03 Jesse Livermore

Traded 1900~1930

Only self made billionaire who committed suicide

Born in Sunberry, Massachusetts 1877, math wizard in school his father wanted him to be farmer growing potatoes. At age 14 His mother gave him money so he could run away.

He started out as Runner (chalk boy) for Paine Weber Boston. His job was transfering data from paint to chalk board.

He figured out the pattern and movement of stock prices. After one year he began betting in the bucket shop. In 1892 by age 15 he made $1000 ($3000 adjusted to inflation).

Bucket shops were vicinities where speculators gathered to make bets with the house. Similar to unregulated casinos or unregulated options. They used real price quotes even though there is no real stock transfer of ownership and are illegal today.

Age 21 he moved to wall street in New York after he was banned form local bucket shops for winning too much. After only 6 months of moving to New York he went bankrupt. This adversity had made him aware of his mistakes and motivated him to learn new skills and fix his mistakes.

In 1906 San Francisco Earthquake had a huge opportunity for him and he shorted the railroad stock union pacific and he made $250,000 profit ($7,500,000 adjusted to inflation).

In 1907 at age 30 he became a millionaire worth $3 million (S30,000,000 adjusted to inflation).

Within a decade he blossomed from a boy plunger in bucket shops to a Wall Street financier Tycoon. He also became a famed womanizer with 3 marriages in different times.

Age 52 1929 market crash he made $100,000,000 (S30,000,000 adjusted to inflation) by shorting the market.

Age 62, 1939 he lost over 95% of his wealth to due overtrading and other complications. In 1940 his son influenced him to write a trading book about trading secrets. The book was called “How to trade in stock”. He also authored “Reminiscences of a stock operator” said to be a primary book wall street traders read.

Age 63, 1940 By this time He had developed severe mental illnesses which led to him committing suicide by shooting himself.

1877~ 1940 net worth $100 billion ($14 billion in 2016)

From his book are the tip 10 trading rules by Jesse Livermore.

Rule 1: Wall street Never changes

“The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never chances.”

“There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. this is because human nature does not change, and it is human emotion, solidly build into human nature, the always gets in the way of human intelligence. Of this I am sure.”

Rule 2 Trading is hard work

“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.”

Rule 3: trade both ways

“It takes a man a long time to learn all the lessons of his mistakes. There is only one side to the stock market; and it is not the bull side or the bear, but the right side.”

Rule 4: Don’t trade all the time

“There is a time to go long. There is a time to go short. And there is a time to go fishing.”

Rule 5: Sit Tight

“Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money”

“It was never my thinking that made the big money for me, it always was sitting”

Rule 6: Don’t Average down

“Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.”

Rule 7: Watching the leaders

“Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily control.”

Rule 8: Stock market is confusing

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

Rule 9: Trend following

“Don’t trust your own opinion and back your judgement until the action of the market itself confirms your opinion.”

Rule 10: Don’t listen to tips

“A man must believe in himself and his judgement if he expects to make a living at this game. That is why I don’t believe in tips.”

“If I buy socks on Smith’s tip I must sell those same stocks on Smith’s tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around?”

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