epitome of incomprehensibility
Perusing blather and immaturely curious about what I'd find here...
blah: maybe you're kidding, but no, it's the equivalent of "dick" in Yiddish (literally a penis, metaphorically a bad person) plus the idea of being out of luck or gullible (e.g. "that poor shmuck"). Yiddish was/is a language primarily spoken by European Jews and many of its words spread to English.
As an aside... I don't really get genitalia-based insults. It made me smile when a classmate in tenth grade tried to convince people that "cunt" was a horrible thing that no one should ever say. Thinking about it now, I guess she said what she did because it can be used in a very misogynist way; that's also why "dick" isn't considered quite so bad... but in the interests of fairness I try to avoid both. (Not in the literal sense. Or yes? I'm rather biunsexual sometimes.) But shmuck is fun to say... the "sh" + consonant sound is inherently funny for some reason.