Baruch: My Own Story

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My Own Story is the first volume of the autobiography of Bernard Baruch. Known as the Lone Wolf, Baruch amassed a fortune on Wall Street as a speculator and dealmaker, and later, as a lone investor before entering the public life managing the economic mobilization of WWI and advisor to presidents.

The Notes

• “My years in Wall Street and business, in fact, became one long course of education in human nature. Nearly always the problem that arose in the Stock Exchange or in other business dealings was how to disentangle the impersonal facts of a situation from the elements of human psychology which came with these facts. When I left Wall Street to go into public life I found myself confronted with this same eternal riddle — how to balance the nature of things in this world in which we live with the nature of mankind. Human nature, of course, changes far more slowly than do our external surroundings. When new situations arise some persons dig their heels dogmatically into the past and declare that we must hold rigidly to the old rules. Others treat each new situation as if it requires a de novo approach, relying on trial and error as if the past had no value. To govern ourselves effectively, both these extremes must be rejected. The real problem is to know when to stand by the old truths and when to strike out in new, experimental ways.”
• “I have found that failure is a far better teacher than success.”
• Baruch’s father was a physician, served as a doctor in the Confederate Army. He was captured and taken prisoner multiple times during the war but later freed, as it was customary for both sides to quickly exchange doctors. He was captured because the Confederate Army left him behind to care for the wounded after a battle. His treatment by the North left a mark. In one instance he was given a month’s worth of emergency supplies and a wagon to help feed and care for the wounded men under his watch.
• Baruch was born on August 19, 1870, in Camden, South Carolina. The family moved to New York City when Baruch was 10.
• He had a difficult time with public speaking.
• “There are too many men who like to speak and too few to do things. Most of then the world does not care to hear. I wouldn’t advise even you to try to learn.” — Woodrow Wilson to Baruch on public speaking.
• “I believe it is almost as important for a man to be able to express his views as to have them.”
• Baruch was born to a Jewish family. His first experience of prejudice was from kids his age after the family moved to New York. He experienced more anti-Semitism in college, which grew on Wall Street as he become more well-known. His biggest concern was that his children suffered from the prejudice he received too.
• “I have told my children not to be blinded to the greatness of America by the pettiness of some of the people in it. The men who wrote the Declaration of Independence were wise in this regard. When they came to define what they conceived as man’s unalienable rights, they chose their words carefully — “life, liberty and the pursuit of happiness.” Not “happiness” but “the pursuit of happiness.” They made no promises of Utopia. They promised only the opportunity to better one’s living.”
• “When prices go up two processes will set in — an increased production and a decreased consumption. The effect will be a gradual fall in prices. If prices get too low two processes will set in — decreased production because man will not continue to produce at a loss and second, increased consumption. these two factors will tend to establish the normal balance.” — Professor Newcomb. Professor Newcomb, Economics, made the deepest impression on Baruch in college — “Ten years later I became rich by remembering those words.”
• “Colleges especially teach economics badly. With overspecialization has also come a tendency to mistake information for education, to turn out “quiz experts” who are crammed full of useful details but who have not been trained how to think.”
• “The value of an education…did not lie in the facts that you stored in your head. It lay in the discipline you acquired and the general philosophy of life you gained from becoming acquainted with the great minds of the past. Education should open up new vistas of intellectual interest.”
• Baruch took up boxing after college to stay in shape. One bout, which he won, stood out because Bob Fitzsimmons, a former world champion, offered him advice after the fight that stayed with him in his business activity: “You were getting a licking but you hung on. That’s what you always want to do. You know how you feel and maybe you feel pretty bad. But you don’t know how the other fellow feels. Maybe he is worse off than you are. A fight is never over until one man is out. As long as you ain’t that man you have a chance. To be a champion you have to learn to take it or you can’t give it.“
• “To reach the top in any endeavor, you must learn to take the bitter with the sweet — the ridicule and taunts of other boys, the sneers, threats, and sleepless opposition of other men, and the anguish of your own disappointments.”
• First Wall Street Job
  • Baruch’s first job on Wall Street was in 1889, as a runner for Julius A. Kohn, for $3 per week.
  • The runner’s job was to make sure that every security sold was delivered by 2:15 pm the following day.
  • Baruch learned arbitrage, foreign exchange, reorganizations, and speculation first hand.
  • Kohn taught Baruch about arbitrage: how a security might sell at a slightly different price in New York, Boston, Amsterdam, or London on the same day. The security can be bought in one city and sold in New York for a profit.
  • Kohn also dealt in railroads going through a reorganization. New securities were issued in a reorganization to replace the old securities. One could buy the old securities and sell the new securities, one could profit.
• The Gold Rush
  • Baruch and a friend traveled to Colorado to get rich quick “investing” in gold and silver mines.
  • The first stock he ever bought was in the “San Francisco Mine.” The stock was a bust.
  • He got a job as a mucker, at an adjoining mine. The mucker does the heaviest, least skilled work, and pays according.
  • At night he hit the gambling houses. He noticed the roulette table was probably fixed. Anytime betting was heavy, he placed small bets opposite the big bettors and won a few dollars each night…until the owner kicked him out.
  • His first lesson: “That people who try to get rich from mining often put more into the ground than they take out.”
• “The strange fascination that the stock market exerts upon people has never ceased to be a source of wonder to me.”
• Baruch tried to keep a “vow of silence” around his speculative and business affairs to avoid the appearance that he was offering a “tip.”
• “The prices of stocks — and commodities and bonds as well — are affected by literally anything and everything that happens in our world, from new inventions and the changing value of the dollar to vagaries of the weather and the threat of war or the prospect of peace. But these happenings do not make themselves felt in Wall Street in an impersonal way, like so many jigglings on a seismograph. What registers in the stock market’s fluctuations are not the events themselves but the human reactions to these events, how millions of individual men and women feel these happenings may affect the future. Above all else, in other words, the stock market is people. It is people trying to read the future. And it s this intensely human quality that makes the stock market so dramatic an arena in which men and women pit their conflicting judgments, their hopes and fears, strengths and weaknesses, greeds and ideals.”
• “One could say that my whole career in Wall Street proved one long process of education in human nature.”
• Second Wall Street Job
  • Began as a runner for the brokerage firm of A.A. Housman & Company in 1891 for $5 per week.
  • He took night school courses on bookkeeping and contract law so he could become a bookkeeper at the firm.
  • He also began learning everything about the companies the firm traded in by reading the Financial Chronicle and Poor’s Manual.
  • .It was here that Baruch first met James R. Keene. Keene wanted to bet on a race horse he owned but didn’t want to ruin the odds. So he gave Baruch several thousand dollars to bet for him. The horse won and he had the task of delivering even more money back to Keene.
  • He became a partner (an eighth interest) in the firm at age 25, after asking for a raise to $50 per week. His share of the firm’s profits that first year was $6,000. He lost it speculating.
  • He retired from the firm in August 1903 and set out on his own. He was 33 years old.
• Going Solo
  • August 1903, Baruch opened his own firm.
  • He bought a seat on the NYSE.
  • His first rule was “no accounts for anyone.”
  • His own firm meant he could speculate alone and not put other people’s money at risk if he was wrong.
  • “Having taken all these steps to put myself in the position where I would be able to speculate more freely, a peculiar thing happened. Instead of speculating more than I had done previously, I speculated less… I found that I had turned toward new horizons, in which constructive enterprise and investment took more and more of my time.”
  • Baruch sat in cash in 1902, thinking the market was too high. The Panic of 1903 gave him the opportunity to buy and wait for growth.
  • The period following 1903 saw railroad consolidation and economic expansion in the U.S. Demand for new sources of raw materials was high. During the decade before WWI, Baruch invested in copper, rubber, iron, gold, and sulfur (much of it was seed capital). “Always restless by nature, as soon as one of these enterprises reached the dividend-paying stage, I usually got out and searched for another.”
  • In addition to investing in new businesses, Baruch’s network and reputation allowed him to play dealmaker on a number of buyout/merger deals. Business leaders approached him to help make a deal but he also urged business leaders to buy companies he owned stock in. He was usually paid twice: for closing the deal and any profits from owning the stock.
  • He worked several deals for the Guggenheim’s, which solidified their control on mining/smelting in the country.
• Early Experience Speculating
  • Baruch began speculating in stocks around 1891 with a small margin account. At the time, he only had to put up 10% to 20% of the purchase price. He typically bought 10 shares at a time, mostly railroad stocks in receivership and industrial companies. Anytime he was up a few hundred dollars, he lost it all.
  • He also lost $8,000 of his father’s money on a trolley company. Baruch began a habit of studying his losses after losing his father’s money.
  • “I began a habit I was never to forsake — of analyzing my losses to determine where I had made my mistakes. This was a practice I was to develop ever more systematically as my operations grew in size… At such times I never sought to excuse myself but was concerned solely with guarding against a repetition of the same error… Also, the more we know of our own failings, the easier it becomes to understand other people and why they act as they do.”
  • His two biggest mistakes early on were not knowing the company as well as he thought and betting everything he had on such a small margin that any negative price move wiped him out.
  • “I would buy stocks or bonds to the limit of my resources. Some market fluctuation would come along and swamp me. Only after this happened again and again did I learn the lesson of not overplaying my hand and of always holding back some part of my capital as a reserve. Had I learned this earlier I would have saved myself many a heartache in going broke again and again.”
  • The panic of 1893 taught him that a depression is a rare opportunity to make money.
  • “During a depression people come to feel that better times never will come. They cannot see through their despair to the sunny future that lies behind the fog. At such times a basic confidence in the country’s future pays off, if one purchases securities and holds them until prosperity returns.”
  • While studying railroad companies, he kept notes on his expectations for each one.
  • “What I was fighting out inside myself, of course, was the age-old conflict that every ambitious youth experiences between the reckless impulse to shoot the works and the cautious desire to mass one’s resources for the morrow. In my case, it was the cautious course that tended to win out, but not without many a battle and some setbacks.”
  • His first real success was 100 shares of American Sugar Refining on margin.
    • It was the first time he studied the company and came to his own conclusions of what would happen.
    • American Sugar Refining controlled 75% of sugar production in the U.S. because the company benefited from a sugar tariff. Congress was debating to lower the tariff, which sank the stock price. Baruch believed nothing would change. Congress left the tariff unchanged and the stock soared. As the stock rose, Baruch used his earnings to buy more stock.
    • His total profit was $60,000.
    • The windfall was the excuse he needed to marry Annie Griffin. The two had put off marriage until Baruch had earned enough money to support them both.
    • He used the profit to buy a seat on the NYSE for $19,000, which he gave to his brother a few days later.
• “I have defined a speculator as a man who observes the future and acts before it occurs. To be able to do this successfully — and its an ability of priceless value in all human affairs, including the making of peace and war — three things are necessary: First, one must get the facts of a situation or problem. Second, one must form a judgment as to what those facts portend. Third, one must act in time — before it is too late. I have heard many men talk intelligently, even brilliantly, about something — only to see them proven powerless when it comes to acting on what they believe.”
• “In the stock market one quickly learns how important it is to act swiftly.”
• Profiting off the End to the Spanish-American War
  • Baruch got a call from his boss at A.A. Housman & Company late on Sunday, July 3rd. Rumor was that the Spanish fleet was destroyed at Santiago, which would bring the war to a quick end.
  • U.S. markets, being closed on July 4th, meant profits could be made buying U.S. stocks on the London exchange.
  • Baruch raced back to New York on a rented private train.
  • “We made large purchases of American stocks in London to fill these orders and to hold for ourselves. The next morning when the Exchange in New York opened, stocks advanced all along the line. Our London purchases showed good profits immediately. We had scored almost a clean beat on the other New York houses.”
  • Burach likened the experience to a small-scale version of what Nathan Rothschild did with news of the Battle of Waterloo.
• Dealmaker for in Tobacco Trust
  • Baruch’s first big deal was in helping Thomas Fortune Ryan merge Union Tabacco and Liggett & Myers. Except, another heavyweight, James Duke and his Continental Tobacco, wanted Liggett & Myers too.
  • Baruch’s firm, Housman & Company, convinced the Liggett heirs to sell an option on their shares to the President of Liggett & Myers, giving him a controlling interest to expedite the merge.
  • At the same time, Ryan put Baruch in charge of a short operation to harass Duke’s Continental Tobacco in the market. He was given $200,000 to lose. Over six weeks, he pushed the stock from 45 to 30.
  • “I adopted the tactic of buying when the market was weak, reselling the stock when it rallied. This enabled me to make a net profit even while pushing down the price of the Continental stock.”
  • The successful short raid on the Continental stock started talks of a second merger between Union Tobacco and Continental.
  •  On March 1, 1899, a tobacco monopoly was formed between Union Tabacco, Liggett & Myers, and Continental Tobacco. Eventually, the government broke it up. Duke and Ryan made more after the break-up than before.
  • Housman & Company made $150,000 in commission on the deal. Baruch’s interest in the firm was bumped up to one-third.
• The Mistake of American Spirits Manufacturing
  • Took place a few weeks after the Liggett & Myers deal.
  • “I soon learned it is one thing to make money and another thing to keep it. In fact, making money is often easier than keeping it.”
  • “The blunder I now committed would not be excusable even for the rankest amateur in the stock market.”
  • Baruch got a “tip” that Thomas Ryan was interested in American Spirits and a good buy. So put all his money in it, on margin, without any cash reserves.
  • News of a four-way merger, including American Spirits, tanked the stock. With no cash, Baruch was forced to sell other holdings to cover his margin
  • It was the quickest and biggest loss in relation to his total net worth.
  • “I learned a good deal from this misadventure in whiskey. It taught me one thing about tips, namely, that people sometimes drop remarks calculated to bring the little minnows into the net to be served up for the big fish. I had been a little minnow.”
  • “There is something about inside information which seems to paralyze a man’s reasoning powers. For one thing, people place a great store on knowing something other people do not know, even if it is not true. A man with no special pipelines of information will study the economic facts of a situation and will act coldly on that basis. Give the same man inside information and he feels himself so much smarter than other people that he will disregard the most evident facts. I have seen insiders hold on to their stocks when it was obvious to nearly everyone else that they should be sold.”
  • “Nothing but my own bad judgment was responsible. My course violated every sound rule of speculation. I acted on unverified information after superficial investigation and, like thousands of others before and since, got just what my conduct deserved.”
• Panic of 1901
  • The panic lasted one night, May 8, 1901, aka the battle for the Northern Pacific railroad.
  • Optimism and public participation was high
  • The market had its highest volume trading day in history on the last day of April 1901.
  • The market broke on May 3. Most thought that was it.
  • But on Monday, May 6, Northern Pacific stock soared. It opened at 114 (4 points above its prior close). The next tick was 117.  Eddie Norton bought every share possible. No one knew why.
  • Baruch was a runner back then and knew why. He noticed that Northern Pacific was trading in London several points below its New York price. So he started buying in London to sell in New York for the arbitrage profit. The trader on the floor stopped him, worked out the deal to buy every London share he had, then pulled him aside and said that James Keene was acting for J.P. Morgan to buy up shares for control of the railroad.
  • On Tuesday, May 7, the Northern Pacific closed at 143. Short sellers saw the rise as an opportunity to go short. Little did they know that the stock was cornered.
  • Harriman and Hill (w/ J.P. Morgan’s help) were fighting for control of the Northern Pacific. The fight caused the biggest short squeeze ever in a stock. (It eventually peaked to $1,000). Which quickly turned to worry that it would cause a panic in the market.
  • Baruch went short several leading stocks in anticipation of them being dumped.
  • May 8, Northern Pacific opened at 155, jumped to 180. Because Hill and Harriman controlled all the stock, the shorts couldn’t cover — they were forced to sell other holdings to cover their losses. The scene inside the Waldorf the night of May night was like a pack of frightened animals.
  • “In a panic, it is not easy to avoid being swept along with the mad tide.”
  • “Have you ever noticed how animals behave on a sunny day when no danger threatens? They lick their coats, preen themselves, strut and sing, each trying to put on a better show than the other fellow. So with human beings. And like animals, when fear strikes their hearts, they forget their elegences and sometimes even the common courtesies.”
  • The morning of May 9, Northern Pacific rose to $400, then $700 by noon, and by 2 o’clock that afternoon 300 shares sold for $1,000. The other leading stocks collapsed. Margin loans opened at 40% and peaked at 60%.
  • “My friend Fred Edey, of H.B. Hollins & Company, rushed to the offices of J.P. Morgan to warn that there would be twenty failures by nightfall if loans were not forthcoming. From banker to banker Edey went, pleading and persuading. His efforts brought millions of dollars into the Exchange and helped parry disaster.”
  • The deadline for shorts to come up with stock certificates to cover their sales was 2:15 pm. With a minute to spare, major firms announced they would not demand delivery for Northern Pacific stock that day. Northern Pacific sold off to $300.
  • At 5 pm that night, news over the ticker was that Morgan and Harriman would offer stock to those short at $150 a share. The panic was over.
• James R. Keene
  • “If ever there was a true “wizard of Wall Street” he was James R. Keene. No one I ever knew approached him in his skill at operating in the market. His masterpiece of market making was U.S. Steel, which he handled at Morgan’s behest.”
  • The formation of U.S. Steel required a market for a half billion of common and a half billion preferred stock. Keene “handled the marketing so well that all the Morgan firm had to put up was $25 million. The public supplied the rest of the funds.” Note: what Keene did to market U.S. Steel stock would not be allowed by the SEC today.
  • Keene had made and lost several fortunes. He liked to gamble.
  • He was primarily a bull. “It was he who first made the remark, ‘You don’t see any Fifth Avenue mansions built by bears.'”
  • Early in Baruch’s career, James R. Keene asked him to report on a new company, Brooklyn Gas. A person underwriting the company, offered Baruch a $1,500 “commission” if he wrote a good report. Baruch refused it, dug deeper in case there was something wrong with the stock, and felt guilty enough just thinking about taking it that he told Keene.
• John “Bet-a-Million” Gates
  • Gates was the greatest gambler Baruch ever knew.
  • “Talkative gamblers usually talk themselves out of money. It was different with Gates… John would bet on himself and win… He did it by talking all the time, pushing the bet up and up until his opponent grew nervous.”
  • Gates was the first to conceive of a billion-dollar company.
  • He was the salesman for Colonel Ike Ellwood, the first manufacturer of barbed wire. Gates started a rival barbed-wire company and forced Ellwood to buy him out. Several mergers later resulted in the American Steel & Wire Company, which Gates sold to Morgan to be part of U.S. Steel.
  • Rumor was Gates bluffed Morgan out of $7.5 million for control of the Louisville & Nashville Railroad in 1902. Baruch actually originated the deal, trying to buy the railroad for himself. He eventually partnered with Gates to take control, only for Morgan to step in at the last minute and buy them out. Gates did make $7.5 million on it. Baruch made $1 million on the deal since he bought shares earlier than everyone else at an average of $15 less per share.
• “A bucket shop was strictly a gambling organization where patrons could bet on the rise or fall of prices on the Big Board. no transfer of ownership of securities took place. Some of the larger bucket-shop operators, when they found the “orders” heavy on a particular issue, would go into the Exchange and force the stock up or down to wipe out their patrons.”
• “What is it that turns ordinary betting into a reckless gamble? Desperation on the part of a heavy loser is one factor. Again, I have seen a run of luck go to a fellow’s head and make him think how much more he might win if the stakes were raised.” … “When men tossed around such huge sums in bets, at cards, and at the races, it meant that they had lost all sense of value and of economics. No market in the hands of such people…could be a stable or a genuine one.”
• “Even veteran market operators find it difficult to realize that manipulations have only a limited and temporary effect on the market. In the end it is always the economic facts — the value — which is the determining force. Bears can make money only if the bulls push up stocks to where they are overpriced and unsound.”
• “Bulls always have been more popular than bears in this country because optimism is so strong a part of our heritage. Still, overoptimism is capable of doing more damage than pessimism since caution tends to be thrown aside.”
• “The simple truth is that there are no “sure things” in the market… Even the best of speculators must be prepared to be wrong in a certain percentage of his operations. In such cases he must be able to strike his tent on the instant and conduct a swift, skillful, and silent retreat. This he will be unable to if he has made the mistake of inducing a whole host of camp followers to go along with him.”
• “Great builders seldom acquire the technique of the stock market… I distrust supposedly versatile people, for I have learned that few men can do more than one thing well.”
• “When misfortune overtakes us, all of us are prone to blame someone else if we can, and usually we think we can. This instinct for the preservation of self-esteem is one of the more deep-seated traits of human nature.”
• On Early Automobiles
  • His first car was an 8 or 12 horsepower Panhard bought in 1901.
  • His second car was a 40 horsepower Mercedes bought for $22,000!
  • “One traffic rule in those early auto days was that when a person in a buggy raised his hand the auto driver had to stop and wait for the buggy owner to get out and hold his horse.”
  • New York’s speed limit was 10 mph.
  • “Those early automobiles were expensive and uncertain playthings. A tire that held up for a few hundred miles without blowout had rendered good service.”
  • Baruch wasn’t sure how the auto “fad” would turn out but believed rubber companies would benefit so he and a few backers started the Continental Rubber Company in 1904.
• “Society can progress only if men’s labors show a profit — if they yield more than is put in. To produce at a loss must leave less for all to share. A profitable enterprise contributes more to national independence than an unprofitable one. True, profits may often be unjustly shared. But such abuses can be corrected without destroying profits.”
• Baruch believed the best deals were “mutually profitable.”
• The “electrical age” accelerated new technology advances which kicked off a global hunt for commodities to meet the demand. For instance, from 1880 to 1890, copper supplies grew 10 fold.
• Panic of 1907
  • The market first broke in March 1907.
  • The Knickerbocker Trust Company closed in October. It started a run on New York banks, spread to the NYSE, and threatened the economical collapse.
  • J.P. Morgan created a fund, contributed to by the wealthiest people/banks, to stem the crisis.
  • Barach gave $1.5 million to the Bank of Manhattan to add to its contribution. He also played lender of last resort to the Utah Copper Company (Baruch owned shares).
  • “Value in an investment is like character in an individual. It stands up better under adversity and overcomes that adversity more readily… A panic may bring a temporary collapse in the market price of an investment, but the stock is bound to recover if the company meets a genuine economic need and is under good management.”
• On J.P. Morgan: “He cared little for the possession of money. What he strove to achieve was the economic unity and stability of the country.”
• “Repeatedly in my market operations I have sold a stock while it was rising — and that has been one reason why I have held on to my fortune. Many a time I might have made a good deal more by holding a stock, but then I would also have been caught in the fall when the price of the stock collapsed. If I have missed some opportunities for money making because of this practice, I have also avoided “going broke,” as I have seen many other men do.”
• “I have bought when things seemed low enough and sold when they seemed high enough. In that way I have managed to avoid being swept along to those wild extremes of market fluctuations which prove so disastrous.”
• Madness of Crowds
  • Baruch was a fan of Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds after it was recommended to him by a financial reporter.
  • “Just why do we fall victim to such madnesses as the frenzy of stock market gambling that preceded the 1929 crash? I believe it is largely a reflection of the curious psychology of crowds which has been demonstrated again and again in human history.”
  • “These crowd madnesses recur so frequently in human history that they must reflect some deeply rooted trait of human nature… There seems to be a cyclical rhythm of these movements. A bull market, for example, will be sweeping along and then something will happen — trivial or important — and first one man will sell and then others will sell and the continuity of thought toward higher prices is broken.”
  • “Another strange thing about these crowd madnesses is that education and high rank is no immunization against the virus.”
  • “If his book showed how baseless are man’s moods of wild hope, it also showed that man’s moods of black despair are equally unfounded. Always in the past, no matter how black the outlook, things got better.”
  • “Whatever men attempt, they seem driven to try to overdo. When hopes are soaring I always repeat to myself, ‘Two and two still make four and no one has ever invented a way of getting something for nothing.’ When the outlook is steeped in pessimism I remind myself, ‘Two and two still make four and you can’t keep mankind down for long.'”
• 1929 Crash
  • Baruch was in Scotland in August 1929. While there, he got news of deal involving a company he owned stock. He cabled three friends to ask about it. One described the market as, “like a weathervane pointing into a gale of prosperity.”
  • Baruch cut his trip short. Sailed home and sold everything! He missed the crash entirely.
• “When as a young and unknown man I started to be successful I was referred to as a gambler. My operations increased in scope and volume. Then I was known as a speculator. The sphere of my activities continued to expand and presently I was known as a banker. Actually I had been doing the same thing all the time.” — Sir Ernest Cassell, private banker to King Edward VII
• “The truth is there is no investment which doesn’t involve some risk and is not something of a gamble.”
• “We have to take chances in life. And mankind would be vastly poorer today if it had not been for men who were willing to take risks against the longest odds.”
• “What we can try to do perhaps is to come to a better understanding of how to reduce the element of risk in whatever we undertake. Or put another way…our problem is how to remain properly venturesome and experimental without making fools of ourselves.”
• “In the stock market the facts of any situation come to us through a curtain of human emotions. What drives the prices of stocks up or down is not impersonal economic forces or changing events but the human reactions to these happenings. The constant problem of the speculator is how to disentangle the cold, hard economic facts from the rather warm feelings of the people dealing with these facts. Few things are more difficult to do. The main obstacle lies in disentangling ourselves from our own emotions.”
• “I have known men who could see through the motivations of others with the skill of a clairvoyant, only to prove blind to their own mistakes. In fact I have been one of those men.”
• “As a student of human nature, I always have felt that a good speculator should be able to tell what a man will do with his money before he does it.”
• “One of the worst mistakes anyone can make is to hold on blindly and refuse to admit that his judgment has been wrong… Many a novice will sell something he has a profit in to protect something in which he has a loss. Since the good stock usually has gone down least, or may even show a profit, it is psychologically easy to let go. With a bad stock the loss is likely to be heavy and the impulse is to hold on to it in order to recover what has been lost. Actually, the procedure one should follow is to sell the bad stock and keep the good stock. With rare exceptions, stocks are high because they are good, and stocks are low because they are of doubtful value.”
• “Other people’s mistakes, I have noticed, often make us only more eager to try to do the same thing. Perhaps it is because in the breast of every man there burns not only that divine spark of discontent but the urge to ‘beat the game’ and show himself smarter than the other fellow. In any case, only after we have repeated these errors for ourselves does their instructive effect sink home.”
• How to Invest or Speculate Wisely
  • Don’t speculate unless you can make it a full-time job.
  • Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”
  • Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities of growth.
  • Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.
  • 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.
  • Don’t buy too many different securities. Better have only a few investments which can be watched.
  • Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
  • Study your tax position to know when you can sell to greatest advantage.
  • Always keep a good part of your capital in a cash reserve. Never invest all your funds.
  • Don’t try to be a jack of all investments. Stick to the field you know best.
  • “These ‘rules’ mainly reflect two lessons that experience has taught me — that getting the facts of a situation before acting is of crucial importance, and that getting these facts is a continuous job which requires eternal vigilance.”
• “One cannot…make an investment and take for granted that its worth will remain unchanged. new sources of supply coming from hitherto untapped areas of the world may transform the competitive position of a company, as will changes in people’s habits or technological innovation.”
• “In no field is the old maxim more valid — that a little knowledge is a dangerous thing — than in investing.”
• Factors for Evaluating Companies
  • “First, there are the real assets of a company, the cash it has on hand over its indebtedness and what its physical properties are worth.”
  • “Second, there is the franchise to do business that a company holds, which is another way of saying whether or not it makes something or performs a service that people want or must have.”
  • “Third, and most important, is the character and brains of management. I’d rather have good management and less money than poor managers with a lot of money. Poor managers can ruin even a good proposition. The quality of the management is particularly important in appraising the prospects of future growth. Is the management inventive and resourceful, imbued with a determination to keep itself young in a business way? Or does it have a sit-and-die attitude?”
  • “These basic economic facts about various enterprises, to repeat, must be checked and rechecked constantly.”
• “When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing.”
• “Tips are most numerous, of course, when the market is booming. The tragic part of this is that in a rising market, for a time at least, anyone’s tips will seem good. This only draws people deeper and deeper into the market.”
• “In speculation, our emotions are constantly setting traps for our reasoning power. It is far more difficult, for example, to know when to sell a stock than when to buy. Men find it equally hard to take either a profit or a loss. If a stock has gone up, a man wants to hold on to it in anticipation of a further rise. If a stock has gone down, he tends to hold on to it until an upward turn comes along so he will at least be even. The sensible course is to sell while the stock is rising or, if you have made a mistake, to admit it immediately and take your loss.”
• “No speculator can be right all the time. In fact, if a speculator is correct half of the time he is hitting a good average. Even being right three or four times out of ten should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong.”
• “In my younger days I heard someone, I forget who, remark, ‘Sell to the sleeping point.’ That is a gem of wisdom of the purest ray serene… The wisest course is to sell to the point where one stops worrying.”
• “If anything too much information is available today. The problem has become less one of digging out information than to separate the irrelevant detail from the essential facts and to determine what those facts mean. More than ever before what is needed is sound judgment.”
• “The stock market does not determine the health of our economy. Largely because of the 1929 crash, the impression got built up that the stock market itself is the cause of economic booms and busts. Actually, the Stock Exchange is simply a market place where buyers and sellers of securities meet. All the market does is register the judgments of these sellers and buyers on what business is like and what it will be like in the future. The stock market, in short, is the thermometer and not the fever. If the country is suffering from the effects of inflation or from a weakening of government credit, the effect will show up in the stock market. But the causes of the trouble will not lie in the stock market itself.”
• “In this hectic age of distraction, all of us 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 spent in such detached contemplation on a park bench will prove rewarding.”
• Market History
  • 1898: about 60% of listed securities were railroads.
  • 1914: less than 40% of listed securities were railroads.
  • 1925: about 17% were railroads.
  • 1957: about 13% were railroads.
• WWI and Advisor on National Defense
  • Baruch was named to the Advisory Commission of the Council of National Defense when WWI broke out.
  • He was named chairman of the War Industries Board because of his Wall Street and business connections and knowledge gained from investing in commodity businesses.
  • He sold his NYSE seats and every publicly traded stock and bond he held to eliminate any appearance of conflicts of interest. Stocks not publicly traded were held by his secretary with instructions to donate all dividends paid to the Red Cross and other charities.
  • Supply couldn’t keep up with demand during WWI, so Baruch was forced to “weigh the relative importance of the many competing uses for the same things. Often it was a matter of balancing one urgency against a higher urgency.”
  • It was Baruch’s responsibility to get the needed raw materials so manufacturers could make what was needed for the war effort. When he couldn’t get supplies locally, he had to look to other countries to get what was needed. He realized
  • That included negotiating prices with the country’s leading industrialists in a way that “families should not feel that the war was being fought so that rich men or big corporations could make large profits. I wanted the price…to be cut low enough so it would be clear that industry was ready to bear its burden.”
  • It also meant managing the array of personalities of business leaders. He had to convince people that were hyperfocused on themselves and profits that it was in their best interest to take orders from the government and work with their competitors.
  • The most difficult commodity to come by was nitrates used for fertilizer and explosives. Baruch the demand via a deal with the Chilean government. Chile had 200,000 tons of nitrates owned by Germany. Chile also had its entire gold reserve in Germany. Chile wanted access to its gold to ward off inflation but Germany refused. Baruch seized on it. He offered 4.25 cents a pound, paid in gold, if Chile seized Germany’s nitrates.
  • “Accommodation to mutual needs remains the best basis for all agreements between nations.”
  • “One role of war throughout history has been to accentuate and quicken whatever changes were in the making before war broke out.”
• “During my eighty-seven years I have witnessed a whole succession of technological revolutions. But none of them has done away with the need for character in the individual or the ability to think.”

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