Icons of Trading: Jesse Livermore

One of the finest traders to ever walk the streets was Jesse Livermore, the "boy plunger." Renowned for his ability to identify patterns in the market, Livermore called and profited from many watershed events in the stock market in the early 1900's. While the market conditions of the 20th century are alien to investors of our day, Livermore’s trading strategies have stood the test of time. 

Even from an early age, Livermore’s love of arithmetic and analytical mind allowed him to identify patterns in the market. Running away from home at 14, Livermore found work as a stock quotes boy at Paine Webber. While working there he developed an understanding of how general markets functioned and took to recording the price movements in a personal journal. In our trading strategies, we follow a philosophy in line with Livermore’s thinking. Over the years, our careful analysis of the stock market has shown us that certain patterns exist, and through the examination of previous cycles, we have can accurately forecast future trends just as Livermore did. 

By looking at the overall welfare of the stock market, Livermore was able to make colossal gains during violent price movements. In an interview about his trading methods, Livermore remarked “big money is not in individual fluctuations, but in the main movements that is, not in reading the tape, but sizing up the entire market and its trend.” In 1907, Livermore noticed a lack of liquidity in the market during a major sell-off. With no buyers for anyone's stock, prices continued to decline, and while there was mass hysteria on Wall Street, Livermore made a cool 3 million dollars - 77 million in today’s money. By identifying a downward trend Livermore made millions by moving with the market, rather than against it. 

Despite his successful trading career, Livermore’s story also serves as a cautionary tale to all traders, reminding them that no matter how the trade looks, or how high the upside, sustainable trading is done best when proper money management is involved. For example, 22 years following the panic of 1907, Livermore made over 100 million dollars shorting the market on Black Tuesday. This would equate to billions in today's money! Over the next decade, Livermore would lose his fortune, through poor financial management sending his life spiraling into financial ruin. While it is undeniable that Jesse Livermore was one of the most prolific traders of his century, his shortcomings serve as a reminder that making money in the stock market is one thing and keeping it is another.