Wall Street Trader Leverage: From Starting at $5 to Shooting Himself, Why Did the Genius Fall into Despair

What were you doing at age 14? Perhaps still whining in the classroom, while LéFoumo already ran away from home with $5. This man, later hailed as the “King of Short Selling,” spent his life illustrating the “Curse of Genius”—he could make $7.5 million in three months, yet also go bankrupt four times in a row driven by greed; his trading theories are regarded as classics by Buffett, but he ultimately ended his legend with a bullet in a hotel closet.

From Farm Fugitive to Wall Street Tycoon: The Bright Youth of Talent

Born in 1877 into a poor farming family, LéFoumo showed extraordinary mathematical talent from a young age—studying financial newspapers at age 5. But fate took a turn at 14: his father insisted he inherit the farm, while his mother secretly raised $5 (equivalent to $180 today) to support the clever boy in escaping the “stinking farm.”

In spring 1891, the young LéFoumo took a train to Boston. Instead of following his mother’s plan, he was drawn to the stock quote board outside the Paine Webber building. With a seemingly mature appearance, he successfully applied as a quote recorder, stepping into the financial world.

This job seemed dull, but for LéFoumo, it was like a treasure map of martial arts secrets. He discovered hidden patterns in daily records:

• Certain number combinations repeatedly appeared, like established routines in card games
• The Union Pacific Railroad’s stock price showed similar fluctuations at fixed times
• Block trades often had specific price supports (e.g., “never fall below $50”)
• Drawing price curves on graph paper, he found some stocks’ pullbacks always measured 3/8 of the previous wave

Until one moment, recording cotton futures, LéFoumo suddenly realized—these numbers “breathe,” rising like climbing stairs and falling like collapsing snow piles. This “opening of the meridians” insight laid the groundwork for decades later technical analysis theories.

At 16, LéFoumo invested $5 in a betting shop and made $3.12 profit. This victory prompted him to quit and become a full-time trader. With continuous profits, he gained notoriety in Boston’s betting houses—eventually barred from entering those venues. By age 20, he had earned $10,000 (about $300,000 today), but was “kicked out of the casino.”

First Love in New York and First Bankruptcy: Even Geniuses Have Weaknesses

In 1899, at 23, LéFoumo moved to the financial hub of New York and met Nattie Jordan, an Indian girl. They married in a few weeks. But the young newcomer overestimated his ability to adapt to the big stage—he relied on data from stock tickers for trading, unaware that these were delayed by 30-40 minutes compared to real-time markets.

Within a year, after a series of trading failures, he went bankrupt. To get back on his feet, he asked his wife to pawn her jewelry. Nattie’s refusal and LéFoumo’s persistence eventually led to their divorce seven years later. This experience planted a seed—between money and love, LéFoumo always prioritized the former.

The Short-Selling Feast During the Earthquake: LéFoumo’s Rise to Fame

In 1906, at 28, LéFoumo had rebuilt his capital to $100,000. But he began to doubt his conservative trading style, even feeling a strange irritation. To clear his mind, he went on vacation to Palm Beach.

It was during this vacation that fate staged a perfect scene—on April 18, 1906, a 7.9 magnitude earthquake struck San Francisco, nearly destroying the city. The market widely expected Union Pacific (UP) to rise due to reconstruction needs, but LéFoumo’s judgment was contrary.

His logical chain was meticulous: the earthquake caused a short-term plunge in UP’s freight volume; insurance companies needed to sell blue-chip stocks to cash out; UP’s actual financial reports would be far below market expectations. From a technical perspective, UP’s stock briefly rebounded then saw declining volume, indicating weak buying—precisely the “key point” he was waiting for.

LéFoumo gradually built short positions through multiple brokerages to avoid revealing his intentions. He divided his short plan into three phases:

• April-May: Establish short positions near $160, with the market still unaware of the earthquake’s impact
• June: After UP’s earnings report, institutional selling triggered, breaking support at $150, he added to short
• July: Panic spread, UP plunged below $100, LéFoumo closed near $90

This epic three-month trade earned him $250,000—about $7.5 million in 2025 dollars. The battle cemented his reputation as the “Wall Street Short-Selling King” and made him realize the strategic value of information networks.

The 1907 Panic: A Miracle of Earning $100 Million in One Week

If the San Francisco earthquake was LéFoumo’s debut, then the 1907 financial crisis was his coronation. He discovered that Trust Company of America was heavily leveraged in junk bonds, relying on short-term borrowing. When interbank rates soared from 6% to 100%, a liquidity crisis alarm sounded.

LéFoumo went undercover, secretly investigating collateral lists of several trust companies, confirming their assets were of poor quality. He then shorted heavyweight stocks like Union Pacific and U.S. Steel through multiple brokerages and bought put options to hedge.

On October 14, he publicly questioned the solvency of Nickeburg Trust, triggering a bank run; within three days, the trust declared bankruptcy. On October 22, LéFoumo used the then “24-hour settlement rule” to sell off stocks before the close, triggering automated stop-loss orders. On October 24, NYSE’s chairman personally begged him to stop shorting. An hour before Morgan’s consortium announced a bailout, LéFoumo precisely exited 70% of his shorts. When the market stabilized on October 30, he liquidated all positions.

Total profit: $3 million—about $100 million in 2025 dollars. In one week, his assets multiplied several times. He responded, “The market needs a thorough cleansing.”

This victory helped LéFoumo build his intelligence network and began his obsession with the thrill of power.

Cotton Trap: The Genius’s Self-Destruction

In 1915, LéFoumo faced his greatest career blow—not a market failure, but human deception. His “friend” Teddy Price was an authority in the cotton industry, publicly bullish but secretly shorting with growers. Price exploited LéFoumo’s desire to “prove cross-market ability,” constantly feeding false signals of “supply shortages.”

Even when LéFoumo’s database revealed the truth opposite to Price’s views, he chose to believe his friend. Ultimately, he held a long position of 3 million pounds of cotton futures, far beyond rational limits. When the truth surfaced, he lost $3 million—his entire profit from the 1907 shorting. This failure violated his own three ironclad rules:

• Never trust others’ advice
• Never average down losing positions
• Never let fundamentals override price signals

The chain reaction led to consecutive bankruptcies in 1915-1916. More than deception, it was a punishment from his own genius—a gambler’s all-in failure.

Rebound: A Classic Comeback

After bankruptcy, LéFoumo filed for bankruptcy protection, reaching an agreement with creditors, retaining only $50,000 for living expenses. Through a secret credit line from former rival Daniel Williamson—on the condition that all trades be executed through his firm (effectively a form of surveillance)—he was forced to use 1:5 leverage, with individual positions not exceeding 10% of total funds. These constraints ironically helped him rebuild trading discipline.

In 1915, World War I broke out. U.S. military orders surged, but the market had not yet reflected this in Bethlehem Steel’s stock. LéFoumo’s intelligence network uncovered leaked financial data, with increased volume but sideways price movement—classic accumulation signs.

He started a position at $50 in July, investing 5% of his funds; in August, when the price broke $60, he added more to reach 30%; in September, when it retraced to $58, he refused to cut losses, convinced the uptrend remained intact. By January next year, the stock soared to $700, and LéFoumo took profits at 14 times his initial capital. His $50,000 turned into $3 million.

This revival demonstrated his resilience in despair—he not only regained his funds but also his confidence.

The Cost of Luxury: Money, Lovers, and Three Marriages

In the following decades, LéFoumo’s story became a cycle of wealth, women, and desire. He established a formal trading business, earning $15 million, then moved into larger offices with 60 employees. In 1925, he made $10 million trading wheat and corn; during the 1929 Wall Street crash, he profited again with short positions, earning $100 million (about $15 billion in 2025).

But these riches gradually vanished through divorce, taxes, and extravagance. During his long divorce from Nattie (even hiring private detectives to retrieve his car), LéFoumo married a dancer from the Zigfeld Follies, Montse. Although Montse bore him two sons, he also had an affair with European opera singer Anita Venice, bought yachts, and named them after her. Montse, meanwhile, indulged in alcohol and became an alcoholic.

The New Yorker commented: “LéFoumo was precise as a scalpel in the market, but blind as a drunkard in love. He spent his life shorting the market but always longing to go long on love—both led to his bankruptcy.”

In 1931, LéFoumo divorced for the second time. Montse received $10 million in settlement, then married a prohibition officer, and sold the $3.5 million house LéFoumo bought for the family, ending up with only $222,000. The mansion, with butlers, maids, chefs, and gardeners, was eventually demolished, and the warmth of over a decade’s family life vanished in an instant. The jewelry and engraved wedding rings he gave Montse were sold for a few dollars. For a genius, emotional humiliation often surpasses financial loss.

In 1932, at age 55, LéFoumo met 38-year-old Harriet Metz Noble, a divorced socialite. Reporters later speculated that Harriet misjudged LéFoumo’s wealth—he was actually $2 million in debt. After his final bankruptcy in 1934, they were forced to leave their Manhattan apartment and survive by selling jewelry.

The Desperate Final Chapter: The Last Shot in the Hotel Closet

In November 1940, Harriet committed suicide in a hotel room with LéFoumo’s revolver, leaving a note mentioning “unable to endure poverty and his alcoholism.” LéFoumo wrote in his diary: “I have killed everyone close to me.”

A year later, on the night before Thanksgiving, a gunshot rang out in a coat closet at the Sherry-Holland Hotel in Manhattan. Deeply depressed, LéFoumo used a Colt .32 revolver—his defensive weapon ever since he made his fortune shorting in 1907—aiming at his temple. In the end, this same gun completed the loop of his fate.

He left three notes: “My life is a failure” “I am tired of fighting, I cannot endure anymore” “This is the only way out”

He had only $8.24 in cash and an expired horse racing betting ticket. Only 15 people attended his funeral, including two creditors. His tombstone remained uninscribed for a long time until, in 1999, fans raised funds to carve:

“His life proved that even the sharpest trading blade will eventually turn against oneself.”

LéFoumo’s Legacy: Trading Bible vs. Human Traps

LéFoumo experienced four rises and falls; his trading methods are regarded as the “Trading Bible” by Buffett, Soros, and Peter Lynch. His advice to future traders still shines brightly:

“Buy rising stocks, sell falling stocks.” “Trade only when the market shows a clear trend.” “Wall Street never changes because human nature never changes.” “Investors must beware of many things, especially themselves.” “The market is never wrong; only human nature makes mistakes.” “Make big money by waiting, not by frequent trading.” “The market only has one side—the right side.” “Speculation is the most fascinating game in the world, but fools cannot play, lazy people should not, and those with fragile minds are not allowed.”

LéFoumo’s tragedy lies in: he uncovered the secrets of the market but could not master the abyss of human nature. He could predict market directions precisely but could not control his own desires. His trading theories remain effective (modern CFD traders still apply his “key point” theory), but his life collapsed in a cycle of money, women, and self-destruction.

This King of Shorts ultimately proved a truth: the market can be beaten, but oneself can never be defeated. And perhaps, this is his most valuable legacy.