Wall Street Legends No 6 - Jesse Livermore

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Jesse Lauriston Livermore (July 26, 1877 - November 28, 1940), also known as the Boy Plunger and 'Great Bear of Wall Street', was an early 20th century stock trader. He was famed for making and losing several multi-million dollar fortunes and short selling during the stock market crashes in 1907 and 1929.

Born in Shrewsbury, Massachusetts, Jesse Livermore 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 wished him to have. 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; he asked her to pawn the substantial collection of jewelry he had bought her for a new stake, 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 hunches 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 $20,000 today). 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 multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. 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.

The popular book Reminiscences of a Stock Operator, by Edwin Lefèvre, reflects on many of those lessons. 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. It was later revealed by Livermore that he had actually penned the book Reminiscences of a Stock Operator, and that Lefèvre had acted as the editor and coach. 

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 and resulting downtrend.

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 beautifulZiegfeld 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.

On March 28, 1933, Livermore married 38 year old Harriet Metz Noble in Geneva, Illinois; there was no honeymoon. It was Harriet's fifth marriage; all four of her previous husbands had committed suicide.

Through unknown mechanisms, 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.

Livermore’s fortune would have amounted to anything between $10 - $13.7bn in today’s money - a remarkable feat for a self-made stock and commodities trader who traded with his own money, not other people's.

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 Jnr and Paul.

Untouchable trusts and cash assets at his death totalled over $5m. A lifelong history of clinical depression had become the dominant factor in his final years.

Source - www.wikipedia.com

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