I wanted to dig into Livermore’s story ever since I came across him in the episode we did on short sellers — and what a story this is. He became a full-time trader at the age of 16. He built his own system that earned him billions in today’s money. But so many times, he didn’t follow his own system and went broke and bankrupt again and again. This is the guy who shorted the 1929 crash and made over $2 billion from it. It’s a fascinating story — enjoy.

Jesse Livermore was born in 1877 in Massachusetts. Poor family. Stern father. Long days of farm work. By the time he was three, he could already read and write. At fourteen, his father pulled him out of school to work the farm, but Jesse Livermore wasn’t made for the fields. A year later, with his mother’s blessing, he moved to Boston with five dollars in his pocket, and he found a job as a “board boy” at Paine Webber’s Boston office.

For five dollars a week, he chalked stock quotes on the board as they came in from the ticker tape. Now, the ticker tape was the earliest electrical device dedicated to financial communications. It transmitted stock price information over telegraph lines and was in use from around 1870 to 1970. Livermore studied the tape and noticed familiar sequences. He could recall how a stock’s price movement one day foreshadowed its move the next. As he said: “A battle goes on in the stock market and the tape is your telescope.” Day after day, he started obsessively tracking these “habits” of stocks. He kept detailed notes on which of his ideas worked out and which ones failed.

He also studied the customers and the brokers, fascinated by the way they passed tips and rumours, which rarely appeared to work.

What Livermore was doing at this time — and what he would continue to do throughout his lifetime — was work on his system. A system that wasn’t based on rumour or instinct. It was a knowledge-based system, but one that also took human nature into account and put a huge emphasis on the human element.

As Livermore wrote later in life: “Human nature never changes, and human nature runs the market — not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet.”

So he started testing his method. He walked into a bucket shop, one of those smoky gambling dens where anyone could bet on stock prices with tiny stakes. His first trade? Five dollars on Chicago, Burlington and Quincy Railroad stock — Quincy Railroad. Man, I love the names of those old American companies. It went up. He walked away with a profit of $3.12. Small money — but it confirmed to Livermore that his method worked.

Soon he was hooked. Every spare minute he went to the bucket shops. He started making more in a week than he earned in a month at Paine Webber. His bosses got wind of his side hustle and gave him an ultimatum: quit the bucket shops or quit the job. He quit his job and became a full-time trader at just 16 years old.

Pretty soon he was pulling in about $200 a week (over $7k). By age twenty, he had a nest egg of $10,000 (about $400k — a fortune back then). Bucket shops started banning him. His consistency threatened their business. Livermore responded with disguises — caps pulled low, even fake beards. It worked for a while, but his reputation spread too far. By 1897, every shop knew his face. He was effectively locked out.

So he moved to New York and married a young woman named Nettie Jordan after only a few weeks of knowing her. It was impulsive, but Livermore felt untouchable. At that point, though, his system wasn’t fully formed, and the next few years were rough — he lost his fortune, and he lost Nettie. Over the next year or two, he kept studying the markets. Kept refining his method.

In Livermore’s new system, he always started with the broad market direction before drilling down into individual stocks. His aim was to follow the line of least resistance. If he expected the overall market to rise, shorting the weakest stocks he could find made no sense. That was sailing straight into the wind.

He also accepted that he would often be wrong, and so he developed what he called a probing approach. He built positions gradually. If the market wasn’t behaving the way he expected, that was his signal he was wrong, and he would close out the trade. But if the market confirmed his view and moved in his favour, that was his cue to add to the position. Because Livermore’s position was that the market is always right — or to quote him: “Markets are never wrong, only opinions are.”

These principles — and there were many more — became foundational. And by sticking to them, Livermore started to make money. In one trade, over a five-day period, he turned $10,000 into $50,000 — over $2 million in today’s money. So from 1901 to 1906, Livermore was doing more than OK.

He’d often take breaks to recalibrate — and I’m guessing to relieve some of the stress, because it is a stressful business. But also because Livermore suffered throughout his life from depression. On one of his breaks to Atlantic City in 1906, he met a stock promoter who warned him about Union Pacific Railroad stock. Too high. Too stretched, he said.

And while Livermore’s system was always against trading on tips or rumours or instinct, this time he said he felt a “psychic surge” — a gut-deep certainty that Union Pacific was about to crack. Everyone around him thought he’d lost it. The stock had been climbing for months in a roaring bull market, and according to his own system, that made it a good time to buy. Betting against it looked insane and was against his system. He telegraphed orders back to New York: sell Union Pacific short. Thousands of shares.

He was on a huge losing streak with this trade — but then fate intervened.

The San Francisco earthquake hit, and railroad stocks collapsed, and Livermore made a $250,000 profit — about $9 million in today’s money.

Livermore knew that it was luck, and so he quickly pivoted back to his system. And over the coming 12 months, he studied the numbers and ignored any rumours. What his system was telling him was that the market was too high.

You see, there was still a hangover from the San Francisco earthquake. Because as the city began to rebuild, gold flowed out of the United States to pay for foreign insurance claims. That outflow hit hard. The dollar was still tied to gold, so every ounce that left the country meant a tighter money supply at home. Livermore could see that less money in circulation meant less liquidity across the board, and so, as far as he was concerned, the whole system was leaning toward collapse.

So he started shorting.

Then came Thursday, October 24, 1907. This was called the Panic of 1907, and also the Bankers’ Panic. Prices collapsed across the board. By the closing bell, Livermore was up about $1 million — over $35 million. At thirty years old, he had pulled off the biggest one-day gain of his career.

But the US financial system was hanging by a thread. That night, J.P. Morgan summoned New York’s banking elite to his library, locking the doors until they agreed to pool resources and rescue the system. It’s very reminiscent of the 2008 crash, when Hank Paulson and Timothy Geithner got all of the Wall Street head honchos together for a tense all-night meeting to hammer out a plan to save the banks.

Anyway, that night in 1907, J.P. Morgan also sent a message to Livermore asking that he stop shorting.

Livermore had always admired and respected Morgan, and so not only did he stop shorting, he actually flipped his positions. He started buying in large quantities, and in doing so he helped turn the tide, because other traders noticed and reasoned that if Livermore was buying, maybe the worst was over. Coupled with Morgan’s bank rescue, the panic began to ease. By the next day, stocks stabilised. Within a week, they were climbing again.

And Livermore was held up as a hero. The press credited him with helping to steady the market. Fellow traders who had followed his lead made fortunes too. He was celebrated as a stabiliser — someone who had put the market above his own profits.

He bought a yacht, a private railcar, a luxurious Manhattan apartment. He lived like a king. But then, just a year later, he broke his rules again.

In 1908, he listened to a tip from Percy Thomas, known as the Cotton King. This guy had previously tried and failed to corner the cotton market — and Livermore had actually profited handsomely from that incident. But Livermore respected Thomas’s opinion, and so when Thomas insisted that cotton was headed higher, Livermore listened. And when the prices dropped, instead of taking a quick and small loss as per his system, Livermore instead continued to buy more.

He lost a fortune and traded manically to try and recoup his losses, but he ended up losing all of the money he had made from 1907. He had to sell his yacht and his apartment.

For the next several years, he drifted. The market was stagnant, opportunities scarce, debts mounting. He later described it as “starvation.” As already mentioned, Livermore suffered from depression throughout his life, and as a result, during this time he endured a complete emotional breakdown.

By early 1915, he declared bankruptcy. The New York Times headline read: “Cotton ‘King’ a Bankrupt – Jesse L. Livermore Loses Millions He Made in Wall Street.” The public spectacle was brutal. But in his own mind, it was a release. Bankruptcy wiped the slate clean.

Significantly, he also promised all of his creditors that he’d repay them in full.

A friend of his who ran a brokerage opened an account for Livermore and gave him just enough margin to buy 500 shares. A tiny account for a man who had made millions. Livermore didn’t touch it for weeks. He simply sat and studied the tape, waiting. And one company kept drawing his eye: Bethlehem Steel. World War I was raging overseas, demand for steel was increasing. He bought 500 shares — and within months he had turned a $150,000 profit (just under $5 million).

By 1917, he had built his fortune back, and he fulfilled his promise to his creditors — paying every one of them back 100%.

And then, in late 1918, he went back into cotton. But this time, not on a tip. And he was so successful that he cornered the market.

To explain briefly: cornering a market means gaining enough control over the supply of a particular asset that you can influence its price. So when Livermore cornered the cotton market by buying up most of the available contracts, he created scarcity — meaning he could then sell at higher prices.

But he was so successful in this case that he got a call from President Woodrow Wilson asking that he unwind his position and release cotton back to the market.

Livermore agreed. He sold out at break-even — no profit, no loss. When Wilson asked him why he’d tried to corner cotton in the first place, Jesse replied: “To see if I could, Mr. President.”

To him, speculation wasn’t only about money. It was a test — a game of nerves and wits.

That same year, at the age of 41, he married Dorothy Wendt, a glamorous twenty-two-year-old showgirl. Their wedding was a society event. They moved into a mansion on Long Island. Dorothy spent freely — jewels, furs, redecorating at will. They had two sons, but the marriage soon strained. Dorothy drank heavily; Livermore kept mistresses.

In 1922, Livermore got involved in one of Wall Street’s strangest episodes: the Piggly Wiggly affair — we mentioned it in our episode on short selling. Clarence Saunders, founder of the nation’s first self-service grocery chain, Piggly Wiggly, wanted revenge on short-sellers who believed the company was overvalued, and he brought in Livermore to help. Together, they tried to corner the market — buying up shares and pushing the price from $40 to over $100. In March 1923, Saunders triggered the squeeze, demanding delivery of borrowed shares. Short-sellers had 24 hours to cover. The stock surged to $124. It looked like Saunders had won.

Then the Exchange stepped in. Trading was suspended, and the short-sellers were given more time. The corner collapsed. Saunders was ruined. Livermore, sensing trouble, had exited early and kept his profits.

Then, in 1924, came one of Livermore’s biggest and most profitable trades.

On one side stood Arthur Cutten, the giant of the grain trade, who was bullish on wheat. Livermore was initially bullish as well. But on March 13, 1925, while Cutten had taken the day off, Livermore changed sides and, together with another large trader, Thomas Howell, he began selling wheat contracts in huge quantities.

Livermore and Howell made $22 million in profit — just under half a billion — a huge sum in 1925.

Rumours swirled that Livermore timed the attack precisely for when Cutten was away — that he and Howell had planned this all along.

The Secretary of Agriculture ordered an investigation, but there was no proof.

And while Livermore emerged from Piggly Wiggly and the wheat trade financially stronger, he did get a reputation as a behind-the-scenes manipulator.

But of course that didn’t — and doesn’t — really matter on Wall Street. As we know, nothing succeeds like success, and by the mid-1920s Livermore was a very powerful and much-respected trader. His standing was such that even rumours of his trades could move prices. But Livermore didn’t court attention — he actually hated it. To protect himself, he moved his operation into a fortress-like office in Manhattan’s Squibb Building.

The setup was as tight as a vault. A single guarded door. Phones that only dialled out. Clerks and traders sworn to silence. During trading hours, no one went in or out. He didn’t want the Street guessing his hand.

And there was another good reason why Livermore hated the attention — it made him and his family targets for criminals, as happened in 1927, when a notorious thief named “Boston Billy,” together with his gang, broke into Livermore’s mansion, brandishing pistols and forcing Livermore, Dorothy, their children, and servants to the floor. The intruders ransacked the house, stealing over $100,000 in jewels and cash. Throughout the ordeal, Livermore stayed calm, and the robbers left without harming anyone.

But Dorothy, already drinking heavily, spiralled further. By 1928, whispers spread that the marriage was in trouble — and not only due to Dorothy’s drinking, but also because Livermore continued with his womanising ways.

Through all of this, Livermore never lost focus on the markets. And for some context, the markets throughout the 1920s had been on a non-stop bull run. There were many reasons for the bullishness. Post–World War I, America emerged as an industrial giant with a wave of new technologies. You had radios, household appliances, and of course the car — which in itself was reshaping the entire economy and society, because you had to have new roads, petrol stations, motels, roadside cafés.

America was booming, consumer credit was easy, and people took advantage. Not just the wealthy — millions of ordinary Americans were buying goods they couldn’t afford and investing money they didn’t have in the stock exchange. Regulation was pretty thin, and the result was one of the most explosive bull markets in history.

Everyone believed the good times would last forever. Everyone except Livermore. He’d lived through a few manias. He knew the signs.

Quietly, he began placing bets against the market. He spread his trades across more than a hundred brokerage accounts so no one could grasp the full scale of his position. Piece by piece, he built a mountain of short sales.

October 29th, 1929 — Black Tuesday. The ticker tape was backed up for hours, orders flooding in, prices collapsing. On the trading floor, brokers screamed themselves hoarse. Fortunes evaporated in minutes. And Livermore’s short bets paid off on a staggering scale.

When the dust cleared, he had made roughly $100 million — about $2 billion in today’s money.

Understandably, the public and the press turned against him. He was portrayed as the man who had “seen it coming” and who profited from national disaster. Angry letters poured in. He hired an armed bodyguard just to move around New York.

Through 1930 and 1931, the Depression deepened. The Dow kept sliding — down and down — until it erased almost ninety percent of its value. For someone like Livermore, who thrived on trading, the relentless fall of the stock market was a nightmare.

Of course, he could have just stopped trading, held onto his huge fortune — but that wasn’t in his make-up.

Even worse, he used leverage — borrowing to amplify his position — and the market just kept punishing him. His fortune began to shrink. As he had said himself about his relationship with money: “It isn’t the making of it, it’s keeping it that’s hard.”

At home, things were even worse. In 1932, Dorothy was granted a divorce, walking away with $10 million in cash, custody of their sons, and the Long Island mansion. Not long after, she sold the mansion. It had cost more than $3.5 million to build and furnish. At auction, in the middle of the Great Depression, it sold for only $222,000. The house was eventually demolished, which devastated Livermore.

Professionally, he retreated. He shut down his fortress-like office and, by late 1932, just three years after making almost $2 billion, Livermore was running out of money, divorced, and fading.

It wasn’t all bad news. In 1933, he married Harriet Metz Noble, an Omaha socialite from a wealthy brewing family. She was 38, cultured, and financially secure. And by all accounts, they were a very happy couple.

In 1934, Roosevelt’s New Deal introduced the Securities Exchange Act, created the SEC, and brought in sweeping reforms.

When Jesse read the fine print, it hit him hard. The laws seemed written with men like him in mind. As he later wrote: “Almost every method I used to amass four fortunes was now illegal.”

His trading faltered. He second-guessed himself constantly. He had lost his confidence and his touch.

In March 1934, unable to meet obligations, he filed for bankruptcy again, with liabilities of about $2.5 million and assets of just $84,000. A man who had made $100 million five years earlier was, once again, penniless.

And there was more bad news to come.

Thanksgiving, 1935. Dorothy, Livermore’s ex-wife, was hosting dinner at her mansion with her sons, Jesse Jr. and Paul, her new husband, and a few friends. Dorothy had been drinking heavily, as usual. Sixteen-year-old Jesse Jr. had had enough and snapped. He got drunk and got into a huge row with Dorothy, culminating in him getting a gun and daring her to shoot him.

And she did.

Jesse Jr. was rushed to the hospital in critical condition. Back in New York, Livermore heard the news on the trading floor. He flew to California with Harriet, pacing the hospital corridors, chain-smoking cigars. “If my boy dies,” he said, “I’ll spend every cent I have to see that she gets what’s coming to her.”

Somehow, Jesse Jr. survived, and from his hospital bed he took the blame. “It was my fault,” he said. “It was an accident.” That statement kept his mother out of prison. Charges were dropped.

For Livermore, the next few years brought only more decline. By the late 1930s, he was only doing very small trades and seemed detached.

Financial pressure wasn’t his main concern anymore. Harriet’s fortune kept them comfortable. They lived in a Park Avenue apartment, spent time in Chicago, even vacationed abroad. But it seems like the fight had gone out of him. He had had so many battles, professional and personal. He suffered from depression, and I also think the changes brought in after the crash were just the final blow. He couldn’t summon up the energy or the will to remodel his system to accommodate these new regulations.

Still, he made one last attempt at relevance. In 1939, he began writing a book. How to Trade in Stocks was part memoir, part manual — a codification of his market rules. The book came out in March 1940. Sales were poor. The world was preoccupied with World War II, and Livermore’s methods, rooted in a bygone era, seemed outdated. He was crushed. He had hoped the book would restore his name.

Despite this, its principles have echoed through decades of trading conventions, technical strategies, and behavioural finance. It remains one of the earliest — and most enduring — manuals that treats trading as a disciplined craft, not gambling.

By the fall of 1940, Jesse’s depression deepened. He withdrew into himself, convinced his career was over and his legacy tarnished.

On November 27, 1940, Livermore and Harriet went to the Stork Club in Manhattan. They dined, listened to music. A photographer approached for a picture. Livermore obliged, but added a strange remark: “It’s the last picture you’ll take, because tomorrow I’m going away for a long time.”

The next day, he walked alone into the Sherry-Netherland Hotel. He sat at the bar, drank two old-fashioneds, and scribbled in a notebook. At 4:30 p.m., he stepped into the cloakroom. Moments later, a gunshot echoed.

In his pocket was an eight-page note addressed to Harriet: “Can’t help it. Things have been bad with me. I am tired of fighting… I am unworthy of your love. I am a failure. This is the only way out.”

Jesse Livermore was sixty-three.

It was a tragic end. But I think I’d do Livermore a disservice by portraying his life as simply a tragedy — some sort of moral tale where I can sermonise about how he had all of the money in the world but was never happy, about how he couldn’t help himself but continue to bet, to trade, and lose his fortune time and time again, about his womanising, his chaotic personal life. All that is true, and we can all learn lessons from it. And there’s no getting away from the fact that Livermore suffered from severe depression throughout his life, and at a time when people didn’t talk about these things. There was no treatment, and this had a huge negative impact on his life.

But I also want to celebrate his achievements. Livermore is believed by many to be among the very best traders ever. He was a maverick, an out-and-out individual who created a trading system not just based on numbers, but one that also took into account human nature — human frailties. He was a remarkable man in terms of his trading achievements, and it’s such a pity that he ended his life believing himself to be a failure.

He lived such a dramatic life, and that’s why the story of Jesse Livermore is such a great business story. I hope you’ve enjoyed it as much as I have. And remember, if you have any comments, any corrections, or any story that you’d like us to cover, email us at: info@gbspod.com

All the best, folks.