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Jesse Livermore – Part 5

Jesse livermore
3 minute read

At this point WW1 had ended and Jesse was back on top. Yet again he had recovered from falling apart, including paying off his previous debts. He bought $800,000 in annuities so that he would have reliable income even if he lost everything again. For similar reasons, he also put money into trusts for his family.


At this point Jesse was becoming a household name. People were keen to follow his recommendations in the paper about how to play the market. His word was gold.


He was approached in 1922 by a newspaper writer named Edwin Lèfevre. Jesse gave interviews about his life and they were published in a series, which quickly became popular with readers. The clever part of it was that they didn’t use Livermore’s real name. Instead the articles were about a character named Laurie Livingston. In 1923, this series of articles would then be turned into a biography about Livermore named Reminiscences of a Stock Operator. This only increased his notoriety.


Jesse’s next move would come in the market for wheat in 1925. He was buying up wheat in 5 million bushel lots. The market was rising and as usual, Jesse was adding to his position as the market reacted the way he wanted.


This led to an unofficial battle with an expert commodity speculator named Arthur Cutten. Cutten — like Livermore — was also bullish on wheat. However, Livermore turned from bullish to bearish on wheat when he thought the market had topped out. As he was selling his wheat, another trader named Thomas Howell also did so. He and Livermore dumped a landslide of wheat into the market, while Cutten was travelling and thus unable to respond properly.


This angered Cutten and cost him a lot of money. He accused the other two of market manipulation. This is a serious charge because there are rules specifically set to protect the stability of grain prices. The investigation that followed said that Jesse and Thomas acted only on regular business acumen and they faced no further scrutiny. This wheat trading gave Livermore profits of $10 million, having made money on both the bull and bear sides.


The next opportunity was one of the most epic in trading history. The market had raised five-fold over the previous 6 years with everyone getting involved. In September 1929, the stocks started to level off and Jesse took note. He used a rule of thumb that had served him well. He would watch the strongest stocks in the strongest sectors, and specifically look for when they stopped rising. His summation is that if the top dogs can’t rise further, the rest of the market will turn soon as well.

In October he is said to have lived out of his office for a time, trading heavily. This was common during the crash, though Jesse was doing it for profit rather than to bail out a sinking ship. While everyone else was losing a huge chunk of their investments, he was going strong on short sales. It was then on October 24th to 29th that the market would crash. Known as the Great Crash, the market lost a great deal of its value. The worst of this being the loss of a quarter of the value of the Dow Jones in 2 days. Traders were losing everything.


When Livermore had returned home to his family, they were panicking. They thought their fortune had been ruined. They might have known Jesse but they clearly did not know his trading. As everyone else was losing, Jesse’s shorting had made him a staggering profit of $100 million. Not only were they safe, they were richer than ever, with Jesse making history. This amount in modern terms would be some $1.3 billion.


Jesse would, yet again, lose this gigantic fortune by 1934. No one truly knows how he had lost it at this point, since he was trading more and more secretively. This final bankruptcy took the biggest toll on him of all. The writing was on the wall for this in 1933 when he disappeared for a night and was subsequently diagnosed as having had an “Amnesia nervous breakdown”.


To help with his sense of purpose and depression, he eventually writes “How to Trade in Stocks” in 1939 and it is published one year after. It was the last thing he ever did that related to trading. Though the book had a mixed reception upon release, it would end up being held up as a classic through the lens of history.


Jesse Livermore’s story is a fantastical journey of dizzying highs and devastating lows. His life offers a million lessons on how to succeed, and a handful of enormous cautions on what to avoid, and what happens if you fail to do so. He is a legend, and shall not be forgotten.

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