The world’s greatest investors: Jesse Livermore

American investor Jesse Livermore had a number of spectacular successes with his "tape reading" investment strategy – as well as a number of spectacular failures.


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.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri