The great Jesse Livermore is widely considered to have been one of the greatest traders to have ever lived.
Born in 1877 and known as the “Boy Plunger” after diving into trading in his early teens, his turbulent life meant that his significant losses became just as famous as his ability to bounce back to success, time and time again.
Although Livermore published his own book ‘How To Trade In Stocks’ which contains many of his pearls of trading wisdom, the more entertaining story of his life and times is contained in the book ‘Reminiscences of a Stock Operator’ by Edwin Lefevre. Livermore’s life was unofficially documented in this book, which focused on the philosophy and trading techniques of a stock trader by the name of “Larry Livingstone”, which left nobody in doubt as to who it was really about.
The book became an instant hit, and remains a go-to trading bible for many today. No doubt inspired by its success, Livermore himself released his own book 17 years later, How to Trade In Stocks and noted his 21 Rules of Trading; the foundations on which he had built a success that in today’s money would have been worth over a billion dollars.
And, given his famous quote below, it would appear that there is never a bad time to read over his 21 rules, which we present below…
There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure. – Jesse Livermore
Jesse Livermore’s 21 Trading Rules
- Nothing new ever occurs in the business of speculating or investing in securities and commodities.
- Money cannot consistently be made trading every day or every week during the year.
- Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion.
- Markets are never wrong – opinions often are.
- The real money made in speculating has been in commitments showing in profit right from the start.
- As long as a stock is acting right, and the market is right, do not be in a hurry to take profits.
- One should never permit speculative ventures to run into investments.
- The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.
- Never buy a stock because it has had a big decline from its previous high.
- Never sell a stock because it seems high-priced.
- I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction.
- Never average losses.
- The human side of every person is the greatest enemy of the average investor or speculator.
- Wishful thinking must be banished.
- Big movements take time to develop.
- It is not good to be too curious about all the reasons behind price movements.
- It is much easier to watch a few than many.
- If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole.
- The leaders of today may not be the leaders of two years from now.
- Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend.
- Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.
Livermore made (and lost) several huge fortunes in his lifetime, and he got started in trading by speculating in the bucketshops of early 1900s America, these bucketshops being the closest thing to spread betting that existed at the time. In a nutshell, these were pseudo-brokerages where you could place bets on the directions of stock prices rather than taking share ownership in the stocks themselves. Sounds familiar, doesn’t it?
When he was doing well, Jesse Livermore liked to trade big and live big, which may have contributed to his ultimate financial ruin… and eventual sad suicide. He was aware of his mistakes — which he documented — and arguably it was his psychology and mental state rather than his trading prowess that let him down.
Livermore was the source of much of the age-old and time tested financial wisdom that you often hear quoted. Here are some of his pearls of wisdom with my commentary:
Livermore was the source of much of the age-old and time tested financial wisdom that you often hear quoted. Here are some of his pearls of wisdom with my commentary:
- “My plan of trading was sound enough and won oftener than it lost…What beat me was not having brains enough to stick to my own game…” Maybe I should also have stuck to my own game rather than breaking one of my rules.
- “The desire for constant action… is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day…”
- “It took me five years to learn to play the game intelligently enough to make big money when I was right.” and “The game taught me the game. And it didn’t spare the rod while teaching.” both illustrate the importance of spending real money (and time) at the trading school of hard knocks rather than assuming expert status after reading just one book.
- “Everything happened as I had foreseen. I was dead right and – I lost every cent I had!” illustrated — long before Nassim Nicholas Taleb coined the phrase “Black Swan” — that an adverse event can occur at any time.
- “If I hadn’t made money some of the time I might have acquired market wisdom quicker.” and “There is nothing like losing all you have in the world for teaching you what not to do.” both illustrate the importance of learning from our mistakes, and the danger inherent in experiencing beginner’s luck.
- “Disregarding the big swing and trying to jump in and out was fatal to me. In a bull market your game is to buy and hold until you believe that the bull market is near its end.” This is one of the best all-round pieces of advice; but of course only applicable when a definite bull market is in progress.
