Jesse Lauriston Livermore - Legendary Market Trader (1)

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Ben Graham and his student, Warren Buffett, are considered icons of fundamental analysis and value investing.  Market timers and momentum traders also have their hero:  Jesse Lauriston Livermore, who was known early in his career as the "Boy Plunger" and later on as the "Great Bear of Wall Street." 

Livermore was born in Massachusetts in 1877.  He started his career at the age of 14 in Boston posting stock quotes for a brokerage firm.  He made his first money trading in bucket shops.  A bucket shop was a form of stock market casino in which the patrons could make bets on stocks with little money down and large margins (borrowed money).  The shop did not really buy or sell the stocks picked by the customers, but rather paid off winning stock picks (just like a horse track).

Livermore made and lost millions during his career.  Having succeeded by short selling during the stock market panic of 1907, he recognized the signs of pending decline in 1929.  He again shorted the market successfully during the October,1929 crash.  It is said that he had a net worth of $100 million dollars (1929 dollars) after the most famous market crash in American history.

The author and journalist, Edwin Lefevre, is credited with writing the ever popular book, Reminiscences of a Stock Operator, first published in 1923.  It is believed that he collaborated with Jesse Livermore in writing the book, which is a thinly veiled biography of the famous trader, recounting many of his triumphs and losses.  Most importantly, the author provides detailed descriptions and explanations of his trading strategies in a first person, conversational, writing style.  Livermore later claimed to have written the book with Lefevre serving as editor.  In any event, Livermore also wrote a book under his own name, How to Trade Stocks, which was published shortly before his death in 1940.  Both books remain in print today.

Mr. Lefevre, speaking as Livermore, recounted several general rules about the market and traders.  In discussing the market, he wrote as follows:

Another lesson I learned early is that 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.

Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street.  When you read contemporary accounts of booms and panics, the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday.  The game does not change and neither does human nature.

Weapons change, but strategy remains strategy, on the New York Stock Exchange as on the battlefield.  I think the clearest summing up of the whole thing was expressed by Thomas F. Woodlock when he declared:  "The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past." 

The lesson to take away from this discussion is that the individual investor or trader must be very careful when he or she is told, "This time, it's different."  The person's inner response should be that the situation may appear different, but it is really the same old wolf disguised in a new sheepskin.


We will look at more lessons from Reminiscences in the next blog.

Excerpts from Reminiscences of a Stock Operator, Edwin Lefevre, 1923, republished by John Wiley & Sons, Inc. in the Wiley Investment Classics series

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