July 15, 2024
The Original Wolf (and Great Bear) of Wall Street
Dear Reader,
In 1929, as the Great Crash destroyed investors and heralded the beginning of the notorious Great Depression, one man made $100 million.
Jesse Livermore, who’d grown up in poverty in Massachusetts, had been observing the market’s behaviour throughout the 1920s.
He noticed that stock prices were rising rapidly, driven by speculation and excessive leverage. He recognized that the market was in a bubble, and reasoned it was due for a correction.
So, Livermore began shorting stocks.
Jesse Livermore
In early 1929, he started building his short positions quietly to avoid drawing attention. By spreading his trades across multiple brokerage houses, he managed to keep his activities under the radar.
As the market showed signs of weakness in September and October 1929, he increased his short positions.
Then, on October 29, 1929, or ‘Black Tuesday’, the stock market crashed. The Dow Jones Industrial Average plummeted by 12% in a day, wiping out about $14 billion in value.
The market then collapsed lower and lower for three years, ultimately taking about a quarter of a century to reclaim its previous highs:
Source
But the picture was far from bleak for Livermore, whose profits were astronomical. He likely made around $100 million (equivalent to more $1.5 billion today) during the crash.
His foresight and execution made him one of the few individuals who thrived financially during one of the most devastating periods in stock market history.
Revered for the foresight, reviled for the profit
Livermore’s gargantuan win from the 1929 crash cemented his reputation as one of the greatest traders of all time. His ability to predict the market downturn and profit from it became legendary.
But it was also bad news, in that a series of newspaper articles declared him the ‘Great Bear of Wall Street’ and ‘The Wolf of Wall Street’, which gave the public someone to blame for the crash.
Livermore received death threats, and spent some of his profits on hiring an armed bodyguard.
But how had he come to be able to make such a forecast, and profit by betting against a market pretty much everybody else thought would never stop going up?
If you’re into fascinating investor and trader biographies, they don’t come much more rock ‘n’ roll than Jesse Livermore’s.
Volatility personified: A tale of windfall and woe
NYSE trading floor in 1929
Livermore’s journey from humble beginnings to financial titan was marked by dramatic success and equally spectacular failure.
At 14, he ran away from home to Boston, where he started working as a board boy in Paine Webber, a brokerage firm.
This involved posting stock prices on a chalkboard, and gave him an opportunity to observe market trends and price movements up close, in detail. Livermore soon placed his first trades and quickly accumulated a small fortune.
By his twenties, he had moved to New York City, the epicenter of the financial world. His aggressive trading style, characterized by leveraging significant amounts of capital, earned him nicknames like the ‘Boy Plunger’.
Livermore’s most notable successes came during times of market turmoil. He made a substantial profit during the Panic of 1907 and solidified his legendary status during the Great Crash in ’29.
Despite these triumphs, Livermore’s career was marred by numerous bankruptcies and personal tragedies. His speculative methods, while capable of generating enormous wealth, also exposed him to tremendous risks.
He declared bankruptcy three times, each instance a result of over-leveraging and miscalculation. Livermore’s personal life was equally volatile, with happy, harmonious periods punctuated by tragedy and turmoil.
Divorces. Armed robberies. One of his wives shot his son. A lawsuit from a Russian mistress.
Livermore was an all-or-nothing operator, both in the stock market and in his personal life. He had it all, and lost it all, several times over.
On November 28, 1940, just after 5:30pm, in the cloakroom of The Sherry-Netherland Hotel in New York City, Jesse Livermore shot himself dead.
‘To see if I could…’
Livermore’s story is one of volatility.
Predicting it, observing it, betting on it and profiting from it.
He was a trader through and through, and openly admitted he wasn’t in the business of investing for the long term.
While his trading style and lifestyle would be too much for most of us to handle, you can’t deny that some of the highs were truly remarkable.
After World War I, Livermore secretly cornered the cotton market. President Woodrow Wilson, prompted by a call from the United States Secretary of Agriculture, summoned the trader to the White House.
During this meeting, Livermore agreed to sell back the cotton at break-even, averting a potential surge in cotton prices.
When President Wilson inquired about his motives, Livermore candidly replied, ‘to see if I could, Mr. President‘.
Quote of the week
‘There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.’
— Jesse Livermore
That’s it for this week’s The Benchmark email.
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Invest in knowledge,
Thom
Editor, The Benchmark
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