Jesse Livermore

Jesse Livermore is one of those people whose name, over time, increasingly envelops the veil of mystery. Even Livermore's classic complete biography is a work of fiction. The first attempts to collect actual facts about the trader were made only in the zero years of our century.

 

Even during his lifetime, Livermore's actions made his contemporaries wonder and find the most fantastic explanations for them, creating something like a cargo cult. At first, his success was attributed to the luck of newcomers, then explained by the saying "Fools are lucky", then the trader was accused of a deal with Satan and a complete lack of morality. Of course, even the circumstances of Livermore's death are still not completely clear. But first things first.

Ungrateful soil

Jesse Lauriston Livermore was born in Shrewsbury, Massachusetts in 1877. His father was a poor farmer. Since Shrewsbury, like all of New England, had extremely dry and rocky soil, things were going badly. Because of poverty, the Livermores moved twice, eventually settling in the suburb of Acton.

 

Although Jesse showed extraordinary abilities at school, Livermore Sr. wanted his son to repeat his fate. When the boy was fourteen years old, his father took him from school and handed him work clothes. Fortunately, Mrs. Livermore sided with her son and helped him escape to Boston. So in 1891, young Jesse found himself alone with a big city, in a ridiculous suit for growth and with five dollars in his pocket.

Young Grip

The career of the future millionaire began with a job at the then tiny brokerage firm Paine Webber, which is now part of the UBS AG corporation. The office of the office was on Congress Street - the analog of Wall Street in New York. Legend has it that the Paine Webber building was the first that young Livermore saw in Boston when he got off the van.

 

Jesse's job was to write quotes with chalk on a blackboard. He earned six dollars a week - about a hundred and twenty in a modern exchange rate. Another important occupation for a novice financier was the study of the telegraph tape, with the help of which information was transmitted about the fall and rise in stocks. He noticed that market behavior had repetitive patterns that could be expressed in numerical patterns, and he started a notepad. It took just six months from Livermore's arrival in Boston to buying his first share.

 

Jesse started gambling by betting on cheap stocks in semi-legal offices - bucket shops. This activity could be called nothing other than a game: such establishments lived only at the expense of deception. However, our hero won, and soon the crooks of the entire city stopped letting him on the doorstep. Underground brokers gave the teenager the nickname Boy Plunger, which can literally translate as "Boy-Player", literally "Young Grip", and less literally "Little Slicker." After a year and a half, Jesse left Boston and moved to New York. The youth's capital was about $ 1,000 (about $ 20,000 at the modern exchange rate).

The offices in which Jesse Livermore bought cheap shares operated according to the bookmaker principle. The "broker" sold 10% of the asset to the client and issued a ticket with the deal number. If for a certain period the price decreased by 10%, the office won and took the money. If the price, on the contrary, increased, the client won. Most of these firms in the United States were owned by gangster Arthur Rothstein.

Big panic

In the Big Apple, Livermore's game continued, only at higher stakes. At first, he acted according to the old scheme, using clandestine offices. However, he soon tired of it, and he looked around the fair market. After the first successful deals, Jesse's name became known on Wall Street. But the banking crisis is known as the "Panic of 1907" brought the thirty-year-old speculator to his greatest fame.

 

In 1906, Livermore's calculations predicted a change in market direction. According to his forecasts, for the probable decrease, it was necessary to drop the shares of several large companies, including the stable Reading Railway Fund. Livermore brought it down on his own. The prank succeeded, and our hero had a working scheme for making money: artificially lowering the price of assets + playing for a fall.

 

When the New York Stock Exchange crashed in October 1907, Livermore became fabulously rich thanks to his strategy. For example, on October 24, he received exactly one million dollars per day. According to legend, John Pierpont Morgan, the richest and most influential US financier, had to intervene in the matter. Allegedly, it was he, through his assistant, who asked the speculator to stop the collapse of the stock market. Whether this is true, no one will know, but Livermore had to stop anyway - otherwise, the New York stock exchange would have simply disappeared.

One reason for the 1907 stock market crash was the call loans that banks made to brokers. Brokers borrowed this money from clients on margin. The uncontrolled use of on-call loans against the backdrop of a general tense financial situation led to a crisis of confidence - banks simply did not have the funds left for loans, and loans were no longer closed.

The Great Depression

In 1929 Livermore repeated his success with a multiple stock crash. When Black Monday came, Jesse was already 52 years old. He was married and divorced twice, had two sons, had hundreds of lucrative and ruinous deals on his account, and became a millionaire. And it was he who was blamed by many for the October 1929 stock market crash.

 

The New York Times publishes a devastating article about Livermore, the phone is torn from angry calls; the trader is threatened with death by strangers. His wife, Dorothy, suffers from alcoholism and is mainly engaged in spending her husband's savings. They will divorce in three years. In 1935, a terrible tragedy will occur: Dorothy wounds their common son with a pistol and goes to trial.

 

Joseph M. Blumenthal believes Jesse suffered from clinical depression throughout his life and it was in the early thirties that the symptoms of the disease worsened. In a bitter irony, America was also plunged into a ten-year depression during this time - partly not without the help of aggressive stock speculation. The trader periodically experienced terrible bouts of despair. He married for the third time. His financial situation, despite the general crisis, was excellent. But all this could not save him from illness, and in 1940 Livermore shot himself in the head in the wardrobe of the Sherry-Netherland hotel.

Researchers argue about the cause of Livermore's death. There is a version that the death of the trader is connected with the personality of his third wife, Harriet. Before Livermore, she was married four times, and all husbands committed suicide.

Stock Market Trading Strategy by Jesse Livermore

Jesse Livermore stated professional views in a single book, "How To Trade In Stocks written at the end of life.

 

We wrote out the main theses from there:

            Accept your losses quickly.

 

            Get a confirmation that you are right before entering the market.

 

            Do not close the position before you have a good reason to do so.

 

            Choose a few top stocks to invest in and monitor them.

 

            The best time to make a profit is at tipping points in the market.

 

            Do not rush to buy cheap stocks immediately after a big fall: very often they continue to fall.