De 5 dollars à un rêve de million : la légende de la vente à découvert de Leverage et le paradoxe de la nature humaine

Jesse Livermore’s life is an epic tale of financial genius and human weakness. He grew from a poor farm boy to the “Short Selling King of Wall Street,” amassing wealth equivalent to 100 million dollars today in a single trade, only to end his life under the torment of depression. His story is not only about how to profit in the markets but also about how a genius can be destroyed by his own desires and pride.

Youthful Ambition: From Poor Farm Boy to Wall Street Novice

Born in 1877 in a poor farming family in Massachusetts, Livermore learned to read and write at three and a half, and by five, he was reading financial newspapers. Despite showing extraordinary mathematical talent, his family’s fate seemed sealed—his father wanted him to inherit the farm life.

In spring 1891, at 14, Livermore refused this destiny. Encouraged by his mother, she secretly raised five dollars (equivalent to about 180 dollars now), a decision that changed the course of Wall Street history. With this modest sum, he secretly took a carriage and train to Boston.

He did not go to relatives at the address his mother gave but instead lingered in front of the Paine Webber brokerage building. A string of flashing numbers caught his attention. With a somewhat mature appearance, he successfully applied to become a clerk for the quote board. From that moment, Livermore’s financial career officially began—a farm boy discovering his own code in the market.

Discovering the Code: Using Numbers to Read the Market’s Soul

During his daily work on the quote board, Livermore uncovered patterns others ignored. He began recording seemingly random jumps in numbers, drawing price charts in a grid notebook, searching for underlying patterns.

He discovered that:

Stock prices did not fluctuate randomly but followed certain rhythms—certain price combinations recurred like fixed patterns in card games. The stock of the Union Pacific Railroad often showed similar movements at 11:15 a.m. and 2:30 p.m., as if driven by an “invisible tide.” When brokers received large buy orders, they were often supported at specific price points. Some stocks’ retracements were always about 3/8 of the previous move, a ratio later known as the “Fibonacci retracement.”

Long-term observation of cotton futures revealed a realization—“these numbers breathe; rising like climbing stairs, falling like collapsing snow piles.” At that moment, Livermore unlocked his “Ren and Du meridians,” understanding the market’s secret. These discovered patterns later formed the foundation of technical analysis.

Armed with this insight, Livermore decided to practice real trading. He found a betting house—clients did not buy or sell stocks but bet on price movements, similar to modern CFDs. He invested five dollars and earned 3.12 dollars profit. Tasting success, he worked while trading at the betting house, and at 16, he left Paine Webber to become a full-time trader.

But success came with envy. Because he kept winning, Boston’s betting houses eventually banned him—strictly forbidding his entry. Before turning 20, Livermore had achieved the feat of being “kicked out,” but by then, he had accumulated about $10,000, equivalent to roughly $300,000 today.

First Glimmers of Fame: 1906 Earthquake Short Sale

In 1899, at 23, Livermore moved to New York, the larger financial stage. There he met Native American girl Nettie Jordan, whom he married quickly. But the New York market was far more complex than Boston’s. Relying on delayed stock ticker data (30-40 minutes lag), he suffered repeated losses, and less than a year after marriage, he experienced his first bankruptcy. To raise funds, he asked Nettie to pawn her jewelry, but she refused. Seven years later, they divorced.

In the following years, Livermore learned from his mistakes, rebuilding his trading career steadily. By 1906, at 28, he had accumulated $100,000. Yet success did not bring satisfaction—instead, it triggered deep anxiety. He began questioning whether his conservative trading was enough, feeling restless despite profits. To ease his mood, he went on vacation to Palm Beach.

It was during this reflection on the beach that Livermore prepared a life-changing trade.

On April 18, 1906, San Francisco was struck by a 7.9 magnitude earthquake. The city was destroyed, and as the West’s key transportation hub, Union Pacific faced huge losses. The market’s consensus was that railroad stocks would rise on reconstruction demand, but Livermore held a contrary view.

Through on-the-ground investigation, he found that: the earthquake caused a short-term plunge in Union Pacific’s freight volume; insurance companies would need to pay out huge sums, likely selling stocks to cash out; the company’s actual financial reports would be far below market expectations. Technically, aftershocks caused a brief rebound in stock prices (market optimism), but trading volume shrank, indicating weak buying interest.

Livermore decided to orchestrate a carefully planned short sale. He used multiple brokerages to build positions gradually over three months, employing high leverage but strict risk control. From April to May, he started establishing short positions around $160; after the company announced losses in June, he increased his positions as the stock fell below $150; by July, panic set in, and the stock plunged below $100. Livermore closed his short at around $90, earning over $250,000—about $7.5 million today.

His core strategy was:

“Key point” trading—waiting for confirmation of a downtrend before fully shorting; understanding market psychology—knowing that “good news is often bad news,” and initial optimism after a disaster would eventually turn negative; strict risk management—using leverage but always reserving backup funds to avoid being wiped out by short-term rebounds.

The Battle for Supremacy: 1907 Three Days to $3 Million

The 1906 victory made Livermore famous, but his true “battle for supremacy” was yet to come. In 1907, he uncovered a bigger crisis—trust companies in New York heavily invested in junk bonds with high leverage, relying on short-term borrowing. Interbank rates soared from 6% to 100%, signaling an impending liquidity crisis.

Livermore disguised himself as a client and secretly investigated several trust companies, confirming their collateral was of poor quality. He knew a financial collapse was imminent.

On October 14, he publicly questioned Nickebork Trust’s ability to meet obligations, triggering a bank run. Three days later, the trust went bankrupt, spreading panic. Livermore spread short positions across multiple brokerages on Union Pacific, US Steel, and others, while buying put options to avoid detection.

On October 22, the critical moment arrived. Using the then “T+0” settlement rule (same-day clearing), he concentrated his sell-offs before the close, employing a rare “pyramid adding” method—adding to winning positions—triggering automated stop-loss orders and accelerating the market crash.

On October 24, panic peaked. NYSE chairman Thomas W. Wilson personally begged Livermore to stop shorting, or the market would collapse entirely. The Dow Jones plunged 8% in a single day, and J.P. Morgan intervened to stabilize. Livermore precisely timed his exit, closing 70% of his shorts an hour before Morgan’s bailout announcement. When the market stabilized on October 30, he liquidated all positions.

Total profit: $3 million—about $100 million today.

This victory cemented his reputation as the “Wall Street Short Selling King” and made him realize the importance of information advantage. Later, he built his own intelligence network, which became a key part of his trading system.

Human Weaknesses: Cotton Fraud and Livermore’s Pride

Success brought wealth, and Livermore began to indulge. He bought a yacht worth $200,000, a private train car, and a mansion in the West Side. He joined luxury clubs and kept mistresses. But behind this glamour, human weaknesses surfaced.

In the years after 1907, Livermore formed a “friendship” with cotton industry authority Teddy Price. Price was both a plantation owner and trader, with firsthand info on the cotton spot market. But he played a deadly game—publicly bullish on cotton while secretly colluding with growers to short the market.

Price exploited Livermore’s desire to “prove his cross-market ability,” constantly feeding him the “supply shortage” narrative. Even when Livermore’s database showed the actual situation was opposite, he chose to believe his “friend.” Ultimately, Livermore held 300 million pounds of cotton futures long—far beyond reasonable size—and when the market reversed, he lost $3 million—equal to all his 1907 short-term profits.

This failure forced him to close other market positions, leading to consecutive bankruptcies in 1915-1916. More painfully, Livermore violated his own three iron laws: never trust others’ advice, never average down losing positions, and never let fundamentals override price signals.

This was not only betrayal by a friend but also a self-punishment of a genius—a fall of the proud.

The Final Comeback: Using Bethlehem Steel to Turn the Tide

After his last bankruptcy in 1934, Livermore seemed at the end of his rope. But this time, he chose complete self-reformation. He voluntarily filed for bankruptcy protection, reaching agreements with creditors, retaining only $50,000 for basic living expenses. Through his former rival Daniel Williamson, he obtained secret credit lines, but with the condition that all trades be executed through Williamson’s firm—an indirect risk control.

Forced to use 1:5 leverage (previously 1:20), with each position limited to 10% of total capital, these restrictions ironically helped him rebuild discipline.

Just then, World War I broke out. Livermore keenly sensed the business opportunity—U.S. military orders surged, and Bethlehem Steel’s stock price had not yet reflected this. Unreleased financial data leaked, volume surged but price remained flat—classic accumulation signs.

In July 1915, Livermore made his first position, buying at $50, risking 5% of his capital. In August, as the price broke $60, he increased to 30%. In September, the price retraced to $58, but Livermore refused to stop-loss, convinced the uptrend remained intact. His persistence paid off—by January next year, the stock soared to $700, and he closed with a 14-fold profit. With $50,000, Livermore again made $300,000.

Wealth Paradox: From Billionaire to Penniless

In the following decades, Livermore continued his stories of money and women. In 1925, he earned $10 million trading wheat and corn. During the 1929 Wall Street crash, he profited $100 million (about $1.5 billion today) through massive shorting. But over the next ten years, these funds were spent on divorce, taxes, and extravagance.

After a long and high-profile divorce from his first wife Nettie Jordan, he married dancer Dorothy of the Zigfeld Follies. Dorothy bore him two sons, but Livermore maintained an ambiguous relationship with European opera singer Anita Venice, even buying yachts and naming them after her. Dorothy, neglected, gradually fell into alcohol.

The New Yorker once commented: “Livermore was precise as a scalpel in the market but blind as a drunkard in love. He spent his life shorting the market but always longing to go long on love—and both led to his bankruptcy.”

In 1931, Livermore divorced again. Dorothy received a $10 million settlement, later selling their mansion worth $3.5 million for only $222,000. The luxurious home filled with butlers, maids, chefs, and gardeners crumbled in the divorce decree. Jewelry and wedding rings he bought for Dorothy were sold cheaply—deep wounds to his soul.

In 1932, at 55, Livermore met 38-year-old Harriet Metz Noble. She was called the “social widow,” but she misjudged Livermore’s financial state—he was already $2 million in debt. After bankruptcy in 1934, they moved out of their Manhattan apartment, living on jewelry sales.

In November 1940, Harriet shot herself in a hotel room with Livermore’s revolver, leaving a note: “Unable to endure poverty and his drinking.” Livermore wrote in his diary: “I have killed everyone close to me.”

The Final Shot: The End of a Genius

On November 28, 1941, the day before Thanksgiving, in the cloakroom of the Shirley Holland Hotel in Manhattan, a gunshot rang out. It was his third wife Harriet’s choice to end her life there a year earlier. Deep in depression, Livermore used his lifelong Colt .32 revolver to shoot himself in the temple. In a twist of fate, it was the same weapon he bought after his 1907 short sale victory.

He left three words on a hotel note:

“My life is a failure”

“I am tired of fighting and cannot endure anymore”

“This is the only way out”

In his pocket, only $8.24 in cash and an expired horse racing betting ticket. Only 15 people attended his funeral, including two creditors. His tombstone was initially blank until 1999, when fans funded an inscription: “His life proved that even the sharpest trading blade ultimately turns inward.”

Livermore’s Legacy: The Eternal Value of the Trading Bible

Having gone through four bankruptcies and four comebacks, Livermore’s trading methods and philosophies are revered by Warren Buffett, George Soros, Peter Lynch, and other investment masters as the “Trading Bible.” Though his life ended tragically, his trading wisdom still shines brightly 120 years later:

“Buy rising stocks, sell falling stocks.” This simple rule teaches investors the importance of trend following.

“Trade only when there is a clear market trend.” Patience in choppy markets is key to avoiding being shaken out.

“Wall Street has never changed. Pockets change, stocks change, but human nature never does.” This is Livermore’s deepest insight—the essence of market cycles is human repetition.

“Investors must beware of many things, especially themselves.” Livermore’s life teaches us that the greatest enemies are often greed and pride within.

“Markets are never wrong; only human nature errs.” When trading fails, reflect not on the market but on oneself.

“Making big money requires patience, not frequent trading.” An interesting contrast to modern day intraday trading trends.

“Speculation is the most fascinating game in the world, but fools cannot play, lazy people should not, and those with fragile minds are forbidden.” A final warning to all investors.

Livermore’s life is a tragedy of genius, desire, systems, and human nature. He discovered the market’s code but could not solve the mystery of the human heart. He proved that rules can win on Wall Street but cannot save oneself. His story reminds every market participant: a successful trading system can bring wealth, but only self-awareness can bring true life.