History's Greatest Speculator Asked, Who Punishes the Optimists?

Who punishes the distributor of unjustified bullish news items? Nobody; and yet, the public loses more money buying stocks on anonymous inside advice when they are too high than it does selling out stocks below their value as a consequence of bearish advice. If a law were passed that would punish bull liars as the law now punishes bear liars, I believe the public would save millions.
— Jesse Livermore

Jesse Livermore was a stock speculator at a time when "bucket shops" let gamblers bet on how share prices would move. In his world, gossip, or "news items" as he calls it, could make you a fortune... or cost you one.

Disturbingly, the bucket shops offered gamblers that could be considered a primitive version of today's perpetual futures. Got a feeling that U.S. Steel is going up today? Put down some money and bet on it.

If you “bought” 100 shares of U.S. Steel at $50, the full value would be $5,000, but you’d only put up a margin of, say, 10%, or $500. If the stock rose to $51, you’d gain $100 and could take your profit or let the bet ride.

If it fell to $49, you’d lose $100. Losses beyond your $500 margin would wipe out your bet. The high leverage could lead to quick profits, but the house always won in the end.

For a fascinating deep dive into the mind of this legendary speculator, Edwin Lefèvre's "Reminiscences of a Stock Operator" is indispensable. While Lefèvre published it as fiction, it is known to actually be Livermore's biography. The above quote is from the book.

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