Jesse Livermore & The Magnet of Dengwane Stock Prices
The New York Times wrote an article in 1929 that is interesting to read about the benefit of hindsight:
Some highlights as the roaring 20s kicked into overdrive:
Despite the obstacles, consumer lines are also closed with stock orders from all parts of the country, tips are flying almost freely, aggressive development, the reduction of lead problems appears every day.
That is absolutely true People who know the least about the stock market have made a lot of money out of the past few months.
Jesse L. Livermore, one of the brightest stock marketers of this generation, once declared that “Stocks can be beaten, but no one can beat the stock market.” By that he meant that profits can be invested in certain issues at special times, but that staying with the general market will financially defeat even the sharpest market players in the long run. One cannot be ruled by trying to beat stocks, however, and members of the Stock Exchange will testify that thousands of amateurs are doing just that – and in a big way.
There are many things here that feel very similar to today’s environment.
It was the tail end of a glorious bull market.
Retail investors hit the gains.
Investors were all entering the stock market.
It felt like nothing could stop the runaway bull market train.
Check out this chart from Financial Times on what the most shorted stocks have been this decade:
There are two different ways you can describe this trend:
1. The guesswork is over. Retail investors have gone all-in on junky stocks.
2 I thought the hedge funds would have learned their lesson from the short cuts in Gamestop and other meme stocks a few years ago.
It would be a little bit of both.
In his new book, 1929, Andrew Ross Sorkin discusses how Jesse Livermore used excessive euphoria as a sign that the great bull market was over.
Livermore shorted the market for an estimated profit of $100 million.1
Another famous index crasher was the Shoeshine Boy giving stock tips to Joseph Kennedy in 1929. You also profited by betting against the peak.
That’s the hard part of trying to use the collective references in the age of knowledge is that you can find them everywhere you look.
There are many platforms for people to share opinions and analysis that will always have a legacy of any market situation you may want.
For example, I saw this story from the Today show last weekend:
Almost everyone thinks we are in an ai bubble now. Everyone also thought there was a 100% chance we were headed to all of this in 2022.
That didn’t happen.
What if the bubble is some ideas that agree to be bad?
This is what makes working the stock market so difficult. There are obvious negative arguments on the Bull and Bear Side of the Equation.
Livermore once said, “One lesson I learned early is that there is nothing new on Wall Street. It can’t be because speculation is as old as the hills.”
That is an unchanging part of human nature.
People are happy, sad, very high, very low and all other emotions.
The difference between now and past marketplaces is that there are millions and millions of people who share those sentiments all over the world.
You can try choosing tops and bottoms if you wish.
Luck is trying because it is getting harder by the day.
Michael and I discussed Jesse Lovermore, retail investors, sentiment, the ai boom and much more in this weekly spiritual paper:
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Further reading:
Timeless advice from Jesse Livermore
Now here’s what I’ve been reading lately:
Books:
Also, check out my interview with Nick Dower from Opto Investments about how AI is helping financial advisors with private equity:
https://www.youtube.com/watch?v=yh0a9nwu-pa
Sign up for our Next Heart wealth talk here.
1The sensitivity indicators used as signals are often bets against the market – both up and down. But it should be noted that while he made a fortune in the panic of 1907 and the Great Depression, Livemore broke down many times because he could not exceed the market, he declared that his life and finally took his life following a life of financial problems.
