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Jesse Livermore – Part 4

Who is Jesse Livermore
2 minute read

Even though Livermore was broke again, he saw an opportunity.  World War 1 was underway and this created a bull market that he could profit from. Although this made him excited and anxious to get involved, he restrained himself from taking credit until he knew he was ready.

Jesse chose to spend six weeks watching the stock feed, analyzing it carefully. He wanted to find the perfect trade to stake his next move on.

Eventually he settled on the stock of Bethlehem Steel, since steel is a well known wartime commodity. The price was also moving in the right way. It was at $98 and Jesse figured that if it passed $100 it would jump upwards substantially. He bought 500 shares at this point, and another 500 soon after at $114. This a rule of his, to increase the size of a position when the market shows you that you are correct. The next day the stock went to $145 and he closed out his position. He had made over $50,000 and he was back in the game.

This success gave him back much of his confidence. He continued trading this bull market and profited with consistency. Soon his equity was back to $500,000. He suffered losses from here as it appeared America would join WW1. Nevertheless he ended 1915 with $150,000. Far from a high water mark for Jesse, but certainly a boon. In addition to the money he earned, he had learned many important lessons about managing his emotions and sticking to his trading rules.

Jesse was back in full swing. Tracking the market as he had practiced for years, he saw in late 1916 that there were signs of the market turning bearish again. His insights came from tracking the prices of many market leading companies. Believing in his analysis, he sold 60,000 share short and watched the market’s further movement. It dropped again and he doubled his position.

Then an unusual thing happened on December 20, 1916. While on vacation in Palm Beach, Jesse was watching the stock tape at Finlay, Barrel and Co. He was shown a telegram from the manager that said President Wilson would make an attempt to end WW1. This news spread like wildfire, and later that day it was widely known. When this rumor gained credibility it crippled prices. This was good news for Livermore’s short position.

This was not well received by the American government, as one might expect. They formed a committee and investigated the leak. This led to Jesse being dragged in to testify on February 1st. He explained how he had been short 7 weeks prior to the leak. The New York times quoted him as saying “How could I have known that far back that President Wilson was going to make a peace offering to Germany to end the war? I doubt if the president himself knew seven weeks ago that he was going to offer a proposal of peace”.

Livermore faced no more issues over this, though it did lead to the NYSE creating rules about trading on inside information. Certainly if this even happened in modern times it would create an enormous uproar. It is now cemented in law as criminal to trade on knowledge that is not public.

The final article on Jesse is next. It covers more trades and his books. This includes his trades during the stock market crash, which were some of the most significant in the history of trading.

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