The Stone from Other Mountains: Jesse Livermore - The Lonely Speculative Genius

#美停摆危机或将结束？
"The market never changes, because human nature never changes."

Legendary Career: The Rise and Fall from Starting with $5 to Becoming a Billionaire

Jesse Livermore was one of the most legendary independent traders of the early 20th century. Born in 1874, he entered a Boston brokerage office at the age of 14 with 5 dollars and began trading in "Bucket Shops," places that bet on price fluctuations. With his astounding talent for numbers and price patterns, he quickly earned 10,000 dollars (equivalent to 300,000 dollars in 2023).

His career has experienced four bankruptcies and comebacks:

1. The Panic of 1907: Made a profit of 3 million dollars in a single day by shorting U.S. stocks, and even received a request from J.P. Morgan to stop selling to save the market.
2. The Great Depression of 1929: Accurately predicting the market crash, profiting $100 million through short selling (equivalent to about $1.5 billion in 2023), reaching the peak of wealth.
3. The fourth bankruptcy in 1934: Due to violations of its own trading rules, a marital crisis, and struggles with depression, ultimately losing all wealth.
4. The tragic ending of 1940: ended life with a handgun in a hotel, writing in the suicide note: "My life has been a failure."

Core Trading Philosophy: Six Eternal Rules

The rules summarized by Livermore in "Reminiscences of a Stock Operator" are still the bible of speculators today:

1. Go with the flow
"Never attempt to buy and average down during a downturn, and definitely do not sell too early out of fear during an uptrend." He confirms the trend through "tentative positions" and gradually increases his stake after making a profit.
2. Key Point Trading
Wait for the price to break through the "key points" (such as historical highs/lows) before taking action. He believes this is a "signal for trend confirmation" that can maximize the risk-reward ratio.
3. Emotional Isolation
"Wall Street never changes, because human nature never changes." He urged traders to isolate the influences of hope, fear, and greed, even going so far as to hide their tracks with anonymous accounts.
4. Fund Management
· The risk of a single transaction should not exceed 10% of the total funds.
· Always set a stop loss point
· Withdraw part of the profits to "lock in a sense of achievement"
5. Information Identification
Beware of "insider information"; he believes: "Insiders often act before the information is made public, and by the time the public hears it, it is usually a trap."
6. Time Period
Combining short-term volatility with long-term trend analysis, he emphasized: "Short-term trading that deviates from the fundamental trend is equivalent to gambling."

Classic Battle: The Great Short of 1929

1. Fundamental Analysis:
· Discovered that listed companies inflate profits through "cross-holding between parent and subsidiary companies"
· The real economy and the stock market are seriously diverging (industrial output down 13%, yet the stock market is up 60%)
2. Tactical Execution:
· Gradually established short positions since 1928, during which a loss of 6 million dollars was incurred due to early action.
· Before the crash in October 1929, increased short selling, earning 25 million USD in profit on Black Thursday alone.
3. Psychological Game:
· In the face of the bankers' joint rescue and media condemnation, he insisted on holding his position until the technical rebound ended.
· At the final closing, the Federal Reserve requires its gradual exit to avoid severe market turbulence.

Three Stones Revelation:

1. Systematic opposition to human nature
His failure stemmed from violating self-imposed rules, confirming that "the greatest enemy of trading is oneself." Modern traders need to use technical means such as trading checklists and automated stop-losses to curb emotions.
2. The Dialectical Relationship between Trends and Cycles
Livermore stated: "There are winners in both bull and bear markets, but pigs get slaughtered." He reminds investors to distinguish between primary trends and secondary reversals to avoid overtrading in volatile markets.
3. The Double-Edged Sword of Leverage
He went bankrupt four times, all related to excessive leverage. Today's derivative tools are more complex and must adhere to the principle of 'leverage should not exceed 1:3 before profits, and should be gradually increased after profits.'

Three Stone Conclusion

The lessons that Livermore wrote with his life are more worthy of remembrance than his successes:

"I have earned immense wealth, but wealth has never brought me true peace. If you ask what is the most dangerous thing in the market, my answer is not volatility, but losing myself in the volatility."

His legend proves a harsh truth: mastering technical analysis may win battles, but only self-control can win the war. In the Tomorrow series, we will meet another genius who tames the market with algorithms—James Simons—and see how he rationally answers the human problems that Livermore could not solve.