There are dozens of Jesse Livermore quotes to remember, but one incredible phrase I’ll never forget is, “Of all the offspring of Time, Error is the most ancient, and is so old and familiar an acquaintance, that Truth, when discovered, comes upon most of us like an intruder, and meets the intruder’s welcome.”
The only problem with this great quote is Jesse Livermore didn’t famously say it; it was out of a book titled ‘Extraordinary Popular Delusions and the Madness of Crowds‘ by a Scottish journalist Charles Mackay, first published in 1841. This happened to be one of Jesse Livermore’s favorite books to read.
When people talk about the greatest investor of all time, Jesse Livermore most likely will come up. The sad truth is that some people are unaware of the life Livermore lived and the path which took a boy born into poverty to the top of the financial markets, trading big money and playing the game of speculation like no other.
Pain Webber and The Big City
As the story goes, young Jesse wanted to head to the big city instead of working the farm for his father. Since age three, his mother had worked with him on learning math, so the young man developed a gift for analysis. He soon figured out he needed to venture into the city to find what he was looking for because reporting to the farm was definitely not what he was after.
When he was 14 years old, he set out for the city with his mother’s help. Instead of reporting to the address his mother assigned him, he stopped at a Paine Webber, a Boston stockbroker house.
“I had a hard time convincing her (my mother) that I was not gambling, but making money by figuring.”Jesse Livermore
Jesse found himself inside a ‘bucket shop’ where shares of stocks and commodities would trade hands along with each corresponding price. A person engaged in this trading would be referred to as a bucketeer, and the practice they were involved in was known as bucketeering, hence the term bucket shop.
Inside the bucket shop is where Jesse found his calling. Soon after arriving in Boston, Jesse would become a “chalk boy,” someone who would track the recent sales price on a black chalkboard for everyone to see. He could make a small salary with this newly acquired job so he could rent an apartment nearby.
He was known as a trustworthy chalk boy and dedicated to learning everything there was to know about the bucket shop and the entire market built around it. Whether it was a bull market or bear market, Jesse began to understand how markets moved.
Numbers, Psychology and The Emotions of Crowds
Jesse learned the market inside and out. Bull side, bear side, and getting into a trade at the right time. Reading newspapers, studying the bucket shop system, and watching the companies listed for trade. He studied the price movements and how they moved in conjunction with similar stocks in the same industry.
He also noticed how news events of the day flowed through the office and affected the prices he was recording. To get on the right side of the trade meant paying close attention to the emotions of the crowd. A great Jesse Livermore quote to remember talks about this phenomenon. The fascinating game of patterns intertwined with human emotions.
“Patterns repeat, because human nature hasn’t changed for thousand of years”Jesse Livermore
Patterns were emerging at times when bad news was reported regarding a particular company. Most notably, the emotions of the traders were observed by Jesse as he saw people rushing to sell as the price moved lower to minimize their losses. As soon as the panic selling concluded, prices would recover and jump higher. He thought if emotions were driving the buying and selling in his bucket shop, they were surely at play in other places throughout the country.
Jesse kept a notebook full of observations and trade ideas. His goal was to set out on his own to trade with real money out of his private funds. Part of the reason for this was to get away from the crowd and be alone with his own emotions and ideas, not to be influenced by the herd. He began to make trades in his notebook that were from his observations of the day’s trading. These were not real trades as he didn’t have a large account with actual money, but his ideas confirmed different patterns he was noticing.
“It is not good to be too curious about all the reasons behind price movements”Jesse Livermore Quotes
One day at age 15, Livermore decided to make a real trade using $5 of his wages from the bucket shop. His trade returned a profit of $3.12, and he was off and running. The next few weeks found Jesse earning more on his own trades as he was making in wages from Paine Webber. He decided to leave the bucket shop and start trading on his own. With his own money, at nearby Boston shops when he was 16 years old.
Jesse would make profits at various bucket shops, and eventually, he was banned from entering many of them. Bucket shops were not set up to lose money, which is what Livermore caused whenever he visited them. Jesse refused to stop trading even after getting banned, so he would resort to wearing fake beards to go unnoticed. Often he would hire someone to enter the bucket shops and execute the trades on his behalf.
The First Big Score
In 1906 Jesse had his first big win. He mostly attributes the trade to dumb luck and says he just “got a feeling” that he should short Union Pacific stock. In April of 1906, Jesse shorted 5000 shares of Union Pacific railroad stock, starting with 1000 shares and eventually building up his position. The very next day, the San Francisco earthquake rocks the west coast, and the shares of Union Pacific stock plummet along with rising fears of a possible U.S. recession.
After the quake, news reports begin to stream out with news of hundreds injured or dead with buildings damaged. Livermore had a feeling the newspapers were underestimating the extent of the quake and its damage, so he quadrupled his bet to short 20,000 shares of Union Pacific. That amount equals roughly a $3.5 million bet, with much of the sum having been borrowed from the bank on leverage.
“Whenever I have had the patience to wait for the market to arrive at what I call a Pivotal Point before I started to trade; I have always made money in my operations.”Jesse Livermore Quotes
In the following weeks, reports began to spread about the reality in San Francisco. Buildings were catching fire and burning to the ground. An estimated 80% of the structures in the city were gone or on fire. Not only that, but because insurance companies coverage insured fire but did not include earthquakes, building owners were also setting their own buildings on fire.
Over 3,000 people were dead, ten times the amount of some of the initial newspaper reports. Jesse continued his trade for the next few months and eventually came away with $300,000.
The Short of 1907
Livermore was convinced the next big movement in the market was a drop and decided to short heavily. Liquidity shortages and the fear of easy borrowing coming to an end had the market nervous.
Panic set in at New York banks as what would be known as “The Knickerbocker Crisis” began to unfold. During a three-week period in October of 1907, individual stocks on the New York Stock Exchange fell almost 50% from the previous year’s peak.
As the panic played out, Jesse was short and made huge profits from his market moves. By all accounts, he walked away from the crisis with about $3 million in profit. The crisis subsided late in 1907 as intervention by banker J.P. Morgan. He pledged vast amounts of his own money and convinced other wealthy investors to do the same to shore up the financial system.
Edwin Lefevre wrote Reminiscences of a Stock Operator in 1923. The book was told in the first person and based on the life of Jesse Livermore up to that point.
In the book, Lefevre details Livermore’s successes at the bucket shops, later at the New York Stock Exchange, and other methods Livermore found extremely profitable. It’s still one of the most read books among wall street traders and money managers around the world.
Wheat Trade of 1925
In 1925 the greatest investor of all time, Jesse Livermore made $10 million trading in the wheat market on the Chicago Board of Trade. The year prior saw a rival trader, Arthur Cutten, make a massive profit on the rising price of wheat.
In general, commodity prices were volatile, and many speculators participated in the wild swings of the market. Legislation was introduced to ban futures trading in grain and cotton unless the parties intended to take delivery in the contract traded, but the rules were not passed.
“The human side of every person is the greatest enemy of the average investor or speculator”Jesse Livermore Quotes
The price of wheat would rise to $2.05 per bushel by January 1925, and Jesse saw the overheated market as a potential short trade. By the middle of March, Jesse and fellow short-sellers “loosed an avalanche of wheat and rye that proceeded right through the bottom of the grain market,” as described later by a Time Magazine news article.
As the price plummeted, Livermore cashed out over $10 million. This set off a wave of investigations and rule propositions by the secretary of agriculture. A report by the secretary concluded that there were two groups of speculators in the market.
One group was “constructive” in trading on their view of market fundamentals. The second group were traders, “destructive” in their actions based on “mob psychology” and abuse of the market by large-size trades.
“Go long when stocks reach a new high. Sell short when they reach a new low”Jesse Livermore
1929 Meltdown for $100 Million
The stock market crashed in 1929 and signaled the start of the 12-year Great Depression. On October 24th, known as “Black Thursday,” stocks began plummeting. What would be known as “Black Monday” and Black Tuesday” started where the two-day decline had stocks losing 25% of their value. The Dow Jones Industrial Average lost 47% in the fall of 1929, and over the next three years, the index would fall 89%.
Livermore began shorting the market during this time and amassed a considerable position. As the market continued to sink, the greatest investor of all time, Jesse Livermore, inked a big profit of $100 million. With the Dow going up five-fold over the previous six years, it was an environment that was perfect for Livermore.
He was, by this time, an expert in market psychology. He understood the signals and warning signs of an overheated market. Euphoria was gripping the entire economy, the Bull Market was raging, and the stock market was directly benefiting. For the average man, this meant easy money; for Livermore, it meant preparing for a bear market and avoiding the crowd.
“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.”Jesse Livermore
Brokers were making loans to the public so people could buy stock on margin and get involved in the hype. The total amount of outstanding loans to purchase stock reached a staggering $8.5 billion at one point, a huge red flag for Jesse.
He was able to see human emotion running rampant. The desire for constant action by investors told Jesse that speculation was getting out of control. A get-rich-quick adventurer was around every corner. Action of the market told Jesse the market was off-sides, and a tumble was near.
Livermore would later write a book about his trading experience and techniques titled, ‘How to Trade in Stocks.’ He cites two of the essential characteristics of his success as discipline and patience. Having control of your emotions is the only way to have a successful trading career. Another method he used was “pivotal price levels,” where he would watch the strongest stocks in a sector, and while they made new highs, he would buy.
Once the stocks turned down and were unable to begin making new highs again, he took it as a cue that the psychology had changed, and the odds of a more significant downturn were ahead. He would then begin to short the stocks as they fell lower and lower.
A person of inferior emotional balance would not be able to withstand the thought of markets going back to all-time highs. Jesse remained calm and continued to short stocks.
“There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling daily – or sufficient knowledge to make his play an intelligent play”
Busted In 1934, and Jesse Livermore Quotes
In 1934 Jesse Lauriston Livermore was banned from the Chicago Board of Trade. Rumors began swirling that he had lost his entire fortune, and no one knew how. Only five years after his legendary $100 million win, he was broke again.
Speculative blunders, lavish spending, divorce, lawsuits, alcohol abuse, scandals, affairs, and the market’s stress contributed to Jesse’s downfall. Mystery surrounded the loss of his fortune.
Livermore wrote at length about many of the rules he tried to follow during his trading career. Investors today are well aware of the path Jesse took, and many, to this day, still try to replicate his trading style.
Some of the more well-known rules being, ‘always trade with a well-formulated plan,’ trade with a stop and adhere to it,’ ‘trade only at the pivotal points in a stock, if there are no clear signals do not attempt to trade.’
“Markets are never wrong – opinions often are”Jesse Livermore
Even with some of the best trading results in history and arguably one of the best investors to ever live, Jesse made huge mistakes and misjudgments in the market. He would lose his fortune multiple times and then gain it back again. He’s known as the greatest investor of all time. Livermore went bankrupt four times and worked to get back on top of the market over and over again.
On November 28th, 1940, on of the greatest traders of all time, Jesse Livermore, shot himself in a room at the Sherry Netherland Hotel in Manhattan. He left an eight-page suicide note to his wife Harriet, where he said, “My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting…” The note goes on to say it was the only way out for Jesse.
Livermore is still studied to this day in the financial markets because of his ability to identify crowds’ psychology during booms and busts, manias, and panics. Not only to identify these trends but to act on them and execute winning trades off them. Although going bust multiple times, he could come back from his trading failures because he knew the pattern would emerge again and again. A quote that is attributed to Jesse highlights his thinking on the topic,
“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis.”Jesse Livermore
More Legendary Jesse Livermore Quotes
“Wishful thinking must be banished”Jesse Livermore Quotes
“If you can’t sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level.”Jesse Livermore
“It is literally true that millions come easier to a trader after he knows how to trade, than hundreds did in the days of his ignorance.”Jesse Livermore
“No trading rules will deliver a profit 100 percent of the time”Jesse Livermore Quotes
“Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.”Jesse Livermore
“There is a time to go long. There is a time to go short. There is a time to go fishing.”Jesse Livermore Quotes
“I can only rise by knowledge, If I fall it must be by my own blunders.”Jesse Livermore
“I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”Jesse Livermore
“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.”