Weekend: The 1900's Wolf Of Wall Street

Considered a pioneer of day trading, Jesse Livermore was, at one point, the wealthiest man alive.

If you are interested in the stock market, you've likely heard the name Jesse Livermore before. He was the original Wolf of Wall Street.

Here's what you need to know about his story...

He is considered a pioneer of day trading. At one time, Livermore was one of the wealthiest people in the world. Some of Livermore's trades are legendary within investing circles.

On September 14, 1900, at age 23, he moved to New York, arriving in time for a strong bull market in stocks. Again, he traded successfully, on the long side, turning $10,000 into $50,000 in five days.

In May 1901, he anticipated a correction and went short, using a 400% margin. He lost his entire stake, as the ticker tape was not updated fast enough to make current trading decisions. He borrowed $2,000 from Ed Hutton, moved to St. Louis, where he was not known, and went back to betting at bucket shops. His first big win came later that year when he bought stock in Northern Pacific Railway. He turned $10,000 into $500,000.

In 1906, he took a vacation in Palm Beach, Florida. 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. In the panic of 1907, Livermore's huge short positions made him $1M in a single day.

His mentor, J P Morgan, bailed out the entire NYSE during the crash and requested him to refrain from further short-selling. Livermore agreed, went long on the rebound and made an additional $2M.

After WW1, Livermore cornered the cotton market. President Woodrow Wilson received a call from the United States Secretary of Agriculture, who asked the White House to help stop Livermore and his actions. After receiving a call from the President, Livermore agreed to sell back the cotton at break-even.

When asked why he had cornered the cotton market, Livermore replied, "To see if I could, Mr President."

Now for the trade of all trades. In early 1929, he amassed huge short positions, using over 100 stockbrokers to hide what he was doing. By the spring, he was down over $6M on paper. However, upon the Wall Street crash of 1929, he netted approximately $100M.

After pocketing the most considerable profit of his career, newspaper headlines declared him the "Great Bear of Wall Street", and he was blamed for aiding the crash.

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, he eventually lost his fortune and filed for bankruptcy for the third time in 1934. He listed assets of $84,000 and debts of $2.5M.

He was suspended as a Chicago Board of Trade member on March 7, 1934.

Some regard Jesse Livermore as the greatest trader who ever lived. However, others have regarded his legacy as a cautionary tale about the risks of leverage to seek significant gains rather than a strategy focused on smaller yet more consistent returns.

Jesse Livermore Quotes

“Money is made by sitting, not trading.”

“Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.”

“To anticipate the market is to gamble. To be patient and react only when the market gives the signal is to speculate.”

“There is time to go long, time to go short and time to go fishing.”

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

“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.”

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

“No one ever went broke by taking a profit.”

“It takes a man a long time to learn all the lessons of all his mistakes.”

“It is true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

“A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and the soul.”

Please share your favourite quote or trade of Livermore’s in the comments below.