CHAPTER NINE

SUCCESSFUL SPECULATORS, WHEELER-DEALERS, AND OPERATORS

WILD ON WALL STREET—BUT QUIET AT NIGHT

 

Many of the folks in this section are often referred to as “robber barons.” It’s a label connoting greed and ruthlessness that was stuck on them during the Progressive Era just after the turn of the century. But it’s not entirely accurate or suited to the unique and individual characteristics that each possessed. And in many instances it is actually unfair and inconsistent with the personalities involved, who, as we shall see, often cared little for luxury or extravagance. Greedy or not, who knows? Yet each of these Successful Speculators, Wheeler-Dealers and Operators helped the market evolve into what it is today, and that’s not something to be overlooked, nor something to which most of the rest of us can lay claim.

In many ways, this group resembles latter day Dinosaurs. Like the Dinosaurs, when they didn’t know how to do something or didn’t like what they saw, they created new steps and imaginative ways to cross barriers they faced. Unlike the Dinosaurs, they went any which way the wind blew. Without an absolute process or methodology, and without the Dinosaurs’ sheer power, their saving grace was their flexibility—having enough of it to survive when their environment about-faced.

This crew operated on gut instinct and courage. They climbed out on a limb to build empires, buy long and sell short and buck popular trends. In the end, their bravado paid off. Sounds admirable enough, but today, like the Dinosaurs, the successful Speculators, Wheeler-Dealers and Operators would be viewed as wild, too unruly and too unpredictable to be allowed the freedom to be themselves. They are the antithesis of today’s “team player,” but that’s what made them successful.

Jay Gould, for instance, gave the market his all—literally. He had no meaningful family life, no real friends; instead, he dedicated his life to merging railroads and running them. Even in business, he operated alone, even when others thought they were his partners. He remained ever flexible and free to go in, out, long and short. He was hated for his independence throughout his career, but never more so than when he exited Wall Street with his large fortune intact and out of reach of other speculators and wheeler-dealers. Few folks anywhere are ready to pay the social and emotional price Gould paid to be a success.

Typically, the success stories are about those who focused almost solely on work, with few personal sidetracks. But occasionally, you’ll find flamboyant and flashy types who made fortunes—and kept them—such as Diamond Jim Brady and Bet-A-Million Gates. Diamond Jim usually had a girl on his arm and diamonds on his fingers. But he was loved more for his genuine generosity than for his gargantuan looks. Women came and went in his life, no matter how many diamonds he furnished them—none stayed for good. He found solace in the stock market, where he gambled big and won big. He was probably more lucky than skilled, but sometimes luck is as important a factor as any. Brady at least had the courage to keep rolling the dice.

John Bet-A-Million Gates was brash, audacious, and full of life. Sporting diamond-studded suspenders, he lived up to his name, betting on bugs, horses and bull markets. He was a savvy salesman and either truly brazen or crazy, once giving Morgan a take-it-or-leave-it ultimatum in a railroad deal and winning. He ultimately blew it all in the 1907 Panic, but always willing to put himself on the line, he recouped his fortune in oil. Not as colorful, but quirky just the same, was James Keene. He was another infamous speculator who tipped the bottle and played the horses, but otherwise stayed true to the market.

In the rest of the Speculators’ cases, it was their market activities that warranted attention, not their personal lives. Jay Gould, William Vanderbilt, Edward Harriman, Henry Rogers, John Raskob, Arthur Cutten, and Bernard Smith were not socially flamboyant The Fisher Brothers became socially prominent within the confines of their own community and then only after leaving the stock market; they did so in a private and quiet way, not with the spectacularly flamboyant and eccentric lifestyle, as we will see in a later chapter, common among unsuccessful speculators.

Generally, successful speculators keep their eyes on business, not the high life. To make it as big as these guys did, and keep it, it is almost axiomatic to be as driven and focused as these men were. Jim Brady’s party life and ultimate market focus are rarely attainable within the same brain. It was as if these men’s deals and risks acted as their only outlet for fun and adventure and provided them a full spectrum of vicarious thrills. Typically, the truly wildest of the speculators kept their private lives private, simple, and stable—pretty darn unwild. They knew when to separate family from fortune and work from play.

William H. Vanderbilt, for instance, was a tyrannical executive in the office, but a loving father at home. He built his own success, apart from his famous father’s, driven purely by his love for business and profits. Vanderbilt used to say he worked for the stockholders, not the public, and the public hated him, but he didn’t care. By working hard and staying close to home, he amassed a greater fortune and a closer family than his father ever came close to achieving.

Edward Harriman and James Hill both built railroads, fortunes, families and successors. Neither was too proud to compromise if it meant overcoming barriers, and both made successes of whatever projects they undertook. Harriman was a shy little man who raised hell in board rooms when others didn’t agree with him, but still knew when to shut up. He specialized in taking over dilapidated railroads, pulling them out of debt and making them pay. Although he died with a robber-baron-size fortune, he lived life outside of the office like any regular guy with a wife and five kids. One son even followed in his footsteps, becoming a railroad magnate.

Henry Rogers, a great market manipulator, loved gambling. When the stock market was closed, he played poker! But his family life knew no scandal. Ditto for Arthur Cutten, the last of the big manipulators, who gambled high but lived quietly.

Sell-Em-Ben Smith thrived on the thrill of the market and, occasionally, a fast car. But for the most part, he was a Puritan who never smoked or drank, and a romantic when it came to his wife. In the market he operated fast and loose, and when the New Deal turned Wall Street upside down, Smith flexibly went with it and was still able to turn a buck.

John Raskob, the Fisher Brothers and Bernard Baruch were all operators who knew that quitting while they were ahead would preserve their success in the market. Raskob, speculator and General Motors executive, and Baruch, speculator who abandoned the market just weeks before the Crash, both left the Street for politics. The Fishers, prominent players in the 1920s bull market, didn’t foresee the Crash like Baruch, but they had the sense to withdraw fast before their fortune was decimated. They returned to their homes, families and a lives of low-key social and private charitable events.

As we will soon see, unsuccessful speculators lacked the clarity of focus these men had. For some men, Wall Street and money is a means to an end. For others, the big successes, Wall Street is the end itself. The biggest and most enduring successes had an inner code that drove them, and they played the game for the game’s sake. They weren’t driven to earn the money so they could go spend it. They typically had no desire to immerse themselves in any form of hedonistic adventurism. A Brady or a Gates is the rare exception proving the rule. It is almost spiritually ironic that those who most want money for what it will buy, are those least likely to make and keep huge amounts of it. Success historically goes to those who pray at the game’s altar rather than at the altar of luxury.

JAY GOULD

BLOOD DRAWN AND BLOOD SPIT—GOULD OR GHOUL-ED?

If you were a 19th-century Gould family member, you were a social outcast. Market manipulator Jay Gould was America’s most despised man, receiving weekly death threats, not because he wasn’t a nice guy—he wasn’t—but due to his uncanny skill at taking over other people’s properties. He was one tough operator.

Nicknamed the “Mephistopheles of Wall Street,” Gould built his fortune by manipulating railroads across America, buying unstable, smaller lines, then merging and renaming them. By fudging financial figures, he sold the “empires” for huge profits—and if they went bankrupt, he began all over again, buying the outfit cheaply. Absolutely ruthless.

Personally, I kind of like the guy, but maybe that’s just the contrarian in me. Regardless, you have to respect him for his skill. Among the best of the robber barons, he bought stock cheaply, often driving prices down, then seized control of the firms, streamlining and unloading them for sizable profits. A man ahead of his time, today, he would compare with the best of our modern raiders, who buy firms cheaply and turn them into better entities. What one man began, Gould finished with finesse. A bull at heart, a bear when it suited him, he was a wolf always—a lone one—if it meant a big buck.

In 1857, Gould, age 21 and a partner in a tannery, prepared for Wall Street’s dog-eat-dog competition by ousting his partner and tying himself to a big-city merchant with cash and connections. Moving onward, Gould speculated with company profits and borrowed money, trying to corner the hide market. But, when he failed and the creditors hounded the firm, his big-city partner shattered and committed suicide.

Gould seemed eerily emotionless. Pale, pasty, 5 foot 6, with dark, deep-set eyes beneath bristling black eyebrows and a rough-cut beard beneath a balding pate, Gould’s expressionless face mirrored total coldness. He would have been good at poker. Or at manipulation. But you can’t be completely devoid of emotion; if you can’t show emotions, they find another outlet. Consequently, Gould endured chest pains, tuberculosis, and various ailments. He frequently spit blood. Lovely man.

Next, he dove into the market, speculating in railroads and inevitably clashing with the powerful industrialist, Cornelius Vanderbilt. Teamed with market veteran Daniel Drew and raider James Fisk—whose boodles he would later decimate—Gould conspired to seize control of the Erie Railroad in 1867, crushing Vanderbilt’s chance to monopolize Manhattan rails. They succeeded by issuing a massive amount of illegal convertible bonds, diluting the millions Vanderbilt spent on Erie stock.

Vanderbilt reacted by sicking his pet judge on the three, outlawing their flagrant methods. Fleeing the law, the conspirators left Manhattan for Jersey City with $8 million in profits and Erie’s books. A homesick Gould soon sought remedy, for as long as they were outlaws, they couldn’t return to Wall Street. Sending carpetbaggers with $1,000 bills, he tried to buy off Vanderbilt’s bribes of state legislators in a bidding war, which he finally won by spending over $1 million and even buying off Vanderbilt’s own treacherous agents.

But the Erie episode endured. When Drew secretly met with Vanderbilt to settle the “whole damned business,” Gould and Fisk, enraged, vowed revenge. With Drew off the board, they issued new Erie shares, flooding the market, driving the price from 68 to 35 and earning millions for themselves. Then, without telling Drew, who was selling short heavily, they bulled the price back to 62 using Treasury funds, again profiting and forcing Drew to cover his shorts at a huge loss—revenge. Grinning like a hyena, Gould ran Erie until 1872, continually selling Erie stock and his own to the market and personally raking in more than $20 million.

Gould raced through many deals, transforming manipulation into a science, leaving countless corpses behind. His most famous and grandiose scheme? Attempting to corner gold. While he is most noted for this effort, it was quite unusual for Gould, typically a stock market and railroad operator. It is also usually misunderstood. While he hoped to profit by his raid, his real goal was to achieve a higher price for gold. This ultimately meant a lower greenback dollar, which would entice foreigners to buy more grain, which would be railroaded on his baby, the Erie. Starting in 1869, Gould bought gold, blatantly bulling the price, and soon held over $50 million worth of gold contracts. Meanwhile, Gould, Fisk and well-connected market crony, Abel Corbin, focused on convincing Corbin’s brother-in-law, President Ulysses Grant, to support high-priced gold.

Grant held the power to crush the corner by opening Treasury vaults to circulate $100 million in federal gold. And, despite Gould’s and Fisk’s wining and dining campaign, Grant did just that, freeing $5 million in gold on September 24, 1869—known as Black Friday—sending the market reeling. As gold plummeted, unsuspecting speculators splattered with it in one of history’s most notorious failed corners. But Gould sidestepped disaster with what we now call insider information. Grant’s wife informed her brother Corbin; and Corbin informed Gould, who neglected to inform Fisk. Fisk was selling short and was left holding the bag. Gould cleared $11 million as gold soared and then fell. Some conquered cohorts cursed Gould, others vowed revenge on both him and Fisk—unaware that Fisk was crushed too.

Gould had few Wall Street friends, but after Black Friday, he had none. In the next 20 years, he mellowed his modus operandi, but the deals continued. He bought and sold Union Pacific, Kansas Pacific, Central Pacific, Missouri Pacific, Texas & Pacific, Cleveland and Pittsburgh, Denver Pacific, and Manhattan Elevated Railway, running them all as well as he raided them.

Another Machiavellian Gould diversion was his 1870s purchase of the New York World. In it he mounted a magnificent publicity campaign against America’s largest telegraph firm, Vanderbilt-run Western Union, labeling it the “most vicious” monopoly. The World extolled American & Pacific as an up-and-coming telegraph firm (coincidentally, owned by Gould). Promptly, Western Union lost millions in business, and so, to squelch Gould’s attacks, it bought his American & Pacific for over $10 million. The World then heralded another Gould telegraph firm, causing Western Union to buy it, too. Next, he went into high gear. With his paper blatantly and fraudulently blasting Western Union and its condition, Gould used his profits to short the stock, driving it down. Finally he reversed his course to buy at low prices and gain control of Western Union. Poor Vanderbilt. Just like Drew and Fisk.

Gould’s personal Black Friday came in 1884, when James Keene and a syndicate of bears slashed Gould with the very sword of his own style, running bear raids on multiple Gould holdings. They won, Gould lost, and by June, in declining health, he surrendered his yacht, his castle overlooking the Hudson, his Fifth Avenue home and many other holdings—to his enemies. Ever clever and willing to quit before total defeat, he escaped with what was valued at his death in 1892 as a $72 million estate.

Gould always gave the market his all, made his fortune and, in turn, was hated. Eventually, he required round-the-clock guards, as he received weekly death threats. An insomniac, he took to pacing the sidewalks while his guard stood watch. But you must admire his skill. A sad wheeler-dealer? Yes, but unlike so many others, instead of raiding and ruining companies, he raided and ran them—usually for the better. Also, he was unusually flexible and was able to bend when the trend ran against him, instead of fighting an unyielding market to the end. Unlike so many others who had it all—and lost it—Gould was able to keep it all. He was dedicated! Rough and ruthless in a ruthless time! At times illegal in an era when it was hard to go far enough to be illegal, Gould combined brilliance with flexibility and managerial skill. He saw the big picture and the little detail. With his blood-lined spittoon nearby, he fought the battles no one else could stomach, and won more than he lost, always brilliantly. He represents the best and the worst of a world we all look back on with dread and awe.

“DIAMOND” JIM BRADY

LADY LUCK WAS ON HIS SIDE—SOMETIMES

“Hell! Ya can’t always win!” Diamond Jim used to holler, but win he did, at least during work hours. In his very first speculative venture he netted $1.5 million back in 1897! Here’s how it went: On the heels of winning big, betting on President William McKinley’s election, Diamond Jim chuckled, “Sure, I’ll take a chance,” and plunged into a railroad until it reached 26. When the stock hit 68, Diamond Jim simply unloaded his holdings, counted his profits and left the stock to take a sudden dip from his selling! When Jim Brady did something, he went all out. Extravagance was his trademark, calling card—and his salvation.

Whether it was speculating in the market, dazzling ladies with diamonds, adorning his house with lavish luxuries, or funding a stranger’s sob story, Brady just flashed his fat wallet. “Did you ever stop to think that it’s fun to be a sucker—if you can afford it?” Well-known for his generosity, James Buchanan Brady spent freely because he had no family to whom to bequeath his millions. Weighing 240 pounds, with heavy jowls, small close-set eyes, a homely face, and a stomach six times larger than the average person’s, he moaned, “There ain’t a woman on this earth who’d marry an ugly-lookin’ guy like me.” Since so many ugly people do marry successfully, one suspects Brady adopted this philosophy more out of choice than necessity based on experience. Regardless, Brady found solace in earning and spending, living a life of one-night stands with diamond-eyed girlfriends like the famous Jersey Lily and Lillian Russell.

Jim nurtured his brilliant sales career, selling railroad supplies and steel cars, writing million-dollar contracts and gathering a fortune in commissions. A New York City native, the poor, young Irishman began in railroads. At age 21, in 1877, he adorned himself in costly black suits and silk, stovepipe hats. After attending business school, he switched to sales and took to the road, where people naturally liked him. But that wasn’t enough for Jim. A shrewd and discerning gambler, he played cards and dice in his free time—for diamonds instead of money. By gambling and driving hard bargains with pawnbrokers, Jim collected diamonds, using them in his sales pitch. He would pull out a pocketful of diamonds, which his customers often suspected were phony, to show how successful he was. But while they balked, he laughed last. To establish his credibility at that point, he needed only prove the diamonds were real, which he did by engraving his name permanently in their windows—surefire publicity with a flair.

As Jim became more and more successful, his diamonds grew in size and number. So, in his usual grandiose style, he gave a few of his prized possessions away to his best customers and friendly actresses. And he had plenty left over to adorn shirts, his cane, and even a bicycle for his sultry girlfriend of 40 years, Lillian Russell, thereby earning his nickname, Diamond Jim.

Once consuming 45 ears of corn in one sitting—on top of an already heavy meal—Brady was as infamous for his eating habits as his diamond fetish. And because he routinely downed 14-course meals, with four helpings of each rich main dish, Brady received few dinner invitations! When one daring hostess asked how he knew when he was satiated, Brady stoically stated, “Whenever I sit down to a meal, I always make it a point to leave just four inches between my stummick and the edge of the table. And then, when I can feel ‘em rubbin’ together pretty hard, I know I’ve had enough!” At 56, the man who faithfully kept a five-pound box of chocolate-covered nuts and coconut creams within reach was diagnosed as having unusually large gallstones—and at 61, he was dead, from diabetes and other illnesses. Small wonder!

In the market, Diamond Jim operated on a similarly grandiose scale in keeping with his reputation. With plenty of market-savvy friends to keep him well-informed, Brady had the bucks and brawn to follow through on hot, chancy tips. Yet, as successful as he was, it was his open wallet that put him in the spotlight. Always a salesman and never a producer, Brady rarely made things happen—he simply facilitated them and he excelled at making the most of what lay before him. One of the few times Diamond Jim masterminded his own coup resulted from his inspection of a small Georgia railroad, which he noticed was surrounded by a large maturing peach orchard. He envisioned that it would soon be transporting its produce over the line. Acting quickly, he returned to Wall Street and bought $70,000 of the line’s bonds—and within five years sold out for over half a million! Ah, the luck of the Irish!

He really fell in love with Wall Street after participating in a pool formed in 1902 by John “Bet-A-Million” Gates as a syndicate against J.P. Morgan’s Louisville and Nashville Railroad. En route Brady netted $1.25 million with no effort and was hooked the way a gambler is hooked. Soon he found himself hanging out in the Waldorf-Astoria bar, buying drinks for Morgan confidante James R. Keene. When Keene drunkenly uttered, “Go long on July cotton,” Diamond Jim listened, buying 100,000 bales the next morning. After two months, he heard another operator was short cotton, so Jim cornered the desperado the same afternoon, pinched him for information, and walked away with a cool million.

On rare instances, Brady lost in the market by acting on tips too soon—he’d be in and out of a stock before a pool even made its first move! But that was the exception, not the rule, maybe because Diamond Jim was lucky. And that may be the lesson of Diamond Jim’s life. Some folks are just lucky. If you line up a few million folks and ask them all to flip coins, some lucky guy will flip a thousand heads in a row. It’s just a matter of odds and luck. Some other folks might think that person was a good flipper. But luck, both good and bad, strikes where it does, and you can’t really account for it.

It’s important when considering the histories of successful investors to remember some of them may have looked smart but were merely lucky. As these bios show, most of the flamboyant types on Wall Street end up broke. Brady didn’t. No one knows exactly how much he had when he died, but it was a plenty big boodle. And yet that is particularly rare for someone who never was much of a pioneer of theory or tactics and spent most of his time being extravagant. But in a book about minds that contributed to the market, it is wise to remember that luck makes the market, at times, as much as any idea.

Whatever it was that kept Diamond Jim in diamonds, it never carried over to his personal life. He was always the lone rogue with the one night stands—except once when he lived with a woman for 10 years and gave her over $1 million in jewels, but she too didn’t work out. She took off with his best friend. So, as lucky as Diamond Jim Brady was in the monetary sense, he was never really lucky in love. But who can tell where luck will strike? Brady would have laughed about it, rolled the dice again, and said, “Hell, ya can’t always win!”

WILLIAM H. VANDERBILT

HE PROVED HIS FATHER WRONG

William Henry Vanderbilt sighed with relief when his overbearing, multimillionaire father died in 1877—now he could really get to work. His first 43 years had been filled with disapproval from the hulking Cornelius Vanderbilt, who was sure his sickly, wimpy son would “go to the dogs.” William was told, but never convinced, “You don’t amount to a row of pins. You won’t never be able to do anything but to bring disgrace upon yourself, your family, and everybody connected with you. I have made up my mind to have nothing more to do with you.” Cornelius then banished the 21-year-old William, who was already married, to a Staten Island, New York farm to fend for himself and his fast-growing family of eight children. His father apparently thought he would never amount to more than a “dirt farmer.” Just goes to show you that having a rich and powerful father doesn’t guarantee an easy life!

After 20 years as a farmer—whether from pride, a strong will, or sheer hatred for a farmer’s life—William gradually wove his way back into his father’s life some 10 years before he died. He won his father’s favor and respect and the majority of his $100 million estate. During the remainder of William’s life, he did something that would have truly astonished his skeptical father—in just seven years, he doubled what Cornelius had earned in 30!

The young Vanderbilt first captured his father’s favor by revitalizing a bankrupt Staten Island railroad, though he knew little of railroads at the time. By helping his father build a Manhattan railroad empire during the 1860s, William became a great manager, improving track and equipment, regulating rates, and reconciling with labor. For instance, during a widespread railroad strike, he rewarded Vanderbilt workers with a $100,000 bonus for their loyalty, thus preventing a strike. But despite his achievements, William became a full-fledged executive only when his father lay on his deathbed—the skeptical old man retained control until the bitter end!

When Cornelius finally died, William seized the reins of the Vanderbilt empire, greatly expanding its railroad system by adopting some of his father’s dubious tactics, including stock manipulation and price-cutting. For example, when a competing line refused to sell out to him, he cut his line’s rates, took his competitor’s business, forced it into bankruptcy, then bought it cheaply and churned out millions in watered stock.

Another typical maneuver was organizing a dummy railroad construction firm while organizing a new railroad. This enabled Vanderbilt to have the construction firm charge the railroad three to four times the actual cost of the work. He issued millions in securities to pay for the exaggerated construction costs, keeping the excess. Building a Pennsylvania line, for example, cost only $6.5 million, but he issued $40 million in securities, taking over $30 million in pure profits! the New York Times heralded him as one of the greatest railroad men who ever lived, claiming what Vanderbilt didn’t know about railroads simply wasn’t worth knowing.

“I wouldn’t walk across the street to make a million dollars,” Vanderbilt once told the Times. He didn’t have to. Income from his holdings was over $10 million per year! One of the reasons he was able to hang on to his money was that he learned not to operate on heavy debt the way many of his peers did. This was partially due to the 1883 panic, which caused him to sell stocks bought on margin and invest in bonds. “I shall buy no more than I have the actual cash to pay for out and out.” After 1883, holdings consisted of government, state and municipal bonds, and some stocks and mortgages. By his death in 1885, Vanderbilt had some $70 million in government bonds. Yet, he still claimed faith in the American economy. “Everything will come out right. This country is very elastic . . . like a rubber ball hit, it will spring up again.”

In keeping with his father’s reputation, Vanderbilt was despised by the public for his extensive wealth and bitter attitude, a trait he obviously inherited from his father. When a reporter asked him why he was eliminating an extra-fare express line, he bluntly blurted “Railroads are not run for the benefit of the dear public”—they’re built for the stockholders’ benefit “by men who invest their money and who expect to get a fair percentage on the same.” He even admitted to not caring “a penny” for the public’s safety or convenience, unless it meant profits. You can see why the public loved him. When it came to business, William was virtually indistinguishable from his father, crying, “The public be damned . . . I am rich and full of all manner of good. I will eat, drink, and be merry!”

At home, however, Vanderbilt was quite different. He was the loving father of eight, generous to charities and had simple personal habits and an overall temperate manner. He was known as fair, frank and a good judge of character—which his father wasn’t. Toward the end of his life, Vanderbilt, aware of his failing health, resigned all railroad presidencies and ordered two sons to take his place. He wasn’t about to repeat his father’s mistake. He trusted his sons implicitly and died while discussing future railroad plans. He left $200 million equally distributed among his children.

Vanderbilt had to compete against an extremely insensitive father, but in the end, he won. He was known as a good father—and that was probably reward enough for him. Doubling his father’s estate was mere icing on the cake, maybe. Compared with his dad, William was a nice guy, but because he got things done—and wasn’t modest about his achievements—he was portrayed as just another insensitive Vanderbilt. It must have been easy for the press to do—Cornelius’ ruthless reputation was only eight years old when William died.

William Vanderbilt is one of the rare examples of the sons of tremendously successful empire builders who have been able to go on to build still further. He teaches the lesson that his personal lifestyle—that of being modest, non-extravagant, family-oriented and dedicated to business—is common to those few who have been able to surmount their fathers’ egos, empires, and control to create even more. He must have been emotionally stronger than anyone gave him credit for in his day.

JOHN W. GATES

WHAT CAN YOU SAY ABOUT A MAN NICKNAMED “BET-A-MILLION”?

In 1900, the audacious John “Bet-A-Million” Gates was Wall Street’s favorite speculator. In one instance, following a well publicized bet on a horse named Royal Flush that earned him a half-million, Gates predicted William McKinley’s election would bring a bull market. Putting his money where his mouth was, Gates bought $150,000 in options on 50,000 Union Pacific Railroad shares costing an average of $58, announcing the stock would soon cross par. “If McKinley is elected, I ought to make some money don’t you think?” he roared. Asked about his option costs, he said, “Well, it’s a bet on the election, and if I lose, I’ll charge it up to Royal Flush!” McKinley won—and within months, the bull market moved Union Pacific to $130 and netted Gates another $2.5 million windfall!

Despite his Bet-A-Million nickname, Gates was savvy. Operating quickly and on instinct, he once bet which fly would be the first to fly off a sugar cube. In reality, Gates was an ingenious industrial and market wonder! Starting as an unsatisfied-but-clever barbed-wire salesman, Gates climbed his way to the top of the industry, revolutionizing it along the way. Then, still not satisfied, he took on Wall Street, becoming a major speculative power. Yet, what makes his story so intriguing is that he held on to his bundle, in spite of his hype and whimsical ways, whereas most wheeler-dealer types invariably get their comeuppance.

Tall, with wide, blue eyes, black hair and a Cheshire grin, Gates’ entire life attested to his saying, “When you want something, make up your mind you want it and how to get it—and then go after it with a vengeance.” Whether it was a barbed-wire factory, a steel combine or smug revenge, Gates fearlessly went for what he wanted—and always got it. Born in 1855 of stern, frugal farmers from what’s now West Chicago, the teenaged Gates made his first speculative venture with a threshing machine. With the profits, he married at 19 and started a small hardware store in his hometown. But feeling confined, Gates sold his store and entered the sapling wire business at 21, becoming a salesman for Col. Isaac Ellwood, who would later feel the sting of Gates’ vengeance. A lot of these 19th century tycoon types seemed to have a penchant for starting early, and schooling rarely seems to have played a major role in their early years.

Characteristically, when Gates did something, he went all out. So, when he reached Texas to find no one buying barbed wire, he quickly adopted the outrageous methods of a smooth-talking medicine-show trickster, setting up a barbed-wire corral filled with 25 of the wildest steers he could find—smack in the middle of town! When the fencing held and the cattle settled down, Gates rounded up more orders than his boss, Ellwood, could keep up with. Feeling incredibly self-confident at having made his boss rich—and, en route, revolutionizing the Southwestern cattle industry—Gates demanded partnership. His boss flatly refused to part with any profits, so Gates immediately quit, and—knowing the money was in manufacturing—decided to set up shop in St. Louis (where he was almost sidetracked into a career as city mayor).

Despite harassing litigation by Ellwood, J.W. Gates & Co. was born. At age 25, in 1880, Gates formed the Southern Wire Co. and, two years later, formed the first modern-day consolidation. Absorbing rival companies and riding the crest of the now-booming wire business, Gates’ wire interests grew into Consolidated Steel & Wire Co. and took the lead in wire, ousting Ellwood from his former position as industry leader. Everything Gates touched turned to gold!

Next, after courting his ex-boss to his side, Gates went on a plant-buying spree, offering owners irresistible millions and playing two-handed poker while awaiting their decisions. “I’ll take it,” was the usual response, “if I can get the cash tomorrow.” After paying $7 million—in cash—for plants sight-unseen, the 40-year-old millionaire formed American Steel & Wire Co., capitalized at $24 million and underwritten by Wall Street. As quickly as American was organized and listed on the American Stock Exchange, Gates, a bull, formed a pool to manipulate its stock.

Inevitably, Gates clashed with J.P. Morgan, who denounced Gates as “a dangerous man” who could not be trusted. Yet, Morgan believed in Gates’ consolidation concept, as he was in the process of forming the first billion-dollar corporation, U.S. Steel—and Gates’ companies were key in completing its formation. So, Gates made Morgan pay through the nose for his firms—in exchange for Gates’ $60 million in American Steel stock, Morgan gave him $110 million in U.S. Steel! But Morgan got his when he refused Gates a director’s seat, saying “You have made your own reputation; we are not responsible for it.” Stricken by this blow to his pride, Gates vowed revenge on Morgan—and, as usual, he got it. Out for blood, Gates campaigned to squash Morgan’s railroad expansion in 1902 by buying control of the Louisville and Nashville line. Creating a Northern Pacific-like corner (see James J. Hill), Gates made Morgan squirm! Under pressure, Morgan sent a partner at 1:30 a.m. to see Gates, who negotiated in flowered PJs and a red robe! A keen negotiator, Gates made a take-it-or-leave-it offer of $150 per share (he had paid $100), plus a $10 million bonus! Morgan, of course had no choice.

Setting up shop in the Waldorf-Astoria hotel, Bet-A-Million played poker and bridge—and speculated in the 1901 Hill-Harriman battle for the Northern Pacific. Although he hated admitting a loss—he wasn’t used to it—Gates admitted he got kicked around a bit and had to unload batches of securities to cover his shorts. But he recovered, forming Wall Street’s largest brokerage house, Charles G. Gates & Co., commonly known as the “House of Twelve Partners.” The firm, headed by his son Charles G. Gates—who, coincidentally, was as extravagant as his father—became known as the Street’s largest speculative house by carrying as much as $125 million of stocks on margin.

The Panic of 1907 caught Gates’ firm bogged down with Tennessee Coal and Iron, a company he had planned to pawn off on Morgan’s U.S. Steel. But Gates didn’t figure on a panic! Morgan, chuckling, didn’t budge—forcing Gates to the wall, and triggering his firm’s closure, while letting Gates’ associates in the venture off the hook. This ended Gates’ career on Wall Street for good. After a long vacation in Europe, he ventured in an oil exploration company called the Texas Oil Co. (Texaco) replenishing his fortune when the oil spurted! Meanwhile, he developed Port Arthur, Texas, dominating its real estate, industries and railroad, the Kansas City Southern, claiming, “I am not interested in the stock market. I am simply following the policy of the average business man; that is to attend to my own business.”

Gates is one of the few wheeler-dealer types to end up on top. Yes, he had a boom/bust aspect to his life. He would almost have to with a name like Bet-A-Million. And yes, he was a flamboyant character right up until he took the ultimate plunge in 1911, always sporting three diamonds on each suspender buckle, but after his licking in the Panic of 1907, he husbanded his $50 million carefully and gambled only for fun.

EDWARD HARRIMAN

WALK SOFTLY AND CARRY A BIG STICK

Ed Harriman never smiled. Not that he didn’t have reason to—he died leaving a Morgan-sized, $100 million estate in 1909. He was just that type of guy. Small, skinny, stooped, and runny-nosed, Harriman was avidly antisocial and completely obscure, buried beneath Coke-bottle-lens glasses, baggy trousers, a walrus mustache, and soft hat pulled down to his eyes. Operating in the shadow of his beguiling guise, he stalked Wall Street over 40 years before creating what was at one point America’s largest railroad empire. So, while splashy self-promoters speculated their fortunes away, Harriman skulked his way to the top ever so silently.

“All the opportunity I ask is to be one amongst fifteen men in a board room,” Harriman once told Kuhn, Loeb financier Otto Kahn. Kahn knew if ever in such a situation, Harriman would be the lone soldier convincing the rest of the troops of his ideas. Harriman, particularly persuasive, thrived on challenge. Perhaps compensating for his lack of personality, he was also ferociously focused, determined, domineering and obstinate. Born in 1848 to a poor Episcopalian clergyman, Harriman began as a Wall Street office boy at 14, working his way up the ranks. One year after profiting in 1869’s Black Friday panic, he bought a $3,000 Stock Exchange seat and set out independently, forming E.H. Harriman & Co. He was always the loner and always driven.

“My capital when I began was a pencil and this,” Harriman used to say in his distinct low voice, tapping his noggin. He began speculating with accumulated commissions from clients like the Vanderbilts. (As he was just one in a crowd then, his trades were rarely recorded.) At age 28, Harriman married into a prominent N. Y. family that coincidentally dealt in railroads.

He then moved in on railroads, selling short during the collapse of the New Jersey Central and making $150,000. Within just a few years, he had mastered railroad management and manipulation, and developed his hallmark strategy.

While placing bonds for an Illinois Central acquisition, he bought Illinois stock for himself, became a director, won the confidence of its manager and began running the road from the inside, instead of from Wall Street. Completely revamping the line and nearly tripling its track mileage, Harriman knew that a line’s physical property mattered first—and current profits, second. Whereas operators like Jay Gould and Jim Fisk would skin a line for profits, then dispose of it, Harriman quickly rebuilt and extended lines, dumping millions into them, then sat back to reap the profits. Never allowing equipment to deteriorate (he inspected track himself), he always provided ample funds for contingencies, avoided financial risk during slumps and when raising capital, exceeded his immediate needs, gaining outstanding credit for his lines.

He hit the jackpot in 1895 with his notorious reorganization of the near-fizzled Union Pacific. Not even Morgan would touch the debt-ridden line, which owed 30 years of interest plus principal—yet Harriman was eager to attach it to his Illinois line. So, he set out to intimidate his only competitor, investment banking firm, Kuhn, Loeb, wielding the Illinois’ untarnished credit, which could guarantee hundreds of millions at under four percent! The two ultimately joined forces—remaining as such over 20 years—and bought the UP, paying over $45 million in cash, including interest, and issuing four-percent bonds and preferred stock. Within three years, he had dumped millions into the ramshackle road and extended UP track over 12,000 miles. The line was completely pulled out of debt and even showed profits! Harriman had accomplished what others thought impossible.

Harriman’s only competitor was Morgan-affiliated James Hill, who dreamed as vividly as Harriman, but not as slyly! The two inevitably clashed over the Chicago, Burlington and Quincy system, as it brought both Harriman’s UP and Hill’s Northern Pacific closer to becoming transcontinentals. When Hill somehow obtained the line from right under Harriman’s nose, and then refused Harriman’s advances to monopolize, Harriman saw red. But he didn’t get mad, he got even—if he couldn’t have the Burlington, he was going to take Hill’s Northern Pacific!

Ever so quietly, Harriman—via Kuhn, Loeb—began buying the $90 million of Northern Pacific stock needed to acquire control, but before he could finish, Hill woke up and started to do the same. Following a few days of frenzied buying, both parties claimed victory on the same day—but by then, the stock was cornered, prices propelled to $1,000 per share, and panic wafted through the air! It was either truce or panic, so the two conceded, forming a $400 million joint holding company called Northern Securities Co. Through the holding company, the unyielding Harriman had gained access to Hill’s lines in the end.

Harriman also understood the era’s power of consolidation and monopoly. In 1900, he bought nearly 50 percent of the Southern Pacific system by creating a $100 million mortgage on the UP and selling $40 million in 4 percent convertible bonds. Next, Morgan-like, he pooled his new acquisition with the UP, cutting costs in half and decreasing competition and staff. By 1907, Harriman controlled—either directly or indirectly—10 major railroads, five navigation firms, substantial interests in coal, real estate and oil and several street railway systems. Two years later, he died. Some say he worked himself to death.

The “little giant” of Wall Street was no slouch. He constantly sought new challenges, and just as often succeeded. Even in leisure, he loved jumping steep hurdles on horseback. Yet, he was a real family man, who loved spending the day with his wife and five kids and never compromised his family or moral position. The odd thing was that he never wielded more of a tycoon’s image, though it was his modesty (or was that simply his camouflage?) that boosted his fortune—and kept it! Even today, modesty pays. If you look at the Forbes 400, you’ll find quite a few people who have built a lot more than Donald Trump—Harriman’s lesson is that they’re more apt to keep it.

While Harriman’s significance and power were hardly questioned by the bigwigs of his day, he didn’t have the bigger-than-life image his success deserved—that is until his son, William Averell Harriman, followed in his father’s footsteps. William became Union Pacific’s powerful chairman and did his father justice. His son’s success, rather than any fortune Harriman incurred during his lifetime, must be considered his greatest tribute.

Harriman’s success stemmed from a strong-willed soul. He had a serious sense of purpose and was flexible enough to deal with any problem, even if it meant compromising. Like Jay Gould, who would bend with the market when the market bent against him, Harriman took what he received, thoroughly convinced he could do the best with it. Unlike many who feel it’s either all or nothing, Harriman could improvise. And he was confident in his ability to handle hostile men. Absolutely nothing—or no one—could interfere with his success. All this and honor, too—that’s quite a feat in the days when Gould’s cut-throat tactics reigned on Wall Street.

The Wall Street Journal once explained, “When the Harriman mind is made up, that settles it. Panics may follow, boards of directors may be disrupted, officers may resign, financial powers at large may band against him, law may deny him, the money forces of the world may say him nay—but nothing matters. Isolated, regardless, persistent, defiant and courageous, he goes upon his way, caring neither for method, law nor man, so it may be that at the end he wins the prize at which he aims!”

JAMES J. HILL

WHEN OPPORTUNITY KNOCKS

You never know when opportunity might knock. One evening in 1856, for instance, a weary traveler stopping at the Hill farm in Ontario, Canada was delighted to see young James Hill, the son of Irish emigrants, willingly fetch a bucket of water for his thirsty horse. In return for his thoughtfulness, Hill was tossed an American newspaper and told, “Go there, young man. That country needs young citizens of your spirit!” Soon after, Hill left for the U.S. Northwest with itchy palms, always operating on the premise that “the man with the big opportunity today is the man in the ranks.”

Assertive and astute, Hill found plenty of opportunity there—and when he didn’t find it, he created it. During his life, he built railroad systems traversing the Northwest, developing traffic for his lines as the tracks were laid! Whether it was distributing bulls for farmers to breed or developing more cost-efficient ways to grow wheat, Hill—with an eye for detail—could always be found behind the scenes boosting development. In a 20-year period, he turned wilderness into farmland, developed towns and industries and tapped virgin markets, guaranteeing his lines’ prosperity. From poor Canadian emigrant to millionaire “Empire Builder,” Hill worked with farmers, lumbermen, traders—even Wall Street’s most powerful J.P. Morgan—to open up the Northwest for the first time.

An eager immigrant, Hill settled in St. Paul, Minnesota working in shipping. Ever the big thinker and operator, he married and started what would eventually become a family of 10. His first capitalist endeavor was to start a shipping company. Then he used that as a base to buy the St. Paul and Pacific railroad in 1873, which really got his career on track.

By 1879 his railroad venture was a profitable system integrating several smaller lines and capturing the Canadian railroad market. By 1889 he had become a big time operator by transforming his little St. Paul system into the Great Northern Railway Company. Sightless in his right eye, Hill worked feverishly, building and equipping a mile of track per working day at $15,000 a mile, insisting that operating costs be the lowest of all regional roads. In his early years, he was purely a railroad operator, not a stock market operator.

When Jay Gould, for instance, offered to capitalize Hill’s system at double the cost, an indignant Hill replied, “We should build our railroad through and capitalize it for exactly what it costs; not a dollar more nor a dollar less . . . I will not join with you in a real estate speculation, for a real estate speculation is not a railroad.” Indeed, the furthest thought from Hill’s mind was speculation—initially.

Some say the Hill lines were also noted for corruption—as Northwestern state legislatures and press basked in bribery money, expansion came easy. Gustavus Myers, in his 1907 book, The History of Great American Fortunes, notes that while it was probable that Hill was corrupt, nothing ever stuck—no one ever got the goods on him! So, Hill might have been a crook—but at least he was a discreet one! Discretion was key to anyone winning the support of the venerable Morgan.

But ultimately, to be real big in late 19th-century railroads you learned that all tracks lead to Wall Street. To build a truly big system you would have to acquire lines to access areas otherwise unattainable. For Hill, the “Prince of the Great Northern,” the first bite was his former competitor, the Northern Pacific. He bought it cheaply after it failed in the 1893 panic. Moving closer to a transcontinental line, his next bite was to acquire 97 percent of the strategic Chicago, Burlington and Quincy line. This is where the picture gets more complicated because J.P. Morgan enters the picture by arranging a $215-million bond issue to finance the acquisition.

This enraged Ed Harriman. Not only had he, too, been coveting the Burlington for his own system, but seeing Hill suddenly backed by Morgan created a much more powerful foe than Hill had previously seemed on his own. Hill and Morgan together were the classic cross of Wall Street and Main Street—the ying and yang of capitalism. Harriman was ticked, and most likely afraid. So Harriman vowed revenge—and since his coveted Burlington was unavailable, he decided to go for the jugular—Hill’s Northern Pacific!

Harriman, backed by Kuhn, Loeb Co., quietly bought up Northern Pacific stock until Hill noticed the sudden, sharp rise in price. Afraid his just-less-than-half interest in the line might not be enough for control in this instance, Hill hastened to buy needed shares to guarantee ownership, while Harriman did the same. Within the next few days, the stock was cornered and zoomed from under $100 to $1,000—one of the classic corners of all time! Panic ensued, culminating in Blue Thursday, May 9, 1901. As stocks tumbled, Hill—facing a ruined market—came to realize that compromise was in everyone’s best interests. Harriman, who always saw himself as able to persuade any board to his view, agreed to let Hill have the presidency and control of a new holding company, which included the Northern Pacific, in exchange for granting Harriman a seat on the board, ending the battle in a win-win draw.

When he died in 1916 at age 77, Hill left a $53 million estate and a family of railroaders: One son took the Great Northern’s presidency and another its vice-presidency. His third became overseer of Hill’s iron-ore properties, but none ever achieved his father’s fame. In the end, the rust streaks that he first bet on 30 years earlier were earning over $66 million per year and carried over 15 million tons annually!

The interesting role of Hill is as a legendary railroad operator who ultimately had to go to Wall Street to hold his own. You can be a small operator in business and ignore Wall Street, but the bigger your Main Street ambitions, the sooner and more certain will be your interaction with Wall Street. Hill’s fame in Wall Street history and his main role in the evolution of the markets is his participation leading to the classic Great Northern corner. The notion of a corner is basic to human greed. Ironically, it was just this kind of monopolistic big corporate merger that created the impetus behind the anti-trust laws that followed soon after the turn of the century. Corners are rare in the modern world, but not nonexistent. In an era of big pools of institutional money that can move with lightning speed, corners may become more likely now. After all, in a global financial market no local laws can possibly govern the entirety of the world market. Without folks like Hill who participated in corners, the evolution of securities laws and the Main Street businesses Wall Street represents would look very different than they do today.

JAMES R. KEENE

NOT GOOD ENOUGH FOR GOULD, BUT TOO KEEN FOR ANYONE ELSE

He’s been depicted as a wild and sleazy gambler, America’s ablest pool operator and a great financier, but James Keene never saw his Wall Street career in black and white. The great market manipulator, who made possible some of the Street’s greatest industrial coups, explained it this way: “Without speculation, call it gambling if you wish, initiative and enterprise would cease, business decay, values decline, and the country would go back twenty years in less than one.” The way Keene saw it, he did the growing, turn-of-the-century American economy a favor by doing what he did best—simply buying and selling securities.

The way the “Silver Fox of Wall Street” operated, trading securities was anything but simple—it was an art form. Sure, the old adage advises—he bought cheap and sold dear—but it was never a matter of market timing—for he was the one who timed the market and indeed, made the market! He knew how to get action. For instance, Keene was able to do wonders with the Southern Pacific, a newly reorganized railroad that still had a droopy stock price, fed-up stockholders and no new investors. It was a classic case for the quick, sure, and bold manipulator. When no one else would touch the stock, he took it upon himself to drive up the stock price—and, of course, earn a pretty profit.

He started buying Southern Pacific stock in his characteristic sly and secretive way, making sure to sell some of the stock he’d just bought to keep the price down. Then—when he finished buying stock cheaply—he began buying recklessly, attaching his infamous name to the line. Keene’s interest in the stock alone drove its price up some 20 points and prompted the weary investors to sell out, eager to accept a tiny, but certain profit. Meanwhile, Southern Pacific became a hot issue and other suckers gladly snatched up shares at any price! The new stock price secured and railroad management happy, Keene sold out quietly, taking a tidy bundle with him.

Born in England in 1838, the “Silver Fox” came to California at age 12 with his father. Sharp and perceptive, he made his living as a farmer, law student, cowboy, government mule-puncher, school teacher and San Francisco newspaper editor before making his first big bundle—$10,000—while mining silver in Nevada. Soon afterwards, he turned his modest kitty into $150,000 via the San Francisco Mining Exchange, at first acting as broker for other speculators, then forming his own deals. For a decade, Keene initiated bull and bear raids against stocks, made himself a name as a sagacious speculator, went bust a few times and always recouped his losses—gaining even more than he had in the first place.

The tall and slender Keene took his fortune to New York in 1876 with the intent of boating to Europe for a vacation. But the vacation never happened—Wall Street did. He arrived during a depressed market and was able to amass some $10 million speculating. He then teamed with the unscrupulous Jay Gould in a pool formed to bear Western Union stock. Once loaded up on the stock, however, Keene realized Gould had sold out his own position, taken his profits and left Keene holding the bag. This happened time and time again, until finally Keene was left with less than half his fortune—and then he vindictively roared, “I have . . . $6,000,000. I guess I will stay right here and get that man’s scalp!”

No matter how many times he tried, Keene never did get his foe’s scalp. Gould continued to outmaneuver his “partner” during a few more deals, then ducked out of the market by the early 1890s, taking millions of Keene’s former winnings. Gould, one of the best operators ever, was just too good for Keene. C’est la vie, Keene might have said, for he believed “all life is a gamble, whether in Wall Street or not.” One of their most famous bouts was an attempt to corner the wheat market—and predictably, just as they were about to close in on the corner, Gould sold short, prices plummeted and Keene lost $7 million in a few days. Bust once again, Keene auctioned his valuables, including a painting that ironically wound up on Gould’s wall—Gould re-named it, “Jim Keene’s Scalp!”

Gould was to be Keene’s one and only serious match—ever. No one ever got in his way again. Though he claimed he expected to be successful in only 51 percent of his endeavors, Keene cleaned up on practically every deal he made for himself and every job he was hired to do. He manipulated the stocks of sugar, railroad, tobacco and whiskey companies, to name a few. He also helped bring on the mini-panic of 1901, when J.P. Morgan hired him to buy 150,000 shares of Northern Pacific Railroad stock in one of the greatest railroad wars of all time. (See E.H. Harriman and James Hill for further details.)

By far Keene’s most famous and most important job ever was creating a market for the first billion-dollar corporation, U.S. Steel. Again working for Morgan, he manipulated the stock so much that it became the center of a bull market. He repeatedly sold 1,000 shares, then bought back 100 to support the stock, driving its price up so as to attract speculators and small-time investors, alike. When asked why he took the job, which paid him about $1 million on top of his own already-secured fortune, Keene said, “Why does a dog chase his thousandth rabbit?”

With dignified eyes, a grave brow and nerves of steel, Keene died in 1913 leaving some $20 million. A widower, Keene was a loner, lived in the Waldorf Hotel and had no friends in which he could confide. His four favorite things in life were said to be his son Foxhall, who was a great daredevil auto racer and polo player; a great race horse, like the one he named his son after; a stock ticker; and the traditional mixture of black coffee and brandy that comprised his breakfast.

“Keene played ‘em fast and furious, with the blue sky for a limit,” Wall Streeter Thomas Lawson once said of Keene. “It was a greater pleasure to lose to him than to win from a bungler.”

Used by everyone from Morgan to Gould, Keene was the classic 19th-century operator. Is there a lesson to Keene’s life? Not really. Is his among the minds that made the market? Absolutely. On his own, he was as able as all but a few on Wall Street, and as a sidekick or operative, he was there in many of the big, hallmark battles of the market’s formative years. Living old, dying rich, drinking more than he should without its getting to him, starting as a poor immigrant with a series of rough jobs, evolying out of the mining camps, this was a man who led a rough and tumble life in a rough and tumble time. He made himself as he participated in the making of the market. He was a man who correctly knew, as few do today, that the life of an investor, whether a speculator or a long-term holder, adds value to society and that by helping to make a market, he was helping the world. At a time when Wall Street is again increasingly coming under fire in the wake of the 1980’s insider trading scandals, it would be wise for the world to see life from Keene’s vantage point and recognize the value society receives from speculators and their speculation.

HENRY H. ROGERS

WALL STREET’S BLUEBEARD: “HOIST THE JOLLY ROGER!”

Back at the turn of the century, Wall Street’s version of Bluebeard was the dapper, dashing and debonair Henry Rogers, who found his buried treasure in the stock market. Profane and arrogant, the swashbuckler fit the part to a tee, swindling unsuspecting people and seizing properties for the unrelenting oil trust, Standard Oil. Rogers was shrewd, fiercely determined, bad-tempered, and utterly ruthless; he had the makings of a successful pirate. Former Standard crony Thomas Lawson once said of Rogers, “He is considerate, kindly, generous, helpful . . . but when he goes aboard his private brig and hoists Jolly Roger, God help you. He is a relentless, ravenous creature, as pitiless as a shark!”

They called him “Hell-Hound Rogers,” and like every good pirate, he loved to gamble. “I am a gambler. Every now and then John W. Gates will come to me and say, ‘Henry, don’t you think it’s time we had a little fun in the market?’ We made lots of killings and had plenty of fun,” the buccaneer roared. “I must have action. And on Saturday afternoons when the market is closed I’ve got to have a poker game!” When Rogers wasn’t tending to Standard Oil (he helped run the firm after its founder retired), he could usually be found with John Rockefeller’s brother, William, scheming their next market coup (John Rockefeller despised stock gambling). Using their fat Standard Oil stock dividend checks and backing from James Stillman’s National City Bank, the two made the notorious “Standard Oil Crowd” a feared faction on Wall Street between 1897 and 1907.

Actually, the relationship between John Rockefeller and Rogers has interesting implications. While Rockefeller wasn’t interested in tarnishing himself with Wall Street shenanigans, instead of turning his back on them, he used the pirate to get them done. Rogers was simply the black side of Rockefeller, and lived on after him. In today’s world, we would see Rockefeller’s hands as just as dirty for his agents’ acts as if they were his own. But it made Rockefeller feel better that he wasn’t the one Wall Streeting.

One of the Standard Oil Crowd’s most famous maneuvers was creating Amalgamated Copper Company, a Standard Oil-like consolidation of midwestern copper mines. Rogers, who engineered the deal, arranged to buy several mines for $39 million. Then he and Rockefeller took title to the mines before forking over the $39-million National City Bank check, which they stipulated had to be deposited in National City. Meanwhile, Rogers organized the company, using Standard clerks as dummy directors, and transferred the mines to Amalgamated for $75 million in return for all of its capital stock! He then took the $75 million to National City, borrowed $39 million on it to cover his check, and sold the $75 million in stock to the public. With the proceeds, he paid off the bank loan and reaped $36 million in profits. Later, when the stock fell to 33, the group bought it back and resold it at 100! There hoists the Jolly Roger.

Rogers happened upon Standard Oil at the age of 34 while managing a Brooklyn, New York oil refinery taken over by John Rockefeller in his quest to form Standard Oil in 1874. Previously, Rogers had built a small refinery in Pennsylvania and worked in railroads.

The Fairhaven, Massachusetts native made his first killing at 14 as a newspaper boy. Early one morning when he first received his papers, quick-thinking Rogers noticed an article on the sinking of a vessel loaded with sperm oil bound for a local oil dealer. Instead of delivering his fifty cents’ worth of papers to the community, he hurried to the oil dealer, showed him the article, then sold him the papers for $200! The dealer wasn’t actually buying newspapers, Rogers reasoned, he was buying time that enabled him to corner the region’s sperm oil before the news got out! In that transaction Rogers was evidencing Pirate traits. Fast on his feet, willing to double-cross and display disloyalty to his employer and his subscriber base, he was creative enough to see how to profit from others’ misfortunes.

The great muckraking queen Ida Tarbell, who aimed her pen at Standard Oil, actually liked Rogers—or at least his no-nonsense, blunt attitude. He was a pirate, she said, but no hypocrite—he flew his black flag and made no bones about it! But on the flip side, Rogers was charitable. He helped out Helen Keller, Booker T. Washington, and even Mark Twain (when his finances hit rock bottom). Though Rogers didn’t give Twain cash, he gave him his time and financial expertise to nurse Twain back to solvency.

Like his headquarters—a suite of interconnecting rooms allowing visitors to enter and exit without ever noticing one another—Rogers’ investment portfolio was complex. He invested in gas companies, railroads and, believe it or not, tacks—and formed a $65 million smelting trust in 1899. He schemed and swashbuckled to the very end.

Just a few years before he died in 1909, Rogers was busy building and financing the Virginia Railroad for some $40 million—solely with his own resources and credit. Some say the stress of the project killed him, but this wasn’t likely. If his zany stock market maneuvers and horrendous public scorn didn’t kill him, it’s doubtful a railroad could. Besides, by then he was already a semi-accomplished railroad man. He helped fund Edward Harriman in reorganizing the Union Pacific, served on other lines’ boards of directors and was a Staten Island, transportation magnate, controlling its lines and ferries. Rogers was also a U.S. Steel director and founder of his hometown-based Atlas Tack Company, the world’s largest tack company at a time when mass-produced tacks were a relatively new and hot product. He had his fingers in as many treasure chests as he could dig up!

Despite his sprawling fingers in personal investments, Rogers stuck to his roots at home, once he found them. Married at 52, he was widowed and remarried within two years. He had three daughters and one son, Henry H. Rogers II. A pirate in business, his personal life knew no scandal. And so, once more we see that success continues for those who place business before personal luxury. No ego-driven wild cavorter, Rogers was wild in business simply because he loved the game. Pirating came first. But when his second wife died, Rogers came unglued. The fact that his son found success in managing the tack firm and several railroads didn’t seem to comfort him. “Everything is going away from me,” he cried. “I am being left alone.” The pirate in him was sadly gone.

A pirate can succeed on Wall Street. Perhaps today that is moderated by securities regulations, but Drexel Burnham’s recent Junk Bond empire shows pirating is still possible. In recent years you could see pirating in the penny stock market in Denver or among the bond daddies in Arkansas—and venture capitalists are often pirates disguised as creators. All these folks owe their spiritual foundation to Rogers. And all Rogers would say to them, if he could see them from his grave is, “If it isn’t profitable, it isn’t fun and if there isn’t anything in it for me, then to hell with you.” Hoist the Jolly Roger!

FISHER BROTHERS

MOTORTOWN MOGULS

To quit while you’re ahead may not be fashionable—but it sure is profitable and smart. Take the Fisher Brothers of Detroit, for example. Well remembered in Detroit for their world-renowned innovations in car bodies, the hulking Fisher Building built in 1929, their part in local society and their many lavish gifts to Detroit charities, the Fisher Brothers had once been major Wall Street players. Their mere presence in New York bolstered confidence in the stock market so much that when they threw their support behind a stock, much of the public followed suit. But once the Fishers withdrew from the game immediately following the 1929 Crash—taking with them a hefty remainder of their generous fortune—Wall Street and the national media completely forgot about the Fishers, allowing them to live out their lives tucked away in palatial Detroit mansions. Ironically, if they had continued to fight on in the Crash and ensuing Great Depression and lost their fortune as so many others did, they almost certainly would have guaranteed their place in the media for the next decade. They also would have been broke.

The Fishers illustrate the lesson that it’s smart to quit while ahead, yet at the same time, they dispute another equally important lesson: Stick to your knitting. Jay Cooke, for example, went from bonds to railroads, but in making the transition, he lost his shirt. The Fishers went from manufacturing automobile bodies—“Body by Fisher”—to dealing in the stock market, yet remarkably, they not only kept their shirts, they wound up with a big closet full of them.

The eldest brother, Fred, was responsible for the brothers’ initial climb to success. Born in 1878 in Sandusky, Ohio, the grandson of a German wagon builder, Fred quit Catholic school at age 14 to master his father’s blacksmithing and carriage-building business. By 1902, he was ready for Detroit, the home of an infant auto industry, where his carriage-making skills were readily marketable. While rising through the ranks of a prominent carriage factory, which then doubled as the largest auto body manufacturer, Fred watched his brothers follow his footsteps and join him in Detroit as each came of age. In 1908, with an uncle and second eldest brother Charles, Fred ventured on his own to form Fisher Body Company, capitalized at $50,000.

Fisher Body designed sturdy, shock-resistant bodies specifically for autos, rather than modifying carriages to meet the new needs of an automobile. In 1910, they revolutionized the industry further by creating “closed” car bodies encased in glass. Drivers, who wore goggles to keep the dust from their eyes, thought anyone was crazy to ride in a glass-enclosed box, but the idea swept the nation. Fisher Closed Body was formed after Cadillac ordered a whopping 150 closed bodies—the first and largest order of its kind. By 1916, after having expanded into Canada, the Fishers merged their three firms into Fisher Body Corporation, a holding and operating firm capitalized at $6 million. The firm had a total annual capacity of 370,000 bodies and was the largest of its kind in America.

Tall and heavy-boned, the Fishers were literally giants in the auto industry, so naturally they attracted the attention of General Motor’s overzealous William Crapo Durant. In 1919, GM acquired 60 percent of Fisher Body at a cost of some $27 million. The Fishers agreed to increase their 200,000 shares of common stock to 500,000 and sell the new issue to GM at $92 per share, and GM agreed to buy the majority of its bodies from Fisher Body at a price of cost-plus-17.6 percent. Seven years later, the Fishers sold their remaining 40 percent interest to GM in exchange for its stock, which then had a market value of $130 million.

Fisher Body quickly proved GM’s most profitable acquisition. Following World War I, the firm constructed the world’s largest auto body factory in Cleveland and until 1929, built and acquired some 20 factories nation wide. It made $23 million in 1923 on a volume of 417,000 bodies. By 1925, it was earning 18.9 percent on its assets. Some speculate GM wouldn’t be what it is today without the Fisher acquisition—that in itself is quite an achievement in any book! But that’s Main Street, not Wall Street.

Meanwhile, they had retained control of their firm and various GM subsidiaries. Fred was a GM vice president and general manager; William headed Fisher Body; and Lawrence headed Cadillac. Since selling out and amassing a fortune estimated at between $200 and $500 million, the Fishers had ached for something more. So, they set up Fisher and Company, their own personal investment firm, when Fred got a “hot tip” from a shrewd operator. The guy was looking for a mark to sell his stock to and after all, seven rough hewn and rich “mechanics” from Ohio must have been the best looking target in the world back then!

“Buy Baldwin Locomotive” was the tip, and being new to the stock market, the Fishers thought it looked as good as anything else. So they bought and, when it didn’t go up as promised, they bought some more, and it still sagged! Eventually, the Fishers discovered they’d been buying Baldwin stock from the very source who tipped them—and the tipster, representing a pool and counting on the Fishers’ ignorance, had unloaded all of their Baldwin stock on their victims and even shorted his position! The smug operator figured when the Fishers found out, they’d panic and unload their supply, which by then was so large that their selling would cause the stock to plummet, allowing the pool to cover its shorts for a song. But that’s not what happened—the Fishers weren’t just Motortown moguls.

The Fishers aggressively bought more Baldwin than ever, and gradually it started climbing. Wall Street was frantic over their bold move, but eventually others, like Arthur Cutten, also a newcomer on the Street, followed. The more they bought, the higher the stock zoomed—and it zoomed from $92 in 1926 to $233 in 1927. When it broke 15 points—because of Baldwin’s president’s claim that the stock wasn’t worth $130—the Fishers kept their cool (they could afford to, really) and hired an engineer who “discovered” the stock was actually worth $350 per share! The Fishers kept buying and prompted the public’s buying again, too, and the stock hit a new high of $265. Those who sold short lost millions.

After their wild introduction to Wall Street, the Fishers won coup after coup and became Wall Street’s underdogs. They bought Texas Corp. at 50, and it went to 74; Richfield Oil at 25, and it went to 56. Everything they touched turned to gold, it seemed. They played for high stakes and paid what they had for a stock they wanted—and in this way, they helped bolster the climbing prices of the bull market. They flirted with Wall Street’s biggest names, operated in pools with William Durant, and socialized with House of Morgan partners—they were taken in by Wall Street’s finest as if they’d always been around.

But the Crash changed all that. In no time, the Fishers’ paper profits were wiped out, but their original $100 million-plus fortune was still intact—more than enough on which to live like kings in Detroit. So they sold out, and, with their fortune, they quietly retreated to Detroit to become local legends. They lived charitable lives: They gave the Fisher branch to the YMCA, provided money to start the Sarah Fisher Infant’s Home and built an annex for the care of foundling children. They lived cultured lives: Charles was a notorious arts patron; the youngest brother Howard became a yachtsman popular in the Great Lakes yachting circles; and Fred built a 236-foot yacht. They lived respectable lives: They built the Fisher Building, and Charles became a director of the National Bank of Detroit and a lay trustee of the University of Notre Dame. And they lived simple lives—each of the seven brothers had his night to visit their elderly mother every night of the week.

The Fishers dropped from sight, except for sporadic news bits—like resignations from their GM posts and obituaries—beginning with Fred in 1941. And they probably liked it that way, since they were notoriously press-shy. But none of the articles written about them following their Wall Street departure makes any serious mention of their Detroit lives. Wall Street, ever self-centered, was as biased as ever and failed to recognize that the Fishers, while leaving the Street behind, had quit while they were ahead and that that was as much an achievement as doubling your wealth in the market—or going down with your ship.

The Fishers turned their backs on the flash and glamour of the Street, the ego, the adrenaline, and the roll of the dice. They had accomplished what they had set out to accomplish and more. When the game got tough, they recognized it and quit. There are an awful lot of others you can see in these pages, and for that matter through modern history, who would have done well to learn this lesson from the Fishers—especially in the modern era when so many money-hungry Wall Streeters are getting caught in their own traps. Just look at the Hunt Brothers, Ivan Boesky, Mike Milken and most recently, Donald Trump. . . . (Note: The Fisher brothers are no relation to the author).

JOHN J. RASKOB

PIONEER OF CONSUMER FINANCE

When John Raskob started buying stock in an infant General Motors, he did so with the simple intent of finding a safe outlet for his modest savings—but he got more than he bargained for. A savvy numbers man for E.I. duPont de Nemours and Company, Raskob, described in Henry Clews’ Twenty-eight Years in Wall Street, became a GM vice president, director, and chairman of its finance committee. En route, “the man who has been called the financial genius of GM,” according to the New York Times, helped build GM into one of America’s greatest industrial concerns.

Raskob’s 30-year GM career began suddenly in 1915 when he and his boss, Pierre duPont, were found to hold a block of shares that were vital to a battle for control between GM founder William Durant and GM’s bank syndicate-financiers. Instead of simply voting, Raskob took control of the situation, proposing: “Why not allow each group to nominate seven directors for the stockholders they represent and duPont to name three, making a board of seventeen directors?” His proposal was accepted, and he became a GM director, and his boss, chairman of the board.

Straightforward, great with numbers, and Wall Street-smart, Raskob used his newfound power to expand GM, launching a major expansion program immediately after World War I. To finance the plan, he funneled some $50 million of duPont money into the firm and sold large blocks of GM stock to J.P. Morgan. While Durant wished GM to be entirely independent of bankers, Raskob knew a corporation was nothing without Wall Street connections.

In order to make an automobile revolution possible, Raskob revamped the car-payment system to accommodate the customer. In 1919, he popularized one of today’s most common financing methods—the installment plan—for cars, forming the General Motors Acceptance Corporation, which allowed in-house credit for dealers and customers. The installment plan had previously been used for small-ticket items, but Raskob was the first to propose it for big-ticket items. At first, he met with opposition.

Raskob said his installment plan “was opposed by bankers, who saw in it only an incentive for extravagance. It was opposed by manufacturers because they thought people would buy automobiles instead of their products.” Ultimately, the plan won everyone’s favor. The popularization of installment sales as a mechanism for the purchase of expensive items singularly justifies Raskob’s place in the history of American finance. The phenomenon would soon be applied to capital goods of all kinds—tractors, tools, appliances, and all of the big-ticket, almost infrastructure-like items that brought power to America’s middle class in the 20th century. It is difficult to envision life today without consumer financing by big industrial producers. Raskob was the pioneer.

Optimistic and genial, Raskob also turned GM’s finance department upside down as its finance chairman for eight years. He pushed for plump and prompt dividend payments, believing this would increase the value of the stock. Of course, he wasn’t the first to see the importance of dividends. What made him different, however, was that he saw stockholders as potential customers, which they were. Any stockholder would be likely to believe in GM and buy its products.

He pushed just as hard to increase the number of stockholders. Of course, this had another effect. Companies had previously viewed public shareholders as a necessary evil, part of the after-burden of raising capital in a public stock sale. Many companies still do. But Raskob’s other vision of them, as a constituency of value, pioneered their value for other firms. While few firms today value their shareholders for the potential to sell them products, many firms do value their shareholders and cater to their interests—a direct follow-through from Raskob’s vision. During his term as chairman, he realized all his goals: multiplying the number of GM’s stockholders by 14, its annual earnings by 18 and its sales ten-fold.

Raskob also got a little carried away with his overall finance-based consumerism. In a 1929 article he wrote for Ladies Home Journal, he suggested that people could have riveting results, similar to those he had achieved, by setting aside a mere $15 per month, then investing it in common stocks and reinvesting the dividends. This simple method, he professed, could make everyone rich, producing $80,000 within 20 years. When the Crash came, however, Raskob abandoned his plan, which had featured him as the peoples’ financial advisor.

A small, compact man with a hard, sharp face, intense eyes, receding hairline, and an aquiline nose, he looked a little like Robert Duvall. Born in 1879, Raskob was the son and grandson of Alsatian cigar makers in Lockport, New York. While Raskob was a teenager, his father died, and he quit high school to support his mother and brother. Starting as a secretary, he began his 44-year career with duPont at 21. At age 27, in 1906, Raskob married. He and his wife had 13 children. That’s a lot of children and an unlucky number: He and his wife later separated.

By the 1920s, Raskob had gained a giant reputation—so that any positive statement he made regarding GM caused the stock to jump which was great for duPont. Raskob had pushed duPont’s investment to between 40 percent and 50 percent of GM’s outstanding shares. When the Crash came, duPont and Raskob offset their modest losses by using the “wash sale” method, then favored by so many Wall Street bigwigs, like Charles Mitchell. Raskob sold $ 14 million of his securities to duPont, while at the same time buying $14 million of duPont’s securities. Both were able to establish paper losses of about $3 million on their income tax returns and within two months both regained their securities via another two-way sale which reversed the initial transactions. Today this would be illegal.

A fierce speculator, Raskob—again, like most of his colleagues at the time—participated in stock pools to make quick profits. The most famous pool he participated in earned him about $300,000 in a week—with an initial investment of $ 1 million. The pool, managed by Mike Meehan, operated in one of the market’s hottest issues, RCA, and bought and sold nearly 1.5 million shares with a total cash turnover of over $140 million! But in none of this part of his life was Raskob an innovator or important to the evolution of finance.

Raskob left GM as its chairman in 1928 to pursue politics with the Democratic Party. Why anyone would leave a successful business career that did much for the public in the commercial world in exchange for a life in politics is beyond comprehension. But he did. Public service, he said, allowed successful businessmen like him to pay his debt back to society. This author is baffled at the notion that successful businessmen have a debt to society. I thought criminals have debts to society, and politicians seem a lot more like criminals to me than business people. But in the topsy-turvy world of the 1920s, that may have been less clear to Raskob. Yet, perhaps, he learned the lesson. A decade later, he left politics and fell back on speculation and other investments and increasingly dropped from the public spotlight. He died of a heart attack at 71 in 1950. But his consumer financing lives on long after his death—the ultimate junction of Wall Street and Main Street—financing the purchases of items most folks couldn’t afford to finance for themselves, so more items are in more hands. Raskob owed no debt to society. It was quite the other way around.

ARTHUR W. CUTTEN

BULLY THE PRICE, THEN CUT’N RUN

One of America’s greatest speculators bullied markets with his buying, first in Chicago’s grain market and later on Wall Street. This is a tactic that many have used before and since, but none have done it better. Today, operators have to disguise this tactic or go to jail. Arthur Cutten was the last of the big market manipulators.

Cutten frequently cornered his securities, borrowing heavily to play, then using his huge speculative profits to pay his debts. Whereas many operators borrow money, win a few rounds, then borrow more against their profits, Cutten always returned to a debt-free condition after a stock or commodity maneuver. This allowed him to fight off the 1929 Crash and Depression while smaller speculators were swatted like flies. Henry Clews’, Twenty-eight Years in Wall Street asserts that, despite his incredible skill, his love for making money and his fortune estimated between $50 and $100 million when he died in 1936, the fragile, childless little man once remarked, “If I had a son I would keep him far away from the market. I would not let him touch it with a ten-foot pole, because there are so many wrecks down there!”

Another reason Canadian-born Cutten is of interest is that he is one of the few wild speculators of all time that never wound up a market wreck. Sure, he had a few losses early in his career, but he always about-faced—a rare trait—and profited later on. Arriving in Chicago at age 20 in 1890 with a bicycle and $60, Cutten worked on the Board of Trade. At 26, he traded corn for A.S. White & Co., scalping for himself on the side. When he had saved enough to trade on his own, Cutten delved into grain, faithfully following the fundamentals—weather, insects, transportation and statistics—elements he considered key to his market position. In just 10 years, the 37-year-old was married, a millionaire and internationally known in world grain markets.

Known for his tenacity and speculative acumen, Cutten turned a $4 million loss into a $15 million profit in his greatest grain coup. Buying wheat at $1 per bushel—while slowly and systematically concealing his purchases—he bulled wheat to over $2, accumulating millions of bushels. But while he was sunning in Miami—as wheat continued to rise—all hell broke loose! A bear raid, reputedly brought on by Jesse Livermore, who had been shadowing Cutten’s moves, caused wheat to slide 16 cents in a few hours! Though Cutten was out some $4 million, he didn’t abandon his position. Instead, he held on and increased his position, pushing it back up as the panic subsided, en route netting a $15 million profit! That year, he forked over $500,000 in income taxes, the most ever paid in Chicago at that time.

Operating from a small Chicago office, where his name was conspicuously omitted from his door, Cutten ventured to Wall Street in 1926 with $25 million in profits. (It was rumored government reporting requirements drove Cutten from grain.) Once hailed as “the leader of the largest and most influential group operating in the market today,” Cutten sometimes worked in cahoots with William Crapo Durant’s bull pools and formed syndicates of his own, but his personal speculations were far more interesting. Virtually unknown for a year, he used his time to become an insider and heavy holder of leading stocks.

He bought his favorites—International Harvester, RCA, Baldwin Locomotive and Standard Oil of Indiana—taking profits on 10-15 point swings, but more often Cutten held his stocks for long-term investment. When his 100,000 shares of Montgomery Ward, for instance, hit a whopping 624, Cutten held tight, even though he had paid between 80 and 100! He saw greater value there.

Later, when Cutten, a sharp dresser, sold his “Story of a Speculator” to Everybody’s Magazine, he revealed his secrets:

1. Look for long-term investment.

2. Wait for undervalued situations.

3. Study the fundamentals.

4. Accumulate a position slowy.

5. Let the profits run!

But his seemingly easy steps to speculation would never work for the average investor. Most folks don’t have the stomach or capital to keep throwing money into a market to push up what they’ve been buying. The other thing unique to Cutten was his ability, despite this basic strategy, to cut and run, cat-like. He was not only completely aware of his position but of his vulnerabilities—and cat-like, he had a knack for landing on his feet when he fell.

As Cutten’s reputation grew, his moves became harder to camouflage, to his dismay—so he started using a dozen different brokers to avoid suspicion. And he didn’t stop there. When buying stock, he ordered brokers to sell it back if its price rose too quickly. Buying 50,000 shares and then turning around and unloading most of them to keep the price down is pretty hard to conceal! Regardless of how inconspicuous he tried to be, Cutten stuck out like a sore thumb to the 1935 Senate committee that convicted him of violating the Grain Futures Act and suspended him from trading. Charged with reporting his holdings falsely and concealing his position in 1930 to 1931 to manipulate grain prices, Cutten blamed the inaccuracies on a new secretary. Through countless legal battles, Cutten fought all the way to the Supreme Court where he was finally cleared and restored to grain trading.

The 1929 Crash saw classic Cutten. When the market first turned against him, he lost $50 million and admitted being down to his last $17 million. But rather than digging in his heels, he characteristically turned to the bear side and sold short, winning back his losses. His basic posture of long-term fundamental thinking and big positions is rarely combined with the ability to turn around quickly when things go against the original course of action.

A bizarre story shows how determined Cutten was. Nine robbers once broke into his house, tied up his wife and him, and locked him in a wine vault to smother. “That,” he said, “was an unnecessary, futile, and fiendish piece of cruelty.” They stole cash, jewelry, and 25 cases of whiskey. Cutten vowed “I’d spend every dollar at my command, if necessary, to put them where they belong—behind the bars!” So, he spent eight years tracking them down and catching and prosecuting every last one of the nine. You didn’t mess with big Arthur Cutten. He played to win, and he won. He was unique in his ability to be good at both long-term investing and short-term trading. Most folks can do one or the other. Cutten could do it all.

BERNARD E. “SELL’ EM BEN” SMITH

THE RICH CHAMELEON

If you were to envision one person to represent the old Wall Street—the wild and wooly, pre-regulation Wall Street—it would be Bernard “Sell’ Em Ben” Smith, who died in 1961. While making his own indelible mark on Wall Street as “the market’s greatest bear operator,” Smith embodied the most outrageous qualities of Wall Street’s most talked-about characters. He was as opportunistic as John “Bet-A-Million” Gates; as quick to make and lose fortunes as Jesse Livermore; and as flexible as Joe Kennedy. Ultimately, he died among the wealthier of them.

Smith’s legend—and his catchy nickname—revolves around the 1929 Crash when he sold short as the market collapsed, raking in some $10 million, according to Henry Clews in Twenty-eight Years in Wall Street Previously, he had never been known as a bear raider; instead, he joined and even managed some of the largest speculative bull pools in the late 1920s. But when he heard news of the Crash while flying toward Canada, he quickly reversed his airplane—and trading methods—and called in orders to sell his securities. As soon as he reached Wall Street, he burst through his office doors shouting, “Sell ‘em! They aren’t worth anything!” Hence, a legend was made.

Before becoming a legend, Smith, like many other great Wall Streeters, lived through the rags-to-riches-to-rags-to-riches story—about as many times as Jesse Livermore. Born to Irish immigrants in 1888 in Manhattan, Sell ‘Em Ben quit school at age 12, when his dad died, to be a delivery boy for a haberdashery. Back then, working at a ridiculously young age with scant schooling was typical. He next worked for a stockbroker, where he was regarded as a “diamond in the rough,” marking quotations on the board and building his first fortune. By age 15, he’d turned $100 into a whopping $35,000 by acting on market tips and using good timing.

Within a year Smith was broke again, wiped out by the panic of 1903—but he bounced back, making another $15,000 before falling flat on his face yet again. Disgusted with Wall Street and an unpredictable bank roll, he stayed clear of the market for the next decade, first driving a Model T cross-country, then working as a copper-mine mucker, wartime ambulance driver and cartire distributor. For a short while, he was even a spectacular car salesman making deals with the wealthy, like James Stillman and J.P. Morgan (who actually died before taking delivery). But eventually Smith returned to Wall Street and made another fortune in time to cash in on the Crash.

As wild and racy as the times he lived in, Sell ‘Em Ben flew anywhere at the blink of an eye. He raced automobiles, once racing back and forth nonstop to Montreal in 18 hours—about 1,000 miles at about 55 mph, which was pretty darn fast back then. He loved to shoot craps, play checkers and insult friends—yet, in his own little way, he was a Puritan, never touching tobacco, alcohol, coffee or tea. He was most famous for being a practical joker who played the part of a loud, obnoxious swaggering grouch. Yet friends would tell you it was just a farce—he was really a pussycat who loved to roar like a lion. One telltale sign: After proposing to his wife in 1918 on a Paris boulevard bench overlooking the Seine, he battled Paris officials to buy the bench and bring it home. He placed it in a prominent place in their backyard. Not just a puritan, but a romantic puritan.

Of modest height, with icy-blue eyes and broad shoulders, sporting a wrinkled overcoat and wilted collars, the image Smith conveyed on the Street was illustrated by what the press wrote about him. He was called “The Great Bear of the Street”—the most merciless of them all. The more he shorted stocks, leaving companies in shambles with worthless stock, the more he was viewed as a public villain—Wall Street’s most ruthless operator. It’s true that he shorted stocks without regard for the firm or the people involved with it—but so did lots of folks then. What really earned him the spotlight and raised eyebrows on the Street was his driving the stock of a threshing machine outfit from 500 to about 16, shorting it rigorously while the market bottomed out in 1932. It just so happened that the firm’s principal investor and chairman of the board was Smith’s own father-in-law, and Sell ’Em Ben’s maneuvers ruined him! Supposedly, Smith later gave his father-in-law about $1 million to make up for the damage.

When short selling became the potential scapegoat on which to blame the entire dismal economic condition, Smith was naturally the very first of the bears to be subpoenaed by the famous U.S. Senate Committee on Banking and Currency. Cocky and defiant, Smith strolled into the hearing room chuckling with reporters, telling them he was happy to give the committee “an earful.” Smith did exactly that, relating in detail the way the big operators worked and how it was the bulls, not the bears, who precipitated the Crash. He told them about stock pools and that ethical conduct was seldom enforced on the stock exchange, but when it came to talking about himself. Smith was no stooge. When asked, “You are known as a big bear raider, aren’t you?” Smith replied slyly, “Nobody ever called me that to my face!” Smith skulked out of the hearing room blame-free.

When Uncle Sam passed the Securities and Exchange Act of 1934, thereby creating the SEC, Smith laughed, “That law was long overdue—people could get away with murder in the market.” Sell ‘Em Ben was all for the law and realized an era was over. “I saw the handwriting on the wall. I had made money. I got out. The Exchange was way behind the times. It was supposed to regulate itself—it did, but never enough. A man could make millions literally, you know as well as I, without putting up a dollar of his own. It was too good to last. The market will never be the same again.”

After bidding his goodbye, Sell ‘Em Ben wasted no time in covering all his shorts and promising never to pound the market again. He abandoned his bear instincts for good on President Franklin D. Roosevelt’s inauguration day in March, 1933,—it was no coincidence, since he was very much persona grata in Roosevelt’s White House, a major Roosevelt financier. Unlike Mike Meehan, for example, who refused to acknowledge a new, reformed Wall Street—or Jesse Livermore, who wasn’t able to kick up one more last fortune—Sell ’Em Ben stayed as flexible as ever. He knew when to strike and reversed his methods to play under the New Deal.

Now he plunged into gold, uttering, “Tell ‘em I’m a bull now—a bull on gold!” and caught the 1934 rise when gold rose some 70 percent. His credo was that he was able to make a buck from any and all circumstances—and he did. In the following years, he invested in a Canadian cracker company and a Bendix washing machine (after his wife tested it and gave it her OK). Later, he became a respectable investment banker, joining Thomson and McKinnon and underwriting immensely successful Grumman Aircraft. A man for all seasons.

Sell ’Em Ben Smith was a dazzling operator who knew his limits and, most of all, knew when to strike. Although he personified the volatile days leading up to and surrounding the Crash, Smith was able to leave the old days behind and kick up his heels with the New Deal. In his later years, he lived in quiet respectability, retired and rich. More than any man I’ve encountered, the broad span of his life reflects the evolution of Wall Street during this era. Is there a lesson to be learned from Smith’s life? Surely, it is the lesson that flexibility pays. To make it and keep it, you can’t be too rigidly adherent to any one investment religion. How will the world be different 40 years from today? Who knows? While it is impossible to envision the distant future, it is clear that, were Smith alive, he would change once more to reflect the present as it evolves into the next century.

BERNARD BARUCH

HE WON AND LOST, BUT KNEW WHEN TO QUIT

How do you separate the man from the myth? You don’t if it’s Bernard Baruch. For a man whose Wall Street fortune flourished by ignoring trendy investment ideas and “hot tips,” Baruch was surprisingly solicitous of his image, cultivating the press to build his reputation as a savvy man in the know.

Herbert Swope, the journalist who helped conjure Baruch’s highly-publicized character, once openly speculated “whether his reputation is wholly deserved.” But beneath the glitz and glory was a street-smart speculator who rightly boasted of amassing $100,000 for each of his thirty-two years. When speaking of his methods in his best-selling autobiography, My Own Story, the lover of Greek and Latin defined “speculator” by quoting the Latin word “speculari,” meaning to spy out and observe. With keen observation and a shrewd ear, Baruch sought out and took advantage of opportunities, setting his stage for success.

Baruch came from humble origins in Camden, South Carolina, where his father, mother and three brothers lived in a two-story frame house. His father, a Confederate Army veteran, moved the family to New York in 1880, when Baruch was 10. With an early intent to study medicine, Baruch, at 14, entered the College of the City of New York. A political economy class, where he learned the law of supply and demand, sparked his interest in finance.

Baruch, a towering 6 foot 3 and sporting a pair of pince-nez glasses, pursued Wall Street in 1891. Due to his mom’s efforts (and strategically-placed connections), “Bernie” became an office boy and runner for A. A. Housman & Company, earning $5 per week. He later learned to appreciate “connections” as a way of ensuring positive press to pander to his ego.

By the age of 27, a junior partner at Housman’s firm, Baruch had begun speculating on his own, earning tidy sums and immediately blowing them. After carefully observing a sugar company’s prospects, however, Baruch made his first major hit of $60,000. Now a well-to-do young gentleman, he married, launching a family of two daughters and one son, who probably never received the degree of attention from him reporters did.

As his success pyramided, he came to view tips as sucker-bait. Baruch, whose biggest career disappointment was never owning a railroad, went broke once again buying stock in America’s largest liquor firm after following one of those “hot tips.” Afterwards, he bitterly snarled, “The longer I operated in Wall Street, the more distrustful I became of tips and ‘inside’ information of every kind.”

Suspicious of generally accepted wisdom, Baruch viewed tips circulating around the public as a measure of the public’s misperceptions. He surmised if the shoeshine boy (most likely Wall Street’s own Patrick Bologna) knew about a great deal, you could bet others were aware of it too, so it must be overpriced and couldn’t work out. On that premise, Baruch—who struck out on his own in 1903, rarely managing others’ money—ardently warned investors to “beware of barbers, beauticians, waiters—of anyone—bringing gifts of ‘inside’ information or ‘tips.’ “Instead, he credited his 1929 pre-Crash exit from stocks to seeing that too much of the public was bullish, so the market couldn’t keep going up. According to Baruch, this crowd-watching bent came from the philosophical grounding he received from Charles Mackay’s 1841 classic, Extraordinary Popular Delusions and the Madness of Crowds.

After the fact, and again to promote his public image, Baruch wanted everyone to know that he had foreseen the Crash—escaping financial disaster by literally weeks. He trumpeted, “I think that the depression of 1929 was due more to a world of madness and delusion than anything else.” Baruch sold several times in 1928, “feeling that a break was imminent,” but after returning from hunting in Scotland, he decided to sell everything he could. He was at least partly lucky in his timing. The market easily could have crashed while he was still tucked away in the Scottish woods.

Baruch’s philosophies were formed from many mistakes, but the lessons he learned were taken to heart. Skeptical of definitive rules, his autobiography described 10 guidelines—the fruits of his experience:

1. Speculating is a full-time job.

2. Beware of anyone giving inside information.

3. Before buying a security, discover everything possible regarding the company’s management, competitors, earnings and growth-possibilities.

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

5. Learn to cut losses quickly and cleanly—and don’t expect to always be right.

6. Limit the number of securities bought, so that portfolios can be managed easily.

7. Periodically re-appraise all investments to check whether prospects have changed.

8. Study your tax position to know the best time to sell.

9. Never invest everything—always keep some cash in reserve.

10. Don’t be a “jack of all investments”: Stick to familiar fields.

After 25 years on Wall Street, Baruch left without regret for Washington to offer advice and solicit political power. A lot of this was based on his steady barrage of calls to reporters with advice and comments for public attribution. A reporter once remarked, “Either Baruch gives lousy advice or nobody takes it.” Baruch responded, “I won’t admit to the first part of that observation, but I cannot deny the latter.” While he had the ear of many and was widely quoted, largely due to his continual public relations efforts, he held little or no formal power. Ultimately he portrayed himself to the media as an “Adviser to Presidents.” And clearly he got the ear, if not the nod of FDR. And while Truman heard him out, at least partly perhaps because of the large cash contributions he gave, it is clear Truman viewed him as an “old goat.”

Perhaps leaving Wall Street was the best thing Baruch could have done. His money was secure in the bank. Unlike some other opportunistic counterparts, like plungers Jesse Livermore and William Crapo Durant, who bet their fortunes one too many times when they were just a tad too old and slow to maintain a gunslinger’s pace, Baruch’s ego may have actually saved him from the financial disaster the others suffered. His ego, which drove him to be “Adviser to Presidents” might have saved him the humility of trying to remain forever “Mr. Big” on Wall Street. Sometimes it’s better to quit while you’re ahead.

Before his death in 1965, Baruch penned a second book, The Public Years, detailing his later years as the “Park Bench Statesman.” Written in typical, Baruchian style—simply put, immodest—the man states, “America has always been considered the Land of Opportunity. I cannot say that I have discharged the debt I owe this country for what it has given me, but in good conscience I can say I have tried.”