If you were to ask professional traders to name the people that have influenced their
development in trading, you will find very few people cited more often than Jesse Livermore.
This is largely thanks to the part biographical - part fictional account of Livermore's life
in the famous book Reminiscences of a Stock Operator, which is usually top of the list
of most useful and influential trading books of all time.
However, what's so fascinating about Jesse Livermore and what makes him such an amazing
person for traders to learn about, is the polarity of his successes.
On one hand, you have someone that has scaled the absolute heights of success in the market.
Someone that we can use as an example of what you can achieve if you work hard to truly
understand the skill of trading and how the markets function.
But on the other hand, within the same person's story, you also have clear examples of the
pitfalls of trading and how disastrously wrong things can go if you don't remain cautious
about the markets and if you allow complacency to creep into your trading.
Despite Livermore trading a century ago, his approach to a large extent is still absolutely
relevant today. His approach to trading in many ways was ahead of its time and his wisdom
and observations in many cases are timeless.
This is his story.
Jesse Livermore was born on 26th July 1877 in Massachusetts. His father was a farmer
and his mother was a homemaker. Jesse learned to read and write by the time
he was just 3 and a half years old and by the age of 5 he was already reading through
financial newspapers. He attended grammar school and, unsurprisingly,
was very good with numbers; particularly mental arithmetic. In fact, while at school he claims
that he completed 3 years’ worth of arithmetic in just 1 year.
At the age of 14, under his father's insistence, he left school and finished his education.
His father who had also dropped out of school at 14 to become a farmer, wanted Jesse to
join him and devote his life to farming. However, Jesse was devastated by this idea.
He wanted to continue with his love of numbers and arithmetic and to carve out his own path
in life. Due to this burning desire, his mother agreed
to help Jesse to run away from home and to keep it a secret from his father.
She sent him packing with just $5 in his pocket, which would be roughly equivalent to over
$100 in terms of today's money.
Jesse got his first job as a chalk boy for a brokerage firm called Paine Webber whilst
he was still just 14 years old. He had been in the firm looking around and
because one of the boys was off sick he was asked if he could step in. He was soon given
a permanent position. This was an ideal job for him because of his
love of numbers. Prices would come through the ticker tape and be called out. And then
he would write them all on the chalk board for the customers to be able to see.
While he was working at this job, he became so fascinated with the way that prices moved
that he started keeping a little notebook. Since he could clearly remember all the numbers
and prices at the end of the day, he would write these out in his notebook and observe
the patterns in the way that they moved. He kept this as his own little hobby or project
outside of his work as a chalk boy.
Up until this point, Livermore hadn't done any trading as he believed that you needed
to have a lot of money to be able to participate. However, it was whilst working as a chalk
boy that he was first introduced to bucket shops.
The bucket shops were almost like betting shops where you could back a particular stock
based on whether it was going to go up or down without actually needing to invest in
the underlying asset. You could do this with low amounts of money and on very thin margin
and the bucket shop would be taking the other side of your bet.
Livermore decided this would be a good opportunity to test out his work and to see if his theories
about prices actually would work out in the market.
He would check his notebook where he had been recording figures and patterns in the movement
of prices and then decide which trades to play on.
Jesse started using his system to play at the bucket shops on his lunch hour and the
first profit he ever made was just over 3 dollars. However, it wasn’t long before
he was making more than he was in his day-job, so he decided to quit this to focus more on
his hobby full time. At 15 years old Jesse had made $1000 from trading at the bucket
shops, which is roughly the equivalent to $25,000 in terms of today’s money.
Jesse continued to do well against the bucket shops by following his own system and one
by one the bucket shops began to ban him because of the amount of money that he was earning
at their expense. He would even have to resort to using a disguise
so that he could carry on trading, but word did get around and eventually everyone at
the bucket shops knew who he was anyway. Eventually he was banned from the majority
of the bucket shops in his town.
By the age of 20 Livermore had accumulated his first $10,000. However, this reduced massively
by the age of 21 to $2500. He says that if he stuck with his system,
he would make more profits than losses, as his system would usually win around 70% of
the time. However, most of his losses came unnecessarily when he would not stick with
his own system; a problem that a lot of traders have to overcome at some point in their career.
At the age of 21, having been banned from most of the bucket shops in Boston, Jesse
took his $2500 and decided to move to New York to start trading legitimately at the
New York Stock Exchange.
In New York it wasn't long before Jesse gained a reputation for being a winning trader. But
soon after, he lost his money once again. It seemed his winning formula was only designed
for winning at bucket shops and not for the real stock exchange.
He went to St Louis to go back to betting at bucket shops and to increase his money
again. This was a new town for him with new bucket shops, so he thought they wouldn't
know who he was. But he did eventually get recognised again,
and again he was banned from the shops. Instead, his solution was to send in people on his
behalf. He managed to actually make enough money by doing this to be able to go back
to trading in New York.
Although he had already started to make a name for himself around trading circles, Livermore
first became famous for his trading during the panic of 1907. It was during this time
that he managed to earn $1 million in one day.
He made his money by shorting the market as it crashed. By the end of the crash, he was
worth $3million. At this point, he knew the market was in a
bad way and that it was possible for it to move even more negatively. He had already
decided therefore that he would do what he could to avoid a deeper crisis, when he received
a request from the financier JP Morgan, who was putting together a plan to try to bring
the market back to health. Livermore looked up to JP Morgan, so he was
more than happy to help. He began buying as many stocks as he could, which also led other
people to taking the same action. Thanks to this, the market started to recover and many
people that followed Livermore's lead also made a lot of money. As a result of this,
in some circles Livermore was branded a hero. But of course, he himself had also acquired
a new level of wealth, which meant he could live in luxury, enjoying things such as yachts
and becoming part of the elite, going out to the most exclusive clubs and enjoying life
in the city as a young, rich bachelor. To keep up with his new expensive lifestyle
he turned back to trading.
There are certain aspects of Jesse Livermore's trading approach that have been well documented.
One of the main things was his desire to work completely on his own.
However, in 1908 he broke his own rule of not taking advice from other people. He trusted
a tip from a famous cotton trader. The cotton trader told Livermore to keep buying
cotton, which Livermore did, against his own instincts. But at the same time as this the trader
as well as others were actually selling in the market, leading the price to move heavily
against Livermore. As a result of this, he lost 90% of everything
that he had earned during the 1907 crash. Throughout the following years Livermore's
losses grew deeper and deeper, until finally he ended up with a debt of $1 million and
had to declare bankruptcy by 1915.
Without a stake to be able to begin trading again, he had to ask for some help.
He was offered a trading facility of just 500 shares
to get started again. But Livermore knew he had to play this one perfectly, so he spent
6 weeks just tape-reading in the markets before finally making his move.
The result of this trade was a success and he finally had a stake to be able to begin
trading properly with again. Unsurprisingly, given the rollercoaster ride
that was Livermore's trading career, over the next couple of years Livermore managed
to earn his fortune back again and pay off his debts.
Newspapers from 1917 report headlines such as “Boy Plunger Scores Comeback in Operations
on Wall Street” and spoke of the shrewd young speculator who “made and lost millions
in the stock market and then came back and made more millions”
In 1922 Jesse Livermore took part in a series of interviews with Edwin Lefevre for a series
of articles. These interviews eventually led to Lefevre to writing the book "Reminiscences
of a Stock Operator" which is one of the most highly regarded trading books of all time.
The book is a ficticious biography of Livermore and details his ups and downs in life and
in investments. It’s thought that the book could actually be the true story of Livermore’s
life based on the interviews, but some also think it could be completely made up. The
book became very popular and is still one of the most popular investment books to this day
It was shortly after this that Livermore decided
to move to a new office to have more secrecy with his trading and to be even more removed
from Wall Street.
Livermore began noticing certain patterns occurring in the market leading up to 1929.
These were similar patterns to those that he observed in the build up to the crash of 1907
Feeling confident about the hunch he had,
he began opening short trades in anticipation. At one point he was even living in his office
just so he could keep placing trades in the lead up to what he expected to be a huge negative movement
Of course, the boy plunger Livermore was correct
and he enjoyed the most successful period of trading of his entire life.
By the end of the crash, Livermore was worth around $100 million which is over $1.4 billion
in terms of today's money. Most people had lost their money during the crash, which was
known as Black Tuesday.
After making it to $100 million after the crash of 1929, Livermore started to lose that
fortune rapidly. No one knows the true reasons why or how Livermore
lost this fortune as it has never been disclosed. There have only ever been speculations.
During this time, things were extremely unsettled in Livermore's private life.
This included getting a divorce from his second wife,
who also went on to shoot his son at a later point in time
Livermore had spent time in Vienna and met
his third wife, Harriet Metz, whose last husband had committed suicide. Livermore's children
didn't like to be around her since they felt darkness from her and knew that she didn't
want them around, in fact, they even went as far as to call her the bitch-witch.
Eventually Livermore had to declare bankruptcy again, this was his 3rd time.
Although he was bankrupt, he still believed he could make a comeback as he had done so
many times before. But, after all the pressure and emotional strain of everything that had
happened in work and in his personal life, it was too much to take and he wasn’t able to do it
Another contributing factor to not being able
to start again on Wall Street was that he now relied on his wife’s money and he had got comfortable
He didn’t have the same drive or passion as he did in his former days.
On November 28th 1940, Livermore was found dead in the cloakroom of the Sherry Netherland
Hotel in Manhattan aged 63. He had tragically shot himself.
It's clear that the story of Jesse Livermore is one of a highly skilled trader who understood
price activity and how to operate successfully in the markets. This led to some fantastic
successes, which we can all learn from as investors and as traders.
However, his downfall in trading was also due to problems that many traders struggle
with. He wasn't able to avoid being influenced by his private life and he struggled to stick
with his trading rules and system, which would have helped him to avoid many, many losses.
Now many of these rules are still useful today. They can help us to try to avoid some of the
losses Livermore made, while hopefully helping us to move closer to enjoying some of the
success in the markets he did. So here are some of the rules that you can follow and
you'll also find some books in the description box for this video that do a good job of detailing
Livermore's trading approach and life, so we would definitely recommend checking some
of those out.
I hope you enjoyed this video as much as we enjoyed putting it together. Jesse Livermore
is a true trading icon and inspiration in many ways. If you enjoyed the video, please
do hit the thumbs up button to let us know. Don't forget to subscribe to the channel for
more videos about trading, the rest of the trading legends videos are linked below in
a playlist so go ahead and check those out. But before you watch those, please leave a
comment below letting us know what your favourite bit is about the Jesse Livermore story.
Thank you very much for watching, we appreciate it. Take care, we'll see you soon.