Jesse Lauriston Livermore
|Jesse Lauriston Livermore|
July 26, 1877|
|Died||November 28, 1940
Manhattan, New York City, New York
|Cause of death||Suicide|
|Net worth||US$100 million (1929); US$5 million (1940)|
Jesse Lauriston Livermore (July 26, 1877 – November 28, 1940), also known as the Boy Plunger and the Great Bear of Wall Street, was an American stock trader. He was famed for making and losing several multimillion-dollar fortunes and short selling during the stock market crashes in 1907 and 1929.
Livermore was born in Shrewsbury, Massachusetts and moved to Acton, Massachusetts as a child. He started his trading career at the age of fourteen. He ran away from home with his mother's blessing to escape a life of farming his father intended for him. He then began his career by posting stock quotes at the Paine Webber brokerage in Boston.
He married his first wife, Netit (Nettie) Jordan of Indianapolis, at the age of 23 in October 1900. Less than a year later, he went broke after some reverses in his stock trading; for a new stake, he asked her to pawn the substantial collection of jewelry he had bought her, but she refused, permanently damaging their relationship. They separated and finally divorced in October 1917. His second wife was Dorthea (Dorothy) Wendt. They had two sons, Jesse Jr. and Paul. His third wife was Harriett Metz Noble.
While working, he would write down certain calculations he had about future market prices, which he would check for accuracy later. A friend convinced him to put his first actual money on the market by making a bet at a bucket shop, a type of gambling establishment that took bets on stock prices but did not actually buy or sell the stock.
By the age of fifteen, he had earned profits of over $1,000 (which equates to about $26,300 in 2015). In the next several years, he continued betting at the bucket shops. He was eventually banned from most bucket shops for winning too much money from them. He then moved to New York City and devoted his energies towards trading in legitimate markets. This change would lead him to devise a new set of rules to trade the market.
During his lifetime, Livermore gained and lost several multimillion-dollar fortunes. He sometimes played hunches, famously selling Union Pacific railroad short right before the 1906 San Francisco earthquake. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. Adjusted for inflation, $100 million in 1929, equals about $1.38 billion in 2015. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly.
Livermore sometimes did not follow his own rules strictly. He claimed that his lack of adherence to his own rules was the main reason for his losses after making his 1907 and 1929 fortunes.
Reminiscences of a Stock Operator
The popular book Reminiscences of a Stock Operator, by Edwin Lefèvre, reflects on many of those lessons, and is in effect a financial memoir of Livermore (a pseudonym is used) starting with the bucket shop days and ending in the 1920s before the crash. The book, which Lefèvre dedicated to Livermore, has an avid following in the investment community, and is still in print. There is some speculation that this partnership between the two men was not their first collaboration. Since Lefèvre was a writer and journalist, it is thought that he was one of the friendly newspapermen that Livermore employed for both information and planted articles. Livermore himself wrote a less widely read book, "How to trade in stocks; the Livermore formula for combining time element and price". It was published in 1940, the same year he committed suicide.
Wall Street success
Livermore first became famous after the Panic of 1907 when he sold the market short as it crashed. He noticed conditions where a lack of capital existed to buy stock. Accordingly, he predicted that there would be a sharp drop in prices when many speculators were simultaneously forced to sell by margin calls and a lack of credit. With the lack of capital, there would be no buyers in sight to absorb the sold stock, further driving down prices. After the crash and its aftermath, he was worth $3 million.
He proceeded to lose 90% of that 1907 fortune on a blown cotton trade. He violated many of his key rules; he listened to another person's advice (he preferred working alone) and added to a losing position. He continued losing money in the flat markets from 1908–1912. He was $1 million in debt and declared bankruptcy. He proceeded to regain his fortune and repay his creditors during the World War I bull market, a period during which he was correctly bullish on stocks.
He owned a series of mansions around the world, each fully staffed with servants, a fleet of limousines, and a steel-hulled yacht for trips to Europe. He married his second wife, Dorothy, a beautiful Ziegfeld Follies showgirl, on December 2, 1918, when he was 41 and she was 18.
Livermore continued to make money in the bull markets of the 1920s. In 1929, he noticed market conditions similar to that of the 1907 market. He began shorting various stocks and adding to his positions, and they kept declining in price. When just about everyone in the markets lost money in the Wall Street crash of 1929, Livermore was worth $100 million after his short-selling profits.
One of Livermore's favorite books was Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay, first published in 1841. This was also a favorite book of Bernard Baruch, a stock trader and close friend of Livermore. He also was one of the few people who did well in the crash of 1929.
After the Crash of '29
Dorothy finally filed for divorce and took up temporary residence in Reno, Nevada, with her new lover, (and later 2nd husband) Walter Longcope. On September 16, 1932, Dorothy divorced Livermore on grounds of desertion. They had been married 14 years. Dorothy retained custody of their boys.
On March 28, 1933, Livermore married 38-year-old Harriet Metz Noble in Geneva, Illinois. It was Harriet's third marriage. Her first husband died of pneumonia years after Harriet divorced him after alleging physical abuse. Her second husband, Noble, committed suicide. So would her third husband, Livermore. And her fourth and final husband actually outlived Harriet.
For unknown reasons, he yet again lost much of his trading capital accumulated through 1929. Thus, on March 7, 1934, the bankrupt Livermore was automatically suspended as a member of the Chicago Board of Trade. It was never disclosed to anyone what happened to the great fortune he had made in the crash of 1929, but he had lost it all. It is possible that Livermore turned prematurely bullish and bought stocks and commodities long before the market finally bottomed in the summer of 1932. Perhaps the rule changes after the crash that made it harder to short stocks hurt his trading style.
|“||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.||”|
|— Attributed to Jesse Livermore|
In late 1939, Livermore's son, Jesse Jr., suggested to his father that he write a book about his experiences and techniques in trading in the stock and commodity markets. This brought a flash of life back into Livermore, and the book was completed and published by Duell, Sloan and Pearce in March 1940. It was titled How To Trade In Stocks. The book did not sell well, World War II was underway, and the general interest in the stock market was low. His methods were still new and controversial at the time, and they received mixed reviews from stock market gurus of the period.
|“||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 person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.||”|
|— Jesse Livermore, How To Trade In Stocks|
On November 28, 1940, Livermore shot and killed himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. The police revealed that there was a suicide note of eight small handwritten pages in Livermore's personal notebook. It was reported in the November 30 issue of the New York Tribune. The press wanted to know what it said, and the police tersely responded: “There was a leather-bound memo book found in Mr. Livermore's pocket. It was addressed to his wife.” A police spokesman read from the notebook: “My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”.
He left behind two sons Jesse Jr. and Paul.
- Edwin Lefèvre (1923). Reminiscences of a Stock Operator. p. 14.
- Smitten, Richard (2005). Trade like Jesse Livermore. Hoboken, N.J.: Wiley. p. 2. ISBN 0-471-65585-6.
- Richard Smitten (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. pp. 43, 47–48, 125.
- Edwin Lefèvre (1923). Reminiscences of a Stock Operator. p. 12.
- Federal Reserve Bank of Minneapolis Community Development Project. "Consumer Price Index (estimate) 1800–". Federal Reserve Bank of Minneapolis. Retrieved November 10, 2015.
- Richard Smitten (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. pp. 115–116, 125–126.
- Richard Smitten (October 21, 2004). Trade Like Jesse Livermore. p. 76.
- Edwin Lefèvre (1923). Reminiscences of a Stock Operator. Chapter X, p. 98.
- Richard Smitten (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. p. 260.
- Richard Smitten (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. p. 276.
- Richard Smitten (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. p. 281.
- Richard Smitten (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. pp. 281–182.
- 1923 – Reminiscences of a Stock Operator by Edwin Lefèvre (best-selling biography of Livermore) multiple reissues since, last on January 17, 2006, by Roger Lowenstein (Foreword) (ISBN 0-471-77088-4 ISBN 978-0-471-77088-6) – PDF
- 1985 – Jesse Livermore – Speculator King by Paul Sarnoff (ISBN 0-934380-10-4)
- 2001 – Jesse Livermore: The World's Greatest Stock Trader by Richard Smitten (ISBN 0-471-02326-4)
- 2001 – How To Trade In Stocks by Jesse Livermore (ISBN 0-934380-75-9) (Originally published 1940) – PDF
- 2003 – Speculation as a Fine Art by Dickson G. Watts (ISBN 0-87034-056-5) – PDF
- 2004 – Trade Like Jesse Livermore by Richard Smitten (ISBN 0-471-65585-6) – PDF
- 2004 – Lessons from the Greatest Stock Traders of All Time, by John Boik
- 2006 – How Legendary Traders Made Millions, by John Boik
- 2007 – The Secret of Livermore: Analyzing the Market Key System., by Andras Nagy (ISBN 978-0-9753093-7-7)
- 2014 – Jesse Livermore - Boy Plunger., by Tom Rubython, Forward by Paul Tudor-Jones (ISBN 978-0-9570605-7-9)
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