The trading world contains both success and financial trash stories. What gets thrown into the limelight is the former while the latter takes a back seat. However, narrations of money stories about money, traders’ struggles and losses are important. They detail what trading really is about and provide a plethora of lessons for new individuals intending to venture into the financial markets. Such narrations about losses and the issues traders face are known as trash true money stories. In this article, we summarize two of them. Lessons for our readers will be summarized later on.
The Finance Trash Story of Jesse Livermore
The veracity of Jesse Livermore’s story also makes it unbelievable. A man who made $100 million in 1929 (which is present-day $1.38 billion adjusted for inflation over the said period) would later fall into debt filing for bankruptcy and ultimately committing suicide in 1940. A true financial trash story, indeed. However, in order to understand the ultimate downfall of one of the pioneers in the trading world, we first have to analyse his behavior in the market.
Jesse Livermore was born in 1877. He was the last born in a family of three. His family mainly focused on farming, and despite this fact, he had a knack for education. By the age of three and a half, he had already learned to read and write. One and a half years later, he picked interest in reading newspapers and would mainly read through the financial sections. His father did not share this vision and love for education. This is based on the fact that by the time he was 14, his dad withdrew him from school in order for him to make him true money by conducting farming. Dejected, Livermore left home in a carriage with help from his mother, who had directed the driver to go to a particular address. However, this was not meant to be since on the way, Livermore managed to persuade the driver to make a detour at a Boston stockbroker’s office. He got a job, heralding the beginning of an illustrious career that would also be his undoing.
Importantly, Livermore looked older than his actual age, a factor that made it easier for his employer to trust him. At the stockbroker’s (Paine Webber) office, Jesse was a board boy who made $5 a week. He taught himself the market trends and by 15, after having learned the ropes, he started trading at bucket shops. He relied upon the money he used to earn while working at Paine’s office. He made his first profit at this age when he earned $3.12 after spending $5. Within no time, his earnings from trade exceeded what he got from his official job. Notably, Jesse had one thing by his side; luck. He always won. As a result, he was kicked out of the bucket shops since he was a liability. This was even before the turn of the 20th century.
In 1899, Jesse went to New York after making a fortune of $10,000 in Boston’s bucket shops. Wins and losses graced the subsequent years. He would make $50,000 and then lose it while trading. He would then make an additional $20,000. Such was the cycle of his trading behaviour and returns. By 1906, however, he had amassed wealth to the tune of $100,000 but he was not as confident as he once was due to his inconsistencies while trading.
He started shorting the market in 1907 during the crash. In just one day, he made $1 million. He used this fortune to buy more stock and through his efforts, he influenced other investors to do the same. The result of their collective work was a recovery of the market, further increasing his wealth. His fortune had grown to $3 million in just one year. Livermore was not only focused on the stock market by was also an all-round financial trader who also bought and sold cotton in commodity markets. However, in 1908, he lost $5 million while trading cotton. He then became bankrupt in 1915 but then made it back a year later during a bull run. Such was the story of Jesse Livermore, one of losses and wins in equal measure.
He is mostly known for shorting the market during the 1929 market crash. But based on the history given above, we understand that it was not his first time. He had luck when it came to such matters. By that time, he had become famous in the financial world. People sold and bought stock based on his recommendations. On the fateful day in October, Jesse had a feeling that some movement was expected in the market. As such, he made trades while living in his office. At the end of the day on October 29th, while other traders reported losing everything in the market, Livermore had made $100 million. Recalling the luck that accompanied his trading story, what came after may come as a surprise.
With great winnings, he lived a lavish lifestyle, but unlike before, he could not return to the stock market to recoup his lost money. By mid-1932, he had lost 40% of his fortune. This slip is thanks to going long in the stock market. However, there was another minor market crash that led to a loss. As a result of the declined fortunes, he reverted to his old ways and shorted the market. However, the value of the stock in the market doubled further bringing losses. In 1933, Jesse went long again but the value of stock again dropped, replicating the situation he had faced the previous year. The once-successful trader was no more; his fortunes were drained. Trading was further made complicated by the formation of the United States Securities and Exchange Commission (SEC) which governed the markets. Furthermore, he was no longer enthusiastic because of old age. As such, Jesse could not operate as before. He was now in debt and even declared bankruptcy in 1935. His declining wealth and family issues including divorce, led him into depression. He later shot himself in 1940.
The Finance Trash Story: Trading meets Coding
The trading world is awash with people with both technical and business knowledge. People who know how to analyse trends in the market, predict the movement of a particular stock, and, in the nick of time, make a purchase or sale that yields profits. Besides possessing such skills, some traders go ahead and learn coding which, when coupled with their business acumen, presents an attractive future. A future where they own software that makes wise and informed trading decisions and subsequently buys or sells stock when required. The developer just sleeps while his creation makes money on his behalf. A future where money works for him and he no longer has to toil another day of his life. Well, maybe just maintaining his software and making improvements. A future where he enters the billionaires club, pop champagne atop a private yacht with friends, yelling “Look at us! Who would have thought?”
Thinking about it, such software is a more convenient option than relying on analytical tools provided by popular brokers and exchanges. It is an in house venture that is… selfish. And who cannot pass the opportunity of making a fortune by solving a problem? Such is the narrative of many traders who have found ways to fuse their economic and financial analytical prowess with software development. It is not always a rosy ride. It is not always a successful one either.
A story is told of a young trader cum developer who had developed a software that had the capabilities of making trades on his behalf. It analysed market trends and made informed decisions. It was designed for greatness. One fateful morning, the trader woke up to news from his software that he had made 1000% YTD. Any trader’s dream, right? To put it mildly, he had earned a 1000% profit on his investment after going long.
“Eureka!” He had yelled. He was ecstatic and could not be contained. Knowing his initial investment, a 1000% profit on the same was unfathomable. He even did not want to calculate the actual figure. All he knew is that his future was different. He imagined himself as a new entrant on the Forbes list of millionaires, perhaps even billionaires. He was not even sure since he hadn’t calculated his new fortunes. He wasn’t ready for this good news.
Nonetheless, he pictured his phone ringing, with reporters intent on interviewing him and becoming the first to break the story. The story of a young trader whose software had made him a fortune. He even imagined making the software available for purchase making more people able to tap into its accuracy. All these would translate into more money. He would become the next big thing. He would become like Vitalik Buterin, Ethereum’s founder. The crypto head, a celebrity in his own right in his home country, Russia, was his idol all through the software development phase of his personal project. He had learned a lot from this man. With the news of a 1000% profit, he was the new Vitalik, in his mind at least.
Bugs! In the jungle, they bite. In computing, they frustrate. A bug is a developer’s worst nightmare. Finding it and correcting it is like finding a needle in a haystack. Bugs are dangerous. They could infect one with the billionaires’ syndrome. Making one imagine he is an overnight success. Making the developer think that they are an overnight success story. They could misrepresent the actual facts stating a 1000% loss as a profit. Making one yell Eureka! At the top of his voice when he could just have saved this energy. Such was the story of our young trader. His success story was just an illusion, a mirage on the tarmac on a hot day. All thanks to a bug. The bug had relayed false news of a 1000% YTD.
Divulging the exact details of how he received the news that his own software had in a way conned him, selling him a fantasy, would be a misrepresentation of facts. This is because the man was more than crushed. He even cursed there not being an insecticide to kill computer bugs. He cursed pharmaceuticals, chemical manufacturers, the YouTube instructor who taught him coding but didn’t shed light into the possible ramifications of not detecting a bug early enough. Basically everyone. His world had crushed in his eyes – a true financial crash story.
Trash Stories of Money Conclusion
Jesse Livermore’s story holds several lessons, thereby exemplifying the importance of financial trash stories. Firstly, a trader should not jeopardize his or her lifestyle by making high-risk trading decisions. Jesse went bankrupt severally and then bounced back thanks to lack. Ultimately, this strategy became his undoing. Traders should also have solid risk management plans since not having such a strategy can wipe away years of hard work in mere seconds. The second story shows the importance of using licensed products provided by brokers. Shortcuts may not always work.