What a Scottish Journalist, a Suicidal Trader, and Two Nobel Laureates Can Teach You About Friday's 31% Silver Crash

The same flaw bankrupted Dutch merchants in 1637, Jesse Livermore in 1940, and Nobel Prize winners in 1998. It's not ignorance. It's not bad luck. It's you.

Jan 31, 2026

Saturday: The Mischief Library. I read 50+ books a year so you don’t have to. Not airport fiction about Navy SEALs with relationship issues. Real books. History written by people who got fired for telling it. Biography of folks who saw the crash coming and the geniuses who saw it coming and still got flattened anyway.

On Thursday, silver hit $120 an ounce. On Friday, it crashed 31% to $78. The worst single day since March 1980.

That crash only destroyed people who destroyed themselves.

If you owned physical silver or held an unleveraged long position, Friday was noise. Violent, nauseating noise. But noise. You didn’t sell. You still own the same ounces. The long-term thesis hasn’t changed. You wake up Monday and the position is still there.

The people who got destroyed fall into three categories. They were overleveraged and got margin called. They bought options without enough time. Or they panicked and sold, converting a paper loss into a real one.

This isn’t new. This is the oldest story in markets.

Today: three books spanning 157 years that teach the same lesson Friday just taught. A Scottish journalist who wrote the bible on bubbles, then lost his shirt in a bubble.

A trader who wrote the bible on discipline, then shot himself in a hotel cloakroom.

Two Nobel laureates who proved they’d eliminated risk, then needed the Fed to stop them from cratering the global economy.

They all knew what was going to kill them. It killed them anyway.

Three Books That Will Teach You to Recognize the Enemy in Your Mirror

In 1841, a Scottish journalist named Charles Mackay sat down to document the history of human stupidity. He catalogued tulip mania, the South Sea Bubble, the Mississippi Scheme, and a dozen other episodes where otherwise rational people lost their minds and their money chasing phantoms. His book, Extraordinary Popular Delusions and the Madness of Crowds, became a classic precisely because it was supposed to be a warning.

It wasn’t.

Eighty-two years later, in 1923, a journalist named Edwin Lefevre published a thinly fictionalized biography of Jesse Livermore, a man who had made and lost several fortunes playing the stock market. The book, Reminiscences of a Stock Operator, explained in meticulous detail exactly how traders destroy themselves through emotion, impatience, and the inability to follow their own rules.

Traders have been ignoring this advice ever since.

Seventy-five years after that, in 1998, a room full of Nobel Prize winners, PhD mathematicians, and the most sophisticated quantitative minds Wall Street had ever assembled managed to blow a $4 billion hole in the global financial system because they believed their models had eliminated risk.

They hadn’t.

Roger Lowenstein’s When Genius Failed documents this catastrophe with the precision of a coroner’s report. And like the previous two books, it was supposed to teach us something.

Here’s the uncomfortable truth these three books reveal when read together: human nature doesn’t change. The technology gets better. The suits get nicer. The mathematical models get more sophisticated. The leverage gets more creative. But the fundamental flaws in how humans process risk, reward, greed, and fear remain exactly the same as they were when Dutch merchants were trading their houses for tulip bulbs in 1637.

The Stoics taught us that we cannot control external events, only our response to them. These three books document what happens when people forget that lesson and convince themselves they’ve mastered the uncontrollable forces of markets, crowds, and human psychology.

Spoiler alert: it never ends well.

THE CHRONICLER OF COLLECTIVE INSANITY

Charles Mackay was born in Perth, Scotland, in 1814, the son of a bombardier in the Royal Artillery whose career had included being captured by the French and imprisoned for four years. His mother died shortly after his birth. His father, having contracted malaria during a disastrous military expedition, sent young Charles off to be raised by a nurse in Woolwich.

This is not exactly the biography of a man destined to become friends with Charles Dickens and editor of The Illustrated London News. But Mackay was brilliant, ambitious, and possessed of an almost pathological curiosity about human folly. He was educated in Brussels, became fluent in multiple languages, and began his journalism career writing in French for Belgian newspapers while still in his teens.

By 1835, at age 21, he was working as an assistant sub-editor at The Morning Chronicle in London, where his colleagues included the young Charles Dickens. The two became friends. Mackay was also a prolific songwriter. His song “Cheer, Boys, Cheer” became so popular that it served as an unofficial anthem for British soldiers and emigrants for decades. He was a man of many talents and inexhaustible energy.

But his lasting contribution to human knowledge came in 1841, when he published Memoirs of Extraordinary Popular Delusions. The book was exactly what its title promised: a comprehensive catalog of the ways large groups of otherwise sensible people have lost their collective minds throughout history.

The financial chapters remain the most famous. Mackay’s account of the Dutch tulip mania of the 1630s describes a society gone temporarily insane. At the peak of the bubble, a single tulip bulb could sell for more than a skilled craftsman would earn in a lifetime. People traded houses and farms for bulbs. When the market collapsed, fortunes evaporated overnight.

His account of the South Sea Bubble documents how the British government, desperate to manage its debts after the War of Spanish Succession, allowed the South Sea Company to take over the national debt in exchange for a monopoly on trade with South America. The stock price soared. Everyone from servants to lords piled in. Isaac Newton invested early, sold at a profit, then watched the stock continue rising and bought back in at higher prices. He lost a fortune. “I can calculate the movement of stars,” Newton reportedly said, “but not the madness of men.”

The Mississippi Scheme shows how John Law, a Scottish gambler and economist, convinced the French government to let him create a central bank and a company with monopoly rights to France’s Louisiana territory. The scheme was essentially a Ponzi operation dressed in respectable clothing. When it collapsed, it destroyed the French economy and helped set the stage for the revolution that would come seventy years later.

Mackay’s genius was not merely in documenting these episodes but in understanding what they revealed about human psychology. “Men think in herds,” he wrote. “It will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”

This insight alone is worth the price of admission. When markets are rising and everyone around you is getting rich, the pressure to join them is almost irresistible. The madness is collective. The recovery is individual. This asymmetry explains why bubbles keep forming and why they keep catching people by surprise.

But here’s the delicious irony that most readers of Mackay’s work don’t know: Mackay himself was not immune to the very delusions he documented.

In the 1840s, as editor of The Glasgow Argus, Mackay became caught up in the Railway Mania that swept Britain. He wrote optimistic columns assuring readers that there was no danger of the railway market crashing. “There is no reason whatever to fear a crash,” he wrote in October 1845.

The crash came. Many investors were ruined.

The man who wrote the definitive book on financial bubbles got caught in a financial bubble. If that doesn’t tell you something about the durability of human folly, nothing will.

Mackay went on to a distinguished career, serving as The Times correspondent during the American Civil War, where he became the first journalist to expose the Fenian conspiracy. He died in 1889, leaving behind a body of work that included poetry, songs, and serious scholarship.

But Extraordinary Popular Delusions remains his monument. Financier Bernard Baruch credited the book with saving him millions. He claimed it taught him to sell all his stock before the crash of 1929. Whether this is true or conveniently revisionist history is unknown, but the fact that Baruch wanted to be associated with having read the book tells you something about its reputation.

The book’s staying power comes from a simple insight: the specific circumstances of financial manias change, but the underlying psychology does not. Whether you’re trading tulip bulbs in Amsterdam, South Sea Company stock in London, Beanie Babies in the 1990s, or cryptocurrency in the 2020s, the emotions driving the bubble are identical. Greed. Fear of missing out. The suspension of disbelief. The conviction that “this time is different.”

It never is.

THE BOY PLUNGER AND HIS DEMONS

Jesse Lauriston Livermore was born in Shrewsbury, Massachusetts, in 1877, into a family so poor that his father pulled him out of school at age fourteen to work on the farm. His mother, recognizing that her son was too bright to spend his life behind a plow, gave him five dollars and helped him run away from home.

It was the best five dollars ever invested in American financial history.

At fourteen, Livermore got a job as a board boy at a Boston brokerage, posting stock prices on a chalkboard as they came across the ticker tape. The pay was five dollars a week. But Livermore wasn’t interested in the money. He was interested in the numbers.

He began keeping a notebook, recording price movements and looking for patterns. He noticed that stocks often moved in predictable ways before big moves, that certain price points seemed to act as support or resistance, that the tape told a story if you knew how to read it.

At fifteen, he made his first trade. He walked into a bucket shop, a type of gambling establishment that let customers bet on stock price movements without actually buying shares, and put down five dollars on Chicago, Burlington and Quincy Railroad. Two days later, he cashed out for a profit of $3.12.

The pendulum had begun to swing.

By sixteen, Livermore had quit his job to trade full-time. By his early twenties, he had accumulated $10,000, an enormous sum for a kid from a Massachusetts farm family. He was making $200 a week when most working men earned $10. The bucket shops of Boston started refusing his bets. He was too good. He was banned under his own name, then under disguises, then banned completely from every bucket shop in the city.

So he went to New York.

What followed was one of the most spectacular and volatile careers in Wall Street history. Livermore made and lost four separate fortunes. He earned the nickname “The Boy Plunger” for his willingness to bet big on his convictions.

He made a million dollars in a single day during the Panic of 1907, shorting stocks while the market collapsed around him. J.P. Morgan himself, who was orchestrating a bailout of the entire financial system, personally asked Livermore to stop selling short because he was making the panic worse.

Livermore agreed. He reversed his positions and profited from the recovery too.

His greatest triumph came in 1929. While the rest of America was drunk on the bull market of the Roaring Twenties, Livermore recognized the signs of a bubble. He began building short positions. When the crash came that October, he made approximately $100 million, equivalent to roughly $1.5 billion today.

The newspapers called him “The Great Bear of Wall Street” and blamed him for causing the crash. He received death threats and had to hire bodyguards. But Livermore hadn’t caused the crash. He had merely recognized what was coming and positioned himself accordingly.

“Fools,” he reportedly muttered during an interview. “Fools, to think I could have brought an entire market to its knees. Impossible.”

Edwin Lefevre, a journalist who had covered Wall Street for decades, conducted a series of interviews with Livermore in the early 1920s. The resulting book, Reminiscences of a Stock Operator, was published in 1923 as a “novel” with a protagonist named Larry Livingston. But everyone knew who Livingston really was.

The book became, and remains, the most widely read work on trading psychology ever written. It has been in print for over a century. When Jack Schwager interviewed the world’s greatest traders for his Market Wizards books, “Reminiscences” was the most frequently cited book. Martin Zweig, one of the most successful money managers of the twentieth century, said he kept copies on hand to give to everyone who came to work for him. The Wall Street Journal called it a classic. Alan Greenspan called it “a font of investing wisdom.”

What makes the book extraordinary is not its trading strategies. Those are dated by now. What makes it immortal is its unflinching examination of the psychological demons that every trader must battle.

“The speculator’s chief enemies are always boring from within,” Livermore wrote. “It is inseparable from human nature to hope and to fear. In speculation, when the market goes against you, you hope that every day will be the last day, and you lose more than you should had you not listened to hope, to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little.”

Hope and fear. The twin demons that destroy traders. Hope makes you hold losers too long, praying for a recovery that never comes. Fear makes you sell winners too early, missing the big moves that would make your fortune. Both emotions lead you away from what the tape is actually telling you.

Livermore understood this intellectually. He wrote about it brilliantly. He spent his entire career fighting these demons.

And in the end, the demons won.

After his 1929 triumph, Livermore’s life began to unravel. His third wife, Dorothy, shot their son Jesse Jr. in a drunken argument in 1935, one of the great scandals of the era. His trading became erratic. He violated his own rules repeatedly. He filed for bankruptcy again.

On November 28, 1940, Jesse Livermore walked into the cloakroom of the Sherry-Netherland Hotel in Manhattan and shot himself in the head with a .32 Colt automatic.

Police found an eight-page suicide note addressed to his fourth wife, Harriet, whom he called Nina. “My dear Nina,” it read. “Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie.”

The man who made $100 million in 1929 died with liabilities exceeding his assets.

There is a cruel irony here that most people miss. Livermore’s book was read by generations of traders specifically because it warned against the psychological traps that destroy speculators. But Livermore himself could not escape those traps. The man who wrote the manual on avoiding self-destruction ultimately self-destructed.

Early in his career, Livermore had done something that revealed his awareness of his own weaknesses. He purchased $800,000 worth of annuities for his wife and children, structured so that he himself could never touch the money. “I knew a trading man will spend anything he can lay his hands on,” he explained. “By doing what I did, my wife and child are safe from me.”

He knew. He knew he couldn’t trust himself. He knew the demons were inside him. He built walls to protect his family from his own worst impulses.

And still, in the end, it wasn’t enough.

This is what makes Reminiscences of a Stock Operator so powerful and so haunting. It is not merely a trading manual. It is a tragedy. It is the story of a man who understood exactly what destroys traders and was destroyed by it anyway. The knowledge wasn’t enough. The self-awareness wasn’t enough. Understanding your demons intellectually does not give you power over them.

Livermore’s favorite book, by the way, was Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds. He read it repeatedly throughout his career. He understood, perhaps better than anyone, that markets are not rational. They are emotional. They are driven by the madness of crowds.

He just couldn’t escape the madness inside himself.

WHEN NOBEL PRIZES MEET REALITY

In December 1997, Robert Merton and Myron Scholes traveled to Stockholm to receive the Nobel Prize in Economics from the King of Sweden. The prize was awarded for their work developing a method to determine the value of derivatives, work that had revolutionized finance and made possible the explosive growth of options markets worldwide.

Merton’s students at Harvard gave him a three-minute standing ovation when they heard the news. “It was something that could only be dreamed of once in many lifetimes,” Merton said.

Both men were partners in a hedge fund called Long-Term Capital Management. The fund had been founded in 1994 by John Meriwether, the legendary bond trader from Salomon Brothers who had been immortalized in Michael Lewis’s Liar’s Poker. Meriwether had assembled what one colleague called “probably the best academic finance department in the world.” In addition to Merton and Scholes, the fund employed twenty-five PhDs. David Mullins, formerly the vice chairman of the Federal Reserve Board, had quit his government job to become a partner.

The credentials were impeccable. The strategy was sophisticated. The returns were spectacular.

In 1995, the fund returned 43% to investors. In 1996, another 41%. These weren’t ordinary hedge fund returns. These were legendary numbers, especially considering that the fund’s strategy was supposed to be low-risk arbitrage, not aggressive speculation.

Investors clamored to get in. The minimum investment was $10 million, and the fund wasn’t accepting just anyone. Banks, pension funds, university endowments, even central banks invested. The partners themselves poured most of their personal wealth into the fund. At its peak, LTCM controlled over $100 billion in assets and had derivative positions with notional values exceeding $1 trillion.

The strategy was elegant in theory. LTCM looked for small price discrepancies between related securities that should, according to their models, converge over time. They would buy the cheap one and short the expensive one, then wait for the prices to move together. The profits on any individual trade were tiny, just a few basis points. But with enough leverage, you could turn nickels into fortunes.

“They are sucking up nickels from all over the world,” Nobel laureate Merton Miller explained. “But because they are so leveraged, that amounts to a lot of money.”

The leverage was staggering. At the beginning of 1998, LTCM had equity of about $5 billion but had borrowed over $125 billion. A leverage ratio of roughly 25 to 1. And that was before counting the off-balance-sheet derivative positions.

Scholes, the fund’s most effective salesman, assured investors that the fund could calculate risks with decimal-point precision. The models said so. This wasn’t just a hedge fund. This was a “financial technology company.”

When asked about the risks, Scholes reportedly replied that he had more brains than money, “but it’s getting close.”

Then reality intervened.

In August 1998, Russia defaulted on its domestic debt and devalued the ruble. This was not supposed to happen according to LTCM’s models. What followed was worse. Investors around the world panicked and fled to safety. They sold anything remotely risky and piled into the safest instruments available: US Treasury bonds.

This “flight to quality” was precisely the scenario LTCM’s models had discounted as virtually impossible. The models assumed that price relationships would eventually converge. Instead, they diverged. Violently. All at once. Everywhere.

On a single day in August, LTCM lost $553 million.

Within five weeks, the fund had lost $4.6 billion, nearly all of its equity capital. An event that their models said should not happen even once in the entire lifetime of the universe had just happened in a few weeks.

The fund’s collapse threatened to take down the entire financial system. LTCM’s positions were so large and so interwoven with every major bank on Wall Street that a disorderly liquidation could trigger cascading failures. Counterparties would demand their money. Banks would call in loans. Markets would seize up. The contagion could spread globally.

On September 23, 1998, William McDonough, president of the Federal Reserve Bank of New York, summoned the heads of every major Wall Street firm to an emergency meeting. Around the table sat the chiefs of Goldman Sachs, Morgan Stanley, Merrill Lynch, JP Morgan, and a dozen others, along with representatives from European banks and the chairman of the New York Stock Exchange.

The Fed didn’t technically have the authority to force anyone to do anything. But everyone understood what was at stake. After intense negotiations, fourteen financial institutions agreed to inject $3.65 billion into LTCM in exchange for 90% of the fund’s equity. The original partners and investors were diluted to nearly nothing.

The bailout worked. The financial system didn’t collapse. LTCM was slowly liquidated over the following year. The bailout participants eventually got their money back plus a modest profit.

But the Nobel laureates’ reputations never recovered.

Roger Lowenstein’s When Genius Failed, published in 2000, tells this story with devastating clarity. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein documents not just how the fund made and lost its money but why. What was it about the personalities, the models, the culture of the firm that made this disaster not just possible but inevitable?

The answer, it turns out, has nothing to do with mathematics and everything to do with human nature.

The LTCM partners suffered from a particular form of intellectual hubris. They genuinely believed they had conquered risk. Their models worked so well for so long that they stopped questioning them. They confused the map for the territory.

The models assumed that market relationships were stable and that historical patterns would continue. They assumed that extreme events were extremely rare. They assumed, crucially, that when they needed to exit their positions, they would be able to do so at reasonable prices.

All of these assumptions were wrong.

Lowenstein quotes John Maynard Keynes, whose observation applies to LTCM as perfectly as it applied to the speculators of his own era: “Markets can remain irrational longer than you can remain solvent.”

LTCM’s partners knew this quote. They probably quoted it to each other at dinner parties. But knowing something intellectually and incorporating it into your risk models are different things entirely.

The most damning detail in Lowenstein’s account is what happened after the fund started losing money. Rather than cutting positions and reducing risk, the partners doubled down. They believed the markets were wrong and their models were right. They believed the opportunity of a lifetime had just presented itself.

“These were the most remarkable opportunities they’d seen in their lifetimes,” one investor reported after meeting with Merton and Scholes in September 1998, even as the fund was hemorrhaging capital.

They couldn’t admit they were wrong. They couldn’t adapt. They couldn’t escape their own certainty.

This is the same psychological trap that destroyed Jesse Livermore. This is the same madness of crowds that Charles Mackay documented 150 years earlier. The specific circumstances change. The human psychology does not.

David Mullins, the former Fed vice chairman, saw his future at the Federal Reserve destroyed. He had been mentioned as a possible successor to Alan Greenspan. After LTCM, that was impossible.

Meriwether, undeterred, started another hedge fund in 1999 called JWM Partners. Several of the original LTCM partners joined him. They promised to use less leverage this time.

The new fund operated until 2009, when it lost 44% during the financial crisis and was forced to close.

THE LESSONS THEY ALL REFUSED TO LEARN

Read these three books in sequence and a pattern emerges that is both obvious and apparently impossible to internalize.

First: Markets are not rational.

Mackay documented this in 1841. Livermore built his entire career on reading the irrational emotions of crowds. LTCM’s models assumed rationality and were destroyed when irrationality returned.

Markets are collections of humans, and humans are emotional creatures who make decisions based on greed, fear, hope, and panic. Sophisticated models can describe average behavior over long periods. They cannot predict what happens when panic sets in and everyone rushes for the exit simultaneously.

Second: You cannot eliminate risk, only disguise it.

LTCM’s partners believed they had conquered risk through diversification and hedging. They had done nothing of the sort. They had disguised concentrated risk behind complex mathematical formulas. When correlations broke down and everyone sold everything at once, the “diversification” vanished.

This is a recurring theme in financial history. Every generation produces people who claim to have solved the problem of risk. They build elaborate structures to manage and distribute it. And eventually, the structures fail, often spectacularly, because risk cannot be eliminated from a system. It can only be moved around.

Third: The only person who can destroy you is yourself.

Livermore knew exactly what destroyed traders. He wrote about it with perfect clarity. And then he destroyed himself anyway. The LTCM partners were geniuses by any measure. Their intelligence didn’t save them from hubris, from overconfidence, from the inability to admit they were wrong.

Charles Mackay observed that men go mad in herds but recover their senses one by one. The implication is that the antidote to collective madness is individual reason. But these books suggest something darker. Individual reason is not enough. Even people who understand the madness, who can describe it in meticulous detail, who warn others against it, are not immune.

Fourth: This time is never different.

The technology changes. The instruments change. The names change. But the fundamental dynamics remain. Tulip bulbs, railroad stocks, dot-com companies, subprime mortgages, cryptocurrency, whatever the asset class, the pattern repeats. Early adopters profit. Success attracts imitators. Prices rise beyond any rational justification. Everyone convinces themselves that the old rules don’t apply. Then the crash comes.

Mackay documented bubbles in 1841. We’ve had dozens since then. We’ll have dozens more. The specific mechanisms vary. The underlying human behavior does not.

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WHAT THIS MEANS FOR YOU

I started Leatherneck Partners with Marty Schwartz, a legendary trader who himself appears in Jack Schwager’s Market Wizards. Marty had a saying that he repeated constantly, borrowed, I later learned, from this very literary tradition: “The market will forgive being wrong. It will not forgive being wrong and stubborn.”

This is Livermore’s entire philosophy compressed into a single sentence. This is what destroyed LTCM. This is what Mackay observed in every bubble he documented. The original mistake is survivable. The refusal to acknowledge it is not.

For investors in 2026, the lessons are straightforward:

Be skeptical of anyone who claims to have eliminated risk. They have not. They have merely hidden it or renamed it or convinced themselves it doesn’t exist. Risk is inherent in any return above the risk-free rate. Anyone promising otherwise is selling something.

Diversification helps but does not protect against systemic shocks. When genuine panic hits markets, correlations go to one. Everything falls together. The protection you thought you had disappears precisely when you need it most.

Your emotions are your enemy. Hope and fear are as dangerous to investors today as they were to Jesse Livermore a century ago. The best investment process is one that removes emotion from decision-making as completely as possible. Rules-based systems, predetermined exit points, position limits, any structural barrier you can erect between your emotions and your capital.

Past success predicts future overconfidence. This is perhaps the cruelest lesson. LTCM’s early success was what made its later failure possible. The partners believed their own press. They thought they were special.

The same pattern recurs constantly. Traders who have succeeded begin to believe they have figured something out. They take larger risks. They leverage more. The very success that gave them confidence becomes the seed of their destruction.

No amount of intelligence protects against these traps. Nobel Prizes and PhDs offered no protection to the geniuses at LTCM. Perfect understanding of trading psychology didn’t save Livermore. Charles Mackay got caught in the Railway Mania despite having literally written the book on financial manias.

The demons are inside all of us. The best we can do is build structures that constrain them.

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