Born is 1877 with no formal education, Livermore was a self-made man who learnt from his experience. At the age of 15 he began trading for himself, and a career of spectacular ups and downs made him an infamous trader on Wall Street. Leaving home at the age of 14 his trading career began when he moved to Boston and found work posting stock quotes for a brokerage firm named Paine Webber. Over the next several years he made thousands (a large sum in those days) betting against what are referred to as “bucket shops” which customers could illegally bet against the house on the direction of a stock price. Livermore is said to have done so well he was banned from all the bucket shops in Boston prompting him to move to New York at the age of 20 where his career really took off.
In New York he met his first wife, Nettie Jordan and they were married within weeks. After a few months Livermore had lost his accumulated wealth, some US$10,000 trading from the ticker’s number which trades 30-40 minutes behind the real-time market numbers and divorced from Nettie. He then moved to St. Louis and began to trade against bucket shops again before eventually was recognised and banned before moving back to New York once again where a bull market in 1901 helped him ear US$50,000 which he then lost all of it trading cotton.
By 1906 he was back up with a small fortune of around US$100,000 however a series of ups and downs in the market caused a bit of a confidence issue and he decided to go vacation in Palm beach to relax. In was during this trip he found he had an urge to short Union Pacific which seemed mad to anyone at the time, shortly afterwards an earthquake in San Francisco caused the stock price to tumble and Livermore netted US$250,000.
Next came the crash of 1907 and he went short on a hunch allegedly earning over US$1 million in a single day. It was at this point that John Pierpont Morgan (JP Morgan) personally stepped in and put millions into the banks to help prop up the economy and at his behest Livermore covered his positions and began buying, in doing so encouraged many other to do the same and the market began to recover. Livermore accumulated almost as cult status during this time as many of his followers became very rich as had Livermore who went on a spending spree buying yachts, cars and apartments. Eventually the expensive lifestyle caught up with him and he once again returned to the stock market.
In 1908 he once again traded cotton listening on the advice of a friend Teddy Price to take a long position while at the same time Price sold along with the rest of the growers costing Livermore millions. For a year he was once again bankrupt before making it all back once again in the market, now aged 40 he once again remarried and became a farther. Over these years his reputation continued to grow with the public buying and selling based on his recommendations in the papers, eventually he established his own trading operation employing over 60 staff. During this time Efwin Lefevre contacting Livermore in order to write “Reminiscence of a stock operator” which was published in 1923 based on a character named Laurie Livingston which was a thinly disguised cover for Livermore. Along came October 29th 1929 or better known as Black Tuesday when he spent days living in his office making trades as he felt something is the market was wrong and made $100 million by taking short positions.
In 1932 he split from his wife Dorothy before going on vacation where he met his third wife at age 56 however he was once again facing bankruptcy and emotionally worn out. He had now entered his 60’s and attempting to regain his fortune once again however the creation of the SEC (Securities Exchange Commission) and loss of motivation stood in his way. In 1935 his eldest son Jesse Livermore Jr. was shot but not mortally wounded by his ex-wife Dorothy Longcope who was eventually cleared of the charges. These series of family tragedies added to an already stressful and in 1940 took his own life.
His trading strategy involved breakouts looking to buy or sell into a trend on increasing volume letting the price confirm his view before adding larger positions or “pyramiding in”. His trading rules were simple:
- Trade with the trend – long in bull markets, short in bear markets
- Don’t trade unless there are clear opportunities
- Wait for the market to confirm a view before entering
- Let profits run as long as possible close trades that show a loss
- Know your stop loss before you enter
- Exit profits when the trend begins to wane
- Don’t average down a losing position or meet a margin call – close the position instead
Though his money did not last and he went bankrupt three times his wisdom has encouraged generations of traders with some famous quotes:
“Profits always take care of themselves but losses never do.”
“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”
“When it comes to selling stocks, it is plain that nobody can sell unless somebody wants those stocks. If you operate on a large scale, you will have to bear that in mind all the time.”
