Jesse Livermore- Boy Plunger Read online

  The Myrtle Press

  London

  TOM RUBYTHON

  FOREWORD BY PAUL TUDOR JONES

  also by Tom Rubython

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  First published in the USA and Canada in 2015

  by The Myrtle Press

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  © Tom Rubython 2014

  All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by another means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the owners and the above publisher.

  Library of Congress Cataloguing-in-Publication Data

  ISBN: 978 - 0 - 9906199 - 1 - 8

  eISBN: 978 - 0 - 9570605 - 6 - 2

  Mobi ISBN: 978 - 0 - 9570605 - 8 - 6

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  Contents

  ACKNOWLEDGEMENTS

  Tom Rubython

  PREFACE

  Tom Rubython

  FOREWORD

  Paul Tudor Jones

  PROLOGUE

  Jesse Livermore

  CHAPTER 1: Death by His Own Hand

  The final meltdown

  CHAPTER 2: The Story Begins

  An unpromising childhood

  CHAPTER 3: The First Trade

  Paine Webber in Boston

  CHAPTER 4: Bucket Shop Heaven

  Makes first fortune

  CHAPTER 5: The Bucket Shop Phenomenon

  Gambling on shares transfixes America

  CHAPTER 6: Marriage and Move to New York

  The boy becomes a man

  CHAPTER 7: Down and Out

  Back to the bucket shops

  CHAPTER 8: Do or Die: Back to Wall Street

  A re-learning process

  CHAPTER 9: San Francisco Earthquake

  $250,000 profit in a few days

  CHAPTER 10: A Period of Self Analysis

  Fundamental change in outlook

  CHAPTER 11: Prelude to a Profit

  A bearish state of mind

  CHAPTER 12: Stock Market Meltdown

  Credit crisis threatens America

  CHAPTER 13: Enter Morgan

  Livermore makes $1 million in a day

  CHAPTER 14: The Corn Trade Experiment

  First serious trades in commodities

  CHAPTER 15: The Life of Riley

  Buys yacht - luxury lifestyle begins

  CHAPTER 16: Newspaper Notoriety

  Lady Luck rescues ‘Cotton King’

  CHAPTER 17: Under the Influence: Cotton Fiasco

  Seduced by Teddy Price

  CHAPTER 18: Ultimate Betrayal

  The treachery of Teddy Price

  CHAPTER 19: Six Lean Years

  Going slowly nowhere - The lost period

  CHAPTER 20: Official Bankruptcy

  The ultimate humiliation

  CHAPTER 21: Dramatic Return to Form

  Makes $5 million, pays off debts

  CHAPTER 22: War and a Coffee Scam

  Roasters outwit Livermore

  CHAPTER 23: The Great Escape

  Margin and short selling under threat

  CHAPTER 24: Divorce, Marriage, Family

  Dottie steals his heart

  CHAPTER 25: The Effortless Millions

  Deals galore as he makes $15 million

  CHAPTER 26: Respectability is Bought

  Great Neck house purchase

  CHAPTER 27: The Piggly Wiggly Affair

  Another day, another controversy

  CHAPTER 28: Legendary Status is Conferred

  Publication of fictional biography

  CHAPTER 29: Big Offices, Big Staff & Big Money

  Move into the big time of Wall Street

  CHAPTER 30: Ups and Downs

  Battle for supremacy with Arthur Cutten

  CHAPTER 31: Manipulating a Profit

  A fortune from Freeport Texas

  CHAPTER 32: Good Times at Great Neck

  The halcyon years

  CHAPTER 33: Shenanigans at Great Neck

  The bad times start

  CHAPTER 34: Prelude to a National Disaster

  America binges on shares

  CHAPTER 35: Seven Incredible Days

  Livermore makes $100 million in a week

  CHAPTER 36: Personal Disaster

  Home life falls apart

  CHAPTER 37: Official Bankruptcy No.2

  $100 million seemingly disappears

  CHAPTER 38: Personal Tragedy

  Ex-wife shoots eldest son

  CHAPTER 39: Partial Recovery

  The good times are over

  CHAPTER 40: Reflections in a Book

  Understanding the good times

  CHAPTER 41: Reflections on a Life

  Jesse Livermore’s final reckoning

  CHAPTER 42: Postscript

  Chaos is left behind

  Principal Bibliography

  Timeline

  Index

  “Livermore is the best man on the

  stock market tape the speculative

  world has ever known”

  Jack Morgan

  October 1929

  Acknowledgements

  Boy Plunger has been in the works for more than 18 years, ever since I first learned of the existence of Jesse Livermore. But, before attempting it, it was necessary to wait patiently until Livermore’s fictional biography Reminiscences of a Stock Operator came out of copyright at the end of 2013. Reminiscences is a remarkable book by a remarkable journalist, Edwin Lefèvre. And in 2010 it was made even more remarkable by Jon Markman with an annotated edition that sought to explain the background to Livermore’s stories, something Markman did remarkably well – thanks Jon.

  The aim of this biography was simply to recreate an accurate account of the life of Jesse Livermore. Now a confession – it’s only about 90 per cent accurate. It’s best to be honest and, when recreating events that are 130 years old, that is about the most that can be expected of any biographer. I have done my best to check and recheck the truth of events that happened so long ago but people remember things in many different ways and, more often than not, people misremember. And these misrememberances, once committed to print, can be repeated many, many times.

  There is no great army of people behind this book, just a small bunch of talented professionals, most of whom I have worked with for many more years than I care to remember.

>   I have to thank David Peett for the inspiration. We are both disciples of Livermore. David is a man who spends his life poring over statistics in the British Library in London and trying to predict the rises and falls of the stock market: something he does remarkably accurately but, as he will only too readily admit, that is only just a small part of the game of being a consistently successful investor.

  Ania Grzesik is responsible for the design and the layout of this book. Laying out and being in charge of a book’s production is a particular challenge. So many books are simply thrown together any-old-how, and I hope you will agree that this is not one of them.

  And thanks to Kiran Toor who has sub edited most of my books. That is also not always an easy task, and Kiran copes better than most. Also to Jez Douglas for lovingly tending to the old black and white photographs that appear in and enhance this book.

  Paul Tudor Jones, a man who really understands money – how to make it and what to usefully do with it when it has been made – generously agreed to write the foreword. Nobody is better qualified to do so.

  An author needs a researcher and a typist to collate it all, and Erin Hynes fulfilled that task admirably. And for the final manuscript reading, I thank Ian and Rose Gibbins, Ian Dexter, Ed Maxwell and Christopher Rubython.

  And someone has to sell the book and organize the inevitable book tour, which this time takes me to London, Edinburgh and Manchester, New York, San Francisco and Chicago. Thanks to Mary Hynes for that. Also to our printers at CPI, Ian Booth and Justin Manley, who as always have coped with endless page changes even when the presses were primed and ready to roll.

  I regard photographs as very important to my books. Photography was nowhere near as sophisticated and developed a process as it is now and obtaining the right photos was incredibly difficult. So my thanks to Nigel Oxley at Corbis, Lucy Kelly at Getty Images and Laura Wagg at Associated Press for delving into the past to find what we wanted. Zach Dixon at the Baltimore Sun was also very helpful in telling us where to go.

  My ability in being able to write so knowledgeably about Jesse Livermore’s extensive nautical adventures was all down to Louisa Watrous at Mystic Seaport, Connecticut’s nautical museum. She scoured the museum’s archives to get me what I wanted, including the superb photograph of the Athero II.

  Oh and commiserations to my lawyer, Marvin Simons. As all the characters in this book had departed, the libel reading and subsequent advice and changes usually demanded were not necessary and neither was his invoice.

  Thanks also to Eddie Broughton, my accountant of 29 years, who made it possible for me to take eight months away from earning a proper living and kept me on the financial straight and narrow.

  I would also like to thank the New York Times for allowing me full access to its digital library. Of all the newspapers in the world, the NYT has made the best job of digitizing its back catalogue and making it easy for someone like me to access it.

  And finally thanks to my wife, Beverley, who thinks that what I do is so effortlessly easy that it is not real work at all. In truth, she may have a point although it doesn’t feel like that at the time – only afterwards.

  There are also numerous others who play much smaller parts, but I am grateful for all your efforts on this book and thank you all.

  Having said all that, as always, the words that follow and any errors or omissions are naturally my responsibility alone.

  Preface

  The chaos within him

  By Tom Rubython

  Jesse Livermore was always well aware of his own limitations, which the writer Eddy Elfenbein later described as the “chaos within him”. The same writer also said the whole of Livermore’s life was spent chasing a dream, “the great, illusory dream of gamblers everywhere: to impose form and coherence on chance itself.” No one would probably argue against that definition of a man whose career nickname was ‘Boy Plunger’.

  He took steps early in his business life to safeguard himself against himself. He invested $900,000 in annuities for his wife and children, save he was not able to provide for them himself. He confessed, perhaps foretelling events to come, that “I knew a trading man would spend anything he can lay his hands on. By doing what I did, my wife and child are safe from me.” The only condition of the annuity was that he himself could never touch it or its content. Remarkable as that is, it is true.

  But his life was never defined by his personal affairs. The life of Jesse Livermore was defined by his business life. If ever there was a stock market god, then Jesse Livermore was it. 85 years after his principal success, shorting shares and possibly even causing the 1929 crash, briefly becoming one of the top ten richest people in the world, he is still spoken of in revered terms. The 1929 crash has come to define him more than anything else and has overshadowed the other remarkable achievements of his life, which have defined four generations of investors since.

  Modern day stock market operators name him as the man from whom they have learned most. Many hedge fund bosses hand out copies of his fictionalized biography Reminiscences of a Stock Operator, a book published 90 years ago, to every new employee. The rules of the game according to Jesse Livermore make Reminiscences the must-read book for people who work in the hedge fund business. It is as relevant to successful share trading now as it was then.

  One of Jesse Livermore’s most famous quotations is: “There is only one side to the stock market; and it’s not the bull side or the bear side, but the right side.” It really doesn’t get much simpler than that, but Livermore often repeated that it took him longer and cost him more money to learn that truism than any other lesson in life. He was adamant that until that general principle became stuck in a traders’ mind, consistent moneymaking would be all but impossible. And it took him a long time, as he put it, to “get it lodged in his head.” But Livermore found out early on that it took a long time for him to learn all the lessons of all his mistakes.

  It was those basic principles that governed his trading and ultimately made him a legend. Livermore’s key strength was his ability to learn from losses and turn that learning into successful trading. He often said: “My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance, I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision. All my life I have made mistakes, but in losing money I have gained experience and accumulated a lot of valuable don’ts. I have been flat broke several times, but my loss has never been a total loss. Otherwise, I wouldn’t be here now. I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself.”

  Indeed, he did believe in himself and that belief stood him in good stead until 1932 when he lost his mojo and never recovered it. Sad to say, the last ten per cent of his life was not a happy time and it is clear from his suicide note that, in the end, Jesse Livermore considered that his extraordinary life had been a failure. The inability to hold on to his wives or to the respect of his children or his money had finally driven him to his death by his own hand.

  In the end, he lost sight of his own identity and didn’t know whether he was a highly talented stock speculator or just a lucky gambler who happened to be in the right place at the right time.

  That brutally honest self-analysis haunted him in his final years and ultimately would define his legacy.

  Tom Rubython

  Bere Regis,

  Dorset, England

  September 30th 2014

  Foreword

  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 lo
ng 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.