Journey of Jesse Livermore: Trading Genius and Financial Tragedy
Biography of Jesse Livermore:
In his lifetime, Jesse Lauriston Livermore, born on July 26,
1877, made significant contributions to the field of stock trading. He is
credited as a pioneer of day trading and served as the inspiration for the main
character in the best-selling book "Reminiscences of a Stock
Operator" by Edwin Lefèvre. Livermore's trading strategies and experiences
have left a lasting impact on the world of finance.
Livermore experienced both the highs and lows of wealth. At
one point, he was among the wealthiest individuals globally. However,
tragically, at the time of his death by suicide, Livermore found himself in a
dire financial situation, with liabilities exceeding his assets. His life story
serves as a cautionary tale about the volatile nature of financial markets and
the importance of risk management.
During Livermore's era, obtaining accurate financial
information was challenging, and market manipulation was widespread. Despite
these obstacles, Livermore relied on what is now recognized as technical
analysis to inform his trading decisions. His approach focused on analyzing
market trends and price movements rather than solely relying on fundamental
factors. Livermore's insights into the role of emotion in trading remain
relevant and continue to be studied by traders and investors today.
Jesse Livermore's Childhood Struggles
Livermore was born into poverty in Shrewsbury,
Massachusetts, and later moved with his family to Acton, Massachusetts, during
his childhood.
Early Academic Achievement & Departure from School and
Home
Remarkably, Livermore learned to read and write at the
incredibly young age of three-and-a-half, showcasing his intellectual aptitude
from a young age. At just 14 years old, Livermore's father withdrew him from
school to assist with farm work. Despite his father's decision, Livermore, with
his mother's support, made the bold choice to run away from home.
Early Career of a Financial Prodigy
At just 14 years old in 1891, he started his career as a
board boy at a stock brokerage in Boston, earning $5 per week. His first
venture into trading was buying five shares of Burlington for $5.
By age 15, in 1892, he took a $5 bet on Chicago, Burlington
and Quincy Railroad at a bucket shop, a place for leveraged bets on stock
prices. He made a profit of $3.12 on this bet.
From ages 16 to 17, during 1893 to 1894, he earned around
$200 per week, trading at bucket shops in Boston, which was much more than his
salary at the brokerage. At 16, he decided to quit his job and trade full-time.
Despite his success, his mother disapproved, considering it gambling, but he
argued it was speculation.
Between ages 18 and 20, from 1895 to 1897, he amassed
$10,000 in trading profits, achieving a remarkable 1,000 percent net return in
just three years. However, his consistent winning led to being barred by most
Boston-area bucket shops. Even using disguises and false names couldn't prevent
a city-wide ban.
Trading Challenges in Boston: Overcoming Restrictions
From 1898 to 1900, when he was 21 to 22 years old, he kept
trading at Haight & Freese, the last bucket shop in Boston that still
allowed him to trade. But trading became harder because Haight & Freese
started making it riskier by increasing the difference between buying and
selling prices and demanding more money upfront.
Big City Dreams: Finding Success in New York
At 23, on September 14, 1900, he moved to New York City,
just as the stock market was doing really well. He made a smart move at Harris,
Hutton & Company, turning $10,000 into $50,000 in just five days. But in
May 1901, he guessed wrong about the market and lost everything he had because
the information he needed wasn't updated fast enough. He borrowed $2,000 and
went back to trading in St. Louis, where nobody knew him.
Wins and Losses in 1901: A Rollercoaster Journey
His first big success came in 1901 when he was 24 years old.
He bought shares in Northern Pacific Railway and turned $10,000 into half a
million dollars.
A Turning Point at 24: Transforming a Small Investment into
Wealth
In 1906, he was on vacation in Palm Beach, Florida, at a
fancy club owned by Edward R. Bradley. Acting on a tip from Thomas W. Lawson,
he made a huge bet that the Union Pacific Railroad stock would drop, just
before the San Francisco earthquake. He made $250,000. But later, when he
decided to buy the stock again, his friend Edward Francis Hutton, who ran the
brokerage where he traded, convinced him to sell, and he lost $40,000.
Journey of Jesse Livermore: Trading Genius and Financial Tragedy / Biography of Jesse Livermore:
The Panic of 1907: From Boom to Bust
During the Panic of 1907, his big bets against the market
made him $1 million in one day. But his mentor, J.P. Morgan, asked him to stop
betting against the market, so he did, and he ended up making his net worth $3
million by playing the market's recovery.
He lived a lavish lifestyle, buying a $200,000 yacht, a
railcar, and a fancy apartment on the Upper West Side of New York City. He
joined exclusive clubs and had multiple mistresses.
In 1908, he listened to advice from a friend named Theodore H. "Teddy" Price to buy cotton, but Price secretly sold instead. Livermore went bankrupt but managed to recover all his losses. In 1915, he declared bankruptcy for the second time.
After World War I, Livermore tried to control the cotton
market secretly. However, President Woodrow Wilson intervened, and Livermore
agreed to sell the cotton back at no profit to prevent disruptions in cotton
prices. Livermore explained that he did it just to test his ability, not for
any malicious intent.
Risk and Reward: Livermore's Big Bets on the Market
Between 1924 and 1925, Livermore manipulated the market,
making $10 million by trading wheat and corn and squeezing the stock of Piggly
Wiggly.
Personal Turmoil: Livermore's Struggles Beyond the Trading
Floor
In early 1929, Livermore took huge bets against the market,
hiding his actions using more than 100 stockbrokers. Initially, he lost over $6
million, but when the Wall Street Crash happened later that year, he made
around $100 million. However, he faced public blame and death threats after
being labeled the "Great Bear of Wall Street."
Financial Reckoning: Livermore's Bankruptcy and Legal
Battles
Livermore went through personal turmoil, including a divorce
in 1932, his son being shot by his wife in 1935, and legal issues with his
mistress. Mental health struggles worsened with the new regulations imposed by
the U.S. Securities and Exchange Commission in 1934. He eventually lost his
fortune and declared bankruptcy for the third time in 1934, with assets of
$84,000 and debts of $2.5 million. He was also suspended from the Chicago Board
of Trade.In 1937, he managed to pay off his $800,000 tax bill. In 1939,
Livermore started a financial advisory business, selling a system for technical
analysis.
Jesse Livermore's Personal Side
Livermore's Reading Preferences: He liked the book
"Extraordinary Popular Delusions and the Madness of Crowds" by
Charles Mackay, which was also a favorite of his close friend Bernard Baruch, a
fellow stock trader. Livermore's Hobby: He found pleasure in fishing and in
1937, he managed to catch a massive 486-pound swordfish.
Livermore's First Marriage: A Quick Union and Troublesome
Times
Livermore got married three times and had two children. His
first marriage was to Netit (Nettie) Jordan from Indianapolis when he was 23 in
October 1900. They didn't know each other well before getting married. Less
than a year later, Livermore lost all his money in bad trades. He asked Nettie
to pawn the jewelry he gave her for money, but she refused, causing problems in
their relationship. They separated soon after, but Livermore helped fund the
defense for his brother-in-law who was accused of murder. They officially
divorced in October 1917.
Livermore's Second Marriage: A Showbiz Romance with Dorothy
Fox Wendt
His second marriage was to Dorothea (Dorothy) Fox Wendt on
December 2, 1918, when he was 40. Dorothy was a former Ziegfeld girl in the
Ziegfeld Follies. They had two sons together. Livermore bought an expensive
house and allowed Dorothy to spend as much as she wanted on furnishings.
However, their relationship became strained due to Dorothy's drinking, Livermore's
affairs, and their lavish spending. Dorothy filed for divorce in 1931 and
quickly married someone else, receiving a large settlement.
Livermore's Third Marriage: Finding Love with Harriet Metz
Noble
Livermore's third marriage was to Harriet Metz Noble on
March 28, 1933, when he was 56. They had met in Vienna in 1931 while Metz Noble
was performing as a singer. She came from a wealthy family, but Livermore was
her fifth husband.
Jesse Livermore's Literary Venture
Livermore's son, Jesse Jr., proposed in late 1939 that his
father write a book about trading. The book, titled How to Trade in Stocks, was
released by Duell, Sloan and Pearce in March 1940. However, due to World War II
and decreased interest in the stock market, the book didn't sell well.
Livermore's trading techniques were also seen as controversial, leading to
mixed reviews.
The Tragic End of Jesse Livermore
On Thanksgiving Day in 1940, just after 5:30 pm, Jesse
Livermore tragically took his own life. He used a Colt automatic pistol to end
his life in the cloakroom of The Sherry-Netherland hotel in Manhattan, where he
often enjoyed having cocktails. When the police arrived, they found a
handwritten note in Livermore's personal notebook. It was eight pages long and
addressed to his wife, Harriet, whom he affectionately called "Nina".
In the note, Livermore poured out his heart, expressing how tired he was of
fighting and how he felt unworthy of his wife's love. He said he was sorry, but
he couldn't see any other way out of his troubles.
