Jesse Livermore: The Rise and Fall of Wall Street’s Greatest Speculator
| “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.” Edwin Lefèvre – “Reminiscences of a Stock Operator” |
Jesse Lauriston Livermore, one of the most famous stock market speculators of all time, was born on July 26, 1877, in Shrewsbury, Massachusetts.
Often referred to as the “Boy Plunger” or the “Great Bear of Wall Street,” Livermore became an iconic figure for his ability to capitalize on both market rises and collapses. His life, as tumultuous as the markets he mastered, was marked by extraordinary success, spectacular losses, and a final, personal tragedy.
Early life and acquaintance with trading
Livermore left home at the age of 14, escaping the rural life his father had prepared for him. He began his trading career as a chalkboard boy at a Boston brokerage house, updating stock prices on a blackboard.
This exposure to stock movements from a young age sparked his interest in trading, making him study price patterns and trends by listening to the ‘ticker’.
By his 15th birthday, he had saved up enough money to make his first trade at a ‘bucket shop’, a form of betting parlor, where customers could speculate on stocks without owning the shares.
Relying on his meticulous year-long observations, Livermore quickly turned a small profit into several thousand dollars. This success laid the foundation of his career, and by the time he was in his twenties, he had amassed a considerable fortune by the means of speculation.
Cunning predictions and legendary trades
Being one of the best, sometimes he also was among the worst. As such, Livermore’s career was characterized by incredible profits and catastrophic losses. His first successes were followed by financial collapses, but his resilience and willingness to adapt allowed him to recover multiple times.
One of Livermore’s most legendary trades came during the 1907 Panic, where he made a fortune short-selling stocks during that year’s market crash, due to his understanding of market psychology and ability to bet against the crowd.
J.P. Morgan, the powerful banker, even requested Livermore to stop short-selling, fearing it would worsen the crisis!
His greatest triumph, however, came in 1929 during the infamous Wall Street crash. Having noticed signs of irrational exuberance and market overvaluation, he decided to short the market. As the Great Depression began to unfold, Livermore’s short positions earned him approximately $100 million (equivalent to around $1.7 billion today), making him one of the wealthiest men in America at the time.
Trading philosophy and strategy
Jesse Livermore’s approach to trading was largely based on studying price action and understanding market psychology. He believed in the importance of timing and the necessity of patience, which can be understood through one of his famous statements:
| “It was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!” |
Some of his key trading principles included:
- Trend following. Livermore believed in following the trend. He would wait for clear signals that a market was trending up or down before committing his money. After that, he rode with the trend till its full exhaustion.
- Cutting losers. Once Jesse Livermore famously said, “The stock market is never wrong; your opinion often is.” This principle allowed him to limit the damage when trades went against him, risking only a small portion of his account. In fact, this is what ‘risk management’ is all about.
- Adding to winners. Livermore never went ‘all in’ on trades. Instead, he would add to his winners, thereby minimizing risk early on and maximizing profits as trends developed.
- The Pivot Point strategy. His signature technique was identifying pivot points in the market, areas where prices would either break higher or lower. Livermore believed that recognizing these points allowed traders to jump in at the most opportune moments.
- Mental discipline. Perhaps, more than anything else, Livermore emphasized the importance of controlling emotions in trading. He believed that fear and greed were the two most destructive forces for any trader, and mastering them was key to success.
Catastrophic losses and the tragic end
Despite his market successes, Livermore’s personal life was fraught with challenges. Towards the end, his fortunes started quickly fleeting. Following the 1929 crash, Livermore lost a significant portion of his wealth in a series of poor investments and speculative ventures. His life was a rollercoaster of riches and ruin, and his massive winnings were often followed by gigantic losses, which shows that even great investors sometimes fail to control their greed and fear. Finally, he filed for bankruptcy in 1934, for a third, last time.
Livermore’s personal relationships also played a key role in his ultimate demise. He was married three times and endured many difficulties in his marriages, including his infidelity, his wife’s drinking problems, and the loss of a son. His volatile personality, combined with the pressures of the last divorce likely dealt a final, crushing blow.
Tragically, on November 28, 1940, at the age of 63, Jesse Livermore took his own life in the Sherry-Netherland Hotel in New York. His suicide note mentioned his ongoing battle with depression, a stark reminder that despite his market genius, his personal demons had ultimately overtaken him.
Legacy and influence
Jesse Livermore remains one of the most studied and admired figures in the world of finance, as his life became a tale of the thin line between triumph and disaster in the stock market, illustrating the rewards and perils of speculation.
His journey, chronicled in the investment classic “Reminiscences of a Stock Operator” (1923) by Edwin Lefèvre, continues to inspire traders to this day. In this book, we follow the step-by-step success story of a young Lawrence Livingstone, the alter ego of the legendary Livermore.
In the end, Jesse Livermore is remembered not only for his enormous successes and tragic end but for his deep understanding of the markets. His life serves as a powerful reminder that mastery of trading is as much about managing emotions as it is about understanding numbers.
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