Jesse Livermore - Boy Plunger: The Man Who Sold America Short in 1929

Jesse Livermore - Boy Plunger: The Man Who Sold America Short in 1929



The Pequod Review:

Jesse Livermore - Boy Plunger is not merely a superb biography of the great 1920s-1930s Wall Street trader; it is one of the finest books (ever) about trading in general. Tom Rubython recounts Livermore's life and career in intelligent and even gripping detail, culminating in his famous short trade that netted him $100 million in profits in October 1929. The best parts of the book describe Livermore's growing understanding of markets and of his own strengths and weaknesses as a trader. Here for example is an excerpt on Livermore's early career in bucket shops:

Livermore believed his lack of real success was an inability to grasp that fundamental difference between a gambler and a speculator. He realized he was still in the bucket shop mind-set and was a million miles away from the techniques of men like Sage. Eventually, after a couple of years, Livermore did believe he had worked out the changes he needed to make in his trading style and to define whether he was a speculator or a gambler.

In his own mind, he defined that the gambling instinct was what he called “betting on fluctuations” and genuine speculating was “anticipating advances and declines”. It had taken him over ten years to work out that relatively simple lesson of life. But it made a huge difference to him from that point on. Now he just needed to put it into practice, and that would take time as well. He was mightily relieved and vowed he would never forget what he had learned and become a gambler again: “Before I can solve a problem, I found I must state it to myself. When I think I have found the solution, I must prove I am right. I know of only one way to prove it and that is with my own money.”

He was continually looking for an edge, a break in the upward trend where he could go short, then long, and make a killing. He constantly researched the burgeoning railways sector and read all the trade reports he could find. His chance came again with the big railway stocks. By then, he had $ 10,000 capital, which he could leverage up to $ 50,000, and maybe double that with the permission of the house. He saw a break and then reversed himself and made $ 50,000 profit in less than a week. But then he managed to lose almost exactly the same amount when he tried something similar. This continued for many months as he gradually accumulated capital, but it was an agonisingly slow process.

It made him hungry for more. He knew that the market never went up in a straight line but in steps. So he waited for a short-term reversal and then the rally he was sure would come.

This style of trading continued throughout the boom, and sometimes he won and sometimes he lost. He literally trod water in New York for four years, holidaying and enjoying himself as much as he worked whilst he tried to establish that elusive trading technique by which he could consistently make money.

Livermore never dreamed it would take as long as four years, but it did. As he ruminated to Edwin Lefevre: “Slow as my progress seems now, I suppose I learned as fast as I could, considering that I was making money on balance.” He was also, by his own admission, over cautious and too anxious. He admitted being obsessed with “curbing his youthful impetuousness.”

But a bull market was raging and impetuousness in those conditions was a real asset. However, he ruefully conceded: “I made my mind up to be wise and play carefully and conservatively. Everyone knew that the way to do it was to take profits and buy back your stocks on reactions. And this is precisely what I did, or rather what I tried to do. I often took profits and waited for a reaction that never came. As I saw my stock go kiting up ten points or more, I was sitting there with my four-point profit safe in my conservative pocket. They say you never go poor taking profits but neither do you grow rich taking a four-point profit in a bull market. When I should have made $ 20,000 I made $ 2,000, and that is what my conservatism did for me.”

Livermore cursed himself when that happened and rued the days when he frequently cashed out of winning positions prematurely in a bull market because he was determined not to lose his roll. As he told Lefevre 10 years afterwards: “It was never my thinking that made big money for me; it was always my sitting. Got that? My sitting tight. It is no trick at all to be right on the market. Men who can be both right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has grasped this, can he make big money..."

Livermore was brutally honest about his out-of-character behavior for four years between 1902 and 1906, when it seemed he continually sold out long before a market move was finished. He broke all his own rules continually in the name of conservatism. He admitted that he was drifting and the lack of success or failure lulled his senses: “If I had lost oftener perhaps it might have spurred me to more continuous study. Studying my winning ways I discovered that, although I was often 100 per cent right on the market, that is, my diagnosis of conditions and general trend, I was not making as much money as my market “rightness” entitled me to. Why wasn’t I?”

The question gnawed at his mind for close on four years. 

Jesse Livermore was loosely profiled in the classic 1923 book Reminiscences of a Stock Operator, but Boy Plunger is superior in most ways. It is one of the great books about the psychological mindset of trading — the emotions, the instincts, the impulsiveness, and ultimately the self-destructiveness common to top performers in the field. Highly recommended.