Jesse Livermore: The World's Greatest Stock Trader

This article is a transcript of my YouTube video here:

Jesse Livermore was the world's greatest stock trader. He made millions on Wall Street in the early 20th century. Yet his story is as sad as any Shakespeare tragedy. And I think it's a great case study of how money can't buy you happiness.

Jesse's story begins way back in 1877 when he was born on a small farm in Massachusetts. Jesse's daddy was a farmer and Jesse's daddy wanted Jesse to be a farmer. But Jesse knew early on that farm living wasn't the life for him.

So he ran away from home at the age of 15 and he went to the big city: Boston. He found himself standing in front of the Paine Webber building. He needed a job so he walked right in and asked if they had anything for him. And it turns out they did have an opening: for board monkey.

Now board monkey was the guy who would read the stock quotes off the ticker tape and write them on the big board so that the stock brokers behind him could see what was going on in the stock market.

And Jesse loved being a board monkey! He loved running around and writing down all those numbers.

And an amazing thing started happening: Jesse started seeing patterns and trends in the numbers. He could spot these trends so well that he started guessing where the numbers where going to be before they got there and he was usually right.

One of his buddies told him he was so good guessing the numbers that he should be betting on the stocks himself. So Jesse did just that. He went down to the local bucket shop. The bucket shop was where you would go to place your bets on stocks without all the inconvenience and hassle of actually owning any stocks. Back then that was perfectly fine; these days, it's a little illegal.

Jesse started placing bets on the stocks and he began making money right away. By the age of 15, he had made a thousand dollars which, in today’s money, is about $20,000.

And you might think a 15-year-old kid with $20,000 might be pretty happy and satisfied with himself. Maybe he’d go out and blow it all.

But not Jesse.

Jesse didn't see the stock market as a way to make money; he saw it as a game that he wanted to win.

So he kept playing the stock market and he kept betting in the bucket shops for years. He ended up taking so much money from the bucket shops that they all banned him for life.

That was fine with Jesse, because they were too small-time for him anyway. He took all of his money and went to New York City and set himself up as a full-time stock trader.

And he was successful right away.

He created systems and rules for himself to follow so that he would consistently make money in the stock market.

And then came the crash of 1907.

Jesse saw it coming and he shorted the market all the way down. And he made three million dollars by the end of the crash. In today's money, that's tens of millions of dollars which made him very wealthy by any standard.

You might think, “Jesse, you're in your 20s, you've got millions of dollars, call it good, maybe retire.”

But not Jesse. He was in this like it was a game he could win.

And not long after that, Jesse started breaking his own rules. He started taking advice and tips from other people. He started trading things he didn't understand: commodities, like cotton. And he lost everything he had made. He went deep into debt and eventually went bankrupt.

But then came World War I. Jesse saw the markets trending up and he rode that trend up. Later in the war he saw the markets trending down, and he rode that trend all the way down. Jesse made back all the money he lost, paid back all of his debts and was once again a successful trader.

Then came the crash of 1929. Jesse saw it coming and he shorted the market all the way down. And at the end, he had made $100 million, putting him well into billionaire territory in today's money.

Jesse was on top of the world. He owned mansions all over the world, fully staffed with servants 24-hours a day. He had a steel-hulled yacht that he liked to sail from the U.S. to Europe whenever he felt like going on vacation.

And this time Jesse learned his lesson from the first time he lost all his money. He created annuities and trusts to protect his millions of dollars so that in case he ever lost all his money again, he and his family would be able to live in wealth for the rest of their lives.

And you might say, “Now, Jesse, you've done it, right? You've won! You've conquered the market!”

But Jesse didn't feel like he won.

And wouldn't you know it? He started losing all of his money again, until it was all gone.

And then one day, the day before Thanksgiving in 1940 Jesse walked into the cloak room of a fancy hotel, took out a gun, put it to his head and shot himself.

Authorities found a note in his pocket, written to his wife, and it said: “I'm unworthy of your love. I'm a failure.”

Jesse thought the stock market was a puzzle he could solve. And his goal was to conquer the market.

But that was his problem: his goal was unattainable. The market was bigger than Jesse Livermore.

The Greek philosopher Epictetus said: “There is only one way to happiness and that is you must cease worrying about things that are outside the power of your will.”

I think if Jesse had followed that advice, he would have lived a much longer and happier life.

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