The Original Wolf Of Wall Street

Meet Jesse Livermore. Born and raised in Massachusetts, he grew up to become the greatest trader of the 20th century. During the Wall Street crash of 1929, while the wealthy lost millions, Jesse was one of the few who made millions.

As Wall Street traders counted their losses, and the world faced the worst economic meltdown in modern history - Jesse reaped a fortune.

This is the story of how a boy from Massachusetts made millions. This is the story of the tactics he used to beat the stock market. Tactics that are still relevant over 100 years later.

This Is Jesse Livermore’s story...

It was mid-October in 1907 as Jesse stood calmly on a New York trading floor. As he studied a flurry of fluctuating stock prices, Jesse was able to pinpoint his next short sell.

In contrast, around him, the atmosphere was both electric and frantic. With the stock prices falling, the traders that surrounded Jesse, the traders who were normally calm and collected were now panic-stricken.

Jesse was puzzled - “why is everyone panicking?”

In sharp contrast to the other traders, Jesse remained calm and collected...

The day ended as the trading bell rang on market close. As Jesse headed home, he sensed that his strategy was right all along. What Jesse knew that the other traders didn’t, was to abide by his short-selling principles on how to beat the market.

Before Wall Street, Jesse had spent his youth hanging out at bucket shops. You can think of a bucket shop like a modern-day bookie.

However, rather than betting on the horses or on a sporting event, bucket shops were gambling establishments where punters placed bets on the price movement of stocks and commodities.

Jesse got so good at winning stock market bets, that by the time he was 21, he was banned from every bucket shop across the American east coast.

Over a 10 year period (through trial and error) Jesse had fine-tuned his short-selling strategies. By mid-October 1907, as the panic in the stock market gathered pace, Jesse focused solely on his short-selling principles.

Jesse's Short Selling Principles

Principle number one (he recalled) - control your emotions. Jesse learned during his youth that nothing is worse than letting your emotions get the better of you. The stock price goes up (you celebrate).

The stock price goes down (you commiserate). Either way, an emotional man is extremely likely to do something stupid. As for Jesse, he knew that he should never, ever act emotionally when the market didn’t go his way.

Principle number two (Jesse recalled) you must have an exit plan and you must stick to your exit plan. Don’t hang around - cut your losses if you need to, and never steer from your rock bottom price.

Hoping a stock price will turn around in your favor (Jesse knew) was a classic, schoolboy mistake.

Principle number three never “go large”. Always remember that you need to confirm your bets. This can only be accomplished when you gradually increase your bet. And your bet has to be based on the known direction of a stock price.

Tacked on to Principle number three, is principle number four. You must never bet against a market trend, no matter how confident you feel that you’re right.

When you find a winning position, stick to it. This strategy formed Jesse’s fifth principle.

Overall, Jesse’s core principles galvanized him to ride through the panic of 1907. This is why - 22 years later in October 1929 - Jesse was ready to beat the market once more.

At the age of 14, Jesse worked as a chalk boy at a brokerage house in Boston. As a chalk boy, Jesse’s sole task was to write market data onto a blackboard. The market data written by Jesse and his fellow chalk boys enabled stockbrokers to bet on which way the market would turn.

Jesse And The Wall Street Crash

From his office on 5th avenue, Jesse began short selling en masse. Surrounded by 30 or so telephone lines, each telephone call fed Jesse the latest information about market sentiment.

Adding to the chorus of telephone rings, Jesse also had a personal team of chalk boys. Chalk boys who avidly posted market data on a blackboard, for Jesse’s eyes only.

The roaring 1920s was the decade of decadence, the decade of the flapper girl, and newfound wealth. Jesse instinctively knew that the decade-long party was over.

Armed with knowledge known only to him, in late October 1929 Jesse began to short both US stocks and corporate bonds…

The fallout from Thursday, October 24 to the following Tuesday has been well documented in history. As the market closed on Tuesday, October 29, the quality of life for millions of Americans took a nosedive.

All-in-all, the fallout lasted 10 years, 10 years for the industrialized world to recover from the Wall Street crash of 1929.

For Jesse, his world was about to nosedive into a descent that no one could ever have imagined.

When all was said and done, the Wall Street Crash of 1929 netted Jesse $100 million. $100 million accumulated during four economically, devastating days.

As you can imagine, the US economy was decimated during the crash. Overnight, Jesse became a hate figure, a villain, and a scoundrel in the eyes of the public.

The press, capitalizing on his sensational bet against the US economy, touted Jesse as "The Wolf of Wall Street".

With his newfound notoriety and under mounting pressure, Jesse was forced to hire a bodyguard to ward off the daily death threats he began to receive.

The Downfall

Away from the trading floor - Jesse lived a life of excess. He was a regular “gentleman caller” in the dressing rooms of many an actress and showgirl.

Over the next few years, Jesse squandered his fortune in the 1930s on poor investments, lawsuits, and of course his fondness for showgirls. By 1931 Jesse’s second wife, Dorothea filed for divorce.

Jesse's marriage to Dorothea produced two children. However, with Dorothea's alcoholism and Jesse's philandering, their marriage was as explosive as it was toxic.

As part of the divorce settlement, Dorothea was awarded the family home in Long Island plus an additional $10 million.

A year later, Jesse remarried. This time around to wealthy socialite, Harriet Metz Noble.

Fortunately, their union was happy for the most part, as Jesse and Harriet would remain married until his death in 1940.

Coincidentally, as Jesse made his fortune during the Wall Street crash of 1929, Harriet’s then third husband had committed suicide after losing his fortune in the same year.

However, by his third marriage to Harriet, the strain and toxicity of his previous marriage to Dorothea, combined with a lawsuit from a former mistress, had all taken its toll on Jesse’s mental health.

Even worse, by 1934, the introduction of the securities and exchange commission put the brakes on Jesse’s trading style.

You see, during the Wall Street crash, Jesse had relied on privileged information. Today, his conduct would be considered insider trading. And, as you may recall, during the Wall Street Crash, Jesse had relied upon the thirty telephones lines feeding him market information (for his ears only).

On the introduction of the Securities and Exchange Commission (“SEC”) in 1934, such privileged information was now outlawed. As a result, by March 1934, Jesse was forced to file for bankruptcy.

Of course, it wasn’t Jesse’s first bankruptcy, as he had lost a fortune in the earlier stages of his career. However, this time around, with his mental health failing, Jesse was a broken man.

The Departure

In 1940, after a night out with his beloved wife Harriet, Jesse was found with a self-inflicted gunshot wound to the head at the Sherry Netherland Hotel in Manhattan.

Leaving a wife and three sons behind, in 1940 Jesse’s estate was worth $5 million or $87 million in today's money.

Sadly, the fragility of Jesse’s mental health was also inherited by his sons. And all three of Jesse's sons later went on to commit suicide - inheriting a tragic paternal fate.

Conclusion

In retrospect, it's pretty clear that Jesse was a highly ambitious man who knew no boundaries in his rise to the top of his career as a short-selling stock trader.

When you consider Jesse's origins - as a farm boy from a very humble background, his rise was one in a million. You see, Jessie was born into a semi-literate family during the late 1800s. Thus, his rise to become a Wall Street rainmaker was remarkable in itself.

Typically, most boys (from Jesse's humble background) would have settled for a simpler life, but not him.

Far from settling for a simpler life on a farm, Jesse ran away from home at the age of 14 because he dreamed of becoming a Wall Street stockbroker.

He obsessively hung around bucket shops when he was 15 to learn about the stock market.

He found his first job (at 14) as a Chalk boy and worked his way up to trade on Wall Street.

Jesse was a man who was far removed from being “born with a silver spoon in his mouth”.

Jesse made his first million dollars before his 31st birthday. And, you have to bear in mind that in 1907, $1 million then, is now worth $10 million today. His achievements came from a boy who was raised in abject poverty.

As for Jesse’s character, after researching his life story, it's reasonable to conclude that he was most likely bipolar.

This explains his obsessive fixations with the abstract, his lack of boundaries, and more tellingly, Jesse’s episodes of deep depression during the latter stages of his life.

Jesse’s bipolar disorder may also explain the hedonistic choices he made and the women he was romantically drawn toward.

Sadly, no amount of money or prestige was ever enough. To this end, here concludes the story of Jesse Livermore - the original "Wolf Of Wall Street”.