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HISTORICAL PERSPECTIVE The GameStop Phenomenon: What Would Jesse Livermore Have Done? From the Northern Pacific Corner to WallStreetBets |
The stock opened at $160 on the morning of May 9, 1901.
By noon, it had hit $1,000.
On the floor of the New York Stock Exchange, short sellers—traders who had borrowed shares and sold them, betting the price would fall—scrambled to buy back stock that no longer existed. They liquidated everything they owned to cover positions that were bleeding them dry by the minute. U.S. Steel cratered as desperate men dumped whatever they could to raise cash. One broker hired a special train just to deliver a single stock certificate from Albany. |
That evening, at the Waldorf Hotel in Manhattan, the aftermath played out in cigar smoke and silence. Bernard Baruch, himself a Wall Street operator, surveyed the scene and later wrote: "One look inside the Waldorf that night was enough to bring home the truth of how little we differ from animals after all. From a palace the Waldorf had been transformed into the den of frightened men at bay." |
The stock was Northern Pacific Railway. The event is widely described as the first major short squeeze to trigger a crash on the New York Stock Exchange.
And somewhere in the chaos, watching the ticker tape print prices that no longer matched reality, stood a twenty-four-year-old speculator from Massachusetts who had arrived on Wall Street with $10,000 and a talent for reading the tape faster than anyone in the room. His name was Jesse Livermore. |
The Railroad That Started It All
Six years before that May morning, Livermore had been a fifteen-year-old board boy at a PaineWebber office in Boston, earning five dollars a week to chalk stock prices on a board. He'd already taught himself to read patterns in the numbers—not what the stocks did, but what they were about to do. And when he placed his first trade, a five-dollar bet at a bucket shop (a kind of storefront gambling parlor that took wagers on stock prices without actually executing trades), the stock he chose was the Chicago, Burlington & Quincy Railroad.
His profit: $3.12. |
It was the same railroad—the Burlington—that would trigger the 1901 panic. When E.H. Harriman and J.P. Morgan went to war over control of Northern Pacific, they were fighting because whoever controlled Northern Pacific controlled the Burlington. Livermore's first dollar came from the same fault line that would produce the most spectacular squeeze of the century. |
By twenty, Livermore had turned his bucket shop winnings into $10,000 and been banned from every gambling parlor in Boston for the crime of winning too consistently. He moved to New York to trade on the real exchange. And in the spring of 1901, reading the Northern Pacific tape as it climbed from $95 in April to $150 in early May, he went long.
He reportedly turned that $10,000 into as much as $500,000. |
But the story doesn't end there—because Livermore also learned something brutal on May 9. The bucket shop tactics that had made him rich in Boston—quick reads, fast entries, faster exits—fell apart on the real exchange. The ticker tape ran late. The prices he saw on the tape no longer matched the prices on the floor. His rapid-fire instincts, perfectly tuned for the controlled environment of a betting parlor, collided with the chaos of a genuine market panic. He made a fortune on the run-up. The crash taught him the fortune wasn't enough. |
How Corners Work
Harriman, who controlled Union Pacific, wanted the Burlington railroad because it connected to Chicago—the hub of the entire national rail system. James J. Hill, backed by J.P. Morgan, controlled Northern Pacific and had already bought the Burlington. Harriman's response was to quietly buy Northern Pacific itself, spending roughly $80 million through the banking firm Kuhn, Loeb & Co. He got within 40,000 shares of controlling the company.
Then a junior partner at Kuhn, Loeb failed to execute the final order on a Saturday trading session. By Monday, Morgan had been cabled in France and authorized the purchase of 150,000 shares "at any price." The scramble was on. |
Between the two sides, they owned more shares than existed in the public float. Short sellers, who had bet the price was too high, suddenly discovered there was nothing left to buy. Northern Pacific went from $95 to $1,000 in a matter of days. The short sellers faced ruin. And neither side could stop it—until Morgan and Kuhn, Loeb declared a truce and allowed shorts to settle at $150 a share. Without that intervention, more than half the brokerage houses on Wall Street might have failed. |
Warren Buffett first read about the Northern Pacific corner when he was ten years old. He hung a framed copy of the May 10, 1901 front page of the New York Times on his office wall when he started his first investment partnership in 1962. |
A Hundred and Twenty Years Later
In January 2021, it happened again.
The stock wasn't a railroad. The crowd wasn't wearing top hats. The battlefield wasn't the floor of the New York Stock Exchange—it was a Reddit forum called WallStreetBets. But the math was the same: more shares had been sold short than could be bought back, a crowd figured it out, and the price detached from anything resembling the company's actual value. |
GameStop—a struggling brick-and-mortar video game retailer—went from roughly $20 to $483 in less than two weeks. |
Hedge funds that had shorted the stock lost billions. Retail traders on Reddit, many of them first-time investors trading through an app called Robinhood, saw it as a chance to beat Wall Street at its own game.
And then, at the moment of maximum pressure, the technology failed. Robinhood restricted buying of GameStop shares on January 28, 2021, citing clearinghouse capital requirements. The price collapsed. Traders who had been unable to sell on the way up because they believed the squeeze had further to run were now unable to buy on the way down because their platform had shut them out. |
In 1901, the technology that failed was the ticker tape—prices printed on paper that arrived seconds or minutes behind reality, leaving traders like Livermore executing on information that was already obsolete. In 2021, it was a trading app that froze at the worst possible moment. Access and execution are not guaranteed at the moments when they matter most. |
What Would Livermore Have Done?
This is the question the title asks. And answering it honestly requires looking at what Livermore actually did—not the legend, but the documented pattern.
He would have recognized the setup. Livermore spent his career studying what he called the "line of least resistance"—the direction a stock moves when the natural forces acting on it are unimpeded. When GameStop's short interest exceeded 100% of the available float, the line of least resistance pointed straight up. That's a squeeze, and Livermore had lived through the most famous one in history. He would have seen it coming. His concept of "pivotal points"—specific prices where the market reveals whether a move is real or exhausted—would have kept him in the trade as long as the momentum held. Livermore was a tape reader. He followed price, not stories. |
And the tips—the Reddit posts, the diamond-hands memes, the crowd shouting "hold the line"—he would have ignored all of it. He wrote that following the opinions of others was "the worst of all" speculative failures. He learned that lesson in 1906, when a broker's tip cost him $40,000 on a trade his own analysis had gotten right. The crowd was noise. The tape was signal. |
But history suggests he would have faced the same trap everyone else did. Livermore's career was defined by brilliant entries, correct theses, and then the inability to leave when the trade turned. He rode Union Pacific to a fortune in 1906. He shorted the entire market in 1929 and netted roughly $100 million. But he also went broke—multiple times—because the same confidence that got him in kept him in too long. In 1901, his bucket shop instincts worked until they didn't. Based on his documented patterns, he likely would have recognized GameStop's squeeze mechanics with precision and struggled with the exit, because that's what he always did. |
The Man Who Could Read Everything but Himself
Jesse Livermore made and lost several fortunes across four decades of trading. He shorted the market before the San Francisco earthquake. He cornered cotton and was summoned to the White House by President Woodrow Wilson, who asked him why. "To see if I could, Mr. President," he replied. He netted roughly $100 million during the 1929 crash—an amount worth well over a billion in today's dollars—and was blamed for the collapse by the public. He received death threats. He hired bodyguards.
He understood the psychology of crowds better than perhaps anyone who ever traded. But understanding the market and surviving it turned out to be two very different skills. |
On Thanksgiving Day, 1940, Livermore walked into the Sherry-Netherland Hotel in Manhattan. He left a note for his wife: "I am tired of fighting. Can't carry on any longer." He was sixty-three years old. |
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Written and shared by Anthony S. Owens, on behalf of the team at McKee Financial Resources, Wealth Management Services.
Disclaimer: This article is for educational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. Historical examples are used to illustrate market concepts and should not be interpreted as predictions of future performance. All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. Copyright © 2026 Anthony S. Owens. All rights reserved. |