Afternoon…
Would agree with various comments already made, Livermore clearly had a massive talent for trading stocks and more importantly, the early detection of changes in the overall trend of the market. I think that this ability to detect Changes In Trend (CIT) is one of the most overlooked subjects when people discuss Livermore. Livermore, on several occasions, made vast amounts of money from what was essentially a ‘grub stake’ which I’m lead to believe was the equivalent of about £15,000 - £20,000 in today’s terms. This, on more than one occasion, he multiplied about 2000 fold. I find also that people often suggest that Livermore wouldn’t survive in today’s markets – this is of course a very subjective opinion and no one can know the answer. The basic premise for such comments are generally based on the reasoning that markets are in some way different from the markets of the late 1800’s thru to the early 1900’s. I personally think that this is not the case. I’ve read several books on Livermore as, I don’t mind admitting, I’m fascinated by the character. Livermore’s basic theories centred around his belief that the markets continually cycled. Of course each cycle was slightly different and the cycles moved through at different speeds but Livermore’s single biggest talent, in my opinion, was that he could always detect where the market was in its cycle. If people think that markets have changed that much then I’d invite them to review the recent (ie the last 7 or 8) years in the stock market. The same gains would still be perfectly achievable provided of course that you could pick the highs and lows in the cycle. Of course, when you read a book about someone’s entire professional life, it becomes a blur. It is difficult to put an immediate timescale to what is being discussed and therefore an illusion can be created about what is going on. Of course we know, because charts of the markets from Livermore’s time exist, that there were long periods of flat / sideways / boring (fill in the blank) markets to contend with. Generally Livermore was not interested in trading such conditions and would simply spend day after day in his dealing room monitoring the ticker and the price boards. This must have taken an extreme amount of patience? Can you imagine just going to work day after day and never placing a trade? Of course what he was looking for were the signs that cycles were moving forward and evolving into the next phase, a phase perhaps where the real money could be made. People have mentioned the books that have been written ala “How to Trade Like Jessie L Livermore” etc – The fact is that the people who write this stuff miss the whole point. This is why people who read these books always end up disappointed. In my opinion you are far better off reading about the man himself rather than trying to pick your way through a book which is written by someone who could never ‘think outside the box’ like Livermore could. They’ll all tell you what an amazing trend rider the man was and how he was brilliant at scaling into positions on the big moves but the fact is that it was the man’s ability to pick the major tops and bottoms which really gave him the edge to get into the big moves early.
Other points often missed are the facts surrounding Livermore’s ‘wipe outs’. My understanding is that quite a sum of money was lost in external ventures with other business men – he was basically ripped off. Livermore also recognised the fact that a certain amount of money had to be ‘taken off the table’ and he did in fact do this at various times. He used the money to set up various trust funds for people in his family. He also bought a rather exclusive residence and other expensive niceties such as boats and cars. The truth is that Livermore and his family could have lived quite comfortably on what they had – The fact is that Livermore put his assets out of the way of potential creditors when he declared himself bankrupt on several occasions. That’s probably the one thing that the man couldn’t get away with if he lived in present times, he would be forced to liquidate key assets. As it was Livermore always seemed on good terms with his creditors and for the most part insured that money was returned during the good times. There was also a situation where Livermore was personally asked, by J P Morgan no less, not to further short a market which was in panic. Livermore was actually in a very strong position at that time and could of, if his wish desired, pressed the market and made considerably more than the $6m that that particular series of short positions made.
The title of the thread was ‘Can you trade like Jesse Livermore?”. I don’t think that anyone can answer that with a ‘yes’ such is the reputation of the man. If you however asked, is it possible to emulate similar success but on a lesser scale then I would say that is certainly possible for people to achieve. What you have to bear in mind though is a point I made earlier – Livermore’s life and subsequent trading successes were spread out over many years and therefore it is likely that an individual trying to emulate that success today would also have to do it over a considerable period of time. It is also possible of course that Livermore’s education, as a chalk-board boy, was unique to that era – by doing that job Livermore was able to earn a living whilst also exposing himself to almost every ‘tick’ of the market. There is no such job available today, the only way to expose yourself to such data is to sit in front of the computer and watch it, for that you will not earn a living. Of course, Livermore’s presence inside a dealing room would also have exposed him to some aspects of psychology (amongst the speculators) which can not be observed in today’s electronic market places except perhaps though the observation of volumes.
The guy really was an Ace in my eyes.
Steve.
