While his classmates were learning the lindy and swinging to Benny Goodman, Leon Levy spent much of his adolescence contemplating stock trading patterns, combing through corporate filings and talking capital spending with his father, a wholesaler of women’s hosiery and self-taught economist. Thanks in no small measure to his dad’s influence, Levy over the course of a five-decade career made a name for himself as one of the country’s savviest and most successful investors.
“Unlike most people on Wall Street, I never went to business school, and I didn’t study business in college,” Levy writes in his new book, The Mind of Wall Street: A Legendary Financier on the Perils of Greed and the Mysteries of the Market. When he was growing up on the Upper West Side of Manhattan, he writes, “the dynamics of business were discussed as routinely as other families discussed the daily news.”
In 1951, on his 26th birthday, Levy invested $12,500 of his own money in fledgling brokerage Oppenheimer & Co., joining as its youngest partner. The firm, now called Oppenheimer Funds, later launched a mutual fund and today manages some $120 billion in assets. Levy is its chairman. (The brokerage arm was spun off and is now owned by CIBC World Markets.)
Levy’s engaging book, which he wrote with journalist Eugene Linden, is at once a memoir and a treatise on investing. The author, who received a BA in psychology from the City College of New York, claims to have “two loves in my life: One is the stock market, the other psychology.” He argues that investor psychology, more than any other force, determines the movement of markets.
Levy deftly combines personal anecdotes with broader analyses of economic and financial trends to provide a useful history of his own life and of Wall Street in the latter half of the 20th century. Not only was Oppenheimer instrumental in the evolution of mutual finds, but it also helped pioneer leveraged buyouts. The book manages to pack into a mere 224 pages the fascinating details of Levy’s life, his overall investment philosophy, his role in Wall Street’s evolution and his take on how the Street has changed over the years. And, unlike many CEO scribes, Levy evidently doesn’t feel the need to toot his own horn.
As a longtime value investor, Levy shunned most Internet stocks during the go-go ‘90s, but he says the bubble proved his central precept correct: “The collective madness that seized investors in the 1990s provides the most persuasive evidence of the role of psychology in markets,” he writes.
Still, even Levy became smitten with some New Economy darlings. The author recalls his introduction to “one of the most engaging and articulate young men I had met in a long time. His name was Andrew Fastow.” The thenchief financial officer of Enron Corp. (who was recently indicted for fraud and money laundering, among other things) managed to convince one of Wall Street’s legendary wise men to invest in one of the off-balance-sheet partnerships that Enron has now made infamous. “He was a delightful fellow, and I was happy to put my money in the partnership,” Levy writes. “I was fooled. The partnership was not what I thought it was. I thought it was legal. I also thought I was fairly good at sniffing out devious proposals; this time I wasn’t.”
As Levy looks back on the bubble, he concludes that the 1998 meltdown of Long-Term Capital Management heralded the end of the greatest bull market in U.S. history. His theory: Junk bonds funded much of the corporate expansion of the 1990s. After LTCM collapsed banks became more reluctant to lend, and investors pulled money out of the junk bond market. The continued momentum of stocks in 1998 and 1999 notwithstanding, Levy writes, “the virtual disappearance of the junk bond market may have been the unremarked upon signal that the game had changed.”
How does this veteran stock picker view the market today? “We are but in the third act of a five-act Shakespearean drama that portends a bad ending,” he writes. Levy goes so far as to liken the early ‘00s to the 1930s and ‘40s, “when it took more than a decade and a world war to digest the excesses of the 1920s.”
Levy’s outlook is grim."We now face a bear market equal in scale and intensity to the bull market that has come to an end,” he writes. “If stock prices can be too high for ten years, they can also be too low for the next decade.” That’s not what any investor wants to hear, but Levy has made a fortune for himself and his clients by telling it like it is. His father taught him to do that.
