If ever a man looked pleased with himself it was Bernard Baruch. In every photo that you will see of this speculator turned statesman, this stock picker turned indispensable citizen - and there are many - you will see a handsome face whose expression ranges from know-it-all youth to seen-it-all seniority. But over the decades there is a constant in his look, and it says not just that Bernard Baruch is the man who got first pick in life's lucky dip, but that he got first pick and he deserved it.
In a way, why shouldn't Baruch look pleased with himself? Either he was on his way to making a fortune through speculating in America's financial markets starting in the 1890s, or he had made his fortune and was being sought out by the leading actors on the world's stage - he was an adviser to every US president of the Democratic party from Woodrow Wilson during World War One to John Kennedy in the 1960s and he was a long-time friend of Winston Churchill (see the box, When Bernie met Winnie).
It's that fortune that chiefly concerns us here - how Baruch made it and the lessons that he brings to investors today. As to its making, one of Baruch's biographers, James Grant, says: "On the available evidence, his (Baruch's) fortune rose from next to nothing to $1m in about three years from 1897 to 1900. As striking as the speed with which he made it is the variety of means employed. Nowadays on Wall Street, nearly everybody is a specialist: broker or venture capitalist; floor trader or investment banker. Baruch was all of those things at once."
So, by the turn of the last century, the doctor's son who was born in 1870 in South Carolina to immigrants from Prussia and raised in New York had become a wealthy man through 'seizing opportunities'. That's largely code for saying that Baruch was dealing on inside information. But that's not as terrible as it sounds today. In the rough and tumble of New York's financial markets of that time the only information worth dealing on came from the inside; company disclosure was entirely optional, market regulation was slight and the power of the legendary US capitalists and their propensity to rig the market - most of all John Pierpont ('JP') Morgan - was great.
Baruch, however, was not solely Morgan's man. He had enhanced his reputation by working for James Keene, one of the great speculators of 19th century America; a man who had won and lost so many fortunes that, when he was asked why he continued to speculate, answered rhetorically: "Why does a dog chase its thousandth rabbit?" Anyway, by the early 20th century Baruch had been on the inside of at least one Morgan scheme - to corner the market in Northern Pacific stock, a railroad company that offered key connections to Chicago over which Morgan and Rockefeller scrapped.
Yet in one of the best moves of his career, Baruch took on Morgan and the biggest names in the Street. This was in 1901, just months after the Northern Pacific coup when President William McKinlay had been shot and a major bull market collapsed. Baruch's sources said that Amalgamated Copper - a Rockefeller creation - could never corner the copper market as it had hoped. Even so, as well as the Rockefeller interests, Keene backed the stock. Baruch took the opportunity of McKinlay's shooting and the ensuing panic as an opportunity to sell short. When the dying president seemed to be recuperating and Morgan made bullish noises, the market rallied. Baruch responded by short selling more stock, in response to which (as he said in his autobiography): "All sorts of names were hurled at me and rumours spread about my integrity. But I was making the biggest play of my life. I was sure of certain facts and I was looking for that bubble to burst." And burst it did. Amalgamated cut its dividend, its price plummeted and Baruch cleaned up. He had really arrived.
After that Baruch added to his reputation and to his fortune. His activity never brought him wealth on the scale of his near-contemporary speculator Jesse Livermore (he of Edwin Lefèvre's Reminiscences of a Stock Operator fame), but nor did he lose his fortune (Livermore lost several). As the 20th century progressed and Baruch, whose Street nickname was 'the lone wolf', morphed into Bernard Baruch, the 'park-bench statesman', an avuncular fellow who could chat as easily to Joe Public as to the president; he traded less and kept more of his capital in cash.
He was, however, closely involved in the Wall Street Crash of 1929. With hindsight, his public involvement began on an unfortunate note. In June that year Baruch was quoted in what became a famous interview in American Magazine in which he declared: "The economic condition of the world seems on the verge of a great forward movement."
We know what happened after that and, in his autobiography, Baruch is keen to make clear that, presciently, he saw it all coming and sold in time. True, Baruch was hardly wiped out by the crash. Throughout the 1930s he maintained his affluent lifestyle, gave almost as generously as before to good causes (including a gift of £100 in 1931 to a fund to buy Winston Churchill "the best Rolls-Royce obtainable") and holidayed in Europe as often as before. Yet James Grant, in a biography that focuses on Baruch's dealing activities, makes clear that the great speculator was buying far more than he was selling both leading up to and throughout the worst months of the crash.
In the late summer of 1929 he was shooting in Scotland and buying stocks in New York. Back in New York, his buying continued even in October, the month that the dam burst. When a colleague anxiously cabled him for advice from Paris on 22 October - two days before so-called Black Thursday - Baruch replied resolutely: "I would stand pat". He was true to his word. He kept on buying on the rebounds only to lose more money. He called the bottom more than once and most emphatically - and wrongly - in a cable to Churchill in November: "Financial storm definitely passed."
Yet it did not pass. And in 1930 a chastened Baruch put together some reflections on the previous year that may stand as his most useful contribution to investment practice. They were grouped under several headings, starting with 'personal equipment', which contains such thoughts as:
■ Self reliance - Do your own thinking. Don't let your emotions enter into it;
■ Judgment - Don't let what you want to happen influence your judgement;
■ Courage - Don't overestimate the courage you will have if things go against you;
■ Prudence - Become more humble as the market goes your way. It is not prudent to buy when you think the bottom has been reached. It is better to wait and see and buy too late;
■ Pliability - Stubbornness as to opinions must be entirely eliminated.
Under the heading 'psychology', Baruch jotted down the following thoughts: "Nearly all men are controlled by their emotions; they become alternately over optimistic and over pessimistic. Have an opinion on what the market should do, but don’t decide what the market will do. In a panic the best stocks may not be saleable at any reasonable price. When the market is high, beware of thinking things that will make it go higher; think of adverse possibilities and remember history. Always make allowances for chance. Keep a financial and mental and physical reserve. Stop losses and let profits run. In general, run quickly."
Next, in his two-volume memoir, My Own Story, published in 1957, he gave us 'Bernard Baruch's 10 Rules of Investing', some of which are worth quoting:
■ Don't speculate unless you can make it a full-time job;
■ Don't try to buy at the bottom and sell at the top. It can't be done - except by liars;
■ Don't buy too many different securities; better to have only a few investments which can be watched;
■ Always keep a good part of your capital in cash reserve;
■ Don't try to be a jack of all investments. Stick to the field you know best.
It's platitudinous stuff, but that probably applies to all the deepest investment aphorisms. The question is whether an investor can apply them and the brutal truth is that few have the capacity to do so. Baruch did far better than all but a fraction of traders. So much so that his fortune was put at $50m by The New Yorker magazine in 1926 (though James Grant thinks this is much too high). It was close to $25m immediately before the Wall Street Crash ($335m in today's money, but with an 'economic power' - ie, wealth relative output at that time - of over $4bn) and was still $16m in 1931 (of which $8.7m was in cash). Even in today's devalued dollars, most of us would settle for those nominal amounts.
Yet perhaps Bernard Baruch's most useful soundbite on investment was penned in a foreword that he wrote in 1932 to a new edition of Charles Mackay's 19th century classic, Extraordinary Popular Delusions and the Madness of Crowds. Speaking of the madness leading up to the 1929 crash, Baruch wrote: "I have always thought that if we had all continuously repeated 'two and two still make four' much of the evil might have been averted." As we still struggle to be free of the mayhem that came with the likes of collateralised debt obligations, special-purpose vehicles and credit default swaps, most of us can say "Amen to that".
