Which did Jesse Livermore Prefer to Trade?
Despite his fame as a “stock operator,” from early in his career Jesse Livermore traded commodities as well as stocks. Livermore told Edwin Lefèvre that he preferred trading commodities to stocks because commodity trading offered a more level playing field for traders than the stock market did:
“(The commodity trader) need not guard against inside cliques. Dividends are not unexpectedly passed or increased overnight in the cotton market or in wheat or corn. In the long run commodity prices are governed but by one law – the economic law of demand and supply.”
It was also easier for Livermore to judge the attractiveness of a commodity than a stock:
“The business of the trader in commodities is simply to get facts about the demand and the supply, present and prospective. He does not indulge in guesses about a dozen things as he does in stocks. It always appealed to me – trading in commodities.”
Despite claiming he preferred trading commodities to stocks, Livermore’s actions suggest that the opposite may have been true.
In 1914, after accumulating debts of over $1 million and declaring bankruptcy, it was to the stock market that Jesse Livermore turned to rebuild his fortune. Starting in February 1915, with a trading facility of 500 shares, he traded his way to a profit of $145,000 by the year-end. In 1916 he made a profit of $3 million on the stock market. It was only in 1917 that he felt he could return to the commodity markets:
“By July, 1917, I not only had been able to pay off all my debts but was quite a little to the good besides. This meant that I now had the time, the money and the inclination to consider trading in commodities as well as in stocks.”
As far as the average, would-be trader was concerned, Jesse Livermore believed that they would fare equally badly in stocks or commodities as a result of a lack of preparation and experience:
“Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. . . But people never take the trouble to ask questions, leave alone seeking answers.”
“The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.”