In times of economic uncertainty like these, Wall Street turns defensive - and from a historical perspective, it has much to be defensive about.
By Rich Blake
August 2001
Institutional Investor Magazine
Named for the barrier Peter Stuyvesant erected to keep the natives from attacking the Dutch (Wall Street has often gotten things backward), the narrow thoroughfare at the bottom of Manhattan has produced its share of panics as well as booms and scoundrels as well as heroes. But more consistently than it has ever generated returns, Wall Street has spawned fascinating characters, good and bad.
This is made abundantly clear in Wall Street People: True Stories of Today’s Masters and Moguls. Charles Ellis and James Vertin’s absorbing volume profiles history’s most famous - and infamous - investors. Ellis, a former managing partner of Greenwich Associates, and Vertin, co-founder of Wells Fargo Investment Advisors (now Barclays Global Investors), draw on original writings, some by the subjects themselves, as well as books and articles - many from this magazine - to create a collection of 90-plus portraits that’s part pantheon and part rogue’s gallery. The book’s subjects range from Benjamin Graham to Nick Leeson and from Michael Milken to John Neff; in telling their stories, Ellis and Vertin relate the history of money management as only finance industry professionals could.
Take, for example, one Longstreet Hinton. As head of Morgan Bank’s trust department in the late 1940s, this uncelebrated financier paved the way for institutional investing as we know it. While other trust managers were putting money into government bonds, Hinton boldly started buying common stock. Eventually, he put the General Motors Corp. pension fund into a 50 percent stock allocation, initiating a philosophy of buy and hold. When a corporate client asked Hinton for an investment policy statement, he replied: “It’s simple. We never sell stocks.”
Over and over we learn the importance of financial intuition, and many of these epiphanies appear to be serendipitous. A profile taken from Mark Stevens’ King Icahn recounts how the corporate raider was bearing down on an early takeover target when the company’s investment bankers offered him $10 million to go away. Eureka! The concept of greenmail was born.
Perhaps it was just a hunch, but research pioneer Jonathan Bell Lovelace, founder of what was to become Capital Research and Management, couldn’t shake a bearish sentiment that there was “an excess of enthusiasm among investors.” This foreboding came to him, fortuitously, in the summer of 1929. Would the venerable American Funds he advised be around today if Lovelace had had the mentality of a modern tech analyst?
The book describes a number of momentous meetings, such as one in 1965 between a 30-something economic consultant named Alan Greenspan and his old jazz band pal, Leonard Garment. At the time, Garment was recruiting bright young sorts for Richard Nixon’s forthcoming presidential campaign. Greenspan wound up heading the candidate’s economic policy team before moving on to a civil service post.
With hedge funds now as ubiquitous as fast-food outlets, it’s worth noting that Alfred Jones was met with scorn when he launched the very first hedge fund in 1949. He went on to suffer serious losses before staging a recovery. But even at the height of his career in the early 1960s, Jones managed only about $70 million, the equivalent of a midsize mutual fund at the time.
Financial history, the book tells us time and again, has a way of repeating itself. Consider the story of Jerry Tsai. In the 1960s this high-flying growth-stock investor had an aura of infallibility. Newsweek referred to him as “a mystery man” who “radiates cool from the manicured tips of his fingers.” But in 1966, after Tsai had left Fidelity Management with great fanfare to strike out on his own, his Manhattan Fund returned a negative 7 percent - the worst record of 310 funds in the Arthur Lipper survey. “The press went searching for a new star,” confides the book. “‘Tsai is buying!’ was no longer whispered in boardrooms.”
Successful investing, Wall Street People reminds us, demands persistence. At 26, Charlie Allen lost $1 million in the crash of 1929. Did the pioneering investment banker give up? Hardly. He made back his fortune by betting big on bargain stocks.
But, as the book also makes perfectly clear, investing isn’t always that easy.
