The following is an excerpt from Jesse Livermore’s “Reminiscensces of a Stock Operator,” which is available in our public domain library.
There I was on the morning of May ninth with nearly fifty thousand dollars in cash and no stocks. As I told you, I had been very bearish for some days, and here was my chance at last.
I knew what would happen — an awful break and then some wonderful bargains. There would be a quick recovery and big profits for those who had picked up the bargains. It didn’t take a Sherlock Holmes to figure this out. We were going to have an opportunity to catch them coming and going, not only for big money but for sure money.
Everything happened as I had foreseen. I was dead right and I lost every cent I had! I was wiped out by something that was
unusual. If the unusual never happened there would be no difference in people and then there wouldn’t be any fun in life. The game would become merely a matter of addition and subtraction. It would make of us a race of bookkeepers with plodding minds. It’s the guessing that develops a man’s brainpower. Just consider what you have to do to guess right. The market fairly boiled, as I had expected. The transactions were enormous and the fluctuations unprecedented in extent. I put in a lot of selling orders at the market. When I saw the opening prices I had a fit, the breaks were so awful. My brokers were on the job. They were as competent and conscientious as any; but by the time they executed my orders the stocks had broken twenty points more. The tape was way behind the market and reports were slow in coming in by reason of the awful rush of business. When I found out that the stocks I had ordered sold when the tape said the price was, say, 100 and they got mine off at 80, making a total decline of thirty or forty points from the previous night’s close, it seemed to me that I was putting out shorts at a level that made the stocks I sold the very bargains I had planned to buy. The market was not going to drop right through to China. So I decided instantly to cover my shorts and go long.
My brokers bought; not at the level that had made me turn, but at the prices prevailing in the Stock Exchange when their floor man got my orders. They paid an average of fifteen points more than I had figured on. A loss of thirty-five points in one day was more than anybody could stand. The ticker beat me by lagging so far behind the market. I was accustomed to regarding the tape as the best little friend I had because I bet according to what it told me. But this time the tape double-crossed me. The divergence between the printed and the actual prices undid me. It was the sublimation of my previous unsuccess, the selfsame thing that had beaten me before. It seems so obvious now that tape reading is not enough, irrespective of the brokers’ execution, that I wonder why I didn’t then see both my trouble and the remedy for it.
I did worse than not see it; I kept on trading, in and out, regardless of the execution.