Jesse Livermore, Self-Made Trader

October 20, 2009 | scorpion

There are very few people in the stock trading and investment industry that are able to make money with little to no formal financial education. Jesse Livermore was one of those few. Before his death he had gained and lost millions of dollars, speculating and trading for more than 50 years. He also developed some financial ideas and principles that are still used by investors.

Biography

Born in 1877 in South Acton, Massachusetts, Jesse Livermore came from a farming family and never had any formal financial education. He left home with the hopes of escaping the faming life and started his long career as an investor and trader with Paine Webber, a well known and respected brokerage firms. His first job was posting stock quotes.

At the age of fifteen, Livermore began to trade stocks for himself, gaining over $1,000 in his trades. This was a lot of money during those early years of stock trading. He made a name for himself betting against the ‘bucket shops’. These were trading firms that did not make legitimate stock trades, allowing their customers to bet against the current stock price movements. Livermore was so successful that he was eventually banned from the bucket shops in the city of Boston, forcing him to move to New York when he was twenty.

Livermore continued his unusual trading techniques on Wall Street, his speculations gaining and losing him money. He became a known name throughout the world and at one time was extremely wealthy. However in 1940 he committed suicide at the age of 63, unable to handle the financial roller coaster he had been on for so many years.

Claim to Fame

Livermore’s technique of buying and selling stocks made him a highly visible person in the industry. Through his career of almost fifty years he gained and lost numerous multimillion dollar fortunes.

Why was he successful?

One of the reasons Livermore found success in the financial market was the fact that he learned not only from other successful traders but also from those that lost money speculating. Even though he was self-made as a trader with no formal education, he still developed principles that are used in the industry today.

Livermore gained his fortunes by applying these principles to all of his speculations. He firmly believed that one has to look at the whole market and not just individual stocks in order to determine where the market is headed. Traders need to have an exit strategy ready and that they should use a buy and hold strategy when there is a bull market and to sell when the market slows down. He felt that studying the fundamentals of a company was important especially when applied to the overall economy and current stock market. Unsuccessful traders didn’t put enough effort into research. Investors need to look at the long term investment in order to retain their capital and insider information needs to be ignored. The successful trader will use reliable sources. Finally, Livermore emphasized that all traders need to embrace change when it came to the way the market evolved.

Publications

Jesse Livermore authored and contributed to the following books on investment and trading:

* "How to Trade in Stocks” by Jesse Livermore (1940)

* "Reminiscences of a Stock Operator" by Edwin Lefevre (1923)

* "Jesse Livermore – Speculator King" by Paul Sarnoff (1985).

* "Trade Like Jesse Livermore" by Richard Smitten(2004).

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