Worldly Philosophers Club

The Worldly Philosophers, Vol.1, Number 14	August 5, 2007
THE Worldly Philosophers Club For Individualists Who Seek Worldly Wisdom

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JESSE LIVERMORE,
WALL STREET'S SPECULATOR-KING
By Mark Skousen

In this issue . . .

	Was Jesse Livermore the Warren Buffett of his day?
	How to make a million….and lose it just as fast.
	Trading secrets of the world’s most famous speculator.
	Why did Jess Livermore commit suicide?

Dear Worldly Philosophers,

I just returned from two of North America’s most beautiful cities -- Vancouver, British Columbia, for the Agora Wealth Symposium, and San Francisco for the Money Show. It was an expensive trip, given the sharp sell off we suffered during the week, with Wall Street and other world markets suffering the worst sell off (over 5%) in five years.

There’s an old saying on Wall Street that applies here: "Bull markets climb a wall of worry."

Speculator King on Wall Street

Whenever the specter of a crash, crisis or bear market arises, I think of Jesse Livermore (1877-1940). He was the famous New Yorker who made -- and lost -- a million dollars three times speculating in the markets. He was famous for shorting the market during crisis. Born in Massachusetts, he started trading the "bucket shops" at age 15 at Paine Webber in Boston. Customers didn’t buy and sell stocks; they bet on stock prices. He began seeing patterns in stock prices, and began trading on his own.

He made a bundle on his hunch to sell short Union Pacific Railroad stock right before the San Francisco earthquake in 1906. He again shorted the market during the Panic of 1907 and the 1929 crash. Livermore was a scapegoat, and had to hire a bodyguard to protect him from his attackers. In reality, the Bear on Wall Street was heavily hedged during the 1929 crash, and didn’t make any money at all, according to my friend Paul Sarnoff, who wrote an excellent biography of Livermore.

But He was No Warren Buffett

Some analysts call Livermore the "Warren Buffett" of his day, but nothing could be further from the truth. Livermore was always a short-term speculator who constantly watched the ticker tape. He used over 100 brokers to make trades. He was a technician, not a fundamentalist, and often ignored his own rules. One of his rules was "buy right, sit tight," yet he would never have the patience of a Warren Buffett to buy a good business and hold onto it for long-term profits. Livermore went bankrupt several times; Warren Buffett has never come close.

On a personal level, Livermore lived in luxury, with houses around the world, a yacht, and a fleet of limousines. His house in Great Neck had 29 rooms and 12 bathrooms. He was blond, well-dressed, and nervous. He was a heavy drinker and womanizer. He had married a Ziegfeld Follies showgirl in 1918; they were divorced in 1932. They had two sons, Jesse Jr, and Paul. He married again in 1933 — it was his new wife’s fifth marriage. By 1940, he was broke again, and walked into a New York hotel and shot himself. He left a note for his wife, saying, among other things, "I am a failure. I am truly sorry, but this is the only way out for me."

Reminiscences of a Stock Operator

A journalist Edwin Lefèvre wrote a classic book in 1923 about Livermore called "Reminiscences of a Stock Operator." As far as Wall Street was concerned, Lefèvre was a nom de plum for Jesse Livermore. I’ve read it several times and consider it one of the best books on speculating ever written. It’s still in print and can be purchased at Amazon.com.

Here are some memorable lines from "Reminiscences of a Stock Operator":

"Don’t fight the tape."

"Without faith in his own judgment no man can go very far in this game."

"Always sell what shows you a loss and keep what shows you a profit."

"…stocks are never too high to begin buying or too low to begin selling [short]."

"One of the most helpful things that anybody can learn is to give up trying to catch the last eighth — or the first. These two are the most expensive eighths in the world."

"The one game…that really requires study before making a play is the one he goes into without his usual highly intelligent and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile."

And finally this one: "There is nothing like losing all you have in the world for teaching you what not to do. And when you learn what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!"

Unfortunately, Jesse Livermore seldom practiced what he preached. That’s the ultimate lesson. As Livermore himself stated, "I found out that nobody is immune from the danger of making sucker bets."

Good living, AEIOU,

Marcus Aurelius