Today, we’re going to talk about one of the greatest traders of all time, Jesse Livermore. When I heard his story for the first time, I just could not stop thinking about this man, because what he accomplished and destroyed in his life is truly the stuff of legends and also the number of times he rose from the ashes like a Phoenix is just breathtaking.

Without any further ado, let us witness the remarkable life of Jesse Livermore. Jesse Livermore was born on 26th of July, 1877 in Massachusetts in a very poor family. His father was a farmer and his mother was a homemaker. His father never really paid any attention to him, but his mother realized from the very beginning that Jesse was a gifted child, because at the age of three and a half years, he was able to read and write and by the age of five, he was already reading financial newspapers.

Now I don’t know about you, but at least I have not seen a lot of five-year-olds who can read financial newspapers and that willingly. This was a real gift and he was extremely good with numbers, particularly mental arithmetic.

In fact, he was so good that while at school, he completed three years worth of arithmetic in one year, but unfortunately at the age of 14, his father forced him to drop out of school in order to help him in his farming business. Jesse was crushed and was very disappointed. He had his passion and dreams and he was so talented and farming was not something that he wanted to do and his mother knew it.

So she secretly helped him run away from home. She was a housewife and hence did not have a lot of money, but she was able to gather about 5 dollars, which is about $8,000 in today’s money. She arranged for him to go to a place in the city so that he could find a job.

However, instead of going to that address, young Jesse persuaded the driver to stop at a place where he really wanted to work. It was a stockbroker’s place called Paine, Webber and Co. and this is where Jesse got his first job as a chalk boy.

Now, what does a Chalk boy do? At that time, of course there were no computers or electronics and hence these Chalk boys used to write down the stock prices every 10 to 15 minutes on a chalkboard for everyone to see. Now this may seem like a very boring job for you and me, but it was actually an ideal job for him because he used numbers.

Due to his love for numbers, he developed a fascination with the stock market. In fact, he became so fascinated with the way the prices used to move that he started to keep a little notebook. At the end of the day, though he used to go back home tired, he used to take time to write down all the prices that he had written on the chalkboard that day from his memory.

After writing those numbers down, he used to observe the patterns in which the price moved and when he looked at these numbers, he realized that these numbers were not random. Hence, he began observing these numbers and studying them. He then developed a system to predict the price moment based on the historical price.

For some of you, this might be sounding familiar because what Jesse Livermore was doing is what we call today technical analysis. However, until that time, young Jesse had never traded a single day in his life because he didn’t have any money. Yet it was about time because while working as a Chalk boy, he got introduced to bucket shops.

Bucket shops are these betting shops where you can place bets on a particular stock based on whether you think it’s going to go up or go down without actually needing to put a lot of money. So Jesse decided that this would be a good opportunity to test out his system. Hence, during the lunch hours, he used to sneak out of his office and go to these bucket shops to test his system.

The first profit that he ever made was about $3, but he was so excited and so pumped up that he started putting more and more effort towards this. Soon he was making more money from these bucket shops than he was making in his main job.

Therefore, he decided to quit his job and focus on trading full-time and within one year, Jesse had made $1,000 trading at the bucket shop, which is roughly equal to 20 lakh rupees in today’s terms. Now, Jesse clearly had a system which was working for him, but for the bucket shops, he now seemed like a threat because they started to feel that this guy had some kind of a magical edge, or maybe he had some insider information as they felt that he was coming to their shops and robbing them in broad daylight.

Soon, one after another, these bucket shops started to ban Jesse from even entering their shops. Now Jesse had to get creative and he started wearing disguises.

It was not very hard for people to notice who you really are and so eventually what happened was that Jesse Livermore was banned from every bucket shop in that city. Can you guys imagine this? He was not even 20 years old and these bucket shops were so afraid of him that they had to ban him from trading.

This goes to show how talented Jesse Livermore really was and so by the age of 20, Livermore had accumulated ten thousand dollars which is about 2 crore rupees in today’s standards. However, in spite of his success, he was struggling with the same issue that most of the traders face today and that was the lack of emotional discipline.

It is because what he realized was that he had a system which was working perfectly fine, but most of the losses were not coming because of the system. They were only coming when he used to deviate from that system and trade emotionally. Now this is something that he kept struggling with for the rest of his career.

So for now, he had a decision to make and the decision was about where to go? He had to go to a place where he could trade with a system that he had developed. He then decided to move to New York to trade at the New York stock exchange. Soon after arriving there, Jesse met his first wife and within a few weeks, they got married.

Things were beginning to shape up and Jesse was very excited and very optimistic, but luck had a nasty surprise in store for him. What happened was that young Jesse had never done trading on a proper Stock exchange and he didn’t completely understand the mechanics of the exchanges and how the price quotes came on those exchanges.

Hence, all it took was one bad trade where he could not figure out the price quotes in time and that one bad trade wiped out his entire capital. This financial shock put such an immense burden on Jessie and on his marriage that his wife decided to leave him. As luck would have it, Jesse had no money and no wife.

However, Jesse was a fighter who did not allow luck to take away what he really deserved and  so he shut off all those negative feelings and started to introspect. He quickly realized that at this point he was not ready for the real stock exchanges, because there was a lot to be learned and a lot to be changed in a system in order to trade successfully on the stock exchanges.

He needed some money because he was almost broke. So where do you think he went to make money? Well, you guessed it, the bucket shops, but of course he could not go back to his old city because he was banned there. Hence, this time he went to a different city called St. Louis, which was a smaller city and nobody knew him there.

Therefore, he could operate there without worrying about somebody finding it out. His system was working, he started making money and for quite some time it worked very well for him, but then again, slowly, people started recognizing him and again these bucket shops banned him. However, this time Jesse used another clever tactic.

What he did was he hired some people, trained them and sent them to these bucket shops, to trade on his behalf. This worked and in no time, Jesse was back in business. Once he made enough money, he decided to come back to New York and this time he wanted to win big and very quickly and so he started to make a name for himself in the trading circle because of his impeccable trading skills.

For example, he took one very interesting trade that nobody could explain even till this date. So one day what happened was that he was looking at a chart of a railway company called Union Pacific and suddenly looking at the chart, he felt a psychic urge to pick up a short position.

He could not explain why, but he saw something in the charts that spoke to him and felt like the stock of this company was going down. His friends and colleagues thought he was being crazy and that the stock had never fallen before. However, Jessie went with this conviction and shorted it anyway.

Within a few days there was an earthquake in San Francisco that caused the stock of the company to go down substantially and of course, Jesse made a lot of money. People said that he might have had some insider information, but just think about it for a second.Is it possible for someone to predict an earthquake that much in advance?

On top of that, we are talking about a hundred years ago where we didn’t even have that kind of technology. Clearly this guy had the trading genius that goes beyond the realm of our understanding. Anyway, the trade that made him famous was during the panic of 1907, because by analyzing the price action of important financial stocks, Jesse got the sense that something big was about to happen.

So he took a huge short position in the market and his hunch hunch turned out to be true. After the financial crisis of 1907, the whole market collapsed and Jesse Livermore managed to earn $1 million in one day and by the end of the crash, he was worth $3 million. Now, Jesse, by this time, was known to create huge short positions and that was putting a lot of pressure on the market.

Hence, JP Morgan requested him to stop creating short positions and in fact encouraged him to buy the stocks at a cheap level. Now, of course, Jesse respected JP Morgan, but at the same time, he had already made a lot of money from the short positions.

He also realized that the market was trading at a very cheap valuation. So what he did was he closed all his short positions and started taking long positions on the market. Due to this, the market started to recover and then from that point onwards, the market recovered and that made Jesse Livermore a lot more money. .

Livermore was now branded as a hero. However, with a lot of success at such a young age and being a bachelor also came the urge to live a lavish lifestyle. So Jesse Livermore started buying expensive yachts, railcars, expensive apartments and he joined a lot of expensive clubs.

In order to keep up with this expensive lifestyle, he had to come back to trading, but Jesse Livermore’s life was full of tragic twists and turns. In trading, he always believed that a trader should always use his own judgment and never trade based on tips or advice of somebody else, but in 1908, he broke this cardinal rule of trading and paid a very heavy price for it.

What happened was there was an influential commentator named Teddy price who convinced Livermore that he had some insider information. Cotton prices were about to go up big time. Now, Livermore was a little hesitant at first, but because of the reputation of this person, he got a little carried away.

What he did not know was Teddy Price was actually manipulating Livermore. So while Livermore was pumping money to buy cotton, Price was actually selling his stake in the cotton. He wanted to basically get out of the market and as eventually things happened, cotton prices fell down and that caused Livermore to take huge losses.

In this one trade, he lost 90% of his capital, and this incident shook him to the core. He lost most of his money and the following years, his losses grew deeper and deeper until finally he ended up with a debt of $1 million and had to declare bankruptcy in 1950. Note that this was the second time that he had gone bankrupt and he was hence devastated.

He wanted to make a comeback again, but without any capital left to trade, he had to ask for some help. Now, some of the brokers who trusted him, gave him a credit of 500 shares to start trading with. Livermore knew that this was his last chance and he had to play this one perfectly.

He spent the next six weeks focusing on the price action and tape reading. He went over his trading plan before he finally started and the result of this trade was extremely successful and he slowly built enough capital to be able to trade properly again.

This time Livermore meant business and he traded with discipline. He did it with concentration and without the influence of anyone else and in the next couple of years, managed to earn his fortune back and pay off his debt. In fact, his comeback was so shocking and spectacular that every newspaper in 1917 published the story of Jesse Livermore who rose back from the ashes, just like a Phoenix.

So his popularity was growing back again and people bought and sold shares based on his recommendations. In 1922, Jesse took in a series of interviews, which later were converted to one of the most highly read books of all times, ‘’Reminiscences of a Stock operator’’.

If you have not read it, I strongly recommend you to read it anyway. After this, Livermore decided to move to a new office, which was a bigger one where he had more facilities and he went a little bit far away from Wall street so that he could focus on his own analysis rather than getting influenced by influential traders.

However, the trade that made Jesse Livermore the legend was yet to come. In 1929, Livermore began noticing some strange patterns occurring in the market, which were very similar to what he had observed building up to the crash of 1907 and he felt that something was moving the market. There was something suspicious about the patterns that indicated that Smart money was exiting the market.

He then decided to spend all of his time in the office itself and did not go home day in and day out. He used to just sit in the office, study these patterns, and then started placing the trades by himself leading up to October 29th. On this day, the world saw one of the biggest stock market crashes that led to an economic situation that we know today as the great depression.

As the news began to spread about traders who had lost everything on the market, Livermore’s wife, Dorothy, and her mother at home began to panic because they knew how Livermore was and how susceptible he was to his extreme positions. Hence they were crying non-stop as they knew that Livermore would have gone bankrupt on that day.

When Jesse Livermore returned back home, he was actually smiling because what people didn’t know was that he had taken a massive short position just before the crash that made him $100 million, which is about $1.4 billion in today’s money. But again, luck seemed to have some personal vengeance against Jesse Livermore because things started to get worse in his personal life due to his infidelity and his wife’s drinking habit.This put a lot of pressure on the relationship and eventually they filed for divorce and this caused Livermore to lose focus on trading.

He started to lose his fortune rapidly and lost all his capital and had to declare bankruptcy for the third time. Now, as we know that he was a fighter, he wanted to come back, but all the pressure and all that emotional strain that he had gone through over the years had worn him out and it was too much for him.

On 28th of November, 1940, he buckled under all the pressure and shot himself in his hotel in Manhattan. He was 63 years of age at that point and it is tragic because his death note that he had written for his wife shows the kind of pressure and the kind of strain that he was into.

I think with age, he just didn’t have what it took for him to recover back. So guys, that was a fascinating story of the stock market legend. Now, you know, we can all sit back and critique his life so that he could have done this better and could have avoided this mistake, but nobody and I mean nobody can take away from him the fact that he was an extraordinary trader and there are many things that we can learn from his life. In fact, we will make a separate video about that, but I hope that through this video, you are able to see the life of the most influential traders of all time.