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If so what to do? Many people profited from the crash but few stand out like Jesse Livermore. Some speculators bought cheap after the crash but a few had the insight and mental fortitude to amass a giant short position as he did. Livermore used 100 different brokers to hide his position. Initially he was down 6 million on paper, but when his "boat finally came in", he was a $100 million dollar richer.
You can read his fictional biography, Reminiscences of a Stock Operator
No: the exact conditions of any previous period will never be the same, even if similar events, like market crashes, do occur.
So, both.
What to do? Whatever your trading method tells you to do, as always.
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I will now be the bad guy, and address the Livermore legend. It's a harmless legend in many ways, but knowing what actually happened is always better.
He did make a lot of money going short during that crash. He eventually lost it all and had little at the time of his death, by suicide, in 1940. He was extremely wealthy at times, and went into bankruptcy three times, the last in 1934.
The Reminiscences book by Edwin Lefèvre is often thought to be his autobiography, but it is not. Lefevre was a real person, not a pseudonym of Livermore, although the book is certainly based on him.
I'm not trying to harm the good feelings that people have about Livermore, nor about the book, which, like probably everyone else who has ever traded, I enjoyed immensely and read more than once.
But trading has its ups and downs. Unfortunately.
This is the lesson I would take, but everyone can take their own.
It is a fact that Livermore went broke three times before reaching the age 30. The amazing thing is that he had the mental strength and toughness to come back.
His psychology is one of the most fascinating case studies of all great speculators. He suffered from severe mood swings and trading actually gave him a solace and meaning. He may have been suffering from a bipolar condition.
The interesting thing about Livermore, if he was depressed he remained fairly “balanced” in his trading activities even when hitting the highs or the lows of spectacular gain and losses.
So my conclusion is that I don’t think it was trading that did him in, but mental illness, aging, and probably women.
Of course, his last loss the biggest that made him an average person of no great wealth from 100 million of 1929 dollars that is the equivalent of billions of today’s currency could be unsettling at least to say.
Livermore set-up trusts for his wife and children in the early 20’s. Trusts that were so tight, that neither he, nor his wife/children, would ever be able to penetrate them.
Observers’ one criticism of Livermore was that Livermore had only studied how to make money - not how to keep money. In other words “He had the greed and the drive for power, and when he got a large amount of money, he could not trade conservatively. He tried to make the market go his way instead of waiting until the market was ready to follow the natural trend”.
Livermore’s success gave him a lifestyle that many could only dream about. The tall, thin blonde speculator bought a 200-foot yacht, the Anita. He dated famous women, including actress Lillian Russell. His trading exploits soon became well known, and people would often comment that someone was “as rich as Jesse Livermore”.
By 1900, aged 23, he had amassed roughly $50,000, from the bucket shops.
On an unknown date soon after Livermore made the mistake of going short the SAME stock. Harriman pool was prepared. Livermore watched a quarter of a million vanish on upticks.
Another 50/50 deal with Lawson to short Great Northern. Made a second killing. .
Had an epiphany that commodities posed less “problems” because prices depended upon supply and demand (rather than synthetic measures). He was a Long 120,000 bale of cotton. First used the power of the press release. In the New York Herald “July Cotton Cornered by Jesse Livermore”. Shorts covered, suckers (his term) rushed in, Livermore unloaded. Hence the new nickname, Cotton King.
Spring of 1908, Desperately trying to stem a dropping price by buying in both New Orleans and Liverpool, found himself long 500,000 bales. Simply put, the Anita Venetian went under the hammer.
December 20, 1916, somehow became alerted to a telegram to Finlay Barrel & Co. in Palm Beach from a Washington reporter named W.W. Price leaking of Wilson warning the warring parties. Figuring there’d be a market collapse, Livermore approached Lawson again. With capital, shorted the “four horsemen” US Steel, American Can, Baldwin, and Anaconda. E.F Hutton made a flash wire to its offices hours before Wilson’s note was publicized. Bids melted away. Livermore bought a half million annuity to throw off $30,000 per annum Also rushed out and bought a speed boat called the ‘sub-catcher” and a $120,000 platinum and emerald ring.
Unloaded his first wife via Reno in October 1917 and the 40 year on December 2, 1918 old married the 18 year old daughter of a wealthy Brooklyn merchant named Wendt. Rented a furnished townhouse at 8 West 76th Street. January 1920, bought a seat on the Curb (today the AMEX). 1919, first son arrives.
1921 had a pool agreement with the Lewisohn Brothers to ramp Seneca Copper. After running from $12 to $25, the brothers cancelled the (then legal) agreement.
Summer of 1922, Livermore was reported to have lost $8.5 million on the short side of Mexican Pete. June 1922, Clarence Saunders, owner of the Piggly Wiggly chain hired Livermore to “kill the bears”. By November, Livermore had amassed 105,000 of 200,000 shares outstanding at an average of $35. March 1923, stock was over $70. Livermore had 198,872 of the float. March 19th, Saunders asked Livermore to spring the trap demanding delivery from short sellers. Livermore reneged. Suander’s somehow succeeded anyway. From an open of 75 ½ skyrockets to $124, and closed the day at $82. Same year ran the Mammoth Oil pool involving Harry Sinclair.
In 1924, Arthur Cutten forced wheat to over $2 per bushel for the first time. Livermore was short and lost a considerable amount.
April 1929, sued for $1,450,000 over the 1926 Boca Raton RE crash.
July 1929 refused to make a court appearance in a $525,000 suit against him by the Carbonite Corp for an alleged breach of agreement.
October 1929, details sketchy but even though Livermore “won” millions on the short side, he lost $6 million in his long positions in the crash.. Arthur Cutten purportedly lost $50 million.
August 16, 1932. He divorced his second wife. March 28, 1933, married his third wife at age 56. May 30, 1933. Security Legislation enacted. Pool operations outlawed.
March 4, 1934, Livermore filed BK. $2,259,212 liabilities/$184,000 assets. Thanksgiving Eve 1935 his divorced second wife shot his first son. Non-fatal. Summer 1937 chartered a yacht (Nina) rather than owning it outright.
Apparently from 1934 to 1940 he was an investment advisor/broker. Apparently to acquire capital for a comeback, he decided to write a book (in two versions) the office that’s frequently mentioned in awe appears to have been a facade to promote the book. The “legendary” market key is patterned after Dow Theory confirmation, but using two companies in each of about 5 leading industries. Not original, basically the opposite of pairs trading.
November 28, 1940, shot himself in the head in the hatcheck room of the Sherry-Netherland hotel after writing an 8-page note to his wife with the recurrent theme “My life has been a failure.”
Since we are on this topic.... I imagine Livermore, how he locked himself on occasion inside a bank vault with his $100 million (billions in today's dollars)... yet, somehow the AMOUNT of that money did not have the desired effect on him. He would still piss it all away, NOT because his method did not work (it still works today), but simply because he got stubborn, because there was too much gambler in him and he couldn't kill that. IMO, HE WANTED TO LOSE... he wanted the sick feeling of TOTAL LOSS, which was greater than winning, no matter how much. So he lost everything again and again, and finally made himself lose his life too. THEN he really felt what he wanted to feel.
You are never in the wrong place... but sometimes you are in the right place looking at things in the wrong way.
He could not help himself. There is a school of thought that he was autistic Bipolar. Had he been living today's, on medication his life might have turned out different.
There was a large trader near New York who was bipolar and he was so rich that he had a helicopter fly him to his office. While he was on his meds he was ok and winning. When on manic phase unmedicated a bipolar aflicted person can do risky, irrational and impulsive things. I know this because I suffer from cyclothimia a milder mood disorder akin to Bipolar.
Lately, I've been following Linda Raschke's material and I have to say I wholeheartedly agree with her thoughts, "what can go wrong will" - in market crash situation if it happens my main concern will be to preserve the assets. I have already liquidated MF and self-maintained portfolio to invest in stable assets which can earn stable returns, for gambling purposes I just buy far OTM months puts. If and when things go south, I might not make a killing but I'll come out far better than most who lost everything in trying to make a killing.
1929 was repeated in 1989 in the Nikkei and it's still ongoing (I guess for another 20 years).
During the many years long descent of the Nikkei from 39000 to the 7000 handle a lot of big players made money shorting vol on Nikkei Options. There was a tremendous amount of vol in the market for a long time. So it was a tremendous opportunity for a long time for any player on a position to sell the big Nikkei contract.
In a sense we may be in the same position today, with the possibility of a persistent vol regime in a much higher zone than would be normal (23+) for an extended time, possibly years. Plenty of opportunity there.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
this is not 1929. the federal government supports the economy and the markets by all means necessary. the way that ends is the dolor is worth less and less over time. a new car will cost 400,000. we all get poorer over time .
