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Chapter 14. Jesse's secret > Jesse Livermore

Jesse Livermore

Jesse Livermore, the legendary trader of the 1920s, made and lost mega-fortunes countless times over his trading career. At the height of his success, this was a man who made more than $15 million in the crash of 1929, a mega-fortune at the time. Unfortunately, he also must have possessed a fatal flaw, because he somehow lost these multi-fortunes. Jesse was a compulsive gambler, and at the end of his life, he died penniless. He was found dead in the early 1940s in a fleabag hotel room with a self-inflicted bullet wound through his head. Apparently, he did not follow his own advice. In his writings, he cautioned traders to always lock away half of any big profit for retirement and to keep it unavailable for trading. He told us in his book that he actually did this (put half his profits in an irrevocable trust for his wife and kid), but I guess he must have taken out the key and used it in a weak moment. Still, to his credit, he developed the amazing ability to take millions out of the markets after starting with relatively modest sums. This wasn't a one-time fluke either—he made (and lost) literally millions numerous times throughout his career. The high point was his huge short position in 1929, which he covered in full at the lows on the day of the famous crash.

What was Jesse's secret? In Reminiscences of a Stock Operator, published in 1923 (a semi-autobiographical account of Livermore's trading career to that time), the hero shared his secret of how to make the big money. In today's world, we have the advantage of computerized trading and financial futures, but the basics of trading and winning haven't changed, simply because human nature hasn't changed. Early in his career, Jesse suffered from the same malady most of us have. Unlike most of us, however, he was able to unlock the secret of making the big money. He shares this early in the book, but this lesson is easy to miss. As a young man, Jesse missed it also as he relates the tale of old Mr. Partridge, a trader who was not as frenetic as most. (Recall in the 1920s, stocks were traded like commodities are today: highly leveraged on small margin.) In this excerpt from the book, feel free to substitute the words “Wall Street” with “LaSalle Street” or the word “stock” with silver, cotton, S&Ps, or whatever it is you're trading now:


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