Tuesday, August 20, 2002

Jesse Lauriston Livermore - greatest trader of all time (?)


Jesse Lauriston Livermore (July 26, 1877 — November 28, 1940), also known as "Great Bear of Wall Street", was an early 20th century stock investor. He was famed for making several multi-million dollar fortunes and short selling during the stock market crashes in1907 and 1929.

One of the most popular books Reminiscences of a Stock Operator,reflects on many of those lessons. Livermore himself wrote a less widely read book, "How to trade in stocks; the Livermore formula for combining time element and price". It was published in 1940.

Livermore first became famous after the Panic of 1907 when he sold the market short as it crashed. He noticed conditions where a lack of capital existed to buy stock. Accordingly, he predicted that there would be a sharp drop in prices when many speculators were simultaneously forced to sell by margin calls and a lack of credit. With the lack of capital, there would be no buyers in sight to absorb the sold stock, further driving down prices. After the crash and its aftermath, he was worth $3 million.

Livermore continued to make money in the bull markets of the 1920s. In 1929, he noticed market conditions similar to that of the 1907 market. He began shorting various stocks and adding to his positions, and they kept declining in price. When just about everyone in the markets lost money in the Wall Street crash of 1929, Livermore was worth $100 million after his short-selling profits.

What is not well know that he subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one'sposition as it goes in the right direction and cutting losses quickly.Livermore sometimes did not follow his own rules strictly. He claimed that his lack of adherence to his own rules was the main reason for his losses after making his 1907 and 1929 fortunes.

On November 28, 1940, Livermore shot and killed himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. The police revealed that there was a suicide note of eight small handwritten pages in Livermore's personal notebook. ....."Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. "

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