December 10, 2025 • 47 mins
The stock market was once a Wild West free-for-all. There were few rules or regulations. Investors were more or less gambling, or manipulating stocks to make a profit. This is the world Jesse Livermore came to dominate. He would often bet against the market, making money when businesses failed.
By 1929, Livermore was rich and famous. And then the Wall Street stock bubble burst. Share prices went through the floor, fortunes disappeared, and lives were ruined. Many blamed Livermore, some even sent him death threats. But what of Livermore's fortune? Did he make the right calls during the Wall Street Crash?
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Speaker 1 (00:17):
Pushkin too quick.
Speaker 2 (00:19):
No, it's perfect push kit stop you got it?
Speaker 1 (00:37):
Hi, Robert, Hello, chickib Jacob.
Speaker 3 (00:40):
I want to talk about the big stock market crash
of nineteen twenty nine, The big one, the big one.
It's very much on our minds these days. And you know,
is it very much on your mind? It is very
much on my mind. Is the bubble sort of inflates?
Speaker 1 (00:55):
Right, it's not going to be that bad. It's not
going to be.
Speaker 3 (00:58):
Always think about a crash as like this single moment. Right,
it's a crash. It's like a car crash, like boom.
But in October of nineteen twenty nine, it was way
more painful than that. It was actually like six days
ease of dread and pain, gut wrenching fear.
Speaker 1 (01:16):
Right.
Speaker 3 (01:16):
It starts on Black Thursday, October twenty fourth. Stock prices
start to go down, down at some point around eleven percent. Okay,
that's bad, but like normal, dad, Yeah, it doesn't feel
good news. It's definitely news. On Friday, people buy the dip.
Banks sort of come in to back everyone up. Things
are looking okay, but it takes them all weekend to
(01:37):
go through all the stock orders on paper. It's paper
then right, people are going wild. Right, Monday morning comes.
Monday's are always hard. This one was black black Monday
down thirteen percent market.
Speaker 1 (01:50):
Yes.
Speaker 3 (01:52):
And then we get to the morning of Tuesday, October
twenty ninth, and everyone in New York seems to know
something bad is coming.
Speaker 1 (02:01):
Tourists.
Speaker 3 (02:03):
Tourists start to go down to Wall Street to see
like they heard, like something bad's gonna happen.
Speaker 1 (02:09):
The crash is coming.
Speaker 3 (02:10):
So they're in the streets. Police have set up barricades.
People are bringing tour buses down parade. But for they
are looking to lose at a car crash, right, And
there is this sickening feeling inside the investment firms that
they need to sell. They need to get out. Everybody
needs to get out.
Speaker 1 (02:29):
That's a bad moment.
Speaker 3 (02:30):
That is a bad moment. The most famous speculator of
the day was nowhere to be seen in Wall Street
or downtown. Jesse Livermore. On this morning of Tuesday, he
leaves at exactly seven to twenty from his mansion. He's
got a driver's driving into the city. He says, take
me uptown. Doesn't go to Wall Street. He goes to
his office on Fifth Avenue, and this office was amazing,
(02:54):
mahogany leather seats. They've got these giant chalkboards and people
are writing stock quotes on the chalkboards, like.
Speaker 1 (03:01):
The Bloomberg terminal of its day is a kid writing
stock quotes.
Speaker 3 (03:05):
He got forty stock tickers under the glass. You know
they're going along right. No one is allowed to talk
because he wants complete silence on this day because he
wants to sit and he wants to think about what
is happening in the stock market.
Speaker 1 (03:20):
I love that. So like downtown people are screaming and
yelling and then just it's just in the silent office.
Speaker 3 (03:26):
Well, Jesse Livermore at this point has been trading stocks
for like thirty five years. He started when he was
fourteen years old. Super famous. He's made millions, lost millions.
And he had this theory that you should not be
guided by emotion in the stock market, and on this
day the stock market was nothing but emotion. He just
(03:48):
wanted to sit and think about it. I'm Jacob Goldstein,
I'm Robert Smith, and this is Business History.
Speaker 1 (03:55):
A show about the history of business. There you go.
Speaker 3 (03:58):
Today we begin a series of stories about the great
minds of the stock market over the last one hundred years.
We're going to look at people who took the stock
market from wild West gambling to intellectual investing. We'll look
at the speculator today. Jesse Livermore. That's the wild West
gambling part YEP. The Great investor, Warren Buffett.
Speaker 1 (04:17):
The Great Investor.
Speaker 3 (04:20):
You love it when I say that, Warren Buffett.
Speaker 1 (04:22):
Warren Buffett, and Jim Simon's the quant guy who brought
math to the games. So much big and so much money.
Speaker 3 (04:31):
Now, you could look at this series and I don't
blame you as this sort of guide to getting rich. Right,
these people did it. Maybe you can do it too,
but I see it completely differently. Right, So, each of
these men discovered a flaw in the stock market. They
exploited that flaw, they made money, and by doing so,
(04:53):
they closed the flaw and the flaw didn't exist anymore.
So this is really a story as you look about
this history of investing of the stock market getting better,
more efficient.
Speaker 1 (05:01):
Uh huh. Right, people find a flawed they get rich.
Other people see that person getting rich and as a result,
basically that flaw goes away.
Speaker 3 (05:09):
Jesse Livermore, who we're going to talk about today, he
saw the flaw, he made the bets, he made fortunate
and fame. He became a legend on Wall Street, and
then he met a tragic end.
Speaker 1 (05:20):
So, Robert, where are we starting the story of Jesse Livermore.
Speaker 3 (05:22):
Let's start in a farm in rural Massachusetts. The year
is eighteen seventy seven, and Jesse Livermore is born to
a farming family at the time. You know, this is
not how you would start in a career in Wall Street.
But Jesse Livermore had this gift for math, for numbers.
He would later say that he could like feel numbers
(05:44):
in his soul, whatever that means. Right, But at the
age of fourteen, probably to escape going to the fields,
he goes to Boston instead, and he shows up at
the storefront of a stockbroker Payne Weber heard of it, yes,
to exist in our childhood, right right, right, So that
was the stock office at the time. And he walks
(06:05):
inside and he sees this scene and it's more like
a gentleman's club than anything.
Speaker 1 (06:09):
Right.
Speaker 3 (06:10):
There are chairs where people can sit and watch the
stocks move. And the way they watch the move is
there are these giants chalkboards, and there are these boys
the chalkboard boys who would write the quotes in the
little squares on the chalkboard, and the men would sit
there and drink and watch this, and there's the ticker
going off in the background with all the stock quotes,
(06:30):
and they update.
Speaker 1 (06:32):
Edison had invented a better stock ticker. Right, that was
like one of his early things. Yeah, so this was
like a big thing, right. It was like going to
the horse races or something. Right, And so for years
Livermore is a chalkboard boy. And he says that he
starts to see patterns in the numbers. Right, He's doing
numbers all day long, and he could tell if a
(06:55):
stock is moving and it's going to keep moving or
whether it's plateaued. He has these premonitions. I tend to
be skeptical of that in general. Right, Like there's this
thing today called technical analysis where people talk about these
like patterns in the stock chart. Seems dubious to me.
But maybe Livermore knew what he was doing.
Speaker 3 (07:16):
Well. I mean this is obviously before computers or even
ways that people were recording long term trends in stocks.
Speaker 1 (07:25):
I guess the classic thing is if you're the first
one to see a pattern maybe you can make money
off it, and maybe the person who figures it out,
if the person wants to write them in chalk from
morning tonight and is a math genius.
Speaker 3 (07:36):
Yeah, he's like a walking Bloomberg terminal.
Speaker 1 (07:38):
Love that.
Speaker 3 (07:39):
So he does this for a while and he decides
I can do this, I can make money. So he
pools money with one of the other chalkboard boys and
they go to something called a bucket shop. Yes, now,
a bucket shop is a really like sketchy stock trading parlor.
(08:00):
The name comes apparently from the UK, where there were
certain places that would collect the slop that came from bars,
put it in a bucket, warm beer that ran off
the bar, collected in a bucket, and then sell that.
Speaker 1 (08:17):
Is that true? Don't tell me if it's not true.
Is it true? It's true? I want it to be.
Speaker 3 (08:21):
You want a cheap beer, you don't care if it's
warm because you're British.
Speaker 1 (08:24):
The backwash bar, the King's backwash and arms. You can
get a good chip there, a chip buddy. You know
a chip buddy.
Speaker 3 (08:31):
I do know what a chip buddy is.
Speaker 1 (08:33):
French fries, sandwich. I can't believe it.
Speaker 3 (08:37):
So you know what it goes great with that a
bucket of warm slop.
Speaker 1 (08:41):
Oh god, yes.
Speaker 3 (08:42):
So these bucket shops morphed into these sketchy stock parlors,
And the thing about them is they are not actually
buying and selling stocks. At the bucket shops, they are
making bets on the stock prices, but without any of
the like buying and selling and that sort of thing.
So essentially, they make a bet that a stock price
(09:04):
is going to go up. Everyone watches the ticker. If
it goes up, you make money. If it goes down,
you lose money.
Speaker 1 (09:10):
So the bucket shop is like a book taking bets
on the football game, and they just need to have
basically the same amount of money on both sides. And
presumably they take some vig or something.
Speaker 3 (09:19):
Yeah, and you could even borrow money. You could do
this on margin. So essentially you could use a small
amount of money to make large bets. Yea stock goes down,
they take everything. Stock goes up, you can make a
lot of money.
Speaker 1 (09:30):
And zero day options today are a little bit like this,
right there are a way to make what is sort
of essentially a leverage bet on what the stock is
going to do today, and you're not buying or selling
the stock.
Speaker 3 (09:39):
It's it's pure speculation. Yeah, I guess that's I guess
that's right. So you know it has more to do
with luck really than anything else.
Speaker 1 (09:47):
Or if you are a math genius who spent ten
years writ numbers out of chalkboard.
Speaker 3 (09:51):
You have it in the fingers. Apparently Livermore was so
gifted to the bucket shops that he gets the highest honor,
which is to be banned from them.
Speaker 1 (09:59):
Oh just like sports betting apps today, literally what sports
meta apps do too.
Speaker 3 (10:03):
He's really good at they ban him. There are stories
of him putting on disguises no, and sneaking into the
shops with like a mustache or a little wig or something,
getting caught.
Speaker 1 (10:12):
John Livermore, you don't know, man, I'm Jesse Jones.
Speaker 3 (10:20):
So you make some money. He gets thro out of
these shops. At the age of twenty, he has enough
money to finally hit the big leagues. He goes to
Wall Street and he goes to the office of E. F.
Speaker 1 (10:30):
Hutton. Also heard of the F. Hutton. This is not
the investment company of E. F. Hutton.
Speaker 3 (10:36):
He goes to E. F. Hutton, the man himself.
Speaker 1 (10:39):
Oh my dad took sat prep from Kaplan, from the
man in Brooklyn in the nineteen fifties. So he said, Kaplin,
what kind of boards you need to get into Princeton?
And Kaplan said the moon.
Speaker 3 (10:52):
That's too good. Well, well let's imagine that. EF Hutton
said that. You know, Jesse Livermore has got his small
amount of money and E. F. Hutton's life give it
a try, kid, Okay, and Jesse Livermore boy plunger, they
had called him, and the plungers plunger. He plunges into stocks,
He goes to the stock mark, he buys some stuff,
He gets his ass absolutely kicked. Didn't see that content
(11:16):
to him because of this weird little thing.
Speaker 1 (11:20):
Right.
Speaker 3 (11:21):
He is used to betting on numbers. He bets on
a number. Second later the number goes up, the number
goes to top life.
Speaker 1 (11:28):
This is his bucket seup life.
Speaker 3 (11:29):
Yeah, but when you're actually trading stocks, you have to
make a bid on the stock. You see what the
price is and it's delayed a little bit, right, you
make a bid on the stock that needs to be
written down and handed to someone on the floor who
has to make that bid.
Speaker 1 (11:41):
Right. This is the dude's yelling at each other era
of stock trading.
Speaker 3 (11:45):
Yes, and so that takes time and you maybe can
get the bid you want, maybe you can't. All this
has to go through all these systems, right, great example
of this is the Panic of nineteen oh one.
Speaker 1 (11:59):
One of the lesser known panics.
Speaker 3 (12:00):
This one is like a railroad panic.
Speaker 1 (12:02):
Right, we should say, I mean this word panic a
thing that happened about every ten years. You certainly in
the eighteen hundreds and into the nineteen hundreds was there
were these financial crises that they called panics. So the
panic of nineteen oh one is one of these.
Speaker 3 (12:15):
Yeah, and it was a classic right. A bank had
lent a lot of money to some enterprise that went under.
The bank needed to recall them all the loans that
it made. It had no money in its faults. People
wanted to pull all the money out of the banks.
They had to shut down the banks. Classic panic. People
in the streets.
Speaker 1 (12:32):
Right.
Speaker 3 (12:32):
So, right before the Panic of nineteen oh one, Jesse Livermore,
he has one of his intuitions. He's like, I think
the stock market's going to go down. I think there's
problems here.
Speaker 1 (12:40):
Right.
Speaker 3 (12:41):
He wants to bet against us steel. Okay, classic stock right,
have the.
Speaker 1 (12:44):
Biggest companies in America at that time, Carnegie Morgan.
Speaker 3 (12:48):
So it's at like, let's say, one hundred dollars, right,
So he shorts the stock. He bets against it. He
thinks it's the price is going to go down, and
he's absolutely right. He bets against it. Price starts to
go down. He thinks, I did it, I did it,
I predicted the future.
Speaker 1 (13:02):
I am rich. And then he sees the volume.
Speaker 3 (13:07):
Thousands and thousands of shares are trading hands, and he
realizes that he's in line to trade. He has bet
against the stock, but his trade hasn't actually been put in,
as the stock is going down. By the time he
actually sells this stock, it's at eighty five dollars. This
is as low as he thought it was going to go.
And he's like, oh no, I don't have the price
(13:29):
I want. So he wants to start buying back. He's like,
it's gonna go back up. He starts to go buying back,
but again his order is standing in line. He has
to wait. He goes up, up and up until it's
over one hundred. Again, he loses on the way down.
He loses on the way up.
Speaker 1 (13:44):
So I guess the limit order had not been invented yet.
Just just to be clear, today, it doesn't have to
happen to you because you can say, yes, I will sell,
but only at this price. And if it's not at
this price, I don't want to sell. It was hard
to handwrite that on a little slippery paper, too complicated
that the dude's yelling on the floor. So liberal tip
use living orders instead of market orders is not investing advice.
Speaker 3 (14:07):
Liver War loses twenty five thousand dollars because of this right.
And this was an important lesson because he realized that
timing is everything right as it is and many things
in life. So he goes back to the bucket shops
and make some more money.
Speaker 1 (14:23):
It comes back to Wall Street. It's a new wig.
Speaker 3 (14:25):
He gets a new wig. I think he goes to
like Saint Louis or something. Well, they don't recognize him. Yeah, yeah, yeah,
So this time when he comes to Wallstree, he's going
to do it completely different. Okay, this is when he
sets up his own office, gets his own stock ticker,
and eventually sets up this whole system to get ahead
of what's on the ticker.
Speaker 1 (14:43):
Right.
Speaker 3 (14:43):
Oh, he has his own chalkboard boys, and they would
have wired headphones communicating directly with the floor of the
stock exchange so we didn't have to wait for the
piece of paper to come out. He could beat the
ticker by minutes. Wow, I know. And he has the
information ahead of time.
Speaker 1 (14:58):
That's free money.
Speaker 3 (14:59):
That is free money. And I mean he's not the
only person who does this, but yeah, this is something
that the big wigs were doing.
Speaker 1 (15:04):
And this is a perennial finance story, right, I mean
you have Reuiter's was a dude named Reuter who was
using like the telegraph and carrier pigeons to deliver information.
And then all the way into the like twenty first century,
you had people like building their own private I think
it was fiber optic lines between Chicago and New York
to be like a millisecond faster and make money.
Speaker 3 (15:26):
Like this is this story. This is this story. He's
got the system. Now, he's got a stash of money,
and he's about to enter the perfect period for him,
which is the nineteen tens and nineteen twenties. These wild
stock swings, right, and if you're someone who has money
and information and all of a sudden there's volatility, you
(15:47):
are set up to make a ton of money. Yeah.
Speaker 1 (15:50):
I mean in general, traders love volatility, right, They love
a market that goes up and down a.
Speaker 3 (15:55):
Lot, exactly because you can make big bets and you
can recover from bad bets.
Speaker 1 (16:00):
Right.
Speaker 3 (16:00):
This time is also essential for another reason, which is,
you know, this is the coming.
Speaker 1 (16:07):
Into the Roaring twenties. Right.
Speaker 3 (16:08):
We've talked about the Gilded Age and the nineteen tens
and nineteen ten twenties before in our Thomas Edison show.
People have this new technology of electricity and electric lights
and cars and refrigerators and washing machines. It's an age
of technological miracles.
Speaker 1 (16:24):
Yeah, a mass consumption is beginning, right, But we haven't
talked about the finance side of this. Because people want
to make these big purchases, and all of a sudden
they're able to borrow money to do so. Banks are
willing to lend so that people can take part in
this amazing technological transformation. And at the same time, people
(16:46):
are looking at the stock market. Right, what was once.
Speaker 3 (16:49):
This fringe activity for rich people in the late eighteen hundreds,
All of a sudden, regular people can buy stocks and
guess what they can borrow money to do that too wrong?
What could possibly go wrong? They would borrow money, buy
the stocks, make some more money, buy a refrigerator, and
then put more money into stocks and borrow more. So
(17:11):
this is the era where Jesse Livermore is primed, primed
to start to make his move to make his millions,
and he does it by betting against all those schmos.
Speaker 1 (17:24):
I love dot Mark.
Speaker 4 (17:25):
After the break, all.
Speaker 1 (17:48):
Right, the ads are over, and Robert you teased us
before the break with Livermore betting against the American dream
of the nineteen twenties of Jesse Livermore essentially shorting the boom, right,
shorting the market. And I will just say for now,
I think shorts are vastly underrated. More on that later.
Speaker 3 (18:09):
Yeah, and you should know that like short sell is
a time honor tradition. The very first short was in
like the sixteen hundreds for the very first on the
first stock.
Speaker 1 (18:18):
Yeah, the first stock, the dutchy Cidia company. And like
a minute later, this guy's like, I've got an idea
I could make money if I think it's going to
go down.
Speaker 3 (18:26):
And it's immensely logical. Right, stocks go up, stocks go down,
you can bet they'll go up. You can bet they
will go down. And yet psychologically, psychologically it feels bad
to know that someone is betting for prices to go
down for you know, bad things to happen, and the
rest of us because most people are long stocks, right,
(18:48):
they're betting they go up, and the rest of us
want it to go up.
Speaker 1 (18:50):
Yeah, they're either long stocks or they're just not in
the market. Right. It's like there's a sort of vibe
of like, if you can't say something nice, don't say
it at all. But whatever, shortening is a thing, and
mechanically it's it's interesting, right You What you do is
you actually borrow a stock that you don't own, and
then you sell it and then later you buy it
(19:11):
back and pay back them alone when it's cheap. When
it's cheap, you hope, and if the price goes down,
you make money, and if the price goes up, you
lose money. So one of Jesse Livermore's first big, big,
big shorts was he bet against the railroad union Pacific.
You can't bet against America any more than that, right,
Like they're uniting America.
Speaker 3 (19:31):
Everyone's piling to railroad stocks, and I don't know, he
gets a premonition and idea. Nobody really knows, but he
bets against the stock and what do you know, nineteen
oh six San Francisco earthquake. Huh, train station's destroyed, rails twisted.
It takes a while for the news to filter out,
but sure enough the stock goes down and eventually it plunges.
(19:56):
Jesse Livermore makes a quarter of a million dollars. Okay,
nineteen oh six, Right, he's short the market again in
nineteen oh seven.
Speaker 1 (20:04):
I know what's gonna happen in the year two. It's
another panic, a big one. One of my favorite panics,
if I might eventually.
Speaker 3 (20:12):
This came from some investors trying to cor to the
market in copper perfect and you know, they had borrowed
all this money to do so. They were going to
control the market, set the prices, make millions. They failed
to do so, they're out of business. The banks that
lent the money they're in trouble. People know this and
start to pull their money out. It's a classic bank run.
Speaker 1 (20:32):
And remember at the time, the US didn't have deposit
insurance like we have today, the government that didn't stand
behind the banks, and there also was no central bank,
the Federal Reserve didn't exist yet, and in fact, part
of the reason the Fed was created was for moments
like this, right, these moments when even though the economy
is basically sound, everybody is trying to pull their money
(20:53):
out of the bank. Everybody wants to call in loans
and nobody wants to lend, right, And so you need
some lender of last resort, somebody to lend money to
people who are basically sound but just need money because
it's a panic.
Speaker 3 (21:05):
Yeah, and the way its infected the stock market, right,
because the stock market technically wouldn't have that much connection
to copper in some of those happening.
Speaker 1 (21:12):
With a bank.
Speaker 3 (21:14):
Except at this time, not everyone was in the stock market,
but the few who were were doing this margin trick.
They were borrowing money. They're borrowing money from banks to
buy stocks, investment firms to buy stocks. And I didn't
believe this was possible. But companies would lend money to
people so that they could buy stock in their own company. Yeah,
(21:36):
they would issue stock, take that cash, lend it to
people who would then buy more of the stock of
the company.
Speaker 1 (21:43):
Tell me they did it again after that seems bad, right,
So everyone's leveraged.
Speaker 3 (21:50):
The panic comes and here is Jesse Livermore somehow short
the market.
Speaker 1 (21:54):
He thinks it's going to go down.
Speaker 3 (21:56):
Now, what happened in the panic? Is JP Morgan, very
rich and powerful banker at the time. He eventually gets
a bunch of bankers together and says, we're going to
get together the loans and guarantees and money to stabilize
the market.
Speaker 1 (22:09):
Yeah, basically, because the US didn't have a central JP
Morgan was playing the role of the central bank.
Speaker 3 (22:15):
There's another dude, Jesse Livermore, who has bet against the
market and is doing extraordinarily well during this panic. Right,
he is apparently up around a million dollars and he
hasn't even like covered his short bets yet. He just
expects the market to go down and down, and he
is driving it down. He wants this to go to
(22:37):
the bottom so that he can make his big score,
the biggest score of all time. Right, he's thirty one
years old. The boy Plunger is finally at the center
of the action and a messenger comes to him. A
messenger comes to him from JP Morgan, and JP Morgan says,
for the good of the country, we need you to
(22:59):
start buying again. We need you to close your shorts
and to stop pressuring the market. And he does it. Huh,
he does it. He buys, the stock market starts to
go up. So Jesse Livermore ends up making more money,
ends up making three million dollars, but more than that.
And you tell people about this. J. P. Morgan knows
(23:20):
his name. A great man came to him and asked
him to hold back. And this is a beautiful moment
for Jesse Livermore. He finally feels like he has made
it on Wall Street.
Speaker 1 (23:31):
Huh.
Speaker 3 (23:32):
At this point, Jesse Livermore is a famous invested right
at age of thirty one, He's all over the papers.
Eventually he talks to a reporter Edwin Lefevre. I don't
know how to quite say his name, but he has
this famous book called Reminiscences of a Stock Operator, and
it's essentially this fictionalized biography of Jesse Livermore as told
to the reporter. So Jesse Livermore gives him all of
(23:54):
these notes and Edwin sort of makes up this story,
but it's essentially everyone knows that this is the story
of Jesse Livermore, and this book is still to this
day famous on Wall Street. It is still a book
that people buy or give to you know, give to
you on the first day of your trading at a
firm because it has all of these like hard bitten
(24:15):
rules for stock trading, right.
Speaker 1 (24:17):
Or what do you say it still is? You mean
it was twenty five years ago. I'm curious. I think
today they'd be like, what's a book?
Speaker 3 (24:25):
Yeah? I think I looked it up. It is still
like not a bestseller, but like people still buy this book. Right,
and so his number one rule and the rules are
in the book.
Speaker 1 (24:33):
Right.
Speaker 3 (24:34):
Number one rule is don't take tips of any kind,
no matter where they come from. Huh, says the man
who often gives tips to the newspaper. But yes, but
don't take.
Speaker 1 (24:42):
The tips, right, So he knows you shouldn't it right.
Speaker 3 (24:45):
Don't worry about catching the top or the bottom of
the market.
Speaker 1 (24:49):
Smart, hard, very smart to this day. Right.
Speaker 3 (24:52):
Keep the number of stocks you track to a manageable number.
Speaker 1 (24:56):
Disagree with that one. Love an index fund? They hadn't
been invented yet though.
Speaker 3 (24:59):
Is this before index funds? He had to keep it
all in his head. Don't buy too many stocks, right,
take your losses quickly. And don't brood about them.
Speaker 1 (25:08):
I mean amazing to say, so hard to do in life.
Just in investing.
Speaker 3 (25:13):
He had a rule where if a stock was down
ten percent and he was betting that it would go up,
he'd just sell it and then not think about it again.
Speaker 1 (25:20):
I mean, I'm still thinking about the lasagna I made
last night that definitely should have been four noodles wide,
but I only did three, so all the goog slipped
out on the scene.
Speaker 3 (25:28):
It was down ten percent in volumes.
Speaker 1 (25:29):
Yes, you should have you should have sold it, should
have should have just got rid of it.
Speaker 3 (25:33):
So Jesse livermore super famous at this point, and this
actually gives him the final key to become the investor
who's going to become like just to go back over
his career, right, master of the numbers, of no emotion,
of just looking at the numbers.
Speaker 1 (25:49):
Right.
Speaker 3 (25:50):
Then he had the technology, you know, he had the
way to get information quick and make moves quickly. And
the third one is if you have the money and
you are rich and famous and people listen to you,
you can move markets yourself.
Speaker 1 (26:06):
Hah.
Speaker 3 (26:07):
You can start to use that fame to like nudge
things here and there, to make things happen.
Speaker 1 (26:14):
Kind of foreshadowing the Buffet story that we're going to
get to later. Right, Like, in certain contexts, Buffett can
get a good deal because he's Buffett, Like you're saying,
this is Jesse Livermore at this point.
Speaker 3 (26:25):
Yeah, And this is when the stock market is reacting
in such a way that people are sort of looking
at the second and third order things, not just like
is this a good company? Is it going to go up?
But like who's investing this way? Who's investing that way?
You know, is someone trying to corner this market? Maybe
I should get in on it?
Speaker 1 (26:42):
Right?
Speaker 3 (26:43):
Is somebody making the stock go up? They had these
things called syndicates, right, you know, the these trading clubs
where people would essentially decide they were going to make
a stock go up. They would all buy it, trade
it to each other, I know, not legal now, pump
the stock up, and then they would when the stock
price is up, they would sell it and make a
(27:03):
ton of money, which sounds bad, except the rumors would
start to go through the stock market. Oh so and
so is starting a club. They're going to make the
stock price go up, and people would pile into it
knowing it was fake.
Speaker 1 (27:15):
Yeah, okay, right, so everybody is just gambling. They're just
all kind of spinning the roulette wheel. And it was legal, right. Importantly,
the sort of modern regime of market regulation that we
live in now didn't exist.
Speaker 3 (27:27):
Yeah, and Livermore, he's basically living the super rich guy
life at this point. He's got the shirts of Egyptian cotton.
He has this chain that he always wears. It has
a little gold pencil on one side and a little
pocket knife on the other, which I don't know, maybe
is to carve the pencil or maybe shive the guy
on the other end of the deal. Yeah, exactly. If
(27:49):
you were trying to corner the cotton market, people were
going along with you. He apparently put lifts in his shoes.
He was already a tall guy, but this made him
six feet tall.
Speaker 1 (27:58):
That's tall. If lifts six feet tall.
Speaker 3 (28:00):
He's well for the time. Right, he's married, but he's
dating famous show girls on the side. Right, it's all
in the papers. People want to be Jesse Livermore. And
in the nineteen twenties, there is an easy way to
do it. All you have to do is bet on
the hot technology of the time, a technology that would
(28:22):
transform the country a miracle.
Speaker 1 (28:25):
Everyone wanted to be part of the magic, which was
Radio Radio Corporation of America RCI. Ladies and gentlemen, it's
the radio.
Speaker 3 (28:39):
I don't know why you have to do that. They
didn't have headphones.
Speaker 1 (28:41):
You love the radio. I should just say, as a
personal manner, you love radio more than anyone I know.
Under the age of eighty, I still listen to AM radio.
That's how much I love radio.
Speaker 3 (28:54):
And at the time, like you could see that, people
thought like, oh, this could be everything, Like this is
how we will learn and communicate, and like all of
our entertainment right would be on the radio. They could
see that other things would come right. But I think
the important thing was that it was so accessible to
(29:14):
be a part of it. Like at this point, the
stock market was easy. Right at the beginning of the twenties,
RCA stock is one dollar right nineteen twenty nine, one
hundred and fourteen dollars a share, and there were stock
splits in there, so like you were making a ton
of money. It didn't seem like anything could happen. It's
the tech stock.
Speaker 1 (29:33):
Of its day, It's the Nvidia of its day or whatever.
Speaker 3 (29:36):
Exactly, and at this point, like more and more money
is coming into the market. There are stories of investment
firms saying, like, you know, where are we going to
get more investors. One head of investment firm like looking
out on the streets of the city and saying, they're
all out there, they can all be investors. And apparently
(29:57):
at the time there are sort of stock touts, you know,
who would stop people coming out of bars and restaurants
and be like, you know, you want to buy some
stock in Radio Corporation of America.
Speaker 1 (30:08):
First of all, always say no if someone asked you that.
But if you said yes, what would happen?
Speaker 3 (30:14):
I think they would drag you down to some investment
firm and they would get your money. And remember they're
going to lend you the money to buy more stock.
And the stock goes up. You feel rich, they feel rich,
everybody feels rich. And at this time we now have
the Central Bank, the Federal Reserve is in place, so
(30:35):
the Panics have sort of died down a little bit.
Stocks are going up. People are pouring in and they're
doing these tricks that they call painting the tape, which
just ways in which you can get the numbers to
go up inside. Investors can do this because at the time,
there are not a lot of rules in the market.
Because the rules were set up for rich people. They
(30:56):
didn't really conceive of the fact that someone with a
real job would put their entire life savings.
Speaker 1 (31:02):
Yeah, and in general, the economy was much less regulated.
Finance was less regulated. Right, there's still no insurance for banks.
The idea is like people are going to do whatever
they're going to do. Good luck.
Speaker 3 (31:13):
So Jesse Livermore looks out on this and he has
one of his intuitions and it's not the craziest intuition
in the world, which is, you know, maybe the stock
market's too high. I think I'm going to bet against it.
And he had this technique, not advising this. I don't
know if it works, but at the time there were
(31:34):
sort of big stocks and smaller stocks, stocks that had
huge volume, and stocks that people barely traded in. And
he looked at the big stocks, the ones that it
was hard to manipulate the markets, maybe even the RCAs right,
and he found that they had sort of hit a plateau,
but a lot of the smaller stocks were continuing to
bid up in price.
Speaker 1 (31:54):
The smaller stock is the easier it is to manipulate
the price, right, Like you couldn't get twelve to your
buddies and move the price of RCA because there was
too much money in it. But some little company nobody'd
ever heard of yesterday. Sure.
Speaker 3 (32:06):
Yeah, So in nineteen twenty nine, remember everyone's watching each other,
he begins a seat plan right, apparently has hundreds of
people working for him, starting to short various stocks. He
doesn't want anyone to know that Jesse Livermore hates the market.
He wants someone to think Jesse Livermore is all in right,
and so he makes these bets that the market's going
(32:27):
to go down, huh in secret, in secret, huh.
Speaker 1 (32:30):
And then.
Speaker 3 (32:32):
Black Thursday, Black Monday, Black Tuesday. Right, he's eleven percent down,
thirteen percent down. There's a book that I love called
Devil Take the Hindmost by Edward Chancellor.
Speaker 1 (32:45):
Have you read this? I have not. I don't know.
It really good.
Speaker 3 (32:47):
It's a history of speculation goes for hundreds of years.
Speaker 1 (32:50):
The name Devil Take the Most. It's like the thing
of like if a bear is chasing you in another guy,
you don't have to be faster than the bear. You
just have to be faster than the other guy. It's
that basically, right, Yeah, it's the speculator's credo, right, I
just got to get out before the other schmuck.
Speaker 3 (33:06):
He has this great description of black Tuesday, when the
stock market crashes. I love this quote. On the floor,
a broker grabbed a messenger by his hair. Another fled
the floor, screaming like a madman. Jackets were torn, collars dislodged.
Clerks in their frenzy lashed out against each other. And
(33:26):
then then the technology starts to fail. The Transatlantic cable broke,
the ticker stopped running, the telephone lines became clogged, and
apparently at the time, Western Union hired taxi cabs to
send messages across New York. At one point on Wall
Street and step on it, and there is Jesse Livermore.
He's sitting in silence on Fifth Avenue, or he's trying
(33:49):
to sit in silence because the phone keeps ringing and
people are starting to blame him for the crash, getting
death threats. People are like, is this you? Are you
doing this? He denies causing the panic to The New
York Times, and a lot of people don't believe him, right,
because he's pulled off this before, I made millions of dollars, right,
They think he has some control over the market. But
(34:13):
the truth is scarier. The truth is that finally no
one has control over the market. When the stock market
was smaller, you would hear these stories of big investors
coming in moving the market right, cornering the cotton trade.
Speaker 1 (34:27):
Or like nineteen oh seven JP Morgan getting everybody together
to stop the panic.
Speaker 3 (34:31):
But in nineteen twenty nine, because of their efforts, the
stock market is now so big that no individual can
do anything about it. And some bankers did try in
the few days before this Black Tuesday to pour money
into the market, and it was like a bottomless pit.
It just kept going down, and so by the end
(34:52):
of Black Tuesday, people are just ruined, absolutely ruined. Jesse
Livermore on Fifth Avenue gets in his rolls Royce and
goes back to Long Island to his mansion. The first
thing he notices is that his family isn't there. His
wife and his two kids are gone, nowhere to be seen.
He notices the paintings have been taken off the walls,
(35:16):
the Persian rug rolled up and gone.
Speaker 1 (35:19):
Right. He's like, where is everybody where's all our stuff?
He goes up to the safe.
Speaker 3 (35:24):
She's got right opens the safe. His wife's jewelry is gone.
It's expensive collection. He's panicked and he's, you know, thinking,
I don't know you have they been taken?
Speaker 1 (35:34):
You know?
Speaker 3 (35:35):
Did they flee? Like like, what has happened to my family?
And he runs downstairs sees some servants. He's like, what happened?
What happened to the family, And they say, oh, go
look in the chauffeur's house. All right, So trumps down
to the chauffeur's house and there they are his wife
and two kids, like in one room with the paintings
(35:56):
and the Persian rugs and the jewels, and his wife's
like I heard on the radio. I heard on the
radio that everyone is broke, everyone has lost their money.
And I wanted to make sure we had all the
stuff and protect it and if we need to like
hawk these jewels, like we can do it to survive.
(36:18):
And Jesse Livermore is like, oh no, no, no, no, no,
you don't need to hawk your jewels. I just had
the best day I have ever had in the stock market.
We're gonna be fine. How much did he make. He
made profit and equity one hundred million dollars. Wow, that's
(36:39):
more than one point eight billion dollars in today's money.
Speaker 1 (36:44):
That's extraordinary.
Speaker 3 (36:45):
It's extraordinary in one day. And it's even more extraordinary
because who can you even brag to everyone you know
is bankrupt, the country is devastated, and you just made
one point eight billion dollars.
Speaker 1 (37:01):
We'll be back in just a minute. It's the end
(37:24):
of the ads, Robert, Let's do the end of the show.
Speaker 3 (37:27):
So after Jesse Livermore pulls off what people would call
the greatest trade ever, we don't know much about how
he celebrated, because the man who basically had a reporter
or write a fictional autobiography of him, all of a
sudden isn't really.
Speaker 1 (37:42):
Talking to the press. Good move, Yes, we do know that.
Speaker 3 (37:45):
In nineteen thirty one, he hired the entire Barnum and
Bailey circus to perform on his lawn for his son's
eighth birthday.
Speaker 1 (37:53):
Bad move, nineteen thirty one. Depression is setting in. Don't
hire the literal circus to perform on your literal front lawn.
Speaker 3 (37:59):
It seems it seems like a bad look, right, But
as I read the rest of his story. This may
have been the best moment that he had, you know,
celebrating his on his birthday. There's like a fire breather
on his lawn. Elephants, right, trapeze artists. Because everything that
comes after this, I don't know. It just feels like
(38:23):
it is a letdown after his huge success and like
some literal bad bets. Right, we know he's still making
bets on the stock market, amazingly enough, right after getting
all that money.
Speaker 1 (38:36):
Like, why would you stop at that point?
Speaker 3 (38:38):
Well, you know, it's funny. In the book nineteen twenty nine,
the new book by Andrew Ross Sorkin, Jesse Livermore is
complaining about some bad bets and he was forced to
ask the financierarm reading from the book now nineteen twenty nine,
is forced to ask the financier Arthur A. Robertson for
a loan of five thousand dollars, and Robertson says, do
men of your kind put away ten million dollars where
(39:00):
nobody can ever touch it. Jesse Livermore says, young man,
what's the use of having ten million if you can't
have big money? Like he's an addict and he loves them,
even though he could retire obviously for the rest of
his life. When he appears in the newspaper, Jesse Livermore
is dating more showgirls, He's fighting with his wife, his
(39:22):
wife is drinking more. His kids he barely saw them
and send them way to private school. He ends up
getting a divorce, and there's this really sad story about
the divorce. He goes to Nevada to get like an
easy divorce, right, stands with his wife in front of
the judge, and Jesse Livermore is like, take anything you want,
(39:43):
take it all, Like, just take anything you want. The
divorce is final, and his wife turns to her lover
in the courtroom and has the same judge marry them
right there minutes after the divorce.
Speaker 1 (39:58):
Does is it actually make you sad to hear that story?
I'll admit I find it funny? Does that make me
a horrible human being? I'm like, listen, you spent more
time with Jesse Livermore than I did. Maybe that's why
I grew fond of him, right, And I also saw
this weird thing, right that you can have so much
success and still like ruin your life, fall into absolute
(40:19):
depression like the country itself, right, and then there's all
this anger at Jesse Livermore for what they felt was
like a trick or a manipulation of the market. And
you know, it's like in the Boom Times, it's all
Jay Gatsby and everyone wants the gold chains with the
little pencil and the little carving knife on the other side.
But after the crash, everybody's like, oh, we got to
(40:42):
have congressional hearings. We have to have regulations, we have
to punish the bankers, we have to punish the investors,
and especially the short right, especially like not only was
this guy, some Wall Street guy who never contributed anything,
he bet against everybody.
Speaker 3 (40:58):
And so of course, of course there are congress people
who are like, we need to ban short selling. This
wouldn't happen if people weren't betting that the stock market
goes down, which, if you know anything about economics, is
a terrible idea.
Speaker 1 (41:12):
Oh yeah, I mean I love shorts, right, Like you know,
I mean there is this bigger question that's really interesting here, right,
and that is what's the stock market for? Yeah?
Speaker 3 (41:22):
To get rich? Right?
Speaker 1 (41:23):
Well, yes, yes, I mean that it is useful that
ordinary people can get a piece of big companies. That
actually is a good thing. But that doesn't mean that
it's good for the stock market to always go up, right, Like,
you want stock prices to reflect reality, right, And I
know this may seem naive people like, oh so, dom,
(41:46):
are you really that dumb? I think in the long run,
they're better than anything else.
Speaker 3 (41:50):
Right.
Speaker 1 (41:50):
You want the price of a company's stock to reflect
the you know, net present value of all that company's
profits forever. You actually do want that because that means
that the better companies will get more investment money and
the worst companies will get less investment money. And shorts
play a really important role in this, right, because the
companies incentive are all on the side of talking about
(42:11):
how they are. The investors who are long who are
buying stock, have the same incentive to talk about how
great they are. The short is the only person in
the system who has a financial incentive to just look
at a company and say, like, I think it's too
expensive or in some cases, I think it's a fraud. Right,
And like, you want people to be able to profit
(42:31):
by seeing that a company is too expensive. It makes
the market work better, It makes the economy work better,
and it makes me. It drives me up the wall
where people don't get that.
Speaker 3 (42:41):
Frankly, we talk about the wisdom of crowds, but the
key to that is that people have to have different
opinions about what's going to happen, and they have to
be able to risk their own money on a bet,
essentially in order to show you how serious they are
about it.
Speaker 1 (42:57):
Yes, like, what if I told you there was a
way that people could be financially incentivized to go root
out companies that are lying about themselves. Great, let's do that. Okay,
it's shorting now.
Speaker 3 (43:08):
Clearly after the crash, some rules need to be put
in place, not banning short selling, but you know there
are little rules like, oh, I don't know. Companies should
have to report regularly about how they're doing and how
much money they have. You shouldn't be able to have
insider trades that inflate the price of a stock, you know,
painting the stock as they called it. You shouldn't be
(43:30):
able to do that. And if you're going to try
to corner the market or take over a company, you
should have to declare when you have a certain amount
of stock in that company. These are all good things transparency.
And there's lots of arguments about investment banks and banks
and what their rules and reserves and all this stuff
should be. But clearly we are in an age of
sobriety and of regulation, and it's just a matter of
(43:53):
how much regulation there is going to be People like
Jesse Livermore this day of like, I'm going to feel
the numbers. I can do anything I want.
Speaker 1 (44:02):
I can secretly have a bunch of people go make
shorts without saying I'm the one doing it. Yeah, that
is going to disappear. And to be clear of these
rules that are coming into place in the kind of
mid thirties, right just as Jesse Livermore is sort of
going down, These are creating the market regime we still
live in, right, Like the SEC the security is an
exchange commission. This is created at this time, like the
(44:24):
modern market is born. Just at the end of Livermore's career.
Speaker 3 (44:28):
And there really isn't a place for Jesse Livermore anymore.
He declares bankruptcy. What happened to the hundred million dollars?
I have no idea. I don't know if he had
any idea. He made bets. They were bad bets. He
had the divorce, bankruptcy, so many mistresses, right, he just
lost the money. And then years after the crash November
(44:51):
twenty seventh, nineteen forty, Jesse Livermore still at an office.
He was still trading. He still wanted to like have
another big score. And he goes to the bar at
the Sherry Netherlander Hotel where he had lived for a while,
and they put a Manhattan in front of him. He
didn't even have to ask. He was your regular Manhattan.
And he's scribbling in a notebook. People recall this and
(45:14):
they give him another Manhattan drinks it keeps scribbling the notebook,
and then he excuses himself and he goes to the
cloakroom there at the hotel and he shoots himself with
one of his pistols he had in his immense collection
of firearms that he had when he was rich. He
was cremated the next day. Apparently only a few people
showed up for his funeral. A newspaper looked into the
(45:35):
probate records and the final tally on his big chalkboard
ten thousand dollars in assets, three hundred and sixty one
thousand dollars in liabilities, he died underwater.
Speaker 1 (45:48):
Died underwater.
Speaker 3 (45:50):
It reminds me of a saying he used to have,
and remember he would pass out these sayings like stock
tips right. He said, there's nothing like losing all you
have in the world for teaching you what not to do.
Speaker 1 (46:01):
Robert, what's the next show in your Great Investors series?
Speaker 3 (46:06):
Nineteen thirty, the year after the Great Stock market Crash?
A young man is born, almost the baby if you will.
Speaker 1 (46:14):
Keep going, keep going.
Speaker 3 (46:15):
At the infant a baby in arms. And that baby's
name Warren Buffett. What's his middle name? I wanted to say,
Warren G.
Speaker 1 (46:24):
Buffett, Warren G. Buffett, Warren Buffett middle name Edward one,
Edward Buffett, Baby Buffett. You can reach us via email
at Business History, at Pushkin dot fm FML like the radio,
my Twitter, it will always be Twitter to me. Handle
(46:47):
is just Jacob Goldstein or at Jacob Goldstein. As we
used to say, how do people reach you? Robert Smith,
I'm on X. I'm at Radio Smith Radius smith Man
loves the Radio. Our producer is Gabriel Hunter Chang, our
engineer is Sarah Bruguier, and our showrunner is Ryan Dilly.
I'm Jacob Goldstein. And I'm Robert Smith. We'll be back
next week with another episode of Business History, a show
(47:09):
about the history wait for it, of business Robert Smith.
As you know, there is nowhere in Pushkin's office to
make a video to make a video podcast, which is unfortunate.
We tried and it was described as two gray men
in a gray box, and reasonably so fortunately for us.
(47:31):
In an amazing coincidence, literally down the hall from Pushkin's office,
there is the showroom of a company called Buzzy Space.
This is a company is where we're sitting right now,
and what they do is they design furniture and acoustic
solutions that make I'm reading here workplace is more comfortable,
more creative, and more fun. I would even say cozy.
(47:52):
Their furniture is like sort of curved and interesting colors,
and I guess keeps things quiet. Yes, honestly, I wish
our office was this showroom. You can find more at
Buzzy dot Space. That's Buzzi dot Space.
Pushkin too quick.
Speaker 2 (00:19):
No, it's perfect push kit stop you got it?
Speaker 1 (00:37):
Hi, Robert, Hello, chickib Jacob.
Speaker 3 (00:40):
I want to talk about the big stock market crash
of nineteen twenty nine, The big one, the big one.
It's very much on our minds these days. And you know,
is it very much on your mind? It is very
much on my mind. Is the bubble sort of inflates?
Speaker 1 (00:55):
Right, it's not going to be that bad. It's not
going to be.
Speaker 3 (00:58):
Always think about a crash as like this single moment. Right,
it's a crash. It's like a car crash, like boom.
But in October of nineteen twenty nine, it was way
more painful than that. It was actually like six days
ease of dread and pain, gut wrenching fear.
Speaker 1 (01:16):
Right.
Speaker 3 (01:16):
It starts on Black Thursday, October twenty fourth. Stock prices
start to go down, down at some point around eleven percent. Okay,
that's bad, but like normal, dad, Yeah, it doesn't feel
good news. It's definitely news. On Friday, people buy the dip.
Banks sort of come in to back everyone up. Things
are looking okay, but it takes them all weekend to
(01:37):
go through all the stock orders on paper. It's paper
then right, people are going wild. Right, Monday morning comes.
Monday's are always hard. This one was black black Monday
down thirteen percent market.
Speaker 1 (01:50):
Yes.
Speaker 3 (01:52):
And then we get to the morning of Tuesday, October
twenty ninth, and everyone in New York seems to know
something bad is coming.
Speaker 1 (02:01):
Tourists.
Speaker 3 (02:03):
Tourists start to go down to Wall Street to see
like they heard, like something bad's gonna happen.
Speaker 1 (02:09):
The crash is coming.
Speaker 3 (02:10):
So they're in the streets. Police have set up barricades.
People are bringing tour buses down parade. But for they
are looking to lose at a car crash, right, And
there is this sickening feeling inside the investment firms that
they need to sell. They need to get out. Everybody
needs to get out.
Speaker 1 (02:29):
That's a bad moment.
Speaker 3 (02:30):
That is a bad moment. The most famous speculator of
the day was nowhere to be seen in Wall Street
or downtown. Jesse Livermore. On this morning of Tuesday, he
leaves at exactly seven to twenty from his mansion. He's
got a driver's driving into the city. He says, take
me uptown. Doesn't go to Wall Street. He goes to
his office on Fifth Avenue, and this office was amazing,
(02:54):
mahogany leather seats. They've got these giant chalkboards and people
are writing stock quotes on the chalkboards, like.
Speaker 1 (03:01):
The Bloomberg terminal of its day is a kid writing
stock quotes.
Speaker 3 (03:05):
He got forty stock tickers under the glass. You know
they're going along right. No one is allowed to talk
because he wants complete silence on this day because he
wants to sit and he wants to think about what
is happening in the stock market.
Speaker 1 (03:20):
I love that. So like downtown people are screaming and
yelling and then just it's just in the silent office.
Speaker 3 (03:26):
Well, Jesse Livermore at this point has been trading stocks
for like thirty five years. He started when he was
fourteen years old. Super famous. He's made millions, lost millions.
And he had this theory that you should not be
guided by emotion in the stock market, and on this
day the stock market was nothing but emotion. He just
(03:48):
wanted to sit and think about it. I'm Jacob Goldstein,
I'm Robert Smith, and this is Business History.
Speaker 1 (03:55):
A show about the history of business. There you go.
Speaker 3 (03:58):
Today we begin a series of stories about the great
minds of the stock market over the last one hundred years.
We're going to look at people who took the stock
market from wild West gambling to intellectual investing. We'll look
at the speculator today. Jesse Livermore. That's the wild West
gambling part YEP. The Great investor, Warren Buffett.
Speaker 1 (04:17):
The Great Investor.
Speaker 3 (04:20):
You love it when I say that, Warren Buffett.
Speaker 1 (04:22):
Warren Buffett, and Jim Simon's the quant guy who brought
math to the games. So much big and so much money.
Speaker 3 (04:31):
Now, you could look at this series and I don't
blame you as this sort of guide to getting rich. Right,
these people did it. Maybe you can do it too,
but I see it completely differently. Right, So, each of
these men discovered a flaw in the stock market. They
exploited that flaw, they made money, and by doing so,
(04:53):
they closed the flaw and the flaw didn't exist anymore.
So this is really a story as you look about
this history of investing of the stock market getting better,
more efficient.
Speaker 1 (05:01):
Uh huh. Right, people find a flawed they get rich.
Other people see that person getting rich and as a result,
basically that flaw goes away.
Speaker 3 (05:09):
Jesse Livermore, who we're going to talk about today, he
saw the flaw, he made the bets, he made fortunate
and fame. He became a legend on Wall Street, and
then he met a tragic end.
Speaker 1 (05:20):
So, Robert, where are we starting the story of Jesse Livermore.
Speaker 3 (05:22):
Let's start in a farm in rural Massachusetts. The year
is eighteen seventy seven, and Jesse Livermore is born to
a farming family at the time. You know, this is
not how you would start in a career in Wall Street.
But Jesse Livermore had this gift for math, for numbers.
He would later say that he could like feel numbers
(05:44):
in his soul, whatever that means. Right, But at the
age of fourteen, probably to escape going to the fields,
he goes to Boston instead, and he shows up at
the storefront of a stockbroker Payne Weber heard of it, yes,
to exist in our childhood, right right, right, So that
was the stock office at the time. And he walks
(06:05):
inside and he sees this scene and it's more like
a gentleman's club than anything.
Speaker 1 (06:09):
Right.
Speaker 3 (06:10):
There are chairs where people can sit and watch the
stocks move. And the way they watch the move is
there are these giants chalkboards, and there are these boys
the chalkboard boys who would write the quotes in the
little squares on the chalkboard, and the men would sit
there and drink and watch this, and there's the ticker
going off in the background with all the stock quotes,
(06:30):
and they update.
Speaker 1 (06:32):
Edison had invented a better stock ticker. Right, that was
like one of his early things. Yeah, so this was
like a big thing, right. It was like going to
the horse races or something. Right, And so for years
Livermore is a chalkboard boy. And he says that he
starts to see patterns in the numbers. Right, He's doing
numbers all day long, and he could tell if a
(06:55):
stock is moving and it's going to keep moving or
whether it's plateaued. He has these premonitions. I tend to
be skeptical of that in general. Right, Like there's this
thing today called technical analysis where people talk about these
like patterns in the stock chart. Seems dubious to me.
But maybe Livermore knew what he was doing.
Speaker 3 (07:16):
Well. I mean this is obviously before computers or even
ways that people were recording long term trends in stocks.
Speaker 1 (07:25):
I guess the classic thing is if you're the first
one to see a pattern maybe you can make money
off it, and maybe the person who figures it out,
if the person wants to write them in chalk from
morning tonight and is a math genius.
Speaker 3 (07:36):
Yeah, he's like a walking Bloomberg terminal.
Speaker 1 (07:38):
Love that.
Speaker 3 (07:39):
So he does this for a while and he decides
I can do this, I can make money. So he
pools money with one of the other chalkboard boys and
they go to something called a bucket shop. Yes, now,
a bucket shop is a really like sketchy stock trading parlor.
(08:00):
The name comes apparently from the UK, where there were
certain places that would collect the slop that came from bars,
put it in a bucket, warm beer that ran off
the bar, collected in a bucket, and then sell that.
Speaker 1 (08:17):
Is that true? Don't tell me if it's not true.
Is it true? It's true? I want it to be.
Speaker 3 (08:21):
You want a cheap beer, you don't care if it's
warm because you're British.
Speaker 1 (08:24):
The backwash bar, the King's backwash and arms. You can
get a good chip there, a chip buddy. You know
a chip buddy.
Speaker 3 (08:31):
I do know what a chip buddy is.
Speaker 1 (08:33):
French fries, sandwich. I can't believe it.
Speaker 3 (08:37):
So you know what it goes great with that a
bucket of warm slop.
Speaker 1 (08:41):
Oh god, yes.
Speaker 3 (08:42):
So these bucket shops morphed into these sketchy stock parlors,
And the thing about them is they are not actually
buying and selling stocks. At the bucket shops, they are
making bets on the stock prices, but without any of
the like buying and selling and that sort of thing.
So essentially, they make a bet that a stock price
(09:04):
is going to go up. Everyone watches the ticker. If
it goes up, you make money. If it goes down,
you lose money.
Speaker 1 (09:10):
So the bucket shop is like a book taking bets
on the football game, and they just need to have
basically the same amount of money on both sides. And
presumably they take some vig or something.
Speaker 3 (09:19):
Yeah, and you could even borrow money. You could do
this on margin. So essentially you could use a small
amount of money to make large bets. Yea stock goes down,
they take everything. Stock goes up, you can make a
lot of money.
Speaker 1 (09:30):
And zero day options today are a little bit like this,
right there are a way to make what is sort
of essentially a leverage bet on what the stock is
going to do today, and you're not buying or selling
the stock.
Speaker 3 (09:39):
It's it's pure speculation. Yeah, I guess that's I guess
that's right. So you know it has more to do
with luck really than anything else.
Speaker 1 (09:47):
Or if you are a math genius who spent ten
years writ numbers out of chalkboard.
Speaker 3 (09:51):
You have it in the fingers. Apparently Livermore was so
gifted to the bucket shops that he gets the highest honor,
which is to be banned from them.
Speaker 1 (09:59):
Oh just like sports betting apps today, literally what sports
meta apps do too.
Speaker 3 (10:03):
He's really good at they ban him. There are stories
of him putting on disguises no, and sneaking into the
shops with like a mustache or a little wig or something,
getting caught.
Speaker 1 (10:12):
John Livermore, you don't know, man, I'm Jesse Jones.
Speaker 3 (10:20):
So you make some money. He gets thro out of
these shops. At the age of twenty, he has enough
money to finally hit the big leagues. He goes to
Wall Street and he goes to the office of E. F.
Speaker 1 (10:30):
Hutton. Also heard of the F. Hutton. This is not
the investment company of E. F. Hutton.
Speaker 3 (10:36):
He goes to E. F. Hutton, the man himself.
Speaker 1 (10:39):
Oh my dad took sat prep from Kaplan, from the
man in Brooklyn in the nineteen fifties. So he said, Kaplin,
what kind of boards you need to get into Princeton?
And Kaplan said the moon.
Speaker 3 (10:52):
That's too good. Well, well let's imagine that. EF Hutton
said that. You know, Jesse Livermore has got his small
amount of money and E. F. Hutton's life give it
a try, kid, Okay, and Jesse Livermore boy plunger, they
had called him, and the plungers plunger. He plunges into stocks,
He goes to the stock mark, he buys some stuff,
He gets his ass absolutely kicked. Didn't see that content
(11:16):
to him because of this weird little thing.
Speaker 1 (11:20):
Right.
Speaker 3 (11:21):
He is used to betting on numbers. He bets on
a number. Second later the number goes up, the number
goes to top life.
Speaker 1 (11:28):
This is his bucket seup life.
Speaker 3 (11:29):
Yeah, but when you're actually trading stocks, you have to
make a bid on the stock. You see what the
price is and it's delayed a little bit, right, you
make a bid on the stock that needs to be
written down and handed to someone on the floor who
has to make that bid.
Speaker 1 (11:41):
Right. This is the dude's yelling at each other era
of stock trading.
Speaker 3 (11:45):
Yes, and so that takes time and you maybe can
get the bid you want, maybe you can't. All this
has to go through all these systems, right, great example
of this is the Panic of nineteen oh one.
Speaker 1 (11:59):
One of the lesser known panics.
Speaker 3 (12:00):
This one is like a railroad panic.
Speaker 1 (12:02):
Right, we should say, I mean this word panic a
thing that happened about every ten years. You certainly in
the eighteen hundreds and into the nineteen hundreds was there
were these financial crises that they called panics. So the
panic of nineteen oh one is one of these.
Speaker 3 (12:15):
Yeah, and it was a classic right. A bank had
lent a lot of money to some enterprise that went under.
The bank needed to recall them all the loans that
it made. It had no money in its faults. People
wanted to pull all the money out of the banks.
They had to shut down the banks. Classic panic. People
in the streets.
Speaker 1 (12:32):
Right.
Speaker 3 (12:32):
So, right before the Panic of nineteen oh one, Jesse Livermore,
he has one of his intuitions. He's like, I think
the stock market's going to go down. I think there's
problems here.
Speaker 1 (12:40):
Right.
Speaker 3 (12:41):
He wants to bet against us steel. Okay, classic stock right,
have the.
Speaker 1 (12:44):
Biggest companies in America at that time, Carnegie Morgan.
Speaker 3 (12:48):
So it's at like, let's say, one hundred dollars, right,
So he shorts the stock. He bets against it. He
thinks it's the price is going to go down, and
he's absolutely right. He bets against it. Price starts to
go down. He thinks, I did it, I did it,
I predicted the future.
Speaker 1 (13:02):
I am rich. And then he sees the volume.
Speaker 3 (13:07):
Thousands and thousands of shares are trading hands, and he
realizes that he's in line to trade. He has bet
against the stock, but his trade hasn't actually been put in,
as the stock is going down. By the time he
actually sells this stock, it's at eighty five dollars. This
is as low as he thought it was going to go.
And he's like, oh no, I don't have the price
(13:29):
I want. So he wants to start buying back. He's like,
it's gonna go back up. He starts to go buying back,
but again his order is standing in line. He has
to wait. He goes up, up and up until it's
over one hundred. Again, he loses on the way down.
He loses on the way up.
Speaker 1 (13:44):
So I guess the limit order had not been invented yet.
Just just to be clear, today, it doesn't have to
happen to you because you can say, yes, I will sell,
but only at this price. And if it's not at
this price, I don't want to sell. It was hard
to handwrite that on a little slippery paper, too complicated
that the dude's yelling on the floor. So liberal tip
use living orders instead of market orders is not investing advice.
Speaker 3 (14:07):
Liver War loses twenty five thousand dollars because of this right.
And this was an important lesson because he realized that
timing is everything right as it is and many things
in life. So he goes back to the bucket shops
and make some more money.
Speaker 1 (14:23):
It comes back to Wall Street. It's a new wig.
Speaker 3 (14:25):
He gets a new wig. I think he goes to
like Saint Louis or something. Well, they don't recognize him. Yeah, yeah, yeah,
So this time when he comes to Wallstree, he's going
to do it completely different. Okay, this is when he
sets up his own office, gets his own stock ticker,
and eventually sets up this whole system to get ahead
of what's on the ticker.
Speaker 1 (14:43):
Right.
Speaker 3 (14:43):
Oh, he has his own chalkboard boys, and they would
have wired headphones communicating directly with the floor of the
stock exchange so we didn't have to wait for the
piece of paper to come out. He could beat the
ticker by minutes. Wow, I know. And he has the
information ahead of time.
Speaker 1 (14:58):
That's free money.
Speaker 3 (14:59):
That is free money. And I mean he's not the
only person who does this, but yeah, this is something
that the big wigs were doing.
Speaker 1 (15:04):
And this is a perennial finance story, right, I mean
you have Reuiter's was a dude named Reuter who was
using like the telegraph and carrier pigeons to deliver information.
And then all the way into the like twenty first century,
you had people like building their own private I think
it was fiber optic lines between Chicago and New York
to be like a millisecond faster and make money.
Speaker 3 (15:26):
Like this is this story. This is this story. He's
got the system. Now, he's got a stash of money,
and he's about to enter the perfect period for him,
which is the nineteen tens and nineteen twenties. These wild
stock swings, right, and if you're someone who has money
and information and all of a sudden there's volatility, you
(15:47):
are set up to make a ton of money. Yeah.
Speaker 1 (15:50):
I mean in general, traders love volatility, right, They love
a market that goes up and down a.
Speaker 3 (15:55):
Lot, exactly because you can make big bets and you
can recover from bad bets.
Speaker 1 (16:00):
Right.
Speaker 3 (16:00):
This time is also essential for another reason, which is,
you know, this is the coming.
Speaker 1 (16:07):
Into the Roaring twenties. Right.
Speaker 3 (16:08):
We've talked about the Gilded Age and the nineteen tens
and nineteen ten twenties before in our Thomas Edison show.
People have this new technology of electricity and electric lights
and cars and refrigerators and washing machines. It's an age
of technological miracles.
Speaker 1 (16:24):
Yeah, a mass consumption is beginning, right, But we haven't
talked about the finance side of this. Because people want
to make these big purchases, and all of a sudden
they're able to borrow money to do so. Banks are
willing to lend so that people can take part in
this amazing technological transformation. And at the same time, people
(16:46):
are looking at the stock market. Right, what was once.
Speaker 3 (16:49):
This fringe activity for rich people in the late eighteen hundreds,
All of a sudden, regular people can buy stocks and
guess what they can borrow money to do that too wrong?
What could possibly go wrong? They would borrow money, buy
the stocks, make some more money, buy a refrigerator, and
then put more money into stocks and borrow more. So
(17:11):
this is the era where Jesse Livermore is primed, primed
to start to make his move to make his millions,
and he does it by betting against all those schmos.
Speaker 1 (17:24):
I love dot Mark.
Speaker 4 (17:25):
After the break, all.
Speaker 1 (17:48):
Right, the ads are over, and Robert you teased us
before the break with Livermore betting against the American dream
of the nineteen twenties of Jesse Livermore essentially shorting the boom, right,
shorting the market. And I will just say for now,
I think shorts are vastly underrated. More on that later.
Speaker 3 (18:09):
Yeah, and you should know that like short sell is
a time honor tradition. The very first short was in
like the sixteen hundreds for the very first on the
first stock.
Speaker 1 (18:18):
Yeah, the first stock, the dutchy Cidia company. And like
a minute later, this guy's like, I've got an idea
I could make money if I think it's going to
go down.
Speaker 3 (18:26):
And it's immensely logical. Right, stocks go up, stocks go down,
you can bet they'll go up. You can bet they
will go down. And yet psychologically, psychologically it feels bad
to know that someone is betting for prices to go
down for you know, bad things to happen, and the
rest of us because most people are long stocks, right,
(18:48):
they're betting they go up, and the rest of us
want it to go up.
Speaker 1 (18:50):
Yeah, they're either long stocks or they're just not in
the market. Right. It's like there's a sort of vibe
of like, if you can't say something nice, don't say
it at all. But whatever, shortening is a thing, and
mechanically it's it's interesting, right You What you do is
you actually borrow a stock that you don't own, and
then you sell it and then later you buy it
(19:11):
back and pay back them alone when it's cheap. When
it's cheap, you hope, and if the price goes down,
you make money, and if the price goes up, you
lose money. So one of Jesse Livermore's first big, big,
big shorts was he bet against the railroad union Pacific.
You can't bet against America any more than that, right,
Like they're uniting America.
Speaker 3 (19:31):
Everyone's piling to railroad stocks, and I don't know, he
gets a premonition and idea. Nobody really knows, but he
bets against the stock and what do you know, nineteen
oh six San Francisco earthquake. Huh, train station's destroyed, rails twisted.
It takes a while for the news to filter out,
but sure enough the stock goes down and eventually it plunges.
(19:56):
Jesse Livermore makes a quarter of a million dollars. Okay,
nineteen oh six, Right, he's short the market again in
nineteen oh seven.
Speaker 1 (20:04):
I know what's gonna happen in the year two. It's
another panic, a big one. One of my favorite panics,
if I might eventually.
Speaker 3 (20:12):
This came from some investors trying to cor to the
market in copper perfect and you know, they had borrowed
all this money to do so. They were going to
control the market, set the prices, make millions. They failed
to do so, they're out of business. The banks that
lent the money they're in trouble. People know this and
start to pull their money out. It's a classic bank run.
Speaker 1 (20:32):
And remember at the time, the US didn't have deposit
insurance like we have today, the government that didn't stand
behind the banks, and there also was no central bank,
the Federal Reserve didn't exist yet, and in fact, part
of the reason the Fed was created was for moments
like this, right, these moments when even though the economy
is basically sound, everybody is trying to pull their money
(20:53):
out of the bank. Everybody wants to call in loans
and nobody wants to lend, right, And so you need
some lender of last resort, somebody to lend money to
people who are basically sound but just need money because
it's a panic.
Speaker 3 (21:05):
Yeah, and the way its infected the stock market, right,
because the stock market technically wouldn't have that much connection
to copper in some of those happening.
Speaker 1 (21:12):
With a bank.
Speaker 3 (21:14):
Except at this time, not everyone was in the stock market,
but the few who were were doing this margin trick.
They were borrowing money. They're borrowing money from banks to
buy stocks, investment firms to buy stocks. And I didn't
believe this was possible. But companies would lend money to
people so that they could buy stock in their own company. Yeah,
(21:36):
they would issue stock, take that cash, lend it to
people who would then buy more of the stock of
the company.
Speaker 1 (21:43):
Tell me they did it again after that seems bad, right,
So everyone's leveraged.
Speaker 3 (21:50):
The panic comes and here is Jesse Livermore somehow short
the market.
Speaker 1 (21:54):
He thinks it's going to go down.
Speaker 3 (21:56):
Now, what happened in the panic? Is JP Morgan, very
rich and powerful banker at the time. He eventually gets
a bunch of bankers together and says, we're going to
get together the loans and guarantees and money to stabilize
the market.
Speaker 1 (22:09):
Yeah, basically, because the US didn't have a central JP
Morgan was playing the role of the central bank.
Speaker 3 (22:15):
There's another dude, Jesse Livermore, who has bet against the
market and is doing extraordinarily well during this panic. Right,
he is apparently up around a million dollars and he
hasn't even like covered his short bets yet. He just
expects the market to go down and down, and he
is driving it down. He wants this to go to
(22:37):
the bottom so that he can make his big score,
the biggest score of all time. Right, he's thirty one
years old. The boy Plunger is finally at the center
of the action and a messenger comes to him. A
messenger comes to him from JP Morgan, and JP Morgan says,
for the good of the country, we need you to
(22:59):
start buying again. We need you to close your shorts
and to stop pressuring the market. And he does it. Huh,
he does it. He buys, the stock market starts to
go up. So Jesse Livermore ends up making more money,
ends up making three million dollars, but more than that.
And you tell people about this. J. P. Morgan knows
(23:20):
his name. A great man came to him and asked
him to hold back. And this is a beautiful moment
for Jesse Livermore. He finally feels like he has made
it on Wall Street.
Speaker 1 (23:31):
Huh.
Speaker 3 (23:32):
At this point, Jesse Livermore is a famous invested right
at age of thirty one, He's all over the papers.
Eventually he talks to a reporter Edwin Lefevre. I don't
know how to quite say his name, but he has
this famous book called Reminiscences of a Stock Operator, and
it's essentially this fictionalized biography of Jesse Livermore as told
to the reporter. So Jesse Livermore gives him all of
(23:54):
these notes and Edwin sort of makes up this story,
but it's essentially everyone knows that this is the story
of Jesse Livermore, and this book is still to this
day famous on Wall Street. It is still a book
that people buy or give to you know, give to
you on the first day of your trading at a
firm because it has all of these like hard bitten
(24:15):
rules for stock trading, right.
Speaker 1 (24:17):
Or what do you say it still is? You mean
it was twenty five years ago. I'm curious. I think
today they'd be like, what's a book?
Speaker 3 (24:25):
Yeah? I think I looked it up. It is still
like not a bestseller, but like people still buy this book. Right,
and so his number one rule and the rules are
in the book.
Speaker 1 (24:33):
Right.
Speaker 3 (24:34):
Number one rule is don't take tips of any kind,
no matter where they come from. Huh, says the man
who often gives tips to the newspaper. But yes, but
don't take.
Speaker 1 (24:42):
The tips, right, So he knows you shouldn't it right.
Speaker 3 (24:45):
Don't worry about catching the top or the bottom of
the market.
Speaker 1 (24:49):
Smart, hard, very smart to this day. Right.
Speaker 3 (24:52):
Keep the number of stocks you track to a manageable number.
Speaker 1 (24:56):
Disagree with that one. Love an index fund? They hadn't
been invented yet though.
Speaker 3 (24:59):
Is this before index funds? He had to keep it
all in his head. Don't buy too many stocks, right,
take your losses quickly. And don't brood about them.
Speaker 1 (25:08):
I mean amazing to say, so hard to do in life.
Just in investing.
Speaker 3 (25:13):
He had a rule where if a stock was down
ten percent and he was betting that it would go up,
he'd just sell it and then not think about it again.
Speaker 1 (25:20):
I mean, I'm still thinking about the lasagna I made
last night that definitely should have been four noodles wide,
but I only did three, so all the goog slipped
out on the scene.
Speaker 3 (25:28):
It was down ten percent in volumes.
Speaker 1 (25:29):
Yes, you should have you should have sold it, should
have should have just got rid of it.
Speaker 3 (25:33):
So Jesse livermore super famous at this point, and this
actually gives him the final key to become the investor
who's going to become like just to go back over
his career, right, master of the numbers, of no emotion,
of just looking at the numbers.
Speaker 1 (25:49):
Right.
Speaker 3 (25:50):
Then he had the technology, you know, he had the
way to get information quick and make moves quickly. And
the third one is if you have the money and
you are rich and famous and people listen to you,
you can move markets yourself.
Speaker 1 (26:06):
Hah.
Speaker 3 (26:07):
You can start to use that fame to like nudge
things here and there, to make things happen.
Speaker 1 (26:14):
Kind of foreshadowing the Buffet story that we're going to
get to later. Right, Like, in certain contexts, Buffett can
get a good deal because he's Buffett, Like you're saying,
this is Jesse Livermore at this point.
Speaker 3 (26:25):
Yeah, And this is when the stock market is reacting
in such a way that people are sort of looking
at the second and third order things, not just like
is this a good company? Is it going to go up?
But like who's investing this way? Who's investing that way?
You know, is someone trying to corner this market? Maybe
I should get in on it?
Speaker 1 (26:42):
Right?
Speaker 3 (26:43):
Is somebody making the stock go up? They had these
things called syndicates, right, you know, the these trading clubs
where people would essentially decide they were going to make
a stock go up. They would all buy it, trade
it to each other, I know, not legal now, pump
the stock up, and then they would when the stock
price is up, they would sell it and make a
(27:03):
ton of money, which sounds bad, except the rumors would
start to go through the stock market. Oh so and
so is starting a club. They're going to make the
stock price go up, and people would pile into it
knowing it was fake.
Speaker 1 (27:15):
Yeah, okay, right, so everybody is just gambling. They're just
all kind of spinning the roulette wheel. And it was legal, right. Importantly,
the sort of modern regime of market regulation that we
live in now didn't exist.
Speaker 3 (27:27):
Yeah, and Livermore, he's basically living the super rich guy
life at this point. He's got the shirts of Egyptian cotton.
He has this chain that he always wears. It has
a little gold pencil on one side and a little
pocket knife on the other, which I don't know, maybe
is to carve the pencil or maybe shive the guy
on the other end of the deal. Yeah, exactly. If
(27:49):
you were trying to corner the cotton market, people were
going along with you. He apparently put lifts in his shoes.
He was already a tall guy, but this made him
six feet tall.
Speaker 1 (27:58):
That's tall. If lifts six feet tall.
Speaker 3 (28:00):
He's well for the time. Right, he's married, but he's
dating famous show girls on the side. Right, it's all
in the papers. People want to be Jesse Livermore. And
in the nineteen twenties, there is an easy way to
do it. All you have to do is bet on
the hot technology of the time, a technology that would
(28:22):
transform the country a miracle.
Speaker 1 (28:25):
Everyone wanted to be part of the magic, which was
Radio Radio Corporation of America RCI. Ladies and gentlemen, it's
the radio.
Speaker 3 (28:39):
I don't know why you have to do that. They
didn't have headphones.
Speaker 1 (28:41):
You love the radio. I should just say, as a
personal manner, you love radio more than anyone I know.
Under the age of eighty, I still listen to AM radio.
That's how much I love radio.
Speaker 3 (28:54):
And at the time, like you could see that, people
thought like, oh, this could be everything, Like this is
how we will learn and communicate, and like all of
our entertainment right would be on the radio. They could
see that other things would come right. But I think
the important thing was that it was so accessible to
(29:14):
be a part of it. Like at this point, the
stock market was easy. Right at the beginning of the twenties,
RCA stock is one dollar right nineteen twenty nine, one
hundred and fourteen dollars a share, and there were stock
splits in there, so like you were making a ton
of money. It didn't seem like anything could happen. It's
the tech stock.
Speaker 1 (29:33):
Of its day, It's the Nvidia of its day or whatever.
Speaker 3 (29:36):
Exactly, and at this point, like more and more money
is coming into the market. There are stories of investment
firms saying, like, you know, where are we going to
get more investors. One head of investment firm like looking
out on the streets of the city and saying, they're
all out there, they can all be investors. And apparently
(29:57):
at the time there are sort of stock touts, you know,
who would stop people coming out of bars and restaurants
and be like, you know, you want to buy some
stock in Radio Corporation of America.
Speaker 1 (30:08):
First of all, always say no if someone asked you that.
But if you said yes, what would happen?
Speaker 3 (30:14):
I think they would drag you down to some investment
firm and they would get your money. And remember they're
going to lend you the money to buy more stock.
And the stock goes up. You feel rich, they feel rich,
everybody feels rich. And at this time we now have
the Central Bank, the Federal Reserve is in place, so
(30:35):
the Panics have sort of died down a little bit.
Stocks are going up. People are pouring in and they're
doing these tricks that they call painting the tape, which
just ways in which you can get the numbers to
go up inside. Investors can do this because at the time,
there are not a lot of rules in the market.
Because the rules were set up for rich people. They
(30:56):
didn't really conceive of the fact that someone with a
real job would put their entire life savings.
Speaker 1 (31:02):
Yeah, and in general, the economy was much less regulated.
Finance was less regulated. Right, there's still no insurance for banks.
The idea is like people are going to do whatever
they're going to do. Good luck.
Speaker 3 (31:13):
So Jesse Livermore looks out on this and he has
one of his intuitions and it's not the craziest intuition
in the world, which is, you know, maybe the stock
market's too high. I think I'm going to bet against it.
And he had this technique, not advising this. I don't
know if it works, but at the time there were
(31:34):
sort of big stocks and smaller stocks, stocks that had
huge volume, and stocks that people barely traded in. And
he looked at the big stocks, the ones that it
was hard to manipulate the markets, maybe even the RCAs right,
and he found that they had sort of hit a plateau,
but a lot of the smaller stocks were continuing to
bid up in price.
Speaker 1 (31:54):
The smaller stock is the easier it is to manipulate
the price, right, Like you couldn't get twelve to your
buddies and move the price of RCA because there was
too much money in it. But some little company nobody'd
ever heard of yesterday. Sure.
Speaker 3 (32:06):
Yeah, So in nineteen twenty nine, remember everyone's watching each other,
he begins a seat plan right, apparently has hundreds of
people working for him, starting to short various stocks. He
doesn't want anyone to know that Jesse Livermore hates the market.
He wants someone to think Jesse Livermore is all in right,
and so he makes these bets that the market's going
(32:27):
to go down, huh in secret, in secret, huh.
Speaker 1 (32:30):
And then.
Speaker 3 (32:32):
Black Thursday, Black Monday, Black Tuesday. Right, he's eleven percent down,
thirteen percent down. There's a book that I love called
Devil Take the Hindmost by Edward Chancellor.
Speaker 1 (32:45):
Have you read this? I have not. I don't know.
It really good.
Speaker 3 (32:47):
It's a history of speculation goes for hundreds of years.
Speaker 1 (32:50):
The name Devil Take the Most. It's like the thing
of like if a bear is chasing you in another guy,
you don't have to be faster than the bear. You
just have to be faster than the other guy. It's
that basically, right, Yeah, it's the speculator's credo, right, I
just got to get out before the other schmuck.
Speaker 3 (33:06):
He has this great description of black Tuesday, when the
stock market crashes. I love this quote. On the floor,
a broker grabbed a messenger by his hair. Another fled
the floor, screaming like a madman. Jackets were torn, collars dislodged.
Clerks in their frenzy lashed out against each other. And
(33:26):
then then the technology starts to fail. The Transatlantic cable broke,
the ticker stopped running, the telephone lines became clogged, and
apparently at the time, Western Union hired taxi cabs to
send messages across New York. At one point on Wall
Street and step on it, and there is Jesse Livermore.
He's sitting in silence on Fifth Avenue, or he's trying
(33:49):
to sit in silence because the phone keeps ringing and
people are starting to blame him for the crash, getting
death threats. People are like, is this you? Are you
doing this? He denies causing the panic to The New
York Times, and a lot of people don't believe him, right,
because he's pulled off this before, I made millions of dollars, right,
They think he has some control over the market. But
(34:13):
the truth is scarier. The truth is that finally no
one has control over the market. When the stock market
was smaller, you would hear these stories of big investors
coming in moving the market right, cornering the cotton trade.
Speaker 1 (34:27):
Or like nineteen oh seven JP Morgan getting everybody together
to stop the panic.
Speaker 3 (34:31):
But in nineteen twenty nine, because of their efforts, the
stock market is now so big that no individual can
do anything about it. And some bankers did try in
the few days before this Black Tuesday to pour money
into the market, and it was like a bottomless pit.
It just kept going down, and so by the end
(34:52):
of Black Tuesday, people are just ruined, absolutely ruined. Jesse
Livermore on Fifth Avenue gets in his rolls Royce and
goes back to Long Island to his mansion. The first
thing he notices is that his family isn't there. His
wife and his two kids are gone, nowhere to be seen.
He notices the paintings have been taken off the walls,
(35:16):
the Persian rug rolled up and gone.
Speaker 1 (35:19):
Right. He's like, where is everybody where's all our stuff?
He goes up to the safe.
Speaker 3 (35:24):
She's got right opens the safe. His wife's jewelry is gone.
It's expensive collection. He's panicked and he's, you know, thinking,
I don't know you have they been taken?
Speaker 1 (35:34):
You know?
Speaker 3 (35:35):
Did they flee? Like like, what has happened to my family?
And he runs downstairs sees some servants. He's like, what happened?
What happened to the family, And they say, oh, go
look in the chauffeur's house. All right, So trumps down
to the chauffeur's house and there they are his wife
and two kids, like in one room with the paintings
(35:56):
and the Persian rugs and the jewels, and his wife's
like I heard on the radio. I heard on the
radio that everyone is broke, everyone has lost their money.
And I wanted to make sure we had all the
stuff and protect it and if we need to like
hawk these jewels, like we can do it to survive.
(36:18):
And Jesse Livermore is like, oh no, no, no, no, no,
you don't need to hawk your jewels. I just had
the best day I have ever had in the stock market.
We're gonna be fine. How much did he make. He
made profit and equity one hundred million dollars. Wow, that's
(36:39):
more than one point eight billion dollars in today's money.
Speaker 1 (36:44):
That's extraordinary.
Speaker 3 (36:45):
It's extraordinary in one day. And it's even more extraordinary
because who can you even brag to everyone you know
is bankrupt, the country is devastated, and you just made
one point eight billion dollars.
Speaker 1 (37:01):
We'll be back in just a minute. It's the end
(37:24):
of the ads, Robert, Let's do the end of the show.
Speaker 3 (37:27):
So after Jesse Livermore pulls off what people would call
the greatest trade ever, we don't know much about how
he celebrated, because the man who basically had a reporter
or write a fictional autobiography of him, all of a
sudden isn't really.
Speaker 1 (37:42):
Talking to the press. Good move, Yes, we do know that.
Speaker 3 (37:45):
In nineteen thirty one, he hired the entire Barnum and
Bailey circus to perform on his lawn for his son's
eighth birthday.
Speaker 1 (37:53):
Bad move, nineteen thirty one. Depression is setting in. Don't
hire the literal circus to perform on your literal front lawn.
Speaker 3 (37:59):
It seems it seems like a bad look, right, But
as I read the rest of his story. This may
have been the best moment that he had, you know,
celebrating his on his birthday. There's like a fire breather
on his lawn. Elephants, right, trapeze artists. Because everything that
comes after this, I don't know. It just feels like
(38:23):
it is a letdown after his huge success and like
some literal bad bets. Right, we know he's still making
bets on the stock market, amazingly enough, right after getting
all that money.
Speaker 1 (38:36):
Like, why would you stop at that point?
Speaker 3 (38:38):
Well, you know, it's funny. In the book nineteen twenty nine,
the new book by Andrew Ross Sorkin, Jesse Livermore is
complaining about some bad bets and he was forced to
ask the financierarm reading from the book now nineteen twenty nine,
is forced to ask the financier Arthur A. Robertson for
a loan of five thousand dollars, and Robertson says, do
men of your kind put away ten million dollars where
(39:00):
nobody can ever touch it. Jesse Livermore says, young man,
what's the use of having ten million if you can't
have big money? Like he's an addict and he loves them,
even though he could retire obviously for the rest of
his life. When he appears in the newspaper, Jesse Livermore
is dating more showgirls, He's fighting with his wife, his
(39:22):
wife is drinking more. His kids he barely saw them
and send them way to private school. He ends up
getting a divorce, and there's this really sad story about
the divorce. He goes to Nevada to get like an
easy divorce, right, stands with his wife in front of
the judge, and Jesse Livermore is like, take anything you want,
(39:43):
take it all, Like, just take anything you want. The
divorce is final, and his wife turns to her lover
in the courtroom and has the same judge marry them
right there minutes after the divorce.
Speaker 1 (39:58):
Does is it actually make you sad to hear that story?
I'll admit I find it funny? Does that make me
a horrible human being? I'm like, listen, you spent more
time with Jesse Livermore than I did. Maybe that's why
I grew fond of him, right, And I also saw
this weird thing, right that you can have so much
success and still like ruin your life, fall into absolute
(40:19):
depression like the country itself, right, and then there's all
this anger at Jesse Livermore for what they felt was
like a trick or a manipulation of the market. And
you know, it's like in the Boom Times, it's all
Jay Gatsby and everyone wants the gold chains with the
little pencil and the little carving knife on the other side.
But after the crash, everybody's like, oh, we got to
(40:42):
have congressional hearings. We have to have regulations, we have
to punish the bankers, we have to punish the investors,
and especially the short right, especially like not only was
this guy, some Wall Street guy who never contributed anything,
he bet against everybody.
Speaker 3 (40:58):
And so of course, of course there are congress people
who are like, we need to ban short selling. This
wouldn't happen if people weren't betting that the stock market
goes down, which, if you know anything about economics, is
a terrible idea.
Speaker 1 (41:12):
Oh yeah, I mean I love shorts, right, Like you know,
I mean there is this bigger question that's really interesting here, right,
and that is what's the stock market for? Yeah?
Speaker 3 (41:22):
To get rich? Right?
Speaker 1 (41:23):
Well, yes, yes, I mean that it is useful that
ordinary people can get a piece of big companies. That
actually is a good thing. But that doesn't mean that
it's good for the stock market to always go up, right, Like,
you want stock prices to reflect reality, right, And I
know this may seem naive people like, oh so, dom,
(41:46):
are you really that dumb? I think in the long run,
they're better than anything else.
Speaker 3 (41:50):
Right.
Speaker 1 (41:50):
You want the price of a company's stock to reflect
the you know, net present value of all that company's
profits forever. You actually do want that because that means
that the better companies will get more investment money and
the worst companies will get less investment money. And shorts
play a really important role in this, right, because the
companies incentive are all on the side of talking about
(42:11):
how they are. The investors who are long who are
buying stock, have the same incentive to talk about how
great they are. The short is the only person in
the system who has a financial incentive to just look
at a company and say, like, I think it's too
expensive or in some cases, I think it's a fraud. Right,
And like, you want people to be able to profit
(42:31):
by seeing that a company is too expensive. It makes
the market work better, It makes the economy work better,
and it makes me. It drives me up the wall
where people don't get that.
Speaker 3 (42:41):
Frankly, we talk about the wisdom of crowds, but the
key to that is that people have to have different
opinions about what's going to happen, and they have to
be able to risk their own money on a bet,
essentially in order to show you how serious they are
about it.
Speaker 1 (42:57):
Yes, like, what if I told you there was a
way that people could be financially incentivized to go root
out companies that are lying about themselves. Great, let's do that. Okay,
it's shorting now.
Speaker 3 (43:08):
Clearly after the crash, some rules need to be put
in place, not banning short selling, but you know there
are little rules like, oh, I don't know. Companies should
have to report regularly about how they're doing and how
much money they have. You shouldn't be able to have
insider trades that inflate the price of a stock, you know,
painting the stock as they called it. You shouldn't be
(43:30):
able to do that. And if you're going to try
to corner the market or take over a company, you
should have to declare when you have a certain amount
of stock in that company. These are all good things transparency.
And there's lots of arguments about investment banks and banks
and what their rules and reserves and all this stuff
should be. But clearly we are in an age of
sobriety and of regulation, and it's just a matter of
(43:53):
how much regulation there is going to be People like
Jesse Livermore this day of like, I'm going to feel
the numbers. I can do anything I want.
Speaker 1 (44:02):
I can secretly have a bunch of people go make
shorts without saying I'm the one doing it. Yeah, that
is going to disappear. And to be clear of these
rules that are coming into place in the kind of
mid thirties, right just as Jesse Livermore is sort of
going down, These are creating the market regime we still
live in, right, Like the SEC the security is an
exchange commission. This is created at this time, like the
(44:24):
modern market is born. Just at the end of Livermore's career.
Speaker 3 (44:28):
And there really isn't a place for Jesse Livermore anymore.
He declares bankruptcy. What happened to the hundred million dollars?
I have no idea. I don't know if he had
any idea. He made bets. They were bad bets. He
had the divorce, bankruptcy, so many mistresses, right, he just
lost the money. And then years after the crash November
(44:51):
twenty seventh, nineteen forty, Jesse Livermore still at an office.
He was still trading. He still wanted to like have
another big score. And he goes to the bar at
the Sherry Netherlander Hotel where he had lived for a while,
and they put a Manhattan in front of him. He
didn't even have to ask. He was your regular Manhattan.
And he's scribbling in a notebook. People recall this and
(45:14):
they give him another Manhattan drinks it keeps scribbling the notebook,
and then he excuses himself and he goes to the
cloakroom there at the hotel and he shoots himself with
one of his pistols he had in his immense collection
of firearms that he had when he was rich. He
was cremated the next day. Apparently only a few people
showed up for his funeral. A newspaper looked into the
(45:35):
probate records and the final tally on his big chalkboard
ten thousand dollars in assets, three hundred and sixty one
thousand dollars in liabilities, he died underwater.
Speaker 1 (45:48):
Died underwater.
Speaker 3 (45:50):
It reminds me of a saying he used to have,
and remember he would pass out these sayings like stock
tips right. He said, there's nothing like losing all you
have in the world for teaching you what not to do.
Speaker 1 (46:01):
Robert, what's the next show in your Great Investors series?
Speaker 3 (46:06):
Nineteen thirty, the year after the Great Stock market Crash?
A young man is born, almost the baby if you will.
Speaker 1 (46:14):
Keep going, keep going.
Speaker 3 (46:15):
At the infant a baby in arms. And that baby's
name Warren Buffett. What's his middle name? I wanted to say,
Warren G.
Speaker 1 (46:24):
Buffett, Warren G. Buffett, Warren Buffett middle name Edward one,
Edward Buffett, Baby Buffett. You can reach us via email
at Business History, at Pushkin dot fm FML like the radio,
my Twitter, it will always be Twitter to me. Handle
(46:47):
is just Jacob Goldstein or at Jacob Goldstein. As we
used to say, how do people reach you? Robert Smith,
I'm on X. I'm at Radio Smith Radius smith Man
loves the Radio. Our producer is Gabriel Hunter Chang, our
engineer is Sarah Bruguier, and our showrunner is Ryan Dilly.
I'm Jacob Goldstein. And I'm Robert Smith. We'll be back
next week with another episode of Business History, a show
(47:09):
about the history wait for it, of business Robert Smith.
As you know, there is nowhere in Pushkin's office to
make a video to make a video podcast, which is unfortunate.
We tried and it was described as two gray men
in a gray box, and reasonably so fortunately for us.
(47:31):
In an amazing coincidence, literally down the hall from Pushkin's office,
there is the showroom of a company called Buzzy Space.
This is a company is where we're sitting right now,
and what they do is they design furniture and acoustic
solutions that make I'm reading here workplace is more comfortable,
more creative, and more fun. I would even say cozy.
(47:52):
Their furniture is like sort of curved and interesting colors,
and I guess keeps things quiet. Yes, honestly, I wish
our office was this showroom. You can find more at
Buzzy dot Space. That's Buzzi dot Space.
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