Jesse Lauriston Livermore: Lifetime and Investment Strategy

Jesse Livermore is one of the most famous and peculiar traders in history. He was known for his focus on technical analysis in his financial operations. Livermore believed in the importance of studying and understanding the patterns and trends of the market, using charts and historical data to identify investment opportunities.

His mastery of technical analysis allowed him to make informed decisions based on price action and market behavior.This contributed to his success in stock speculation.

In this biography we will go through his life and legacy. Emphasizing his investment strategy, his best phrases and analyzing his two most famous books.

  • Name: Jesse Lauriston Livermore
  • Occupation: Stock Trader
  • Birth: July 26, 1877
  • Died: Novemeber 28, 1940 (aged 63)
  • Cause of Death: Suicide by gunshot
  • Notable works: How to Trade in Stocks
  • Spouses: Nettie Jordan (1900-1917), Dorothea Wendt (1918-1932) and Harriet Metz Noble (1933)
  • Children: Jesse Livermore II and Paul
  • Nicknames: Boy Plunger, The Wolf of Wall Street, The Great Bear of Wall Street

Biography of Jesse Livermore

Jesse Livermore was born in Shrewsbury, Massachusetts, on July 26, 1877, into a poor family. As a child he moved to Acton, also in Massachusetts. When he was 14 years old, his father withdrew him from school to help on the family farm (his father was a farmer). But Livermore decided not to follow in his father's footsteps and, with his mother's support, ran away from home.

The runaway teenager traveled to Boston where he became a board boy working for Paine Webber (a stockbroker company). His job was to update the prices of bonds, shares and commodities on a blackboard.

As Livermore wrote down all the changes in prices, he realized that they often moved in a predictable way, concluding that he could beat the market and make a lot of money.

At that time, he earns $5 per week which is not enough money to operate in stocks, so he used his lunch hour to go to the bucket shops. These establishments were nothing more than betting houses where, among other things, bets were placed on the price of stocks and commodities.

This is where he tried to make money, predicting the direction of prices, both stocks and commodities, to make $1,000 when he was only 15 years old. This amount was more than considerable at that time. After ignoring his boss's warning at Paine Webber to stay away from these establishments, Livermore was fired.

The boy plunger was now a full-time trader. Such was his success that he was forbidden entry into the Boston buckets shops by almost all shop owners, so he had to disguise himself and use false names to continue his speculative activity.

Later he moved to New York in 1900 where, at 23 years old, Livermore began his career as one of the greatest operators of all time. He operated in the brokerage firm Harris, Hutton & Company, turning $10,000 into $50,000 in five years.

But a blow came, Livermore lost all his stake in Harris, Hutton & Company, because the ticker tape was not updated quickly enough for decision-making at the time. Livermore then borrowed money and moved to St. Louis, where nobody knew him, and went back to the buckets shops.

Back in New York, in 1901, Livermore made his first big gain when he bought shares of Northern Pacific Railway. Thus, he turned $10,000 into $500,000. In 1906 he received advice to go short on Union Pacific Railroad and he did so overwhelmingly. Then, the value began to rise, putting him in a very complicated situation.

However, only one day later, the San Francisco earthquake caused the value to collapse, leaving Livermore's account with $250,000 in profit. Some time later, Livermore took a long position in Union Pacific Railroad. A friend (owner of the stock exchange where our protagonist did most of his transactions) convinced him to close his position, and he ended up losing $40,000.

In 1907, in the midst of a stock market crisis, Livermore took another short position and made a million dollars in one day. Thus, he earned his reputation as a bear raider (by betting on falling markets or bear markets), always operating on the bearish side in large amounts.

It was said that the all-powerful J. P. Morgan sent messages through intermediaries asking him to reduce his trading volume. Livermore complied with J.P.Morgan's request. Then, in 1908 he listened to Teddy Price, who advised him to invest in cotton, when Price was secretly selling his positions in this raw material. Livermore went bankrupt because of that cotton operation, although he later recovered, until in 1915 he went bankrupt again.

William Delbert Gann, in his book 45 Years on Wall Street (page 117), describes Livermore as “one of the most spectacular traders of his time”. Gann claimed that Livermore was an honorable man who “thought of paying his debts even after being declared bankrupt by the authorities”.

In fact, Livermore and many other traders and investors, including Gann himself, once lost all their money when the brokerage firm Murray Mitchel and Company closed in 1913.

According to Gann, “in 1917, when Livermore returned and made a fortune again, he not only returned to me the proportional part I lost, but he also paid everyone else”. Gann adds “This was really honorable. Therefore, due to Livermore's honesty, in 1934, when he was bankrupt, I supported him by collecting funds from other people to give them to him. Livermore went back to trading and making money again”.

Gann's main criticism of Livermore was that he had only studied to know how to make money, but not to keep it. As Gann said:

He had the greed and energy necessary for success, but when he had a considerable amount of money, he did not operate conservatively. Livermore tested his own operations in the market instead of waiting for the natural trend that the market shows us on numerous occasions.

In Gann's words, Livermore was a fantastic trader, but a terrible money manager. Another anecdote that is told about Livermore happened after the First World War, when he cornered the cotton market (he bought enough contracts to be able to control the price). Because of this, he received a call from the White House. President Woodrow Wilson asked him to stop that operation, and he did so by selling his positions in that commodity. When asked why he had taken control of the cotton market, Jesse replied “To see if I could, Mr. President“.

In the following years, Livermore continued to operate with commodities, accumulating $10 million, although he was accused of manipulating the market.

After the fall of Wall Street in 1929, Livermore made $100 million. This brought him the popularity of Great Bear, for which he even received death threats. He was blamed for the stock market crash.

His second divorce in 1932, the demand of a Russian mistress and other problems in his private life led to a deterioration of his mental health. In 1934,

Livermore had assets of $84,000, but debts of $2.5 million. In addition, he was suspended from the Chicago Board of Trade in March of that year. In 1939 he opened a financial advisory business that offered a system of technical analysis. But Livermore was already going through the twilight of his career. This is the moment he takes to publish his famous book “How to Trade in Stocks”, where he shares his strategies and experiences in the world of investment.

Livermore's success in financial markets

The success that Livermore had provided him with a lifestyle that many could only dream of. The thin and blond speculator bought a 200-foot yacht, named Anita, went out with famous women, including actresses like Lillian Russell.

Jesse Lauriston Livermore led a life of brilliance, wealth, and excess surrounded by mistresses, scandals, money, and bankruptcy. He was a legendary trader and financial market analyst who made millions during the 1929 crash.

His feats of trading soon became well known around the world, even people commented “you are as rich as Jesse Livermore“.

During World War I, Livermore predicted that coffee would experience a substantial rise, which led him to take long positions. His profits were counted in millions of dollars. However, the coffee contracts were invalidated, because the government believed that Livermore was benefiting from the war times, which led him to ruin himself.

As an aggressive trader, Livermore made and then lost four million dollars of his fortune. Most of the money was made with practices that were later declared illegal in 1930 by the American Securities and Exchange Commission or SEC. The new regulation limited or prohibited the following activities:

  • Use privileged information
  • Hide market positions.
  • Corner stocks to strangle supply and demand.
  • Control incorrect and misleading information so that it is not published.

Livermore also became well known for his strategy of waiting until the action reached the set target where he secured considerable profits and then contacted a journalist from the “New York Times”, or other influential newspapers, to recommend that action as an excellent purchase.

Then he got rid of his position massively, selling in the buying frenzy he had caused by the journalist's article. At its peak, he acquired huge real estate holdings in several countries, as well as cars from the prestigious Rolls-Royce brand and yachts. In addition, he became famous for his spectacular parties.

He also had secret offices on Fifth Avenue, where he did his large-scale operations, with numerous telephone lines and a direct telegram line. The office had a huge blackboard that his employees constantly updated, and had personnel dedicated to research. The sole purpose of this office was to facilitate his operations and investment activities.

Livermore, the 1929 Crash and his Suicide

In 1933, Livermore suffered the great depression of the time and after drinking for 26 hours, he ended up in a police station, as he had completely lost his memory. Once he was unable to make money as he had done before, he decided to sell his secrets in the form of a book, How to Operate in Stocks, which was published in 1940 in two versions, one bound in leather and the other in a simpler format. However, the book did not achieve its goal of attracting the public.

That same year, Jesse Livermore, after having two drinks at the Sherry Netherland Hotel in Manhattan, wrote an eight-page letter to his third wife saying: “My life has been a failure”.

The man who was known as “The boy plunger”, “The Great Bear” or “The King of Cotton”, went to the hotel cloakroom, sat in a chair and shot himself in the head.Thus ended the life of what was considered the best trader of all time, the man who made millions of dollars, leaving an inheritance of less than 10,000 dollars.

The New York Times, in its editorial, wrote the following epitaph about Jesse Livermore:

..What good things he did, what damage he caused, what life meant to him and to others – all these questions are to make a novel… He was carried away by his passion… He lived in a time when the speculation he carried out was like that of those boys who scratch for the last penny… He left no clouds of glory behind him and also left nothing of the human misery he had previously created… The street where he operated is no longer the same as before. His death has marked the end of an era…

Livermore's Legacy: His Famous Books

Livermore wrote two books, How to Trade Stocks and My Life in Wall Street and How I Made Three Fortunes in the Stock Market. His experiences are also recounted in Edwin Lefèvre's book Reminiscences of a Stock Operator.

I. How to trade in Stocks (How to trade Stocks)

The book ‘How to Trade Stocks‘ was published in 1940, the year in which Livermore died. It is believed that he wrote the book as a desperate measure to make money. The book is about the rational process of Livermore's decision-making while trading. The ten chapters that make it up are as follows:

1. The Challenge of Speculation. 2. When a Stock Acts Right. 3. Follow the Leaders. 4. Money in Hand. 5. The Turning Point. 6. The Million Dollar Blunder. 7. The Three Million Dollar Gain. 8. Jesse Livermore's Market Keys. 9. Explanatory Rules. 10. Charts and Clarifications, Market Keys for Livermore.

Next, we will present some quotes from our beloved Livermore's book, structured by topics:

…The game of speculation is the most fascinating and least routine in the world. But it is not a game for fools or for mental sluggards, nor for men with an unbalanced emotional balance, nor for venturing to get rich quickly. If you try it this way, you will die poor. (Page 15).

1º- With regard to the importance of learning how to trade:

Is there any way to quickly make a lot of money working in law or surgery? (Page 15).

2º- If we refer to one's own work, thinking for oneself:

…let me warn you that the fruits of your success will be directly proportional to your own mental effort, keeping your beliefs and generating your own decisions. (Page 16).

3º- With regard to the best and worst trades made by Jesse:

Experience has taught me that the real money in the world of speculation is made by letting the profits run from the beginning of the operation.

We must keep the profits, but we must avoid and cut off the losses from the beginning.

4th- Within the book we find quotes about maintaining an operation and about one's desires to reach a certain level:

“If my value does not behave as I had predicted, I quickly close the operation, since I think that the time to take positions has not yet arrived”

5th- He also referred to the so-called blue chips (consolidated companies), which despite having a good reputation as safe investment instruments, Livermore highlighted their danger, as well as other types of quoted value. To do this, we will show some examples of railway stocks, since at that time it was said that it was safer to invest in railways than to have money in the bank:

  • New York, New Haven and Hartford Railroad – Price on April 28, 1902 – $255. Price on January 2, 1940 – $0.5.
  • Chicago, Milwaukee & St. Paul Roud – Price in December 1906 – $199.62. Price on January 5, 1940 – $0.25.
  • Chicago Northwestern – Price in January 1906 – $240. Price on January 2, 1940 – $0.31.
  • Great Northern Railway – Price on February 9, 1906 – $348. Price on January 2, 1940 – $26.63. (Page 24)

6th- On the subject of buying and holding (buy & hold) investments:

Stock market speculators have always lost money. But I think that the previous statement can be verified with greater security than that which refers to the money lost by investors who left the position open thinking that in the end they would get profits (Page 25).

In my opinion, investors are gamblers. They make their bet, wait, and if things go wrong they lose all their money. (Page 25).

7th- About learning from the past, since history repeats itself:

Price structures are reminders of similar price patterns from the past, which you must become familiar with in order to predict future prices. (Page 51).

8th- Some advice we can find in the book:

Be careful with privileged information (Page 58).

… and if there were any easy tip-offs circulating around to make easy money, no one would tell you to put that money in your pocket. (Page 58).

9th- Charts tell us the true story of value.

The only explanation why a speculator or investor would ask for reasoning from the beginning would be about the workings of the market. Whenever the market does not behave the way you expected, that is reason enough to change your opinion and close your operation quickly… Remember, there is always an explanation for why a stock acts in a certain way. But also remember that you run the risk of not becoming familiar with those reasons that move the market, or becoming familiar with them when it is already too late. (Page 71)

II. Reminiscences of a Stock Operador (Reminiscences of a Stock Operator)

It is a classic written by Edwin Lefevre in 1923, and it is undoubtedly the most popular book ever written about speculation. Lefevre was a financial journalist and the book was dedicated to Jesse Livermore. It is supposedly a novel narrated in the first person about a fictitious trader called Larry Livingston, a character inspired by Livermore.

We will include some quotes:

In fact, I always make money when I'm really sure the stock is going to move in a certain way. What really has played me bad is not paying attention to my stock knowledge and playing with my emotions. So I only trade when I'm sure the precedents are going to play in my favor. (Page 14).

..after a while, I heard many miserable people complaining, and the old stars of the market saying that everyone -except themselves- had gone crazy. (Page 34)

…and the only thing someone who is wrong can do is to be right, by ceasing to be wrong. (Page 103).

But in practice, a wrong man has to be very careful of many things, but above all of himself (Page 122).

No financial library of any speculator can fail to include a copy of the book Memoirs of a Stock Operator. We are not surprised that many current traders regularly refer to the quotes of this masterpiece.

Martin Zweig once said that: Memoirs of a Stock Operator is the best book he had ever read. In addition, to those who come to work with me I always provide a copy of the book.

Jack D. Schwager, author of The Market Wizards and The New Market Wizards, says of the book:

In my interviews with the 30 most famous traders of our time, there were some questions I asked in each conversation. Some of these questions were, for example, if they had found any valuable book to recommend to become good traders and of course the most frequent answer was Memoirs of a Stock Operator.

The best legacy that Livermore left us was of course the story of his life. We must say that he was an honorable and honest man who paid debts that he legally should not have paid. On the other hand, he was a great trader who used any tactic to increase his chances of making money.

The truth is that both his followers and his detractors agree on the fact that he was a great speculator. His success in the market earned him the admiration of other traders, including George Soros and Warren Buffett. Soros, who is considered one of the best traders in the world, has said Livermore was his “hero” and taught him a lot about the stock market. Buffett, who is considered the most successful investor of all time, has also praised Livermore, calling him “one of the greatest traders who ever lived”.

Best Phrases left by the famous investor J.Livermore

All the great figures of history have left us a series of phrases for the memory and of course Livermore was not going to be less

Investors, unlike speculators, are the big players. After making a bet, they cling to it and if the operation is a loser they risk losing everything.”

Another lesson I learned soon is that there is nothing new on Wall Street. It can't be because speculation is as old as the mountains. Anything that happens in the market today has happened before and will happen again.

There is only one side of the market, and it is not the bullish side or the bearish side, but the right side.

Markets are never wrong; opinions, often.”

A man must always believe in himself and in his judgment if he thinks he will make a living in this game. That's why I don't believe in specific stock recommendations.

The average man does not want to be told whether the market is bullish or bearish. What he wants is to be told, specifically, which value to buy or sell. He wants something for nothing. He does not want to work. He does not even want to think.

“The mortal enemies of the speculator are: ignorance, greed, fear and hope.

The principles of success in stock speculation are based on the assumption that people in the future will continue to make the same mistakes that were made in the past.

Stocks are manipulated to the highest possible point, and then sold to the public on the descent.

There is nothing like losing everything you have in this world to learn what you should not do. And when you know what you should not do to not lose money, you start to learn what you should do to win. Do you understand? You start to learn!

People always look for easy money

I think people need a leader, they need to be told what to do and how to do it. They always move as a mass, as a herd, because that's how they feel more comfortable. They are scared if they stay out of the herd and no one wants to stay out of the group, following the theory of the opposite opinion.

FAQs about Jesse Lauriston Livermore

Was Jesse Livermore a Day Trader?

Jesse begin his trading career in a bucket shop as a day trader but left after time to become a swing trader and a long-term investor speculating on price action

Hoe much money did Jesse Livermore make?

As one of the greatest investors, Jesse was worth $100 million which today equate about $1.5 billion at his peak in 1929.

How did Jesse Livermore Manipulate the stock market?

His experience as a board boy make him understand how price action of stock work and the possible predictions. Livermore manipulated the stock market by manipulating the prices of thinly traded stocks in bucket shops.

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