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  • Writer's pictureBrian Kallback

Livermore, Fitzgerald, & Roaring Twenties

During the Roaring Twenties, many fortunes were won and lost. “Investor expectations during the ’20s reflected several forces: new technology and its spillovers into several industries, rising productivity, increases in capital spending, democratization of capital markets, expansion of credit available to finance growth; and growth in consumer spending.”[1] Speculation was rampant with investors across the country newly-engaged in trading. Buying on margin, or borrowing funds to increase leverage and opportunity, was widely utilized.

America’s economy was booming. Speculators were becoming very wealthy and a consumption lifestyle was prevalent. “The orgy of speculation in the United States has been so widespread that persons of all classes deceived by, in some cases, real, but in many more cases, purely paper profits from their investments, have been living beyond their means, or, at all events, mortgaging their future by purchasing luxury goods up to, or even beyond, the full limit of their incomes.”[2]

An integral figure to the growth of stock market speculation in the 1920s was Jesse Livermore. Livermore was a day trader and, at one time, was one of the richest men in the world. Yet, his career ebbed and flowed with booms and busts and bankruptcies. At one time, he was among the wealthiest people in the world and Edwin Lefevre used a caricature of him as the main character in the immensely popular Reminiscences of a Stock Operator. Technical analysis was how Livermore made his money. This type of market study involves charting the price movements of a company’s price and looking for trends and patterns. In Conservative Investors Sleep Well, Philip Fisher states that the “stock market is filled with individuals who know the price of everything, but the value of nothing.”[3] While this is meant as a criticism, the quote does speak to technical analysis as the price is the focus on the chartist, not the company or emotions or fundamentals. Livermore argued that, "it is the change in the major trend that hurts most speculators. They simply get caught invested in the wrong direction, on the wrong side of the market."[4]

Livermore made his money and his reputation in taking short positions against companies and profiting when they fell. When an investor goes long, he or she is optimistic about the future of the company. However, Livermore was betting against the success of the company and, by selling short, he was rooting for the demise of the company’s value. His moment in the sun came when he shorted the market just before Wall Street crashed in October 1929. While millions of people lost their savings, Livermore basked in his successful prediction as he earned approximately $100 million dollars. Yet, he took some beatings as he honed his craft. “In 1901, he shorted U.S. Steel and Santa Fe Railroad. He used all his capital and used margin to leverage himself to 4:1. The end result? He lost $50,000 in a few hours and, at age 23, found himself broke and $500 in debt.”[5] In the Panic of 1907, Livermore’s short position strategy earned him one million dollars in a single day.

Despite his many successes and seeming ability to bounce back from spectacular failures, Livermore began to feel the pain of losing his wealth and experiencing bankruptcies. “Over forty-two days in 1932, as the market snapped back and regained 93% of its value, Livermore was badly hurt because of his short holdings. And, to add insult to injury, he went long just as the bounce ended. By the middle of 1933, all his gains from 1929 had evaporated. He was not only broke by 1934, but also owed $5 million to creditors.”[6] His troubles continued through the 1930s and, in 1940, Livermore committed suicide. His son and grandson later committed suicide, and his wife lost five husbands to suicide.[7]

Jesse Livermore’s success, extravagance (yachts and homes), and volatile wealth remind me of my studies of F. Scott Fitzgerald. Most widely known today for The Great Gatsby, Fitzgerald led a similar volatile and boom or bust lifestyle as Livermore. While Fitzgerald did not speculate in the market, his life was emblematic of the excess symptomatic of the Roaring Twenties. His partying and self-absorption led to his destruction and, “having devoted ten years to what he hoped and believed was his masterpiece (Tender is the Night), [he] slid deeper into despair, affairs, and booze. He died at the age of forty-three in December 1939.”[8] Livermore, similarly deceased too young, experienced a rough last decade to his life. The speculative success he experienced in his earlier days had passed him by, as some blame new regulation – such as the Securities Acts of 1933 and 1934 – for corralling his ability to find opportunity. Late in life, F. Scott Fitzgerald wrote, "There are no second acts in American lives."[9] For both Livermore and Fitzgerald, their lives ended before they could find out.

[1] “Reactions of the Wall Street Slump,” Economist, (November 23, 1929):46, Accessed April 13, 2021. [2] Ibid. [3] "Top 100 Money Quotes of All Time." Forbes. Accessed April 14, 2021. [4]Gregory Bresiger, "Jesse Livermore," Traders (February 1, 2001) Business Insights: Global. Accessed April 13, 2021. [5] Robert Abbott, “Big Mistakes: Jesse Livermore,” GuruFocus (June 18, 2019). Accessed April 10, 2021.

[6]Ibid. [7] Steve Johnson, "A Short History of Bankruptcy, Death, Suicides and Fortunes." FT.Com (April 27, 2007): 1, [8] Robert Bell. "F. Scott Fitzgerald and the Art of Life." Sewanee Review 123, no. 2 (Spring 2015): 312-XXXI, Accessed April 14, 2021. [9] “No Second Acts?” PC Magazine 23, no. 13 (August 9, 2004): 45. Accessed April 15, 2021.

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