January 22, 2019

Short on Stocks, But Not on Funds!

Short on Stocks, But Not on Funds!

Jesse Lauriston Livermore is probably the most famous stock trader in the history of the business. This is because, early in the 20th century, he single-handedly made and lost millions of dollars by shorting the stock market.

Today, many traders know the name ‘Jesse Livermore’ thanks to the similarly-named Twitter account. Although the modern “Livermore” gives traders some excellent commentary on the markets, the original Jesse Livermore devised trading strategies that live on to this day.

Jesse Livermore’s Early Successes

Born in 1877, Jesse started working at the age of 14 in a stock broker’s office, writing out quotes on a chalkboard. During this time, he would watch stock prices, keenly looking for patterns.

By the age of 15, Jesse had made his first $1,000 profit from trading. This was not only a sizeable amount of money at the time but especially for someone of his age.

He continued to work to improve his strategies, hitting the big time in 1907 when, by shorting the market shortly before the San Francisco earthquake, he made more than $250,000.

By this time, he was 30 years old and already had a solid reputation as an astute stock trader. By the end of the year, he had made his first million from trading.

At about this time, Livermore started to change his trading style. He had decided that in order to succeed, he needed to study the movement of the entire market, instead of the price action of individual stocks.

This was to result in his greatest masterstroke; a move that would put him in the annals of trading history.

$100 Million Profit in 1 week from the 1929 Stock Market Crash

By autumn 1929, the Dow had gone up 5-fold in just 6 years, and everyone wanted a piece of the action. Brokers were giving out loans to buy stocks, and they were being snapped up by the public.

As a result, the total outstanding loan balance shot to $8.5 billion, which was actually more than the total amount of money that was in circulation.

As stocks started to level off and decline, Jesse Livermore began to heavily short the stock market, despite the scepticism of his counterparts. His bet quickly and spectacularly paid off.

Jesse’s shorting of the market during the 1929 stock market crash is considered to be one of the greatest trades in history. He earned over $100 million ($1.4 billion in today’s money) in just one week. Many people consider this the biggest profit ever made by a trader within such a short time frame.

A Summary of Livermore’s Stock Trading Strategy

Despite his incredible successes, Jesse also wiped out his fortune several times through questionable trades. However, he always admitted to his mistakes whenever they occurred, attributing them to two main culprits:

  • Not completely formulating his trading rules or strategies
  • Not following his rules or strategies

When trading today, these two factors remain the most likely reasons why you may not make profits. If you are to trade profitably, always have a well-thought-out strategy or plan and then stick to it.

Why not start trading now? You could be the next Jesse Livermore!