The Wall Street Crash of 1929 – The Day Jesse Livermore Made One of the Greatest Trades in History
His dramatic end does not change the admiration that generations of investors have had for him since.
The Wall Street Crash of 1929 is synonymous with financial loss and ruin for the majority of American investors. This event is also associated with the Great Depression that was to come in America and around the world.
What many investors today don't know, however, is that the Wall Street crash of 1929 was also the day that Jesse Livermore made one of the biggest trades in history.
As his biographer, Tom Rubython explains: “the 1929 crash has come to define him more than anything else”.
Jesse Livermore shows an early interest in stock market trading
It all begins in 1877 in Massachusetts where Jesse Livermore is born. Jesse lives in a family of farmers and his father only dreams of making him work on the family farm. But our future Wall Street legend is determined not to follow the path laid out for him by his father.
At the age of 14, he decides to go to Boston.
In the big city of Massachusetts, Jesse Livermore finds a first job with the “blackboard boys” at the stockbroker Paine Webber, where he helps to update the price of the shares received by ticker from Wall Street.
During these years, Jesse Livermore was exposed to daily stock prices as well as the news from the financial newspapers, which he read continuously. His mental arithmetic skills allowed him to develop a very strong instinct on how the markets were moving.
Soon, Jesse Livermore started to trade himself.
Following his instincts, Jesse Livermore made his biggest trading move during the Wall Street crash of 1929
Among his various trading successes was shorting the company running the Union Pacific railroad just before the 1906 San Francisco earthquake. However, Jesse Livermore is an adventurer with no limits. One year after this event, Jesse loses this time 90% of his wealth on a failed cotton gamble.
To win big, you have to dare to bet big, which can lead to losing big. Jesse Livermore is obviously not afraid of that.
The most spectacular move of Jesse Livermore's career took place around the Wall Street crash in 1929. Livermore noticed a few weeks before the crash that the value of the shares purchased exceeded the total amount of capital available to back up these purchases.
Jesse Livermore obviously remembers that he experienced and traded in a similar situation with the Panic of 1907. He is quickly convinced that there will be a similar outcome again this time.
Jesse Livermore makes $100 million profit in one day
Jesse Livermore's motto is to follow his instincts:
“Whatever happens in the stock market today has happened before and will happen again.”
Livermore understood long before anyone else that markets are indeed cyclical. He intends to take advantage of this.
Jesse Livermore starts shorting US corporate stocks, which soon starts making him a lot of money when stock prices start to fall dramatically as confidence in the market disappears.
After the Wall Street crash on October 29, 1929, now known as Black Tuesday, Jesse Livermore generated $100 million in profits through his instincts.
This is still considered one of the greatest trades in history.
Unable to control his love of risk, Jesse Livermore ends up completely broke
Among Jesse Livermore's other rules, he often repeated that there was no such thing as easy money and that wishful thinking should be banned. A few years later, Livermore lost all the profits he had made in 1929. It was 1934. He lost another $5 million in his downfall.
What lost Jesse Livermore at this time was his own adventurous nature, which he never knew how to limit.
Early in his career, Livermore had recognized weaknesses in his character and a penchant for fickleness. He knew that this could lose him and that he had to be wary of it. For this reason, Livermore quickly set aside money for his family that he was not to touch under any circumstances.
As his life progressed in the late 1930s, Livermore was plagued by doubts about whether he was really a brilliant stock trader or just a gambler who had been in the right place at the right time.
In November 1940, overwhelmed by his financial and personal problems, Jesse Livermore shot himself in the cloakroom of a Manhattan hotel.
Final Thoughts
Although Jesse Livermore's end is sad, the trader and his philosophy are still recognized by everyone on Wall Street. Hedge fund bosses, for example, continue to give copies of his book “Reminiscences of a Stock Operator” to new hires so they can learn the trading lessons of a man whose principles are still relevant more than 80 years after his death.
For many on Wall Street, what Jesse Livermore accomplished during his trading career has shaped more than four generations of investors since. The final word goes to the legendary investor who holds Livermore in great admiration:
“We can probably see more of what unique about Livermore than Livermore could ever have seen for himself.”
Some reading
3 Cognitive Biases That Make You Lose Money in the Stock Market (and How To Avoid Them) - #1: Loss aversion, when avoiding risk means losing every time.
Success Is Always About Believing You Can Do It — 5 Tips for Believing in Yourself - #5: You’ve done it once, you can do it again.
Always Greener — Bitcoin Industry Now Uses the Most Renewable Energy in the World at 57.7% - Bitcoin’s progress in energy efficiency and sustainability is excellent.