I first became aware of Jesse Livermore, legendary trader, from a blog post by Joshua Brown, CEO of Ritholz Wealth Management Strategies, found here and then a book reaction he wrote about here, to “Boy Plunger”, a biography of Jesse’s life, his rise and fall (several times over) and how he made one of the greatest fortunes on Wall Street in the span of 7 days.
Now, because I began my career as a broker in commercial real estate and not in securities, I wasn’t given “Reminiscences of a Stock Operator” by anyone but I’m glad I read “Boy Plunger”. The arc of his life follows that of America’s in the early 20th century: a young man and country coming into their own as they built their wealth management strategies, prestige and that which follows: power. The historical backdrop of an industrializing America looms large in the background of his story, though their stories diverge at a critical inflection point: The Great Depression. America managed to pick herself up and dust herself off, Jesse didn’t and he became the final victim of ’29.
Boy Plunger chronicles Jesse’s humble beginnings in rural Massachusetts in the 1880’s, continuing through his wild successes in Boston’s “bucket shops” – exchanges where one who couldn’t afford to be the client of an actual broker, traded based on the prices of stocks but not in the stocks themselves. He was so successful there, he was eventually barred from trading.
Moving to Wall Street he speculated successfully and then unsuccessfully, 3 times a multi-millionaire and 3 times not, his fourth run of success made him a fortune of $100 million during the market crash in ’29, making him one of the ten richest men in the world. As with all human endeavors, though, it was not to last and he, along with so many during the Great Depression, lost it all – tragedy followed him and the next two generations of first-born, Livermore men.
Though some of Jesse’s methods may today be deemed, at best, unethical and at worst, illegal (the creation of the SEC in 1934 saw to that), some of his maxims are as applicable today as they were then: “Buy right, sit tight”, “Don’t give me timing, give me time” and my favorite:
“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. 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. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”
As I made my way through the book, I kept coming back to a basic question: How can a such a shrewd trader make so much, only to lose it all, seemingly, in the blink of an eye? Here, the man himself offers some insight “It was never my thinking that made the big money for me, it always was sitting.” This quote and the ones mentioned above hammer the point home: all the knowledge in the world can’t protect you from the actions of other traders.
How can we control what other market participants buy and sell, and more importantly, when? We can’t, so, remember: Buy right, sit tight.