Jesse Livermore's trading

Dennis is alive and well and rich. Jesse is dead and poor. Seriously, how do you compare the two? Dennis didn't go broke ever- let alone over and over and over again.

 

You sound like the guy at the track who only tells you his "winners." What about all the other times it blows right thru your pivots and your RSI lies to you like a rug? Bet your trading account will give a clearer insight into the results of such a method.

 

Dennis didn't - but his funds did. More than once.

 

NOT true. The way I read it his fund stopped trading at 50% drawdown and then he made it back. After that I lost interest in the guy until I read a magazine article recently where he was using his programmers to continually develop systems to trade many markets. Doubt he went anywhere near broke!

The name of the game is MONEY; if you lose it you LOSE!

 

The market was like a smooth card player. It did not tip its hand for everyone to see. You had to be aware, astute, alert ready to read the signs.
Jesse Livermore

 

Suppose a man’s line is five hundred shares of stock. I say that he ought not to buy it all at once; not if he is speculating. If he is merely gambling the only advice I have to give him is, don’t! Suppose he buys his first hundred, and that promptly shows him a loss. Why should he go to work and get more stock? He ought to see at once that he is in wrong, at least temporarily.

The stockmarket must be studied, not in a casual way, but in a deep knowledgeable way.

The stock market with its allure of easy money and fast action induces people into foolishness and careless handling of their hard earned money.
.

 

Folklore is not just Paul Bunyon, Daniel Boone and Davey Crockett. There is a distinction between skill/money management and 10% margin, no upticks, outside capital, acts of God, press releases, and insider information.

For clarification, here's a sketchy chronology:

By 1900, aged 23, he had amassed roughly $50,000, from the bucket shops.

Fall of 1905 Thomas Lawson of Boston provided all partnership capital for Livermore to raid Union Pacifc stock. Actively traded by Harriman. pool.
Losing his ass up until April 18, 1906 San Franciso earthquake. Stock took two days to respond lower. Lawson got the proceeds and Livermore pocketed $300,000 Took off for Saratoga.

On an unknown date soon after Livermore made the mistake of going short the SAME stock. Harriman pool was prepared. Livermore watched a quarter of a million vanish on upticks.

Another 50/50 deal with Lawson to short Great Northern. Made a second killing. .

Made his FIRST million in shorting Anaconda in the summer of 1907. Market panic as much as his skill. Banks calling existing loans. October 24, 1907 J.P. Morgan forced his fellow capitalists to start supporting stocks. Livermore knew better than to buck the Morgan crowd. Bought his first yacht, the Anita Venetian.

Had an epihany that commodities posed less “problems” because prices depended upon supply and demand (rather than synthetic measures). Long 120,000 bales of cotton. First used the power of the press release. in the New York Hearld “July Cotton Cornered by Jesse Livermore”. Shorts covered, suckers (his term) rushed in, Livermore unloaded. New nickname, Cotton King.

Spring of 1908, Desperately trying to stem a dropping price by buying in both New Orleans and Liverpool, found himself long 500,000 bales. Simply put, the Anita Venetian went under the hammer.

For Livermore 1911-1913 appear to be lean years.

In 1914 he was living Bretton Hall Hotel at 86th & Broadway.

Filed bankruptcy in 1915 with $102,474 in professed liabilities.

The Bethlehem Steel trade in LeFevere's book was in here somewhere.

December 20, 1916, somehow became alerted to a telegram to Finlay Barrel & Co. in Palm Beach from a Washington reporter named W.W. Price leaking of Wilson warning the warring parties. Figuring there’d be a market collapse, Livermore approached Lawson again. With capital, shorted the “four horsmen” US Steel, American Can, Baldwin, and Anaconda. E.F Hutton made a flash wire to its offices hours before Wilson’s note was publicized. Bids melted away. Livermore bought a half million annuity to throw off $30,000 per annum Also rushed out and bought a speed boat called the ‘sub-catcher” and a $120,000 platinum and emerald ring.

Unloaded his first wife via Reno in October 1917 and the 40 year on December 2, 1918 old married the 18 year old daughter of a wealthy Brooklyn merchant named Wendt. Rented a furnished townhouse at 8 West 76th Street. January 1920, bought a seat on the Curb (today the AMEX). 1919, first son.

1921 had a pool agreement with the Lewisohn Brothers to ramp Seneca Copper. After running from $12 to $25, the brothers cancelled the (then legal) agreement.

Summer of 1922, Livermore was reported to have lost $8.5 million on the short side of Mexican Pete. June 1922, Clarence Saunders, owner of the Piggly Wiggly chain hired Livermore to “kill the bears”. By November, Livermore had amassed 105,000 of 200,000 shares outstanding at an average of $35. March 1923, stock was over $70. Livermore had 198,872 of the float. March 19th, Saunders asked Livermore to spring the trap demanding delivery from short sellers. Livermore reneged. Suander’s somehow succeeded anyway. From an open of 75 ½ skyrocked to $124, and closed the day at $82. Same year, ran the Mammoth Oil pool involving Harry Sinclair.

In 1924, Arthur Cutten forced wheat to over $2 per bushel for the first time. Livermore was short and lost a considerable amount.

In 1927, Livermore ran a pool to ramp Freeport Texas stock from $19 to $74 ½. Also a dirrector of Minter & Assoc, selling $9 miilion worth of Florida lots and filing BK two years after inception. Robbed at gunpoint in his home in May 1927.

April 1929, sued for $1,450,000 over the 1926 Boca Raton RE crash.

July 1929 refused to make a court appearance in a $525,000 suit against him by the Carbonite Corp for an alleged breach of agreement.

October 1929, details sketchy but even though Livermore “won” millions on the short side, he lost $6 million in his long positions in the crash.. Arthur Cutten purportedly lost $50 million.

August 16, 1932. Divored his second wife. March 28, 1933, married his third wife at age 56. May 30, 1933. Security Legislation enacted. Pool operations outlawed.

March 4, 1934, Livermore filed BK. $2,259,212 liabilities/$184,000 assets.

Thanksgiving Eve 1935 his divorced second wife shot his first son. Non-fatal.

Summer 1937 charterd a yacht (Nina) rather than owning it outright.

Apparently from 1934 to 1940 he was an investment advisor/broker. Apparently to acquire capital for a comeback, he decided to write a book (in two versions) The office that’s frquently mentioned in awe appears to have been a facade to promote the book. The “legendary” market key, is patterned after Dow Theory confirmation, but using two companies in each of about 5 leading industries. Not original, basically the opposite of pairs trading.

November 28, 1940, shot himself in the head in the hat check room of the Sherry-Netherland hotel after wrting an 8 page note to his wife with the recurrent theme “My life has been a failure”

 

One of Dennis' funds had a 90% drawdown. At least according to the article I read in FUTURES magazine.

 

Perhaps the lesson to be drawn is that one cannot expect to be a member of the 1% club who trades on margin for a living and makes it day after day, year after year. Risk of ruin becomes a certitude.

That's not to say one cannot have a substantial pool, which they can manage actively and swipe profits from... but the need to pull money out each day for a living can be done successfully only by a precious few without emotion and fear taking over.