Trading Legend Jesse Livermore

Trading Legend Jesse Livermore

Jesse Livermore is known as one of the greatest traders of all time. Wall Street is completely obsessed with him. Even if you haven’t heard of Livermore, you’ve probably heard of his trading principles and methods.  

Using his own money, he successfully made millions in the market many times.  It’s not very often a trader becomes this successful, especially while using their own funds. Many traders including myself are still using, studying, and researching his trading doctrine to this day. 

Personal life and background 

Jesse Lauriston Livermore was born July 26th, 1877 in Shrewsbury, Massachusetts. As a child, he moved to South Acton, MA. Jesse came from an impoverished family. He had to run away from home in order to escape the farming life which his father had planned for him. At the age of 15, he started working at the Paine Webber brokerage in Boston. He had the job of writing stock and commodities prices on the company’s quotation chalkboard. While working, he began to study the different price movements and fluctuations.  

His friend persuaded him to start making bets at a local “bucket shop” (a place for gambling on stock prices without buying or selling the stock). Jesse started to make more at the bucket shops then he did working for Paine Webber. He chose to leave the brokerage and start trading full time. 

Eventually, he was banned from the local bucket shops because of his constant winning streak. He was able to make around $10,000 before the ban. He then took the money to Wall Street to start speculating and trading in the stock market.  

After half a year of trading on Wall Street, Jesse was not succeeding. The same strategies that proved to do well at the bucket shops were not successful for him. He created a new strategy that involved longerterm trades. His new methods ended up working very well for him.  Some of his trades were flat out legendary. His massive success helped him gain the reputation of being the greatest trader who ever lived.   

Legendary trades

Jesse opened a short position right before a massive earthquake struck San Francisco in 1906. He sold short Union Pacific stock and after the earthquake destroyed most of San Francisco, his position gained $250,000. His intuition to do this was a huge mystery to everyone including himself. Jesse stated all he knew was that he had a gut feeling. 

During the market crash of 1907, Jesse profited handsomely from his short positions. JP Morgan requested that he stop short selling in concern for the global economy. Back then JP Morgan had bailed out the entire New York Stock Exchange! Jesse got rid of his short positions and went long during the recovery.  He made out with a cool $3 million. 

He went bust and lost the fortune he had made from the 1907 crash after making some wrong moves while trading cotton. It was such a large loss that he had to file bankruptcy. But that didn’t stop him! He ended up settling all of his debts and successfully traded his way out of the red.  

After the end of the First World War, he believed the demand for cotton would significantly drop. He secretly bought cotton and came close to owning every single bale. He stopped trading cotton after being called to the Whitehouse by President Wilson. They wanted to know why he cornered the cotton market. His reply was simply “to see if I could.” They mad an agreement and Jesse sold back the cotton at break even. Doing this kept the price of cotton from sharply rising. 

The 1929 market crash

His most famous trade was when he predicted the stock market crash of 1929.  He used more than 100 different stockbrokers to create a massive short position. The reason he used multiple brokerages was to help keep his position hidden. Once the market came crashing down, he made a profit of approximately $100 million. That’s the same as $1.384 billion in 2014 money according to the Bureau of Labor Statistics.  

The fortune he made from one of the worst stock market crashes in history came at a price. Many bankrupt victims of the crash personally blamed Jesse for being responsible. He was met with a profuse amount of death threats and received the nickname “The Great Bear of Wall Street.” He found it ludicrous to be blamed for such an event.   

Famous quotes and trading principles

“Patterns repeat because human nature hasn’t changed for thousands of years.”

“It is much easier to watch a few than many.”

“Successful trading is always an emotional battle for the speculator, not an intelligent battle. He knew that his biggest enemy was his own emotions.”

“Buy stocks that are rising and sell stocks that are falling.”

“There is nothing new in Wall Street.  There can’t be, because speculation is as old as the hills.  Whatever happens in the stock market today has happened before and will happen again.”

“It is not good to be too curious about all the reasons behind price movements.”

“Do not trade every day. It never was my thinking that made the big money for me.  It always was my sitting.”

“Big movements take time to develop.”

“Trade only when the market is clearly bearish or bullish.”

“Wishful thinking must be banished.”

“I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.” 

“Only enter a trade after the action of the market confirms your opinion and then enter promptly.”

“The human side of every person is the greatest enemy of the average investor or speculator.”

“Men who can both be right and sit tight are uncommon.”

“Continue with trades that show a profit and end trades that show a loss.”

“Don’t sell a stock just because it seems high-priced.”

“There is only one side of the market and it is not the bull side of the bear side, but the right side.”

“End trades when it is clear that the trend you are profiting from is over.”

“Never buy a stock because it has had a big decline from its previous high.”

“In any sector always trade the leading stock; the one showing that has the strongest trend.”

“As long as a stock is acting right and the market is right, don’t be in a hurry to take profits.”

Quotes continued

“Never average down losses by buying more of a stock that has fallen.”

“No trading rules will deliver a profit 100 percent of the time.”

“The stock market is never obvious.  It is designed to fool most of the people, most of the time.”

“Cut your losses quickly, without hesitation.”

“Go long when stocks reach a new high.  Sell short when they reach a new low.”

“The highest profits are made in trades that show a profit from the start.”

“If you can’t Sleep at night because of your stock market position, then you have gone too far.”

“Don’t become an involuntary investor by holding onto stocks whose price has fallen.”

“Markets are never wrong, opinions often are.”

“Successful traders always follow the line of least resistance.  Follow the trend, the trend is your friend.”

“The game of speculation is the most uniformly fascinating game in the world.  But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get rich quick adventurer.  They will die poor.”

These quotes represent some of the tried and true trading methods that Jesse developed throughout his career. Many traders rely on them to develop a trading plan and strategy. They are all tremendous for trading but some may not apply to long-term investing methods.

A tragic end

Unfortunately, Jesse ended up losing the fortune he made from the 1929 market crash. Due to the stress of his wild lifestyle and his second divorce, Jesse’s mental health started to diminish. He received a suspension from the Chicago Board of Trade after going bankrupt. He wasn’t able to find the same trading success that he had once achieved. No one knows for sure exactly how he had lost his fortune. It is thought that personal issues and lawsuits that encircled some of his business affairs are the cause. In 1940 Jesse tragically took his own life. 

Learning from this legend

The wisdom passed down from Jesse has helped many traders develop sound and profitable trading strategies. To learn more from Jesse, there are some great books written about the man and even one he wrote himself. The best-selling biography “Reminiscences of a Stock Operator” by Edwin Lefevre, “How To Trade In Stocks” by Jesse Livermore, and the Richard Smitten book “Jesse Livermore: The World’s Greatest Stock Trader.” All of these books are still popular to this day and can teach you more about his life and trading philosophy.   

It’s been almost 80 years since his death, yet he is still a very influential man that’s known and praised by many. While you’re making trading decisions you should ask yourself, what would Jesse do? 

This article uses some resources and information from the Wikipedia article Jesse Lauriston Livermore