Bernard Baruch: ‘speculator’ and statesman

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Bernard Baruch (1870 – 1965) published his memoirs, My Own Story, in 1957. I was pleasantly surprised by his account of his career on Wall Street, learning that he was not so much a speculator — which then, and now, carries a negative connotation — but clearly a very astute investor.  Amassing an ever larger fortune was not his game, he claimed, instead he found serving his country more satisfying (he served under presidents Wilson and Roosevelt). It appears that he thwarted profiteering as much as one man could by securing highly favorable rates for select commodities needed during war. It’s a disservice to Baruch’s legacy to say that he was merely a “speculator” or gambler. In his memoirs he explains that ‘speculator’ comes from the Latin word speculari, which actually means to spy out and observe; or in his words: to get the facts, form a judgement, and take action accordingly.

Baruch applied such a perceptive and properly defined speculator’s approach to investing as well as his government service. Baruch’s belief in the fundamental importance of supply and demand, and his ability to recognize and take advantage of market imbalances, resembles the commonsensical approach of the likes of Jim Rogers and Marc Faber in today’s world (and what we have all read of Benjamin Graham’s approach until his late days, as well as Warren Buffett’s astuteness vis-à-vis the Berkshire Hathaway – Burlington Northern Sante Fe investment, for instance).

“Being so skeptical about the usefulness of advice, I have been reluctant to lay down any ‘rules’ or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:”

1. Don’t speculate unless you can make it a full-time job.

2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”

3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.

4. Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.

5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

6. Don’t buy too many different securities. Better have only a few investments which can be watched.

7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

8. Study your tax position to know when you can sell to greatest advantage.

9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.

10. Don’t try to be a jack of all investments. Stick to the field you know best.

Baruch relates an anecdote of having heard someone remark, “Sell to the sleeping point.” He comments, “That is a gem of wisdom of the purest ray serene. When we are worried it is because our subconscious mind is trying to telegraph us some message of warning. The wisest course is to sell to the point where one stops worrying.” He mentions in a couple of instances how he liked to separate himself from Wall Street to reflect on both his successful and failed investments.

In this hectic age of distraction, all of need to pause every now and then in what we are doing to examine where the rush of the world and of our own activities is taking us. Even an hour or two spend in such detached contemplation on a park bench will prove rewarding.

The last piece from his memoirs that I’ll share, although there are many more I’d like to, is something that resonates today for a couple of different reasons:

If the government is really bent on protecting the public’s earnings, it should begin at home with the purchasing power of the dollar. During World War Two millions of families were persuaded to invest in U.S. savings bonds as a the patriotic thing to do. These people have seen the value of their savings slashed by the lowered purchasing power of the dollar, while others who did not heed these patriotic appeals have profited. If any company listed on the Stock Exchange had engaged in equivalent financial practices, its directors would be facing prosecution by the SEC.

* I read volume one, which details Baruch’s upbringing and Wall Street experience. The second volume, which I don’t have a copy of, deals with his experience in public service.