Even though more than a quarter-century has gone by since his death-by-suicide in 1940, .Jesse Livermore frequently comes to “live” today in conversations occurring in the board-rooms and the back-offices located along that man-made — and fascinating — canyon known as “Wall Street.”
This is quite understandable; for of all the colorful figures in stock market history Jesse Lauriston Livermore was the only operator who ever made and lost four stock market fortunes—each running into millions of dollars. What makes his roller- coaster financial past even more of a Wall Street wonder is the startling knowledge that every time Livermore went bankrupt, his “hard-hearted” creditors (in the main, conservative—and dispassionate—stockbrokers) promptly let him off.
Tradition has it that the reason Livermore’s creditors absolved him from his debts was simply that they couldn’t afford to lose the commission business generated by his activities. But in any event such was his reputation that brokers and traders alike firmly believed Livermore to be the kind of genius who needed only a small bankroll, a stock ticker and a telephone to recoup his lost millions.
Jesse Livermore had more than just a reputation. He was a gifted man whose rare talents were busily employed for one unyielding purpose: the exciting business of speculation (profits from price changes).
To understand how Livermore came to be obsessed by the all-pervasive urge for wealth from price fluctuations, it is fitting to refer to his youth. Born in South Acton, Massachusetts, in 1877, young Jesse (son of a poor plain-dirt farmer) speedily resented the aches and callouses of bucolic labors.
Hammered upon the forge of poverty, he began to dream of becoming rich—and famous. But most of all, he hungered to escape from the morass of the commonplace. He wanted to be a somebody.
To promote his ambitions, this farm boy at fifteen) ran off to Boston, where he wound up as a board boy in Paine Webber’s office. There, for a few dollars a week, he diligently chalked the ever changing prices of stocks, bonds, and commodities onto a blackboard.
At first, these prices and their changes were quite meaningless to Jesse Livermore. But when he came to realize that every time a price changed somebody made money, he became solidly hooked on the concept of mastering the forecasting of such changes. It was not too long before he put his theories to the test. At lunch hour he began to haunt the local bucket shops (emporiums where bets were made on the price action of stocks and commodities, without of course the actual purchase or sale of the involved items). And soon he found himself scalping small profits, while often being “wiped out” with small losses.
One day Jesse’s supervisor warned him to stay away from those “dens of iniquity”; or else. Jesse chose the “or else”—and was promptly fired. Thus ended the first—and the last—job he ever had. For the next forty-eight years Livermore operated as a lone wolf, selfishly seeking his own aggrandizement.
Shortly after he was fired, Jesse did so well in the Boston bucket shows that he was banned from doing business in that city. Thereupon he went out of town, where he hurt the bucketshop operators so badly they dubbed him with the sobriquet, “Boy Wonder.”
A few years after the turn of the century, JC Livermore (then in his twenties) told himself he was ready for the “big-time.” Quietly he moved into New York City to prepare for his first big killing. This came along in the spring of 1906, when Livermore, on a tip from Boston Lawson, went short of Union Pacific.
Tall, slim, blond-haired—and as dignified-looking as a college president—the icy-eyed Mr. Livermore hardly batted an eyelash as the price of Union Pacific inexorably began to rise—and he began to be seriously squeezed. Obviously, the well-intentioned tip he had received seemed to be turning sour, but Livermore, trapped, with remarkable naïveté, stoically held his ground.
Luckily for Livermore, his first large-scale speculation worked out handsomely only because of a miracle. In April of 1906, the world was shocked by the San Francisco earthquake. The market broke badly. And two days thereafter, Livermore covered his shorts for a profit of more than a quarter-million.
The financially happy outcome of what at first appeared to be a tragedy from a tip taught Livermore his first important lesson: “Never act on tips.” The experience also taught him to seek a more sensible approach to the business of assuming market risk. He began to experiment along the lines of working out a thinking-man’s stock market system.
During the decades that followed, Jesse Livermore sharpened his market tools, concentrating on an accurate method of price-analysis as a basis for price-prediction. Painfully, he learned from his own mistakes—and from the mistakes of other large- scale operators. For many years he stubbornly fought off publishers and tout-sheet operators alike, who pleaded with him to publish the secrets of his stock market methods. Meanwhile, Livermore patiently perfected his “key”—with the thought in mind that when it had proved to be successful at least 60% of the time he would then air it to the investment world.
What motivated him, in 1939, to finally share his secrets with his fellow men was more than the money he hoped to realize from the sale of his book. For all during the years that Livermore worked on his Key system he yearned desperately to make his life meaningful: not only to himself, but also to his fellow Americans—people Who he knew played the stock market against professionals holding marked cards. And so Jesse Livermore wrote the revealing book that follows.
Man’s most powerful weapon for self-betterment is the intelligent application of the lessons of personal experience, Jesse Livermore knew this just as he also knew that learning and knowledge are not sold in the same store. For almost fifty continuous years, day-in and day-out, he absorbed lessons from stock market activity. Trenchantly hee processed them inside his mind that any sharp Yankee trader would have been proud to own. And he set down his findings in a readable fashion—so that all could understand what he was trying to say.
Whether or not risk-takers reading this work will make money by applying the lessons of Jesse Livermore to today’s markets is of course a debatable question. But every reader of this book will be enriched by its wisdom, its sensible “rules”—and the signposts in it pointing up the dangers to risk-capital as represented by changing prices. Chances are this book’s readers will turn to it time and again, as if to an old friend, for its richly informative pages can often be comforting—and consoling. Assuredly, it will help make anyone’s stock market approach more pleasurable.
Part of “How to Trade in Stocks” by Jesse Livermore.