Jesse Livermore is one of the most fascinating trading legends in history. His rise from humble beginnings to the peak of trading success and his multiple bankruptcies and final ending has fascinated people from his own time until today.
In his teachings we can learn what to do in the markets to make a fortune and in his personal story we can also learn what not to do in trading and in life. His story is so interesting and action packed it would make a great movie. Let’s take a look.
Jesse Livermore Life Story
Originally born on a farm, his father wanted him to follow in his steps and be a farmer, his mother helped him get enough money to move away at a young age.
His first love was math and he enjoyed doing math problems and arithmetic.
His first job was working at Paine-Webber and listing stock prices on the board in the office. He kept his own log of price action and started to notice patterns in the moves.
In his youth Jesse was know as the “Boy Plunger” because he looked younger than his years and he would take big positions when he traded against the bucket shops of his day. The bucket shops let traders bet on a stock price, but no trade was executed, the house covered if you were right.
How good was he? He was banned from the bucket shops one by one, it was like getting kicked out of a casino because you beat the house so badly with outsized gains.
He went on to New York to trade in stocks and commodities and did very well becoming a millionaire many times. Unfortunately he also went bust many times. After a few big early setbacks he finally stuck to his system and maintained his wealth for many years.
Livermore was married three times and had two children. He married his first wife, Nettie Jordan at the age of 23 in 1900. Less than a year later, he went broke after some bad trades; for a new trading account, he asked her to pawn the large collection of jewelry he had bought her, but she refused, hurting their relationship. They separated soon thereafter and finally divorced in October 1917. [1]
In 1918, at 40 years old, Livermore married 23-year-old Dorothy Wendt, a former Ziegfeld girl in Ziegfeld Follies. Livermore had affairs with several of the dancers. They had two sons: Jesse Livermore Jr., born in 1919 and Paul, born in 1922.He bought them a large house in Great Neck and let his wife spend as much as she wanted on the furnishings. In 1927, two burglars broke into the Livermore’s home and held him and his wife at gunpoint.[2]
He made his biggest money in the market crashes, taking short positions before the 1906 San Francisco earthquake, and both the stock market crashes of 1907 and 1929, it is said that J.P. Morgan himself sent word asking for Jesse to please quit shorting stocks in 1907. In 1929 the day of one of the biggest market meltdowns he returned home and his wife was scared that he had lost everything, he surprised her by making the biggest money of his trading career. He ended up with the nickname “The Great Bear of Wall Street” because of his shorting activity.
When Black Tuesday hit on October 29, 1929 and the market crashed, Livermore made $100 million going short. (This is equivalent to $1.7 billion inflation adjusted).
At one time, Livermore was one of the richest people in the world. [3]
Livermore’s relationship became strained by Dorothy’s drinking habits, Livermore’s affairs with other Ziegfeld girls, and their spending habits. In 1931, Dorothy Livermore filed for divorce and moved to Reno, Nevada, with her new lover, James Longcope. In 1932, the divorce was granted and she immediately married her boyfriend. She retained custody of their two sons and received a $10 million settlement. Dorothy sold the house in Great Neck, on which Livermore spent $3.5 million, for $222,000. The house was then torn down, depressing Livermore.
Jesse Livermore Sr. did not attend Jesse Livermore Jr.’s wedding but as a present bought his son a Connecticut Pepsi-Cola franchise. The young man couldn’t handle the responsibility of the Pepsi-Cola franchise and sold it to avoid bankruptcy. [4] His son Jesse Livermore Jr. gave him a grandson named Jesse Livermore III.
In March 28, 1933, at 56, Livermore married 38-year-old singer and socialite Harriet Metz Noble in Illinois. They had met in 1931 in Vienna, where she was performing and Livermore was in the audience on vacation. His third wife was from a prominent Omaha family that had made a fortune in breweries. Livermore was Harriet’s fifth husband; at least two of Metz’s previous husbands had committed suicide, including Warren Noble, who hanged himself after the Wall Street Crash of 1929.
“A stock operator has to fight a lot of expensive enemies within himself.”
– Jesse Livermore
Jesse Livermore was a pioneer in the trading world. He was one of the very first trend traders, rule based discretionary traders, and traders of pure price action. He was a trail blazer. It was not his methodology that was his undoing, it was other short comings. After reading books about the life of this trading legend along with his own, here are my eight observations that I believe was his ultimate undoing.
Letting losers run: Many times he did not cut his losses. “I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.” – Jesse Livermore
Following tips: “Gradually, as I began to accept his facts and figures, I began to fear I had been basing my previous position on misinformation. Of course I could not feel that way and not cover. And once I had covered because Thomas made me think I was wrong, I simply had to go long. It is the way my mind works.” “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.” – Jesse Livermore
Risk of ruin: From the quantity of his account blow ups and personal bankruptcies it appears that he did not understand the mathematical risk of ruin based on winning percentage and the loss of capital per trade.
Position sizing: The sheer size of his astounding wins at key times shows that he did not really have a position sizing model to limit his exposure to risk, he was likely all in with leverage on his biggest wins. Which results in inevitable account blow ups.
Discipline: In his writings he seems to always hint that he had trouble following his own rules and advice and lost money when he didn’t follow his own plan.
Lavish lifestyle: Livermore spent money lavishly on his lifestyle with mansions, vacations, and the best things money could buy. He had no number that allowed him to ever really retire and enjoy his wealth. He continued to trade with full size and aggressively through his career.
Mental risk of ruin: In the end, for whatever reason he ended his life. The stress and strain of trading far too big a position sizes, his spending problem living so lavishly putting pressure on his finances, and his personal love life probably took its toll.
On November 28, 1940, just after 5:30 pm, Livermore fatally shot himself with an Automatic Colt Pistol in the cloakroom of The Sherry-Netherland hotel in Manhattan, where he usually had cocktails. Police found a suicide note of 8 small handwritten pages in Livermore’s personal, leather-bound notebook. The note was addressed to Livermore’s wife, Harriet (whom Livermore nicknamed “Nina”), and it 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”.[4]
The below photo is of Jesse Livermore and his wife at the Stork Club in New York on Nov. 28, 1940, less than 24 hours before the former “Boy Wonder of Wall Street” shot and killed himself. Donald Arden, club photographer, asked Livermore if he might take his picture. Arden quoted Livermore as saying, “Not at all; but it’s the last picture you’ll take, because tomorrow I’m going away for a long, long time.”
It is popularly believed that Livermore died broke, this is not true, he set up a trust for himself after one of his comebacks to make sure he would never be broke again. According to the books on Livermore that I have read he had untouchable trusts and cash assets at his death totaling over $5 million.
While many disregard his wisdom because he ended up committing suicide, it would be foolish to ignore his hard won trading lessons. I think that’s like saying Earnest Hemingway’s or Hunter Thompson’s writing wasn’t good because they committed suicide in the end.
His son, Jesse Livermore Jr., died by suicide in 1975. His grandson Jesse Livermore III also killed himself. [5]
Porn star Brandi Love who was in recent years kicked out of a conservative conference is the great-granddaughter of legendary trader Jesse Livermore. Her actual name is Tracey Lynn Livermore.
Jesse Livermore Trading Rules
Here are Livermore’s trading rules from 1940.
1. Nothing new ever occurs in the business of speculating or investing in securities and commodities.
2. Money cannot consistently be made trading every day or every week during the year.
3. Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion.
4. Markets are never wrong – opinions often are.
5. The real money made in speculating has been in commitments showing in profit right from the start.
6. As long as a stock is acting right, and the market is right, do not be in a hurry to take profits.
7. One should never permit speculative ventures to run into investments.
8. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.
9. Never buy a stock because it has had a big decline from its previous high.
10. Never sell a stock because it seems high-priced.
11. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction.
12. Never average losses.
13. The human side of every person is the greatest enemy of the average investor or speculator.
14. Wishful thinking must be banished.
15. Big movements take time to develop.
16. It is not good to be too curious about all the reasons behind price movements.
17. It is much easier to watch a few than many.
18. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole.
19. The leaders of today may not be the leaders of two years from now.
20. Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend.
21. Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.
Jesse Livermore Quotes
“Do not anticipate and move without market confirmation—being a little late in your trade is your insurance that you are right or wrong.” – Jesse Livermore
“The good speculators always wait and have patience, waiting for the market to confirm their judgment.” – Jesse Livermore
“{Limit} interest in too many stocks at one time. It is much easier to watch a few than many.” – Jesse Livermore
“Experience has proved to me that the real money made in speculating has been: “IN COMMITMENTS IN A STOCK OR COMMODITY SHOWING A PROFIT RIGHT FROM THE START. ” – Jesse Livermore
“As long as a stock is acting right, and the market is right, do not be in a hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry,” have the courage of your convictions and stay with it.” – Jesse Livermore
“It is foolhardy to make a second trade, if your first trade shows you a loss. ” “Never average losses. ” Let that thought be written indelibly upon your mind.” – Jesse Livermore
“One should never sell a stock, because it seems high-priced.” – Jesse Livermore
“Profits always take care of themselves but losses never do. ” The speculator has to insure himself against considerable losses by taking the first small loss. In so doing, he keeps his account in order so that at some future time, when he has a constructive idea, he will be in a position to go into another deal, taking on the same amount of stock as he had when he was wrong.” – Jesse Livermore
“It is significant that a large part of a market movement occurs in the last forty-eight hours of a play, and that is the most important time to be in it.” – Jesse Livermore
“A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box. The only money that is ever taken out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.” – Jesse Livermore
Jesse Livermore Book
The book that really cemented his legacy was Reminiscences of a Stock Operator by Edwin Lefevre which is still considered one of the greatest trading books of all time one hundred years later. However, Livermore did write one book himself late in his life called How I Trade In Stocks.
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