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| Jesse Lauriston Livermore | |
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| Born | July 26, 1877 Shrewsbury, Massachusetts, U.S. |
| Died | November 28, 1940 (aged 63) Manhattan, New York, U.S. |
| Cause of death | Suicide |
| Occupation | Stock speculator |
| 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[1] 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.[2]
He started his trading career at the age of fourteen. With his mother's blessing, Livermore ran away from home 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.
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.[3]
By the age of fifteen, he had earned profits of over $1,000 (which equates to about $26,700 in 2016)[4]. 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 $1.39 billion in 2016.[4] 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.
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. Livermore 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.
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.[5]
Livermore cited a lot of jokes, including an old story about "selling down to the sleeping point" from the book Speculation as a Fine Art by Dickson G. Watts.[6]
For unknown reasons, Livermore 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.[10] 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.[11] 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.[11]
| “ | 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 fatally shot himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. Police found a suicide note of eight small handwritten pages in Livermore's personal, leather bound notebook [12] The note was addressed to Livermore's wife Harriet (whom Livermore nicknamed "Nina") read, “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”.[13]
At the time of his death, Livermore's estate was valued at over $5 million
