather than rushing in all at once
  7. Keep the number of stocks you own to a controllable number
  8. Every once in a while you must go into cash, take a break, take a vacation. Don’t try to play the market all the time. It’s can’t be done, too tough on the emotions, there is nothing more important than your emotional balance
  9. Don’t take tips of any kind, and take positions based on insider trading, no matter where they come from because nobody is here to push money in your pocket
  10. After forming a definite opinion of a stock do not get too anxious to get it. Watch it patiently and wait for it to get active i.e. until it gets a new high

Jesse Livermore’s Thoughtful Quotes

Jesse Livermore was a Genius and it was very kind of him to leave us his words which remain timeless to this day when it comes to developing the skills to trade successfully in the stock market. Here are some of such wisdom and insights Jesse Livermore has passed on to us to learn from and became more successful traders in our own right.

The stock market is never obvious, it was designed to fool most of the people, most of the time”

“Successful trading is always an emotional battle for the speculator, not an intelligent battle…  A man must know himself thoroughly if he is going to make a good job out of trading”

“Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.

“It is much easier to watch a few than many.”

All through time, people have basically acted and reacted the same way in the market as a result of greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis.”

“Patterns repeat because human nature hasn’t changed for thousands of years”

“Don’t become an involuntary investor by holding onto stocks whose price has fallen.”

“There is only one side of the market and it is not the bull side or the bear side, but the right side.”

“A prudent speculator never argues with the tape. Markets are never wrong; opinions often are”

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.”

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”

“There are times when money can be made investing and speculating in stocks, but money cannot consistently be made trading every day or every week during the year. Only the foolhardy will try it. It just is not in the cards and cannot be done.”

“The point is not so much to buy as cheap as possible or go short at the top price, but to buy or sell at the right time.”

“It took me five years to learn to play the game intelligently enough to make big money when I was right.”

“The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in.”

“when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!”

“A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable of in the line of folly was a long educational step. I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head.”

“Successful traders need to minimize mistakes. It’s the same in war, or in sports contests. Most battles and sports games are not won by moments of genius – these are few and far between. The contestants who make fewest errors win most contests.”

“Be a humble student of the market and never considered our self a master”

Jesse Livermore- Top 5 Lessons To Learn:

  1. Never break the trading rules because Livermore lost one of the largest personal fortunes in history, he failed to follow his own favorite rule i.e. Sell your Losing trades
  2. Life is precious and you should also not take it for granted hence one should practice gratitude for his/her good health and fortune.
  3. From time to time, it is advisable to convert funds on the trading account into real money to fulfill your dreams and diverting profits towards the financial safety and security of your family.
  4. Trading is so risky, you could lose your money as well as your Mind. Never be Stubborn, respect risk forever because a well-trained and equipped soldier on the battlefield must be conscious that any bullet could be his last.
  5. Never let play trading result in your emotional feelings because it will protect you from depression and serious mental health. Always practice developing strong psychology and a healthy attitude towards trading. 

In conclusion, Jesse worked for 20 years to become an “overnight success.” You have to keep on grinding, adjusting, and focusing on your goals to be a successful trader like JESSE LIVERMORE- THE LEGENDARY TRADER.

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The author of the blog Mr.Suyog Dhavan is a Full-time Investor / Value Trader and Value investing/Trading Mentor. His style of Investing is inspired by Mohnish Pabrai, Peter Lynch, and Porinju Veliath. He is the founder of Strategic Alpha Wealth, A Premier stock market mentorship firm with a mission to touch the lives of 1Lakh people through its mentorship program.

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