The Lessons of Jesse Livermore, Pioneer Day Trader

Jesse Livermore

By Michael Hooper

In chapter 5 of the Psychology of Money, the author Morgan Housel discusses how there are multiple ways to become a millionaire, but staying a millionaire requires a different sort of skill. Jesse Livermore and Abraham Germansky both were multi millionaires, who lost everything in the end.

There’s a book called Reminiscences of a Stock Operator by Edwin Lefevre, it’s about the story of Jesse Livermore. As a boy he was gifted with numbers and mathematics. He got a job as a quotation board boy, he posted the latest quotes on a big chalk board in the customer room. He wrote down the patterns of stocks in a notepad; he analyzed the numbers and determined where the numbers would go next. He used to go to these places, called the bucket shops, where you could buy stock on margin. In his first trade he made $3.12 on Burlington stock.

He was 15 years old and making money in the bucket shops, by figuring out the direction of stocks. He understood momentum and how it builds and falls. He could trade in and out of stocks quickly for a profit. He eventually got so good, the bucket shops banned him from trading. Then he went to bucket shops in other cities.

Eventually he graduated to the New York Stock Exchange, where he struggled initially, but eventually found a way to make money by trading stocks. His most profitable day was during the stock market crash of 1929 because he had shorted the market. He made $100 million in 1929. He was known as the boy plunger. Meanwhile Germansky went broke in the 1929 stock market crash.

 

One of the people that Livermore talks about is a businessman named Russell Sage. Livermore said the man was gifted at both money making, and money hoarding. Russell Sage died at the age of 89 in 1906 and left all his money to his wife, about $70 million and then she put the money into charitable causes, including, the Russell Sage Foundation 

"Getting money requires being optimistic and putting yourself out there," according to Morgan Housel. "But keeping money requires the opposite of risk, it requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and acceptance, that at least some of what you’ve made is attributable to luck so past success can’t be relied upon to repeat indefinitely." Page 60.

Michael Moritz of Sequoia Capital, said “we can’t afford to rest on our laurels. We can’t be complacent we can’t assume that yesterday’s success translates into tomorrow’s good fortune.” 

Jesse Livermore said, “I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head. A great many smashes by brilliant men can be traced directly to the swelled head.“

An inflated ego can drive a man to chaos, madness and ruin.

Jesse Livermore learned how to trade stocks by failing miserably several times. During one of his worst failures, he took a tip on buying cotton, but the trade went south, he ended up broke. After that, he decided never to act upon tips, and to do his own thing. 

One time I got a tip on the golf course. I lost 50% on that trade.

Overtime Jesse Livermore scored big in 1906 when he shorted the market and the earthquake happened in San Francisco, causing the market to go down. He continued to make money and started living large. He married again at age 41 and settled down with a wife and two kids on Long Island. There he collected over 400 guns and had a shooting range. She had parties on the weekends. He enjoyed his yacht and had affairs with women.

Their lavish lifestyle attracted thieves who broke in and stole $100,000 worth of jewelry. 

One of the lessons taught in the book The Millionaire Next-Door is modesty, the millionaire next door lives in a modest house and drives a used car.  Indeed, wealth attracts bad people, thieves, con artists, manipulators, speculators. Today more than ever you are bombarded by con artists, and scammers, who send texts or emails, saying click here, look at these pictures, but it turns out to be a website taking over your computer. Flaunting wealth with posts about your new Porsche, your fancy yacht and your vast estate is probably not a good idea.

Jesse Livermore created lessons that he didn’t always follow. He married multiple times and had many girlfriends. Jesse Livermore went bankrupt four times and committed suicide at age 63. Yet he is considered a pioneer in day trading who articulated the psychology of trading.

Morgan Housel says you could be wrong half the time and still make a fortune. He tells the story of Heinz Berggruen, who fled Nazi Germany in 1936 and settled in America where he studied literature at Berkeley. He collected art and in 2000 sold a collection of Picassos, Braques, Klees, Matisses to the German government for €100 million, he probably had a bunch of bad art but it’s the one percent of his art that was so phenomenal that it made him very rich. 

Morgan Housel says how you behaved as an investor in late 2008 and early 2009 will likely have more impact on your lifetime returns than in everything you did from 2000 to 2008. 

There’s a lot of truth to this, some people bailed out on the stock market in 2008-09 fearing the worst ahead, but people who continued to invest every month did well. Warren Buffett was aggressively buying railroad stock in 2009-10 and came away with BNSF Railway, now worth 3.6 times what he paid for it.

“Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control,” Housel wrote. Page 77, the Psychology of Money.

The Picture of Sorrow

Iago by Julia Margaret Cameron

By Michael Hooper

For some reason, I’m drawn to sadness. When someone talks about a struggle, I can usually relate because I am a person of feeling.

Perhaps the pain of others resonates with me because of my own pain, anguish and sorrow.

I feel somehow drawn to an 1867 photograph titled Iago, by Julia Margaret Cameron, a photographer who produced over 900 photographs, including portraits of Charles Darwin and Henry Taylor.

Her father ran a coffee plantation in Ceylon. She raised 11 children, six adopted, she has heirs living today.

She didn’t start photography until she was 48. Her husband was going back to the plantation and she was home in England. Her daughter and son-in-law gave her a camera so she would have something to do while her husband was away.

At first she struggled to get one good photograph. Her technique was the wet collodion process, which uses glass plates rather than paper for emulsion.

Photography was a laborious process in those days, complex and even dangerous (juggling noxious chemicals and light-sensitive glass negatives). Eventually she perfected her technique and style. When she purchased a new lens in 1866 she began producing atmospheric head-and-shoulder portraits, of which Iago is a fine example, according to Robert Wilkes in this article.

I like her photography, because it represents an artist at work creating stories with people.

When I saw the picture of Iago, I was immediately drawn to it. For some reason, I could feel his sadness and despair. I could feel even penitence and sorrow. I think in all of us is a wrongdoing, that we regret. We make mistakes, and we try to make up for them, but somehow our sins of the past always seem to follow us. Sometimes you get to the point of no return, like no new vow is going to change a thing. 

Iago was the villain in the Shakespeare play 'Othello'. Initially Cameron's sitter in this portrait was identified as the artist's model, Angelo Colarossi (born about 1839). However, it is possible that sitter may have been another Italian model, Alessandro di Marco, who also worked with British artists during the 1860s.

Iago by Michael Hooper

I painted a likeness of Iago in two days, which is pretty fast for me, but I was lost in his gaze. 

I wish that I could live in Florence and work in the art trade; Florence was the center of the Renaissance.

I love Italy. I’ve been there twice; once with alternative rock band For Against in 2008, the Italians rolled out the red carpet for  the band, Jeff Runnings, Harry Dingman and Nick Buller. We were given the royal treatment including wonderful dinners with beautiful people, it was like La Dolce Vita, the movie by Federico Fellini, probably one of the best movies of all time, capturing the beauty and sorrow of living

Like Fellini and Cameron, they both know how to capture a look, the feeling of something beautiful yet haunting at the same time. 

Iago looks penitent. Perhaps he is sorry for his history of crime and violence? It seems unusual that I am attracted to the picture of this villain, who manipulated Othello into murdering his wife Desdemona.

How does one live with such a crime?

How does one live with any crime?

God forgives a penitent person but criminals still face real world justice.

Stay humble. Never forget who is hurting.

Ecclesiastes 7-2 

It is better to go to the house of mourning
Than to go to the house of feasting,
For that is the end of all men;
And the living will take it to heart.
Sorrow is better than laughter,
For by a sad countenance the heart is made better.
The heart of the wise is in the house of mourning,
But the heart of fools is in the house of mirth.

I felt glad to be in the house of mourning on Dec. 14, 2024, rather than the house of mirth, because there is love in this group of friends and family of the deceased, Dr. Roy Menninger, and that is a good thing, which makes the heart better.

All of this propels me to embrace life today with 100 percent commitment, to advance ever so slowly to a higher plane of living, with a deeper understanding of the human heart; a life filled with compassion, beauty and art. I want to paint like Julia Margaret Cameron. Her portraits are so compelling. Her feeling so deep and vivid. The human heart exposed.

Losing an Intellectual Giant: Dr. Roy Menninger

Dr. Roy Menninger

By Michael Hooper

Dr. Roy Menninger, 97, an intellectual giant, former CEO of the Menninger Clinic, died Thursday, Oct. 24, 2024, at Stormont-Vail hospital. 

Dr. Roy is perhaps the wisest, most respected man I have ever interviewed, a person with a history of improving and shaping psychiatry in our world. He was a highly accomplished CEO, who worked with some of the finest minds in psychiatry as president of the Menninger Clinic from 1967 to 1993.

I met Dr. Roy Menninger around 2001-2002. I was writing stories for the Topeka Capital-Journal about the Menninger Clinic’s impending departure from Topeka. Dr. Roy talked about the difficult financial challenges facing Menninger after managed care changed the amount of money that clinics could charge customers. In the old days Irving Sheffel said they would bill the insurance companies for the cost of care and the insurance companies paid it. But that changed. 

Fundraising became increasingly important. There was a professional fundraising staff, but sometimes the potential donor wanted to meet with the top leader.

One of the many fascinating people Dr. Roy met over the years was a donor from Los Angeles, her name was Liliore Green Rains, an heiress to an oil and land-development fortune from her father, Beverly Hills developer Burton Green. Dr. Roy befriended Mrs. Rains. She gave smaller amounts to the Menninger Foundation. 

Dr. Roy and his wife Beverly visited Mrs. Rains in her lovely home filled with many pieces of art in Los Angeles. Dr. Roy gave her confidence that her gifts would help people suffering from mental illness. After she died, Mrs. Rains left $40 million to the Menninger Foundation. That gift benefited the organization for many many years.

The Menninger Clinic started in Topeka in 1925 and employed more than 1,000 employees before leaving in 2003 for Houston.

Like others in Topeka, I was sad to see the Menninger Clinic move away, but it seemed that Dr. Walt Menninger, then president, and Dr. Richard Munich, then chief of the medical staff, wanted the organization to be tied to a top-tier university system that would support education and research. The clinic in Houston partnered with the Baylor College of Medicine, creating its Menninger Department of Psychiatry and Behavioral Sciences.

How we view mental illness today is in large part due to the efforts of people like Dr. Roy Menninger and his father Dr. Will Menninger, his uncle Dr. Karl Menninger and Dr. Roy's grandfather Dr. C.F. Menninger. The treatment of mental illness is no longer a taboo thing or something to be hidden or something that we should be ashamed of but rather it’s something we should actually have compassion toward and open our hearts toward helping people suffering from these illnesses.

Dr. Roy said something recently that was really profound. Menninger provided training in therapy to every employee, and that included the grounds keepers, cafeteria workers, and housekeepers. All of these people, along with the professional staff, combined together to help reduce tension and increase healing. 

“ I think it’s what made us unique,” Dr Roy said.

"I particularly appreciated your reference to Drs. Karl, Will  and CF," Dr. Roy wrote to me. "Though I am happy to take some credit for the institution's progress after 1967, in truth, in a very essential way, my  working philosophy was rooted in  the values and perspectives of my forebears. My views were encouraged and nurtured by the intellectual excitement and the satisfactions of  all those working there, which was a consequence of widely shared values – our appreciation of the worth and integrity of every person, staff as well as patients, the impact of the mutual teaching and learning on all of us, and the vision that our work was effective and valued by both patients and staff. I think it was a rare environment. Given the current constraints on both time and money, it is hard to see how a world like that one could be created or even sustained now. And that is a sad fact. The consolation, at least for me, is the realization that the values that infused our world persist in the lives of those we helped and the helpers who helped them."

He wrote a paper recently describing his history in psychiatry. 

Dr. Roy had great patience. He was willing to sit down and talk to some of the most difficult patients, including a schizophrenic patient who was catatonic. He sat with this patient every day for several weeks during his residency in Boston. Sometimes he would just read the newspaper to her. And during that time he only got one real acknowledgment or response, she lifted her finger. His patience with this person shows the real heart of a man, not a machine, but a man with compassion and empathy, even in the face of few results.

I last saw Dr. Roy on Oct. 9. He was lucid, wise and thoughtful, a great listener and curious about everything. He was in book club where he listened often and spoke infrequently, sometimes not at all, but when he did speak, he was articulate, perceptive, and thought provoking.

Dr. Roy touched and inspired many lives. May he rest in peace.

Here is a link to his obituary

Investor Opportunity: Casey's General Stores Grows in Texas

By Michael Hooper

I recently added to my position in Casey's General Stores (CASY) even though the stock is near historic highs.

I learned, over 30 years of investing, to sell the losers and buy more of the winners. CASY stock has been a winner for many years. I started buying the stock in spring 2020 during the Covid stock market crash. 

Casey's stock is up 42% year-to-date and up 133% over the past five years. The stock closed Friday, Oct. 18, 2024, at $390.15 per share.

Recently I've been watching the company strategically plan and grow in Texas.

Casey’s is acquiring Fikes Wholesale with 198 retail stores and a dealer network. Most of those stores, 148, are in Texas. The $1.15 billion acquisition will close by year’s end. 

A year ago, Casey’s had made its first move into Texas with the purchase of 22 Lone Star Food Stores. The Fike’s deal also includes 50 stores in Alabama, Mississippi and Florida, bringing to 20 the states with Casey's stores after the acquisition is complete.

“To say we would have 1,000 stores in Texas someday is not a huge stretch,” said Darren Rebelez, president, and CEO, and chairman of the board of Casey’s. He and other managers spoke about the company’s operations and outlook during Analysts Day Oct. 15 in Ankeny, Iowa, headquarters for Casey’s. I listened to their presentation for an hour and 45 minutes online. The CEO and the executive team seem very knowledgable about opportunities to grow the business and improve margins.

Rebelez said management like the Fike's deal because of its large format stores, with 4800 square feet, with kitchens; and they're in great geographies, in the target market of Texas and the growing Alabama/Florida panhandle.

Casey's has more than 2600 convenience stores in the Midwest and is third-largest convenience store retailer and the fifth-largest pizza chain in the United States.

Casey’s stock is up $100 per share since I wrote about the company in this piece in January recommending investors buy the stock.

After such a runup, I still believe investors should own the stock, however they are buying today at a higher than normal price/earnings ratio. The P/E ratio on the stock has risen from 21 to 28 this year. The historical average P/E ratio for this stock is 22, according to ycharts.

As a result of the big run up, I believe the stock is more of a hold than a buy, however, I have recently purchased more shares at $365 and $387 per share. 

I believe the stock is in the trading range from $362 per share to $392 per share. Take a look at this chart:

CASY chart for 15 days of trading

See how the stock fell to about $362 per share at the far left and then started climbing up and hit $375 and then went down below $370, dipped into the $360s and then ran up to $396 and suddenly dropped substantially to the $377, when I bought more shares.  I figure the stock will go back to $392 again and perhaps $400 per share eventually.

I recommend buying and holding this stock for 3 to 5 years to get the most benefit out of the current strategy.

Casey’s strategy is buying stores at 6 to 9 times earnings, renovating with new kitchen for fresh baked goods like their popular pizzas and donuts. This is a high margin business that makes the convenient store more profitable.

"There are 150,000 convenience stores in America. Food is our differentiator," Rebelez said.

Indeed, about 2/3 of Casey’s gross profit, stems from in-store sales, customers buy a lot of pizza and beer. Cigarette sales are on the decline, but that doesn't hurt Casey's because of its diverse merchandise offerings, including its own company label snacks and water.

Rebelez said employees recently rebuilt the sandwich lineup with its new Spicy Crispy Chicken Sandwich, Crispy Chicken Sandwich and Quarter Pound Angus Beef Burger. These sandwiches are in the warmers, freshly prepared every day, ready to eat. Sales for sandwiches have increased substantially as some customers choose a whole meal rather than just a snack.

Casey’s has been averaging about $0.35-$0.40 per gallon margin on the sale of gasoline. That brings in millions every day.

The company's growth model is about 50 percent acquisition and 50 percent new builds, but this changes depending on economic conditions. Cost of construction has gone up considerably in recent years.

"M&A or organic growth, we can do it either way," Rebelez said.

Casey's serves a lot of small towns but also has quite of few stores in larger cities like Topeka, which has five Casey's locations. A sixth location is going into Campus Center at 17th Street and Washburn Ave., across the street from Washburn University.

In 2019, Red Mountain Group, Inc. of Santa Ana, Calif., purchased Campus Center shopping center in Topeka located at 1634 SW Washburn Avenue. In spring, the group started renovating the retail space while preparing the land at the corner for a new building for Casey's General Stores. That store will attract a lot of customers because of its prime location.

Stocks like Casey's trade at a high multiple for a reason. I think the reason is a proven plan of growth.

Casey's strategy: 

--delivering Quintle EBITA growth of 8-10% per year.

--Accelerate the food business

--Grow the number of units

--Enhance operational efficiency.

Casey's has consistently achieved 8+% Ebita growth for over 10 years, Rebelez said. Not many retailers have done this. O'Reilly Auto Parts has done this.

I believe management have figured out the growth strategy after years of experience. CASY stock is near all time highs but I want more shares. If there is a pullback of 5% to 10%, I'm going to buy more. I might buy more anyway. My experience with winning stocks is they don't go down much, and if they do, they tend to climb back up and eventually go higher.

Evercore ISI Group analyst Michael Montani recently said he maintains an outperform rating on Casey's General Stores and raised his price target from $435 to $440.

Omaha's Explosion of Creativity

Color by Michael Hooper

By Michael Hooper

A small encounter in the physical world can be a gigantic moment of the heart.  I recently spent three wonderful days getting reacquainted with an old friend named John Giles. He and I met through a mutual friend Arlen Lazaroff, a Nebraska poet and artist who was active in the poetry circles in Omaha from 1985 to 1995. 

Lazaroff and Giles were part of an explosion of creativity happening in the music, art and literary scene in Omaha at the time.  Poets and writers often met at The Antiquarian Book Store run by Tom Rudloff in the historic Old Market neighborhood. I often went to the Old Market several times per year in those days, particularly when I lived in Omaha's Hanscom Park neighborhood and worked at the Papillion Times in 1987. The Old Market had a Bohemian ambiance in those days, with its record stores, bars and restaurants, including the French Cafe.

Rudloff was a scholar and linguist who owned a five-story building full of books, records and art. With bushy eyebrows and a deep voice, he was a charming man who was curious about everything. He often sat with other book people on couches and chairs near the entrance. When you entered his salon, he asked if you would like a cup of coffee. Rudloff encouraged Erich Christiansen in his study of philosophy. I bought The Sun Also Rises by Ernest Hemingway. Arlen found great records in the music room for his growing collection of psychedelic rock. Among others in this movement were Margery Coffey, and Richard Chilton, Randy Galaska, and Eadweard Rhawn York.

Margery Coffey was the Godmother of this emerging crowd. She and Richard Chilton live on the Winnebago Reservation and had adopted a lifestyle of creating art and literature. Coffey's paintings of native Americans are highly regarded by critics. I love her blue period when she painted lonely souls at a nursing home in Alma, Neb. The faces of her subjects seem haunting and tragic. Coffey is not afraid to tell the truth. Human life is a tragedy. We're born. We live. We die.

Perhaps the greatest emerging poet at the time was a young woman named Renee "Talonia" Novy.

Talonia had big frizzy hair, soft brown skin and mysterious eyes. Her race, she said, was a mix of European, African, Bohemian and Jewish. She often performed at Kilgore’s, a coffee shop popular among the poets at the time. Arlen took me to Kilgore’s one night, where I saw Talonia perform in a raging, majestic fashion, as if she were floating on stage. Broken promises, shattered dreams and lust for living, her poem Fast Against the Train speaks volumes to the intense emotion she gave to living.

Tragically, Talonia, 29, and her 7-month old daughter Jamesin Novy-Sullivan died after getting struck by a motor home on Interstate 680 in Omaha in 2003.

These Nebraska poets, including Giles and Lazaroff, were involved in the Youth for Peace movement. The group traveled all the way to Washington DC to deliver their message of peace, meeting with Senator Bob Kerrey of Nebraska.

They loved creating art and music in a collaborative way. Arlen recorded with musicians like David Nordin and Dereck Higgins, a musician who has been an Omaha pioneer with rock bands over the years. My favorite was Digital Sex with Higgins, Stephen Sheehan and John Tingle. 

311 of Omaha, and Lincoln's For Against and The Millions were popular bands in the late 1980s and early 1990s.

Saddle Creek Records was founded in Omaha in 1993 as Lumberjack Records by Mike Mogis and Justin Oberst; Bright Eyes and The Faint were among its recording artists.

The Reader

John Heaston, editor of The Reader, was active in these groups, he supported them by publishing their news and events in his magazines. 

"Johnny championed my work," said visual artist Eadweard Rhawn York. "He featured me twice on the front page."

John Giles worked for Heaston in publishing articles in Sound magazine. Indeed they published an article of mine about a seminal poetry gathering on the Platte River, where we built a fire and read late into the night and danced to jazz in the early 1990s.

The Omaha Press Club was going to roast Heaston in May but he died the day of the roast, said his friend Kris Kluver. The roast, led by his brother Ben, went on anyway. Those who spoke spared nothing. Heaston would have loved it, Kluver said.

Heaston, 53, died after a four-year battle against leukemia. John Giles says he got to see him before he passed.

Scherzkopf

In the early 1990s, Eadweard Rhawn York tried to get press in The Omaha World-Herald. But he kept getting rejected. The Bemis Gallery also rejected the local artist, preferring instead to favor artists from New York and Europe. So York created a character named Scherzkopf (which means joke head), who was supposedly a rising German artist. York painted multiple paintings and attributed them to Scherzkopf. He sent out press releases and photos of his work. The Omaha World-Herald became interested and wrote a story about the German artist based on the press releases. When the art show was displayed, a reporter tried to interview the German artist only to find out it was York the whole time. Needless to say York was banned from the OWH after that.

Margery Coffey encouraged artists to publish their works and she helped several poets create chap books through her own publishing firm, Black Prairie Dog Woman Studios, featuring the works of Dennis Hastings, Arlen Lazaroff, and John Giles. Margery and Richard Chilton published many works on their web site Jackalope Arts. Looking over the statistics of the web site usage, it turned out a lot of hits were coming from France, Giles recalled.

Sometimes it's hard to be loved in your own country. 

Roar by John Giles

In the 1990s, Arlen and I wrote a book called Shattered on the Plains, about eccentric men and women in Kansas and Nebraska.

The act of creation. That was what this movement was all about. Margery and Arlen made the front page of The Omaha World-Herald

when their art was censored in Fremont, Neb. Fremont conservatives were offended by Arlen's art featuring a nude man and woman with the phrase, "The End of Sex is a Family."

John Giles and I have been talking about doing an art retreat for a couple of years now, and it finally came together this summer when we spent three days together at our cabin in northern Minnesota, working on art projects, and discussing our mutual history with these fascinating people in the late 1980s and early 1990s. 

Michael Hooper and John Giles

I took John to a hayfield near a grove of trees by our cabin. The sun was shining, the wind was blowing, we felt so alive. It was in that moment, he told me his full name was John Matthew Giles. As a preschooler he was called Matthew. When he went to first grade, he said there were four other Matthews in his class so he went home that day and asked his mother for another name and his mom said, "well your Dad calls you John." The next day he told his teacher, "I am John."

John and I ate fruit and drank water and then went swimming in the lake. We stayed in the water for a long time, the water felt so refreshing.

That night John Giles painted a figure emerging from blackness with big lips and hypnotizing eye.

He painted in low light inside of a garage in the night time so there was not much to be seen, only imagined and his imagination went wild.

The spirit of creation brought us together again, after a separation of almost 20 years. 

I am grateful for the time with my friend creating new memories and remembering the glorious time we experienced in the late 80s and early 1990s with all that great art, poetry and music coming out of Nebraska. What an incredible time to be alive.