The world’s greatest investors: Jesse Livermore

16-4-7-Livermore-634 — Jesse Livermore: the original trend follower

Jesse Livermore was born into poverty in 1877. His investing experiences are recounted in a lightly fictionalised autobiography, Reminiscences of a Stock Operator, co-written with financial journalist Edwin Lefvre. He started investing as a teenager after finding work as a clerk for a stock broker.

Initially, he traded in "bucket shops", firms that offered investors the chance to trade shares without owning them early spread-betting firms, in effect. Livermore's success meant he was banned from all the shops in town by the time he was 20, though not before he'd made $10,000 (equivalent to $280,000 today). This allowed him to start using "proper" brokers (although he briefly returned to the bucket shops after suffering a huge loss).

So what was his strategy?

Did it work?

By the early 1930s he was worth more than $100m by some counts. Yet he went bankrupt again in 1934. While details of what went wrong are unclear, it is believed that he turned prematurely bullish. After the failure of his book How to Trade in Stocks, he committed suicide in 1940, by which point he was onto his third marriage.

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What other advice did he have for investors?

As a result, he could leave $5m to his heirs via trust funds and annuities, despite his bankruptcies. But perhaps the key lesson from Livermore is that even the best traders find it hard to cope with the psychological strain involved in short-term trading for the vast majority, it's not a viable route to riches.