The Story of Money: The trader who made $100mn from the 1929 crash — only to lose it all

0:28What happens next in the story of money? Hey, listeners, Unhedged is taking a short break today, so we wanted to introduce you to one of our sister podcasts, The Story of Money. It's a weekly history show for finance geeks, or if you prefer, a weekly finance show for history geeks. It explores the ideas, personalities, and institutions that have shaped the history of money, and it's hosted by Jillian Tett and Robin Wigglesworth. The episode you're about to hear tells the extraordinary story of legendary trader Jesse Livermore, who made$100 million by shorting the Wall Street crash of 1929, only to lose his fortune just a few years later.

1:10Even better, this episode features me as a guest. Enjoy the show, and don't forget to follow the story of money wherever you're listening. You can also watch on YouTube. he would walk into stockbrokers offices and they'd think he was a naive kid when in fact he was an absolute shark and would clean the place out i mean i found this great quote that apparently he gave his kids the only way to get a real education in life is to examine each and every one of your mistakes yeah and isn't that the truth on wall street wall street in life i know very same thing I think what's so compelling about Jesse Livermore is that he does learn from his mistakes, most of the time at least.

1:54Bad investors, what they do, and what I've done when I've made mistakes, is you think you lost because it was a coincidence. Livermore never does that. Yeah. The only thing that is winning is making money, and if you lose and lose money, it's because you were wrong, not because you were unlucky.

2:21Today on the story of money. How do you make a hundred million bucks when marks are crashing and everyone else is losing their shirt and then somehow blow it all? Well, today we're going to be talking about one of history's most legendary traders, Jesse Livermore. He made a cool hundred million dollars in the great crash of 1929. And that's actually$1.5 billion in today's money. Or if you want to scale it relative to the size of the US economy back then and now, around$30 billion. One of the biggest trading halls in history. He was a larger-than-life character who went from Massachusetts farm boy to champagne-soaked parties in New York.

3:07He even helped inspire F. Scott Fitzgerald's Jay Gatsby. he's basically the patron saint of day traders everywhere but tragically just like jay gatsby livermore's rise was matched by a catastrophic fall now jillian is away today sadly so it's just me this week i'm robin wigglesworth and this is the story of money from the financial times

3:45To get into the story of Jesse Livermore, I am joined by a very special guest, Robert Armstrong, who, like Livermore, is a bit of a renaissance man. You may know him as the FT's US financial commentator, or as the host of the Unhedged podcast, or as the writer of the Unhedged newsletter. For me, he'll always, always be the FT's best style columnist. And he also was a headshot analyst back in the day as well. So Rob, thanks so much for being here today. It's a great pleasure to join the show. So Rob, when did you first hear of Jesse Livermore? When I first started working on Wall Street, there was a kind of small handful of books that was pressed upon me as kind of the founding literature of the profession that every young man on the road to making money in speculation should read.

4:35And one of them was a book called Reminiscences of a Stock Operator, which was written by a journalist called Edwin Lefebvre. And it's a roman a clef about Livermore's life, told in Livermore's voice. Really, it's a sort of as-told-to autobiography, but he never mentions his own name. It's almost in the style of a novel, but it's this incredible, vivid autobiographical testament to not only the ups and downs of Livermore's, the early and middle part of his life, but also his approach to trading stocks. As a result of this book, the way Livermore thought and talked is kind of burned into the minds of a lot of people on Wall Street.

5:26Yeah, so he was this incredible trader, but this made him a legend, this book. And it still is read on Wall Street today, right? Oh, absolutely. I mean, And it's a wonderful book on the literary merits in a certain way. It makes Livermore into a kind of Wall Street Tom Sawyer, as it were. Always getting up to hijinks, always getting knocked over and picking himself up again. And of course, one of the main lessons about being an investor is learning from your mistakes. And this is Livermore's constant theme in this book. So there's a way it's a book about flexibility, which is one of the great lessons that every investor has to learn.

6:09I've never worked on a Wall Street trading desk myself, but I also have had that book recommended to me. I have it here in my shelf. I brought it to the forefront just for today. I've seen people recommend it, like Alan Greenspan has recommended it. This seems to be one of those kind of Wall Street classics or financial classics, even a century after it came out, which is pretty remarkable, really. And one of the amazing things I was noticing rereading it this week in preparation for this show was that he anticipates concepts that the academic literature really hadn't gotten a handle on until decades later.

6:46The book came out in 1923. And you realize as you're reading it, he's talking about the fact that stock prices have momentum. Yeah. You know, and it's like this guy is anticipating something that it took more academic or intellectual market observers decades more to put a kind of theoretical or explicit context around. I actually printed out a picture of him here. So this is what he looks like, Rob. It's a picture of Jesse Livermore in his 40s. He's old now, of course, but he still has a fairly youthful face. He's clean shaven, which for the era wasn't that usual. Yeah, he talks in the book about he always looked very young for his age and how he used that to his advantage.

7:37He would walk into stockbrokers offices and they'd think he was a naive kid when, in fact, he was an absolute shark and would clean the place out. He had a very humble background, didn't he? Yeah, he was born in 1877 in Massachusetts, and he was the child of farmers. But he had a knack for numbers from the very beginning, and he learned to read early. He learned to do his sums early, and almost as if he was pulled by gravity. he got from you know the fields to the big city which in this case was boston and found his way into the the investment business well but his father first dragged him back to the farm like he was very smart he went to school but the father said well you know that's all good and fine but we need you working the fields so he had to go back home and it was actually his mother that sent him basically kind of let him run away with five bucks to the big city of boston Yeah, it's true.

8:40And there's a touching scene in Reminiscences where after he makes his first thousand dollars or something, some relatively modest, some like that, he presents it to his mother who can't believe this immense fortune her son has made. And she begs him to put it away in the bank forever, not understanding that she'd sort of created a lifelong speculator with that$5 she sent him to the big city with. Yeah, I don't trust my children with any money. I mean, they might end up, you know, break bad, essentially, you know, you can't really trust them. His job in Boston when he arrived there with five bucks sewn into his pants by his very kind and forgiving mother was as a board boy.

9:24But what on earth is a board boy? Well, before you get to board boy, you have to be familiar with the concept of a bucket shop, which is a place where what we would now call retail investors or retail punters can speculate on stock prices during the day. So it's an early form of what we now call day trading. But what you have to understand about the bucket shops is you weren't actually investing in the stocks. It was literally a betting shop where instead of betting on horses, you were betting on the fluctuation of stock prices. And at the front of one of these shops, they would have a big chalkboard with the big names, you know, whether, you know, a steel, anaconda, whatever, you know, all the big names.

10:14And the board boy was literally the guy there with the eraser who would take out the old price and mark up the new one. And so as Livermore describes it, this was the way that he kind of internalized these numbers and the way they fluctuate was it was his job to when the prices were called out, he was rewriting them. And it kind of rewired his brain in some way, in such a way that he was sort of merged with the market. It's my wow. So he's basically like a human Bloomberg, essentially. Yeah, exactly. An analog Bloomberg. Yeah. Who then kind of hooked himself up to the the market matrix, I guess.

10:56Yes. And just kind of ingested all this information, this chalk information. And how the information would come to the bucket shop was, of course, through a ticker tape machine, which was a little machine that spat out prices on a strip of paper that came ticking out during the day. And, you know, you might know those from ticker tape parades, which we still have here in New York City. Is that the origin? It was literally at the end of a day on Wall Street, the floor would be covered with these little strips of paper. And, you know, you can chop it up and throw it down on whoever your hero is as they walk down Wall Street.

11:34So it was basically free confetti in some sense. But the first stage of Livermore's investing career is he becomes a savant of the tape. Yeah. Right. What is the tape trying to tell me? And he calls himself a tape reader, right? And that's only the first stage of his development. But like that, those years as a board boy gave him the feel for numbers that in the early part of his career, he would depend on to make money. Yeah, I remember reading that he would go around like almost fondling or touching the tape. Like there were kind of financial prayer beads. He'd just kind of feel, get a sense for the market, as it were, instinctive.

12:16I mean, the bucket shops, you know, the name actually comes from essentially unlicensed dodgy bars in Britain. So poor street urchins would essentially collect empty kegs or almost empty kegs from proper bars, basically drain them from all the dregs of beer and liquor, put them in buckets and then take them to bars that would just sell the slop to poorer customers, essentially. And then these financial shops kind of became the equivalent of that. So they just became the bucket shops. Yes. And what was interesting was that it's a gambling shop. It's not like you can bet on whatever you want. The house is in charge.

12:58So as the boy plunger, as he was known there, became to be recognized in bucket shops, he would go up to the counter and say, I'd like to buy 100 of this or sell 100 of that. and the bucket shop proprietors would say, buddy, your money's no good here. You're too good at this, right? Our business is having our customers lose. You tend to win. Try next door. And he would go, you know, kind of go to smaller towns or try a different city or try a different bucket shop. But eventually it became where his reputation preceded him and it was hard for him to play this way. So by basically becoming like a human Bloomberg, he developed a better feel for the market than anybody else.

13:36So I guess it's like counting cards and you get chucked out to the casino. So eventually they just, all the casinos banned you. And he was banned from every casino in the Miracle Wars. I think that's a brilliant metaphor. He was the Wall Street equivalent of a card counter. And they didn't want any piece of his business. But why was he called the boy plunger? Well, just because... Because he was still a boy then, right? He was still a boy. And as we mentioned, he was speculating for a living at 15 years old. So he was literally a boy and he was a plunger because if he thought he had it right, if he thought he had read the tape correctly, he would put all his money down.

14:14He didn't do anything by halves. And this, of course, became the great theme of his life. If he was going to speculate, he was going to speculate big. Okay, so he's gone from errant farm boy, I guess, in Massachusetts, to the boy plunger, like this kind of wonder kid of the bucket shops, to the point where he's banned from all these bucket shops. And obviously, when you're kind of kicked out of the lower leagues, there's only the top. You have to go to New York. I'm not going to sing. The producers always try to make me sing on this show. I don't know why. I've got an atrocious voice, but I was tempted to do a bit of like Alicia Keys New York here.

14:49Yes. But Jesse Livermore goes to New York. He's 20. It's 1897. And he starts trading in the big leagues, the actual New York Stock Exchange. But how does his lessons, like what he's learned, the system he has from the bucket shops, how does that translate to the actual, the big board? Well, as I mentioned before, the system that Livermore had developed, cleaning out bucket shops, as it were, in the little towns and countryside of the United States turned out to not work particularly well when he got to the actual brokerages in New York. And the key reason was this. Back in the bucket shops, you're just speculating on whatever number appears on that chalkboard at the front of the room.

15:38You're just gambling. It's like a horse. It's the ponies. Yeah, it's the ponies. And whatever price you say buy or sell in, whatever price is written on the board at that moment is what you get. Not so interestingly on Wall Street, you on Wall Street, you put in what we still call a market order. And some floor man has to walk out and find someone to sell that stock to you or buy that stock from you. And you get whatever price the floor man walks back to you at. So you don't get guaranteed execution at the price you thought it was when you said buy or sell at first. And this throws off Livermore's timing and his system, and he kind of gets cleaned out.

16:21Okay, so he made a lot. I think at one point, when he was still in his teens, he was worth a quarter of a million dollars from cleaning out these bucket shops. And he finds out that that system does not work on Wall Street. He loses a ton of money, right? At one point, he loses everything. And he's going out asking for loans and pawning stuff just to get funds to get back in the game. Yeah, he asked his wife to pawn her jewelry, I think. He'd been married. He got married quite young. I mean, young for us, maybe not so young back in the day. And he had to ask his wife to pawn her jewelry to support him.

16:56Yeah, so he borrows and begs and steals to get another stake together. And he's like, I need to get back to the bucket shops so I can build this up to a big enough stake where I can try my luck back on Wall Street. So he takes a train to St. Louis, hoping the bucket shops there won't recognize him when he walks in. And he like doubles his borrowed stake or whatever by the time word gets from New York. Hey, Jesse Livermore is in St. Louis. You guys ought to be careful. And sure enough, the St. Louis bucket shops turn him away. But not before he's made a bit of money back there. Yeah, enough money, enough to have a stake to go back to Wall Street, having learned his lesson.

17:34And again, as we talked about at the beginning of the show, the great theme of reminiscences is I lost money and that was the tuition that I paid for my next leg of trading. Right. I got a new insight. And he starts to say, you know, I have to play the swings in the market differently. I have to look more at the fundamental conditions. I can't just read the tape anymore. Yeah. I mean, I found this great quote that apparently he gave his kids. uh i won't put it here it is um the only way to get a real education in life is to examine each and every one of your mistakes yeah and isn't that the truth on wall street wall street in life i know i know thing it's but it's it's we all say it but not most people don't actually do it i think what's so compelling about jesse livermore is that he does learn from his mistakes yeah most of the time at least bad investors what what they do and what i've done when i've made mistakes is you think you lost because it was a coincidence.

18:34If it wasn't for this or that, I was right, but this particular case was extraordinary. Even though I lost money, I was actually right. Livermore never does that. When he loses money, the only thing that is winning is making money. And if you lose and lose money, it's because you were wrong, not because you were unlucky. No, he kind of foreshadows Eugene Farman, the whole efficient markets hypothesis, right? I mean, Gene Farmer is a famous finance professor. He won the Nobel Prize for Economics. And he's most famous for his theory that markets, the stock markets mainly, are efficient. Essentially, they bake in the prices from the views of every investor around the world, every trader.

19:17So over time, you know, maybe stocks fall, stocks rise. But at any given moment, they are correct, as it were. They are right because they are reflecting the sum of all views. And that's basically what Jesse Livermore is saying. He's always saying the market is right. And it's so tempting for you whenever it goes against you to say, oh, somebody else did something. It's always somebody else's fault. No, the market was right and you were wrong. Or early or late or whatever, right? Exactly. But what kind of lessons did he learn beyond that, beyond the fact that the market is always right? What kind of trading style does he start to develop in New York?

19:55Yeah. So what he concludes is that he had been trading too much and that he needed to look for bigger swings in the market. And he needed to change the way he set up his trades. So he talks about probing the market with little trades and finding out what demand is like as he puts trades out there. And only once you've tested the market and seen where the demand is, if you put a bunch of stock out there, does the market fall in response or rise in response? Only once you've done these little forays can you take your big plunge and put real money to work. It's the kind of feeling out the market as we're getting a feel or sense for it.

20:41I mean, this is, I think I can see now why people are still recommending his book, because some of these things are still now told to traders all the time that you need to develop a sense for things and the market will smack you in the face and you're wrong. The market is always right. I think it's important to note that Livermore does not completely ignore fundamentals. He's not just, as it were, a technical trader. And rereading the book this week, I was struck by how acutely aware he is of credit conditions. He doesn't talk about profits or revenues at the companies or how the business is or, you know, all of this stuff.

21:22But what he does talk about is, is there money around? what Wall Street people now would call liquidity. What do you have to pay to borrow money to buy stocks? What is the position of the banks? What is the credit situation nationally? He was acutely aware of something that now, again, has been brought into the theory, the academic theory of Wall Street, which is that it's liquidity as well as fundamentals, as well as corporate fundamentals that move stocks around. And again, over 100 years ago, So Livermore had already figured that out in practice. Stocks can only go up if there's money sloshing around the system that needs to find some place to rest.

22:05And he also learned that you do need to essentially play the cards you're dealt, but wait for when you have a great hand. I think there's this other quote from Reminiscences I've dug out here. What beat me is not having the brains enough to stick to my own game. That is to play the market only when I was satisfied that the precedents favoured my play. There is a plain fool who does the wrong thing at all times everywhere. But then there is a Wall Street fool who thinks he must trade at all times. So he actually becomes, you know, he's a quite quick trader, but he calms down a little bit and waits for the big ones to go.

22:45Yeah, I think the greatest traders to this day, when they realize that there is a pattern in markets that they don't understand, that there's something about the situation is genuinely new to them, they get the ship into harbor, right? They reduce their exposure and they get out of the way. and that was a lesson that livermore learned early in his life but he talks about falling into sin repeatedly yes he can't always quite do it you know he can't he can't keep his hand out of the cookie jar and it's this kind of he tells this story on himself and it makes him a wonderfully human character he knows that you should only trade when you when you have you should only play when you have the very best cards but he can't quite help himself yeah it reminds me of like St.

23:39Augustine's Prayer, Lord, make me chase, but not yet. But not yet, exactly. Now, I really want to get into this because it's a perfect example exactly of what you say, a time when Jesse Livermore did not follow his own rules. And actually, you know, sometimes he got his face ripped off, but this time it really worked. So we're in 1906. Livermore has adapted his style to the stock market. He hasn't maybe mastered it, but he's a wealthy guy now. He's doing really well uh he's i think late 20s 28 29 and he's on holiday in atlantic city and he sees that the market is really really strong and and normally that would mean that he'd lean into it he was a very bullish trader he liked stuff that went up and down but like he liked it when the animal sproats were soaring yes do you think when the market was that strong he'd be buying He decides to short instead and go aggressively short.

24:34So what happened? So he gets this kind of otherworldly urge. Like a premonition somehow. A premonition. Yeah. The spirits speak to him and he shorts Union Pacific Rail in pretty big volume. A few days thereafter, an amazing thing happens and a terrible thing, which is the 1906 San Francisco earthquake. and he makes$250 ,000 on what was kind of an immense national calamity at the time, all on the basis of gut feeling. Yeah, and this is kind of the legend of the boy plunger, that feel for the markets, even weird events like an earthquake. He can feel the tectonic plates shifting beneath the ground.

25:20All the way in Atlantic City, essentially. I don't want to jump forward, but you think about the tragic aspects of his life. And in a way, it can be terrible for a trader to get lucky, right? If you follow your gut and it works, you start to believe in your own magical powers, which is an extremely risky thing to happen to any investor. But do you think, did he sense something? Was there something in the market, technicals, that gave him the kind of a bad juju feel? or was it just pure luck? I think it's really hard to say in retrospect. He was someone who was very alert to win a bull run in markets, wasn't supported.

26:06At the time, in the early 20th century, there was a lot of what we would call stock manipulation going on in the markets.

26:19And trade amongst themselves to push a certain price up sharply or even the whole market up sharply. I think Livermore was always quick to recognize when this was happening and quick to recognize that it couldn't be sustained. So when he thought somebody was manipulating the market up, he loved to get on the short side. And I wonder if that's what happened here, that he saw the market was being falsely supported by people who are trying to mark their books, as they say, higher than fundamentals justified. And he just leapt on that. And he just turned out to be spectacularly right with a little help from Mother Nature.

26:57Yeah. So that just happened to be the tragic trigger for the collapse of Union Pacific. But it wasn't really, his view was more, well, maybe not fundamentally based, but sort of technically based. He suspected that the stock had been kind of pumped up by some of these stock operators, the pools, weren't they called? Yeah, the pools. And you know what's amazing when you read about this era on Wall Street, a pool, which is basically one rich person and another rich person saying to each other, or maybe a group of such people, we're going to trade this stock back and forth between each other, artificially moving the price up.

27:37And then at some point, we're going to sell. Like, basically, we're setting up a huge game of chicken, right? And it was so well known that it would be, like, announced in the newspaper. Mr. So-and-so and the brokerage of such-and-such are setting up a pool in Union Pacific or some other stock. And it was like the public was invited to participate. Yeah. No, I mean, this is the early 1900s, right? There is no SEC. There is no financial watchdog. The markers are proper Wild West at this point. Yeah, absolutely right. And manipulation was just part of the game. And that was one of the conditions that Livermore traded against.

28:19Where are the manipulators right now? And how can I trade with them or against them? Well, also in favor of this not being luck, just a year afterwards, Jesse Livermore does have probably one of his most famous episodes, right? So the San Francisco earthquake triggered a bit of a market quake as well. But a year later, there was a massive one. And I know Livermore had turned bullish again before 1907. But 1907, the financial panic of 1907, that's a big one. It's one of the biggest financial crises in history, right? Can you explain briefly what happened? As you just mentioned, it was not only a highly unregulated stock market at this point in history, it was also quite an unregulated financial market generally.

29:11There was kind of these unregulated pseudo banks known as trusts, and there was tons of leverage in the system. And it was like a house of cards had been built that was looking for an excuse to be knocked over. And someone cornered the copper market, meaning they basically owned all the tradable copper in the world. And this is always an extremely unstable situation for any market because anybody who's betting against copper, right, is going to be cleaned out by whoever owns all the copper. So anyway, that spooks everyone and a panic ensues. And the worst thing that can happen in any market crisis starts to happen, which is bank runs.

29:58Everybody wants to be in cash rather than any other asset. The banks don't have enough liquidity to satisfy the demand for cash. And it's a proper panic. Yeah. I mean, there's no central bank that can deliver a surplus cash. There is no deposit insurance. So obviously, everybody has an incentive to yak their money out as quickly as possible. And then, frankly, it's just a massive banking calamity. I think hundreds of banks fail. And the market dropped something like 50%, right? Yeah. The market loses half its value. And indeed, it was so calamitous. This is why we have a lot of the market regulation that we have today, was a national response to the complete wipeout that the market and banks and the economy suffered through in 1907.

30:44But so what did Jesse Livermore do before the crash? And how did he respond to the event itself? When the house of cards I referred to just now was being built, Livermore played along. In other words, there was this bubble expanding and he was long it. But he became, through 1906, after the earthquake, but before the crash, he became increasingly nervous and he started putting on short positions. And so he was heavily short by the time the crash came. Betting on stocks falling, basically. Exactly. Betting that stocks would fall. He made a load of money when the collapse came in 1907, which culminated in one of the proud moments of his life, which was the greatest financial eminence of that or arguably any time.

31:39jp morgan himself came to livermore's office uh and asked him please stop taking money out of the market please stop taking shorts for the good of the country stop your bear operations and livermore i don't know if this is true or not but livermore says in the books and you know i was happy to do it for the good of the country well also probably knowing he's now playing against john paypoint Morgan made him sort of change his mind and he starts going long as well. Yeah, I don't know how much Morgan was threatening him and how much he was appealing to the better angels of his nature. That detail is lost to history, I think.

32:17Well, I've read elsewhere that there seems to be consensus that he was asking Livermore to do everybody a favor, but also maybe saying, look, we're going to be turning things around, so you might as well get out of the way so your shorts don't get mullered. I mean, I read later on that Livermore told his sons that that was one of the proudest moments of his life when the great J.P. Morgan himself asked this former farm boy from Massachusetts for a favor, essentially. Yes. I mean, it's hard to imagine how important a figure J.P. Morgan would have been in the psychology of Wall Street at that time.

32:53It's like Jamie, not Diamond, plus Elon Musk times 10, basically. Yeah, I mean, a titan, really. But it also shows that Livermore has gone from being kind of this kind of the boy, the terrible boy wonder of the bucket shops, the boy plunger, to being a Wall Street speculator or an investor of renown. That Morgan wanted him to cover his shorts so that it would be well known that Jesse Livermore, the great trader, was no longer short the market. It kind of shows that he has arrived on Wall Street as well at that moment. He's playing at the big table, that is for sure. So anyway, he is now also fantastically wealthy, even by our era and for the 1907 era, you know, generationally, I mean, obscenely wealthy.

33:46And he starts living the high life. He does what every respectable person who has more money than he knows what to do with does. He buys a really big boat. There's no way to destroy and dispense with wealth, quite like buying a yacht. He buys a$200 ,000 yacht, which I don't even know what that is in today's money, but it's probably, you know, untold millions in today's money. You know, he likes to fish, and he basically buys himself the world's largest fishing boat to parade around in. He starts kind of becoming a man about town as well. He starts hosting parties and things like that, right? Yeah, yeah.

34:23No, he lives the good life. I mean, this is the Jake Attsby side of his personality. And that's always been true. Even starting when he was young, he was a guy who liked not only making money, but he was no hoarder. Once he got a packet, he liked to spend it with his friends. He was an extremely sociable person. And so he starts leaning into that side of his personality. So he's famous. He's wealthy beyond almost measure. He's glamorous. he's you know he's arrived on wall street but of course you know spoiler alert we have done a fair bit of foreshadowing already but things don't work out for jesse livermore after the break we're going to be discussing what happened next the triumphs and falls he suffers multiple times and how he eventually loses it all and the whole story ends in tragedy and that's after the break

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36:04Welcome back, everybody. So we are talking about the legendary trader, Jesse Livermore today. And we're going to be skipping forward to the 1920s, the roaring 20s, because at this point, Jesse Livermore is in his 40s and has achieved fame. beyond anything you'd ever imagine. He's a glamour figure. He is in the tabloids. He is a giant on Wall Street. And he's massively wealthy, of course. He's kind of become the embodiment of this jazz-age sleaze of uber-wealth and glamour and sums up the 20s, really. But he's still very private. He's still shrouded in a bit of mystery and suspicion. Rob, I am curious, do we know roughly how wealthy he was in the late 20s before the Great Crash of 29?

36:56Before the Great Crash, it's estimated that he had a fortune of around$20 million. Wow. In today's money, this is an immense fortune. And he'd had a kind of wild career between 1908 and 1929, where he'd made and lost several fortunes. He speculated heavily in commodities like cotton, all the while repeating this pattern where he masters one bet, makes a lot of money, is tempted into a new corner of the market, and has to once again pay his tuition by getting cleaned out, scrapes together a little bit of money, and jump back in again. But by 1929, you know it's hot and cold running showgirls and yachts and uh f scott fitzgerald and the whole nine yards as they say yeah i mean even filed for bankruptcy at one point in 1915 after he had all accumulated all these massive debts i have heard that nobody on wall street has made and lost quite so many fortunes so many times in the history of wall street i mean obviously we all know stories of people that made it and then lost it all or lost it all and then made it back.

38:08But, you know, it's just an incredible rollercoaster career, really. And he does an absolutely classic, very rich, middle-aged man in the 1920s thing. And he marries a showgirl like you do, right? And he marries his wife, Dorothy, and they become these kind of famous symbols of the high life, throwing lavish parties where you can sort of imagine those towers of champagne glasses with champagne bubbling down through them and flappers dancing and oh yeah it sounds like chateau wigglesworth every thursday really exactly that's the image i'm trying to call forth here yeah but this showgirl these were for fame she was a famous showgirl this was the zinc field follies what were the Ziegfeld follies really?

38:56I mean it was the kind of epitome of the the the loose side of New York high life you can kind of imagine ostrich feathers and glamour and staircases and high kicks and all of this good stuff and she was the star of the show and he was the star of Wall Street they were bound to be together I think. Yeah so so since his great success in 1907. He's lost several fortunes and then finally made it back. He's good for at least 20, 30 million dollars. He's married a glamorous showgirl. He also bought a massive house out on Long Island, right? Which was the inspiration for Great Egg, the setting for the great Jay Gatsby's parties.

39:41Yeah, you know, a humble little country place with 29 bedrooms. Yeah. Barely enough space for the servants you need, really. Yeah, exactly. And you can imagine the parties that were held there. And, you know, it must have been a hot ticket to get an invitation out there. Okay, so now we've set the scene. It's 1929. He's at the peak, or has regained the peak again, let's say. And Livermore is about to short America, basically, and really earn his nickname as the Great Bear of Wall Street. Now, obviously, we've talked about 1929. several times now uh for those that don't actually know or are that familiar with it uh how did it come about well because this is the big one right the big one yeah it's the original moment where people come to believe that the prosperity of the country and of wall street can never come to an end.

40:44So the US economy is roaring forward. It's recovering from the First World War in a way that economies in the rest of the world isn't going. America is where it's at, and stock speculation goes absolutely mad. Everybody, and famously their shoeshine boy, is speculating in stocks, and they only seem to go one direction. I mean, when you look on a long-term historical chart at what Wall Street did in 1927, 28, up to the crisis in 29, it just looks like a line going straight up. It's like no other incident in history. This is a spike in the stock chart that you can basically see from the moon. You know?

41:25Yeah. Absolutely wild. And things like that, as we know, don't last. And inevitably, it was going to happen that this wild fever was going to break. But Livermore was going to be there when it did. Yeah, but first he was bullish, right? There's this famous quote, he was a bull in a raging bull market. He piled on, he rode the rally first, right? Yeah, I mean, there's a great saying on Wall Street, don't fight the tape. Yeah. You know, Livermore was not one to say, to be tut-tutting and wagging his finger at a wild speculative incident. He enjoyed the party. He joined the party, which is what good traders do.

42:06I mean, of course, you are playing Game of Chicken, and you have to know when you get out. But don't fight the tape. When momentum is going one direction, there's only one thing to do, and that is to follow it. Yeah. I mean, there's this famous quote by George Soros, the hedge fund manager, who famously broke the Bank of England, that somebody asked him about bubbles. And so when I see a bubble, the first thing I do is jump in with both feet. Buy it. Yeah. Buy that. And the clue is, of course, getting out before it collapses. And that seems to be what Jesse Livermore did. But he started shorting the market too early, right?

42:41He started to become suspicious. And throughout his life, this is the great question, when do you change direction? He knows this thing can't be sustained. And he's putting out those feeler trades, but he's consistently getting it wrong, at least at first. So summer of 1929, he's now sold all his possessions. He has kind of made a list of the stocks he thinks are the most vulnerable. Early summer, he's sort of starting to take short, short bets. feeling the market like we talked about yeah yeah feeling the market and uh livermore this is a great line he said to his friends he could read the price action on the chalkboard the way a musician reads sheet music and he knew it was building up to a crescendo so he's in secret he's building a a long list of short positions and at first he he loses money of course but then uh the crescendo breaks essentially.

43:44October of 1929, famously, it all comes to an end. Yeah, that's Black Thursday, right? The market suddenly just hits an air pocket. It drops 11 % and it just keeps falling. I mean, the ticker tape, I remember reading the ticker tape machines, these famous ticker tapes in brokerage houses around the country. They were unable to keep up with the volume of information and selling coming. Essentially, you know, obviously people start literally committing suicide, of course. How does Jesse Livermore react to all this? Because he's been building quietly this massive, big, short, essentially, for a while.

44:23On the Friday after the Thursday, the kind of market insiders mount a valiant effort to protect the market, that there's a little bit of a recovery. Livermore sees right through it. And, you know, where this all ends is with Livermore with reportedly$100 million in his pockets. Wow. In his shorts trade, which again, in today's money, unimaginable fortunes. He's quintupled his fortune from before the crash on this massive one big short. That's actually the OG big shorts. Right. but remember that he's doing this he's made this money in the middle of what is a national tragedy not just on wall street but the economy is being brought to its knees as well so this does not make him popular on the contrary he is portrayed the press is looking for a villain and here's a guy who just made a hundred million dollars from the misery of other people right and so now he's got a target on his forehead.

45:27And the emotional strain starts to tell. I mean, even reading the reminiscences, you get these hints that there is someone who has this irrepressible side, but is also a bit tortured in his low moments. And after the 1929 crash, despite having made all this money, he experiences one of these low moments, and perhaps a more severe one than he'd had in his life up until that point. Yeah. I mean, you think most of proper speculators and traders would feel like if they'd shorted the biggest bubble in the history of mankind and made generational wealth, that would be the high point of their life. But it does seem to really be the beginning of the end.

46:12It kind of left him hollow, I think he told his friends, and empty and depressed. This is a common story on Wall Street, that the people who tend to be highly successful speculators. It's the game that kind of supports them emotionally. It was the excitement of the back and forth that made life bearable. And it becomes very difficult when the music, as it were, stops, even when you have a lot of money at that point. Yeah. And this blows my mind, but he managed to lose all that money. Again, again, again. Yeah, dopes like us, Robin, we just say, you know, give me half that much money, a tenth of that much money, and I'm just putting my feet up for the rest of my life.

46:57Yeah. Livermore is just incapable of it. Yeah. Right? He has, he's always looking for the next risk, the next excitement, which I, again, I think speaks to the depressive side of his personality. Right? He needs the drama, you know, and he just can't keep himself away. Well, I guess it's almost a bit like if you're an addict, you're always looking for a higher high. And reality, as you keep chasing it, you take in the market unnecessary risk. And he went bankrupt again in 1934. Only five years after his triumphant, massive trading hall, he's bankrupt. Look, really, like Rob, you and I, we've never been bankrupt.

47:39So I think really we're better at this than Jesse Livermore. I know. Well, you know, it's not clear exactly what happened, but as a result of the 1907 crashes and the 1929 crashes, the game was being changed by regulation. And a lot of the games that Livermore made his money playing were getting harder and harder to play, especially after the 1934 Securities and Exchange Act, a law that is still, of course, with us today. uh you know and suddenly there he is he lists 84 this is um the bankruptcy in 34 84 000 in assets and debts of two and a half million wow he is bust in a big way uh so there's lawsuits and there is more showgirls and there's failed marriage and there's emotional swings.

48:32And we are in the like kind of Martin Scorsese, it all goes to pieces montage in Goodfellas. I mean, the Rolling Stones are playing in the background. And there's drink and there's girls and there's screaming matches and there's where are we going to get the money. And it's really going the wrong direction. God, that's sad. What happened to Dorothy's showgirl wife? There was another showgirl or something. From multiple showgirls after that. Yeah, exactly. You know, one trade is not enough. One showgirl is not enough either, I think. Yeah. No, well, apparently she made quite a lot of money out of the divorce settlement.

49:10But she, again, also wasted that. So clearly, you know, his financial sense didn't quite rub off. No, no. In 32, they divorce. She walks away with 10 million bucks. She squanders that away. uh there's a horrible incident where um she shoots their son i mean it really is uh a miserable series of incidents livermore marries again uh you know it's her fifth husband it's his third wife no i mean he never made back his fortune either and you know we've been reading reports it seems he basically kind of disappeared from the scene then he becomes disinterested in almost everything and in 1940 just 10 years after his greatest triumph when he basically slapped on a big short just before the great depression he tragically takes his own life i actually dug out his suicide note it was given to one of the policemen uh it's in one of the many books written about him and it's it's heartbreaking i'll read it out to you things have been bad with me i'm tired of fighting.

50:19I can't carry on any longer. This is the only way out. I am unworthy of your love. I'm a failure. I'm truly sorry, but this is the only way out for me. Love, Laurie. Laurie was apparently his nickname because his middle name is Lauriston. So she called him Laurie. And I mean, what a fool. It is just, it's an awful, you know, he killed himself, you know, in the coat room of a hotel where he liked to go to get drinks, which is kind of touches on that, that like good time, the high life thing gone terribly wrong. You know, I think it's important to note here, the obvious fact that suicide is not about money, right?

50:59He didn't die because he lost the money. He died because he was a guy who was struggling with something inside himself. And he had a terrible moment. That side of his personality, the religious death, was also connected to the pattern of his life as a traitor. The guy who couldn't get enough, couldn't get enough risk, couldn't get enough excitement, couldn't wait to try the next idea. And so he'd have these tremendous highs and these tremendous lows. And during one of those lows, his life came to an end in an awful way. One of the things that once you know how he ended, maybe you can see that pattern across his life, that kind of, I mean, we should be careful about playing hobby psychologists here, but sort of almost a manic depressive approach to life where he has very high highs and very low lows.

51:52And the money, like you say, that's almost incidental and sad. Tragically, two of his three sons ended up committing suicide. There's clearly something in the family here. But I would also say it would be wrong if we were to present Jesse Livermore's legacy as someone who is just a risk taker. He was also a tremendously insightful and analytic person who recognized things about the operations of markets that really gave him an advantage. So he wasn't just a risk appetite with feet, as it were. He also, you know, really took the time to think about how markets operated, and that gave him a tremendous edge.

52:35But what is it about Jesse Livermore that therefore commands such attention still to this day? I mean, like you say, there have been other people that have made fortunes from shorting market or in the markets, maybe made several fortunes. But I suspect we won't be talking about them in 100 years' time. Why does Jesse Livermore still, you know, command such attention? If you are a success in any field of human endeavor, I think it's important to make good friends with a really excellent journalist. uh and uh clearly in edwin lefevre the the guy who wrote reminiscences of a stock market operator he found somebody who not only told his story well but made his personality seem so vivid yeah right very successful speculators are common enough but one with a truly colorful personality and something to say, not just about the nature of money, but the nature of life, those people are rare.

53:41You know, you can read reminiscences and as we mentioned before, feel like there's something about this that speaks to life, not just money. Yeah. That, I think, helps transcend, you know, this just being a book about a trader, essentially. And I do agree that the lesson should be that, you know, everybody should talk to journalists more. I think that's a great life. If you want to live forever, talk to journalists. But I'm curious, do you think Jesse Livermore would do well today? There are very few people, hardly any, that sustain investing brilliance over a long period of time. Because regimes come and go, they change, the market changes.

54:21And then they kind of end up maybe not poor and broke, but they end in failure. Well, we started this episode with bucket shops, Robin. And today we have a kind of hedge fund called the pod shop. They also call them multi-strategy head funds. And what these are is these kind of pile of money that whoever's managing it hands it out to young traders and says, I'll give you this money. You make it bigger and you can keep trading. you make it smaller and you're fired. So you have all these bright young people, men and women out there trying to make money by seeing into some little part of the market.

55:08What those pod shops are betting on is that for a brief moment, some young intelligent person looks into the matrix and sees where the inefficiency is and can leap on it. And you can see a 21st century Jesse Livermore having a pretty good time working in one of those pod shops today, I would say. Yeah. It's just kind of pattern recognition, probably, that we then ascribe some sort of mystical ability. Yeah. The beginning of chapter 23 of the book, this is, you know, speculation in stocks will never disappear. It isn't desirable that it should. It cannot be checked by warnings as to its dangers.

55:47You cannot prevent people from guessing wrong, no matter how able or how experienced they may be. Carefully laid plans will miscarry because the unexpected and even the unexpectable will happen. And that's kind of a good credo, I think, to Livermore's story. And it's also a great way to end what's been a fascinating episode. Rob, thanks so much for being here. This has really been fun. Thanks for having me on the show. well sadly that is it for this week's episode of the story of money if you like this episode please make sure to subscribe and review the show comment underneath we do read them all i tried to answer a few of the comments as well i'm robin wigglesworth and we'll see you again next week and this time with jillian

56:42Thank you.