What did Jesse Livermore do wrong to blow up a few times in his trading career?
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The legacy of Jesse Livermore By Paul Tudor Jones
Jesse Livermore was a larger-than-life, full-blooded character who happened to embody every great trading maxim of the time. As Livermore frequently said: “There is nothing new under the sun in the art of speculation” and that maxim applies as much to the markets of today as it did then. And my guess is that it will hold true for time eternal as long as man’s basic emotions – fear, greed, happiness, sorrow, elation, dejection, excitement and apathy – remain intact.
The best lessons I learned from Jesse Livermore were his repeated failures and how he dealt with them. He lost his entire fortune four or five times, and I did the same thing although I was fortunate enough to do it all in my twenties on very small stakes of capital. I lost $10,000 when I was 22 and $50,000 when I was 25. At the time, it was all I had to my name and it felt like a fortune.
It was then that my father flew up from Memphis and sat me down in my tiny New York apartment and began lecturing me as lawyers do: “Leave the gambling den behind. Come home and get a real job in a safe profession like real estate.” Of course I did not, and the rest is history. And real estate in the past six years has been about as safe as shooting craps to pay the rent, so I was twice blessed. If I’d taken my father’s advice, I might have lost all my money again these past few years in my fifties.
I think it’s no coincidence that our greatest champions, our greatest artists, our greatest leaders, our greatest everything all seem to have experienced some kind of gut-wrenching loss. I think their greatness, in part, was fashioned on the crucible of defeat.
Two years before Abraham Lincoln was elected, as perhaps our finest ever president, he lost that monumental senate race to Stephen Douglas. To a certain extent, I think that holds true in my field as well. I am leery of traders who have never lost it all. I think that intense feeling of desperation that accompanies such a horrifically deflating experience indelibly cauterizes great risk management reflexes into a trader’s very being.
There are two unpleasant experiences that every trader will face in his lifetime at least once and, most likely, multiple times. First, there will come a day after a devastatingly brutal and agonizingly long stretch of losing trades and you’ll wonder if you will ever make a winning trade again. And second, there will come a point you begin to ask yourself why it is you make money, and if this is truly sustainable. The first experience tests an individual’s grit; does he have the stamina, courage, guts and smarts to get up and engage the battle again? The second moment of enlightenment is the one that it is actually scarier because it acknowledges a certain lack of control over anything. I think I was 38 years old when, one day, in a moment of frightening enlightenment in 1993, I knew that I really did not know exactly how and why I had made all the money that I had over the prior 17 years. That threw my confidence for a jolt. It sent me down on to a path of self-discovery that even today is a work in progress.
Many of us are blind to key psychological elements of ourselves; that’s why people go to therapists or get outside help for any number of problems. That was what happened to me in 1993. Then, a combination of people helped me discover that my trading style had incorporated some inimitable traits, completely unbeknownst to me. These bad habits were responsible for the worst year of my career, and the only one that came close to being negative for my trading accounts.
It’s easier for someone on the outside to understand why people do what they do than it is for people to figure it out for themselves. Individually, each of us probably thinks we are just about perfect, which of course is why marriage was invented – to kill off that delusion.
The point is that it is in many ways easier for readers of this book and Edwin Lefevre, the author of Livermore’s fictional biography, to figure out the psychology of Jesse Livermore’s trading than it was for Jesse himself. It’s not so easy to see yourself, and it’s even harder to clearly describe what you might see in yourself. From reading this and Lefevre’s book, we can probably see more of what was unique about Livermore than Livermore could ever have seen for himself.
Paul Tudor Jones Connecticut
Jesse Livermore was a larger-than-life, full-blooded character who happened to embody every great trading maxim of the time. As Livermore frequently said: “There is nothing new under the sun in the art of speculation” and that maxim applies as much to the markets of today as it did then. And my guess is that it will hold true for time eternal as long as man’s basic emotions – fear, greed, happiness, sorrow, elation, dejection, excitement and apathy – remain intact.
The best lessons I learned from Jesse Livermore were his repeated failures and how he dealt with them. He lost his entire fortune four or five times, and I did the same thing although I was fortunate enough to do it all in my twenties on very small stakes of capital. I lost $10,000 when I was 22 and $50,000 when I was 25. At the time, it was all I had to my name and it felt like a fortune.
It was then that my father flew up from Memphis and sat me down in my tiny New York apartment and began lecturing me as lawyers do: “Leave the gambling den behind. Come home and get a real job in a safe profession like real estate.” Of course I did not, and the rest is history. And real estate in the past six years has been about as safe as shooting craps to pay the rent, so I was twice blessed. If I’d taken my father’s advice, I might have lost all my money again these past few years in my fifties.
I think it’s no coincidence that our greatest champions, our greatest artists, our greatest leaders, our greatest everything all seem to have experienced some kind of gut-wrenching loss. I think their greatness, in part, was fashioned on the crucible of defeat.
Two years before Abraham Lincoln was elected, as perhaps our finest ever president, he lost that monumental senate race to Stephen Douglas. To a certain extent, I think that holds true in my field as well. I am leery of traders who have never lost it all. I think that intense feeling of desperation that accompanies such a horrifically deflating experience indelibly cauterizes great risk management reflexes into a trader’s very being.
There are two unpleasant experiences that every trader will face in his lifetime at least once and, most likely, multiple times. First, there will come a day after a devastatingly brutal and agonizingly long stretch of losing trades and you’ll wonder if you will ever make a winning trade again. And second, there will come a point you begin to ask yourself why it is you make money, and if this is truly sustainable. The first experience tests an individual’s grit; does he have the stamina, courage, guts and smarts to get up and engage the battle again? The second moment of enlightenment is the one that it is actually scarier because it acknowledges a certain lack of control over anything. I think I was 38 years old when, one day, in a moment of frightening enlightenment in 1993, I knew that I really did not know exactly how and why I had made all the money that I had over the prior 17 years. That threw my confidence for a jolt. It sent me down on to a path of self-discovery that even today is a work in progress.
Many of us are blind to key psychological elements of ourselves; that’s why people go to therapists or get outside help for any number of problems. That was what happened to me in 1993. Then, a combination of people helped me discover that my trading style had incorporated some inimitable traits, completely unbeknownst to me. These bad habits were responsible for the worst year of my career, and the only one that came close to being negative for my trading accounts.
It’s easier for someone on the outside to understand why people do what they do than it is for people to figure it out for themselves. Individually, each of us probably thinks we are just about perfect, which of course is why marriage was invented – to kill off that delusion.
The point is that it is in many ways easier for readers of this book and Edwin Lefevre, the author of Livermore’s fictional biography, to figure out the psychology of Jesse Livermore’s trading than it was for Jesse himself. It’s not so easy to see yourself, and it’s even harder to clearly describe what you might see in yourself. From reading this and Lefevre’s book, we can probably see more of what was unique about Livermore than Livermore could ever have seen for himself.
Paul Tudor Jones Connecticut
But until you can afford to have you wouldn't know how little you need.
Not greed. A gambler cannot stop gambling until he is destitute or life ends.Greed is the problem, make enough money so you can live the rest of your life in what you deem comfort and have fun, retire, if you keep going eventually something will go wrong then you'll have nothing.
I'm 48 average male life expectancy say 78 so 30years, £30K per year so 900K boom retired.
As I get older the amount comes down, hoping I'll make enough ( 15K ) for 6months of the good life right at the end
I understand your point and don't disagree. However, there is also another possible explanation. You often see top performing athletes keep participating past their prime even at the detriment to their health. They are not guided by greed, but by their competitive nature and their identity(ego?).
One lesson to learn is that when a market participant discovers he is emotionally distressed or possibly has mental issues, he'd better steer clear from the markets.
Jesse Livermore probably suffered from mental depression. Since speculation is very much a psychological game, he should have avoided the markets until his mental condition improves. Trading under mental distress will lead to losses after losses which worsens his mental condition and lead to further losses. STOP! That's what he should have done. He ended up committing suicide.
Jesse Livermore probably suffered from mental depression. Since speculation is very much a psychological game, he should have avoided the markets until his mental condition improves. Trading under mental distress will lead to losses after losses which worsens his mental condition and lead to further losses. STOP! That's what he should have done. He ended up committing suicide.
Agree, either way he couldn't help himself. For us, after becoming wealthy, we put enough into safe assets and only play with "house money".
Over confident + over leverage = suicidal trade.
Nice article. Do you have a link to the original source?