Financial Behavior

Jesse Livermore, is a name that resonates in the halls of financial history. Known as the "Great Bear of Wall Street," his story is a testament to the heights of success and depths of failure that one can experience in the financial world.Born in 1877, Livermore stepped onto the financial stage at a remarkably young age, taking a job at Paine Webber at the age of fourteen. He was not simply a strategist, but an observer, tracking the patterns of the stock market. He developed his own theories about the market and tested them with his own money.His initial success earned him the nickname "Boy Plunger," as he moved from betting on the prices in betting parlors to making substantial investments in the actual stock market. By the early 1900s, Livermore had made his first million, a testament to his innate trading skills and market understanding.The financial landscape is not a steady ascent. Just as chess has its winning strategies and unexpected losses, so too did Livermore's fortunes fluctuate. He declared bankruptcy multiple times throughout his career, which he jokingly referred to as his "annual event."His monumental triumph came during the 1929 market crash. A time where more than 66% of the stock market’s value had been obliterated. Reports of Wallstreet speculators committing suicide spread across New York. While Livermore’s family waited for him to come home, they feared the worst. To his families relief, The worst did not occur. In fact, Jesse Livermore had the best trading day of his career. While most investors clung to their shares, Livermore adopted a contrarian position. He short-sold the market, effectively betting against the market's success. As Wall Street crumbled, Livermore emerged with over $100 million in one day, equivalent to 3 billion in todays economics.Despite his immense success, Livermore had lost it all by the 1940s. His confidence led him to place larger and larger bets, resulting in larger losses. He accumulated debt that he could not bear. Livermore was one of the richest people in the world. However, at the time of his suicide, he had liabilities greater than his assets. The very strategies that propelled Livermore to stardom were the same strategies that provoked his downfall. His fortune was short-lived.Why did someone as insightful as Livermore suffer such a drastic reversal of fortune? What can you learn from Livermores experience and implement in your life today?1. How you behave is more important than what you know It's a common misconception that what you know, such as financial concepts, investment strategies, and market trends, is the key to financial success. While knowledge is indeed essential, it's your behavior – how you apply that knowledge – that plays more of critical role in achieving financial stability and growth.
Despite his deep knowledge and understanding of the stock market, Livermore was unable to maintain his wealth. His lack of discipline with money led to his downfall. He was known for his extravagant lifestyle and gambling-like tendencies. His spending, combined with poor decisions and lack of emotional discipline, led to his financial ruin.
When people become rich, they often increase their spending, upgrade their lifestyle, and incur new expenses that they didn't have before. If an increase in spending is not accompanied by an increase in wealth, it can quickly diminish your bank account. Staying rich requires financial discipline between the gap of income and expenses.2. Getting rich is one thing
, staying rich is another
Getting rich often involves taking risks, seizing opportunities, and putting in a significant amount of work. It can come from various sources like starting a successful business, having a high-paying job, or making a profitable investment. Whether you have accumulated capital as an employee, investor, or business owner, the focus must be on preserving and growing that wealth over the long term. Those who take on high risks might strike it rich, but the same strategy can backfire and lead to significant losses. The ability to sustain your wealth for a long time, without being wiped out, should be the priority of your career, investments, or business. No gamble is worth sacrificing your past profits. Billionaire Michael Moritz of Sequoia capital attributes the firms longevity to having a healthy fear of going out of business."We assume that tomorrow wont be like yesterday. We cant afford to rest on our laurels. We cant be complacent. We cant assume that yesterdays success translates into tomorrows good fortune." .
Managing your money is a high-stakes responsibility. It is this blend of audacity and discipline that often delineates the boundary between monumental success and crippling failure. Remember, it's not just about taking the leap, but understanding where and how you land.

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