Jesse and the Quake

One hundred eleven years ago, one of the most devastating natural disasters in American history struck. Here’s something about how Jesse Livermore traded through it that I found interesting:

At eight o’clock in the morning of Wednesday April 18th 1906, Jesse Livermore was sound asleep in his New York hotel room after arriving back late from Palm Beach the previous evening.

3000 miles away, across the country in California, it was five o’clock in the morning and the city of San Francisco slept contentedly. Barely two minutes later, the earth shook and all 410,000 citizens were awoken as the San Andreas Fault suddenly ruptured. There were two quakes. The initial quake was hardly noticeable but, 20 seconds later, the earth tremored for 42 seconds at force eight, just about as bad as it gets. It shattered the surface of the earth for a length of 296 miles across California. At its epicentre, the ground moved 28 feet.

The above account of the infamous San Francisco quake comes from the book Jesse Livermore – Boy Plunger. Livermore had previously sold short 5000 shares of the Union Pacific railroad on a hunch that something bad was about to happen during a vacation in Florida. This was a massive trade for the speculator, given that he’d just spent the previous four years frittering around with small wins and losses, and focused more on his social life than on his career.

But Jesse’s gut told him to act that day in early April 1906…

Livermore just stood very still and quiet. He could feel something happening inside his head, a sensation he had not experienced before…Livermore was struck by a sudden impulse to do something based on nothing at all.

“I was looking over the quotation board, noting the changes, and they were mostly advances – until I came to Union Pacific and I got a feeling that I ought to sell it. I can’t tell you anymore. I just felt like selling it. I asked myself why I should feel like that and I couldn’t find any reason at all for going short of Union Pacific.”

He starts with a thousand shares short in the Florida branch of his friend’s brokerage firm, E.F. Hutton, and then gradually builds up his position while returning to New York. The next day, the quake hits and within a few days Livermore is sitting in profits on his leveraged bets. Union Pacific shares collapsed as it became apparent that shipping in and out of the region would be severely hampered, along with the potential for a US recession arising as a result of risk-averse business activity.

The initial reports out of San Francisco on the days following the quake say that hundreds have died. By April 25th 1906, the market hits its low, with a billion dollars in value wiped out. And then it begins to recover.

But Livermore believes the newspapers are underreporting the tragedy. He quadruples his short to 20,000 shares of Union Pacific, with $3.5 million on the line, much of it borrowed from the brokerage firm.

The initial damage from the quake pales in comparison with what will happen in the aftermath. San Francisco is the 9th largest city in America at the time, and around a quarter of the buildings collapsed from the tremors, leaving 100,000 people homeless immediately.

By the next day, almost the entire city catches on fire.

The fire department is leaderless and the water mains are too damaged to help. Gas mains, meanwhile, are exploding and the city’s mostly wooden edifices go up like kindling. Panicked citizens make things worse. There is an attempt to create firebreaks using dynamite to contain the burning, but this only sets off more fires. Additionally, because the insurance policies of the day only covered fire damage and not earthquakes, people begin to set their own dwellings and properties ablaze.

It is estimated that some 80% of San Francisco’s buildings had been burnt to the ground when all was over, with more than 3000 people dead and a quarter of a million citizens homeless. It is the worst natural disaster in the history of California and, arguably, the United States.

When the dead-cat bounce in the stock market fades and rolls over that spring, the Boy Plunger finds himself with $250,000 in gains, an enormous windfall from stock speculation at the turn of the century. He covers his short into the second sell-off as the world realizes how bad the destruction actually is. The estimates for losses caused, to be borne by the nation’s largest insurance companies, total $400 million – an astonishing sum.

By the height of summer, Livermore is playing the true market recovery, which doesn’t begin until the end of July. He is now extremely long shares of Union Pacific, betting on its rise, as his brokers scream at him that he is crazy. The chronology looks like this:


One hundred and eleven years ago this summer, an earthquake shocked the country. There was a panic, then a bounce, then a depressing reality set in and the bounce was gone.

And then, after all illusions about the cost of the event were dispelled – and only after – could the markets recover anew.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Jesse and the Quake - Feediu.Com commented on Apr 19

    […] 7.8 magnitude earthquake strikes California, killing 3,000 people and … Barely two minutes later, the earth shook and all 410,000 citizens were … Source link […]

  2. Eat Verts commented on Sep 23

    … [Trackback]

    […] Read More here on that Topic: […]

  3. bitcoin loophole review 2020 commented on Sep 28

    … [Trackback]

    […] Find More on to that Topic: […]

  4. immediate edge review commented on Sep 29

    … [Trackback]

    […] Here you can find 12034 more Info on that Topic: […]

  5. que es el bitcoin evolution commented on Sep 30

    … [Trackback]

    […] There you will find 59099 more Information to that Topic: […]

  6. orangeville real estate agents commented on Oct 16

    … [Trackback]

    […] There you will find 31108 more Info to that Topic: […]

  7. td login commented on Nov 25

    … [Trackback]

    […] Read More Info here to that Topic: […]

  8. Devops solutions commented on Dec 01

    … [Trackback]

    […] There you will find 38055 additional Information to that Topic: […]

  9. cibc login commented on Dec 04

    … [Trackback]

    […] Information on that Topic: […]

  10. imitation Grand Carrera Tag Heuer commented on Dec 17

    … [Trackback]

    […] Read More Info here to that Topic: […]

  11. Harold Jahn Alberta commented on Dec 19

    … [Trackback]

    […] Find More on on that Topic: […]

  12. garage door moving slow commented on Dec 21

    … [Trackback]

    […] Here you can find 64997 additional Info to that Topic: […]

  13. Complaint Plastic Surgery commented on Jan 28

    … [Trackback]

    […] Find More Information here to that Topic: […]