Jesse Livermore made $100 million in 1929. By 1934 he had lost it all

By | March 16, 2015

How could an experienced trader lose his entire fortune?

Why didn’t Jesse Livermore follow his own trading rules? – rules that should quickly have closed his losing positions.

In 1917, with great foresight, Jesse Livermore had bought $800,000 worth of annuities. His objective was to ensure his family had an income in case he lost everything in the markets. He knew from experience how strongly the market could pull on every last cent a trader had.

He said:

“The reason I did this was not alone the fear that the stock market might take it away from me, but because I knew that a man will spend anything he can lay his hands on. By doing what I did my wife and child are safe from me.

“More than one man I know has done the same thing, but has coaxed his wife to sign off when he needed the money, and he has lost it. But I have fixed it up so that no matter what I want or what my wife wants… it is absolutely safe from all attacks by either of us; safe from my market needs; safe even from a devoted wife’s love. I’m taking no chances!”

So how could Livermore, who had explained the importance of his trading rules at length in Reminiscences Of A Stock Operator, fall into the trap that he had taken such pains to avoid – and taken such pains to protect his family from?

The answer is likely to be found in his mental state. Jesse Livermore was prone to depression.

Winston Churchill was one of the world’s most famous depressives – he called it the black dog. When people suffer a serious bout of depression they can become completely disinterested in their normal lives and feel incredibly fatigued. Their energy is sapped and often they just want to sleep. They can behave in ways they would normally describe as abnormal.

It may have been Jesse Livermore’s misfortune to enter highly leveraged trades just prior to suffering a debilitating black dog. The trades could have turned sour while Livermore’s mind was elsewhere. Livermore was notorious as a loner. The losing trades could not be closed except with his authority, yet he was not in a fit state to give that authority – or perhaps in his depressed mental state he did not care that he was losing money – perhaps he even welcomed it.

It’s hard to believe the Jesse Livermore portrayed in Reminiscences Of A Stock Operator, would have permitted himself to betray his own trading principles to the extent that he would lose $100 million. It seems plausible that the man who lost the money was an alter ego – a Mr. Hyde who tore apart the achievements of Livermore’s more usual Dr. Jekyll persona. Six years later, Jesse’s Mr. Hyde won the final battle. Jesse, suffering another deep depression, took his own life.

5 thoughts on “Jesse Livermore made $100 million in 1929. By 1934 he had lost it all

  1. Vinod Kulkarni

    Sir,
    I think the problem mentioned is very common.What possibly happens is after making gains you feel that I can do it any time.So why not experiment and do something different than disciplined trading.You let yourself go,and feel that you can control market.Once you run into loss you are too shocked to do anything about it.You let the losses run and say how can this happen to me.Ultimately when bigger losses occur you take a relief that “Oh!
    it could have been worse.I have lost partly from gain and feel happy that still have some capital to do trading next day.
    I think one way of avoiding this problem is applying strict stop loss.
    Thanks,
    Vinod

  2. Karam Veer

    There is no avoiding of ‘black dog’ but to understand and live with it, and Brahmesh people suffering with depression sees no point getting out of bed, loss of willpower is characteristic feature ,there is very less or no sleep at all, pain is so much unbearable that suicide seems a easy way out despite of pain and hurt suicide cause. Understanding depression can benefit yourself and may enable to help other dear and loved ones.

  3. vijay

    The best article for all those who have lost heavily in the continuous loosing trades

  4. Rajiv Jamwal

    This is Ghar Ghar ki Kahani.Infact I also tend to dip into slights bouts of depression when i get a sudden loss putting me in a state of immobility. I feel like penalizing myself for the silly decision taken and not learning from similar mistakes made already. But with time and experience, I am exercising better control on my emotions and trading. Future bright He

  5. Suraj

    Sir,
    How do we avoid this ‘black dog’?
    I also have sometimes ‘welcomed’ large losses after making some handsome gains.

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