CHAPTER TWO
JOURNALISTS AND AUTHORS
WALL STREET’S INFO FLOW: NEWSPAPERS, MAGAZINES AND BOOKS
Imagine not being able to pick up the Wall Street Journal (WSJ) to check instantaneously on your stock’s price or even refer to Forbes and Barron’s for business news! It’s hard to fathom, but in Wall Street’s early days, this was very much the case. Whether you were inside the market or just a curious outsider, information was scarce and hard to come by, and even when you got some, it was likely to be very inaccurate. It wasn’t until the late 1890s that the creation of the granddaddy of financial information, the WSJ, sparked a slew of periodicals and books that would interpret, analyze, describe and promote stock markets in future years. Wall Street became more practical. Without good information flow, you can’t have broad financial markets that incorporate different types of investments and investors.
Financial news and information was made available first by a handful of firms that hired reporters to snoop around Wall Street for scoops, writers to create the stories, and messenger boys literally to run the stories to local subscribers waiting to act on the news. Obviously this wouldn’t help if you were located outside of the immediate Wall Street geography as so many professional investors are now. The dispersion of professional investor activity across America and around the world was made possible only by the increased information flow created by journalists and authors. Many of the fathers of financial journalism made their mark on this industry. Charles Dow and Eddie Jones ran a similar service on Wall Street prior to publishing the WSJ.
With the advent of the WSJ, interpretation and analysis soon followed. At first, it consisted of sensational, easy-to-digest muckraking, believed and widely read by the public mainly because there was no other credible, objective writing to counter it. A classic example was speculator-turned-author Thomas Lawson, who wrote prolific accounts of corporate abuses after losing big in the stock market! His accounts of Wall Street were biased from a loser’s viewpoint, but at least they provided juicy reading and got people thinking.
Comparable to today’s tabloid stories, Lawson’s brand of journalism quickly grew dated when more credible insiders’ views of the financial world were aired in Forbes. B.C Forbes started my favorite magazine in 1917, becoming one of the first to legitimize and personalize financial writing. Edwin Lefevre followed, in the 1920s, in the Saturday Evening Post. But instead of being a publisher/author as Forbes was, he stuck to churning out articles for others, and almost every popular organ carried at least one Lefevre story. Why? Because he humanized Wall Street, giving it detail, emotion and personality. He made it intriguing enough for the masses to enjoy.
Interpretation progressed with Clarence W. Barron’s news and analysis in Barron’s. Then Arnold Bernhard gave us the Value Line Investment Survey featuring quick overview and analysis of single stocks. Now you could read about the world in the WSJ, get the trader’s view in Barron’s, have it all interpreted and personalized by Forbes and Lefevre, and even keep updated on single stocks via Bernhard—and all that evolution in 50 years.
In the 1930s Ben Graham pioneered investment analysis with his book Security Analysis. The world has never been the same. Suddenly investment analysis became a generally accepted body of knowledge. Graham brought to investment analysis what the germ theory of disease brought to medicine—cohesion and a central core against which no one fundamentally rebelled. It is hard to find a professional investor who will admit to not having read Graham. Yes, Graham was also a teacher at Columbia, and no doubt had a material impact there, but it was his writing that changed the world forever
And, as part of Merrill Lynch’s plan to court Main Street onto Wall Street, Louis Engel penned How to Buy Stocks, of which there have been more copies read than any other stock market guide ever—perhaps as many as all other stock market guides put together. Engel showed the little guy how to get started.
As I write this book, my third, and after having penned more than 100 Forbes columns since 1984, I am ever reminded when I hear from a reader on the other side of the country—and sometimes ones that are in amazingly powerful positions—what an amazing force the pen is. I’m not a pimple off any one of the guys in this section, but my writing has affected the financial world. It has been included in the Chartered Financial Analyst (CFA) curriculum—my writing also first introduced the world to Price Sales Ratios, and little bits and phrases of my writing have been reprinted and quoted by sources I never thought would ever bother to read my thoughts. Yet my writings have been little refinements in a world financial structure that was already pretty defined before I came along. If I have had some small impact on an existing structure, imagine the power these financial pioneers of the pen wielded at they broke virgin turf. They provided the informational and educational guidance which in some cases paralleled the flow of Wall Street’s evolution, and in others made it what it was and now is.
CHARLES DOW
HIS LAST NAME SAYS IT ALL
Charles Dow is one of Wall Street’s most significant legends for two very significant reasons—he created our financial bible, the Wall Street Journal (WSJ), as well as our first market barometer, the Dow Jones Averages. He is also the father of technical analysis. Ironically, Dow went relatively unnoticed for his achievements and died quietly at age 51 in his modest Brooklyn apartment in 1902—years before he was credited with revolutionizing the way we now talk about the stock market.
You could explain “his” theory and its technical applications, but during his lifetime, he never laid out a “Dow Theory,” per se. When he first began compiling stock market averages in 1884—before the WSJ even existed—he hadn’t established much besides an index with an all-inclusive “index number” by which to measure the stock market. Later he added his intuitive opinions. In fact, the Dow Theory as we know it today was only named and extracted from his WSJ editorials twenty years after his death by other market technicians, like William P. Hamilton.
Standing over six feet tall, yet slightly stooped and weighing over 200 pounds with dark eyes and brows, a jet-black beard, and walrus mustache, ultra-conservative Dow had a grave air about him, spoke with measured speech and was reminiscent of an overly serious college professor. He never raised his voice and often said it took him a full 24 hours to get angry, and once angry, he stayed angry. The professorial analogy is strengthened by the fact that, working during the end of the robber baron era, he never chose to play that game, never tried to make a market fortune for himself; he instead chose, to be a sidelines observer and commentator.
He was born on a Connecticut farm in 1851 and worked odd jobs as a kid. His father died when he was six. When he was old enough to choose his career, he chose to abandon farm life for the pen. Following a scant education, he apprenticed for six years with the influential Massachusetts newspaper, the Springfield Republican. Then he moved to a Providence, Rhode Island paper, where he found his niche in financial writing while covering the mining industry beat.
Having made a modest name for himself, Dow, at 31, next ventured to New York and in 1882, founded Dow, Jones & Company with fellow reporter Eddie Jones. They used second-hand office equipment and worked out of a tiny, one-room office in a ramshackle building at 15 Wall Street, building a profitable news agency. They provided daily financial news updates to subscribers, who were mostly typical Wall Street wags. Printed news was scarce on the Street, and there was a value to being plugged into news sources even if they were little more reliable than the gossip proliferating through the crowd. So, their service was cherished, and the firm grew rapidly within the year. Soon, they started publishing a two-page newspaper called the Customer’s Afternoon Letter—the WSJ’s predecessor.
It was in the Letter that Dow first published his average, which he left unnamed. For example, on February 20, 1885, his average was compiled from 14 companies—12 railroads and two industrials—whose closing prices totaled 892.92. Dividing this figure by 14, he came up with 63.78. Since the previous day’s close was 64.73, the market was said to be down nearly a point for the day. A more precise observer might have been able to note that it was down 1.47 percent. The index was the first enduring attempt at precise market measurement. The index also gave birth to what would later evolve into the entire realm of “technical” analysis, wherein people forecast future price activity based on pricing history.
The Letter grew into the WSJ, in 1889. Costing $5 for a yearly subscription, 2 cents per copy and 20 cents per line for ads, the WSJ contained four pages of financial news and statistics, including bond and commodity quotes, active stocks, railroad earnings and bank and U.S. Treasury reports. At a time when there were about 35 major stocks and several hundred less widely followed names, an authoritative news source began to create, in effect, a standard by which reality was to be measured. We use the same standard today, published by the same firm. That function alone insures Dow a seat in the financial hall of fame.
Dow was a perfectionist. He worked quietly and intently, using his market averages to pursue his theory of market behavior in a series of editorials between 1899 and his death in 1902. Although he predicted the bull markets of the early 1900s, Dow disciples believe the furthest thing from his mind was creating a system of buy and sell recommendations; they say he used his own theory to review market history, not predict future activity. Regardless, his efforts linking past and future pricing activity were the seeds of technical analysis, a field which today involves thousands of investment professionals and a major investment of time and money.
The theories Dow put forth in his succinct editorials are technically described in this book’s biographies of William P. Hamilton, Dow’s successor at the WSJ and major contributor to the Dow Theory; and Robert Rhea, who transformed Dow’s and Hamilton’s principles into a system.
It is impossible to think of how the Wall Street landscape would look today without Dow’s influence. Whether because of his newspaper or technical analysis via his indexes, the name Dow cannot be separated from the market. Dow lived before the beginnings of “the information age.” While no one would create an index today that operates in such a bizarre and inferior manner (coupling just a few stocks and price-weighting), nonetheless, it was a breakthrough for its time.
In a world of computers the Dow seems to be our worst major index, poorly conceived and non-reflective of the typical stock in America. But that is looking at it from our perspective today, on the back-end of an information and electronics explosion. Back then it was an easy-to-calculate index, and price-weighting made more sense because the data required to build market-cap and unweighted indexes was not readily available and updatable. And the Dow Series was more complete then, because the few stocks they covered were a higher percentage of the relatively few big stocks traded.
Dow was an innovator, foreseeing what wasn’t yet there. Several lessons can be extrapolated from Dow’s life. First, is the importance of news and information. Second, the importance of perspective—something this author feels is increasingly lost in a world that now sometimes seems too bombarded with news, opinions, and media. And finally—the importance of foresight and the ability to see what wasn’t yet in the market, and would be important to the future. If instead of being 100 Minds That Made The Market, this book were to focus on only a dozen names, Dow would still be one of them.
EDWARD JONES
YOU CAN’T SEPARATE RODGERS AND HAMMERSTEIN
Lively, red-headed, and dimple-chinned Eddie Jones was a journalist in every sense of the word. He was a go-getter, a hard drinker at times, a gossip monger, a networker, and nosey. But he was no ordinary reporter, for he and colleague Charles Dow went beyond writing financial news—they created the century-old business bible, the Wall Street Journal (WSJ.) And though Dow usually overshadows Jones because of his Dow Theory, there was no way the WSJ would be what it is today—or even exist—had it not been for Jones and his zany personality.
Tall and lanky, partially bald, with ruddy skin, smiling blue eyes, and a flowing red walrus mustache, Jones was born in Worcester, Massachusetts in 1856. While attending the prestigious Ivy League school, Brown University, he interned as an unpaid drama critic for the local city paper. When the internship blossomed into a full-time job, Jones dropped out of Brown to follow his love, journalism, which was then considered just a trade. His well-to-do, well-educated family was horrified, but Jones was indignant and independent right down to his bones, and he did as he pleased.
While working for several Providence newspapers in the 1870s, Jones met the introverted and grave Dow. Though the two were seemingly opposites, they got along, worked well with each other and complemented each other’s style. Jones’ Providence career, however, was not a happy one. Known to go on prolonged drinking binges, he was unhappy with his work, the area, and his prospects. He had bought into a paper with hopes of creating a financial page to follow what he saw as an emerging world. But when his senior partners disagreed, and he didn’t back off his ideas, he lost his job and his investment. So, when Dow began working for a Manhattan financial news service, he convinced his boss to hire Jones. Jones, no doubt drunk out of his mind, popped up in the Big Apple mumbling something about marriage and financial worries, but he quickly adjusted to work, brought his wife to the city and settled down—for a while.
Restless and dissatisfied with working for anyone else, both Jones and Dow talked of forming their own news service and did so in 1882. Jones, 26, and Dow, 31, formed Dow, Jones & Company with a third, silent partner, determined to write about Wall Street objectively. This was in an era (that continued for decades to come) when many reporters supplemented their measly salaries by taking bribes for printing marked-up numbers given to them from overeager corporate presidents. But Dow, Jones was going to be different.
Before the WSJ existed, Dow, Jones & Company specialized in the delivery of accurate financial news, like management changes, interest rate changes, strikes and dividend announcements. It was a news service. You subscribed, and when stories broke, Dow, Jones & Company would write them up and run them out to you—literally, via messenger boys—so you could act on the news before others might know of it. Jones had their early system down to a science: Reporters snooped through brokerage houses, banks, and corporate offices for hot stories, ran the stories back to the shabby Wall Street office and dictated the stories to writers, who took over from there. The writers then copied the stories onto short white sheets separated by carbons, producing about two dozen copies each time. The messenger boys completed the cycle, running the copies to subscribers—every time a story broke, often eight times per day.
A mathematics whiz, Jones covered financial reports. His specialty was railroad earnings reports. He could spot hidden meanings and mistakes in them when no one else could, and like a good journalist, he exposed them. Jones also kept abreast of the fast-breaking news, making sure it got out to subscribers as soon as stories broke. He was constantly out on the Street, hustling subscriptions to Wall Street bigwigs like William Rockefeller, picking up news bits, and keeping track of the messenger boys who delivered the final product. By far, his favorite duty was making contacts in the Windsor Hotel bar, sometimes called the “All-Night Wall Street,” where all the big-time operators like Diamond Jim Brady hung out.
Emotional, explosive, excitable and headstrong, Jones was clearly the boss in the office. He reclined in a lean-back chair with his long legs and feet resting on his desk. Sometimes, he’d get up from his chair in a rage, screaming four-letter words to whomever was closest to him without anyone ever knowing what set him off. Yet, when crises arose, he was always the calmest; people—even Dow—turned to him for direction. He was the lonely-at-the-top type of guy who could make the tough decisions. Dow, on the other hand, was mainly the ideas and editorial man who constantly tucked himself away in his office to work on his number-crunching, charts, editorials, and the Dow Jones Averages.
Ironically, Dow was entirely helpless when it came to business within their firm. In 1889, when they decided to create the WSJ, it was Jones who projected initial costs and circulation possibilities—the very foundation of the paper. And this was Jones’ most important contribution to Wall Street—his handling of financial news and Dow’s editorial work. He packaged, promoted, and finally sold financial news as a viable product and en route, created a newspaper that every good businessperson looks at every business day.
In 1899, a decade after the WSJ got underway, Jones retired from the paper and the firm. Why he left was never recorded, but there were hints of editorial clashes with other writers—more likely, it was a yearning for better pay. Jones had always run on the fringe of the fast and rich crowd—and he wanted more. People like James Keene had tried to lure him into the brokerage business before—it looks as if he finally succumbed that year. And it made sense. Jones loved Wall Street and had plenty of connections. He joined Keene’s son-in-law’s brokerage firm and later worked for Keene himself at the height of Keene’s success, so Jones presumably got what he was looking for before dying of a cerebral hemorrhage in 1920.
Just as you couldn’t have had Hammerstein without Rodgers, nor Lennon without McCartney (even though like Dow and Jones they were only together a relatively few years in the greater scheme of things), you can’t separate Dow and Jones. They made history together. Clearly Eddie Jones was not as important as Dow, but in every duo one must be more important. Dow was dry, and Jones was lively, and while Dow was enduring, news seldom is—like Jones’ whole attitude toward life. Dow was the better market mind, but Jones was a journalist through and through, and like so many, became burned out by it. Without Jones, the landscape of American financial journalism would be different by any measure.
THOMAS W. LAWSON
“STOCK EXCHANGE GAMBLING IS THE HELL OF IT ALL . . .”
Some folks don’t take losing lightly. At turn-of-the-century Wall Street, your options were limited: You could succeed, quit, jump out a fifth-story window, or—get even. In 1905, flashy, well-spoken speculator Thomas Lawson decided to get even. . .
Back when muckrakers could write no wrong and big business was the all-American bully, Thomas Lawson was a notorious Boston speculator down on his luck—Wall Street had toppled his $50 million nest egg. So, desperately in need of a new trick, he hopped off his high horse and boarded Teddy Roosevelt’s anti-business bandwagon! Lawson attacked Wall Street kingpins—which he nicknamed “the System.” He ripped into their practices, players, and their disregard for the masses. Trumpeting that “Stock Exchange gambling is the hell of it all, (and) the hell of it all can be destroyed,” he mounted a massive publicity campaign aimed at undermining the System—and, coincidentally, replenishing his fortune. The “people” literally bought his act and even funded his “crusade”—which got him riding high again.
“My one instrument is publicity. It is the most powerful weapon in the world.” Lawson was a true promoter—full of hype. A prolific writer and a bold speaker, he had an animated personality and was a split-second decision maker. During his publicity campaign—while penning for Everybody’s Magazine two sensational series in 1912 called “Frenzied Finance” and “The Remedy”—he captured the most stubborn listener with his caressing, tender tone, vividly describing the inner machinations of his old cronies, the Standard Oil clan. Gazing with his intense, large gray eyes set under bushy brows that made him look fierce, he easily convinced people of Wall Street’s wicked ways—and that his life’s ambition was to free the masses from the “System’s” chains and to annihilate Standard Oil. What a character!
Sporting a large diamond ring on his finger and blue cornflowers in his buttonhole, Lawson stayed true to his dramatic style during 32 years as an insider. Born in 1857 to Nova Scotia emigrants, he grew up modestly near Boston, and by 14, worked as a State Street office boy after his father died. Two years later, at the mere age of 16, he was a full-fledged operator heading his own 13-member pool which had made $60,000 speculating in railroads.
Lawson then bought into a gas firm with a city contract. Next he rigged a deal where he bribed city officials to propose and then to defeat motions to cancel the contract. With each motion to cancel the contract, the gas stock would plummet, Lawson’s pool would short and rake in oodles—then, once the motion was defeated and the contract renewed, they’d ride the stock back up! But when a move to cancel the contract unexpectedly was approved, the stock—and Lawson’s profits—plummeted, leaving him with just $159! The young, optimistic Lawson, however, took his loss like a trooper, wined and dined his friends with the last of the profits, tipped the waiter his last five bucks and began again with a clean slate!
His slate, however, wasn’t spotless—at least according to his own later standards. At 21, having married and starting toward a family of six, Lawson opened his brokerage firm, Lawson, Arnold and Co. He made his first million nine years later by acting as agent and promoter for N.Y. financiers. As a rampant bull still speculating on a grandiose scale, he became known as Boston’s best-known plunger. Then, after wrestling control of Bay State Gas and Co. for a client, Lawson’s style caught Standard Oil’s attention. In no time at all, he became Standard Oil’s chief broker in its consolidation of the copper industry into Amalgamated Copper. By 1900, snug in his $6 million Boston estate, he was reputedly worth some $50 million! Lawson enjoyed this life, smothering himself with luxuries like the “Lawson pink”—a $30,000 specially bred pink carnation he later excused as a “business investment.” In 1901, he even built a yacht to compete for the America’s Cup, as did all millionaires then, though his boat was banned—and he became bitter.
What really got Lawson’s goat—and wallet—was similar to what happened to lots of other folks, and not too dissimilar to what happened to his first $60,000 pool. He put too much in one pot and borrowed to do it. When a bear raid caught his huge position on the wrong side of the market, Lawson found himself without his huge fortune. Now he was really bitter—and, hence, his “reform.” Joining in with the spirit of turn of the century yellow journalism and the Teddy Roosevelt reform era, he relentlessly reviled stock market sins across America, and, to gain exposure, wrote Frenzied Finance—what he described as “the first true-to-life etching of this romantic St. Bernard-boaconstrictor hybrid of financialdom.” Personally, I don’t get it.
But then came the clincher: He took out costly, full-page ads in national newspapers urging the public to support him in raiding “System” firms. Lawson’s “System” was synonymous with Standard Oil and its sphere of influence, which he mistakenly saw as the central power of America’s entire financial system at a time when Standard Oil was truly powerful, but no more so than several other trusts, or for that matter, J.P Morgan. But to him it was all Standard Oil, the “System.”
One time, just as various Standard Oil affiliated bigwigs were trying to put together a “copper trust” via Amalgamated Copper, Lawson began touting Amalgamated as a valuable stock, urging the public to buy. Later that year, after his faithful flock snatched it up and Amalgamated grew top-heavy, Lawson sold out—just before the stock spiraled! And this guy claimed he was on the “masses” side? When confronted by the New York Times in 1908, he confessed he “cleaned up a few hundred thousand dollars,” then—to unload his sin—he advised his flock, via more ads, to “sell Amalgamated to your last share. It will break from $80 to $33.” Consequently, the copper stocks broke violently. Amalgamated dropped to $58 in three days, and on the worst day, Lawson ordered his brokers back in—to buy all the Amalgamated they could lay their hands on!
When scoffed at for his actions, he cried out, “Oh, ye fools of earthworm intellect. Did ye not see I blundered on purpose to hoax the System?” Predictably, after each “wrong” prediction, he’d go back to the market under the guise, “I am going back to the game to recoup the millions I have donated to my work.” Lawson was either a brilliant conniver—or a warped crusader. Whatever he was, he never let on, constantly proclaiming, “My work is solely for one end, the destruction of high-cost living, and in no way is it a personal-pride-play-to-the-literary-gallery-grand-stand-work.” Personally, I still don’t get it.
Lawson’s is a story that comes along every so often. Every once in a while a self-proclaimed social sharpshooter targets Wall Street for his sermon. The difference with Lawson is that he knew enough to condemn and make Wall Street profits all at the same time. While Lawson didn’t actually hate the market—“on the contrary, it should be one of the main factors in a civilized people’s business machinery, and it will be after it has been closed as a gambling institution”—he actually hated the fact that the majority of Wall Street’s money lay in just a few hands, and that they weren’t his. But that’s capitalism, right?. . .
Lessons? Just as Lawson thought, the media and publicity are awfully powerful, so be skeptical about what you read. Despite securities laws that today regulate many investment professionals, nothing regulates freedom of speech in America for everyone else, and what someone says may have a hidden agenda that the regulators can’t do much about.
B.C. FORBES
HE MADE FINANCIAL REPORTING HUMAN
Bertie Charles Forbes, or “B.C.,” as he was known, personalized financial writing and consequently humanized big business via Forbes Magazine, established in 1917. Using his trademark corny epigrams and prolific prose, Forbes looked beyond the factories and machinery to the men behind the corporation, forcing his readers to look at business in a different light. His specialty was writing lively and candid biographical accounts of his era’s most influential business leaders, concentrating on the positive traits that led them to success. Because of B.C., by the time the great bull market took off in the early 1920s, America was well acquainted with—and indeed, admirers of—the men leading the firms it was increasingly investing in.
For example, he held a candle to U.S. Steel top-gun Charles M. Schwab (no relation to the modern-day discount broker), a man who has “played the business game” and won “an unusual measure of happiness and an extraordinary number of friends.” Forbes was far from secretive about what he valued most in life. He wrote, “Schwab, from the start, had goodwill in his heart toward his workers and his associates . . . he has never lost sight of the fundamental fact that, in the end, a wealth of friends means more than a wealth of gold.” In an effort to steer the ambitious away from greed, he cautioned, “The final question shall be not, How much have you? but, How much have you done?” and, “What most big men seek is greater power. A few, still bigger, seek to serve.”
You could say Forbes capitalized on schmoozing with Wall Street’s most notorious business leaders—like bankers A.P. Giannini and George F. Baker and steel magnate Charles Schwab, to name a few. But Forbes didn’t inherit his connections—he earned them, and maybe that was half the fun of his work. Back then tycoons generally kept to themselves, rarely answering to stockholders and even more rarely answering to reporters if they could help it. (J.P. Morgan, for instance, was notorious for scorning the press.) So, before boosting Forbes, the optimistic-yet-cautious Scotsman purposefully rented an expensive room in Wall Street’s then-hot spot, the Waldorf-Astoria. He thrust himself into a bevy of bustling Wall Streeters who gathered regularly at the hotel bar, immediately charming them with his Scottish burr. He blended in with the tycoons and in a sense, even became one of them; after that, he was never in need of news.
Forbes loved his work and considered interviewing his subjects a form of “interpreting human nature.” He was forever preaching his interpretations in his magazine, which he edited until his death, as well as in his syndicated column and the scores of books he authored over the years, like: Forbes Epigrams in 1922 and Men Who Are Making America and Keys to Success in 1917. A deeply moral and religious man who read the Bible every morning, Forbes’ interpretations were often moral ones: “Those who have earned the greatest wealth have not always earned the greatest happiness.” He took his lessons to heart and never let success infringe on his beliefs.
Gray-haired, dark-eyed, bespectacled, standing 5 foot 7, and weighing 185 pounds, Forbes was a dedicated family man, father of five and married since 1915. In his son Malcolm’s autobiography, More Than I Dreamed, B.C. was described as being principled, hard-working and strict, especially with his boys. He demanded obedience from his sons, yet loved taking them to the amusement park. A faithful Bible reader, he was an equally devout poker player who played every Sunday, stopping only to hear his sons sing their “hymn of the week.”
Born one of 10 children to a storekeeper in a small Scottish village, Forbes took pride in his heritage, going back with his entire family for visits practically every year. Later, at Malcolm’s wedding and other special occasions, he was known for donning a kilt and dancing a traditional jig. In Scotland, Forbes grew up modestly, herding cattle for neighbors as a child. He left school at 14 to become an apprentice in a printer’s shop, setting type. But he continued to study in night school and later, took night courses at University College in Dundee. At 21, after a stint as a reporter for a local paper, he left his homeland for South Africa, where he helped mystery writer Edgar Wallace create the Rand Daily Mail newspaper.
After saving every cent possible, Forbes journeyed to Manhattan in 1904. He worked for free for the Journal of Commerce to get his foot in the door, and sure enough, William Randolph Hearst chose him to become a financial editor and columnist. While writing his column, syndicated and distributed to 50 papers nationwide, B.C. started Forbes in 1917, because he was gathering more information than he could possibly use in the column! His name helped promote the magazine, and his connections guaranteed him an abundance of stories. 1917 must have been a very busy year indeed for B.C. Forbes, between writing several books and starting a magazine. It is hard to imagine anyone doing any more.
Forbes has become firmly entrenched in Wall Street, staggering only after the 1929 Crash, during which B.C.’s column profits paid payroll and printing costs. You can imagine how unpopular a magazine like Forbes was after the Crash drained American confidence from business, but B.C. believed in his baby and struggled to keep it alive. In return, B.C. became something of an institution at Forbes, holding on to its editorship until the day he died in his office from a heart attack in 1954. He was nearly 74 years old, a firm believer in working as long as it was physically possible. “Rest? Yes. Rust? No!...The self-starter never allows his steam to run down. . . .” In many ways exactly the same things could be said of his son, Malcolm, who was continually high energy until dying of a heart attack at a similar age. Perhaps it was in B.C.’s genes to build Forbes.
Even today the spirit of B.C. Forbes lives on in Forbes. There is no other major magazine—and certainly no financial magazine—that’s as personal in its presentation as Forbes. Do you even know who started Business Week or Fortune? It’s almost impossible to envision either of them as still run by the family that started them—yet they came after Forbes. B.C.’s emphasis on the personal side of business and financial reporting and his high ethical standard are still evident in Forbes today. First, you can see the personal side in the large number of Forbes stories on smaller companies that don’t appear in other places. Then, too, you can see the ethical side in the magazine’s continuing and unswerving tendency to expose scandals like the Robert Brennan and First Jersey Securities scam and penny stock frauds, and the scandalously high pay America’s top litigators had been secretly amassing.
In some ways, just as ancient time is measured B.C.—in years Before Christ, financial writing in America can also be measured in terms of years before B.C. Forbes. I argue that without B.C. Forbes and his personal touch, America never would have developed the confidence it had in its business and financial leaders and that accordingly the financial markets would have been crippled. He encouraged confidence in America, its business and financial markets as if it were lubricant to gearworks. While the Wall Street Journal was reporting the numbers and news in cold, dry fashion, B.C. brought them to life. The spirit of B.C. Forbes lives on in Forbes Magazine as no other individual’s ghost haunts the financial pages. And while the organization that bears his name does not have the size of Dow Jones & Company, his role clearly leaves him in my mind as the third most influential business and financial journalist behind the legendary Charles Dow and Clarence Barron.
EDWIN LEFEVRE
YOU COULDN’T SEPARATE HIS FACTS FROM HIS FICTION
More than any other Wall Street writer, Edwin Lefevre provided America with a peek at what really makes Wall Street tick—human nature. In his day’s most popular magazines and his own entertaining novels, Lefevre illustrated how—and how often—greed, stupidity, sheer luck, habitual honesty and intense cleverness came into play in finance. Whether he reported on the lives of Wall Street’s biggest players or told the rare tale of the lucky guy-next-door, Lefevre always hit close to home, playing on the rags-to-riches dreams of almost every American. Via personal, candid, straightforward prose, he painted the most realistic portrayal of Wall Street and its operators. In doing so, he humanized finance, bringing it down from its pedestal and smack into the homes of the American public.
Described as being “equipped with a genius for speculation—plus the brains not to pursue it,” Lefevre chose to educate his public about the stock market over some 40 years of financial writing, some fiction and some nonfiction. One point of praise about Lefevre is that it was always hard to tell fiction from fact. With pointed, logical views about how the market runs its course, he did his best to describe its function and technological mumbo-jumbo, leaving the biggest decision—whether or not to invest—up to his readers.
Typical Lefevre-esque rationale followed along these lines: “There is always a reason for bull markets. They start because the business tide turns. They run their course because human nature does not change. Before they end they are apt to degenerate into a frenzied carnival of gambling . . . No professional Wall Street tipster or plausible promoter can turn a sane person into a stock gambler as easily as his next-door neighbor bragging about his winnings. If all men profited by experience, the world would be peopled exclusively by the wise. . . .”
Born in 1870 in Panama, the son of an American businessman, Lefevre was educated in San Francisco public schools, Michigan Military Academy and Lehigh University, where he studied engineering and mining from 1887 to 1890. At 20, he began his journalism career with the tedious task of gathering the daily commodities quotes for the old New York Sun. He loathed commodity prices—coffee, eggs, cheese, petroleum, and pig iron. He wanted to write about the industries and the real world events that moved the prices! So after countless attempts at pushing business pieces he’d written on his own time past his editor and into the paper, Lefevre eventually got his first story printed about the banana industry. Then he faked a fan letter to his editor praising his own article and from there, began his writing career. He was a financial reporter and editor, writing articles for Harper’s, Everybody’s, Munsey’s, and several other popular periodicals.
Lefevre’s career sky-rocketed with the 1920s bull market, when he wrote exclusively for the Saturday Evening Post, a magazine found in practically every American household. He explained the ins and outs, pluses and minuses of speculation to the masses, who, at the time, were getting caught up in playing the bull market. With a strict moral code, he never outwardly promoted the stock market without objectively telling the risks involved. In a confidential manner, as if writing to readers he knew personally, Lefevre wrote articles entitled: “Speculation, Both Versions,” “Pick Your Seller,” “Wholesale and Retail Bond Selling,” “Blame the Broker,” “Bulls on America” and “New Bears, Normal and Grizzly.”
After the boom ended with the 1929 Crash, Lefevre tried rationalizing it to his friends, the readers. In a 1932 Post article titled, “Vanished Billions,” he said, “Reckless fools lose first because they deserved to lose, and careful wise men lose later because a world-wide earthquake doesn’t ask for personal references.” Later, he addressed the ensuing Great Depression, or as he phrased it, “the stupendous landslide of fear that has changed the face of the financial world.” He wrote: “To the question that thousands of Americans are asking, ‘When is it safe to invest?’ there are two answers . . .
1. Never!
2. Always!
‘Never for’ the crowd . . . ‘Always’ for the reasonable man; for it all depends upon what you call ‘safe,’ in a world peopled by fallible human beings.”
Lefevre liked to tell it like it was. Two years after the SEC came into existence, for example, in a 1936 analytical piece called “New Bull Market, New Dangers,” he warned investors not to think of the regulatory agency as an automatic buffer from risk. “They (SEC) do not guarantee against loss, nor can they say which securities are cheap and which are dear at current prices. The public must do its own watching for danger signals. Look within yourself and then, Mister Trader, you won’t have to look out.”
Lefevre’s catchy quotes and a sympathetic tone made him one of the most listened to, talked about and infinitely trusted financial writers ever. Of course, he also appealed to the voyeuristic—those who were simply interested in knowing the lifestyles of the rich and famous. His articles took readers on yacht cruises with unnamed highly-paid operators, whom could be easily identified by newspapers and readers.
Lefevre was a great source for juicy Wall Street gossip, presenting a wonderful, insider’s account of the wild life of wild speculator Jesse Livermore in his book, Reminiscences of a Stock Market Operator. This book is one of my all-time favorites, and I don’t think anyone should invest money he deems important without first having read it. In my 13th Forbes column (June 3, 1985), I listed Lefevre’s book as among my 10 favorite investment books. It’s that good, and so readable, anyone can enjoy it.
Married with two sons, Lefevre had a brother who became Panama’s president. Lefevre himself was appointed Panama’s ambassador to Spain and Italy in 1910 at 40. Besides writing, he loved antiques. He passionately collected early American flasks and bottles many decades before that became a fashionable hobby. And when he wasn’t writing about Wall Street, he wrote about his obsession with antiques. Lefevre died at age 73 in Dorset, Vermont in 1943, having retired from writing almost 10 years previously. He made Wall Street human for non-Wall Streeters, which in many ways set the stage for the magic conversion that folks like Charles Merrill would create in the 1940s as Wall Street went to Main Street.
CLARENCE W. BARRON
A HEAVYWEIGHT JOURNALIST
Looking a lot like a fat, jolly little Santa Claus with a full white beard, ruddy cheeks, and sparkling blue eyes, journalist Clarence Walker Barron was a glutton for food, money, and financial news—and in his lifetime he got his fill of all three. He took over Dow, Jones and Company’s Wall Street Journal fill of all three. He took over Dow, Jones and Company’s Wall Street Journal and ran two financial newspapers of his own. Then in 1921, Barron all but monopolized the financial news field by creating Barron’s Financial Weekly.
B.C. Forbes once called him “the foremost financial editor in the world,” but Barron was first and foremost an eccentric. Intolerant of failure and stupidity, he had a benevolent heart when he chose to and a personality that inspired confidence—everyone told him his secrets. Despite a big belly—he hadn’t seen his feet while standing in years—he was an avid swimmer and was ofter found standing waist-high in the water dictating to two male secretaries. His hobbies were mapmaking and farming. He owned several New England farms and liked referring to himself as a farmer, first, and publisher, second. A religious man, Barron adhered to the Swedenborgian religion and faithfully carried a copy of the Bible and Swedenborg sandwiched between silk handkerchiefs when traveling.
Although terribly overweight, Barron was never a weight-watcher and rarely glanced at the scales. He kept a wardrobe in six progressively larger sizes and when he could fit into only the largest size, he knew he was at his maximum—350 pounds. Then it was time for another trip to his sanatorium where a doctor restricted his diet and slimmed him to his usual 300 pounds But as soon as the weight came off, it came back on—via his decadent diet For example, a typical Barron breakfast included juice, stewed fruit, oatmeal, ham and eggs, fish, beefsteak, fried potatoes, hot rolls and butter—and finally, coffee with cream from his own prize-winning cows!
Born the oldest of 13 children in Boston, ambitious Barren chose journalism as his career when he was barely 15 years old—and once his stubborn mind was set, he went after his goal with ferocity. By age 21, after learning the ropes of the news industry, he scouted his specialty—financial writing. He boldly told Boston Evening Transcript editors he’d start a financial page for them by covering Boston’s business hub, State Street—and sure enough, he was hired. Ironically, it was his ambition that got him fired, too, when he revealed too much about an influential railroad tycoon’s shenanigans.
Never discouraged and ever optimistic, Barron next became a publisher. Borrowing Dow, Jones & Company’s earliest business idea, he started Boston’s first news service, the Boston News Bureau. Without extensive resources, he hired a few messenger boys, found a printer, and legged it around State Street on his chubby legs, searching for stories. He charged subscribers—mainly bankers, brokers and businessmen—$1 per day for 25 to 30 news bulletins per day, and business flourished. From this business, he produced a Boston financial paper, then established one in Philadelphia, attracting the attention of Charles Dow and Eddie Jones.
Barron was Dow, Jones’ first out-of-town reporter for a few years before taking over the firm in 1902 at age 46. He bought out Charles Dow, as the saying goes, “for a note”—that is, he bought the entire firm for $2,500 down and a promissory note. Just a year before, he had married a prominent Boston widow he’d boarded with for the past 14 years, and in a rare move, put all his Dow, Jones shares in her name; so, she represented him on the board of directors for the next 10 years. This allowed Barron to be more concerned with editorial content than the running of the paper—and it worked. Circulation soared, though he preferred maintaining a quality subscription list.
Barron was a staunch defender and advocate of the old Wall Street, when J.P. Morgan ruled the roost and wild plungers like Jesse Livermore constantly tried to beat the system. Following the 1907 Panic, for example, Barron desperately called for banking reform in WSJ editorials, but pleaded for Morgan to lead the reform movement. He generally advocated that the Street clean up its own house—not Uncle Sam.
With the newspaper a proven success and Barron’s name and reputation at an all-time high, Barron’s was established in 1921. The weekly was originally conceived as a business proposition by Barron’s son-in-law, Hugh Bancroft (Barron had adopted his wife’s two daughters). Bancroft later succeeded Barron as Dow Jones president after Barron’s death. Barron’s could capitalize on his name, use up idle press time and be edited by the staff of his other newspapers—pure gravy for the company. Barron penned its motto, “The application of money to practical ends.”
Barron’s, now something of a bible to traders, was launched in dubious financial times. Unemployment was at its worst since the 1907 Panic, yet the magazine took off. They used the ad campaign: “Barron’s, the new National Financial Weekly for those who read for profit” and Wall Streeters flocked to buy it. Barren boasted. “Not every reader is a millionaire, but there are few millionaires who do not read religiously one of these papers.” It included now-famous editorials from WSJ editor and Barron’s executive editor William Peter Hamilton and covered financial news from way beyond Wall Street. Barron’s presented a broad scope of Wall Street and the factors affecting it.
There is no question that news flow is fundamental to the flow of markets. Barron was not as big a mover and shaker in the formation of the financial news world as was Charles Dow, and maybe not as important as Eddie Jones to financial history, but clearly no one could rival him for the number three spot in the hall of financial news fame (B.C. Forbes would have to be counted as number four, but even B.C. would yield the higher position to Barron). As the first head of Dow, Jones after Dow and Jones themselves, Barren turned a personal business into the beginnings of an institution that has been the voice of Wall Street for half a century. Merely by creating Barron’s he assured his name in financial history. Without Barron and the role he played, our flow of financial news in the 20th century would have been different in ways that can never be known nor comprehended. His information made the market.
BENJAMIN GRAHAM
THE FATHER OF SECURITY ANALYSIS
In the field of security analysis, Ben Graham wrote the book—literally—and transformed a discipline based on hunches into a specific, much-depended-upon school of thought. A Wall Street legend, he pioneered value investing, basing successful stock selections on current figures derived from his careful research, instead of trying to predict future markets or a company’s worth in them. His essentially conservative thinking became perhaps the most success-in ful widespread investment philosophy in post-World War II Wall Street. But beneath the distinguished success and achievement was a man whose life was beneath the distinguished success and achievement was a man whose life was anything but steadfast and conservative. Ironically, he was a notorious ladies’ man, who took on mistresses while gallivanting among his various homes in the south of France, California, and Wall Street until his death in 1976.
Graham arrived on Wall Street in 1914, a 20-year-old classicist fresh out of Columbia University who was more concerned with securing his financial future than translating Greek and Latin for a meager living. Working his way up from chalking stock and bond prices on a brokerage house blackboard, Graham started doing write-ups and by 1917, was a respected analyst. As Adam Smith remarked, this was in a time when a security analyst was no more than a hard-working statistician; “an ink-stained wretch wearing a green eyeshade and sitting on a three-legged stool, who gave figures to the partner in charge of running that day’s pool.” But Graham broke the mold and started trading on his own account with terrific results.
In 1926, a friend realized he’d found his golden goose in Graham and wooed him away from the brokerage house to start the Graham-Newmann Corporation, which later put value investing on the map. A mathematics whiz, Graham concentrated on finding bargain stocks via quantitative research, then bought control of companies selling at less than their worth to force realization of the assets. He hated technical tools like charts and graphs and equally distrusted growth investors’ blind faith in a company’s management, upcoming products and present reputation—those just couldn’t be measured in cold, hard numbers, he figured. Instead, Graham relied on earnings and dividends, and felt that book value—the physical assets of a company—was the basis for making sound investment decisions.
Typical of Graham’s deals was his coup in Northern Pipeline. While examining Interstate Commerce Commission reports for pipeline companies, he found that Northern Pipeline was holding $95 per share of quick assets—and selling for only $65, at which it yielded 9 percent. Graham plunged into Northern Pacific so that by its 1928 annual meeting, he arrived with 38 percent of its proxies—and left with a seat on its board. Later, he persuaded management to shell out $50 per share to its stockholders. The remainder was still worth over $50 per share, bringing the total value to about $ 100—a keen profit over his original $65 investment.
The deal Graham-Newmann was most famous for, however, was its 1948 coup in GEICO, Government Employees Insurance Company. Graham wagered a quarter of the firm’s capital on the firm, then gleefully watched its shares rise 1,635 percent over the next eight years. By the time GEICO all but collapsed in the early 1970s, Graham had long retired and given away most of his holdings in the firm.
Besides being a security analyst and investor, Graham also acted as both corporate and individual financial consultant, lectured at Columbia University and UCLA, and authored a few books. It was from his years at Columbia that his most famous work, Security Analysis, evolved in 1934. Written with Columbia colleague David L. Dodd, the thick text—known now by investors around the world simply as “Graham and Dodd”—detailed Graham’s investment philosophy as covered in his past university lectures. They analyzed a number of industries—exploring financial characteristics and comparing key operating and financial ratios—to show how analysts determine which companies in a group of similar ones are successful, financially sound and undervalued. It was a lot to comprehend, especially for the layperson, so in 1949, Graham penned a more or less distilled version, The Intelligent Investor. Both books had sold over 100,000 copies by his death, and both sell more copies each year now than when they were originally published, the true sign of a classic and a feat achieved by only a minuscule percentage of books published.
Near the end of his life, Graham about-faced on the elaborate and complex security analysis techniques he’d put forth in Security Analysis. In a 1976 Financial Analysts Journal interview, he said, “In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost.” He added that he’d turned to “the ‘efficient market’ school of thought now generally accepted by the professors.” Ironically, Graham’s adoption of “the efficient market” was just before computer backtests would poke all kind of holes in that theory. Graham was simply old and unable to keep up with the times.
Later that year, Graham died at age 82. Having dissolved his firm in 1956, he was far from inactive: Just before his demise, he’d completed research going back 50 years that showed he could have outperformed the Dow Jones by a factor of over two-to-one by using just part of his long list of investment criteria.
Meanwhile, Graham was also busy bustling between his homes in La Jolla, California and Aix-en-Provence, France, where he ultimately died in the company of his long-time French mistress, whom he’d courted away from his son! Married three times, Graham used to joke that this relationship with his mistress lasted because they were never married. Graham’s student, Warren Buffett, once tried explaining Graham’s obsession with women (usually willowy blondes): “It was all open and everything, but Ben liked women. And women liked him. He wasn’t physically attractive—he looked like Edward G. Robinson—but he had style.”
Stocky, but thin with age, short and dapper, Graham—original family name, Grossbaum—changed the name to Graham during World War I. He had big, wide lips, a roundish face, light blue eyes, thick glasses, and two-thirds a head of gray hair. A fountain of quotations, he was witty, sharp, sensitive, energetic, cultured, modest—and whimsical. He once told a friend he’d like to do “something foolish, something creative and something generous” every day—and he usually did! Graham was polite and an intense listener for as long as he needed to be. Nephew and money man Richard Graham recalled, “He had a habit of looking at his watch—politely, of course—and saying, ‘I think we’ve spent enough time on this.’”
Graham had abundant interests—and not only by Wall Street standards. He could translate Latin, Portuguese, and Greek into English; loved biology and served as a zoo trustee; read six books at a time on such varied topics as history, philosophy and the classics; skied and played tennis; and loved to dance, becoming a lifetime member of Arthur Murray after signing up for thousands of dollars in dance lessons! Someone once said the only reason he stayed in finance was for the challenge. Graham certainly proved himself the exception to the rule that you must be a narrow-minded person to make it on the Street.
Ironically, of his four kids—three daughters and a son—none went into investments, though other relatives did. But Benjamin Graham left a legacy of security analysts and investors who trace their investment ancestry back to him. And he is widely known as the Father of Security Analysis. Graham was not only the original quantitative analyst, to whom today’s whole school of such thinking owes its heritage, but he was also a source of much of the fundamental analysis and lore that Wall Streeters follow today. Anyone who hasn’t read his books can hardly consider himself well read in the field. As the teacher, mentor and philosophical source for Warren Buffett, Graham pioneered the way for the modern era’s most successful single investor. His contribution and legacy are unmatched by any other single investor of the 20th century.
ARNOLD BERNHARD
THE ELEGANCE OF OVERVIEW ON A SINGLE PAGE
What started as an obscure collection of statistics on 120 stocks is now the standard and most basic reference on 1,700 stocks: the Value Line Investment Survey, king of investment newsletters. Lots of folks simply swear by it, and no one swears at it. Created by Arnold Bernhard nearly 55 years ago, Value Line packs statistics and brief, succinct analysis into one-page detailed descriptions that offer an amazing combination of detail and overview. While the Value Line offers specific stock forecasts on each of its stocks, most of the masses who use it do so for its reference-like functions, almost as a bible, rather than its specific stock forecasts. There are about 100,000 subscribers, each paying $525 annually, making it the nation’s most successful investment letter and a tribute to what mass merchandising can do, particularly for a small financial service.
To most subscribers, the publication is less a newsletter than a handy reference source. In a nutshell, it offers facts and numbers that quickly provide a broad overview of a single company in an easy-to-fathom, single-page format. Besides a brief summary of the business, much of the information is statistical, like the financial and price histories. Then, there are predictions of how the stock will perform over the next year and three to five years. What some consider the Value Line’s most important feature, and which I think not too many people care much about, is its rating and ranking system, whereby the stocks are rated from 1, being the highest score, to 5, the lowest.
Initially, Bernhard set a stock’s rating by what he called “taming the earnings curve with book value.” An investment counselor early on, he recalled, “I was managing all the accounts and studying all the securities in each of the portfolios. I thought again that there must be some method to determine when stocks were high or low, when they were good or bad values.” Math-minded, Bernhard worked with a 10-year history of certain stocks. “I multiplied a stock’s earnings, added it to a percentage of the book value and found a close correlation for the years between ’29 and ’39, between earnings, as I multiplied them and prices.” Bernhard never stopped fiddling with figures and formulae. By 1965, he and his statistician brandished their ultimate form of “disciplined analysis” called “cross-sectional analysis.” the system in place today, more or less. Instead of comparing a stock against its own performance, this system compares it against all the others’ (in the Value Line sphere).
But Bernhard and the Value Line were never regarded very highly for stock-picking prowess. Sometimes criticized for his simplistic approach to the market, Bernhard—a closet technical analysis buff who kept hourly charts on the Dow Jones Industrials—was thoroughly convinced of his system. If a stock ever strayed from Value Line expectations, he was sure it would soon slide back to its place. He admitted his system “is not infallible, of course, but if a stock has for 10 years sold at 10 times earnings and this year it is at 20 times earnings without any radical changes in the company’s business character, which is the moment of insanity? Now? Or all of the past decade?”
Small but broad-shouldered, with a receding hairline, short, well-clipped mustache and large eyes framed by sweeping, dramatic eyebrows, Bernhard dominated the Value Line empire until he died in 1987 at age 86. With a wry wit and formal, aristocratic manner, he was known as “Mr. Bernhard” even to his managers. He was a notorious tyrant in the office. Running the show while seated behind a massive desk, he gave his higher-ups little responsibility and even smaller salary. “I’m told there are big reunions of Value Line alumni, but I’m never invited. I’m not as chummy a person as I’d like to be.” Even so, the publication is still considered prestigious training ground for security analysts, money managers and the like.
Bernhard was born in 1901, the son of Jewish immigrants—a Romanian mother and an Austrian cigar-and-coffee merchant. Raised in Hoboken, New Jersey and Brooklyn, young Arnold left military school to study English at Williams College. A Phi Beta Kappa grad, he landed a prestigious journalism job as theater critic for Time. Prestige or not, the pay was the pits. So, he doubled as critic for the New York Post and syndicated his own column, while courting his high-school sweetheart, and wife-to-be with free Broadway shows (that he later reviewed).
An avid reader who favored books about the Napoleonic era, Bernhard became intrigued by Wall Street after reading Edwin Lefevre’s 1932 classic, Reminiscences of a Stock Operator, a fictional account of speculator Jesse Livermore. Inspired, he penned a play called “Bull Market.” Next thing you know, he became one of Livermore’s clerks! One time, Bernhard wrote his boss a glowing report recommending copper stocks; Livermore read it and immediately sold the stocks short! Another time, Livermore had his clerk hunt down a mystery stock symbol—pronto!—while he traded a large position in it, based on its tape action alone. The speculator’s off-the-cuff operations fascinated Bernhard, although he voiced patent disrespect for Livermore. Yet the experience challenged Bernhard to find some sort of “system” to figure out the market.
After a three-year stint at Moody’s, first as analyst, then account executive from 1928 to 1931, Bernhard came up with the Value Line’s predecessor in 1936. He worked out his original formulas for 120 stocks, bought a press and cranked out 1,000 copies of his results in book form, which he planned to sell at $200 apiece. But after making countless personal presentations, he sold one copy. “It was hard for me to realize how little the world would be interested.” Then, a market letter writer of the moment, in exchange for a free copy and an $800 fee, plugged Bernhard’s book in his own letter. The writer mistakenly underpriced Bernhard’s book at a $55 price tag, but the checks poured in daily, putting Bernhard in business. the Value Line took off, and the Bernhards moved to stylish Westport, Connecticut.
From then on, Bernhard swore by mass merchandising. He took out his first official ad in Barron’s, and he never quit advertising there. The original ad offered a sampling of Value Line’s wisdom for a token charge, which in turn, brought in a percentage of new subscriptions—which more than paid for the ad.
Because he was so sure of his product—even cocky to some degree—and because he wanted to remain neutral in the stock market, Bernhard invested most of his vast fortune in the Value Line empire, including various Value Line mutual funds. Feeding his ego and love of theatre, he also put a few bucks into producing plays, like David Mamet’s critically acclaimed American Buffalo. In 1984, Forbes placed his wealth at $400 million, landing him a position in the Forbes 400—all based on the value of his little publication as a publishing business. When he died in 1987, the stubborn old man left his 53-year-old daughter, Jean Bernhard Buttner, in charge.
Bernhard was notoriously cheap. He had lots of bodies at work, each writing up his or her analysis of various companies, but he paid almost nothing. In the mid 1980s “analysts” were working for the firm in New York, routinely for compensation between $25,000 and $35,000, depending on duration. So, his people were usually rank beginners who were temporarily using Value Line as an entry to Wall Street, Wall Street is lined with good people who started in the Bernhard empire, left, and moved up—a poor man’s training ground for all kinds of talent. Accordingly the staff turnover at Value Line is never ending.
Once, in 1982, I had lunch with Bernhard. Another fellow and I were talking to him about potentially creating a kind of training institute for young analysts and were hoping—because he had so many workers at Value Line—that we could get him to participate as a paid speaker and “draw.” We were also hoping to get him to send his young people for training—which would be additional revenue for the project. Our idea for a training institute never got off the ground, but it was interesting to me that Bernhard was not interested in sending his analysts for training. He did express interest in the idea as a way to find and recruit more young beginners for his ever-revolving door of Value Line analysts. Worth hundreds of millions, Bernhard was cheap and clever to the end.
Because the Value Line is actively used by every major American investment firm, and because so many folks fathom companies in terms of the information it carries on a single page of analysis, it would be hard to envision the market today without the contribution of Bernhard. He gave us the capability to see an overview of almost any company on a single page. True, the analysis isn’t always very deep or accurate. And yes, the system he uses for ranking stocks isn’t very widely accepted. But the statistics are good. The Value Line format never changes, and people know it and relate to it and accept it. It is today a standard, and for that the world owes Mr. Bernhard much.
LOUIS ENGEL
ONE MIND THAT HELPED MAKE MILLIONS MORE
Louis Engel’s book, How to Buy Stocks, originally written in 1953, took on a life of its own as investors realized Wall Street was no longer an exclusive club for the wealthy. How a seemingly simple “how to” guide could alter the market forever is simple: In writing his book, Engel was the first to explain the market to middle-income people—the masses—in their own language. Using vernacular and real-life examples, he translated financial jargon into English, enabling the expanding middle-class to view securities as viable and safe investments. As a result, Wall Street was able to tap into an important market by bringing Wall Street to Main Street.
“If business is to have the money it needs to go on growing, somebody has to take the rich man’s place. That somebody can only be the investor of moderate means—thousands of such small investors, because it takes 1,000 of them with $1,000 each to equal the $1,000,000 in capital that one wealthy man may have supplied yesteryear.” Like Jay Cooke before him, financing the Civil War, and A.P. Giannini, building Bank of America, Engel turned to the “little fellow” to give Wall Street a much-needed boost during its postwar period. But instead of doing it for him as Giannini and Cooke did, Engel was to show him how to do it himself. As an ad man and journalist, his tool was language.
While an advertising manager at Merrill Lynch, Pierce, Fenner and Smith, Inc. between 1949 and 1969, Engel decided it was no longer feasible to do business “with just a handful of the rich and financially literate.” The brokers, he said, needed “to do business with John Jones and Bill Smith and that means they’re going to have to forget financial lingo and talk . . . about stocks and bonds in language that they and their wives understand.” The alternative was that “American industry may well find itself starved for new capital.” So, as part of Merrill Lynch’s “Bring Wall Street to Main Street” ad campaign, in which it sought to sell its brokerage services to a lot of little investors, Engel wrote an advertisement explaining stocks in simple terms. It wound up being so successful that soon afterwards, publishers Little, Brown and Company approached Engel to expand his ideas into a book, and he penned How to Buy Stocks in six weeks.
Thirty-eight years later, How to Buy Stocks is the most successful financial book ever and still sells. By Engel’s death in 1982, the book—revised seven times—had sold some four million copies. No other investment book comes even close to that in terms of cumulative sales. In a fairly objective manner, it tells the story of the imaginary Pocket Pole Company, beginning with its inception—the invention of a new collapsible metal fishing rod. From here, Engel leads the reader down the most fundamental steps to building a company: Borrowing capital and issuing stock to shareholders, electing a board of directors, conducting annual meetings, issuing dividends, issuing preferred and convertible stocks, selling bonds, and the rest of the basics needed to run a firm, expand it, and reap profits.
Short and easy-to-read chapters include: “How New Issues are Regulated,” “What You Should Know about Government and Municipal Bonds,” “How the ‘Over-the-Counter’ Market Works,” “How to Read the Financial News,” “The Folklore of the Market,” and “When Is the Time to Sell?” What Engel writes is neither profound nor condescending, just simple and straightforward!
Naturally, being a Merrill Lynch mouthpiece, Engel took his time detailing the broker’s role in the securities industry in chapters like, “Investing—or What’s a Broker For?,” “How You Do Business with a Broker” and “How You Open an Account.” He confided, “Lots of people still shy away from the broker for a variety of reasons. Some of them feel embarrassed about the amount of money they have to invest. Maybe they have only $500 to put into stocks, perhaps only $40 or $50 a month, and they figure a broker wouldn’t be interested . . . Perhaps they think of the broker as a somewhat forbidding individual who gives his time only to Very Important People, people who are well-heeled and travel in the right social circles.” But Engel reassures the reader, “That’s not true. There’s nothing exclusive about the brokerage business today. No spats or striped pants. The club rules are all changed, and coffee and hamburgers are more popular items on the club menu than champagne and caviar.”
Born the son of an auditor in 1909, Engel grew up in Jacksonville, Illinois. He graduated from the University of Chicago in 1930 and began his career as a University of Chicago Press staff member for two years. He left for New York to become managing editor for Advertising and Selling, then became news editor—and later managing editor—for Business Week from 1934 to 1946. That year, he left to join Merrill Lynch as its advertising manager, becoming a vice president in 1954 and remaining until his retirement in 1969. Engel’s home life started at 34, when he married his first wife, whom he divorced a few years later. He remarried in 1954 at 43 and had three daughters. After his retirement in 1969, Engel retreated to his upstate New York home, becoming village trustee in Ossining, and town supervisor between 1975 and 1979. The man “who brought Wall Street to Main Street” died at 73 in 1982.
There is no doubt that Engel’s book was a Merrill Lynch promotional piece. For decades Merrill Lynch brokers have given copies of it away to prospective clients as an enticement to do business with them. But at the same time, his book took on a life of its own. I’ve never had anything to do with Merrill Lynch, yet I’ve given away dozens of copies over the years to folks interested in a first book on investing. I’ve never really seen a better first book on investing than How To Buy Stocks. Engel’s sheer simplicity and straightforward approach, coupled with the innate writing skills he picked up in business journalism, allowed him and his thoughts to be the conduit for millions of modern era investors in their introduction to Wall Street. Not only was Engel one of the minds that made the market, he helped make millions of minds through his one little book.
