Understanding Stocks

128 UNDERSTANDING STOCKS
Biography of Jesse Livermore
One of the best known and most successful traders was Jesse Livermore.
While still a teenager, he quit school to become a “board
boy” for a stock brokerage firm. (Before computers were
invented, board boys updated stock and bond prices on a large
chalkboard.)
The story of Jesse Livermore’s life and the lessons he
learned about trading can be found in his book, Reminiscences
of a Stock Operator, originally published in 1923. Although
the author is given as Edwin Lefevre, many believe that Livermore
wrote the book himself. It is still one of the most popular
and valuable books ever written on speculating in the stock
market.
Livermore spent much of his time trading in “bucket shops.”
(Bucket shops are unlicensed brokerages; they have been described
as “gambling dens.”) He was so successful at trading
stocks that he was banned from most bucket shops. He was
forced to wear disguises and use fake names in order to trade.
Nevertheless, this gave him the opportunity to watch how other
traders manipulated the markets. After closely studying the markets,
he created a successful rule-based trading system. As he
became wealthier, Livermore made most of his trades from an
elaborate secret office that was connected by telephone to the
New York Stock Exchange.
Much of the money that Livermore made came from shorting
stocks (he was famously bearish). He made a lot of enemies
on his roller-coaster ride, and he was often opposed by some of
the country’s most influential financial leaders. Keep in mind
that many of the tactics that Livermore used are now illegal,
including manipulating stocks by using inside information and
arranging with reporters to have incorrect information published.
(One of his tricks was to wait until he had made a profit on a
stock, then reveal to an influential reporter that a particular stock
was a great buy. When the stock went higher, he immediately
unloaded his position.)