Jesse Lauriston Livermore

Jesse Lauriston Livermore (July 26, 1877 – November 28, 1940) was an American stock trader.[1] He is considered a pioneer of day trading[2] and was the basis for the main character of Reminiscences of a Stock Operator, a best-selling book by Edwin Lefèvre. At one time, he was one of the richest people in the world; however, at the time of his suicide, he had liabilities greater than his assets.[3]

Jesse Lauriston Livermore
Born	July 26, 1877 Shrewsbury, Massachusetts, U.S.
Died	November 28, 1940 (aged 63) New York City, U.S.
Cause of death	Suicide by gunshot
Other names	Boy Plunger The Wolf of Wall Street The Great Bear of Wall Street
Occupation	Stock trader
Spouse(s)	Nettie Jordan ​ ​ (m. 1900; div. 1917)​ Dorothea "Dorothy" Wendt ​ ​ (m. 1918; div. 1932)​ Harriet Metz Noble ​ ​ (m. 1933; his death 1940)​
Children	2

In a time when accurate financial statements were rarely published, getting current stock quotes required a large operation, and market manipulation was rampant, Livermore used what is now known as technical analysis as the basis for his trades. His principles, including the effects of emotion on trading, continue to be studied.

Some of Livermore's trades, such as taking short positions before the 1906 San Francisco earthquake and just before the Wall Street Crash of 1929, are legendary and have led to his being regarded as the greatest trader who ever lived.

Early life

Livermore was born in Shrewsbury, Massachusetts, to a poverty-stricken family and moved to Acton, Massachusetts, as a child.[4] Livermore learned to read and write at the age of 3-1/2.[5] At the age of 14, his father pulled him out of school to help with the farm; however, with his mother's blessing, Livermore ran away from home.[5] He then began his career by posting stock quotes at the Paine Webber stockbrokerage in Boston, earning $5 per week.[5]

Career

In 1892, at the age of 15, he bet $5 on Chicago, Burlington and Quincy Railroad at a bucket shop, a type of establishment that took leveraged bets on stock prices but did not buy or sell the stock.[1] He earned $3.12 on the $5 bet.[5]

Livermore was soon earning more trading at the bucket shops than he did at Paine Webber. At the age of 16, he quit his job and began trading full-time.[5] He brought $1,000 home to his mother, who disapproved of his "gambling"; he countered that he was not gambling, but "speculating".[6]

Eventually, he was barred from his local bucket shops because of his consistent winning and would bet in the shops using disguises. He then went to Wall Street with his $10,000 in savings.[5]

While trading on Wall Street, he went bust as the ticker tape was not updated fast enough to make current trading decisions. He then moved to St. Louis, where he made bets at bucket shops.[5]

His first big win came in 1901 at the age of 24 when he bought stock in Northern Pacific Railway. He turned $10,000 into $500,000.[5]

In 1906, he vacationed in Palm Beach, Florida, at the club of Edward R. Bradley.[5] While on vacation, at the direction of Thomas W. Lawson, he took a massive short position in Union Pacific Railroad the day before the 1906 San Francisco earthquake, leading to a $250,000 profit.[7] Some time later, Livermore went long on the stock, however, his friend, and owner of the brokerage house in which he did most of his trading, Edward Francis Hutton, erroneously convinced Livermore to close his position, and he wound up losing $40,000.[5]

In the Panic of 1907, Livermore's huge short positions made him $1 million in a single day.[5] However, his mentor, J. P. Morgan, who had bailed out the entire New York Stock Exchange during the crash, requested him to refrain from further short selling. Livermore agreed and instead, profited from the rebound, boosting his net worth to $3 million.[5]

He bought a $200,000 yacht, a rail car, and an apartment on the Upper West Side. He joined exclusive clubs and had mistresses.[5]

In 1908, he listened to Teddy Price, who told him to buy cotton, while Price secretly sold. He went bankrupt but was able to recover all of his losses.[5]

In 1915, he filed bankruptcy again.[8]

Following the end of World War I, Livermore secretly cornered the market in cotton. It was only interception by President Woodrow Wilson, prompted by a call from the United States Secretary of Agriculture, who asked him to the White House for a discussion that stopped his move. He agreed to sell back the cotton at break-even, thus preventing a troublesome rise in the price of cotton. When asked why he had cornered the cotton market, Livermore replied, "To see if I could, Mr. President."[9]

In 1924–1925, he engaged in market manipulation, making $10 million trading wheat and corn in a battle with Arthur W. Cutten[5] and engineering a short squeeze on the stock of Piggly Wiggly.[6]

In early 1929, he amassed huge short positions, using more than 100 stockbrokers to hide what he was doing. By the spring, he was down over $6 million on paper. However, upon the Wall Street Crash of 1929, he netted approximately $100 million.[5] Following a series of newspaper articles declaring him the "Great Bear of Wall Street", he was blamed for the crash by the public and received death threats, leading him to hire an armed bodyguard.[6]

His second divorce in 1932, the non-fatal shooting of his son by his wife in 1935, and a lawsuit from his Russian mistress led to a decline in his mental health, while the creation of the U.S. Securities and Exchange Commission in 1934 imposed new rules that affected his trading. Although it is unknown exactly how it happened,[9] he eventually lost his fortune and filed bankruptcy for the third time in 1934, listing assets of $84,000 and debts of $2.5 million.[6][5] He was suspended as a member of the Chicago Board of Trade on March 7, 1934.[9]

In 1937, he paid off his $800,000 tax bill.[10]

In 1939, he opened a financial advisory business, selling a technical analysis system.[6]

Personal life

One of Livermore's favorite books was Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay, first published in 1841. That was also a favorite book of Bernard Baruch, a stock trader and close friend of Livermore.[4]

He enjoyed fishing and, in 1937, he caught a 436-pound swordfish.[11]

Marriages

Livermore was married 3 times and had 2 children. He married his first wife, Netit (Nettie) Jordan, of Indianapolis, at the age of 23 in October 1900. They had only known each other a few weeks before they got married.[5] Less than a year later, he went broke after some bad trades; for a new stake, he asked her to pawn the substantial collection of jewelry he had bought her, but she refused, permanently damaging their relationship.[5] They separated soon thereafter and finally divorced in October 1917.[9]

On December 2, 1918, at the age of 40, Livermore married 22-23-year-old Dorothea (Dorothy) Fox Wendt, a former Ziegfeld girl in Ziegfeld Follies.[9] Livermore had affairs with several of the dancers.[5] The couple had two sons: Jesse Livermore II, born in 1919 and Paul, born in 1922.[5] He then bought an expensive house in Great Neck and let his wife spend as much as she wanted on the furnishings.[5] In 1927, he and his wife were robbed at gunpoint in their home.[5] The relationship became strained by Dorothy's drinking habits, Livermore's affairs with other Ziegfeld girls, and their lavish spending.[5] In 1931, Dorothy Livermore filed for divorce and took up temporary residence in Reno, Nevada, with her new lover, James Walter Longcope. On September 16, 1932, the divorce was granted and she immediately married her boyfriend. She retained custody of their two sons and received a $10 million settlement.[5] Dorothy sold the house in Great Neck, on which Livermore spent $3.5 million, for $222,000. The house was then torn down, depressing Livermore.[5]

On March 28, 1933, 56-year old Livermore married 38-year-old singer and socialite Harriet Metz Noble in Geneva, Illinois. They had met in 1931 in Vienna, where Metz Noble was performing and Livermore was in the audience on vacation. Metz Noble was from a prominent Omaha family that had made a fortune in breweries. Livermore was Metz Noble's fifth husband; at least 2 of Metz's previous husbands had committed suicide, including Warren Noble, who hanged himself after the Wall Street Crash of 1929.[12][5]

Publications

In late 1939, Livermore's son, Jesse Jr., suggested to his father that he write a book about trading. The book, How To Trade In Stocks, was published by Duell, Sloan and Pearce in March 1940. The book did not sell well as World War II was underway and the general interest in the stock market was low. His investment methods were controversial at the time, and the book received mixed reviews upon publication.[9]

Suicide

On November 28, 1940, just after 5:30 pm, Livermore fatally shot himself with an Automatic Colt Pistol in the cloakroom of The Sherry-Netherland hotel in Manhattan, where he usually had cocktails. Police found a suicide note of 8 small handwritten pages in Livermore's personal, leather-bound notebook.[7][13] The note was addressed to Livermore's wife, Harriet (whom Livermore nicknamed "Nina"), and it read, "My dear Nina: Can't help it. Things have been bad with me. I am tired of fighting. Can't carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie".[9]

His son, Jesse Livermore Jr., committed suicide in 1975. His grandson also killed himself.[5]

Further reading

Books about Livermore include:

• 1923 – Reminiscences of a Stock Operator, by Edwin Lefèvre (best-selling biography of Livermore) multiple reissues since, the latest issued on January 17, 2006, by Roger Lowenstein (Foreword) (ISBN 0-471-77088-4 ISBN 978-0-471-77088-6) – PDF
• 1985 – Jesse Livermore – Speculator King, by Paul Sarnoff (ISBN 0-934380-10-4)
• 2001 – Jesse Livermore: The World's Greatest Stock Trader by Richard Smitten (ISBN 0-471-02326-4)
• 2003 – Speculation as a Fine Art, by Dickson G. Watts (ISBN 0-87034-056-5) – PDF
• 2004 – Trade Like Jesse Livermore, by Richard Smitten (ISBN 0-471-65585-6) – PDF
• 2004 – Lessons from the Greatest Stock Traders of All Time, by John Boik
• 2006 – How Legendary Traders Made Millions, by John Boik
• 2007 – The Secret of Livermore: Analyzing the Market Key System, by Andras Nagy (ISBN 978-0-9753093-7-7)
• 2014 – Jesse Livermore - Boy Plunger, by Tom Rubython, Foreword by Paul Tudor-Jones (ISBN 978-0-9570605-7-9)

References

1. Lefèvre, Edwin (1923). Reminiscences of a Stock Operator.
2. Millman, Gregory J. "The Original Day Trader" Check |url= value (help). Forbes. Retrieved 2019-12-05.
3. Abbott, Robert (June 18, 2019). "Big Mistakes: Jesse Livermore". GuruFocus.
4. Smitten, Richard (November 11, 2004). Trade Like Jesse Livermore. Wiley. ISBN 0-471-65585-6.
5. Shen, Lucinda (Jul 17, 2015). "Why Wall Street traders are obsessed with Jesse Livermore". Business Insider.
6. Millman, Gregory J. (December 27, 1999). "The Original Day Trader". Forbes.
7. Henriques, Diana B. (September 9, 2001). "Off the Shelf; A Speculator's Life Is Still Elusive". The New York Times.
8. "Cotton 'King' A Bankrupt; Jesse L. Livermore Loses Millions He Made in Wall Street". The New York Times. February 18, 1915.
9. Smitten, Richard (September 14, 2001). Jesse Livermore: The World's Greatest Stock Trader. Wiley. ISBN 0-934380-75-9.
10. "Livermore Pays Up His $800,000 Tax Bill; Speculator's Attorney Silent on Possible Plans for Another 'Come-Back'". The New York Times. April 1, 1937.
11. "70 Yachts Moored Off Montauk Club; Jesse Livermore Brings Ashore There 486-Pound Swordfish, Almost a Club Record". The New York Times. July 6, 1937.
12. Hansen, Matthew (October 27, 2015). "Hansen: Tale of Omaha's 'black widow' is too tempting to not investigate". Omaha World-Herald.
13. "Business: Boy Plunger". Time. December 9, 1940.