Jesse Livermore - Part I
Jesse Livermore is a genuine legend of Wall Street. He experienced cycles of monumental success and catastrophic failure on a scale unimaginable to most of us. He had the iron discipline to follow his trading plan to spectacular rewards when everybody else said he was wrong. He let his emotions for the approval of others run him ahead of his instincts into perdition's dark abyss. At other times he did everything right and still lost it all when what he could not control in his life went terribly wrong.
Jesse Livermore ran away from home and a future as a rural farm hand at the age of fifteen. He started his financial career, more from necessity than plan, by posting stock quotes at the Paine Webber brokerage in Boston. While working as a board boy he noticed repeating patterns in the ebb and flow of the stock prices he chalked onto the board. He watched how the people in the room reacted to those ebbs and flows, took notes, and learned. Impressed by his discoveries a friend encouraged Livermore to make his first stock trade. Livermore invested $5. The trade was profitable and convinced of his success he quit his board boy job and started trading for himself.
Before his sixteenth birthday he had amassed a little fortune of over $1,000 (more than most people made in a year in the 1890's). Livermore spent his adolescence growing his skill and his nerve in the Boston and New York bucket shops. These bucket shops were storefront and back room casinos where people wagered on ticker tape prices. No stocks were bought or sold. The house kept all the money and paid off winners accordingly. Most people lost their money to the bucket shops. Livermore regularly beat the bucket shops and as his reputation grew he was eventually banned from them. He moved from the bucket shops to the Big Board. What worked at the bucket shops didn't play on Wall Street. Within six months of the start of his legitmate trading career Livermore was wiped out. Did he quit? No. He learned from his mistakes. He adapted to his new environment and continued a success.
During his lifetime Livermore gained and lost several million dollar fortunes, sometimes wiping out his entire trading account in a single day. He once lost $50,000 in a day making the right calls against what turned out to be a slow and misleading ticker tape. He lost $3 million on a cotton trade after abandoning his winning position on "expert" advice. Despite a string of catastrophes that would crush the spirit and self-confidence of so many, the young Livermore was able to find something in himself that would not accept failure as anything other than a lesson. "The game taught me the game. And it didn’t spare the rod while teaching."
Livermore's net worth was more than $100 million after the 1929 market crash, an enormous sum even in today's inflated dollars. Personal tragedies began to overwhelm Livermore at his zenith. The unflinching spirit that stood against the wealth and power of Wall Street's barons was subdued by the caress of a destructive relationship. His fortune dissipated, Jesse Livermore committed suicide in a New York hotel room in 1940.
Jesse Livermore - Part II will focus on Livermore's systematic and disciplined approach to market timing.