Monday, April 18, 2016

110 Years Ago Today Jesse Livermore Made Some Money On Union Pacific (UNP)

Union Pacific was the stock Jesse Livermore decided to short while on vacation in April, 1906.
A repost from September 19, 2008.

Making Money the Jesse Livermore Way

No, not short selling, that's socially unacceptable at present.
Today, the Jesse Livermore way is: GET LUCKY!
After I posted "Lord, Just for Today (and maybe tomorrow) Give Me the Strength... short gold and buy broad equity indexes." Gold continued up another $26.00 and the DJIA dropped a further 430 points. Hmmm...

But- those were the points of maximum drawdown. Since those bottoms Thursday morning the DJIA is up 1000 points, and here's a headline from MarketWatch: Gold tumbles most in 25 years after rescue plan.

How is this "...the Jesse Livermore Way"? Mr. Livermore was a master speculator, especially on the short side but he was sometimes wrong, often early. In April we posted "As Promised, A Stock Tip":

Well, you stuck with me and I'll stick to my promise of a hot stock tip.On page 254 of Edwin Lefevre's Reminiscences of a Stock Operator (online version) we read:
...At the same time I realise that the best of all tipsters, the most persuasive of all salesmen, is the tape....
Read the book, it's the best tip I've got.
If you do, you will receive an honorary membership in the Punchline Club because you will know this reference "How do you start an earthquake?" which is a play on another punchline "How do you start a hurricane?" which train of thought was triggered by one of the best punchlines of all time, "Some people can tell a joke, some can't".

Speaking of trains, it's chapter six that has the story of Jesse Livermore's (I mean Larry Livingstone's) score on Union Pacific:

IN the spring of 1906 I was in Atlantic City for a short vacation. I was out of stocks and was thinking only of having a change of air and a nice rest....
You know where this is going. "I was in Saratoga for a nice rest..."
"...One morning after we had breakfasted and had finished reading all the New York morning papers, and had got tired of watching the sea gulls picking up clams and flying up with them twenty feet in the air and dropping them on the hard wet sand to open them for their breakfast, my friend and I started up the Boardwalk....

...I was looking-over the quotation board, noting the changes they were mostly advances until I came to Union Pacific. I got a feeling that I ought to sell it. I can't tell you more. I just felt like selling it. I asked myself why I should feel like that, and I couldn't find any reason whatever for going short of UP...."
J.L. is now short 3000 Union Pacific.
"...I had sold as much as I needed to satisfy my feeling, so I followed him without waiting for a report on the last two thousand shares. It was a pretty good jag of stock for me to sell even with the best of reasons. It seemed more than enough to be short of without any reason whatever, particularly when the entire market was so strong and there was nothing in sight to make anybody think of the bear side....
...All I know is that I went out of the Atlantic City branch office of Harding Brothers short three thousand Union Pacific in a rising market, and I wasn't worried a bit. I wanted to know what price they'd got for my last two thousand shares. So after luncheon we walked up to the office. I had the pleasure of seeing that the general market was strong and Union Pacific higher. "I see your finish," said my friend. You could see he was glad he hadn't sold any. The next day the general market went up some more and I heard nothing but cheerful remarks from my friend. But I felt sure I had done right to sell UP, and I never get impatient when I feel I am right.
What's the sense?
That afternoon Union Pacific stopped climbing, and toward the end of the day it began to go off. Pretty soon it got down to a point below the level of the average of my three thousand shares. I felt more positive than ever that I was on the right side, and since I felt that way I naturally had to sell some more. So, toward the close, I sold an additional two thousand shares. There I was, short five thousand shares of UP. On a hunch. That was as much as I could sell in Harding's office with the margin I had up. It was too much stock for me to be short of, on a vacation; so I gave up the vacation and returned to New York...The next day we got the news of the San Francisco earthquake...."
Mr. Lefevre also wrote a short story called The Tipster, published in 1901.
And how did Jesse's short of UNP work out?

...Then, at 5:12 AM - April 18, 1906- this happened:
San Francisco City Hall after the 1906 Earthquake. 

And the fires