Jesse Livermore: The Wolf of Wall Street

Who is “The Boy Plunger”? Who is “The Wolf of Wall Street”? Who is “The Great Bear of Wall Street”? He is Jesse Livermore. Jesse was perhaps the best stock trader who ever lived. He was a legend of Wall Street. When he was alive, he was as famous as Warren Buffett is today, and they have completely different trading techniques.

Jesse Livermore was born on 26 July 1877, in Shrewsbury, Massachusetts. His parents were New England farmers trying to scratch out a living from the rock-strewn fields. As a youth, Livermore was slight and sickly, which resulted in a lot of reading and solitude. He was a boy with a quick mind and good imagination, as well as a natural aptitude of numbers. At school, Livermore did three years of arithmetic in one and he was particularly good at mental arithmetic.

Livermore went to work when he was just out of grammar school. He got a job as quotation-board boy in a stock-brokerage office. As quotation-board boy, he posted the numbers on the big board in the customers’ room. One of the customers usually sat by the ticker and called out the prices. Those quotations did not represent prices of stocks to Jesse. They were numbers and of course they meant something. They were always changing. Livermore was only interested in the changes. Why did they change? He didn’t know and no one else did. He didn’t care as well. They were always changing.

That is how Livermore first came to be interested in the behavior of prices. Because he had a very memory for figures, he could remember in detail how the prices had acted on the previous day, just before they went up or down. Soon he began to see recurring patterns and cycling trends. Livermore kept a notebook, and during his breaks he would copy down these numbers to see if he could recognize the patterns.

Jesse was also sensitive to the crowd. As the numbers changed and as the stocks moved up and down, so too did the mood of the crowd. If they saw a stock’s volume increase, and the excitement level increased. He could nearly feel their heartbeats accelerate. He saw their eyes light up as their trades increased. Jesse soon figured out that as they saw opportunities to make money their personalities changed. All of a sudden, there was an excitement in the air as the price climbed. But this excitement died as the stock price rolled over and fell; the crowd became quiet, often sullen, and sometimes despondent. As a trader, it is easy to understand these emotions as greed and fear. Livermore was eventually able to define these two dominant emotions that, he understood, drove market action. He also notice how the traders all talked among themselves, buoying their confidence, reassuring themselves; and he noticed how often they were wrong.

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